UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
KeySpan Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
[KEYSPAN LOGO] One MetroTech Center
Brooklyn, New York 11201-3850
KEYSPAN CORPORATION
Notice of 2001 Annual Meeting of Shareholders and
Proxy Statement
[KEYSPAN LOGO]
One MetroTech Center
Brooklyn, New York 11201-3850
LETTER TO SHAREHOLDERS
March 23, 2001
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
KeySpan Corporation at 10:00 a.m. Eastern Time, on Thursday, May 10, 2001, at
the Opera House of the Brooklyn Academy of Music, 30 Lafayette Avenue, Brooklyn,
New York.
We will review our 2000 performance with you, our plans for the future and the
acquisition of Eastern Enterprises.
Once again, we have prepared a Proxy Statement in what we believe is a simple
and easy to understand format. We have continued our procedure by which you may
provide a proxy by telephone or through the Internet in order to cast your vote
more easily. Whether you choose to provide a written proxy card, or one by
telephone or through the Internet, please vote as soon as possible.
I look forward to seeing you on May 10th at the Annual Meeting. Enclosed with
the Proxy Statement is your voting card. I would like to take this opportunity
to remind you that your vote is important.
Robert B. Catell
Chairman and Chief Executive Officer
[KEYSPAN LOGO]
One MetroTech Center
Brooklyn, New York 11201-3850
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 23, 2001
Dear Shareholder:
The Annual Meeting of Shareholders of KeySpan Corporation ("KeySpan" or the
"Company") will be held on Thursday, May 10, 2001, at 10:00 a.m. Eastern Time,
at the Opera House of the Brooklyn Academy of Music, 30 Lafayette Avenue,
Brooklyn, New York, to consider and take action on the following items:
1. Election of fifteen directors;
2. Ratification of Arthur Andersen LLP, as independent public accountants
for the Company for the year ending December 31, 2001;
3. Approval of an amended Employee Discount Stock Purchase Plan;
4. Approval of an amended Long-Term Performance Incentive Compensation
Plan; and
5. Transact any other business properly before the Annual Meeting or any
adjournment thereof.
Shareholders of record as of the close of business on March 12, 2001 are
entitled to vote at the Annual Meeting or any postponement or adjournment
thereof.
If your shares are held through a bank or brokerage firm and you plan to attend
the meeting, please request a letter or some other evidence of ownership from
your bank or firm, as well as proper authorization if you wish to vote your
shares in person.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. EVEN IF YOU
PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL READ THE ENCLOSED PROXY
STATEMENT AND THE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, AND THEN VOTE
(1) BY COMPLETING, SIGNING, DATING AND MAILING THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, (2) CALLING THE TOLL-FREE NUMBER LISTED ON THE PROXY
CARD, OR (3) THROUGH THE INTERNET AS INDICATED ON THE PROXY CARD. THIS WILL NOT
AFFECT YOUR RIGHT TO ATTEND OR VOTE AT THE MEETING.
By Order of the Board of Directors,
Richard A. Rapp, Jr.
Vice President, Secretary and Deputy General Counsel
Directions to the
Opera House
BROOKLYN ACADEMY OF MUSIC
30 Lafayette Avenue
Brooklyn, New York 11217
[BAM LOGO]
By Car:
From Manhattan via the Manhattan Bridge: Continue straight off the bridge onto
Flatbush Avenue, proceed to Fulton Street. Turn left onto Fulton Street.
Proceed two blocks; turn right onto Ashland Place, proceed one block.
From Manhattan via the Brooklyn Bridge: Continue straight off the bridge and
make the first left turn possible which is Tillary Street. Continue on Tillary
Street and turn right onto Flatbush Avenue.
From Queens, Long Island and Connecticut: Take the Long Island Expressway to
the Brooklyn Queens Expressway. Exit at Tillary Street, exit 29. Follow exit
onto Tillary Street, two short blocks and turn left onto Flatbush Avenue.
From Staten Island: Cross the Verrazano-Narrows Bridge to the Brooklyn Queens
Expressway. Exit at Tillary Street, exit 29. Follow exit onto Tillary Street,
two short blocks and turn left onto Flatbush Avenue.
From New Jersey: Use the Holland Tunnel and continue east on Canal Street,
which leads directly across the Manhattan Bridge. Continue straight over the
bridge onto Flatbush Avenue.
By Subway:
The Brooklyn Academy of Music is within three blocks of the following
stations:
. 2, 3, 4, 5, D, Q: Atlantic Avenue
. B, N, M, R: Pacific Street
. G: Fulton Street
. LIRR: Flatbush Avenue
Parking:
All Brooklyn Academy of Music parking lots are patrolled continuously during
the work day and until 30 minutes after each event.
PROXY STATEMENT OF KEYSPAN CORPORATION
ANNUAL MEETING TO BE HELD ON MAY 10, 2001
Proxies are being solicited on behalf of the Board of Directors of the Company
for use at the Annual Meeting of Shareholders on May 10, 2001, or any
adjournment thereof. This Proxy Statement is first being mailed to the
shareholders of the Company on or about March 23, 2001.
Q: What am I voting on?
A: Election of fifteen directors; ratification of Arthur Andersen LLP, as
independent public accountants for the year ending December 31, 2001;
approval of an amended Employee Discount Stock Purchase Plan; approval of an
amended Long-Term Performance Incentive Compensation Plan; and any other
business properly brought before the meeting.
Q: Who is entitled to vote?
A: Common Stock shareholders as of the close of business on March 12, 2001 (the
"Record Date"). Each share of KeySpan's Common Stock, par value $.01 per
share (the "Common Stock") is entitled to one vote.
Q: How do I vote?
A: You may submit a proxy with your voting instructions by completing, signing
and mailing the enclosed proxy card, or by submitting your proxy with voting
instructions by toll-free telephone or through the Internet.
Q: How do I submit a written proxy by mail?
A: To submit a written proxy by mail, you should complete, sign and mail the
enclosed proxy card in accordance with its instructions. If a shareholder
wishes to give a proxy to someone other than the individuals named as proxies
on the proxy card, he or she may cross out the names appearing on the proxy
card, insert the name of some other person or persons, sign, date and give
the proxy card to such person or persons for use at the meeting.
Q: How does discretionary authority apply?
A: If you sign and return a proxy card without indicating your voting
instructions with respect to any or all proposals, you give the named proxies
the authority to vote on each proposal. A properly signed and dated proxy
card (or a proxy properly delivered by telephone or through the Internet)
gives the named proxies the authority to vote, in their discretion, on any
other matter that may arise at the meeting.
Q: How do I submit my proxy by telephone or through the Internet?
A: Alternatively, you may submit your proxy with voting instructions, by
telephone or through the Internet, by following the instructions that are set
forth on the enclosed proxy card. If you are a shareholder of record on the
Record Date, you may call 1-877-779-8683 (or 1-201-536-8073, outside the U.S.
or Canada) or visit the Web site (http://www.eproxyvote.com/kse) listed on
the enclosed proxy card.
If you choose to submit your proxy with voting instructions by telephone or
through the Internet, you will be required to provide your assigned control
number noted on the enclosed proxy card before your proxy will be accepted.
In addition to the instructions that appear on the enclosed proxy card, step-
by-step instructions will be provided by recorded telephone message or at the
designated Web site on the Internet. Once you have indicated how you will
vote, in accordance with those instructions, you will receive confirmation
that your proxy has been successfully submitted by telephone or through the
Internet.
Q: Is my vote confidential?
A: Yes. Only EquiServe Trust Company, N.A. ("EquiServe"), the inspector of
election, and certain employees have access to your card. All comments will
remain confidential, unless you ask that your name be disclosed.
Q: Who will count the votes?
A: EquiServe will tabulate the votes and act as inspector of election.
Q: What if I get more than one proxy card?
A: Your shares are probably registered differently or are in more than one
account. Sign and return all proxy cards to ensure that all your shares are
voted.
1
Please have all of your accounts registered exactly in the same name and
social security number. You may do this by contacting our transfer agent,
EquiServe, by calling 1-800-482-3638.
Q: What constitutes a quorum?
A: As of the close of business on March 12, 2001, the Record Date, 137,039,395
shares of Common Stock were issued and outstanding. A majority of the
outstanding shares, present or represented by proxy, constitutes a quorum.
For purposes of determining the presence of a quorum, shares represented by
abstentions and "broker non-votes" will be counted as present. If you vote
by proxy card or give a proxy by telephone or through the Internet, you will
be considered part of the quorum. In the absence of a quorum, the Annual
Meeting may be adjourned.
Q: What percentage of stock do the directors and officers own?
A: The directors and certain executive officers own approximately 0.2 percent of
our Common Stock, as of March 1, 2001.
Q: When are the shareholder proposals due for the 2002 Annual Meeting?
A: Shareholder proposals for the 2002 Annual Meeting must be received by KeySpan
at its offices at One MetroTech Center, Brooklyn, New York 11201-3850,
Attention: Secretary, not less than 120 calendar days prior to the
anniversary date of the release of the Company's Proxy Statement to
shareholders in connection with the 2001 Annual Meeting, to be considered by
the Company for possible inclusion in the proxy materials for the 2002 Annual
Meeting. In addition, all shareholder proposals or nominations for election
as director for the 2002 Annual Meeting must be submitted to the Company in
accordance with Section 2.7 of the Company's By-Laws not less than 60 nor
more than 90 calendar days in advance of the first anniversary date of the
2001 Annual Meeting.
VOTING METHODS
Three methods of proxy voting are available to you:
PROXY CARD VOTING
Mark your selections on the card. Date and sign your name exactly as it
appears on the card. Return your card in the postage-paid envelope we have
provided.
TELEPHONE PROXY - 24 HOURS A DAY, 7 DAYS A WEEK
Use any touch-tone telephone to give your proxy. Have your proxy card in hand
when you call. Dial 1-877-779-8683 (or 1-201-536-8073 outside the U.S. or
Canada) and follow the instructions.
INTERNET PROXY - 24 HOURS A DAY, 7 DAYS A WEEK
Access the Web site at http://www.eproxyvote.com/kse to vote through the
Internet.
You have the right to revoke your proxy any time before its use at the Annual
Meeting by delivering to the Company (Attention: Richard A. Rapp, Jr., Vice
President, Secretary and Deputy General Counsel) a written notice of revocation
or a duly executed proxy bearing a later date or by attending the Annual Meeting
and voting in person. A proxy given by telephone or through the Internet can be
revoked by calling the numbers listed above in the telephone and Internet proxy
instructions and re-entering your voting instructions or by either of the
methods described in the preceding sentence.
2
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR each of the fifteen
nominees named below to serve as members of the Board of Directors for a one-
year term:
Nominees for election this year are:
. Lilyan H. Affinito . Donald H. Elliott . James L. Larocca
. Robert B. Catell . Alan H. Fishman . Craig G. Matthews
. Andrea S. Christensen . Vicki L. Fuller . Stephen W. McKessy
. Howard R. Curd . J. Atwood Ives . Edward D. Miller
. Richard N. Daniel . James R. Jones . James Q. Riordan
Each director will hold office for one year or until their successors are duly
elected or chosen and qualified.
If any director is unable to stand for election, the Board may provide for a
lesser number of directors or designate a substitute. In the latter event,
shares represented by proxies may be voted for a substitute director. KeySpan
does not anticipate that any of the individuals listed above will be unable to
serve the full term of office to which they may be elected. The affirmative
vote of a plurality of the shares of KeySpan Common Stock cast is required for
the election of directors.
Effective December 31, 2000, George Bugliarello and Basil A. Paterson retired as
directors of the Company. However, Messrs. Bugliarello and Paterson have agreed
to serve as consulting directors, effective January 1, 2001, and will advise and
counsel the Board and any of its committees on various matters. A consulting
director does not have the right to vote at meetings of the Board or at meetings
of Committees of the Board.
Effective April 26, 2000, Frederic V. Salerno resigned as a director of the
Company and, effective December 31, 2000, Vincent Tese also resigned as a
director of the Company, to pursue other business interests. Messrs. Salerno
and Tese were members of the Board's Executive and Compensation and Nominating
Committees. The Board and the Company extend their gratitude to Messrs. Salerno
and Tese for their service as valued directors.
In addition, William C. Thompson, Jr. and Edward Travaglianti have also agreed
to serve as consulting directors effective January 1, 2001. Messrs. Thompson
and Travaglianti had served as directors of The Brooklyn Union Gas Company d/b/a
KeySpan Energy Delivery New York since November 1997 and October 1998,
respectively.
Nominees for the Board of Directors
[PHOTO] LILYAN H. AFFINITO - Age 69 - Director since December 1998
Retired Vice Chairman of the Board of Maxxam Group, Inc. since
1991. Served as Controller, Treasurer and Chief Financial Officer
for Maxxam Group from 1968 to 1976, President and Chief Operating
Officer from 1976 to 1987, and Director from 1972 to 1991. Serves
on the Boards of Caterpiller Inc. and Kmart Corporation since
1980 and 1990, respectively. Also serves on the Board of the Mayo
Foundation since 1991.
3
[PHOTO] ROBERT B. CATELL - Age 64 - Director since May 1998
Chairman and Chief Executive Officer of KeySpan Corporation since
July 1998. Joined KeySpan's indirect subsidiary, The Brooklyn
Union Gas Company, in 1958 and was elected Assistant Vice
President in 1974, Vice President in 1977, Senior Vice President
in 1981 and Executive Vice President in 1984. Elected Brooklyn
Union's Chief Operating Officer in 1986 and President in 1990.
Mr. Catell served as President and Chief Executive Officer from
1991 to 1996 when he was elected Chairman and Chief Executive
Officer. Serves on the Boards of Alberta Northeast Gas, Ltd.,
Boundary Gas Inc., Taylor Gas Liquids, Ltd., The Houston
Exploration Company, Gas Technology Institute, Edison Electric
Institute, New York State Energy Research and Development
Authority, Independence Community Bank Corp., Business Council of
New York State, Inc., New York City Investment Fund, New York
City Partnership and Long Island Association.
[PHOTO] ANDREA S. CHRISTENSEN - Age 61 - Director since January 2001
Partner in the law firm of Kaye, Scholer, Fierman, Hays &
Handler, LLP since 1976. Joined that firm in 1968 and previously
was an associate with the law firm of Kelley, Drye & Warren.
Adjunct Professor at New York University School of Law from 1984
to 1994. Member of the Association of the Bar of the City of New
York, American Bar Association, International Society for Labor
Law and Social Security. Former Chairperson of New York County
Lawyers Association Committee on Labor Relations. Served as
Director of The Brooklyn Union Gas Company from 1980 to 2000 and
the American Arbitration Association from 1988 to 1999.
[PHOTO] HOWARD R. CURD - Age 62 - Director since May 1998
Chairman and Chief Executive Officer of Uniroyal Technology
Corporation, a developer and manufacturer of proprietary plastic
products and specialty chemical and polymer products, since 1992.
Served as President and Chief Executive Officer of Uniroyal from
1991 to 1992. Formed his own business in 1972 and, during the
period 1972 to 1982, acquired controlling interests in a 100-year
old investment banking firm, Polycast Technology Corporation and
the U.S. Playing Card Corporation. Served on the Board of Emcore
Corporation.
