SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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 [_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
KEYSPAN CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] 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:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
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4) Date Filed:
________________________________________________________________________________
KEYSPAN
[GRAPHIC OMITTED] One MetroTech Center
Brooklyn, New York 11201-3850
KEYSPAN CORPORATION
Notice of 2003 Annual Meeting of Shareholders and Proxy Statement
KEYSPAN One MetroTech Center
[GRAPHIC OMITTED] Brooklyn, New York 11201-3850
LETTER TO SHAREHOLDERS
March 27, 2003
Dear KeySpan Shareholder:
You are cordially invited to attend KeySpan Corporation's Annual Meeting of
Shareholders, which will be held at 10:00 a.m. on Thursday, May 8, 2003, at
KeySpan's Auditorium located at its corporate headquarters at One MetroTech
Center, Brooklyn, New York. Directions to the location of the Annual Meeting are
included in this Proxy Statement.
At the Annual Meeting, we will review with you our 2002 performance and our
plans for the future. In addition, as more fully described in the Proxy
Statement, we will consider the election of directors; ratification of Deloitte
& Touche LLP, as our independent public accountants for the Company for the year
ending December 31, 2003; amendments to the Employee Discount Stock Purchase
Plan; and a shareholder proposal. The Board of Directors recommends a vote FOR
each nominee for director; FOR the ratification of independent public
accountants; FOR the amendments to the Employee Discount Stock Purchase Plan;
and AGAINST the shareholder proposal.
In an effort to make voting as simple as possible, you may vote your shares by
returning the enclosed proxy card or by casting your ballot by telephone or
through the Internet. Whether you choose to provide a written proxy card, or
vote by telephone or through the Internet, please vote.
I look forward to seeing you at the Annual Meeting on May 8th. Please remember
that we consider your vote to be very important.
Robert B. Catell
Chairman and Chief Executive Officer
Public Transportation
Subway:
o A, C or F train to Jay Street-Borough Hall o 1, 2, 4 or 5 train to Borough
Hall (walk one block East to Willoughby Street and make a left on Jay
Street)
o M, N or R train to Lawrence Street-MetroTech (walk one block North on
Lawrence Street)
o Q train to Dekalb Avenue (walk two blocks North toward Manhattan Bridge and
make a left on Myrtle Avenue into MetroTech Center)
By Train:
o Long Island Rail Road to Pennsylvania Station and transfer to a
Brooklyn-bound A, C, 1, 2 or 4 train (see subway instructions above).
o Long Island Rail Road to Flatbush Avenue-Atlantic Terminal in Brooklyn and
transfer to a Manhattan-bound M, N, R, 1, 2, 4, 5 or Q train (see subway
instructions above) or walk North along Flatbush Ave. about 1 mile to
Myrtle Avenue and make a left into MetroTech Center.
o Metro-North Railroad to Grand Central Station in Manhattan and transfer to
a Brooklyn-bound 4 or 5 train (see subway instructions above).
o New Jersey Transit to Pennsylvania Station in Manhattan and transfer to a
Brooklyn-bound A, C, 1, 2 or 4 train (see subway instructions above).
By Car:
o From Manhattan: Take the FDR Drive to the Brooklyn Bridge (Exit 2), make
the first left after traveling over the bridge on to Tillary Street and
right on to Jay Street.
o From Queens, Brooklyn, Bronx and Staten Island: Take I-278 to Tillary
Street (Exit 29) in Brooklyn. Make a left at the third light on to Jay
Street.
o From Long Island: Take I-495 WEST (Long Island Expressway) to I-278 WEST
(Exit 18A - Brooklyn-Queens Expressway) to Tillary Street (Exit 29). Make a
left at the third light on to Jay Street.
o From New Jersey: Take I-78 EAST to the Holland Tunnel. Follow Canal Street
EAST to the Manhattan Bridge on to Flatbush Avenue. Or take I-95 (New
Jersey Turnpike) to I-278 EAST (Exit 13) to Tillary Street (Exit 29) in
Brooklyn. Make a left at the third light on to Jay Street.
o From Westchester, Downstate New York and Connecticut: Take either I-87
SOUTH (Major Deegan Expressway/New York State Thruway) or I-95 SOUTH (New
England Thruway) to I-278 WEST to Tillary Street (Exit 29). Make a left at
the third light on to Jay Street.
[GRAPHIC OMITTED]
KEYSPAN
[GRAPHIC OMITTED] One MetroTech Center
Brooklyn, New York 11201-3850
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 27, 2003
Dear Shareholder:
The Annual Meeting of Shareholders of KeySpan Corporation ("KeySpan" or the
"Company") will be held on Thursday, May 8, 2003, at 10:00 a.m. at KeySpan's
Auditorium located at its corporate headquarters at One MetroTech Center,
Brooklyn, New York, to consider and take action on the following items:
1. Election of nine directors;
2. Ratification of Deloitte & Touche LLP, as independent
public accountants for the Company for the year ending
December 31, 2003;
3. Approval of amendments to the Employee Discount Stock
Purchase Plan;
4. Consideration of a shareholder proposal, if presented at
the Annual Meeting; and
5. Transact any other business properly brought before the
Annual Meeting or any adjournment thereof.
Shareholders of record as of the close of business on March 10, 2003 are
entitled to vote at the Annual Meeting or any postponement or adjournment
thereof.
If you hold shares in your name and are attending the Annual Meeting, please
bring your admission card. If your shares are held indirectly in the name of a
bank, broker or other nominee, please request a letter or some other evidence of
ownership from your bank, broker or other nominee, as well as proper
authorization if you wish to vote your shares in person, and bring these
documents to the Annual Meeting.
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) BY 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 and Secretary
PROXY STATEMENT
OF
KEYSPAN CORPORATION
ANNUAL MEETING TO BE HELD ON MAY 8, 2003
Proxies are being solicited on behalf of the Board of Directors of the Company
for use at the Annual Meeting of Shareholders on May 8, 2003, or any adjournment
thereof. This Proxy Statement is first being mailed to the shareholders of the
Company on or about March 27, 2003.
Q: What am I voting on?
A: Election of nine directors; ratification of Deloitte & Touche LLP, as
independent public accountants for the year ending December 31, 2003;
Approval of amendments to the Employee Discount Stock Purchase Plan;
consideration of a shareholder proposal, if presented at the Annual
Meeting; 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 10, 2003
(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: If you hold your shares in your name, as a "shareholder of record," you can
vote in person at the Annual Meeting or you can complete and submit a proxy
by mail, telephone or the Internet, as provided on your proxy card.
The enclosed proxy card contains instructions for mail, telephone and
Internet voting. Whichever method you use, the proxies identified on the
proxy card will vote your shares in accordance with your instructions.
If you submit a proxy card without giving specific voting instructions with
respect to any or all proposals, you give the named proxies the authority
to vote, in their discretion, on each such proposal. In addition, 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.
If you hold your shares indirectly in the name of a bank, broker or other
nominee, as a "street-name shareholder," you will receive instructions from
your bank, broker or other nominee describing how to vote your shares.
Q: Do I have the right to revoke my proxy?
A: Yes. You can revoke your proxy by submitting a new proxy; giving written
notice to the Corporate Secretary of the Company prior to the Annual
Meeting stating that you are revoking your proxy; or attending the Annual
Meeting and voting your shares in person.
Unless you decide to vote your shares in person at the Annual Meeting, you
should revoke your prior proxy in the same way you initially submitted it,
that is, by mail, telephone or 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 voting instructions.
All written comments will be provided to KeySpan and only your name will be
disclosed, unless you request that you are to remain anonymous.
1
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 of your shares
are voted. 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 10, 2003, the Record Date, 156,926,647
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 executive officers as a group own less than 1.8% of our
Common Stock as of March 10, 2003.
Q: When are the shareholder proposals due for the 2004 Annual Meeting?
A: Shareholder proposals for the 2004 Annual Meeting must be received by
KeySpan at its offices at One MetroTech Center, Brooklyn, New York
11201-3850, Attention: Corporate Secretary, by December 1, 2003, to be
considered by the Company for possible inclusion in the proxy materials for
the 2004 Annual Meeting. In addition, all shareholder proposals or
nominations for election as director for the 2004 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 2003 Annual Meeting.
2
PROPOSAL 1. ELECTION OF DIRECTORS
The current term of office of all of the Company's directors expires at the 2003
Annual Meeting. The Board of Directors proposes that the following nominees, all
of whom are currently serving as directors, be elected for a new term of one
year and until his or her successor is 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 below will be unable to serve the
full term of office to which he or she may be elected.
Nominees for election this year are:
o Robert B. Catell o James L. Larocca
o Andrea S. Christensen o Stephen W. McKessy
o Alan H. Fishman o Edward D. Miller
o J. Atwood Ives o Edward Travaglianti
o James R. Jones
The affirmative vote of a plurality of the shares of KeySpan Common Stock cast
is required for the election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NINE
NOMINEES NAMED ABOVE TO SERVE AS MEMBERS OF THE BOARD OF DIRECTORS FOR A ONE
YEAR TERM.
Effective May 8, 2003, Donald H. Elliott will retire as a director of the
Company. The Board and the Company extend their gratitude to Mr. Elliott for his
service as a valued director.
Nominees for the Board of Directors
ROBERT B. CATELL - Age 66 - Director since May 1998
Chairman and Chief Executive Officer of KeySpan Corporation since July
1998. Joined KeySpan's 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.
Served as President and Chief Executive Officer from 1991 to 1996 when
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, Edison Electric Institute, New York State
Energy Research and Development Authority, Independence Community Bank
Corp., Chairman of the Business Council of New York State, Inc., New York
City Partnership and Chairman of the Long Island Association.
ANDREA S. CHRISTENSEN - Age 63 - Director since January 2001
Partner in the law firm of Kaye Scholer 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. Serves as a Member of the Board of Inwood House since 2000.
3
ALAN H. FISHMAN - Age 57 - Director since May 1998
President, Chief Executive Officer and a Director 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 Senior Vice 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. Chairman of the
Brooklyn Academy of Music, the Brooklyn Navy Yard and the Brooklyn Chamber
of Commerce.
J. ATWOOD IVES - Age 66 - Director since November 2000
Former Chairman and Chief Executive Officer of Eastern Enterprises from
1991 to November 2000. Director and/or Trustee of several mutual funds
managed by Massachusetts Financial Services Company and Director of
Woodstock Corporation, a private investment advisor. Trustee of the Museum
of Fine Arts - Boston, Director of the United Way of Massachusetts Bay,
President and Director of the Beacon Hill Village, Overseer of WGBH
Educational Foundation, and Member of the Corporate Advisory Board of the
Boston College Carroll School of Management.
JAMES R. JONES - Age 63 - Director since May 1998
Chairman and Chief Executive Officer of Manatt Jones Global Strategies, LLP
since October 2001 and Chairman of GlobeRanger Corporation since September
1999. Senior Counsel to the law firm of Manatt, Phelps & Phillips, LLP from
March 1999 to October 2001. Retired as President of Warnaco, Inc. -
International Division in 1998. Director of Anheuser Busch since 1998 and
Kansas City Southern since 1997. 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.
JAMES L. LAROCCA - Age 59 - Director since January 2001
Dean and distinguished 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. Former director of European American Bank
and ContiFinancial Corporation, and current Chairman of the Long Island
Nature Conservancy.
4
STEPHEN W. McKESSY - Age 65 - 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 and the Board of Governors of
the Silver Spring Country Club.
EDWARD D. MILLER - Age 62 - Director since May 1998
Member of the Supervisory Board and senior advisor to the Chief Executive
Officer of AXA Group since July 2001. From August 1997 through May 2001,
Mr. Miller served as President and Chief Executive Officer of AXA
Financial, Inc. He was Chairman and Chief Executive Officer of The
Equitable Life Assurance Society, the principal insurance subsidiary of AXA
Financial, Inc., from August 1997 through May 2001. Mr. Miller also served
as Senior Vice Chairman of Chase Manhattan Bank from 1996 through 1997. He
serves as a member of the Board of Directors of Topps Company, Incorporated
and Korn/Ferry International. He is also a Member of the Board of Governors
of the United Way of Tri-State and Chairman of the Board of Directors of
Phoenix House. Mr. Miller is a Trustee of the Inner-City Scholarship Fund,
the New York City Police Foundation, Pace University, and the New York
Blood Center. He is also Chairman of the New York City Partnership's
Security and Risk Management Task Force.
