[Federal Register Volume 63, Number 49 (Friday, March 13, 1998)]
[Notices]
[Pages 12521-12526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6530]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-26838]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
March 6, 1998.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated thereunder. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendments thereto is/are available for public
inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by March 30, 1998, to the Secretary, Securities and Exchange
Commission, Washington, D.C. 20549, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in case of an attorney at law, by
certificate) should be filed with the
[[Page 12522]]
request. Any request for hearing shall identify specifically the issues
of fact or law that are disputed. A person who so requests will be
notified of any hearing, if ordered, and will receive a copy of any
notice or order issued in the matter. After said date, the
application(s) and/or declaration(s), as filed or as amended, may be
granted and/or permitted to become effective.
LG&E Energy Corp. (70-9259)
LG&E Energy Corp. (``LG&E Energy''), 220 West Main Street, P.O. Box
3230, Louisville, Kentucky 40232, a Kentucky corporation and an
electric and gas public utility holding company currently exempt under
section 3(a)(1) from registration and from all other provisions of the
Act except section 9(a)(2), has filed an application for an order under
sections 9(a)(2) and 10 of the Act authorizing the proposed merger of
KU Energy Corporation (``KU Energy''), a Kentucky corporation and a
public utility holding company currently exempt from section 3(a)(1)
from registration and from all other provisions of the Act except
section 9(a)(2),\1\ with and into LG&E Energy, with LG&E Energy
emerging as the surviving entity (``Transaction''). LG&E Energy also
requests an order under section 3(a)(1) exempting it from all
provisions of the Act, except section 9(a)(2), following consummation
of the proposed Transaction.
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\1\ KU Energy's exemption was granted by order of the
Commission. See KU Energy Corporation, Holding Co. Act Release No.
25409 (Nov. 13, 1991).
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LG&E Energy's principal subsidiary, LG&E, is a Kentucky public
utility company that owns and operates a combined electric and gas
operation. LG&E is engaged primarily in the generation, transmission,
and distribution of electricity to approximately 351,000 customers in
Louisville and adjacent areas in Kentucky.\2\ LG&E also purchases,
distributes, and sells natural gas to approximately 277,000 customers
within this service area and in limited additional areas. Included
within LG&E's service area is the Fort Knox Military Reservation, to
which LG&E transports gas and provides electric service, but which
maintains its own distribution systems. Retail sales rates, services
and other aspects of LG&E's electric and gas retail operations are
subject to the jurisdiction of the Kentucky Public Service Commission
(``Kentucky Commission''). The Kentucky Commission also possesses
regulatory authority over aspects of LG&E's financial activities
including security issuances, property transfers when the asset value
is in excess of $100,000, and mergers with other utilities. Wholesale
rates for electric energy sold in interstate commerce, wheeling rates
for energy transmission in interstate commerce, and certain other
activities of LG&E (including its hydro-electric facilities) are
subject to the jurisdiction of the Federal Energy Regulatory Commission
(``FERC'').
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\2\ LG&E's service area covers approximately 700 square miles in
17 counties in Kentucky and has an estimated population of 800,000.
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LG&E owes 4.9% of the common stock of Ohio Valley Electric
Corporation (``OVEC''), an electric utility company under the Act which
has one wholly owned subsidiary, Indiana-Kentucky Electric Corp.
(``IKEC''). OVEC and IKEC were organized to supply the entire power
requirements of the U.S. Department of Energy's gaseous diffusion plant
in Pike County, Ohio, north of Portsmouth. OVEC owns a 1,075 Megawatt
(``Mw'') generating station near Cheshire, Ohio and IKEC owns a 1,290
Mw generating station at Madison, Indiana. All of the electricity sold
by OVEC and IKEC is sold either to the U.S. Department of Energy or to
the owners (or their subsidiaries, all of which are utility companies)
of the stock of OVEC. OVEC and IKEC do not sell electricity to private
consumers and do not have any securities outstanding in the hands of
the public. For each of the three years in the period ended December
31, 1996, LG&E derived less than 0.16% of its net income from its share
of the earnings of OVEC.