[PHOTO] RICHARD N. DANIEL - Age 65 - Director since May 1998
Retired Chairman and Chief Executive Officer of Handy & Harman, a
diversified industrial manufacturer and the parent company of a
group of materials engineering and specialty manufacturing
companies. Joined Handy & Harman in 1971 and held various officer
positions from Vice President and Controller to President and
Chairman. Member of the Board of the Treasurer's Fund, Inc. since
1997.
4
[PHOTO] DONALD H. ELLIOTT - Age 68 - Director since May 1998
Partner in the law firm of Hollyer Brady Smith & Hines LLP, since
1995. Attorney in the law firm of Webster & Sheffield from 1957
to 1965 and Partner from 1973 to 1991. Counsel to the Mayor of
New York City and then Chairman of the New York City Planning
Commission from 1966 to 1973. Partner in the law firm of Mudge
Rose Guthrie Alexander and Ferdon from 1991 to 1995. Trustee of
Independence Community Bank Corp. and Long Island University.
Serves on the Board of Independence Community Bank and an
honorary member of the New York Chapter of the American Institute
of Architects.
[PHOTO] ALAN H. FISHMAN - Age 55 - Director since May 1998
President and Chief Executive Officer of Independence Community
Bank Corp., the parent savings and loan holding company of
Independence Community Bank, since March 2001. Joined Chemical
Bank in 1969, named Chief Financial Officer in 1979 and elected
Senior Vice President responsible for worldwide investment
banking activities in 1983. Joined Neuberger & Berman in 1988 and
was responsible for an investment partnership. Joined American
International Group, Inc. in 1989 as a Senior Vice President and
elected President of AIG Financial Services Group. Joined the
firm of Adler & Shaykin in 1990 as a Managing Partner. Former
Managing Partner and founder of Columbia Financial Partners, L.P.
in 1992. President and Chief Executive Officer of ContiFinancial
Corporation from July 1999 to March 2001. Also Vice Chairman of
the Brooklyn Academy of Music.
[PHOTO] VICKI L. FULLER - Age 43 - Director since January 2001
Senior Vice President of Alliance Capital Management Corporation
since 1994, a global investment advisor with $474 billion in
assets. Responsible for market and business development, product
advocacy and client service for the Fixed Income Department's
retail and private client business. Formerly served as co-head of
the Global High Yield Group at Alliance Capital. Joined Alliance
Capital from Equitable Capital Management Corporation in 1993.
Certified Public Accountant and Chairperson of the KeySpan
Foundation.
[PHOTO] J. ATWOOD IVES - Age 64 - Director since November 2000
Former Chairman and Chief Executive Officer of Eastern
Enterprises from 1991 to November 2000. Director or Trustee of
several mutual funds advised by the Massachusetts Financial
Services Company, Trustee of the Museum of Fine Arts, Boston,
Director of the United Way of Massachusetts Bay and the
Massachusetts Business Roundtable, overseer of WGBH Educational
Foundation, and member of the Corporate Advisory Board of the
Boston College Carroll School of Management.
5
[PHOTO] JAMES R. JONES - Age 61 - Director since May 1998
Senior Counsel to the law firm of Manatt, Phelps & Phillips, LLP
since March 1999 and Chairman of GlobeRanger Corporation since
September 1999. Retired President of Warnaco, Inc. -International
Division. White House Staff, Special Assistant and Appointments
Secretary from 1965 to 1969 and Congressman from Oklahoma from
1973 to 1987. Partner in the law firm of Dickstein Shapiro Morin
& Oshinsky LLP from 1987 to 1989. Chairman and Chief Executive
Officer of the American Stock Exchange from 1989 to 1993. Served
as United States Ambassador to Mexico from 1993 to 1997.
[PHOTO] JAMES L. LAROCCA - Age 57 - Director since January 2001
Professor of Public Policy at Long Island University's
Southampton College since April 2000 and Adjunct Professor of
Public Policy at Hofstra University since January 1999.
Immediately prior to his appointment to Southampton, he practiced
law with the firm of Cullen and Dykman. Served in the cabinets of
two New York governors as Commissioner of Transportation,
Commissioner of Energy, Director of Federal Affairs, Trustee of
the New York Power Authority and Chairman of the Energy Research
and Development Authority. Served as President of the Long Island
Association from 1985 to 1993. Director of European American
Bank, ContiFinancial Corporation and Chairman of the Long Island
Nature Conservancy.
[PHOTO] CRAIG G. MATTHEWS - Age 58 - Director since March 2001
Vice Chairman and Chief Operating Officer and a Director of
KeySpan Corporation since March 2001. President and Chief
Operating Officer of KeySpan Corporation from January 1999 to
March 2001 and KeySpan's indirect subsidiary, The Brooklyn Union
Gas Company, since 1996. Joined Brooklyn Union in 1965 and held
various management positions in the corporate planning,
financial, marketing and engineering areas. Elected Assistant
Vice President in 1977, Vice President in 1981 and Senior Vice
President in 1985. Elected Executive Vice President in 1991 with
responsibilities for Brooklyn Union's financial, gas supply,
information systems and strategic planning functions, and energy-
related investments. Served as Executive Vice President and Chief
Financial Officer of KeySpan from May 1998 to August 1999. Serves
on the Boards of the American Gas Association, Brooklyn Chamber
of Commerce, The Houston Exploration Company, Neighborhood
Housing Services, Polytechnic University and Regional Plan
Association. President of the Brooklyn Philharmonic Orchestra.
Immediate past President of the Society of Gas Lighting and
immediate past Chairman of the New York City Advisory Board of
the Salvation Army.
[PHOTO] STEPHEN W. McKESSY - Age 63 - Director since May 1998
Retired Vice Chairman of PricewaterhouseCoopers. Served in
various officer positions at PricewaterhouseCoopers from 1960 to
1997. Serves as a Director for the Greater Boy Scouts of America,
the Board of Advisors of St. John's University College of
Business Administration, the Board of Governors of the Silver
Spring Country Club and the Board of the Sailfish Point Golf
Club.
6
[PHOTO] EDWARD D. MILLER - Age 60 - Director since May 1998
President and Chief Executive Officer of AXA Financial, Inc.
since August 1997 and Chairman and Chief Executive Officer of The
Equitable Life Assurance Society of the United States since
January 1998, the principal insurance subsidiary of AXA
Financial, Inc. Chairman and Chief Executive Officer of AXA
Client Solutions, LLC. Serves as a member of the Boards of AXA
Financial, Inc., Equitable Life and Alliance Capital Management
Corporation, an AXA Financial investment subsidiary. Senior
Executive Vice President of AXA Group, AXA Financial's parent
company and, since May 2000, a Vice Chairman of its Management
Board. Serves as AXA's representative for Canada and is Chairman
of AXA Group's Information Systems Board of Directors. Director
of Phoenix House and a member of the Business Roundtable. Current
Chairman of United Way of Tri-State, a Trustee of Pace
University, The New York City Police Foundation, the Inner-City
Scholarship Fund and the New York Blood Center, where he also
served as a General Chairman.
[PHOTO] JAMES Q. RIORDAN - Age 73 - Director since May 1998
Retired Vice Chairman and Chief Financial Officer of Mobil Corp.
Joined Mobil in 1957 as Tax Counsel, named a Director and Chief
Financial Officer in 1969 and served as Vice Chairman from 1986
until his retirement from Mobil Corp. in 1989. Joined Bekaert
Corporation in 1989 and served as President until his retirement
in 1992. Serves on the Boards of The Houston Exploration Company
and Tri-Continental Corporation. Director/Trustee of the mutual
funds in the Seligman Group of investment companies, Trustee of
the Brooklyn Museum and a member of its Committee for Economic
Development and a member of the Policy Council of the Tax
Foundation.
7
Board of Directors - Committees
The Board of Directors is responsible, under New York law and the Company's
Certificate of Incorporation and By-Laws, with overseeing the business and
management of the Company. The Board of Directors met eight times between
January 1 and December 31, 2000. The Board maintains four standing committees.
The functions, number of meetings held and composition of the Board committees
are described below:
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Committee
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Compensation Corporate
Director Executive and Audit Responsibility
Nominating
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L.H. Affinito X X
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R.B. Catell X (Chair)
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A.S. Christensen X
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H.R. Curd X X
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R.N. Daniel X X
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D.H. Elliott X X(Chair)
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A.H. Fishman X X (Chair)
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V.L. Fuller X
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J.A. Ives X
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J.R. Jones X X
----------------------------------------------------------------------------------
J.L. Larocca X X
----------------------------------------------------------------------------------
S.W. McKessy X X X
----------------------------------------------------------------------------------
E.D. Miller X X (Chair)
----------------------------------------------------------------------------------
J.Q. Riordan X X X
----------------------------------------------------------------------------------
Meetings held from
January 1 to 5 7 5 2
December 31, 2000
----------------------------------------------------------------------------------
X: Member.
Chair: Committee Chairperson.
8
Committees
Executive Committee: Acts on behalf of the Board of Directors whenever the Board
is not in session, except for certain matters as prescribed by New York law.
Audit Committee: Reviews auditing, accounting, financial reporting and internal
control functions. Recommends independent public accountants and reviews their
services. All members are non-employee directors.
Corporate Responsibility Committee: Oversees ethics, community development,
environmental issues and equal employment opportunity matters.
Compensation and Nominating Committee: Administers executive compensation
programs, policies and practices. Conducts director searches and recommends
directors. All members are non-employee directors. The Committee will not accept
nominations for election by shareholders at the Annual Meeting, unless such
nominations were received within the time period prescribed in Section 2.7 of
the Company's By-Laws.
Each of the directors attended 75% or more of all meetings of the Board and each
committee of which he or she was a member during the period from January 1 to
December 31, 2000.
Director Compensation
The directors will receive the following compensation during 2001:
. Non-employee and consulting directors:
$25,000 annual retainer;
$1,500 meeting fee (for each meeting of the Board of Directors and
each meeting of a committee of the Board of Directors attended);
$3,000 committee chairman retainer; and
Options to purchase 3,300 shares of KeySpan Common Stock.
. Employee directors:
Receive no additional compensation, other than their normal salary,
for serving on the Board or its committees.
The Board of Directors has adopted the Directors' Deferred Compensation Plan to
directly align the non-employee directors' and consulting directors' financial
interest with those of the shareholders. The Directors' Deferred Compensation
Plan requires all non-employee directors and consulting directors to defer a
minimum of 50% of their cash compensation as directors or consulting directors
in exchange for Common Stock equivalents. Common Stock equivalents are valued
by utilizing the lowest of either (i) the average of the high and low price per
share of KeySpan Common Stock on the first trading day of the calendar quarter
or (ii) the average of the high and low price per share of KeySpan Common Stock
on the last trading day of the calendar quarter, in which contributions are
received. Compensation not subject to mandatory deferral into a Common Stock
equivalent account may, at the director's or consulting director's option, be
deferred into a cash account bearing interest at the prime rate. Upon
retirement, death or termination of service as a director, all amounts in a
director's or consulting director's Common Stock equivalent account and cash
account shall, at the director's or consulting director's election, (i) be paid
in a lump sum in cash; (ii) be deferred for up to five years; and/or (iii) be
paid in the number of annual installments, up to ten, specified by the director
or consulting director.
9
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents the annual compensation paid to or accrued for the
Chief Executive Officer and the four other most highly compensated executive
officers (the "Named Executive Officers"). The information shown for 1998
represents compensation paid by the Company and its predecessors for the twelve
months ended December 31, 1998.
------------------------------------------------------------
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------------------------------------------------------------
Restricted
Stock Shares LTIP
Salary Bonus Award(s) Underlying Payouts All Other Comp
Name Year ($) ($) ($) (1) Options ($) ($)
- ------------------------------------------------------------------------------------------------------------------
Robert B. Catell 2000 786,000 336,000 0 568,800 0 22,817 (3)
Chairman & CEO 1999 700,000 317,665 343,643 696,000 0 25,673 (3)
1998 562,917 223,583 N/A 0 274,641 (2) 25,673 (3)
- ------------------------------------------------------------------------------------------------------------------
Craig G. Matthews 2000 506,000 246,690 0 234,400 0 15,627 (3)
Vice Chairman 1999 445,833 153,758 286,250 355,000 0 14,618 (3)
& COO 1998 372,372 345,842 N/A 0 175,419 (2) 109,520 (3)(4)
- ------------------------------------------------------------------------------------------------------------------
Gerald Luterman 2000 318,333 120,000 0 131,800 0 14,596 (3)
Senior Vice President 1999 127,308 (5) 0 0 100,000 0 7,593 (3)
& CFO 1998 N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Anthony Nozzolillo 2000 300,417 100,258 0 128,300 0 7,102 (3)
Executive Vice 1999 250,061 62,340 0 146,000 0 3,650 (3)
President 1998 205,000 94,121 N/A 0 152,594 (6) 57,189 (3)(4)
- ------------------------------------------------------------------------------------------------------------------
Lenore F. Puleo 2000 300,000 98,252 0 128,300 0 3,382 (3)
Executive Vice 1999 245,000 60,447 0 146,000 0 2,607 (3)
President 1998 199,454 147,086 N/A 0 18,513 55,287 (3)(4)
- ------------------------------------------------------------------------------------------------------------------
FOOTNOTES:
(1) As of December 31, 2000, the aggregate value of the restricted stock awards,
number of shares awarded and date such shares fully vested are as follows:
Mr. Catell - $538,078, 12,698, July 31, 1999; Mr. Matthews - $423,750,
10,000, August 31, 2003. Holders of restricted stock are entitled to receive
any dividends paid to holders of Common Stock.
(2) Includes long-term incentive compensation paid by subsidiaries of KeySpan.
(3) Includes the cost of life insurance paid by KeySpan and allocated to the
Named Executive Officers for income tax purposes during 2000, 1999 and 1998,
as follows: Mr. Catell - $22,817, $25,673, $25,673; Mr. Matthews - $15,627,
$14,618, $9,520; Mr. Luterman - $14,596, $7,593, $0; Mr. Nozzolillo -
$7,102, $3,650, $939; and Ms. Puleo - $3,382, $2,607, $1,537.
(4) Includes amounts paid upon election as an officer of the Company in August
1998, as follows: Mr. Matthews -$100,000; Mr. Nozzolillo - $56,250; and Ms.
Puleo - $53,750.
(5) Mr. Luterman was hired by the Company in July 1999.
(6) Represents long-term incentive awards paid by Long Island Lighting Company
("LILCO") prior to the transaction with KeySpan.
10
COMPENSATION AND NOMINATING COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Nominating Committee (the "Committee") of the Board of
Directors, composed of six non-employee directors, administers KeySpan's
executive compensation program. The members of the Committee are Donald H.
Elliott, James R. Jones, James L. Larocca, Stephen W. McKessy, Edward D. Miller
and James Q. Riordan, with Mr. Miller serving as chairperson. None of such
members is or has been an officer or employee of KeySpan or any of its
subsidiaries. Basil A. Paterson, Alan H. Fishman, Frederic V. Salerno and
Vincent Tese served on the Committee during 2000.
