<PAGE>
AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1996
REGISTRATION NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
KEYSPAN ENERGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEW YORK 4924 11-3344628
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
ROBERT R. WIECZOREK
VICE PRESIDENT, SECRETARY AND
TREASURER
ONE METROTECH CENTER ONE METROTECH CENTER
BROOKLYN, NEW YORK 11201-3850 BROOKLYN, NEW YORK 11201-3850
(718) 403-1000 (718) 403-1000
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AREA AND TELEPHONE NUMBER,INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
COPIES TO:
ROBERT B. HIDEN, JR., ESQ. LANCE D. MYERS, ESQ.
SULLIVAN & CROMWELL CULLEN AND DYKMAN
125 BROAD STREET 177 MONTAGUE STREET
NEW YORK, NEW YORK 10004 BROOKLYN, NEW YORK 11201
(212) 558-4000 (718) 855-9000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.33 1/3 per share(1). 51,000,000 shs. $29.6875 $1,514,625,000 $458,807
==========================================================================================
</TABLE>
(1) The number of shares of Common Stock of KeySpan Energy Corporation
("KeySpan") to be issued in the share exchange described herein (the
"share exchange") cannot be precisely determined at the time this
Registration Statement becomes effective because shares of common stock of
The Brooklyn Union Gas Company ("Brooklyn Union") may be issued thereafter
and prior to the effective time of the share exchange pursuant to Brooklyn
Union's Employee Savings Plan, Discount Stock Purchase Plan for Employees,
and Long-Term Performance Incentive Compensation Plan, and under Brooklyn
Union's Dividend Reinvestment and Stock Purchase Plan. This Registration
Statement covers a number of shares of common stock of KeySpan which is
estimated to be at least as large as the number of shares of common stock
of Brooklyn Union which is expected to be outstanding at the effective
time of the share exchange. See the undertaking in Item 22(4) in Part II
of this Registration Statement.
(2) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, based
upon the per share market value of the shares of common stock of Brooklyn
Union to be exchanged in the share exchange, which is the average of the
reported high and low sales prices of a share of common stock of Brooklyn
Union on the New York Stock Exchange, Inc. Composite Tape on December 13,
1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
[LOGO]BROOKLYN December 20, 1996
UNION
Dear Shareholder:
On behalf of our Board of Directors, I cordially invite you to attend Brooklyn
Union's Annual Meeting of Shareholders.
An important purpose of the meeting is to vote on our holding company proposal.
As I have reported in the June 1996 quarterly and my November 1996 letter,
Brooklyn Union is proposing to restructure its gas distribution operations and
subsidiaries as a holding company to provide us with the organizational
flexibility needed in a highly competitive environment.
The holding company will allow us to make full use of our experience in serving
the total energy needs of customers within and beyond the boundaries of our
traditional utility service area. We will be able to take advantage of business
opportunities in a more timely fashion and compete more aggressively in the
open marketplace. And, the holding company will allow us to invest in a more
broadly defined energy business without the need for lengthy regulatory
approval for each initiative taken to expand our business.
The new company will be named KeySpan Energy Corporation. Brooklyn Union, the
utility, will be the most significant subsidiary of the holding company. Our
non-utility businesses will be operated as separate subsidiaries of KeySpan. I
will be the chairman, president and chief executive officer as well as a
director of KeySpan, and I will continue as chairman and chief executive
officer and a director of Brooklyn Union.
The process began by reaching an agreement with the staff of the New York State
Department of Public Service. Then, after a review by an administrative law
judge, the New York State Public Service Commission gave its final approval in
September. We need your approval now. YOUR VOTE IS VERY IMPORTANT TO US. Your
Board of Directors has unanimously approved the proposal and recommends that
common shareholders vote FOR it. Our holding company proposal will be
implemented through a share exchange. Your
Brooklyn Union common stock certificates will automatically become certificates
representing KeySpan common stock when the share exchange occurs and you will
automatically become a shareholder of KeySpan and cease to be a shareholder of
Brooklyn Union at that time. Your proportionate ownership interest will not
change with this exchange of stock.
Enclosed is our Prospectus/Proxy Statement, which includes "Questions and
Answers and Summary About Our Holding Company Proposal and Share Exchange." The
"Questions and Answers and Summary" will answer important questions about how
our holding company structure and share exchange will affect you as a
shareholder. More details are provided in the Prospectus/Proxy Statement.
If you have any additional questions or need assistance in voting your shares,
please call D.F. King & Co., Inc., which is assisting in our proxy
solicitation, toll free at 1-800-578-5378.
Thank you for your confidence in Brooklyn Union. We are very enthusiastic about
our proposal and are confident we will continue to grow and prosper as a
holding company.
Sincerely,
/s/Robert B. Catel
Robert B. Catell
Chairman and Chief Executive Officer
<PAGE>
[LOGO]BROOKLYN
UNION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 6, 1997
DEAR SHAREHOLDER:
I am pleased to give you notice and to cordially invite you to attend the
Annual Meeting of Shareholders of The Brooklyn Union Gas Company, at our
headquarters office, One MetroTech Center, Brooklyn, New York, on February 6,
1997, at 10:00 a.m.
At our Annual Meeting common shareholders will consider and take action on our
proposal to adopt a holding company structure by voting on:
1. Adoption of our Agreement and Plan of Exchange (a copy of which is attached
as Exhibit A to the accompanying Prospectus/Proxy Statement), which
provides that (a) the holders of shares of Brooklyn Union common stock will
become holders of shares of common stock of KeySpan Energy Corporation
through a share exchange, (b) KeySpan will become the parent holding
company of Brooklyn Union and its non-utility subsidiaries, and (c)
Brooklyn Union and those subsidiaries will continue to carry on their
utility and other businesses as separate subsidiaries of KeySpan.
In addition to Proposal 1, common shareholders will also consider and take
action on several other proposals:
2. Election of five directors of Brooklyn Union;
3. Our appointment of Arthur Andersen LLP as independent public accountants
for our 1997 fiscal year;
4. A shareholder proposal as to cumulative voting; and
5. Such other business as may properly come before our Annual Meeting, or any
adjournments.
The meeting room will be open for admission at 9:00 a.m. I suggest you arrive
early, since seating is limited and is on a first-come basis. We are providing
overflow space in a separate room where the Meeting will be televised. I hope
you will join us for complimentary coffee, tea and pastries prior to the
Meeting.
Holders of record of our outstanding common stock and preferred stock on
December 18, 1996, the record date, are entitled to receive notice of our
Annual Meeting. However, only holders of record of shares of our common stock
on the record date are entitled to vote at the Meeting.
If the Agreement and Plan of Exchange is adopted by our common shareholders
and the share exchange occurs, a holder of record of our common stock on the
record date who dissents and does not vote "FOR" Proposal 1 is entitled to
receive payment in cash if that holder follows the procedures provided in
Sections 623 and 910 of the New York Business Corporation Law, attached as
Exhibit C to the accompanying Prospectus/Proxy Statement.
December 20, 1996
By Order of The Board of Directors,
ROBERT R. WIECZOREK
Vice President, Secretary and Treasurer
IMPORTANT
EVEN THOUGH YOU MAY EXPECT TO ATTEND OUR ANNUAL MEETING, OUR BOARD OF
DIRECTORS URGENTLY REQUESTS THAT, WHETHER YOUR COMMON STOCK SHAREHOLDINGS ARE
LARGE OR SMALL, YOU PROMPTLY FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY
CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED FOR THAT PURPOSE. YOUR VOTE IS VERY
IMPORTANT TO US. IF YOU DO ATTEND AND VOTE AT THE ANNUAL MEETING, YOUR VOTE IN
PERSON WILL SUPERSEDE ANY EARLIER VOTE BY PROXY.
<PAGE>
DIRECTIONS TO METROTECH
PUBLIC TRANSPORTATION VIA BQE WESTBOUND: VIA BROOKLYN BRIDGE:
SUBWAY: Exit Tillary Street Exit Adams Street and
The A, F and C IND and proceed to Jay proceed to Tillary
trains stop at Jay Street. Turn left on Street. Turn left on
Street. Jay and proceed one Tillary and then right
The numbers 2, 3, 4 and a half blocks to on Jay Street. Proceed
and 5 IRT trains stop One MetroTech. to One MetroTech.
at Borough Hall.
The M, N and R BMT VIA BQE EASTBOUND: PARKING:
trains all stop at Exit Tillary Street The Edison parking
Lawrence Street. and proceed to Jay garage is located on
Street. Turn left on the G1 level of
Jay and proceed one MetroTech. The
and a half blocks to entrance is accessible
One MetroTech. from Lawrence Street.
Parking is also
available in the
Edison garage in the
SIAC building. There
are also several other
parking facilities
along Jay Street.
BUSES: VIA MANHATTAN BRIDGE:
The numbers 25, 26, Exit Flatbush Avenue
38, 41, 52, 54 and 67 and take to Tillary
all stop within a Street. Turn right on
reasonable distance Tillary and then left
from the MetroTech on Jay Street. Proceed
area. to One MetroTech.
[MAP SHOWING DIRECTIONS TO THE ANNUAL MEETING.]
<PAGE>
[LOGO]BROOKLYN One Metro Tech Center KEYSPAN ENERGY
UNION Brooklyn, New York 11201-3850 CORPORATION
HOLDING COMPANY AND SHARE EXCHANGE PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of The Brooklyn Union Gas Company has unanimously
approved a proposal to adopt a holding company structure, which would be
implemented through a share exchange.
If Brooklyn Union common shareholders approve our holding company proposal by
adopting the Agreement and Plan of Exchange at our Annual Meeting and the share
exchange occurs, Brooklyn Union common shareholders will automatically become
holders of common stock of KeySpan Energy Corporation on the basis of one share
of Brooklyn Union for one share of KeySpan. As a result of the share exchange,
. KeySpan will become a holding company owned by the former common shareholders
of Brooklyn Union,
. KeySpan will become the sole owner of Brooklyn Union's common stock,
. Brooklyn Union will continue to carry on its utility business as a subsidiary
of KeySpan, and
. Brooklyn Union's non-utility subsidiaries will become separate subsidiaries
of KeySpan.
Up to approximately 51,000,000 shares of KeySpan common stock may be issued in
the share exchange.
Brooklyn Union common shareholders will not need to physically exchange their
stock certificates for KeySpan certificates when the share exchange occurs.
Existing certificates for Brooklyn Union common stock will automatically
represent a like number of shares of KeySpan common stock and will no longer
represent Brooklyn Union common stock when the share exchange occurs.
Our holding company proposal and the share exchange cannot be completed unless
the holders of at least two-thirds of Brooklyn Union's common stock adopt the
Agreement and Plan of Exchange, referred to in Proposal 1 of the accompanying
Notice of Annual Meeting, at our Annual Meeting on February 6, 1997. Our Board
of Directors believes that the holding company proposal and related share
exchange are in the best interests of Brooklyn Union and its shareholders, and
recommends that common shareholders vote "FOR" Proposal 1 at our Annual
Meeting.
We will also elect directors of Brooklyn Union, ratify the appointment of
independent public accountants and act on a shareholder proposal regarding
cumulative voting at the Annual Meeting.
Please vote by completing and mailing the enclosed proxy card to us. If you
sign, date and return your proxy card without indicating how you want to vote,
your proxy will be counted as a vote to adopt our Agreement and Plan of
Exchange and thus to approve our holding company proposal and share exchange.
If you fail to return your card, the effect will be a vote against the holding
company proposal and the share exchange. IF YOU HAVE ANY QUESTIONS OR NEED
ASSISTANCE IN VOTING YOUR SHARES, PLEASE CALL D.F. KING & CO., INC., WHICH IS
ASSISTING IN OUR PROXY SOLICITATION, TOLL FREE AT 1-800-578-5378.
This Prospectus/Proxy Statement provides you with detailed information about
our proposed holding company structure and the share exchange. We encourage you
to read this entire document carefully.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE SHARES OF KEYSPAN COMMON STOCK TO BE ISSUED
UNDER THIS PROSPECTUS/PROXY STATEMENT OR DETERMINED IF THIS
PROSPECTUS/PROXY STATEMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus/Proxy Statement dated December 20, 1996, and first mailed to
shareholders with our Summary Annual Report on or about December 23, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS AND SUMMARY ABOUT OUR HOLDING COMPANY PROPOSAL AND
SHARE EXCHANGE........................................................... 1
INTRODUCTION.............................................................. 6
PROPOSAL 1: HOLDING COMPANY AND ADOPTION OF THE EXCHANGE AGREEMENT........ 8
Reasons for the Holding Company Structure and Share Exchange............ 8
Certain Considerations.................................................. 10
A.THE SHARE EXCHANGE...................................................... 12
Exchange Agreement...................................................... 12
Vote Required........................................................... 13
Regulatory Approvals.................................................... 13
Conditions to Effectiveness of the Share Exchange....................... 13
Exchange of Stock Certificates.......................................... 13
Transfer of Brooklyn Union's Non-Utility Subsidiaries to KeySpan........ 14
Dividend Reinvestment and Stock Purchase Plan........................... 14
Amendment or Termination of the Exchange Agreement...................... 14
Listing of KeySpan Common Stock......................................... 14
Brooklyn Union Common Stock Market Prices and Dividends................. 15
Dividend Policy......................................................... 15
Certain Federal Income Tax Consequences................................. 17
Brooklyn Union Employee Plans........................................... 18
Treatment of Brooklyn Union Preferred Stock............................. 18
KeySpan Capital Stock................................................... 19
Comparative Shareholders' Rights........................................ 22
Business................................................................ 24
Regulation of KeySpan and Brooklyn Union................................ 24
The PSC Order........................................................... 25
New Rate Plan of Brooklyn Union......................................... 26
Statutory Appraisal Rights.............................................. 27
B.MANAGEMENT.............................................................. 30
Directors and Officers of KeySpan....................................... 30
Restrictions on Board and Management Interlocks between KeySpan and
Brooklyn Union......................................................... 31
C.OTHER INFORMATION....................................................... 31
Independent Public Accountants.......................................... 31
Validity of KeySpan Common Stock........................................ 32
Experts................................................................. 32
PROPOSAL 2: ELECTION OF DIRECTORS OF BROOKLYN UNION....................... 33
Nominees for Directors of Brooklyn Union................................ 33
Directors of Brooklyn Union Continuing in Office........................ 35
Security Ownership of Directors and Certain Executive Officers.......... 37
Meetings of Brooklyn Union's Board of Directors and Committees.......... 38
Directors' Compensation................................................. 38
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Organization and Nominating Committee Report on Executive Compensation.. 39
Summary Compensation Table.............................................. 43
Options and Performance Shares--1996.................................... 44
Performance Graph....................................................... 44
Compensation Under Retirement Plans..................................... 46
Executive Compensation--1997............................................ 46
Senior Executive Change of Control Severance Plan....................... 46
PROPOSAL 3: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS OF BROOKLYN
UNION.......................................................... 47
PROPOSAL 4: SHAREHOLDER PROPOSAL AS TO CUMULATIVE VOTING FOR BROOKLYN
UNION.......................................................... 47
OTHER MATTERS............................................................. 49
Deadline for Shareholder Proposals...................................... 49
Additional Information.................................................. 49
Confidential Voting..................................................... 50
Other Proposals......................................................... 50
WHERE YOU CAN FIND MORE INFORMATION....................................... 50
APPENDIX--1996 CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL
INFORMATION OF BROOKLYN UNION................................... F-1
EXHIBIT A--AGREEMENT AND PLAN OF EXCHANGE................................. A-1
EXHIBIT B--RESTATED CERTIFICATE OF INCORPORATION OF KEYSPAN ENERGY
CORPORATION..................................................... B-1
EXHIBIT C--SECTIONS 623 AND 910 OF THE NEW YORK BUSINESS CORPORATION LAW.. C-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS AND SUMMARY ABOUT OUR
HOLDING COMPANY PROPOSAL AND SHARE EXCHANGE
The following Questions and Answers and Summary highlight selected
information on Proposal 1 at our Annual Meeting regarding our holding company
proposal and share exchange, and may not contain all of the information that is
important to you. For a more complete discussion of our holding company
proposal and the share exchange, you should read carefully this entire document
and the attached exhibits and the documents referred to you. For example, the
Agreement and Plan of Exchange attached to this Prospectus/Proxy Statement as
Exhibit A provides for the share exchange, and KeySpan's restated certificate
of incorporation (Exhibit B) sets out, among other things, provisions governing
certain rights of KeySpan's shareholders. See also "Where You Can Find More
Information" on page 50 of this Prospectus/Proxy Statement.
1. WHAT IS BROOKLYN UNION'S HOLDING COMPANY PROPOSAL? WHY IS IT BEING
PROPOSED?
Brooklyn Union is proposing to establish a holding company structure
through a share exchange, with the new holding company being called
KeySpan Energy Corporation. After the share exchange, Brooklyn Union will
continue to operate its present utility business as a subsidiary of
KeySpan, and Brooklyn Union's non-utility subsidiaries will become
separate subsidiaries of KeySpan.
We are very enthusiastic about our holding company proposal. We believe it
will give us the financial and regulatory flexibility to compete more
effectively in the increasingly competitive energy industry by relaxing
constraints imposed by the New York Public Service Commission on
incremental investments in unregulated operations, annual investments,
amounts invested in any single line of business, and financial ratios of
subsidiaries. Relaxing constraints and eliminating time-lags associated
with regulatory decisions should allow more rapid moves in an industry
where competitors do not have the same constraints as regulated entities.
We also believe that a holding company structure should provide greater
opportunities for growth and enhanced values, greater flexibility in
developing new businesses, and greater flexibility regarding the timing,
method and amount of financings and acquisitions, through the discernible
separation between our utility and non-utility businesses and relaxed
constraints on unregulated activities.
Your Board of Directors has unanimously approved our holding company
proposal and the share exchange and believes their adoption is in the best
interests of Brooklyn Union and its shareholders. Your Board recommends
that you vote "FOR" that proposal and adoption of the Agreement and Plan
of Exchange at our Annual Meeting.
2. WHAT WILL THE KEYSPAN HOLDING COMPANY STRUCTURE LOOK LIKE? WHAT TYPE OF
BUSINESSES WILL KEYSPAN ENGAGE IN?
The chart below shows our present and proposed structures.
PRESENT STRUCTURE
Brooklyn Union
KeySpan Non-Utility
Subsidiaries
PROPOSED STRUCTURE
KeySpan
Brooklyn Union Non-Utility
Subsidiaries
1
<PAGE>
In addition to becoming the parent holding company of Brooklyn Union and
our non-utility subsidiaries, KeySpan will own our principal investments
in existing businesses. These include gas and oil exploration and
production, gas pipeline transportation and storage, cogeneration,
marketing and other energy-related services. KeySpan will also be able to
invest in certain other businesses and ventures that should strengthen our
ability to provide total energy services in an increasingly competitive
marketplace.
The principal executive offices of Brooklyn Union are located at One
MetroTech Center, Brooklyn, New York 11201-3850, and its telephone number
is (718) 403-2000. KeySpan's principal executive offices are at the same
address; its telephone number is (718) 403-1000.
3. WHAT IS THE SHARE EXCHANGE?
The share exchange is the means by which our holding company structure
will be established. If shareholders approve our holding company proposal
and adopt the related Agreement and Plan of Exchange at our Annual
Meeting, Brooklyn Union common shareholders will automatically become
holders of common stock of KeySpan on the basis of one share of Brooklyn
Union for one share of KeySpan. Following the exchange, KeySpan will own
all of Brooklyn Union's outstanding common stock and Brooklyn Union's non-
utility subsidiaries will become separate subsidiaries of KeySpan.
4. WILL I HAVE TO EXCHANGE MY BROOKLYN UNION STOCK CERTIFICATES FOR NEW
KEYSPAN CERTIFICATES?
No. Your present certificates for Brooklyn Union common stock will
automatically represent an equal number of shares of KeySpan common stock
when the exchange occurs and will no longer represent Brooklyn Union
common stock.
5. WHEN WILL THE SHARE EXCHANGE OCCUR?
We expect the exchange to occur in the first quarter of 1997, assuming
shareholder approval at our Annual Meeting.
6. WHERE WILL MY KEYSPAN COMMON STOCK BE TRADED? WHAT WILL BE THE TICKER SYM-
BOL?
KeySpan common stock will be listed on the New York Stock Exchange, and
will trade under the ticker symbol "KSE".
Brooklyn Union's common stock is presently listed and principally traded
on the New York Stock Exchange. The reported closing price of our common
stock on December 16, 1996 was $29 1/2. After the share exchange, Brooklyn
Union's common stock will no longer trade and will be delisted.
7. WILL MY DIVIDENDS BE AFFECTED?
While future dividends on KeySpan common stock will depend on the
earnings, financial condition and capital requirements of KeySpan and
Brooklyn Union and the dividends Brooklyn Union pays to KeySpan, we expect
to continue Brooklyn Union's policy of paying an appropriate percentage of
earnings to shareholders. In the future, dividends from KeySpan's other
subsidiaries may also be a source of funds for KeySpan's dividend
payments. KeySpan presently expects to pay quarterly common stock
dividends at least equal to, and on approximately the same schedule as,
the dividend most recently declared on Brooklyn Union's common stock.
The September 25, 1996 New York Public Service Commission order approving
our holding company proposal imposes certain limitations on dividends that
Brooklyn Union may pay to KeySpan after the share exchange. Generally,
Brooklyn Union may not pay KeySpan more than 100% of income available for
dividends. Under certain circumstances, further limits may be placed upon
the amount of dividends Brooklyn Union may pay to KeySpan.
(SEE PAGES 15-17)
Dividends on Brooklyn Union preferred stock will continue to be paid by
Brooklyn Union.
(SEE QUESTION 9)
2
<PAGE>
8. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES TO COMMON SHAREHOLDERS?
If a shareholder exchanges solely Brooklyn Union common stock solely for
KeySpan common stock, that shareholder will not recognize any gain or loss
under Federal income tax laws.
(SEE PAGES 17-18)
9. WILL BROOKLYN UNION PREFERRED STOCK OR BONDS BE EXCHANGED?
No. Brooklyn Union's preferred stock will not be exchanged and will
continue as outstanding shares of Brooklyn Union preferred stock. The
rights of holders of the preferred shares as provided in Brooklyn Union's
certificate of incorporation will not change. Brooklyn Union's bonds will
not change and will continue to be obligations of Brooklyn Union.
(SEE PAGES 18-19)
10. WHO WILL MANAGE THE HOLDING COMPANY?
A new Board of Directors of KeySpan will be elected before the share
exchange by Brooklyn Union as sole shareholder of KeySpan. It will consist
of a number of existing Brooklyn Union directors and vacancies will be
filled in the future. Certain existing officers of Brooklyn Union will
also serve as officers of KeySpan. Robert B. Catell will be chairman,
president and chief executive officer and a director of KeySpan, and will
continue as chairman and chief executive officer and a director of
Brooklyn Union.
The September 25, 1996 New York Public Service Commission order approving
our holding company proposal contains certain restrictions on Board and
managerial interlocks between Brooklyn Union and KeySpan and other
subsidiaries of KeySpan.
(SEE PAGES 30-31)
11. HOW WILL MY PARTICIPATION IN THE DIVIDEND REINVESTMENT PLAN BE AFFECTED?
All shares of Brooklyn Union common stock held under our Dividend
Reinvestment and Stock Purchase Plan will be automatically exchanged for
shares of KeySpan common stock. We will continue the Dividend Reinvestment
and Stock Purchase Plan with KeySpan common stock after the share
exchange.
12. WHAT DO I NEED TO DO NOW?
Just mail your signed proxy card in the enclosed postage-paid return
envelope as soon as possible, so that your shares may be represented at
our Annual Meeting. The meeting will take place on February 6, 1997 at
Brooklyn Union's headquarters, One MetroTech Center, Brooklyn, New York.
13. WHAT SHAREHOLDER VOTE IS REQUIRED FOR APPROVAL OF OUR HOLDING COMPANY
PROPOSAL AND THE SHARE EXCHANGE?
Holders of record of Brooklyn Union common stock on December 18, 1996 are
entitled to vote at the Annual Meeting. Two-thirds of the outstanding
shares of Brooklyn Union common stock must be voted "For" Proposal 1 at
our Annual Meeting in order to approve our holding company proposal and
the share exchange.
14. WHO CAN I CALL IF I HAVE ANY QUESTIONS?
We have set up a special number for you. You are welcome to call D.F. King
& Co., Inc., which is assisting in our proxy solicitation, toll free, at
1-800-578-5378.
FOR BROOKLYN UNION EMPLOYEES AND RETIREES:
15. HOW WILL STOCK-BASED EMPLOYEE BENEFIT PLANS BE AFFECTED?
Brooklyn Union's Employee Savings Plan, Discount Stock Purchase Plan for
Employees, and Long-Term Performance Incentive Compensation Plan will be
amended to provide for ownership of common shares of KeySpan instead of
Brooklyn Union common stock, and KeySpan will take over responsibility for
these plans. All existing shares of Brooklyn Union common stock held in
these plans, or subject to plan options or performance awards, will
automatically
3
<PAGE>
become an equal number of common shares or stock options or performance
awards of KeySpan, and KeySpan will be the issuer of future stock options
and awards.
16. WHAT WILL HAPPEN TO BROOKLYN UNION'S RETIREMENT AND OTHER EMPLOYEE BENEFIT
PLANS?
KeySpan will take over responsibility for all Brooklyn Union retirement
and employee benefit plans, such as our defined benefit and defined
contribution pension plans, health plans and disability plans. Benefits
provided for in these plans will not be changed as a result of our
restructuring into a holding company.
SUMMARY OF OTHER SELECTED INFORMATION:
CERTAIN CONSIDERATIONS (SEE PAGES 10-12)
Certain factors for your consideration in determining whether to vote "For" our
holding company proposal and to adopt the related Agreement and Plan of
Exchange are discussed under "Proposal 1: Holding Company and Adoption of the
Exchange Agreement--Certain Considerations."
REGULATORY APPROVALS (SEE PAGE 13)
The New York Public Service Commission approved our holding company
restructuring by an order dated September 25, 1996. This order also approved a
new rate plan that became effective on October 1, 1996 and certain customer
protection provisions. The new rate plan will continue to apply, even if the
holding company proposal and the Agreement and Plan of Exchange are not adopted
at our Annual Meeting.
CONDITIONS TO THE SHARE EXCHANGE (SEE PAGE 13)
Completion of the share exchange depends on the satisfaction of certain
conditions, including: (a) common shareholder approval at our Annual Meeting;
(b) KeySpan's common shares being listed on the New York Stock Exchange; and
(c) KeySpan's restated certificate of incorporation (see Exhibit B to this
Prospectus/Proxy Statement) and a certificate of exchange being filed with the
New York Department of State.
CERTAIN OTHER CONSEQUENCES OF SHAREHOLDER ADOPTION OF THE EXCHANGE AGREEMENT
(SEE PAGES 14, 18, AND 19-24)
The Agreement and Plan of Exchange provides that after the share exchange,
shares of KeySpan common stock and KeySpan stock options and performance awards
(instead of Brooklyn Union common stock, stock options and performance awards)
will be issued, granted or awarded by KeySpan under Brooklyn Union's former
employee stock plans, all of which have been previously approved by Brooklyn
Union shareholders. The responsibility for these stock plans will be taken over
by KeySpan. In addition, shares of KeySpan common stock (instead of Brooklyn
Union common stock) will be issued after the share exchange under the Dividend
Reinvestment and Stock Purchase Plan.
Since the Agreement and Plan of Exchange is conditioned on KeySpan's restated
certificate of incorporation being filed prior to the share exchange with the
New York Department of State, a vote by Brooklyn Union common shareholders for
adoption of Proposal 1 and that Agreement will constitute approval of KeySpan's
restated certificate of incorporation. KeySpan's Board of Directors will adopt
KeySpan's by-laws prior to the share exchange. These documents will govern
certain rights of KeySpan's shareholders after the share exchange.
AMENDMENT OR TERMINATION OF THE EXCHANGE AGREEMENT (SEE PAGE 14)
The Brooklyn Union and KeySpan Boards of Directors may amend any of the terms
of the Agreement and Plan of Exchange at any time before or after its adoption
by common shareholders. No amendment, however, may materially and adversely
affect the rights of Brooklyn Union's shareholders.
The Agreement may be terminated and the share exchange abandoned at any time
before or after shareholders adopt the Agreement, if Brooklyn Union's Board of
Directors determines that the completion of the share exchange would not be in
the best interests of Brooklyn Union or our shareholders.
COMPARATIVE SHAREHOLDERS' RIGHTS (SEE PAGES 22-24)
When the share exchange is completed, holders of Brooklyn Union common stock
will automatically
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become holders of KeySpan common stock, and their rights will be governed by
KeySpan's restated certificate of incorporation and by-laws instead of those of
Brooklyn Union.
KeySpan's restated certificate of incorporation will give KeySpan broad
corporate powers to engage in any lawful act or activity for which a
corporation may be formed under New York law. In contrast, Brooklyn Union's
corporate purposes are those related to gas, electricity or other forms of
energy and related activities. Certain other differences between the rights of
holders of KeySpan common stock and those of holders of Brooklyn Union common
stock are summarized on pages 22-24.
Shares of Brooklyn Union preferred stock will not be exchanged but will
continue as shares of Brooklyn Union preferred stock. The share exchange will
not change the rights of holders of preferred stock as currently provided in
Brooklyn Union's certificate of incorporation.
REGULATION OF KEYSPAN AND BROOKLYN UNION (SEE PAGES 24-26)
Following the share exchange, KeySpan, as the parent company of Brooklyn Union,
will have to comply with the provisions of the New York Public Service
Commission's order of September 25, 1996. Brooklyn Union will continue to be
regulated by the PSC as before. The PSC order contains restrictions on
KeySpan's investments in non-utility subsidiaries and other businesses,
transactions between Brooklyn Union and KeySpan and other KeySpan subsidiaries,
loans, guarantees or pledges by Brooklyn Union for the benefit of KeySpan or
KeySpan's subsidiaries, and on Board and managerial interlocks.
Brooklyn Union currently is not subject to the federal Public Utility Holding
Company Act of 1935. When the share exchange occurs, KeySpan will become a
"public utility holding company" and will file an exemption statement with the
Securities and Exchange Commission to exempt it and each of its subsidiaries
from that Act (except for those provisions requiring approval of certain
acquisitions and investments).
NEW RATE PLAN OF BROOKLYN UNION (SEE PAGES 26-27)
The September 25, 1996 New York Public Service Commission order includes a new
rate plan that took effect on October 1, 1996 and will remain in effect until
September 30, 2002. The rate plan essentially freezes the non-gas component of
Brooklyn Union's overall rates for six years, but provides for the elimination
of any ceiling on earnings as well as the retention of savings and growth for
the shareholders. The rate plan will continue to govern Brooklyn Union's
utility rates and charges even if common shareholders do not approve the
holding company proposal and adopt the Agreement and Plan of Exchange at our
Annual Meeting. In that event, Brooklyn Union will not be able to realize the
benefits we expect from a holding company structure, which we believe is
necessary in the future deregulated competitive environment of the energy
industry.
STATUTORY APPRAISAL RIGHTS (SEE PAGES 27-30 AND EXHIBIT C TO THIS
PROSPECTUS/PROXY STATEMENT)
Holders of shares of Brooklyn Union common stock who do not vote for the
holding company proposal and adoption of the Agreement and Plan of Exchange,
and who timely dissent and follow the procedures in Sections 623 and 910 of the
New York Business Corporation Law, will then have certain rights as a result of
the share exchange to demand payment in cash for the "fair value" of their
Brooklyn Union common shares. Failure to take any required procedures on a
timely basis may result in the loss of those rights. The amount obtainable upon
a valid exercise of those rights is subject to determination by judicial
proceedings, and cannot be predicted.
Since the Brooklyn Union preferred stock is not being exchanged in the share
exchange and will thus continue as Brooklyn Union preferred stock after the
share exchange, holders of Brooklyn Union preferred stock are not entitled to
statutory appraisal rights.
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INTRODUCTION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of The Brooklyn Union Gas Company
("Brooklyn Union") of proxies for use at Brooklyn Union's Annual Meeting of
Shareholders to be held on February 6, 1997. Only holders of record of
Brooklyn Union's common stock, par value $.33 1/3 per share ("Brooklyn Union
common stock") and Brooklyn Union's outstanding cumulative preferred stock,
par value $100 per share ("Brooklyn Union preferred stock"), on December 18,
1996 (the "record date") are entitled to receive notice of the Annual Meeting.
Only holders of record of Brooklyn Union common stock on the record date are
entitled to vote at the Annual Meeting or any adjournments thereof.
This Prospectus/Proxy Statement and the accompanying Summary Annual Report
to Shareholders are first being mailed to the shareholders of Brooklyn Union
on or about December 23, 1996.
The proxy accompanying this Prospectus/Proxy Statement, even if executed and
returned, may be revoked by the person executing it if it has not yet been
exercised. To revoke a proxy, the shareholder must file with the Secretary of
Brooklyn Union either a written revocation or a duly executed proxy bearing a
later date.
In addition, any shareholder entitled to vote may attend the Annual Meeting
and vote whether or not such shareholder has submitted a signed proxy. All
shares represented by proxies which have been duly executed and returned will
be voted at the Annual Meeting and, where a choice has been specified in the
proxies, the shares will be voted in accordance with the specification so
made. In the absence of specifications to the contrary, such executed proxies
will be voted FOR Proposals 1, 2 and 3, and AGAINST Proposal 4. Each nominee
for director of Brooklyn Union has consented to be named in this
Prospectus/Proxy Statement and to serve if elected. If for any reason any
nominee for director of Brooklyn Union shall become unavailable before the
date of the Annual Meeting, discretionary authority will be exercised to vote
the proxies for the election of such other person or persons as Brooklyn
Union's Board of Directors shall determine.
As of the close of business on the record date, there were 49,993,378 shares
of Brooklyn Union common stock outstanding. Each share is entitled to one
vote. Only holders of record of Brooklyn Union common stock on the record date
are entitled to vote at the Annual Meeting or any adjournments thereof, except
for participants in Brooklyn Union's Dividend Reinvestment and Stock Purchase
Plan and Brooklyn Union's Discount Stock Purchase Plan for Employees, who are
entitled to vote shares held for their accounts by the agent under each such
Plan. Shares held in the names of the trustees under Brooklyn Union's Employee
Savings Plan may be voted by such trustees upon the instructions of
participants in such Plan, or in the absence thereof, as such trustees deem
appropriate.
Brooklyn Union will bear the cost of solicitation of proxies. In addition to
the use of the mails, proxies may be solicited personally or by telephone by
directors, officers and employees of Brooklyn Union. Such directors, officers
and employees of Brooklyn Union receive no compensation therefor other than
their regular remuneration. Also, Brooklyn Union will reimburse brokers, bank
nominees and other institutional holders for their out-of-pocket expenses in
forwarding proxy soliciting material to the beneficial owners of Brooklyn
Union common stock. In addition, Brooklyn Union has retained D.F. King & Co.,
Inc., New York, New York, to aid in the solicitation of proxies at a fee not
to exceed $10,000, plus reimbursement for out-of-pocket expenses incurred by
that firm on behalf of Brooklyn Union.
Securities and Exchange Commission ("SEC") rules provide that specifically
designated blank spaces and boxes 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 directors of Brooklyn Union or to abstain on one or more
of the Proposals. For purposes of determining whether the holding company
proposal and the Agreement and Plan of Exchange (attached to this
Prospectus/Proxy Statement as Exhibit A and hereinafter referred to as the
"Exchange Agreement") have been adopted, which requires the affirmative vote
of two-thirds of the outstanding shares of Brooklyn Union common stock, an
abstention or broker non-vote WILL NOT be counted as a vote in favor of
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adoption of the holding company proposal and the Exchange Agreement and, as a
result, will have the effect of a vote AGAINST Proposal 1. In accordance with
New York law, abstentions and broker non-votes are not counted in determining
the votes cast in connection with the selection of auditors and the
shareholder proposal relating to cumulative voting since New York law requires
a majority of only those votes cast "for" or "against" approval, thus giving
both abstentions and non-votes no effect. 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. The vote of a plurality of the
shares of Brooklyn Union common stock cast is required for the election of
directors.
The Proposal for adoption of the holding company proposal and the Exchange
Agreement and the shareholder proposal relating to cumulative voting are
considered "non-discretionary," and brokers who have received no instructions
from their clients do not have the authority to vote thereon. Such "broker
non-votes" WILL NOT be counted as votes cast in favor of adoption of the
holding company proposal and the Exchange Agreement and, as a result, will
have the effect of votes cast AGAINST adoption of Proposal 1. Such "broker
non-votes" will not be considered as votes cast in determining the outcome of
the shareholder proposal. All abstentions and broker non-votes will be counted
towards the establishment of a quorum.
Brooklyn Union reserves the right to adjourn the Annual Meeting one or more
times, and to continue to solicit proxies, if insufficient affirmative votes
are present in person or by proxy to adopt the Exchange Agreement (Proposal
1).
BROOKLYN UNION'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE HOLDING
COMPANY STRUCTURE AND ADOPTED THE EXCHANGE AGREEMENT, BELIEVES THE HOLDING
COMPANY STRUCTURE AND THE RELATED SHARE EXCHANGE TO BE IN THE BEST INTERESTS
OF BROOKLYN UNION AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE HOLDERS OF
BROOKLYN UNION COMMON STOCK VOTE IN FAVOR OF ADOPTION OF THE HOLDING COMPANY
PROPOSAL AND THE EXCHANGE AGREEMENT AS DISCUSSED IN PROPOSAL 1.
IN ADDITION, BROOKLYN UNION'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL
DIRECTOR NOMINEES NAMED IN PROPOSAL 2, "FOR" RATIFICATION OF THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS OF BROOKLYN UNION AS
DISCUSSED IN PROPOSAL 3, AND "AGAINST" THE SHAREHOLDER PROPOSAL RELATING TO
CUMULATIVE VOTING FOR BROOKLYN UNION AS DISCUSSED IN PROPOSAL 4.
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PROPOSAL 1: HOLDING COMPANY AND ADOPTION OF THE EXCHANGE AGREEMENT
The management and the Board of Directors of Brooklyn Union unanimously
believe that it is in the best interests of Brooklyn Union and its
shareholders to restructure Brooklyn Union so that it will become a separate
subsidiary of a new parent holding company, with the present holders of
Brooklyn Union common stock becoming the holders of the common stock of the
new parent.
To carry out such restructuring, Brooklyn Union has caused to be
incorporated a New York corporation, KeySpan Energy Corporation (referred to
in this Prospectus/Proxy Statement as "KeySpan"), which now has a nominal
amount of stock outstanding and no present business or properties of its own.
All of the currently outstanding shares of KeySpan's common stock, par value
$.33 1/3 per share ("KeySpan common stock"), are owned by Brooklyn Union.
The Board of Directors of each of Brooklyn Union and KeySpan has adopted the
Exchange Agreement under which, subject to adoption by Brooklyn Union's
shareholders and the satisfaction of other conditions, Brooklyn Union will
become a subsidiary of KeySpan through the exchange of the outstanding shares
of Brooklyn Union common stock on a share-for-share basis for shares of
KeySpan common stock (referred to in this Prospectus/Proxy Statement as the
"share exchange" or the "exchange"). In connection with the share exchange,
Brooklyn Union's existing subsidiaries involved in non-utility operations
(collectively, the "non-utility subsidiaries") will be transferred to KeySpan
and become subsidiaries of KeySpan. See "--The Share Exchange--Transfer of
Brooklyn Union's Non-Utility Subsidiaries to KeySpan." The Exchange Agreement
is attached to this Prospectus/Proxy Statement as Exhibit A and is
incorporated herein by reference.
Brooklyn Union is subject to regulation by the New York Public Service
Commission (the "PSC") under the New York Public Service Law (the "Public
Service Law"). On September 25, 1996, the PSC issued an order (the "PSC
Order") approving the holding company restructuring and the terms with which
Brooklyn Union and KeySpan have agreed to comply in their on-going
relationships and activities, including a new rate plan and certain customer
protection provisions.
REASONS FOR THE HOLDING COMPANY STRUCTURE AND SHARE EXCHANGE
General
The proposed holding company structure is intended to provide Brooklyn Union
and its subsidiaries with the financial and regulatory flexibility to compete
more effectively in an increasingly competitive energy industry by relaxing
constraints imposed by the New York Public Service Commission on incremental
investments in unregulated operations, annual investments, amounts invested in
any single line of business, and financial ratios of subsidiaries. Relaxing
constraints and eliminating time-lags associated with regulatory decisions
should allow more rapid moves in an industry where competitors do not have the
same constraints as regulated entities. The Board of Directors of Brooklyn
Union believes that a holding company structure will provide greater
opportunity for growth and enhanced values, and greater flexibility in
developing and operating new businesses and greater flexibility regarding the
timing, method and amount of financings and acquisitions, through the
discernible separation between the utility and non-utility businesses and
relaxed constraints on unregulated activities. The Board believes that the
discernible separation between utility and non-utility businesses will serve
to protect the financial integrity of the utility business from risks involved
in non-utility businesses and ventures, and provide greater flexibility
regarding the timing, method and amount of financings and acquisitions.
Competing in the New Regulatory Environment
The Board of Directors of Brooklyn Union believes that the proposed holding
company structure is essential for Brooklyn Union to continue to operate as
successfully in the future as it has in the past. A decade ago, the price of
gas was controlled by regulation and statutes from the original producer and
supplier through the
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ultimate end-user. Currently, there is no longer regulation over the sale
price of natural gas as a commodity, and the regulation of interstate
transmission at the federal level has been relaxed. Similar regulatory
initiatives are taking place at the state level, including in New York, to
extend competition into the retail sector.
The regulatory developments at the federal level have resulted in ample
supplies of the natural gas commodity, aggressive competition among gas
utilities, as well as unregulated gas marketing brokers and suppliers at the
gas source, and declining prices, in real dollar terms, for natural gas for
all consumers over the last decade.
Interstate pipeline capacity rights are also becoming a commodity which can
now be bought or sold for short or long periods of time. Thus, entities like
Brooklyn Union have the opportunity to market temporarily unused pipeline
capacity for the benefit of their customers and shareholders.
In addition, there have been several other significant regulatory
initiatives affecting utility companies and their customers. Local
transportation of gas purchased by end-users from third party sellers has been
available in New York since 1984, but until recently the principal
beneficiaries of this availability had been large non-core commercial and
industrial customers. Through further regulatory modifications, direct access
to gas sold by third parties has become available for the first time to
Brooklyn Union's core customers, including residential customers. Similar
initiatives are taking place at the federal and state levels in the electric
industry, as increasing wholesale and retail competition in the electric
generation sector is likely to emerge over the next few years.
These developments intensify the already fiercely competitive environment in
which traditional providers of alternative energy sources, primarily fuel oil
dealers, aggressively compete in most of Brooklyn Union's markets. The
distinctions between energy sources is increasingly blurred, as oil, gas and
electricity come to be viewed as somewhat interchangeable commodities,
subjecting Brooklyn Union to greater competition.
Moreover, a new rate plan (including the six-year rate freeze) took effect
on October 1, 1996, and will continue to govern the utility rates of Brooklyn
Union even if common shareholders of Brooklyn Union do not approve the holding
company proposal and adopt the Exchange Agreement. In that event, Brooklyn
Union will not be able to realize the benefits it expects from a holding
company structure, which Brooklyn Union believes is necessary in the future
deregulated competitive environment of the energy industry. See "--The Share
Exchange--New Rate Plan of Brooklyn Union" below.
Flexibility of Utility and Non-Utility Businesses
Brooklyn Union has been operating under the regulatory constraints of the
PSC which limit (i) the total amount of the incremental investment in its
unregulated operations, (ii) the amount that can be invested annually, (iii)
the cumulative amount that can be invested in any single line of business, and
(iv) the debt-equity ratios of its subsidiaries. These are significant
constraints on Brooklyn Union's ability to move rapidly in an increasingly
competitive environment. Moreover, the limitation of investment to existing
lines of business is also constraining because the industry is changing so
rapidly that new lines of business are arising that were not even envisioned
at the time that these PSC regulatory limits were adopted.
As discussed below under "--The Share Exchange--Transfer of Brooklyn Union's
Non-Utility Subsidiaries to KeySpan", as part of the holding company
restructuring the current non-utility subsidiaries of Brooklyn Union will be
transferred to and become, or become owned through, separate subsidiaries of
KeySpan. Brooklyn Union needs the financial and regulatory flexibility
provided by this holding company structure to operate in the changing
environment and successfully address the new levels of competition.
As many in the energy industry believe, the new competitive environment may
lead to additional consolidation, vertical expansion, and other strategic
alliances, as energy companies may be required to offer a full range of energy
services to compete effectively in order to retain and attract customers. For
example, consolidations between Brooklyn Union and other operating utilities
(e.g., through merger and/or acquisition)
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could result in economies of scale and synergies by enabling the consolidated
company to take advantage of common needs and complementary strengths. Vertical
integration could also enable utilities to offer customers more complete energy
packages.
Strategic alliances with unregulated third party participants and/or
diversification into unrelated fields may also help protect against the market
and financial risks to which Brooklyn Union is now, and increasingly will be,
exposed. Thus, KeySpan may wish to increase its investment in unregulated
energy-related businesses, whether through additional "ground floor"
investment, the acquisition of existing energy and energy services providers,
or the formation of strategic alliances with industry partners.
KeySpan will continue to seek to invest in the current lines of business,
such as exploration and production, pipeline transportation, gas storage and
cogeneration, and will engage in energy marketing and other energy-related
activities. Although KeySpan has not identified other specific business
opportunities, it believes that such activities would likely include areas with
which Brooklyn Union is already familiar, such as information systems,
environmental services, engineering services, financial services, meter
reading, and billing and collection services. Under a holding company
structure, KeySpan should be able to take advantage of opportunities in a
timely fashion and compete more effectively against other energy companies.
Except for the restrictions set forth in the PSC Order and discussed in "--The
Share Exchange--The PSC Order," KeySpan believes it should not otherwise be
required to obtain PSC approval for investments in non-utility businesses,
would not be subject to the limitations imposed under certain provisions of New
York law applicable to Brooklyn Union, and thus should be able to compete more
effectively against other entities not subject to similar constraints.
Financing Flexibility
Under Section 69 of the Public Service Law, Brooklyn Union cannot issue debt
or equity securities for other than utility purposes. Thus, the practical limit
of its investment in non-utility businesses is the amount of Brooklyn Union's
retained earnings. This limit has not posed a practical problem in the past
because Brooklyn Union's non-utility businesses were clearly defined and
limited in scope and magnitude. Now, however, such a limit is inappropriate in
the new environment, especially in light of the fact that Brooklyn Union's
principal present, and likely future, competitors are not subject to similar
constraints.
The Board of Directors of Brooklyn Union believes that the best way both to
reduce the regulatory constraints described above, and to ensure that utility
customers continue to be insulated from potential risks resulting from
investments in non-utility businesses and ventures, is to adopt a holding
company structure, while providing sufficient protection to customers to assure
that Brooklyn Union will continue to provide safe, adequate and reliable
service at just and reasonable rates.
After the share exchange, financing of unregulated activities of KeySpan and
its non-utility subsidiaries will not require PSC approval. In addition, the
capital structure of each non-utility subsidiary may be appropriately tailored
to suit its individual business. Also, under the holding company structure,
KeySpan would not need PSC approval to issue debt or equity securities to
finance the acquisition of the stock or assets of other companies. The ability
to raise capital for acquisitions without prior PSC approval should allow
competition on a level basis with other potential acquirors, some of which are
already holding companies. Under a holding company structure, the issuance of
debt or equity securities by KeySpan to finance the acquisition of the stock or
assets of another company should not adversely affect Brooklyn Union's capital
devoted to and available for regulated utility operations.
CERTAIN CONSIDERATIONS
Future Performance of KeySpan Common Stock Cannot Be Assured
The purpose of the share exchange is to establish a holding company structure
that will enhance the ability to take advantage of business opportunities
outside of Brooklyn Union's present markets. The Board of Directors believes
the share exchange and holding company structure to be in the best interests of
Brooklyn Union and its shareholders. Nevertheless, the success of KeySpan in
realizing its goals and the future performance of KeySpan common stock cannot
be assured.
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Dividends on KeySpan Common Stock Will Initially Depend on Common Stock
Dividends Paid by Brooklyn Union
KeySpan does not now, nor will it immediately after the share exchange,
conduct directly any business operations from which it will derive any
revenues. KeySpan plans to obtain funds for its own operations from dividends
paid to KeySpan by its subsidiaries, and from sales of securities or debt
incurred by KeySpan. Dividends on KeySpan common stock will initially depend
upon the earnings, financial condition and capital requirements of Brooklyn
Union, and the dividends that Brooklyn Union pays to KeySpan. In the future,
dividends from KeySpan's subsidiaries other than Brooklyn Union may also be a
source of funds for dividend payments by KeySpan. Payment of Brooklyn Union
dividends to KeySpan will be subject to the prior rights of holders of Brooklyn
Union preferred stock. In addition, although it has no present intention to do
so, Brooklyn Union may issue additional preferred stock in the future to meet
its capital requirements. Such additional preferred stock will also have
preferential dividend rights.
The PSC Order also imposes certain limitations on the dividends that Brooklyn
Union may pay to KeySpan after the share exchange. Generally, Brooklyn Union
may not pay KeySpan more than 100% of income available for dividends. Also, if
there is a significant reduction in service quality by Brooklyn Union
(according to specific guidelines) or if certain specified credit rating
agencies downgrade Brooklyn Union's debt ratings to specified levels, further
limits may be placed upon the amount of dividends Brooklyn Union may pay to
KeySpan. See "--The Share Exchange--Dividend Policy."
KeySpan presently expects to pay quarterly dividends on KeySpan common stock
at least equal to the rate, and on approximately the same schedule, as the
dividend most recently declared by Brooklyn Union on its common stock. While
future dividends will depend on the earnings, financial condition and capital
requirements of Brooklyn Union and its other subsidiaries, KeySpan presently
expects to continue a policy of paying an appropriate percentage of earnings to
shareholders.
Non-Utility Businesses Will Not Be Available as Sources for Dividends on
Brooklyn Union Preferred Stock
Following consummation of the share exchange, Brooklyn Union's non-utility
subsidiaries will be transferred to KeySpan, and will not be available to the
holders of Brooklyn Union preferred stock as a source of cash for the payment
of dividends or other amounts.
Non-Utility Businesses
Brooklyn Union's principal non-utility subsidiaries participate and own
investments in gas and oil exploration and production, gas pipeline
transportation and storage, cogeneration, marketing and other energy-related
services. Brooklyn Union will transfer these subsidiaries and investments to
KeySpan at the time of, or shortly following, the share exchange.
It is the current intention of KeySpan for the non-utility subsidiaries to
engage primarily in energy-related businesses which will not be regulated by
state or federal agencies which regulate public utilities. Such businesses may
encounter competitive and other factors not previously experienced by Brooklyn
Union, and may have different, and perhaps greater, investment risks than those
involved in the regulated natural gas utility business of Brooklyn Union. There
can be no assurance that such businesses will be successful or, if
unsuccessful, that they will not have a direct or indirect adverse effect on
KeySpan. As is the case now, any losses incurred by such businesses will not be
recoverable in utility rates of Brooklyn Union. For further information
regarding Brooklyn Union's non-utility subsidiaries, see Notes 3, 7, 8 and 10
to the 1996 Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Appendix
attached to this Prospectus/Proxy Statement.
Comparable earnings from Brooklyn Union's unregulated businesses (excluding
1996 after-tax gains from an initial public offering of a subsidiary and the
sale of a plant ($33.5 million) and an after-tax reorganization charge
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($7.8 million)) were $14.8 million, or 30 cents per share in fiscal 1996,
$12.8 million, or 27 cents per share in 1995, and $10.4 million, or 22 cents
per share in 1994.
Brooklyn Union's total investment in these businesses, computed in
accordance with PSC specifications as a percentage of consolidated
capitalization, was 13.4%, 14.2% and 12.8% as of September 30, 1996, 1995 and
1994, respectively.
KeySpan will obtain funds to invest in non-utility subsidiaries and other
businesses from dividends it receives from Brooklyn Union, borrowings and
other financings, and dividends KeySpan may in the future receive from any
non-utility subsidiaries. There can be no assurance that non-utility
subsidiaries will have earnings or pay any dividends to KeySpan in the
foreseeable future.
Implementation of the New Rate Plan
The new rate plan (including the six-year rate freeze) took effect as of
October 1, 1996 and will continue to govern utility rates and charges of
Brooklyn Union even if common shareholders of Brooklyn Union do not approve
the holding company proposal and adopt the Exchange Agreement. In that event,
Brooklyn Union will not be able to realize the benefits it expects from a
holding company structure, which Brooklyn Union believes is necessary in the
future deregulated competitive environment of the energy industry. See also
"--The Share Exchange--New Rate Plan of Brooklyn Union" below.
Certain Restrictions in the PSC Order
As summarized above, the PSC Order imposes certain limitations on the
dividends that Brooklyn Union may pay to KeySpan after the share exchange. See
also "--The Share Exchange--Dividend Policy." The PSC Order also contains
restrictions on KeySpan's investments in non-utility subsidiaries and other
businesses, transactions between Brooklyn Union and KeySpan or any other
subsidiary of KeySpan, loans, guarantees or pledges by Brooklyn Union for the
benefit of KeySpan or any other subsidiary of KeySpan, and Board and
managerial interlocks between Brooklyn Union and KeySpan or any other
subsidiary of KeySpan. See "--The Share Exchange--The PSC Order" and "--
Management--Restriction on Board and Management Interlocks between KeySpan and
Brooklyn Union." There can be no assurance as to the effect, if any, that such
restrictions will have on the business or operations of Keyspan, Brooklyn
Union or the non-utility subsidiaries.
A. THE SHARE EXCHANGE
EXCHANGE AGREEMENT
The Exchange Agreement has been unanimously adopted by the Boards of
Directors of Brooklyn Union and KeySpan and is subject to adoption by the
holders of at least two-thirds of the outstanding shares of Brooklyn Union
common stock. See "--Vote Required" below. In the share exchange, (i) each
share of Brooklyn Union common stock outstanding immediately prior to the
effective time of the share exchange will be exchanged for one new share of
KeySpan common stock, (ii) KeySpan will become the owner of all outstanding
Brooklyn Union common stock, and (iii) the shares of KeySpan common stock held
by Brooklyn Union immediately prior to the share exchange will be cancelled.
As a result, upon completion of the share exchange, KeySpan will become a
holding company, Brooklyn Union will become a subsidiary of KeySpan, and all
of KeySpan common stock outstanding immediately after the share exchange will
be owned by the former holders of Brooklyn Union common stock outstanding
immediately prior to the share exchange. In connection with the share
exchange, Brooklyn Union's existing non-utility subsidiaries will be
transferred to KeySpan and become subsidiaries of KeySpan. See "--Transfer of
Brooklyn Union's Non-Utility Subsidiaries to KeySpan." The Exchange Agreement
is attached to this Prospectus/Proxy Statement as Exhibit A and is
incorporated herein by reference.
Brooklyn Union's outstanding preferred stock will not be exchanged in the
share exchange but will continue as shares of Brooklyn Union preferred stock.
The share exchange will not change the rights of the holders of such shares as
currently provided in Brooklyn Union's certificate of incorporation. Debt of
Brooklyn Union will remain unchanged and will continue as outstanding
obligations of Brooklyn Union after the share exchange.
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VOTE REQUIRED
Under New York law, the affirmative vote of the holders of record on the
record date of two-thirds of the outstanding shares of Brooklyn Union common
stock is required to approve the holding company proposal and adopt the
Exchange Agreement. Because the requirement for this proposal is the
affirmative vote of two-thirds of the outstanding shares, broker non-votes and
abstentions will have the effect of a "no" vote. Holders of Brooklyn Union
preferred stock are entitled to receive notice of the Annual Meeting, but are
not entitled to vote on the holding company proposal and the Exchange
Agreement at the Annual Meeting.
REGULATORY APPROVALS
New York Public Service Law
Under Section 70 of the Public Service Law, any transfer of utility stock
such as will occur in the share exchange must be approved in advance by the
PSC. On September 25, 1996, the PSC issued its order approving the holding
company restructuring. The PSC Order also contains terms with which Brooklyn
Union and KeySpan have agreed to comply in their on-going relationship and
activities, including the new rate plan and certain customer protection
provisions. The term of the PSC Order extends to September 30, 2002, unless
terminated by an earlier PSC order.
Public Utility Holding Company Act of 1935 (the "Holding Company Act")
Brooklyn Union currently is not subject to the Holding Company Act because
it is not a "public utility holding company". As a result of the share
exchange, KeySpan will become a public utility holding company under the
Holding Company Act. Pursuant to the Exchange Agreement, simultaneously with
the effectiveness of the share exchange, KeySpan will file with the SEC an
exemption statement to exempt itself and its subsidiaries from all provisions
of the Holding Company Act (except with respect to certain acquisitions and
investments) pursuant to the "intrastate" exemption provided by Section
3(a)(1) of that Act. The basis for exemption is that KeySpan and Brooklyn
Union are each organized and carry on their business substantially in the
State of New York, and neither KeySpan nor Brooklyn Union will derive any
material part of its income from a public utility company organized outside of
the State of New York. To maintain its exemption, KeySpan must file a
statement each year prior to March 1 with the SEC. The SEC has authority under
the Holding Company Act to challenge the availability of KeySpan's exemption.
See "--Regulation of KeySpan and Brooklyn Union."
CONDITIONS TO EFFECTIVENESS OF THE SHARE EXCHANGE
The share exchange is subject to the satisfaction of the following
conditions (in addition to adoption of the Exchange Agreement by the holders
of Brooklyn Union common stock): (i) all necessary orders, authorizations,
approvals or waivers from the PSC and all other jurisdictive regulatory
bodies, boards or agencies have been received, remain in full force and
effect, and do not include, in the sole judgment of the Board of Directors of
Brooklyn Union, unacceptable conditions; (ii) shares of KeySpan common stock
to be issued in connection with the exchange have been listed, subject to
official notice of issuance, by the New York Stock Exchange; and (iii)
KeySpan's restated certificate of incorporation (Exhibit B to this
Prospectus/Proxy Statement) has been filed with the New York Department of
State (the "Department").
Following satisfaction of these conditions, the share exchange will become
effective immediately following the close of business on the date of filing
with the Department of a certificate of exchange pursuant to Section 913(d) of
the New York Business Corporation Law. Brooklyn Union cannot predict when all
conditions will be satisfied, but expects that the share exchange will become
effective in the first quarter of calendar 1997.
EXCHANGE OF STOCK CERTIFICATES
If the share exchange is effected, it will not be necessary for holders of
Brooklyn Union common stock to physically exchange their existing stock
certificates for certificates of KeySpan common stock. The certificates which
represent shares of Brooklyn Union common stock outstanding immediately prior
to the effective time of the share exchange will automatically represent an
equal number of shares of KeySpan common stock
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immediately after the effective time and will no longer represent Brooklyn
Union common stock. New certificates bearing the name of KeySpan will be
issued after the share exchange, if and as certificates representing shares of
Brooklyn Union common stock outstanding immediately prior to the share
exchange are presented for exchange or transfer.
Brooklyn Union preferred stock will not be exchanged but will continue as
shares of Brooklyn Union preferred stock. The share exchange will not change
the rights of the holders of such shares as provided in Brooklyn Union's
certificate of incorporation. Debt of Brooklyn Union will remain unchanged and
will continue as outstanding obligations of Brooklyn Union after the share
exchange.
TRANSFER OF BROOKLYN UNION'S NON-UTILITY SUBSIDIARIES TO KEYSPAN
Brooklyn Union's principal non-utility subsidiaries participate and own
investments in gas and oil exploration and production, gas pipeline
transportation and storage, cogeneration, marketing and other energy-related
services. Brooklyn Union will transfer to KeySpan, in connection with the
share exchange, these non-utility subsidiaries and investments.
Other than for the foregoing subsidiaries and investments, and except for
dividends or other distributions with respect to Brooklyn Union common stock
held by KeySpan, it is expected that Brooklyn Union will not transfer at less
than a fair consideration any of its other assets to KeySpan or any KeySpan
subsidiaries. Brooklyn Union will develop accounting and other procedures to
the extent determined to be necessary or appropriate to insure separation of
utility and non-utility businesses. See "--The PSC Order" below.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Shares of Brooklyn Union common stock held in its Dividend Reinvestment and
Stock Purchase Plan (including uncertificated whole and fractional shares)
will automatically become a like number of shares of KeySpan common stock at
the effective time of the share exchange. At the effective time, KeySpan will
succeed to the Plan as in effect immediately prior to the effective time, and
shares of KeySpan common stock will be issued under the Plan on and after the
effective time. KeySpan will file a post-effective amendment to Brooklyn
Union's registration statement on Form S-3 for the Plan shortly after the
effective time of the exchange.
AMENDMENT OR TERMINATION OF THE EXCHANGE AGREEMENT
The Boards of Directors of Brooklyn Union and KeySpan may amend any of the
terms of the Exchange Agreement at any time before or after its adoption by
the holders of Brooklyn Union common stock and prior to the effective time,
but no such amendment may, in the sole judgment of the Board of Directors of
Brooklyn Union, materially and adversely affect the rights of Brooklyn Union's
shareholders.
The Exchange Agreement may be terminated and the share exchange abandoned at
any time before or after the shareholders of Brooklyn Union adopt the Exchange
Agreement, and prior to the effective time, if the Board of Directors of
Brooklyn Union determines, in its sole judgment, that consummation of the
exchange would, for any reason, be inadvisable or not be in the best interests
of Brooklyn Union or its shareholders.
LISTING OF KEYSPAN COMMON STOCK
KeySpan is applying to have its common stock listed on the New York Stock
Exchange. It is expected that such listing will become effective at the
effective time of the share exchange. The stock exchange ticker symbol of
KeySpan common stock will be "KSE", and quotations will be carried in
newspapers as they have been for Brooklyn Union common stock. Following the
share exchange, Brooklyn Union common stock will no longer trade and will be
delisted and no longer registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
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BROOKLYN UNION COMMON STOCK MARKET PRICES AND DIVIDENDS
Brooklyn Union common stock is listed and principally traded on the New York
Stock Exchange. The table below sets forth the dividends paid and the high and
low sales prices of Brooklyn Union common stock for the fiscal periods
indicated as reported in The Wall Street Journal as New York Stock Exchange
Composite Transactions.
<TABLE>
<CAPTION>
PRICE RANGE
DIVIDENDS -------------
PAID HIGH LOW
--------- ------ ------
($) ($) ($)
<S> <C> <C> <C>
Fiscal 1995
First Quarter.......................................... .3375 25 3/8 21 1/2
Second Quarter......................................... .3475 24 3/4 22
Third Quarter.......................................... .3475 26 3/8 23 3/4
Fourth Quarter......................................... .3475 26 3/8 23 1/4
Fiscal 1996
First Quarter.......................................... .3475 29 5/8 24 5/8
Second Quarter......................................... .3550 29 7/8 25 3/4
Third Quarter.......................................... .3550 27 1/2 24 7/8
Fourth Quarter......................................... .3550 28 1/8 24 7/8
Fiscal 1997
First Quarter (through December 13, 1996).............. .3550 32 5/8 27 7/8
</TABLE>
The closing price of Brooklyn Union common stock on December 16, 1996 was
reported to have been $29 1/2.
On December 18, 1996, Brooklyn Union's Board of Directors declared a
dividend of $ per share on Brooklyn Union common stock, payable on February
1, 1997 to holders of record on January 2, 1997.
DIVIDEND POLICY
KeySpan does not now, nor will it immediately after the share exchange,
conduct directly any business operations from which it will derive any
revenues. KeySpan plans to obtain funds for its own operations from dividends
paid to KeySpan on the stock of its subsidiaries, and from sales of securities
or debt incurred by KeySpan. Dividends on KeySpan common stock will initially
depend upon the earnings, financial condition and capital requirements of
Brooklyn Union, and the dividends paid by Brooklyn Union to KeySpan. KeySpan
presently expects to continue Brooklyn Union's policy of paying an appropriate
percentage of earnings to shareholders. In the future, dividends from
KeySpan's subsidiaries other than Brooklyn Union may also be a source of funds
for dividend payments by KeySpan. Payment of dividends on Brooklyn Union
common stock will continue to be subject to the prior rights of holders of
Brooklyn Union preferred stock.
KeySpan presently expects to pay quarterly dividends on KeySpan common stock
at least equal to the rate, and on approximately the same schedule as, the
dividend most recently declared by Brooklyn Union on its common stock. The
quarterly dividend most recently declared by Brooklyn Union's Board of
Directors on Brooklyn Union common stock was $ per share payable February 1,
1997 to holders of record on January 2, 1997. The amount of dividends paid by
Brooklyn Union to KeySpan following the share exchange is expected to be
greater than the amount of dividends KeySpan pays on its common stock, since
KeySpan will need funds for its holding company activities.
The PSC Order contains conditions imposing limitations on dividend payments
by Brooklyn Union to KeySpan. These limitations are designed to ensure
maintenance of Brooklyn Union's financial strength, its ability to raise
capital sufficient to finance required investment in its utility plant, and to
protect Brooklyn Union's ability
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to provide safe, adequate and reliable utility service. The limitations are as
follows: (1) Brooklyn Union's level of dividend payments cannot exceed 100% of
its income available for dividends, calculated on a two-year rolling average
basis; (2) in the event that Brooklyn Union fails to achieve certain service
levels prescribed in the PSC Order, Brooklyn Union will be required to show
cause why it should not be prohibited from increasing the level of dividend
payments; (3) in the event that KeySpan has rated debt, and the debt is rated
or downgraded to BBB, KeySpan will be required to show cause to the PSC why
dividends from Brooklyn Union to KeySpan should not be limited to 75% of income
available for dividends; and (4) under certain conditions, dividends paid by
Brooklyn Union to KeySpan may be limited to 75% of income available for
dividends (calculated on a two-year rolling average basis), 50% of income
available for dividends (calculated on a two-year rolling average basis) or
suspended, in the event of a downgrade of Brooklyn Union's senior debt
securities by at least two of the following credit rating agencies: Standard &
Poor's Rating Group, Moody's Investors Service and Fitch Investors Service L.P.
The following table summarizes the downgrade events with respect to Brooklyn
Union's senior debt which will cause a limitation, the nature of the
limitation, and the events that will lead to removal of the limitation, on
dividends that Brooklyn Union can pay to KeySpan:
<TABLE>
<CAPTION>
BROOKLYN-UNION DOWNGRADE
EVENT LIMITATION LIMITATION REMOVED
- ------------------------ ---------- ------------------
<S> <C> <C>
Downgrade to BBB+ and Dividends limited to 75% When prior rating
downgrade is in any of income available for restored
part due to the dividends
performance or concerns
about the financial
condition of KeySpan or
any subsidiary of
KeySpan other than
Brooklyn Union
Downgrade to BBB and Dividends limited to 75% When prior rating
downgrade is solely due of income available for restored
to the performance or dividends
concerns about the
financial condition of
Brooklyn Union
Downgrade to BBB and Dividends limited to 50% When prior rating
downgrade is in any of income available for restored
part due to the dividends
performance or concerns
about the financial
condition of KeySpan or
any subsidiary of
KeySpan other than
Brooklyn Union
Downgrade to BBB and Dividends suspended When rating restored to
rating not restored to at least BBB+
at least BBB+ within 2
years
Downgrade to BBB- Dividends suspended When rating restored to
at least BBB
</TABLE>
The conditions of the PSC Order imposing these limitations will continue
throughout the term of the agreement that was approved by the PSC Order, which
ends on September 30, 2002. However, the PSC Order provides for review of the
agreement to determine whether modifications are appropriate.
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<PAGE>
Brooklyn Union's Standard & Poor's and Moody's unsecured senior debt ratings
are A and A-1, respectively.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Brooklyn Union and KeySpan have received an opinion from Sullivan &
Cromwell, their special counsel, regarding material Federal income tax
consequences of the share exchange, to the effect that, based on certain
assumptions and factual representations:
(1) no gain or loss will be recognized by a holder of Brooklyn Union
common stock upon the exchange solely of such holder's Brooklyn Union
common stock solely for KeySpan common stock;
(2) no income, gain or loss will be recognized on account of the share
exchange by holders of outstanding shares of Brooklyn Union preferred stock
with respect to their shares of Brooklyn Union preferred stock so long as
such holders do not sell or exchange (including as a result of a
redemption) their shares of Brooklyn Union preferred stock in a transaction
to which Brooklyn Union or an affiliate of Brooklyn Union is a party and
which is treated as part of the share exchange;
(3) the basis of shares of KeySpan common stock received by a former
holder of shares of Brooklyn Union common stock in an exchange described in
(1) above in the aggregate will equal the basis of such former holder's
shares of Brooklyn Union common stock exchanged therefor, and the holding
period for such shares of KeySpan common stock will include the holding
period for shares of Brooklyn Union common stock exchanged therefor to the
extent that such shares of Brooklyn Union common stock were held as a
capital asset at the effective time of the share exchange;
(4) no gain or loss will be recognized by KeySpan or Brooklyn Union on
account of the share exchange or the issuance of shares of KeySpan common
stock to the former holders of shares of Brooklyn Union common stock
pursuant to the Exchange Agreement; and
(5) the consummation of the share exchange will not result in the
termination of the existence of the affiliated group of corporations of
which Brooklyn Union has been the common parent, and Brooklyn Union will be
included in such affiliated group of corporations of which KeySpan will
become the new common parent.
The federal income tax consequences of the share exchange described above
may not apply to a holder of shares of Brooklyn Union common stock who also
owns shares of Brooklyn Union preferred stock and who sells or exchanges
(including as a result of a redemption) any of such holder's shares of
Brooklyn Union preferred stock in a transaction to which Brooklyn Union or an
affiliate is a party and which is treated as part of the share exchange. For
example, if a holder of both shares of Brooklyn Union common stock and shares
of Brooklyn Union preferred stock realized a loss on such a sale or exchange
of shares of Brooklyn Union preferred stock, and the sale or exchange of
shares of Brooklyn Union preferred stock and the share exchange were regarded
as related steps in an integrated transaction, the holder might not be able to
recognize the loss currently for federal income tax purposes. PERSONS WHO ARE
HOLDERS OF BOTH SHARES OF BROOKLYN UNION COMMON STOCK AND SHARES OF BROOKLYN
UNION PREFERRED STOCK SHOULD, THEREFORE, CONSULT WITH THEIR OWN TAX ADVISORS
AS TO THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE SHARE EXCHANGE AND
ANY SALE OR EXCHANGE OF THEIR SHARES OF BROOKLYN UNION PREFERRED STOCK.
Shareholders of Brooklyn Union will be required to attach to their income
tax returns a complete statement of all the facts relating to the share
exchange. The facts to be disclosed include the shareholder's basis in the
shares of Brooklyn Union common stock transferred to KeySpan and the nature
and amount of shares of KeySpan common stock received in the share exchange.
Shareholders of Brooklyn Union will also be required to keep permanent records
of any information relating to the share exchange that is required to be filed
with their income tax returns.
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The foregoing discussion does not cover the tax consequences of the share
exchange under state, local or foreign income or other tax laws. Shareholders
of Brooklyn Union are urged to consult with their own tax advisors with
respect to the effects of such laws.
BROOKLYN UNION EMPLOYEE PLANS
The Exchange Agreement provides that Brooklyn Union's Employee Savings Plan,
Discount Stock Purchase Plan for Employees, and Long-Term Performance
Incentive Compensation Plan (together, the "Brooklyn Union Stock Plans"),
along with other employee benefit plans maintained by Brooklyn Union
(collectively with the Brooklyn Union Stock Plans, the "Brooklyn Union
Employee Plans"), such as the defined benefit and defined contribution pension
plans, health plans and disability plans, will be amended to provide for
KeySpan taking over responsibility for such Plans upon consummation of the
share exchange. The Brooklyn Union Stock Plans were previously approved by
Brooklyn Union shareholders.
Stock Based Plans
If the share exchange is consummated, shares of Brooklyn Union common stock
then held under the Brooklyn Union Stock Plans will automatically become a
like number of shares of KeySpan common stock. Also, the Brooklyn Union Stock
Plans as then amended will provide for shares of KeySpan common stock, instead
of Brooklyn Union common stock, being issued and delivered in the future under
such Plans.
Upon consummation of the share exchange, all outstanding stock options under
Brooklyn Union's Long-Term Performance Incentive Compensation Plan will be
converted into options to acquire, on the same terms and conditions as were
applicable under such stock options immediately prior to the share exchange,
such number of shares of KeySpan common stock as the holders of such options
would have been entitled to receive pursuant to the share exchange had such
holders exercised such stock options in full immediately prior to the share
exchange, at a price per share of KeySpan common stock equal to the per share
option price of Brooklyn Union common stock. KeySpan will issue future options
on its common stock under such Plan. In addition, Performance Shares granted
and to be granted under such Plan will be treated in a comparable manner.
KeySpan will file post-effective amendments to Brooklyn Union's registration
statements on Form S-8 for the amended Brooklyn Union Stock Plans shortly
after the effective time of the share exchange.
Non-Stock Based Plans
Upon consummation of the share exchange, KeySpan will take over
responsibility for all of Brooklyn Union's retirement and other employee
benefit plans, such as the defined benefit and defined contribution pension
plans, health plans and disability plans. Benefits provided for in these non-
stock based plans will not be changed as a result of the holding company
restructuring and share exchange.
TREATMENT OF BROOKLYN UNION PREFERRED STOCK
Shares of Brooklyn Union preferred stock will not be exchanged in the share
exchange but will continue as shares of preferred stock of Brooklyn Union.
Therefore, holders of Brooklyn Union preferred stock will not become holders
of KeySpan preferred or common stock as a result of the share exchange. Except
as discussed under this caption, the share exchange and the holding company
structure will not change the rights of holders of the outstanding shares of
Brooklyn Union preferred stock. Brooklyn Union preferred stock will continue
to rank senior to Brooklyn Union common stock as to dividends and as to the
distribution of Brooklyn Union's assets upon any liquidation.
The restructuring is not expected to affect adversely the holders of
Brooklyn Union preferred stock. Dividends on Brooklyn Union preferred stock
will continue to be paid as before, depending upon the earnings, financial
condition and other relevant factors affecting Brooklyn Union. However, the
assets or earnings of KeySpan's subsidiaries other than Brooklyn Union will
not be available to pay dividends on Brooklyn Union
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<PAGE>
preferred stock or to make distributions with respect to such preferred stock
in the event of a liquidation if the share exchange is consummated. See "--
Transfer of Brooklyn Union's Non-Utility Subsidiaries to KeySpan" above.
Appraisal rights under the New York Business Corporation Law are not available
to holders of Brooklyn Union preferred stock inasmuch as that preferred stock
is not being exchanged for KeySpan stock and will continue as Brooklyn Union
preferred stock after the holding company restructuring.
After the share exchange, Brooklyn Union will no longer be subject to the
periodic reporting requirements of the Securities Exchange Act of 1934.
However, holders of outstanding Brooklyn Union preferred stock will continue
to be entitled to receive audited annual financial statements and unaudited
quarterly income statements from Brooklyn Union, and also to receive proxy
statements or information statements if and when such holders are entitled to
them. KeySpan will hold sufficient voting power of Brooklyn Union to approve
actions required to be taken by the combined vote of Brooklyn Union common
stock and preferred stock.
KEYSPAN CAPITAL STOCK
Since the Exchange Agreement is conditioned on KeySpan's restated
certificate of incorporation being filed prior to the share exchange with the
New York Department of State, a vote by Brooklyn Union common shareholders for
adoption of the Exchange Agreement will constitute approval of KeySpan's
restated certificate of incorporation. KeySpan's Board of Directors will adopt
KeySpan's by-laws prior to the share exchange. These documents will govern
certain rights of KeySpan's shareholders after the share exchange as discussed
under this caption and under "--Comparative Shareholders' Rights" below.
The following statements with respect to KeySpan common stock are based on
certain provisions of KeySpan's restated certificate of incorporation and by-
laws, as to be in effect as of the effective time of the share exchange. A
copy of KeySpan's restated certificate of incorporation, substantially in the
form to be in effect at the effective time of the share exchange, is attached
as Exhibit B hereto and is incorporated herein by reference. KeySpan's by-laws
have been filed as an exhibit to the Registration Statement of which this
Prospectus/Proxy Statement is a part, and are incorporated herein by
reference.
KeySpan is authorized to issue 210,000,000 shares of common stock and
10,000,000 shares of preferred stock. KeySpan preferred stock may be issued
from time to time in series as KeySpan's Board of Directors may determine, and
the respective dividend rates, redemption terms (if any), amounts payable on
liquidation, voting rights (if any), number of votes per share, conversion
rights (if any), and other terms will be fixed by KeySpan's Board of Directors
with respect to any such series prior to issuance.
When issued in the share exchange, shares of KeySpan common stock will be
fully paid and nonassessable. Holders of KeySpan common stock and preferred
stock are not entitled to preemptive rights.
Dividends
Subject to prior rights of KeySpan preferred stock (if any should become
outstanding), KeySpan common stock is entitled to such dividends as may be
declared by KeySpan's Board of Directors, and KeySpan may purchase or
otherwise acquire outstanding shares of common stock, out of funds legally
available therefor.
As summarized above, the PSC Order imposes certain limitations on the
dividends that Brooklyn Union may pay to KeySpan after the share exchange. See
"--Dividend Policy." At least initially after the exchange, dividends on
KeySpan common stock will depend on dividends paid by Brooklyn Union on its
common stock owned by KeySpan.
Liquidation Rights
Upon liquidation of KeySpan, any net assets remaining after payment to the
holders (if any) of KeySpan preferred stock of the full amounts to which they
are entitled to receive are distributable pro rata to the holders of KeySpan
common stock.
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<PAGE>
Voting Rights
Holders of KeySpan common stock are entitled to one vote per share. There
are no cumulative voting rights. KeySpan's Board of Directors is divided into
three classes, with directors elected generally to serve for terms of three
years.
Transfer Agent and Registrar
The transfer agent and registrar for KeySpan common stock will be First
Chicago Trust Company of New York, Jersey City, New Jersey.
Indemnification and Limitation of Liability
As do the Brooklyn Union by-laws, the KeySpan by-laws will provide that
KeySpan shall indemnify to the full extent permitted by law any person made,
or threatened to be made, a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director,
officer or employee of KeySpan, or serves or served at the request of KeySpan
with any other enterprise as a director, officer or employee; expenses
incurred by any such person in defending any such action, suit or proceeding
will be paid or reimbursed by KeySpan promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by KeySpan. No
amendment of this by-law provision will impair the rights of any person
arising at any time with respect to events occurring prior to such amendment.
As does Brooklyn Union's certificate of incorporation, KeySpan's restated
certificate of incorporation will provide that no director shall have personal
liability to KeySpan or its shareholders for damages for any breach of duty in
such capacity, except for the liability for acts or omissions in bad faith or
involving intentional misconduct or a knowing violation of law, or if he or
she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled or if such act violated Section 719 of the
New York Business Corporation Law. Any amendment or repeal of such liability
limitation provision may not apply to or have any effect on the liability or
alleged liability of any director for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
Possible Effect of Certain KeySpan Provisions and the New York Law
It is not the intention of the Board of Directors to discourage legitimate
offers to enhance shareholder value. However, certain provisions of the
KeySpan's restated certificate of incorporation and by-laws may have the
effect of discouraging unilateral tender offers or other attempts to take over
and acquire the business of KeySpan. These provisions, many of which are
presently contained in Brooklyn Union's certificate of incorporation or by-
laws or otherwise apply to Brooklyn Union, might discourage a potentially
interested purchaser from attempting a unilateral takeover bid for KeySpan on
terms which some shareholders might favor. If they discourage potential
takeover bids, these provisions might limit the opportunity for KeySpan's
shareholders to sell their shares at a premium over then prevailing market
prices.
Non-Cumulative Voting. Neither Brooklyn Union nor KeySpan provides for
cumulative voting in the election of directors. The procedure known as
cumulative voting permits shareholders to multiply the number of votes to
which they may be entitled by the total number of directors to be elected in
the same election by the holders of the class or classes of shares of which
their shares are a part and to cast their whole number of votes for one
candidate or to distribute them among any two or more candidates.
Under cumulative voting, it is possible for representation on the Board of
Directors to be obtained by an individual or group of individuals who own less
than a majority of the voting stock. Such a shareholder or group may have
interests and goals which are not consistent with, and indeed might be in
conflict with, those of a majority of the shareholders. The Board of Directors
believes that each director should represent all shareholders, rather than the
interests of any special constituency, and that the presence on KeySpan's
Board of one or more
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<PAGE>
directors representing such a constituency could disrupt and impair the
efficient management of KeySpan. The lack of cumulative voting could
discourage the accumulation of blocks of KeySpan common stock and therefore
could tend to make temporary increases in the market price of KeySpan common
stock, which could result therefrom, less likely to occur. Therefore, in these
limited instances, shareholders may not be able to sell their shares of
KeySpan common stock at a market price temporarily influenced by this type of
activity.
Advance Notice of Business to be Brought Before Shareholder Meetings. As
under Brooklyn Union's by-laws, under KeySpan's by-laws shareholders must
provide KeySpan prior written notice of any business to be brought before an
annual or special meeting (including the nomination of directors) in order for
it to be considered. With respect to any annual meeting, such by-laws require
the written notice to be received by the Secretary of KeySpan no earlier than
90 days nor later than 60 days prior to the first anniversary of the preceding
year's annual meeting, except that if the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, such by-
laws require the written notice to be received by the Secretary of KeySpan no
earlier than 90 days nor later than the later of 60 days prior to the date of,
or 10 days after the public announcement of, such annual meeting. With respect
to any special meeting, such by-laws require the written notice to be received
by the Secretary of KeySpan no earlier than 90 nor later than the later of 60
days prior to, or 10 days after the announcement of, such special meeting.
These by-law provisions provide a more orderly procedure for conducting
shareholder meetings and provide the Board of Directors with a meaningful
opportunity prior to shareholder meetings to inform shareholders, to the
extent deemed necessary or desirable by the Board of Directors, of any
business proposed to be conducted at such meetings, together with any
recommendation of the Board of Directors. Also, by requiring advance notice of
nominations by shareholders, these by-law provisions afford the Board of
Directors a meaningful opportunity to consider the qualifications of the
proposed nominees and, to the extent deemed necessary or desirable by the
Board of Directors, to inform shareholders about such qualifications.
On the other hand, these by-law provisions may provide sufficient time for
KeySpan to institute litigation or take other steps to respond to such
business, or to prevent such business from being acted upon, if such response
or prevention is thought to be necessary or desirable. With respect to the
electing of directors, these by-law provisions may tend to inhibit
shareholders who do not have any intention of controlling KeySpan or its Board
of Directors from participating in the nomination process; such provisions may
also provide sufficient time for KeySpan to institute litigation or take other
steps to prevent the nominee from being elected or serving if such prevention
is thought to be necessary or desirable.
"Blank-Check" Preferred Stock. KeySpan's restated certificate of
incorporation will authorize the issuance of 10,000,000 shares of KeySpan
preferred stock. In addition, after giving effect to the share exchange,
approximately 159,000,000 shares of KeySpan common stock will be authorized
but unissued and not reserved for issuance. An effect of the existence of
unissued KeySpan common stock and preferred stock may be to enable the KeySpan
Board of Directors to render more difficult or discourage a transaction to
obtain control of KeySpan. Such shares might be issued by the Board of
Directors without shareholder approval in transactions that might prevent or
render more difficult or costly the completion of a takeover transaction, as
by diluting voting or other rights of the proposed acquiror. In this regard,
KeySpan's restated certificate of incorporation (as does Brooklyn Union's)
will grant the Board of Directors broad power to establish the rights and
preferences of the authorized and unissued preferred stock, one or more
classes or series of which could be issued entitling holders to vote
separately as a class on any proposed merger or consolidation, to convert such
stock into shares of KeySpan common stock or possibly other securities, to
demand redemption at a specified price under prescribed circumstances related
to a change of control, or to exercise other rights designed to impede a
takeover.
Section 912 of the New York Business Corporation Law. Section 912 of the New
York Business Corporation Law would prohibit a "business combination" (as
defined in Section 912, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) by KeySpan or a
subsidiary with an "interested shareholder" (as defined in Section 912,
generally the beneficial owner of 20 percent or more of KeySpan's voting
stock) within five years after the person or entity becomes an interested
shareholder, unless
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<PAGE>
(i) prior to the person or entity becoming an interested shareholder, the
business combination or the transaction pursuant to which such person or entity
became an interested shareholder shall have been approved by KeySpan's Board of
Directors, or (ii) the business combination is approved by the holders of a
majority of the outstanding voting stock of KeySpan, excluding shares held by
the interested shareholder, at a meeting called for such purpose not earlier
than five years after such interested shareholder's stock acquisition date.
Section 70 of the New York Public Service Law. Under Section 70 of the Public
Service Law, unless authorized by the PSC, no gas corporation or electric
corporation may directly or indirectly acquire the stock or bonds of any other
corporation incorporated for, or engaged in, the same or a similar business, or
proposing to operate or operating under a franchise from New York State or any
other state or any other municipality. In general, no stock corporation other
than a gas corporation or electric corporation or street railroad corporation
may purchase or acquire, take or hold, more than ten percent (10%) of the
voting capital stock of any gas corporation or electric corporation organized
or existing under or by virtue of the laws of New York unless with the consent
of, and subject to the terms and conditions set by, the PSC. No consent may be
given by the PSC to any such acquisition unless it has been shown that such
acquisition is in the public interest. Any contract, assignment, transfer or
agreement for transfer of any stock in violation of Section 70 will be void and
of no effect, and no such transfer or assignment may be made upon the books of
any such gas corporation or electric corporation, or will be recognized as
effective for any purpose. A "gas corporation" is defined to generally include
any corporation, company, partnership and person owning, operating or managing
any gas plant.
Other Provisions. Some other provisions of KeySpan's restated certificate of
incorporation and by-laws may also tend to discourage potential offers to take
over and acquire the business of KeySpan. KeySpan's Board of Directors will be
divided into three classes, with directors in each class generally being
elected to serve a three-year term. Also, special shareholder meetings may be
called only by the chairman of the Board of Directors or by the Board pursuant
to a resolution adopted by a majority of the entire Board. KeySpan's restated
certificate of incorporation also provides that directors may not be removed
without cause by the shareholders, except in the case of a director elected by
the holders of any class or series of stock (other than KeySpan common stock),
voting as a class or series, when so entitled by the applicable provisions of
KeySpan's restated certificate of incorporation. Finally, certain provisions
(relating to, for example, limitation on director liabilities, the ability to
call special meetings of shareholders, presiding at meetings of shareholders,
classified Board of Directors, election and removal of directors, advance
notice requirements for shareholder proposals and nomination of directors at
shareholder meetings, and indemnification) may only be amended by the
affirmative vote of not less than two-thirds of the shares entitled to vote at
a shareholder meeting. Brooklyn Union's certificate of incorporation and by-
laws presently contain a number of these provisions.
COMPARATIVE SHAREHOLDERS' RIGHTS
Brooklyn Union and KeySpan are both New York corporations. When the share
exchange becomes effective, holders of Brooklyn Union common stock will become
holders of KeySpan common stock, and their rights will be governed by KeySpan's
restated certificate of incorporation and by-laws instead of those of Brooklyn
Union.
Certain differences between the rights of holders of KeySpan common stock and
those of holders of Brooklyn Union common stock are summarized below. Such
summary is qualified in its entirety by reference to the information included
in the exhibits hereto, in exhibits to the Registration Statement of which this
Prospectus/Proxy Statement is a part, and in materials incorporated herein by
reference.
Purpose Clause
The corporate purposes for which Brooklyn Union may engage in business are
those related to gas, electricity or other forms of energy and related
activities. KeySpan is authorized to engage in any and all lawful acts and
activities.
Authorized Shares
Authorized KeySpan and Brooklyn Union common stock is 210,000,000 and
70,000,000 shares, respectively. As of the record date for the Annual Meeting,
there were 49,993,378 shares of Brooklyn Union
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common stock issued and outstanding. Up to approximately 51,000,000 shares of
KeySpan common stock may be issued in the share exchange. The additional
authorized but unissued shares of KeySpan common stock will be available for
issuance under the Dividend Reinvestment and Stock Purchase Plan and the
Brooklyn Union Stock Plans, as well as possibly for stock splits, stock
dividends, equity financings, and for other general corporate purposes
(including, possibly, acquisitions) (none of which is under current
consideration).
In addition to the currently outstanding shares of Brooklyn Union preferred
stock, as of the record date, there were 831,000 and 2,000,000 authorized but
unissued shares of Brooklyn Union $100 preferred stock and Brooklyn Union $25
preferred stock, respectively. There will be 10,000,000 authorized shares of
KeySpan preferred stock, all of which are unissued.
Preferred Stock
The respective Boards of Directors of KeySpan and Brooklyn Union are
authorized to issue preferred stock in series.
The voting rights and certain preferences of the Brooklyn Union preferred
stock are determined in Brooklyn Union's certificate of incorporation. Brooklyn
Union preferred stock is generally not entitled to vote but only has limited
voting rights as required by law and as set out in the Brooklyn Union's
certificate of incorporation, which rights generally arise only in the event of
certain arrearages in payment of dividends and certain corporate transactions
affecting Brooklyn Union preferred stock. Brooklyn Union preferred stock is
subject to redemption and sinking fund provisions. After the share exchange,
outstanding Brooklyn Union preferred stock will continue as equity securities
of Brooklyn Union with the same preferences, designations, relative rights,
privileges and powers, and subject to the same restrictions, limitations and
qualifications, as were applicable to outstanding Brooklyn Union preferred
stock prior to the share exchange.
KeySpan's restated certificate of incorporation will not establish voting
rights, preferences or other rights with respect to KeySpan preferred stock.
KeySpan's Board of Directors is given full authority to establish and designate
each particular series of preferred stock and to fix the rights, preferences
and limitations of each particular series, and the relative rights, preferences
and limitations between series, as follows: (i) the serial designation; (ii)
the number of shares in such series; (iii) the dividend rate or rates and the
date or dates upon which such dividends shall be payable; (iv) whether
dividends on such series will be cumulative, and, if so, from which date or
dates; (v) liquidation preferences; (vi) provisions relating to sinking or
other similar funds; (vii) provisions relating to the conversion or exchange of
shares of such series into shares of any class of stock (except that conversion
or exchange may not be made into shares having superior dividend or liquidation
preferences); (viii) the voting rights, if any, in addition to those required
by law and the number of votes per share; and (ix) any other relative rights,
preferences or limitations of such series not inconsistent with the KeySpan's
restated certificate of incorporation or with applicable law.
Management believes that the ability to issue KeySpan preferred stock will
provide important flexibility to KeySpan.
Par Value
The par value of KeySpan preferred stock differs from those of Brooklyn Union
preferred stocks. A designated par value is not required under the New York
Business Corporation Law and in modern corporate practice par value does not
serve any useful purpose. It is anticipated that the difference in par values
will not affect the market value of KeySpan preferred stock.
The par value per share of KeySpan common stock, $.33 1/3, is identical to
the par value per share of Brooklyn Union common stock.
Classified Board
As is the case with Brooklyn Union, KeySpan's restated certificate of
incorporation and by-laws will provide (i) for the Board to determine the
number of directors; and (ii) for the division of the Board into three classes
with directors in each class generally being elected for a three-year term. See
"-- Management" below.
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Other Provisions
KeySpan's restated certificate of incorporation will provide that directors
may not be removed without cause by the shareholders, except in the case of a
director elected by the holders of any class or series of stock (other than
KeySpan common stock), voting as a class or series, when so entitled by the
applicable provisions of KeySpan's restated certificate of incorporation.
Also, certain provisions (relating to, for example, preferred stock,
limitation on director liabilities, the ability to call special meetings of
shareholders, classified Board of Directors, election and removal of
directors, advance notice requirements for shareholder proposals and
nomination of directors at shareholder meetings) may only be amended by the
affirmative vote of not less than two-thirds of the shares then entitled to
vote at shareholder meetings. Other provisions of KeySpan's restated
certificate of incorporation or by-laws may be amended, repealed or adopted by
a vote of the shareholders of KeySpan at the time entitled to vote at any
shareholder meeting or, in the case of the KeySpan by-laws, by the Board of
Directors of KeySpan.
See also "--KeySpan Capital Stock".
BUSINESS
Brooklyn Union distributes natural gas at retail, primarily in a territory
of approximately 187 square miles, which includes the Boroughs of Brooklyn and
Staten Island and two-thirds of the Borough of Queens in New York City. The
population of the territory served is approximately 4,000,000. As of September
30, 1996, Brooklyn Union had approximately 1,126,000 active meters, of which
approximately 1,089,000 were residential. Brooklyn Union is subject to the
regulatory jurisdiction of the PSC. After the share exchange, Brooklyn Union
will continue to carry on its current utility business as a subsidiary of
KeySpan.
Brooklyn Union's principal non-utility subsidiaries participate and own
investments in gas and oil exploration and production, gas pipeline
transportation and storage, cogeneration, marketing and other energy-related
services. These subsidiaries will become separate subsidiaries of KeySpan
after the share exchange.
On September 20, 1996, Brooklyn Union sold in an initial public offering
approximately 34% of its interest in The Houston Exploration Company ("THEC").
THEC is a natural gas and oil exploration and production company with proven
reserves of approximately 320 billion cubic feet of natural gas. After the
share exchange, KeySpan will own the 66% interest in THEC which Brooklyn Union
currently holds.
When the share exchange occurs, KeySpan will have no material assets other
than its ownership of stock of its subsidiaries, which initially will consist
of all of Brooklyn Union's outstanding common stock and all of the common
stock of Brooklyn Union's existing non-utility subsidiaries. See "--Transfer
of Brooklyn Union's Non-Utility Subsidiaries to KeySpan." It is expected that,
in the future, KeySpan will expand into some other businesses and ventures.
For further information regarding Brooklyn Union's non-utility subsidiaries,
see Notes 3, 7, 8 and 10 to the 1996 Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Appendix attached to this Prospectus/Proxy Statement.
Financial and additional information regarding Brooklyn Union is also included
in the Appendix hereto.
REGULATION OF KEYSPAN AND BROOKLYN UNION
Regulation of KeySpan
KeySpan must comply with the PSC Order. As discussed and referred to below
under "--The PSC Order", there are restrictions on KeySpan's investments,
transactions between Brooklyn Union and KeySpan and other KeySpan
subsidiaries, restrictions on loans, guarantees or pledges for the benefit of
KeySpan and other KeySpan subsidiaries, and restrictions on Board and
managerial interlocks between Brooklyn Union and KeySpan and other KeySpan
subsidiaries.
As a result of the share exchange, KeySpan will become a "public utility
holding company" under the Holding Company Act. Simultaneously with the
effectiveness of the share exchange, KeySpan will file with the
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SEC an exemption statement to exempt itself and its subsidiaries from all
provisions of the Holding Company Act (except with respect to certain
acquisitions and investments) pursuant to the "intrastate" exemption in Section
3(a)(1) of that Act. To maintain this exemption, KeySpan must file a statement
each year prior to March 1 with the SEC. The SEC has authority under the
Holding Company Act to challenge the availability of KeySpan's exemption.
KeySpan believes that it will be exempt from all provisions of the Holding
Company Act except Section 9(a)(2). Section 9(a)(2) requires SEC approval of
the direct or indirect acquisition by KeySpan of five percent (5%) or more of
the voting securities of any other public utility company. There are also
presently limits on the extent to which KeySpan and its non-utility
subsidiaries can enter into businesses which are not "functionally related" to
the public utility business without raising potential issues about KeySpan's
exempt status. SEC policies regarding the scope of permissible non-utility
activities of a public utility holding company are subject to change, but under
current law KeySpan would be required to remain engaged primarily and
predominantly in the public utility business which could limit other activities
in which KeySpan might wish to engage.
In 1994 the SEC issued a release soliciting the views of interested parties
on a study being conducted by its staff to develop recommendations regarding
certain Congressional concerns and the needs of those affected by regulation
under the Holding Company Act. In June 1995 the staff completed its study and
issued a report which concluded that significant changes were needed in the
current regulatory scheme. The SEC staff report viewed the Holding Company Act
as unnecessarily restrictive in many regards which could prevent companies from
responding effectively to changes now occurring in the utility industry. Among
the staff report's recommendations were three legislative options for the SEC
to offer to Congress--repeal of the Holding Company Act with legislation to
continue federal protection of consumers, unconditional repeal of the Holding
Company Act, or a broadening of the SEC's authority to exempt holding companies
where state regulation was adequate. Pending legislative action, the staff
report recommended that the SEC act administratively to modernize and simplify
holding company regulation, reduce delays in current administration, and
minimize regulatory overlap, including rulemaking proposals and significant
changes in the SEC's past interpretations under the Act. One of these proposals
was a rule to exempt most energy-related diversification within investment
limitations. Brooklyn Union cannot predict whether Congress will take any
action to significantly modify or repeal the Holding Company Act, or whether
the SEC will take action to revise or modify significantly its Holding Company
Act rules, decisions and interpretations.
Regulation of Brooklyn Union
Brooklyn Union will continue to be subject to regulation by the PSC after the
share exchange. Brooklyn Union's utility retail sales, which include sales of
gas, transportation and balancing services, will continue to be made primarily
under rate schedules and tariffs filed with and subject to the jurisdiction of
the PSC. See "--New Rate Plan of Brooklyn Union" below. In addition, Brooklyn
Union will continue to be subject to regulation by the PSC, as it has been in
the past, regarding issuances of securities, capital ratio maintenance, and the
maintenance of its books and records.
THE PSC ORDER
Non-Utility Capital Limits
Unless otherwise approved by the PSC during the term of the PSC Order,
KeySpan may only invest in the following categories of non-utility businesses
(the "Complying Investments"): (i) energy-related businesses; (ii) businesses
providing water, environmental and technical services; (iii) telecommunications
businesses; (iv) businesses that operate primarily within Brooklyn Union's
service area and contribute to the economy of that area through such means as
significant increased employment and improvement of housing stock; and (v)
financial services businesses. In addition, KeySpan's investment in non-utility
businesses will be limited to a percentage of KeySpan's Total Capital: starting
at 35% for fiscal year 1997, and increasing at a rate of five percentage points
per year until reaching 50% for fiscal year 2000 and thereafter. Brooklyn
Union's investments in the lines of business described in (iv) and (v) above
will be limited to an aggregate five percent (5%) of
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KeySpan's Total Capital over the entire term of the PSC Order. "Total Capital"
refers to the sum of an entity's common shareholders' equity, preferred stock,
long term debt (including notes payable), but does not include any cash or cash
equivalents appearing on the entity's consolidated balance sheets. The
increases in investment authority detailed above will not occur if there has
been a material violation of the PSC Order, as determined by the PSC.
If (i) KeySpan or its subsidiaries invest in or acquire a utility company or
Complying Investment, (ii) a portion of the activities of such acquired entity
are non-Complying Investments, and (iii) all such non-Complying Investments in
the aggregate amount to more than one percent (1%) of the assets of KeySpan,
then KeySpan or the subsidiaries owning such non-Complying Investments must
divest itself or themselves of such investments within a two-year period.
Prohibitions of Affiliate Loans, Guarantees and Pledges
Under the PSC Order, Brooklyn Union is prohibited from making loans to, or
providing guarantees or other credit support for the obligations of, KeySpan or
any other subsidiary of KeySpan. Likewise, Brooklyn Union may not pledge its
assets for the obligations of any other entity, including KeySpan or any other
subsidiary of KeySpan. Finally, KeySpan may not pledge the dividends, revenues
or receivables received or expected from Brooklyn Union or any other subsidiary
to support its obligations.
Prohibitions of Affiliate Transactions and Other Restrictions
The PSC Order generally prohibits any transaction between Brooklyn Union and
KeySpan or any other subsidiary of KeySpan, except for the provision of certain
corporate administrative services, certain "grandfathered" transactions as
listed therein, transactions permitted as a matter of generic policy by the
PSC, and tariffed transactions. In addition, KeySpan and its subsidiaries are
required by the PSC Order to operate as separate entities, and the PSC Order
prescribes capital ratio maintenance requirements for Brooklyn Union. Finally,
the PSC Order sets out guidelines for the allocation of costs among KeySpan,
Brooklyn Union and the other subsidiaries of KeySpan.
Restrictions on Board and Management Interlocks
In order to address concerns regarding the possible diversion of the
attention of Brooklyn Union's management away from the utility business, as
well as to avoid potential conflicts of interest with the management of
KeySpan, the PSC Order contains restrictions regarding the composition of the
Boards and managements of Brooklyn Union and KeySpan and other subsidiaries of
KeySpan. See "--Management--Restrictions on Board and Management Interlocks
between KeySpan and Brooklyn Union."
NEW RATE PLAN OF BROOKLYN UNION
The PSC Order includes a new rate plan that took effect on October 1, 1996
and will remain in effect until September 30, 2002. In fiscal 1997, the non-gas
component in customer bills will be reduced by at least $3 million, with
subsequent bills subject to specific price caps through September 30, 2002.
Hence, the non-gas cost component of customer rates, in the aggregate, will
remain constant for the subsequent five years; however, rates to certain
customer classes may increase in order to reflect more appropriately their
respective cost responsibilities. Brooklyn Union also will be able to charge
for various ancillary services.
The new rate plan essentially freezes Brooklyn Union's distribution rates for
six years, but at the same time, contains a number of provisions designed to
maximize Brooklyn Union's overall earnings and protect Brooklyn Union's
financial condition. There is no specific authorized rate of return on common
equity and Brooklyn Union generally is not subject to any earnings cap. In
addition, Brooklyn Union generally is not required to share with customers any
level of earnings or cost savings related to utility operations. However,
incentive provisions remain for the retention of 20% of net revenues from off-
system transactions, as well as incentives related to total expenditures
related to investigation and remediation of the sites of former manufactured
gas plant facilities. The plan also contains provisions for rate adjustments
tied to the level of inflation, exogenous costs or Brooklyn Union's financial
condition.
The rate plan also provides Brooklyn Union with substantial pricing
flexibility to enhance its ability to compete against alternative fuel sources
(primarily fuel oil) in price elastic firm markets, and to "unbundle" the
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cost of certain services from base rates to ensure that only the customers
that use those services have to pay for them. It also includes mechanisms to
allow Brooklyn Union to set prices for certain customer segments designed to
price gas competitively with alternative sources of energy.
The rate plan will continue to govern Brooklyn Union's utility rates and
charges even if common shareholders do not approve the holding company
proposal and adopt the Exchange Agreement at Brooklyn Union's Annual Meeting.
In that event, Brooklyn Union will not be able to realize the benefits it
expects from a holding company structure, which it believes is necessary in
the future deregulated competitive environment of the energy industry.
STATUTORY APPRAISAL RIGHTS
Holders of shares of Brooklyn Union common stock are entitled to appraisal
rights under Sections 623 and 910 of the New York Business Corporation Law
("Section 623" and "Section 910", respectively) to the extent and on the basis
provided in those Sections. Section 910(a)(1)(c) provides that the appraisal
rights granted under Section 910 in the case of a share exchange authorized
pursuant to Section 913 of the New York Business Corporation Law are only
available to shareholders whose shares are acquired as part of the exchange.
Inasmuch as Brooklyn Union preferred stock is not being exchanged in the share
exchange, the holders of that stock do not have statutory appraisal rights.
The following summary of the applicable provisions of Sections 623 and 910 is
not intended to be a complete statement of such provisions and is qualified in
its entirety by reference to the full text of Sections 623 and 910, copies of
which are attached to this Prospectus/Proxy Statement as Exhibit C. A PERSON
HAVING A BENEFICIAL INTEREST IN SHARES OF BROOKLYN UNION COMMON STOCK THAT ARE
HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE,
MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED
BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT WHATEVER APPRAISAL RIGHTS THE
BENEFICIAL OWNER MAY HAVE.
THIS SUMMARY AND EXHIBIT C SHOULD BE REVIEWED CAREFULLY BY ANY COMMON
SHAREHOLDER OF BROOKLYN UNION WHO WISHES TO EXERCISE STATUTORY APPRAISAL
RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO
STRICTLY COMPLY WITH ANY OF THE PROCEDURAL REQUIREMENTS OF SECTION 623 OR
SECTION 910 MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER
SECTION 623 AND SECTION 910.
A record holder of shares of Brooklyn Union common stock as of the record
date who elects to dissent from the adoption of the Exchange Agreement and who
has not voted in favor thereof is entitled under the provisions of Sections
623 and 910, as an alternative to receiving shares of KeySpan common stock for
such holder's shares of Brooklyn Union common stock, to a judicial
determination of the fair value in cash of such holder's shares of Brooklyn
Union common stock.
Any holder of shares of Brooklyn Union common stock who elects to exercise
such holder's appraisal rights with respect to adoption of the Exchange
Agreement must file a written objection to the share exchange with Brooklyn
Union before the Annual Meeting, or at the Annual Meeting but before the vote
on the share exchange is taken, which objection includes (i) a notice of such
holder's election to dissent, (ii) such holder's name and residence address,
(iii) the number of shares of Brooklyn Union common stock as to which such
holder dissents, and (iv) a demand for payment of the fair value of such
holder's shares of Brooklyn Union common stock if the share exchange is
consummated. Such objection is not required from any holder of shares of
Brooklyn Union common stock to whom Brooklyn Union did not give notice of the
Annual Meeting in accordance with the New York Business Corporation Law. For
purposes of perfecting appraisal rights pursuant to Section 623, the written
objection of a holder of shares of Brooklyn Union common stock which is
addressed as provided below shall be deemed filed with Brooklyn Union upon
receipt of such objection by Brooklyn Union. Neither voting against nor
failure to vote for the Exchange Agreement will constitute the written
objection required to be filed by an objecting shareholder. Failure to vote
against the Exchange Agreement, however, will not constitute a waiver of
rights under Sections 623 and 910, provided that a written objection has been
properly filed. A shareholder voting to adopt the Exchange Agreement will be
deemed to have waived such shareholder's appraisal rights.
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A shareholder may not dissent as to less than all the shares of Brooklyn
Union common stock held of record that such holder beneficially owns. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all the shares of Brooklyn Union common stock of such beneficial
owner, as to which such nominee or fiduciary has a right to dissent, held of
record by such nominee or fiduciary. Furthermore, if the shares of Brooklyn
Union common stock are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand must be made in that capacity, and
if the shares of Brooklyn Union common stock are owned of record by more than
one person, as in a joint tenancy or tenancy in common, the demand must be
made by or for all owners of record. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a holder of
record; however, such agent must identify the record owner or owners and
expressly state in such demand that the agent is acting as agent for the
record owner or owners of such shares of Brooklyn Union common stock.
A record holder, such as a broker or an agent, who holds shares of Brooklyn
Union common stock as a nominee for beneficial owners, some of whom desire to
demand appraisal, must exercise appraisal rights on behalf of such beneficial
owners who desire to demand appraisal with respect to the shares of Brooklyn
Union common stock held for such beneficial owners.
All notices of election to dissent should be addressed to The Brooklyn Union
Gas Company, One MetroTech Center, Brooklyn, New York 11201-3850, Attention:
The Secretary.
Within ten days after the date of the shareholders' vote adopting the
Exchange Agreement, Brooklyn Union or KeySpan, as the case may be, will give
written notice of such adoption by registered mail to each holder of shares of
Brooklyn Union common stock who (i) timely filed a written objection to the
share exchange, or from whom written objection was not required, and (ii) did
not vote in favor of the share exchange.
At the time of filing a notice of election to dissent or within one month
thereafter, a dissenting holder of shares of Brooklyn Union common stock must
submit the certificate or certificates representing such holder's shares of
Brooklyn Union common stock to Brooklyn Union, for a conspicuous notation
thereon of the election to dissent, after which such certificates will be
returned to such holder or other person who submitted them on behalf of such
holder. Any such holder who fails to submit such certificates for notation
will, at the election of Brooklyn Union or KeySpan (exercised by written
notice to such holder within 45 days from the date of filing of the notice to
dissent), lose such holder's appraisal rights unless a court, for good cause
shown, otherwise directs.
Within 15 days after the expiration of the period within which holders of
shares of Brooklyn Union common stock may file their notices of election to
dissent, or within 15 days after the effective time of the share exchange,
whichever is later (but in no case later than 90 days after the shareholders'
vote adopting the Exchange Agreement), Brooklyn Union or KeySpan, as the case
may be, is required to make a written offer by registered mail to each
shareholder who has filed a notice of election to dissent to pay for such
holder's shares of Brooklyn Union common stock at a specified price which
Brooklyn Union or KeySpan, as the case may be, considers to be their fair
value. Such offer will be accompanied by a statement setting forth the
aggregate number of shares of Brooklyn Union common stock with respect to
which notices of election to dissent from adoption of the Exchange Agreement
have been received and the aggregate number of holders of such shares of
Brooklyn Union common stock. If the share exchange has been consummated at the
time such offer is made, such offer will also be accompanied by (i) advance
payment to each dissenting holder who has submitted such holder's certificates
to Brooklyn Union for notation thereon of such holder's election to dissent of
an amount equal to 80 percent of the amount of such offer, or (ii) as to each
dissenting holder who has not yet submitted such certificates for such
notation, a statement that advance payment to such holder of an amount equal
to 80 percent of the amount of such offer will be made by KeySpan promptly
upon submission of such certificates. If the share exchange has not been
consummated at the time of such offer, such advance payments or statement as
to advance payment will be sent to each holder entitled thereto forthwith upon
consummation of the share exchange. Every advance payment or statement as to
advance payment will include advice to such holder that acceptance of such
advance payment by a dissenting holder will not constitute a waiver of such
holder's appraisal rights. If the share
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exchange has not been consummated by the expiration of the above-mentioned 90-
day period, Brooklyn Union's offer may be conditioned upon the consummation of
the share exchange. If within 30 days after the making of a written offer by
Brooklyn Union or KeySpan, as the case may be, Brooklyn Union or KeySpan, as
the case may be, and any dissenting holder agree upon the price to be paid for
such shareholder's shares of Brooklyn Union common stock, payment therefor
will be made within 60 days after the making of such offer or the effective
time of the share exchange, whichever is later, upon the surrender of the
certificates representing such shares of Brooklyn Union common stock. From and
after the effective time of the share exchange, any payments with respect to
any demands for appraisal or in settlement of any such demands will be made by
KeySpan in all circumstances, but only to the extent not prohibited by Section
623(j) of the New York Business Corporation Law, which is described below.
If Brooklyn Union or KeySpan, as the case may be, fails to make such an
offer within the 15-day period described in the preceding paragraph, or if it
makes such an offer but Brooklyn Union or KeySpan, as the case may be, and a
dissenting holder do not agree within 30 days of the making of the offer upon
the price to be paid for such holder's shares of Brooklyn Union common stock,
Brooklyn Union or KeySpan, as the case may be, must, within 20 days of such
15- or 30-day period, as the case may be, institute a special proceeding in
the New York Supreme Court, Kings County (the "Court"), to determine the
rights of dissenting holders and fix the fair value of their shares of
Brooklyn Union common stock. If Brooklyn Union or KeySpan, as the case may be,
does not institute such proceeding within the 20-day period, any dissenting
holder may, within 30 days after the expiration of such 20-day period,
institute a proceeding for the same purpose. If such proceeding is not
instituted within such 30-day period, dissenting holders who have not agreed
with Brooklyn Union or KeySpan, as the case may be, as to the price to be paid
for their shares of Brooklyn Union common stock will lose their appraisal
rights, unless the Court, for good cause shown, otherwise directs.
All dissenting holders, other than those who shall have agreed with Brooklyn
Union or KeySpan, as the case may be, as to the price to be paid for their
shares of Brooklyn Union common stock, will be made parties to such appraisal
proceeding. The Court will determine whether each dissenting holder, as to
whom Brooklyn Union or KeySpan, as the case may be, requests the Court to make
such determination, is entitled to receive payment for such holder's shares of
Brooklyn Union common stock. If Brooklyn Union or KeySpan, as the case may be,
does not request any such determination or if the Court finds that such
dissenting shareholder is so entitled, the Court will then determine the fair
value of such holder's shares of Brooklyn Union common stock as of the close
of business on the day prior to the date the Exchange Agreement was adopted by
the shareholders of Brooklyn Union. In fixing the fair value of the shares of
Brooklyn Union common stock, the Court will consider the nature of the
transaction giving rise to the holder's right to receive payment for such
holder's shares of Brooklyn Union common stock under the New York Business
Corporation Law, the effects of such transaction on Brooklyn Union and its
shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining the fair value of shares of a
corporation engaging in a similar transaction under comparable circumstances,
and all other relevant factors. Within 60 days after the final determination
of any such Court proceeding, Brooklyn Union or KeySpan, as the case may be,
will be required to pay to each dissenting holder the amount found to be due
such holder, with interest thereon at such rate as the Court finds to be
equitable, from the effective time of the share exchange to the date of
payment, upon surrender to Brooklyn Union or KeySpan, as the case may be, by
such holder of the certificates representing such shares of Brooklyn Union
common stock. If the Court finds that the refusal of any dissenting holder to
accept the offer of Brooklyn Union was arbitrary, vexatious, or otherwise not
in good faith, no interest will be allowed to such holder. From and after the
effective time of the share exchange, any amount found to be due to dissenting
shareholders, and any interest allowed thereon, will be paid by KeySpan to the
extent not prohibited by Section 623(j) of the New York Business Corporation
Law.
The parties to such appraisal proceeding will bear their own costs and
expenses, including the fees and expenses of their counsel and any experts
employed by them, except that the Court, in its discretion, (i) may apportion
and assess all or any part of the costs, expenses, and fees incurred by
dissenting holders against Brooklyn Union or KeySpan, as the case may be, if,
among other things, the Court finds that the fair value of
29
<PAGE>
the shares of Brooklyn Union common stock materially exceeds the offer by
Brooklyn Union or KeySpan, as the case may be, or (ii) may apportion and
assess all or any part of the costs, expenses, and fees incurred by Brooklyn
Union or KeySpan, as the case may be, against all of the dissenting holders,
including any dissenting holders who have withdrawn their notices of election
to dissent from the share exchange, who the Court finds were arbitrary,
vexatious, or otherwise not acting in good faith in refusing any offer of
payment Brooklyn Union or KeySpan, as the case may be, may have made.
Any shareholder who has filed a notice of election to dissent will not,
after the effective time of the share exchange, have any of the rights of a
shareholder with respect to such holder's shares of Brooklyn Union common
stock, other than the right to be paid the fair value of such shares of
Brooklyn Union common stock under the New York Business Corporation Law and
any other right provided under the New York Business Corporation Law for
shareholders who have filed such a notice. Any notice of election to dissent
may be withdrawn by a dissenting shareholder at any time prior to such
shareholder's acceptance in writing of an offer made by Brooklyn Union or
KeySpan, as the case may be, as described above, but in no case later than 60
days after the effective time of the share exchange (or if Brooklyn Union or
KeySpan, as the case may be, fails to make a timely offer to pay such
shareholder the fair value of such holder's shares of Brooklyn Union common
stock as described above, at any time within 60 days after any date such an
offer is made), or thereafter with the written consent of KeySpan. In order to
be effective, withdrawal of a notice of election to dissent must be
accompanied by the return to KeySpan of any advance payment to the shareholder
made by KeySpan, as described above. Any dissenting shareholder who withdraws
such holder's notice of election to dissent or otherwise loses such holder's
appraisal rights will thereupon have only the right to receive one share of
KeySpan common stock for each of such holder's shares of Brooklyn Union common
stock.
B. MANAGEMENT
DIRECTORS AND OFFICERS OF KEYSPAN
KeySpan's restated certificate of incorporation and by-laws, as of the
effective time of the share exchange, will divide KeySpan's Board of Directors
into three classes of three directors each, with directors in each class
generally being elected for a three-year term. KeySpan's by-laws will permit
the Board of Directors to fix from time to time the number of directors in a
range of 9 to 12, and the Board has fixed its initial size at 9, effective as
of the effective time of the share exchange.
Prior to the effective time of the share exchange, Brooklyn Union, as the
sole shareholder of KeySpan, will elect as KeySpan directors Robert B. Catell
and Alan H. Fishman for one-year terms expiring at KeySpan's annual meeting in
1998, Kenneth I. Chenault and Edward D. Miller for two-year terms expiring in
1999, and James Q. Riordan for a three-year term expiring in 2000. Brooklyn
Union, as such sole shareholder, will also elect such others, if any, who may
be selected to fill one or more of the Board's four vacancies prior to
completion of the share exchange. All of Messrs. Catell, Chenault, Fishman,
Miller and Riordan are currently Brooklyn Union directors. As of the effective
time of the share exchange, Messrs. Chenault and Fishman will resign from
Brooklyn Union's Board of Directors; Messrs. Catell, Miller and Riordan will
serve on the Boards of Directors of both KeySpan and Brooklyn Union. Robert B.
Catell is and will be the only director of KeySpan until KeySpan's restated
certificate of incorporation is filed shortly before the effective time of the
share exchange and Brooklyn Union, as KeySpan's sole shareholder, elects the
directors named above and such others, if any, selected prior to the
completion of the share exchange to fill KeySpan Board vacancies. After
completion of the share exchange, KeySpan Board vacancies may be filled by
action of KeySpan's Board of Directors.
30
<PAGE>
As of the effective time of the share exchange, the Board of Directors of
KeySpan will appoint the following individuals as the officers of KeySpan:
<TABLE>
<S> <C>
Robert B. Catell Chairman, President and Chief Executive Officer
Helmut W. Peter Vice Chairman
Craig G. Matthews Executive Vice President--Utility Division
Vincent D. Enright Senior Vice President and Chief Financial Officer
Maurice K. Shaw Senior Vice President--Corporate Affairs
William K. Feraudo Senior Vice President--Energy Marketing Group
Roger J. Walz Vice President and General Auditor
Theodore Spar Vice President--Business Alliances and Investments
Robert R. Wieczorek Vice President, Secretary and Treasurer
</TABLE>
Mr. Catell is and will continue as Chairman and Chief Executive Officer of
Brooklyn Union; Mr. Matthews is and will continue as President and Chief
Operating Officer of Brooklyn Union; Mr. Enright is and will continue as
Senior Vice President and Chief Financial Officer of Brooklyn Union; Mr. Walz
is and will continue as Vice President and General Auditor of Brooklyn Union;
and Mr. Wieczorek is and will continue as Vice President, Secretary and
Treasurer of Brooklyn Union. As of the effective time of the share exchange,
Messrs. Peter, Shaw, Feraudo and Spar will no longer be officers of Brooklyn
Union.
For further information concerning persons to become directors or officers
of KeySpan, see "Proposal 2: Election of Directors of Brooklyn Union--Nominees
for Directors of Brooklyn Union", "--Directors of Brooklyn Union Continuing in
Office" and "--Security Ownership of Directors and Certain Executive
Officers."
RESTRICTIONS ON BOARD AND MANAGEMENT INTERLOCKS BETWEEN KEYSPAN AND BROOKLYN
UNION
In order to address concerns regarding the possible diversion of the
attention of Brooklyn Union's management away from the utility business, as
well as to avoid potential conflicts of interest with the Board and management
of KeySpan, the PSC Order sets forth the following restrictions regarding the
composition of the managements of Brooklyn Union and KeySpan.
Composition of the Boards of Directors
Brooklyn Union's Board of Directors must include at least a majority of
outside directors (i.e., individuals not employed by Brooklyn Union, KeySpan
or any of their affiliates). No more than two directors of Brooklyn Union may
be inside directors (i.e., individuals employed by Brooklyn Union, KeySpan or
any of their affiliates), with at least one such inside director being an
operating officer of Brooklyn Union. No more than four directors of Brooklyn
Union may either be inside directors or directors of KeySpan. Finally, the
nomination of directors to Brooklyn Union's Board must be made by a committee
composed entirely of outside directors.
Common Officers Within the Holding Company System
No more than five officers of Brooklyn Union may also serve as officers of
KeySpan. The maximum number of Brooklyn Union's officers who may also serve as
officers of KeySpan will be reduced to four, or to three, if and when
KeySpan's investment in Brooklyn Union, expressed as the ratio of Brooklyn
Union's Total Capital to KeySpan's Total Capital, falls to 60% or 50%,
respectively. The Secretary and Treasurer of Brooklyn Union may serve in the
equivalent position of KeySpan or another subsidiary of KeySpan, but no other
officer of Brooklyn Union may serve as an officer of another operating
subsidiary of KeySpan.
C. OTHER INFORMATION
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, has been appointed by
the Board of Directors of KeySpan to serve as independent public accountants
of KeySpan for the 1997 fiscal year. Arthur Andersen LLP has been the
independent public accountants of Brooklyn Union since 1932.
31
<PAGE>
Arthur Andersen LLP has also been appointed by the Board of Directors of
Brooklyn Union to serve as independent public accountants of Brooklyn Union.
Shareholders of Brooklyn Union will vote on ratification of such appointment at
the Annual Meeting. See "Proposal 3: Ratification of Independent Public
Accountants of Brooklyn Union."
VALIDITY OF KEYSPAN COMMON STOCK
The validity of the shares of KeySpan common stock to be issued in the share
exchange will be passed upon by Cullen and Dykman, general counsel to Brooklyn
Union and KeySpan, 177 Montague Street, Brooklyn, New York 11201, and by
Sullivan & Cromwell, special counsel to Brooklyn Union and KeySpan, 125 Broad
Street, New York, New York 10004.
EXPERTS
The consolidated financial statements set forth in the Appendix to this
Prospectus/Proxy Statement and incorporated by reference herein have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
----------------
BROOKLYN UNION'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE HOLDING
COMPANY STRUCTURE AND ADOPTED THE EXCHANGE AGREEMENT, BELIEVES THE HOLDING
COMPANY STRUCTURE AND THE SHARE EXCHANGE TO BE IN THE BEST INTERESTS OF
BROOKLYN UNION AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE HOLDERS OF
BROOKLYN UNION COMMON STOCK VOTE "FOR" THE HOLDING COMPANY PROPOSAL AND
ADOPTION OF THE EXCHANGE AGREEMENT AT THE ANNUAL MEETING.
32
<PAGE>
PROPOSAL 2: ELECTION OF DIRECTORS OF BROOKLYN UNION
NOMINEES FOR DIRECTORS OF BROOKLYN UNION
Five Directors of Brooklyn Union are to be elected at the Annual Meeting.
The nominee for a one-year term expiring in 1998 is Charles Uribe. The nominee
for a two-year term expiring in 1999 is Craig G. Matthews. The nominees for
three-year terms expiring in 2000 are Andrea S. Christensen, Alan H. Fishman
and James Q. Riordan.
The information provided below with respect to Directors includes: (i) name
and age, (ii) the period during which such Director has served as a Director
of Brooklyn Union, (iii) principal occupation and business associations and
(iv) committee memberships.
Nominated for the Term Expiring in 1998
[PHOTO APPEARS Charles Uribe, Age 59, Director since 1996
HERE]
Chairman and Chief Executive Officer, AJ Contracting
Company, Inc.
Director, Business Advisory Council to the City
University of New York, Citizens Housing and Planning
Council, City Parks Foundation, Federal Home Loan Bank of
New York, Jazz at Lincoln Center, Latin Communications
Group, Inc., New York City Partnership/Chamber of
Commerce, Inc., The Police Foundation, Inc., Regional
Alliance for Small Contractors, United Way of New York
City and United Way of Tri-State; Member, The Office of
the President's Investment and Services Policy Advisory
Committee, New York City Police Advisory Board and
Commissioner's Committee on Courtesy, Professionalism and
Respect.
Mr. Uribe has over thirty-six years of experience in
building and construction, including the conversions of
Madison Square Garden in 1976, 1980 and 1992 and Moscone
Convention Center in San Francisco in 1984 for national
political conventions. He was responsible for the
restoration of the New York Public Library and the
interior construction of the Rose Building at Lincoln
Center. Mr. Uribe has also completed major projects for
the Dreyfus Corporation and the New York offices of
several major law firms. He was the first Public Director
of The American Institute of Architects, New York Chapter
and was the founding Chairman of the National Hispanic
Business Group, as well as past Chairman of the Puerto
Rican Traveling Theater.
Mr. Uribe was the President of AJ Contracting of
California, Inc. from 1984 to 1993. In March 1993, such
corporation filed for bankruptcy under Chapter 7 of the
Bankruptcy Code in the U.S. Bankruptcy Court for the
Central District of California, which bankruptcy was
completed in April 1994.
Nominated for the Term Expiring in 1999
[PHOTO APPEARS Craig G. Matthews, Age 53
HERE]
President and Chief Operating Officer, The Brooklyn Union
Gas Company
Director, Brooklyn Philharmonic, Greater Jamaica
Development Corporation, National and New York City
Advisory Board of the Salvation Army, Neighborhood
Housing Services, Polytechnic University, Public
Utilities Reports, Inc., Regional Plan Association and
The Houston Exploration Company; Chairman, Brooklyn
Chamber of Commerce; Treasurer, Society of Gas Lighting;
Member, American Gas Association and New York Gas Group
Executive Committee.
33
<PAGE>
Mr. Matthews joined Brooklyn Union in 1965 as a
management trainee and has held various management
positions in the corporate planning, financial, marketing
and engineering areas and has been an officer since 1977.
He was elected Vice President in 1981 and Senior Vice
President in 1985. In 1991, he was elected Executive Vice
President, with responsibilities for Brooklyn Union's
financial, gas supply, information systems and strategic
planning functions, as well as Brooklyn Union's energy-
related investments. In May 1996, he was elected to his
current position, President and Chief Operating Officer.
Nominated for the Term Expiring in 2000
[PHOTO APPEARS Andrea S. Christensen, Age 57, Director since 1980
HERE]
Partner in the law firm of Kaye, Scholer, Fierman, Hays &
Handler
Director, American Arbitration Association
Mrs. Christensen joined Kaye, Scholer, Fierman, Hays &
Handler in 1968 and has been a Partner since 1976. Mrs.
Christensen was previously an associate with the law firm
of Kelley Drye & Warren.
Member, Audit Committee, Executive Committee, and
Organization and Nominating Committee
[PHOTO APPEARS Alan H. Fishman, Age 50, Director since 1989
HERE]
Managing Partner, Columbia Financial Partners, L.P.
(private investment company)
Director, Brooklyn Academy of Music; Member, Executive
Committee of the Brown University Annual Fund.
Mr. Fishman joined Chemical Bank in 1969. He was named
Chief Financial Officer in 1979 and was promoted to
Senior Executive Vice President responsible for
Chemical's Investment Banking activities worldwide in
1983. He became affiliated with Neuberger & Berman in
1988 and was responsible for an investment partnership.
He joined American International Group, Inc. in 1989 as a
Senior Vice President and became President of AIG
Financial Services Group. He joined the firm of Adler &
Shaykin in 1990 as a Managing Partner and, in 1992, Mr.
Fishman formed the firm of Columbia Financial Partners,
L.P. in which he is a Managing Partner.
Member, Audit Committee, Executive Committee, and
Organization and Nominating Committee
[PHOTO APPEARS James Q. Riordan, Age 69, Director since 1991
HERE]
Retired Vice Chairman and Chief Financial Officer, Mobil
Corp.
Director, Dow Jones & Co., Inc., Tri-Continental
Corporation, The Houston Exploration Company and Public
Broadcasting Service; Director/Trustee of the mutual
funds in the Seligman Group of investment companies;
Trustee, Committee for Economic Development and The
Brooklyn Museum; Member, Policy Council of the Tax
Foundation.
Mr. Riordan joined Mobil Corp. in 1957 as Tax Counsel. He
was named a Director and Chief Financial Officer in 1969.
He became Vice Chairman in 1986 and retired from Mobil
Corp. in 1989. Mr. Riordan joined Bekaert Corporation in
1989 and was elected its President. He retired from
Bekaert Corporation in 1992.
Member, Audit Committee and Executive Committee
34
<PAGE>
DIRECTORS OF BROOKLYN UNION CONTINUING IN OFFICE
Directors whose Terms Expire in 1998
[PHOTO APPEARS Robert B. Catell, Age 59, Director since 1986
HERE]
Chairman and Chief Executive Officer, The Brooklyn Union
Gas Company
Trustee, Brooklyn Botanic Garden, Brooklyn Law School,
Independence Savings Bank and Kingsborough Community
College Foundation, Inc.; Chairman and Director, Alberta
Northeast Inc., Boundary Gas, Inc. and Business Council
for a Sustainable Energy Future; Chairman, AGA Natural
Gas Council Industrial Task Force, New York City
Commission on the Redevelopment of Naval Station New
York, Taylor Gas Liquids, Ltd. a publicly traded royalty
trust based in Canada, and The Houston Exploration
Company; Director and Past Chairman, American Gas
Association; Director, Brooklyn Academy of Music (ex-
officio), Brooklyn Bureau of Community Service, Brooklyn
Public Library, The Business Council of New York State,
Inc., Empire State Business Alliance, Gas Research
Institute, New York City Investment Fund, New York City
Partnership, New York City Public/Private Initiatives,
New York State Energy Research and Development Authority
and Utility Business Education Coalition; Member,
Brooklyn Chamber of Commerce Executive Committee, CCNY
School of Engineering Advisory Board, Chase's
Metropolitan Advisory Board, Committee for Economic
Development, Council for Environmental Quality, Downtown
Brooklyn Development Association, Energy Association of
New York State Executive Committee, Heartshare for Human
Services Advisory Board, Mayor's Private Sector Committee
on Information Technology, National Petroleum Council,
New York Gas Group, and Society of Gas Lighting Executive
Committee.
Mr. Catell has been with Brooklyn Union since 1958 and an
officer since 1974. He was elected Vice President in
1977, Senior Vice President in 1981 and Executive Vice
President in 1984. He was elected Chief Operating Officer
in June 1986 and President in January 1990. He was
elected President and Chief Executive Officer in June
1991. In May 1996, Mr. Catell was elected Chairman and
Chief Executive Officer and he relinquished the position
of President.
[PHOTO APPEARS Kenneth I. Chenault, Age 45, Director since 1988
HERE]
Vice Chairman, American Express Company
Director, Arthur Ashe Institute for Urban Health, Junior
Achievement of New York, National Collegiate Athletic
Association, NYU Medical Center and Quaker Oats Company;
Member, Council on Foreign Relations.
Mr. Chenault joined American Express Company in 1981 as
Director of Strategic Planning. He was named President of
the Consumer Card Group in 1989 and President of the
Travel Related Services Company in the U.S. in 1993 with
responsibility for the Consumer Card Group, Consumer
Financial Services, Travel Services Group and
Establishment Services. He was named Vice Chairman of
American Express Company in January 1995 and assumed
additional responsibilities for Travel Related Services
International in April 1995. Prior to joining American
Express, Mr. Chenault was a management consultant with
Bain & Co. and an associate with the law firm of Rogers &
Wells.
Member, Executive Committee and Organization and
Nominating Committee
35
<PAGE>
[PHOTO APPEARS Edward D. Miller, Age 56, Director since 1993
HERE]
Senior Vice Chairman, The Chase Manhattan Corporation and
The Chase Manhattan Bank
Trustee, Pace University and New York Blood Center;
Director, Phoenix House Foundation and New York State
Bankers Association; Member, Bankers Roundtable and
Inner-City Scholarship Fund Executive Council.
Mr. Miller is the Senior Vice Chairman and a Director of
The Chase Manhattan Corporation and The Chase Manhattan
Bank ("Chase") and oversees the corporation's regional
banking, nationwide consumer services and has
responsibility for merger integration, technology and
operations, and administration.
Mr. Miller became Senior Vice Chairman of Chase when it
merged with Chemical Banking Corporation in March 1996.
Previously, he had been President of Chemical Banking
Corporation since January 1994, following two years as
Vice Chairman, a position he assumed upon the merger of
Manufacturers Hanover Corporation and Chemical Banking
Corporation in December 1991. Prior to the
Chemical/Manufacturers Hanover merger, Mr. Miller was
Vice Chairman of Manufacturers Hanover Corporation and
Manufacturers Hanover Trust Company, positions he had
held since 1988. Before his election to Vice Chairman of
Manufacturers Hanover, Mr. Miller was sector Executive
Vice President for retail banking. Since 1982, he has
been a member of the Management Committee, the
corporation's top policy-making body.
Chase has various banking relationships with Brooklyn
Union, including acting as one of five banks which may
provide loans to Brooklyn Union under separately
negotiated lines of credit and acting as indenture
trustee for certain tax-exempt bonds as to which Brooklyn
Union has incurred indebtedness. It should be noted that
Brooklyn Union's relationships with Chase are independent
of and pre-dated Mr. Miller serving on Brooklyn Union's
Board of Directors.
Chairman, Organization and Nominating Committee;
Alternate Member, Executive Committee
Directors whose Terms Expire in 1999
[PHOTO APPEARS Donald H. Elliott, Age 64, Director since 1981
HERE]
Counsel to the law firm of Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
Trustee, Independence Community Bank Corp., WNET (Channel
13) and Long Island University; Director, Independence
Savings Bank; Honorary Member, New York Chapter of the
American Institute of Architects.
Mr. Elliott was associated with the law firm of Webster &
Sheffield from 1957 until 1965 and was a Partner from
1973 until 1991. From 1966 to 1973, he was Counsel to the
Mayor of the City of New York and then Chairman of the
New York City Planning Commission. Mr. Elliott was a
Partner in the law firm of Mudge Rose Guthrie Alexander &
Ferdon from 1991 until 1995, when he became counsel to
Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone
LLP.
Chairman, Audit Committee; Member, Executive Committee
and Organization and Nominating Committee
36
<PAGE>
[PHOTO APPEARS James L. Larocca, Age 53, Director since 1995
HERE]
Lawyer and Consultant
Director, European American Bank; Trustee, the Nature
Conservancy (Long Island Chapter); Chairman, Touro
College Law School Board of Visitors and Suffolk County
Industrial and Commercial Incentive Board; Member, the
Stony Brook University Council and Hofstra University
School of Business Advisory Board. Mr. Larocca previously
served as a Director of Brooklyn Union from March 1992
through September 1993.
Mr. Larocca served as the first Energy Commissioner of
New York State and Chairman of the State's Energy
Research and Development Authority from 1977 to 1983. He
served as Trustee of the New York Power Authority from
1982 to 1989. Mr. Larocca was appointed Commissioner of
Transportation of the State of New York in 1983 and
remained in that position until 1985. He served as
President and Chief Executive Officer of the Long Island
Association, Inc. from 1985 to 1993 and as a Partner in
the law firm of Cullen and Dykman from October 1993 to
September 1995.
Mr. Larocca is a consultant to Cullen and Dykman which
serves as Brooklyn Union's general counsel. It should be
noted that Mr. Larocca's current relationship with Cullen
and Dykman is independent of his responsibilities as a
Director of Brooklyn Union.
Member, Organization and Nominating Committee; Alternate
Member, Executive Committee
If the holding company proposal and the Exchange Agreement are adopted at
the Annual Meeting, as of the effective time of the share exchange Kenneth I.
Chenault and Alan H. Fishman will resign from the Board of Directors of
Brooklyn Union and will serve on the Board of Directors of KeySpan. Robert B.
Catell, Edward D. Miller and James Q. Riordan will continue to serve on the
Board of Directors of Brooklyn Union and will also serve on the Board of
Directors of KeySpan.
SECURITY OWNERSHIP OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
The following table sets forth information as of September 30, 1996, with
respect to the number of shares of Brooklyn Union common stock beneficially
owned and/or Common Stock Equivalents owned by the persons to be elected
directors and certain executive officers of Brooklyn Union.
<TABLE>
<CAPTION>
TOTAL OF COMMON
STOCK BENEFICIALLY COMMON STOCK COMMON STOCK
NAME OWNED & EQUIVALENTS BENEFICIALLY OWNED EQUIVALENTS(1)
---- ------------------- ------------------ --------------
<S> <C> <C> <C>
R.B. Catell........... 26,855 17,432 9,423(2)
K.I. Chenault......... 2,293 1,499 794
A.S. Christensen...... 5,878 4,872 1,006
D.H. Elliott.......... 2,807 1,723 1,084
A.H. Fishman.......... 3,840 2,664 1,176
J.L. Larocca.......... 2,842 2,842 --
E.D. Miller........... 4,547 4,547 --
J.Q. Riordan.......... 3,344 1,500 1,844
C. Uribe.............. 315 -- 315
H.W. Peter............ 15,110 9,971 5,139(2)
C.G. Matthews......... 15,619 10,420 5,199(2)
A.J. DiBrita.......... 6,042 4,146 1,896(2)
V.D. Enright.......... 6,305 3,873 2,432(2)
</TABLE>
(footnotes on next page)
37
<PAGE>
- --------
(1) As indicated in the table, certain of the Directors have elected to have
deferred Directors' fees invested in Brooklyn Union Common Stock
Equivalents, which term will include the Performance Shares referred to in
the Long-Term Performance Incentive Compensation Plan.
(2) As officers and employees of Brooklyn Union, these individuals are not
entitled to receive any Brooklyn Union Common Stock Equivalents under the
Directors' Deferred Compensation Plan; however, they are participants in
the Corporate Incentive Compensation Plan.
Messrs. Catell, Peter, Matthews, Enright and Riordan also own 3,000, 1,000,
1,000, 1,000 and 500 shares of common stock, respectively, of The Houston
Exploration Company, an indirect subsidiary of Brooklyn Union.
MEETINGS OF BROOKLYN UNION'S BOARD OF DIRECTORS AND COMMITTEES
Brooklyn Union's Board of Directors held fourteen meetings in fiscal 1996.
At the end of fiscal 1996, the Board consisted of nine members, including
eight members who were not employees of Brooklyn Union. During the fiscal year
ended September 30, 1996, each Director attended 75 percent or more of all
meetings of the Board and the respective committees of which they were
members, with the exception of Kenneth I. Chenault and Charles Uribe.
The Executive Committee held one meeting in fiscal 1996. One officer member
of the Board serves on this committee. The Executive Committee has authority
to exercise all powers of the Board between meetings of the Board except for
matters as to which New York law requires that action be taken by the Board,
such as the filling of vacancies on the Board, the fixing of compensation of
Directors and changes in the Brooklyn Union by-laws.
The Audit Committee, all of the members of which are outside Directors, held
five meetings in fiscal 1996. The Audit Committee's function is to review and
monitor accounting and external financial reporting practices, internal
controls, auditing activities and the business practices and ethical standards
of Brooklyn Union. The Committee is responsible for recommending independent
public accountants to the Board for election by shareholders.
The Organization and Nominating Committee, all of the members of which are
outside Directors, held seven meetings in fiscal 1996. The Committee
recommends the remuneration of Directors and officers of Brooklyn Union,
reviews management succession plans and is charged with the responsibility for
recommending nominees for election to the Board. As a continuing
responsibility, each member of the Board undertakes to search for and to bring
to the attention of the Board persons qualified to serve as Director. Any
shareholder who wishes to recommend a candidate for election to the Board
should contact the Secretary of Brooklyn Union for information as to the
procedure to be followed by shareholders in submitting such recommendation.
DIRECTORS' COMPENSATION
Each outside Director is paid an annual Board retainer of $18,000 and a fee
of $1,000 for each meeting of the Board or committee attended. In addition, a
committee member annual retainer fee of $3,000 is paid to each member of the
Audit Committee and the Organization and Nominating Committee. Directors who
are employees of Brooklyn Union receive no compensation in addition to their
salaries, as members of the Board or for attendance at meetings of the Board
or its committees.
Since 1990, Brooklyn Union has had in effect the Retirement Plan for Outside
Directors (Directors who are not entitled to receive benefits under Brooklyn
Union's Employees' Retirement Plan) under which each outside Director whose
service on the Board is terminated, due to retirement or disability, may
receive retirement benefits equal to the amount of the current annual Board
retainer paid to present Directors for a maximum of ten years (depending on
such Director's length of service). Such payment of benefits has been
conditioned upon the recipients' ability to consult with Brooklyn Union and
render it advice. In November 1996, the Board of Directors voted to terminate
this retirement plan effective April 1, 1997. As a result of the plan
termination, an
38
<PAGE>
amount equal to the present value of the accrued benefit will be credited to
each then current Director and will be converted into Brooklyn Union Common
Stock Equivalents (to become KeySpan Common Stock Equivalents at the effective
time of the share exchange), under the existing Directors' Deferred
Compensation Plan, to directly and further align the Directors' financial
interests with those of the shareholders.
Brooklyn Union's Board of Directors has adopted a compensation plan to
directly and further align the Directors' financial interests with those of
the shareholders that requires all outside Directors to invest a minimum of 40
percent of their compensation as Directors in Brooklyn Union common stock
and/or Common Stock Equivalents through the Directors' Deferred Compensation
Plan which investment, if in Common Stock Equivalents, may be deferred at the
Director's election, as set forth below. Under this plan, the outside
Directors may elect to defer all or a portion of their compensation. Deferred
amounts will, at the Director's option, either be credited to an interest-
bearing account or invested in Common Stock Equivalents at the market price of
the shares of Brooklyn Union common stock on the last day of the month.
Deferred amounts will be payable in cash, upon retirement, either in a lump
sum or in the number of annual installments specified by the Director.
ORGANIZATION AND NOMINATING COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Organization and Nominating Committee (the "Committee") of Brooklyn
Union's Board of Directors, composed of six independent, non-employee
Directors, administers the executive compensation program. The members of the
Committee during fiscal 1996 were Mrs. Christensen and Messrs. Chenault,
Elliott, Fishman, Larocca and Miller. None of such members is or has been an
officer or employee of Brooklyn Union or any of its subsidiaries. After review
and approval by the Committee, all issues relating to executive compensation
are submitted to the entire Board for approval.
The philosophy of Brooklyn Union regarding executive compensation is that
the Chief Executive Officer and other executives should be compensated at
competitive levels to attract, motivate, and retain talented executives needed
to achieve Brooklyn Union's vision of becoming the premier energy company in
the Northeast. The Committee is committed to implementing a compensation
program which furthers such vision. The Committee adheres to the following
compensation policies which are intended to facilitate the achievement of
Brooklyn Union's business strategies:
. Executives' total compensation programs should strengthen the
relationship between pay and performance by emphasizing variable, at-
risk compensation that is dependent upon the level of success in meeting
specified corporate and individual performance goals.
. An appropriate amount of compensation for senior executives should be
comprised of long-term, at-risk pay to focus executives on the long-term
interests of shareholders.
. Each program element should target compensation opportunities comparable
to the compensation paid to executives of comparable utility and at the
median of general industry companies. However, if Brooklyn Union's
performance exceeds that of the comparable group, compensation should be
above the median; likewise, if Brooklyn Union's performance falls below
that of the comparable group, the compensation paid to senior executives
should be below the median of the comparable companies.
Components of Compensation
The Committee compares total compensation levels for Brooklyn Union's senior
executives to the compensation paid to executives in comparable utility and
general industry companies. In this connection, the Committee uses analyses
prepared by a national compensation consultant to review the competitive
compensation levels of executives in the utility industry 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. 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.
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<PAGE>
The Committee ensures that compensation provides for a direct link to
strategic financial measures and shareholder value for the executive officers
of Brooklyn Union. To achieve this performance linkage, Brooklyn Union has
established three programs for the direct compensation of executive officers:
the Base Salary Program, the Corporate Incentive Compensation Plan and the
Long-Term Performance Incentive Compensation Plan. The intent of the programs
is to place increased emphasis on performance-based pay and reduced emphasis on
fixed 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 each executive
officer, the Committee considers the competitive market data for executives in
comparable positions in other utility and general industry markets. In setting
base salary levels Brooklyn Union 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 Brooklyn Union's
corporate goals in setting base salary. The base salary level for the Chief
Executive Officer compared to competitive market data is generally below the
50th percentile of comparable positions while other executives' base salaries
are generally at or above the 50th percentile.
Consistent with Brooklyn Union's ongoing effort to reduce the emphasis upon
fixed base salary, during 1996 when Mr. Robert B. Catell was promoted to and
elected as Chairman and Chief Executive Officer, the Committee concurred with
the recommendation that his base salary not be increased. After Mr. Matthews'
promotion to President and Chief Operating Officer and Mr. Peter's promotion to
Vice Chairman of Brooklyn Union, their base salaries were increased based upon
the factors used to determine base salary.
The Corporate Incentive Compensation Plan. The Board of Directors adopted the
Corporate Incentive Compensation Plan (the "Corporate Plan") in fiscal 1989.
The Corporate Plan provides annual incentive awards to officers and other key
employees who, by the nature and scope of their positions, regularly and
directly make a significant contribution to the success of Brooklyn Union in
the achievement of corporate goals that are important to the shareholders of
Brooklyn Union. The specific corporate goals for the Corporate Plan are
established by management and reviewed and approved by the Committee and the
Board of Directors. The goals are intended to improve corporate performance and
include objectives which encourage growth in total return, increases in gross
margin, improved competitive position, improved customer satisfaction and
control of operating expenses. The compensation of executives has been modified
by withholding a portion of base salary increases over several years in order
to shift part of base salary to incentive awards. This shifting of base salary
to incentives is anticipated to continue in the future as more emphasis is
placed upon incentive compensation.
Incentive awards as a percentage of base salary are based upon both corporate
and individual performance. Corporate awards have not been granted unless
Brooklyn Union (a) attained an approved utility return on equity objective and
(b) dividends were increased and did not exceed a certain payout ratio. When
corporate goals were not met, no awards were paid for corporate performance and
individual awards were reduced in the Corporate Plan. Individual awards are
measured against pre-established goals and cannot exceed a maximum of 13
percent of a participant's base salary. This design ensures that executive
compensation is driven by successful business strategy and results-oriented
objectives.
The incentive award ranges are established annually by the Committee for
eligible executives in the Corporate Plan. Incentive award levels are intended
to provide awards that are competitive within the industry when performance
results are fully achieved. The Corporate Plan awards range from zero percent
to a maximum of 65%, with a target of 50% for the Chairman and Chief Executive
Officer, to a maximum of 50%, with a target of 38% for the President and Chief
Operating Officer, to a maximum of 40%, with a target of 30% for the Vice
Chairman and to a maximum 27%, with a target of 17% for all other officers. The
Chairman's, the President's and the Vice Chairman's awards are based solely on
corporate and subsidiary performance and will not be paid if threshold
financial goals are not met.
40
<PAGE>
Incentive awards to executive officers for achievement in fiscal 1996 (paid
in fiscal 1997) reflect overall performance results that exceeded anticipated
levels of performance in both utility and subsidiary performance as each of
the objectives in the Corporate Plan were met or exceeded resulting in a
record level of earnings in 1996.
As a result of the proposed restructuring to a holding company, the
Committee will be evaluating alternatives for the redesign of the Corporate
Plan to reflect Brooklyn Union's new status as a subsidiary of KeySpan. The
new incentive plan design will be developed consistent with the new proposed
corporate structure.
The Long-Term Performance Incentive Compensation Plan. As a result of the
Committee's review of the competitiveness of Brooklyn Union's total
compensation program, and an independent consultant review of the long-term
incentive plans used by the majority of the utilities that comprise the
Standard & Poor's Utilities Index, the Committee recommended and the Board of
Directors adopted the Long-Term Performance Incentive Compensation Plan (the
"Incentive Plan") in fiscal 1996. The Incentive Plan was approved at Brooklyn
Union's 1996 Annual Meeting of Shareholders. The Incentive Plan provides for
the award of Incentive Stock Options, Nonqualified Stock Options and
Performance Shares to designated officers and other key employees of Brooklyn
Union and its subsidiaries as determined by the Committee. The purpose of the
Incentive Plan is to optimize Brooklyn Union's performance through incentives
that directly link the executive's personal interests to those of Brooklyn
Union's shareholders and to attract and retain employees who make significant
contributions to the success of Brooklyn Union.
The stock option component in the Incentive Plan entitles the executive to
purchase shares of Brooklyn Union common stock at an exercise price per share
determined by the Committee which is at least equal to the closing price of
Brooklyn Union common stock on the New York Stock Exchange on the date of the
grant.
The Performance Share component may be awarded on an annual basis at the
commencement of a three-year performance period. At the discretion of the
Committee, Performance Share awards entitle the executive to receive either
the number of shares of Brooklyn Union common stock based upon achievement of
performance goals over the performance period or a cash award equal to the
average of the fair market value of a share over the 20 consecutive trading
days following the close of the performance period multiplied by the number of
earned Performance Shares. Performance Share awards, in the discretion of the
Committee, may provide the executive with dividend equivalents with respect to
Performance Shares earned. The performance measure in the Incentive Plan is
based upon cumulative total shareholder return over a three-year period using
share price appreciation (depreciation) and cumulative dividends declared
during the three-year period as compared to the three-year performance results
for the companies in the S&P Utilities Index. In order to earn Performance
Shares at the end of the three-year performance period, a minimum percentile
ranking as well as a cumulative positive return to shareholders must be
achieved. Performance Shares earned at the end of the three-year performance
period may range from zero percent to a maximum of 200% of the initial award
based upon the percentile ranking of Brooklyn Union's performance in the S&P
Utilities Index.
In the event of a "change of control" (as defined in the Incentive Plan),
(i) the performance goals for all Performance Shares will be deemed to have
been met and the executive will receive at the discretion of the Committee
either a prorated number of shares of Brooklyn Union common stock or the
equivalent in cash based on time elapsed during the performance period and
(ii) all outstanding stock options will become immediately exercisable.
Initial grants of Nonqualified Stock Options and Performance Shares made to
executives for fiscal 1995 (granted in fiscal 1996) were generally determined
on the basis of the executive's position within Brooklyn Union and level of
1995 base salary. In determining award size, the Committee considered the
overall total compensation provided by base salary, annual awards and the
long-term component to target the average level of total compensation for
comparable executive positions in shareholder-owned utilities and gas
companies nationwide.
41
<PAGE>
In 1996, Mr. Robert B. Catell received options to purchase 55,000 shares with
an exercise price of $27.00 as is detailed in the table below and was awarded
4,000 Performance Shares for the three-year performance period which will end
September 30, 1998 (see Options and Performance Shares Table below). The awards
for stock options and performance shares to other executives are also
summarized in such table. The Committee believes that this equity interest
provides the appropriate link to the interest of the shareholders.
The Committee believes that Stock Options can be directly linked to Brooklyn
Union's performance. As the value of Brooklyn Union common stock is generally
considered the strongest indicator of overall corporate performance, stock
option awards allow executives to benefit by appreciation in stock price at no
immediate cost to Brooklyn Union and provide a strong incentive to executives
by linking compensation to the future value of Brooklyn Union common stock.
If the share exchange discussed under Proposal 1 is consummated, the
Incentive Plan will be amended so that outstanding stock options will be
converted into options to acquire, under the same terms and conditions as were
applicable immediately prior to the effective date of the share exchange, an
equal number of shares of KeySpan common stock. KeySpan will assume all of the
obligations under the Incentive Plan as well as other Brooklyn Union Employee
Plans, and future options and stock awards will relate to KeySpan common stock.
Policy with Respect to Section 162(m) Deduction Limit
Under Section 162(m) of the Internal Revenue Code, Brooklyn Union cannot
deduct compensation in excess of $1,000,000 paid in any year to the chief
executive officer or any of the four other most highly compensated executive
officers whose compensation must be detailed in the proxy statement.
Compensation paid under plans that are performance-based is not subject to the
$1,000,000 annual limit if certain requirements are satisfied. Although
Brooklyn Union's plans are designed to relate compensation to performance, they
do not meet such requirements because they allow the Committee to exercise
discretion in setting compensation. The Committee is of the opinion that it is
in Brooklyn Union's best interest to have the Committee retain discretion in
order to preserve flexibility in compensating such executive officers,
especially in light of an increasingly competitive marketplace.
Conclusion
The Committee believes that Brooklyn Union's executive compensation policies
and programs serve the interests of shareholders and Brooklyn Union
effectively. The various compensation programs are appropriately balanced to
provide the motivation for executives to contribute to Brooklyn Union's overall
success and enhance the value of Brooklyn Union for shareholders' benefit.
The Committee will continue to monitor the effectiveness of the total
compensation program to meet current and future needs.
ORGANIZATION AND NOMINATING COMMITTEE
Edward D. Miller, Chairman
Andrea S. Christensen
Kenneth I. Chenault
Donald H. Elliott
Alan H. Fishman
James L. Larocca
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table indicates the annual compensation for the Chairman and
Chief Executive Officer, and the four other most highly compensated executive
officers of Brooklyn Union. This information is for fiscal years ended on
September 30, 1996, 1995 and 1994. No executive officer serves pursuant to an
employment agreement.
<TABLE>
<CAPTION>
LONG-TERM
OTHER ANNUAL INCENTIVE PLAN
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) COMPENSATION ($)(2) PAYOUTS ($)(3)
- --------------------------- ---- ------------ ------------------- --------------
<S> <C> <C> <C> <C>
Robert B. Catell........ 1996 470,811 248,040 376,169
Chairman and Chief 1995 434,026 152,973 0
Executive Officer 1994 424,000 132,680 0
Craig G. Matthews....... 1996 322,478 138,000 275,273
President and Chief 1995 283,859 86,749 0
Operating Officer 1994 281,000 72,970 0
Helmut W. Peter......... 1996 324,103 111,680 0
Vice Chairman 1995 283,859 90,939 0
1994 281,000 73,358 0
Vincent D. Enright...... 1996 206,436 40,704 0
Senior Vice President
and 1995 180,193 49,817 0
Chief Financial Officer 1994 172,333 35,249 0
Anthony J. DiBrita...... 1996 199,102 41,400 0
Senior Vice President 1995 184,300 50,035 0
1994 177,000 31,204 0
</TABLE>
- --------
(1) Also, Performance Shares have been awarded as indicated on the Options and
Performance Shares Table.
(2) Represents amounts awarded for each fiscal year under Brooklyn Union's
corporate incentive compensation plans.
(3) Represents Long-Term Incentive Compensation awarded by subsidiaries of
Brooklyn Union including incentive compensation awarded as the result of
the termination of the Fuel Resources Inc. Long-Term Incentive
Compensation Plan. Deferred amounts of $205,619 for Mr. Catell and
$154,338 for Mr. Matthews have not been included. These amounts will be
paid in fiscal 1997. Also includes cash payments related to a buyout of
non-qualified stock options issued under The Houston Exploration Company
1994 Long-Term Incentive Plan. Additional annual payments, which have not
been included above, of $140,000 for Mr. Catell and $98,000 for Mr.
Matthews, will be made in fiscal years 1997 and 1998. Additional awards of
$679,040 related to these Long-Term Incentive Plans were also made to
other officers who are not shown in this table.
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<PAGE>
OPTIONS AND PERFORMANCE SHARES--1996
The following table provides information regarding awards made under the
Long-Term Performance Incentive Compensation Plan during the fiscal year ended
September 30, 1996 to the Chairman and Chief Executive Officer and the four
other most highly compensated executive officers of Brooklyn Union and all
current executive officers as a group.
OPTIONS AND PERFORMANCE SHARES TABLE
<TABLE>
<CAPTION>
% OF TOTAL VALUE OF
NUMBER OF OPTIONS IN-THE-MONEY NUMBER OF
SECURITIES GRANTED EXERCISE GRANT DATE OPTIONS AT PERFORMANCE
UNDERLYING TO EMPLOYEES PRICE(1)(2) PRESENT VALUE FYE(4) SHARES
OPTIONS GRANTED IN FISCAL YEAR ($/SHARE) OF OPTIONS(3) (UNEXERCISABLE) AWARDED(5)
--------------- -------------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
R.B. Catell............. 55,000 27 27.00 $152,900 $48,125 4,000
C.G. Matthews........... 32,000 16 27.00 88,960 28,000 2,300
H.W. Peter.............. 32,000 16 27.00 88,960 28,000 2,300
V.D. Enright............ 16,000 8 27.00 44,480 14,000 1,100
A.J. DiBrita............ 8,000 4 27.00 22,240 7,000 550
Executive Officers as a
Group.................. 192,000 95 27.00 533,760 168,000 13,000
</TABLE>
- --------
(1) Fair Market Value of Brooklyn Union common stock on November 15, 1995, the
date of grant.
(2) Options vest ratably over a three-year period from the grant date. The
expiration date of the options is November 14, 2005.
(3) Options have been valued using the Black-Scholes option pricing model
adapted to reflect the specific provisions of Brooklyn Union's Long-Term
Performance Incentive Compensation Plan and related assumptions regarding
exercisability and forfeiture. The values shown are theoretical and do not
necessarily reflect the actual values which 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 shares at a future date exceeds the exercise
price. Assumptions for modeling are based on the dividend yield, risk-free
rate of return and standard deviation of prices over a relevant period as
of the grant date.
(4) Represents the difference between the fiscal year-end price of $27 7/8 and
the exercise price. Options are not exercisable as of the fiscal year-end
1996.
(5) The shares granted represent the target number of shares that will vest at
the end of a three-year performance period ending September 30, 1998. The
actual number of Performance Shares to be earned is contingent upon
achieving target levels of total shareholder return in relation to the S&P
Utilities Index. The actual award, which may be paid in cash or shares of
stock, will range from 0 to 200% of the target number of shares and may
include dividend equivalents with respect to any dividends declared on the
number of shares earned.
As of December 18, 1996, the number of outstanding shares of Brooklyn Union
common stock was 49,993,378. For the December 16, 1996 closing price of a share
of Brooklyn Union common stock on the New York Stock Exchange, see "Proposal 1:
Holding Company and Adoption of the Exchange Agreement--The Share Exchange--
Brooklyn Union Common Stock Market Prices and Dividends". The number of shares
of Brooklyn Union common stock reserved for issuance under the Long-Term
Performance Incentive Compensation Plan is 1,500,000 in the aggregate; however,
no more than 750,000 shares of Brooklyn Union common stock will be available
for issuance pursuant to the exercise of Incentive Stock Options. The maximum
number of shares of Brooklyn Union common stock that may be granted to any
participant pursuant to any single award is 125,000.
PERFORMANCE GRAPH
The SEC's executive compensation rules require that a line graph be included
in this Prospectus/Proxy Statement comparing cumulative total shareholder
return with a performance indicator of the overall stock
44
<PAGE>
market and either a published industry index or company-determined peer
comparison. As shown in the line graph below, for a period beginning September
30, 1991 through September 30, 1996, a comparison is made of cumulative total
shareholder returns for Brooklyn Union, the Standard & Poor's Utilities Index
and the Standard & Poor's 500 Index.
[insert chart]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BU.............................. $100.00 $116.99 $141.81 $144.28 $151.21 $180.57
S&P Utilities................... $100.00 $114.31 $142.04 $123.56 $157.54 $169.03
S&P 500......................... $100.00 $110.81 $125.36 $130.02 $168.56 $202.72
</TABLE>
Assumes $100 invested on September 30, 1991 in shares of Brooklyn Union
common stock, the S&P Utilities Index and the S&P 500 Index, and that all
dividends were reinvested.
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<PAGE>
COMPENSATION UNDER RETIREMENT PLANS
The Employees' Retirement Plan of Brooklyn Union provides retirement
benefits based upon the individual participant's years of service and final
average annual compensation. 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 following table sets forth the
estimated annual retirement benefits (exclusive of Social Security payments)
payable to participants in the specified compensation and years-of-service
categories, assuming continued active service until normal retirement age and
that the Employees' Retirement Plan is in effect at such time.
<TABLE>
<CAPTION>
YEARS OF SERVICES
-----------------------------------------------------
REMUNERATION(1) 20 25 30 35 40 45
- --------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000.................. $ 60,000 $ 75,000 $ 90,000 $105,000 $120,000 $135,000
$250,000.................. $ 75,000 $ 93,750 $112,500 $131,250 $150,000 $168,750
$300,000.................. $ 90,000 $112,500 $135,000 $157,500 $180,000 $202,500
$350,000.................. $105,000 $131,250 $157,500 $183,750 $210,000 $236,250
$400,000.................. $120,000 $150,000 $180,000 $210,000 $240,000 $270,000
$450,000.................. $135,000 $168,750 $202,500 $236,250 $270,000 $303,750
$500,000.................. $150,000 $187,500 $225,000 $262,500 $300,000 $337,500
$550,000.................. $165,000 $206,250 $247,500 $288,750 $330,000 $371,250
$600,000.................. $180,000 $225,000 $270,000 $315,000 $360,000 $405,000
$650,000.................. $195,000 $243,750 $292,500 $341,250 $390,000 $438,750
$700,000.................. $210,000 $262,500 $315,000 $367,500 $420,000 $472,500
</TABLE>
- --------
(1) Calculated as the average of the highest five consecutive years of
earnings during the last ten years of credited service.
The number of years of credited service for each of the Chairman and Chief
Executive Officer and the four other highest paid executive officers based on
continued service to normal retirement age will be for R.B. Catell (44 years),
C.G. Matthews (42 years), H.W. Peter (25 years), V.D. Enright (43 years) and
A.J. DiBrita (43 years).
The Internal Revenue Code of 1986, as amended, limits the annual
compensation taken into consideration for and the maximum annual retirement
benefits payable to a participant under the Employees' Retirement Plan. For
fiscal 1996, these limits were $150,000 and $120,000, respectively. Annual
retirement benefits attributable to amounts in excess of these limits are
provided under the Supplemental Retirement Plan of Brooklyn Union and not
under the Employees' Retirement Plan.
EXECUTIVE COMPENSATION--1997
On November 20, 1996, the Board of Directors, acting on the recommendation
of the Organization and Nominating Committee, approved base salary and
incentive compensation plan modifications to further align total compensation
of officers with corporate performance measures and shareholder returns. For
most officers, base salaries were reduced to place more emphasis on variable
performance based compensation. In addition, Nonqualified Stock Options
covering 343,500 shares were granted to officers to further align compensation
to the interest of the shareholders. No Performance Shares were granted.
SENIOR EXECUTIVE CHANGE OF CONTROL SEVERANCE PLAN
Under the Senior Executive Change of Control Severance Plan (the "Change of
Control Plan"), in the event of the termination of a participant's employment
(i) by Brooklyn Union for any reason other than "cause" (as defined)
(excluding the death of the Participant) or (ii) by the Participant for "good
reason" (as defined) following a "change of control" (as defined) of Brooklyn
Union, severance and other benefit payments will be made to the executives of
Brooklyn Union. The severance benefit is payable in a cash lump sum and is
equal to three times the sum of the officer's salary and Highest Annual Bonus
(as defined) for the Chairman and Chief
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<PAGE>
Executive Officer, President and Chief Operating Officer, Vice Chairman and
Senior Vice Presidents and two times the sum of the officer's salary and
Highest Annual Bonus (as defined) for Vice Presidents. The share exchange will
not result in a change of control under the Change of Control Plan.
Brooklyn Union adopted the Change of Control Plan to minimize the uncertainty
created by a change of control of Brooklyn Union which might result in the loss
or distraction of senior executives to the detriment of Brooklyn Union and its
shareholders. Brooklyn Union's Board of Directors considers the avoidance of
such loss and distraction to be essential to protecting and enhancing the best
interests of Brooklyn Union and its shareholders. The Board also believes that
when a change of control is perceived as imminent, or is occurring, the Board
should be able to receive and rely on the disinterested service from senior
executives regarding the best interests of Brooklyn Union and its shareholders,
without concern that senior executives might be distracted or concerned by the
personal uncertainties and risks created by the perception of an imminent or
occurring change of control.
If the share exchange discussed under Proposal 1 is consummated, references
to a "change of control" in the Change of Control Plan will refer to a change
of control of KeySpan, and KeySpan will take over responsiblity for such plan.
PROPOSAL 3: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS OF BROOKLYN UNION
Arthur Andersen LLP, independent public accountants, upon the recommendation
of the Audit Committee of Brooklyn Union's Board, has been nominated by
Brooklyn Union's Board of Directors, the officer member not voting, to serve as
independent public accountants for the 1997 fiscal year.
Arthur Andersen LLP has been the independent public accountants of Brooklyn
Union since 1932. This firm was recommended to serve the 1996 fiscal year by
the Audit Committee of Brooklyn Union's Board of Directors and elected by the
shareholders at the Annual Meeting held February 1, 1996. Arthur Andersen LLP
will also serve as KeySpan's independent public accountants for its 1997 fiscal
year.
A representative of the firm will be present at the Annual Meeting with the
opportunity to make a statement if such representative desires to do so and to
answer questions posed by the shareholders.
PROPOSAL 4: SHAREHOLDER PROPOSAL AS TO CUMULATIVE VOTING FOR BROOKLYN UNION
John J. Gilbert of 29 East 64 Street, New York, New York 10121-7043, owner of
270 shares; and John J. Gilbert and Margaret R. Gilbert representing an
additional family interest of 150 shares; also representing the Lewis D. and
John J. Gilbert Foundation for 150 shares; and Margaret R. Gilbert and John J.
Gilbert, Trustees under the will of Samuel Rosenthal for 600 shares, have
informed Brooklyn Union that they intend to present to the meeting a resolution
relating to cumulative voting and have submitted the following:
RESOLVED:
That the stockholders of Brooklyn Union Gas Company, assembled in annual
meeting in person and by proxy, hereby request the Board of Directors to take
the steps necessary to provide for cumulative voting in the election of
directors, which means each stockholder shall be entitled to as many votes as
shall equal the number of shares he or she owns multiplied by the number of
directors to be elected, and he or she may cast all of such votes for a single
candidate, or any two or more of them as he or she may see fit.
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<PAGE>
REASONS:
Continued strong support along the lines we suggest were shown at the last
annual meeting, when 19.86%, an increase over the previous year, 2,964 owners
of 6,377,955 shares, were cast in favor of this proposal. The vote against
included 4,395 unmarked proxies.
A California law provides that all state pension holdings, as well as state
college funds, invested in shares must be voted in favor of cumulative voting
proposals, showing increasing recognition of the importance of this democratic
means of electing directors.
The National Bank Act provides for cumulative voting. In many cases
companies get around it by forming holding companies without cumulative
voting. Banking authorities have the right to question the capability of
directors to be on banking boards. In many cases authorities come in after and
say the director or directors were not qualified. We were delighted to see
that the SEC has finally taken action to prevent bad directors from being on
the boards of public companies. The SEC should have hearings to prevent such
persons becoming directors before they harm investors.
We think cumulative voting is the answer to find new directors for various
committees. Some recommendations have been made to carry out the CERES 10
points. The 11th should be, in our opinion, having cumulative voting and
ending staggered boards.
When Alaska became a state it took away cumulative voting over our
objections. The Valdez oil spill might have been prevented if environmental
directors were elected through cumulative voting. The huge derivative losses
might have also been prevented with cumulative voting.
Many successful corporations have cumulative voting. Example, Pennzoil
defeated Texaco in that famous case. Ingersoll-Rand, also having cumulative
voting won two awards. FORTUNE magazine ranked it second in its industry as
"America's Most Admired Corporations" and the WALL STREET TRANSCRIPT noted "on
almost any criteria used to evaluate management, Ingersoll Rand excels." In
1994 and 1995 they raised their dividend.
Lockheed-Martin, as well as VWR Corporation now have a provision that if
anyone has 40% of the shares cumulative voting applies, it applies at the
latter company.
In 1995 American Premier adopted cumulative voting. Alleghany Power System
tried to take away cumulative voting, as well as put in a stagger system, and
stockholders defeated it, showing stockholders are interested in their rights.
If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS PROPOSAL
FOR THE FOLLOWING REASONS:
This proposal has been presented at several previous Annual Meetings and has
been rejected each time by Brooklyn Union's shareholders. Your Board of
Directors believes the current system of voting used by Brooklyn Union
provides the best assurance that the decisions of the directors will be in the
best interests of all shareholders. Cumulative voting, however, could enable
the election of directors that will make decisions representing only the views
of special interest groups that helped to get them elected. In addition,
cumulative voting could create partisanship among directors and interfere with
the effective functioning of the Board. An amendment to Brooklyn Union's
certificate of incorporation to provide for cumulative voting would require
the affirmative vote of a majority of the outstanding shares entitled to vote
thereon.
The Board of Directors recommends you oppose this proposal because it is
contrary to the belief that it is the duty of each director to administer the
business and affairs of Brooklyn Union for the benefit of all shareholders.
48
<PAGE>
OTHER MATTERS
Brooklyn Union reserves the right to adjourn the Annual Meeting one or more
times and to continue to solicit proxies, if insufficient affirmative votes
are present in person or by proxy to adopt the Exchange Agreement (Proposal
1).
DEADLINE FOR SHAREHOLDER PROPOSALS
In order to be included in KeySpan's proxy statement and form of proxy
relating to its 1998 Annual Meeting (if common shareholders adopt the Exchange
Agreement and the share exchange occurs) or in Brooklyn Union's 1998 Annual
Meeting proxy statement and form of proxy (if the Exchange Agreement is not
adopted by common shareholders), proposals from shareholders to be presented
at the 1998 Annual Meeting must be received by the Secretary of KeySpan or
Brooklyn Union, as the case may be, at One MetroTech Center, Brooklyn, New
York 11201-3850, no later than August 26, 1997.
Matters intended to be presented by holders of KeySpan or Brooklyn Union
common stock, as the case may be, at the 1998 Annual Meeting must be stated in
writing, and delivered to the appropriate Secretary by such shareholders
during the period between 90 and 60 days prior to the date of the meeting,
which is expected to be held on February 5, 1998.
If Brooklyn Union common shareholders adopt the Exchange Agreement and the
share exchange occurs, Brooklyn Union will no longer be publicly held and
KeySpan will be the sole owner of Brooklyn Union common stock after the share
exchange. In such event, there will be no regularly scheduled meetings of
shareholders of Brooklyn Union in 1998 or thereafter.
ADDITIONAL INFORMATION
Brooklyn Union's consolidated financial statements as of September 30, 1996
and for the three-year period then ended, and certain other financial
information, are set forth in the Appendix to this Prospectus/Proxy Statement.
Brooklyn Union's annual report on Form 10-K to the SEC, which includes
additional information concerning Brooklyn Union, its subsidiaries and their
operations and financial condition, is incorporated by reference in this
Prospectus/Proxy Statement. This report, except for exhibits, will be
furnished at no cost to shareholders after December 30, 1996 upon written
request to the Secretary, The Brooklyn Union Gas Company, One MetroTech
Center, Brooklyn, New York 11201-3850.
The following information is reported as required by the New York Business
Corporation Law. Directors and officers liability insurance covering all
directors and officers of Brooklyn Union was purchased from ACE Ltd., Aetna
Casualty and Surety Company, Chubb & Son, Corporate Officers and Directors
Assurance Ltd. and Zurich Insurance Company for a one-year period commencing
May 28, 1996 at a total cost of approximately $473,150.
Section 16(a) of the 1934 Act requires Brooklyn Union's directors and
officers, and persons who own more than ten percent of a registered class of
Brooklyn Union's equity securities, to file reports of ownership and changes
in ownership with the SEC. Executive officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish Brooklyn Union
with copies of all Section 16(a) forms they file. After the effective time of
the share exchange, KeySpan's directors and officers, and persons who own more
than ten percent of a registered class of KeySpan's equity securities, will
become subject to these provisions.
Brooklyn Union believes that all filings during the fiscal year ended
September 30, 1996, applicable to its executive officers, directors and
greater than ten percent beneficial owners, were made on a timely basis.
49
<PAGE>
CONFIDENTIAL VOTING
Brooklyn Union, considering it to be in the best interest of its
shareholders, in response to a shareholder proposal and for other reasons, 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 Brooklyn Union, its directors, officers
and employees. Accordingly, proxy cards are returned in envelopes addressed to
the tabulator, First Chicago Trust Company of New York, P.O. Box 8535, Edison,
New Jersey 08818-9402, which receives and tabulates the proxies and is
independent of Brooklyn Union. The final tabulation is inspected by an
inspector(s) of election who also is independent of Brooklyn Union, its
directors, officers and employees. The identity and vote of any shareholder
will not be disclosed to Brooklyn Union, its directors, officers or employees,
nor to any third party except (i) to allow the independent inspector(s) of
election to certify the results of the vote to Brooklyn Union, its directors,
officers and employees; (ii) as necessary to meet applicable legal
requirements and to assert or defend claims for or against Brooklyn Union;
(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. After the
effective time of the share exchange, KeySpan will adopt a comparable policy.
OTHER PROPOSALS
As of the date of this Prospectus/Proxy Statement, the Board of Directors of
Brooklyn Union knew of no other matter which is likely to be brought before
the Annual Meeting. However, if any other matter is presented for action and
comes before the Meeting, it is the intention of the persons named as Proxies
to vote in accordance with their judgment in such matters.
WHERE YOU CAN FIND MORE INFORMATION
Brooklyn Union files annual, quarterly and special reports, proxy statements
and other information with the SEC. After the share exchange, Brooklyn Union
will no longer file such reports, statements or information with the SEC, but
KeySpan will be required to do so. You may read and copy any reports,
statements or other information Brooklyn Union has filed or KeySpan will file
at the SEC's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from commercial document retrieval services and at the Internet
web site maintained by the SEC at "http://www.sec.gov."
KeySpan has filed a Registration Statement on Form S-4 to register with the
SEC the shares of KeySpan common stock to be issued in the share exchange.
This Prospectus/Proxy Statement is a part of that Registration Statement and
constitutes a prospectus of KeySpan in addition to being a proxy statement of
Brooklyn Union for the Annual Meeting. As permitted by SEC rules, this
Prospectus/Proxy Statement does not contain all the information you can find
in the Registration Statement or in its exhibits.
The SEC allows us to "incorporate by reference" information into this
Prospectus/Proxy Statement, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of
this Prospectus/Proxy Statement, except for any information superseded by
information in this Prospectus/Proxy Statement. This Prospectus/Proxy
Statement incorporates by reference the document set forth below that was
previously filed with the SEC. Such document contains important information
about Brooklyn Union, its subsidiaries and their operations and financial
condition.
<TABLE>
<CAPTION>
SEC FILING--FILE NO. 1-722 PERIOD
-------------------------- ------
<S> <C>
Annual Report on Form 10-K Year ended September 30, 1996
</TABLE>
We are also incorporating by reference additional documents that we may file
with the SEC between the date of this Prospectus/Proxy Statement and the
Annual Meeting.
50
<PAGE>
BROOKLYN UNION WILL PROVIDE TO YOU WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST, A COPY OF ANY DOCUMENTS THAT HAVE BEEN OR MAY BE INCORPORATED IN THIS
PROSPECTUS/PROXY STATEMENT BY REFERENCE, OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS. REQUESTS SHOULD BE DIRECTED TO THE BROOKLYN UNION GAS COMPANY, ONE
METROTECH CENTER, BROOKLYN, NEW YORK 11201-3850, ATTENTION: THE SECRETARY,
TELEPHONE NUMBER (718) 403-2000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY JANUARY 17, 1997.
----------------
We have not authorized anyone to provide you with information that is
different from what is contained in this Prospectus/Proxy Statement. Neither
the delivery of this Prospectus/Proxy Statement nor any distribution of shares
of KeySpan common stock shall, under any circumstances, create any implication
that there has not been any change in the affairs of Brooklyn Union or KeySpan
since the respective dates as of which information is given. This
Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy shares of KeySpan common stock by any person
in any jurisdiction or in any circumstance in which such offer would be
unlawful.
51
<PAGE>
APPENDIX
1996 CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION OF
BROOKLYN UNION
F-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EARNINGS AND DIVIDENDS
In fiscal 1996, consolidated income available for common stock was $122.6
million, or $2.48 per share, compared to $91.5 million, or $1.90 per share, in
1995, and $87.0 million, or $1.85 per share, in 1994. This was the fourth
consecutive year of record earnings.
Consolidated earnings for the last three fiscal years are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Income Available for Common Stock
Utility........................................... $ 82,090 $78,677 $76,665
-------- ------- -------
Gas exploration and production operations (before
reorganization charge)........................... 7,627 7,843 5,707
Reorganization charge............................. (7,800) -- --
Gain on sale of subsidiary stock.................. 23,034 -- --
Gain on sale of Canadian plant.................... 10,505 -- --
-------- ------- -------
33,366 7,843 5,707
-------- ------- -------
Energy services
Pipeline and storage............................ 5,319 979 3,358
Cogeneration.................................... 414 2,670 1,303
Marketing....................................... 1,396 1,329 --
-------- ------- -------
7,129 4,978 4,661
-------- ------- -------
Consolidated.................................. $122,585 $91,498 $87,033
======== ======= =======
</TABLE>
In 1996, regulated utility operations provided an equity return of 12.80%.
The return, which included incentives authorized by the New York State Public
Service Commission (PSC), was higher than the allowed rate of 10.65%. The
Company has earned at or above its allowed return on utility common equity in
17 of the last 18 years.
In the last three years, income available for common stock from utility
operations has benefited from additions of new firm gas heating customers,
principally as a result of customer conversions from oil to gas for space
heating in homes and buildings, as well as earnings incentives provided under
rate stipulations (see "Rate and Regulatory Matters"). In 1996, such
incentive-based earnings were related largely to higher margins on sales to
large-volume and off-system customers and attaining a 93% customer
satisfaction rating in benchmarks used by the PSC. The effect on utility
revenues of variations in weather largely was offset by the weather
normalization adjustment included in the Company's tariff. Utility operating
margins have improved due to ongoing cost reduction efforts.
In 1996, earnings from gas exploration, production and processing operations
decreased, primarily due to a reorganization charge of $7.8 million, net of
federal income taxes, recorded by the U.S. exploration and production
subsidiary, The Houston Exploration Company (THEC). Excluding this charge,
operating results were comparable in 1996 and 1995. However, earnings in 1996
also included an after-tax gain of $23.0 million on the issuance by THEC of
34% of its common stock in September 1996 (see Note 3 to the Consolidated
Financial Statements, "The Houston Exploration Company" for additional
information). Neither the Company, nor THEC, has plans for any further
issuances of THEC stock, nor the stock of any of the Company's other
subsidiaries--except for issuances under ongoing stock plans. Further,
earnings included a gain of $10.5 million on the sale in July 1996 of an
investment in a Canadian gas processing plant, which was sold to realize the
substantial value embodied in the investment at the time. In 1995, earnings
from gas exploration, production and processing operations increased,
primarily due to higher U.S. natural gas production.
F-2
<PAGE>
Earnings from investments in energy services are attributable to various
operations. In April 1996, a Company subsidiary increased its equity interest
in the Iroquois Gas Transmission System, L.P. (Iroquois) by 8.0% to 19.4%,
resulting in higher earnings during the year from Iroquois. In addition,
earnings from pipeline and storage operations in all periods reflect higher
throughput on Iroquois. In 1995, earnings were reduced by a provision for the
Company's proportionate share of estimated costs of legal matters involving
Iroquois. With respect to cogeneration investments, higher fuel prices caused
earnings from cogeneration investments to decrease in 1996. In 1995, the
increase in earnings reflected equity income from the start of operations at
John F. Kennedy International Airport (JFK) and the campus of the State
University of New York at Stony Brook.
Earnings from gas marketing in 1996 were $1.4 million, similar to last year.
Looking toward the future, the Company expects revenue growth as a result of
the rationalization and refocusing of these operations. New wholly-owned
subsidiaries have been formed to operate effectively as part of the Company's
holding company strategy. One of these business units sells gas and expects to
sell electricity inside and outside the traditional utility territory. The
other will provide a variety of technical and maintenance management services
for commercial and industrial customers. The initial focus will be conducted
both independently and through strategic alliances. As an integral part of
this marketing realignment, a Company subsidiary sold its 50% interest in the
gas-marketing venture, PennUnion Energy Services, L.L.C., to the other
partner.
The consolidated rate of return on average common equity was 13.6% in 1996,
10.9% in 1995, and 11.0% in 1994.
In December 1995, the Board of Directors authorized an increase in the
annual dividend on common stock to $1.42 per share from $1.39 per share. This
increase became effective on February 1, 1996, when the quarterly dividend was
raised to 35 1/2 cents per share from 34 3/4 cents per share. Common dividends
have been increased in 20 consecutive years and paid continuously for 48
years.
SALES, GAS COSTS AND NET REVENUES
Firm utility gas sales volumes in fiscal 1996 were 141,948 MDTH compared to
123,356 MDTH in 1995 and 133,513 MDTH in 1994. Measured by annual degree days,
weather was 7.7% colder than normal in 1996, 11.2% warmer than normal in 1995
and 3.1% colder than normal in 1994. Sales growth in all markets resulted
primarily from conversions to natural gas from oil for space heating,
especially by large apartment buildings. In 1996, the growth in firm sales
normalized for weather was 2.4%, similar to that experienced in recent years.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Utility sales............................... $1,351,821 $1,152,331 $1,279,638
Cost of gas................................. (610,053) (446,559) (560,657)
---------- ---------- ----------
Net revenues................................ $ 741,768 $ 705,772 $ 718,981
---------- ---------- ----------
Gas production and other.................... $ 80,181 $ 63,953 $ 58,992
---------- ---------- ----------
</TABLE>
In 1996, higher utility sales primarily reflected higher billings due to
colder weather. In 1995, the opposite occurred as lower utility sales
primarily reflected lower billings for gas costs due to warm weather. For
additional information regarding utility sales and net revenues in the last
three years, see "Rate and Regulatory Matters."
During the year, gas at the burner tip was competitive with alternative
grades of fuel oil. Residential heating sales in markets where the competing
fuel is No. 2 grade fuel oil and sales to other small-volume customers were
approximately 75% of firm sales volume in 1996. Demand in these markets is
less sensitive to periodic differences between gas and oil prices. In large-
volume heating markets, gas service is provided under rates that are set to
compete with prices of alternative fuel, including No. 6 grade heating oil.
There is substantial sales potential in these markets, which include large
apartment houses, government buildings and schools. Competition with other gas
suppliers is expected to continue to increase as a result of deregulation.
F-3
<PAGE>
Moreover, a significant market for off-system gas sales, transportation and
other services has developed as a result of deregulation. These sales or
services reflect optimal use of available pipeline capacity as affected by
weather and the Company's New York Market Hub in balancing on-system
requirements to core customers with off-system services to increase total
margins. In colder-than-normal winters, such as 1996, sales to on-system
customers are higher whereas off-system services are comparatively lower. As a
result, in 1996 gas and transportation sales and services to off-system and
interruptible customers amounted to 42,950 MDTH compared with 49,910 MDTH in
1995.
The Company and its gas exploration and production subsidiary employ
derivative financial instruments, such as natural gas and oil futures, options
and swaps, for the purpose of managing exposures to commodity price risk. In
connection with utility operations, the Company primarily uses derivative
financial instruments to fix margins on sales to large-volume customers to
which gas is sold at a price indexed to the prevailing price of oil, their
alternate fuel. Derivative financial instruments are used by the Company's gas
exploration and production subsidiary to manage the risk associated with
fluctuations in the price received for natural gas production in order to
achieve a more predictable cash flow. Hedging strategies have been managed
independently. (See Note 7B to the Consolidated Financial Statements,
"Derivative Financial Instruments," for additional information.)
The cost of gas, $610.1 million in 1996, was $163.5 million or 36.6% higher
than in 1995. The higher cost reflects higher heating sales due to colder
weather and higher average gas costs. The cost of gas in 1994 was $560.7
million reflecting higher volumes sold and higher average prices, both of
which were primarily the result of cold weather in that year as compared to
volumes and prices in 1995. The cost of gas for firm customers was $3.49 per
DTH (one DTH equals 10 therms) in 1996, compared to $3.12 per DTH in 1995 and
$3.55 per DTH in 1994. For the year ended September 30, 1996, the utility's
cost of gas included hedging losses of $1.7 million related to its margin
fixing strategy.
The increase in revenues from gas production and other in 1996 is due
primarily to the acquisition of additional natural gas properties (see Note 3
to the Consolidated Financial Statements, "The Houston Exploration Company",
for additional information) and increased production from the gas processing
plant located in British Columbia, Canada, which was purchased in April 1995
and was sold in July 1996. In 1996, gas production, including oil equivalents,
was approximately 27.3 billion cubic feet (BCFe), or 4.6 BCFe above the level
of production last year. In 1996, wellhead prices averaged approximately $2.11
per MCF compared with $1.47 per MCF last year. The realized price (average
wellhead price received for production including recognized hedging gains and
losses) was $1.82 per MCF in 1996 compared with $1.77 per MCF in 1995. Hence,
the Company's hedging strategy stabilized the weather-related volatility
inherent in the wellhead price which showed an increase on average of 64 cents
per MCF in 1996 compared to 1995. The effective price increased 5 cents in
1996 compared to 1995. The effective price in 1996 included a hedging loss of
$7.7 million while the effective price in 1995 included a hedging gain of $6.6
million. (See Note 10 to the Consolidated Financial Statements, "Supplemental
Gas and Oil Disclosures", for additional information.)
EXPENSES, OTHER INCOME AND PREFERRED DIVIDENDS
The increase in operation and maintenance expense in 1996 reflects the
effects of colder weather compared to last year and the reorganization charge
incurred by the U.S. exploration and production subsidiaries. The
reorganization charge of $12.0 million reflects remuneration that certain
former employees of the Company's other exploration and production subsidiary
were paid as the result of the increase in the value of the gas and oil
properties transferred to THEC. The decrease in 1995 reflected warmer weather
and various cost reduction efforts. In 1994, severe winter weather caused
higher utility gas distribution operation expense. The benefit of ongoing cost
reduction programs substantially outweighed the adverse effects of generally
higher labor and material costs. Moreover, consolidated operation expense in
1996 and 1995 included costs related to Canadian gas processing operations,
which ceased in July 1996 when the plant was sold.
F-4
<PAGE>
The increase in depreciation and depletion expense in 1996 reflects higher
depletion charges of subsidiaries due to increased gas production and higher
utility depreciation expense due to property additions.
General taxes principally include state and city taxes on utility revenues
and property. The applicable property base generally has increased, although
the Company has been able to realize significant savings by the aggressive
pursuit of reductions in property value assessments. Taxes based on revenues
reflect the variations in utility revenues each year.
Federal income tax expense reflects changes in pre-tax income.
The increase in earnings from energy services investments in 1996 is
primarily due to the increase in earnings from Iroquois offset by lower
cogeneration earnings, as previously discussed. Other income also includes pre-
tax gains on the sale of the Canadian plant and on the initial public offering
of 34% of THEC's common stock.
Interest charges on long-term debt in each of the last three fiscal years
generally reflect higher average subsidiary borrowings. In fiscal 1996,
interest charges reflected lower utility interest costs due to debt refunding.
Other interest expense primarily reflects accruals of carrying charges related
to regulatory settlement items.
Dividends on preferred stock reflect reductions in the level of preferred
stock outstanding due to sinking fund redemptions.
CAPITAL EXPENDITURES
Consolidated capital expenditures were $302.3 million in 1996, $214.0 million
in 1995 and $199.6 million in 1994.
Capital expenditures related to utility operations were $110.8 million in
1996, $108.7 million in 1995 and $103.8 million in 1994. Utility expenditures
in all years principally were for the renewal and replacement of mains and
services.
Capital expenditures related to gas exploration, production and processing
activities were $169.0 million in 1996, $83.0 million in 1995 and $71.3 million
in 1994. Expenditures in 1996 reflect two major acquisitions totaling $84.7
million for gas and oil reserves in South Texas and the Gulf of Mexico, as well
as ongoing exploration and development activities. Expenditures in 1996
primarily reflect increased off-shore development activities. Net proved gas
reserves at September 30, 1996 were approximately 322 BCFe. These reserves are
located off-shore in the Gulf of Mexico and on-shore in Texas, the Arkoma Basin
and West Virginia.
Capital expenditures related to energy services investments were $22.5
million in 1996, $22.3 million in 1995 and $24.5 million in 1994. Expenditures
in 1996 primarily were for the acquisition of the additional interest in
Iroquois. Also, in 1996 the cogeneration plant at JFK was refinanced and cash
flows from investing activities include a return of capital from the proceeds.
In 1995 and 1994, expenditures were primarily related to the construction of
the JFK cogeneration project and, in 1995, also included $5.6 million related
to the Stony Brook cogeneration plant. In 1994, capital expenditures also
included the acquisition of an interest in a cogeneration plant located in
Lockport, New York.
Consolidated capital expenditures for fiscal years 1997 and 1998 are
estimated to be approximately $195 million in each year, including $85 million
per year related to non-utility activities. The level of such expenditures is
reviewed on an ongoing basis and can be affected by timing, scope and changes
in investment opportunities.
F-5
<PAGE>
FINANCING
Cash provided by operating activities continues to be strong and is a
substantial source for financing ongoing capital expenditures. In 1996, cash
flow from utility operations was reduced by the timing of budget plan billing
settlements related to cold weather.
In September 1996, THEC issued 7,130,000 shares of its common stock in an
initial public offering, providing net proceeds of $101.0 million, which were
used to pay down debt and to complete the financing of gas reserve
acquisitions and property additions discussed previously.
In addition, proceeds from common stock issued through the Company's
employee and shareholder stock purchase plans have provided the Company
approximately $27.4 million in 1996, $28.0 million in 1995 and $29.8 million
in 1994. The Company issued 1,800,000 new shares of common stock on October 6,
1993, providing net proceeds of $44.9 million.
In March 1996, the Company refunded $153.5 million of Gas Facilities Revenue
Bonds, including a $98.5 million series of 9% bonds and a $55 million series
of 8.75% bonds. Both series were called for redemption at optional redemption
prices equal to 102% of the face amount per bond plus accrued interest. The
$153.5 million refunding series, which matures in 2021, was issued on January
29, 1996, with a coupon rate of 5.5% at a price of 99% of the principal amount
of the bonds. The Company expects to initiate a call of its Gas Facilities
Revenue Bonds, 7 1/8% Series 1985 I and 7% Series 1985 II, which are callable
on December 1, 1996 at 102% of face amount per bond plus accrued interest to
the call date. If authorization is received from government agencies, the
bonds would be called early in calendar year 1997.
At September 30, 1996, the consolidated annualized cost of long-term debt
was 6.3%, compared to 7.1% in 1995 and 6.9% in 1994.
FINANCIAL FLEXIBILITY AND LIQUIDITY
At September 30, 1996, the Company had cash and temporary cash investments
of $41.9 million and available bank lines of credit of $75 million, which
lines are available to secure the issuance of commercial paper. The lines of
credit can be increased to $150 million by December 1996. Related borrowings
primarily are used to finance seasonal working capital requirements, which in
recent years have not been significant. At September 30, 1996, there were no
borrowings outstanding. In addition, subsidiaries have lines of credit
totaling $150 million, which for the most part support borrowings under
revolving loan agreements. (See Note 5C to the Consolidated Financial
Statements, "Other Long-Term Debt", for additional information.)
At September 30, 1996, the common equity component of the Company's
capitalization was 55.8%.
Fixed charge coverage ratios were 3.99 times in 1996, 3.17 times in 1995 and
3.21 times in 1994.
RATE AND REGULATORY MATTERS
Rate Settlement Matters and Holding Company Agreement
In September 1996, the New York State Public Service Commission (PSC)
granted the Company's petition to restructure into a holding company, to be
named KeySpan Energy Corporation. If the Company's shareholders approve the
restructuring at its Annual Meeting in February 1997, KeySpan would become the
parent holding company of Brooklyn Union and its subsidiaries (which would
become subsidiaries of KeySpan) through a share exchange whereby the Company's
common shareholders would receive KeySpan common stock, thus becoming the
owners of KeySpan. The PSC's holding company order approved a settlement
agreement among Brooklyn Union, the Staff of the Department of Public Service
and several intervenor parties. This agreement contains restrictions and
limitations on certain investments by KeySpan, limitations on the level of
dividend payments
F-6
<PAGE>
from Brooklyn Union to KeySpan under certain circumstances, prohibitions on
certain intercompany loans, guarantees and pledges, and restrictions on
transactions among the affiliated holding company group.
The agreement reached in the holding company filing included a new multi-
year rate plan that became effective on October 1, 1996. After an initial rate
reduction of approximately $3.0 million in fiscal 1997, the non-gas component
in customer bills will be under specific price caps. Hence, the total amount
for this component in rates that the Company can charge customers, in the
aggregate, will remain constant for the subsequent five years, although rates
in certain customer classes may be increased in order to reflect cost
responsibility more appropriately. The Company also will be permitted to
charge for various ancillary services.
During the six-year term of the rate plan, the costs of gas purchased by the
Company for its customers will be recovered currently in billed firm revenues
through the operation of a tariff provision, the Gas Adjustment Clause (GAC).
Further, in addition to recovering its specific gas costs in applicable rates,
the Company's rates for transporting gas within its local distribution system
provide for full margin recovery of its cost of service. (See Notes to
Consolidated Financial Statements, Summary of Significant Accounting Policies
and Basis for Financial Statement Presentation--Regulatory Assets.)
Although there is no specific authorized rate of return on common equity,
the rate plan includes provisions for rate changes if certain conditions
applicable to inflation, exogenous costs or changes in financial condition
occur. Under the agreement the Company generally is not subject to any
earnings cap or provisions to share with customers any level of earnings from
utility operations. However, incentive provisions remain for retention of 20%
of margins on sales to off-system customers and capacity release credits, and
expenditures related to remediation of the sites of former gas manufacturing
plants are subject to a provision enabling the Company to retain any savings,
while requiring it to absorb any costs, to the extent that expenditures vary
by 10% compared with estimates. The agreement includes a customer service
quality performance plan with a maximum forty basis-point pre-tax equity
return penalty if service quality diminishes in certain categories over the
term of the agreement. Also, the weather normalization adjustment was modified
to provide that the Company may recover or be required to refund 87.5% of all
margin shortfalls or surpluses resulting from weather that is warmer or
colder-than-normal.
In September 1995, the PSC approved the Company's second stage rate filing
covering fiscal 1996. The approval provided for no base rate increase;
however, $7.5 million in deferred credits were amortized to income in 1996.
The authorized rate of return on utility common equity was set at 10.65% for
fiscal 1996.
In October 1994, the PSC approved a three-year rate settlement agreement
which provided for no base rate increase in fiscal 1995; however, the Company
amortized to income, as permitted, approximately $1.3 million of deferred
credits in that year. The third year of this agreement was superseded by the
PSC order in the holding company proceeding of September 1996 mentioned above.
Restructuring Proceeding
The PSC has set forth a policy framework to guide the transition of New York
State's gas distribution industry in the deregulated gas industry environment.
In March 1996, the PSC issued an order on utility compliance tariff filings,
including the Company's, related to this framework.
Pursuant to this order, beginning on May 1, 1996, customers in the Company's
small-volume market have the option to purchase their gas supplies from
sources other than the Company, which would serve as gas transporter. Large-
volume customers have had this option for a number of years. Small-volume
customers can be grouped together by marketers if their combined minimum
threshold usage reaches 50,000 therms of gas per year, which approximates the
usage of 35 homes. The PSC approved the Company's methodology of recovering
the cost of pipeline capacity and storage service provided to marketing firms
and transportation customers. In addition to transporting gas that customers
purchase from marketers, utilities such as the Company will provide billing,
meter reading and other services for aggregate rates that closely approximate
the distribution charge reflected in otherwise applicable sales rates to
supply these customers. The PSC order placed a limit on the amount of gas the
Company would be obligated to transport in its core market under aggregation
programs to
F-7
<PAGE>
5% of total core sales in each of the next three years, with no more than 25%
of any one service class permitted to convert to transportation service.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local laws and
regulatory programs related to the environment. These environmental laws
govern both the normal, ongoing operations of the Company as well as the
cleanup of historically contaminated properties. Ongoing environmental
compliance activities, which historically have not been material, are
integrated with the Company's operations and maintenance activities. As of
September 30, 1996, the Company had an accrued liability of $28.8 million
representing costs associated with investigation and remediation at former
manufactured gas plant sites. (See Note 9 to the Consolidated Financial
Statements, "Environmental Matters," for additional information.)
FINANCIAL STATEMENT RESPONSIBILITY
The Consolidated Financial Statements of the Company and its subsidiaries
were prepared by management in conformity with generally accepted accounting
principles.
The Company's system of internal controls is designed to provide reasonable
assurance that assets are safeguarded and that transactions are executed in
accordance with management's authorizations and recorded to permit preparation
of financial statements that present fairly the financial position and
operating results of the Company. The Company's internal auditors evaluate and
test the system of internal controls. The Company's Vice President and General
Auditor reports directly to the Audit Committee of the Board of Directors,
which is composed solely of outside directors. The Audit Committee meets
periodically with management, the Vice President and General Auditor and
Arthur Andersen LLP to review and discuss internal accounting controls, audit
results, accounting principles and practices and financial reporting matters.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Brooklyn Union Gas Company:
We have audited the accompanying Consolidated Balance Sheet and Consolidated
Statement of Capitalization of The Brooklyn Union Gas Company (a New York
corporation) and subsidiaries as of September 30, 1996 and 1995, and the
related Consolidated Statements of Income, Retained Earnings and Cash Flows
for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position and capitalization of The
Brooklyn Union Gas Company and subsidiaries as of September 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
October 23, 1996
New York, New York
F-9
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS FOR FINANCIAL STATEMENT
PRESENTATION
Principles of Consolidation
The Consolidated Financial Statements reflect the accounts of the Company
and its subsidiaries. All significant intercompany transactions are
eliminated. All other adjustments are of a normal, recurring nature and
certain reclassifications have been made to amounts in prior periods to
conform with the current period presentation.
Further, the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Utility Gas Property--Depreciation and Maintenance
Utility gas property is stated at original cost of construction, which
includes allocations of overheads and taxes and an allowance for funds used
during construction.
Depreciation is provided on a straight-line basis in amounts equivalent to
composite rates on average depreciable property of 3.4% in 1996 and 1995, and
3.3% in 1994.
The cost of property retired, plus the cost of removal less salvage, is
charged to accumulated depreciation. The cost of repair and minor replacement
and renewal of property is charged to maintenance expense.
Gas Exploration and Production Property--Depletion and Depreciation
The Company's gas exploration and production subsidiary follows the full
cost method of accounting. All productive and nonproductive costs identified
with acquisition, exploration and development are capitalized. Provisions for
depletion are based on the units-of-production method and, when necessary,
include provisions related to the asset ceiling test limitations required by
the regulations of the Securities and Exchange Commission. Costs of
unevaluated gas and oil properties are excluded from the amortization base
until proved reserves are established or an impairment is determined.
Provisions for depreciation of all other non-utility property are computed
on a straight-line basis over useful lives of three to fifteen years.
Investments in Energy Services
Certain subsidiaries own as their principal assets investments representing
ownership interests of 50% or less in energy-related businesses that are
accounted for under the equity method.
Revenues
Utility customers generally are billed bi-monthly on a cycle basis. Revenues
include unbilled amounts related to the estimated gas usage that occurred from
the last meter reading to the end of each month.
Revenue requirements to establish utility rates are based on sales to
customers. Gas costs are recovered currently in billed firm revenues through
the operation of a tariff provision, the Gas Adjustment Clause (GAC). Net
revenues from off-system gas sales and tariff gas balancing services and
capacity release credits are refunded to firm customers subject to certain
limited sharing provisions in the Company's tariff. Prior to October 1, 1996,
net revenues from tariff sales for gas and transportation services to on-
system customers made on an interruptible basis were refunded to firm
customers subject to sharing provisions. The GAC provision requires an annual
reconciliation of recoverable gas costs and GAC revenues. Any difference is
deferred pending recovery from or refund to firm customers during a subsequent
twelve-month period.
F-10
<PAGE>
Derivative Financial Instruments
The Company and THEC use derivative financial instruments primarily to hedge
exposures in cash flows due to fluctuations in the price of natural gas and
fuel oil, which in certain markets may strongly influence the Company's selling
price for natural gas. Gains and losses on these instruments are recognized
concurrently with the recognition of the underlying exposures.
The Company regularly assesses the relationship between natural gas commodity
prices in "cash" and futures markets. The correlation between prices in these
markets has been well within a range generally deemed to be acceptable. If
correlation were not to remain in an acceptable range, the Company would
account for its financial instrument positions as trading activities.
Federal Income Tax
Prior to the adoption in 1994 of SFAS-109, "Accounting for Income Taxes",
pursuant to PSC policy, deferred taxes were not provided for certain
construction costs incurred before fiscal 1988 and for bases differences
related to differences between tax and book depreciation methods. In accordance
with SFAS-109, the Company recorded a regulatory asset for the net cumulative
effect of having to provide deferred Federal income tax expense on all
differences between the tax and book bases of assets and liabilities at the
current tax rate.
Investment tax credits, which were available prior to the Tax Reform Act of
1986, were deferred in operating expense and are amortized as a reduction of
Federal income tax in other income over the estimated life of the related
property.
Regulatory Assets
The Company is subject to the provisions of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation". Regulatory assets arise from the allocation of costs and revenues
to accounting periods for utility ratemaking purposes differently from bases
generally applied by nonregulated companies. Regulatory assets are recognized
in accordance with SFAS-71. With the exception of net tax regulatory assets all
other significant assets and liabilities created by the ratemaking process,
including the $33.2 million recorded for environmental remediation costs as of
September 30, 1995, have been reflected in utility rates pursuant to the
agreement approved by the PSC in its September 25, 1996 holding company order.
Accordingly, at September 30, 1996 the Company had only a net tax regulatory
asset of $74,885,000 compared to a regulatory asset of $109,636,000 related to
taxes and environmental costs at September 30, 1995.
In the event that it were no longer subject to the provisions of SFAS-71, the
Company estimates that the write-off of this net tax regulatory asset could
result in a charge to net income of approximately $48,675,000 which would be
classified as an extraordinary item.
Subsidiary Common Stock Issuances to Third Parties
The Company follows an accounting policy of income statement recognition for
parent company gains or losses from issuances of stock by subsidiaries.
Research and Development Costs
All research and development costs are expensed as incurred. For the years
ended September 30, 1996, 1995 and 1994, these costs were $12.8 million, $11.9
million and $11.9 million, respectively.
F-11
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING REVENUES
Utility sales............................ $1,351,821 $1,152,331 $1,279,638
Gas production and other................. 80,181 63,953 58,992
---------- ---------- ----------
1,432,002 1,216,284 1,338,630
---------- ---------- ----------
OPERATING EXPENSES
Cost of gas.............................. 610,053 446,559 560,657
Operation and maintenance................ 428,977 385,654 384,734
Depreciation and depletion............... 79,610 72,020 69,611
General taxes............................ 143,296 134,718 150,743
Federal income tax (See Note 1).......... 39,508 41,989 40,556
---------- ---------- ----------
OPERATING INCOME........................... 130,558 135,344 132,329
OTHER INCOME
Income from energy services investments.. 13,523 9,458 5,689
Gain on sale of investment in Canadian
plant................................... 16,160 -- --
Gain on sale of subsidiary stock (See
Note 3)................................. 35,437 -- --
Other, net............................... (1,188) 151 700
Federal income tax (See Note 1).......... (19,861) (51) (142)
---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES............. 174,629 144,902 138,576
INTEREST CHARGES
Long-term debt........................... 46,803 47,939 46,900
Other.................................... 4,918 5,128 4,292
---------- ---------- ----------
NET INCOME................................. 122,908 91,835 87,384
DIVIDENDS ON PREFERRED STOCK............... 323 337 351
---------- ---------- ----------
INCOME AVAILABLE FOR COMMON STOCK.......... $ 122,585 $ 91,498 $ 87,033
========== ========== ==========
EARNINGS PER SHARE OF COMMON STOCK
(Average shares outstanding of 49,365,435,
48,211,220 and 46,979,597, respectively).. $ 2.48 $ 1.90 $ 1.85
========== ========== ==========
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR....................... $303,709 $279,466 $255,979
INCOME AVAILABLE FOR COMMON STOCK.................. 122,585 91,498 87,033
-------- -------- --------
426,294 370,964 343,012
LESS:
Cash dividends declared ($1.42, $1.39 and $1.35
per common share, respectively)................. 70,291 67,229 63,652
Other adjustments................................ 30 26 (106)
-------- -------- --------
BALANCE AT END OF YEAR............................. $355,973 $303,709 $279,466
======== ======== ========
</TABLE>
The accompanying Summary of Significant Accounting Policies and Basis for
Financial Statement Presentation and Notes to Consolidated Financial Statements
are integral parts of these statements.
F-12
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Property
Utility, at cost................................... $ 1,782,440 $ 1,690,193
Accumulated depreciation........................... (429,476) (393,263)
Gas exploration and production, at cost (See Note
3)................................................ 510,568 353,847
Accumulated depletion.............................. (165,414) (138,136)
----------- -----------
1,698,118 1,512,641
----------- -----------
INVESTMENTS IN ENERGY SERVICES (SEE NOTE 8).......... 115,529 121,023
----------- -----------
CURRENT ASSETS
Cash............................................... 18,524 15,992
Temporary cash investments......................... 23,397 24,550
Accounts receivable................................ 172,843 146,018
Allowance for uncollectible accounts............... (15,616) (13,730)
Gas in storage, at average cost.................... 91,813 88,810
Materials and supplies, at average cost............ 12,089 13,203
Prepaid gas costs.................................. 11,945 15,725
Other.............................................. 38,888 19,856
----------- -----------
353,883 310,424
----------- -----------
DEFERRED CHARGES..................................... 122,073 172,834
----------- -----------
$ 2,289,603 $ 2,116,922
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (SEE ACCOMPANYING STATEMENT AND NOTE
5)
Common equity...................................... $ 905,808 $ 826,290
Preferred stock, redeemable........................ 6,600 6,900
Long-term debt..................................... 712,013 720,569
----------- -----------
1,624,421 1,553,759
----------- -----------
CURRENT LIABILITIES
Accounts payable................................... 143,561 103,705
Dividends payable.................................. 18,229 17,536
Taxes accrued...................................... 10,905 3,635
Customer deposits.................................. 21,881 22,252
Customer budget plan credits....................... 8,892 24,790
Interest accrued and other......................... 37,244 39,438
----------- -----------
240,712 211,356
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Federal income tax................................. 282,041 247,882
Unamortized investment tax credits................. 20,007 20,948
Other.............................................. 43,573 82,977
----------- -----------
345,621 351,807
----------- -----------
MINORITY INTEREST IN SUBSIDIARY COMPANY (SEE NOTE 3). 78,849 --
----------- -----------
$ 2,289,603 $ 2,116,922
=========== ===========
</TABLE>
The accompanying Summary of Significant Accounting Policies and Basis for
Financial StatementPresentation and Notes to Consolidated Statements are
integral parts of these statements.
F-13
<PAGE>
CONSOLIDATED STATEMENT OF CAPITALIZATION
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
COMMON EQUITY
Common stock, $.33 1/3 par value, authorized
70,000,000 shares; outstanding 49,857,448 and
48,788,320 shares, respectively .................... $ 549,835 $ 522,581
Retained earnings (See accompanying statement)....... 355,973 303,709
----------- -----------
905,808 826,290
----------- -----------
PREFERRED STOCK, REDEEMABLE
$100 par value, cumulative, authorized 900,000 shares
4.60% Series B, 69,000 and 72,000 shares outstand-
ing, respectively................................... 6,900 7,200
Less: Current sinking fund requirements.............. 300 300
----------- -----------
6,600 6,900
----------- -----------
LONG-TERM DEBT
Gas facilities revenue bonds (issued through New York
State Energy Research and Development Authority)
9% Series 1985 A due May 2015...................... -- 98,500
8 3/4% Series 1985 due July 2015................... -- 55,000
6.368% Series 1993 A and Series 1993 B due April
2020.............................................. 75,000 75,000
7 1/8% Series 1985 I due December 2020............. 62,500 62,500
7% Series 1985 II due December 2020................ 62,500 62,500
5.5% Series 1996 due January 2021.................. 153,500 --
6.75% Series 1989 A due February 2024.............. 45,000 45,000
6.75% Series 1989 B due February 2024.............. 45,000 45,000
5.6% Series 1993 C due June 2025................... 55,000 55,000
6.95% Series 1991 A and Series 1991 B due July
2026.............................................. 100,000 100,000
5.635% Series 1993 D-1 and Series 1993 D-2 due July
2026.............................................. 50,000 50,000
----------- -----------
648,500 648,500
Unamortized premium--Long-term debt.................. (1,489) --
Subsidiary borrowings................................ 65,002 72,069
----------- -----------
712,013 720,569
----------- -----------
$ 1,624,421 $ 1,553,759
=========== ===========
</TABLE>
The accompanying Summary of Significant Accounting Policies and Basis for
Financial Statement Presentation and Notes to Consolidated Financial Statements
are integral parts of these statements.
F-14
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER
30,
-------------------------------
1996 1995 1994
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................... $ 122,908 $ 91,835 $ 87,384
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion.................. 83,006 77,696 75,386
Deferred Federal income tax ................ 25,985 11,037 10,897
Gain on sale of investment in Canadian
operations................................. (16,160) -- --
Gain on sale of subsidiary stock............ (35,437) -- --
Income from energy services investments..... (13,523) (9,458) (5,689)
Dividends received from energy services
investments................................ 11,031 3,595 4,392
Change in accounts receivable, net.......... (24,939) 44,712 31,906
Change in accounts payable.................. 39,856 (29,283) (34,121)
Gas inventory and prepayments............... 777 6,208 5,498
Other....................................... 8,863 14,439 18,474
--------- --------- ---------
Cash provided by operating activities......... 202,367 210,781 194,127
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock.......................... 27,407 27,974 29,828
Proceeds from sale of subsidiary stock ....... 101,041 -- --
Common stock proceeds receivable.............. -- -- 44,910
Issuance of long-term debt.................... 153,500 19,192 12,077
Repayment of long-term debt and preferred
stock........................................ (160,867) (300) (300)
Dividends paid................................ (70,614) (67,566) (64,003)
--------- --------- ---------
Cash provided by (used for) financing activi-
ties......................................... 50,467 (20,700) 22,512
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excluding allowance for
equity funds used during construction)....... (301,307) (212,732) (197,496)
Proceeds from sale of investment in Canadian
plant........................................ 26,938 -- 11,691
Partnership distribution 1996 and other....... 22,914 9,702 1,398
--------- --------- ---------
Cash used in investing activities............. (251,455) (203,030) (184,407)
--------- --------- ---------
CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS. $ 1,379 $ (12,949) $ 32,232
CASH AND TEMPORARY CASH INVESTMENTS AT BEGIN-
NING
OF YEAR...................................... 40,542 53,491 21,259
--------- --------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF
YEAR......................................... $ 41,921 $ 40,542 $ 53,491
========= ========= =========
Temporary cash investments are short-term marketable securities purchased
with maturities of three months or less that are carried at cost which
approximates their fair value.
Supplemental disclosures of cash flows
Income taxes................................ $ 37,053 $ 36,000 $ 36,900
Interest.................................... $ 53,210 $ 53,047 $ 50,872
========= ========= =========
</TABLE>
The accompanying Summary of Significant Accounting Policies and Basis for
Financial Statement Presentation and Notes to Consolidated Statements are
integral parts of these statements.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FEDERAL INCOME TAX
Income tax expense (benefit) is reflected as follows in the Consolidated
Statement of Income:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING EXPENSES
Current...................................... $ 27,766 $ 31,676 $ 38,403
Deferred..................................... 11,742 10,313 2,153
-------- -------- --------
39,508 41,989 40,556
-------- -------- --------
OTHER INCOME
Current...................................... 6,559 379 (7,528)
Deferred..................................... 14,243 724 8,744
Amortization of investment tax credits....... (941) (1,052) (1,074)
-------- -------- --------
19,861 51 142
-------- -------- --------
Total Federal income tax....................... $ 59,369 $ 42,040 $ 40,698
======== ======== ========
</TABLE>
The components of the Company's net deferred income tax liability reflected
as Deferred Credits and Other Liabilities--Federal income tax in the
Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility property.................................... $ 176,565 $ 180,708
Gas production and other property................... 69,488 49,402
Net tax regulatory asset............................ 26,210 28,214
Other............................................... 9,778 (10,442)
----------- -----------
Net deferred income tax liability................... $ 282,041 $ 247,882
=========== ===========
</TABLE>
The following is a reconciliation between reported income tax and tax
computed at the statutory rate of 35%:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Computed at statutory rate..................... $ 63,797 $ 46,856 $ 44,828
Adjustments related to:
Gas production tax credits................... (1,962) (2,730) (1,303)
Nontaxable interest income................... (678) (870) (556)
Amortization of investment tax credits....... (941) (1,052) (1,074)
Other, net................................... (847) (164) (1,197)
-------- -------- --------
Total Federal income tax....................... $ 59,369 $ 42,040 $ 40,698
-------- -------- --------
Effective income tax rate...................... 33% 31% 32%
======== ======== ========
</TABLE>
2. POSTRETIREMENT BENEFITS
A. PENSION: The Company has a noncontributory defined benefit pension plan
covering substantially all employees. Benefits are based on years of service
and compensation. The Company's funding policy for pensions is in accordance
with requirements of Federal law and regulations. There were no pension
contributions in 1996, 1995 and 1994. Special retirement programs were
initiated in 1995 and 1994.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The calculation of net periodic pension cost follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost, benefits earned during the
year........................................ $ 15,160 $ 11,533 $ 15,100
Special retirement charge.................... -- 5,416 8,465
-------- -------- --------
15,160 16,949 23,565
-------- -------- --------
Interest cost on projected benefit
obligation.................................. 37,128 35,128 29,511
Return on plan assets........................ (78,930) (82,626) (12,430)
Net amortization and deferral................ 31,745 34,786 (32,798)
-------- -------- --------
Total pension cost........................... $ 5,103 $ 4,237 $ 7,848
======== ======== ========
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's Consolidated Balance Sheet. Plan assets
principally are investment grade common stock and fixed income securities.
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................ $ (414,988) $ (401,159)
Accumulated....................................... $ (439,278) $ (423,434)
Projected......................................... $ (563,852) $ (545,825)
Plan assets at fair value......................... $ 608,080 $ 555,906
----------- -----------
Plan assets in excess of projected benefit
obligation....................................... $ 44,228 $ 10,081
Unrecognized net loss (gain) from past experience
different from that assumed and from changes in
assumptions...................................... (32,755) 10,880
Unrecognized transition asset..................... (27,914) (32,566)
----------- -----------
Accrued pension liability......................... $ (16,441) $ (11,605)
----------- -----------
Assumptions:
Obligation discount............................... 7.25% 7.00%
Asset return...................................... 7.75% 7.50%
Average annual increase in compensation........... 5.50% 5.50%
=========== ===========
</TABLE>
B. OTHER--RETIREE HEALTH CARE AND LIFE INSURANCE: The Company sponsors
noncontributory defined benefit plans under which it provides certain health
care and life insurance benefits for retired employees. The Company has been
funding a portion of future benefits over employees' active service lives
through a Voluntary Employee Beneficiary Association (VEBA) trust.
Contributions to VEBA trusts are tax deductible, subject to limitations
contained in the Internal Revenue Code. The Company's policy is to fund the
cost of postretirement benefits in a tax effective manner as part of its
overall strategy to manage the costs of its benefit programs for employees.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic other postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Service cost, benefits earned during the year... $ 3,178 $ 2,590
Interest cost on accumulated postretirement
benefit obligation............................. 10,673 9,958
Return on plan assets........................... (9,382) (6,746)
Net amortization and deferral................... 10,961 6,752
------------ ------------
Other postretirement benefit cost............... $ 15,430 $ 12,554
============ ============
</TABLE>
The following table sets forth the plans' funded status, reconciled with
amounts recognized in the Company's Consolidated Balance Sheet.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation
Retirees........................................ $ (88,278) $ (87,022)
Fully eligible active plan participants......... (18,271) (10,980)
Other active plan participants.................. (63,762) (56,157)
----------- -----------
$ (170,311) $ (154,159)
----------- -----------
Plan assets at fair value, primarily stocks and
bonds............................................ $ 93,452 $ 72,638
----------- -----------
Accumulated postretirement benefit obligation in
excess of
plan assets...................................... $ (76,859) $ (81,521)
Unrecognized net loss from past experience
different from that assumed and from changes in
assumptions...................................... 29,285 25,345
Unrecognized transition obligation................ 64,015 67,781
----------- -----------
Prepaid other postretirement benefit.............. $ 16,441 $ 11,605
----------- -----------
Assumptions:
Obligation discount............................. 7.25% 7.00%
Asset return.................................... 7.75% 7.50%
=========== ===========
</TABLE>
The measurement also assumes a health care cost trend rate of 8.5%
decreasing to 5.0% by the year 2007 and remaining at that level thereafter. A
1.0% increase in the health care cost trend rate would have the effect of
increasing the accumulated postretirement benefit obligation as of September
30, 1996 and the net periodic SFAS-106 expense by approximately $23,825,000
and $1,935,000, respectively.
3. THE HOUSTON EXPLORATION COMPANY (THEC)
Certain former employees of Fuel Resources Inc., the subsidiary of the
Company that previously owned certain onshore natural gas and oil producing
properties and acreage, were entitled to receive remuneration for the increase
in the value of these properties should these properties be sold or
transferred. These former employees were paid, and a reorganization charge of
$12.0 million was recorded in operation and maintenance expense in the
accompanying Consolidated Statement of Income, as a result of the transfer of
these properties to THEC in 1996.
In September 1996, THEC completed an initial public offering (the "IPO") of
7,130,000 shares of its common stock at an offering price of $15.50 per share.
The cash proceeds to THEC from the IPO, after deductions for commissions and
offering expenses, were $101.0 million and were used to repay a portion of
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
THEC's short-term borrowings incurred as a result of two major acquisitions in
1996 of properties and proved gas reserves for $84.7 million. One of these
acquisitions also required THEC to issue, in conjunction with the IPO, 762,387
shares (the number of shares being determined by the IPO price) of its common
stock as consideration for the $11.8 million portion of the acquisition's
purchase price that was to be funded with THEC's stock.
Further, in September 1996, THEC issued, also in conjunction with the IPO,
145,161 shares of its common stock to its President for certain of his working
interests, valued at $2.3 million, in properties owned by THEC. As a result of
these three stock issuances, the Company's ownership in THEC was reduced from
100% to approximately 66%, and the Company recorded a $35.4 million gain ($23.0
million after tax) in recognition of the net increase in the book value of the
Company's investment in THEC.
4. FIXED OBLIGATIONS
A. LEASES: Lease costs included in operation expense were $13,894,000 in
1996, $14,706,000 in 1995 and $15,547,000 in 1994. The future minimum lease
payments under the Company's various leases, all of which are operating leases,
are approximately $14,143,000 per year over the next five years and
$149,547,000 in the aggregate for years thereafter.
The Company has a lease agreement with a remaining term of 15 years for its
corporate headquarters.
B. FIXED CHARGES UNDER FIRM CONTRACTS: The Company has entered into various
contracts for gas delivery and supply services. The contracts have remaining
terms that cover from one to seventeen years. Certain of these contracts
require payment of monthly charges in the aggregate amount of approximately
$4.3 million per month in all events and regardless of the level of service
available. Such charges are recovered as gas costs.
5. CAPITALIZATION
A. COMMON AND PREFERRED STOCK: In 1996 and 1995, the Company issued 1,069,128
and 1,198,305 shares of common stock for $27,407,000 and $27,974,000,
respectively, under the Dividend Reinvestment and Stock Purchase Plan, the
Discount Stock Purchase Plan for Employees, and the Employee Savings Plan. At
September 30, 1996, 2,355,942 unissued shares of common stock were reserved for
issuance under these plans. Other changes to common stock reflect the
amortization of premiums paid on preferred stock redeemed in prior years which
were deferred in order to reflect the ratemaking treatment. Annual amortization
was approximately $155,000 in each of the past two years.
The 4.60% Series B preferred stock is subject to an annual sinking fund
requirement of 3,000 shares at par value.
B. GAS FACILITIES REVENUE BONDS AND OTHER: The Company can issue tax-exempt
bonds through the New York State Energy Research and Development Authority.
Whenever bonds are issued for new gas facilities projects, proceeds are
deposited in trust and subsequently withdrawn by the Company to finance
qualified expenditures.
There are no sinking fund requirements for any Gas Facilities Revenue Bonds.
The Company's 7 1/8% Series 1985 I and 7% Series 1985 II Gas Facilities Revenue
Bonds became callable on December 1, 1996, each issue at the optional
redemption price of 102% of par value plus accrued interest. The Company is
seeking authorization of government agencies for the call and refunding of
these bond issues.
C. OTHER LONG-TERM DEBT: THEC has a $150 million unsecured line of credit
which for the most part supports borrowings under a revolving loan agreement.
Up to $5 million of this line is available for the issuance of letters of
credit to support performance guarantees. This credit facility matures on July
1, 2000. At September 30, 1996, borrowings of $65 million were outstanding
under this line of credit and $1.6 million was committed under outstanding
letter of credit obligations. Borrowings under this facility bear interest, at
THEC's option, at rates indexed at a premium to the Federal Funds rate or
LIBOR, or based on the prime rate. The interest rate on this debt was 6.5% per
annum at fiscal year-end. Covenants related to this line of credit require the
maintenance of certain financial ratios and involve other restrictions
regarding cash dividends, the purchase or redemption of stock and the pledging
of assets.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCK OPTIONS AND AWARDS
On November 15, 1995, the Company implemented the Long-Term Performance
Incentive Compensation Plan and granted 202,800 nonqualified stock options and
13,000 performance shares to officers. The number of shares of Common Stock
reserved for issuance under this Plan is 1,500,000 in the aggregate; however,
no more than 750,000 shares will be available for issuance pursuant to the
exercise of the stock options.
The stock options were awarded at an exercise price of $27.00 (the fair
market value on the grant date). They vest ratably over a three-year period
from the grant date with a ten-year exercise period. The stock options were not
exercisable as of September 30, 1996. The performance shares granted represent
the target number of shares, as defined under the Plan, that will vest at the
end of a three-year performance period ending on September 30, 1998. The actual
number of performance shares to be earned is contingent upon achieving target
levels of total shareholder return in relation to the Standard & Poor's
Utilities Index. The actual awards will range from 0 to 200% of the target
number of shares.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation." This statement requires companies to either recognize
compensation costs attributable to employee stock options or similar equity
instruments in net income or, in the alternative, provide pro forma footnote
disclosure on net income and earnings per share. Implementation of this
statement is required in the Company's 1997 fiscal year. The Company does not
anticipate that the provisions of this statement will have a material effect on
the Company's net income.
7. FINANCIAL INSTRUMENTS
A. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's long-term debt consists
primarily of publicly traded Gas Facilities Revenue Bonds, the fair value of
which is estimated based on quoted market prices for the same or similar
issues. The fair value of these bonds at September 30, 1996 and 1995 was
$660,499,600 and $673,408,300, respectively, and the carrying value was
$648,500,000 in both years. Subsidiary debt is carried at an amount
approximating fair value because its interest rate is based on current market
rates.
The fair value of the Company's redeemable preferred stock is estimated based
on quoted market prices for similar issues. At September 30, 1996 and 1995, the
fair value of this stock was $4,958,300 and $5,228,800, respectively, and the
carrying value was $6,600,000 and $6,900,000, respectively.
All other financial instruments included in the Consolidated Balance Sheet
are stated at amounts that approximate fair values.
B. DERIVATIVE FINANCIAL INSTRUMENTS: The Company and THEC employ derivative
financial instruments--natural gas futures, options and swaps--for the purpose
of managing commodity price risk.
The utility tariff applicable to certain large-volume customers permits gas
to be sold at prices established monthly within a specified range expressed as
a percentage of prevailing alternate fuel oil prices. The Company uses
derivatives, primarily futures, to fix profit margins on specified portions of
the sales to this market in line with pricing objectives. Implementation of the
strategy involves establishment of long (buy) positions in gas futures
contracts with offsetting short (sell) positions in oil futures contracts of
equivalent energy value that are capped by options over the same time period.
The long gas futures position follows, generally within a range of 80% to 120%,
the cost of gas to serve this market while the short oil futures position
correspondingly replicates, within the same range, the selling price of gas.
The Company has developed a strong sense of the relationship between gas and
oil prices in the target markets, and the implementation of its strategy has
satisfactorily hedged its exposure to the loss of profit margins on the desired
portion of anticipated sales.
With respect to natural gas production operations, THEC generally uses swaps
and standard New York Mercantile Exchange futures contracts or options to hedge
the price risk related to known production plans and capabilities. These
instruments include a fixed price/volume and the swaps are structured as both
straight and
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
participating swaps. In all cases, THEC pays the other parties the amount by
which the floating variable price (settlement price) exceeds the fixed price
and receives the amount by which the settlement price is below the fixed
price.
Two participating swap contracts covering 1,860,000 and 930,000 Mcf in 1997
and 1998, respectively, are priced at $1.98 and $2.05. The volumes under these
two swaps are reduced by 50% in each month where the NYMEX prices for that
month exceed the fixed price under the swap contract.
The following table summarizes the notional amounts and related fair values
of the Company's derivative financial instrument positions outstanding at
September 30, 1996. Fair values are based on quotes for the same or similar
instruments. Differences between the notional contract amounts and fair values
represent implicit gains on gas contracts representing long positions or
losses on oil contracts representing short positions if the instruments were
settled at market.
<TABLE>
<CAPTION>
FISCAL YEAR FIXED PRICE VOLUME NOTIONAL FAIR
OF MATURITY PER MCF (MCF) AMOUNT VALUE
----------- ----------- ----------- -------- -------
GAS (IN THOUSANDS)
TYPE OF INSTRUMENT
- ------------------
<S> <C> <C> <C> <C> <C>
Futures contracts..... 1997 $1.97-$2.39 13,630,000 $30,447 $30,613
Options............... 1997 $2.30-$3.00 3,020,000 $ -- $ 964
Swap contracts........ 1997 $1.53-$2.09 16,858,000 $32,219 $32,165
1998 $1.53-$2.09 4,280,000 $ 8,054 $ 8,166
<CAPTION>
FISCAL YEAR FIXED PRICE VOLUME NOTIONAL FAIR
OF MATURITY PER GALLON (GALLONS) AMOUNT VALUE
----------- ----------- ----------- -------- -------
OIL (IN THOUSANDS)
TYPE OF INSTRUMENT
- ------------------
<S> <C> <C> <C> <C> <C>
Futures contracts..... 1997 $0.49-$0.58 122,556,000 $66,297 $81,530
1998 $0.52 6,342,000 $ 3,315 $ 3,592
Options............... 1997 $0.13-$0.22 63,672,000 $ 211 $ 1,018
</TABLE>
Futures contracts expire and are renewed monthly. As of September 30, 1996,
no such contract extended beyond January 1998. Further, swaps contracts are
settled monthly and extend through March 1998. Margin deposits with brokers at
September 30, 1996 and 1995 amounted to $23,619,000 and $1,662,400,
respectively, and are recorded in Other in the current assets section of the
balance sheet. Deferred gains (losses) on closed positions were $1,330,000 and
($748,000) at September 30, 1996 and 1995, respectively.
The Company and THEC are exposed to credit risk in the event of
nonperformance by counterparties to derivative contracts, as well as
nonperformance by the counterparties of the transactions against which they
are hedged. The Company believes that the credit risk related to the futures,
options and swap contracts is no greater than that associated with the primary
contracts which they hedge, as these contracts are with major investment grade
financial institutions, and that elimination of the price risk lowers the
Company's overall business risk.
8. INVESTMENT IN IROQUOIS PIPELINE
A Company subsidiary, North East Transmission Co., Inc. (NETCO), owns a
19.4% partnership interest in Iroquois Gas Transmission System, L.P.
(Iroquois). Iroquois owns a 375-mile pipeline extending from Canada to the
Northeast United States. NETCO's investment in Iroquois was $35.4 million at
September 30, 1996.
In 1992 Iroquois was informed that Federal criminal and civil investigations
of the construction of certain of its pipeline facilities had been commenced.
The investigations were to determine whether Iroquois violated various
environmental and other laws in the construction of such facilities. In
addition, beginning in late 1993, Iroquois was informed by the Federal Energy
Regulatory Commission (FERC), the Army Corps of Engineers,
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the U.S. Department of Transportation (DOT) and the New York State Public
Service Commission that each of these agencies had also commenced
investigations regarding the construction of pipeline facilities.
On May 23, 1996, as part of a comprehensive resolution of these
investigations, Iroquois Pipeline Operating Company (IPOC), the operator of
the pipeline, pleaded guilty to four felony violations of the Clean Water Act
and entered into consent decrees under the Clean Water Act in four federal
judicial districts. Although not a named defendant, Iroquois signed the plea
agreement and consent decrees and is bound by their terms. Iroquois also
entered into a related settlement with the State of New York. Under these
various agreements, Iroquois and IPOC agreed to pay $22 million in fines and
penalties, agreed to remediate 27 wetlands along the length of the pipeline,
and agreed to implement under FERC and DOT orders two ten-year plans to
address certain ground stability and pipeline safety concerns. Iroquois also
entered into a separate settlement with the FERC. In September 1995, a
provision was made in the Company's consolidated earnings for NETCO's share of
the estimated settlement costs. This provision was adequate to account for
NETCO's share of the above costs.
9. ENVIRONMENTAL MATTERS
Historically, the Company, or predecessor entities to the Company, owned or
operated several former manufactured gas plant (MGP) sites. These sites have
been identified for the New York State Department of Environmental
Conservation (DEC) for inclusion on appropriate waste site inventories. In
certain circumstances, former MGP sites can give rise to environmental cleanup
responsibilities for the Company.
Two MGP sites are under active consideration by the Company. One site, which
is located on property still owned by the Company, is the former Coney Island
MGP facility located in Brooklyn, New York. This site is the subject of
continuing interim remedial action under the direction of the U.S. Coast
Guard. The Company executed a consent order with the DEC addressing the
overall remediation of the Coney Island site in accordance with state law. A
schedule of investigative and cleanup activities is being developed, leading
to a cleanup over the next several years. The other site currently is owned by
the City of New York (City). The Company and the City are discussing a mutual
approach to sharing potential environmental responsibility for this site. The
Company believes it is likely that, at a minimum, investigative costs will be
incurred by the Company with respect to that site.
Based upon the Coney Island site consent order and the estimated costs of
investigation of the City site, the Company believes that the minimum cost of
MGP-related environmental cleanup will be approximately $34 million, based
upon current information, primarily for the Coney Island site. The Company's
actual MGP-related costs may be substantially higher, depending upon
remediation experience, eventual end use of the sites, and environmental
conditions not addressed in the consent order or current investigative plans.
Such potential additional costs are not subject to estimation at this time.
As of September 30, 1996, the Company had an unpaid liability of $28.4
million. By order issued February 16, 1995, the PSC approved the Company's
July 1993 petition to defer the costs associated with environmental site
investigation and remediation incurred in 1993 and thereafter. Recovery of
these costs began in fiscal year 1995, and is conditioned upon absence of a
PSC determination that such costs have not been reasonably or prudently
incurred. In addition, the Company must demonstrate that it has taken all
reasonable steps to obtain cost recovery from all available funding sources,
including other responsible parties and insurance sources.
Moreover, the rate agreement that became effective on October 1, 1996,
described in "Rate and Regulatory Matters" of Management's Discussion and
Analysis of Results of Operations and Financial Condition, provides, among
other things, that if the total cost of investigating and remediating the
Coney Island site plus the cost of investigating the City site varies from the
amount originally accrued for these activities, the Company will retain or
absorb 10% of the variation. Under the rate agreement, similar ratemaking
treatment will be available for any additional accrued liabilities for other
MGP sites, should such accrual be required.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. SUPPLEMENTAL GAS AND OIL DISCLOSURES
This information includes amounts attributable to a 34% minority interest at
September 30, 1996. In addition, gas and oil operations, and reserves, were
predominantly located in the United States in all years.
CAPITALIZED COSTS RELATING TO GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Unproved properties not being amortized.............. $ 60,137 $ 35,082
Properties being amortized--productive and
nonproductive....................................... 441,024 299,398
----------- -----------
Total capitalized costs.............................. 501,161 334,480
Accumulated depletion................................ (160,128) (132,809)
----------- -----------
Net capitalized costs................................ $ 341,033 $ 201,671
=========== ===========
</TABLE>
At September 30, 1996 and 1995, the Company had an immaterial deficiency in
its asset ceiling test; however, such deficiency was eliminated by subsequent
increases in the price of natural gas.
The following is a break-out of the costs (in thousands of dollars) which
are excluded from the amortization calculation as of September 30, 1996, by
year of acquisition: 1996--$36,557; 1995--$13,312; and prior years--$10,268.
The Company cannot accurately predict when these costs will be included in the
amortization base, but it is expected that these costs will be evaluated
within the next five years.
COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Acquisition of properties--
Unproved properties............................... $ 24,577 $10,996 $11,022
Proved properties................................. 89,828 14,983 28,370
Exploration........................................ 20,828 5,907 18,961
Development........................................ 31,005 37,953 9,781
-------- ------- -------
Total costs incurred............................... $166,238 $69,839 $68,134
======== ======= =======
</TABLE>
RESULTS OF OPERATIONS FROM GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues from gas and oil producing activities--
Sales to unaffiliated parties....................... $50,431 $40,810 $41,185
Sales to affiliates................................. -- -- 2,023
------- ------- -------
Revenues............................................ 50,431 40,810 43,208
------- ------- -------
Production and lifting costs........................ 8,860 5,762 5,360
Depletion........................................... 27,368 22,906 24,978
------- ------- -------
Total expenses.................................... 36,228 28,668 30,338
------- ------- -------
Income before taxes................................. 14,203 12,142 12,870
Income taxes........................................ 3,037 1,957 3,306
------- ------- -------
Results of gas and oil producing activities (exclud-
ing corporate overhead and interest costs)......... $11,166 $10,185 $ 9,564
======= ======= =======
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The gas and oil reserves information is based on estimates of proved
reserves attributable to the Company's interest as of September 30 for each of
the years presented. These estimates principally were prepared by independent
petroleum consultants. Proved reserves are estimated quantities of natural gas
and crude oil which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
The standardized measure of discounted future net cash flows was prepared by
applying year-end prices of gas and oil to the Company's proved reserves,
except for those reserves devoted to future production that is hedged. These
reserves are priced at their respective hedged amount. The standardized
measure does not purport, nor should it be interpreted, to present the fair
value of the Company's gas and oil reserves. An estimate of fair value would
also take into account, among other things, the recovery of reserves not
presently classified as proved, anticipated future changes in prices and
costs, and a discount factor more representative of the time value of money
and the risks inherent in reserve estimates.
RESERVE QUANTITY INFORMATION
<TABLE>
<CAPTION>
NATURAL GAS (MMCF) 1996 1995 1994
------------------ ------- ------- -------
<S> <C> <C> <C>
Proved Reserves--
Beginning of Year.............................. 195,055 142,858 108,847
Revisions of previous estimates................ (354) 13,539 (2,297)
Extensions and discoveries..................... 13,139 38,985 25,890
Production..................................... (26,435) (21,822) (22,814)
Purchases of reserves in place................. 134,325 21,495 34,931
Sales of reserves in place..................... (1,189) -- (1,699)
------- ------- -------
Proved Reserves--
End of Year.................................... 314,541 195,055 142,858
------- ------- -------
Proved Developed Reserves--
Beginning of Year.............................. 151,594 110,225 100,454
------- ------- -------
End of Year.................................... 222,522 151,594 110,225
------- ------- -------
<CAPTION>
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS
(MBBLS) 1996 1995 1994
--------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Proved Reserves--
Beginning of Year.............................. 1,162 807 443
Revisions of previous estimates................ (148) 245 (140)
Extensions and discoveries..................... 182 155 155
Production..................................... (136) (148) (96)
Purchases of reserves in place................. 294 103 495
Sales of reserves in place..................... (106) -- (50)
------- ------- -------
Proved Reserves--
End of Year.................................... 1,248 1,162 807
------- ------- -------
Proved Developed Reserves--
Beginning of Year.............................. 974 543 407
------- ------- -------
End of Year.................................... 1,040 974 543
------- ------- -------
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED GAS
AND OIL RESERVES
<TABLE>
<CAPTION>
1996 1995
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Future Cash Flows......... $554,798 $314,627
Future Costs--
Production ............. (89,303) (57,941)
Development............. (60,926) (29,948)
-------- --------
Future net inflows before
income tax............... 404,569 226,738
Future income taxes....... (59,623) (43,705)
-------- --------
Future net cash flows..... 344,946 183,033
10% discount factor....... (85,688) (49,512)
-------- --------
Standardize measure of
discounted future net
cash flows............... $259,258 $133,521
======== ========
</TABLE>
CHANGES IN STANDARDIZED MEASURE OF DISOUNTED FUTURE NET CASH FLOWS FROM PROVED
RESERVE QUANTITIES
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Standardized measure--beginning of year....... $133,521 $108,134 $110,406
Sales and transfers, net of production costs.. (41,571) (35,048) (37,848)
Net change in sales and transfer prices, net
of production costs.......................... 44,719 (2,786) (25,005)
Extensions and discoveries and improved recov-
ery, net of related costs.................... 18,894 28,868 15,536
Changes in estimated future development costs. (4,798) (2,351) (1,016)
Development costs incurred during the period
that reduced future development costs........ 15,056 10,360 6,381
Revisions of quantity estimates............... (2,338) 13,858 (2,917)
Accretion of discount......................... 16,880 11,763 12,397
Net change in income taxes.................... 21,026 (7,856) 4,001
Purchases of reserves in place................ 94,945 15,176 27,561
Sales of reserves in place.................... -- -- (2,110)
Changes in production rates (timing) and oth-
er........................................... (37,076) (6,597) 748
-------- -------- --------
Standardized measure-end of year.............. $259,258 $133,521 $108,134
======== ======== ========
</TABLE>
F-25
<PAGE>
SUPPLEMENTARY INFORMATION (UNAUDITED)
QUARTERLY INFORMATION
SUMMARY OF QUARTERLY INFORMATION
The following is a table of financial data for each quarter of fiscal 1996
and 1995. The Company's business is influenced by seasonal weather conditions
and the timing of approved base utility tariff rate changes. The effect on
utility earnings of variations in revenues caused by abnormal weather is
largely mitigated by operation of a weather normalization adjustment contained
in the Company's tariff.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Operating revenues..... 398,083 595,438 254,311 184,170
Operating income(loss). 57,400 88,505 5,495 (20,842)(a)
Gains on sale of
subsidiary stock and
Canadian plant (after
taxes)................ -- -- -- 33,539
Income (loss) applica-
ble to common stock... 44,624 74,413 (4,561) 8,109
Per common share:
Earnings (loss)(b).... 0.91 1.51 (0.09) 0.16
Dividends declared.... 0.3550 0.3550 0.3550 0.3550
1995
Operating revenues..... 358,348 481,615 217,696 158,625
Operating income
(loss)................ 54,580 85,364 5,650 (10,250)
Income (loss) applica-
ble to common stock... 42,753 73,555 (6,188) (18,622)
Per common share:
Earnings (loss)(b).... 0.90 1.53 (0.13) (0.38)
Dividends declared.... 0.3475 0.3475 0.3475 0.3475
</TABLE>
(a) Includes a subsidiary reorganization charge of $7.8 million after taxes.
(b) Quarterly earnings per share are based on the average number of shares
outstanding during the quarter. Because of the increasing number of common
shares outstanding in each quarter, the sum of quarterly earnings per
share does not equal earnings per share for the year.
SUMMARY OF QUARTERLY STOCK INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
High................................ 29 5/8 29 7/8 27 1/2 28 1/8
Low................................. 24 5/8 25 3/4 24 7/8 24 7/8
Close............................... 29 1/4 26 3/4 27 1/4 27 7/8
Shares Traded (000)................. 3,710 3,884 5,121 3,592
1995
High................................ 25 3/8 24 3/4 26 3/8 26 3/8
Low................................. 21 1/2 22 23 3/4 23 1/4
Close............................... 22 1/4 24 1/8 26 1/4 24 5/8
Shares Traded (000)................. 2,695 3,977 2,543 3,219
</TABLE>
F-26
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA AND STATISTICS
<TABLE>
<CAPTION>
FOR YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME SUMMARY
Operating revenues
Utility sales......... $1,351,821 $1,152,331 $1,279,638 $1,145,315 $1,038,061
Gas production and
other................ 80,181 63,953 58,992 60,189 36,799
---------- ---------- ---------- ---------- ----------
Total operating reve-
nues................... 1,432,002 1,216,284 1,338,630 1,205,504 1,074,860
Operating expenses
Cost of gas........... 610,053 446,559 560,657 466,573 402,137
Operation and mainte-
nance................ 428,977 385,654 384,734 366,706 336,156
Depreciation and de-
pletion.............. 79,610 72,020 69,611 64,779 73,930
General taxes......... 143,296 134,718 150,743 144,827 135,549
Federal income tax.... 39,508 41,989 40,556 41,413 30,052
---------- ---------- ---------- ---------- ----------
Operating income........ 130,558 135,344 132,329 121,206 97,036
Income (loss) from
energy services
investments............ 13,523 9,458 5,689 1,150 (1,041)
Gain on sale of
investment in Canadian
properties............. 16,160 -- -- 20,462 --
Gain on sale of
subsidiary stock....... 35,437 -- -- -- --
Write-off of investment
in propane company..... -- -- -- (17,617) --
Other, net.............. (1,188) 151 700 (465) 5,107
Federal income (tax)
benefit................ (19,861) (51) (142) (70) 833
---------- ---------- ---------- ---------- ----------
Interest charges........ 51,721 53,067 51,192 48,103 42,062
---------- ---------- ---------- ---------- ----------
Net income.............. 122,908 91,835 87,384 76,563 59,873
Dividends on preferred
stock.................. 323 337 351 364 2,078
---------- ---------- ---------- ---------- ----------
Income available for
common stock........... $ 122,585 $ 91,498 $ 87,033 $ 76,199 $ 57,795
========== ========== ========== ========== ==========
FINANCIAL SUMMARY
Common stock information
Per share
Earnings ($)........ 2.48 1.90 1.85 1.73 1.35
Cash dividends de-
clared ($)......... 1.42 1.39 1.35 1.32 1.29
Book value, year-end
($)................ 18.17 16.94 16.27 15.55 14.56
Market value, year-
end ($)............ 27 7/8 24 5/8 24 7/8 25 3/4 22 3/8
Average shares out-
standing (000)....... 49,365 48,211 46,980 44,042 42,882
Shareholders.......... 33,320 33,669 35,233 30,925 31,367
Daily average shares
traded............... 64,500 49,100 42,100 33,100 26,900
Capital expenditures
($).................... 302,280 214,006 199,572 204,514 173,467
Total assets ($)........ 2,289,603 2,116,922 2,029,074 1,897,847 1,748,027
Common equity ($)....... 905,808 826,290 774,236 721,076 632,254
Preferred stock, redeem-
able ($)............... 6,600 6,900 7,200 7,500 7,800
Long-term debt ($)...... 712,013 720,569 701,377 689,300 682,031
Total capitalization
($).................... 1,624,421 1,553,759 1,482,813 1,417,876 1,322,085
Earnings to fixed
charges (times)........ 3.99 3.17 3.21 3.19 2.86
UTILITY OPERATING STA-
TISTICS
Gas data (MDTH)
Firm sales............ 141,948 123,356 133,513 128,972 122,476
Other gas and trans-
portation sales...... 42,950 49,910 42,392 25,032 23,706
Maximum daily capaci-
ty, year-end......... 1,284 1,256 1,256 1,258 1,199
Maximum daily sendout. 994 963 1,022 915 904
Total active meters
(000).................. 1,126 1,125 1,122 l,119 1,117
Heating customers (000). 461 454 446 441 436
Degree days............. 5,170 4,240 4,974 4,802 4,659
Colder (Warmer) than
normal (%)........... 7.7 (11.2) 3.1 -- (4.0)
</TABLE>
F-27
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EXHIBIT A
AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE (the "Agreement"), dated as of December
18, 1996, is between THE BROOKLYN UNION GAS COMPANY, a New York corporation
and the corporation whose shares of Common Stock, par value $.33 1/3 per
share, will be acquired pursuant to the "Exchange" provided for in this
Agreement (the "Subject Corporation"), and KEYSPAN ENERGY CORPORATION, a New
York corporation and the corporation which will acquire the foregoing shares
of Common Stock of the Subject Corporation (the "Acquiring Corporation"). The
Subject Corporation and the Acquiring Corporation are hereinafter referred to,
collectively, as the "Corporations".
WITNESSETH:
WHEREAS, the authorized capital of the Subject Corporation is $163,333,100,
consisting of (a) 70,000,000 shares of Common Stock, par value $.33 1/3 per
share ("Subject Corporation Common Stock"), of which 49,993,378 shares are
issued and outstanding (which number of issued and outstanding shares is
subject to change prior to the Effective Time (as hereinafter defined) of the
Exchange pursuant to the dividend reinvestment and stock purchase plan
("Dividend Reinvestment Plan") and the Employee Savings Plan, Discount Stock
Purchase Plan for Employees and Long-Term Performance Incentive Compensation
Plan (each an "Employee Plan" and collectively the "Employee Plans") of the
Subject Corporation, (b) 900,000 shares of Cumulative Preferred Stock, par
value $100 per share ("Subject Corporation $100 Preferred Stock"), of which
69,000 shares are issued and outstanding in one series designated "4.60%
Cumulative Preferred Stock, Series B, $100 par value", and (c) 2,000,000
shares of Cumulative Preferred Stock, par value $25 per share ("Subject
Corporation $25 Preferred Stock"), of which no shares are issued and
outstanding;
WHEREAS, the Acquiring Corporation is a wholly-owned subsidiary of the
Subject Corporation with authorized capital stock consisting of 70,000,000
shares of Common Stock, par value $.33 1/3 per share ("Acquiring Corporation
Common Stock"), of which 10 shares are issued and outstanding and owned by the
Subject Corporation;
WHEREAS, the Boards of Directors of the Corporations deem it desirable and
in the best interests of the Corporations and the shareholders of the Subject
Corporation that, at the Effective Time, (a) the Acquiring Corporation acquire
and become the owner and holder of each share of Subject Corporation Common
Stock issued and outstanding at the Effective Time, (b) each share of Subject
Corporation Common Stock issued and outstanding immediately prior to the
Effective Time be automatically exchanged for one share of Acquiring
Corporation Common Stock, and (c) each holder of shares of Subject Corporation
Common Stock issued and outstanding immediately prior to the Effective Time
becomes the holder of a like number of shares of Acquiring Corporation Common
Stock, all on the terms and conditions hereinafter set forth; and
WHEREAS, the Boards of Directors of the Corporations have each approved and
adopted this Agreement, and the Board of Directors of the Subject Corporation
has recommended that the shareholders of the Subject Corporation approve and
adopt the Exchange and this Agreement pursuant to Section 913 of the New York
Business Corporation Law (the "BCL").
NOW, THEREFORE, the Corporations hereby agree as follows:
ARTICLE I
The Exchange and this Agreement shall be submitted to the holders of Subject
Corporation Common Stock for approval and adoption as provided by Section 913
of the BCL. The affirmative vote of the holders of at least two-thirds of the
issued and outstanding Subject Corporation Common Stock shall be necessary to
approve and adopt the Exchange and this Agreement.
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ARTICLE II
Subject to the terms and conditions of this Agreement, the Exchange shall
become effective immediately following the close of business on the date of
filing with the New York Department of State (the "Department of State") of a
certificate of exchange pursuant to Section 913(d) of the BCL ("Certificate"),
or at such later time and date as may be stated in the Certificate (the time
and date at and on which the Exchange becomes effective being referred to
herein as the "Effective Time").
ARTICLE III
A. At the Effective Time:
(1) each share of Subject Corporation Common Stock issued and outstanding
immediately prior to the Effective Time shall be automatically exchanged
for one share of Acquiring Corporation Common Stock, which shares shall be
fully paid and nonassessable by the Acquiring Corporation;
(2) the Acquiring Corporation shall acquire and become the owner and
holder of each issued and outstanding share of Subject Corporation Common
Stock so exchanged;
(3) each share of Acquiring Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled and
shall thereupon constitute an authorized and unissued share of Acquiring
Corporation Common Stock;
(4) each share of Subject Corporation Common Stock held under the
Dividend Reinvestment Plan or an Employee Plan (including fractional and
uncertificated shares) immediately prior to the Effective Time shall be
automatically exchanged for a like number of shares (including fractional
and uncertificated shares) of Acquiring Corporation Common Stock, which
shares shall be held under and pursuant to the Dividend Reinvestment Plan
or be issued under such Employee Plan, as the case may be, as hereinafter
provided;
(5) each unexpired and unexercised option to purchase Subject Corporation
Common Stock ("Subject Corporation Stock Option") under the Long-Term
Performance Incentive Compensation Plan (the "Incentive Plan"), whether
vested or unvested, will be automatically converted into an option
(a "Substitute Option") to purchase a number of shares of Acquiring
Corporation Common Stock equal to the number of shares of Subject
Corporation Common Stock that could have been purchased immediately prior
to the Effective Time (assuming full vesting) under such Subject
Corporation Stock Option, at a price per share of Acquiring Corporation
Common Stock equal to the per share option exercise price specified in such
Subject Corporation Stock Option. In accordance with Section 424(a) of the
Internal Revenue Code of 1986, as amended, each Substitute Option shall
provide the option holder with rights and benefits that are no less and no
more favorable to him than were provided under the Subject Corporation
Stock Option; and
(6) the former holders of Subject Corporation Common Stock shall be
entitled only to receive shares of Acquiring Corporation Common Stock in
exchange therefor as provided in this Agreement; provided, however, that
each such shareholder complying with Sections 623 and 910 of the BCL shall
have the right to receive payment of the fair value of such shareholder's
Subject Corporation Common Stock and shall have the other rights and
benefits provided in such Sections.
B. Shares of Subject Corporation $100 Preferred Stock and Subject
Corporation $25 Preferred Stock shall not be exchanged or otherwise affected
by or in connection with the Exchange. Each share of Subject Corporation $100
Preferred Stock issued and outstanding immediately prior to the Effective Time
shall continue to be issued and outstanding following the Exchange and shall
continue to be one share of Subject Corporation $100 Preferred Stock of the
applicable series designation.
C. Prior to the Effective Time, the Acquiring Corporation's Certificate of
Incorporation shall be amended and restated as set forth as Attachment 1 to
this Agreement.
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D. As of the Effective Time, the Acquiring Corporation shall succeed to the
Dividend Reinvestment Plan as in effect immediately prior to the Effective
Time, and the Dividend Reinvestment Plan shall be appropriately modified to
provide for the issuance or delivery of Acquiring Corporation Common Stock on
and after the Effective Time pursuant thereto.
E. As of the Effective Time, (1) the Employee Plans shall be appropriately
amended to provide for the issuance or delivery of Acquiring Corporation
Common Stock, and the Acquiring Corporation shall agree to issue or deliver
Acquiring Corporation Common Stock, and (2) the Incentive Plan shall also be
appropriately amended to provide for the issuance of options by the Acquiring
Corporation to purchase Acquiring Corporation Common Stock, in each case on
and after the Effective Time pursuant thereto.
ARTICLE IV
A. The filing of the Certificate with the Department of State and the
consummation of the Exchange shall be subject to satisfaction of the following
conditions at or prior to the Effective Time:
(1) the affirmative vote of the holders of Subject Corporation Common
Stock provided for in Article I of this Agreement shall have been received;
(2) such orders, authorizations, approvals or waivers from the New York
Public Service Commission and all other jurisdictive regulatory bodies,
boards or agencies required to consummate the Exchange and related
transactions shall have been received, shall remain in full force and
effect, and shall not include, in the sole judgment of the Board of
Directors of the Subject Corporation, unacceptable conditions;
(3) the Acquiring Corporation Common Stock to be issued in connection
with the Exchange shall have been listed, subject to official notice of
issuance, by the New York Stock Exchange; and
(4) the Restated Certificate of Incorporation of the Acquiring
Corporation shall have been filed with the Department of State.
B. Simultaneously with the Effective Time, the Acquiring Corporation shall
file an exemption statement on Form U-3A-2 with the Securities and Exchange
Commission for the purpose of exempting it and each of its subsidiaries as
such from all provisions of the Public Utility Holding Company Act of 1935
(except Section 9(a)(2) thereof).
ARTICLE V
Following the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Subject Corporation Common
Stock may, but shall not be required to, surrender the same to the Acquiring
Corporation's Transfer Agent for cancellation and reissuance of a new
certificate or certificates in such holder's name or for cancellation and
transfer, and each such holder or transferee shall be entitled to receive a
certificate or certificates representing the same number of shares of
Acquiring Corporation Common Stock as the shares of Subject Corporation Common
Stock previously represented by the certificate or certificates surrendered.
Until so surrendered or presented for exchange or transfer, each outstanding
certificate which, immediately prior to the Effective Time, represents Subject
Corporation Common Stock shall be deemed and shall be treated for all purposes
to represent the ownership of the same number of shares of Acquiring
Corporation Common Stock as though such surrender or exchange or transfer had
taken place. The holders of Subject Corporation Common Stock at the Effective
Time shall have no right at and after the Effective Time to have their shares
of Subject Corporation Common Stock transferred on the stock transfer books of
the Subject Corporation (such stock transfer books being deemed closed for
this purpose at the Effective Time), and at and after the Effective Time such
stock transfer books may be deemed to be the stock transfer books of the
Acquiring Corporation.
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ARTICLE VI
A. This Agreement may be amended, modified or supplemented, or compliance
with any provision hereof may be waived, at any time prior to the Effective
Time (including, without limitation, after receipt of the affirmative vote of
holders of Subject Corporation Common Stock as provided in Article IV(1)
hereof), by the mutual consent of the Boards of Directors of the Subject
Corporation and the Acquiring Corporation at any time prior to the Effective
Time; provided, however, that no such amendment, modification, supplement or
waiver shall be made or effected if such amendment, modification, supplement
or waiver would, in the sole judgment of the Board of Directors of the Subject
Corporation, materially and adversely affect the shareholders of the Subject
Corporation.
B. This Agreement may be terminated and the Exchange and related
transactions abandoned, at any time prior to the Effective Time (including,
without limitation, after receipt of the affirmative vote of holders of
Subject Corporation Common Stock as provided in Article IV(1) hereof), if the
Board of Directors of the Subject Corporation determines, in its sole
judgment, that consummation of the Exchange would for any reason be
inadvisable or not in the best interests of the Subject Corporation or its
shareholders.
IN WITNESS WHEREOF, each of the Corporations, pursuant to authorization and
approval given by its Board of Directors, has caused this Agreement to be
executed as of the date first above written.
The Brooklyn Union Gas Company
/s/ Craig G. Matthews
By: _________________________________
Craig G. Matthews
President and Chief Operating
Officer
KeySpan Energy Corporation
/s/ Robert B. Catell
By: _________________________________
Robert B. Catell
Chairman, President and Chief
Executive Officer
A-4
<PAGE>
EXHIBIT B
(ATTACHMENT 1 TO THE EXCHANGE AGREEMENT)
RESTATED CERTIFICATE OF INCORPORATION
OF
KEYSPAN ENERGY CORPORATION
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
The undersigned, being the Chairman and the Secretary of KeySpan Energy
Corporation, a New York corporation, hereby certify that:
FIRST. The name of the Corporation is KeySpan Energy Corporation.
SECOND. The Certificate of Incorporation of the Corporation was filed by the
Department of State on June 25, 1996.
THIRD. The Certificate of Incorporation of the Corporation is amended or
changed to effect one or more amendments or changes authorized by the Business
Corporation Law of the State of New York, namely: to increase the number of
shares of Common Stock which the Corporation has authority to issue from
seventy million (70,000,000) to two hundred and ten million (210,000,000); to
authorize a class of ten million (10,000,000) shares of Preferred Stock, with
a par value of $1.00 per share; to provide that no holder of Common Stock or
Preferred Stock shall be entitled as a matter of right to any preemptive
rights as now or hereafter provided by the laws of the State of New York; to
provide that, except as may be required by law or as may be provided by the
Board of Directors in respect of any particular series of Preferred Stock, all
voting rights of the Corporation shall be vested exclusively in the holders of
Common Stock who shall have one vote per share on all matters; to provide for
the adoption, amendment or repeal of By-Laws by the Board of Directors; to
provide for the calling of special meetings of shareholders; to provide for
the size of the Board of Directors to be fixed by or pursuant to the By-Laws,
the Board of Directors to be classified into three classes, filling vacancies
on the Board of Directors, and removal of directors; to provide for two-thirds
voting in respect of amending certain provisions of the Certificate of
Incorporation; and to provide for two-thirds voting in respect of amending,
repealing or adopting certain By-Laws by action of the Board of Directors or
the shareholders.
The text of the Certificate of Incorporation is hereby restated as so
amended or changed to read as follows:
1. The name of the corporation shall be KeySpan Energy Corporation (the
"Corporation").
2. The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under the Business
Corporation Law of the State of New York; provided that the Corporation is not
formed to engage in any act or activity which requires the consent or approval
of any state official, department, board, agency or other body, without such
consent or approval first being obtained.
3. The office of the Corporation in the State of New York is to be located
in the City of New York, County of Kings.
4. The aggregate number of shares which the Corporation shall have authority
to issue is (a) two hundred and ten million (210,000,000) shares of Common
Stock, with a par value of $.33 1/3 per share (the "Common Stock"), and ten
million (10,000,000) shares of Preferred Stock, with a par value of $1.00 per
share (the "Preferred Stock").
The relative rights, preferences and limitations of the shares of such
classes of stock are as follows:
A. The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series of Preferred Stock, and the Board of
Directors is expressly authorized, prior to issuance, in the
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resolution or resolutions providing for the issue of shares of each particular
series, to establish and designate each particular series and to fix the
rights, preferences and limitations of each particular series, and the
relative rights, preferences and limitations between series, as follows:
(i) The distinctive serial designation of such series which shall dis-
tinguish it from other series;
(ii) The number of shares included in such series, which number may be
increased or decreased from time to time unless otherwise provided by the
Board of Directors in creating such series;
(iii) The annual or other dividend rate or rates (or method of determin-
ing such rate or rates) for shares of such series and the date or dates
upon which such dividends shall be payable;
(iv) Whether dividends on the shares of such series shall be cumulative,
and, in the case of shares of any series having cumulative dividend
rights, the date or dates (or method for determining such date or dates)
from which dividends on the shares of such series shall be cumulative;
(v) The amount or amounts which shall be paid out of the assets of the
Corporation to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation;
(vi) The price or prices (cash or otherwise) at which, the period or pe-
riods within which and the terms and conditions upon which the shares of
such series may be purchased, redeemed or acquired (by exchange or other-
wise), in whole or in part, at the option of the Corporation;
(vii) Provision or provisions, if any, for the Corporation to purchase,
redeem or acquire (by exchange or otherwise), in whole or in part, shares
of such series pursuant to a sinking or other similar fund, and the price
or prices (cash or otherwise) at which, the period or periods within which
and the terms and conditions upon which the shares of such series shall be
so purchased, redeemed or acquired, in whole or in part, pursuant to such
provision or provisions;
(viii) The period or periods within which and the terms and conditions,
if any, including the price or prices or the rate or rates of conversion
or exchange and the terms and conditions of any adjustments thereof, upon
which the shares of such series shall be convertible or exchangeable at
the option of the holder or the Corporation or both into shares of any
class of stock or into shares of any other series of Preferred Stock, ex-
cept into shares having rights or preferences as to dividends or the dis-
tribution of assets upon liquidation, dissolution or winding up of the
Corporation which are prior or superior in rank to those of the shares be-
ing converted or exchanged;
(ix) The voting rights, if any, of the shares of such series in addition
to those required by law, including the number of votes per share (which
may be fractional or more or less than one) and any requirement for the
approval by the holders of up to two-thirds of the shares of Preferred
Stock, or of the shares of one or more series, or of both, as a condition
to specified corporate action or amendments to the Certificate of Incorpo-
ration; and
(x) Any other relative rights, preferences or limitations of the shares
of such series not inconsistent herewith or with applicable law.
B. All issued and outstanding series of Preferred Stock (i) shall rank prior
or superior to the Common Stock in respect of the right to receive dividends
and the right to receive payments out of the assets of the Corporation upon
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, (ii) shall be of equal rank, regardless of series, and (iii)
shall be identical in all respects except as provided in paragraph A of this
Article 4. The shares of any particular series of the Preferred Stock shall be
identical with each other in all respects except as to the date from and after
which dividends thereupon shall be cumulative or accrue if declared. In case
dividends or amounts payable on liquidation, dissolution or winding up of the
Corporation are not paid in full on the Preferred Stock, the shares of all
series of the Preferred Stock shall share ratably in the payment of dividends,
including accumulations, if any, in accordance with the sums which would be
payable on such shares if all dividends were declared and paid in full, and in
any distribution of assets other than by way of dividends in
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accordance with the sums which would be payable on such distributions if all
sums payable were discharged in full. All Preferred Stock redeemed, purchased
or otherwise acquired by the Corporation (including shares surrendered for
conversion or exchange or acquired by conversion or exchange or otherwise)
shall be cancelled and thereupon restored to the status of authorized and
unissued shares of Preferred Stock undesignated as to series.
C. No holder of shares of the Corporation of any class or series, now or
hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive, or have any preferential or preemptive
right with respect to, any shares of the Corporation of any class or series
whatsoever, now or hereafter authorized, or any options or warrants for any
such shares, or any rights to subscribe for or purchase any such shares, or
any securities convertible into or exchangeable for any such shares
whatsoever, whether now or hereafter authorized and whether issued for cash or
other consideration or by way of dividend or otherwise, which may at any time
be issued, sold, delivered or offered by the Corporation.
D. Except as may from time to time be required by law and except as
otherwise may be provided by the Board of Directors in accordance with
paragraph A of this Article 4 in respect of any particular series of Preferred
Stock, all voting rights of the Corporation shall be vested exclusively in the
holders of the Common Stock who shall be entitled to one vote per share on all
matters.
5. The Secretary of State of the State of New York is designated as the
agent of the Corporation upon whom any process in any action or proceeding
against it may be served. The post office address to which the Secretary of
State shall mail a copy of any such process served upon him is Cullen and
Dykman, 177 Montague Street, Brooklyn, New York 11201-3611, Attention: Lance
Myers, Esq.
6. No director of the Corporation shall have personal liability to the
Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that the foregoing shall not eliminate or limit the
liability of any director if a judgment or other final adjudication adverse to
such director establishes that such director's acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
such director personally gained in fact a financial profit or other advantage
to which such director was not legally entitled or that such director's act
violated Section 719 of the Business Corporation Law of New York. No amendment
to or repeal of this Article 6 shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal. If the Business Corporation Law of New York is amended
hereafter to expand or limit the liability of a director, then the liability
of a director of the Corporation shall be expanded to the extent required or
limited to the extent permitted by the Business Corporation Law of New York,
as so amended.
7. Subject to the voting provisions of Article 11, By-Laws may be adopted,
amended or repealed by the Board of Directors by the vote of a majority of the
directors present at a meeting of the Board at which a quorum is present.
8. Subject to the rights of holders of any class or series of stock, now or
hereafter authorized, ranking prior or superior to the Common Stock in respect
of the right to receive dividends or the right to receive payments out of the
assets of the Corporation upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation with respect to such class or
series of stock, special meetings of shareholders may be called only by the
Chairman or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies.
9. The following provisions shall relate to the Board of Directors of the
Corporation:
A. The size of the Board of Directors shall be fixed by or pursuant to the
By-Laws. The Board of Directors shall be divided into three classes designated
Class I, Class II and Class III. Such classes shall be as nearly equal in
number as the then total number of directors constituting the entire Board
permits. At the first annual meeting of shareholders, or any special meeting
in lieu thereof, Class I, Class II and Class III directors shall be elected
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for terms expiring at the next succeeding annual meeting, the second succeeding
annual meeting and the third succeeding annual meeting, respectively, and until
their respective successors are elected and qualified. At each annual meeting
of shareholders after such first annual (or special) meeting of shareholders,
the directors chosen to succeed those in the class whose terms then expire
shall be elected by shareholders for terms expiring at the third succeeding
annual meeting after election, or for such lesser term for which one or more
may be nominated in a particular case in order to assure that the number of
directors in each class shall be appropriately constituted, and until their
respective successors are elected and qualified. Newly created directorships or
any decrease in directorships resulting from increases or decreases in the
number of directors shall be so apportioned among the classes of directors as
to make all the classes as nearly equal in number as possible. Vacancies on the
Board of Directors at any time for any reason except the removal of directors
without cause may be filled by a majority of the directors then in office,
although less than a quorum.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of stock (other than the Common Stock), now or hereafter
authorized, shall have the right, voting separately or by class or series, to
elect directors at an annual or special meeting of shareholders, the election,
term of office, filling of vacancies and other features of such directorships
shall be governed by any provisions of the Certificate of Incorporation
applicable thereto, and such directors so elected shall not be divided into one
or more classes pursuant to this Article 9A unless expressly provided by such
provisions.
B. Directors may be removed for cause by a vote of shareholders entitled to
vote thereon, or by action of the Board of Directors. Directors shall not be
removed without cause by shareholders, except in the case of a director elected
by the holders of any class or series (other than the Common Stock), now or
hereafter authorized, voting as a class or series, when so entitled by the
provisions of the Certificate of Incorporation applicable thereto.
10. In addition to any vote that may be required by law or in the Certificate
of Incorporation in respect of any class or series of stock, now or hereafter
authorized, ranking prior or superior in right of payment to the Common Stock
in respect of the right to receive dividends or the right to receive payments
out of the assets of the Corporation upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the provisions of
Articles 4C, 6, 7, 8, 9, 10 and 11 of the Certificate of Incorporation shall
not be amended or repealed, or a new provision adopted inconsistent therewith,
without the affirmative vote of not less than two-thirds of the shares entitled
to vote thereon at such annual or special meeting of shareholders at which any
such action is proposed.
11. