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:
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[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
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4) Date Filed:
________________________________________________________________________________
KEYSPAN CORPORATION
Notice of 2004 Annual Meeting of Shareholders and Proxy Statement
LETTER TO SHAREHOLDERS
March 25, 2004
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 20, 2004, 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 2003 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, 2004; and a shareholder proposal. The Board of Directors
recommends a vote FOR each nominee for director; FOR the ratification of
independent public accountants; 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 20th. Please remember
that we consider your vote to be very important.
/s/ Robert B. Catell
Robert B. Catell
Chairman and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 25, 2004
Dear Shareholder:
The Annual Meeting of Shareholders of KeySpan Corporation ("KeySpan" or the
"Company") will be held on Thursday, May 20, 2004, 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 ten directors;
2. Ratification of Deloitte & Touche LLP, as independent public
accountants for the Company for the year ending December 31, 2004;
3. Consideration of a shareholder proposal, if presented at the Annual
Meeting; and
4. 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 22, 2004 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,
/s/ John J. Bishar, Jr.
John J. Bishar, Jr.
Senior Vice President, General Counsel and Secretary
Directions to
KeySpan Corporation
One MetroTech Center
Brooklyn, New York 11201
Public Transportation
Subway:
o A, C or F train to Jay Street-Borough Hall
o 2, 4 or 5 train to Borough Hall (walk one block East to Willoughby Street
and make a left on Jay Street)
o M 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, 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, R, 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, 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.
MAP
[GRAPHIC OMITTED]
PROXY STATEMENT
OF
KEYSPAN CORPORATION
ANNUAL MEETING TO BE HELD ON MAY 20, 2004
Proxies are being solicited on behalf of the Board of Directors of the Company
for use at the Annual Meeting of Shareholders on May 20, 2004, or any
adjournment thereof. This Proxy Statement is first being mailed to the
shareholders of the Company on or about March 25, 2004.
Q: What am I voting on?
A: Election of ten directors; ratification of Deloitte & Touche LLP, as
independent public accountants for the year ending December 31, 2004;
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 22, 2004
(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 by mail, telephone
or Internet; 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.
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.
Q: Who will count the votes?
A: EquiServe will tabulate the votes and act as inspector of election.
1
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, or use each of the control codes
printed on each of the proxy cards for telephone or Internet voting, 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: The record date for determining stockholders who are entitled to vote at
the Annual Meeting is March 22, 2004. Each of the approximately 160,032,414
shares of common stock of the Company issued and outstanding on that date
is entitled to one vote at the Annual Meeting. A majority of the
outstanding shares, present or represented by proxy, constitutes a quorum.
For purposes of determining the presence of a quorum, shares represented by
abstentions and "broker non-votes" will be counted as present. If you vote
by proxy card or give a proxy by telephone or through the Internet, you
will be considered part of the quorum. In the absence of a quorum, the
Annual Meeting may be adjourned.
Q: What percentage of stock do the directors and officers own?
A: The directors and certain executive officers own approximately 2.69% of our
Common Stock, as of March 10, 2004.
Q: When are the shareholder proposals due for the 2005 Annual Meeting?
A: Shareholder proposals for the 2005 Annual Meeting must be received by
KeySpan at its offices at One MetroTech Center, Brooklyn, New York
11201-3850, Attention: Corporate Secretary, by December 2, 2004, to be
considered by the Company for possible inclusion in the proxy materials for
the 2005 Annual Meeting. In addition, all shareholder proposals or
nominations for election as director for the 2005 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 2004 Annual Meeting.
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PROPOSAL 1. ELECTION OF DIRECTORS
The current term of office of all of the Company's directors expires at the 2004
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 or until his or her successor is duly elected or chosen and qualified. No
third party received a fee for either identifying or evaluating potential
director nominees. The Company did not receive any recommendations for board
membership from any large, long-term shareholders. 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 Gloria C. Larson
o Alan H. Fishman o Stephen W. McKessy
o J. Atwood Ives o Edward D. Miller
o James R. Jones o Vikki L. Pryor
Effective February 24, 2004, Edward Travaglianti resigned as a director of
KeySpan, following his appointment as President of Commerce Bank Long Island.
Mr. Travaglianti was no longer able to serve as a member of the Board of
Directors of the Company due to the interlocking relationship restrictions of
the Public Utility Holding Company Act of 1935, as amended. Such interlocking
relationship restrictions prohibit any officer of a commercial banking
institution, such as Commerce Bank, from also serving on the Board of Directors
of any public utility holding company such as KeySpan. The Board and the Company
extend their gratitude to Mr. Travaglianti for his service as a valued director.
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 TEN
NOMINEES NAMED ABOVE TO SERVE AS MEMBERS OF THE BOARD OF DIRECTORS FOR A ONE
YEAR TERM.
Nominees for the Board of Directors
ROBERT B. CATELL - Age 67 - 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., The Houston Exploration Company, Edison Electric
Institute, New York State Energy Research and Development
Authority, Independence Community Bank Corp., J & W
Seligman, the Business Council of New York State, Inc., New
York City Partnership, KeySpan Facilities Income Fund and
Chairman of the Long Island Association.
3
ANDREA S. CHRISTENSEN - Age 64 - 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.
ALAN H. FISHMAN - Age 58 - 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 67 - Director since November 2000
Former Chairman and Chief Executive Officer of Eastern
Enterprises from 1991 to November 2000. Co-chairman of the
Trustees of the MFS Family of Funds (25 Trusts) advised by
MFS Investment Management. Trustee of the Museum of Fine
Arts - Boston, Vice Chairman 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 64 - 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.
4
JAMES L. LAROCCA - Age 60 - Director since January 2001
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. Practiced law with the firm of Cullen
and Dykman immediately prior to appointment to Southampton
College. 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. Served as Director of
The Brooklyn Union Gas Company from 1992 to 1993 and from
1995 to 2000. Former Director of European American Bank and
ContiFinancial Corporation. Current Director and past
Chairman of the Long Island Nature Conservancy.
GLORIA C. LARSON - Age 53 - Director since June 2003 Of
counsel and Co-chair of the Government Practices Group at
the law firm of Foley Hoag LLP. Has held senior positions
within the federal government and the State of Massachusetts
government, including serving as the Massachusetts Secretary
of Economic Affairs, Deputy Director of Consumer Protection
and legal counsel for the Federal Trade Commission. Current
Chairperson of the Massachusetts Convention Center Authority
(MCCA) since 1998. Director of RSA Security as well as
several Boston-based not-for-profit organizations, including
the Massachusetts Technology Council, Jobs for
Massachusetts, Greater Boston Chamber of Commerce and the
Massachusetts Women's Forum. Serves on the New England
Council's e-commerce privacy task force and is the Co-Chair
of the Board of Directors of MassINC.
STEPHEN W. McKESSY - Age 66 - Director since May 1998
Retired partner of PricewaterhouseCoopers. Served in various
officer positions at PricewaterhouseCoopers from 1960 to
1997. Serves as a Director of The Houston Exploration
Company, the Greater Boy Scouts of America, and the Property
Owners Association at SailFish Point, Florida. Member of the
Board of Advisors of St. John's University College of
Business Administration. President and member of the Board
of Governors of the Silver Spring Country Club.
EDWARD D. MILLER - Age 63 - Director since May 1998 Served
as a member of the Supervisory Board and senior advisor to
the Chief Executive Officer of AXA Group from June 2001 to
April 2003. Served as President and Chief Executive Officer
of AXA Financial, Inc. from August 1997 through May 2001.
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. Served
as Senior Vice Chairman of The Chase Manhattan Bank from
1996 through 1997. Serves as a member of the Board of
Directors of American Express Company, Topps Company,
Incorporated, and Korn/Ferry International. Member of the
Board of Governors of the United Way of Tri-State and
Chairman of the Board of Directors of Phoenix House. Trustee
of the Inner-City Scholarship Fund, the New York City Police
Foundation, Pace University, and the New York Blood Center.
Chairman of the New York City Partnership's Security and
Risk Management Task Force.
5
VIKKI L. PRYOR - Age 50 - Director since March 2004
President and Chief Executive Officer of SBLI USA Mutual
Life Insurance Company, Inc. and its family of companies
since 1999. Served as Senior Vice President of Oxford Health
Plans from June 1998 to January 1999. Served in various
Senior Vice President and Vice President positions at Blue
Cross Blue Shield of Massachusetts from 1993 to 1997. Served
as Director and in a variety of senior level positions at
Allstate Life Insurance Company from 1986 to 1992. Served in
various positions including acting assistant district
counsel, senior attorney and associate in the Office of
Chief Counsel of the Internal Revenue Service, Chicago
office, from 1978 to 1986. Served on the boards of the Life
Insurance Council of New York (LICONY), New Jersey Chamber
of Commerce, UST Corporation and the Pension Reserves
Investment Management Board. Serves on the Dean's Advisory
Council of the University at Buffalo Law School.
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 twelve times between
January 1and December 31, 2003.
In March 2004, 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 at
http://www.keyspanenergy.com or directly at the Company's corporate governance
website (http://governance.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 (and named above) are independent under the standards set forth in the
Corporate Governance Guidelines, and relevant New York Stock Exchange ("NYSE")
and Securities and Exchange Commission ("SEC") rules and regulations, with the
exception of Robert B. Catell. Mr. Catell can not be deemed independent under
the Corporate Governance Guidelines because he serves as Chief Executive Officer
of the Company.