EDWARD TRAVAGLIANTI - Age 54 - Director since October 2002
Former Chairman and Chief Executive Officer of European American Bank from
1995 to 2001, when European American was acquired by Citibank, N.A. Mr.
Travaglianti also served as the President of Commercial Markets of
Citibank, N.A. from July 2001 until his retirement in October 2002. Mr.
Travaglianti began his career at European American Bank in 1970 and held a
variety of management positions. He was promoted to President and Chief
Operating Officer in 1991. He also serves as a Director and as a Member of
the Audit Committee of Pall Corporation. Mr. Travaglianti also serves as
Vice-Chairman of the Board of Trustees of Winthrop University Hospital, a
member of the Board of the New York Blood Center, a Partner of The New York
City Partnership, Chairman of the Long Island Works Coalition, Chairman of
Project Long Island and Chairman of the Maurer Foundation. Mr. Travaglianti
also serves as a Member of the Board of Trustees of Long Island University
and as Chancellor of the Brooklyn Campus. He served as a consulting
director to KeySpan from January 2001 until his election as a director in
October 2002 and served as a director of The Brooklyn Union Gas Company
from 1998 until 2000.
5
THE BOARD OF DIRECTORS
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 eleven times between
January 1 and December 31, 2002.
In September 2002, the Board of Directors amended the Company's Corporate
Governance Guidelines, which had been adopted in 1998, in light of the
requirements imposed under the Sarbanes-Oxley Act of 2002 and the New York Stock
Exchange's Corporate Accountability and Listing Standards Committee
recommendations, as well as in an effort to continue to apply best practices to
its corporate governance policies and procedures. The full text of the Company's
Corporate Governance Guidelines is attached to this Proxy Statement as Appendix
A and can also be found on the Investor Relations section of the Company's
website (http://www.keyspanenergy.com).
Pursuant to our Corporate Governance Guidelines, the Board undertook a review of
director independence. As a result of this review, the Board affirmatively
determined that all of the directors nominated for election at the Annual
Meeting are independent of the Company and its management under the standards
set forth in the Corporate Governance Guidelines, with the exception of Robert
B. Catell, who serves as Chief Executive Officer of the Company and J. Atwood
Ives, who served as the former Chairman and Chief Executive Officer of Eastern
Enterprises. KeySpan acquired Eastern Enterprises on November 8, 2000.
Committees of the Board
During 2002, the Board maintained four standing committees and two special
committees. The functions, number of meetings held and composition of the Board
committees, as of December 31, 2002, are described below:
Committee
Compensation Corporate
Director Executive Audit and Responsibility GPRA* Pricing **
Nominating and Governance
- ------------------------------------------------------------------------------------------------------------------------------------
R.B. Catell X X (Chair) X (Chair)
- ------------------------------------------------------------------------------------------------------------------------------------
A.S. Christensen X X
- ------------------------------------------------------------------------------------------------------------------------------------
D. H. Elliott X X(Chair)
- ------------------------------------------------------------------------------------------------------------------------------------
A. H. Fishman X X(Chair) X
- ------------------------------------------------------------------------------------------------------------------------------------
J. A. Ives X
- ------------------------------------------------------------------------------------------------------------------------------------
J. R. Jones X X
- ------------------------------------------------------------------------------------------------------------------------------------
J. L. Larocca X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
S. W. McKessy X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
E. D. Miller X X (Chair) X X
- ------------------------------------------------------------------------------------------------------------------------------------
E.Travaglianti X
- ------------------------------------------------------------------------------------------------------------------------------------
Meetings held from
January 1 to 2 9 7 3 5 2
December 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
X: Member.
Chair: Committee Chairperson.
* The GPRA Committee was established January 24, 2002 and dissolved on
April 25, 2002.
** The Pricing Committee was established on January 29, 2002.
6
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. The
Executive Committee operates under a written charter adopted by the Board of
Directors and attached to this Proxy Statement as Appendix B.
Audit Committee: Provides oversight with respect to the quality and integrity of
the Company's financial statements; compliance with legal and regulatory
requirements; the independent auditor's qualifications and independence; the
performance of the Company's internal audit function and independent auditors,
the business practices and ethical standards of the Company and the preparation
of all reports required to be included in the corporation's annual Proxy
Statement. Pursuant to the rules of the New York Stock Exchange all members of
the Audit Committee are independent and the Chair of such Committee and two
other members have accounting or related financial management expertise. The
Audit Committee is composed of five independent, non-employee directors and
operates under a written charter adopted by the Board of Directors and attached
to this Proxy Statement as Appendix C.
Compensation and Nominating Committee: Administers and approves executive and
director compensation programs, policies and practices. Conducts director
searches and recommends directors. All members are independent and 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. The
Compensation and Nominating Committee operates under a written charter adopted
by the Board of Directors and attached to this Proxy Statement as Appendix D.
Corporate Responsibility and Governance Committee: Reviews the Company's
corporate governance policies and programs and oversees business ethics,
community development, environmental issues and equal employment opportunity
matters. The Corporate Responsibility and Governance Committee operates under a
written charter adopted by the Board of Directors and attached to this Proxy
Statement as Appendix E.
GPRA Committee: Special committee that was established by the Board to consider
any good faith proposal by the Long Island Power Authority ("LIPA") to purchase
the Company's Long Island based generation plants that were formerly owned by
the Long Island Lighting Company pursuant to an option that was granted to LIPA
under the Generation Purchase Right Agreement ("GPRA"). The option granted to
LIPA under the original GPRA, gave LIPA the right for a one-year period
beginning on May 28, 2001, to acquire such generating assets at fair market
value. By agreement dated March 29, 2002, LIPA and KeySpan amended the GPRA to
provide for a new six-month option period ending on May 28, 2005. The other
terms of the option reflected in the GPRA remain unchanged. At the same time,
KeySpan also received a 31 month extension of the Management Services Agreement
between LIPA and the Company.
Pricing Committee: Special committee that was established to act on behalf of
the Board as to the determination of the terms of certain security issuances.
The Company's Corporate Governance Guidelines and Committee Charters are
included in this Proxy Statement to provide information on the framework and
high standards set by the Company relating to its corporate governance. The
Corporate Governance Guidelines and Committee Charters have all been approved by
the Board of Directors and are vital to securing the confidence of KeySpan's
shareholders, customers, employees, governmental authorities and the investment
community.
Each of the directors attended at least 83% 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, 2002.
7
DIRECTOR COMPENSATION
Effective April 1, 2003, the directors will receive the following compensation:
o Non-employee and consulting directors:
$43,500 annual retainer;
$2,000 committee meeting fee;
$5,000 committee chairman retainer; and
925 shares of restricted stock (granted March 5, 2003)
o Employee directors:
Receive no additional compensation for serving on the Board or
its committees.
Directors' Deferred Compensation Plan
The Board of Directors has adopted the Directors' Deferred Compensation Plan to
directly align the non-employee directors' financial interest with those of the
shareholders. The Directors' Deferred Compensation Plan provides all non-
employee directors with the opportunity to defer any portion of their cash
compensation received as directors, up to 100%, in exchange for Common Stock
equivalents or cash equivalents. Common Stock equivalents are valued by
utilizing the average of the high and low price per share of KeySpan common
stock on the first trading day of the month following the month in which
contributions are received. Dividends are paid on Common Stock equivalents in
the same proportion as dividends paid on Common Stock. Compensation not deferred
and exchanged for Common Stock equivalents may be deferred into a cash account
bearing interest at the prime rate. Additionally, a director may elect to defer
his or her compensation by participating in the KeySpan Investor Program (a
dividend reinvestment plan). Upon retirement, death or termination of service as
a director, all amounts in a director's Common Stock equivalent account and/or
cash account shall, at the 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. The non-employee
directors are not entitled to benefits under any KeySpan retirement plan.
Additionally, Messrs. Fishman, McKessy and Miller also received compensation for
service as directors of the Company's wholly-owned subsidiary, KeySpan Services,
Inc. ("KSI"). As non-employee directors of KSI each received: (i) an $18,000
annual retainer and (ii) a $1,000 meeting fee for each meeting attended. KSI
held seven meetings during 2002. Compensation earned as directors of KSI was
also subject to the Directors' Deferred Compensation Plan. Since January 2003,
neither Messrs. Fishman, McKessy, Miller or any other KeySpan non- employee
director is serving as a director of KSI.
Mr. Catell also receives an annual grant of 2,000 stock options for his service
as a director of The Houston Exploration Company ("Houston Exploration"). The
Company's owns an approximate 56% interest in Houston Exploration, a publicly
traded company on the New York Stock Exchange under the symbol "THX".
8
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents the annual compensation paid to the Chief Executive
Officer and the four other most highly compensated executive officers (the
"Named Executive Officers").
Annual Compensation Long-Term Compensation
---------------------------- -----------------------------------------------
Restricted
Stock Shares LTIP All Other
Salary Bonus Awards Underlying Payouts Compensation
Name Year ($) ($)(1) ($) Options ($) ($)
- -------------------------- ---- ------------ -------------- -------------- ------------------- ----------- -------------------
Robert B. Catell 2002 936,903 284,740 (2) 434,215(3) 372,000 (4) 0 55,229 (5)(6)
Chairman & Chief 2001 860,669 901,228 0 267,000 (4) 0 20,444 (5)
Executive Officer 2000 786,000 336,000 0 568,800 (4) 0 22,817 (5)
- -------------------------- ---- ------------ -------------- -------------- ------------------- ----------- -------------------
Wallace P. Parker Jr. 2002 445,154 191,938 (2) 139,622(3) 120,000 0 26,812 (5)(6)
President, Energy 2001 360,834 243,314 0 78,200 0 6,490 (5)
Delivery and Customer 2000 300,250 95,168 0 129,400 0 5,424 (5)
Relation Group
- -------------------------- ---- ------------ -------------- -------------- ------------------- ----------- -------------------
Robert J. Fani 2002 445,154 153,184 (2) 139,622(3) 120,000 (4)(7) 0 19,729 (5)(6)
President, Energy Assets 2001 361,667 247,203 0 78,200 0 3,651 (5)
and Supply Group 2000 300,417 95,935 0 129,400 0 3,628 (5)
- -------------------------- ---- ------------ -------------- -------------- ------------------- ----------- -------------------
Steven L. Zelkowitz 2002 387,961 134,086 (2) 95,694(3) 82,000 0 21,213(5)(6)
Executive Vice President 2001 337,345 247,203 0 60,000 0 7,301 (5)
& Chief Administrative 2000 300,833 93,445 0 130,600 0 6,850 (5)
Officer
- -------------------------- ---- ------------ -------------- -------------- ------------------- ----------- -------------------
Gerald Luterman 2002 370,962 128,059 (2) 95,694(3) 82,000 (4) 0 21,824 (5)(6)
Executive Vice 2001 330,486 259,360 0 60,000 (4) 0 14,539 (5)
President & Chief 2000 318,333 120,000 0 131,800 (4)(7) 0 14,596 (5)
Financial Officer
- -------------------------- ---- ------------ -------------- -------------- ------------------- ----------- -------------------
(1) Bonus awards paid each year are attributable to performance during the
previous year.
(2) Bonus awards paid in 2002, include amounts deferred by the Named Executive
Officers into the Officers' Deferred Stock Unit Plan as follows: R. B.
Catell - $142,370, W. P. Parker Jr. - $95,969, R. J. Fani - $76,592, S. L.
Zelkowitz - $67,043 and G. Luterman - $38,418.
(3) As of December 31, 2002, the aggregate value of the restricted stock awards
and number of shares awarded are as follows: R. B. Catell - $468,516,
13,295 shares, W. P. Parker Jr. - $150,651, 4,275 shares, R. J. Fani -
$150,651, 4,275 shares, S. L. Zelkowitz - $103,253, 2,930 shares and G.
Luterman - $103,253, 2,930 shares. The restricted stock awards vesting
schedule includes a share price performance target, whereby all
restrictions will lapse if such performance is achieved at any time during
years three through four. Otherwise all restrictions lapse at the end of
year six. In the event of retirement, the restrictions will lapse on a
pro-rata basis using the full months of employment from March 1, 2002 to
retirement, divided by 48 months.
(4) The Named Executive Officer also received 2,000 annual stock options
granted by Houston Exploration as compensation for such persons services as
a director of Houston Exploration.
(5) Amounts are comprised of the cost of life insurance paid by the Company and
allocated to the Named Executive Officers for income tax reporting
purposes. The amounts attributable to each of the Named Executive Officers
during 2002 are as follows: R. B. Catell - $26,755, W. P. Parker Jr. -
$7,618, R. J. Fani - $4,411 S. L. Zelkowitz - $7,804 and G. Luterman -
$14,140.