In addition, LG&E Energy and certain nonutility associates have
entered into a Joint Plan of Reorganization (``Joint Plan'') with Big
Rivers Electric Corporation (``Big Rivers''), an electric cooperative
with generating facilities in Kentucky currently operating under
Chapter 11 of the U.S. Bankruptcy Code. The Joint Plan will allow Big
Rivers to emerge from bankruptcy as a financially viable utility
capable of fulfilling its responsibilities toward its member
cooperatives at rates that are materially lower than those in effect
today. The Joint Plan includes a series of agreements among Big Rivers
and LG&E Energy and its nonutility associates. Throughout the
approximately 25-year term of these agreements, Big Rivers will
continue to own all the generating facilities to which it currently has
title, and will continue to own and operate all its transmission
facilities and to meet the electricity requirements of its member
cooperatives. Under the Joint Plan, Big Rivers will sell certain
inventory and personal property to a wholly owned indirect subsidiary
of LG&E Energy, Western Kentucky Leasing Corp. Another indirect wholly
owned subsidiary of LG&E Energy, Western Kentucky Energy Corp.
(``WKEC''), will conduct day-to-day operation of the facilities. LG&E
Energy states that it is expected that WKEC will qualify as an exempt
wholesale generator (``EWG''), as defined under section 32 of the Act.
After the required regulatory approvals are received, WKEC will lease
the facilities from Big Rivers, will own the electrical output of the
facilities, and will sell to LG&E Energy's energy marketing subsidiary
the net output of the facilities, some of which LG&E Energy's energy
marketing subsidiary is obligated to resell to Big Rivers.
Prior to obtaining the necessary regulatory approvals, Big Rivers
will subcontract with another indirect wholly owned subsidiary of LG&E
Energy for the day-to-day operation of another facility which is owned
by the City of Henderson, Kentucky. LG&E Energy's operation of this
facility is the subject of a separate no-action letter under the act
requesting confirmation that this LG&E Energy subsidiary is not an
electric utility company under the Act. After the necessary regulatory
approvals are obtained, this subsidiary will take assignment of Big
Rivers' responsibilities under the current Big Rivers' agreements with
the City of Henderson and will take title to a portion of the
electrical output of the facility (to the extent the output of the
facility is not committed to the City of Henderson to meet the
requirements of its residents). In summary, LG&E Energy states that Big
Rivers' generation facilities will be dispatched separately from those
of LG&E and Kentucky Utilities, and, for purposes of the Act, Big
Rivers' transmission facilities will not be owned, leased, or
controlled by LG&E or Kentucky Utilities.
LG&E Energy is also engaged in a number of other business
activities through two other directly owned subsidiaries, LG&E Energy
Foundation, Inc. (``LG&E Energy Foundation'') and LG&E Capital Corp.
(``LG&E Capital''). LG&E Energy Foundation is a tax-exempt charitable
foundation that makes charitable contributions to qualified entities.
LG&E Capital, through various subsidiaries and joint ventures, is
involved in numerous nonutility, energy-related businesses. Through its
subsidiaries, LG&E Capital has interests in and operates electric power
plants in several states, Argentina and Spain. Each of these facilities
is a qualifying cogeneration facility (``QF'') under the Public Utility
Regulatory Policies Act of 1978, an EWG, or a foreign utility company
(``FUCO'') under section 33 of
[[Page 12523]]
the Act. LG&E Capital also has interest in and operates two natural gas
distribution companies in the Mendoza and Cordoba provinces in
Argentina, both of which are FUCOs. LG&E Capital is activity involved
through various subsidiaries in energy marketing and trading. With
respect to natural gas, LG&E Capital also is involved through
subsidiaries in the gathering, processing, storage, and transportation
of natural gas.