The basis for the Board's determination that the above named directors are
independent is set forth in the Company's Corporate Governance Guidelines and is
set forth, in relevant part, below:
To be considered independent under the NYSE rules, the Board must
determine that a director does not have any direct or indirect
material relationship with KeySpan. The Board established the
following guidelines to assist it in determining director
independence:
a. A director will not be independent if, within the preceding three
years: (i) the director was employed by KeySpan or one of its
subsidiaries; (ii) an immediate family member of the director was
employed by KeySpan as an officer; (iii) the director was
employed by or affiliated with KeySpan's independent auditor;
(iv) an immediate family member of the director was employed by
KeySpan's independent auditor as a partner, principal or manager;
(v) the director received more than $100,000 in direct
compensation from KeySpan or its subsidiaries, other than for
Board service or pension or deferred compensation; (vi) an
immediate family member of the director received more than
$100,000 in direct compensation from KeySpan or its subsidiaries,
other than for Board service or pension or deferred compensation;
6
(vii) the director was employed as an executive officer of
another company where any of KeySpan's officers serve on that
company's compensation committee; or (viii) an immediate family
member of the director was employed as an executive officer of
another company where any of KeySpan's officer serve on that
company's compensation committee;
b. The following commercial or charitable relationships will not be
considered to be material relationships that would impair a
director's independence: (i) if a KeySpan director or an
immediate family member of the director is an executive officer
of another company that does business with KeySpan and the annual
sales to, or purchases from, KeySpan are less than the greater of
$1 million or two percent of the annual revenues of the company
he or she serves as an executive officer; (ii) if a KeySpan
director is an executive officer of another company which is
indebted to KeySpan, or to which KeySpan is indebted, and the
total amount of either company's indebtedness to the other is
less than one percent of the total consolidated assets of the
company he or she serves as an executive officer; and (iii) if a
KeySpan director serves as an officer, director or trustee of a
charitable organization, and KeySpan's discretionary charitable
contributions to the organization are less than the greater of $1
million or two percent of that organization's total annual
charitable receipts. (KeySpan's automatic matching of employee
charitable contributions will not be included in the amount of
KeySpan's contributions for this purpose.) The Board will
annually review all commercial and charitable relationships of
directors. Whether directors meet these categorical independence
tests will be reviewed and will be made public annually prior to
their standing for re-election to the Board.
c. For relationships not covered by the guidelines in subsection (b)
above, the determination of whether the relationship is material
or not, and therefore whether the director would be independent
or not, shall be made by the directors who satisfy the
independence guidelines set forth in subsections (a) and (b)
above. For example, if a director is the Chief Executive Officer
of a company that purchases products and services from KeySpan
that are more than two percent of that company's annual revenues,
the independent directors could determine, after considering all
of the relevant circumstances, whether such a relationship was
material or immaterial, and whether the director would therefore
be considered independent under the NYSE rules and the
Sarbanes-Oxley Act. The Company would explain in the next proxy
statement the basis for any Board determination that a
relationship was immaterial despite the fact that it did not meet
the categorical standards of immateriality set forth in
subsection (b) above.
KeySpan will not make any personal loans or extensions of credit
to directors or executive officers. No director or family member
may provide personal services for compensation to the Company.
The directors shall complete and submit an annual director questionnaire to
identify and assess relationships so that the Board can determine independence
under these standards. The directors also 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 Company and could be construed as compromising the
director's independence.
7
Committees of the Board
During 2003, the Board maintained four standing committees. The functions,
number of meetings held and composition of the Board committees, as of December
31, 2003, are described below:
-----------------------------------------------------------------------------
Committee
- ------------------------------ --------------- ---------------- --------------------- ----------------------
Compensation
and Corporate
Director Executive Audit Management Governance and
Development Nominating
- ------------------------------ --------------- ---------------- --------------------- ----------------------
R. B. Catell X(Chair)
- ------------------------------ --------------- ---------------- --------------------- ----------------------
A. S. Christensen X X
- ------------------------------ --------------- ---------------- --------------------- ----------------------
A. H. Fishman X X(Chair)
- ------------------------------ --------------- ---------------- --------------------- ----------------------
J. A. Ives X
- ------------------------------ --------------- ---------------- --------------------- ----------------------
J. R. Jones X X X(Chair)
- ------------------------------ --------------- ---------------- --------------------- ----------------------
J. L. Larocca X X X
- ------------------------------ --------------- ---------------- --------------------- ----------------------
G. C. Larson X
- ------------------------------ --------------- ---------------- --------------------- ----------------------
S. W. McKessy X X X
- ------------------------------ --------------- ---------------- --------------------- ----------------------
E. D. Miller X X(Chair)
- ------------------------------ --------------- ---------------- --------------------- ----------------------
E. Travaglianti* X X
- ------------------------------ --------------- ---------------- --------------------- ----------------------
Meetings held from January 1
to 6 7 10 2
December 31, 2003
- ------------------------------ --------------- ---------------- --------------------- ----------------------
X: Member.
Chair: Committee Chairperson.
- --------------
* As previously stated, as of February 24, 2004, Mr. Travaglianti resigned as a
member of the Board of Directors and as a member of the Audit and Compensation
and Management Development Committees.
Executive Committee: Acts on behalf of the Board of Directors whenever the Board
is not in session, except for certain matters as prescribed by New York law. The
Executive Committee operates under a written charter adopted by the Board of
Directors, as amended and restated as of March 10, 2004 (attached as Appendix B
to this Proxy Statement; in addition, the full text of the Executive Committee
charter can be found on the Investor Relations section of the Company's website
(http://www.keyspanenergy.com) or directly at the Company's corporate governance
website (http://governance.keyspanenergy.com).
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 of the Company, risk assessment and risk management, and
the preparation of the Audit Committee report required to be included in the
Company's annual Proxy Statement. Pursuant to the rules of NYSE all members of
the Audit Committee are independent. The Company's Board of Directors has
determined that Mr. Fishman meets
8
the qualifications of an "audit committee financial expert," as that term is
defined by rules of the SEC.* In addition, the Company's Board of Directors has
determined that Mr. Fishman and Mr. McKessy have "accounting or related
financial management expertise," in accordance with the NYSE corporate
governance standards rules, section 303A.07. Each of the members of the Audit
Committee is financially literate, in accordance with the NYSE corporate
governance standards rules, section 303A.07. None of the Audit Committee members
simultaneously serves on the audit committees of more than three public
companies. The Audit Committee is composed of four independent directors and
operates under a written charter adopted by the Board of Directors, as amended
and restated as of March 10, 2004 (attached as Appendix C to this Proxy
Statement; in addition, the full text of the Audit Committee charter can be
found on the Investor Relations section of the Company's website
(http://www.keyspanenergy.com) or directly at the Company's corporate governance
website (http://governance.keyspanenergy.com).
Compensation and Management Development Committee: Establishes, maintains and
assesses the competitiveness of the Company's compensation philosophy and
programs to ensure they are fair and equitable, designed to attract, develop,
motivate and retain directors and officers; and consistent with best practices.
Reviews and recommends all officer appointments and promotions to the Board.
Reviews performance of all officers based on corporate goals and objectives,
reviews and recommends to the Board their compensation and benefits. Reviews and
makes recommendations to the Board with respect to incentive compensation plans
and equity-based plans, including the performance and goals of the Company,
officers and management. Prepares annual report on executive compensation.
Reviews director compensation. All members are independent directors. The
Compensation and Management Development Committee operates under a written
charter adopted by the Board of Directors, as amended and restated as of March
10, 2004 (attached as Appendix D to this Proxy Statement; in addition, the full
text of the Compensation and Management Development Committee charter can be
found on the Investor Relations section of the Company's website
(http://www.keyspanenergy.com) or directly at the Company's corporate governance
website (http://governance.keyspanenergy.com).
Corporate Governance and Nominating Committee: Establishes qualifications and
other criteria for candidates for a position on the Company's Board of
Directors. Identifies individuals qualified to become directors and recommends
to the Board candidates for all directorships to be filled. Oversees evaluation
of the performance of the Board, with participation of the full Board of
Directors. Develops and recommends to the Board corporate governance principles.
Considers and recommends to the Board changes to the Company's certificate of
incorporation and by-laws. Reviews environmental matters that impact or may
impact the Company and its assets and monitors the status of the Company's
environmental compliance and remediation programs. Establishes and reviews
policies and programs on business ethics, community affairs, equal employment
opportunity matters and work safety issues. The Company will consider director
candidates nominated by shareholders. Any shareholder may nominate a person for
election to the Board of Directors by giving written notice to the Secretary of
the Company at the principal executive office of the Company not later than the
close of business on the 60th calendar day, nor earlier than the 90th calendar
day, prior to the first anniversary of the preceding year's annual meeting in
accordance with Section 2.7 of the Company's by-laws.
In identifying and/or reviewing the qualifications of candidates for membership
on the Board of Directors, the Committee shall take into account all factors it
considers appropriate, which may include (a) ensuring that the Board, as a
whole, is diverse and consists of individuals with various and relevant career
experience, required and demonstrated technical skills, industry knowledge and
experience, financial expertise (including expertise that could qualify a
- --------
* In accordance with rules of the SEC, persons determined to be audit
committee financial experts will not be deemed an expert for any purpose,
including, without limitation for purposes of Section 11 of the Securities
Act of 1933, as a result of being so designated. The designation or
identification of a person as an audit committee financial expert does not
impose on such person any duties, obligations or liabilities that are
greater than those imposed on such person as a member of the audit
committee and the board of directors in the absence of such designation or
identification.
9
director as an "audit committee financial expert," as that term is defined by
the rules of the NYSE and/or the SEC), local community relationships and (b)
minimum individual qualifications, including personal and professional ethics,
integrity and values, strength of character, practical wisdom, mature judgment,
familiarity with the Company's business and industry, independence of thought
and an ability to work collegially. The Committee also may consider the extent
to which the candidate would fill a present need on the Board.
The Committee is authorized to conduct all necessary and appropriate inquiries
into the backgrounds and qualifications of possible candidates and to consider
issues of independence and possible conflicts of interest of members of the
Board and executive officers, and whether a candidate has special interests or a
specific agenda that would impair his or her ability to effectively represent
the interests of all shareholders.
The Committee is authorized to review and make recommendations, as the Committee
deems appropriate, regarding the composition and size of the Board, retirement
provisions and/or term or age limits, all in order to ensure the Board has the
requisite expertise and its membership consists of persons with sufficiently
diverse and independent backgrounds to further the interests of the Company and
its shareholders.
The Committee shall annually oversee evaluation of the performance of the Board,
with the participation of the full Board of Directors.
The Committee is designated by the Board 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 its charter, and any other duties
that the Committee deems necessary to fulfill in its obligations to the Board
and the shareholders of the Company. To such end, the Committee is authorized to
select, retain and/or replace, as needed, advisors, consultants and legal
counsel to provide independent advice to the Committee. In that connection, in
the event the Committee retains any such advisor, consultant, or legal counsel
the Committee shall have the sole authority to approve such consultant's fees
and other retention terms. The Committee shall also have the sole authority to
retain and to terminate any search firm to be used to assist it in identifying
candidates to serve as directors of the Company, including the sole authority to
approve the fees payable to such search firm and any other terms of retention.
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, including alternate members, are required to meet the following
criteria:
o All members are required to be determined by the Board to be
"independent" under the rules of the NYSE and the Sarbanes-Oxley Act
of 2002.
The members of the Committee shall be appointed by the Board of Directors and
shall serve until such member's successor is duly elected and qualified or until
such member's earlier resignation or removal. The members of the Committee may
be removed, with or without cause, by a majority vote of the Board.