During 2000, the Committee met periodically throughout the year and utilized
outside consultants from the Hay Group, a national compensation consultant, to
review the compensation levels of KeySpan's officers, including the Named
Executive Officers, and to provide advice with respect to incentive compensation
plan matters. The Committee also reviews, recommends and approves changes to the
Company's compensation policies and programs for the Chief Executive Officer,
other senior executives and certain key employees. In addition, the Committee
makes recommendations concerning the Company's employee benefit policies and
exercises such powers and makes such other compensation-related determinations
as are entrusted to the Committee by the Board of Directors. After review and
approval by the Committee, all issues relating to executive compensation are
submitted to the entire Board for ratification. There were no material decisions
of the Committee which were overruled or revised by the Board.
Executive Compensation Philosophy and Policies
The philosophy of KeySpan with respect to executive compensation is that the
Chief Executive Officer and other executives should be compensated at market-
competitive levels to attract, motivate, and retain talented executives needed
to achieve KeySpan's vision of becoming a premier energy company. Through the
Committee, the Board of Directors has developed a "pay for performance"
executive compensation philosophy and approved the implementation of a total
compensation plan designed to focus attention on KeySpan's strategic business
initiatives and financial performance objectives. The Committee adheres to the
following compensation policies which are intended to facilitate the achievement
of KeySpan's business strategies and further the Company's vision:
. The executive compensation program should emphasize pay for
performance and encourage retention of those employees who enhance
KeySpan's performance.
. Compensation arrangements shall maintain a reasonable balance between
base salary, annual and long-term incentive compensation and be
designed to focus such executives on the long-term interests of
shareholders and creating value for the shareholders.
. The incentive compensation program for executives shall strengthen the
link of incentive compensation to the achievement of financial and
strategic objectives which are set in advance by the Committee.
. In determining executive compensation levels for base salary, annual
and long-term compensation, the compensation levels shall be
competitive with compensation levels for executive positions of
similar scope for general industry in the metropolitan New York City
area, as well as peer energy companies. If KeySpan's performance
exceeds that of the comparable group, compensation should be above the
median; likewise, if KeySpan's performance falls below that of the
group, the compensation paid to executives should be below the median
of the comparable companies.
Components of Compensation
The Committee compares total compensation levels for KeySpan's executives to the
compensation paid to executives in comparable general industry and peer energy
companies. In this regard, the Committee uses analyses prepared by the Hay Group
to review the compensation levels of executives in the energy industry, in the
regional and national marketplace. In addition, the Committee reviews
compensation data for executive positions comparable in scope to those
11
in general industry companies in the metropolitan New York City area. The
companies analyzed in this process tend to have national business operations and
have positions that are similar in scope with comparable revenue size or
employment levels. Through this process, the Committee identifies the median
compensation level, both with respect to base salary and the overall executive
compensation program.
The Committee strives to ensure that compensation for the Company's executive
officers provides a direct link to strategic financial measures and shareholder
value. To achieve this performance linkage, KeySpan has established three
programs for the direct compensation of executive officers: the Base Salary
Program, the Corporate Annual Incentive Compensation Plan and the Long-Term
Performance Incentive Compensation Plan. The intent of these programs is to
place increased emphasis on performance-based pay and reduced emphasis on base
salary in determining total compensation.
Each of the three programs is discussed in greater detail below.
The Base Salary Program
In setting base salary levels for the Chief Executive Officer, the Named
Executive Officers and other executive officers, the Committee considers the
competitive market data for executives in comparable positions in other energy
and general industry markets. In setting base salary levels, KeySpan currently
targets the 50th percentile of the comparable labor market. The Committee also
considers the experience level and actual performance achieved by the executive
as it relates to KeySpan's corporate goals in setting such executive's base
salary.
When Mr. Catell was promoted to and elected as Chairman and Chief Executive
Officer on July 31, 1998, KeySpan entered into an employment agreement with Mr.
Catell that provided a base salary of $700,000 per year, subject to such
increases that may be approved by the Board. Mr. Catell's base salary was not
increased during 1999. Effective January 1, 2000, the Committee and the Board
approved an increase in annual base salary to $786,000. As the Company continues
to align base pay to competitive market levels, the base salary level for the
Chief Executive Officer , the Named Executive Officers and other executive
officers, compared to competitive market data, is generally at the 50th
percentile of comparable positions at this time. In determining the base salary
level for the Chief Executive Officer, the Committee has taken into
consideration Mr. Catell's performance in connection with, among other things,
increase in overall earnings per share, total shareholder return and the
successful implementation of the Company's acquisition growth strategy. Based
upon an assessment of all these factors, effective January 1, 2001, the
Committee and the Board approved an increase in annual base salary for Mr.
Catell to $881,000.
The Corporate Annual Incentive Compensation Plan
The Board of Directors adopted the Corporate Annual Incentive Compensation Plan
(the "Corporate Plan") in September 1998. The awards to be earned under the
Corporate Plan will be paid as cash based upon annual performance results. For
2000, the performance measurement period included the twelve-month period from
January 1, 2000 to December 31, 2000. The awards for this period were paid in
March 2001. The Corporate Plan provides annual incentive awards to officers and
all management employees who, by the nature and scope of their positions,
regularly and directly make a significant contribution to the success of KeySpan
in the achievement of corporate goals that the Committee believes are important
to the shareholders of KeySpan. The specific corporate goals for the Corporate
Plan are established by management and reviewed and approved by the Committee
and the Board of Directors. The goals are intended to improve corporate
performance and include objectives which encourage increase in total return to
shareholders, improved corporate earnings results, improved competitive
position, improved customer satisfaction and control of operating expenses.
Incentive awards as a percentage of base salary are based upon both Company and
strategic business group performance. The incentive award ranges are established
annually by the Committee for eligible executives and management employees in
the Corporate Plan. Incentive award levels are intended to provide awards that
are competitive within the industry at target award levels when performance
results are achieved.
The 2000 Corporate Plan provides for award opportunities to executives which
range from zero to 70% of base salary at target performance levels, with a
maximum award potential of 140% of base salary at maximum performance levels.
For 2000, the Chief Executive Officer had a target award level of 70% of base
salary with performance criteria based
12
upon total shareholder return and consolidated earnings per share. Based upon
actual 2000 results, an award payout of 115% of base salary was approved by the
Committee payable in March 2001. The amount paid in March 2000 for performance
during 1999 represents a payout of 48% of base salary. Upon the recommendation
of the Hay Group for the year 2001, the Chief Executive Officer's target award
has been set at 80% of base salary to place further emphasis upon shareholder
value by achieving increased earnings, returns on equity, cash flow and
attaining corporate diversity goals. All executives in the Corporate Plan have a
portion of their incentive award linked directly to these overall corporate
performance goals and to the results achieved in their respective strategic
business group.
Pursuant to the Corporate Plan, commencing with the 2001 plan year, the Chief
Executive Officer, the Named Executive Officers and certain other executives may
elect to defer between 10% to 50% of their annual cash award and purchase
deferred stock units ("DSUs"), which track the performance of the Company's
Common Stock but do not possess voting rights. Executives will also receive a
20% match by the Company on the amount deferred in each year. The purchase price
of the DSU will be determined using the 20-day average closing price preceding
the deferral date. The DSU must be deferred until retirement or resignation and
is payable in KeySpan Common Stock. The match on the deferral is also payable in
stock upon retirement or in the event of an executive's disability, death or
upon change of control. The match is forfeited in the event of the executive's
resignation prior to retirement.
Each DSU shall be in the form of an unfunded bookkeeping entry and shall
represent one full or fractional share of KeySpan Common Stock. The Company will
maintain a book entry account reflecting the DSUs purchased by each executive.
The account will be credited with dividend equivalents in the amount of any cash
dividend paid from time to time converted to a stock unit or fraction of a unit
in the executive's deferred stock unit account as of such dividend date.
The Long-Term Performance Incentive Compensation Plan
As a result of the Committee's review of the competitiveness of KeySpan's total
compensation program, and the Hay Group's review of the long-term incentive
plans used by a majority of energy companies, the Committee recommended, and the
Board of Directors adopted, the KeySpan Long-Term Performance Incentive
Compensation Plan (the "Incentive Plan") in March 1999. The Incentive Plan was
subsequently approved by the shareholders at the May 1999 Annual Meeting of
Shareholders. As of February 13, 2001, a total of 9,361,250 options and 42,698
restricted stock grants have been awarded under the Incentive Plan. The most
recent grant of options under the Incentive Plan was expanded to include
approximately 1,290 additional employees. The Company is seeking shareholder
approval for an amendment to the Incentive Plan pursuant to which the total
authorized amount of shares issuable under the Incentive Plan would be increased
by 8,750,000 shares to a total of 19,250,000.
The Incentive Plan provides for the award of incentive stock options, non-
qualified stock options, performance stock awards and restricted shares to key
employees and non-employee directors and consultants of KeySpan and its
subsidiaries as determined by the Committee. The purpose of the Incentive Plan
is to optimize KeySpan's performance through incentives that directly link the
participant's personal interests to those of KeySpan's shareholders and to
attract and retain participants who make significant contributions to the
success of KeySpan.
The stock option component of the Incentive Plan entitles the participants to
purchase shares of Common Stock at an exercise price per share determined by the
Committee that is no less than the closing price of the Common Stock on the New
York Stock Exchange on the date of the grant.
On January 20, 2000, based upon the performance of the Chief Executive Officer,
the Committee approved grants to Mr. Catell of 43,800 and 525,000 non-qualified
stock options with one-year vesting and three-year pro rata vesting
respectively, to purchase shares of KeySpan's Common Stock at an exercise price
of $22.50.
Beginning in 2001, in order to further align the interests of the shareholders
to the option award process, a performance goal feature has been added to the
stock option vesting schedule which directly links total shareholder return
("TSR") for KeySpan Common Stock to the options granted. The TSR goal measures
the total return to shareholders of KeySpan Common Stock including price
appreciation and dividends. KeySpan's performance will be measured against the
S&P Utility Group over a three-year performance period, with KeySpan's goal to
be in the top third of those comprising the
13
group. Options will be granted with a five-year pro rata vesting schedule,
rather than the traditional three-year pro rata vesting schedule. If, at the end
of the three-year performance period, KeySpan's TSR is within the top third of
companies that comprise the S&P Utility Group, then those options that are not
yet vested will vest at the end of the third year. If the TSR goal is not
achieved, options will continue to vest on the five-year schedule.
On February 13, 2001, based upon the performance of the Chief Executive Officer,
the Committee approved a grant to Mr. Catell of 267,000 non-qualified stock
options to purchase KeySpan's Common Stock at an exercise price of $39.50
(vesting on a pro rata basis over a five-year period or fully upon retirement,
whichever occurs first).
In determining award size, the Committee considers both the performance level of
the Chief Executive Officer and the overall total compensation provided by base
salary, annual awards and long-term compensation for comparable executive
positions in shareholder-owned energy and natural gas companies nationwide.
During 2001, an aggregate of 1,558,000 non-qualified stock options and 20,000
shares of restricted common stock were granted to all officers as a group. The
grants of non-qualified stock options and restricted common stock were made to
executives generally determined on the basis of the executive's performance and
position within KeySpan and the level of such executive's compensation to focus
such executives on the long-term interests of shareholders.
The Committee believes that stock options are directly linked to KeySpan's
performance and shareholder value. As the value of KeySpan's Common Stock is
generally considered the strongest indicator of overall corporate performance,
stock option awards allow executives to benefit by appreciation in stock price
at no direct cost to KeySpan and provide a strong incentive to participants by
linking compensation to the future value of KeySpan's Common Stock.
Policy with Respect to Section 162(m) Deduction Limit
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company cannot deduct compensation in excess of $1,000,000 paid in
any year to the Chief Executive Officer or any of the Named Executive Officers
whose compensation must be detailed in the Proxy Statement. Certain benefit
plans and compensation paid under plans that are performance-based is not
subject to the $1,000,000 annual limit if certain requirements are satisfied.
Although the Company's compensation policy is generally designed to relate
compensation to performance, certain payments do not meet such requirement
because they allow the Committee and the Board to exercise discretion in setting
compensation. The Committee is of the opinion that it is in the Company's best
interest for the Committee and the Board to retain discretion in order to
preserve flexibility in compensating such executive officers, especially in
light of an increasingly competitive marketplace.
Conclusion
The Committee believes that KeySpan's executive compensation policies and
programs serve both the interests of KeySpan and its shareholders effectively.
The various compensation programs are appropriately balanced to provide the
motivation for executives to contribute to KeySpan's overall success and enhance
the value of KeySpan for the shareholders' benefit.
The Committee will continue to monitor the effectiveness of KeySpan's total
compensation program to meet the current and the future needs of KeySpan.
Compensation and Nominating Committee
Edward D. Miller, Chairman
Donald H. Elliott
James R. Jones
James L. Larocca
Stephen W. McKessy
James Q. Riordan
14
STOCK OPTION GRANTS
The following table provides information on stock option grants during 2000 for
the Named Executive Officers and the grant date present value of such officers'
unexercised options at December 31, 2000:
- ---------------------------------------------------------------------------------------
Percent of
Total Grant Date
Number of Number of Option Present
Securities Shares Exercise Value of
Underlying Granted to Price Expiration Options/1/
Name Options Granted Employees ($/Share) Date ($)
- ---------------------------------------------------------------------------------------
R.B. Catell 43,800/2/ 1.50 22.50 Jan. 19, 2010 105,120
- ---------------------------------------------------------------------------------------
525,000/3/ 17.75 22.50 Jan. 19, 2010 1,260,000
-------------------------------------------------------------------
C.G. Matthews 9,400/2/ .32 22.50 Jan. 19, 2010 22,560
- ---------------------------------------------------------------------------------------
225,000/3/ 7.61 22.50 Jan. 19, 2010 540,000
-------------------------------------------------------------------
G. Luterman 6,800/2/ .23 22.50 Jan. 19, 2010 16,320
- ---------------------------------------------------------------------------------------
125,000/3/ 4.23 22.50 Jan. 19, 2010 300,000
-------------------------------------------------------------------
A. Nozzolillo 3,300/2/ .11 22.50 Jan. 19, 2010 7,920
- ---------------------------------------------------------------------------------------
125,000/3/ 4.23 22.50 Jan. 19, 2010 300,000
-------------------------------------------------------------------
L.F. Puleo 3,300/2/ .11 22.50 Jan. 19, 2010 7,920
-------------------------------------------------------------------
125,000/3/ 4.23 22.50 Jan. 19, 2010 300,000
- ---------------------------------------------------------------------------------------
(1) Options have been valued using the Black-Scholes option pricing model
adapted to reflect the specific provisions of the Company's Incentive Plan
and related assumptions regarding exercisability. The values shown are
theoretical and do not necessarily reflect the actual values that may be
realized upon the future exercise of the options. Any actual value will
result to the extent that the market value of the Common Stock at a future
date exceeds the exercise price. Assumptions for modeling are based on the
dividend yield, risk-free rate of return, standard deviation of prices over
a relevant period as of the grant date and the expected lives of the
options.
(2) Options vested on January 20, 2001.
(3) Options vest ratably over a three-year period with the first one-third
vesting on January 20, 2001.