(6) Amounts are also comprised of the value of a 20% match provided by the
Company on amounts deferred by the Named Executive Officers into the
Officers' Deferred Stock Unit Plan. The amounts attributable to each of the
Named Executive Officers are as follows: R. B. Catell - $28,474, W. P.
Parker Jr. - $19,194, R. J. Fani - $15,318, S. L. Zelkowitz - $13,408 and
G. Luterman - $7,684.
(7) The Named Executive Officer also received 5,000 initial stock options
granted by Houston Exploration upon such persons election as a director of
Houston Exploration.
9
COMPENSATION AND NOMINATING COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Nominating Committee (the "Committee") of the Board of
Directors, composed of five independent, non-employee directors, administers
KeySpan's executive and director compensation programs. The members of the
Committee are Donald H. Elliott, James R. Jones, James L. Larocca, Stephen W.
McKessy and Edward D. Miller serving as chairperson. None of such members is or
has been an officer or employee of KeySpan or any of its subsidiaries. The
Committee operates under a written charter adopted by the Board of Directors and
attached to this Proxy Statement as Appendix D.
During 2002, the Committee met seven times and directly engaged the HayGroup, a
national compensation consultant, to review competitive best practices and
emerging trends in both the energy and utility sector, as well as general
industry compensation levels in order to review the compensation for KeySpan's
directors and officers, including the Named Executive Officers, and to provide
advice with respect to incentive compensation plan matters. As part of the
HayGroup review process, the Committee completed a comprehensive assessment of
KeySpan's director and executive compensation programs to ensure that KeySpan's
compensation philosophy and programs are consistent with best practices and
provide a reasonable level of total compensation to the directors and officers.
The Committee reviews, recommends and approves changes to the Company's
compensation policies and programs for the Chief Executive Officer, the Named
Executive Officers, directors, 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 and director compensation are submitted to the entire
Board for ratification when necessary.
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 being the premier energy company in the
Northeast. 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:
o The executive compensation program should emphasize pay for
performance and encourage retention of those employees who enhance
KeySpan's performance;
o Compensation arrangements will maintain a reasonable balance between
base salary, annual and long- term equity-based incentive compensation
and be designed to focus such executives on the long-term interests of
the shareholders and creating value for the shareholders;
o The incentive compensation program for executives should strengthen
the link of incentive compensation to the achievement of financial and
strategic objectives, which are set in advance by the Committee;
o In determining executive compensation levels for base salary, annual
and long-term compensation, the compensation levels should be
competitive with compensation levels for executive positions of
similar scope for general industry in the metropolitan New York City
and Boston areas, 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 HayGroup
to review the compensation levels of executives in the energy industry, and in
the regional and national marketplace. In addition, the Committee reviews
compensation data for executive positions comparable in scope to those in
general industry companies in the metropolitan New York City and Boston areas.
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.
10
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. Base salary increases based upon
performance have been determined on an annual basis. Effective January 1, 2002,
the Committee and the Board approved an increase in Mr. Catell's annual base
salary to $938,000. 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.
Based upon an assessment of the emerging trends in the energy industry, and the
Committee's desire to place more emphasis upon achieving annual and long-term
performance results, the Committee has determined that Mr. Catell, the Named
Executive Officers and other executive officers will not receive base salary
increases during 2003.
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
2002, the performance measurement period included the twelve-month period from
January 1, 2002 to December 31, 2002. The awards for this period were paid in
March 2003. 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 Corporate Plan is intended to improve
shareholder return and corporate performance and includes goals which encourage
growth in earnings per share, improved cash flow, corporate earnings,
competitive positioning, customer satisfaction, control of operating expenses
and other strategic initiatives. In addition, a corporate diversity measure was
included as a performance measure in the Corporate Plan. Incentive awards as a
percentage of cumulative salary paid in connection with 2002 results 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 2002 Corporate Plan provided for award opportunities to executives which
ranged from zero, if below target performance levels, up to 80% of cumulative
paid salary at target performance levels, with a maximum award potential of 160%
of cumulative paid salary at maximum performance levels. For 2002, the Chief
Executive Officer had a target award level of 80% of cumulative paid salary with
performance criteria based upon consolidated earnings per share, cash flow,
customer satisfaction, diversity and other strategic initiatives. Based upon
actual 2002 results, an award payout of 116% of cumulative paid salary was
approved by the Committee and paid in March 2003. The amount reflected in the
Summary Compensation table that was paid in March 2002 for performance during
2001 represented a payout of 32% of cumulative paid salary. Upon the
recommendation of the HayGroup and the approval of the Committee and the Board,
for the year 2003, the Chief Executive Officer's target award remains at 80% of
cumulative paid salary. All executives in the Corporate Plan have a portion of
their incentive award linked directly to overall corporate performance goals and
to the results achieved in their respective strategic business group.
11
Pursuant to the Officers' Deferred Stock Unit Plan and consistent with the
Company's desire to increase officer stock ownership, 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 under the Corporate Plan to
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 DSUs
must be deferred until retirement or resignation and are payable in Common
Stock. The match on the deferral is also payable in Common 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. The Chief Executive Officer elected to defer 50% of his 2001 annual
award, paid in March 2002 and 50% of his 2002 annual award, paid in March 2003,
into a DSU account.
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 HayGroup'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. On
May 10, 2001, shareholders approved an amendment to the Incentive Plan which
increased the authorized shares to a total of 19,250,000. As of March 5, 2003,
approximately 14,221,285 stock options, 127,408 restricted shares and 189,500
performance shares have been awarded under the Incentive Plan.
The Incentive Plan provides for the award of incentive stock options,
non-qualified stock options, performance shares and restricted shares to key
employees, 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
goals 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 September 26, 2002, the Board
of Directors adopted upon the Committee's recommendation, Statement of Financial
Accounting Statement ("SFAS") 123 and began expensing stock options
prospectively commencing in 2003.
On March 1, 2002, based upon the performance of the Chief Executive Officer, the
Committee approved a grant to Mr. Catell of 372,000 non-qualified stock options
to purchase Common Stock at an exercise price of $32.66 (vesting over a three or
five-year period, depending upon Company performance, or pro-rata upon
retirement using the full months of employment from the grant date to
retirement, divided by 36 months). In addition, Mr. Catell was also awarded
13,295 shares of restricted stock, which included a share price performance
target linked to the lapse of restrictions. The minimum restriction period is
two years. If the target share price is met at any time during years three and
four, the restrictions will lapse. However, if the target is not achieved by the
end of the fourth year, restrictions will not lapse until the end of the sixth
year. In the event of retirement, the restrictions on the shares granted will
lapse on a pro-rata basis using the full months of employment from the grant
date to retirement, divided by 48 months.
Since 2001, the option award process has included a performance goal feature in
the stock option vesting schedule for officers 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.
Options were granted with a five-year pro-rata vesting schedule, rather than the
traditional three-year pro-rata vesting schedule. If KeySpan achieves its TSR
goal at the end of the three-year performance period, then those options that
are not yet vested will vest immediately. If the TSR goal is not achieved in
year three, the remaining unvested options will continue to vest on the
five-year schedule.
Beginning in 2003, in order to further align the interests of executive officers
to those of the shareholders, awards of performance shares to officers were
approved by the Committee and the Board. Performance shares have been granted
with a three-year performance period with a threshold, target and maximum
performance level. Consistent with the stock option performance goal,
performance shares will be measured by comparing KeySpan's cumulative three-year
TSR. At threshold performance, 50% of the award shall be earned; at target, 100%
of the award shall be earned; and at maximum, 150% of the award shall be earned.
If the threshold level of performance is not achieved all shares granted
12
shall be forfeited. In the event of retirement, performance shares shall be
distributed based upon results achieved at the end of the performance period and
pro-rated through the date of retirement.
On March 5, 2003, the Committee approved a grant to Mr. Catell of 208,800
non-qualified stock options to purchase Common Stock at an exercise price of
$32.40 and 32,700 performance shares. The options shall vest over a three or
five-year period, depending upon the Company's performance under the TSR goal.
The goal for the three-year TSR has been set at the median of the S&P Utility
Group. In the event of retirement, the options shall vest pro-rata using the
number of full months of employment from the grant date to retirement, divided
by 36 months.
During 2003, an aggregate of 1,194,200 non-qualified stock options and 188,500
performance shares were granted to all officers as a group. The grants of
non-qualified stock options and performance shares 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 performance based stock options and performance
shares are directly linked to KeySpan's shareholder value. Consistent with this
philosophy, the Committee has adopted stock ownership guidelines for directors
and officers relating to their ownership of KeySpan Common Stock. These
guidelines encourage increased ownership of KeySpan Common Stock and the
retention of underlying shares upon the exercise of stock options by directors
and officers. Pursuant to the guidelines, it is encouraged that the officers of
the Company should have ownership of KeySpan Common Stock based upon a multiple
of their base salary which has been set at one times base salary at the Vice
President level to up to five times base salary for the Chairman and Chief
Executive Officer. These ownership levels should be reached within five years
from the adoption of these guidelines. Officers not currently meeting the
guidelines are encouraged when exercising stock options to retain a portion of
the after-tax gain of such transaction in KeySpan Common Stock. As owners of
KeySpan Common Stock, executives are fully aligned with the interests of our
shareholders and the future success of KeySpan.
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 are not
subject to the $1,000,000 annual limit if certain requirements are satisfied.
Although the Company's compensation policy is generally designed to relate
compensation to performance, certain payments do not meet such requirement
because they allow the Committee and the Board to exercise discretion in setting
compensation. The Committee is of the opinion that it is in the Company's best
interest for the Committee and the Board to retain discretion in order to
preserve flexibility in compensating such executive officers, especially in
light of an increasingly competitive marketplace.
Conclusion
The Committee believes that KeySpan's executive compensation policies and
programs serve both the interests of KeySpan and its shareholders effectively.
The various compensation programs are appropriately balanced to provide the
motivation for executives to contribute to KeySpan's overall success and enhance
the value of KeySpan for the shareholders' benefit, and are consistent with
compensation programs for companies of similar size in both the utility and
energy industry segments.
The Committee will continue to monitor the effectiveness of KeySpan's total
compensation program to meet the current and the future needs of KeySpan.
Compensation and Nominating Committee
Edward D. Miller, Chairperson James L. Larocca
Donald H. Elliott Stephen W. McKessy
James R. Jones
13
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on stock option grants during 2002 for
the Named Executive Officers and the grant date present value of such officers'
unexercised options at December 31, 2002:
Number of Percent of Total Option Grant Date
Securities Number of Exercise Present Value of
Underlying Options Granted Price Expiration Options(2)
Name Options Granted(1) to Employees ($/Share) Date ($)
- ----------------- ------------------------- ----------------------- ----------------- ---------------------- --------------------
R.B. Catell 372,000 14% 32.66 Feb. 29, 2012 1,268,520
- ----------------- ------------------------- ----------------------- ----------------- ---------------------- --------------------
W.P. Parker Jr. 120,000 4.5% 32.66 Feb. 29, 2012 409,200
- ----------------- ------------------------- ----------------------- ----------------- ---------------------- --------------------
R.J. Fani 120,000 4.5% 32.66 Feb. 29, 2012 409,200
- ----------------- ------------------------- ----------------------- ----------------- ---------------------- --------------------
S.L. Zelkowitz 82,000 3.1% 32.66 Feb. 29, 2012 279,620
- ----------------- ------------------------- ----------------------- ----------------- ---------------------- --------------------
G. Luterman 82,000 3.1% 32.66 Feb. 29, 2012 279,620
- ----------------- ------------------------- ----------------------- ----------------- ---------------------- --------------------
(1) Options vest ratably over a five-year period with the first one-fifth
having vested on March 1, 2003 (accelerated vesting in third year
applies upon achievement of certain prescribed goals).