Each of the members of the Committee are and have been determined by the Board
to be "independent" under the rules of the NYSE and the Sarbanes-Oxley Act of
2002.
The Corporate Governance and Nominating Committee operates under a written
charter adopted by the Board of Directors, as amended and restated as of March
10, 2004 (attached as Appendix E to this Proxy Statement; in addition, the full
text of the Corporate Governance and Nominating Committee charter can be found
on the Investor Relations section of the Company's website
(http://www.keyspanenergy.com) or directly at the Company's corporate governance
website (http://governance.keyspanenergy.com).
10
Corporate Governance Guidelines
Meetings of the Board of Directors are governed by the following guidelines:
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.
Attendance of Non-Directors at Board Meetings
---------------------------------------------
At the invitation and approval of the Chairman or the Chief
Executive Officer, non-directors, whether or not officers of the
Company, may attend or give presentations before the Board.
Strategy Sessions
-----------------
At least one meeting of the Board of Directors each year shall be
devoted to a review with executive management of the Company's
strategic plan and its long range goals and direction.
Executive Sessions
------------------
The directors and the Chief Executive Officer shall convene in
executive session as often as is appropriate, as part of
regularly scheduled meetings of the Board of Directors. Executive
sessions may be requested by any director, as well as the Chief
Executive Officer. In addition, the independent directors of the
Board shall meet at least quarterly, without the Chief Executive
Officer or any other non-independent 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.
Directors are encouraged to attend the annual meetings of the Company's
shareholders. Eight out of nine directors attended the 2003 annual meeting of
shareholders. Each of the directors attended at least 92% of all meetings of the
Board of Directors and each committee of which he or she was a member during the
period from January 1 to December 31, 2003.
Codes of Ethics
The Company has adopted a Code of Ethics applicable to its Chief Executive
Officer and Senior Financial Officers, and an Ethical Business Conduct Statement
applicable to all directors, officers and employees of the Company. The
Company's Code of Ethics, Ethical Business Conduct Statement, Corporate
Governance Guidelines and Committee Charters can each be found on the Investor
Relations section of the Company's website, (http://www.keyspanenergy.com) or
directly at the Company's corporate governance website
(http://governance.keyspanenergy.com), and provide information on the framework
and high standards set by the Company relating to its corporate governance.
Additionally, these documents are available in print to any shareholder
requesting a copy. The Code of Ethics, Ethical Business Conduct Statement,
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.
11
Director Compensation
The directors receive the following compensation:
o Non-employee directors:
$43,500 annual retainer;
$2,000 committee meeting fee;
$5,000 committee chairman retainer; and
$30,000 in common stock equivalents granted under
the Directors' Deferred Compensation Plan.
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 into a deferred cash account. 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 quarter following the quarter 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 invest
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.
12
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 Shares LTIP
Salary Bonus Stock Awards Underlying Payout All Other
Name Year ($) ($)(1) ($) Options ($) Compensation ($)
- -----------------------------------------------------------------------------------------------------------------------------------
Robert B. Catell 2003 938,000 1,089,056(2) 0(3) 208,800(4)(5) 0 894,545(6)(7)(8)(9)
Chairman & Chief Executive 2002 936,903 284,740(10) 434,215 372,000(11) 0 55,229
Officer 2001 860,669 901,228 0 267,000(11) 0 20,444
- -----------------------------------------------------------------------------------------------------------------------------------
Robert J. Fani 2003 450,000 307,958(2) 0(3) 69,500(4)(5) 0 320,117(6)(7)(8)(9)
President & Chief Operating 2002 445,154 153,184(10) 139,622 120,000(11) 0 19,729
Officer 2001 361,667 247,203 0 78,200 0 3,651
- -----------------------------------------------------------------------------------------------------------------------------------
Wallace P. Parker Jr. 2003 450,000 348,288(2) 0(3) 69,500(5) 0 329,176(6)(7)(8)(9)
President, Energy Delivery and 2002 445,154 191,938(10) 139,622 120,000 0 26,812
Customer Relationship Group 2001 360,834 243,314 0 78,200 0 6,490
- -----------------------------------------------------------------------------------------------------------------------------------
Steven L. Zelkowitz 2003 392,000 278,750(2) 0(3) 43,300(5) 0 212,111(6)(7)(8)(9)
President, Energy Assets and 2002 387,961 134,086(10) 95,694 82,000 0 21,213
Supply Group 2001 337,345 247,203 0 60,000 0 7,301
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald Luterman 2003 375,000 287,496(2) 0(3) 43,300(4)(5) 0 304,950(6)(7)(8)(9)(12)
Executive Vice President & 2002 370,962 128,059(10) 95,694 82,000(11) 0 21,824
Chief Financial Officer 2001 330,486 259,360 0 60,000(11) 0 14,539
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Bonus awards paid each year are attributable to performance during the
previous year.
(2) Bonus awards paid in 2003 include amounts deferred by the Named Executive
Officers into the Officers' Deferred Stock Unit Plan as follows: R. B.
Catell - $544,528; R. J. Fani - $153,978; W. P. Parker Jr. - $174,144; S.
L. Zelkowitz - $139,375; and G. Luterman - $71,873.
(3) As of December 31, 2003, the aggregate value of the restricted stock awards
and number of restricted stock awards held by each of the Named Executive
Officers are as follows: R. B. Catell - $534,930; 14,536 shares (which
includes 735 shares obtained through dividend reinvestment during 2003); R.
J. Fani - $172,006; 4,674 shares (which includes 236 shares obtained
through dividend reinvestment during 2003); W. P. Parker Jr. - $172,006;
4,674 shares (which includes 236 shares obtained through dividend
reinvestment during 2003); S. L. Zelkowitz - $117,889; 3,203 shares (which
includes 161 shares obtained through dividend reinvestment during 2003);
and G. Luterman - $117,889; 3,203 shares (which includes 161 shares
obtained through dividend reinvestment during 2003). The aggregate
restricted stock values are based on the closing price per share of $36.80
at December 31, 2003.
(4) The Named Executive Officer also received 2,000 stock options on September
22, 2003 and 2,000 shares of restricted stock on November 7, 2003 granted
by The Houston Exploration Company as compensation for such person's
service as a director of The Houston Exploration Company.
(5) The amounts are comprised of stock options granted on March 5, 2003, based
on the closing price as of March 5, 2003. The options shall vest pro-rata
over a 5 year period with a 10 year exercise period from the date of the
grant. Vesting will accelerate in the third year based upon achievement of
certain goals.
13
(6) 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 2003 are as follows: R. B. Catell - $27,200; R. J. Fani - $5,012; W.
P. Parker Jr. - $8,620; S.L. Zelkowitz - $8,350; and G. Luterman - $14,524.
(7) 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 - $108,905; R. J.
Fani - $30,795; W. P. Parker Jr. - $34,828; S.L. Zelkowitz - $27,875; and
G. Luterman - $14,375.
(8) Amounts are also comprised of disbursements made from the Supplemental
Employee Savings Plan ("SESP") and are attributable to each of the Named
Executive Officers as follows: R. B. Catell - $13,440; R. J. Fani - $2,610;
W. P. Parker Jr. - $4,028; S. L. Zelkowitz - $186; and G. Luterman - $351.
(9) Amounts are also comprised of performance shares awarded to the Named
Executive Officers. The performance share awards were granted on March 5,
2003. Performance shall be measured over a three year period and linked to
certain performance levels. Threshold, target and maximum performance
levels will determine the actual shares to be issued at the end of the
performance period. At target, the number of shares granted to the Named
Executive Officer will be as follows: R. B. Catell - 32,700 shares valued
at $845,000; R. J. Fani - 10,900 shares valued at $281,700; W. P. Parker
Jr. - 10,900 shares valued at $281,700; S. L. Zelkowitz - 6,800 shares
valued at $175,700; and G. Luterman - 6,800 shares valued at $175,700. The
performance share award amounts are determined based on the Black Scholes
value of $25.84 per share. At threshold, 50% of the number of shares
indicated above for the Named Executive Officer will be awarded. At
maximum, 150% of the number of shares indicated above for the Named
Executive Officer will be awarded. Performance below threshold will result
in forfeiture of the award.
(10) 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; R. J. Fani - $76,592; W. P. Parker Jr. - $95,969; S. L.
Zelkowitz - $67,043; and G. Luterman - $38,418.
(11) The Named Executive Officer also received 2,000 annual stock options
granted by Houston Exploration as compensation for such person's services
as a director of Houston Exploration.
(12) Includes a special bonus in the amount of $100,000.
14
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
The Compensation and Management Development Committee (the "Committee") of the
Board of Directors, composed of four independent directors, administers
KeySpan's executive and director compensation programs. The members of the
Committee are 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 2003, the Committee met ten times and directly engaged the Hay Group, 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
officers, including the Named Executive Officers, and to provide advice with
respect to incentive compensation plan matters. As part of the Hay Group review
process, the Committee completed a comprehensive assessment of KeySpan's
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 officers.
The Committee reviews and recommends changes to the Company's compensation
policies and programs for the Chief Executive Officer, the Named Executive
Officers, 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. The
Committee also reviews and approves awards under the Long-Term Performance
Incentive Compensation Plan (described below). In addition, after review and
final recommendation by the Committee, all other issues relating to executive
compensation are submitted to the entire Board for approval. However, in
accordance with the Company's Corporate Governance Guidelines, only independent
directors are authorized to vote on the compensation of the Chief Executive
Officer.
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 Board of
Directors, upon recommendation of 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
15
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 Hay Group
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.
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. In determining the base
salary level for the Chief Executive Officer, the Committee has taken into
consideration Mr. Catell's performance in connection with, among other things,
an increase in overall earnings per share, total shareholder return and the
continued focus on the core business and sustained earnings growth. Based upon
an assessment of these various factors, effective January 1, 2004, the Committee
and the Board approved an increase in annual base salary for Mr. Catell to
$1,036,000. 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 or below the 50th percentile of comparable positions at
this time.
16
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 (with the option to defer up to 50% of the
award in any year, as discussed below) based upon annual performance results.
For 2003, the performance measurement period included the twelve-month period
from January 1, 2003 to December 31, 2003. The awards for this period were paid
in March 2004. 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, business unit operating
income, competitive positioning, customer satisfaction, control of operating
expenses and other individual strategic initiatives. Incentive awards as a
percentage of cumulative salary paid in connection with 2003 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 2003 Corporate Plan provided for award opportunities to executives. With
respect to the Chief Executive Officer, such awards ranged from zero, if below
threshold 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 2003, 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 and
other individual strategic initiatives. Based upon actual 2003 results, an award
payout of 112.7% of cumulative paid salary was approved by the Committee and
paid in March 2004. The amount reflected in the Summary Compensation table that
was paid in March 2003 for performance during 2002 represented a payout of
116.24% of cumulative paid salary. Upon the recommendation of the Hay Group and
the approval of the Committee and the Board, for the year 2004, the Chief
Executive Officer's target award remains at 80% of cumulative paid salary.
