As Filed with the Securities and Exchange Commission on May 4, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
KeySpan Corporation New York 11-3431358
KeySpan Trust I Delaware To be applied for
KeySpan Trust II Delaware To be applied for
KeySpan Trust III Delaware To be applied for
(Exact Name of Registrant (State or Other (I.R.S. Employer
as Specified in Jurisdiction of Identification Number)
its Charter) Incorporation
or Organization)
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Steven L. Zelkowitz, Esq.
One MetroTech Center, Brooklyn, New York 11201
175 East Old Country Road, Hicksville, New York 11801
(718) 403-1000 (Brooklyn)
(516) 755-6650 (Hicksville)
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices and agent for service)
Copy to:
Raymond W. Wagner, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
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Approximate date of commencement of proposed sale to public: From
time to time after this Registration Statement becomes effective as determined
by market conditions.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
(See following page)
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The Registrants hereby amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
Proposed Maximum
Title of Each Class of Aggregate Offering Proposed Maximum Amount of
Securities to be Amount to be Price Per Aggregate Offering Registration
Registered Registered (1) Security (1)(2) Price (1)(3)(4) Fee
---------------------- ------------------ ---------------- ----------------- ------------
Debt Securities of KeySpan Corporation (5)
Trust Preferred Securities of the Trusts (6)
Guarantees of Trust Preferred Securities of
the Trusts and certain back-up
obligations (7)........................
Preferred Stock, par value $.01 per share, of
KeySpan Corporation (8)................
Depositary Shares (9)......................
Common Stock, par value $.01 per share, of
KeySpan Corporation (10)...............
Rights to purchase Series D Preferred Stock,
par value $.01 per share, of KeySpan
Corporation (11)......................
Stock Purchase Contracts of KeySpan
Corporation (12).......................
Stock Purchase Units (13)..................
Warrants of KeySpan
Corporation (14).......................
Warrant Units (15).........................
Total.................................. $1,000,000,000 $1,000,000,000 $250,000
============== ============== ========
(1) Pursuant to General Instruction II.D to Form S-3, the Amount to be
Registered, Proposed Maximum Aggregate Offering Price Per Security and
Proposed Maximum Aggregate Offering Price has been omitted for each class
of securities that is registered hereby.
(2) The Proposed Maximum Aggregate Offering Price Per Security will be
determined from time to time by the relevant Registrant in connection
with the issuance by that Registrant of the securities registered
hereunder.
(3) The Proposed Maximum Aggregate Offering Price has been
estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933 and reflects the
maximum offering price of securities issued, rather than the principal
amount of securities that may be issued at a discount and shall not
exceed $1,000,000,000 or the equivalent thereof, based on the exchange
rate on the applicable offering date, in one or more currencies or
currency units identified by the applicable Registrant at the time of
offering.
(4) Excluding accrued interest, distributions and dividends, if any.
(5) An indeterminate number of debt securities of KeySpan Corporation are
covered by this registration statement. Debt securities may be issued (a)
separately, (b) as part of stock purchase units or warrant units which
are registered hereby or (c) upon exercise of warrants to purchase debt
securities which are registered hereby.
(6) An indeterminate number of trust preferred securities of KeySpan Trust I,
KeySpan Trust II and KeySpan Trust III (each a "Trust") are covered by
this registration statement. Trust preferred securities may be issued
separately or as part of stock purchase units which are registered
hereby. Debt securities of KeySpan may be issued to any Trust in exchange
for trust preferred securities, in which event such debt securities may
later be distributed to the holders of trust preferred securities upon a
dissolution of such Trust and the distribution of the assets thereof.
(7) Includes the rights of holders of the trust preferred securities under
any guarantees and certain back-up undertakings, comprised of the
obligations of KeySpan Corporation, to provide certain indemnities in
respect of, and pay and be responsible for certain costs, expenses, debts
and liabilities of, each Trust (other than with respect to the trust
preferred securities) and such obligations of KeySpan Corporation as set
forth in the amended and restated declaration of trust of each Trust and
the related indenture, in each case as further described in the
registration statement. The guarantees, when taken together with KeySpan
Corporation's obligations under the debt securities, the related
indenture and the amended and restated declaration of trust, will provide
a full and unconditional guarantee by KeySpan Corporation of payments due
on the trust preferred securities. No separate consideration will be
received for any guarantees or such back-up obligations.
(8) An indeterminate number of shares of preferred stock of KeySpan
Corporation are covered by this registration statement. Preferred stock
may be issued (a) separately or (b) as part of stock purchase units which
are registered hereby.
(9) An indeterminate number of depositary shares, representing fractional
interests in the preferred stock of KeySpan Corporation, are covered by
this registration statement. In the event KeySpan Corporation elects to
offer to the public such fractional interests, the depositary shares will
be issued to a depositary under a deposit agreement. Depositary shares
may be issued (a) separately or (b) as part of stock purchase units which
are registered hereby.
(10) An indeterminate number of shares of common stock, par value $.01 per
share of KeySpan Corporation are covered by this registration statement.
Common stock may be issued (a) separately, (b) upon the conversion of
either the debt securities or the shares of preferred stock of KeySpan
Corporation, or trust preferred securities of a Trust, each of which are
registered hereby or (c) upon settlement of stock purchase contracts of
KeySpan Corporation or stock purchase units, each of which are registered
hereby. Shares of common stock issued upon conversion of debt securities,
preferred stock or trust preferred securities will be issued without the
payment of additional consideration.
(11) An indeterminate number of rights to purchase Series D Preferred Stock,
par value $0.01 per share, of KeySpan Corporation (the "Rights"), are
covered by this registration statement. Prior to the occurrence of
certain events, the Rights will not be exercisable or evidenced
separately from shares of common stock of KeySpan Corporation. The value,
if any, attributable to those Rights is reflected in the market price of
the common stock.
(12) An indeterminate number of stock purchase contracts of KeySpan
Corporation are covered by this registration statement. Each stock
purchase contract may be issued separately or as part of a stock purchase
unit. A stock purchase contract obligates the holder, upon settlement, to
purchase an indeterminate number of shares of common stock of KeySpan
Corporation. If a stock purchase contract is issued as part of a stock
purchase unit, no separate consideration will be received for the stock
purchase contract.
(13) An indeterminate number of stock purchase units are covered by this
registration statement. Each stock purchase unit consists of (a) a stock
purchase contract, under which the holder, upon settlement, will purchase
an indeterminate number of shares of common stock of KeySpan Corporation
and attached Rights and (b) a debt security of KeySpan Corporation, a
share of preferred stock of KeySpan Corporation or a depositary share
relating to that preferred stock, a trust preferred security of a Trust
or a debt obligation of a third party, including a U.S. Treasury
security. Each debt security, share of preferred stock or depositary
share relating to preferred stock or debt obligation of a third party may
be pledged to secure the obligation of the holder to purchase common
stock.
(14) An indeterminate number of warrants, representing rights to purchase
preferred stock, depositary shares, common stock or debt securities of
KeySpan Corporation, each of which is registered hereby, are covered by
this registration statement.
(15) An indeterminate number of warrant units are covered by this registration
statement. Each warrant unit consists of (a) a warrant under which the
holder, upon exercise, will purchase an indeterminate number of shares of
common stock of KeySpan Corporation and (b) a debt security of KeySpan
Corporation, a share of preferred stock of KeySpan Corporation or
depositary shares relating to that preferred stock, or a trust preferred
security of a Trust.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 4, 2001
PROSPECTUS
[LOGO]
KEYSPAN CORPORATION
Debt Securities
Preferred Stock
Depositary Shares
Common Stock
Stock Purchase Units
Stock Purchase Contracts
Warrants
Warrant Units
KEYSPAN TRUST I
KEYSPAN TRUST II
KEYSPAN TRUST III
Trust Preferred Securities
Guaranteed, to the extent set forth herein, by
KEYSPAN CORPORATION
KeySpan Corporation will provide the specific terms of these
securities in supplements to this prospectus. You should read this prospectus
and the applicable prospectus supplement carefully before you invest.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is ________, 2001.
TABLE OF CONTENTS
Page
About This Prospectus.................................................i
Risk Factors..........................................................1
Forward-Looking Statements............................................3
Keyspan Corporation...................................................4
The Trusts............................................................4
Use of Proceeds.......................................................5
Ratio of Earnings to Fixed Charges and of Earnings to Combined
Fixed Charges and Preferred Stock Dividends..........................5
Description of Debt Securities........................................6
Description of Preferred Stock.......................................19
Description of Depositary Shares.....................................22
Description of the Trust Preferred Securities........................25
Description of Common Stock..........................................37
Description of Stock Purchase Contracts and Stock Purchase Units.....41
Description of Warrants and Warrant Units............................42
United States Federal Income Tax Consequences........................44
ERISA Considerations.................................................61
Plan of Distribution.................................................65
Legal Opinions.......................................................66
Experts..............................................................66
Where You Can Find More Information..................................67
About This Prospectus
As used in this prospectus and any prospectus supplement or term
sheet, "KeySpan" generally means KeySpan Corporation, together with its
consolidated subsidiaries. However, in the descriptions of the securities
offered in this prospectus and related risk factors, "KeySpan" means KeySpan
Corporation and not any of its subsidiaries.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement or term sheet. KeySpan has not
authorized anyone else to provide you with different information. KeySpan is
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or
any supplement is accurate as of any date other than the date on the front of
these documents.
i
RISK FACTORS
In addition to the risk factors discussed below relating to trust
preferred securities, if appropriate, we will include risk factors relating to
securities offered using this prospectus in the prospectus supplement relating
to the offered securities.
Risk Factors Relating to the Trust Preferred Securities
Your investment in the trust preferred securities will involve
several risks. You should carefully consider the following discussion of
risks, and the other information in this prospectus, before deciding whether
an investment in the trust preferred securities is suitable for you.
KeySpan is not required to pay you under the guarantee and the junior
subordinated debt securities unless it first makes other required payments.
KeySpan's obligations under the junior subordinated debt securities
will rank junior to all of its senior debt. This means that KeySpan cannot
make any payments on the junior subordinated debt securities if it defaults on
a payment of senior debt and does not cure the default within the applicable
grace period or if the senior debt becomes immediately due because of a
default and has not yet been paid in full. In addition, KeySpan's obligations
under the junior subordinated debt securities will be effectively subordinated
to all of the existing and future liabilities of its subsidiaries. KeySpan's
obligations under the guarantee are subordinated to all of its other
liabilities. This means that KeySpan cannot make any payments on the guarantee
if it defaults on a payment on any of its other liabilities. In addition, in
the event of the bankruptcy, liquidation or dissolution of KeySpan, its assets
would be available to pay obligations under the guarantee only after it has
made all payments on its other liabilities.
Neither the trust preferred securities, the junior subordinated debt
securities nor the guarantee limit KeySpan's ability to incur additional
indebtedness, including indebtedness that ranks senior in priority of payment
to the junior subordinated debt securities and the guarantee.
KeySpan is not required to pay you under the guarantee if the relevant trust
does not have cash available.
The ability of each trust to make payments on the trust preferred
securities is solely dependent upon KeySpan making the related payments on the
junior subordinated debt securities when due.
If KeySpan defaults on its obligations to make payments on the junior
subordinated debt securities, the trusts will not have sufficient funds to
make payments on the trust preferred securities. In those circumstances, you
will not be able to rely upon the guarantee for payment of these amounts.
Deferral of distributions would have adverse tax consequences for you and may
adversely affect the trading price of the trust preferred securities.
If distributions on the trust preferred securities are deferred, you
will be required to recognize interest income for United States federal income
tax purposes in respect of your ratable share of the interest on the junior
subordinated debt securities held by the trust before you receive any cash
distributions relating to this interest. In addition, you will not receive
this cash if you sold the trust preferred securities before the end of any
deferral period or before the record date relating to distributions which are
paid.
KeySpan has no current intention of deferring interest payments on
the junior subordinated debt securities and believes that such deferral is a
remote possibility. However, if KeySpan exercises its right to do so in the
future, the trust preferred securities may trade at prices that do not fully
reflect the value of accrued but unpaid interest on the junior subordinated
debt securities. If you sell the trust preferred securities during an interest
1
deferral period, you may not receive the same return on investment as someone
else who continues to hold the trust preferred securities. In addition, the
existence of KeySpan's right to defer payments of interest on the junior
subordinated debt securities may mean that the market price for the trust
preferred securities, which represent an undivided beneficial interest in the
junior subordinated debt securities, may be more volatile than other
securities that do not have these rights.
You should not rely on the distributions from the trust preferred securities
through their maturity date--they may be redeemed at any time if specified
changes in tax or investment company law occur.
If specified changes in tax or investment company law occur and other
specified conditions are satisfied, the trust preferred securities could be
redeemed by the trusts at a redemption price equal to their issue price plus
any accrued and unpaid distributions.
You should not rely on the distributions from the trust preferred securities
through their maturity date--they may be redeemed at KeySpan's option.
The trust preferred securities may be redeemed in whole, at any time,
or in part, from time to time, at a redemption price equal to their issue
price plus any accrued and unpaid distributions. You should assume that this
redemption option will be exercised if KeySpan is able to refinance at a lower
interest rate or it is otherwise in its interest to redeem the junior
subordinated debt securities. If KeySpan redeems the junior subordinated debt
securities, the trusts must redeem the trust preferred securities in an
aggregate liquidation amount equal to the aggregate principal amount of junior
subordinated debt securities redeemed.
You may suffer a loss if junior subordinated debt securities are distributed to
you in exchange for preferred securities because market prices for the
preferred securities and the junior subordinated debt securities may not be
equal.
KeySpan cannot give you any assurance as to the market prices for the
preferred securities or the junior subordinated debt securities that may be
distributed in exchange for preferred securities. Accordingly, the preferred
securities that an investor may purchase, whether pursuant to the offer made
by this prospectus or in the secondary market, or the junior subordinated debt
securities that a holder of preferred securities may receive in exchange for
preferred securities, may trade at a discount to the price that the investor
paid to purchase the preferred securities.
You could suffer adverse tax consequences if KeySpan terminates the trusts and
distributes the junior subordinated debt securities to holders.
KeySpan has the right to terminate the trust at any time. If KeySpan
decides to exercise this right, the trust will redeem the trust preferred
securities by distributing junior subordinated debt securities to holders of
the trust preferred securities on a proportionate basis.
Under current United States federal income tax law, a distribution of
junior subordinated debt securities to you on the dissolution of the trust
should not be a taxable event to you. However, if the trust is characterized
for United States federal income tax purposes as an association taxable as a
corporation at the time it is dissolved or if there is a change in law, the
distribution of junior subordinated debt securities to you may be a taxable
event to you.
Because you have limited voting rights, you may not be able to prevent the
trusts from taking actions you may not agree with.
You will have limited voting rights. In particular, except for the
limited exceptions described below, only KeySpan can elect or remove any of
the trustees.
2
FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus, any prospectus
supplement or term sheet and the documents KeySpan has incorporated by
reference contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. Such statements relate
to future events or KeySpan's future financial performance. KeySpan uses words
such as "anticipate," "believe," "expect," "may," "project," "will" or other
similar words to identify forward-looking statements.
Without limiting the foregoing, all statements relating to KeySpan's
- future outlook,
- anticipated capital expenditures,
- future cash flows and borrowings,
- pursuit of potential future acquisition opportunities, and
- sources of funding
are forward-looking statements. These forward-looking statements are based on
numerous assumptions that KeySpan believes are reasonable, but they are open
to a wide range of uncertainties and business risks and actual results may
differ materially from those discussed in these statements.
Among the factors that could cause actual results to differ
materially are:
- general economic conditions, especially in the Northeast United
States;
- available sources and costs of fuel;
- volatility of energy prices in a deregulated market environment
as well as in the source of natural gas and fuel used to
generate electricity;
- federal and state regulatory initiatives that increase
competition, threaten cost and investment recovery and impact
rate structure;
- KeySpan's ability to successfully reduce its cost structures;
- the successful integration of KeySpan's subsidiaries, including
Eastern, EnergyNorth and their subsidiaries;
- the degree to which KeySpan develops unregulated business
ventures, as well as federal and state regulatory policies
affecting KeySpan's ability to retain and operate those
business ventures;
- KeySpan's ability to identify and make complementary
acquisitions, as well as the successful integration of those
acquisitions; and
- inflationary trends and interest rates.
When considering these forward-looking statements, you should keep in
mind the cautionary statements in this document, any prospectus supplement or
term sheet and the documents incorporated by reference. KeySpan will not
update these statements unless the securities laws require it to do so.
3
KEYSPAN CORPORATION
KeySpan Corporation, a New York corporation, was formed in May 1998,
as a result of the business combination of KeySpan Energy Corporation, the
parent of The Brooklyn Union Gas Company, and certain businesses of the Long
Island Lighting Company. KeySpan has assets of more than $11.5 billion and
approximately 2.5 million gas customers throughout the Northeast.
KeySpan's core business is gas distribution, conducted by its six
regulated gas utility subsidiaries: The Brooklyn Union Gas Company d/b/a
KeySpan Energy Delivery New York and KeySpan Gas East Corporation d/b/a
KeySpan Energy Delivery Long Island distribute gas to customers in the
Boroughs of Brooklyn, Queens and Staten Island in New York City and the
Counties of Nassau and Suffolk on Long Island, respectively; Boston Gas
Company, Colonial Gas Company and Essex Gas Company, each doing business as
KeySpan Energy Delivery New England, distribute gas to customers in eastern
and central Massachusetts; and EnergyNorth Natural Gas, Inc. d/b/a KeySpan
Energy Delivery New England distributes gas to customers in central New
Hampshire.
KeySpan is also a major, and growing, generator of electricity.
KeySpan owns and operates five large generating plants and 42 smaller
facilities in Nassau and Suffolk Counties on Long Island and leases and
operates a major facility in Queens County in New York City. Under contractual
arrangements, KeySpan provides power, electric transmission and distribution
services operation and maintenance, billing and other customer services for
approximately one million electric customers of the Long Island Power
Authority on Long Island.
KeySpan's other subsidiaries are involved in oil and gas exploration
and production; gas storage; wholesale and retail gas and electric marketing;
appliance service; heating, ventilation and air conditioning installation and
services; large energy-system ownership, installation and management;
telecommunications; energy-related internet activities; fuel cells; water
barging activities, including the hauling of fuel and other cargo;
transportation by truck of liquid natural gas and propane; and providing meter
reading equipment and services to municipal utilities. KeySpan also invests
in, and participates in the development of, pipelines and other energy-related
projects, domestically and internationally.
KeySpan is a registered holding company under the Public Utility
Holding Company Act of 1935, as amended. Therefore, KeySpan's corporate and
financial activities and those of its subsidiaries, including their ability to
pay dividends to KeySpan, are subject to regulation by the Securities and
Exchange Commission. Under KeySpan's holding company structure, KeySpan has no
independent operations or source of income of its own and conducts
substantially all of its operations through its subsidiaries and, as a result,
KeySpan depends on the earnings and cash flow of, and dividends or
distributions from, its subsidiaries to provide the funds necessary to meet
its debt and contractual obligations. Furthermore, a substantial portion of
KeySpan's consolidated assets, earnings and cash flow is derived from the
operations of its regulated utility subsidiaries, whose legal authority to pay
dividends or make other distributions to KeySpan is subject to regulation by
state regulatory authorities.
KeySpan's principal place of business is One Metro Tech Center,
Brooklyn, New York 11201, and its telephone number is (718) 403-1000.
THE TRUSTS
KeySpan Trust I, KeySpan Trust II and KeySpan Trust III are Delaware
business trusts. Their principal place of business is c/o KeySpan Corporation,
One Metro Tech Center, Brooklyn, New York 11201, and its telephone number is
(718) 403-1000.
All of the common securities of the trusts will be owned by KeySpan.
KeySpan will issue a series of junior subordinated debt securities to the
trust in exchange for the trust common securities and the trust preferred
securities. KeySpan will simultaneously sell the trust preferred securities to
the public. The junior subordinated debt securities will have with the same
financial terms as the trust preferred securities.
4
There are five trustees of each trust. Three of them, referred to as
regular trustees, are officers of KeySpan. The Chase Manhattan Bank will act
as the property trustee of each trust, and Chase Manhattan Bank Delaware will
act as the Delaware trustee.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement,
the net proceeds form the sale of the offered securities will be used for
KeySpan's general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES ADN OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table shows KeySpan's consolidated ratio of earnings to
fixed charges and earnings to combined fixed charges and preferred stock
dividends for the periods indicated.
Twelve Months Twelve Months Ended March 31, Nine Months Year Ended December 31,
Ended ----------------------------- Ended -----------------------
December 31, December 31,
1996(a) 1997(a) 1998(a) 1998 1999 2000
-------------- ---------- --------- ------------- -------- --------
Ratio of Earnings to Fixed
Charges 2.15 2.21 2.44 (b) 3.23 3.02
Ratio of Earnings to
Combined Fixed Charges
and Preferred stock
Dividends 1.81 1.85 2.03 (b) 2.47 2.70
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(a) Represents ratio of earnings to fixed charges and earnings to combined
fixed changes and preferred stock dividends, respectively, for KeySpan's
predecessor, Long Island Lighting Company.
(b) For the nine months ended December 31, 1998, earnings were insufficient
to cover fixed charges by $365.0 million and insufficient to cover
combined fixed charges and preferred stock dividends by $409 million.
During the nine months ended December 31, 1998, KeySpan incurred the
following special charges (after tax): charges associated with the
transaction with the Long Island Power Authority of $107.9 million;
charges associated with the combination of Long Island Lighting Company's
gas and electric services businesses with KeySpan of $83.5 million; an
impairment charge of $54.1 million to write-down the value of proved gas
reserves; and a charge of $13.0 million to establish a not-for-profit
philanthropic foundation.
5
DESCRIPTION OF DEBT SECURITIES
The debt securities offered by this prospectus will be unsecured
obligations of KeySpan and will be either senior or subordinated debt. The
senior debt and the subordinated debt will be issued under an indenture that
is sometimes referred to in this prospectus as the "indenture." The indenture
is filed with the SEC as an exhibit to the registration statement of which
this prospectus forms a part.
The following briefly summarizes the material provisions of the
indenture and the debt securities, other than pricing and related terms
disclosed in the accompanying prospectus supplement or term sheet. The
prospectus supplement will also state whether any of the terms summarized
below do not apply to the series of debt securities being offered. You should
read the more detailed provisions of the indenture, including the defined
terms, for provisions that may be important to you. You should also read the
particular terms of a series of debt securities, which will be described in
more detail in the applicable prospectus supplement. Copies of the indenture
may be obtained from KeySpan or the applicable trustee. So that you may easily
locate the more detailed provisions, the numbers in parentheses below refer to
sections in the indenture. Wherever particular sections or defined terms of
the indenture are referred to, those sections or defined terms are
incorporated into this prospectus by reference, and the statement in this
prospectus is qualified by that reference.
