-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ElY8RARz/8gAmfdGZdtUuYbGF0pG1i/vYyMpXoZTVHLrwPxsMWHbjvY4QdnJev21 TVZX1clNEiMqRzoXK+FIJA== 0000950123-94-001750.txt : 19941101 0000950123-94-001750.hdr.sgml : 19941101 ACCESSION NUMBER: 0000950123-94-001750 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941031 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LONG ISLAND LIGHTING CO CENTRAL INDEX KEY: 0000060251 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 111019782 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03571 FILM NUMBER: 94555986 BUSINESS ADDRESS: STREET 1: 175 E OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 BUSINESS PHONE: 5169334590 10-Q 1 LONG ISLAND LIGHTING COMPANY 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-3571 LONG ISLAND LIGHTING COMPANY Incorporated pursuant to the Laws of New York State Internal Revenue Service - Employer Identification No. 11-1019782 175 East Old Country Road, Hicksville, New York 11801 (516) 755-6650 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No The total number of shares of the registrant's Common Stock, $5 par value, outstanding on September 30, 1994, was 118,126,681. 2 LONG ISLAND LIGHTING COMPANY
Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Income 3 Balance Sheet 5 Statement of Cash Flows 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II - OTHER INFORMATION Item 1. Legal Proceedings 23 Item 2. Changes in Securities 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23 Signature 25
2 3 LONG ISLAND LIGHTING COMPANY STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts)
Three Months Ended September 30 ------------------------ 1994 1993 ------------------------ Revenues Electric $861,052 $805,969 Gas 52,388 43,731 -------- -------- Total Revenues 913,440 849,700 -------- -------- Expenses Operations - fuel and purchased power 179,449 187,911 Operations - other 93,814 98,797 Maintenance 32,086 26,524 Depreciation and amortization 32,691 30,797 Base financial component amortization 25,243 25,243 Regulatory liability component amortization (22,143) (22,143) Other regulatory amortizations 36,092 20,285 Rate moderation component amortization 61,222 29,043 Operating taxes 106,066 109,469 Federal income tax - current 3,772 2,226 Federal income tax - deferred and other 88,183 77,564 -------- -------- Total Expenses 636,475 585,716 -------- -------- Operating Income 276,965 263,984 -------- -------- Other Income and (Deductions) Rate moderation component carrying charges 7,869 11,045 Class Settlement (5,787) (5,954) Other income 10,874 4,579 Allowance for other funds used during construction 720 629 Federal income tax credit - deferred and other 283 3,451 -------- -------- Total Other Income and (Deductions) 13,959 13,750 -------- -------- Income Before Interest Charges 290,924 277,734 -------- -------- Interest Charges and (Credits) Interest on long-term debt 107,473 118,069 Other interest 15,686 16,372 Allowance for borrowed funds used during construction (1,107) (1,256) -------- -------- Total Interest Charges and (Credits) 122,052 133,185 -------- -------- Net Income 168,872 144,549 Preferred stock dividend requirements 13,252 13,527 -------- -------- Earnings for Common Stock $155,620 $131,022 ======== ======== Average Common Shares Outstanding (000) 118,112 112,147 Earnings per Common Share $ 1.32 $ 1.17 Dividends Declared per Common Share $ 0.445 $ 0.445
See Notes to Financial Statements. 3 4 LONG ISLAND LIGHTING COMPANY STATEMENT OF INCOME (UNAUDITED) (Thousands of Dollars - except per share amounts)
Nine Months Ended September 30 -------------------------- 1994 1993 -------------------------- Revenues Electric $1,980,033 $1,845,547 Gas 431,860 369,475 ---------- ---------- Total Revenues 2,411,893 2,215,022 ---------- ---------- Expenses Operations - fuel and purchased power 657,330 620,051 Operations - other 305,116 291,830 Maintenance 93,641 85,428 Depreciation and amortization 96,595 91,176 Base financial component amortization 75,728 75,728 Regulatory liability component amortization (66,429) (66,429) Other regulatory amortizations 25,986 (16,027) Rate moderation component amortization 157,379 61,728 Operating taxes 308,414 288,304 Federal income tax - current 8,289 4,525 Federal income tax - deferred and other 149,532 154,730 ---------- ---------- Total Expenses 1,811,581 1,591,044 ---------- ---------- Operating Income 600,312 623,978 ---------- ---------- Other Income and (Deductions) Rate moderation component carrying charges 25,333 32,769 Class Settlement (17,153) (17,570) Other income 27,124 17,230 Allowance for other funds used during construction 1,922 1,483 Federal income tax credit - deferred and other 3,927 11,384 ---------- ---------- Total Other Income and (Deductions) 41,153 45,296 ---------- ---------- Income Before Interest Charges 641,465 669,274 ---------- ---------- Interest Charges and (Credits) Interest on long-term debt 332,519 351,899 Other interest 48,778 50,788 Allowance for borrowed funds used during construction (3,116) (2,629) ---------- ---------- Total Interest Charges and (Credits) 378,181 400,058 ---------- ---------- Net Income 263,284 269,216 Preferred stock dividend requirements 39,795 42,457 ---------- ---------- Earnings for Common Stock $ 223,489 $ 226,759 ========== ========== Average Common Shares Outstanding (000) 115,035 111,966 Earnings per Common Share $ 1.94 $ 2.03 Dividends Declared per Common Share $ 1.335 $ 1.315
See Notes to Financial Statements. 4 5 LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars)
September 30 December 31 1994 1993 ASSETS (unaudited) (audited) ------------ ----------- Utility Plant Electric $ 3,628,640 $ 3,544,569 Gas 945,758 860,899 Common 221,721 201,418 Construction work in progress 119,712 176,504 Nuclear fuel in process and in reactor 18,259 16,533 ----------- ----------- 4,934,090 4,799,923 ----------- ----------- Less - Accumulated depreciation and amortization 1,520,718 1,452,366 ----------- ----------- Total Net Utility Plant 3,413,372 3,347,557 ----------- ----------- Regulatory Assets Base financial component (less accumulated amortization of $530,097 and $454,369) 3,508,733 3,584,461 Rate moderation component 487,742 609,827 Shoreham post settlement costs 902,256 777,103 Shoreham nuclear fuel 73,902 75,497 Postretirement benefits other than pensions 405,579 402,921 Regulatory tax asset 1,828,807 1,848,998 Other 328,945 311,832 ----------- ----------- Total Regulatory Assets 7,535,964 7,610,639 ----------- ----------- Nonutility Property & Other Investments 23,508 23,029 ----------- ----------- Current Assets Cash and cash equivalents 231,015 248,532 Special deposits 16,938 23,439 Customer accounts receivable (less allowance for doubtful accounts of $23,670 and $23,889) 325,378 249,074 Other accounts receivable 10,537 12,199 Accrued unbilled revenues 175,889 170,042 Materials and supplies at average cost 76,812 68,882 Fuel oil at average cost 41,676 35,857 Gas in storage at average cost 86,661 75,182 Prepayments and other current assets 42,056 41,652 ----------- ----------- Total Current Assets 1,006,962 924,859 ----------- ----------- Deferred Charges Unamortized cost of issuing securities 322,892 350,239 Accumulated deferred income taxes 1,010,997 1,157,009 Other 45,661 42,705 ----------- ----------- Total Deferred Charges 1,379,550 1,549,953 ----------- ----------- Total Assets $13,359,356 $13,456,037 =========== ===========
See Notes to Financial Statements. 5 6 LONG ISLAND LIGHTING COMPANY BALANCE SHEET (Thousands of Dollars)
September 30 December 31 1994 1993 CAPITALIZATION AND LIABILITIES (unaudited) (audited) ------------ ----------- Capitalization Long-term debt $ 5,112,675 $ 4,887,733 Unamortized premium and (discount) on debt (17,582) (17,393) ----------- ----------- 5,095,093 4,870,340 ----------- ----------- Preferred stock - redemption required 648,100 649,150 Preferred stock - no redemption required 63,985 64,038 ----------- ----------- Total Preferred Stock 712,085 713,188 ----------- ----------- Common stock 590,633 561,662 Premium on capital stock 1,097,847 1,010,283 Capital stock expense (52,580) (50,427) Retained earnings 779,878 711,432 ----------- ----------- Total Common Shareowners' Equity 2,415,778 2,232,950 ----------- ----------- Total Capitalization 8,222,956 7,816,478 ----------- ----------- Regulatory Liabilities Regulatory liability component 376,956 436,476 1989 Settlement credits 148,171 155,081 Regulatory tax liability 161,100 177,669 Other 178,543 138,612 ----------- ----------- Total Regulatory Liabilities 864,770 907,838 ----------- ----------- Current Liabilities Current maturities of long-term debt 200,000 600,000 Current redemption requirements of preferred stock 4,800 4,800 Accounts payable and accrued expenses 219,542 277,519 Accrued taxes 35,914 52,656 Accrued interest 145,647 142,409 Dividends payable 57,230 54,542 Class Settlement 40,000 30,000 Customer deposits 28,108 27,046 ----------- ----------- Total Current Liabilities 731,241 1,188,972 ----------- ----------- Deferred Credits Class Settlement 148,423 164,942 Accumulated deferred income taxes 2,927,888 2,932,029 Other 12,150 12,622 ----------- ----------- Total Deferred Credits 3,088,461 3,109,593 ----------- ----------- Reserves for Claims and Damages 13,312 8,714 ----------- ----------- Pensions and Other Postretirement Benefits 438,616 424,442 ----------- ----------- Commitments and Contingencies - - ----------- ----------- Total Capitalization and Liabilities $13,359,356 $13,456,037 =========== ===========
See Notes to Financial Statements. 6 7 LONG ISLAND LIGHTING COMPANY STATEMENT OF CASH FLOWS (UNAUDITED) (Thousands of Dollars)
Nine Months Ended September 30 -------------------------- 1994 1993 Operating Activities -------------------------- Net Income $ 263,284 $ 269,216 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 96,595 91,176 Provision for doubtful accounts 15,072 14,165 Base financial component amortization 75,728 75,728 Regulatory liability component amortization (66,429) (66,429) Rate moderation component 157,379 61,728 Rate moderation component carrying charges (25,333) (32,769) Other regulatory amortizations 25,986 (16,027) Class Settlement 17,153 17,570 Amortization of cost of issuing and redeeming securities 35,727 39,176 Federal income taxes - deferred and other 145,605 143,346 Allowance for other funds used during construction (1,922) (1,483) Gas Cost Adjustment 16,070 2,971 Other 33,258 12,491 Changes in operating assets and liabilities Accounts receivable (89,047) (112,422) Accrued unbilled revenues (5,847) (19,016) Materials and supplies, fuel oil and gas in storage (25,228) (13,592) Prepayments and other current assets (404) (2,072) Accounts payable and accrued expenses (76,534) (71,358) Accrued taxes (16,742) (27,872) Accrued interest 3,238 21,928 Other (29,500) (42,264) --------- --------- Net Cash Provided by Operating Activities 548,109 344,191 --------- --------- Investing Activities Construction and nuclear fuel expenditures (161,785) (175,925) Shoreham post settlement costs (139,649) (140,172) Other (1,120) (1,129) --------- --------- Net Cash Used in Investing Activities (302,554) (317,226) --------- --------- Financing Activities Proceeds from issuance of long-term debt 281,992 990,975 Redemption of long-term debt (460,058) (785,000) Proceeds from sale of common stock 113,293 - Proceeds from sale of preferred stock - 146,198 Redemption of preferred stock (1,050) (146,850) Preferred stock dividends paid (39,676) (43,242) Common stock dividends paid (152,520) (145,881) Cost of issuing and redeeming securities (5,871) (16,690) Other 818 8,053 --------- --------- Net Cash (Used in) Provided by Financing Activities (263,072) 7,563 --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents ($17,517) $ 34,528 ========= ========= Cash and cash equivalents at beginning of period $ 248,532 $ 309,485 Net (decrease) increase in cash and cash equivalents (17,517) 34,528 --------- --------- Cash and Cash Equivalents at end of period $ 231,015 $ 344,013 ========= =========