(2) Options have been valued using the Black-Scholes option pricing model
adapted to reflect the specific provisions of the 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.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END STOCK
OPTION VALUES
The following table provides information on aggregated stock option exercises in
2002 and fiscal year end option values for the Named Executive Officers:
Shares
Acquired Number of Securities Underlying Value of In-The-Money
on Value Unexercised Options at Fiscal Year End Options at Fiscal Year End
Name Exercise Realized ---------------------------------------- --------------------------------------------
Exercisable Unexercisable Total Exercisable Unexercisable Total
- -----------------------------------------------------------------------------------------------------------------------------------
R.B. Catell 0 $0 1,228,201 760,600 1,988,801 $9,930,293 $3,189,260 $13,119,553
- -----------------------------------------------------------------------------------------------------------------------------------
W. P. Parker Jr. 0 $0 175,374 224,227 399,601 $1,318,947 $840,438 $2,159,385
- -----------------------------------------------------------------------------------------------------------------------------------
R.J. Fani 0 $0 104,307 224,227 328,534 $1,434,330 $840,438 $2,274,768
- -----------------------------------------------------------------------------------------------------------------------------------
S. L. Zelkowitz 0 $0 131,000 171,667 302,667 $1,340,224 $742,398 $2,082,622
- -----------------------------------------------------------------------------------------------------------------------------------
G. Luterman 0 $0 148,800 171,667 320,467 $1,923,668 $211,560 $2,135,228
- -----------------------------------------------------------------------------------------------------------------------------------
14
Security Ownership of Management
The following table sets forth information as of March 10, 2003, with respect to
the number of shares of Common Stock beneficially owned, Common Stock
equivalents and performance shares 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.
Name of Common Stock Common Stock Performance Total of Common Percent of
Beneficial Owner Beneficially Equivalents or Shares(2) Stock Beneficially Class
Owned Deferred Stock Owned, Stock Equivalents Outstanding
Units(1) and Performance Shares if greater
than 1%
- ----------------------------------------------------------------------------------------------------------------------------------
R. B. Catell 1,602,835(3)(4) 5,146 32,700 1,640,681(3)(4) 1%
- ----------------------------------------------------------------------------------------------------------------------------------
A. S. Christensen 12,639(5) 11,857 0 24,496(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
D. H. Elliott(6) 9,991(5) 23,925 0 33,916(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
R. J. Fani 196,016(3)(7) 2,768 10,900 209,684(3)(7) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
A. H. Fishman 12,257(5) 14,525 0 26,782(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
J. A. Ives 68,762(5)(8) 2,793 0 71,555(5)(8) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
J. R. Jones 10,182(5) 5,944 0 16,126(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
J. L. Larocca 13,350(5) 7,983 0 21,333(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
G. Luterman 222,997(3)(9) 1,389 6,800 231,186(3)(9) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
S. W. McKessy 10,310(5) 11,841 0 22,151(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
E. D. Miller 17,792(5) 17,470 0 35,262(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
W. P. Parker Jr. 269,110(3) 3,469 10,900 283,479(3) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
E. Travaglianti 8,825(5) 6,774 0 15,599(5) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
S. L. Zelkowitz 208,730(3) 2,423 6,800 217,953(3) N/A
- ----------------------------------------------------------------------------------------------------------------------------------
All directors and 2,746,603 134,277 137,200 3,018,080 1.75%
executives as a
group, including
those named
above, a total of
29 persons.
- ----------------------------------------------------------------------------------------------------------------------------------
(1) 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.
The term "Deferred Stock Units" also 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 Officers' Deferred Stock Unit Plan.
(2) Performance shares have been granted with a three-year performance period
with a threshold, target and maximum performance level. At threshold
performance, 50% of the award shall be earned; at target, 100% of the award
shall be earned; and at maximum, 150% of the award shall be earned.
(3) 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 - 1,531,001 shares; Mr. Fani - 185,614
shares; Mr. Parker - 256,681 shares; Mr. Luterman - 218,867 shares; and Mr.
Zelkowitz - 201,067 shares.
(4) Mr. Catell also owns 4,000 shares of common stock of Houston Exploration
and 17,000 shares issuable pursuant to options of Houston Exploration that
are currently exercisable.
(5) Includes 7,900 shares issuable pursuant to options that are currently
exercisable and 925 shares of restricted stock. (6) Effective May 8, 2003,
Mr. Elliott will retire as a director of the Company. (7) Mr. Fani also
owns 7,000 shares of Houston Exploration issuable pursuant to options that
are currently exercisable. (8) Includes 55,390 shares issuable pursuant to
options that were granted by Eastern Enterprises and were converted to
KeySpan options. The options fully vested on November 8, 2000 and are
currently exercisable.
(9) Mr. Luterman also owns 11,000 shares of Houston Exploration issuable
pursuant to options that are currently exercisable.
15
PERFORMANCE GRAPH
The following graph presents, for the period beginning May 28, 1998 through
December 31, 2002, a comparison of cumulative total shareholder returns for
KeySpan, the Standard & Poor's Utilities Index and the Standard & Poor's 500
Index.
[PERFORMANCE GRAPH]
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
December 31, 2001 December 31, 2002
----------------- -----------------
KeySpan $124.53 $133.08
S&P Utilities Index $ 92.33 $ 71.06
S&P 500 Index $110.48 $ 86.13
Assumes $100 invested on May 28, 1998 in shares of KeySpan Common Stock, the S&P
Utilities Index and the S&P 500 Index, and that all dividends were reinvested.
16
COMPENSATION UNDER RETIREMENT PLANS
The Company's retirement plan provides retirement benefits based upon the
individual participant's years of service and final average annual compensation
(as defined below). The following table sets forth the estimated annual
retirement benefits (exclusive of Social Security payments) payable to
participants in the specified compensation and years-of-service categories,
assuming continued active service until normal retirement age and that the
Company's retirement plan is in effect at such time.
Benefits ($)
Years of Service
-------------------------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35 40 45 50
------------
($)
------------- ------------- ------------- ------------ ------------- ------------- ---------------- ---------------
200,000. . . . 45,000 60,000 75,000 90,000 105,000 120,000 135,000 150,000
275,000. . . . 61,875 82,500 103,125 123,750 144,375 165,000 185,625 206,250
350,000. . . . 75,750 105,000 131,250 157,500 183,750 210,000 236,500 262,500
425,000. . . . 95,625 127,500 159,375 191,250 223,125 255,000 286,875 318,750
500,000. . . . 112,500 150,000 187,500 225,000 262,500 300,000 337,500 375,000
575,000. . . . 129,375 172,500 215,625 258,750 301,875 345,000 388,125 431,250
650,000. . . . 146,250 195,000 243,750 292,500 341,250 390,000 438,750 487,500
725,000. . . . 163,125 217,500 271,875 326,250 380,625 435,000 489,375 543,750
800,000. . . . 180,000 240,000 300,000 360,000 420,000 480,000 540,000 600,000
875,000. . . . 196,875 262,500 328,125 393,750 459,375 525,000 590,625 656,250
950,000. . . . 213,750 285,000 356,250 427,500 498,750 570,000 641,250 712,500
1,025,000. . . . 230,625 307,500 384,375 461,250 538,125 615,000 691,875 768,750
1,100,000. . . . 247,500 330,000 412,500 495,000 577,500 660,000 742,500 825,000
1,175,000. . . . 264,375 352,500 440,625 528,750 616,875 705,000 793,125 881,250
1,250,000. . . . 281,250 375,000 468,750 562,500 656,250 750,000 843,750 937,500
1,325,000. . . . 298,125 397,500 496,875 596,250 695,625 795,000 894,375 993,750
1,400,000. . . . 315,000 420,000 525,000 630,000 735,000 840,000 945,000 1,050,000
1,475,000. . . . 331,875 442,500 553,125 663,750 774,375 885,000 995,625 1,106,250
1,550,000. . . . 348,750 465,000 581,250 697,500 813,750 930,000 1,046,250 1,162,500
1,625,000. . . . 365,625 487,500 609,375 731,250 853,125 975,000 1,096,875 1,218,750
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 R. B. Catell, the Chairman and Chief
Executive Officer, based on continued service to age 69 and pursuant to the
terms of his employment agreement, will result in Mr. Catell retiring with 47
years of service. The number of years of credited service for each of the other
Named Executive Officers based on continued service with the Company to age 65,
normal retirement age, will be as follows: W. P. Parker Jr. - 43 years, R. J.
Fani - 42 years, S.L. Zelkowitz - 17 years and G. Luterman - 10 years.
The Code limits the annual compensation taken into consideration for, and the
maximum annual retirement benefits payable to, a participant under the Company's
retirement plan. For 2002, these limits were $200,000 and $160,000,
respectively. Annual retirement benefits attributable to amounts in excess of
these limits are provided for under the Company's excess benefit plan and not
under the Company's retirement plan.
17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Messrs. Elliott, Jones, Larocca, McKessy or Miller, the current members
of the Compensation and Nominating Committee nor Mr. James Riordan, who retired
from the Board and the Compensation and Nominating Committee on May 9, 2002 is
an officer or employee, or former officer or employee, of KeySpan or any of its
subsidiaries. No interlocking relationship exists between the members of
KeySpan's Board or Compensation and Nominating Committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
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 on February 24, 2000 and June 26, 2002. The agreement covers the
period beginning July 31, 1998 and ending July 31, 2005. 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.
The Company has entered into a supplemental retirement agreement with Mr.
Zelkowitz. The agreement provides one year of credited service for each year
worked, up to a maximum of ten years, in the calculation of pension benefits.
The maximum enhancement would provide an incremental benefit of 15% of the
executive's final five-year average earnings under the current pension plan
formula. In addition, at retirement, Mr. Zelkowitz will receive Company paid
medical and dental coverage at the same level of employee contribution in effect
at retirement, which will be grossed up for federal and state taxes. Mr.
Zelkowitz must remain employed through December 2006 in order to fully vest in
this benefit. For retirement prior to this date, the benefit will vest pro-rata
over a five-year period or 20% per year. The earliest Mr. Zelkowitz may be
eligible for a pro-rata benefit will be on October 1, 2003, the date he vests in
the Company's retirement plan. If there is a change-in-control, termination
without cause, or if Mr. Zelkowitz resigns for good reason, then the five-year
vesting requirement will be waived and Mr. Zelkowitz will immediately vest in
all additional service provided for in this agreement.
The Company has entered into a supplemental retirement agreement with Mr.
Luterman. The agreement provides that Mr. Luterman will receive an annual
supplemental retirement amount determined by multiplying Mr. Luterman's
qualified and non-qualified pension accruals at age 62 by 35%. This annual
supplemental amount will be aggregated with his actual qualified and
non-qualified pension benefit at his retirement date. In addition, at
retirement, Mr. Luterman will receive Company paid medical and dental coverage
at the same level of employee contribution in effect at retirement, which will
be grossed up for federal and state taxes. Mr. Luterman must remain employed
through June 2005 in order to vest fully in this benefit. For retirement prior
to this date, the supplemental amount will vest pro-rata over a three-year
period. The earliest Mr. Luterman may be eligible for a pro-rata benefit will be
on June 2003. If there is a change-in-control, termination without cause, or if
Mr. Luterman resigns for good reason, then the three-year vesting requirement
will be waived and Mr. Luterman will immediately vest in all additional service
provided for in this agreement.
18
Senior Executive Change of Control Severance Plan
As of April 1, 2003, with the exception of Mr. Catell, 53 officers of the
Company and certain subsidiaries will participate in the Senior Executive Change
of Control Severance Plan (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
any President, any Executive Vice President 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.
Security Ownership of Certain Beneficial Owners
As of March 10, 2003, there were no beneficial owners of more than 5% of the
Company's Common Stock.
19
PROPOSAL 2. RATIFICATION OF DELOITTE & TOUCHE 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
Deloitte & Touche LLP ("Deloitte & Touche"), as independent public accountants
to audit the books, records and accounts of KeySpan and its subsidiaries for the
year ending December 31, 2003.
Arthur Andersen LLP ("Arthur Andersen") served as KeySpan's independent public
accountants from May 1998 through March 29, 2002, when KeySpan's Board of
Directors, upon recommendation of the Audit Committee, determined not to renew
the engagement of Arthur Andersen and appointed Deloitte & Touche as independent
public accountants. During the fiscal years ended 2000 and 2001 and the
subsequent interim period through March 29, 2002, there were no reports on the
financial statements of the Company by Arthur Andersen that contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope, or accounting principles. During the fiscal years
ended 2000 and 2001and the subsequent interim period through March 29, 2002,
there were no disagreements with Arthur Andersen 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, would
have caused the firm to make reference to the subject matter of such
disagreements in connection with its report.
A representative of Deloitte & Touche will attend the Annual Meeting, be
available to answer shareholder questions and 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.