Unless otherwise provided in the applicable prospectus supplement,
the trustee under the indenture will be The Chase Manhattan Bank.
Capitalized terms used below are defined under "Material covenants -
Defined terms."
Specific terms of each series
Each time that KeySpan issues a new series of debt securities, the
prospectus supplement or term sheet relating to that new series will specify
the particular amount, price, whether the debt securities are senior or
subordinated debt and other terms of those debt securities. These terms may
include:
- the title of the debt securities;
- any limit on the total principal amount of the debt securities;
- the date or dates on which the principal of the debt securities will
be payable or their manner of determination;
- the interest rate or rates of the debt securities; the date or dates
from which interest will accrue on the debt securities; and the
interest payment dates and the regular record dates for the debt
securities; or, in each case, their manner of determination;
- the place or places where the principal of and premium and interest
on the debt securities will be paid;
- the period or periods within which, the price or prices at which and
the terms on which any of the debt securities may be redeemed, in
whole or in part at KeySpan's option, and any remarketing
arrangements;
- the terms on which KeySpan would be required to redeem, repay or
purchase debt securities required by any sinking fund, mandatory
redemption or similar provision; and the period or periods within
which, the price or prices at which and the terms and conditions on
which the debt securities will be so redeemed, repaid or purchased
in whole or in part;
- the denomination in which the debt securities will be issued, if
other than denominations of $1,000 and any whole multiple thereof;
6
- the portion of the principal amount of the debt securities that is
payable on the declaration of acceleration of the maturity, if other
than their principal amount; these debt securities could include
original issue discount, or OID, debt securities or indexed debt
securities, which are each described below;
- whether and under what circumstances KeySpan will pay additional
amounts under any debt securities held by a person who is not a U.S.
person for tax payments, assessments or other governmental charges
and whether KeySpan has the option to redeem the debt securities
which are affected by the additional amounts instead of paying the
additional amounts;
- the form in which KeySpan will issue the debt securities, whether
registered, bearer or both, and any restrictions on the exchange of
one form of debt securities for another and on the offer, sale and
delivery of the debt securities in either form;
- whether the debt securities will be issuable as global securities;
- whether the amounts of payments of principal of, premium, if any,
and interest, if any, on the debt securities are to be determined
with reference to an index, formula or other method, and if so, the
manner in which such amounts will be determined;
- if the debt securities are issuable in definitive form upon the
satisfaction of certain conditions, the form and terms of such
conditions;
- any trustees, paying agents, transfer agents, registrars,
depositories or similar agents with respect to the debt securities;
- any additions or deletions to the terms of the debt securities with
respect to the events of default or covenants governing the debt
securities;
- the foreign currency or units of two or more foreign currencies in
which payment of the principal of and premium and interest on any
debt securities will be made, if other than U.S. dollars, and the
holders' right, if any, to elect payment in a foreign currency or
foreign currency unit other than that in which the debt securities
are payable;
- whether and to what extent the debt securities are subject to
defeasance on terms different from those described under "Defeasance
of the indenture;" and
- any other terms of the debt securities that are not inconsistent
with the indenture.
KeySpan may issue debt securities as OID debt securities. OID debt
securities bear no interest or bear interest at below-market rates and are
sold at a discount below their stated principal amount. If KeySpan issues OID
debt securities, the prospectus supplement or term sheet will contain the
issue price, the rate at which interest will accrete, and the date from which
such interest will accrete on the OID debt securities.
KeySpan may also issue indexed debt securities. Payments of principal
of, and premium and interest on, indexed debt securities are determined with
reference to the rate of exchange between the currency or currency unit in
which the debt security is denominated and any other currency or currency unit
specified by KeySpan, to the relationship between two or more currencies or
currency units or by other similar methods or formulas specified in the
prospectus supplement or term sheet.
The terms on which a series of debt securities may be convertible
into or exchangeable for other securities of KeySpan or another party will be
set forth in the prospectus supplement relating to that series. The terms will
include provisions as to whether conversion or exchange is mandatory, at the
option of the holder or at KeySpan's option. The terms may include provisions
under which the number of other securities to be received by the holders of a
series of debt securities may be adjusted. (section 301)
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Senior debt
The senior debt securities will rank on an equal basis with all of
KeySpan's other unsecured debt.
Subordinated debt
The subordinated debt securities will rank subordinated and junior in
right of payment, to the extent set forth in the indenture, to all of
KeySpan's "senior debt" (as defined below).
If KeySpan defaults in the payment of any principal of, or premium,
if any, or interest on any senior debt when it becomes due and payable after
any applicable grace period, then, unless and until the default is cured or
waived or ceases to exist, KeySpan cannot make a payment on account of or
redeem or otherwise acquire the subordinated debt securities.
If there is any insolvency, bankruptcy, liquidation or other similar
proceeding relating to KeySpan or KeySpan's property, then all senior debt
must be paid in full before any payment may be made to any holders of
subordinated debt securities.
Furthermore, if KeySpan defaults in the payment of the principal of
and accrued interest on any subordinated debt securities that is declared due
and payable upon an event of default under the subordinated debt indenture,
holders of all senior debt will first be entitled to receive payment in full
in cash before holders of subordinated debt securities can receive any
payments.
"Senior debt" means:
(a) the principal, premium, if any, and interest in respect of (A)
KeySpan's indebtedness for money borrowed and (B) indebtedness
evidenced by securities, notes, debentures, bonds or other similar
instruments issued by KeySpan, including the senior debt securities;
(b) all of KeySpan's capitalized lease obligations;
(c) all of KeySpan's obligations representing the deferred purchase
price of property; and
(d) all deferrals, renewals, extensions and refunding of obligations of
the type referred to in clauses (a) through (c);
but senior debt does not include:
(1) subordinated debt securities;
(2) any indebtedness that by its terms is subordinated to, or ranks on an
equal basis with, subordinated debt securities;
(3) indebtedness for goods or materials purchased in the ordinary course
of business or for services obtained in the ordinary course of
business or indebtedness consisting of trade payables; and
(4) indebtedness that is subordinated to an obligation of KeySpan of the
type specified in clauses (a) through (d) above. (section 1401)
Form and denomination
The prospectus supplement or term sheet will describe the form which
the debt securities will have, including insertions, omissions, substitutions
and other variations permitted by the indenture and any legends required by
any laws, rules or regulations. (section 201)
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KeySpan will issue debt securities in denominations of $1,000 and
whole multiples thereof, unless the prospectus supplement or term sheet states
otherwise. (section 302)
Payment
KeySpan will pay principal of and premium and interest on its
registered debt securities at the place and time described in the debt
securities. KeySpan will pay installments of interest on any registered debt
security to the person in whose name the registered debt security is
registered at the close of business on the regular record date for these
payments. KeySpan will pay principal and premium on registered debt securities
only against surrender of these debt securities. (section 1001) If KeySpan
issues debt securities in bearer form, the prospectus supplement or term sheet
will describe where and how payment will be made.
Material covenants
The indenture includes the following material covenants:
Lien on assets
If KeySpan or any of its Gas Utility Subsidiaries mortgages, pledges
or otherwise subjects to any lien the whole or any part of any Property which
they now own or acquire in the future, then KeySpan or that Gas Utility
Subsidiary will secure the debt securities to the same extent and in the same
proportion as the debt or other obligation that is secured by each of those
mortgages, pledges or other liens. The debt securities will remain secured for
the same period as the other debt remains secured. This restriction does not
apply, however, to any of the following:
- purchase-money mortgages or liens;
- liens on any property or asset that existed at the time when KeySpan
or that Gas Utility Subsidiary acquired that property or asset;
- any deposit or pledge to secure public or statutory obligations or
contractual obligations to Long Island Power Authority;
- any deposit or pledge with any governmental agency required in order
to qualify KeySpan or that Gas Utility Subsidiary to conduct its
business, or any part of its business, or to entitle it to maintain
self-insurance or to obtain the benefits of any law relating to
workmen's compensation, unemployment insurance, old age pensions or
other social security;
- any deposit or pledge with any court, board, commission or
governmental agency as security related to the proper conduct of any
proceeding before it;
- any mortgage, pledge or lien on any property or asset of any
affiliate of KeySpan other than Gas Utility Subsidiaries, even if
the affiliate may have acquired that property or asset from KeySpan
or a Gas Utility Subsidiary;
- any lien granted over receivables or other monetary or regulatory
assets granted in connection with a securitization arrangement for
those assets to secure KeySpan or one of its Gas Utility
Subsidiaries' monetary or regulatory obligations incurred in
relation to such securitization arrangements, so long as the
principal amount of those obligations does not exceed the aggregate
face amount of such receivables or monetary assets;
- liens for taxes, assessments or governmental charges or levies not
yet delinquent or being contested in good faith by KeySpan, if
appropriate reserves have been made;
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- liens of landlords and liens of mechanics and materialmen incurred
in the ordinary course of business for sums not yet due or being
contested in good faith by KeySpan, if appropriate reserves have
been made;
- leases or subleases granted to others in the ordinary course of
business;
- easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and which
do not interfere with the ordinary conduct of business;
- liens incurred in connection with the issuance by a state or a
political subdivision of a state of any securities the interest on
which is exempt from federal income taxes under Section 103 of the
Internal Revenue Code or any other laws or regulations in effect at
the time of the issuance; or
- liens for the sole purpose of extending, renewing or replacing all
or a part of the indebtedness secured by any lien referred to in the
foregoing clauses or in this clause.
Notwithstanding the foregoing, KeySpan and its Gas Utility
Subsidiaries may create, incur or permit to exist any lien to secure
Indebtedness in addition to those permitted by the preceding sentence, and
renew, extend or replace such liens, provided that at the time of such
creation, incurrence, renewal, extension or replacement, after giving effect
thereto, the aggregate amount of all such Indebtedness of KeySpan and the Gas
Utility Subsidiaries and the aggregate Attributable Value of all Sales and
Leaseback Transactions of KeySpan and the Gas Utility Subsidiaries at any one
time outstanding together shall not exceed 10% of Consolidated Tangible
Assets. As of March 31, 2001, Consolidated Tangible Assets were $11.4 billion.
(section 1007).
Sale and leaseback transactions
Neither KeySpan nor any of its Gas Utility Subsidiaries may enter
into any Sale and Leaseback unless either:
- KeySpan and its Gas Utility Subsidiaries would be entitled pursuant
to the "--Liens on assets" covenant to create Indebtedness secured
by a lien on the Principal Property to be leased back in an amount
equal to the Attributable Value of such Sale and Leaseback
Transaction without the debt securities being equally and ratably
secured with, or, at KeySpan's option, prior to, that Indebtedness;
or
- KeySpan or the relevant Gas Utility Subsidiary, within 270 days
after the sale or transfer of the relevant assets shall have been
made, applies, in the case of a sale or transfer for cash, an amount
equal to the net proceeds from the sale or, in the case of a sale or
transfer otherwise than for cash, an amount equal to the fair market
value of the Principal Property so leased, as determined by any two
directors of KeySpan or the relevant Gas Utility Subsidiary, to:
- the retirement of Indebtedness of KeySpan ranking prior to or on a
parity with the debt securities, incurred or assumed by KeySpan or
that Gas Utility Subsidiary which by its terms matures at, or is
extendible or renewable at the option of the obligor to, a date more
than twelve months after the date of incurring, assuming or
guaranteeing such Indebtedness or
- the investment in any Principal Property used in the ordinary course
of business. (section 1008)
Limitation on merger, consolidation and sales of assets
KeySpan may not consolidate with or merge into any other entity or
transfer or lease substantially all of its properties and assets to any person
unless:
- the successor is organized under the laws of the United States or a
state thereof;
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- the successor assumes by supplemental indenture the obligations of
its predecessor-- that is, all of KeySpan's obligations under the
debt securities and the indenture; and
- after giving effect to the transaction, there is no default under
the indenture.
The surviving transferee or lessee corporation will be KeySpan's
successor, and KeySpan will be relieved of all obligations under the debt
securities and the indenture. (sections 801 and 802)
Defined terms
"Attributable Value" means, as to any particular lease under which
KeySpan or any of its Gas Utility Subsidiaries is at any time liable as lessee
and at any date as of which the amount thereof is to be determined, the total
net obligations of the lessee for rental payments during the remaining term of
the lease (including any period for which such lease has been extended or may,
at the option of the lessor, be extended) discounted from the respective due
dates thereof to such date at a rate per annum equivalent to the interest rate
inherent in such lease (as determined in good faith by KeySpan in accordance
with generally accepted financial practice) compounded semi-annually.
"Capital Stock" of any Person means shares, interests, rights to
purchase, warrants, options, participation or other equivalents of or
interests in, however designed, equity of such Person, including any preferred
stock, but excluding any debt securities convertible into such equity.
"Consolidated Tangible Assets" means, as of the date of any
determination thereof, the total of all assets which would appear on a
consolidated balance sheet of KeySpan and its subsidiaries, prepared in
accordance with U.S. generally accepted accounting principles, or U.S. GAAP,
at their net book values (after deducting related depreciation, depletion and
amortization which, in accordance with U.S. GAAP, should be set aside in
connection with the business conducted), but excluding goodwill, trade names,
trademarks, patents, unamortized debt discount and all other intangible assets
all as determined in accordance with U.S. GAAP.
"Gas Utility Subsidiaries" means the following subsidiaries of
KeySpan engaged in the distribution and sale at retail of natural gas: The
Brooklyn Union Gas Company d/b/a KeySpan Energy Delivery New York, KeySpan Gas
East Corporation d/b/a KeySpan Energy Delivery Long Island, Boston Gas
Company, Colonial Gas Company, Essex Gas Company, and EnergyNorth Natural Gas,
Inc. d/b/a KEDNE; and any other subsidiary of KeySpan engaged in such
activity, provided such subsidiary would be, at any particular time, a
Significant Subsidiary.
"Indebtedness" means, with respect to any Person, without
duplication:
(1) any liability of that Person:
- for borrowed money or under any reimbursement obligation
relating to a letter of credit or similar instrument;
- evidenced by a bond, note, debenture or similar instrument;
- to pay the deferred purchase price of property or services,
except trade accounts payable arising in the ordinary course of
business; or
- for the payment of money relating to any obligations under any
capital lease of real or personal property which has been
recorded as a capitalized lease obligation.
(2) any liability of others described in the preceding clause (1) that
the Person has guaranteed or that is otherwise its legal liability
or which is secured by a lien on that Person's Property;
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(3) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in
clauses (1) or (2) above; and
(4) in the case of any of KeySpan's subsidiaries, the aggregate
preference in respect of amounts payable on the issued and
outstanding shares of preferred stock of any such subsidiary in the
event of any voluntary or involuntary liquidation, dissolution or
winding up, excluding any such preference attributable to such
shares of preferred stock that are owned by such Person or any of
its subsidiaries.
"Person" means any individual, firm, corporation, partnership,
association, joint venture, tribunal, limited liability company, trust,
government or political subdivision or agency or instrumentality thereof, or
any other entity or organization.
"Principal Property" means the real estate, fixtures, pipelines,
mains, meters, pipes, valves, compressors and other related personal property
primarily used in connection with the transportation, distribution or retail
sale of gas by the Gas Utility Subsidiaries.
"Property" means any asset, revenue or any other property, including
capital stock, whether tangible or intangible, real or personal, including,
without limitation, any right to receive income.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions relating to Principal Property now owned or hereafter
acquired whereby KeySpan or one of its Gas Utility Subsidiaries transfers the
Principal Property to a Person and KeySpan or one of its Gas Utility
Subsidiaries leases it from that Person for a period, including renewals, in
excess of three years.
"Significant Subsidiary" has the meaning specified, as of the date of
the indenture, in Rule 1-02 of Regulation S-X promulgated under the Securities
Act.
Registration of transfer and exchange
All debt securities issued upon any registration of transfer or
exchange of debt securities will be valid obligations of KeySpan, evidencing
the same debt and entitled to the same rights under the indenture as the debt
securities surrendered in the registration of transfer or exchange.
Registration of transfer
Holders of registered debt securities may present their securities
for registration of transfer at the office of one or more security registrars
designated and maintained by KeySpan. (section 305)
KeySpan will not be required to register the transfer of or exchange
debt securities under the following conditions:
- KeySpan will not be required to register the transfer of or exchange
any debt securities during a period of 15 days before any selection
of those debt securities to be redeemed.
- KeySpan will not be required to register the transfer of or exchange
any debt securities selected for redemption, in whole or in part,
except the unredeemed portion of any debt securities being redeemed
in part.
- KeySpan will not be required to register the transfer of or exchange
debt securities of any holder who has exercised an option to require
the repurchase of those debt securities prior to their stated
maturity date, except the portion not being repurchased.
(section 305)
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Exchange
At your option, you may exchange your registered debt securities of
any series, except a global security, as set forth below, for an equal
principal amount of other registered debt securities of the same series having
authorized denominations upon surrender to KeySpan's designated agent.
KeySpan may at any time exchange debt securities issued as one or
more global securities for an equal principal amount of debt securities of the
same series in definitive registered form. In this case KeySpan will deliver
to the holders new debt securities in definitive registered form in the same
aggregate principal amount as the global securities being exchanged.
The depositary of the global securities may also decide at any time
to surrender one or more global securities in exchange for debt securities of
the same series in definitive registered form, in which case KeySpan will
deliver the new debt securities in definitive form to the persons specified by
the depositary, in an aggregate principal amount equal to, and in exchange
for, each person's beneficial interest in the global securities.
(section 305)
Notwithstanding the above, KeySpan will not be required to exchange
any debt securities if, as a result of the exchange, KeySpan would suffer
adverse consequences under any United States law or regulation. (section 305)
Global securities
If KeySpan decides to issue debt securities in the form of one or
more global securities, then KeySpan will register the global securities in
the name of the depositary for the global securities or the nominee of the
depositary and the global securities will be delivered by the trustee to the
depositary for credit to the accounts of the holders of beneficial interests
in the debt securities.
The prospectus supplement or term sheet will describe the specific
terms of the depositary arrangement for debt securities of a series that are
issued in global form. None of KeySpan, the trustee, any paying agent or the
security registrar will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a global debt security or for maintaining, supervising or
reviewing any records relating to these beneficial ownership interests.
Defeasance of the indenture
Unless otherwise specified in the prospectus supplement or term
sheet, KeySpan can terminate all of its obligations under the indenture with
respect to the debt securities, other than the obligation to pay interest on
and the principal of the debt securities and certain other obligations, at any
time by:
- depositing money or U.S. government obligations with the trustee in
an amount sufficient to pay the principal of and interest on the
debt securities to their maturity; and
- complying with certain other conditions, including delivery to the
trustee of an opinion of counsel to the effect that holders of debt
securities will not recognize income, gain or loss for federal
income tax purposes as a result of KeySpan's defeasance.
In addition, unless otherwise specified in the prospectus supplement
or term sheet, KeySpan can terminate all of its obligations under the
indenture with respect to the debt securities, including the obligation to pay
interest on and the principal of the debt securities, at any time by:
- depositing money or U.S. government obligations with the trustee in
an amount sufficient to pay the principal of and interest on the
debt securities to their maturity, and
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- complying with certain other conditions, including delivery to the
trustee of an opinion of counsel stating that there has been a
ruling by the Internal Revenue Service, or a change in the federal
tax law since the date of the indenture, to the effect that holders
of debt securities will not recognize income, gain or loss for
federal income tax purposes as a result of KeySpan's defeasance.
(sections 402-404)
Payments of unclaimed moneys
Moneys deposited with the trustee or any paying agent for the payment
of principal of or premium and interest on any debenture that remains
unclaimed for two years will be repaid to KeySpan at its request, unless the
law requires otherwise. If this happens and you want to claim these moneys,
you must look to KeySpan and not to the trustee or paying agent. (section 409)
Events of default, notices, and waiver
Events of default
An "event of default" regarding any series of debt securities is any
one of the following events:
- default for 30 days in the payment of any interest installment when
due and payable;
- default in the payment of principal or premium when due at its
stated maturity, by declaration, when called for redemption or
otherwise;
- default in the performance of any covenant in the debt securities or
in the indenture by KeySpan for 60 days after notice to KeySpan by
the trustee or by holders of 25% in principal amount of the
outstanding debt securities of that series;
- acceleration of debt securities of another series or any other
indebtedness of KeySpan or one of its Significant Subsidiaries for
borrowed money, in an aggregate principal amount exceeding $25
million under the terms of the instrument or instruments under which
the indebtedness is issued or secured, if the acceleration is not
annulled within 30 days after written notice as provided in the
indenture;
- a final, non-appealable judgment or order for the payment of money
in excess of $25 million rendered against KeySpan or one of its
Significant Subsidiaries that is not paid or discharged within 60
days following entry of such judgment or order;
- certain events of bankruptcy, insolvency and reorganization
involving KeySpan; and
- any other event of default of that series that is specified in the
prospectus supplement or term sheet. (section 501)
A default regarding a single series of debt securities will not
necessarily constitute a default regarding any other series.
If an event of default for any series of debt securities occurs and
is continuing (other than an event of default involving the bankruptcy,
insolvency or reorganization of KeySpan), either the trustee or the holders of
25% in principal amount of the outstanding debt securities of that series may
declare the principal (or, in the case of (a) OID debt securities, a lesser
amount as provided in those OID debt securities or (b) indexed debt
securities, an amount determined by the terms of those indexed debt
securities), of all the debt securities of that series, together with any
accrued interest on the debt securities, to be immediately due and payable by
notice in writing to KeySpan. If it is the holders of debt securities who give
notice of that declaration of acceleration to KeySpan, then they must also
give notice to the trustee. (section 502)
If an event of default occurs which involves the bankruptcy,
insolvency or reorganization of KeySpan, as set forth above, then all unpaid
principal amounts (or, if the debt securities are (a) OID debt securities,
14
then the portion of the principal amount that is specified in those OID debt
securities or (b) indexed debt securities, an amount determined by the terms
of those indexed debt securities) and accrued interest on all debt securities
of each series will immediately become due and payable, without any action by
the trustee or any holder of debt securities. (section 502)
In order for holders of debt securities to initiate proceedings for a
remedy under the indenture, holders of 25% in principal amount of those debt
securities must:
- first give notice to KeySpan as provided above;
- request that the relevant trustee initiate a proceeding in its own
name; and
- offer that trustee a reasonable indemnity against costs and
liabilities.
If the trustee still refuses for 60 days to initiate the proceeding, and no
inconsistent direction has been given to the trustee by holders of a majority
of the debt securities of the same series, the holders may initiate a
proceeding as long as they do not adversely affect the rights of any other
holders of that series. (section 507)
The holders of a majority in principal amount of the outstanding debt
securities of a series may rescind a declaration of acceleration if all events
of default, besides the failure to pay principal or interest due solely
because of the declaration of acceleration, have been cured or waived.