See Notes to Financial Statements. 7 8 Notes to Financial Statements For the Quarter Ended September 30, 1994 (Unaudited) These Notes to Financial Statements reflect events subsequent to February 4, 1994, the date of the most recent Report of Independent Auditors, through the date of this Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. These Notes to Financial Statements should be read in conjunction with Financial Information and Other Information required to be furnished as part of this Report, in particular, (1) Management's Discussion and Analysis of Financial Condition and Results of Operations for the nine months ended September 30, 1994, respecting the Company's capital requirements and liquidity, and (2) Part II, Item 6, Reports on Form 8-K and (3) the Company's quarterly reports on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994. In addition, these notes to financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1993, incorporated herein by reference. The financial statements furnished are unaudited. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the interim periods presented. Operating results for these interim periods are not necessarily indicative of results to be expected for the entire year, due to seasonal, operating and other factors. Certain amounts from prior year financial statements have been reclassified to conform to the current year presentation. 8 9 Note 1. RATE MATTERS Electric Rates In December 1993, the Company filed a three-year electric rate plan with the Public Service Commission of the State of New York (PSC) for the period beginning December 1, 1994 (Rate Proposal). The Rate Proposal, which may be approved, modified or rejected by the PSC, requests an allowed rate of return on common equity of 11.0% and provides for zero percent base rate increases in years one and two of the plan and an overall rate increase of 4.3% in the third year. Although base electric rates would be frozen during the first two years of the Rate Proposal, annual rate increases of approximately 1% and 2% are expected to result in years one and two, respectively, from the operation of the Company's fuel cost adjustment (FCA) mechanism. The FCA captures, among other things, amounts to be recovered from or refunded to ratepayers in excess of $15 million which result from the reconciliation of revenues, certain expenses and earned performance incentive components as prescribed by the Long Island Lighting Company Ratemaking and Performance Plan (LRPP), more fully discussed in Note 3 of the Company's Annual Report on Form 10-K. The Rate Proposal reflects four underlying objectives: (i) to limit the balance of the Rate Moderation Component (RMC) during the three-year period to no more than its 1992 peak balance of $652 million; (ii) to recover the RMC within the time frame established in the 1989 Settlement; (iii) to minimize, beginning in the third year of the Rate Proposal, the final three rate increases contemplated in the 1989 Settlement that follow the two-year rate freeze period; and (iv) to continue the Company's gradual return to financial health. In September of this year, three Administrative Law Judges (ALJs) of the PSC issued a recommended decision to the PSC with respect to the Company's electric rate plan. The ALJs agreed with the Company's proposed 11% return on common equity and its proposal to freeze base electric rates for the first rate year. While no explicit recommendation was made concerning the second year, the recommended decision implies that base rates could remain frozen for the second rate year as well. With respect to the third rate year beginning December 1, 1996, the ALJs determined that it was not appropriate for them to issue a recommendation since, in their opinion, the Company's revenue requirements for this third year cannot be precisely determined at this time. Alternatively, the ALJs encouraged the Company and other parties in this proceeding to negotiate a settlement concerning any rate increase for this third rate year. If a settlement is not reached, the recommended decision contemplates that the Company would file a subsequent proposal with the PSC at the appropriate time. 9 10 The staff of the PSC (Staff) and other intervening parties filed testimony in response to the Rate Proposal. Staff concurs with the Company's proposal for an 11.0% return on common equity in each of the three years and has reaffirmed its commitment to the principles of the Rate Moderation Agreement (RMA), including the full recovery of the RMC within the time frame established by the RMA. However, Staff has recommended an overall zero percent rate increase for the first two years, contrasted with the Company's proposal (and the ALJs' recommended decision discussed above) for a zero percent base rate increase and FCA adjustments of about 1% and 2% in years one and two, respectively, as described above. Staff did not make a firm recommendation for the level of rate relief in the third year. The Consumer Protection Board and Long Island Power Authority jointly filed testimony in which they proposed that current electric rates be reduced. Other intervenors have also proposed various adjustments to the Rate Proposal. The PSC had been expected to issue a final order on the Company's rate proposal before November 29, 1994, the date the statutory suspension period is currently scheduled to terminate. However, in order to accommodate further settlement negotiations in the proceeding, the Company has requested that the PSC extend the suspension period for an additional 45 days through January 15, 1995. The Company believes that this request will be considered by the PSC in November 1994. The Company's offer to extend the suspension period is conditioned upon the continuation of the current LRPP rate mechanisms. The Company is unable to predict the ultimate outcome of this rate proceeding. Note 2. CAPITALIZATION In June 1994, the Company issued 5.1 million shares of common stock at $20 per share, $100 million of General and Refunding Bonds, 7 5/8% Series Due 1998, and $185 million of General and Refunding Bonds, 8 5/8% Series Due 2004. The net proceeds from the sale of these securities, together with cash on hand, were applied in June and July toward: (i) the repayment, at maturity, of $25 million of 4 5/8% First Mortgage Bonds and $400 million of 10.25% Debentures and (ii) the redemption of $4.5 million of Debentures, 11.375% Series due 2019, and $30.5 million of Debentures, 10.875% Series due 1999. In October 1994, the Company received the proceeds from the sale of $50 million of Electric Facilities Revenue Bonds through New York State Energy Research and Development Authority. The proceeds from this offering were used to reimburse the Company's treasury for projects already completed. 10 11 Note 3. EXCESS EARNINGS - GAS A three-year gas rate settlement between the Company and the Staff of the PSC, that became effective December 1, 1993, provides, among other matters, that earnings in excess of a 10.6% rate of return on common equity in each of the three years covered by the settlement be shared equally between the Company's firm gas customers and its shareowners. For a further discussion of the gas rate settlement, see Note 3 of Notes to Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. For the nine months ended September 30, 1994, the Company recorded a reduction to earnings of $4.9 million, net of tax effects, to reflect the firm gas customer's portion of estimated gas earnings in excess of the 10.6% return on common equity for the rate year ending November 30, 1994. The Company computed this amount based upon the aggregate of actual operating gas income for the 10 month period ended September 30, 1994 and forecasted gas operating income for the two month period ending November 30, 1994. However, since the actual amount of earnings in excess of the 10.6% rate of return on common equity will not be determined until the completion of the rate year, amounts charged to earnings during the year will be subject to adjustments as actual financial data replaces forecasted data in the Company's excess earnings calculation. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 RESULTS OF OPERATIONS EARNINGS Earnings for common stock for the three months ended September 30, 1994 were $155.6 million or $1.32 per common share, compared to $131.0 million or $1.17 per common share for the same period last year. For the nine months ended September 30, 1994, earnings for the common stock totaled $223.5 million, or $1.94 per common share, compared with $226.8 million, or $2.03 per common share for the same period of 1993. As expected, earnings for the three months ended September 30, 1994 were positively impacted by a number of factors. These factors include: (i) the effects of the Company's efforts to reduce operations and maintenance expenses below the levels reflected in the Company's current rate structure; (ii) the impact on earnings of positive cash flow from operations and the utilization of cash balances to satisfy maturing debt; and (iii) the effects of recognizing certain operations and maintenance expenses earlier in 1994 than in 1993, which resulted, and will continue to result, in a lower level of these expenses during the remainder of the year. Earnings for the nine month period ended September 30, 1994 compared to the similar period in 1993 were affected by certain factors including: (i) a provision in the Company's gas rate structure that was not in effect prior to December 1, 1993 that requires earnings in excess of a 10.6% return on common equity to be shared equally between the Company's firm gas customers and its shareowners; (ii) a lower allowed rate of return on common equity for the Company's gas business; (iii) lower gas revenues in 1994 resulting from a refinement in the Company's procedures used to estimate revenues not yet billed, which will in turn increase gas revenues later in 1994; (iv) the recognition in the first quarter of 1994 of previously deferred storm costs; and (v) the recognition in 1993 of the benefits associated with certain tax credits that the Company does not anticipate in 1994. While the Company can give no assurances, it is expecting that its 1994 annual earnings will be comparable to its 1993 annual earnings. The Company believes that the factors which positively affected earnings for the three months ended September 30, 1994 will continue to positively impact earnings for the remainder of 1994. 12 13 REVENUES Total revenues for the three months ended September 30, 1994, were $913.4 million, representing an increase of $63.7 million, or 7.5% over total revenues for the three months ended September 30, 1993. Electric revenues increased by $55.1 million, or 6.9%, while gas revenues increased $8.7 million, or 19.8%, when compared to the same period of the prior year. For the nine months ended September 30, 1994, total revenues were $2.4 billion, representing an increase of $196.9 million, or 8.9%, over total revenues for the comparable period of 1993. Electric revenues increased by $134.5 million, or 7.3%, while gas revenues were up $62.4 million, or 16.9%, over the same period of the prior year. Electric The increase in electric revenues for the three and nine month periods ended September 30, 1994, when compared to the same period in 1993, is primarily the result of an electric rate increase of 4.0% effective December 1, 1993, higher sales volumes, and the current recovery of approximately $2.8 million per month of certain deferrals relating to the rate year that ended November 30, 1992. The Public Service Commission of the State of New York (PSC) has authorized the Company to recover these deferrals through the Company's fuel cost adjustment (FCA) clause over a twelve-month period which began in August 1993 and to continue to recover such monthly amounts through November 30, 1994. Amounts recovered after August 1994 will be used to reduce the Rate Moderation Component (RMC) balance. In the Company's offer to extend the suspension period in the pending electric rate case, discussed in Note 1 of Notes to Financial Statements, the Company is seeking to continue to recover these deferrals until a definitive rate order is approved. For a further discussion of the Company's rate matters, see Note 3 of Notes to Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 1993. The Company's current electric rate structure provides for a revenue reconciliation mechanism which mitigates the impact on earnings of experiencing electric sales that are above or below levels reflected in rates. For the three months ended September 30, 1994 and 1993, the Company recorded non-cash expense, which is included in "Other Regulatory Amortizations" on the Company's Statement of Income, of $27.3 million and $13.6 million, respectively, as a result of electric sales that were higher than those that were adjudicated by the PSC. For the nine months ended September 30, 1994 and 1993, the Company recorded non-cash income of $20.0 million and $27.9 million respectively, as a result of electric sales that were lower than those that were adjudicated by the PSC. 13 14 Gas The increase in gas revenues for the three months ended September 30, 1994 when compared to the same period in 1993, is primarily attributable to a 4.7% rate increase effective December 1, 1993 and to higher sales volumes. The increase in gas revenues for the nine months ended September 30, 1994, compared with the same period of 1993, was primarily attributable to the 4.7% rate increase, the addition of over 6,500 gas space heating customers when compared to the nine months ended September 30, 1993, higher consumption levels driven by a colder winter in 1994 and significant increases in off-system sales, partially offset by a refinement in the Company's procedures for estimating revenues not yet billed. Also contributing to the increase in revenues was the recovery of additional gas fuel costs, resulting from higher sales volumes and higher gas prices. FUELS AND PURCHASED POWER Fuels and purchased power expenses for the three and nine months ended September 30, 1994 and 1993 were as follows:
Three Months Ended Nine Months Ended 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- (In Millions) Fuels for Electric Operations Oil $ 38 $ 55 $128 $140 Gas 36 35 71 74 Nuclear 4 4 11 11 Purchased Power 81 73 230 221 ---- ---- ---- ---- Total Electric 159 167 440 446 Gas Fuels 20 21 217 174 ---- ---- ---- ---- Total $179 $188 $657 $620 ==== ==== ==== ====
The mix of fuels and purchases of power for providing the Company's electric system energy requirements during the three and nine months ended September 30, 1994 and 1993 were as follows:
Three Months Ended Nine Months Ended 9/30/94 9/30/93 9/30/94 9/30/93 ------- ------- ------- ------- Oil 22% 31% 29% 33% Gas 31 29 21 20 Nuclear 8 8 8 9 Purchases 39 32 42 38 --- --- --- --- 100% 100% 100% 100% === === === ===
14 15 OPERATIONS AND MAINTENANCE EXPENSES Total operations and maintenance (O&M) expenses, exclusive of fuels and purchased power, amounted to $125.9 million for the three months ended September 30, 1994, representing an increase of $.6 million, or 0.5%, over the comparable three month period of 1993. For the nine months ended September 30, 1994, these expenses totaled $398.8 million, up $21.5 million, or 5.7%, over the comparable period of 1993, but below levels reflected in the Company's current rate structure. The increases in O&M for the nine months ended September 30, 1994, when compared to the same period of 1993, are primarily attributable to the earlier recognition of pension and benefits expenses. The earlier recognition of these expenses in 1994 will result in a reduction of these expenses during the remainder of the year, thereby having a positive impact on earnings in the fourth quarter of 1994 when compared to the same period in 1993. In addition, during the nine months ended September 30, 1994, the Company recognized previously deferred storm costs. RATE MODERATION COMPONENT For the three months ended September 30, 1994 and 1993, the Company recorded charges to income of approximately $61.2 million and $29.0 million, respectively, reflecting the amortization of the RMC. The RMC reflects the difference between the Company's revenue requirements under conventional ratemaking and revenues resulting from the implementation of the rate moderation plan provided for in the Rate Moderation Agreement (RMA). At September 30, 1994 and December 31, 1993, the unamortized RMC balances were $487.7 million and $609.8 million, respectively. For the nine months ended September 30, 1994 and 1993, the charges to income reflecting the amortization of the RMC totalled $157.4 million and $61.7 million, respectively. OPERATING TAXES Operating taxes for the three months ended September 30, 1994 amounted to $106.1 million, representing a decrease of $3.4 million, or 3.1%, from the comparable three month period 1993. Operating taxes for the nine months ended September 30, 1994 amounted to $308.4 million, representing an increase of $20.1 million, or 7.0% from the comparable period of 1993. The increase in operating taxes for the nine months ended September 1994 reflects higher revenue, property, payroll and dividend taxes and adjustments relating to 1992 which were recorded in the first nine months of 1993. 15 16 INTEREST EXPENSE For the three months ended September 30, 1994, interest expense amounted to $123.2 million, representing a decrease of $11.3 million when compared to the same period of 1993. For the nine months ended September 30, 1994, interest expense totaled $381.3 million, a decrease of $21.4 million compared with the same period of 1993. The decrease in interest expense for the three and nine month periods ended September 30, 1994, is primarily attributable to lower interest rates on outstanding debt as a result of the Company's aggressive refinancing efforts in 1993, coupled with reduced levels of debt because the Company used cash on hand and from the issuance of common stock during 1994 to satisfy a portion of maturing debt. 16 17 FINANCIAL CONDITION LIQUIDITY At September 30, 1994, the Company's cash and cash equivalents amounted to approximately $231 million, compared to $249 million at December 31, 1993. The decrease in cash and cash equivalents reflects the Company's cash management strategy to apply available cash balances toward maturing debt and to forgo the external financing normally associated with capital additions. The Company also has a $300 million revolving line of credit through October 1, 1995, provided by its 1989 Revolving Credit Agreement (1989 RCA). At September 30, 1994, no amounts were outstanding under the 1989 RCA. This line of credit is secured by a first lien upon the Company's accounts receivable and fuel oil inventories. FINANCING PROGRAMS The Company is committed to improving its debt-to-equity ratio through the issuance of common equity, growth in retained earnings and debt reduction from the use of cash from operations. Accordingly, the Company in June 1994 issued a total of 5.1 million shares of common stock, representing the first time in approximately ten years that the Company issued common equity other than through its Automatic Dividend Reinvestment Plan, Employee Stock Purchase Plan or its Convertible Preferred Stock, 5 3/4%, Series I. Net proceeds from the sale of common stock totalling approximately $99 million combined with the issuance of $285 million of General and Refunding Bonds during the year were applied toward the repayment, at maturity, of $400 million aggregate principal amount of debentures and the redemption of $30 million of debentures which were scheduled to mature in 1999 and $5 million of debentures which were scheduled to mature in 2019. The balance of funds needed to retire/redeem the above debt and the retirement of $25 million of First Mortgage Bonds were provided by cash on hand. In October, the Company received the proceeds from the sale of $50 million of Electric Facilities Revenue Bonds through New York State Energy Research and Development Authority. The proceeds from this offering were used to reimburse the Company's treasury for projects already completed. The Company is currently planning to satisfy $175 million of debentures maturing in November 1994 with cash on hand. 17 18 CAPITAL REQUIREMENTS AND CAPITAL PROVIDED Capital requirements and capital provided for the three and nine months ended September 30, 1994 were as follows:
- ----------------------------------------------------------------------------------- Capital Requirements Three Months Ended Nine Months Ended September 30, 1994 September 30, 1994 - ----------------------------------------------------------------------------------- (In Millions of Dollars) Total Construction $ 79 $ 162 - ----------------------------------------------------------------------------------- Refundings and Dividends Long-term debt 35 460 Preferred stock 1 1 Preferred stock dividends 14 40 Common stock dividends 52 152 Redemption costs 2 6 - ----------------------------------------------------------------------------------- Total Refundings and Dividends 104 659 - ----------------------------------------------------------------------------------- Shoreham post settlement costs 31 140 - ----------------------------------------------------------------------------------- Total Capital Requirements $ 214 $ 961 ===================================================================================
- ----------------------------------------------------------------------------------- Capital Provided Three Months Ended Nine Months Ended September 30, 1994 September 30, 1994 - ----------------------------------------------------------------------------------- (In Millions of Dollars) (Increase)Decrease in cash $ (88) $ 18 Long-term debt - 282 Common stock issued 5 113 Other financing activities 1 - Internal cash generation from operations 296 548 - ----------------------------------------------------------------------------------- Total Capital Provided $ 214 $ 961 ===================================================================================
For further information, see the Statement of Cash Flows. 18 19 RATE MATTERS In December 1993, the Company filed a three-year electric rate plan with the PSC for the period beginning December 1, 1994 (Rate Proposal). The Rate Proposal, which may be approved, modified or rejected by the PSC, requests an allowed rate of return on common equity of 11.0% and provides for zero percent base rate increases in years one and two of the plan and an overall rate increase of 4.3% in the third year. Although base electric rates would be frozen during the first two years of the Rate Proposal, annual rate increases of approximately 1% and 2% are expected to result in years one and two, respectively, from the operation of the Company's fuel cost adjustment (FCA) mechanism. The FCA captures, among other things, amounts to be recovered from or refunded to ratepayers in excess of $15 million which result from the reconciliation of revenue, certain expenses and earned performance incentive components as prescribed by the Long Island Lighting Company Ratemaking and Performance Plan. The Rate Proposal reflects four underlying objectives: (i) to limit the balance of the Rate Moderation Component (RMC) during the three-year period to no more than its 1992 peak balance of $652 million; (ii) to recover the RMC within the time frame established in the 1989 Settlement; (iii) to minimize, beginning in the third year of the Rate Proposal, the final three rate increases contemplated in the 1989 Settlement that follow the two-year rate freeze period; and (iv) to continue the Company's gradual return to financial health. In September of this year, three Administrative Law Judges (ALJs) of the Public Service Commission of the State of New York (PSC) issued a recommended decision to the PSC with respect to the Company's electric rate plan. The ALJs agreed with the Company's proposed 11% return on common equity and its proposal to freeze base electric rates for the first rate year. While no explicit recommendation was made concerning the second year, the recommended decision implies that base rates could remain frozen in the second year as well. The Staff and other intervening parties filed testimony in response to the Rate Proposal. Staff concurs with the Company's proposal for an 11.0% return on common equity in each of the three years and has reaffirmed its commitment to the principles of the Rate Moderation Agreement (RMA), including the full recovery of the RMC. However, Staff has recommended an overall zero percent rate increase for the first two years, contrasted with the Company's proposal for a zero percent base rate increase and FCA adjustments of 1% and 2% in years one and two, respectively, as described above. Staff has not yet made a firm recommendation for the level of rate relief in the third year. The Consumer Protection Board and Long Island Power Authority jointly filed testimony in which they proposed that current electric rates be reduced. Other intervenors have also proposed various adjustments to the Rate Proposal. 