FISCAL YEAR 2002 AUDIT FIRM FEE SUMMARY
The following table provides information on the aggregate fees billed for
services performed by Deloitte & Touche LLP, the member firms of Deloitte &
Touche Tohmatsu, and their respective affiliates for the year ended December 31,
2002:
Audit Fees $ 1,822,925
Financial Information Systems
Design and Implementation Fees $ 0
All Other Fees $ 969,775 (1)
---------
Total $ 2,792,700
(1) All other fees were generally comprised of fees for audit related services,
tax services and the performance of agreed upon procedures. Audit related
fees were approximately $310,875 and were for services generally related to
benefit plans, statutory audits of subsidiaries, and comfort letters. Tax
service fees were approximately $280,300 and generally include services to
perform tax consultation and tax services. Approximately $378,600 of other
fees were related to the performance of agreed upon procedures.
The Audit Committee has reviewed the nature and scope of the services provided
by Deloitte & Touche and considers such to have been compatible with the
maintenance of Deloitte & Touche's independence throughout its service to the
Company.
20
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of KeySpan is composed of five
non-employee directors. The members of the Audit Committee are independent as
such term is defined in the rules of the New York Stock Exchange and Securities
and Exchange Commission (the"SEC"). The Chair and two other members of the Audit
Committee have accounting or related financial management expertise. The Audit
Committee operates under a written charter adopted by the Board of Directors and
attached to this Proxy Statement as Appendix C.
Pursuant to its Charter, the Audit Committee provides oversight with respect to
the quality and integrity of the Company's financial statements; compliance with
legal and regulatory requirements; the independent auditor's qualifications and
independence; the performance of the Company's internal audit function and
independent auditors, the business practices and ethical standards of the
Company and the preparation of all reports required to be included in the
Company's annual Proxy Statement.
Additionally, in accordance with the Audit Committee Charter, the Audit
Committee reviews the scope of the audit and approves the nature and cost of all
audit and non-audit services. Non-audit services must be approved in advance of
the rendering of services. The Audit Committee has reviewed the nature and scope
of the services provided by Deloitte & Touche and considers such to have been
compatible with the maintenance of Deloitte & Touche's independence throughout
its service to the Company.
The Audit Committee has also determined that the scope of services to be
provided by Deloitte & Touche in 2003 will generally be limited to audit and
audit related services and tax services. The Audit Committee will expressly
approve the provision of any services by Deloitte & Touche outside the scope of
the foregoing services. Notwithstanding the foregoing, pre-approval is not
necessary for minor non-audit services if: (i) the aggregate amount of all such
non-audit services provided to the Company constitutes not more than five
percent of the total amount of revenues paid by the Company to its auditor
during the fiscal year in which the non-audit services are provided; (ii) such
services were not recognized by the Company at the time of the engagement to be
non-audit services; and (iii) such services are promptly brought to the
attention of the Committee and approved prior to the completion of the audit by
the Committee or its Chairman pursuant to delegated authority.
We have reviewed and discussed with management the Company's audited financial
statements as of, and for, the year ended December 31, 2002.
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 ourselves 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 Company's Annual Report on Form 10-K for the year ended December
31, 2002.
Audit Committee
Andrea S. Christensen James L. Larocca
Alan H. Fishman, Chairman Edward Travaglianti
Stephen W. McKessy
21
PROPOSAL 3. AMENDMENTS TO THE EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
The Board of Directors has approved and is unanimously recommending that the
shareholders approve amendments to the KeySpan Employee Discount Stock Purchase
Plan (the "Stock Plan") to: (i) increase the number of shares of Common Stock
authorized for issuance under the Stock Plan by 1,000,000 shares to an aggregate
of 1,750,000 shares and (ii) modify the pricing methodology for any purchase
made on or after July 1, 2003 by using the average of the high and low price per
share of KeySpan Common Stock on the first trading day of the month following
the month of contribution to the Stock Plan.
Reason for Amendment
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 KeySpan Common
Stock. As of December 31, 2002, approximately 4,300 employees participate in the
Stock Plan and approximately 422,000 shares have been issued under the Stock
Plan. There remains only 328,000 shares available for issuance under the Stock
Plan. An increase in the number of shares authorized pursuant to the Stock Plan
is necessary in order to meet the anticipated needs of the Stock Plan in the
coming years. Since KeySpan's acquisition of Eastern Enterprises in November
2000, KeySpan has grown its employee base from approximately 7,800 employees to
over 13,000 employees. As a result of our expanded employee base and increased
interest on the part of our employees in participating in the Stock Plan, we
anticipate that we will exceed our current authorized shares pursuant to the
Stock Plan in the second quarter of 2004. Therefore, it is recommended that the
number of shares of Common Stock authorized for issuance under the Stock Plan be
increased by 1,000,000 shares to an aggregate of 1,750,000 shares. Additionally,
the amendment seeks to modify the pricing methodology used for the Stock Plan
for any purchase made on or after July 1, 2003, by using the average of the high
and low price per share of KeySpan Common Stock on the first trading day of the
month following the month of contribution to the Stock Plan. Currently, the
Stock Plan provides for purchases on a quarterly basis based on the lower of the
average of the high and low price per share of KeySpan Common Stock on either
the first or last business day of the prior quarter. The amendment to the
pricing methodology is recommended as a result of the Company's change in
accounting policy through the implementation of SFAS 123. Such change will
result in an incremental accounting expense under FAS 123. In order to minimize
this incremental accounting expense, it is recommended that the Stock Plan adopt
the new pricing methodology.
Description of the Stock Plan
The Stock Plan was originally approved by the shareholders at the 1999 Annual
Meeting and an amendment to increase the number of authorized shares was
approved at the 2001 Annual Meeting. The Stock Plan, with the proposed
amendments, will provide that effective July 1, 2003, eligible employees may
purchase Common Stock on a monthly basis whereby the price will be up to 85% of
the average of the high and low price per share of KeySpan Common Stock on the
first trading day of the month following the month of contribution to the Stock
Plan. Although the Stock Plan may offer up to an 15% discount, only a discount
of 10% of such price is currently being offered to participants in the Stock
Plan. 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; and (iv) non-employee directors.
Employees will be able to purchase shares by payroll deduction. 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.
22
The proceeds received by the Company from purchases under the Stock Plan are
used for general corporate purposes or for the purchase of shares on the open
market on behalf of a participant.
On March 10, 2003, the closing price of KeySpan's Common Stock as reported on
the NYSE listing of composite transactions was $31.88 per share.
The following resolution will be proposed for approval by the shareholders of
KeySpan's Common Stock:
RESOLVED, that the Employee Discount Stock Purchase Plan, be amended to:
(i) increase the number of shares of Common Stock authorized for issuance under
the Stock Plan by 1,000,000 shares to an aggregate of 1,750,000 shares and (ii)
modify the pricing methodology for any purchase made on or after July 1, 2003 by
using the average of the high and low price per share of KeySpan Common Stock on
the first trading day of the month following the month of contribution to the
Stock Plan.
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.
NEW PLAN BENEFITS
Participation in the Stock Plan is on a voluntary basis and, therefore, future
participation in the Stock Plan cannot be determined. Accordingly, the benefits
and amounts received pursuant to the Stock Plan cannot be determined. During
2002, the Named Executive Officers purchased the following number of shares
under the Stock Plan: R. B. Catell - 159 shares, W. P. Parker Jr. - 139 shares,
R. J. Fani - 677 shares, S.L. Zelkowitz - 576 shares and G. Luterman - 459
shares. The executive officers as a group purchased 7,448 shares and all other
employees as a group purchased 213,145 shares. Non-employee directors are not
eligible to participate in the Stock Plan.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth securities authorized for issuance under equity
compensation plans for the year ended December 31, 2002:
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under
upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Stock Plan category warrants and rights warrants and rights reflected in column (a))
- ------------------- ------------------- ------------------- ------------------------
(a) (b) (c)
Equity compensation 9,549,039(1) $25.37 7,031,761
plans approved by
security holders.....
Equity compensation 44,293(2) N/A (3)
plans not approved
by security holders..
Total.......... 9,593,332 $25.37 7,031,761(3)
(1) Includes grants of options and restricted stock pursuant to KeySpan's
Long-Term Incentive Compensation Plan, as amended, and options granted
pursuant to the Brooklyn Union Long-Term Incentive Compensation Plan and
options granted pursuant to the Eastern Enterprises 1995 Stock Option Plan
and the Eastern Enterprises 1996 Non-Employee Trustee's Stock Option Plan,
as well as 328,000 shares of Common Stock issued pursuant to the Stock
Plan.
(2) Represents Deferred Stock Units issued pursuant to the Officers' Deferred
Stock Unit Plan.
(3) There is no set limit on the number of Deferred Stock Units issuable
pursuant to the Officers' Deferred Stock Unit Plan or the KeySpan Services
Inc. Officers' Deferred Stock Unit Plan.
23
Directors' Deferred Compensation Plan
The Directors' Deferred Compensation Plan provides all non-employee directors
with the opportunity to defer any portion of their cash compensation received as
directors, up to 100%, in exchange for Common Stock equivalents or cash
equivalents. Common Stock equivalents are valued by utilizing the average of the
high and low price per share of KeySpan common stock on the first trading day of
the month following the month in which contributions are received. Dividends are
paid on Common Stock equivalents in the same proportion as dividends paid on
Common Stock. Compensation not deferred and exchanged for Common Stock
equivalents, may 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 Common Stock equivalent account and/or cash account
shall, at the 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. The non-employee directors
are not entitled to benefits under any KeySpan retirement plan.
Officers' Deferred Stock Unit Plan
The Officers' Deferred Stock Unit Plan allows certain executives of the Company
and its wholly owned subsidiaries to elect to defer between 10% to 50% of their
annual cash bonus award and purchase deferred stock units ("DSUs"), which track
the performance of the Company's Common Stock but do not possess voting rights.
Executives also receive a 20% match by the Company on the amount deferred in
each year. The DSUs must be deferred until retirement or resignation and are
payable in Common Stock. The match on the deferral is also payable in Common
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.
KeySpan Services Inc. Officers' Deferred Stock Unit Plan
The KeySpan Services Inc. Officers' Deferred Stock Unit Plan allows certain
officers of KeySpan Services Inc.and its wholly owned subsiadiries, to elect to
defer between 10% to 50% of their annual cash bonus award and purchase DSUs
which track the performance of the Company's Common Stock but do not possess
voting rights. Executives also receive a 20% match by the Company on the amount
deferred in each year. The DSUs must be deferred until retirement or resignation
and are payable in Common Stock. The match on the deferral is also payable in
Common 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.
24
PROPOSAL 4. SHAREHOLDER PROPOSAL
The following shareholder proposal has been submitted by Mr. Emil Rossi. The
address and stock ownership of Mr. Rossi will be furnished by the Corporate
Secretary to any person, orally or in writing as requested, promptly upon
receipt of any oral or written request therefor. Mr. Rossi has advised the
Company that either he, or his designee, plan to present the following proposal
at the Annual Meeting:
The proposal:
Shareholder Vote on Poison
Pills This topic won an average 60% - yes vote at 50 companies in 2002
This is to recommend that the Board of Directors redeem any poison pill
previously issued (if applicable) and not adopt or extend any poison pill unless
such adoption or extension has been submitted to a shareholder vote.
The following statement has been provided in support of this shareholder
proposal:
Harvard Report
A 2001 Harvard Business School study found that good corporate governance (which
took into account whether a company has a poison pill) was positively and
significantly related to company value. This study, conducted with the
University of Pennsylvania's Wharton School, reviewed the relationship between
the corporate governance index for 1,500 companies and company performance from
1990 to 1999.
Some believe that a company with a good governance will perform better over
time, leading to a higher stock price. Others see good governance as a means of
reducing risk, as they believe it decreases the likelihood of bad things
happening to a company.
Since the 1980s Fidelity, a mutual fund giant with $800 billion invested, has
withheld votes for directors at companies that have approved poison pills, Wall
Street Journal, June 12, 2002.
Council of Institutional Investors Recommendation
The Council of Institutional Investors www.cii.org an organization of 120
pension funds which invests $1.5 trillion, called for shareholder approval of
poison pills. In recent years, various companies have been willing to redeem
existing poison pills or seek shareholder approval for their poison pill. This
includes Columbia/HCA, McDermott International and Bausch & Lomb. I believe that
our company should follow suit and allow shareholder participation.
Shareholder Vote on Poison Pills
Yes on 4
The affirmative vote of a majority of the votes cast at the meeting is required
for approval of this proposal.