For the year ended December 31, 1996, LG&E Energy's operating
revenues on a consolidated basis were approximately $3.589 billion, of
which $607 million were attributable to the sales of electricity, $214
million were attributable to sales of natural gas, and $2.768 billion
were attributable to nonutility activities. Consolidated assets of LG&E
Energy and its subsidiaries at December 31, 1996 were approximately
$3.012 billion, of which approximately $1.449 billion consisted of net
electric utility property, plant and equipment, $237 million consisted
of net gas utility property, plant, and equipment. As of September 30,
1997, LG&E Energy had 66,525,636 issued and outstanding shares of
common stock (``LG&E Energy Common Stock''). LG&E Energy has no
preferred stock outstanding.
KU Energy's principal subsidiary, Kentucky Utilities, is a Kentucky
electric utility company and an exempt holding company\3\ that
produces, transmits, and sells electric energy to about 432,900
customers in over 600 communities and adjacent suburban and rural areas
in 77 counties in central, southeastern, and western Kentucky, and to
about 28,800 customers in 5 counties in southwestern Virginia.\4\ In
Virginia, Kentucky Utilities operates under the name Old Dominion Power
Company. Kentucky Utilities also sells electric energy at wholesale for
resale in 12 municipalities in Kentucky. The territory served includes
most of the Bluegrass Region of central Kentucky and parts of the coal
mining areas in southeastern and western Kentucky and southwestern
Virginia. Kentucky Utilities is subject to the jurisdiction of the
Kentucky Commission and the Virginia State Corporation Commission as to
retail rates and service, accounts, issuance of securities, and in
other respects. The FERC has jurisdiction under the Federal Power Act
over certain of the electric utility facilities and operations,
wholesale sale of power, and related transactions and accounting
practices of Kentucky Utilities, and in certain other respects as
provided in the Federal Power Act. By reason of owning and operating a
small amount of electric utility property in one county in Tennessee
(having a gross book value of about $226,000), Kentucky Utilities may
also be subject to the jurisdiction of the Tennessee Regulatory
Authority as to retail rates, accounts, issuance of securities, and in
other respects.
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\3\Kentucky Utilities is a public utility holding company exempt
from all provisions of the Act except section 9(a)(2) pursuant to
section 3(a)(2) and order of the Commission. See KU Energy
Corporation, Holding Co. Act Release No. 25409 (Nov. 13, 1991).
\4\The territory served by Kentucky Utilities has an aggregate
population estimated at about one million. The largest city served
is Lexington, Kentucky. The population of the metropolitan Lexington
area is estimated at about 225,000. The populations of the next ten
largest cities served at retail range from about 21,000 to 9,000.
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Kentucky Utilities owns 2.5% of the common stock of OVEC. Kentucky
Utilities also owns 20% of Electric Energy, Inc. (``EEI''), an electric
utility company under the Act. EEI was formed in the early 1950s to
provide electric energy to a uranium enrichment plant located near
Paducah, Kentucky. The enrichment plant was originally operated by the
Atomic Energy Commission and the Department of Energy and is operated
today by the United States Enrichment Corporation. EEI owns the Joppa
Plant, a 1,015 Mw coal-fired electric generating plant located near
Joppa, Illinois, and six 161 kilovolts transmission lines which
transmit power from the Joppa Plant to the Paducah enrichment plant.
EEI's common stock is held by Kentucky Utilities and three other
utility companies. EEI sells its excess electricity to its sponsoring
utilities for resale. The uranium enrichment facility is EEI's only
end-user customer. For each of the three years in the period ended
December 31, 1996, KU Energy derived less than 3.4% of its net income
from its share of the earnings of EEI and OVEC.
In addition to Kentucky Utilities, KU Energy has one other
subsidiary, KU Capital Corporation (``KU Capital''). KU Capital is KU
Energy's vehicle for investments in various nonutility energy-related
ventures. These activities have consisted of investing as an equity
participant in leases of eight combustion turbine generating units to
other utilities and investing in limited partnership interests in
various independent projects that are either QFs or EWGs.
For the year ended December 31, 1996, KU Energy's operating
revenues on a consolidated basis were approximately $716 million, of
which approximately $712 million were attributable to its electric
utility operations, and approximately $4 million were attributable to
its nonutility operations. Consolidated assets of KU Energy and its
subsidiaries at December 31, 1996 were approximately $1.7 billion of
which approximately $1.5 billion consisted of net electric utility
property, and $55 million consisted of nonutility assets. As of
September 30, 1997, KU Energy had 37,817,878 outstanding shares of
common stock (``KU Energy Common Stock''). KU Energy has no shares of
preferred stock outstanding.
The merger agreement provides for KU Energy to be merged with and
into LG&E Energy, with LG&E Energy as the surviving corporation. Under
the merger agreement, upon completion of the Transaction, each issued
and outstanding share of KU Energy Common Stock (except shares held by
KU Energy shareholders who perfect dissenters' rights), together with
associated stock purchase rights, will be canceled and converted into
1.67 shares of LG&E Energy Common Stock, together with associated stock
purchase rights. Each issued and outstanding share of LG&E Energy
Common Stock (except shares held by LG&E Energy shareholders who
perfect dissenters' rights), together with associated stock purchase
rights, will remain outstanding, unchanged, as one share of LG&E Energy
Common Stock. The Transaction is expected to qualify as a tax-free
reorganization under section 368(a) of the Internal Revenue Code of
1986, as amended, and to be treated as a ``pooling of interests'' for
accounting purposes.
As a result of the Transaction, LG&E Energy will be a public-
utility holding company as defined in section 2(a)(7) of the Act with
ownership of two public-utility companies, LG&E and Kentucky Utilities,
and indirect ownership, through Kentucky Utilities, of 20% of one other
public-utility company, EEI. LG&E states that following consummation of
the Transaction, it will be entitled to an exemption from all
provisions of the Act except section 9(a)(2) because it and each of its
public-utility subsidiaries from which it derives a material part of
its income will be predominantly intrastate in character and will carry
on their utility businesses substantially within the state of
Kentucky.\5\
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\5\ LG&E states that LG&E Energy and each of its material public
utility subsidiaries will be Kentucky corporations operating
primarily in Kentucky. Neither OVEC nor IKEC will be a subsidiary of
LG&E Energy for purposes of the Act following the Transaction
because LG&E Energy's total indirect ownership of OVEC will be only
7.4%. Although EEI will be a subsidiary of LG&E Energy for purposes
of the Act following the Transaction and is not a Kentucky
corporation, LG&E Energy states that EEI will not be a material
public utility subsidiary of LG&E Energy for purposes of section
3(a)(1). KU Energy has not in the past derived a material part of
its income from EEI (less than 3.5% in each of the last three years)
and, on a pro forma basis following the Transaction, EEI will
constitute an even smaller part of LG&E Energy's income on a
percentage basis.
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[[Page 12524]]
BL Holding Corp. (70-9157)
BL Holding Corp. (``BL Holding'') One MetroTech Center, Brooklyn,
New York 11201, a to-be-formed New York public utility holding company
has filed an application for an order under sections 9(a)(2) and 10 of
the Act authorizing its proposed acquisitions of KeySpan Energy
Corporation (``KeySpan''), a New York public utility holding company
claiming an exemption from registration under section 3(a)(1) under
rule 2 from all provisions of the Act except section 9(a)(2), and
KeySpan's wholly owned gas utility subsidiary, The Brooklyn Union Gas
Company (``Brooklyn Union'') \6\ and Long Island Lighting Company
(``LILCO''),\7\ a New York electric and gas public utility company and/
or certain of LILCO's assets as described below.\8\ BL Holding also
requests an order under section 3(a)(1) declaring it exempt from all
provisions of the Act except section 9(a)(2), following consummation of
the proposed transactions.
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\6\ Brooklyn Union distributes natural gas at retail in the
Boroughs of Brooklyn and Staten Island and two-thirds of the Borough
of Queens, all in the City of New York. Brooklyn Union's service
territory is approximately 187 square miles. The population of the
territory served is approximately four million persons. As of
September 30, 1997, Brooklyn Union had approximately 1.128 million
active meters, of which approximately 1.09 million were residential.