19 20 Because the statutory suspension period in the Company's pending electric rate proceeding is currently scheduled to terminate on November 29, 1994, the PSC had been expected to issue a final order on the Company's rate proposal at that time. To accommodate further settlement negotiations in the proceeding, however, on October 7, 1994, the Company requested that the PSC extend the suspension period for an additional 45 days. The Company's offer to extend the suspension period is conditioned upon the continuation of its current revenue and expense reconciliation mechanisms. The Company is unable to predict the ultimate outcome of this rate proceeding. LIPA/NYPA PROPOSAL At the request of the Governor of the State of New York, on October 13, 1994 the chief executives of the New York Power Authority (NYPA) and the Long Island Power Authority (LIPA) invited the Company to enter into negotiations with them regarding a proposal to convert the Company into a public power utility. Under this proposal, the two state authorities contemplate a business combination in which holders of the Company's common stock would receive $21.50 in cash for each outstanding share of the Company's common stock. NYPA/LIPA indicated that the completion of this transaction is subject to, among other things, the availability of tax-exempt financing sufficient to complete the transaction and the verification by NYPA and LIPA of the feasibility of rate reductions in excess of 10%. The Company's Board of Directors has authorized the Company to commence discussions with LIPA and NYPA to explore the proposal in greater detail. The Company cannot predict the duration of these discussions or their outcome. COMPETITIVE ENVIRONMENT The Company believes that competitive forces are a factor in the electric utility industry. Some of the factors affecting competition, applicable to the Company, are discussed below. Current Competitive Factors: The development of the non-utility generator (NUG) industry has been encouraged by federal and state legislation. There are two ways that NUGs can negatively impact the Company: first, NUGs may locate on a customer's site, providing part or all of that customer's electric energy requirements. The Company estimates that in 1993, it lost sales to on-site NUGs generating a total of 234 gigawatt-hours (Gwh) representing approximately $20 million in revenues, net of fuel, or approximately 1.0% of the Company's 1993 net revenues. Second, in accordance with the Public Utility Regulatory Policies Act of 1978 (PURPA), the Company is required to purchase all the power offered by NUGs that are Qualified Facilities (QF). QFs have the choice of pricing these sales at either (i) PSC published estimates of the Company's long run avoided costs (LRAC) or (ii) the Company's tariff rates which reflect the Company's actual avoided cost. Additionally, until repealed in 1992, New York State law set a minimum price of six cents per kilowatt-hour (Kwh) for certain categories of QFs, considerably above the Company's avoided cost. The six-cent 20 21 minimum now only applies to contracts entered into before June 1992. The Company believes that the repeal of the six-cent law, coupled with the PSC's updates which resulted in lower LRAC estimates, has significantly reduced the economic benefits to QFs seeking to sell power to the Company. As of December 31, 1993, 39 QFs were on-line and selling approximately 200 megawatts (MW) of power to the Company. The Company estimates that in 1993, purchases from QFs required by federal and state law cost the Company $47 million more than it would have cost had the Company generated this power itself. However, with the exception of approximately 40 MW of power to be produced annually at the Stony Brook Campus of the State University of New York (Stony Brook) beginning in early 1995, the Company does not expect any significant new NUGs to be built on Long Island in the foreseeable future. After the anticipated loss of the Stony Brook load, the Company expects that electric load losses will stabilize. The Company believes that a number of factors will mitigate load loss, including customer load characteristics, such as a lack of a significant industrial base and accompanying large thermal load, which would make cogeneration economically attractive. Also, the Company's geographic location and the limited electrical interconnections to Long Island limit the accessibility of its transmission grid to potential competitors. For over a decade, the Company has voluntarily provided wheeling of New York Power Authority (NYPA) power for economic development. As a result, NYPA power has displaced approximately 400 Gwh of energy sales. The net revenue loss associated with this amount of sales is approximately $27 million or 1.3% of the Company's 1993 net revenues. Currently, the potential loss of additional load is limited by conditions in the Company's transmission agreements with NYPA. Competition for customer loads also comes from other electric utilities (including those in Connecticut, New York, and New Jersey) which seek to attract commercial and industrial customers to relocate within their service territories by offering reduced rates and other incentives. In order to retain existing and attract new commercial and industrial customers, the Company offers an Economic Development Rate which provides rate abatement to new or existing customers that qualify under the program approved by the PSC. Potential Competitive Factors: In the pending rate proceeding discussed above, Staff expressed concern over the competitive position of New York State utilities and their ability to meet competition. In order to address competitive opportunities generally available to electric and gas customers, the PSC has instituted a generic proceeding in which they have adopted guidelines for allowing New York State utilities to negotiate flexible rates with individual customers in order to avoid additional loss of sales. In addition, the PSC is seeking to establish principles that will help guide the transition of the industry to increased competition. Further phases of this proceeding may address 21 22 wholesale and retail competition. Until the scope of any such competitive proposals are known, the Company is unable to predict what impact they may have on the Company. Recently, LIPA indicated that it would hold public hearings to discuss proposals to build a 400-450 MW natural gas-powered generating plant at Shoreham scheduled for operation as early as 1996, which reportedly would result in ratepayer savings of between $283 million and $458 million over 20 years. However, based on previous LIPA and Company studies analyzing the feasibility of building a gas-powered plant at Shoreham, the Company continues to believe that such a facility would not result in ratepayer savings. This view is supported by the February 1994 draft State Energy Plan issued by the New York State Energy Planning Board which states that bringing a gas-powered facility at Shoreham on line before the turn of the century would raise the Company's rates. The Company is unable, however, to predict the likelihood of a generating unit operating at the Shoreham site particularly in view of LIPA's proposal to take over the Company. The impact, if any, on the Company of the operation of such a plant would depend on the nature of the project, the price at which it would propose to sell power and other factors. In addition, on May 12, 1994, a petition was filed with the PSC by the Education/Electric Buying Group asking the PSC to require the Company to transport power purchased from other electricity producers to member school districts on Long Island. The Company believes that the proposed request is in conflict with existing federal and state policy and will oppose this petition. The Company is currently unable to predict the action, if any, that the PSC may take regarding this petition, or the impact on the Company if this proposal were ultimately approved. Other: Proposals purporting to address the high cost of electricity on Long Island include: a takeover by the Town of Southampton of the Company's facilities located in the Town of Southampton, distribution of cheaper electricity by a Suffolk County Municipal Distribution Authority, the purchase of cheaper electricity from non-LILCO sources by a cooperative of Long Island school districts and a corporate spin-off of nuclear power plants and/or fossil generating units within the State. These proposals present substantial social, economic, legal, environmental and financial issues. The Company is opposed to any proposal that merely shifts costs from one group of ratepayers to another, that fails to enhance the provision of least-cost, efficiently-generated electricity or that fails to provide the Company's shareowners with an adequate return on and recovery of their investment. The likelihood of success of these proposals is uncertain. 22 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information The Company has been named a potentially responsible party for disposal sites in both Kansas City, Kansas, and Kansas City, Missouri. The Environmental Protection Agency alleges that the Company had previously stored or made an agreement for disposal of Polychlorinated Biphenyls (PCBs) or PCB-containing items at each of these sites. The Company cannot determine the costs for remediation or its liability, if any, until investigations are conducted. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Long Island Lighting Company Officers' and Directors' Protective Trust dated as of April 18, 1988 as amended and restated as of September 1, 1994 by and between the Company and Clarence Goldberg, as Trustee (Exhibit 10). Financial Data Schedule (Exhibit 27). 23 24 b. Reports on Form 8-K In its Report on Form 8-K dated July 29, 1994, the Company reported earnings for the three and six month periods ended June 30, 1994 and disclosed the declaration of a quarterly common stock dividend of 44.5 cents per share payable on October 1, 1994 to shareowners of record on September 9, 1994. In its Report on Form 8-K dated September 23, 1994, the Company reported that on September 8, 1994, three Administrative Law Judges of the PSC issued a recommended decision to the PSC with respect to the Company's electric rate plan for the three year period beginning December 1, 1994. No other reports on Form 8-K were filed in the third quarter of 1994. 