THE BOARD OF DIRECTORS WILL OPPOSE THIS PROPOSAL IF IT IS INTRODUCED AT THE 2003
ANNUAL MEETING AND RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING
REASONS:
25
The Board of Directors Statement in Opposition
KeySpan's Board of Directors unanimously recommends that the shareholders vote
against Mr. Rossi's proposal. In 1999, after carefully considering its fiduciary
duties to shareholders and after consultation with outside legal counsel and
financial advisors, the Board adopted the Shareholder Rights Plan or a poison
pill (described in this Proxy Statement under the caption "Shareholder Rights
Plan") in order to protect KeySpan's shareholders against hostile takeovers and
inadequate offers and to ensure that each shareholder is treated fairly in any
transaction involving an acquisition of control of the Company.
The purpose of the Shareholder Rights Plan or poison pill is to strengthen the
Board of Directors' ability, in the exercise of their fiduciary duties, by
forcing any would be acquirer to negotiate directly with the Board of Directors
in order to preserve and maximize the Company's value for all shareholders. A
major function of the Shareholder Rights Plan or poison pill is to give the
Board of Directors a greater period of time within which it can properly
evaluate an acquisition offer to determine whether it reflects the full value of
the Company and is fair to all shareholders, and if not, to reject such offer or
to seek an alternative that meets these criteria. While the Shareholder Rights
Plan or poison pill does not prevent or inhibit the Company from being a
takeover target, it can assist the Board of Directors in delivering the greatest
value to shareholders in the event that it is a takeover target. The Shareholder
Rights Plan or poison pill serves as an important bargaining tool for the Board
to negotiate a transaction with any potential acquirer, and if the shareholder
proposal is adopted it could result in a severe impediment in the ability of the
Board of Director's to use a poison pill in the future when circumstances may
arise and warrant such use. The overriding objective of the Board of Directors
in adopting the Shareholder Rights Plan was, and continues to be, the
preservation and maximization of value for all shareholders.
Numerous other companies, in addition to KeySpan, believe it is in the best
interest of their shareholders to adopt a poison pill. According to an Investor
Responsibility Research ("IRRC") report issued in February 2003, 60% of S&P 500
companies have adopted a shareholder rights plans or another form of poison pill
as of the end of 2002, up slightly from 59.6% in 2001 and 59.1% at the end of
2000. The economic benefits of poison pills was also noted in the IRRC report,
which stated that evidence is increasingly strong that companies with poison
pills in place generally received higher premiums in takeover situations than
those that do not.
The Board of Directors believes that the adoption and maintenance of the
Shareholder Rights Plan or poison pill is in accord with the scope of its
responsibilities under New York law to manage and direct the management of the
Company and is sound corporate governance. The proposal does not address
KeySpan's high corporate governance standards and its commitment to enhance
shareholder value. The Board of Directors believes that it is their
responsibilities, as the elected representatives of the shareholders, to ensure
that KeySpan continues to make every effort to apply best practices to its
corporate governance policies and procedures for the benefit of all
shareholders, and believes that the existence of a poison pill is consistent
with this objective. We believe that it is ill advised for corporate governance
matters to be decided in the abstract, when the decision could obligate the
Company to pursue a course of action in the future without allowing the Board to
engage in a thoughtful analysis of an acquisition offer, given the facts and
circumstances at the time. In fact, limiting the Company's freedom of action in
the future runs directly counter to the fiduciary standards that the Board is
obligated to uphold.
The Board of Directors' commitment has always been, and always will be, to serve
the best interest of our shareholders and believes that implementation of Mr.
Rossi's proposal would not achieve the results sought, but instead could have a
damaging effect on the interests of KeySpan. WE URGE THE SHAREHOLDERS TO VOTE
AGAINST THIS PROPOSAL.
Proxies solicited by the Board of Directors will be so voted unless the
shareholder otherwise specifies.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
John J. Bishar, Jr. was elected Senior Vice President and General Counsel of
KeySpan, effective November 1, 2002. Prior to such date, he was a managing
partner of the law firm of Cullen and Dykman LLP. During 2002, this firm
represented KeySpan in a variety of general and specific matters. The total fees
paid to this firm during 2002 were approximately $4,058,730.
Involvement in Certain Legal 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 and James L. Larocca was serving as a
director of ContiFinancial.
Directors and Officers Liability Insurance and Indemnity
KeySpan has 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, 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, Energy Insurance Mutual Ltd., Zurich Insurance Group,
Federal Insurance Company, The Hartford and STARR Excess for a one-year period
commencing May 28, 2002 at a total cost of $2,655,099. The Company plans on
renewing its D&O liability and fiduciary insurances for a one-year period
commencing May 28, 2003.
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 was 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 of the Company or announces a tender offer following which it would
hold 20% or more of such outstanding Common Stock of the Company. 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 2009.
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 was filed as an
exhibit to KeySpan's Report on Form 8-K dated March 30, 1999.
Legal Proceedings
KeySpan has been cooperating in preliminary inquiries regarding trading in
KeySpan Corporation stock by individual officers of KeySpan prior to the July
17, 2001 announcement that KeySpan was taking a special charge in its Energy
Services business and otherwise reducing its 2001 earnings forecast. These
inquiries are being conducted by the U.S. Attorney's Office, Southern District
of New York and the SEC.
27
As part of its continuing inquiry, on March 5, 2002, the SEC issued a formal
order of investigation, pursuant to which it will review the trading activity of
certain company insiders from May 1, 2001 to the present, as well as KeySpan's
compliance with its reporting rules and regulations, generally, during the
period following the acquisition of the Roy Kay companies through the July 17th
announcement.
Furthermore, KeySpan and certain of its officers and directors are defendants in
a number of class action lawsuits filed in the United States District Court for
the Eastern District of New York after the July 17th announcement. These
lawsuits allege, among other things, violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), in connection
with disclosures relating to or following the acquisition of the Roy Kay
companies by KeySpan Services, Inc., a KeySpan subsidiary and the announcement
of the agreement to acquire Eastern Enterprises and EnergyNorth, Inc. In October
2001, shareholder's derivative actions were commenced in the same court against
certain officers and directors of KeySpan, alleging, among other things,
breaches of fiduciary duty, violations of the New York Business Corporation Law
and violations of Section 20(a) of the Exchange Act. Each of the proceedings
seek monetary damages in an unspecified amount. We filed a motion to dismiss the
class action lawsuits. On March 18, 2003, the court granted our motion to
dismiss. The court's order dismissed certain class allegations with prejudice
but provided the plaintiffs a final opportunity to file an amended complaint
concerning the remaining allegations.
Deadline For Shareholder Proposals
Shareholder proposals for the 2004 Annual Meeting must be received by the
Corporate Secretary at KeySpan's principal executive office at One MetroTech
Center, Brooklyn, New York 11201-3850, Attention: Corporate Secretary, by
December 1, 2003, to be considered by the Company for possible inclusion in the
proxy materials for the 2004 Annual Meeting.
In addition, all shareholder proposals or nominations for election of a director
for the 2004 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 2003 Annual Meeting.
Additional Information
KeySpan's Annual Report for the period ended December 31, 2002 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 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 any
shareholder upon written request to: Corporate Secretary, KeySpan Corporation,
One MetroTech Center, Brooklyn, New York 11201- 3850 or can be found on the
Investor Relations section of the Company's website
(http://www.keyspanenergy.com).
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the 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,
2002, except that certain transactions concerning the acquisition of Common
Stock equivalents pursuant to the Directors' Deferred Compensation Plan should
have been reported on Form 4 reports for all of our non-employee directors, but
were reported on a delinquent basis on Form 5 reports for the period ended
December 31, 2002. Therefore, the Form 5 report filed for Andrea S. Christensen,
Donald H. Elliott, Alan H. Fishman, J. Atwood Ives, James R. Jones, James L.
Larocca, Stephen W. McKessy, Edward D. Miller and Edward Travaglianti included
delinquent Form 4 disclosures.
28
Method and Cost of Solicitation of Proxies
The proxies being solicited hereby are being solicited by the Board of Directors
of the Company. The costs of soliciting proxies will be borne by the Company.
The Company has retained D.F. King & Co., Inc., to aid in the solicitation. For
these services, the Company will pay a fee of $12,500 and reimburse it for
certain out-of-pocket disbursements and expenses. 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 the selection of auditors,
the amendment to the Employee Discount Stock Purchase Plan and the shareholder
proposal on poison pills, abstentions are not counted in determining the number
of votes cast in connection with these proposals since New York 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. 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.
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
29
APPENDIX A
KEYSPAN CORPORATION
CORPORATE GOVERNANCE GUIDELINES
(Amended and Restated September 26, 2002)
BOARD OF DIRECTORS
Size and Composition of the Board
- ---------------------------------
The Board shall consist of a number of directors such that the Corporation is
effectively managed. The number of directors shall be fixed from time to time by
the Board and recorded in the minutes of the Corporation. The Board shall
consist of a majority of members who are deemed to be independent. The Chief
Executive Officer will also be a member of the Board.
Director Independence
- ---------------------
The independence of directors shall be determined by the Board of Directors
under the rules of the New York Stock Exchange, Inc. and the Sarbanes-Oxley Act.
The directors shall complete and submit an annual statement on Ethical Business
Conduct to identify and assess relationships they may have with third parties
(including vendors, service providers, competitors, etc.) that may impact the
Corporation and could be construed as compromising the director's independence.
Board Membership of Former Executive Officers
- ---------------------------------------------
The Board of Directors shall not, as a general rule, have former executive
employees serving on the Board. It is assumed that retiring executives will
tender their resignations as officers and directors, if applicable,
simultaneously. The Board may, at its discretion, invite a retiring executive to
remain a director. To be considered "independent," the retiring executive must
satisfy the "cooling-off" period required by the New York Stock Exchange, Inc.
Board Performance Evaluation
- ----------------------------
The Board shall annually review its performance. The Board shall measure its
results against appropriate criteria defined by the Board, in conjunction with
the recommendations of the C&N Committee. As part of this review, the outside
directors may meet independently to assess the Board's performance.
Director Compensation Review
- ----------------------------
The Corporate Secretary shall prepare, annually, a comprehensive industry
analysis of director's compensation and benefits and submit such findings to the
Chief Executive Officer for review, who will then submit a recommendation to the
Compensation and Nominating Committee for review and approval. Such
recommendation will then be forwarded to the full Board for consideration and
formal vote.
Board Membership Criteria
- -------------------------
The Compensation and Nominating Committee and the Chief Executive Officer shall
be responsible for determining the qualifications of director candidates in the
context of the current composition of the Board.
New Director Candidates Selection
- ---------------------------------
It shall be the responsibility of the Chief Executive Officer in conjunction
with the Compensation & Nominating Committee to recommend to the Board of
Directors nominees to fill Board vacancies and to replace retiring Board
members. The Board of Directors shall elect candidates to the Board.
A-1
Invitations to Director Candidates
- ----------------------------------
An invitation to join the Board shall be communicated by the Chief Executive
Officer on behalf of the entire Board.
Director's Change in Present Job Responsibilities
- -------------------------------------------------
Individual directors who experience changes in employment, careers, affiliations
with organizations or other matters, which may affect the Corporation, have a
duty to advise the Board of such changes or appointment, as applicable. The
specific circumstances will be assessed to determine if the director's
resignation from the Board should be requested.
Retirement Age
- --------------
As a general rule, directors shall retire on the date of the annual meeting of
shareholders following the date of their 70th birthday.
Term Limits
- -----------
There shall be no term limits for directors, who may serve until their
retirement age. The Compensation and Nominating Committee will propose
candidates for election or re-election at the annual meeting of shareholders. A
review of each director's service on the Board will be conducted prior to such
nomination.
Director Contact with the Corporation's Constituencies
- ------------------------------------------------------
Communications with parties external to the Corporation (including but not
limited to shareholders, accountants, the media, attorneys, vendors, service
providers, etc.) shall be the responsibility of the Chief Executive Officer or
delegated by the Chief Executive Officer to the appropriate area of the
Corporation. The directors will be consulted from time to time for their advice,
as the Chief Executive Officer so determines.
MEETINGS OF THE BOARD OF DIRECTORS
Selection of Meeting Agenda Items
- ---------------------------------
The Chairman and Chief Executive Officer shall establish the agenda for the
Board meetings. Any director may request inclusion of an item on the agenda. The
Chairman and Chief Executive Officer may annually distribute to the Board the
proposed agenda items, along with the schedule of meetings, for the following
year.