However, based on recent market trends, the maximum award potential for 2004 has
been reduced from 160% of cumulative paid salary to 120% 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.
Pursuant to the Officers' Deferred Stock Unit Plan and consistent with the
Company's desire to increase officer stock ownership in order to further align
the interests of executives and shareholders, 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 component on the deferral will track the performance of the Company's
Common Stock and will generally be payable in cash upon retirement (but not upon
resignation) 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
2002 annual award, paid in March 2003 and 50% of his 2003 annual award, paid in
March 2004, into a DSU account.
17
The Long-Term Performance Incentive Compensation Plan
As a result of the Committee's review of the competitiveness of KeySpan's total
compensation program, and the Hay Group's review of the long-term incentive
plans used by a majority of energy companies, the Committee recommended, and the
Board of Directors adopted, the KeySpan Long-Term Performance Incentive
Compensation Plan (the "Incentive Plan") in March 1999. The Incentive Plan was
subsequently approved by the shareholders at the May 1999 Annual Meeting of
Shareholders. On May 10, 2001, shareholders approved an amendment to the
Incentive Plan that increased the authorized shares to a total of 19,250,000. As
of March 10, 2004, approximately 15,842,985 stock options; 127,408 shares of
restricted stock; and 359,365 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 NYSE
on the date of the grant. Commencing in 2003, the Company began expensing stock
options on a prospective basis in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 123. On March 5, 2003, based upon the
performance of the Chief Executive Officer, 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 (vesting on a pro-rata basis 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 32,700 performance shares.
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 total shareholder return ("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 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.
Since 2001, the option award process has included a performance goal feature in
the stock option vesting schedule for officers which directly links TSR for
KeySpan Common Stock to the options granted. The TSR goal measures the total
return to shareholders of KeySpan Common Stock, including price appreciation and
dividends. KeySpan's performance will be measured against the S&P Utility Group
over a three-year performance period, with the goal for KeySpan's TSR to be
above the median of those comprising the group. 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.
On March 10, 2004, the Committee approved a grant to Mr. Catell of 225,100
non-qualified stock options to purchase Common Stock at an exercise price of
$37.54 per share and 32,280 performance shares. The options shall vest pro-rata
over a five-year period with a ten year exercise period from the date of grant.
Vesting will accelerate in the third year upon achievement of 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.
On March 10, 2004, the Committee approved an aggregate of 1,179,200
non-qualified stock options and 169,165 performance shares 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
18
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, in 2003 the Committee 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, the officers of the
Company are encouraged to have ownership of KeySpan common stock in the
following percentages of their base salary: the Chairman and Chief Executive
Officer - 5 times base salary; President and Chief Operating Officer - 4 times
base salary; Group Presidents - 3 times base salary; Executive Vice Presidents -
2 times base salary; Senior Vice Presidents - 1.5 times base salary; and Vice
Presidents - 1 times base salary. These goals should be reached within five
years from the adoption of these guidelines. Officers who do not currently meet
the guidelines are encouraged when exercising stock options to retain one-third
of the after-tax gain of such transaction in KeySpan Common Stock. Due to the
fact that the market price of KeySpan's Common Stock is generally considered the
strongest indicator of overall corporate performance, these awards provide a
strong incentive to participants by linking compensation to the future value of
KeySpan's Common Stock.
Policy with Respect to Section 162(m) Deduction Limit
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company cannot deduct compensation in excess of $1,000,000 paid in
any year to the Chief Executive Officer or any of the Named Executive Officers
whose compensation must be detailed in the Proxy Statement. Certain benefit
plans and compensation paid under plans that are performance based are not
subject to the $1,000,000 annual limit if certain requirements are satisfied.
Although the Company's compensation policy is generally designed to relate
compensation to performance, certain payments do not meet such requirement
because they allow the Committee and the Board to exercise discretion in setting
compensation. The Committee is of the opinion that it is in the Company's best
interest for the Committee and the Board to retain discretion in order to
preserve flexibility in compensating such executive officers, especially in
light of an increasingly competitive marketplace.
Conclusion
The Committee believes that KeySpan's executive compensation policies and
programs serve both the interests of KeySpan and its shareholders effectively.
The various compensation programs are appropriately balanced to provide the
motivation for executives to contribute to KeySpan's overall success and enhance
the value of KeySpan for the shareholders' benefit, and are consistent, with
respect to both design and amount, with compensation programs for companies of
similar size in the utility industry generally and in the energy industry
specifically.
The Committee will continue to monitor the effectiveness of KeySpan's total
compensation program to meet the current and the future needs of KeySpan.
Compensation and Management Development Committee
Edward D. Miller, Chairperson James L. Larocca
James R. Jones Stephen W. McKessy
19
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on stock option grants during 2003 for
the Named Executive Officers and the grant date present value of such officers'
unexercised options at December 31, 2003:
------------------------- ---------------------- ----------------- --------------- ---------------------- -----------------
Name Percent of Option Grant Date
Number of Securities Total Number of Exercise Present Value of
Underlying Options Options Granted Price Expiration Options2
Granted1 to Employees ($/Share) Date ($)
------------------------- ----------------- ---- ----------------- --------------- ---------------------- ----------------
R.B. Catell 208,800 12.55% 32.40 3/4/2013 844,400
------------------------- ----------------- ---- ----------------- --------------- ---------------------- ----------------
R.J. Fani 69,500 4.17% 32.40 3/4/2013 281,000
------------------------- ----------------- ---- ----------------- --------------- ---------------------- ----------------
W.P. Parker Jr. 69,500 4.17% 32.40 3/4/2013 281,000
------------------------- ----------------- ---- ----------------- --------------- ---------------------- ----------------
S.L. Zelkowitz 43,300 2.60% 32.40 3/4/2013 175,100
------------------------- ----------------- ---- ----------------- --------------- ---------------------- ----------------
G. Luterman 43,300 2.60% 32.40 3/4/2013 175,100
------------------------- ----------------- ---- ----------------- --------------- ---------------------- ----------------
(1) Options vest ratably over a five-year period with the first one-fifth
having vested on March 5, 2004 (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.
STOCK OPTION EXERCISES TABLE
The following table provides information on aggregated stock option exercises in
2003 and fiscal year end option values for the Named Executive Officers:
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Number of Securities Underlying Value of In-The-Money
Acquired Value Unexercised Options at Fiscal Year End Options at Fiscal Year End
on Realized ($)
Name Exercise ($)
- -----------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Total Exercisable Unexercisable Total
- -----------------------------------------------------------------------------------------------------------------------------------
R.B. Catell n/a n/a 1,531,001 666,600 2,197,601 14,573,499 2,150,784 16,724,283
- -----------------------------------------------------------------------------------------------------------------------------------
R.J. Fani n/a n/a 185,614 212,420 398,034 1,738,540 705,533 2,444,074
- -----------------------------------------------------------------------------------------------------------------------------------
W. P. Parker Jr. 15,000 202,500 226,681 212,420 439,101 1,835,858 705,533 2,541,391
- -----------------------------------------------------------------------------------------------------------------------------------
S. L. Zelkowitz n/a n/a 129,401 144,900 274,301 1,301,650 462,104 1,763,754
- -----------------------------------------------------------------------------------------------------------------------------------
G. Luterman 20,000 270,000 168,867 144,900 313,767 1,554,973 462,104 2,017,077
- -----------------------------------------------------------------------------------------------------------------------------------
20
Security Ownership of Management
The following table sets forth information as of March 10, 2004, 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.
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
Name of Amount and Nature of Common Stock Equivalents or Performance Percent of
Beneficial Owner Beneficial Ownership of Deferred Stock Units(1) Shares(2) Outstanding Common
Common Stock Stock
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
R. B. Catell 1,794,842(3)(4) 26,872 64,980 1.12%
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
A. S. Christensen 12,939(5) 12,975 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
R. J. Fani 256,653(3)(6) 8,998 24,610 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
A. H. Fishman 12,482(5) 17,003 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
J. A. Ives 68,810(5) 5,214 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
J. R. Jones 10,928(5) 7,634 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
J. L. Larocca 13,697(5) 9,686 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
G. C. Larson 483(7) 1,079 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
G. Luterman 185,159(3)(8) 4,303 12,750 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
S. W. McKessy 10,390(5)(9) 14,056 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
E. D. Miller 9,726(5) 21,339 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
W. P. Parker Jr. 316,179(3) 10,537 21,610 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
V. L. Pryor(10) 0 0 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
E. Travaglianti(11) 8,873(5) 0 0 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
S. L. Zelkowitz 221,245(3) 8,057 15,350 **
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
All directors and 4,308,444 192,867 268,965 2.69%
executives as a group,
including those named
above, a total of 30
persons.
- ----------------------------- --------------------------- ------------------------------ ------------------ --------------------
** Less than 1%.
(1) Includes Common Stock Equivalents or Deferred Stock Units. 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) Includes performance shares. 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 of common stock 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 - 1,700,561 shares; Mr. Fani -
239,154 shares; Mr. Parker - 295,221 shares; Mr. Zelkowitz - 208,127
shares; and Mr. Luterman - 175,927 shares.
(4) Mr. Catell also owns the following securities of The Houston Exploration
Company: 4,000 shares of common stock; 2,000 shares of restricted stock;
and 19,000 shares issuable pursuant to stock options that are currently
exercisable.
21
(5) Includes 7,900 shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of the date of this Proxy
Statement and 973 shares of restricted stock.
(6) Mr. Fani also owns the following securities of The Houston Exploration
Company: 2,000 shares of restricted stock and 9,000 shares issuable
pursuant to stock options that are currently exercisable.
(7) Comprised of 483 shares of restricted stock.
(8) Mr. Luterman also owns the following securities of The Houston Exploration
Company: 2,000 shares of restricted stock and 13,000 shares issuable
pursuant to stock options that are currently exercisable.
(9) Mr. McKessy also owns the following securities of The Houston Exploration
Company: 2,000 shares of restricted stock and 2,000 shares issuable
pursuant to stock options that are currently exercisable.
(10) Ms. Pryor was elected to the Board of Directors effective March 10, 2004.
(11) Mr. Travaglianti resigned from the Board of Directors effective February
24, 2004.