24 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LONG ISLAND LIGHTING COMPANY (Registrant) By /s/ANTHONY NOZZOLILLO --------------------------- ANTHONY NOZZOLILLO Senior Vice President and Principal Financial Officer Dated: October 31, 1994 25 26 EXHIBIT INDEX Exhibit # Description Page # - --------- ------------------------ ----- Ex-10 Long Island Lighting Company Officers' and Directors' Protective Trust dated as of April 18, 1988 as amended and restated as of September 1, 1994 by and between the Company and Clarence Goldberg, as Trustee (Exhibit 10). Ex-27 Financial Data Schedule (Exhibit 27). EX-10 2 LONG ISLAND LIGHTING COMPANY - PROTECTIVE TRUST 1 LONG ISLAND LIGHTING COMPANY OFFICERS' AND DIRECTORS' PROTECTIVE TRUST DATED AS OF APRIL 18, 1988 AS AMENDED AND RESTATED AS OF SEPTEMBER 1, 1994 2 THIS TRUST AGREEMENT, initially made and entered into as of the 18th day of April 1988, by and between Long Island Lighting Company, a corporation organized under the laws of New York (the "Company"), and Clarence Goldberg, a resident of the State of Maryland, as trustee (the "Trustee") and subsequently amended and restated as of the first day of September 1994. W I T N E S S E T H T H A T : WHEREAS, the Company maintains directors' and officers' liability insurance policies, including an excess liability policy providing such coverage ("D&O Insurance Policies"), from commercial insurance companies for the purposes of protecting its business by limiting its liability for the wrongful acts of its directors and officers performed in their official capacities, as well as encouraging capable persons to serve as directors, consulting directors and officers of the Company without undue fear of legal entanglement; and WHEREAS, the Company has entered into separate indemnity agreements providing contractual indemnification (individually an "Agreement" and collectively the "Agreements") with each of the directors and officers (individually an "Indemnitee" and collectively the "Indemnitees") and has entered into this Trust Agreement establishing a trust to which the Company has heretofore and shall hereafter from time to time transfer funds in order to supplement and replace, if necessary, the Company's existing directors' and officers' liability 3 insurance and to satisfy the Company's contractual obligations under the Agreements; and WHEREAS, the Agreements with the directors and officers were entered into and this Trust Agreement was established pursuant to Article IV of the Company's By-Laws, entitled "Indemnification", the adoption of which was authorized by the Board of Directors of the Company at a meeting duly convened and held on October 27, 1987; and WHEREAS Article IV of the Company's By-Laws authorizes the Company to enter into agreements with any of its directors and officers extending rights to indemnification and advancement of expenses to such person to the fullest extent permitted by applicable law; and WHEREAS, the Company intends to provide consulting directors with the same benefits as have been provided to directors and officers as Indemnitees hereunder; and WHEREAS, Agreements with consulting directors have been entered into pursuant to Section 722 of the Business Corporation Law which confirms any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law; and WHEREAS, the Trust established by this Trust Agreement provides for the use of corpus and income (including capital gains) to discharge the Company's obligations to Indemnitees according to the Agreements and is intended to be a "grantor trust" with the result that the Company shall be treated as the owner of all corpus and income of said trust under Sections 671 - 3 - 4 through 679 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and the Trustee hereby agree as follows: SECTION 1. Establishment and Title of the Trust. 1.1 The Company has established with the Trustee a trust known as the "Long Island Lighting Company Officers' and Directors' Protective Trust" (the "Trust") to accept such sums of money and other property acceptable to the Trustee as from time to time shall be paid or delivered to the Trustee. All such money and other property, all investments and reinvestments made therewith or proceeds thereof and all earnings and profits thereon, less all payments and charges as authorized herein, are hereinafter referred to as the "Trust Fund." The Trust Fund shall be held by the Trustee and shall be dealt with in accordance with the provisions of the Trust Agreement. The Trust Fund shall be held for the exclusive purpose of (i) providing payments of such claims and expenses which constitute the Covered Amount under the terms of each Agreement and (ii) paying other amounts provided for under the terms of each Agreement and this Trust Agreement, including reasonable expenses of administration in accordance with the provisions of this Trust Agreement, until all such payments required by this Trust Agreement and the Agreements have been made; provided, however, that the Trust Fund - 4 - 5 shall at all times be subject to the claims of the creditors of the Company, as set forth in Section 8 of this Trust Agreement. SECTION 2. Identification of the Indemnitees and Notification. 2.1 The names of the Indemnitees of the Trust are listed in Exhibit A attached hereto. From time to time the Company hereby agrees to notify the Trustee of the names and addresses of additional directors, consulting directors and officers which are added as Indemnitees of this Trust and to deliver copies of the Agreements of such persons added as Indemnitees to the Trustee. Subsequent to the occurrence of a "Change of Control" of the Company, the Company shall not add any directors, consulting directors or officers who are not Continuing Directors or Continuing Officers as Indemnitees of the Trust. For purposes of this Section 2.1, the term "Continuing Officer" shall mean any individual who was an officer of the Company on the date hereof, or is designated (before any person's initial election as an officer) as a Continuing Officer by a majority of the then remaining Continuing Directors. 2.2 The Company shall notify the Trustee when an Indemnitee ceases to be a director, consulting director or officer of the Company and simultaneously provide a copy of such notification to the affected Indemnitee (the "Initial Notice"). The Trustee shall also provide a copy of the Initial Notice to the affected Indemnitee no later than fifteen (15) days following the Trustee's receipt thereof. Indemnitees who have ceased to be directors, consulting directors or officers prior to April 18, - 5 - 6 1988 are identified in Part III of Exhibit A, and neither the Company nor the Trustee shall have any obligation to deliver an Initial Notice to any of such Indemnitees. The Company shall subsequently notify the Trustee after the statute of limitations for Covered Acts has expired with respect to any Indemnitee who is no longer a director, consulting director or officer and as to whom no claims, actions, suits or proceedings arising from or relating to Covered Acts are pending (the "Additional Notice"). The Company shall simultaneously provide a copy of the Additional Notice to the affected Indemnitee, and the Trustee shall also provide a copy of the Additional Notice to the affected Indemnitee no later than fifteen (15) days following the Trustee's receipt thereof. Any former director, consulting director or officer to which such notice is directed shall cease to be an Indemnitee under this Trust Agreement upon the expiration of thirty (30) days following the receipt of the Additional Notice from the Company or the Trustee, whichever is earlier received; provided, however, that subsequent to a Change of Control, his or her status as an Indemnitee shall not terminate unless and until such former director, consulting director or officer shall have consented in writing to such termination. SECTION 3. Acceptance by the Trustee. 3.1 The Trustee has accepted the Trust established under this Trust Agreement on the terms and subject to the provisions set forth herein, and has agreed to discharge and - 6 - 7 perform fully and faithfully all of the duties and obligations imposed upon the Trustee under this Trust Agreement. SECTION 4. Limitation on Use of Funds. 4.1 No part of the income or corpus of the Trust Fund shall be recoverable by the Company or used for any purpose other than as provided in Section 1.1; provided, however, that nothing in this Section 4.1 shall be deemed to limit or otherwise prevent the payment from the Trust Fund of expenses and other charges as provided in Sections 9.1 and 9.2 of this Trust Agreement or the application of the Trust Fund as provided in Section 13.1 of this Trust Agreement. In no event shall the Company contest the status of the Trust as a grantor trust. SECTION 5. Duties and Powers of the Trustee. 5.1 Until the Trust is terminated as provided in Section 13.1, the Trustee shall (i) invest and reinvest the principal and income of the Trust Fund and keep the Trust Fund invested, without distinction between principal and income, primarily in interest bearing liquid investments, other than any obligations or other securities issued by the Company or any affiliated or successor entity, and (ii) have such additional powers and authority as set forth in Exhibit D attached hereto. SECTION 6. Payments by the Trustee. 6.1 The establishment of the Trust and the payment or delivery to the Trustee of money or other property acceptable to the Trustee has not and shall not vest in an Indemnitee any - 7 - 8 right, title or interest in and to any assets of the Trust or any payments except as otherwise set forth in this Section 6. 6.2(a) Except as otherwise provided in Section 6.2(b) below, the Trustee shall distribute funds to an Indemnitee with respect to a claim (other than for Enforcement Expenses or Trust Enforcement Expenses (as defined in Section 12.3 hereof)) within 20 days of receipt of a certificate signed by the Indemnitee, in substantially the form set forth in Exhibit B attached hereto. (b) Within seven days of receipt by the Trustee of a certificate of any Indemnitee as provided in Section 6.2(a) above, the Trustee will notify the Company of the receipt of such certificate and provide it with a copy thereof. In the event that, with respect to such a certificate received by the Trustee prior to a Change of Control, the Company delivers to the Trustee within seven days of the Company's receipt of the foregoing notice a certificate to the effect that a Determination has been made that the Indemnitee is not entitled to indemnification with respect to such claim under the terms of the applicable Agreement, together with a copy of such Determination, the Trustee will not disburse any funds to the Indemnitee with respect to such claim. (c) The Trustee shall not be required to make an independent inquiry or decision with respect to the propriety or amount of payment pursuant to this Section 6.2 or Section 6.3. The Trustee shall be protected from any liability in payment or the withholding of any payment pursuant to the provisions of this Section 6.2 or Section 6.3. - 8 - 9 6.3(a) The Trustee shall distribute funds to an Indemnitee with respect to a claim for Enforcement Expenses or Trust Enforcement Expenses within 20 days of receipt of a certificate signed by the Indemnitee, in substantially the form set forth in Exhibit C attached hereto. (b) Upon receipt of evidence satisfactory to the Trustee that an Indemnitee is entitled to, and has not received, a "tax gross-up" payment with respect to Enforcement Expenses as provided in Section 9(b) of the Agreements or with respect to Trust Enforcement Expenses as provided in Section 12.3 hereof, the Trustee shall distribute funds to the Indemnitee equal to the amount of such omitted payment. 6.4 The Agreements provide for the Company to pay Losses and Expenses to Indemnitees from its general assets and the establishment of this Trust shall not reduce or otherwise affect the Company's continuing liability to pay Losses and Expenses from such assets except that the Company's liability shall be offset by actual payments made by this Trust. If the Company does not have one or more D&O Insurance Policies in force with respect to an Indemnitee or the Trust Fund is not sufficient to pay Losses and Expenses to an Indemnitee in accordance with the applicable Agreement, the Company shall make the balance of such payment pursuant to the terms of the Agreement. 6.5 Notwithstanding anything in this Trust Agreement to the contrary, the Company shall remain primarily liable under the applicable Agreement to pay Losses, Expenses and Enforcement Expenses and under this Trust Agreement to pay Trust Enforcement Expenses. - 9 - 10 SECTION 7. Funding of the Trust. 7.1 The Company made an initial contribution to the Trust Fund of $5,000 in 1988 upon signing this Trust Agreement. The Company's contributions to the Trust Fund shall include additional amounts as from time to time the Company and Indemnitees agree are reasonably estimated as necessary or desirable (or are otherwise determined pursuant to the Agreements) to pay to the Indemnitees or to reserve for future payment to them currently claimed or reasonably anticipated and contingent Losses and Expenses. The Company shall from time to time contribute to the Trust Fund such amounts which are required for defraying expenses of administering the Trust as provided in Section 9.2. Immediately prior to the occurrence of a Change of Control, the Company shall contribute to the Trust Fund an additional amount sufficient in the sole judgment of a majority of the then Continuing Directors to satisfy any and all Losses and Expenses reasonably anticipated at the time of such funding for which the Company may indemnify the Indemnitees under the Agreements. Following the occurrence of a Change of Control, upon written application of one or more Indemnitees to the Company, the Company shall contribute to the Trust Fund such additional amounts as are sufficient to satisfy any and all Losses and Expenses reasonably anticipated at the time of such application for which the Company may indemnify the Indemnitee or Indemnitees under the terms of an applicable Agreement. The amount of the additional contributions to be made by the Company shall be determined by mutual agreement of the Indemnitee or - 10 - 11 Indemnitees and the Company and reduced to writing and signed by such interested parties. In the event that the Indemnitee or Indemnitees and the Company are unable to reach such an agreement, the amounts to be contributed shall be determined by independent legal counsel selected by a majority of the Indemnitees. The decision of such independent legal counsel shall be binding and conclusive upon all parties for all purposes. The Trustee shall not be responsible for (i) determining whether the amount of any contribution made is accurate, (ii) determining whether the Company and/or the Indemnitees are complying with the terms of the Agreements or (iii) the collection of any contribution under this Trust Agreement. SECTION 8. Creditors and Third Parties. 8.1 Notwithstanding any provision of this Trust Agreement or the Agreements to the contrary, all principal, income and other property held in the Trust Fund shall be considered assets of the Company, and shall be subject to the claims of the Company's general unsecured creditors. 8.2 The Company hereby agrees to appoint its Chairman of the Board, President, Secretary or Chief Financial Officer as the person (the "Designated Person") any one of whom shall notify the Trustee should the Company become Insolvent. The Company shall advise the Trustee from time to time of the name of the Designated Person. The Designated Person shall have an affirmative duty to notify the Trustee of the Company's - 11 - 12 Insolvency in writing within ten days of establishing that the Company is Insolvent. After notification in writing to the Trustee by (i) the Designated Person of the Company's Insolvency or (ii) a creditor of the Company alleging that the Company has become Insolvent, the Trustee shall discontinue advances and/or payments to the Indemnitees, and shall hold the Trust assets for the benefit of the Company's general unsecured creditors. The Trustee shall deliver any undistributed principal and income in the Trust to satisfy such claims as a court of competent jurisdiction may direct. The Trustee shall resume advances and/or payments to the Indemnitees only after the Trustee has either received a letter from the Company's independent auditors as to the Company's financial status which indicates that the Company is not Insolvent or received an order of a court of competent jurisdiction that the Company is not Insolvent. The Trustee may rely on any letter issued by the Company's independent auditors, or the Trustee, in its discretion, may apply for an order from a court of competent jurisdiction. 8.3 The Company shall be considered "Insolvent" for purposes of this Trust Agreement if, at any time, (i) the Company is unable to pay its debts as they mature or (ii) the Company is subject as a debtor to a pending proceeding under the Bankruptcy Code. 8.4 Prior to receipt of a notice as provided in Section 8.2 hereof from the Company or a creditor of the Company, the Trustee shall have no duty to inquire whether the Company is - 12 - 13 Insolvent and may rely on information concerning the Company's solvency which has been furnished to the Trustee by any person. 8.5 Nothing in this Trust Agreement shall in any way diminish any rights of the Indemnitees to pursue their rights as general unsecured creditors of the Company with respect to indemnification or otherwise. SECTION 9. Taxes, Expenses and Compensation. 9.1 The Company shall from time to time pay taxes of any and all kinds whatsoever which at any time are lawfully levied or assessed upon or become payable in respect of the Trust Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. 9.2 To the extent that any taxes lawfully levied or assessed upon the Trust Fund are not paid by the Company, the Trustee shall pay such taxes out of the Trust Fund. The Trustee shall not be responsible for the calculation of the proper amount of any tax liability to be paid with respect to the Trust. The Trustee may rely on the Company's advice as to the amount of such taxes or other charges which the Trustee is required to deduct from the Trust Fund. The Company further agrees to hold Trustee harmless from any claims made against it, by any Indemnitee, governmental agency, or any other person with respect to such directions or amounts. 9.3 The Trustee shall contest the validity of taxes in any manner deemed appropriate by the Company or its counsel, but at the Company's expense, and only if it has received an - 13 - 14 indemnity bond or other security satisfactory to it to pay any such expenses. In the alternative, the Company may itself contest the validity of any such taxes. 9.4 The Company shall pay the Trustee such reasonable compensation for its services as may be agreed upon in writing from time to time by the Company and the Trustee. Following the occurrence of a Change of Control, the Company shall pay the Trustee such reasonable compensation for its services, together with any reasonable increases as may be agreed upon in writing from time to time by a majority of the Indemnitees and the Trustee. The Trustee shall notify the Company as to its retention of any outside professionals to perform services in connection with the Trust Fund. The Company shall also pay the reasonable expenses incurred by the Trustee in the performance of its duties under this Trust Agreement, including commissions, fees and expenses of brokers, actuaries, accountants and counsel, engaged by the Trustee. To the extent the Company does not pay such compensation and expenses, such compensation and expenses shall be charged against and paid from the Trust Fund. SECTION 10. Administration and Records. 10.1 The Trustee shall keep or cause to be kept accurate and detailed accounts of any investments, receipts, disbursements and other transactions hereunder and all necessary and appropriate records required to carry out the intents and purposes of this Trust, and all accounts, books and records relating thereto shall be open to inspection and audit at all - 14 - 15 reasonable times by any person designated by the Company and, subsequent to a Change of Control, any Indemnitee. All such accounts, books and records shall be preserved (in original form, or on microfilm, magnetic tape or any other similar process) for such period as the Trustee may determine. The Trustee may only destroy such accounts, books and records after giving not less than 30 days' notice to the Company and, subsequent to a Change of Control, each of the Indemnities, in writing, of its intention to do so (the "Destruction Notice"). If the Company or any Indemnitee, as the case may be, shall notify the Trustee within such 30-day period of its objection to the destruction of any such accounts, books and records, the Trustee shall maintain such accounts, books and records until the earlier of (i) the earliest date on which none of the Agreements shall continue in effect, and (ii) the expiration of the 30-day period following the receipt of the Destruction Notice if no objection is timely received. 10.2 Within 30 days after the close of each calendar year, and within 30 days after the removal or resignation of the Trustee or the termination of the Trust, the Trustee shall file with the Company and, subsequent to a Change of Control, each of the Indemnitees a written account setting forth all investments, receipts, disbursements and other transactions effected by it during the preceding calendar year, or during the period from the close of the preceding calendar year to the date of such removal, resignation or termination, including a description of all investments and securities purchased and sold with the cost or - 15 - 16 net proceeds of such purchases or sales and showing all cash, securities and other property held at the end of such calendar year or other period. The Trustee shall determine or cause to be determined, as of the last day of each calendar year, the fair market value of the assets held in the Trust Fund. Within 30 days after the close of each calendar year, the Trustee shall file with the Company and, subsequent to a Change of Control, each Indemnitee the written report of the determination of such fair market value and an itemization of the assets held in the Trust Fund. Upon the expiration of 90 days from the date of filing such annual or other account, the Trustee shall to the maximum extent permitted by applicable law be forever released and discharged from all liability and accountability with respect to the propriety of its acts and transactions shown in such account for such applicable period except with respect to any such acts or transactions as to which the Company or the affected Indemnitee shall within such 90- day period file with the Trustee written objections. 10.3 The Trustee shall from time to time permit an independent public accountant selected by the Company or, subsequent to a Change of Control, by a majority of the Indemnitees, (except one to whom the Trustee has reasonable objection) to have access during ordinary business hours to such records as may be necessary to audit the Trustee's accounts. 10.4 Nothing contained in this Trust Agreement shall be construed as depriving the Trustee, the Company or any Indemnitee of the right to have a judicial settlement of the - 16 - 17 Trustee's accounts or seek instructions in connection therewith. Upon any proceeding for a judicial settlement of the Trustee's accounts or for instructions, the only necessary parties thereto in addition to the Trustee shall be the Company and the Indemnitees. 10.5 In the event of the removal or resignation of the Trustee, the Trustee shall deliver to the successor trustee all records which shall be required by the successor trustee to enable it to carry out the provisions of this Trust Agreement. 10.6 In addition to any returns required of the Trustee by law, the Trustee shall prepare and file such tax reports and other returns as the Company and the Trustee may from time to time agree. The Company shall bear the cost of filing such returns and, at the request of the Trustee, the Company shall have its independent auditors prepare such returns. SECTION 11. Removal or Resignation of the Trustee and Designation of Successor Trustee. 11.1 At any time the majority of the Indemnitees may remove the Trustee, with or without cause, upon at least 60 days' notice in writing to the Trustee. A copy of such notice shall be sent to the Company and the Trustee. 11.2 The Trustee may resign at any time upon at least 60 days' notice in writing to the Company and the Indemnitees. 11.3 In the event of such removal or resignation, the Trustee shall duly file with the Company and the Indemnitees a written account as provided in Section 10.2 of this Trust - 17 - 18 Agreement for the period since the last previous annual accounting. 11.4 Within 60 days after any such notice of removal or resignation of the Trustee, the majority of the Indemnitees shall designate a successor Trustee qualified to act hereunder. In the event that the majority of the Indemnitees fails to designate a successor Trustee within 120 days after the Trustee's resignation or removal, the Company and/or an Indemnitee may apply to a court of competent jurisdiction to appoint a successor. Each such successor Trustee, during such period as it shall act as such, shall have the powers and duties herein conferred upon the Trustee, and the word "Trustee" wherever used herein, except where the context otherwise requires, shall be deemed to include any successor Trustee. Upon designation of a successor Trustee and delivery to the resigned or removed Trustee of written acceptance by the successor Trustee of such designation, the resignation or removal of such Trustee shall become effective and the resigned or removed Trustee shall promptly assign, transfer, deliver and pay over to such Trustee, in conformity with the requirements of applicable law, the funds and properties in its control or possession then constituting the Trust Fund. SECTION 12. Enforcement of Trust Agreement and Legal Proceedings. 12.1 The Company shall have the right to enforce any provision of this Trust Agreement, and each of the Indemnitees shall have the right to enforce any provision of this Trust - 18 - 19 Agreement that affects the interest of any of the Indemnitees in the Trust. In any action or proceeding affecting the Trust the only necessary parties shall be the Company, the Trustee and the Indemnitees and, except as otherwise required by applicable law, no other person shall be entitled to any notice or service of process. Any final judgment, not subject to further appeal, entered in such an action or proceeding shall to the maximum extent permitted by applicable law be binding and conclusive on all persons having or claiming to have any interest in the Trust. 12.2 If the Company fails to pay any contribution which it agrees or is required to pay under the provisions of Section 7.1 subsequent to the occurrence of a Change of Control or within 60 days after the date a copy of either the written agreement referred to in Section 7.1 or the determination of independent legal counsel is served upon all parties providing that the Company failed to pay any contribution which it agreed or was required to pay under the provisions of Section 7.1 (the "Notice Date"), the Indemnitee or Indemnitees on whose behalf the contribution is to be paid or the Trustee may bring an action in a court of competent jurisdiction for the amount of the contribution together with interest thereon from the sixtieth day following the Notice Date at an annual rate equal to the sum of the prime interest rate published in the last weekly issue of Barron's in the month immediately preceding such sixtieth day plus two percentage points plus all court costs and expenses, including reasonable counsel fees, with respect to such action. - 19 - 20 Any recovery under this Section 12.2 shall be paid to the Trustee. 12.3 In the event that any action is instituted by an Indemnitee or Indemnitees pursuant to Section 12.2 hereof or, under any other provision of this Trust Agreement, or to enforce or interpret any of the terms of this Trust Agreement, the Indemnitee shall be entitled to be paid by the Company all court costs and expenses, including reasonable counsel fees ("Trust Enforcement Expenses"), incurred by the Indemnitee or Indemnitees with respect to such action. If the payment by the Company of the Trust Enforcement Expenses results in the recognition by the Indemnitee or Indemnitees of taxable income for federal, state or local tax purposes, the Company, to the extent permitted by law, shall make an additional payment to the Indemnitee or Indemnitees which, when added to the Trust Enforcement Expense, results in a net after-tax benefit to the Indemnitee or Indemnitees equal to the Trust Enforcement Expenses, unless the court determines that each of the material assertions made by the Indemnitee or Indemnitees as a basis for such action were not made in good faith or were frivolous. SECTION 13. Termination. 13.1 This Trust shall terminate (i) upon written consent of all of the Indemnitees and the Company, (ii) if at any time, (x) the Trust finally is determined by the Internal Revenue Service (the "Service") not to be a "grantor trust" with the result that the income of the Trust Fund is not treated as income - 20 - 21 of the Company pursuant to Subpart E of Subchapter J of the Code or (y) a tax is finally determined by a decision rendered by the Service which is no longer subject to administrative appeal within the Service, to be payable by any or all of the Indemnitees in respect of any part of the Trust Fund prior to payment thereof to the Indemnitees, (iii) upon the final determination by independent legal counsel selected by a majority of the Indemnitees, or a court of competent jurisdiction, that all of the Indemnitees have been fully indemnified under the terms of the Agreements or (iv) if it is determined that the Company is Insolvent as defined in Section 8 of this Trust Agreement. Upon the termination of this Trust, any remaining assets shall then be paid by the Trustee to the Company. SECTION 14. Amendments. 14.1 The Company may from time to time amend or modify, in whole or in part, any or all of the provisions of this Trust Agreement only with the written consent of the Trustee and not less than seventy-five percent of the number of persons who are then Indemnitees, provided that any such amendment shall not cause the Trust to cease to constitute a grantor trust as described in the recitals of this Trust Agreement; provided further that any such amendment to which the Trustee or any Indemnitee shall not have consented in writing shall not affect or otherwise alter the rights and obligations of the Company and the Trustee to one another or to the Indemnitees or the rights and obligations of such Indemnitees to the Company, the Trustee - 21 - 22 and one another, in each instance as set forth in this Trust Agreement prior to its amendment as of September 1, 1994. SECTION 15. Nonalienation. 15.1 Except insofar as applicable law may otherwise require and except as provided in Sections 1.1, 2.1, 4.1 and 8 of this Trust Agreement, (i) no amount payable to or in respect of an Indemnitee at any time under the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void and (ii) the Trust Fund shall in no manner be liable for or subject to the debts or liabilities (other than Losses and Expenses) of any Indemnitee. SECTION 16. Communications. 16.1 Communications to the Company shall be addressed to Long Island Lighting Company at 175 East Old Country Road, Hicksville, New York 11801, Attention: Corporate Secretary; provided, however, that upon the Company's written request such communications shall be sent to such other address as the Company may specify. 16.2 Communications to the Trustee shall be addressed to Clarence Goldberg, 13 Horn Point Court, Annapolis, MD 21403; provided, however, that upon the Trustee's written request such - 22 - 23 communications shall be sent to such other address as the Trustee may specify. 16.3 Communications to an Indemnitee shall be addressed to the Indemnitee's address set forth on Exhibit D hereto; provided, however, that upon such Indemnitee's written request such communications shall be sent to such other address as such Indemnitee may specify. 16.4 No communication shall be binding on any party hereto until it is received by such party. All notifications required to be made and all copies of notifications required to be furnished to the Trustee, the Company or any Indemnitee shall be in writing and shall be made by personal delivery or by certified or registered mail, return receipt requested. The Company shall offer to the Trustee proof of all notifications from the Company to Indemnitees no later than ten days following the making thereof. 16.5 Any action of the Company pursuant to this Trust Agreement, including all orders, requests, directions, instructions, approvals and objections of the Company to the Trustee, shall be in writing, signed on behalf of the Company by the Designated Person. The Trustee may rely on, and will be fully protected with respect to, any such action taken or omitted in reliance on, any information, order, request, direction, instruction, approval, objection and list delivered to the Trustee by the Company. - 23 - 24 SECTION 17. Miscellaneous Provisions. 17.1 Unless the context otherwise provides, all capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Agreements. 17.2 This Trust Agreement shall be binding upon and inure to the benefit of the Company, the Trustee and their respective successors and assigns, and the respective personal representatives of each of the Indemnitees. 17.3 The Trustee assumes no obligation or responsibility with respect to any action required by this Trust Agreement on the part of the Company or any Indemnitee. 17.4 Any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger, reorganization or consolidation to which the Trustee may be a party, or any corporation to which all or substantially all the trust business of the Trustee may be transferred shall be the successor of the Trustee hereunder without the execution or filing of any instrument or the performance of any act. 17.5 Titles to the Sections of this Trust Agreement are included for convenience only and shall not control the meaning or interpretation of any provision of this Trust Agreement. 17.6 This Trust Agreement and the Trust established hereunder shall be governed by and construed, enforced and administered in accordance with the laws of the State of Maryland - 24 - 25 and the Trustee shall be liable to account only in the courts of the State of Maryland. 17.7 This Trust Agreement may be executed in any number of counterparts, each of which shall be deemed to be the original although the others shall not be produced. 17.8 In the event that any provision of this Trust Agreement is determined by a final order of a court of competent jurisdiction to be illegal or unenforceable, such provision shall be limited, modified or disregarded to the minimum extent necessary to avoid a violation of law or rendering this Trust Agreement as unenforceable, and, as so limited or modified, such provisions and the balance of this Trust Agreement shall be enforceable in accordance with its terms. IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the parties hereto as of the day and year first above written. Long Island Lighting Company By: /s/ ANTHONY NOZZOLILLO -------------------------- Anthony Nozzolillo Senior Vice President Attest /s/ Herbert M. Leiman - ----------------------------- Herbert M. Leiman Assistant Corporate Secretary /s/ Clarence Goldberg ---------------------- Clarence Goldberg Attest /s/ Tracey Voorhees - ------------------------------ [odtrust.hml] - 25 - 26 EXHIBIT A INDEMNITIES PART I Indemnitees who, as of September 1, 1994, are Directors, Consulting Directors or Officers
NAME POSITION/ADDRESS ---- ---------------- A. James Barnes School of Public & Environmental Affairs Office of the Dean Indiana University Bloomington, Indiana 47405 George Bugliarello President Polytechnic University 333 Jay Street Brooklyn, New York 11201 Renso L. Caporali Chairman of the Board Grumman Corporation 1111 Stewart Avenue Bethpage, New York 11714 William J. Catacosinos Chairman of the Board and Chief Executive Officer Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Peter O. Crisp President Venrock Associates 30 Rockefeller Plaza Room 5508 New York, New York 10112 Winfield E. Fromm 5802 Turban (Consulting Director) Shell Point Village Fort Myers, Florida 33908 Vicki L. Fuller Sr. Vice President Emerging Markets & High Yield Alliance Capital Mgmt. Corp. 1345 Ave. of the Americas New York, New York 10105
- 26 - 27
NAME POSITION/ADDRESS ---- ---------------- Lionel M. Goldberg Sr. Vice President (Consulting Director) Alexander & Alexander of New York, Inc. One Huntington Quadrangle Melville, New York 11747 Katherine D. Ortega 1140 23rd Street, N.W., #506 Washington, D.C. 20037 Basil A. Paterson Partner Meyer, Suozzi, English & Klein, P.C. 1505 Kellum Place Mineola, New York 11501 Eben W. Pyne Director and Consultant (Consulting Director) W.R. Grace and Co. 1114 Avenue of the Americas New York, New York 10036 Richard Lee Schmalensee Massachusetts Institute of Technology 50 Memorial Drive Room E52-456 Cambridge, Massachusetts 02139 George J. Sideris 269 Ash Street Englewood Cliffs, New Jersey 07632 John H. Talmage 36 Sound Avenue Riverhead, New York 11901 Phyllis S. Vineyard 29 Harbor Drive Blue Point, New York 11715
- 27 - 28
