LIABILITIES UNDERTAKING AND INDEMNIFICATION AGREEMENT
UNDERTAKING dated as of June 26, 1997 by LONG ISLAND LIGHTING
COMPANY, a New York corporation ("LILCO") and MARKETSPAN ELECTRIC SERVICES LLC,
a New York limited liability company formerly known as BL TD MANAGEMENT
LLC, MARKETSPAN GENERATION LLC, a New York limited liability company formerly
known as BL GENERATION LLC, MARKETSPAN TRADING SERVICES LLC, a New York limited
liability company formerly known as BL ENERGY MANAGEMENT LLC, MARKETSPAN UTILITY
SERVICES LLC, a New York limited liability company formerly known as BL UTILITY
SERVICES LLC, MARKETSPAN GAS CORPORATION (DBA BROOKLYN UNION), a New York
corporation formerly known as BL GAS, INC., MARKETSPAN CORPORATE SERVICES LLC, a
New York limited liability company formerly known as BL CORPORATE SERVICES LLC
and MARKETSPAN FINANCE CORPORATION (the "Transferee Subsidiaries"), in favor of
LONG ISLAND POWER AUTHORITY, a corporate municipal instrumentality and political
subdivision of the State of New York ("LIPA") and, as of the closing of the
Merger Agreement (as herein defined), the LONG ISLAND LIGHTING COMPANY, a New
York corporation (the "Surviving Corporation"). All references herein to the
Surviving Corporation shall mean LILCO after the Effective Time (as defined in
the Merger Agreement). All references herein to LILCO shall mean Long Island
Lighting Company prior to the Effective Time.
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement and Plan of Exchange and
Merger (the "Merger Agreement") dated as of June 26, 1997 among Parent (used
herein as therein defined), LILCO, LIPA and LIPA Acquisition Corp., a New York
corporation ("LIPA Sub"), LIPA Sub is to merge with and into LILCO;
WHEREAS, pursuant to the Merger Agreement, the assets and
properties of LILCO set forth on Schedule A thereto are to be transferred to
the Transferee Subsidiaries (the "Transferred Assets") and the balance of
LILCO's assets and properties are to be retained by the Surviving Corporation
(the "Retained Assets"); and
WHEREAS, in partial consideration therefor, the Merger
Agreement requires LILCO and each of the Transferee Subsidiaries to execute
and deliver to LIPA and the Surviving Corporation this Undertaking;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which by LILCO
and the Transferee Subsidiaries are
hereby acknowledged, LILCO and the Transferee Subsidiaries hereby agree as
follows:
1. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Merger Agreement.
2. LILCO and the Transferee Subsidiaries, jointly and
severally, hereby undertake, assume and agree, subject to the limitations
contained herein, to pay or discharge, when due:
a. Unpaid debts, liabilities or obligations of Parent, LILCO,
Surviving Corporation or the Transferee Subsidiaries
relating to the Transferred Assets, including, without
limitation, liabilities or obligations relating to the
Transferred Assets resulting or arising from: (i) claims for
personal injury or property damage, or (ii) non-performance
of any contract, commitment or obligation imposed by law or
otherwise; and
b. Except as provided in Section 6.8 of the Generation Purchase
Right Agreement, legal, accounting, investment banking,
engineering and similar fees or other transaction expenses
("Transaction Expenses") incurred by Parent, LILCO or the
Transferee Subsidiaries in connection with the Merger
Agreement and the other Basic Agreements or the consummation
of the transactions contemplated thereby; and
c. Taxes as defined in Schedule D imposed on Parent, LILCO or
the Transferee Subsidiaries or for which Parent, LILCO or
the Transferee Subsidiaries are responsible pursuant to
paragraphs 3 and 4 of Schedule D; and
d. Liabilities or obligations of Parent, LILCO, Surviving
Corporation or the Transferee Subsidiaries resulting or
arising from any non-performance by Parent, LILCO or the
Transferee Subsidiaries of any provision of the Merger
Agreement or any other Basic Agreement; and
e. Debts, liabilities or obligations incurred by Parent or the
Transferee Subsidiaries after the Closing; and
f. Liabilities or obligations of Parent, LILCO, Surviving
Corporation or the Transferee Subsidiaries relating to
severance, change of control or similar payments payable to
executives of LILCO in connection with the Closing; and
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g. Liabilities or obligations of Parent, LILCO, Surviving
Corporation or the Transferee Subsidiaries relating to the
indemnification of Persons who were officers or directors of
LILCO prior to the Closing or relating to any proxy or
registration statement issued by LILCO or The Brooklyn Union
Gas Company or any affiliate or successor of either in
connection with the transactions contemplated by the Merger
Agreement; and
h. Liabilities or obligations of Parent, LILCO, Surviving
Corporation or the Transferee Subsidiaries relating to
Company Dissenting Shares or any other shares of any Person
exercising their rights under Section 910 of the NYBCL; and
i. Liabilities (other than contingent liabilities) or
obligations of Surviving Corporation which would not otherwise
be liabilities or obligations assumed hereby by Parent and the
Transferee Subsidiaries and which should have been, in
accordance with GAAP, reflected on the Closing Date Balance
Sheet but which were not so reflected; provided, however, that
no claim may be made pursuant to this clause (i) later than
fourteen months after the Closing Date;
j. Liabilities or obligations of LILCO, Surviving Corporation
or the Transferee Subsidiaries relating to or arising out of
any filing or other submission by LILCO or the Transferee
Subsidiaries with any Governmental Authority; and
k. Liabilities or obligations of LIPA or LIPA Sub relating to
or arising out of any information provided by LILCO or the
Transferee Subsidiaries to LIPA in writing for inclusion in
any filing or other submission by LIPA or LIPA Sub with any
Governmental Authority or in any offering document prepared
by LIPA or LIPA Sub in connection with any financing
required to consummate the transactions contemplated by the
Merger Agreement; and
1. Liabilities or obligations of Parent, LILCO, Surviving
Corporation or the Transferee Subsidiaries relating to the
debt Parent assumes pursuant to Section 2.1(h) of the Merger
Agreement, the New Parent Preferred Stock issued pursuant to
Section 1.4(d) of the Merger Agreement and any federal or
state securities laws liabilities, including, without
limitation, underwriter liability, related to such debt or
New Parent Preferred Stock.
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m. Liabilities (including, without limitation, underwriter
liability) or obligations of Parent, LILCO, Surviving
Corporation or Transferee Subsidiaries relating to or arising
out of the (i) investment by the Exchange Agent of the Cash
Purchase Price in Parent Common Stock and (ii) delivery by the
Exchange Agent of the Parent Shares.
3. Notwithstanding anything to the contrary contained above,
the debts, liabilities and obligations assumed by LILCO and the Transferee
Subsidiaries shall not include any:
a. Unpaid debts, liabilities or obligations of LIPA, LIPA Sub
or the Surviving Corporation relating to the Retained
Assets, including, without limitation, liabilities or
obligations relating to the Retained Assets resulting or
arising from: (i) claims for personal injury or property
damage, or (ii) non-performance of any contract, commitment
or obligation imposed by law or otherwise; or
b. Transaction Expenses incurred by LIPA, LIPA Sub or the
Surviving Corporation in connection with the Merger
Agreement and the other Basic Agreements or the consummation
of the transactions contemplated thereby; or
c. Taxes as defined in Schedule D imposed on LIPA or LIPA Sub
or for which LIPA or LIPA Sub are responsible pursuant to
paragraph 4 of Schedule D; or
d. Liabilities or obligations of LILCO or the Transferee
Subsidiaries resulting or arising from any non-performance by
LIPA, LIPA Sub or the Surviving Corporation of any provision
of the Merger Agreement or the other Basic Agreements; or
e. Liabilities or obligations of LIPA, LIPA Sub or the
Surviving Corporation relating to the indemnification of
Persons who are officers or directors of the Surviving
Corporation or relating to any registration or official
statement or other offering document issued by LIPA, LIPA
Sub or the Surviving Corporation in connection with any
financing required to consummate the transactions
contemplated by the Merger Agreement; or
f. Liabilities or obligations of LIPA, LIPA Sub or the
Surviving Corporation arising under the Merger Agreement or
any other Basic Agreement; or
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g. Except as provided in Section 2(a), (c), (f), (g) and (i),
debts, liabilities or obligations of LIPA, LIPA Sub or the
Surviving Corporation relating to or arising out of acts or
events occurring after the Closing.
4. Nothing contained herein shall require LILCO or any
Transferee Subsidiary to pay or discharge any debt, liability or obligation to
any third party expressly assumed hereby so long as LILCO or such Transferee
Subsidiary shall in good faith contest or cause to be contested the amount or
validity thereof (and perform their obligations (to the extent applicable)
pursuant to Section 6 hereof), in which case LILCO or such Transferee
Subsidiary, as the case may be, shall give LIPA and the Surviving Corporation
written notice of its action and the basis therefor and keep LIPA and the
Surviving Corporation informed of the progress and disposition thereof.
5. a. Other than as specifically stated above, neither LILCO
nor any of the Transferee Subsidiaries assumes any debt, liability or
obligation of the Surviving Corporation by this Undertaking, and it is
expressly understood and agreed that all debts, liabilities and obligations
not assumed hereunder by LILCO or the Transferee Subsidiaries shall remain the
sole obligation of the Surviving Corporation, its successors and assigns and,
subject to the provisions of Paragraph 5(b) herein, no person, firm or
corporation other than LIPA and the Surviving Corporation shall have any
rights under this Undertaking or the provisions contained herein.
b. Effective upon the Closing Date, LILCO shall assign its
rights, obligations and interests hereunder to the Parent. LILCO agrees that
it will not transfer any of its assets to Parent or any of the Transferee
Subsidiaries or to any of their respective Affiliates unless and until Parent
shall have assumed all of LILCO's obligations hereunder.
6. a. LILCO and the Transferee Subsidiaries (jointly and
severally, the "Indemnifying Party") shall indemnify and hold harmless LIPA
and LIPA Sub, and their respective agents, representatives, employees,
officers and directors (each individually, an "Indemnified Party" and
collectively, the "Indemnified Parties") against any action, proceeding,
claim, judgment, settlement, damage, loss, injury, cost or expense, including,
without limitation, reasonable fees and expenses of attorneys and other
professionals (collectively, "Loss"), arising out of or relating to any debt,
liability or obligation assumed by LILCO and the Transferee Subsidiaries
hereby.
b. An Indemnified Party seeking indemnification pursuant to
Section 6(a) herein with respect to a claim, action or proceeding shall give
prompt notice to the Indemnifying Party
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of the assertion of any claim, or the commencement of any action or
proceeding, in respect of which indemnity may be sought hereunder; provided
that the failure to give such notice shall not affect the Indemnified Party's
rights to indemnification hereunder, except to the extent that the
Indemnifying Party is actually prejudiced thereby. The Indemnifying Party
shall be entitled to control the handling of any such claim and to defend or
settle any such claim, in its or their sole discretion, with counsel of its
own choosing that is reasonably acceptable to the Indemnified Party; provided,
however, that, in the case of any such settlement, the Indemnifying Party
shall obtain written release of all liability of the Indemnified Party, in
form and substance reasonably acceptable to the Indemnified Party.
Notwithstanding the foregoing, each Indemnified Party shall have the right to
employ its own separate counsel in connection with, and to participate in
(but, except as provided below, not control) the defense of, such claim, but
the fees and expenses of such counsel incurred after notice from the
Indemnifying Party of its assumption of the defense thereof shall be at the
expense of such Indemnified Party unless:
(i) the employment of counsel by such Indemnified Party has
been authorized by the Indemnifying Party;
(ii) counsel to such Indemnified Party shall have reasonably
concluded that there may be a conflict on any significant
issue between the Indemnifying Party and such Indemnified
Party in the conduct of the defense of such claim; or
(iii) the Indemnifying Party shall not in fact have employed
counsel reasonably acceptable to the Indemnified Party to
assume the defense of such claim within twenty (20) days
following the receipt by the Indemnifying Party of the
notice specified in the first sentence of this Section
6(b), in each of which cases the fees and expenses of
counsel for such Indemnified Party shall be at the
expense of the Indemnifying Party;
provided, however, that, with respect to clauses (ii) and (iii) of this
sentence, the Indemnifying Party shall not be obligated to pay the fees and
expenses of more than one law firm, plus local counsel if necessary in each
relevant jurisdiction, for all such Indemnified Parties with respect to any
claims arising out of the same events or facts or the same series of events
or facts. The Indemnifying Party shall not be entitled, without the consent
of such Indemnified Party, to assume or control the defense of any claim as
to which counsel to such Indemnified Party shall have reasonably made the
conclusion that there may be a conflict on any significant issue between the
Indemnifying
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Party and such Indemnified Party in the conduct of the defense of such claim
as set forth in clause (ii) above, provided that the foregoing limitation
shall apply only with respect to those issues for which there may be such a
conflict.
7. This Undertaking shall be governed by the laws of the
State of New York. Any dispute with respect to the interpretation or
enforcement hereof shall be submitted to an alternative dispute resolution
procedure to be agreed by the parties.
8. All notices and other communications given or made
pursuant to this Undertaking shall be given or made in accordance with Section
11.2 of the Merger Agreement.
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IN WITNESS WHEREOF, this Undertaking has been executed as of
the date first above written.
LONG ISLAND LIGHTING COMPANY
By: /s/ ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
IN WITNESS WHEREOF, this Undertaking has been executed as of
the 28th day of May, 1998.
MARKETSPAN ELECTRIC SERVICES LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MARKETSPAN GENERATION LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MARKETSPAN TRADING SERVICES LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MARKETSPAN GAS CORPORATION
(DBA BROOKLYN UNION)
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
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MARKETSPAN CORPORATE SERVICES LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MARKETSPAN UTILITY SERVICES LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
MARKETSPAN FINANCE CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
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