22
PERFORMANCE GRAPH
The following graph presents, for the period beginning December 31, 1998 through
December 31, 2003, a comparison of cumulative total shareholder returns for
KeySpan, the Standard & Poor's Utilities Index and the Standard & Poor's 500
Index.
PERFORMANCE GRAPH
[GRAPHIC OMITTED]
December 31, 1998 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
KeySpan $100.00 $ 80.12 $154.21
S&P Utilities Index $100.00 $ 90.88 $142.68
S&P 500 Index $100.00 $121.01 $109.99
December 31, 2001 December 31, 2002 December 31, 2003
----------------- ----------------- -----------------
KeySpan $132.53 $141.63 $155.62
S&P Utilities Index $ 99.41 $ 76.52 $104.67
S&P 500 Index $ 96.98 $ 75.60 $ 97.17
Assumes $100 invested on December 31, 1998 in shares of KeySpan Common Stock,
the S&P Utilities Index and the S&P 500 Index, and that all dividends were
reinvested.
23
COMPENSATION UNDER RETIREMENT PLANS
The Company's retirement plan provides retirement benefits based upon the
individual participant's years of service and final average annual compensation
(as defined below). The following table sets forth the estimated annual
retirement benefits (exclusive of Social Security payments) payable to the Named
Executive Officers in the specified compensation and years-of-service
categories, assuming continued active service until normal retirement age and
that the Company's retirement plan is in effect at such time.
Benefits ($)
Years of Service
---------------------------------------------------------------------------------------------------------------
Remuneration ($) 15 20 25 30 35 40 45 50
------------
------------ ----------- ----------- ------------ ----------- -------------- ------------ ----------
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
1,700,000. . . 382,500 510,000 637,500 765,000 892,500 1,020,000 1,147,500 1,275,000
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: R.
J. Fani - 42 years, W. P. Parker Jr. - 43 years, S.L. Zelkowitz - 17 years,
and G. Luterman - 10 years.
24
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 2003, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Messrs. Jones, Larocca, McKessy or Miller, the current members of the
Compensation and Management Development Committee, nor Messrs. Donald Elliott,
who retired from the Board and the Compensation and Management Development
Committee on May 8, 2003, and Edward Travaglianti, who resigned from the Board
and the Compensation and Management Development Committee on February 24, 2004,
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 Management Development 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. If, during the
employment period, KeySpan enters into a definitive agreement in connection with
a transaction that constitutes a "change of control" (as defined in the Change
of Control Severance Plan described below), the employment period will be
extended until 30 days after the consummation of the change of control
transaction. 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, the
severance period is defined to mean the period from the date of termination
through the end of the employment period.
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. 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
25
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. 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.
Senior Executive Change of Control Severance Plan
As of March 10, 2004, with the exception of Mr. Catell, 47 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. On October 29, 2003, the Board of Directors authorized a five year
extension of the Change of Control Plan. The Change of Control Plan expires
October 30, 2008, 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, 2004, there were no beneficial owners of more than 5% of the
Company's Common Stock.
26
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, 2004.
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 2003 AUDIT FIRM FEE SUMMARY
The following table provides information on the aggregate fees for services
performed by Deloitte & Touche, the member firms of Deloitte & Touche Tohmatsu,
and their respective affiliates for the years ended December 31, 2003 and
December 31, 2002:
2003 2002
---- ----
Audit Fees (a) $ 3,263,333 $ 2,016,015
Audit-Related Fees (b) 999,283 320,136
Tax Fees (c) 1,856,497 280,300
All Other Fees (d) 56,985 176,249
---------------- ---------------
Total $ 6,176,098 $ 2,792,700
(a) In 2003, audit fees include base fees for the annual and statutory audits
and quarterly reviews of $2,224,981, fees related to financings of
$820,604, and fees for consultations on financial accounting standards as
part of the audit of $217,748. Such fees were $1,596,617, $110,875 and
$308,523 in 2002.
(b) Audit-related fees include benefit plan audits, accounting consultations
and audits in connection with acquisitions, internal control reviews and
consultation on financial accounting and reporting standards not arising as
part of the audit. During 2003 and 2002, fees for acquisition services
totaled $160,000 and $0 and Sarbanes-Oxley Section 404 implementation
assistance totaled $467,000 and $0, respectively.
(c) Fees for tax services billed in 2003 and 2002 consisted of tax compliance,
tax consultation services and property tax assistance. Fees for tax
compliance services totaled $1,010,295 and $172,300 in 2003 and 2002
respectively. Tax compliance services include services such as assistance
with federal, state and local income tax returns. Fees for tax consultation
services totaled $171,202 and $108,000 in 2003 and 2002, respectively. Fees
for property tax assistance were $675,000 in 2003 and $0 in 2002.
(d) Other fees include the performance of agreed upon procedures.
27
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.
Report of the Audit Committee
The Audit Committee of the Board of Directors of KeySpan is composed of four
independent directors. The members of the Audit Committee are independent as
such term is defined in the rules of NYSE and SEC. As previously stated, the
Chair, Alan H. Fishman, of the Audit Committee meets the qualifications of an
"audit committee financial expert," as that term is defined by the rules of the
SEC. 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 of the Company, risk assessment and
risk management, and the preparation of the Audit Committee report 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
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 2004 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. Although it is the intent of the Audit Committee to
pre-approve all non-audit services to be provided by Deloitte & Touche, any
inadvertant failure to do so will not be deemed a breach of the Audit Committee
charter 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, 2003.
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, 2003.
Audit Committee
Andrea S. Christensen James L. Larocca
Alan H. Fishman, Chairman Stephen W. McKessy
28
PROPOSAL 3. SHAREHOLDER PROPOSAL
The following shareholder proposal has been submitted by Mr. Emil Rossi. The
address and stock ownership of Mr. Rossi as set forth in the Company's records
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 Company accepts no
responsibility for the statements made in, or the accuracy of, the following
proposal:
"RESOLVED: That the shareholders of our company request that our Board of
Directors seek shareholder approval at the earliest subsequent shareholder
election, for the adoption, maintenance or extension of any current or future
poison pill. Once adopted, removal of this proposal or any dilution of this
proposal, would consistently be submitted to shareholder vote at the earliest
subsequent shareholder election.
We as shareholders voted in support of this topic:
Year Rate of Approval
2003 52%
This percentage is based on yes and no votes cast. I believe this level of
shareholder support is more impressive because the 52% approval followed our
Directors' objection to the proposal. I believe that there is a greater tendency
for shareholders, who more closely follow our company, to vote in favor of this
proposal topic. I do not see how our Directors object to this proposal because
it gives our Board the flexibility to override our shareholder vote if our Board
seriously believes it has good reason. This topic also won an overall 60%
yes-vote at 79 companies in 2003.
Emil Rossi, P.O. Box 249, Boonville, Calif. 95415 submitted this proposal.
Shareholders' Central Role
Putting poison pills to a vote is a way of affirming the central role that
shareholders should play in the life of a corporation. An anti-democratic scheme
to flood the market with diluted stock is not a reason that a tender offer for
our stock should fail.
Source: The Motley Fool
The key negative of poison pills is that pills can preserve management deadwood
instead of protecting investors.
Source: Moringstar.com
The Potential of a Tender Offer Can Motivate Our Directors
Hectoring directors to act more independently is a poor substitute for the
bracing possibility that shareholders could turn on a dime and sell the company
out from under its present management.
Wall Street Journal, Feb. 24, 2003
Akin to a Dictator
Poison pills are akin to a dictator who says, `Give up more of your freedom and
I'll take care of you. Performance is the greatest defense against getting taken
over. Ultimately if you perform well you remain independent, because your stock
price stays up.'
Source: T.J. Dermot Dunphy, CEO of Sealed Air (NYSE) for more
than 25 years
I believe our board may be tempted to partially implement this proposal to gain
points in the new corporate governance scoring systems. I do not believe that a
partial implementation, which could still allow our directors to give us a
poison pill on short notice, would be a substitute for complete implementation.
29
Council of Institutional Investors Recommendation
The Council of Institutional Investors www.cii.org, an organization of 130
pension funds investing $2 trillion, called for shareholder approval of poison
pills. Based on the 60% overall yes-vote in 2003 many shareholders believe
companies should allow their shareholders a vote.
Shareholder Input on a Poison Pill
Yes on 3"
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 2004
ANNUAL MEETING AND RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING
REASONS:
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 (described in
this Proxy Statement under the caption "Shareholder Rights Plan" and referred to
as a "poison pill" in Mr. Rossi's proposal) 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.
This shareholder proposal asks KeySpan's Board of Directors to relinquish its
ability to protect shareholders through the use of a shareholder rights plan
unless such a plan and the maintenance thereof is approved by the affirmative
vote of shareholders. Your Board has reviewed this matter carefully after the
passage of a similar shareholder proposal at the last Annual Meeting.
Based upon that review, your Board of Directors recommends voting against this
proposal because the Board believes that 1) shareholder rights plans such as the
KeySpan Shareholder Rights Plan help maximize shareholder value; and 2) the
Shareholder Rights Plan protects shareholders of KeySpan from unfair and abusive
takeover tactics. The Board further believes that the Shareholder Rights Plan is
in the best interests of KeySpan and its shareholders.
There is striking evidence that companies that deploy shareholder rights plans
actually perform significantly better than companies without such plans. As
reported by Mark D. Brockway, Vice President of Research and Business
Development at Institutional Shareholder Services ("ISS"), a new study released
earlier this year by Georgia State University and ISS indicates that, "[w]hile
the study will supply strong ammunition to corporate governance proponents, it
also included one finding that may come as a surprise to them: companies with
poison pills and other takeover defenses performed better than companies without
such defenses for most of the metrics analyzed."
In fact, the results of the study specifically show that strong takeover
defenses are directly correlated with:
o higher shareholder returns over three-, five- and ten-year periods;
o stronger profitability measures (return on equity, return on assets, return
on investment and net profit margin);
o higher dividend payouts and dividend yields; and
o higher interest coverage and operating cash flow to liability ratios.
Clearly, this ISS study conclusively demonstrates that strong corporate
governance measures such as those deployed by KeySpan coupled with strong
anti-takeover measures such as those provided by the Shareholder Rights Plan
result in stronger corporate performance.
30
Moreover, the Shareholder Rights Plan is designed to protect the shareholders
against takeover tactics that do not treat all shareholders fairly and equally.