The following table provides information on aggregated option exercises in 2000
and fiscal year end option values for the Named Executive Officers:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Number of Securities Underlying Value of In-The-Money
Acquired Unexercised Options at Fiscal Year End Options at Fiscal Year End
on Value ----------------------------------------------------------------------------------------
Name Exercise Realized Exercisable Unexercisable Total Exercisable Unexercisable Total
- -----------------------------------------------------------------------------------------------------------------------------------
R.B. Catell 194,999 $2,458,222 571,000 778,801 1,349,801 $7,286,125 $14,504,498 $21,790,623
- -----------------------------------------------------------------------------------------------------------------------------------
C.G. Matthews 183,000 $2,186,599 236,666 336,734 573,400 $2,985,553 $ 6,217,210 $ 9,202,763
- -----------------------------------------------------------------------------------------------------------------------------------
G. Luterman 33,333 $ 398,352 0 198,467 198,467 $ 0 $ 3,640,363 $ 3,640,363
- -----------------------------------------------------------------------------------------------------------------------------------
A. Nozzolillo 26,333 $ 351,234 84,000 163,967 247,967 $1,228,500 $ 3,092,217 $ 4,320,717
- -----------------------------------------------------------------------------------------------------------------------------------
L.F. Puleo 152,333 $1,857,763 0 163,967 163,967 $ 0 $ 3,092,217 $ 3,092,217
- -----------------------------------------------------------------------------------------------------------------------------------
15
Security Ownership of Management
The following table sets forth information as of March 1, 2001, with respect to
the number of shares of Common Stock beneficially owned and Common Stock
equivalents credited to each director, each Named Executive Officer and all
directors and executive officers as a group. Unless otherwise indicated, each
person shown below has the sole power to vote and the sole power to dispose of
the shares of Common Stock listed as beneficially owned. The percentage of
shares held by any one person, or all directors and executives as a group, does
not exceed 1% of all outstanding shares of KeySpan's Common Stock.
- -----------------------------------------------------------------------------------------
Total of Common
Name of Stock Beneficially Common Stock Common Stock
Beneficial Owner Owned & Equivalents Beneficially Owned/(1)/ Equivalents/(2)/
- -----------------------------------------------------------------------------------------
L.H. Affinito 6,282 1,000 5,282
- -----------------------------------------------------------------------------------------
R.B. Catell 948,060 947,732 328
- -----------------------------------------------------------------------------------------
A.S. Christensen 13,239 3,487 9,752
- -----------------------------------------------------------------------------------------
H.R. Curd 26,938 20,000 6,938
- -----------------------------------------------------------------------------------------
R.N. Daniel 5,365 1,000 4,365
- -----------------------------------------------------------------------------------------
D.H. Elliott 20,444 1,166 19,278
- -----------------------------------------------------------------------------------------
A.H. Fishman 14,302 3,201 11,101
- -----------------------------------------------------------------------------------------
V.L. Fuller 5,875 333 5,542
- -----------------------------------------------------------------------------------------
J.A. Ives 60,193 59,937 256
- -----------------------------------------------------------------------------------------
J.R. Jones 5,495 1,275 4,220
- -----------------------------------------------------------------------------------------
J.L. Larocca 10,057 4,137 5,920
- -----------------------------------------------------------------------------------------
C.G. Matthews 395,465 395,137 328
- -----------------------------------------------------------------------------------------
S.W. McKessy 9,692 1,443 8,249
- -----------------------------------------------------------------------------------------
E.D. Miller 20,277 8,197 12,080
- -----------------------------------------------------------------------------------------
J.Q. Riordan 39,186 21,500 17,686
- -----------------------------------------------------------------------------------------
G. Luterman 50,767 50,767 0
- -----------------------------------------------------------------------------------------
A. Nozzolillo 152,229 152,229 0
- -----------------------------------------------------------------------------------------
L.F. Puleo 66,116 66,087 29
- -----------------------------------------------------------------------------------------
All directors and
executives as a group,
including those named 3,435,934 3,324,213 111,721
above, a total of 56
persons.
- -----------------------------------------------------------------------------------------
(1) Includes shares issuable pursuant to options that are either currently
exercisable or exercisable within 60 days of the date of this Proxy
Statement as follows: Mr. Catell - 883,133 shares; Mr. Matthews - 366,066
shares; Mr. Luterman - 48,466 shares; Mr. Nozzolillo - 143,966 shares; and
Ms. Puleo - 56,666 shares.
(2) The term "Common Stock equivalents" refers to units of value which track the
performance of Common Stock. Such units do not possess voting rights and
have been issued pursuant to the Directors' Deferred Compensation Plan or
the Company's supplemental employee stock savings plan.
16
Security Ownership of Certain Beneficial Owners
As of December 31, 2000, there were no beneficial owners of more than 5% of the
Company's Common Stock.
PERFORMANCE GRAPH
The following graph presents, for the period beginning May 28, 1998 through
December 31, 2000, a comparison of cumulative total shareholder returns for
KeySpan, the Standard & Poor's Utilities Index and the Standard & Poor's 500
Index.
[PERFORMANCE GRAPH HERE]
May 28, 1998 December 31, 1998 December 31, 1999 December 31, 2000
------------ ----------------- ----------------- -----------------
KeySpan $100.00 $ 93.99 $ 74.96 $143.92
S&P Utilities Index $100.00 $108.57 $ 99.66 $158.99
S&P 500 Index $100.00 $113.65 $137.87 $125.33
Assumes $100 invested on May 28, 1998 in shares of KeySpan Common Stock, the S&P
Utilities Index and the S&P 500 Index, and that all dividends were reinvested.
17
COMPENSATION UNDER RETIREMENT PLANS
The Company's Retirement Plan provides retirement benefits based upon the
individual participant's years of service and final average annual compensation
(as defined below). The following table sets forth the estimated annual
retirement benefits (exclusive of Social Security payments) payable to
participants in the specified compensation and years-of-service categories,
assuming continued active service until normal retirement age and that the
Company's Retirement Plan is in effect at such time.
Years of Service
-----------------------------------------------------------
Remuneration 20 25 30 35 40 45
- ------------ --------- -------- -------- -------- -------- --------
$200,000...... $ 60,000 $ 75,000 $ 90,000 $105,000 $120,000 $135,000
$250,000...... $ 75,000 $ 93,750 $112,500 $131,250 $150,000 $168,750
$300,000...... $ 90,000 $112,500 $135,000 $157,500 $180,000 $202,500
$350,000...... $105,000 $131,250 $157,500 $183,750 $210,000 $236,250
$400,000...... $120,000 $150,000 $180,000 $210,000 $240,000 $270,000
$450,000...... $135,000 $168,750 $202,500 $236,250 $270,000 $303,750
$500,000...... $150,000 $187,500 $225,000 $262,500 $300,000 $337,500
$550,000...... $165,000 $206,250 $247,500 $288,750 $330,000 $371,250
$600,000...... $180,000 $225,000 $270,000 $315,000 $360,000 $405,000
$650,000...... $195,000 $243,750 $292,500 $341,250 $390,000 $438,750
$700,000...... $210,000 $262,500 $315,000 $367,500 $420,000 $472,500
$750,000...... $225,000 $281,000 $337,500 $393,750 $450,000 $506,250
$800,000...... $240,000 $299,500 $360,000 $420,000 $480,000 $540,000
$850,000...... $255,000 $318,000 $382,500 $446,250 $510,000 $573,750
$900,000...... $270,000 $336,500 $405,000 $472,500 $540,000 $607,500
$950,000...... $285,000 $355,000 $427,500 $498,750 $570,000 $641,250
- --------------
For purposes of the Retirement Plan, the final average annual compensation is
the average annual compensation for the highest five consecutive years of
earnings during the last ten years of credited service. The annual salary and
bonus for the current year for the Named Executive Officers is indicated in the
Annual Compensation columns of the Summary Compensation Table.
The number of years of credited service for the Chief Executive Officer and each
of the Named Executive Officers currently employed by the Company, other than
Mr. Nozzolillo, based on continued service to age 65, normal retirement age,
will be as follows: R.B. Catell - 44 years, C.G. Matthews - 43 years, G.
Luterman - 9 years and L.F. Puleo - 44 years.
Former LILCO employees, including Mr. Nozzolillo, participate in a separate
retirement plan assumed by the Company in connection with the transaction
involving LILCO. Under this plan, which is currently noncontributory and
provides fixed-dollar pension benefits, a participant will vest upon completion
of five years of service. The plan uses a career average pay formula which
provides a credit for each year of participation. For service before January 1,
1992, pension benefits are determined based on the greater of the accrued
benefit as of December 31, 1991, or by multiplying a moving five-year average of
plan compensation, not to exceed the January 1, 1992 salary, by a certain
percentage determined by years of participation in the retirement plan at
December 31, 1991. For service after January 1, 1992, pension benefits are equal
to 2% of "plan compensation" through age 49 and 2 1/2% thereafter. "Plan
compensation" is defined in this plan as the base rate of pay plus annual
incentive compensation payments in effect on January 1 of each year and may
differ for Mr. Nozzolillo from the amounts reported under the heading "Salary"
in the Summary Compensation Table. Any
18
difference is primarily attributable to the timing of annual salary increases
for Mr. Nozzolillo which impacts the amount paid to him and reported for a given
year.
Assuming continuation of employment to September 1, 2013, his normal retirement
date and 41 years 2 months of credited service, the projected annual retirement
benefit payable to Mr. Nozzolillo on a straight-life annuity basis pursuant to
this plan at the appropriate rate of "plan compensation" would be $157,496.
The Code limits the annual compensation taken into consideration for and the
maximum annual retirement benefits payable to a participant under each of the
Company's retirement plans. For 2000, these limits were $170,000 and $135,000,
respectively. Annual retirement benefits attributable to amounts in excess of
these limits are provided under the Excess Benefit Plan (the "Benefit Plan") and
not under the Company's retirement plans.
AGREEMENTS WITH EXECUTIVES
Employment Agreements
In September 1998, KeySpan entered into an employment agreement with Mr. Robert
B. Catell relating to his services as Chairman and Chief Executive Officer which
was amended February 24, 2000. The agreement covers the period beginning July
31, 1998 and ending July 31, 2003. In addition to base salary, annual and long-
term incentive compensation and other employee benefits, Mr. Catell's employment
agreement provides for severance benefits to be paid to him in the event his
employment is terminated by KeySpan without cause or if Mr. Catell terminates
his employment for good reason. The severance benefits to be provided during the
severance period would include: (a) payment to Mr. Catell in a single lump sum
of (i) all accrued obligations and (ii) the aggregate amount of salary and
annual incentive compensation that he would have received had he remained
employed through the end of the employment period; (b) continued accrual of
Supplemental Executive Retirement Plan benefits (as provided in the agreement)
during the severance period; and (c) continuation of all other employment
benefits, as if he had remained employed by KeySpan during the severance period.
If Mr. Catell voluntarily terminates his employment, other than for good reason,
the Company shall pay the accrued obligations to Mr. Catell and he shall be
entitled to supplemental retirement benefits. If Mr. Catell's employment is
terminated following a "change of control" of KeySpan (as defined in the
agreement), the severance period is defined to mean the period from the date of
termination through the end of the employment period, or, if longer, the third
anniversary of the date of termination.
KeySpan also is party to an employment agreement entered into on September 1,
1999 with Mr. Craig G. Matthews relating to his services as President and Chief
Operating Officer. The agreement covers the period beginning September 1, 1999
and ending August 31, 2003. This agreement was amended, effective March 2, 2001,
to reflect Mr. Matthews' promotion to Vice Chairman and Chief Operating Officer
with the terms of the amended agreement ending on March 2, 2003 or, at the
option of Mr. Matthews, on August 31, 2003. In addition to base salary, annual
and long-term incentive compensation and other employee benefits, Mr. Matthews
employment agreement provides for severance benefits to be paid to him in the
event his employment is terminated by KeySpan without cause or if Mr. Matthews
terminates his employment for good reason. The severance benefits to be provided
during the severance period would include: (a) payment to Mr. Matthews in a
single lump sum of (i) all accrued obligations and (ii) the aggregate amount of
salary and annual target incentive compensation that he would have received had
he remained employed through the end of the employment period; (b) continued
accrual of benefits under the Benefit Plan during the severance period; and (c)
continuation of all other employment benefits, as if he had remained employed by
KeySpan during the severance period. If Mr. Matthews voluntarily terminates his
employment, other than for good reason, the Company shall pay the accrued
obligations to Mr. Matthews and he shall be entitled to supplemental retirement
benefits provided by the Benefit Plan. If Mr. Matthews employment is terminated
following a "change of control" of KeySpan (as defined in the agreement), he is
eligible to receive the severance benefits provided under his agreement or the
Senior Executive Change of Control Severance Plan (the "Change of Control
Plan"), whichever is greater.
KeySpan also is party to an employment agreement entered into on July 29, 1999
with Mr. Gerald Luterman relating to his services as Senior Vice President and
Chief Financial Officer. The agreement covers the period beginning July 29,
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1999 and ending July 31, 2002. In addition to base salary, annual and long-term
incentive compensation and other employee benefits, Mr. Luterman's employment
agreement provides for severance benefits to be paid to him in the event his
employment is terminated by KeySpan without cause or if Mr. Luterman terminates
his employment for good reason. The severance benefits to be provided during the
severance period would include: (a) payment to Mr. Luterman in a single lump sum
of (i) all accrued obligations and (ii) the aggregate amount of salary and
annual target incentive compensation that he would have received had he remained
employed through the end of the employment period; (b) continued accrual and
vesting of benefits under the Benefit Plan during the severance period; and (c)
continuation of all other employment benefits, as if he had remained employed by
KeySpan during the severance period. If Mr. Luterman voluntarily terminates his
employment, other than for good reason, the Company shall pay the accrued
obligations to Mr. Luterman and he shall be entitled to supplemental retirement
benefits provided by the Benefit Plan. If Mr. Luterman's employment is
terminated following a "change of control" of KeySpan (as defined in the
agreement), he is eligible to receive the severance benefits provided under his
agreement as an offset, and not in addition to, any severance payments from the
Change of Control Plan.
Senior Executive Change of Control Severance Plan
In February 2000, the Board of Directors approved an amendment to the Change of
Control Plan initially adopted in October 1998. With the exception of Mr.
Catell, 39 officers of the Company and certain subsidiaries are participants in
the Change of Control Plan. The Change of Control Plan, as amended, provides for
the payment of severance and other benefits upon certain qualifying terminations
of such executives within two (2) years of a "change of control" of the Company
(as defined in the Change of Control Plan). The protection period under the
Change of Control Plan commences upon the date that KeySpan enters into a
definitive agreement, the transaction contemplated by which will, when
consummated, constitute a change of control under the Change of Control Plan and
will continue for a period of two years after the effective date of the actual
change of control. The benefits payable under the Change of Control Plan
generally provide for (i) the payment of the sum of the executive's base salary,
incentive compensation and compensation previously deferred by the executive,
all through the date of termination; (ii) the payment of an amount equal to
three times an executive's base salary and incentive compensation for the Chief
Operating Officer, President, Executive Vice Presidents and certain Senior Vice
Presidents of KeySpan and certain subsidiaries and two times an executive's base
salary and incentive compensation for other officers; (iii) the payment of
amounts under retirement plans; and (iv) the continuation of certain other
benefits for a period of two to three years depending on the executive's
position with the Company. The Change of Control Plan expires October 30, 2003,
unless extended for an additional period by the Board of Directors; provided
that, following a change of control, the Change of Control Plan shall continue
until after all the executives who become entitled to any payments thereunder
shall have received such payments in full.