(section 502)
If KeySpan defaults on the payment of any installment of interest and
fails to cure the default within 30 days, or if KeySpan defaults on the
payment of principal when it becomes due, then the trustee may require KeySpan
to pay all amounts due to the trustee, with interest on the overdue principal
or interest payments, in addition to the expenses of collection. (section 503)
A judgment for money damages by courts in the United States,
including a money judgment based on an obligation expressed in a foreign
currency, will ordinarily be rendered only in U.S. dollars. New York statutory
law provides that a court shall render a judgment or decree in the foreign
currency of the underlying obligation and that the judgment or decree shall be
converted into U.S. dollars at the exchange rate prevailing on the date of
entry of the judgment or decree. The indenture requires KeySpan to pay
additional amounts necessary to protect holders if a court requires a
conversion to be made on a date other than a judgment date.
Notices
The trustee is required to give notice to holders of a series of debt
securities of a default, which remains uncured or has not been waived and that
is known to the trustee, within 90 days after the default has occurred. If a
default occurs in the performance of any covenant in the debt securities or
the indenture, other than a default in the payment of principal of and premium
or interest on any of the debt securities, the trustee shall not give notice
to the holders of debt securities until 60 days after the occurrence of the
default. The trustee may withhold notice of a default if KeySpan and the
trustee determine that doing so is in the best interests of the holders, but
may not withhold the notice in the case of a default in the payment of
principal of and premium or interest on any of the debt securities or the
deposit of any sinking fund payment. (section 602)
Waiver
The holders of a majority in principal amount of the outstanding debt
securities of a series may waive any past default or event of default except a
default in the payment of principal of or premium or interest on the debt
securities of that series or a default relating to a provision that cannot be
amended without the consent of each affected holder. (section 513)
Reports
KeySpan is required to file an officer's certificate with the trustee
every year confirming it is complying with all conditions and covenants in the
indenture. (section 1005)
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KeySpan must also file with the trustee copies of its annual reports
and the information and other documents which KeySpan may be required to file
with the SEC under Section 13 or Section 15(d) of the Securities Exchange Act
of 1934, as amended. These documents must be filed with the trustee within 15
days after they are required to be filed with the SEC. If KeySpan is not
required to file the information, documents or reports under either of these
Sections, then KeySpan must file with the trustee and the SEC, in accordance
with the rules and regulations of the SEC, the supplementary and periodic
information, documents and reports which may be required by Section 13 of the
Exchange Act, in respect of a debt security listed and registered on a
national securities exchange, as may be required by the rules and regulations
of the SEC.
Within 30 days of filing the information, documents or reports
referred to above with the trustee, KeySpan must mail to the holders of the
debt securities any summaries of the information, documents or reports which
are required to be sent to the holders by the rules and regulations of the
SEC. (section 704)
Rights and duties of the trustee
The holders of a majority in principal amount of outstanding debt
securities of any series may direct the time, method and place of conducting
any proceeding for any remedy available to the trustees or exercising any
trust or other power conferred on the trustee. The trustee may decline to
follow that direction if it would involve the trustee in personal liability or
would be illegal. (section 512) During a default, the trustee is required to
exercise the standard of care and skill that a prudent man would exercise
under the circumstances in the conduct of his own affairs. (section 601) The
trustee is not obligated to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders of debt securities
unless those holders have offered to the trustee reasonable security or
indemnity. (section 603)
The trustee is entitled, in the absence of bad faith on its part, to
rely on an officer's certificate before taking action under the indenture.
((section 603)
Supplemental indentures
Supplemental indentures not requiring consent of holders
Without the consent of any holders of debt securities, KeySpan and
the trustees may supplement the indenture, among other things, to:
- pledge property to the trustee as security for the debt
securities;
- reflect that another entity has succeeded KeySpan and assumed
its covenants and obligations under the debt securities and the
indenture;
- cure any ambiguity or inconsistency in the indenture or in the
debt securities or make any other provisions necessary or
desirable, as long as the interests of the holders of the debt
securities are not adversely affected in any material respect;
- issue and establish the form and terms of any series of debt
securities as provided in the indenture;
- add to KeySpan's covenants further covenants for the benefit of
the holders of debt securities and, if the covenants are for
the benefit of less than all series of debt securities, stating
which series are entitled to benefit;
- add any additional event of default and, if the new event of
default applies to fewer than all series of debt securities,
stating to which series it applies;
- change the trustee or provide for an additional trustee;
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- provide additional provisions for bearer debt securities so
long as the action does not adversely affect the interests of
holders of any debt securities in any material respect; or
- modify the indenture in order to continue its qualification
under the Trust Indenture Act of 1939 or as may be necessary or
desirable in accordance with amendments to that Act. (section
901)
Supplemental indentures requiring consent of holders
With the consent of the holders of at least a majority in principal
amount of the series of the debt securities that would be affected by a
modification of the indenture, the indenture permits KeySpan and the trustee
to supplement the indenture or modify in any way the terms of the indenture or
the rights of the holders of the debt securities. However, without the consent
of each holder of all of the debt securities affected by that modification,
KeySpan and the trustee may not:
- reduce the principal of or premium on or change the stated
final maturity of any debt security;
- reduce the rate of or change the time for payment of interest
on any debt security or, in the case of OID debt securities,
reduce the rate of accretion of the OID;
- change any of KeySpan's obligations to pay additional amounts
under the indenture;
- reduce or alter the method of computation of any amount payable
upon redemption, repayment or purchase of any debt security by
KeySpan, or the time when the redemption, repayment or purchase
may be made;
- make the principal or interest on any debt security payable in
a currency other than that stated in the debt security or
change the place of payment;
- reduce the amount of principal due on an OID debt security upon
acceleration of maturity or provable in bankruptcy or reduce
the amount payable under the terms of an indexed debt security
upon acceleration of maturity or provable in bankruptcy;
- impair any right of repayment or purchase at the option of any
holder of debt securities;
- impair the conversion rights of any holder of debt securities;
- modify the right of any holder of debt securities to receive or
sue for payment of the principal or interest on a debt security
that would be due and payable at the maturity thereof or upon
redemption; or
- reduce the principal amount of the outstanding debt securities
of any series required to supplement the indenture or to waive
any of its provisions. (section 902)
A supplemental indenture which modifies or eliminates a provision
intended to benefit the holders of one series of debt securities will not
affect the rights under the indenture of holders of other series of debt
securities.
Redemption
The specific terms of any redemption of a series of debt securities
will be contained in the prospectus supplement or term sheet for that series.
Generally, KeySpan must send notice of redemption to the holders at least 30
days but not more than 60 days prior to the redemption date. The notice will
specify:
- the principal amount being redeemed;
- the redemption date;
17
- the redemption price;
- the place or places of payment;
- the CUSIP number of the debt securities being redeemed;
- whether the redemption is pursuant to a sinking fund;
- that on the redemption date, interest, or, in the case of OID
debt securities, original issue discount, will cease to accrue;
and
- if bearer debt securities are being redeemed, that those bearer
debt securities must be accompanied by all coupons maturing
after the redemption date or the amount of the missing coupons
will be deducted from the redemption price, or indemnity must
be furnished, and whether those bearer debt securities may be
exchanged for registered debt securities not being redeemed.
(section 1104)
On or before any redemption date, KeySpan will deposit an amount of
money with the trustee or with a paying agent sufficient to pay the redemption
price. (section 1103)
If less than all the debt securities are being redeemed, the trustee
shall select the debt securities to be redeemed using a method it considers
fair. (section 1103) After the redemption date, holders of debt securities
which were redeemed will have no rights with respect to the debt securities
except the right to receive the redemption price and any unpaid interest to
the redemption date. (section 1106)
Concerning the trustee
KeySpan has customary banking relationships with the trustee, The
Chase Manhattan Bank. Among other services, The Chase Manhattan Bank provides
KeySpan with cash management and credit services, including payroll account,
lockbox, foreign exchange and investment custody account services. The Chase
Manhattan Bank also serves or has served as administrative agent and trustee
with respect to other issuances of debt by KeySpan and its subsidiaries and is
a member of a syndicate of banks which is party to several credit facilities
with KeySpan in a total amount of $2 billion. In addition, Chase Securities
Inc., an affiliate of The Chase Manhattan Bank, acts as a placement agent for
KeySpan's commercial paper program.
Governing law
The laws of the State of New York govern the indenture and will
govern the debt securities. (section 112)
18
DESCRIPTION OF PREFERRED STOCK
The following briefly summarizes the material terms of KeySpan's
preferred stock, other than pricing and related terms disclosed in the
accompanying prospectus supplement or term sheet. You should read the
particular terms of any series of preferred stock offered by KeySpan, which
will be described in more detail in any prospectus supplement or term sheet
relating to that series, together with the more detailed provisions of
KeySpan's certificate of incorporation and the certificate of amendment
relating to each particular series of preferred stock for provisions that may
be important to you. The certificate of amendment relating to the particular
series of preferred stock offered by the applicable prospectus supplement and
this prospectus will be filed as an exhibit to a document incorporated by
reference in the registration statement. The prospectus supplement will also
state whether any of the terms summarized below do not apply to the series of
preferred stock being offered.
General
As of March 31, 2001, KeySpan was authorized to issue 83,000,000
shares of preferred stock, par value $.01 per share, 16,000,000 shares of
preferred stock, par value $25 per share and 1,000,000 shares of preferred
stock, par value $100 per share.
At March 31, 2001, KeySpan had 92,050 shares of 6% Series A ESOP
Convertible Preferred Stock, par value $100 per share, outstanding; 553,000
shares of 7.07% Preferred Stock Series B, par value $100 per share,
outstanding; and 197,000 shares of 7.17% Preferred Stock Series C, par value
$100 per share, outstanding. Shares of Series A Preferred Stock were issued to
trustees acting on behalf of a KeySpan employee benefit plan; they are
convertible into shares of KeySpan's common stock at the option of the holder,
redeemable at KeySpan's option beginning January 1, 2004, and redeemable at
the option of the holder under specified circumstances. Shares of both the
Series B and Series C Preferred Stock are redeemable at KeySpan's option
beginning May 28, 2003, and mandatorily redeemable on May 28, 2005, in the
case of the Series B Preferred Stock, and on May 28, 2008, in the case of the
Series C Preferred Stock. Additionally, if KeySpan fails to pay dividends on
either the Series B and Series C Preferred Stock for four consecutive
quarterly dividend periods, holders of both series will have the right to
appoint two directors to KeySpan's board or directors, who shall remain on the
board as long as all dividends on the Series B and Series C Preferred Stock
remain unpaid. You should read the more detailed provisions of KeySpan's
certificate of incorporation or the certificate of amendment relating to a
series of outstanding preferred stock for provisions that may be important to
you.
Under KeySpan's certificate of incorporation, its board of directors
is authorized to issue shares of preferred stock in one or more series, and to
establish from time to time a series of preferred stock with the following
terms specified:
- the number of shares to be included in the series;
- the designation, powers, preferences and rights of the shares
of the series; and
- the qualifications, limitations or restrictions of that series,
except as otherwise stated in the certificate of incorporation.
Prior to the issuance of any series of preferred stock, KeySpan's
board of directors will create and designate the series as a series of
preferred stock in a certificate of amendment to the certificate of
incorporation. The term "board of directors" includes any duly authorized
committee of the board.
The rights of holders of the preferred stock offered may be adversely
affected by the rights of holders of any shares of preferred stock that may be
issued in the future. The board of directors may cause shares of preferred
stock to be issued in public or private transactions for any proper corporate
purpose. Examples of proper corporate purposes include issuances to obtain
additional financing in connection with acquisitions or otherwise, and
issuances to officers, directors and employees of KeySpan and its subsidiaries
pursuant to benefit plans or otherwise. Shares of preferred stock issued by
19
KeySpan may have the effect of rendering more difficult or discouraging an
acquisition of KeySpan that is deemed undesirable by its board of directors.
The preferred stock will be, when issued, fully paid and
nonassessable. Holders of preferred stock will not have any preemptive or
subscription rights to acquire more stock of KeySpan.
The transfer agent, registrar, dividend disbursing agent and
redemption agent for shares of each series of preferred stock will be named in
the prospectus supplement relating to that series.
Rank
Unless otherwise specified in the prospectus supplement relating to
the shares of any series of preferred stock, those shares will rank on an
equal basis with each other series of preferred stock and prior to the common
stock as to dividends and distributions of assets.
Dividends
Each series of preferred stock may provide that holders of that
series are entitled to receive cash dividends, when, as and if declared by
KeySpan's board of directors out of funds legally available for dividends. The
rates and dates of payment of dividends will be set forth in the prospectus
supplement relating to each series of preferred stock. Dividends will be
payable to holders of record of preferred stock as they appear on KeySpan's
books or, if applicable, the records of the depositary referred to below under
"Description of Depositary Shares," on the record dates fixed by the board of
directors. Dividends on any series of preferred stock may be cumulative or
noncumulative.
KeySpan may not declare, pay or set apart for payment dividends on
the preferred stock unless full cumulative dividends on any other series of
preferred stock that ranks on an equal or senior basis have been paid or
sufficient funds have been or are simultaneously set apart for payment for all
of the other series of preferred stock that pay dividends on a cumulative
basis; or the immediately preceding dividend period of the other series of
preferred stock that pay dividends on a noncumulative basis.
Partial dividends declared on shares of preferred stock and any other
series of preferred stock ranking on an equal basis as to dividends will be
declared pro rata. A pro rata declaration means that the ratio of dividends
declared per share to accrued dividends per share will be the same for both
series of preferred stock.
Similarly, KeySpan may not declare, pay or set apart for payment
non-stock dividends or make other payments on the common stock or any other
stock of KeySpan ranking junior to the preferred stock until full dividends on
the preferred stock have been paid or set apart for payment for
- all prior dividend periods if the preferred stock pays
dividends on a cumulative basis; or
- the immediately preceding dividend period if the preferred
stock pays dividends on a noncumulative basis.
Conversion and Exchange
The prospectus supplement for any series of preferred stock will
state the terms, if any, on which shares of that series are convertible into
or exchangeable for shares of KeySpan common stock or common stock of a third
party.
Redemption
If so specified in the applicable prospectus supplement, a series of
preferred stock may be redeemable at KeySpan's or the holder's option and/or
may be mandatorily redeemed. Any partial redemptions of preferred stock will
be made in a way that the board of directors decides is equitable.
20
Unless KeySpan defaults in the payment of the redemption price,
dividends will cease to accrue after the redemption date on shares of
preferred stock called for redemption and all rights of holders of those
shares will terminate except for the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding
up of KeySpan, holders of each series of preferred stock will be entitled to
receive distributions upon liquidation in the amount set forth in the
prospectus supplement relating to that series of preferred stock, plus an
amount equal to any accrued and unpaid dividends. Those distributions will be
made before any distribution is made on any securities ranking junior relating
to liquidation, including common stock.
If the liquidation amounts payable relating to the preferred stock of
any series and any other securities ranking on a parity regarding liquidation
rights are not paid in full, the holders of the preferred stock of that series
and other securities will share in any distribution of KeySpan's available
assets on a ratable basis in proportion to the full liquidation preferences.
Holders of that series of preferred stock will not be entitled to any other
amounts from KeySpan after they have received their full liquidation
preference.
Voting Rights
The holders of shares of preferred stock will have no voting rights,
except:
- as otherwise stated in the prospectus supplement;
- as otherwise stated in the certificate of amendment
establishing that series; or
- as required by applicable law.
21
DESCRIPTION OF DEPOSITARY SHARES
The following briefly summarizes the material provisions of the
deposit agreement and of the depositary shares and depositary receipts, other
than pricing and related terms disclosed in the accompanying prospectus
supplement or term sheet. You should read the particular terms of any
depositary shares and any depositary receipts that are offered by KeySpan and
any deposit agreement relating to a particular series of preferred stock which
will be described in more detail in a prospectus supplement or term sheet. The
prospectus supplement or term sheet will also state whether any of the
generalized provisions summarized below do not apply, or additional provisions
apply, to the depositary shares or depositary receipts being offered. A copy
of the form of deposit agreement, including the form of depositary receipt, is
incorporated by reference as an exhibit in the registration statement of which
this prospectus forms a part. You should read the more detailed provisions of
the deposit agreement and the form of depositary receipt for provisions that
may be important to you.
General
KeySpan may, at its option, elect to offer fractional shares of
preferred stock, rather than full shares of preferred stock. If KeySpan does
so, it will issue receipts for depositary shares, each of which will represent
a fraction of a share of a particular series of preferred stock.
The shares of any series of preferred stock represented by depositary
shares will be deposited under a deposit agreement between KeySpan and a bank
or trust company selected by KeySpan having its principal office in the United
States and having a combined capital and surplus of at least $50,000,000, as
preferred stock depositary. Each owner of a depositary share will be entitled
to all the rights and preferences of the underlying preferred stock, including
dividend, voting, redemption, conversion and liquidation rights, in proportion
to the applicable fraction of a share of preferred stock represented by that
depositary share.
The depositary shares will be evidenced by depositary receipts issued
under the deposit agreement. Depositary receipts will be distributed to those
persons purchasing the fractional shares of preferred stock in accordance with
the terms of the applicable prospectus supplement.
Dividends and other distributions
The preferred stock depositary will distribute all cash dividends or
other cash distributions received in respect of the deposited preferred stock
to the record holders of depositary shares relating to that preferred stock in
proportion to the number of depositary shares owned by those holders.
(Section 4.01)
The preferred stock depositary will distribute any property received
by it other than cash to the record holders of depositary shares entitled
thereto. If the preferred stock depositary determines that it is not feasible
to make distributions, it may, with KeySpan's approval, sell that property and
distribute the net proceeds from that sale to those holders. (Section 4.02)
Redemption of preferred stock
If a series of preferred stock represented by depositary shares is to
be redeemed, the depositary shares will be redeemed from the proceeds received
by the preferred stock depositary resulting from the redemption, in whole or
in part, of that series of preferred stock. The depositary shares will be
redeemed by the preferred stock depositary at a price per depositary share
equal to the applicable fraction of the redemption price per share payable in
respect of the shares of preferred stock so redeemed.
Whenever KeySpan redeems shares of preferred stock held by the
preferred stock depositary, the preferred stock depositary will redeem as of
the same date the number of depositary shares representing shares of preferred
stock so redeemed. If fewer than all the depositary shares are to be redeemed,
the depositary shares to be redeemed will be selected by the preferred stock
depositary by lot or ratably or by any other equitable method as the preferred
stock depositary may decide. (Section 2.03)
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Conversion of depositary shares
The depositary shares, as such, are not convertible into shares of
common stock or any other securities or property of KeySpan. Nevertheless, if
so provided in the applicable prospectus supplement, holders may surrender
their depositary receipts to the depositary with written instructions to the
depositary to instruct KeySpan to convert the preferred stock represented by
the depositary shares evidenced by those depositary receipts into whole shares
of common stock. Upon receipt of instructions and any amounts payable in
respect of the conversion, KeySpan will cause the delivery of:
- a certificate or certificates evidencing the number of whole
shares of common stock into which the preferred stock
represented by the depositary shares evidenced by those
depositary receipt or depositary receipts has or have been
converted; and
- any money or other property to which the holder is entitled.
If the depositary shares represented by a depositary receipt are to
be converted in part only, a new depositary receipt or depositary receipts
will be issued for any depositary shares not to be converted. No fractional
shares of common stock will be issued upon conversion, and if any conversion
will result in a fractional share being issued, an amount will be paid in cash
by KeySpan equal to the value of the fractional interest based on the closing
price of the common stock on the last business day prior to the conversion.
(Section 2.04)
Voting deposited preferred stock
Upon receipt of notice of any meeting at which the holders of any
series of deposited preferred stock are entitled to vote, the preferred stock
depositary will mail the information contained in that notice of meeting to
the record holders of the depositary shares relating to that series of
preferred stock. Each record holder of depositary shares on the record date
will be entitled to instruct the preferred stock depositary to vote the amount
of the preferred stock represented by that holder's depositary shares. The
preferred stock depositary will try to vote the amount of that series of
preferred stock represented by the depositary shares in accordance with those
instructions.
KeySpan will agree to take all actions that the preferred stock
depositary determines as necessary to enable the preferred stock depositary to
vote as instructed. The preferred stock depositary will abstain from voting
shares of any series of preferred stock held by it for which it does not
receive specific instructions from the holders of depositary shares
representing those shares. (Section 4.05)
Amendment and termination of the deposit agreement
The form of depositary receipt evidencing the depositary shares and
any provision of the deposit agreement may at any time be amended by agreement
between KeySpan and the preferred stock depositary. However, any amendment
that materially and adversely alters any existing right of the holders of
depositary shares will not be effective unless the amendment has been approved
by the holders of at least a majority of the depositary shares then
outstanding. Every holder of an outstanding depositary receipt at the time any
amendment becomes effective will be deemed, by continuing to hold the
depositary receipt, to consent and agree to the amendment and to be bound by
the deposit agreement, which has been amended thereby. (Section 6.01) The
deposit agreement may be terminated only if:
- all outstanding depositary shares have been redeemed; or
- final distribution in respect of the preferred stock has been
made to the holders of depositary shares in connection with any
liquidation, dissolution or winding up of KeySpan.
(Section 6.02)
Charges of preferred stock depositary; taxes and other governmental charges
KeySpan will pay all transfer and other taxes and governmental
charges arising solely from the existence of the depositary arrangements.
KeySpan will also pay charges of the depositary in connection with the initial
23
deposit of preferred stock and any redemption of preferred stock. Holders of
depositary receipts will pay other transfer and other taxes and governmental
charges and other charges, including a fee for the withdrawal of shares of
preferred stock upon surrender of depositary receipts, as are expressly
provided in the deposit agreement to be for their accounts. (Section 5.07)
Resignation and removal of depositary
The preferred stock depositary may resign at any time by delivering
to KeySpan notice of its intent to do so, and KeySpan may at any time remove
the preferred stock depositary, any resignation or removal to take effect upon
the appointment of a successor preferred stock depositary and its acceptance
of the appointment. The successor preferred stock depositary must be appointed
within 60 days after delivery of the notice of resignation or removal and must
be a bank or trust company having its principal office in the United States
and having a combined capital and surplus of at least $50,000,000.
(Section 5.04)
Miscellaneous
The preferred stock depositary will forward all reports and
communications from KeySpan which are delivered to the preferred stock
depositary and which KeySpan is required to furnish to the holders of the
deposited preferred stock. (Section 5.05)
Neither the preferred stock depositary nor KeySpan will be liable if
it is prevented or delayed by law or any circumstances beyond its control in
performing its obligations under the deposit agreement. KeySpan's obligations
and those of the preferred stock depositary under the deposit agreement will
be limited to performance in good faith of their duties thereunder and neither
KeySpan nor the preferred stock depositary will be obligated to prosecute or
defend any legal proceeding in respect of any depositary shares, depositary
receipts or shares of preferred stock unless satisfactory indemnity is
furnished. KeySpan and the preferred stock depositary may rely upon written
advice of counsel or accountants, or upon information provided by holders of
depositary receipts or other persons believed to be competent and on documents
believed to be genuine. (Section 5.03)
24
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The trust preferred securities will be issued pursuant to amended and
restated declarations of trust. Each declaration will be qualified under the
Trust Indenture Act of 1939. The Chase Manhattan Bank will act as trustee
under the declaration for purposes of the Trust Indenture Act. The terms of
the trust preferred securities will include those stated in the relevant
amended and restated declaration and those made part of the declaration by the
Trust Indenture Act. The declaration will be filed as an exhibit to a document
incorporated by reference in the registration statement of which this
prospectus forms a part.
