DIRECTORS' DEFERRED COMPENSATION PLAN
OF
KEYSPAN CORPORATION
On December 21, 2000 the Board of Directors of KeySpan Corporation
adopted this amended Directors' Deferred Compensation Plan (the "Plan")
effective January 1, 2001. The Plan was originally adopted on June 26, 1998 with
an effective date of June 1, 1998. The terms of the amended Plan are set forth
below.
1. Purpose of the Plan
The purpose of the Plan is to provide a method for Directors who are
not currently employees of KeySpan Corporation (the "Corporation") to acquire a
proprietary interest in the Corporation and to further align the interests of
the directors with the Corporation's shareholders. It is intended that the Plan
will meet the requirements of Rule (b-3) promulgated under Section 16(b) of the
Securities Exchange Act of 1934, as amended, and the Plan shall be interpreted
accordingly.
2. Definitions
(a) "Annual Stock Grant" shall mean the number of stock equivalents
of KeySpan common stock that may be awarded, as determined by the Board, to each
Participant and deferred under this Plan.
(b) "Beneficiary" shall mean a person or entity determined to be the
Participant's beneficiary pursuant to Section 11 hereof.
(c) "Board of Directors" or "Board" shall mean the Board of Directors
of KeySpan Corporation .
(d) "Cash Equivalent Account" shall mean the bookkeeping account set
up for each director electing to defer amounts not converted into stock
equivalents hereunder.
(e) "Code" shall mean the Internal Revenue Code of 1986.
(f) "Compensation" shall mean the cash remuneration as determined by
the Board to be paid to a Participant in consideration of such Participant's
service as a non-employee director including the annual retainer, committee
chairman retainer and meeting fees, but not including amounts representing
reimbursement of expenses.
(g) "Corporation" or "KeySpan " shall mean KeySpan Corporation , the
sponsor of this Plan or its successors or assigns.
1
(h) "Effective Date" shall mean June 1, 1998.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Participant" shall mean a member of the Board of Directors of
KeySpan Corporation or The Brooklyn Union Gas Company (or any affiliated
corporation which by action of its Board of Directors may adopt and join this
Plan on behalf of its eligible directors after the Effective Date) and who is
not at the time of reference an employee of those companies or any company
affiliated with those companies.
(k) "Plan" shall mean this KeySpan Corporation Directors' Deferred
Compensation Plan.
(l) "Prior Deferred Plan" shall mean the Directors' Deferred
Compensation Plan of KeySpan Energy Corporation or the Directors' Stock Unit
Retainer Plan of the Long Island Lighting Company as in effect prior to May 28,
1998.
(m) "Stock Equivalent Account" shall mean a book account maintained
by KeySpan reflecting the stock equivalents of KeySpan common stock allocated to
the Participant as a result of the deferral of Compensation or Annual Stock
Grant and any such additional stock equivalents of KeySpan common stock as shall
be credited thereto in respect of dividends paid on KeySpan common stock
pursuant to Section 4(d).
3. Participation
Non-employee directors of the Corporation or of The Brooklyn Union
Gas Company, a subsidiary of the Corporation, shall participate in the Plan as
of the Effective Date. All future non- employee directors of the Corporation or
of The Brooklyn Union Gas Company shall commence participation in the Plan
immediately upon becoming a director. Employee directors shall not be eligible
to participate in this Plan.
4. Form of Elections
Each Participant shall execute an election form for each calendar
year in which the Plan is in force. Each election form shall state the
percentage by which the Participant's Compensation shall be reduced and shall
state whether Participant elects to purchase stock equivalents under paragraph
5(a)(i) hereof or shares under paragraph 5(a)(ii), or to defer cash pursuant to
paragraph 6. The 50% Mandatory Contribution pursuant to section 5 must be
allocated to either stock equivalents under paragraph 5(a)(i) or shares under
paragraph 5(a)(ii). Additional elections for the remaining 50% may be made in 5%
increments and a Participant may elect any form or combination of forms in
Paragraph 5 or Paragraph 6.
2
(i) The deferral election shall be in the form required by the
Corporation and shall be delivered to the Corporation no later than
December 31 of the calendar year immediately preceding the calendar year
for which the deferral election is made.
5. Mandatory Stock Contribution, Stock Equivalent Account, and Maintenance
of Stock Equivalent Accounts
(a) Each Participant shall invest a minimum of fifty percent
(50%)(the "Mandatory Contribution") and may elect up to 100% of Compensation to
purchase either stock equivalents under this Plan (which would be tax deferred)
or shares under the KeySpan Investor Program (which would not be tax deferred).
Additionally, Participant may receive one hundred percent (100%) of the Annual
Stock Grant, if applicable, in stock equivalents under this Plan, as determined
by the Board of Directors from time to time.
(i) Participant stock equivalents shall be credited to the Stock
Equivalent Account in the name of such Participant on the last trading
date of the calendar month in which the amounts are paid. Each stock
equivalent shall be in the form of an unfunded bookkeeping entry and
shall represent one full or fractional share of the common stock of
the Corporation. No actual shares of common stock or certificates
thereof shall be purchased or held under the Plan.
(ii) If a Participant elects to receive shares, Participant will
be enrolled in the KeySpan Investor Program and will be subject to all
terms and conditions of that Program.
(b) The number of stock equivalents or shares credited pursuant to
Section 4(a) shall be determined 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 the contributions are received. Such stock equivalents are to
be computed to three decimal places and credited as of the first business day of
the quarter following the quarter in which such credits shall have occurred.
(c) Each Participant account will be credited as of the pertinent
date with an amount equivalent to the amount of any dividend payable on KeySpan
shares for each stock equivalent or fraction of an equivalent in the
Participant's Stock Equivalent Account as of such date ("Dividend Equivalent").
Such Dividend equivalent will be determined by the actual dividend paid from
time to time in respect of KeySpan issued and outstanding common stock.
(d) Dividends Equivalents as described in paragraph (c) above shall
be credited to the Participant's Stock Equivalent Account as of the dividend
payment date in the form of as many additional stock equivalents (and any
fractions of an equivalent computed to three decimal points) as could be
purchased with such Dividend Equivalents based on the average of the high and
low price per share of KeySpan common stock on such dividend payment date or, if
no trading occurs on such stock on the dividend payment date, on the trading day
immediately succeeding such date.
3
(e) In the event that the number of outstanding shares of KeySpan
common stock shall be changed by reason of stock split-ups, combinations,
recapitalizations, mergers, consolidations, spin-offs or the like, the Board
shall make such adjustments as it deems appropriate in the number of units
credited to the Stock Equivalent Accounts hereunder.
6. Cash Equivalent Account, Interest
(a) Deferral amounts elected to be deferred into the Cash Equivalent
Account shall be accrued by KeySpan to a bookkeeping account as of the date
payment of such amounts would have been made by the Corporation. The
establishment of such Cash Equivalent Account is solely for bookkeeping purposes
and shall not represent amounts held in trust or a segregation of the assets of
the Corporation or any form of funding of the deferred compensation. Each
Participant shall receive periodic reports setting forth the amounts credited to
his or her Cash Equivalent Account.
(b) An amount representing interest into the Cash Equivalent Account
shall be accrued monthly at a rate equal to the prime interest rate as set forth
by Chase Manhattan Bank (or any successor thereto) effective as of the first day
of such calendar month. Such amount shall be credited to the Participant's Cash
Equivalent Account.
7. Prior Deferred Plans
Each Participant who was a participant in a Prior Deferred Plan shall
have an allocation made to the Participant's Stock Equivalent Account of a
number of stock equivalents of KeySpan stock determined as if such Participant
were a shareholder of either the Long Island Lighting Company or KeySpan Energy
Corporation, as the case may be, on May 28, 1998 with respect to the number of
stock equivalents credited in such Prior Deferred Plans. Any amounts of cash
equivalents with respect to a Participant held in a Prior Deferred Plan shall be
allocated to the Cash Equivalent Account of the Participant under this Plan as
of the Effective Date.
8. Transfer Between Cash Equivalent Account and Stock Equivalent Account
Prior to the first day of each calendar year, a Participant, by
giving written notice to the Corporation, may transfer all or any portion of the
balance in his or her Cash Equivalent Account into his or her Stock Equivalent
Account using the price for the Corporation's common stock determined under
Section 4(b).
9. Form and Timing of Payment
(a) No payments shall be made to a Participant hereunder prior to
retirement, death or termination of service as a director.