\7\ LILCO supplies electric and gas service in Nassau and
Suffolk Counties on Long Island, New York, and to the Rockaway
Peninsula in the Borough of Queens in the City of New York. LILCO's
service territory covers an area of approximately 1,230 square
miles, and is contiguous to the service territory of Brooklyn Union.
The population of the service area is approximately 2.7 million
persons, including approximately 98,000 persons who reside in the
Borough of Queens within the City of New York. LILCO serves
approximately one million electric customers, of which 921,000 are
residential. LILCO receives approximately 49% of its electric
revenues from residential customers, 48% from commercial/industrial
customers and 3% from sales to other utilities and public
authorities. LILCO also serves approximately 460,000 gas customers,
412,000 of which are residential, accounting for 61% of the gas
revenues, with the balance of the gas revenues made up by the
commercial/industrial customers and off-system sales.
\8\ The Amended and Restated Agreement and Plan of Exchange and
Merger dated as of June 26, 1997 was originally between Brooklyn
Union and LILCO. On September 29, 1997, Brooklyn Union engaged in a
binding share exchange with its subsidiary KeySpan, with the result
that Brooklyn Union became a wholly owned subsidiary of KeySpan.
This agreement is called the amended by the Amendment, Assignment
and Assumption Agreement among Brooklyn Union, LILCO and KeySpan,
dated as of September 29, 1997 and KeySpan was substituted for
Brooklyn Union in the original agreement ``Exchange and Merger
Agreement.''
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BL Holding proposes three alternative transactions. The first
proposal, defined as the ``Combination,'' involves the acquisition by
BL Holding of all of the issued and outstanding common stock of (1)
KeySpan and its utility subsidiary, Brooklyn Union and (2) LILCO.
The second proposal, or ``Modified Combination,'' involves the
acquisition by BL Holding of the issued and outstanding common stock of
KeySpan and the equity interests in one or more to-be-formed wholly
owned subsidiaries (``Transferee Subsidiary''). The Transferee
Subsidiaries will acquire certain assets of LILCO (``Transferred
Assets''), if a proposed merger of LILCO into a subsidiary of the Long
Island Power Authority (``LIPA''), a corporate municipal
instrumentality and a political subdivision of the State of New York,
occurs.\9\
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\9\ BL Holding, LILCO, LIPA, and to-be-formed subsidiary of LIPA
entered into an Agreement and Plan of Merger, dated as of June 26,
1997, ``LIPA Agreement.'' Under the LIPA Agreement, LIPA would
acquire certain assets of LILCO through a stock transaction
including the electric transmission and distribution system, the 18%
interest in the Nine Mile Point 2 nuclear power station in upstate
New York and the electric regulatory assets (as well as certain
current assets related to LILCO's electric business). LIPA would
also assume certain of LILCO's current liabilities, long-term debt
obligations and preferred stock.
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The third proposal, ``LIPA Transaction,'' involves the acquisition
by BL Holding of the equity interests of the Transferee Subsidiaries
and the subsequent transfer of the Transferred Assets without giving
effect to the acquisition of the common stock of KeySpan. The three
proposals, the Combination, the Modified Combination and the LIPA
Transaction are referred to collectively as the ``Transactions.'' Any
one of these alternative Transactions may occur.
The Combination
Under the Combination, BL Holding would own and, through LILCO and
Brooklyn Union, operate the existing gas and electric utility systems
owned by LILCO and the existing gas utility system owned by Brooklyn
Union. The Exchange and Merger Agreement provides that, following its
adoption by the shareholders of both LILCO and Brooklyn Union (each of
which occurred on August 7, 1997) and the satisfaction or waiver of the
other conditions to the combination, including obtaining the requisite
regulatory approvals, the outstanding shares of LILCO common stock
(``LILCO Common Stock'') will be exchanged for newly issued shares of
BL Holding common stock, par value $0.01 per share (``BL Common
Stock''), in a share exchange (``Share Exchange''). In addition, the
outstanding shares of KeySpan common stock will be converted into the
right to receive newly issued shares of BL Common Stock.