The following briefly summarizes the material provisions of the
amended and restated declarations of trust and the trust preferred securities,
other than the pricing and related terms disclosed in an applicable prospectus
supplement. You should also read the particular terms of a series of trust
preferred securities, which will be described in more detail in the applicable
prospectus supplement. The prospectus supplement will also state whether any
of the generalized provisions summarized below do not apply, or additional
provisions apply, to the trust preferred securities being offered. Wherever
particular sections or defined terms of the amended and restated declaration
of trust are referred to, those sections or defined terms are incorporated
into this prospectus by reference, and the statement in this prospectus is
qualified by their reference.
General
The declaration authorizes the regular trustees to issue both common
and trust preferred securities representing undivided beneficial interests in
the assets of the trust. (section 3.6) KeySpan will own all of the common
securities directly or indirectly. (section 5.2) The common securities will
rank equally, and payments will be made on the common securities on a ratable
basis, with the trust preferred securities. If an event of default under the
declaration occurs and continues, however, the rights of the holders of the
common securities to receive payment of periodic distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights
of the holders of the trust preferred securities. (section 7.1) The
declaration does not permit the issuance of any other securities or the
incurrence of any indebtedness by the trust. (section 3.7)
Under the declaration, the property trustee will hold title to the
junior subordinated debt securities issued to the trust for the benefit of the
holders of the trust securities. (section 3.8) The payment of distributions
out of money held by the trust, and payments upon redemption of the trust
securities or liquidation of the trust out of money held by the trust, are
guaranteed by KeySpan to the extent described under "Description of the
guarantee." The guarantee will be held by The Chase Manhattan Bank, the
guarantee trustee, for the benefit of the holders of the trust preferred
securities. The guarantee does not cover payment of distributions when the
trust does not have sufficient available funds to pay distributions. In that
event, the remedy of a holder of trust preferred securities is to:
- vote to direct the property trustee to enforce the property
trustee's rights under the junior subordinated debt securities
(section 7.5); or
- if the failure of the trust to pay distributions is
attributable to KeySpan's failure to pay interest or principal
on the junior subordinated debt securities, sue KeySpan for
enforcement of payment to the holder of an amount equal to the
aggregate liquidation amount of its trust preferred securities.
(section 3.8)
Distributions
Distributions on the trust preferred securities will accrue at the
rate specified in the applicable prospectus supplement. The amount of
distributions payable for any period will be computed on the basis of a
360-day year of twelve 30-day months.
25
Distributions on the trust preferred securities will be cumulative,
will accrue from the date the trust issues the trust preferred securities and
will be paid in arrears on the dates specified in the applicable prospectus
supplement, unless they are deferred as described below. (section 7.2)
Deferral of distributions
KeySpan has the right under the indenture to defer interest payments
on the junior subordinated debt securities for a period not exceeding five
years during which no interest will be due and payable. A deferral of interest
payments cannot extend, however, beyond the maturity of the junior
subordinated debt securities. As a consequence of any deferral, distributions
on the trust preferred securities also would be deferred. During a deferral
period, the amount of distributions due to you would continue to accumulate
and deferred distributions will themselves accrue additional distributions.
When this prospectus refers to any payment of distributions, distributions
include any of those additional distributions unless otherwise stated.
(section 7.2)
Upon the termination of any deferral period and the payment of all
amounts then due, KeySpan may commence a new deferral period as discussed
above. Consequently, there could be several deferral periods of varying
lengths throughout the term of the junior subordinated debt securities. The
regular trustees will give the holders of the trust preferred securities
notice of any deferral period upon their receipt of notice from KeySpan.
(section 3.6) If distributions are deferred, the deferred distributions on
those distributions will be paid to holders of record of the trust preferred
securities as they appear on the securities register of the trust on the
record date following the termination of the deferral period. (section 7.2)
See "Description of the junior subordinated debt securities."
Payment of distributions
Distributions on the trust preferred securities will be payable to
the holders named on the securities register of the trust at the close of
business on the relevant record dates. As long as the trust preferred
securities remain in book-entry only form, the record dates will be one
business day before the distribution dates. Distributions will be paid through
the property trustee who will hold amounts received on the junior subordinated
debt securities in a property account for the benefit of the holders of the
trust securities. Unless any applicable laws and regulations and the
provisions of the declaration state otherwise, each payment will be made as
described under "-Book-entry only issuance" below.
If the trust preferred securities do not continue to remain in
book-entry only form, the relevant record dates will conform to the rules of
any securities exchange on which the trust preferred securities are listed. If
any date on which distributions are to be made on the trust preferred
securities is not a business day, then payment of the distributions payable on
that date will be made on the next day which is a business day, and without
any interest or other payment in respect of any delay. However, if that
business day is in the next calendar year, the payment will be made on the
immediately preceding business day. A "business day" means any day other than
Saturday, Sunday or any other day on which banking institutions in New York
City are permitted or required by law to close. (section 7.2)
Redemption
The trust preferred securities will be redeemed upon the maturity of
the junior subordinated debt securities or to the extent the junior
subordinated debt securities are redeemed. The junior subordinated debt
securities will mature on the date specified in the applicable prospectus
supplement, and may be redeemed, in whole or in part, at any time on or after
the date specified in the applicable prospectus supplement. The junior
subordinated debt securities can also be redeemed at any time, in whole or in
part, in certain circumstances upon the occurrence of a tax event or an
investment company event.
Upon the maturity of the junior subordinated debt securities, the
proceeds of their repayment will simultaneously be applied to redeem all
outstanding trust securities at the redemption price. Upon the redemption of
the junior subordinated debt securities, whether in whole or in part, either
at KeySpan's option or pursuant to a tax or investment company event, the
trust will use the cash it receives upon the redemption to redeem trust
26
securities having an aggregate liquidation amount equal to the aggregate
principal amount of the junior subordinated debt securities so redeemed at the
redemption price. Holders of trust securities will be given not less than 30
days' notice, before any redemption. (section 7.3)
Special event redemption
"Tax event" means that the regular trustees will have received an
opinion of an independent tax counsel experienced in such matters which states
that, as a result of any:
- amendment to, or change in, or announced proposed change in,
the laws or associated regulations of the United States or any
political subdivision or taxing authority of the United States;
or
- official administrative pronouncement, action or judicial
decision interpreting or applying those laws or regulations,
there is more than an insubstantial risk currently or within
the 90 days following that opinion that:
- the trust would be required to pay United States federal income
tax relating to income accrued or received on the junior
subordinated debt securities;
- interest payable to the trust on the junior subordinated debt
securities would not be deductible by KeySpan for United States
federal income tax purposes; or
- the trust would be required to pay more than a minimal amount
of other taxes, duties or other governmental charges. (section
1.1)
"Investment company event" means that the regular trustees will have
received an opinion of a nationally recognized independent counsel which
states that, as a result of the occurrence of a change in law or regulation or
a written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority, there is
more than an insubstantial risk that the trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act of 1940. (section 1.1)
This prospectus refers to a tax event and an investment company event
as "special events." If a special event occurs and continues, KeySpan may,
upon not less than 30 days' notice, redeem the junior subordinated debt
securities, in whole or in part, for cash within 90 days following the
occurrence of the special event.
Redemption procedures
The trust may not redeem fewer than all of the outstanding trust
preferred securities unless all accrued and unpaid distributions thereon have
been paid.
Once notice of redemption is given and funds are irrevocably
deposited, distributions will cease to accrue and all rights of holders of
trust preferred securities called for redemption will cease, except the right
of the holders to receive the redemption price, but without interest on the
redemption price. If any redemption date is not a business day, then payment
of the redemption price payable on such date will be made on the succeeding
day that is a business day, without any interest or other payment in respect
of any such delay. However, if that business day falls in the next calendar
year, payment will be made on the preceding business day.
If payment of the redemption price for any trust preferred securities
is improperly withheld or refused and not paid either by the trust or by
KeySpan under the guarantee, distributions on those trust preferred securities
will continue to accrue at the then applicable rate from the original
redemption date to the date of payment. In this case, the actual payment date
will be the redemption date for purposes of calculating the redemption price.
In the event that fewer than all of the outstanding trust preferred
securities are to be redeemed, the trust preferred securities will be redeemed
in accordance with the depositary's standard procedures.
27
KeySpan or its subsidiaries may, at any time, and from time to time,
purchase outstanding trust preferred securities by tender, in the open market
or by private agreement, provided that it complies with United States federal
securities laws and any other applicable laws. (section 7.4)
Distribution of the junior subordinated debt securities
KeySpan will have the right at any time to dissolve the trust. After
satisfying the liabilities of its creditors, the trust may distribute junior
subordinated debt securities in exchange for the trust preferred securities.
(section 8.2)
There can be no assurance as to the market prices for either the
trust preferred securities or the junior subordinated debt securities that may
be distributed in exchange for the trust preferred securities if a dissolution
and liquidation of the trust were to occur. This means that the trust
preferred securities that an investor may purchase, whether pursuant to the
offer made by this prospectus or in the secondary market, or the junior
subordinated debt securities that an investor may receive if a dissolution and
liquidation of the trust were to occur, may trade at a discount to the price
that the investor paid to purchase the trust preferred securities offered by
this prospectus.
Trust enforcement events
Upon the occurrence of an indenture event of default (as described
below), the property trustee as the sole holder of the junior subordinated
debt securities will have the right under the indenture to declare the
principal of and interest on the junior subordinated debt securities to be
immediately due and payable.
If the property trustee fails to enforce its rights under the junior
subordinated debt securities, any holder of trust preferred securities may
directly institute a legal proceeding against KeySpan to enforce these rights
without first suing the property trustee or any other person or entity. If a
trust enforcement event has occurred and is continuing and the event is
attributable to KeySpan's failure to pay interest or principal on the junior
subordinated debt securities on the date that interest or principal is
otherwise payable, then a holder of trust preferred securities may also bring
a direct action.
An "indenture event of default" is an event of default under the
indenture and also constitutes a "trust enforcement event," which is an event
of default under the declaration relating to the trust securities. Under the
declaration, however, the holder of the common securities will be deemed to
have waived any trust enforcement event relating to the common securities
until all trust enforcement events relating to the trust preferred securities
have been cured, waived or otherwise eliminated. Until any trust enforcement
events relating to the trust preferred securities have been so cured, waived,
or otherwise eliminated, the property trustee will be deemed to be acting
solely on behalf of the holders of the trust preferred securities. Only the
holders of the trust preferred securities will have the right to direct the
property trustee as to matters under the declaration, and therefore the
indenture. (section 2.6)
Voting rights
Except as described in this prospectus under "Description of the
guarantee--Modification of guarantee; assignment," and except as required by
law, the holders of the trust preferred securities will have no voting rights.
The holders of a majority in aggregate liquidation amount of the
trust preferred securities have the right to direct any proceeding for any
remedy available to the property trustee, including to:
- exercise the remedies available to it under the indenture;
- waive any past indenture event of default and its consequences
that is waivable under the indenture; or
- consent to any amendment, modification or termination where
consent is required.
28
Any required approval or direction of holders of trust preferred
securities may be given at a separate meeting of holders of trust preferred
securities convened for that purpose, at a meeting of all of the holders of
trust securities or by written consent.
If an indenture event of default has occurred and not been cured, the
holders of 25% of the aggregate liquidation amount of the trust preferred
securities may direct the property trustee to declare the principal and
interest on the junior subordinated debt securities due and payable. However,
where a consent or action under the indenture would require the consent of
more than a majority of the aggregate principal amount of debt securities
affected thereby, consent from the holders of that greater percentage would be
required. See "Description of the junior subordinated debt
securities--Modifications and amendments."
Despite the fact that holders of trust preferred securities are
entitled to vote or consent under the circumstances described above, any of
the trust preferred securities that are owned at the time by KeySpan or any
entity directly or indirectly controlling or controlled by, or under direct or
indirect common control with, KeySpan, will not be entitled to vote or
consent. Instead, these trust preferred securities will be treated as if they
were not outstanding.
The procedures by which holders of trust preferred securities may
exercise their voting rights are described below in "-Book-entry only
issuance."
Holders of the trust preferred securities generally will have no
rights to appoint or remove the regular trustees. Instead, the trustees may be
appointed, removed or replaced solely by KeySpan as the indirect or direct
holder of all of the common securities. (section 7.5)
Modification of the declaration
The declaration may be amended from time to time without the consent
of the holders of the trust preferred securities:
- to cure any ambiguity or correct or supplement any provisions
that may be defective or inconsistent with any other provision;
- to add to the covenants, restrictions or obligations of KeySpan
in its capacity as sponsor of the trust;
- to conform to any change in Rule 3a-5 under the Investment
Company Act of 1940 or written change in interpretation or
application of than rule by any legislative body, court,
government agency or regulatory authority; or
- to modify, eliminate or add to any provisions as necessary to
ensure that the trust will be classified for United States
federal income tax purposes as a grantor trust at all times or
to ensure that the trust will not be required to register as an
investment company under the Investment Company Act of 1940.
Amendments made without the consent of the trust preferred securities
cannot adversely affect in any material respect the rights of the holders of
preferred or common securities.
The declaration of trust may also be amended as to other matters with
the consent of holders of at least 66 2/3% of the outstanding trust preferred
securities. However, without the consent of each affected holder of preferred
or common securities, the declaration of trust may not be amended to:
- change the amount or timing of any distribution or otherwise
adversely affect the amount of any distribution required to be
made; or
- restrict the right of a holder to institute suit for the
enforcement of any payment.
29
Despite the foregoing, no amendment or modification may be made to
the declaration if such amendment or modification would
- cause the trust to be classified for United States federal
income tax purposes as other than a grantor trust, or
- cause the trust to be deemed an "investment company" which is
required to be registered under the Investment Company Act of
1940. (section 11.1)
Global securities
If a trust issues trust preferred securities in the form of one or
more global securities, then that trust will register the global securities in
the name of the depositary for the global securities or the nominee of the
depositary and the global securities will be delivered by the trustee to the
depositary for credit to the accounts of the holders of beneficial interests
in the trust preferred securities.
The prospectus supplement will describe the specific terms of the
depositary arrangement for trust preferred securities that are issued in
global form. None of KeySpan, the trusts, the relevant trustees, any paying
agent or the security registrar will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests in a global trust preferred security or for
maintaining, supervising or reviewing any records relating to these beneficial
ownership interests. (section 7.12)
Information concerning the property trustee
Prior to the occurrence of a default relating to the trust
securities, the property trustee undertakes to perform only those duties as
are specifically set forth in the declaration. After a default, the property
trustee will exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. The property trustee is
under no obligation to exercise any of the powers vested in it by the
declaration at the request of any holder of trust preferred securities unless
offered reasonable indemnity by the holder against the costs, expenses and
liabilities which might be incurred thereby. (section 6.3)
Paying agent
If the trust preferred securities do not remain in book-entry only
form, the following provisions will apply:
- the property trustee will act as paying agent; and
- registration of transfers of trust preferred securities will be
effected without charge (other than in respect of any tax or
other government charge). (section 7.7)
Description of junior subordinated debt securities
The junior subordinated debt securities which KeySpan will issue to
the trust in exchange for its common and preferred securities will be issued
pursuant to the indenture between KeySpan and The Chase Manhattan Bank, as the
indenture trustee, described in "Description of Debt Securities" above. The
indenture will be qualified under the Trust Indenture Act of 1939. The terms
of the junior subordinated debt securities will include those stated in the
indenture and those made a part of the indenture by the Trust Indenture Act.
The following summary of the material terms of the junior subordinated debt
securities is not intended to be complete and is qualified by the applicable
prospectus supplement, the indenture, the Trust Indenture Act and other
applicable law. The indenture (including all amendments) has been filed with
the SEC as an exhibit to, and is incorporated by reference in, the
registration statement of which this prospectus forms a part.
30
General
The junior subordinated debt securities will be issued as unsecured
debt under the indenture. The junior subordinated debt securities will be
limited in aggregate principal amount to the sum of the aggregate stated
liquidation amount of the trust preferred securities and the common securities
and will be subordinated and junior in right of payment to all of KeySpan's
senior debt and may be subordinated to some of KeySpan's subordinated debt.
The entire principal amount of the junior subordinated debt
securities will mature and become due and payable, together with any accrued
and unpaid interest thereon, on the date specified in the applicable
prospectus supplement.
If junior subordinated debt securities are distributed to holders of
trust preferred securities in liquidation of the holders' interests in the
trust, the junior subordinated debt securities will initially be issued in the
form of one or more global securities under depositary arrangements similar to
those in effect for the trust preferred securities. In the event junior
subordinated debt securities are issued in certificated form, principal and
interest will be payable, the transfer of the junior subordinated debt
securities will be registrable and junior subordinated debt securities will be
exchangeable for securities of other denominations of a like aggregate
principal amount at the corporate trust office of the indenture trustee in New
York, New York. (section 7.2)
Redemption
KeySpan shall have the right to redeem the junior subordinated debt
securities as described above under "Description of the Trust Preferred
Securities-Redemption." The redemption price will be specified in the
applicable prospectus supplement.
Interest
The junior subordinated debt securities will bear interest at the
rate specified in the applicable prospectus supplement, payable in arrears on
the dates specified in the applicable prospectus supplement, unless interest
is deferred as described below. Interest will be paid to the person in whose
name the junior subordinated debt security is registered, with limited
exceptions, at the close of business on the business day next preceding the
interest payment date. In the event the junior subordinated debt securities
shall not continue to remain in book-entry only form, KeySpan will select
appropriate record dates.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any period shorter than a full period will be computed on the
basis of the actual number of days elapsed per 30-day month. If any date on
which interest is payable on the junior subordinated debt securities is not a
business day, then payment of the interest payable on that date will be made
on the succeeding day that is a business day, and without any interest or
other payment in respect of any delay. However, if that business day is in the
succeeding calendar year, then the payment shall be made on the preceding
business day, in each case with the same force and effect as if made on that
date.
Option to defer interest payments
KeySpan can defer interest payments for up to five years. However, no
deferral period may extend beyond the maturity of the junior subordinated debt
securities. At the end of the deferral period, KeySpan will pay all interest
then accrued and unpaid.
During any deferral period, neither KeySpan nor any of its
subsidiaries will be permitted to:
- pay a dividend or make any other payment or distribution on its
capital stock;
- redeem, purchase or make a liquidation payment on any of its
capital stock;
31
- make an interest, principal or premium payment, or repay,
repurchase or redeem, any of its debt securities that rank
equal with or junior to the junior subordinated debt
securities; or
- make any guarantee payment with respect to any guarantee by
KeySpan of debt securities of any of its subsidiaries, if the
guarantee ranks equal to or junior to the junior subordinated
debt securities.
During any deferral period, however, KeySpan will be permitted to:
- pay dividends or distributions by way of issuance of its common
stock;
- make payments under the guarantee in respect of the preferred
and common securities;
- declare or pay a dividend in connection with the implementation
of a shareholders' rights plan, or the issuing of stock under
such a plan or repurchase those rights; and
- purchase common stock relating to the issuing of common stock
or rights under any of its benefit plans.
KeySpan has no present intention of exercising its right to defer
payments of interest by extending the interest payment period on the junior
subordinated debt securities.
If the property trustee is the sole holder of the junior subordinated
debt securities, KeySpan will give the regular trustees and the property
trustee notice of its election to defer interest payments one business day
prior to the earlier of:
- the date distributions on the trust preferred securities would
be payable, if not for the deferral period, or
- the date the regular trustees are required to give notice to
the NYSE or other applicable self-regulatory organization or to
holders of the trust preferred securities of the record date or
the date the distribution would be payable, if not for the
deferral period,
but in any event one business day prior to such record date. The regular
trustees will give notice of KeySpan's selection of the deferral period to the
holders of the trust preferred securities.
If the property trustee is not the sole holder of the junior
subordinated debt securities, KeySpan shall give the holders of the junior
subordinated debt securities notice of its election to defer interest payments
ten business days prior to the earlier of
- the next succeeding interest payment date or
- the date upon which KeySpan is required to give notice to the
NYSE or other applicable self-regulatory organization or to
holders of the junior subordinated debt securities of the
record or payment date of such related interest payment,
but in any event two business days prior to the record date.
Indenture events of default
If any indenture event of default shall occur and be continuing, the
property trustee, as the holder of the junior subordinated debt securities,
will have the right to declare the principal of and the interest on the junior
subordinated debt securities and any other amounts payable under the indenture
to be immediately due and payable. An indenture event of default also
constitutes a trust enforcement event. The holders of trust preferred
securities in limited circumstances have the right to direct the property
trustee to exercise its rights as the holder of the junior subordinated debt
32
securities. See "Description of the trust preferred securities-Trust
enforcement events" and "-Voting rights." (section 7.6)
Despite the foregoing, if a trust enforcement event has occurred and
is continuing and that event is attributable to KeySpan's failure to pay
interest or principal on the junior subordinated debt securities when interest
or principal is payable, KeySpan acknowledges that, in that event, a holder of
trust preferred securities may sue for payment. KeySpan may not amend the
indenture to remove this right to bring a direct action without the prior
written consent of all of the holders of trust preferred securities.
Miscellaneous
The indenture provides that KeySpan will pay all fees and expenses
related to:
- the issuance and exchange of the trust securities and the
junior subordinated debt securities;
- the organization, maintenance and dissolution of the trust;
- the retention of the trustees; and
- the enforcement by the property trustee of the rights of the
holders of the trust preferred securities.
Description of the guarantee
The guarantee to be executed and delivered by KeySpan for the benefit
of the holders of trust preferred securities will be qualified as an indenture
under the Trust Indenture Act of 1939. The Chase Manhattan Bank will act as
guarantee trustee for purposes of the Trust Indenture Act. The terms of the
guarantee will include those set forth in the guarantee and those made part of
the guarantee by the Trust Indenture Act. The guarantee will be filed as an
exhibit to a document incorporated by reference in the registration statement
of which this prospectus forms a part.
The following briefly summarizes the material provisions of the
guarantee. You should also read the particular terms of a guarantee, which
will be described in more detail in the applicable prospectus supplement. The
prospectus supplement will also state whether any of the generalized
provisions summarized below do not apply, or additional provisions apply, to
the trust preferred securities being offered. Wherever particular sections or
defined terms of the guarantee are referred to, those sections or defined
terms are incorporated into this prospectus by reference, and the statement in
this prospectus is qualified by their reference.