PROPOSAL 2. RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS
In accordance with the recommendations of its Audit Committee, the Board of
Directors recommends that the shareholders ratify the appointment of the firm of
Arthur Andersen LLP ("Arthur Andersen"), independent public accountants, to
audit the books, records and accounts of KeySpan and its subsidiaries for the
year ending December 31, 2001.
During the past two fiscal years, there has been no report on the financial
statements of the Company by Arthur Andersen which contained an adverse opinion
or a disclaimer of opinion, or was qualified or modified as to uncertainty,
audit scope, or accounting principles. During the past two fiscal years, there
have been no disagreements with Arthur Andersen or Ernst & Young LLP
(independent public accountants for LILCO) on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of Arthur Andersen or Ernst
& Young LLP, would have caused either of such firms to make reference to the
subject matter of such disagreements in connection with its report.
20
Arthur Andersen representatives have direct access to the Audit Committee and
regularly attend the Committee's meetings. An Arthur Andersen representative
will attend the Annual Meeting to answer shareholder questions and will have the
opportunity to make a statement if he or she desires to do so.
The affirmative vote of a majority of the votes cast at the meeting is required
for approval of this proposal.
The Board of Directors unanimously recommends a vote FOR this proposal.
PROPOSAL 3. EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
In May 1998, the Board of Directors adopted and at the 1999 Annual Meeting, the
shareholders approved, the Employee Discount Stock Purchase Plan (the "Stock
Plan"). The Stock Plan is designed to encourage ownership of KeySpan Common
Stock by eligible employees of KeySpan or its wholly-owned subsidiaries by
providing a convenient and systematic method for employee acquisitions of such
stock. The shareholders authorized the issuance of up to 750,000 shares of
Common Stock, 63,270 shares of which have been issued under the Stock Plan to
date. The Company now requests that its shareholders approve certain amendments
to the Stock Plan, as described below, which amendments were authorized by the
Board of Directors in December 2000.
The Stock Plan, as amended, provides that eligible employees may purchase Common
Stock on a quarterly basis using a price determined by using the lower of 85% of
the average of the high and low sales price for such shares on either the first
business day of the prior quarter or the last business day of the prior quarter
on which the shares are traded on the New York Stock Exchange. Although the
Board may set this price at a level of 85% of the price, the Board, at this
time, has approved a level of 90% of such price. Generally, all of the
approximately 13,000 employees of KeySpan and its wholly-owned subsidiaries are
eligible to participate in the Stock Plan, except (i) employees who have not
been on the payroll for at least three months as of the beginning of a purchase
period; (ii) employees who customarily are employed less than three months in
any calendar year; (iii) employees who work less than 20 hours per week; (iv)
directors who are not also employees of KeySpan; and (v) employees of certain of
KeySpan's wholly-owned subsidiaries (or similar entities) which entities have
not been approved by KeySpan as eligible to participate in the Stock Plan.
Employees will be able to purchase shares by payroll deductions. In each
purchase period, the total payments by an employee to purchase shares cannot
exceed 20% of his or her base pay at the beginning of such period. Moreover, the
fair market value of shares purchased by an employee under the Stock Plan,
during any calendar year cannot exceed $25,000. The annual contribution limit
has, therefore, been set at $20,000. In addition, an employee may not purchase
shares if the purchase would cause him or her to own 5% or more of the total
combined voting power or value of all shares of KeySpan Common Stock.
Employees may also sell any or all of their shares acquired under the Stock Plan
at a price based on the weighted average of all shares sold by the Plan
Administrator during a given selling period, adjusted to exclude brokerage
commissions.
The Board of Directors continues to have the right, without shareholder
approval, to suspend, terminate or modify the Stock Plan. In the event
shareholders do not vote to approve the Stock Plan as amended, the Stock Plan
will not be qualified under current Code regulations, and employees will be
taxed on the difference between the market price of the Common Stock and the
discounted purchase price.
The proceeds received by KeySpan from purchases under the Stock Plan will be
used for general corporate purposes or for the purchase of shares on the open
market on behalf of a participant.
On March 14, 2001, the closing price of KeySpan's Common Stock as reported on
the NYSE listing of composite transactions was $36.61 per share.
21
The following resolution will be proposed for approval by holders of KeySpan's
Common Stock:
RESOLVED, that the Employee Discount Stock Purchase Plan, as amended and
the issuance of shares thereunder is hereby approved, ratified and confirmed.
The affirmative vote of a majority of the votes cast at the meeting is required
for approval of this proposal.
The Board of Directors unanimously recommends a vote FOR this proposal.
PROPOSAL 4. LONG-TERM PERFORMANCE INCENTIVE COMPENSATION PLAN
THE COMPANY'S LONG-TERM PERFORMANCE INCENTIVE COMPENSATION PLAN
Terms of the Plan
In March 1999, the Board of Directors of KeySpan adopted the KeySpan Long-Term
Performance Incentive Compensation Plan (the "Incentive Plan"), which became
effective upon receipt of shareholder approval on May 20, 1999. The Company is
seeking shareholder approval for an amendment to the Incentive Plan pursuant to
which the authorized amount of shares issuable under the Incentive Plan has been
increased by 8,750,000 shares to a total of 19,250,000.
The Incentive Plan is intended to promote the interests of KeySpan and its
shareholders by attracting and retaining key employees, directors and
consultants of KeySpan and its subsidiaries, motivating such persons by means of
performance-related incentives to achieve long-range performance goals, and
enabling such persons to participate in the long-term growth and financial
success of KeySpan. In order to further align the interest of the shareholder
to the option award process, a performance goal has been added to the officer's
stock option vesting schedule which directly links total shareholder return
("TSR") for KeySpan Common Stock to the options granted under the Incentive
Plan. The TSR goal measures the total return to shareholders of KeySpan Common
Stock including price appreciation and dividends. KeySpan's performance will be
measured against the S&P Utility Group over a three-year performance period,
with KeySpan's goal to be in the top third of those comprising the group.
The Incentive Plan is administered by the Compensation and Nominating Committee,
which consists solely of directors who are "non-employee directors" as defined
in Rule 16b-3 under the Securities Exchange Act and "outside directors" as
defined in Section 162(m) of the Code.
The Incentive Plan provides for the granting of four types of awards on a stand
alone, combination or tandem basis, specifically, stock options, incentive stock
options, restricted shares and performance stock awards. The Incentive Plan, as
amended, provides that the total number of shares of Common Stock with respect
to which awards may be granted under the Incentive Plan may not exceed
19,250,000 shares, and that the total number of shares of Common Stock with
respect to which stock options (including incentive stock options) and
performance stock awards may be granted in any one year to any individual
participant may not exceed 750,000 shares (subject, in each case, to adjustment
in the event of a stock split, stock dividend, combination or exchange of
shares, exchange for other securities, reclassification, reorganization,
redesignation, merger, consolidation, recapitalization, or other such change).
As of the date hereof, approximately 1,290 persons are eligible to participate
in the Incentive Plan. No payments or contributions are required to be made by
the persons who participate in the Incentive Plan other than the payment of any
purchase price upon the exercise of a stock option and any payment required by
the Committee with respect to an award of restricted shares.
A stock option award grants the recipient the right to buy a specified number of
shares of Common Stock at a fixed exercise price during a specified time, and
subject to such other terms and conditions, all as the Committee may determine;
provided that the exercise price of any stock option shall not be less than 100%
of the fair market value of the Common Stock on the date of grant of the award.
An incentive stock option award granted pursuant to the Incentive
22
Plan is an award in the form of a stock option which complies with the
requirements of Section 422 of the Code or any successor section as it may be
amended from time to time. All other stock option awards granted under the
Incentive Plan are nonqualified stock options. The exercise price of all stock
option awards under the Incentive Plan is payable, as determined by the
Compensation and Nominating Committee, in cash, in shares of already owned
Common Stock of KeySpan, in any combination of cash and shares, or by any other
method deemed appropriate by the Compensation and Nominating Committee. Each
option grant may be exercised in whole, at any time, or in part, from time to
time, after the grant becomes exercisable.
A grant of restricted shares pursuant to the Incentive Plan is a transfer of
shares of Common Stock, for such consideration and subject to such restrictions,
if any, on transfer or other incidents of ownership, for such periods of time as
the Compensation and Nominating Committee may determine. The certificates
representing the restricted shares shall be held by KeySpan as escrow agent
until the end of the applicable period of restriction, during which the shares
may not be sold, assigned, transferred, pledged, exchanged, encumbered or
disposed of. However, during the period of restriction, the recipient of
restricted shares will be entitled to vote the restricted shares and to retain
cash dividends paid thereon.
A performance stock award is a right granted to a participant to receive
restricted shares that are not issued to the participant until after the
satisfaction of the performance goals during a performance period. A
performance stock award is earned by the participant over a time period
determined by the Compensation and Nominating Committee on the basis of
performance goals established by the Compensation and Nominating Committee at
the time of grant. Performance goals established by the Compensation and
Nominating Committee may be based on one or more of the following criteria:
earnings or earnings growth; earnings per share; return on equity, assets,
capital employed or investment; revenues or revenue growth; gross profit; gross
margin; operating profit; operating margin; operating cash flow; stock price
appreciation and total shareholder return. If the performance goals set by the
Compensation and Nominating Committee are not met, no restricted shares may be
issued pursuant to the performance stock award.
In the event of a change of control of KeySpan, the following shall occur with
respect to any and all awards outstanding: (i) automatic lapse of all
restrictions and acceleration of any time periods relating to the exercise or
vesting of stock options and restricted shares so that awards become immediately
exercisable or vested; and automatic satisfaction of performance goals on a pro
rata or other basis set forth in the award agreement with respect to the number
of restricted shares issuable pursuant to a performance stock award so that such
pro rata or other portion of such restricted shares becomes immediately vested
and (ii) all awards become non-cancelable.
Except as otherwise provided in the Incentive Plan, the Board may at any time
terminate, and, from time to time, amend or modify the Incentive Plan. Any such
action of the Board may be taken without the approval of KeySpan's shareholders,
but only to the extent that such shareholder approval is not required by
applicable law or regulation. Furthermore, no amendment, modification, or
termination of the Incentive Plan shall adversely affect any awards already
granted to a participant without his or her consent. No amendment or
modification of the Incentive Plan may change any performance goal, or increase
the benefits payable for the achievement of a performance goal, once established
for a performance stock award.
23
Grants under the Plan
In February 2001, the Committee approved the following grants of stock options
under the Plan to Named Executive Officers:
----------------------------------------------------------
Number Exercise Price
Name of Options Per Share
----------------------------------------------------------
Robert B. Catell 267,000 $39.50
----------------------------------------------------------
Craig G. Matthews 124,000 $39.50
----------------------------------------------------------
Gerald Luterman 60,000 $39.50
----------------------------------------------------------
Anthony Nozzolillo 60,000 $39.50
----------------------------------------------------------
Lenore F. Puleo 60,000 $39.50
----------------------------------------------------------
Executive Group 1,558,000 $39.50
----------------------------------------------------------
Non-Executive Director Group 56,100 $39.50
----------------------------------------------------------
Non-Executive Employee Group 640,750 $39.50
----------------------------------------------------------
The benefits accruing pursuant to the above awards are not presently
determinable. In addition, Mr. Matthews received 20,000 shares of restricted
stock in February 2001. The most recent grant of options under the Incentive
Plan has been extended deeper into the organization with approximately 1,290
employees participating in the Incentive Plan. As of February 13, 2001, a total
of 9,361,250 options and 42,698 restricted stock grants have been awarded under
the Incentive Plan.
Federal Income Tax Consequences of Grants under the Plan
The following discussion generally summarizes the federal income tax
consequences to participants who may receive grants of awards under the
Incentive Plan.
Stock Options. For federal income tax purposes, no income is recognized by a
participant upon the grant of a stock option under the Incentive Plan. Upon the
exercise of an option, however, compensation taxable as ordinary income will be
realized by the participant in an amount equal to the excess of the fair market
value of a share of KeySpan's Common Stock on the date of such exercise over the
exercise price. A subsequent sale or exchange of such shares will result in
gain or loss measured by the difference between (i) the exercise price,
increased by any compensation reported upon the participant's exercise of the
option, and (ii) the amount realized on such sale or exchange. Such gain or
loss will be capital in nature if the shares were held as a capital asset and
will be long-term if such shares were held for more than one year.
The Company generally is entitled to a deduction (subject to the provisions of
Section 162(m) of the Code) for compensation paid to a participant at the same
time and in the same amount as the participant is considered to have realized
compensation by reason of the exercise of an option.
Incentive Stock Options. No taxable income generally is realized by the
participant for Federal income tax purposes upon the grant or exercise of an
incentive stock option. If shares of KeySpan's Common Stock are issued to a
participant pursuant to the exercise of an incentive stock option granted under
the Incentive Plan, and if no disqualifying disposition of such shares is made
by such participant within two years after the date of grant or within one year
after the transfer of such shares to a participant, then (a) upon sale of such
shares, any amount realized in excess of the option price will be taxed to such
participant as a long-term capital gain and any loss sustained will be a long-
term capital loss, and (b) no deduction will be allowed KeySpan for federal
income tax purposes. Upon exercise of an incentive stock option, the
participant may be subject to alternative minimum tax on certain items of tax
preference.
24
If shares of KeySpan's Common Stock acquired upon the exercise of an incentive
stock option are disposed of prior to the expiration of the two-years-from-
grant/one-year-from-transfer holding period, generally (a) the participant will
realize ordinary income in the year of disposition in the amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if less,
the amount realized on the disposition of the shares) over the option price
thereof, and (b) KeySpan will be entitled to deduct such amount (subject to the
provisions of Section 162(m) of the Code). Any further gain or loss realized
will be taxed as capital gain or loss, which will be long-term or short-term
depending on whether the shares were held for more than one year, and will not
result in any deduction by KeySpan.
If an incentive stock option is exercised at a time when it no longer qualifies
as an incentive stock option, the option is treated as a non qualified stock
option.
Restricted Shares; Performance Stock Awards. Awards of restricted shares
generally will not result in taxable income to the employee for Federal income
tax purposes at the time of grant. A recipient of restricted shares generally
will receive compensation subject to tax at ordinary income rates on the excess,
if any, of the fair market value of KeySpan's Common Stock at the time the
restricted shares are no longer subject to forfeiture over the amount, if any,
paid for the shares. However, a recipient who so elects under Section 83(b) of
the Code within 30 days of the date of the grant will have ordinary taxable
income on the date of the grant equal to the amount of any such excess
determined as if such shares were unrestricted and could be sold immediately.
If the restricted shares subject to such election are forfeited, the recipient
will not be entitled to any deduction, refund or loss for tax purposes with
respect to the amount included in taxable income as a result of the election.