4
(b) Upon retirement, death or termination of service as a director
(the "Distribution Event") all stock equivalents in the Participant's Stock
Equivalent Account will be converted to cash based on the closing price of the
Corporation's common stock on the last trading day of the month in which the
Distribution Event occurs. This converted amount will be transferred to the
Participant's Cash Equivalent Account and will be aggregated with any existing
balance in the Participant's Cash Equivalent Account (collectively, the
"Distribution Account"). The Distribution Account will be paid in accordance
with the Participant's form of election pursuant to subparagraph c below.
(c) A Participant may request a distribution of the Distribution
Account described in paragraph (b) by electing either of the following
distribution options (i), (ii) or (iii) below:
(i) a lump sum in cash to the Participant as soon as
administratively feasible after the Distribution
Event that determines the Participant's right to
receive payment.
(ii) deferral of the Distribution Account for up to 5
years after the Distribution Event. During the
additional deferral period, interest shall be
credited on the Distribution Account, accrued
monthly, at a rate equal to the prime rate as set
forth by the Chase Manhattan Bank (or any
successor bank) effective as of the first day of
such calendar quarter and credited to the
Participant's Distribution Account. At the end of
the additional deferral period, the Distribution
Account balance will be paid in a lump sum in
cash
(iii) the Participant may elect to receive payment of
the Distribution Account in equal annual
installments, the number of which shall be
specified in writing by the Participant by the
date stated above, but in no event shall such
number exceed 10. Interest shall be credited on
the unpaid Distribution Account accrued monthly
at a rate equal to the prime rate as set forth by
the Chase Manhattan Bank (or any successor bank)
effective as of the first day of such calendar
quarter and credited to the Participant's Cash
Equivalent Account.
(a) The election of the distribution form in paragraph (c) must
be delivered to the Corporation no later than December 31st
of the year prior to the Distribution Event.
10. No Forfeitures
Each Participant's benefits hereunder shall be non-forfeitable.
11. Beneficiary
Each Participant shall have the right to designate in writing from
time to time a Beneficiary or Beneficiaries by filing a written notice of such
designation with the Corporation. In the event of
5
a Beneficiary designated by the Participant does not survive the Participant and
no successor Beneficiary is selected, or in the event no valid designation has
been made, such Participant's Beneficiary shall be such Participant's estate. In
the event the Participant's Beneficiary is the Participant's estate, no payment
shall be made unless the Corporation shall have been furnished with such
evidence as the Corporation may deem necessary to establish the validity of the
payment.
12. Funding of the Plan
The Plan in unfunded, and the amounts credited to each Participant's
Stock Equivalent Account and Cash Equivalent Account and the benefits payable in
respect thereof represent merely unfunded, unsecured promises of KeySpan to pay
a sum of money to the Participant in the future.
13. Alienation of Benefits Prohibited
No transfer (other than a transfer made by will or by the laws of
descent and distribution) by a Participant of any right to any payment
hereunder, whether voluntary or involuntary, by operation of law or otherwise,
and whether by means of alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachments, charge, or encumbrance of any kind, shall vest
the transferee with any interest or right and any attempt to so alienate, sell,
transfer, assign, pledge, attach, charge, or otherwise encumber any such amount,
whether presently or thereafter payable, shall be void and of no force or
effect.
14. Counterparts
Any direction to defer amounts associated with this Plan may be
executed in two or more counterparts, any one of which shall be deemed an
original without reference to the others.
15. Termination or Amendment
The Plan may be terminated at any time by the Board of Directors. The
Plan may be amended by the Board of Directors from time to time in any respect;
provided, however, except to the extent any amendment is necessary to assure
continued exemption under Rule 16b-3 promulgated under Section 16 of the
Exchange Act and that each of the Participants remain an "outside director"
within the meaning of Section 162(m) of the Code, no such amendment may reduce
the amounts accrued to any Participant's Stock Equivalent Account or Cash
Equivalent Account without the affected Participant's prior written consent.
Subject to the preceding paragraph, the Board may delegate to the
officers of the Corporation the right to amend the Plan for the purposes of
clarifying or finalizing the Plan and such amendments shall be effective without
further action of the Board.
16. Choice of Law
The Plan and all rights hereunder shall be subject to and interpreted
in accordance with the laws of the State of New York, without reference to the
principles of conflicts of law.
6