General
Under, and to the extent set forth in, the guarantee, KeySpan will
irrevocably and unconditionally agree to pay in full to the holders of the
trust preferred securities, as and when due, regardless of any defense, right
of set-off or counterclaim which the trust may have or assert, the following
payments without duplication:
- any accrued and unpaid distributions that are required to be
paid on the trust preferred securities, to the extent the trust
has funds available for distributions;
- the redemption price per trust preferred security, to the
extent the trust has funds available for redemptions; and
- upon a voluntary or involuntary dissolution, winding-up or
liquidation of the trust, other than in connection with the
distribution of junior subordinated debt securities to the
holders of trust preferred securities, the lesser of
- the aggregate liquidation amount of the trust preferred
securities and all accrued and unpaid distributions thereon, or
33
- the amount of assets of the trust remaining for distribution to
holders of the trust preferred securities upon a liquidation of
the trust. (section 5.1)
Status of the guarantee
The guarantee will constitute an unsecured obligation of KeySpan and
will rank:
- subordinate and junior in right of payment to all of KeySpan's
other liabilities,
- on a parity with the most senior preferred or preference stock
now or hereafter issued by KeySpan and with any guarantee now
or hereafter entered into by KeySpan in respect of any trust
preferred securities of any of its affiliates, and
- senior to KeySpan common stock. (section 6.2)
The guarantee will not place a limitation on the amount of additional
senior debt that KeySpan may incur.
The guarantee will constitute a guarantee of payment and not of
collection -- that is, the guaranteed party may institute a legal proceeding
directly against KeySpan to enforce its rights under the guarantee without
first instituting a legal proceeding against any other person or entity.
(section 5.5) The guarantee will not be discharged except by payment of the
guarantee payments in full to the extent not paid by the trust or upon
distribution of the junior subordinated debt securities to the holders of the
trust preferred securities in exchange for all their trust preferred
securities. (section 7.1)
The guarantee, when taken together with KeySpan's obligations under
the junior subordinated debt securities, the indenture and the declaration,
including KeySpan's obligations to pay costs, expenses, debts and liabilities
of the trust, other than those relating to trust securities, will provide a
full and unconditional guarantee on a subordinated basis by KeySpan of
payments due on the trust preferred securities. See "Effect of obligations
under the junior subordinated debt securities and the guarantee."
Important covenants
In the guarantee, KeySpan will covenant that, so long as any trust
securities remain outstanding, if:
- there shall have occurred any event of default under the
indenture,
- KeySpan shall be in default with respect to its payment of any
obligations under the guarantee, or
- KeySpan shall have given notice of its election to defer
interest payments and shall not have rescinded that notice, and
while interest is deferred,
then KeySpan will not, and will not permit any subsidiary to:
- declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect
to, any of its capital stock, or
- make any payment of principal, interest or premium, if any, on
or repay, repurchase or redeem any of its debt securities that
rank on a parity with or junior in interest to the junior
subordinated debt securities or make any guarantee payments
with respect to any guarantee by KeySpan of the debt securities
of any of its subsidiaries if the guarantee ranks on a parity
with or junior in interest to the junior subordinated debt
securities, other than
- dividends or distributions in common stock of KeySpan,
- payments under the guarantee made by KeySpan in respect of
the trust securities of the trust,
34
- any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the
issuance of stock under any rights plan in the future, or
the redemption or repurchase of any rights under a rights
plan, and
- purchases of common stock related to the issuance of
common stock or rights under any of its benefit plans.
(section 6.1)
Events of default
An event of default under the guarantee will occur upon KeySpan's
failure to perform any of its payment or other obligations required by the
guarantee. The holders of a majority in aggregate liquidation amount of the
trust preferred securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the guarantee trustee
in respect of the guarantee or to direct the exercise of any trust or power
conferred upon the guarantee trustee under the guarantee.
If the guarantee trustee fails to enforce its rights under the
guarantee, any holder of related trust preferred securities may directly sue
KeySpan to enforce the guarantee trustee's rights under the guarantee without
first suing the trust, the guarantee trustee or any other person or entity.
(section 5.4)
KeySpan, as guarantor, will be required to file annually with the
guarantee trustee a certificate as to whether or not it is in compliance with
all the conditions and covenants applicable to it under the guarantee.
(section 2.4)
Modification of guarantee; assignment
The guarantee may be amended only with the prior approval of the
holders of not less than 66 2/3% in aggregate liquidation amount of the
outstanding trust preferred securities and common securities. No vote will be
required, however, for any changes that do not materially adversely affect the
rights of holders of the securities. All guarantees and agreements contained
in the guarantee shall bind KeySpan's successors, assignees, receivers,
trustees and representatives and shall inure to the benefit of the holders of
the trust preferred securities then outstanding. (section 9.2)
Information concerning the guarantee trustee
Prior to the occurrence of a default relating to the guarantee, the
guarantee trustee undertakes to perform only the duties as are specifically
set forth in the guarantee. After a default, the guarantee trustee will
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Provided that the foregoing requirements
have been met, the guarantee trustee is under no obligation to exercise any of
the powers vested in it by the guarantee at the request of any holder of trust
preferred securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred in doing so. (section
3.1)
Termination of the guarantee
The guarantee will terminate as to the trust preferred securities
upon full payment of the redemption price of all trust preferred securities,
upon distribution of the junior subordinated debt securities to the holders of
the trust preferred securities or upon full payment of the amounts payable
upon liquidation of the trust. The guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of trust
preferred securities must restore payment of any sums paid under the trust
preferred securities or the guarantee. (section 7.1)
Governing law
The guarantee will be governed by and construed in accordance with
the laws of New York. (section 9.5)
35
Effect of obligations under the junior subordinated debt securities and the
guarantee
The sole purpose of the trust is to issue the trust securities in
exchange for KeySpan's junior subordinated debt securities. As long as
payments of interest and other payments are made when due on the junior
subordinated debt securities, those payments will be sufficient to cover the
distributions and payments due on the trust securities. This is due to the
following factors:
- the aggregate principal amount of junior subordinated debt
securities will be equal to the sum of the aggregate stated
liquidation amount of the trust securities;
- the interest rate and the interest and other payment dates on
the junior subordinated debt securities will match the
distribution rate and distribution and other payment dates for
the trust preferred securities;
- under the indenture, KeySpan will pay, and the trust will not
be obligated to pay, directly or indirectly, all costs,
expenses and obligations of the trust other than those relating
to the trust securities; and
- the declaration further provides that the trustees may not
cause or permit the trust to engage in any activity that is not
consistent with the purposes of the trust.
Payments of distributions, to the extent there are available funds,
and other payments due on the trust preferred securities, to the extent there
are available funds, are guaranteed by KeySpan to the extent described in this
prospectus. If KeySpan does not make interest payments on the junior
subordinated debt securities, the trust will not have sufficient funds to pay
distributions on the trust preferred securities. The guarantee is a
subordinated guarantee in relation to the trust preferred securities. The
guarantee does not apply to any payment of distributions unless and until the
trust has sufficient funds for the payment of those distributions. See
"Description of the guarantee."
The guarantee covers the payment of distributions and other payments
on the trust preferred securities only if and to the extent that KeySpan has
made a payment of interest or principal or other payments on the junior
subordinated debt securities. The guarantee, when taken together with
KeySpan's obligations under the junior subordinated debt securities and the
indenture and its obligations under the declaration, will provide a full and
unconditional guarantee of distributions and all other amounts due on the
trust preferred securities.
KeySpan acknowledges that the guarantee trustee shall enforce the
guarantee on behalf of the holders of the trust preferred securities. If
KeySpan fails to make payments under the guarantee, the guarantee allows the
holders of the trust preferred securities to direct the guarantee trustee to
enforce its rights under the guarantee. If the guarantee trustee fails to
enforce the guarantee, any holder of trust preferred securities may directly
sue KeySpan to enforce the guarantee trustee's rights under the guarantee.
Holders do not need to first sue the trust, the guarantee trustee, or any
other person or entity. A holder of trust preferred securities may also
directly sue KeySpan to enforce its right to receive payment under the
guarantee. Holders do not first need to:
- direct the guarantee trustee to enforce the terms of the
guarantee; or
- sue the trust or any other person or entity. (section 5.4)
36
DESCRIPTION OF COMMON STOCK
General
KeySpan's certificate of incorporation presently authorizes the
issuance of 450,000,000 shares of common stock, par value $0.01 per share. As
of March 31, 2001, there were 137,251,386 shares of common stock outstanding.
As of such date, KeySpan had 80,729 shareholders of record. The outstanding
shares of common stock are, and the additional shares of common stock that may
be offered hereby upon issuance will be, fully paid and nonassessable.
The following briefly summarizes material provisions of KeySpan's
common stock, KeySpan's certificate of incorporation and the related rights
agreement and anti-takeover provisions of New York law.
Dividends
The holders of KeySpan common stock are entitled to dividends and
other distributions out of assets legally available at such times and in such
amounts as KeySpan's directors may determine from time to time. Although
KeySpan contemplates the payment of dividends, the payment of future dividends
is dependent upon, among other factors, action by its board of directors, its
financial condition, future earnings and the availability of cash.
Dividend limitations
No dividends may be declared on common stock unless all cumulative
dividends on outstanding preferred stock have been paid or declared and set
apart for payment.
Voting rights
Each share of common stock is entitled to one vote on all matters to
be voted on by shareholders. Ordinarily, the holders of KeySpan common stock
have sole voting power to elect KeySpan's directors; however, holders of
KeySpan preferred stock could have the power to elect directors. KeySpan's
certificate of incorporation provides that the board of directors may, from
time to time, determine the extent of the voting rights, if any, of the shares
of each series of preferred stock and determine whether the shares of any
series having voting rights shall have multiple votes per share. The common
stock does not have cumulative voting rights.
Preemptive rights
Holders of KeySpan common stock do not have preemptive rights to
purchase additional shares of common stock or securities convertible into
shares of common stock.
Liquidation rights
In the event of liquidation, the holders of KeySpan common stock are
entitled to all assets that remain after satisfaction of creditors and the
liquidation preferences of outstanding preferred stock.
The number, designation, relative rights, preferences and limitations
of the shares of the preferred stock, and of KeySpan common stock, are stated
in full in its certificate of incorporation.
Anti-takeover effects of provisions of New York law and KeySpan's certificate
of incorporation
Certain provisions of New York law and KeySpan's certificate of
incorporation could make more difficult or delay the acquisition of KeySpan by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent directors. These provisions are intended to discourage certain types
of coercive takeover practices and inadequate takeover bids, even though such
a transaction may offer KeySpan's shareholders the opportunity to sell their
37
stock at a price above the prevailing market price. KeySpan's board of
directors believes that these provisions are appropriate to protect the
interests of KeySpan and of its shareholders.
New York anti-takeover statute
KeySpan is subject to the business combination provisions of Section
912 of the New York Business Corporation Law and expects to continue to be so
subject if and for so long as it has a class of securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended. Section 912
provides, with specified exceptions, that a New York corporation may not
engage in a business combination, such as a merger, consolidation,
recapitalization or disposition of stock, with any "interested shareholder"
for a period of five years from the date that person first became an
interested shareholder unless:
- the transaction resulting in a person becoming an interested
shareholder was approved by the board of directors of the
corporation prior to that person becoming an interested
shareholder;
- the business combination is approved by the holders of a
majority of the outstanding voting stock not beneficially owned
by an interested shareholder;
- the business combination is approved by the disinterested
shareholders at a meeting called no earlier than five years
after the date that the interested shareholder first became an
interested shareholder; or
- the business combination meets certain valuation requirements
for the capital stock of the New York corporation.
An interested shareholder is defined as any person that is the
beneficial owner of 20% or more of the outstanding voting stock of a New York
corporation or is an affiliate or associate of the corporation that at any
time during the prior five years was the beneficial owner, directly or
indirectly, of 20% or more of the then outstanding voting stock. A business
combination includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested shareholder.
This statute could prohibit or delay the accomplishment of mergers,
tender offers or other takeover or change in control attempts with respect to
KeySpan and, accordingly, may discourage attempts to acquire it.
"Anti-Greenmail"
KeySpan is subject to Section 513 of New York's Business Corporation
Law, which provides that no domestic corporation may purchase or agree to
purchase more than 10% of its stock from a shareholder who has held the shares
for less than two years at any price that is higher than the market price
unless the transaction is approved by both the corporation's board of
directors and a majority of the votes of all outstanding shares entitled to
vote thereon at a meeting of shareholders, unless the certificate of
incorporation requires a greater percentage or the corporation offers to
purchase shares from all the holders on the same terms. KeySpan's certificate
of incorporation does not currently provide for a higher percentage.
No shareholder action by written consent
KeySpan's certificate of incorporation eliminates the ability of
shareholders to act by written consent. It further provides that special
meetings of KeySpan shareholders may be called only by its board of directors.
Advance notice requirements for shareholder proposals and director
nominations
KeySpan's by-laws include advance notice and informational
requirements and time limitations on any director nomination or any new
proposal that a shareholder wishes to make at an annual meeting of
shareholders. In general, a shareholder's notice of a director nomination or
proposal will be timely if delivered to the secretary of KeySpan at its
principal executive offices not less than 60 days nor more than 90 days prior
to the scheduled date of the annual meeting. These provisions may preclude
38
shareholders from bringing matters before an annual meeting or from making
nominations for directors at these meetings.
Director vacancies and removal
KeySpan's certificate of incorporation provides that vacancies in its
board of directors may be filled only by the affirmative vote of a majority of
the remaining directors. The certificate of incorporation also provides that
directors may be removed from office only with cause and only by the
affirmative vote of holders of a majority of the shares then entitled to vote
at an election of directors.
Rights agreement
Under a rights agreement, each share of KeySpan common stock has
associated with it one preferred stock purchase right. Each of these rights
entitles its holder to purchase, at a purchase price of $95, subject to
adjustment, "units" of one one-hundredth of a share of Series D preferred
stock under circumstances provided for in the rights agreement.
The purpose of the rights agreement is to:
- give KeySpan's board of directors the opportunity to negotiate
with any persons seeking to obtain control of KeySpan;
- deter acquisitions of voting control of KeySpan without
assurance of fair and equal treatment of all KeySpan
shareholders; and
- prevent a person from acquiring in the market a sufficient
amount of KeySpan voting power to be in a position to block an
action sought to be taken by KeySpan's shareholders.
The exercise of the rights would cause substantial dilution to a person
attempting to acquire KeySpan on terms not approved by its board of directors
and therefore would significantly increase the price that person would have to
pay to complete the acquisition. The rights agreement may deter a potential
acquisition or tender offer.
Until a "distribution date" occurs, the rights will:
- not be exercisable;
- be represented by the same certificate that represents the
shares with which the rights are associated; and
- trade together with those shares.
The rights will expire at the close of business on March 30, 2009, unless
earlier redeemed or exchanged by KeySpan.
Following a "distribution date," the rights would become exercisable
and KeySpan would issue separate certificates representing the rights, which
would trade separately from the shares of KeySpan common stock.
A "distribution date" would occur upon the earlier of:
- ten business days after a public announcement that the person
has become an "acquiring person"; or
- ten business days after a person commences or announces its
intention to commence a tender or exchange offer that, if
successful, would result in the person becoming an "acquiring
person."
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Under the rights agreement, a person becomes an "acquiring person" if
the person, alone or together with a group, acquires beneficial ownership of
20% or more of the outstanding shares of KeySpan common stock. However, an
"acquiring person" shall not include KeySpan, any of its subsidiaries, any of
its employee benefit plans or any person or entity acting pursuant to such
employee benefit plans. The rights agreement also contains provisions designed
to prevent the inadvertent triggering of the rights by institutional or
certain other shareholders.
If any person becomes an acquiring person, each holder of a right,
other than the acquiring person, will be entitled to purchase, at the purchase
price, a number of KeySpan common stock having a market value two times the
purchase price. If, following a public announcement that a person has become
an acquiring person:
- KeySpan merges or enters into any similar business combination
transaction and KeySpan is not the surviving corporation; or
- 50% or more of KeySpan's assets, cash flow or earning power is
sold or transferred,
each holder of a right, other than the acquiring person, will be entitled to
purchase a number of shares of common stock of the surviving entity having a
market value two times the purchase price.
After a person becomes an acquiring person, but prior to that person
acquiring 50% of KeySpan common stock, KeySpan's board of directors may
exchange the rights, other than rights owned by the acquiring person, at an
exchange ratio of one share of common stock, or one one-hundredth of a share
of Class D Preferred Stock, or of a share of KeySpan's preferred stock having
equivalent rights, preferences and privileges, for each right.
At any time until the tenth business day following a public
announcement that a person has become an acquiring person, KeySpan's board of
directors may redeem all of the rights at a redemption price of $.01 per
right. On the redemption date, the rights will expire and the only entitlement
of the holders of rights will be to receive the redemption price.
A holder of rights will not, as such, have any rights as a
shareholder of KeySpan, including rights to vote or receive dividends.
At any time prior to the distribution date, KeySpan's board of
directors may amend any provisions in the rights agreement. After the
distribution date, the board of directors may amend the provisions of the
rights agreement in order to:
- cure any ambiguity;
- shorten or lengthen any time period under the rights agreement;
or
- make changes that will not adversely affect the interests of
the holders of rights;
provided, that no amendment may be made when the rights are not redeemable.
The distribution of the rights will not be taxable to KeySpan or its
shareholders. A shareholder may recognize taxable income when the rights
become exercisable for common stock of KeySpan or an acquiring company.
Limitations of liability and indemnification matters
As permitted by the New York Business Corporation Law, KeySpan's
certificate of incorporation provides that a director is not personally liable
to KeySpan or its shareholders for damages for any breach of duty in his
capacity as a director unless a judgment or other final adjudication adverse
to such director establishes that:
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- his acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law;
- such director personally gained a financial profit or other
advantage to which he was not legally entitled; or
- his acts violated Section 719 of the New York Business
Corporation Law.
The provisions of KeySpan's certificate of incorporation are intended
to afford directors protection, and limit their potential liability, to the
fullest extent permitted by New York law. As a result of the inclusion of such
provisions, shareholders may be unable to recover monetary damages against
directors for actions taken by them that constitute negligence or gross
negligence or that are in violation of certain of their fiduciary duties. This
provision does not affect a director's responsibilities under any other laws,
such as the federal securities laws. In addition, KeySpan's certificate of
incorporation provides that it will indemnify its directors and officers to
the fullest extent permitted by New York law.
KeySpan has obtained directors' and officers' insurance for its
directors and officers for specified liabilities.
Listing
The outstanding shares of common stock are listed on the New York
Stock Exchange and the Pacific Stock Exchange and application will be made to
list the additional common stock offered under this prospectus on those
exchanges.
Transfer agent and registrar
The transfer agent and registrar for the common stock is The Bank of
New York, Shareholder Services Dept., Church Street Station, P.O. Box 11258,
New York, New York 10286-1258.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
KeySpan may issue stock purchase contracts, including contracts
obligating holders to purchase from KeySpan, and KeySpan to sell to the
holders, a specified number of shares of common stock at a future date or
dates. The price per share of common stock and the number of shares of common
stock may be fixed at the time the stock purchase contracts are issued or may
be determined by reference to a specific formula set forth in the stock
purchase contracts. The stock purchase contracts may be issued separately or
as part of units consisting of a stock purchase contract and beneficial
interests in debt securities or preferred stock of KeySpan, trust preferred
securities of a trust or debt obligations of third parties, including U.S.
treasury securities, securing the holders' obligations to purchase the common
stock under the stock purchase contracts. The stock purchase contracts may
require KeySpan to make periodic payments to the holders of the stock purchase
units or vice versa, and these payments may be unsecured or refunded on some
basis. The stock purchase contracts may require holders to secure their
obligations under those contracts in a specified manner.
The applicable prospectus supplement will describe the terms of the
stock purchase contracts or stock purchase units, including, if applicable,
collateral or depositary arrangements, relating to the stock purchase
contracts or stock purchase units.
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DESCRIPTION OF WARRANTS AND WARRANT UNITS
KeySpan may issue warrants, including debt warrants, which are
warrants to purchase debt securities, and equity warrants, which include
warrants to purchase common stock, preferred stock or depositary shares.
KeySpan may issue warrants independently of or together with any other
securities, including as part of a warrant unit, and warrants may be attached
to or separate from those securities.
Each series of warrants will be issued under a separate warrant
agreement to be entered into between KeySpan and a warrant agent. The warrant
agent will act solely as KeySpan's agent in connection with a series of
warrants and will not assume any obligation or relationship of agency for or
with holders or beneficial owners of warrants. The following describes the
general terms and provisions of the warrants offered by this prospectus. The
applicable prospectus supplement will describe any other terms of the warrant
and the applicable warrant agreement. The warrant agreement for a particular
series of warrants will be filed as an exhibit to a document incorporated by
reference in the registration statement of which this prospectus forms a part.
Each warrant unit will consist of a warrant under which the holder,
upon exercise, will purchase (a) a specified number of shares of common stock
and (b) any of a debt security, share of preferred stock or depositary share
relating to preferred stock.
Debt Warrants
The applicable prospectus supplement will describe the terms of any
debt warrants, including the following:
- the title and aggregate number of the debt warrants;
- any offering price of the debt warrants;
- whether the debt warrants are to be issued with any debt
securities, and, if so, the title, total principal amount and
terms;
- the number of debt warrants and debt securities that will be
separately transferable;
- any date on and after the debt warrants and debt securities
will be separately transferable;
- the title, total principal amount, ranking and terms, including
subordination and conversion provisions, of the underlying debt
securities that may be purchased upon exercise of the debt
warrants;
- the time or period when the debt warrants are exercisable, the
minimum or maximum amount of debt warrants which may be
exercised at any one time, and the final date on which the debt
warrants may be exercised;
- the principal amount of underlying debt securities that may be
purchased upon exercise of each debt warrant and the price, or
the manner of determining the price, at which the principal
amount may be purchased upon exercise;
- the terms of any right to redeem or call the debt warrants;
- any book-entry procedure information;
- any currency or currency units in which the offering price and
the exercise price are payable; and
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- any other terms of the debt warrants not inconsistent with the
provisions of the debt warrant agreement.
Equity Warrants
The applicable prospectus supplement will describe the terms of any
equity warrants, including the following:
- the title and aggregate number of the equity warrants;
- any offering price of the equity warrants;
- the designation and terms of any preferred shares that are
purchasable upon exercise of the equity warrants or that
underlie depositary shares purchasable upon this exercise;
- if applicable, the designation and terms of the securities with
which the equity warrants are issued and the number of the
equity warrants issued with each security;
- if applicable, the date from and after the equity warrants and
any securities issued with them will be separately
transferable;
- the number of shares of common stock, preferred stock or
depositary shares purchasable upon exercise of an equity
warrant and the price;
- the time or period when the equity warrants are exercisable and
the final date on which the equity warrants may be exercised
and terms regarding any right of KeySpan to accelerate this
final date;
- if applicable, the minimum or maximum amount of the equity
warrants exercisable at any one time;
- any currency or currency units in which the offering price and
the exercise price are payable;
- any applicable anti-dilution provisions of the equity warrants;
- any applicable redemption or call provisions; and
- any additional terms of the equity warrants not inconsistent
with the provisions of the equity warrant agreement.