The Shareholder Rights Plan is intended to encourage potential acquirers to
negotiate directly with the Board. The Board is in the best position to
negotiate on behalf of all shareholders, evaluate the adequacy of any potential
offer, and seek a higher price if there is to be a sale of KeySpan. The Board's
ability to seek a higher price in takeover contests on behalf of all
shareholders is significantly greater than the ability of the individual
shareholder to achieve such a result. Without the protection of the Shareholder
Rights Plan, your Board could lose important bargaining power in negotiating the
transaction with a potential acquirer or pursuing a potentially superior
alternative.
The Shareholder Rights Plan does not prevent an offer to acquire KeySpan at a
price and on terms that are fair and in the best interest of shareholders. In
responding to an acquisition proposal, your Board, of which nine of the current
ten members are independent, outside directors, recognizes the obligation to
fulfill its fiduciary duties to KeySpan and its shareholders. If the Board
determines that a proposal is fair and in the best interest of shareholders, the
Shareholder Rights Plan allows the Board to approve the proposal and redeem the
rights. However, to force the Board to redeem the rights now in the absence of a
proposal would leave KeySpan's shareholders unprotected in the event of an
unsolicited and potentially coercive and unfair takeover offer and, in the
Board's view, would eventually reduce long term value for shareholders.
Numerous other companies, in addition to KeySpan, believe it is in the best
interest of their shareholders to maintain a plan similar to our Shareholder
Rights Plan. According to an Investor Responsibility Research ("IRRC") report
issued in February 2003, 60% of S&P 500 companies have adopted a shareholder
rights or similar plan 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 shareholder rights and
similar plans was also noted in the IRRC report, which stated that evidence is
increasingly strong that companies with shareholder rights and similar plans in
place generally received higher premiums in takeover situations than those that
do not.
Finally, it should be noted that, while a substantial number of shareholders
evidenced their support of a similar shareholder proposal at the last annual
meeting of shareholders, they represented only one-third of KeySpan's total
shareholders. In fact, at KeySpan's 2003 Annual Meeting, there were 130,369,728
shares represented in person or by proxy, and while the 2003 shareholder
proposal was supported by 52,650,885 votes cast in favor, 47,400,706 votes were
cast against it. In addition, there were 30,318,137 shares represented at the
meeting which did not vote in favor of the proposal (26,648,178 non-votes and
3,669,959 shares abstaining). These results show that of the 100,051,591 shares
actually voting on the 2003 Shareholder Proposal at the meeting, it received a
bare majority of votes in favor, 52.6%. However, of the 130,369,728 shares
present and accounted for at the meeting, the 2003 Shareholder Proposal was
supported by only 40.4%. Finally, the votes cast in favor of the 2003
shareholder proposal represented only 33.6% of KeySpan's 156,926,647 total
shares outstanding at such time.
In summary, the proposal seeks to rescind KeySpan's Shareholder Rights Plan,
thereby taking away from the Board a valuable mechanism for conducting auctions
and fending off hostile bidders. Your Board believes that this shareholder
proposal is neither in the interest of the shareholders nor supported by a
majority of the outstanding shares 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.
31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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, 2003 at a total cost of $2,985,358. The Company plans on
renewing its D&O liability and fiduciary insurances for a one-year period
commencing May 28, 2004.
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 for the Southern
District of New York and the SEC. On March 5, 2002, the SEC, as part of its
continuing inquiry, 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 by KeySpan
Services, Inc., a KeySpan subsidiary, of the Roy Kay companies through the July
17th announcement.
KeySpan and certain of its current and former officers and directors (including
Mr. Catell and Mr. Luterman) are defendants in a consolidated class action
lawsuit filed in the United States District Court for the Eastern District of
New York. This lawsuit alleges, among other things, violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
32
in connection with disclosures relating to or following the acquisition of the
Roy Kay companies. In October 2001, a shareholder's derivative action was
commenced in the same court against certain current and former 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. On June 12, 2002, a second derivative action was
commenced which asserted similar allegations. Each of these proceedings seeks
monetary damages in an unspecified amount. On March 18, 2003, the court granted
our motion to dismiss the class action complaint. 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.
In April 2003, plaintiffs filed an amended complaint and in July 2003 the court
denied our motion to dismiss the amended complaint but did strike certain
allegations. On November 20, 2003, the court granted our motion for
reconsideration of the July 2003 order and the court struck additional
allegations from the amended complaint which effectively limited the potential
class period. On December 19, 2003, KeySpan filed a motion to dismiss the
derivative actions. This motion is still pending. KeySpan intends to vigorously
defend each of these proceedings. However, we are unable to predict the outcome
of these proceedings or what effect, if any, such outcome will have on our
financial condition, results of operations or cash flows.
Deadline For Shareholder Proposals
Shareholder proposals for the 2005 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 2, 2004, to be considered by the Company for possible inclusion in the
proxy materials for the 2005 Annual Meeting.
In addition, all shareholder proposals or nominations for election of a director
for the 2005 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 2004 Annual Meeting.
Additional Information
KeySpan's Annual Report for the period ended December 31, 2003 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,
2003.
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. 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
33
out-of-pocket expenses in forwarding proxy materials to the beneficial owners of
the Company's Common Stock. Shareholders, employees and other interested parties
may communicate directly and confidentially with the Company's non-management
directors by sending their communications to KeySpan Board of Directors, c/o
KeySpan Corporate Secretary, One MetroTech Center, Brooklyn, New York 11201. All
such communications received by our Corporate Secretary will be delivered to one
or more independent members of the Board of Directors.
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
and the shareholder proposal relating to our Shareholder Rights Plan,
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
/s/ Robert B. Catell
Robert B. Catell
Chairman and Chief Executive Officer
34
APPENDIX A
KEYSPAN CORPORATION
Corporate Governance Guidelines
(Amended and Restated March 10, 2004)
The following governance guidelines have been established by the Board of
Directors of KeySpan Corporation. These guidelines, together with the Company's
certificate of incorporation, by-laws and the charters governing the activities
of the Committees of the Board, provide the framework for KeySpan's corporate
governance. The Board will, not less frequently than annually, review these
guidelines and the Board Committee charters.
BOARD OF DIRECTORS
Role of Board and Management
- ----------------------------
KeySpan's business is conducted by its employees, managers and officers, under
the direction of the Chief Executive Officer and subject to the oversight of the
Board of Directors, with the goal of enhancing the long-term value of the
Corporation for its shareholders. The Board is elected by the shareholders to
oversee management and to assure that the long-term interests of the
shareholders are being served by responsibly addressing the concerns of other
stakeholders and interested parties including employees, customers, KeySpan's
communities, government officials and the public at large.
Functions of Board of Directors
- -------------------------------
The Board of Directors has eight regularly scheduled meetings each year at which
it reviews and discusses reports by management on the Corporation's financial
and operational performance, approves and monitors KeySpan's strategic
objectives and plans, and addresses policy issues facing the Corporation.
Directors are expected to attend all scheduled Board and Committee meetings. In
addition to its general oversight of management, the Board and its Committees
also perform a number of specific functions, including:
a. selecting, evaluating and compensating the Chief Executive Officer and
overseeing Chief Executive Officer succession planning;
b. providing counsel and oversight on the selection, evaluation,
development, compensation and succession planning of other senior
management;
c. reviewing, approving and monitoring the Corporation's principal
financial, operational and business strategies and major corporate
activities;
d. identifying and assessing major risks facing KeySpan and reviewing
options for their mitigation; and
e. ensuring processes are in place for maintaining the accuracy and
integrity of the Corporation's financial statements, its compliance
with law and ethics, and the relationships with customers, suppliers
and the Corporation's other stakeholders.
Director Qualifications
- -----------------------
Directors should possess the highest personal and professional ethics, integrity
and values, and be committed to representing the long-term interests of the
shareholders.
A-1
Directors must also have an inquisitive and objective perspective, practical
wisdom and mature judgment. KeySpan endeavors to have a Board of Directors
exhibiting diversity and representing experience at policy-making levels in
business, government, education, finance and technology, and in other areas that
are relevant to the Corporation's businesses.
Directors must be willing to devote sufficient time to carrying out their duties
and responsibilities effectively.
Directors who also serve as chief executive officers or in equivalent positions
at other companies should not serve on more than two boards of unaffiliated
public companies, in addition to the KeySpan Board and their own board; and
other Directors should not serve on more than four other boards of unaffiliated
public companies, in addition to the KeySpan Board. Directors who serve on the
Audit Committee should not serve simultaneously on the audit committees of more
than three unaffiliated public companies.
The Corporate Governance and Nominating Committee, supported by the Chief
Executive Officer, shall be responsible for determining the criteria for and
qualifications of Director candidates.
Independence of Directors
- -------------------------
At all times, a majority of the Directors shall be independent directors under
the rules of the New York Stock Exchange, Inc. (NYSE) and the Sarbanes-Oxley Act
of 2002 and the regulations promulgated thereunder. The following guidelines are
established to assist the Board in determining director independence:
a. A Director will not be considered independent if, within the preceding
three years: (i) the Director was employed by KeySpan or one of its
subsidiaries; (ii) an immediate family member of the Director was employed
by KeySpan as an officer; (iii) the Director was employed by or affiliated
with KeySpan's independent auditor; (iv) an immediate family member of the
Director was employed by KeySpan's independent auditor as a partner,
principal or manager; (v) the Director received more than $100,000 in
direct compensation from KeySpan or its subsidiaries, other than for Board
service or pension or deferred compensation; (vi) an immediate family
member of the Director received more than $100,000 in direct compensation
from KeySpan or its subsidiaries, other than for Board service or pension
or deferred compensation; (vii) the Director was employed as an executive
officer of another company where any of KeySpan's officers serve on that
company's compensation committee; or (viii) an immediate family member of
the Director was employed as an executive officer of another company where
any of KeySpan's officers serve on that company's compensation committee;
b. The following commercial or charitable relationships will not be considered
to be material relationships that would impair a director's independence:
(i) if a KeySpan Director or an immediate family member of the Director is
an executive officer of another company that does business with KeySpan and
the annual sales to, or purchases from, KeySpan are less than the greater
of $1 million or two percent of the annual revenues of the company he or
she serves as an executive officer; (ii) if a KeySpan Director is an
executive officer of another company which is indebted to KeySpan, or to
which KeySpan is indebted, and the total amount of either company's
indebtedness to the other is less than one percent of the total
consolidated assets of the company he or she serves as an executive
officer; and (iii) if a KeySpan director serves as an officer, director or
trustee of a charitable organization, and KeySpan's discretionary
charitable contributions to the organization are less than the greater of
$1 million or two percent of that organization's total annual charitable
receipts. (KeySpan's automatic matching of employee charitable
contributions will not be included in the amount of KeySpan's contributions
for this purpose.) The Board will annually review all commercial and
charitable relationships of Directors.
c. For relationships not covered by the guidelines in subsection (b) above,
the determination of whether the relationship is material or not, and
therefore whether the Director would be independent or not, shall be made
by the Directors who satisfy the independence guidelines set forth in
subsections (a) and (b) above. For example, if a Director is the chief
executive officer of a company that purchases products and services from
KeySpan that are more than two percent of that company's annual revenues,
the independent Directors could determine, after considering all of the
relevant circumstances, whether such a relationship was material or
immaterial, and whether the Director would therefore be considered
independent.
A-2
The Corporation will disclose its determinations on director independence in its
annual proxy statements.
KeySpan will not make any personal loans or extensions of credit to Directors or
executive officers.
The Directors shall complete and submit an annual director questionnaire to
identify and assess relationships so that the Board can determine independence
under these standards. The Directors also 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.
Size and Selection of the Board of Directors
- --------------------------------------------
The Board shall consist of a number of Directors such that the Corporation is
effectively managed, given the size and breadth of the Corporation's activities
and the need for diversity of Board views. The number of Directors shall be
fixed from time to time by the Board and recorded in the minutes of the
Corporation. The Directors are elected each year by the shareholders at the
annual meeting of shareholders.
The Board, upon the recommendation of the Corporate Governance and Nominating
Committee, will propose candidates for election or re-election at each annual
meeting of shareholders. A review of each Director's service on the Board will
be conducted prior to such nomination. Shareholders may propose nominees for
consideration by the Corporate Governance and Nominating Committee as set forth
in Article 2.7 of KeySpan's by-laws.
It shall be the responsibility of the Corporate Governance and Nominating
Committee, supported by the Chief Executive Officer, to recommend to the Board
of Directors nominees to fill Board vacancies and to replace retiring Board
members. Between annual shareholder meetings, the Board may elect Directors to
fill such vacancies to serve until the next annual meeting of shareholders.
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, however, at its discretion, invite a retiring
executive to serve or continue to serve as a Director.
Board Performance Evaluation
- ----------------------------
The Corporate Governance and Nominating Committee shall annually oversee the
evaluation of the performance of the Board with the participation of the full
Board of Directors. As part of this review, the independent directors may meet
separately to assess the Board's performance.
Director Compensation Review
- ----------------------------
The Compensation and Management Development Committee shall have the
responsibility for performing an annual review of the compensation and benefits
provided to non-employee Directors. In discharging this duty, the Committee
shall be guided by three goals: compensation should fairly pay Directors for
work required in a corporation of KeySpan's size and scope; compensation should
align Directors' interests with the long-term interests of shareholders; and the
structure of the compensation should be transparent and easy for shareholders to
understand. The Committee may also review industry analyses of Director's
compensation and benefits to assist it
A-3
in recommending any changes in the compensation and benefits provided to
Directors. Any changes to the Directors compensation and benefits must be
approved by the full Board.
Director's Change in Present Job Responsibilities
- -------------------------------------------------
Individual Directors who experience changes in their employment, careers,
affiliations with organizations or other matters, which may affect the
Corporation or such Director's ability to serve effectively, have a duty to
advise the Chairman of the Board of such changes. The specific circumstances
will be assessed to determine if the Director's resignation from the Board
should be requested.
Retirement Age
- --------------
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.
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.
Attendance at Annual Meeting of Shareholders
- --------------------------------------------
Directors are encouraged to attend the annual meeting of KeySpan's shareholders.
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 Chairman or the Chief Executive Officer,
non-directors, whether or not officers of the Corporation, may attend or give
presentations before the Board.
Strategy Sessions
- -----------------
At least one meeting of the Board of Directors each year shall be devoted to a
review with executive management of the Corporation's strategic plan and its
long range goals and direction.
A-4
Executive Sessions
- ------------------
The Directors and the Chief Executive Officer shall convene in executive session
as often as is appropriate, as part of regularly scheduled meetings of the Board
of Directors. Executive sessions may be requested by any Director, as well as
the Chief Executive Officer. In addition, the independent Directors of the Board
shall meet at least quarterly, without the Chief Executive Officer or any other
non-independent 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 standing committees: the Executive Committee, the
Audit Committee, the Compensation and Management Development Committee, and the
Corporate Governance and Nominating Committee. All members of the Audit
Committee, the Compensation and Management Development Committee, and the
Corporate Governance and Nominating Committee are required to be independent, as
determined in accordance with these guidelines. The current charters of each
Committee shall be published on the KeySpan website. The Committee chairs shall
report on their meetings to the full Board following each meeting of the
respective Committee. Any Committee may, at its discretion, hold a meeting in
conjunction with the full Board.
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 Management Development Committee and Corporate Governance and
Nominating Committee meetings, and at least 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 from time to time, as
determined by the Board of Directors. Committee appointments shall be made at a
meeting of the Board of Directors as soon as practicable following the annual
meeting of shareholders.
Reporting of Concerns to the Audit Committee
- --------------------------------------------
Anyone, including a KeySpan employee, who has a concern about KeySpan, or its
accounting, internal accounting controls or auditing matters, may communicate
that concern directly to the Audit Committee. Such communications may be
confidential or anonymous, and may be e-mailed, submitted in writing, or
reported by phone to special addresses and a toll-free phone number as indicated
on the Corporation's website. All such concerns will be forwarded to the
Chairman of the Audit Committee. The status of all outstanding concerns, if any,
addressed to the Audit Committee will be reported to the Directors on a
quarterly basis. The Audit Committee may direct special treatment, including the
retention of outside advisors or counsel, for any concern addressed to them. The
Corporation's Ethics Policy prohibits retaliation or taking any adverse action
against an employee for raising or helping to raise an integrity concern.
A-5
Access to Independent Advisors
- ------------------------------
The Board and its Committees shall have the right at any time to retain
independent outside financial, legal or other advisors. In that connection, in
the event the Board or any Committee retains any such advisor, the Board or the
Committee shall have the sole authority to approve such advisor's fees and other
retention terms.
Director Orientation and Continuing Education
- ---------------------------------------------
The Corporate Secretary shall be responsible for providing an orientation for
new Directors, and for periodically providing materials or briefing sessions for
all Directors on subjects that would assist them in discharging their duties.
The Corporation recognizes the value of continuing education for its Directors
on corporate governance matters, industry specific matters and other matters
that are relevant to the Directors' responsibilities and KeySpan is committed to
providing its Directors, whenever possible, with such continuing education
opportunities. Such education may be provided in the form of written material,
seminars and/or providing in-house training.
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. The same individual may hold both positions.
Chief Executive Officer Evaluation
- ----------------------------------
The Compensation and Management Development Committee shall annually review the
performance of the Chief Executive Officer, and establish a specific set of
performance objectives for the Chief Executive Officer. These should include
concerns of the shareholders, employees and customers. The Compensation and
Management Development Committee shall, either as a committee or together with
other independent directors (as directed by the Board of Directors), determine
the Chief Executive Officer's compensation level based on this review.
Management Development and Succession Planning
- ----------------------------------------------
The Compensation and Management Development Committee shall review annually the
performance of all officers, which shall include an assessment by the Chief
Executive Officer of the officers' performance. This review shall include a
discussion of the officers' future potential with the Board of Directors as part
of the Corporation's management development and succession planning.
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-6
APPENDIX B
KEYSPAN CORPORATION
EXECUTIVE COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
(Amended and Restated March 10, 2004)
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
for those powers and authorities which, under New York law, are reserved for the
Board of Directors, and further subject at all times to limitations by the
Board.
Membership
- ----------
The Executive Committee shall be comprised of the Chairman of the Board and a
number of directors, as designated by the Board. Unless otherwise provided by
the Board, the Chairman of the Board shall be the Chairman of the Executive
Committee. Committee members shall be appointed, continued or replaced at the
discretion of the Board.
Administrative Procedures
- -------------------------
The Executive Committee shall meet at as frequently as is deemed necessary.
The attendance of non-members of the Executive Committee is permitted at the
invitation of the Executive Committee 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, alternate members may be designated by the Executive Committee
Chairman. The Executive 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 10, 2004)
Purpose and Authority
- ---------------------
The purpose of the Audit Committee is to:
A. Provide assistance to the Board of Directors in fulfilling its oversight
responsibilities to the Corporation's shareholders and to the investing
public. The Committee's primary duties are to monitor, review and initiate
changes, as the Committee deems appropriate, with respect to:
(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;
(v) The business practices of the Corporation; and
(vi) Risk assessment and risk management.
B. Prepare the audit committee report that the rules of the Securities and
Exchange Commission require be included in the Corporation's annual Proxy
Statement.
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 and the shareholders of the Corporation.
To such end, the Committee is authorized to select, retain and/or replace, as
needed, advisors, consultants and legal counsel to provide independent advice to
the Committee. In that connection, in the event the Committee retains any such
advisor, consultant or legal counsel, 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, including alternate 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 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). At least one
member of the committee shall have accounting or related financial
management experience, as required by the New York Stock Exchange and
determined by the Board in its business judgment. The Board and the
Corporation shall use diligent efforts to have at least one committee
member who meets the criteria of an "audit committee financial expert"
as prescribed by Securities and Exchange Commission rules.
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
- -------------------
General
- -------
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, 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 Corporation's ethical standards.
The Committee shall periodically meet separately with the independent auditors
and in the absence of management 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 Securities and Exchange
Commission.
Fees and Compensation
- ---------------------
The Committee shall have the exclusive authority within the Corporation to
approve in advance any audit or non-audit engagement or relationship between the
Corporation and the independent auditors, other than "prohibited non-auditing
services" (as defined below) which shall not be approved by the Committee. 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
Corporation; (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
C-2
outsourcing services; (vi) management functions or human resource functions ;
(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.
Although it is the intent of the Committee to pre-approve all non-audit services
to be provided by the independent auditor, any inadvertent failure to do so will
not be deemed a breach of any provision of this Charter 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 by the
Committee (or its Chairman pursuant to delegated authority) prior to the
completion of the annual audit of the Corporation.
Review of Independent Auditor
- -----------------------------
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, peer review, or a review by the
Public Company Accounting Oversight Board, of the auditing firm, or by
any inquiry or investigation by governmental or professional
authorities, within 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 is in charge of the Internal Auditing
Division and reports directly to the Board of Directors, functionally to the
Audit Committee and administratively to the President and Chief Operating
Officer.
Each year, the General Auditor will submit an Audit Plan to the Committee for
approval. Thereafter, the General Auditor will keep the Committee informed on
the progress of the Plan's implementation, and twice a year will submit written
reports on such progress and on the results of his reviews and management's
response to any problems or weaknesses in controls noted.