Advance Distribution of Board Meeting Materials
- -----------------------------------------------
The Corporate Secretary shall distribute to the directors all materials
necessary to conduct an effective meeting of the Board of Directors prior to the
meeting.
Regular Attendance of Non-Directors at Board Meetings
- -----------------------------------------------------
At the invitation and approval of the Chief Executive Officer or a director,
other non-directors, may attend or give presentations before the Board.
Strategy Sessions
- -----------------
The Board of Directors shall meet annually, generally at an off-site location,
to review with executive management the Corporation's strategic plan and its
long range goals and direction.
A-2
Executive Sessions
- ------------------
The outside directors and the Chief Executive Officer shall convene in executive
session as often as is appropriate, usually as part of regularly scheduled
meetings of the Board of Directors. Executive sessions may be requested by the
outside directors, as well as the Chief Executive Officer. In addition, the
outside directors of the Board shall meet at least quarterly, without the Chief
Executive Officer or any other inside director, to discuss any matter or
recommend any action as the directors shall deem advisable consistent with the
powers of the full Board. Members of the Executive Committee shall serve as
presiding directors of these meetings on a rotating basis.
COMMITTEES OF THE BOARD OF DIRECTORS
Number of Committees
- --------------------
The Board of Directors shall designate one or more Board committees, as is
necessary. There are four committees: the Executive, the Audit, the Compensation
and Nominating, and the Corporate Responsibility and Governance Committees.
Committee Meeting Frequency and Length
- --------------------------------------
The committee chairman, in consultation with committee members, shall determine
the frequency and length of committee meetings. There will be at least two
Compensation and Nominating Committee meetings, one Corporate Responsibility and
Governance Committee meeting and four Audit Committee meetings held annually.
The Executive Committee shall convene on an as-needed-basis.
Committee Meeting Agendas
- -------------------------
The Chairman and Chief Executive Officer shall issue a schedule of meetings and
schedule suggested agenda items, as requested by the Board of Directors or any
Committee member.
Committee Member Assignments and Rotation
- -----------------------------------------
Committee chairmen and Committee members shall rotate periodically, unless there
are reasons to retain such Committee chairmen and Committee members on the
specific committee. Committee appointments shall be made at a meeting of the
Board of Directors as soon as practicable following the annual meeting of
shareholders.
OFFICERS
Chairman and Chief Executive Officer Selection
- ----------------------------------------------
The Board of Directors shall select an individual or individuals to hold the
positions of Chairman and the Chief Executive Officer, as stated in the By-Laws
of the Corporation.
Chief Executive Officer Evaluation
- ----------------------------------
The Board shall annually review the performance of the Chief Executive Officer,
in Executive Session, and establish a specific set of performance objectives for
the Chief Executive Officer. These should include concerns of the shareholders,
employees and customers.
Management Development and Succession Planning
- ----------------------------------------------
The Chief Executive Officer shall review annually the performance of officers
and discuss their future potential with the Board of Directors as part of the
Corporation's program for the management development of its officers and
succession planning.
A-3
Board Access to Senior Management
- ---------------------------------
The Directors shall have access to the Corporation's management. For non-routine
contact on Board agenda items, the Board members will inform the Chief Executive
Officer of their need for contact with management on special matters.
************
A-4
APPENDIX B
KEYSPAN CORPORATION
EXECUTIVE COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
(Amended and Restated September 26, 2002)
Purpose and Authority
- ---------------------
The Executive Committee shall have and may exercise during intervals between
meetings of the Board of Directors, all the powers vested in the Board (except
the power to fill vacancies on the Board or on any committee, change the
membership of the Executive Committee, fix compensation of the Directors for
serving on the Board or on any committee, submit to shareholders any action for
approval, amend or repeal any resolution of the Board which by its terms may not
be amended or repealed, and amend, repeal or adopt any by-law), subject,
however, at all times to previous limitation by the Board.
Insofar as it is practicable to do so, nonroutine matters to be acted upon by
the Executive Committee may be, but not necessarily, reviewed informally with
the Board.
The Executive Committee may appoint any subcommittees and assistants as it may
deem necessary.
Membership
- ----------
The Executive Committee shall be comprised of the Chairman of the Board and a
number of directors, as designated by the Board.
Administrative Procedures
- -------------------------
The Executive Committee shall meet at as frequently as is deemed necessary.
The regular attendance of non-members is permitted at the invitation of the
Chairman. A quorum shall consist of a majority of the members. In the event of
the absence of any member or members from a meeting, alternates may be
designated by the Board. The Committee Chairman shall report the Committee's
activities to the Board.
************
B-1
APPENDIX C
KEYSPAN CORPORATION
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
(Amended and Restated March 6, 2003)
Purpose and Authority
- ---------------------
The purpose of the Audit Committee is to:
A. Provide assistance to the Board of Directors in fulfilling its
responsibility to the shareholders, potential shareholders and investment
community with respect to its oversight of:
(i) The quality and integrity of the Corporation's financial statements;
(ii) The Corporation's compliance with legal and regulatory requirements;
(iii) The independent auditor's qualifications and independence;
(iv) The performance of the Corporation's internal audit function and
independent auditors; and
(v) The business practices and ethical standards of the Corporation.
B. Prepare all reports required to be included in the corporation's annual
proxy statement, pursuant to and in accordance with applicable rules and
regulations of the Securities and Exchange Commission.
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 select, retain and/or
replace, as needed, consultants to provide independent advice to the Committee.
In that connection, in the event the Committee retains a consultant, the
Committee shall have the sole authority to approve such consultant's fees and
other retention terms.
Membership
- ----------
The Committee shall be comprised of three or more members of the Board of
Directors. 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:
o Independence
All members of the Committee are required to be "independent" under
the rules of the New York Stock Exchange, Inc. and the Sarbanes-Oxley
Act of 2002. No member of the Committee may serve on the audit
committee of more than three public companies, including the
Corporation, unless the Board of Directors (i) determines that such
simultaneous service would not impair the ability of such member to
effectively serve on the Committee and (ii) discloses such
determination in the annual proxy statement.
C-1
o Financial Literacy and Expertise
All members of the Committee shall have a working familiarity
with basic finance and accounting practices (or acquire such
familiarity within a reasonable period after his or her
appointment) and at least one member must be a "financial expert"
under the requirements of the Sarbanes-Oxley Act of 2002.
Chairman
- --------
Unless a Chairman is elected by the full Board of Directors, the members of the
Committee shall designate a Chairman by majority vote of the full Committee
membership. The Chairman shall be entitled to cast a vote to resolve any ties.
The Chairman will chair all regular sessions of the Committee and set the
agendas for Committee meetings.
Independent Auditor
- -------------------
The Committee shall retain and terminate the independent auditor, oversee their
work and approve all audit engagement fees and terms. The independent auditor
shall be informed that it reports directly to the Audit Committee.
With respect to the work of the independent auditor, the Committee is
responsible for (i) reviewing the scope of the audit, (ii) approving the nature
and cost of all audit and non-audit services (non-audit services must be
approved prior to commencement of the services), (iii) monitoring the auditor's
performance, (iv) assuring that the auditor is independent, and (v) resolving
any disagreement between management and the auditor regarding financial
reporting, for the purpose of preparing or issuing an audit report or related
work.
The Committee shall inquire regularly of the independent auditor to ascertain
that it is 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 its work and that management is diligent in conducting its business in
accordance with the highest ethical standards.
The Committee shall periodically meet separately with the independent auditors
to discuss any matters that the Committee or the independent auditors believe
would be appropriate to discuss privately. In addition, the Committee shall meet
with the independent auditors and management quarterly to review the
corporation's financial statements, and annual and quarterly reports required to
be filed with the SEC.
The Committee shall approve in advance any audit or non-audit engagement or
relationship between the corporation and the independent auditors, other than
"prohibited non-auditing services". The Committee hereby delegates to the
Chairman of the Committee the authority to approve in advance all audit or
non-audit services to be provided by the independent auditor so long as it is
presented to the full Committee at a later time.
The following shall be "prohibited non-auditing services": (i) bookkeeping or
other services related to the accounting records or financial statements of the
audit client; (ii) financial information systems design and implementation;
(iii) appraisal or valuation services, providing fairness opinions or preparing
contribution-in-kind reports; (iv) actuarial services; (v) internal audit
outsourcing services; (vi) management functions or human resources; (vii) broker
or dealer, investment adviser or investment banking services; (viii) legal
services and expert services unrelated to the audit; and (ix) any other service
that the Public Company Accounting Oversight Board prohibits through regulation.
Notwithstanding the foregoing, pre-approval is not necessary for minor audit
services if: (i) the aggregate amount of all such non-audit services provided to
the corporation constitutes not more than five percent of the total amount of
revenues paid by the corporation to its auditor during the fiscal year in which
the non-audit services are provided; (ii) such services were not recognized by
the Corporation at the time of the engagement to be non-audit services; and
(iii) such services are promptly brought to the attention of the Committee and
approved prior to the completion of the audit by the Committee or its Chairman
pursuant to delegated authority.
C-2
The Committee shall review, at least annually, the qualifications, performance
and independence of the independent auditor. In conducting its review and
evaluation, the Committee shall:
(a) Obtain and review a report by the corporation's independent auditor
describing: (i) the auditing firm's internal quality-control procedures;
(ii) any material issues raised by the most recent internal quality-
control review, or peer review, of the auditing firm, or by any inquiry or
investigation by governmental or professional authorities, with the
preceding five years, respecting one or more independent audits carried out
by the auditing firm, and any steps taken to deal with any such issues; and
(iii) to assess the auditor's independence, all relationships between the
independent auditor and the Corporation;
(b) Ensure the rotation of the lead audit partner at least every five
years, and consider whether there should be regular rotation of the audit
firm itself;
(c) Confirm with any independent auditor retained to provide audit services
for any fiscal year that the lead (or coordinating) audit partner (having
primary responsibility for the audit), or the audit partner responsible for
reviewing the audit, has not performed audit services for the corporation
in each of the five previous fiscal years of that corporation; and
(d) Take into account the opinions of management and the corporation's
internal auditors (or other personnel responsible for the internal audit
function).
Internal Auditing Division
- --------------------------
The Vice President & General Auditor (a corporate officer) is in charge of the
Internal Auditing Division and reports directly to the Board of Directors,
functionally to the Audit Committee of the Board of Directors and
administratively to the Executive Vice President, Administration and Compliance.
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 may 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 with management and the independent auditor prior to
public dissemination the Corporation's annual audited financial statements and
quarterly financial statements, including the Corporation's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." 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.
As part of its quarterly review, the independent auditor 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 review.
Management will also provide the Committee, upon issuance, copies of the
C-3
quarterly reports to shareholders and related filings with the SEC. In addition,
the Committee, or at the minimum its Chairman, should communicate with
management and the independent auditor 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 auditor's 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.
The Committee shall also review and discuss with management and the independent
auditor, as appropriate, the Corporation's earnings press releases (paying
attention to the use of any "pro forma" or "adjusted" non-GAAP information), as
well as financial information and earnings guidance provided to analysts and
rating agencies. The Committee's discussion in this regard may be general in
nature (i.e., discussion of the types of information to be disclosed and the
type of presentation to be made) and need not take place in advance of each
earnings release or each instance in which the Corporation may provide earnings
guidance.
At least once during the year, the Committee shall obtain assurances from the
General Auditor and management that the system of internal controls is adequate
and functional.
The Committee shall also perform any functions required to be performed by it or
otherwise appropriate under applicable law, rules or regulations, the
Corporation's by-laws and the resolutions or directives of the Board, including
review of any certification required to be reviewed in accordance with
applicable law or regulations of the SEC.
Financial Reporting Process
- ---------------------------
In consultation with the independent auditor, management and the internal
auditors, the Committee shall review the integrity of the Corporation's
financial reporting processes, both internal and external. In this connection,
the Committee should obtain and discuss with management and the independent
auditor reports from management and the independent auditor regarding: (i) all
critical accounting policies and practices to be used by the Corporation; (ii)
analyses prepared by management and/or the independent auditor setting forth
significant financial reporting issues and judgments made in connection with the
preparation of the financial statements, including all alternative treatments of
financial information within generally accepted accounting principles that have
been discussed with the Corporation's management, the ramifications of the use
of alternative disclosures and treatments, and the treatment preferred by the
independent auditor; (iii) major issues regarding accounting principles and
financial statement presentations , including any significant changes in the
Corporation's selection or application of accounting principles; (iv) major
issues as to the adequacy of the Corporation's internal controls and any
specific audit steps adopted in light of material control deficiencies; and (v)
any other material written communications between the independent auditor and
the Corporation's management.