Warrant Units
The applicable prospectus supplement will describe the specific terms
of any warrant units.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal
income tax consequences of the purchase, ownership and disposition of debt
securities, trust preferred securities, preferred stock and common stock as of
the date of this prospectus. Except where noted, this summary deals only with
debt securities, trust preferred securities, preferred stock and common stock
purchased on original issue at their issue price and held as capital assets by
United States holders, and does not deal with special situations. For example,
this summary does not address:
- tax consequences to holders who may be subject to special tax
treatment, such as dealers in securities or currencies,
financial institutions, tax-exempt entities, insurance
companies, traders in securities that elect to use a
mark-to-market method of accounting for their securities
holdings, or persons liable for alternative minimum tax;
- tax consequences to persons holding debt securities, trust
preferred securities, preferred stock or common stock as part
of a hedging, integrated, conversion or constructive sale
transaction or a straddle;
- tax consequences to United States holders of debt securities,
trust preferred securities, preferred stock or common stock
whose "functional currency" is not the U.S. dollar;
- alternative minimum tax consequences, if any; or
- any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions as of the date of this prospectus. Those authorities may be
changed, perhaps retroactively, so as to result in United States federal
income tax consequences different from those discussed below. The discussion
set forth below also assumes that all debt securities issued under this
prospectus constitute debt for United States federal income tax purposes. If
any debt security does not constitute debt for United States federal income
tax purposes, the tax consequences of the ownership of that debt security
could differ materially from the tax consequences described herein. KeySpan
will summarize any special United States federal tax considerations relevant
to a particular issue of debt securities, trust preferred securities,
preferred stock or common stock in the applicable prospectus supplement.
KeySpan will also summarize certain federal income tax consequences, if any,
applicable to any offering of depositary shares, stock purchase contracts,
stock purchase units, warrants or warrant units in the applicable prospectus
supplement.
For the purposes of this summary, a "United States holder" means a
beneficial owner of the debt securities, trust preferred securities, preferred
stock or common stock offered in this prospectus that is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under
the laws of the United States or any political subdivision of
the United States;
- an estate the income of which is subject to United States
federal income taxation regardless of its source; or
- a trust that (x) is subject to the primary supervision of a
court within the United States and the control of one or more
United States persons or (y) has a valid election in effect
under applicable United States Treasury regulations to be
treated as a United States person.
A "non-United States holder" means a beneficial owner of the debt
securities, trust preferred securities, preferred stock or common stock that
is not a United States holder.
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If a partnership holds the debt securities, trust preferred
securities, preferred stock or common stock offered in this prospectus, the
tax treatment of a partner will generally depend upon the status of the
partner and the activities of the partnership. If you are a partner of a
partnership holding the offered debt securities, trust preferred securities,
preferred stock or common stock, you should consult your tax advisors.
If you are considering the purchase of debt securities, trust
preferred securities, preferred stock or common stock, you should consult your
own tax advisors concerning the federal income tax consequences to you and any
consequences arising under the laws of any other taxing jurisdiction.
Debt securities
Consequences to United States holders
The following is a summary of certain United States federal tax
consequences that will apply to you if you are a United States holder of debt
securities.
Payments of interest
Except as set forth below, interest on a debt security will generally
be taxable to you as ordinary income from domestic sources at the time it is
paid or accrued in accordance with your method of accounting for tax purposes.
Original issue discount
If you own debt securities issued with original issue discount
("OID"), you will be subject to special tax accounting rules, as described in
greater detail below. In that case, you should be aware that you generally
must include OID in gross income in advance of the receipt of cash
attributable to that income. However, you generally will not be required to
include separately in income cash payments received on the debt securities,
even if denominated as interest, to the extent those payments do not
constitute qualified stated interest, as defined below. Notice will be given
in the applicable prospectus supplement when KeySpan determines that a
particular debt security will be an original issue discount debt security.
A debt security with an issue price that is less than the "stated
redemption price at maturity" (the sum of all payments to be made on the debt
security other than "qualified stated interest") generally will be issued with
OID if that difference is at least 0.25% of the stated redemption price at
maturity multiplied by the number of complete years to maturity. The "issue
price" of each debt security in a particular offering will be the first price
at which a substantial amount of that particular offering is sold to the
public. The term "qualified stated interest" means stated interest that is
unconditionally payable in cash or in property, other than debt instruments of
the issuer, provided the interest to be paid meets all of the following
conditions:
- it is payable at least once per year;
- it is payable over the entire term of the debt security; and
- it is payable at a single fixed rate or, subject to certain
conditions, based on one or more interest indices.
KeySpan will give you notice in the applicable prospectus supplement
when it determines that a particular debt security will bear interest that is
not qualified stated interest.
If you own a debt security issued with "de minimis" OID, which is
discount that is not OID because it is less than 0.25% of the stated
redemption price at maturity multiplied by the number of complete years to
maturity, you generally must include the de minimis OID in income at the time
payments, other than qualified stated interest, on the debt securities are
made in proportion to the amount paid. Any amount of de minimis OID that you
have included in income will be treated as capital gain.
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Certain of the debt securities may contain provisions permitting them
to be redeemed prior to their stated maturity at KeySpan's option and/or at
your option. Original issue discount debt securities containing those features
may be subject to rules that differ from the general rules discussed herein.
If you are considering the purchase of original issue discount debt securities
with those features, you should carefully examine the applicable prospectus
supplement and should consult your own tax advisors with respect to those
features since the tax consequences to you with respect to OID will depend, in
part, on the particular terms and features of the debt securities.
If you own original issue discount debt securities with a maturity
upon issuance of more than one year you generally must include OID in income
in advance of the receipt of some or all of the related cash payments using
the "constant yield method" described in the following paragraph. This method
takes into account the compounding of interest. The accruals of OID on an
original issue discount debt security will generally be less in the early
years and more in the later years.
The amount of OID that you must include in income if you are the
initial United States holder of an original issue discount debt security is
the sum of the "daily portions" of OID with respect to the debt security for
each day during the taxable year or portion of the taxable year in which you
held that debt security ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The "accrual period" for an original issue
discount debt security may be of any length and may vary in length over the
term of the debt security, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs on the
first day or the final day of an accrual period. The amount of OID allocable
to any accrual period is an amount equal to the excess, if any, of:
- the debt security's adjusted issue price at the beginning of
the accrual period multiplied by its yield to maturity,
determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the
accrual period, over
- the aggregate of all qualified stated interest allocable to the
accrual period.
OID allocable to a final accrual period is the difference between the
amount payable at maturity, other than a payment of qualified stated interest,
and the adjusted issue price at the beginning of the final accrual period. The
"adjusted issue price" of a debt security at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period, determined without regard to the amortization of any
acquisition or bond premium, as described below, and reduced by any payments
made on the debt security (other than qualified stated interest) on or before
the first day of the accrual period. Under these rules, you will have to
include in income increasingly greater amounts of OID in successive accrual
periods. KeySpan is required to provide information returns stating the amount
of OID accrued on debt securities held of record by persons other than
corporations and other exempt holders.
Floating rate debt securities are subject to special OID rules. In
the case of an original issue discount debt security that is a floating rate
debt security, both the "yield to maturity" and "qualified stated interest"
will be determined solely for purposes of calculating the accrual of OID as
though the debt security will bear interest in all periods at a fixed rate
generally equal to the rate that would be applicable to interest payments on
the debt security on its date of issue or, in the case of certain floating
rate debt securities, the rate that reflects the yield to maturity that is
reasonably expected for the debt security. Additional rules may apply if
- the interest on a floating rate debt security is based on more
than one interest index; or
- the principal amount of the debt security is indexed in any
manner.
This discussion does not address the tax rules applicable to debt
securities with an indexed principal amount. If you are considering the
purchase of floating rate original issue discount debt securities or
securities with indexed principal amounts, you should carefully examine the
applicable prospectus supplement and should consult your own tax advisors
regarding the United States federal income tax consequences to you of holding
and disposing of those debt securities.
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You may elect to treat all interest on any debt security as OID and
calculate the amount includible in gross income under the constant yield
method described above. For purposes of this election, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount,
de minimis market discount and unstated interest, as adjusted by any
amortizable bond premium or acquisition premium. You must make this election
for the taxable year in which you acquired the debt security, and you may not
revoke the election without the consent of the Internal Revenue Service (the
"IRS"). You should consult with your own tax advisors about this election.
Short-term debt securities
In the case of debt securities having a term of one year or less, all
payments, including all stated interest, will be included in the stated
redemption price at maturity and will not be qualified stated interest. As a
result, you will generally be taxed on the discount instead of stated
interest. The discount will be equal to the excess of the stated redemption
price at maturity over the issue price of a short-term debt security, unless
you elect to compute this discount using tax basis instead of issue price.
In general, individual and certain other cash method United States
holders of short-term debt securities are not required to include accrued
discount in their income currently unless they elect to do so, but may be
required to include stated interest in income as the income is received.
United States holders that report income for United States federal income tax
purposes on the accrual method and certain other United States holders are
required to accrue discount on short-term debt securities (as ordinary income)
on a straight-line basis, unless an election is made to accrue the discount
according to a constant yield method based on daily compounding. If you are
not required, and do not elect, to include discount in income currently, any
gain you realize on the sale, exchange or retirement of a short-term debt
security will generally be ordinary income to you to the extent of the
discount accrued by you through the date of sale, exchange or retirement. In
addition, if you do not elect to currently include accrued discount in income
you may be required to defer deductions for a portion of your interest expense
with respect to any indebtedness attributable to the short-term debt
securities.
Market discount
If you purchase a debt security, other than an original issue
discount debt security, for an amount that is less than its stated redemption
price at maturity, or, in the case of an original issue discount debt
security, its adjusted issue price, the amount of the difference will be
treated as "market discount" for United States federal income tax purposes,
unless that difference is less than a specified de minimis amount. Under the
market discount rules, you will be required to treat any payment, other than
qualified stated interest, on, or any gain on the sale, exchange, retirement
or other disposition of, a debt security as ordinary income to the extent of
the market discount that you have not previously included in income and are
treated as having accrued on the debt security at the time of its payment or
disposition. In addition, you may be required to defer, until the maturity of
the debt security or its earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest expense on any indebtedness
attributable to the debt security.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the debt security,
unless you elect to accrue on a constant interest method. You may elect to
include market discount in income currently as it accrues, on either a ratable
or constant interest method, in which case the rule described above regarding
deferral of interest deductions will not apply. Your election to include
market discount in income currently, once made, applies to all market discount
obligations acquired by you on or after the first taxable year to which your
election applies and may not be revoked without the consent of the IRS. You
should consult your own tax advisor before making this election.
Acquisition premium, amortizable bond premium
If you purchase an original issue discount debt security for an
amount that is greater than its adjusted issue price but equal to or less than
the sum of all amounts payable on the debt security after the purchase date
other than payments of qualified stated interest, you will be considered to
have purchased that debt security at an "acquisition premium." Under the
acquisition premium rules, the amount of OID that you must include in gross
47
income with respect to the debt security for any taxable year will be reduced
by the portion of the acquisition premium properly allocable to that year.
If you purchase a debt security (including an original issue discount
debt security) for an amount in excess of the sum of all amounts payable on
the debt security after the purchase date other than qualified stated
interest, you will be considered to have purchased the debt security at a
"premium" and, if it is an original issue discount debt security, you will not
be required to include any OID in income. You generally may elect to amortize
the premium over the remaining term of the debt security on a constant yield
method as an offset to interest when includible in income under your regular
accounting method. In the case of instruments that provide for alternative
payment schedules, bond premium is calculated by assuming that (a) you will
exercise or not exercise options in a manner that maximizes your yield, and
(b) KeySpan will exercise or not exercise options in a manner that minimizes
your yield (except that KeySpan will be assumed to exercise call options in a
manner that maximizes your yield). If you do not elect to amortize bond
premium, that premium will decrease the gain or increase the loss you would
otherwise recognize on disposition of the debt security. Your election to
amortize premium on a constant yield method will also apply to all debt
obligations held or subsequently acquired by you on or after the first day of
the first taxable year to which the election applies. You may not revoke the
election without the consent of the IRS. You should consult your own tax
advisor before making this election.
Sale, exchange and retirement of debt securities
Your tax basis in a debt security will, in general, be your cost for
that debt security, increased by OID, market discount or any discount with
respect to a short-term debt security that you previously included in income,
and reduced by any amortized premium and any cash payments on the debt
security other than qualified stated interest. Upon the sale, exchange,
retirement or other disposition of a debt security, you will recognize gain or
loss equal to the difference between the amount you realize upon the sale,
exchange, retirement or other disposition (less an amount equal to any accrued
qualified stated interest that you did not previously include in income, which
will be taxable as interest income) and the adjusted tax basis of the debt
security. Except as described above with respect to certain short-term debt
securities or with respect to market discount, or as described below with
respect to foreign currency debt securities or with respect to contingent
payment debt securities, that gain or loss will be capital gain or loss.
Capital gains of individuals derived in respect of capital assets held for
more than one year are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
Extendible debt securities, renewable debt securities and reset debt
securities
If so specified in an applicable prospectus supplement relating to a
debt security, KeySpan may have the option to extend the maturity of a debt
security. In addition, KeySpan may have the option to reset the interest rate,
the spread or the spread multiplier.
The United States federal income tax treatment of a debt security
with respect to which such an option has been exercised is unclear and will
depend, in part, on the terms established for such debt securities by KeySpan
pursuant to the exercise of the option. You may be treated for federal income
tax purposes as having exchanged your debt securities for new debt securities
with revised terms. If this is the case, you would realize gain or loss equal
to the difference between the issue price of the new debt securities and your
tax basis in the old debt securities, which would be recognized subject to
certain possible exceptions. Furthermore, the new debt securities might be
subject to withholding, backup withholding and/or information reporting and
might be deemed to be issued with OID.
Even though federal income tax on the deemed exchange may be imposed
on you, you would not receive any cash until the maturity or an earlier
redemption of the new debt securities, except for any current interest
payments.
If the exercise of the option is not treated as an exchange of old
debt securities for new debt securities, you will not recognize gain or loss
as a result of such exchange.
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The presence of these options may also affect the calculation of OID,
among other things. Solely for purposes of the accrual of OID, if KeySpan
issues a debt security and has an option or combination of options to extend
the term of the debt security, KeySpan will be presumed to exercise such
option or options in a manner that minimizes the yield on the debt security.
Conversely, if you are treated as having a put option, such an option will be
presumed to be exercised in a manner that maximizes the yield on the debt
security. If KeySpan exercises such option or options to extend the term of
the debt security, or your option to put does not occur (contrary to the
assumptions made), then solely for purposes of the accrual of OID, the debt
security will be treated as reissued on the date of the change in
circumstances for an amount equal to its adjusted issue price on the date.
You should carefully examine the applicable prospectus supplement and
should consult your own tax advisor regarding the United States federal income
tax consequences of the holding and disposition of such debt securities.
Foreign currency debt securities
Payments of interest
If you receive interest payments made in a foreign currency and you
use the cash basis method of accounting, you will be required to include in
income the U.S. dollar value of the amount received, determined by translating
the foreign currency received at the "spot rate" for such foreign currency on
the date such payment is received regardless of whether the payment is in fact
converted into U.S. dollars. You will not recognize exchange gain or loss with
respect to the receipt of such payment.
If you use the accrual method of accounting, you may determine the
amount of income recognized with respect to such interest in accordance with
either of two methods. Under the first method, you will be required to include
in income for each taxable year the U.S. dollar value of the interest that has
accrued during such year, determined by translating such interest at the
average rate of exchange for the period or periods during which such interest
accrued. Under the second method, you may elect to translate interest income
at the spot rate on:
- the last day of the accrual period;
- the last day of the taxable year if the accrual period
straddles your taxable year; or
- the date the interest payment is received if such date is
within five days of the end of the accrual period.
Upon receipt of an interest payment on such debt security (including,
upon the sale of such debt security, the receipt of proceeds which include
amounts attributable to accrued interest previously included in income), you
will recognize ordinary gain or loss in an amount equal to the difference
between the U.S. dollar value of such payment (determined by translating the
foreign currency received at the "spot rate" for such foreign currency on the
date such payment is received) and the U.S. dollar value of the interest
income you previously included in income with respect to such payment.
Original issue discount
OID on a debt security that is also a foreign currency debt security
will be determined for any accrual period in the applicable foreign currency
and then translated into U.S. dollars, in the same manner as interest income
accrued by a holder on the accrual basis, as described above. You will
recognize exchange gain or loss when OID is paid (including, upon the sale of
such debt security, the receipt of proceeds which include amounts attributable
to OID previously included in income) to the extent of the difference between
the U.S. dollar value of such payment (determined by translating the foreign
currency received at the "spot rate" for such foreign currency on the date
such payment is received) and the U.S. dollar value of the accrued OID
(determined in the same manner as for accrued interest). For these purposes,
all receipts on a debt security will be viewed:
- first, as the receipt of any stated interest payment called for
under the terms of the debt security;
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- second, as receipts of previously accrued OID (to the extent
thereof), with payments considered made for the earliest
accrual periods first; and
- third, as the receipt of principal.
Market discount and bond premium
The amount of market discount on foreign currency debt securities
includible in income will generally be determined by translating the market
discount determined in the foreign currency into U.S. dollars at the spot rate
on the date the foreign currency debt security is retired or otherwise
disposed of. If you have elected to accrue market discount currently, then the
amount which accrues is determined in the foreign currency and then translated
into U.S. dollars on the basis of the average exchange rate in effect during
such accrual period. You will recognize exchange gain or loss with respect to
market discount which is accrued currently using the approach applicable to
the accrual of interest income as described above.
Bond premium on a foreign currency debt security will be computed in
the applicable foreign currency. If you have elected to amortize the premium,
the amortizable bond premium will reduce interest income in the applicable
foreign currency. At the time bond premium is amortized, exchange gain or
loss, which is generally ordinary gain or loss, will be realized based on the
difference between spot rates at such time and the time of acquisition of the
foreign currency debt security.
If you elect not to amortize bond premium, you must translate the
bond premium computed in the foreign currency into U.S. dollars at the spot
rate on the maturity date and such bond premium will constitute a capital loss
which may be offset or eliminated by exchange gain.
Sale, exchange or retirement
Your tax basis in a foreign currency debt security will be the U.S.
dollar value of the foreign currency amount paid for such foreign currency
debt security determined at the time of your purchase. If you purchased the
foreign currency debt security with previously owned foreign currency, you
will recognize exchange gain or loss at the time of the purchase attributable
to the difference at the time of purchase, if any, between the fair market
value of the debt security in U.S. dollars on the date of purchase and your
tax basis in the foreign currency. Such gain or loss will be ordinary income
or loss.
For purposes of determining the amount of any gain or loss you
recognize on the sale, exchange, retirement or other disposition of a foreign
currency debt security, the amount realized on such sale, exchange, retirement
or other disposition will be the U.S. dollar value of the amount realized in
foreign currency (other than amounts attributable to accrued but unpaid
interest not previously included in your income which will be taxable as
interest income), determined at the time of the sale, exchange, retirement or
other disposition.
You may also recognize exchange gain or loss attributable to the
movement in exchange rates between the time of purchase and the time of
disposition (including the sale, exchange, retirement or other disposition) of
a foreign currency debt security. Such gain or loss will be treated as
ordinary income or loss. The realization of such gain or loss will be limited
to the amount of overall gain or loss realized on the disposition of a foreign
currency debt security.
If a foreign currency debt security is denominated in one of certain
hyperinflationary currencies, generally:
- exchange gain or loss would be realized with respect to
movements in the exchange rate between the beginning and end of
each taxable year (or such shorter period) the debt security
was held, and
- such exchange gain or loss would be treated as an addition or
offset, respectively, to the accrued interest income on, and an
adjustment to the holder's tax basis in, the foreign currency
debt security.
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Your tax basis in foreign currency received as interest on (or OID
with respect to), or received on the sale, exchange, retirement or other
disposition of, a foreign currency debt security will be the U.S. dollar value
thereof at the spot rate at the time you receive such foreign currency. Any
gain or loss recognized by you on a sale, exchange or other disposition of
foreign currency will be ordinary income or loss and will not be treated as
interest income or expense, except to the extent provided in Treasury
regulations or administrative pronouncements of the IRS.
Dual currency debt securities
If so specified in an applicable prospectus supplement relating to a
foreign currency debt security, KeySpan may have the option to make all
payments of principal and interest scheduled after the exercise of such option
in a currency other than the specified currency. The United States federal
income tax treatment of dual currency debt securities is uncertain. Treasury
regulations currently in effect do not address the tax treatment of dual
currency debt securities.
An IRS announcement states that the IRS is considering issuing
proposed regulations that would:
- apply the principles contained in regulations governing
contingent debt instruments to dual currency notes in the
"predominant currency" of the dual currency notes and
- apply the rules discussed above with respect to foreign
currency notes with OID for the translation of interest and
principal into U.S. dollars.
The IRS states that these concepts are still under consideration.
Persons considering the purchase of dual currency notes should carefully
examine the applicable prospectus supplement and should consult their own tax
advisors regarding the United States federal income tax consequences of the
holding and disposition of such notes.
If KeySpan exercises such an option, you may be considered to have
exchanged your debt security denominated in the specified currency for a debt
security denominated in the optional payment currency. If the exercise is
treated as a taxable exchange, you will recognize gain or loss, if any, equal
to the difference between your basis in the debt security denominated in the
specified currency and the value of the debt security denominated in the
optional payment currency. If the exercise of the option is not treated as an
exchange, you will not recognize gain or loss and your basis in the debt
security will be unchanged.
Contingent payment debt securities
The OID regulations contain special rules for determining the timing
and amount of OID to be accrued with respect to certain debt securities
providing for one or more contingent payments. Under these rules, you will
accrue OID each year based on the "comparable yield" of the debt securities.
The comparable yield of the debt securities will generally be the rate at
which KeySpan would issue a fixed rate debt instrument with terms and
conditions similar to the debt securities.
KeySpan is required to provide the comparable yield to you and,
solely for tax purposes, is also required to provide a projected payment
schedule that includes the actual interest payments on the debt securities and
estimates the amount and timing of contingent payments on the debt securities.
Pursuant to the terms of the indenture, you will be bound by KeySpan's
determination. For United States federal income tax purposes, you must use the
comparable yield and the schedule of projected payments in determining your
interest accruals, and the adjustments thereto described below, in respect of
the contingent payment debt securities. KeySpan will give notice in the
applicable prospectus supplement when it determines that a particular debt
security will be treated as contingent debt.
The amount of OID on a contingent payment debt security for each
accrual period is determined by multiplying the comparable yield of the
contingent payment debt security (adjusted for the length of the accrual
period) by the debt security's adjusted issue price at the beginning of the
accrual period (determined in accordance with the rules set forth in the OID
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regulations relating to contingent payment debt instruments). The amount of
OID so determined will then be allocated on a ratable basis to each day in the
accrual period that you hold the contingent payment debt security.