Upon the consummation of the Share Exchange, each issued and
outstanding share of LILCO Common Stock, other than shares held by
dissenting shareholders, will be exchanged for 0.803 shares of BL
Common Stock. Thus, BL Holding will become the owner of each share of
LILCO Common Stock and each share of LILCO Common Stock will be deemed
to have been exchanged for that fraction of a share of BL Common Stock.
In addition, each issued and outstanding share of preferred stock
of LILCO will be unchanged as a result of the Share Exchange and will
remain outstanding thereafter provided that the transactions
contemplated by the LIPA Agreement are not consummated.
Upon the consummation of the Combination, each issued and
outstanding share of KeySpan common stock, other than dissenting
shares, will be converted into the right to receive one share of BL
Common Stock and KeySpan will become a wholly owned subsidiary of BL
Holding (``KeySpan Merger'').
The Modified Combination
If the LIPA Transaction is consummated before or contemporaneously
with the Combination, KeySpan and certain assets of LILCO will be
combined under the Modified Combination. Instead of consummating the
Share Exchange, the transactions contemplated by the Exchange and
Merger Agreement and the LIPA Agreement will be consummated in the
following way.
In exchange for the designated number of shares of BL Common Stock
(``Designated Number'') and up to $75 million face amount of BL Holding
preferred stock (``Private Placement Preferred Stock''), LILCO will
transfer the Transferred Assets to the subsidiaries of BL Holding, as
KeySpan and LILCO direct. The Designated Number will be the number of
shares of BL Common Stock representing the net fair market value of the
Transferred Assets, as will be determined in good faith by KeySpan and
LILCO, less the face amount of the BL Holding preferred stock.
LIPA Sub \10\ will merge with and into LILCO and the transactions
[[Page 12525]]
contemplated by the LIPA Agreement will be consummated. The cash merger
consideration will be paid to an exchange agent as agent for the
holders of LILCO Common Stock to subscribe for and purchase from BL
Holding a number of shares of BL Common Stock, which number of shares,
when added to the Designated Number, will represent the number of
shares of LILCO Common Stock issued and outstanding immediately prior
to the consummation of the KeySpan Merger, other than LILCO dissenting
shares, multiplied by 0.880. The KeySpan Merger will then be
consummated promptly.
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\10\ Under the LIPA Agreement, LILCO will merge with LIPA
Acquisition Corporation, a New York corporation to be formed as a
wholly owned subsidiary of LIPA (``LIPA Sub''). LIPA Sub will be
merged with and into LILCO, which will be the surviving corporation,
for aggregate cash merger consideration of $2.4975 billion (subject
to adjustment), LILCO's Series AA Preferred Stock will be exchanged
for Series AA preferred stock of BL Holding and each outstanding
share of the LILCO Series CC Preferred Stock, Series GG Preferred
Stock, Series QQ Preferred Stock and Series UU Preferred Stock
(except for shares whose holders perfect their rights to obtain
judicial appraisal) will be canceled and converted into the right to
receive cash in the applicable amounts described in the LIPA
Agreement. Immediately prior to the consummation of the LIPA
Transaction, LILCO will transfer to BL Holding, or one or more of BL
Holding's wholly owned subsidiaries, all of the Transferred Assets.
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Also under the Modified Combination, BL Holding would own and,
through KeySpan and one or more Transferee Subsidiaries, operate each
of the existing gas utility systems as well as the non-nuclear
generating facilities currently owned by LILCO and, through one or more
other Transferee Subsidiaries, would provide a comprehensive set of
operational and management services to LIPA to assist LIPA in the
operation of the electric system (which would continue to be owned by
LILCO as a wholly owned subsidiary of LIPA).
The LIPA Transaction
Under the LIPA Transaction, BL Holding would own and, through the
Transferee Subsidiaries, operate the gas utility system and non-nuclear
generating facilities currently owned by LILCO and provide electric
system operational and management services to LIPA.