NAME POSITION/ADDRESS ---- ---------------- Theodore A. Babcock Treasurer Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 James T. Flynn Executive Vice President Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Robert J. Grey General Counsel Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Robert X. Kelleher Vice President Human Resources Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Herbert M. Leiman Assistant Corporate Secretary and Assistant General Counsel Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 John D. Leonard, Jr. Vice President Engineering and Construction Long Island Lighting Company 445 Broadhollow Road Melville, New York 11747 Adam M. Madsen Vice President Corporate Planning Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801
- 28 - 29
NAME POSITION/ADDRESS ---- ---------------- Kathleen A. Marion Vice President Corporate Services and Corporate Secretary Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Arthur C. Marquardt Senior Vice President Gas Business Unit Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Brian R. McCaffrey Vice President Administration Long Island Lighting Company 445 Broadhollow Road Melville, New York 11747 Joseph W. McDonnell Vice President External Affairs Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Anthony Nozzolillo Senior Vice President Finance Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 William G. Schiffmacher Vice President Customer Relations Long Island Lighting Company 15 Park Drive Melville, New York 11747 Robert B. Steger Vice President Electric Operations Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801
- 29 - 30
NAME POSITION/ADDRESS ---- ---------------- William E. Steiger, Jr. Vice President Fossil Production Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Thomas J. Vallely, III Controller Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Walter F. Wilm, Jr. Vice President Long Island Lighting Company 99 Sunnyside Boulevard Woodbury, New York 11797 Edward J. Youngling Senior Vice President Electric Business Unit Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801
- 30 - 31 EXHIBIT A INDEMNITIES PART II Indemnitees who ceased being Officers or Directors prior to September 1, 1994
Date on which Indemnitee ceased to be a Director Name or Officer Former Position ---- ------------ --------------- Ralph T. Brandifino September 30, 1993 Senior V.P. Leon Campo April 4, 1990 Director Matthew C. Cordaro June 1, 1988 Senior V.P. Michael Czumak March 28, 1991 Controller William N. Dimoulas May 9, 1994 Vice President Edward C. Dietz March 26, 1993 Senior V.P. Edward E. Eacker March 1, 1989 Treasurer Anthony F. Earley February 28, 1994 President Ira L. Freilicher February 2, 1990 Vice President P. Alan Gambill February 28, 1991 Senior V.P. John J. Kearney, Jr. July 1, 1989 Secretary Jay R. Kessler June 1, 1990 Vice President William J. Museler January 31, 1991 Vice President James T. Needham February 14, 1989 Director
- 31 - 32
Date on which Indemnitee ceased to be an Officer NAME or Director Former Position ---- ------------- --------------- James C. Peery June 21, 1988 Director Arthur N. Pietrow May 1, 1990 Vice President Andrew Ragogna July 1, 1992 Treasurer John J. Russell April 1, 1989 Vice President Victor A. Staffieri March 14, 1992 General Counsel John A. Weismantle April 1, 1989 Vice President Christian G. Wilding March 26, 1993 Vice President Russell C. Youngdahl May 1, 1989 President
- 32 - 33 EXHIBIT A INDEMNITIES PART III Indemnitees who, pursuant to Section 2.2 of the Trust Agreement, were not required to receive Initial Notices
NAME POSITION/ADDRESS ---- ---------------- Lynne D. Abraham* 418 East 77th Street New York, New York 10021 Francis M. Walsh** 124 Seaman Road Jericho, New York 11753 James W. Dye, Jr.*** Isabel K. Dye, Executor of the Estate of James W. Dye, Jr. 12 Summit Court Oyster Bay, New York 11771
_______________ *Ms. Abraham resigned as Vice President-Public Affairs effective March 1, 1988. **Mr. Walsh retired as General Claims Attorney effective April 1, 1988. ***Mr. Dye, the Company's Executive Vice President, died December 24, 1987. - 33 - 34 EXHIBIT B FORM OF INDEMNIFICATION REQUEST _____________, 199_ Clarence Goldberg, Trustee 13 Horn Point Court Annapolis, MD 21403 Re: Long Island Lighting Company Officers' and Directors' Protective Trust Established Pursuant to Trust Agreement Dated as of April 18, 1988 as amended and restated as of September 1, 1994 (the "Trust Agreement") Unless the context otherwise provides, all terms used herein and not defined shall have the meanings ascribed thereto in the Trust Agreement or the Agreement, dated _________, 199_, by and between the Long Island Lighting Company (the "Company") and the undersigned (the "Indemnitee"). Pursuant to Section 6.2(a) of the Trust Agreement, the Indemnitee hereby requests indemnification with respect to a claim in the amount of $_______, and/or legal fees and expenses in the amount of $_________. In accordance with Section 6.2(a), the Indemnitee hereby certifies on the date hereof: 1. The Indemnitee has reasonable grounds to believe that he or she is entitled to be indemnified under the Agreement with respect to the amount sought. 2. Attached hereto is a copy of the bill(s), settlement agreement and/or judgment upon which the request for funds is based. - 34 - 35 3. The Indemnitee represents that he or she has not been reimbursed with respect to such claim by the Company, the Trust, any insurance company or any other source. 4. To the Indemnitee's knowledge and belief, the Company does not have D&O Insurance in effect or the amount or type of loss or Expense is not covered by such D&O Insurance which the Company may have in effect. 5. The Indemnitee confirms that he or she will repay to the Trustee the amount requested in the event, and only to the extent, that a Determination that the Indemnitee is not entitled to be indemnified under the Agreement. The Indemnitee represents that no such Determination has yet been made with respect to the amount sought. 6. The Indemnitee represents that the legal fees and expenses being requested, if any, are not Enforcement Expenses or Trust Enforcement Expenses and either (A) the employment of the Indemnitee's counsel by Indemnitee has been previously authorized by the Company, (B) the Indemnitee has reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the Indemnitee's defense, (C) a Change of Control has occurred before or during the actual or threatened action, suit or proceeding giving rise to such claim, or (D) the Company has not employed counsel to assume the defense of such actual or threatened action, suit or proceeding. _________________________ Indemnitee - 35 - 36 EXHIBIT C FORM OF INDEMNIFICATION REQUEST _____________, 199_ Clarence Goldberg, Trustee 13 Horn Point Court Annapolis, MD 21403 Re: Long Island Lighting Company Officers' and Directors' Protective Trust Established Pursuant to Trust Agreement Dated as of April 18, 1988 as amended and restated as of September 1, 1994 (the "Trust Agreement") Unless the context otherwise provides, all terms used herein and not defined shall have the meanings ascribed thereto in the Trust Agreement or the Agreement, dated _________, 199_, by and between the Long Island Lighting Company (the "Company") and the undersigned (the "Indemnitee"). Pursuant to Section 6.3(a) of the Trust Agreement, the Indemnitee hereby requests indemnification with respect to Enforcement Expenses and/or Trust Enforcement Expenses in the amount of $________. In accordance with Section 6.3(a) of the Trust Agreement, the Indemnitee hereby certifies on the date hereof: 1. The Indemnitee represents that he or she has incurred Enforcement Expenses and/or Trust Enforcement Expenses in the amount set forth above. 2. Attached hereto is a copy of the bill(s) upon which the request for funds is based. 3. The Indemnitee represents that he or she has not been reimbursed with respect to such Enforcement Expenses and/or - 36 - 37 Trust Enforcement Expenses by the Company, the Trust, any insurance company or any other source. 4. With respect to the claim, if any, for Trust Enforcement Expenses, the Indemnitee represents that a Change of Control has occurred. _________________________ Indemnitee - 37 - 38 EXHIBIT D The Trustee shall have the following additional powers and authority with respect to all property constituting a part of the Trust Fund: (a) To sell, exchange or transfer any such property at public or private sale for cash or on credit. (b) To participate in any plan of reorganization, consolidation, merger, combination, liquidation or other similar plan relating to any such property, and to consent to or oppose any such plan or any action thereunder, or any contract, lease, mortgage, purchase, sale or other action by any corporation or other entity. (c) To deposit any such property with any protective, reorganization or similar committee; to delegate discretionary power to any such committee; and to pay part of the expenses and compensation of any such committee and any assessments levied with respect to any property so deposited. (d) To exercise any conversion privilege or subscription right available in connection with any such property; to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, company or association, or to the sale, mortgage, pledge or lease of the property of any corporation, company or association any of the securities of which may at any time be held in the Trust Fund and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions and the payment of expenses, assessments or subscriptions, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other property which it may so acquire. (e) To commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; to settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust. (f) To exercise, personally or by general or limited power of attorney, any right, including the right to vote, appurtenant to any securities or other such property. (g) To borrow money from any lender in such amounts and upon such terms and conditions as shall be deemed advisable or proper to carry out the purposes of the Trust and to pledge any securities or other property for the repayment of any such loan. - 38 - 39 (h) To engage any legal counsel, including counsel to the Company, any enrolled actuary, or any other suitable agents, to consult with such counsel, enrolled actuary, or agents with respect to the construction of this Trust Agreement, the duties of the Trustee hereunder, the transactions contemplated by this Trust Agreement or any act which the Trustee proposes to take or omit, to rely upon the advice of such counsel, enrolled actuary or agents, and to pay its reasonable fees, expenses and compensation. (i) To register any securities held by it in its own name or in the name of any custodian of such property or of its nominee, including the nominee of any system for the central handling of securities, with or without the addition of words indicating that such securities are held in a fiduciary capacity, to deposit or arrange for the deposit of any such securities with such a system and to hold any securities in bearer form. (j) To make, execute and deliver, as Trustee, any and all deeds, leases, notes, bonds, guarantees, mortgages, conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the foregoing powers. (k) To transfer assets of the Trust Fund to a successor trustee as provided in Section 11.4. (l) To exercise, generally, any of the powers which an individual owner might exercise in connection with property either real, personal or mixed held by the Trust Fund, and to do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth in this Section 5 or otherwise in the best interests of the Trust Fund. _________________________ Indemnitee - 39 - EX-27 3 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, BALANCE SHEET AND STATEMENT OF CASH FLOW, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1994 SEP-30-1994 PRO-FORMA 3,413,372 23,508 1,006,962 1,379,550 7,535,964 13,359,356 590,633 1,045,267 779,878 2,415,778 648,100 63,985 5,095,093 0 0 0 200,000 4,800 0 0 4,931,600 13,359,356 2,411,893 157,821 1,653,760 1,811,581 600,312 41,153 641,465 378,181 263,284 39,795 223,489 152,520 125,238 548,109 $1.94 $1.94
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