If the actual payments made on the contingent payment debt securities
in a taxable year differ from the projected contingent payments, adjustments
will be made for such differences. A positive adjustment, for the amount by
which an actual payment exceeds a projected contingent payment, will be
treated as additional interest. A negative adjustment will:
- first, reduce the amount of interest required in the current
year;
- second, any negative adjustments that exceed the amount of
interest accrued in the current year will be treated as
ordinary loss to the extent that your total interest inclusions
exceed the total amount of net negative adjustments treated as
ordinary loss in prior taxable years; and
- third, any excess negative adjustments will be carried forward
to offset future income or amount realized on disposition.
Gain on the sale, exchange or retirement of a contingent payment debt
security generally will be treated as ordinary income. Loss from the
disposition of a contingent payment debt security will be treated as ordinary
loss to the extent of your prior net interest inclusions (reduced by the total
net negative adjustments previously allowed as an ordinary loss). Any loss in
excess of such amount will be treated as capital loss.
For special treatment of foreign currency debt securities or dual
currency debt securities that are also contingent payment debt securities, see
the applicable prospectus supplement.
The rules regarding contingent payment debt securities are complex.
If you are considering the purchase of debt securities providing for one or
more contingent payments, you should carefully examine the applicable
prospectus supplement and consult your own tax advisors regarding the United
States federal income tax consequences of the holding and disposition of such
debt securities.
Consequences to non-United States holders
The following is a summary of certain United States federal income
tax consequences that will apply to you if you are a non-United States holder
of debt securities.
United States federal withholding tax
The 30% United States federal withholding tax will generally not
apply to any payment of principal or interest, including OID, on debt
securities provided that:
- you do not actually or constructively own 10% or more of the
total combined voting power of all classes of KeySpan voting
stock within the meaning of the Code and the United States
Treasury regulations;
- you are not a controlled foreign corporation that is related to
KeySpan through stock ownership;
- you are not a bank whose receipt of interest on the debt
securities is described in Section 881(c)(3)(A) of the Code;
and
- either (a) you provide your name and address on an IRS Form
W-8BEN (or other applicable form), and certify, under penalties
of perjury, that you are not a United States person or (b) you
hold your notes through certain foreign intermediaries, and you
satisfy the certification requirements of applicable United
States Treasury regulations.
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Special certification rules apply to certain non-United States
holders that are entities rather than individuals. If you cannot satisfy the
requirements described above, payments of interest, including OID, made to you
will be subject to the 30% United States federal withholding tax, unless you
provide KeySpan with a properly executed:
- IRS Form W-8BEN (or other applicable form) claiming an
exemption from, or reduction in, withholding under the benefit
of a tax treaty; or
- IRS Form W-8ECI stating that interest paid on the debt
securities is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business
in the United States as discussed below under "United States
federal income tax".
The 30% United States federal withholding tax will generally not
apply to any gain that you realize on the sale, exchange, retirement or other
disposition of debt securities.
United States federal income tax
If you are engaged in a trade or business in the United States and
interest, including OID, on the debt securities is effectively connected with
the conduct of that trade or business, you will be subject to United States
federal income tax on that interest, including OID, on a net income basis
(although exempt from the 30% withholding tax) in the same manner as if you
were a United States holder. In addition, if you are a foreign corporation,
you may be subject to a branch profits tax equal to 30% (or lower applicable
treaty rate) of your earnings and profits for the taxable year, subject to
adjustments.
You will generally not be subject to United States federal income tax
on the disposition of a debt security unless:
- the gain is effectively connected with your conduct of a trade
or business in the United States; or
- you are an individual who is present in the United States for
183 days or more in the taxable year of that disposition, and
certain other conditions are met.
Special rules may apply to some non-United States holders, such as
"controlled foreign corporations", "passive foreign investment companies",
"foreign personal holdings companies" and corporations that accumulate
earnings to avoid United States federal income tax, that are subject to
special treatment under the Code. These entities should consult their own tax
advisors to determine the United States federal, state, local and other tax
consequences that may be relevant to them.
United States federal estate tax
Your estate will not be subject to United States federal estate tax
on debt securities beneficially owned by you at the time of your death,
provided that (1) you do not own 10% or more of the total combined voting
power of all classes of KeySpan voting stock (within the meaning of the Code
and United States Treasury regulations) and (2) interest on those debt
securities would not have been, if received at the time of your death,
effectively connected with the conduct by you of a trade or business in the
United States.
Information reporting and backup withholding
United States holders
In general, information reporting requirements will apply to certain
payments of principal and interest, including OID, paid on debt securities and
to the proceeds of sale of a debt security made to you (unless you are an
exempt recipient such as a corporation). A 31% backup withholding tax will
apply to such payments if you fail to provide a taxpayer identification number
or certification of exempt status, or fail to report in full dividend and
interest income.
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Non-United States holders
In general, no information reporting or backup withholding will be
required regarding payments that KeySpan makes to you provided that it does
not have actual knowledge that you are a United States person and it has
received from you the certification described above in the first sentence
under "Consequences to non-United States holders--United States federal
withholding tax."
In addition, no information reporting or backup withholding will be
required regarding the proceeds of the sale of a debt security made within the
United States or conducted through certain United States related financial
intermediaries, if:
- the payor receives the certification described above and does
not have actual knowledge that you are a United States person;
or
- you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your United States federal income tax
liability provided the required information is furnished to the IRS.
Trust preferred securities
Classification of the trusts
KeySpan intends to take the position that each trust will be
classified as a grantor trust for United States federal income tax purposes
and not as an association taxable as a corporation. As a condition to the
issuance of the junior subordinated debt securities, Simpson Thacher &
Bartlett, special tax counsel to KeySpan, will deliver an opinion that under
current law and assuming full compliance with the terms of the trust's amended
and restated declaration, and based upon certain facts and assumptions
contained in such opinion, the trust will be classified as a grantor trust for
United States federal income tax purposes. As a result, for United States
federal income tax purposes, you generally will be treated as owning an
undivided beneficial ownership interest in the junior subordinated debt
securities. Thus, you will be required to include in your gross income your
pro rata share of the interest income or OID that is paid or accrued on the
junior subordinated debt securities. See "Consequences to United States
holders--Interest income and original issue discount."
Classification of the junior subordinated debt securities
KeySpan, the trust and you (by your acceptance of a beneficial
ownership interest in a trust preferred security) will agree to treat the
junior subordinated debt securities as indebtedness for all United States tax
purposes. As a condition to the issuance of the junior subordinated debt
securities, Simpson Thacher & Bartlett, special tax counsel to KeySpan, will
deliver an opinion that under current law, and based upon certain facts and
assumptions contained in such opinion, the junior subordinated debt securities
will be classified as indebtedness for United States federal income tax
purposes.
Consequences to United States holders
Interest income and original issue discount
KeySpan anticipates that the junior subordinated debt securities will
not be issued with an issue price that is less than their stated redemption
price at maturity. In this case, subject to the discussion below, the junior
subordinated debt securities will not be subject to the special OID rules, at
least upon initial issuance, so that you will generally be taxed on the stated
interest on the junior subordinated debt securities as ordinary income at the
time it is paid or accrued in accordance with your regular method of tax
accounting.
If, however, KeySpan exercises its right to defer payments of
interest on the junior subordinated debt securities, the junior subordinated
debt securities will become OID instruments at such time. In such case, you
54
will be subject to the special OID rules described below. Once the junior
subordinated debt securities become OID instruments, they will be taxed as OID
instruments for as long as they remain outstanding.
Under the OID economic accrual rules, the following occurs:
- regardless of your method of accounting, you would accrue an
amount of interest income each year that approximates the
stated interest payments called for under the terms of the
junior subordinated debt securities using the
constant-yield-to-maturity method of accrual described in
Section 1272 of the Code;
- the actual cash payments of interest you receive on the junior
subordinated debt securities would not be reported separately
as taxable income;
- any amount of OID included in your gross income (whether or not
during a deferral period) with respect to the trust preferred
securities would increase your tax basis in such trust
preferred securities; and
- the amount of distributions that you receive in respect of such
accrued OID would reduce your tax basis in such trust preferred
securities.
The Treasury regulations dealing with OID and the deferral of
interest payments have not yet been addressed in any rulings or other
interpretations by the IRS. It is possible that the IRS could assert that the
junior subordinated debt securities were issued initially with OID merely
because of KeySpan's right to defer payments of interest. If the IRS were
successful in this regard, you would be subject to the special OID rules
described above regardless of whether KeySpan exercises its option to defer
payments of interest on such junior subordinated debt securities.
If you are a corporate holder of trust preferred securities, you will
not be entitled to a dividends received deduction with respect to any income
you recognize with respect to the trust preferred securities.
Distribution of junior subordinated debt securities or cash
As described under the caption "Description of the trust preferred
securities--Distribution of the junior subordinated debt securities", the
junior subordinated debt securities held by the trust may be distributed to
you in exchange for your trust preferred securities when the trust is
dissolved. Under current law, except as described below, this type of
distribution from a grantor trust would not be taxable. Upon a distribution,
you will receive your pro rata share of the junior subordinated debt
securities previously held indirectly through the trust. Your holding period
and aggregate tax basis in the junior subordinated debt securities will equal
the holding period and aggregate tax basis that you had in your trust
preferred securities before the distribution. If, however, the trust would be
required to pay United States federal income tax relating to income accrued or
received on the junior subordinated debt securities, a Tax event will occur.
See "Description of the trust preferred securities--Special event redemption".
If KeySpan elects to distribute the junior subordinated debt securities to you
at this time, the distribution would be taxable to the trust and to you.
If you receive junior subordinated debt securities in exchange for
your trust preferred securities, you would accrue interest in respect of the
junior subordinated debt securities received from the trust in the manner
described above under "--Interest income and original issue discount."
In certain circumstances described above under the captions
"Description of the trust preferred securities--Redemption" and "Description
of trust preferred securities--Special event redemption", KeySpan may redeem
the junior subordinated debt securities, in whole or in part, and the trust
will use the cash it receives upon the redemption to redeem trust securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the junior subordinated debt securities so redeemed. The distribution of
cash to holders of trust preferred securities would be taxable as described
below under "--Sales of trust preferred securities or redemption of junior
subordinated debentures."
55
Sales of trust preferred securities or redemption of junior subordinated
debentures
If you sell your trust preferred securities or receive cash upon
redemption of the junior subordinated debt securities, you will recognize gain
or loss equal to the difference between:
- your amount realized on the sale or redemption of the trust
preferred securities or junior subordinated debt securities
(less an amount equal to any accrued but unpaid qualified
stated interest that you did not previously include in income,
which will be taxable as interest income); and
- your adjusted tax basis in your trust preferred securities or
junior subordinated debt securities sold or redeemed.
Your gain or loss will be a capital gain or loss, provided that you
held the trust preferred securities or junior subordinated debt securities as
a capital asset. The gain or loss will generally be a long-term capital gain
or loss if you have held your trust preferred securities or junior
subordinated debt securities for more than one year. Long-term capital gains
of individual derived with respect to capital assets held for more than one
year are currently subject to tax at a maximum rate of 20%. The deductibility
of capital losses is subject to limitations.
Consequences to non-United States holders
The following discussion only applies to you if you are a non-United
States holder. As discussed above, the trust preferred securities will be
treated by the parties as evidence of undivided beneficial ownership interests
in the junior subordinated debt securities. See above under "--Classification
of the trusts". The following discussion assumes that the junior subordinated
debt securities will be treated as indebtedness for all United States tax
purposes.
United States federal withholding tax
The 30% United States federal withholding tax will generally not
apply to any payment of principal or interest, including OID, on the trust
preferred securities (or the junior subordinated debt securities) provided
that:
- you do not actually (or constructively) own 10% or more of the
total combined voting power of all classes of KeySpan voting
stock within the meaning of the Code and the United States
Treasury regulations;
- you are not a controlled foreign corporation that is related to
KeySpan through stock ownership;
- you are not a bank whose receipt of interest on the trust
preferred securities (or the junior subordinated debt
securities) is described in Section 881(c)(3)(A) of the Code;
and
- either (a) you provide your name and address on an IRS Form
W-8BEN (or other applicable form), and certify, under penalties
of perjury, that you are not a United States person, or (b) you
hold your trust preferred securities (or junior subordinated
debt securities) through certain foreign intermediaries, and
you satisfy the certification requirements of applicable United
States Treasury regulations.
Special certification rules apply to certain non-United States
holders that are entities rather than individuals and to beneficial owners of
interest paid to entities in which beneficial owners are interest holders. If
you cannot satisfy the requirements described above, payments of interest,
including OID, made to you will be subject to the 30% United States federal
withholding tax, unless you provide KeySpan with a properly executed
- IRS Form W-8BEN (or other applicable form) claiming an
exemption from, or reduction in, withholding under the benefit
of a tax treaty; or
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- IRS Form W-8ECI stating that interest paid on the trust
preferred securities (or the junior subordinated debt
securities) is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business
in the United States as discussed below under "United States
federal income tax."
The 30% United States federal withholding tax will generally not
apply to any gain that you realize on the sale, exchange, retirement or other
disposition of trust preferred securities or junior subordinated debt
securities.
United States federal income tax
If you are engaged in a trade or business in the United States and
interest, including OID, on the trust preferred securities (or the junior
subordinated debt securities) is effectively connected with the conduct of
that trade or business, you will be subject to United States federal income
tax on that interest, including OID, on a net income basis (although exempt
from the 30% withholding tax) in the same manner as if you were a United
States holder. In addition, if you are a foreign corporation, you may be
subject to a branch profits tax equal to 30% (or lower applicable treaty rate)
of your earnings and profits for the taxable year, subject to adjustments.
Any gain realized on the disposition of a trust preferred security
(or a junior subordinated debt security) generally will not be subject to
United States federal income tax unless:
- that gain is effectively connected with the conduct of a trade
or business by you in the United States; or
- you are an individual who is present in the United States for
183 days or more in the taxable year of that disposition, and
certain other conditions are met.
Special rules may apply to some non-United States holders, such as
"controlled foreign corporations", "passive foreign investment companies",
"foreign personal holding companies" and corporations that accumulate earnings
to avoid United States federal income tax, that are subject to special
treatment under the Code. These entities should consult their own tax advisors
to determine the United States federal, state, local, and other tax
consequences that may be relevant to them.
United States federal estate tax
Your estate will not be subject to U.S. federal estate tax on the
trust preferred securities (or the junior subordinated debt securities)
beneficially owned by you at the time of your death, provided that:
- you do not own 10% or more of the total combined voting power
of all classes of KeySpan voting stock (within the meaning of
the Code and United States Treasury regulations); and
- interest on those trust preferred securities (or junior
subordinated debt securities) would not have been, if received
at the time of your death, effectively connected with the
conduct by you of a trade or business in the United States.
Information reporting and backup withholding
United States holders
In general, information reporting requirements will apply to certain
payments of principal and interest, including OID, paid on the trust preferred
securities (or the junior subordinated debt securities) and to the proceeds of
the sale of trust preferred securities (or junior subordinated debt
securities) made to you (unless you are an exempt recipient such as a
corporation). A 31% backup withholding tax will apply to such payments if you
fail to provide a taxpayer identification number or certification of exempt
status, or fail to report in full dividend and interest income.
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Non-United States holders
In general, no information reporting or backup withholding will be
required regarding payments on the trust preferred securities (or the junior
subordinated debt securities) that KeySpan makes to you provided that it does
not have actual knowledge that you are a United States person and it has
received from you the certification described above in the first sentence
under "Consequences to non-United States holders--United States federal
withholding tax."
In addition, no information reporting or backup withholding will be
required regarding the proceeds of the sale of trust preferred securities (or
junior subordinated debt securities) made within the United States or
conducted through certain United States financial intermediaries if:
- the payor receives the certification described above and does
not have actual knowledge that you are a United States person;
or
- you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your United States federal income tax
liability provided the required information is furnished to the IRS.
Common and Preferred Stock
Consequences to United States holders
The consequences of the purchase, ownership or disposition of KeySpan
stock depend on a number of factors including:
- the term of the stock;
- any put or call option or redemption provisions with respect to
the stock;
- any conversion or exchange features with respect to the stock;
and
- the price at which the stock is sold.
United States holders should carefully examine the applicable
prospectus supplement regarding the material United States federal income tax
consequences, if any, of the holding and disposition of stock with such terms.
Consequences to non-United States holders
Dividends
In general, dividends paid to you (including any deemed dividends
that may arise from the excess of the redemption price over the issue price or
certain adjustments to the conversion ratio of convertible instruments) will
be subject to withholding of United States federal income tax at a 30% rate or
a lower rate if so specified by an applicable income tax treaty. However,
dividends that are effectively connected with your conduct of a trade or
business within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment, are not subject to
the withholding tax. Instead, these dividends are subject to United States
federal income tax on a net income basis at applicable graduated individual or
corporate rates. You must comply with certification and disclosure
requirements in order for effectively connected income to be exempt from
withholding. If you are a foreign corporation, any effectively connected
dividends you receive may also be subject to an additional branch profits tax
at a 30% rate or a lower rate if so specified by an applicable income tax
treaty.
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A non-United States holder of common or preferred stock who wishes to
claim the benefit of an applicable treaty rate, and avoid back-up withholding
as discussed below, will be required to satisfy the certification requirements
of applicable United States Treasury regulations. Special rules apply to
claims for treaty benefits made by non-United States persons that are entities
rather than individuals and to beneficial owners of dividends paid to entities
in which such beneficial owners are interest holders.
If you are eligible for a reduced rate of United States withholding
tax pursuant to an income tax treaty you may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the IRS.
Gain on disposition of common or preferred stock
You generally will not be subject to United States federal income tax
with respect to gain recognized on a sale or other disposition of common or
preferred stock unless:
- the gain is effectively connected with your conduct of a trade
or business in the United States, and, where a tax treaty
applies, is attributable to a United States permanent
establishment;
- you are an individual holding the common or preferred stock as
a capital asset and are present in the United States for 183 or
more days in the taxable year of the sale or other disposition
and certain other conditions are met; or
- KeySpan is or has been a "United States real property holding
corporation" for United States federal income tax purposes.
If you are an individual non-United States holder described in the
first of the three clauses above, you will be subject to United States federal
income tax on the net gain derived from the sale. If you are an individual
non-United States holder described in the second clause above, you will be
subject to a flat 30% United States federal income tax on the gain derived
from the sale, which may be offset by United States source capital losses,
even though you are not considered a resident of the United States. If you are
a non-United States holder that is a foreign corporation and you are described
in the first clause above, you will be subject to tax on your gain under
regular graduated United States federal income tax rates and, in addition, may
be subject to a branch profits tax at a 30% rate or a lower rate if so
specified by an applicable income tax treaty.
KeySpan believes that it is currently a "United States real property
holding corporation" for United States federal income tax purposes. So long as
the common or preferred stock sold or otherwise disposed of is regularly
traded on an established securities market, however, only a non-United States
holder who holds or held (at any time during the shorter of the five-year
period preceding the date of disposition or the holder's holding period) more
than five percent of such class of stock will be subject to U.S. federal
income tax on the disposition of such stock.
Federal estate tax
If you are an individual, common or preferred stock held by you at
the time of your death will be included in your gross estate for United States
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
Information reporting and backup withholding
KeySpan will be required to report annually to the IRS and to you the
amount of dividends paid to you and the tax withheld from dividend payments
made to you, regardless of whether withholding was required. KeySpan may make
available to the tax authorities in the country in which you reside under the
provisions of an applicable income tax treaty copies of the information
returns reporting the dividends and withholding.
Backup withholding at the rate of 31% generally will apply to
dividends paid to you unless you satisfy the certification requirements of
applicable United States Treasury regulations.
59
Payment of the proceeds of a sale of the common or preferred stock to
you within the United States or conducted through some United States related
financial intermediaries will be subject to both backup withholding and
information reporting unless (1)(a) you certify under penalties of perjury
that you are a non-United States holder and (b) the payor does not have actual
knowledge that you are a United States person or (2) you otherwise establish
an exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or credit against your federal income tax liability
provided the required information is provided to the IRS.
Special rules may apply to some non-United States holders, such as
"controlled foreign corporations", "passive foreign investment companies",
"foreign personal holding companies" and corporations that accumulate earnings
to avoid United States federal income tax, that are subject to special
treatment under the Code. These entities should consult their own tax advisors
to determine the United States federal, state, local, and other tax
consequences that may be relevant to them.
Preferred stock, depositary shares, stock purchase contracts, stock purchase
units, warrants and warrants units
If you are considering the purchase of preferred stock, depositary
shares, stock purchase contracts, stock purchase units, warrants or warrant
units, you should carefully examine the applicable prospectus supplement
regarding the special United States federal income tax consequences, if any,
of the holding and disposition of the preferred stock, depositary shares,
stock purchase contracts, stock purchase units, warrants or warrant units,
including any tax considerations relating to the specific terms of the
preferred stock, depositary shares, stock purchase contracts, stock purchase
units, warrants or warrant units.
60
ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with
the purchase of the debt securities, preferred stock, depositary shares,
common stock, stock purchase units, stock purchase contracts, trust preferred
securities, warrants or warrants units by employee benefit plans that are
subject to Title I of the U.S. Employee Retirement Income Security Act of
1974, as amended ("ERISA"), plans, individual retirement accounts and other
arrangements that are subject to Section 4975 of the Code or provisions under
any federal, state, local, non-U.S. or other laws or regulations that are
similar to such provisions of the Code or ERISA, and entities whose underlying
assets are considered to include "plan assets" of such plans, accounts and
arrangements (each, a "covered plan").
General fiduciary matters
ERISA and the Code impose duties on fiduciaries of a covered plan
subject to Title I of ERISA or Section 4975 of the Code and prohibit
transactions involving the assets of a covered plan and its fiduciaries or
other interested parties. Under ERISA and the Code, any person who exercises
any discretionary authority or control over the administration of a covered
plan or the management or disposition of the assets of a covered plan, or who
renders investment advice for compensation to a covered plan, is generally
considered a fiduciary of the covered plan.
In considering investing assets of any covered plan in the offered
securities, a fiduciary should determine whether the investment complies with
the documents and instruments governing the covered plan and the applicable
provisions of ERISA, the Code or any similar law relating to a fiduciary's
duties to the covered plan, including, the prudence, diversification,
delegation of control and prohibited transaction provisions of ERISA, the Code
and any other applicable similar laws.
Any insurance company investing its general account assets in the
Securities should consider whether the investment would be subject to the
requirements of ERISA in light of the U.S. Supreme Court's decision in John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank and under
any subsequent legislation or other guidance that has or may become available
relating to that decision, including the enactment of Section 401(c) of ERISA
by the Small Business Job Protection Act of 1996 and its regulations.