The Committee shall review the Charter of the Internal Auditing Division and
approve any changes thereto. It shall also ascertain that the resources
allocated to the Internal Auditing function are sufficient to ensure that
adequate internal audit review is being performed in the Corporation. The
Committee will periodically review and discuss with the independent auditor the
responsibilities, budget, and staffing of the Internal Auditing Division.
C-3
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. Periodically, the Committee will meet in
executive session with the General Auditor.
The General Auditor shall not be appointed or removed by management without the
concurrence of the Committee. The General Auditor's performance will be reviewed
periodically by 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 judgment areas, adjustments, disclosures and all material changes
in accounting principles. Management will report to the Committee any material
items or discussions resulting from such review. Management will also provide
the Committee copies of the reports filed with the Securities and Exchange
Commission. 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, 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.
The Committee shall discuss with management and the independent auditor: (i) the
adequacy of the Corporation's internal controls over financial reporting and the
financial reporting process, (ii) the status of internal control recommendations
made by the independent auditor and the General Auditor, (iii) the adequacy of
the process employed for the certification by the Corporation's Chief Executive
Officer and Chief Financial Officer of reports or financial statements filed
with the Securities and Exchange Commission.
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 Securities and Exchange Commission.
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
C-4
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.
Other Duties
- ------------
The Committee shall review with management and the independent auditor the
Corporation's guidelines and policies with respect to risk assessment and risk
management. The Committee should review the Corporation's major financial and
operational risk exposures and the steps management has taken to monitor and
control such exposures, and evaluate the Corporation's compliance with its
Corporate Risk Policy and with the risk control practices established by its
Risk Management Committee. The Committee may also approve changes to the
Corporation's Corporate Risk Policy as part of its continual reevaluation of the
overall framework for evaluation, management and control of risk.
The Committee shall establish hiring policies for employees or former employees
of the independent auditor. At a minimum, these policies shall 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.
The Committee shall 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 shall make inquiries, as
necessary, to assure itself that the Corporation conducts its business in a
lawful and ethical manner.
Periodically, the Committee shall meet separately with management.
At least once a year, the Committee shall review with management policies
respecting expenses and perquisites.
At least 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.
C-5
At least 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.
The Committee shall make appropriate amendments to the Code of Ethics for Chief
Executive Officer and Senior Financial Officers ("the Code") and shall be
empowered to grant waivers thereto under circumstances it deems appropriate.
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).
Annual Performance Evaluation
- -----------------------------
The Committee shall perform an annual review and evaluation 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 MANAGEMENT DEVELOPMENT COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
(Amended and Restated March 10, 2004)
Purpose and Authority
- ---------------------
The purpose of the Compensation and Management Development Committee is to:
o establish, maintain, and assess the competitiveness of the
Corporation's compensation philosophy and programs to ensure they are
fair and equitable, designed to attract, develop, motivate and retain
directors and officers; and consistent with best practices;
o review and recommend to the Board all officer appointments and
promotions;
o annually review the performance of all officers, including the Chief
Executive Officer, based on established corporate goals and
objectives, and review and recommend to the Board their annual salary,
bonus, and other forms of compensation and benefits, direct and
indirect, based upon this review;
o annually approve all long term equity based compensation;
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, Securities and
Exchange Commission and other applicable regulatory bodies;
o review management succession plans;
o annually conduct a review of director compensation and make
recommendations, if appropriate, in director compensation.
The Chief Executive Officer shall meet periodically with the Committee 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
other duties which the Committee deems necessary to fulfill 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, advisors, or legal counsel to
provide independent advice to the Committee. In that connection, in the event
the Committee retains any such consultant, advisor or legal counsel, the
Committee shall have the sole authority to approve such consultant's fees and
other retention terms.
D-1
Membership
- ----------
The Committee shall be comprised of three or more members of the Board of
Directors. Committee members shall be appointed, continued or replaced at the
discretion 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 Committee
Chairman. All members, including alternate members are required to meet the
following criteria:
o All members are required to be determined by the Board of Directors to
be "independent" under the rules of the New York Stock Exchange and
the Sarbanes-Oxley Act of 2002. 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. o
Chairman
- --------
Unless a Chairman is designated by the full Board of Directors, the members of
the Committee shall elect 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 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 an annual review and evaluation of the performance
of the Committee.
* * * * * * * * * * * *
D-2
APPENDIX E
KEYSPAN CORPORATION
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
OF THE
BOARD OF DIRECTORS
CHARTER
(Amended and Restated March 10, 2004)
Purpose and Authority
- ---------------------
The purpose and authority of the Corporate Governance and Nominating Committee
("Committee") is to:
o Establish qualifications and other criteria for candidates for a
position on the Corporation's Board of Directors;
o Identify individuals qualified to become directors and recommend to
the Board candidates for all directorships to be elected at an annual
or special meeting (including those existing directors standing for
re-election) and those to be elected by the Board between meetings of
shareholders;
o Oversee evaluation of the performance of the Board, with the
participation of the full Board of Directors;
o Develop and recommend to the Board the corporate governance principles
applicable to the Corporation and recommend, if necessary, any changes
to those principles;
o Consider and recommend to the Board, if appropriate, changes to the
Corporation's certificate of incorporation and by-laws;
o Review environmental matters that impact, or may impact, the
Corporation and its assets, and monitor the status of the
Corporation's environmental compliance and remediation programs;
o Establish and review the Corporation's policies and monitor the
Corporation's performance with respect to employee matters, including
but not limited to:
a) Business Ethics,
b) Diversity and Equal Employment Opportunity Initiatives, and
c) Work Safety Issues; and
o Review community affairs programs and the activities and efforts of
the Corporation to fulfill its role as a responsible corporate
citizen.
The Committee is designated by the Board and receives its authority from the
Board to which it reports. The Board has vested in the Committee the authority
to carry out its purposes and responsibilities as noted in this Charter. The
Committee is authorized to select, retain and/or replace, as needed, advisors,
consultants and legal counsel to provide independent advice to the Committee. In
that connection, in the event the Committee retains any such advisor,
consultant, or legal counsel the Committee shall have the sole authority to
approve such consultant's fees and other retention terms. The Committee shall
also have the sole authority 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.
E-1
Membership
- ----------
The Committee shall be comprised of three or more members of the Board of
Directors. Committee members shall be appointed, continued or replaced at the
discretion 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 Committee
Chairman. All members, including alternate members, are at all times required to
be determined by the Board to be "independent" directors under the then
applicable rules of the New York Stock Exchange and the Sarbanes-Oxley Act of
2002 and the regulations promulgated thereunder.
The members of the Committee shall be appointed by the Board of Directors and
shall serve until such member's successor is duly elected and qualified or until
such member's earlier resignation or removal. The members of the Committee may
be removed, with or without cause, by a majority vote of the Board.
Chairman
- --------
Unless a Chairman is designated 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 Committee
Chairman. The Committee may also exclude from its meetings any persons it deems
appropriate in order to carry out its responsibilities. 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.
Board of Director Candidate Criteria and Evaluation
- ---------------------------------------------------
In identifying and/or reviewing the qualifications of candidates for membership
on the Board of Directors, the Committee shall take into account all factors it
considers appropriate, which may include (a) ensuring that the Board, as a
whole, is diverse and consists of individuals with various and relevant career
experience, required and demonstrated technical skills, industry knowledge and
experience, financial expertise (including expertise that could qualify a
director as a "financial expert," as that term is defined by the rules of the
New York Stock Exchange and/or the Securities and Exchange Commission), local
community relationships and (b) required individual qualifications, including
personal and professional ethics, integrity and values, strength of character,
practical wisdom, mature judgment, familiarity with the Corporation's business
and industry, independence of thought and an ability to work collegially. The
Committee also may consider the extent to which the candidate would fill a
present need on the Board.
The Committee is authorized to conduct all necessary and appropriate inquiries
into the backgrounds and qualifications of potential candidates and to consider
issues of independence and possible conflicts of interest of current and
prospective members of the Board and executive officers, and whether a candidate
represents special interests in a manner that would impair his or her ability to
effectively represent the interests of all shareholders.
The Committee is authorized to review and make recommendations, as the Committee
deems appropriate, regarding the composition and size of the Board, retirement
provisions and/or term or age limits, all in order to ensure the Board has the
requisite expertise and its membership consists of persons with sufficiently
diverse and independent backgrounds to further the interests of the Corporation
and its shareholders.
E-2
Annual Evaluations
- ------------------
The Committee shall annually oversee evaluation of the performance of the Board,
with the participation of the full Board of Directors.
The Committee shall also perform an annual review and evaluation of the
performance of the Committee. In addition, the Committee shall perform an annual
review and assessment of this Charter.
************
E-3
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 20, 2004
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 20, 2004, 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 and 2, and AGAINST proposal 3 and 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 Gloria C. Larson
03 Alan H. Fishman 08 Stephen W. McKessy
04 J. Atwood Ives 09 Edward D. Miller
05 James R. Jones 10 Vikki L. Pryor
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- -------------------------- ---------------------------
- -------------------------- ---------------------------
ADMISSION TICKET
KEYSPAN CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 2004 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 2, 4 or 5 train to Borough Hall (walk one block East to Willoughby Street
and make a left on Jay Street)
o M 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, 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, R, 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, 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. oFrom
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 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 and 2 and AGAINST proposal 3 and as said Proxies deem advisable
on such other matters as may properly come before the meeting.
The Board of Directors recommends a vote "FOR" proposals 1 and 2.
1. Election of Directions (Please see reverse)
FOR WITHHELD
[ ] [ ]
For, except vote withheld from the following nominee(s):
-------------------------------------------------------------
2. Ratification of Deloitte & Touche LLP as independent public accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors recommends a vote "AGAINST" proposal 3.
3. Shareholder Proposal on Shareholder Rights Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I have included comments, or have included a change of address. [ ]
I already receive an Annual Report and do not wish to receive one for this
account. [ ]
I plan to attend the Annual Meeting. [ ]
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If more than one trustee, all should sign.
Signature: ___________ Date: ________ Signature: ___________ Date: _________
KEYSPAN CORPORATION
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8535
EDISON, NJ 08818-8535
Your Vote is important. Please vote immediately.
Vote-by-Internet or Vote-by-Telephone
- --------------------------------- -------------------------------
Log on to the Internet and go Call toll-free
to http://www.eproxyvote.com/kse 1-877-PRX-VOTE (1-877-779-8683)
If you vote over the internet or by phone, please do not mail your card.