Before the closing of the LIPA Transaction (``LIPA Closing''), BL
Holding will form the Transferee Subsidiaries which will enter into
certain agreements in connection with the LIPA Transaction, which are
referred to as the ``Basic Agreements.'' Under the Basic Agreements,
one or more of the Transferee Subsidiaries will provide: (1) certain
management services on behalf of LIPA with respect to the operation and
maintenance of the electric transmission and distribution system to be
transferred to LIPA as part of the LIPA Transaction; (2) electric
capacity and energy to LIPA from the generating plants that are among
the Transferred Assets; and (3) energy management services to purchase
fuel and electric capacity and energy and manage the scheduling and
sale of electric capacity and energy on behalf of LIPA. Certain
schedules to the LIPA Agreement set out the principles and procedures
to be used to decide which LILCO assets and properties will be part of
the Transferred Assets and which will remain with LILCO as a subsidiary
of LIPA. Generally, the Transferred Assets will consist of all those
assets currently owned and employed by LILCO in the conduct of its gas
distribution business, LILCO's non-nuclear electric generating assets
located on Long Island, and certain common assets used by LILCO in the
operation and management of LILCO's existing gas distribution, electric
generation and electric transmission and distribution system.
Immediately prior to the LIPA Closing, LILCO will transfer the
Transferred Assets to the Transferee Subsidiaries in exchange for the
(1) Designated Number of shares of BL Common Stock and (2) Private
Placement Preferred Stock. LILCO will be obligated to sell the Private
Placement Preferred Stock immediately prior to the LIPA Closing. It is
anticipated that the Private Placement Preferred Stock will: (1) have a
final maturity date more than five years after the LIPA Closing; (2) be
nonvoting (except as a result of BL Holding's failure to pay dividends
for a specified period of time); (3) be nonconvertible; and (4) have
other terms and conditions to be determined at the time of sale.
At the LIPA Closing, the shares of capital stock of LILCO will be
treated as follows:
(1) Common and preferred shares held in treasury will be
canceled and retired. (``Canceled Shares'').
(2) Each issued and outstanding share of LILCO Common Stock,
other than Canceled Shares and shares of LILCO Common Stock held by
any dissenting shareholder, will be canceled and converted into the
right to receive: (a) an amount in cash equal to the cash merger
consideration divided by the number of shares of LILCO Common Stock
outstanding; and (b) a pro rata distribution of BL Common Stock
received by LILCO in exchange for the Transferred Assets.
(3) Each holder of shares of LILCO Common Stock, other than
shares held by any dissenting sharesholders, will be deemed to have
appointed an exchange agent as its agent to receive the cash
otherwise due the holder and to use the cash to subscribe for shares
of BL Common Stock. The total number of shares of BL Common Stock
distributable to holders of LILCO Common Stock in respect of each
share of LILCO Common Stock will include the number of distributable
shares of BL Common Stock received by LILCO in exchange for the
Transferred Assets, as well as the number of shares distributable
from the purchase by the exchange agent of additional shares of BL
Common Stock out of the cash purchase price and, in the aggregate,
will equal: (a) 0.880 shares of Company Common Stock for each share
of LILCO Common Stock (other than the dissenting shares) if the
Combination is consummated concurrently with the LIPA Transaction;
or (b) one share of BL Common Stock for each share of LILCO Common
Stock (other than the dissenting shares) if the Combination is not
consummated concurrently with the LIPA Transaction.
(4) If the Combination has been consummated prior to the LIPA
Closing, then (a) no shares of BL Common Stock or Private Placement
Preferred Stock will be delivered in exchange for the Transferred
Assets, and BL Holding and/or one or more of its subsidiaries, as
the holders of all then outstanding LILCO Common Stock, will receive
all of the cash merger consideration, and (b) an additional 0.077
shares of BL Common Stock will be distributed to the record holders
of LILCO Common Stock as of the effective time of the Combination in
respect of each share of LILCO Common Stock.