Prohibited Transaction Issues
Section 406 of ERISA and Section 4975 of the Code prohibit covered
plans subject to Title I of ERISA or Section 4975 of the Code from engaging in
specified transactions with "parties in interest," within the meaning of
ERISA, or "disqualified persons," within the meaning of Section 4975 of the
Code, unless an exemption is available. A party in interest or disqualified
person who engages in a non-exempt prohibited transaction may be subject to
excise taxes and other penalties and liabilities under ERISA and the Code. In
addition, the fiduciary of a covered plan that engages in such a non-exempt
prohibited transaction may be subject to penalties and liabilities under ERISA
and the Code.
The acquisition and/or holding of the offered securities by a covered
plan with respect to which KeySpan, the trusts, an underwriter or an agent is
considered a party in interest or a disqualified person may result in a
prohibited transaction under Section 406 of ERISA and/or Section 4975 of the
Code, unless the investment is acquired and is held in accordance with an
applicable exemption. The U.S. Department of Labor has issued prohibited
transaction class exemptions, or "PTCEs," that may apply to the offered
securities. These class exemptions include, without limitation:
- PTCE 84-14 respecting transactions determined by independent
qualified professional asset managers;
- PTCE 90-1 respecting insurance company pooled separate
accounts;
61
- PTCE 91-38 respecting bank collective investment trust
partnerships;
- PTCE 95-60 respecting life insurance company general accounts;
and
- PTCE 96-23 respecting transactions determined by in-house asset
managers,
although there can be no assurance that all of the conditions of any such
exemptions will be satisfied.
Plan Asset Issues
ERISA and the Code do not define "plan assets." However, the "Plan
Asset Regulations" under ERISA provide that when a covered plan subject to
Title I of ERISA or Section 4975 of the Code acquires an equity interest in an
entity that is neither a "publicly-offered security" nor a security issued by
an investment company registered under the Investment Company Act, the covered
plan's assets include both the equity interest and an undivided interest in
each of the underlying assets of the entity unless that equity participation
by "benefit plan investors" is not significant or the entity is an "operating
company," in each case as defined in the plan asset regulations. The plan
asset regulations define an "equity interest" as any interest, other than an
instrument that is treated as indebtedness under applicable local law and
which has no substantial equity features. Equity participation in an entity by
benefit plan investors will not be significant if they hold, in the aggregate,
less than 25% of the value of any class of such entity's equity, excluding
equity interests held by persons (other than benefit plan investors) with
discretionary authority or control over the assets of the entity or who
provide investment advice for a fee with respect to such assets, and any
affiliates thereof. For purposes of this 25% test, "benefit plan investors"
include all employee benefit plans, including "Keogh" plans, individual
retirement accounts and pension plans maintained by foreign corporations, as
well as any entity whose underlying assets are deemed to include "plan assets"
under the plan asset regulations. The Department of Labor has stated that in
determining whether equity participation in an entity by benefit plan
investors is "significant," only the proportion of an insurance company
general account's equity investment in the entity that represents plan assets
should be taken into account and, therefore, the proportion of that investment
that represents plan assets would equal the proportion of the insurance
company general account as a whole that constitutes plan assets.
For purposes of the plan asset regulations, a "publicly offered
security" is a security that is:
- "freely transferable,"
- "widely held," and
- (1) sold as part of an offering of securities to the public
pursuant to an effective registration statement under the
Securities Act of 1933 and such security is registered under
the Securities Exchange Act of 1934 within 120 days after the
end of the fiscal year of the issuer during which the offering
of such securities to the public has occurred, or (2)
registered under Section 12 of the Exchange Act.
KeySpan expects to qualify as an operating company within the meaning
of the plan asset regulations. KeySpan does not anticipate that the trust
preferred securities will constitute "publicly offered securities" for
purposes of the plan asset regulations, that any of the trusts will be an
investment company registered under the Investment Company Act or that any of
the trusts will qualify as an operating company within the meaning of the plan
asset regulations. In addition, if benefit plan investors invested in the
trust preferred securities, the trusts would not be in a position to monitor
whether those investments would be "significant" for purposes of the plan
asset regulations.
Plan asset consequences
If the assets of KeySpan or the trusts were deemed to be "plan
assets" under ERISA, this would result, among other things, in:
62
- the application of the prudence and other fiduciary
responsibility standards of ERISA to investments made by
KeySpan and the trusts; and
- the possibility that certain transactions in which KeySpan and
the trusts might seek to engage could constitute "prohibited
transactions" under ERISA and the Code.
Because of the foregoing, the offered securities other than trust
preferred securities (the "KeySpan Securities") should not be purchased or
held by any person investing "plan assets" of any covered plan, if the
purchase and holding will constitute a non-exempt prohibited transaction under
ERISA and the Code or will violate any applicable similar laws.
Because of the foregoing, the trust preferred securities should not
be purchased or held by any person investing "plan assets" of any Plan (as
defined below), except that an insurance company general account may purchase
or hold the trust preferred securities if:
- such purchase and holding will constitute an exempt prohibited
transaction under ERISA and the Code or will not violate any
applicable similar laws; and
- less than 25% of the assets of such insurance company general
account will constitute "plan assets" of any Plan.
Representation
Accordingly, by accepting the offered securities other than trust
preferred securities, each purchaser and subsequent transferee of those
securities will be deemed to have represented and warranted that either:
- no assets used to acquire those securities constitutes assets
of any covered plan; or
- the purchase and holding of those securities by such purchaser
or transferee will constitute an exempt transaction under
Section 406 of ERISA or Section 4975 of the Code or will not
violate any applicable similar laws.
By accepting the trust preferred securities, each purchaser and
subsequent transferee of the trust preferred securities will be deemed to have
represented and warranted either that:
- for the entire period during which it holds its interest in the
trust preferred securities, no portion of such assets
constitutes assets of any "employee benefit plan" within the
meaning of Section 3(3) of ERISA, whether or not subject to
Title I of ERISA, including any U.S. governmental or non-U.S.
pension plan, or any "plan" subject to Section 4975 of the Code
(each a "Plan") or
- (x) the assets used to acquire the trust preferred securities
constitute assets of an insurance company general account,
(y) for the entire period during which such purchaser or
transferee holds its interest in the trust preferred
securities, less than 25% of the assets of such insurance
company general account will constitute "plan assets" of
any Plan, and
(z) the acquisition and holding of the trust preferred
securities will satisfy the requirements of the Department
of Labor's Prohibited Transaction Class Exemption 95-60
and will not constitute a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975 of
the Code.
Due to the complexity of these rules and the penalties that may be
imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons purchasing on behalf
63
of, or with the assets of, any employee benefit plan, consult with their
counsel to determine whether such employee benefit plan is subject to Title I
of ERISA, Section 4975 of the Code or any similar laws.
64
PLAN OF DISTRIBUTION
KeySpan may sell the offered securities as follows:
- through underwriters or dealers; or
- through agents; or
- directly to purchasers.
The prospectus supplement or term sheet for each offering of
securities will describe that offering, including:
- the name or names of any underwriters, dealers or agents;
- the purchase price and the proceeds to KeySpan from that sale;
- any underwriting discounts and other items constituting
underwriters' compensation;
- any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers; and
- any securities exchanges on which the debt securities of that
series may be listed.
Underwriters
Unless otherwise set forth in the prospectus supplement or term
sheet, the obligations of the underwriters to purchase offered securities will
be subject to certain conditions. The underwriters will be obligated to
purchase all the offered securities if any are purchased.
The offered securities will be acquired by the underwriters for their
own account and may be resold by them from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Underwriters may be
deemed to have received compensation from KeySpan in the form of underwriting
discounts or commissions and may also receive commissions from the purchasers
of offered securities for whom they may act as agent. Underwriters may also
sell offered securities to or through dealers. These dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
KeySpan may authorize underwriters to solicit offers by certain types
of institutions to purchase offered securities from it at the public offering
price stated in the prospectus supplement or term sheet required by delayed
delivery contracts providing for payment and delivery on a specified date in
the future. If KeySpan sells debt securities under these delayed delivery
contracts, the prospectus supplement or term sheet will state that as well as
the conditions to which these delayed delivery contracts will be subject and
the commissions payable for that solicitation.
Agents
KeySpan may also sell offered securities through agents designated by
it from time to time. KeySpan will name any agents involved in the offer or
sale of the offered securities and will list commissions payable by it to
these agents in the prospectus supplement or term sheet. These agents will be
acting on a best efforts basis to solicit purchases for the period of their
65
appointment, unless KeySpan states otherwise in the prospectus supplement or
term sheet.
Direct sales
KeySpan may sell debt securities directly to purchasers. In this
case, KeySpan will not engage underwriters or agents in the offer and sale of
offered securities.
Remarketing transactions
KeySpan may also sell offered securities that it has purchased,
redeemed or repaid through one or more remarketing firms acting as principals
for their own accounts or as KeySpan's agents. The applicable prospectus
supplement or term sheet will identify any remarketing firms and describe the
terms of KeySpan's agreement with them and their compensation. Remarketing
firms may be deemed to be underwriters of the offered securities under the
Securities Act.
Indemnification
KeySpan may indemnify underwriters, dealers or agents who participate
in the distribution of offered securities against certain liabilities,
including liabilities under the Securities Act, and agree to contribute to
payments which these underwriters, dealers or agents may be required to make.
No assurance of liquidity
Some of the offered securities will be new issues of securities with
no established trading market. Any underwriters that purchase offered
securities from KeySpan may make a market in these debt securities. The
underwriters will not be obligated, however, to make a market in the offered
securities and may discontinue market-making at any time without notice to
holders of those securities. KeySpan cannot assure you that there will be
liquidity in the trading market for any offered securities of any series.
LEGAL OPINIONS
The validity of the securities offered by KeySpan in this prospectus
will be passed upon for it by Simpson Thacher & Bartlett, New York, New York.
Certain legal matters will be passed upon for any agents or underwriters by
Simpson Thacher & Bartlett or other counsel identified in the prospectus
supplement or term sheet.
EXPERTS
Arthur Andersen LLP, independent accountants, audited the financial
statements for the nine months ended December 31, 1998 and the twelve months
ended December 31, 1999 and the twelve months ended December 31, 2000, and
related schedules incorporated by reference in this prospectus. Arthur
Andersen LLP, also audited the financial statements for Eastern Enterprises
for the twelve months ended December 31, 1998 and December 31, 1999, and
related schedules incorporated by reference in this prospectus. These
financial statements and schedules are incorporated by reference herein in
reliance upon the authority of Arthur Andersen LLP, as experts in accounting
and auditing in giving the reports.
66
WHERE YOU CAN FIND MORE INFORMATION
KeySpan files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any of these
documents at the SEC's public reference rooms in Washington, D.C., New York,
New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. KeySpan's SEC filings are
also available to the public on the SEC's web site at http://www.sec.gov.
KeySpan and the trusts filed a registration statement on Form S-3
with the SEC covering the offered securities. For further information on
KeySpan and the offered securities, you should refer to the registration
statement and its exhibits. This prospectus summarizes material provisions of
the offered securities. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. KeySpan and the trusts have included copies of these
documents in an exhibit to its registration statement of which this prospectus
is a part.
The SEC allows KeySpan to "incorporate by reference" the information
that it files with the SEC, which means that KeySpan can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
later information that KeySpan files with the SEC will automatically update
and supersede this information. KeySpan incorporates by reference the
documents listed below and any future filings made with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until all of
the securities are sold.
- KeySpan's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000; and
- KeySpan's Current Report on Form 8-K filed January 25, 2001.
You may request a copy of these filings, or any of KeySpan's or the
trusts' SEC filings, at no cost, over the Internet at its web site at
http://www.keyspanenergy.com or by writing or telephoning KeySpan at the
following address:
Investor Relations
KeySpan Corporation
One MetroTech Center
Brooklyn, New York, 11201
(718) 403-3385
67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and distribution of the
securities being registered, other than the underwriting discounts and
commissions, are as follows:
Securities and Exchange Commission Registration Fee............... $250,000
New York Stock Exchange Listing Fee................................$100,000
Legal Fees and Expenses............................................$250,000
Accountants Fees and Expenses.......................................$50,000
Blue sky fees and expenses..........................................$50,000
Trustee Fees and Expenses...........................................$20,000
Rating Agency Fees.................................................$100,000
Printing and Delivery Expenses......................................$75,000
Miscellaneous Expenses............................................. $5,000
-----
Total*.......................................................$900,000
=======
- --------------
* Estimated
Item 15. Indemnification of Directors and Officers.
The New York Business Corporation Law ("BCL"), Article 7, Sections
721-726 provide for the indemnification and advancement of expenses to
officers and directors. Section 721 provides that indemnification and
advancement pursuant to the BCL are not exclusive of any other rights an
officer or director may be entitled to, provided that no indemnification may
be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that
the director personally gained a financial profit or other advantage to which
he or she was not legally entitled.
Section 722 of the BCL provides that a corporation may indemnify an
officer or director, in the case of third party actions, against judgments,
fines, amounts paid in settlement and reasonable expenses and, in the case of
derivative actions, against amounts paid in settlement and reasonable
expenses, provided that the director or officer acted in good faith, for a
purpose which he or she reasonably believed to be in the best interests of the
corporation and, in the case of criminal actions, had no reasonable cause to
believe his conduct was unlawful. In addition, statutory indemnification may
not be provided in derivative actions (i) which are settled or otherwise
disposed of or (ii) in which the director or officer is adjudged liable to the
corporation, unless and only to the extent a court determines that the person
is fairly and reasonably entitled to indemnity.
Section 723 of the BCL provides that statutory indemnification is
mandatory where the director or officer has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or proceeding. Section
723 also provides that expenses of defending a civil or criminal action or
proceeding may be advanced by the corporation upon receipt of an undertaking
to repay them if and to the extent the recipient is ultimately found not to be
entitled to indemnification. Section 725 provides for repayment of such
expenses when the recipient is ultimately found not to be entitled to
indemnification. Section 726 provides that a corporation may obtain
indemnification insurance indemnifying itself and its directors and officers.
The registrant has in effect insurance policies providing both directors and
officers liability coverage and corporate reimbursement coverage.
Section 402(b) of the BCL provides that a corporation may include in
its certificate of incorporation a provision limiting or eliminating, with
certain exceptions, the personal liability of directors to a corporation or
II-1
its shareholders for damages for any breach of duty in such capacity. The
certificate of incorporation of the registrant contains provisions eliminating
the personal liability of directors to the extent permitted by New York law.
The registrant's certificate of incorporation provides generally that
it shall, except to the extent expressly prohibited by the BCL, indemnify each
of its officers and directors made or threatened to be made a party to any
action, suit or proceeding, or appeal thereof, whether civil or criminal by
reason of the fact that such person is or was an officer or director against
all expense, liability and loss (including, but not limited to all attorneys'
fees, judgments, fines, pension plan taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith. The certificate of incorporation further provides for
advancement and reimbursement of such expenses incurred by an officer or
director in defending any action or proceeding in advance of the final
disposition thereof upon receipt of an undertaking by such person to repay
such amount if, and to the extent that, such person is ultimately found not to
be entitled to indemnification.
Item 16. List of Exhibits.
See Exhibit Index
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the Registration Statement is on Form S-3, Form S-8, or Form F-3 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Issuer pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-2
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the Issuer's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of such registrant pursuant to the provisions
referred to in Item 15 of this registration statement, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by such registrants of expenses incurred or paid by a
director, officer or controlling person of such registrants in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, KeySpan
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Brooklyn, State of New York, on this
4th day of May, 2001.
KEYSPAN CORPORATION
Issuer of Securities
(Registrant)
By: /s/ Gerald Luterman
-------------------------
Gerald Luterman
Chief Financial Officer and
Senior Vice-President
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Date:
* May 4, 2001
- ---------------------------------------------
Robert B. Catell
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Gerald Luterman May 4, 2001
- ---------------------------------------------
Gerald Luterman
Chief Financial Officer and Senior
Vice-President
(Principal Financial Officer)
/s/ Ronald Jendras May 4, 2001
- ---------------------------------------------
Ronald Jendras
Vice President, Controller and Chief
Accounting Officer
(Principal Accounting Officer)
* May 4, 2001
- ---------------------------------------------
Lilyan H. Affinito
Director
II-4
* May 4, 2001
- ---------------------------------------------
Andrea S. Christensen
Director
* May 4, 2001
- ---------------------------------------------
Howard R. Curd
Director
* May 4, 2001
- ---------------------------------------------
Richard N. Daniel
Director
* May 4, 2001
- ---------------------------------------------
Donald H. Elliott
Director
* May 4, 2001
- ---------------------------------------------
Alan H. Fishman
Director
* May 4, 2001
- ---------------------------------------------
Vicki L. Fuller
Director
* May 4, 2001
- ---------------------------------------------
J. Atwood Ives
Director
II-5
* May 4, 2001
- ---------------------------------------------
James R. Jones
Director
* May 4, 2001
- ---------------------------------------------
James L. Larocca
Director
* May 4, 2001
- ---------------------------------------------
Craig G. Matthews
Director
* May 4, 2001
- ---------------------------------------------
Stephen W. McKessy
Director
* May 4, 2001
- ---------------------------------------------
Edward D. Miller
Director
* May 4, 2001
- ---------------------------------------------
James Q. Riordan
Director
/s/ Ronald Jendras May 4, 2001
- ---------------------------------------------
Ronald Jendras, as Attorney-in-Fact
Vice President, Controller and Chief
Accounting Officer
- -------------------
* Such signature has been affixed pursuant to a power of attorney filed as an
exhibit hereto.
II-6
Pursuant to the requirements of the Securities Act of 1933, KeySpan Trust I,
KeySpan Trust II and KeySpan Trust III each certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Brooklyn, State
of New York, on the 4th of May, 2001.
KEYSPAN TRUST I
/s/ Ronald S. Jendras
-----------------------------
Ronald S. Jendras
Trustee
/s/ Richard A. Rapp
-----------------------------
Richard A. Rapp
Trustee
/s/ Michael J. Taunton
-----------------------------
Michael J. Taunton
Trustee
KEYSPAN TRUST II
/s/ Ronald S. Jendras
-----------------------------
Ronald S. Jendras
Trustee
/s/ Richard A. Rapp
-----------------------------
Richard A. Rapp
Trustee
/s/ Michael J. Taunton
-----------------------------
Michael J. Taunton
Trustee
KEYSPAN TRUST III
/s/ Ronald S. Jendras
-----------------------------
Ronald S. Jendras
Trustee
/s/ Richard A. Rapp
-----------------------------
Richard A. Rapp
Trustee
/s/ Michael J. Taunton
-----------------------------
Michael J. Taunton
Trustee
II-7
EXHIBIT INDEX
1.1* Form of underwriting agreement for debt securities
1.2* Form of underwriting agreement for preferred stock
1.3* Form of underwriting agreement for depositary shares
1.4* Form of underwriting agreement for trust preferred securities
1.5* Form of underwriting agreement for common stock
1.6* Form of underwriting agreement for stock purchase contracts
1.7* Form of underwriting agreement for stock purchase units
4.1** Indenture, dated as of November 1, 2000, between the
Registrant and The Chase Manhattan Bank, as trustee, with
respect to the debt securities. The forms of debt securities
with respect to each particular series of debt securities
registered hereunder will be filed as an exhibit to a Current
Report on Form 8-K and shall be deemed to the incorporated
herein by reference
4.2*** Form of First Supplemental Indenture, between the Registrant and
The Chase Manhattan Bank, as trustee, with respect to the debt
securities
4.3*** Form of deposit agreement with respect to the depositary shares
(including the form of depositary receipt to be issued
thereunder)
4.4** Certificate of Trust of KeySpan Trust I
4.5** Certificate of Trust of KeySpan Trust II
4.6** Certificate of Trust of KeySpan Trust III
4.7** Declaration of Trust of KeySpan Trust I
4.8** Declaration of Trust of KeySpan Trust II
4.9** Declaration of Trust of KeySpan Trust III
4.10*** Form of Amended and Restated Declaration of Trust for each trust
(including the forms of preferred security and common security
to be issued thereunder)
4.11*** Form of Guarantee with respect to the preferred securities of
each trust
4.12 Rights Agreement, dated March 30, 1999, by and between the
Registrant and The Bank of New York, as Rights Agent (filed as
Exhibit 4 to the Registrant's Current Report on Form 8-K filed
on March 30, 1999 and incorporated herein by reference). The
Rights Agreement includes the Certificate of Amendment to the
Certificate of Incorporation for the Series D Preferred Stock
as Exhibit A thereto, the Form of Rights Certificate as Exhibit
B thereto and the Summary of Rights to Purchase Series D
Preferred Stock as Exhibit C thereto.
4.13*** Form of Certificate of Amendment with respect to the preferred
stock
4.14*** Form of Stock Purchase Contract
4.15*** Form of Purchase Contract Agreement
4.16*** Form of Debt Warrant Agreement
4.17*** Form of Stock Warrant Agreement
5.1*** Opinion and consent of Simpson Thacher & Bartlett as to
the validity of the debt securities, preferred stock, depositary
shares, guarantees, common stock, rights to purchase Series D
preferred stock, stock purchase units, stock purchase contracts,
warrants and warrant units of the Registrant being registered
5.2*** Opinion and consent of Richards, Layton & Finger as to the
validity of the trust preferred securities being registered
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8.1*** Opinion and consent of Simpson Thacher & Bartlett regarding
certain tax matters
12.1** Computation in support of ratio of earnings to fixed charges and
ratio of combined fixed charges and preferred dividends
23.1 Consent of Simpson Thacher & Bartlett (Included in Exhibit 5.1
above)
23.2 Consent of Richards, Layton & Finger (Included in Exhibit 5.2
above)
23.3** Consent of Arthur Andersen LLP
23.4 Consent of Simpson Thacher & Bartlett (Included in Exhibit 8.1
above)
24.1** Powers of attorney
24.2** Cerfified resolution of the Board of Directors of KeySpan
Corporation authorizing signatures pursuant to powers of
attorney.
25.1*** Form T-1 statement of eligibility and qualification
under the Trust Indenture Act of 1939 (a "Form T-1") of The
Chase Manhattan Bank ("Chase"), as trustee under the indenture
with respect to the senior debt securities
25.2*** Form T-1 of Chase as trustee under the indenture with respect to
the subordinated debt securities
25.3*** Form T-1 of Chase as trustee under the declaration of trust of
KeySpan Trust I
25.4*** Form T-1 of Chase as trustee under the declaration of trust of
KeySpan Trust II
25.5*** Form T-1 of Chase as trustee under the declaration of trust of
KeySpan Trust III
25.6*** Form T-1 of Chase as trustee under the guarantee for the benefit
of holders of trust preferred securities of KeySpan Trust I
25.7*** Form T-1 of Chase as trustee under the guarantee for the benefit
of holders of trust preferred securities of KeySpan Trust II
25.8*** Form T-1 of Chase as trustee under the guarantee for the benefit
of holders of trust preferred securities of KeySpan Trust III
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* To be filed as an Exhibit to a Current Report on Form 8-K
** Filed herewith.
*** To be filed as an amendment.
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