Upon sale of the restricted shares after the forfeiture period has expired, the
holding period to determine whether the recipient has long-term or short-term
capital gain or loss begins when the restriction period expires and the tax
basis will be equal to the fair market value of the restricted shares on the
date the restriction period expires. However, if the recipient timely elects to
be taxed as of the date of the grant, the holding period commences on the date
of the grant and the tax basis will be equal to the fair market value of the
restricted shares on the date of the grant as if such shares were then
unrestricted and could be sold immediately.
The award of a performance stock award generally will not result in taxable
income to the employee for federal income tax purposes at the time of grant. A
recipient of a performance stock award generally will be subject to tax at the
same time and in the same manner as applicable to recipients of restricted
shares as described above.
The Company is generally entitled to a deduction (subject to the provisions of
Section 162(m) of the Code) for compensation paid to a participant in the same
amount as the participant is considered to have realized compensation with
respect to restricted shares or a performance stock award.
Limits on Deductions. Under Section 162(m) of the Code, the deduction allowable
to the Company in a taxable year for compensation paid to the Chief Executive
Officer and the Named Executive Officers of KeySpan (including its subsidiaries)
is limited to $1,000,000 per person, except that compensation that is
performance-based will be excluded for purposes of calculating the amount of
compensation subject to this $1,000,000 limitation. The ability of KeySpan to
claim a deduction for compensation paid to any other person is not affected by
this provision.
The Company has structured the Incentive Plan so that any compensation for which
KeySpan may claim a deduction in connection with the exercise of nonqualified
stock options, the disposition by an optionee of shares acquired upon the
exercise of incentive stock options and the lapse of restrictions on restricted
shares received pursuant to performance stock awards is intended to be
performance-based within the meaning of Section 162(m) of the Code. All other
awards under the Incentive Plan are not performance-based, and therefore any
deduction KeySpan may claim with respect to such awards made to the persons
listed above will be subject to the limitations on deductibility in Section
162(m) of the Code.
Information contained herein relating to the Incentive Plan is qualified in its
entirety by reference to the amended plan, which is attached to this Proxy
Statement as Appendix A.
25
The following resolution will be proposed for approval by holders of KeySpan's
Common Stock:
RESOLVED, that the KeySpan Long-Term Performance Incentive Compensation
Plan is hereby amended to increase the amount of shares issuable under the
Incentive Plan from a total of 10,500,000 shares to a total of 19,250,000
shares.
The affirmative vote of a majority of the votes cast at the meeting is required
for approval of this proposal.
The Board of Directors unanimously recommends a vote FOR this proposal.
OTHER INFORMATION
Report of the Audit Committee
The Audit Committee of the Board of Directors of KeySpan is composed of seven
independent, non-employee directors and operates under a written charter,
adopted by the Board of Directors. The charter is attached as Appendix B.
We have reviewed and discussed with management the Corporation's audited
financial statements as of, and for, the year ended December 31, 2000.
We have discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from the
independent auditors required by Independence Standard No.1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, discussed with the auditors any relationships that may impact their
objectivity and independence and satisfied themselves as to the auditors'
independence.
Based on the reviews and discussions referred to above, we recommended to the
Board of Directors that the audited financial statements referred to above be
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000.
Fees payable to Arthur Andersen LLP for the 2000 fiscal year for the audit of
the financial statements were $1,150,000. Fees for other services were $960,000.
Audit Committee
Alan H. Fishman, Chairman
Lilyan H. Affinito
Howard R. Curd
Richard N. Daniel
Vicki L. Fuller
Stephen W. McKessy
James Q. Riordan
Directors and Officers Liability Insurance and Indemnity
KeySpan currently has in place director and officer ("D&O") liability insurance
for the purpose of reimbursing the Company when it has indemnified its directors
and officers. D&O liability insurance also provides direct payment to KeySpan's
directors and officers under certain circumstances when KeySpan has not
previously provided indemnification. KeySpan also has liability insurance which
provides fiduciary coverage for KeySpan, its directors,
26
officers and employees for any alleged breach of fiduciary duty under the
Employee Retirement Income Security Act. The D&O and fiduciary liability
insurances were purchased from Associated Electric & Gas Insurance Services for
a one-year period commencing May 28, 2000 at a total cost of $576,099. The
Company will renew the D&O liability and fiduciary insurances for a one-year
period commencing May 28, 2001 at an equivalent cost.
Shareholder Rights Plan
On March 30, 1999, the Board of Directors entered into a Rights Agreement
pursuant to which one preferred stock purchase right (a "Right") per share of
Common Stock will be distributed as a dividend to shareholders of record on the
close of business on April 14, 1999. Each Right, when exercisable, will entitle
the holder thereof to purchase one one-hundredth of a share of Series D
Preferred Stock at a price of $95.00 per share. The Rights will be exercisable
only if a person or a group acquires 20% or more of the outstanding shares of
Common Stock or announces a tender offer following which it would hold 20% or
more of such outstanding Common Stock. The Rights entitle the holders, other
than the acquiring person, to purchase Common Stock having a market value of two
times the exercise price of the Right. If, following the acquisition by a person
or group of 20% or more of KeySpan's outstanding shares of Common Stock, KeySpan
were acquired in a merger or other business combination, each Right would be
exercisable for that number of the acquiring company's shares of common stock
having a market value of two times the exercise price of the Right. Subject to
the terms of the Rights Agreement, KeySpan may redeem the Rights at $.01 per
Right at any time until ten days following the occurrence of an event that
causes the Rights to become exercisable for Common Stock. The Rights expire in
ten years.
The foregoing description of the Rights Agreement and of the Rights is qualified
in its entirety by the terms of the Rights Agreement, dated March 30, 1999, by
and between KeySpan and the Rights Agent, a copy of which has been filed as an
exhibit to KeySpan's Current Report on Form 8-K dated March 30, 1999.
Legal Services
During a portion of 2000, James L. Larocca, a nominee for director, had been of
counsel to the law firm of Cullen and Dykman. During 2000, this firm
represented KeySpan in a variety of general and specific matters. Total fees
paid to this firm during 2000 were approximately $4,784,000.
Involvement in Certain Proceedings
In May 2000, ContiFinancial Corporation ("ContiFinancial") filed a voluntary
petition for relief under the provisions of Chapter 11 of the United States
Bankruptcy Code. At the time of such filing, Alan H. Fishman was serving as
President and Chief Executive Officer of ContiFinancial. Mr. Fishman joined
ContiFinancial in July 1999 and resigned in March 2001.
Deadline For Shareholder Proposals
Shareholder proposals for the 2002 Annual Meeting must be received by the
Secretary at KeySpan's principal executive office at One MetroTech Center,
Brooklyn, New York 11201-3850, Attention: Secretary, not less than 120 calendar
days prior to the anniversary date of the release of the Company's Proxy
Statement to shareholders in connection with the 2001 Annual Meeting, to be
considered by the Company for possible inclusion in the proxy materials for the
2002 Annual Meeting.
In addition, all shareholder proposals for the 2002 Annual Meeting must be
submitted to the Company in accordance with Section 2.7 of the Company's By-Laws
not less than 60 nor more than 90 calendar days in advance of the anniversary
date of the 2001 Annual Meeting.
Additional Information
KeySpan's Annual Report for the period ended December 31, 2000 is being mailed
to shareholders on or about the date of this Proxy Statement. KeySpan files an
Annual Report on Form 10-K with the Securities and Exchange Commission
27
(the "SEC") which includes additional information concerning KeySpan and its
operations. The Company's Annual Report or Annual Report on Form 10-K, except
for exhibits, will be furnished at no cost to shareholders upon written request
to: Secretary, KeySpan Corporation, One MetroTech Center, Brooklyn, New York
11201-3850.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires KeySpan's directors,
executive officers and persons who own more than ten percent (10%) of a
registered class of KeySpan's equity securities to file with the SEC initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock and other equity securities of KeySpan. Executive officers,
directors and greater than ten percent (10%) shareholders are required by SEC
regulation to furnish KeySpan with copies of all Section 16(a) forms which they
file.
To KeySpan's knowledge, based solely on review of information furnished to
KeySpan, reports filed through KeySpan and representations that no other reports
were required, all Section 16(a) filing requirements applicable to its
directors, executive officers and greater than ten percent (10%) beneficial
owners were complied with during the twelve-month period ended December 31,
2000.
Method and Cost of Solicitation of Proxies
KeySpan will bear the cost of soliciting proxies. In addition to the use of the
mails, proxies may be solicited personally, by telephone or through the Internet
by KeySpan directors, officers, employees and agents for no additional
compensation. In addition, KeySpan will reimburse brokers, bank nominees and
other institutional holders for their reasonable out-of-pocket expenses in
forwarding proxy materials to the beneficial owners of the Company's Common
Stock.
Disclosure of "Broker Non-Votes" And Abstentions
SEC rules provide that specifically designated blank spaces are provided on the
proxy card for shareholders to mark if they wish either to withhold authority to
vote for one or more nominees for director or to abstain on one or more of the
proposals. Votes withheld in connection with the election of one or more of the
nominees for director will not be counted as votes cast for or against such
individuals. With respect to the proposal relating to selection of auditors,
approval of an amended Employee Discount Stock Purchase Plan and approval of an
amended Long-Term Performance Incentive Compensation Plan, abstentions are not
counted in determining the number of votes cast in connection with these
proposals, since New York State law requires a majority of only those votes cast
"for" or "against" approval, while broker non-votes are treated as shares not
entitled to vote, thus giving both abstentions and non-votes no effect. The
proposal relating to the Long-Term Performance Incentive Compensation Plan is
considered "non-discretionary" and brokers who have received no instructions
from their clients do no have the authority to vote on this proposal. All
abstentions and broker non-votes are counted towards the establishment of a
quorum.
Confidential Voting
KeySpan has adopted a policy to the effect that all proxy (voting instruction)
cards, ballots and vote tabulations which identify the particular vote of a
shareholder are to be kept secret from KeySpan, its directors, officers and
employees. Accordingly, proxy cards are returned in envelopes addressed to the
tabulator, EquiServe, which receives and tabulates the proxies and is
independent of KeySpan. The final tabulation is inspected by inspectors of
election who also are independent of KeySpan, its directors, officers and
employees. The identity and vote of any shareholder shall not be disclosed to
KeySpan, its directors, officers or employees, nor to any third party except (i)
to allow the independent inspectors of election to certify the results of the
vote to KeySpan, its directors, officers and employees; (ii) as necessary to
meet applicable legal requirements and to assert or defend claims for or against
KeySpan; (iii) in the event of a proxy solicitation based on an opposition proxy
statement filed, or required to be filed, with the SEC; or (iv) in the event a
shareholder has made a written comment on such form of proxy.
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Other Matters
As of the date of this Proxy Statement, KeySpan knows of no business that will
be presented for consideration at the Annual Meeting of Shareholders other than
the proposals discussed above. If any matter is properly brought before the
meeting for action by the shareholders, proxies in the form returned to KeySpan
will be voted in accordance with the recommendation of the Board of Directors
or, in the absence of such a recommendation, in accordance with the judgment of
the proxy holder.
By Order of the Board of Directors
Robert B. Catell
Chairman and Chief Executive Officer
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[KEYSPAN LOGO] One MetroTech Center
Brooklyn, New York 11201-3850
KEYSPAN CORPORATION
APPENDIX A: LONG-TERM PERFORMANCE INCENTIVE
COMPENSATION PLAN
KEYSPAN LONG-TERM PERFORMANCE INCENTIVE COMPENSATION PLAN
1. PURPOSE
KeySpan Corporation (the "Company") adopted this Long-Term Performance Incentive
Compensation Plan (the "Plan") on May 20, 1999. The Company, subject to Section
17, seeks to amend the Plan to increase the number of shares which may be
granted as currently set forth in Section 5(a) from a total of 10,500,000 to a
total of 19,250,000.
The purposes of the Plan are to promote the interests of the Company and
its stockholders by (a) attracting and retaining key employees, directors and
consultants of the Company and its Subsidiaries (as defined below); (b)
motivating such persons by means of performance-related incentives to achieve
long-range performance goals; and (c) enabling such persons to participate in
the long-term growth and financial success of the Company.
2. DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
"Award" means, individually or collectively, a grant under this Plan of Stock
Options or Restricted Shares or a Performance Stock Award. The issuance of
Restricted Shares pursuant to a Performance Stock Award shall not be a new Award
under this Plan.
"Award Agreement" means a written agreement entered into between the Company and
a Participant setting forth the terms and conditions of an Award made to such
Participant under this Plan, in the form prescribed by the Committee.
"Beneficial Owner or Beneficial Ownership" shall have the meaning ascribed to
such terms in Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
"Board" means the Board of Directors of the Company.
"Business Combination" shall have the meaning specified in Section 12(b)(iii).
"Change of Control" shall have the meaning specified in Section 12(b).
"Code" means the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include such section
or regulation, any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Committee" means the Compensation and Nominating Committee of the Board, or
such other committee appointed by the Board, each member of which shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act
and shall be an "outside director" within the meaning of Section 162(m) of the
Code. The Committee shall be composed of at least two (2) such directors.
"Common Stock" means the common stock of the Company.
"Company" means KeySpan Corporation d/b/a KeySpan Energy, a New York
corporation.
"Consultant" means any Person who is not a Director or an employee of the
Company or a Subsidiary and who provides bona fide services to the Company or a
Subsidiary, provided that such services are not rendered in connection with the
offer or sale of securities in a capital-raising transaction.
"Director" means a member of the Board of Directors of the Company or a
Subsidiary who is not an employee of the Company or a Subsidiary.
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"Effective Date" means the effective date of this Plan as defined in Section 17.
"Employee" means a key employee of the Company or a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended. Reference
to a specific section of the Exchange Act or regulation thereunder shall include
such section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Fair Market Value" means the closing price of the Common Stock as reported on
the New York Stock Exchange on the relevant valuation date or, if there were no
Common Stock transactions on the valuation date, on the next preceding date on
which there were Common Stock transactions.
"Incentive Stock Option" has the meaning specified in Section 6(b).
"Incumbent Board" shall have the meaning specified in Section 12(b)(ii).
"Negative Discretion" means other factors to be applied by the Committee in
reducing the number of Restricted Shares to be issued pursuant to a Performance
Stock Award if the Performance Goals have been met or exceeded if, in the
Committee's sole judgment, such application is appropriate in order to act in
the best interest of the Company and its shareholders.
"Outstanding Company Common Stock" shall have the meaning specified in Section
12(b)(i).
"Outstanding Company Voting Securities" shall have the meaning specified in
Section 12(b)(i).
"Participant" means an Employee, Director or Consultant who has been granted an
Award under this Plan.
"Performance Goals" means, with respect to any Performance Period, performance
goals based on any of the following criteria and established by the Committee
prior to the beginning of such Performance Period or performance goals based on
any of the following criteria and established by the Committee after the
beginning of such Performance Period that meet the requirements to be considered
pre-established performance goals under Section 162(m) of the Code: earnings or
earnings growth; earnings per share; return on equity, assets, capital employed
or investment; revenues or revenue growth; gross profit; gross margin; operating
profit; operating margin; operating cash flow; stock price appreciation and
total shareholder return. Such Performance Goals may be particular to a
Participant or the division, department, branch, line of business, Subsidiary or
other unit in which the Participant works, or may be based on the performance of
the Company generally.
"Performance Period" means the period of time designated by the Committee
applicable to a Performance Stock Award during which the Performance Goals shall
be measured.
"Performance Stock Award" shall have the meaning specified in Section 6(d).
"Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, including a group as
defined in Section 13(d) thereof.
"Plan" means this KeySpan Energy Long-Term Performance Incentive Compensation
Plan.
"Plan Year" means an annual period coinciding with the Company's fiscal year.
"Reporting Person" means an officer or director of the Company subject to the
reporting requirements of Section 16 of the Exchange Act.
"Restricted Shares" shall have the meaning specified in Section 6(c).
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"Restriction Period" shall have the meaning specified in Section 6(c).
"Securities Act" means the Securities Act of 1933, as amended. Reference to a
specific section of the Securities Act or regulation thereunder shall include
such section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Stock Option" has the meaning specified in Section 6(a).
"Subsidiary" means any corporation or other entity, whether domestic or foreign,
in which the Company has or obtains, directly or indirectly, a proprietary
interest of more than 50% by reason of stock ownership or otherwise.
3. ELIGIBILITY
Any Employee, Director or Consultant selected by the Committee is eligible to
receive an Award.
4. PLAN ADMINISTRATION
(a) This Plan shall be administered by the Committee. The Committee shall
periodically make determinations with respect to participation in this Plan and,
except as otherwise required by law or this Plan, the grant terms of Awards
including vesting schedules, price, performance standards (including Performance
Goals), length of relevant performance, restriction or option period, dividend
rights, post-retirement and termination rights, and such other terms and
conditions as the Committee deems appropriate. Except as otherwise required by
this Plan, the Committee shall have authority to interpret and construe the
provisions of this Plan and the Award Agreements and make determinations
pursuant to any Plan provision or Award Agreement, which determinations shall be
final and binding on all persons.
(b) The Committee, in its sole discretion and on such terms and conditions as
it may provide, may delegate all or any part of its authority and powers under
this Plan to one or more directors or officers of the Company; provided,
however, that the Committee may not delegate its authority and powers (i) with
respect to Reporting Persons, or (ii) in any way which would jeopardize this
Plan's qualification under Section 162(m) of the Code or Rule 16b-3 of the
Exchange Act.
(c) All determinations and decisions made by the Committee, the Board and any
delegate of the Committee pursuant to Section 4(b) shall be final, conclusive,
and binding on all persons, and shall be given the maximum deference permitted
by law.
5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN
(a) The stock subject to the provisions of this Plan shall either be shares of
authorized but unissued Common Stock, shares of Common Stock held as treasury
stock or previously issued shares of Common Stock reacquired by the Company,
including shares purchased on the open market. Subject to adjustment in
accordance with the provisions of Section 10, the total number of shares of
Common Stock with respect to which Awards may be granted under this Plan may not
exceed 19,250,000 shares.
(b) Subject to adjustment in accordance with Section 10, and subject to Section
5(a), the total number of shares of Common Stock with respect to which Stock
Options and Performance Stock Awards may be granted in any Plan Year to any
Participant shall not exceed 750,000 shares.
(c) For purposes of calculating the total number of shares of Common Stock
available for grants of Awards, the grant of an Award of Restricted Shares or a
Performance Stock Award shall be deemed to be equal to the maximum number of
shares of Common Stock which may be issued under the Award.
(d) Subject to Section 5(b), there shall again be available for Awards under
this Plan, all of the following: (i) shares of Common Stock represented by
Awards which have been canceled, forfeited, surrendered, terminated or expire
unexercised during preceding Plan Years; and (ii) the excess amount of variable
Awards which become fixed at less
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than their maximum limitations.
6. AWARDS UNDER THIS PLAN
Subject to the provisions of this Plan, the Committee shall have the sole and
complete authority to determine the Employees, Directors and Consultants to whom
Awards shall be granted and the type, terms and conditions of such Awards (which
need not be the same for each Participant). As the Committee may determine, the
following types of Awards may be granted under this Plan on a stand alone,
combination or tandem basis:
(a) Stock Option. A right to buy a specified number of shares of Common Stock
at a fixed exercise price during a specified time, and subject to such other
terms and conditions, all as the Committee may determine; provided that the
exercise price of any Stock Option shall not be less than 100% of the Fair
Market Value of the Common Stock on the date of grant of the Award.
(b) Incentive Stock Option. An award in the form of a Stock Option to an
Employee which shall comply with the requirements of Section 422 of the Code or
any successor Section as it may be amended from time to time.
(c) Restricted Shares. A transfer of shares of Common Stock to a Participant,
for such consideration and subject to such restrictions, if any, on transfer or
other incidents of ownership, for such periods of time (with respect to each
Award, a "Restriction Period") as the Committee may determine. The stock
certificate or certificates representing Restricted Shares shall be registered
in the name of the Participant to whom such Restricted Shares shall have been
awarded. During the Restriction Period, certificates representing the Restricted
Shares shall bear a restrictive legend to the effect that ownership of the
Restricted Shares, and the enjoyment of all rights appurtenant thereto, are
subject to the restrictions, terms and conditions provided in the Plan and the
applicable Award Agreement. Such certificates shall remain in the custody of the
Company and the Participant shall deposit with the Company stock powers or other
instruments of assignment, each endorsed in blank, so as to permit retransfer to
the Company of all or any portion of the Restricted Shares that shall be
forfeited or otherwise not become vested in accordance with the Plan and the
applicable Award Agreement.
Restricted Shares shall constitute issued and outstanding shares of Common Stock
for all corporate purposes. The Participant will have the right to vote such
Restricted Shares, to receive and retain all dividends and distributions paid or
distributed on such Restricted Shares, and to exercise all other rights, powers
and privileges of a holder of Common Stock with respect to such Restricted
Shares; except that (i) the Participant will not be entitled to delivery of the
stock certificate or certificates representing such Restricted Shares until the
Restriction Period shall have expired and unless all other vesting requirements
with respect thereto shall have been fulfilled or waived; (ii) the Company will
retain custody of the stock certificate or certificates representing the
Restricted Shares during the Restriction Period; (iii) any such dividends and
distributions paid in shares of Common Stock shall constitute Restricted Shares
and be subject to all of the same restrictions during the Restriction Period as
the Restricted Shares with respect to which they were paid; (iv) the
Participant may not sell, assign, transfer, pledge, exchange, encumber or
dispose of the Restricted Shares or his or her interest in any of them during
the Restriction Period; and (v) a breach of any restrictions, terms or
conditions provided in the Plan or established by the Committee with respect to
any Restricted Shares will cause a forfeiture of such Restricted Shares on the
terms and conditions established by the Committee.
(d) Performance Stock Awards. A right, granted to a Participant, to receive
Restricted Shares (as defined in Section 6(c) hereof) that are not to be issued
to the Participant until after the satisfaction of the Performance Goals during
a Performance Period.
7. PERFORMANCE STOCK AWARDS
(a) Administration. Performance Stock Awards may be granted to Participants
either alone or in addition to other Awards granted under this Plan. The
Committee shall determine the Participants to whom Performance Stock Awards
shall be awarded for any Performance Period, the duration of the applicable
Performance Period, the number of Restricted Shares to be awarded at the end of
a Performance Period to Participants if the Performance Goals are met or
exceeded (which Restricted Shares may, but need not, contain restrictions on
transfer or other incidents of ownership
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as permitted in Section 6(c)), and the terms and conditions of the Performance
Stock Award in addition to those contained in this Section 7.
(b) Payment of Award. During or after the end of a Performance Period, the
financial performance of the Company during such Performance Period shall be
measured against the Performance Goals. If the Performance Goals are not met,
no Restricted Shares shall be issued pursuant to the Performance Stock Award.
If the Performance Goals are met or exceeded, the Committee shall certify that
fact in writing in the Committee minutes or elsewhere and certify the number of
Restricted Shares to be issued under each Performance Stock Award in accordance
with the related Award Agreement. The Committee may, in its sole discretion,
apply Negative Discretion to reduce the number of Restricted Shares to be issued
under a Performance Stock Award.
8. OTHER TERMS AND CONDITIONS
(a) Assignability. Except as otherwise determined by the Committee, no Stock
Option or Performance Stock Award shall be assignable or transferable except by
will or by the laws of descent and distribution and during the lifetime of a
Participant, Stock Options shall be exercisable only by such Participant.
(b) Award Agreement. Each Award under this Plan shall be evidenced by an Award
Agreement.
(c) Rights as a Shareholder. Except as otherwise provided in this Plan or in
any Award Agreement, a Participant shall have no rights as a shareholder with
respect to shares of Common Stock covered by an Award until the date the
Participant is the holder of record of such shares.
(d) No Obligation to Exercise. The grant of an Award shall impose no obligation
upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Awards for which
a payment is due from a Participant may be payable: (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the Company,
by money transfers or direct account debits; (ii) through the delivery or deemed
delivery based on attestation to the ownership of shares of Common Stock with a
Fair Market Value equal to the total payment due from the Participant; (iii) by
a combination of the methods described in (i) and (ii) above; or (iv) by such
other methods as the Committee may deem appropriate.
(f) Tax Withholding. The Company shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required to be withheld with respect to an Award
or any dividends or other distributions payable with respect thereto. Subject to
the requirements of Rule 16b-3 of the Exchange Act, the Committee, in its sole
discretion and pursuant to such procedures as it may specify from time to time,
may permit a Participant to satisfy such tax withholding obligation, in whole or
in part, by (i) electing to have the Company withhold otherwise deliverable
shares of Common Stock having a Fair Market Value not exceeding the minimum
amount required to be withheld, or (ii) delivering to the Company shares of
Common Stock then owned by the Participant. The amount of the withholding
obligation satisfied by shares of Common Stock withheld or delivered shall be
the Fair Market Value of such shares determined as of the date that the taxes
are required to be withheld.
(g) Restrictions on Sale and Exercise. If and to the extent required to comply
with rules promulgated under Section 16 of the Exchange Act, (i) no Award
providing for exercise, a vesting period, a Restriction Period or the attainment
of performance standards shall permit unrestricted ownership of shares of Common
Stock by the Participant for at least six months from the date of grant, and
(ii) shares of Common Stock acquired pursuant to an Award granted under this
Plan may not be sold or otherwise disposed of for at least six months after the
date of the grant of the Award.
(h) Requirements of Law. The granting of Awards and the issuance of shares of
Common Stock upon the exercise of Awards shall be subject to all applicable
requirements imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges upon which the Common
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Stock may be listed. As a condition precedent to the issuance of shares of
Common Stock pursuant to the grant or exercise of an Award, the Company may
require the Participant to take any reasonable action to meet such requirements.
(i) Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock and
cash otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
(j) Unfunded Plan. Neither the Company nor any Subsidiary shall be required to
segregate any cash or any shares of Common Stock which may at any time be
represented by Awards and the Plan shall constitute an "unfunded" plan of the
Company. Neither the Company nor any Subsidiary shall, by any provisions of the
Plan, be deemed to be a trustee of any Common Stock or any other property, and
the liabilities of the Company and any Subsidiary to any Participant pursuant to
the Plan shall be those of a debtor pursuant to such contract obligations as are
created by or pursuant to the Plan, and the rights of any Participant or
beneficiary under the Plan shall be limited to those of a general creditor of
the Company or the applicable Subsidiary, as the case may be. In its sole
discretion, the Board may authorize the creation of trusts or other arrangements
to meet the obligations of the Company under the Plan, provided, however, that
the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
(k) Legends. In addition to any legend contemplated by Section 6(c), each
certificate evidencing Common Stock subject to an Award shall bear such legends
as the Committee deems necessary or appropriate to reflect or refer to any
terms, conditions or restrictions of the Award applicable to such shares,
including, without limitation, any to the effect that the shares represented
thereby may not be disposed of unless the Company has received an opinion of
counsel, acceptable to the Company, that such disposition will not violate any
federal or state securities laws.
(l) Company's Rights. The grant of Awards pursuant to the Plan shall not affect
in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
(m) Designation of Beneficiaries. If permitted by the Committee, a Participant
may designate a beneficiary or beneficiaries in the event of the death of the
Participant and may change such designation from time to time by filing a
written designation of beneficiary or beneficiaries with the Committee on a form
to be prescribed by it, provided that no such designation shall be effective
unless so filed prior to the death of such Participant.
9. AMENDMENTS
(a) Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan. Any such action
of the Board may be taken without the approval of the Company's shareholders,
but only to the extent that such shareholder approval is not required by
applicable law or regulation, including specifically Rule 16b-3 under the
Exchange Act and Section 162(m) of the Code.
(b) No amendment, modification or termination of this Plan shall in any manner
adversely affect any Awards theretofore granted to a Participant under this Plan
without the consent of such Participant. No amendment or modification of this
Plan may change any Performance Goal, or increase the benefits payable for
achievement of a Performance Goal, once established for a Performance Stock
Award.
10. RECAPITALIZATION
The aggregate number of shares of Common Stock as to which Awards may be granted
to Participants, the number of shares thereof covered by each outstanding Award,
and the price per share thereof in each such Award, shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, stock dividend, combination or exchange of
shares, exchange for other securities, reclassification, reorganization,
redesignation, merger, consolidation, recapitalization or other such change.
Any such adjustment may provide for the elimination of fractional shares.
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11. NO RIGHT TO EMPLOYMENT
No person shall have any claim or right to be granted an Award, and the grant of
an Award shall not be construed as giving a Participant the right to be retained
in the employ of the Company or a Subsidiary. Nothing in this Plan shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate any Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or any
Subsidiary.
12. CHANGE OF CONTROL
(a) Notwithstanding anything contained in this Plan or any Award Agreement to
the contrary, in the event of a Change of Control, as defined below, the
following shall occur with respect to any and all Awards outstanding as of such
Change of Control:
(i) automatic lapse of all restrictions and acceleration of any time periods
relating to the exercise or vesting of Stock Options and Restricted Shares so
that such Awards become immediately exercisable (and shall remain exercisable
until the end of the original expiration period fixed in the Award Agreement) or
vested in full; and automatic satisfaction of Performance Goals on a pro rata
basis with respect to the maximum number of Restricted Shares issuable pursuant
to a Performance Stock Award, or on such other basis as set forth in the Award
Agreement, so that such pro rata or other portion of such Restricted Shares
becomes immediately vested; and
(ii) all Awards become non-cancelable.
(b) A "Change of Control" of the Company shall be deemed to have occurred upon
the happening of any of the following events:
(i) The acquisition by any Person of Beneficial Ownership of 20% or more of
either (x) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
Person controlled by the Company, or (D) any acquisition by any Person pursuant
to a transaction which complies with clauses (A), (B), and (C) of paragraph
(iii) below; or
(ii) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the Effective Date whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (A) all of substantially
all of the individuals and entities who were the Beneficial Owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the Outstanding
Company Common Stock and the combined voting power of the Outstanding Company
Voting Securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Combination
including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
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(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more, of, respectively, the Outstanding Company Common Stock
of the corporation resulting from such Business Combination or the combined
voting power of the Outstanding Company Voting Securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
13. GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall be
construed in accordance with and governed by the law of the State of New York.
14. CAPTIONS
Captions are provided herein for convenience of reference only, and shall not
serve as a basis for interpretation or construction of this Plan.
15. RESERVATION OF SHARES
The Company, during the term of the Plan, will at all times reserve and keep
available the number of shares of Common Stock as shall be sufficient to satisfy
the requirements of the Plan. The inability of the Company to obtain the
necessary approvals from any regulatory body having jurisdiction or approval
deemed necessary by the Company's counsel to the lawful issuance and sale of any
shares of Common Stock under the Plan shall relieve the Company of any liability
in respect of the nonissuance or sale of such shares of Common Stock as to which
such requisite authority shall not have been obtained.
16. SAVINGS CLAUSE
This Plan is intended to comply in all respects with applicable law and
regulation, including, with respect to those Participants who are Reporting
Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the
provisions of this Plan shall be held invalid, illegal or unenforceable in any
respect under applicable law and regulation (including Rule 16b-3), the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by law, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan to
be construed in compliance with all applicable laws (including Rule 16b-3) so as
to foster the intent of this Plan. Notwithstanding anything in this Plan to the
contrary, the Committee, in its sole and absolute discretion, may bifurcate this
Plan so as to restrict, limit or condition the use of any provision of this Plan
to Participants who are Reporting Persons without so restricting, limiting or
conditioning this Plan with respect to other Participants. All Awards of Stock
Options and Performance Stock Awards are intended to comply with Section 162(m)
of the Code.
17. EFFECTIVE DATE AND TERM
The effective date (the "Effective Date") of this Plan is the date of
shareholder approval when the Plan was adopted May 20, 1999. Any increase in
the number of shares to be granted pursuant to section 5(a) of the Plan will be
subject to shareholder approval at the time of such request for additional
shares. No new Awards shall be granted under this Plan after the tenth
anniversary of the Effective Date. Unless otherwise expressly provided in the
Plan or in an applicable Award Agreement, any Award granted hereunder may, and
the authority of the Board or the Committee under this Plan shall, continue
after the authority for grant of new Awards hereunder has been exhausted.
A-8
[KEYSPAN LOGO] One MetroTech Center
Brooklyn, New York 11201-3850
KEYSPAN CORPORATION
APPENDIX B: CHARTER OF THE AUDIT COMMITTEE
KEYSPAN CORPORATION
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
Purpose and Authority
- ---------------------
The purpose of the Audit Committee is to establish and maintain, as part of the
Board of Directors, an independent group to oversee, review and monitor 1) the
accounting and external financial reporting practices, including the quality and
integrity of the financial reports of the Corporation, 2) the internal
accounting controls, 3) the auditing activities, 4) the business practices and
ethical standards of the Corporation and 5) have ultimate authority and
responsibility, along with the full Board, to select, evaluate, and where
appropriate, replace the independent public accountants. The Committee is
designated by the Board of Directors and receives its authority from the Board
of Directors to whom it reports.
The Board has vested in the Committee the authority to carry out the
responsibilities as noted in this Charter, and any other duties which the
Committee deems necessary to fulfill its obligations to the Board of Directors,
shareholders and customers of the Corporation. To such end, the Committee is
authorized to employ special accountants, counsel and such other outside
assistance as it deems necessary.
Membership
- ----------
The Committee is comprised of not less than six (6) outside directors, including
a Chairman, designated by the Board. In the event of the absence of any member
or members from a meeting, alternate members may be designated by the Chairman
and Chief Executive Officer. All members are required to meet the following
criteria:
.Independence
All Directors of the Committee are required to be independent (as defined
by Section 303 of the New York Stock Exchange Listed Company Manual and
resolutions adopted by the Board of Directors setting forth certain
policies and procedures with respect to executive compensation and
corporate governance) and have no relationship with the Corporation that
may interfere with the exercise of their independence from management and
the Corporation.
.Financial Literacy and Expertise
Each member of the Audit Committee shall be financially literate, as such
qualification is determined by the Corporation's Board of Directors in
its business judgement, or must become financially literate within a
reasonable period of time after his or her appointment to the Committee.
At least one member of the Audit Committee must have accounting or
related financial management expertise, as the Board of Directors
interprets such qualification in its business judgement.
Independent Public Accountants
- ------------------------------
The Committee is responsible for making recommendations to the Board regarding
the appointment or termination of the independent public accountants. The
independent public accountants are ultimately accountable to the Audit Committee
and the Board of Directors.
With respect to the work of the independent public accountants, the Committee is
responsible for reviewing the scope of the audit, approving the nature and cost
of all audit and material non-audit services (material non-audit services must
be approved prior to commencement of the work), monitoring the accountants'
performance, and assuring that the accountants are independent.
The Committee shall inquire regularly of the independent public accountants to
ascertain that they are receiving the full cooperation of management, that all
information desired is provided freely, that there are no material weaknesses in
the internal control structure and that no material fraud was uncovered in the
course of their work and that management is diligent in conducting its business
in accordance with the highest ethical standards.
B-1
From time to time, the Committee shall schedule private meetings with the
independent public accountants and also shall meet with them at their request.
Internal Auditing Division
- --------------------------
The Vice President & General Auditor (a corporate officer) is in charge of the
Internal Auditing Division and is directly responsible to the Board of
Directors. He reports functionally to the Audit Committee of the Board of
Directors. Administratively, the General Auditor reports to the President and/or
Chief Operating Officer.
Each year, the General Auditor will submit an Audit Plan to the Committee for
approval. Thereafter, the General Auditor will keep the Committee informed on
the progress of the Plan's implementation, and twice a year will submit written
reports on such progress and on the results of his reviews and management's
response to any problems or weaknesses in controls noted.
The Committee shall review the Charter of the Internal Auditing Division and
approve any changes thereto. It shall also ascertain that the resources
allocated to the Internal Auditing function are sufficient to ensure that
adequate internal audit review is being performed in the Corporation.
The Committee will meet privately with the General Auditor at each of its
meetings and at any other time at the General Auditor's request without prior
communication with management.
The General Auditor shall not be appointed or removed by management without the
concurrence of the Committee.
The Committee may provide special assignments to the General Auditor to perform
reviews in selected areas of its interest or concern.
Financial Statements and Internal Accounting Control
- ----------------------------------------------------
The Committee shall review the annual financial statements and the results of
the independent public accountants' audit. The review should include discussions
with management and the independent public accountants of significant issues
regarding accounting principles, practices and judgements, including those
matters set forth in SAS No. 61.
The independent public accountants will conduct a limited quarterly review of
the company's financial statements. As part of such review, they will discuss
with management any judgmental areas, adjustments, disclosures and all material
changes in accounting principles. Management will report to the Committee, in
writing, any material items or discussions resulting from such limited quarterly
review. Management will also provide the Committee, upon issuance, copies of
the quarterly reports to shareholders and related filings with the Securities
and Exchange Commission. In addition, the Committee, or at the minimum its
Chairman, should communicate with management and the independent public
accountants on a quarterly basis (prior to the filing of the Corporation's 10-
Q), to review the Corporation's financial statements and significant findings
based upon the independent public accountants' limited review procedures. Any
significant changes to the Corporation's accounting principles and any items
required to be communicated by the independent public accountants, in accordance
with SAS No. 61, should also be discussed.
At least once during the year, the Committee shall obtain assurances from the
independent public accountants, the General Auditor and management that the
system of internal controls is adequate and functioning.
Other Duties
- ------------
The Committee shall maintain continuing vigilance for any procedures or
practices which might impair the Corporation's financial and business integrity.
Annually, the Committee will receive from the General Auditor a written report
on compliance with ethical business conduct and the Public Service Commission
agreement and shall make inquiries, as necessary, to assure itself that the
highest standards of business conduct are being followed.
Once a year, the Committee shall review with management policies respecting
expenses and perquisites.
Once a year, the Committee shall review and assess the adequacy of the Audit
Committee Charter. In addition, the Committee shall submit the charter, when
revised, to the full Board for approval and have it published in the proxy
B-2
statement at least once every three years.
Once a year, the Committee shall prepare a report to the Corporation's
shareholders, as required by the rules of the SEC. The report shall be included
in the Corporation's annual proxy statement.
Once a year, the Corporate Ethics Officer will report to the Committee on the
Corporate Ethics Program and any significant events that occurred and actions
taken by management.
Once a year, the Office of the General Counsel will update the Committee on all
litigation involving the Corporation that could have a significant impact on the
Corporation's financial statements.
Administrative Procedures
- -------------------------
The Committee shall meet as frequently as deemed necessary by the Chairman to
fulfill its responsibilities, but no less than four times during the year. A
quorum shall consist of a majority of the members. Minutes of the meetings
shall be kept. The regular attendance of non-members is permitted at the
invitation of the Chairman. The Committee Chairman shall report the Committee's
activities to the Board of Directors.
Limitations of Responsibilities
- -------------------------------
In fulfilling their responsibilities hereunder, it is recognized that members of
the Committee are not full-time employees of the Corporation and are not, and do
not represent themselves to be, accountants or auditors by profession, or
experts in the field of accounting or auditing. As such, it is not the duty or
responsibility of the Committee or its members to conduct "field work" or other
types of auditing or accounting reviews or procedures, and each member of the
Committee shall be entitled to rely on (a) the integrity of those persons and
organizations within and outside the Corporation that it receives information
from and (b) the accuracy of the financial and other information provided to the
Committee by such persons or organizations absent actual knowledge to the
contrary (which shall be promptly reported to the Board of Directors).
* * * * * * * * * * * *
This Charter was reviewed and approved by the Audit Committee on January 24,
2001.
Vice President, Secretary & Deputy General Counsel
B-3
P
R
O
X
Y
KEYSPAN CORPORATION PROXY/VOTING INSTRUCTION CARD
This proxy is solicited on behalf of the Board of Directors of KeySpan
Corporation for the Annual Meeting of Shareholders on May 10, 2001
The undersigned appoints Lilyan H. Affinito, Alan H. Fishman and Vicki L.
Fuller each of them, with full power of substitution in each, the proxies of the
undersigned to represent the undersigned and vote all shares of KeySpan
Corporation Common Stock which the undersigned may be entitled to vote at the
Annual Meeting of Shareholders to be held on May 10, 2001, and at any
adjournment or postponement thereof, as indicated on the reverse side. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the meeting, including, without limitation, any motion to
adjourn the meeting to another time or place (including for the purpose of
soliciting additional proxies).
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy will
be voted FOR all proposals and as said proxies deem advisable on such other
matters as may properly come before the meeting.
Nominees: 08 Vicki L. Fuller
01 Lilyan H. Affinito 09 J. Atwood Ives
02 Robert B. Catell 10 James R. Jones
03 Andrea S. Christensen 11 James L. Larocca
04 Howard R. Curd 12 Craig G. Matthews
05 Richard N. Daniel 13 Stephen W. McKessy
06 Donald H. Elliott 14 Edward D. Miller
07 Alan H. Fishman 15 James Q. Riordan
Comments:___________________________________
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
If you have written in the above space, please mark the
comments notification box on the reverse side.
-----------
SEE REVERSE
SIDE
-----------
(Continued, and to be signed and dated on the reverse side.)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
ADMISSION TICKET
KEYSPAN CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 10, 2001 AT 10:00 A.M.
Opera House
BROOKLYN ACADEMY OF MUSIC
30 Lafayette Avenue
Brooklyn, New York 11217
Directions
By Car:
From Manhattan via the Manhattan Bridge:
Continue straight off the bridge onto Flatbush Avenue, proceed to Fulton Street.
Turn left onto Fulton Street. Proceed two blocks; turn right onto Ashland Place,
proceed one block.
From Manhattan via the Brooklyn Bridge:
Continue straight off the bridge and make the first left turn possible which is
Tillary Street. Continue on Tillary Street and turn right onto Flatbush Avenue.
From Queens, Long Island and Connecticut:
Take the Long Island Expressway to the Brooklyn Queens Expressway. Exit on
Tillary Street, exit 29. Follow exit onto Tillary Street, two short blocks and
turn left onto Flatbush Avenue.
From Staten Island:
Cross the Verrazano-Narrows Bridge to the Brooklyn Queens Expressway. Exit at
Tillary Street, exit 29. Follow exit onto Tillary Street, two short blocks and
turn left onto Flatbush Avenue.
From New Jersey:
Use the Holland Tunnel and continue east on Canal Street, which leads directly
across the Manhattan Bridge. Continue straight over the bridge onto Flatbush
Avenue.
By Subway:
The Brooklyn Academy of Music is within three blocks of the following stations:
. 2, 3, 4, 5, D, Q: Atlantic Avenue
. B, N, M, R: Pacific Street
. G: Fulton Street
. LIRR: Flatbush Avenue
Parking:
All Brooklyn Academy of Music parking lots are patrolled continuously during the
work day and until 30 minutes after each event.
[X] Please mark your |5280
votes as in this ----
example.
The shares represented by this proxy when signed and returned will be voted as
directed by the shareholder. If no direction is given, such shares will be
voted FOR all proposals and as said Proxies deem advisable on such other
matters as may properly come before the meeting.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" all proposals.
- --------------------------------------------------------------------------------
1. Election of Directors (see reverse side)
FOR WITHHELD
[ ] [ ]
For, except vote withheld from the following nominee(s):
- -----------------------------
2. Ratification of Arthur Andersen LLP as independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of an amended Employee Discount Stock Purchase Plan.
[ ] [ ] [ ]
- --------------------------------------------
4. Approval of an amended Long-Term Performance Incentive Compensation Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- -------------------------------------------------------------------------------
I have included comments, or have included a change of address. [ ]
I already receive an Annual Report and do not wish to receive one for this
account. [ ]
I plan to attend the Annual Meeting.
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If more than one trustee, all should sign.
-------------------------------
_______________________________
SIGNATURE (S) DATE
- --------------------------------------------------------------------------------
O FOLD AND DETACH HERE O
[LOGO] KEYSPAN
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described on
this instruction card votes all common shares of KeySpan Corporation that you
are entitled to vote and gives voting instructions for any common shares held on
your behalf in the KeySpan 401(k) Plan.
Please consider the issues discussed in the proxy statement and cast your vote
by:
[GRAPH] . Accessing the World Wide Web site
http://www.eproxyvote.com/kse to vote via the
Internet. You can also register at this site to
access future proxy materials electronically.
[GRAPH] . Using a touch-tone telephone to vote by phone toll
free from the U.S. or Canada. Simply dial
1-877-779-8683 and follow the instructions. For
shareholders from other locations, please call 1-201-
536-8073. When you are finished voting, your vote will
be confirmed and the call will end.
[GRAPH] . Completing, dating, signing and mailing the proxy card
in the postage-paid envelope included with the proxy
statement or sending it to KeySpan Corporation, P.O.
Box 8535, Edison, NJ 08818-9402
You can vote by phone or via the Internet anytime prior to May 10, 2001. You
will need the control number printed at the top of this instruction card to vote
by phone or via the Internet. If you do so, you do not need to mail in your
proxy card.