(5) Each issued and outstanding share of Series AA Preferred
Stock of LILCO, other than Canceled Shares and shares of the
preferred stock held by any dissenting shareholder, will be canceled
and converted into the right to receive one fully paid and
nonassessable share of preferred stock of BL Holding with identical
rights (including dividend rates) and designations to the Series AA
Preferred Stock.
(6) Each issued and outstanding share of LILCO Preferred Stock
that is subject to optional redemption by LILCO at or before the
closing date, other than Canceled Shares, will be redeemed for cash
by LILCO not later than the closing date in accordance with the
terms applicable to the shares.
(7) Each issued and outstanding share of LILCO Preferred Stock,
other than Canceled Shares, dissenting Preferred Shares, shares of
Series AA Preferred Stock and redeemable preferred stock
(collectively, ``Non-redeemable Preferred Stock''), will be canceled
and converted into the right to receive cash in the amount of the
sum of (a) the Make-Whole Amount,\11\ and (b) accrued
[[Page 12526]]
but unpaid dividends in respect of the sahres through the closing
date.
\1\ The Make-Whole Amount means, with respect to the shares, an
amount equal to the present value of (a) the face or liquidation
preference amount of the share, and (b) the remaining dividend
payments due on the share between the LIPA closing date and the
applicable redemption date computed using a discount rate equal to
the applicable Fair Market Rate divided by 0.95.
Fair Market Rate is defined as the Generic General Obligation
Fair Market Yield for Baa rated Low/Medium Coupon General Municipal
Obligations at the time of the computation as reported on Bloomberg,
with a maturity most nearly equal to the period between cancellation
and final redemption of the series of Non-redeemable Preferred
Stock. The period between cancellation and redemption refers to the
period between the closing date of the LIPA Transaction (``LIPA
Closing Date''): (a) August 1, 2002, with respect to the Series CC
Preferred Stock; (b) March 1, 1999, with respect to the Series GG
Preferred Stock; (c) May 1, 2001, with respect to the Series QQ
Preferred Stock; and (d) October 16, 2018, with respect to the
Series UU Preferred Stock.
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The amount by which the aggregate amount payable exceeds 100% of
the aggregate face or liquidation preference amounts for all shares of
Non-redeemable Preferred Stock shall be paid by the Company to LILCO
promptly after the LIPA Closing. The cash merger consideration is based
upon the assumption that the total long-term indebtedness of LILCO on
the LIPA Closing Date will not exceed $3.576 billion (``Retained Debt
Amount'').
The Retained Debt Amount will be adjusted based upon LILCO's net
book value, as reflected on LILCO's audited consolidated balance sheet
as of the date, as follows. The Retained Debt Amount will be either (1)
increased by the amount, if any, by which the net book value of the
Retained Assets exceeds $2.5008 billion or (2) decreased by the amount,
if any, by which the net book value of the Retained Assets is less than
$2.5008 billion.
As of the LIPA Closing Date, BL Holding will, and will cause each
of the Transferee Subsidiaries to, execute and deliver promissory notes
(``Promissory Notes'') on the following terms: (1) The aggregate
principal amount will be equal to the excess, if any, of the
indebtedness of LILCO outstanding on the LIPA Closing Date over the
Retained Debt Amount; and (2) The rates and maturities will correspond
to each portion of debt underlying the indebtedness of LILCO on the
LIPA Closing Date; provided, however, that the interest and principal
payment dates will be adjusted to require payment by BL Holding 30 days
prior to the corresponding payment dates on the underlying debt.
LILCO currently has a series of 7.3% Debentures due July 15, 1999,
with an approximate aggregate principal amount currently outstanding of
$397 million, and a series of 8.20% Debentures due March 15, 2023, with
an approximate aggregate principal amount currently outstanding of $270
million. Subject to obtaining all required consents, BL Holding will
assume these obligations as of the LIPA Closing Date under an exchange
offer to be registered on Form S-4 with the Commission.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Johathan G. Katz,
Secretary.
[FR Doc. 98-6530 Filed 3-12-98; 8:45 am]
BILLING CODE 8010-01-M