The Committee shall review periodically the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures, on the financial
statements of the Corporation.
The Committee shall also review with the independent auditor (i) any audit
problems or other difficulties encountered by the auditor in the course of the
audit process, including any restrictions on the scope of the independent
auditor's activities or on access to requested information, and any significant
disagreements with management and (ii) management's response to such matters.
Without excluding other possibilities, the Committee shall review with the
independent auditor (i) any accounting adjustments that were noted or proposed
by the auditor but were "passed" (as immaterial or otherwise), (ii) any
communications between the audit team and the audit firm's national office
respecting auditing or accounting issues presented by the engagement and (iii)
any "management" or "internal control" letter issued, or proposed to be issued,
by the independent auditor to the Corporation.
C-4
Other Duties
- ------------
Discuss with management and the independent auditor the Corporation's guidelines
and policies with respect to risk assessment and risk management. The Committee
should discuss the Corporation's major financial risk exposures and the steps
management has taken to monitor and control such exposures.
Set clear hiring policies for employees or former employees of the independent
auditor. At a minimum, these policies should provide that any registered public
accounting firm may not provide audit services to the Corporation if the Chief
Executive Officer, Controller, Chief Financial Officer, Chief Accounting Officer
or any person serving in an equivalent capacity for the Corporation was employed
by the registered public accounting firm and participated in the audit of the
Corporation within one year of the initiation of the current audit.
Establish procedures for: (i) the receipt, retention and treatment of complaints
received by the Corporation regarding accounting, internal accounting controls,
or auditing matters; and (ii) the confidential, anonymous submission by
employees of the Corporation of concerns regarding questionable accounting or
auditing matters.
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.
Periodically, the Corporate Ethics Officer may report to the Committee on the
Corporate Ethics Program and any significant events that occurred and actions
taken by management.
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 to be
published in the proxy statement at least once every three years.
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, including any issues that arise with respect to the
quality and integrity of the corporation's financial statements, the
corporation's compliance with legal or regulatory requirements, the performance
and independence of the corporation's independent auditor or the performance of
the internal audit function.
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).
C-5
Annual Performance Evaluation
- -----------------------------
The Committee shall perform a review and evaluation, at least annually, of the
performance of the Committee.
Compensation
- ------------
No member of the Committee shall receive compensation other than director's fees
for service as a director of the corporation, including reasonable compensation
for serving on the Committee and regular benefits that other directors receive.
**********
C-6
APPENDIX D
KEYSPAN CORPORATION
COMPENSATION AND NOMINATING COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
(Amended and Restated September 26, 2002)
Purpose and Authority
- ---------------------
The purpose of the Compensation and Nominating Committee is to:
o establish and maintain a competitive, fair and equitable compensation
and benefits policy designed to attract, develop, motivate and retain
directors and officers;
o annually conduct the board performance evaluation, with the
participation of the full Board;
o review and recommend all officer appointments and promotions to the
Board;
o annually review the performance of all officers, including the Chief
Executive Officer, and review and approve the annual salary, bonus,
stock options and other benefits, direct and indirect, of the Chief
Executive Officer and other officers, based on established goals and
objectives;
o annually review the incentive-compensation plans and equity-based
plans, including the performance and goals of the Corporation, the
Chief Executive Officer, all other officers and management, and make
recommendations to the Board;
o review and approve all equity compensation plans of the Corporation
that are not otherwise subject to the approval of the Corporation's
shareholders;
o prepare an annual report on executive compensation for inclusion in
the Corporation's proxy statement, in accordance with applicable rules
and regulations of the New York Stock Exchange, U.S. Securities and
Exchange Commission and other applicable regulatory bodies;
o review management succession plans;
o identify individuals qualified to become directors and select, or
recommend that the Board of Directors select, the candidates for all
directorships to be filled by the Board of Directors or the
shareholders at an annual or special meeting, and establish a
selection criteria; and
o annually review director compensation studies and recommend
remuneration for the directors.
The Committee shall meet with the Chairman and Chief Executive Officer to review
corporate performance, major changes in organizational plans and the performance
of key executives.
The Committee is designated by the Board of Directors and receives its authority
from the Board to which it reports. The Board has vested in the Committee the
authority to carry out the responsibilities as noted in this Charter, and any
D-1
other duties which the Committee deems necessary to fulfill in its obligations
to the Board and the shareholders of the Corporation. To such end, the Committee
is authorized to select, retain and/or replace, as needed, compensation and
benefit consultants and other outside consultants to provide independent advice
to the Committee. In that connection, in the event the Committee retains a
consultant, the Committee shall have the sole authority to approve such
consultant's fees and other retention terms. The Committee is also authorized to
retain and to terminate any search firm to be used to assist it in identifying
candidates to serve as directors of the Corporation, including the sole
authority to approve the fees payable to such search firm and any other terms of
retention.
Membership
- ----------
The Committee shall be comprised of three or more members of the Board of
Directors, each of whom is determined by the Board of Directors to be
"independent" under the rules of the New York Stock Exchange. Additionally, no
director may serve unless he or she (i) is a "Non-employee Director" for
purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
and (ii) satisfies the requirements of an "outside director" for purposes of
Section 162(m) of the Internal Revenue Code.
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.
Chairman
- --------
Unless a Chairman is elected by the full Board of Directors, the members of the
Committee shall designate a Chairman by majority vote of the full Committee
membership. The Chairman shall be entitled to cast a vote to resolve any ties.
The Chairman will chair all regular sessions of the Committee and set the
agendas for Committee meetings.
Administrative Procedures
- -------------------------
The Committee shall meet at least semi-annually, or as frequently as deemed
necessary by the Committee Chairman to fulfill its responsibilities. The regular
attendance of non-Committee members is permitted at the invitation of the
Committee Chairman. A quorum shall consist of a majority of the Committee
members. The Committee Chairman shall report the Committee's activities and make
recommendations to the Board.
Annual Performance Evaluation
- -----------------------------
The Committee shall perform a review and evaluation, at least annually, of the
performance of the Committee.
* * * * * * * * * * * *
D-2
APPENDIX E
KEYSPAN CORPORATION
CORPORATE RESPONSIBILITY AND GOVERNANCE COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
(Amended and Restated September 26, 2002)
Purpose and Authority
- ---------------------
The Committee shall review and report to the Board on the Corporation's
corporate governance and policies and programs which are designed to assure its
compliance with legal and ethical standards and which affect its role as a
responsible corporate citizen. Such policies and programs may include:
o Consider the adequacy of the certificate of incorporation and by-laws
of the Corporation and recommend to the Board of Directors, as
conditions dictate, that it propose amendments to the certificate of
incorporation and by-laws for consideration by the shareholders;
o Keep abreast of developments with regard to corporate governance to
enable the Committee to make recommendations to the Board of Directors
in light of such developments as may be appropriate, and maintain the
Corporate Governance Guidelines;
o Review environmental matters and monitor the status of the
Corporation's environmental compliance programs;
o Review corporate policies with regard to employee matters, including
but not limited to:
a) Business Ethics;
b) Diversity and Equal Employment Opportunity Initiatives; and
c) Safety Issues; and
o Review community affairs programs and activities of the Corporation as
a responsible corporate citizen.
The Committee is designated by the Board of Directors and receives its authority
from the Board to which 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 in its obligations
to the Board and the shareholders of the Corporation. To such end, the Committee
is authorized to select, retain and/or replace, as needed, consultants to
provide independent advice to the Committee. In that connection, in the event
the Committee retains a consultant, the Committee shall have the sole authority
to approve such consultant's fees and other retention terms.
Membership
- ----------
The Committee shall be comprised of three or more members of the Board of
Directors, each of whom is determined by the Board of Directors to be
"independent" under the rules of the New York Stock Exchange. 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.
Chairman
- --------
Unless a Chairman is elected by the full Board of Directors, the members of the
Committee shall designate a Chairman by majority vote of the full Committee
membership. The Chairman shall be entitled to cast a vote to resolve any ties.
The Chairman will chair all regular sessions of the Committee and set the
agendas for Committee meetings.
Administrative Procedures
- -------------------------
The Committee shall meet at least twice during the year, or as frequently as
deemed necessary by the Chairman to fulfill its responsibilities.
The regular attendance of non-members is permitted at the invitation of the
Chairman. A quorum shall consist of a majority of the members. The Committee
Chairman shall report the Committee's activities to the Board.
Annual Performance Evaluation
- -----------------------------
The Committee shall perform a review and evaluation, at least annually, of the
performance of the Committee.
************
E-1
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 8, 2003
P
R
O
X
Y
The undersigned appoints Andrea S. Christensen and James L. Larocca and
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 8, 2003, 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 proposals 1, 2 and 3, and AGAINST proposal 4 as said proxies deem
advisable on such other matters as may properly come before the meeting.
Nominees:
01 Robert B. Catell 06 James L. Larocca
02 Andrea S. Christensen 07 Stephen W. McKessy
03 Alan H. Fishman 08 Edward D. Miller
04 J. Atwood Ives 09 Edward Travaglianti
05 James R. Jones
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.)
E-2
FOLD AND DETACH HERE
ADMISSION TICKET
KEYSPAN CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 8, 2003 AT 10:00 A.M.
KeySpan Corporation
One MetroTech Center, 2nd Floor, Brooklyn, NY 11201
Directions
Public Transportation - By Subway:
- ----------------------------------
o A, C or F train to Jay Street-Borough Hall o 1, 2, 4 or 5 train to Borough
Hall (walk one block East to Willoughby Street and make a left on Jay
Street) o M, N or R train to Lawrence Street-MetroTech (walk one block
North on Lawrence Street)
o Q train to Dekalb Avenue (walk two blocks North toward Manhattan Bridge and
make a left on Myrtle Avenue into MetroTech Center)
By Train:
- ---------
o Long Island Rail Road to Pennsylvania Station and transfer to a
Brooklyn-bound A, C, 1, 2 or 4 train (see subway instructions above).
o Long Island Rail Road to Flatbush Avenue-Atlantic Terminal in Brooklyn and
transfer to a Manhattan-bound M, N, R, 1, 2, 4, 5 or Q train (see subway
instructions above) or walk North along Flatbush Ave. about 1 mile to
Myrtle Avenue and make a left into MetroTech Center.
o Metro-North Railroad to Grand Central Station in Manhattan and transfer to
a Brooklyn-bound 4 or 5 train (see subway instructions above).
o New Jersey Transit to Pennsylvania Station in Manhattan and transfer to a
Brooklyn-bound A, C, 1, 2 or 4 train (see subway instructions above).
By Car:
- -------
o From Manhattan: Take the FDR Drive to the Brooklyn Bridge (Exit 2), make
the first left after traveling over the bridge on to Tillary Street and
right on to Jay Street.
o From Queens, Brooklyn, Bronx and Staten Island: Take I-278 to Tillary
Street (Exit 29) in Brooklyn. Make a left at the third light on to Jay
Street.
o From Long Island: Take I-495 WEST (Long Island Expressway) to I-278 WEST
(Exit 18A - Brooklyn-Queens Expressway) to Tillary Street (Exit 29). Make a
left at the third light on to Jay Street.
o From New Jersey: Take I-78 EAST to the Holland Tunnel. Follow Canal Street
EAST to the Manhattan Bridge on to Flatbush Avenue. Or take I-95 (New
Jersey Turnpike) to I-278 EAST (Exit 13) to Tillary Street (Exit 29) in
Brooklyn. Make a left at the third light on to Jay Street.
o From Westchester, Downstate New York and Connecticut: Take either I-87
SOUTH (Major Deegan Expressway/New York State Thruway) or I-95 SOUTH (New
England Thruway) to I-278 WEST to Tillary Street (Exit 29). Make a left at
the third light on to Jay Street.
[X] Please mark your 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 proposals 1, 2 and 3 and AGAINST proposal 4 as said Proxies deem advisable
on such other matters as may properly come before the meeting.
The Board of Directors recommends a vote "FOR" proposals 1, 2 and 3.
1. Election of Directions (see reverse side)
FOR WITHHELD
[ ] [ ]
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------
2. Ratification of Deloitte & Touche LLP as independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of amendments to the Employee Discount Stock Purchase Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors recommends a vote AGAINST proposal 4.
4. Shareholder Proposal on Poison Pills.
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
FOLD AND DETACH HERE
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:
o 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.
o 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.
o 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 8, 2003. 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.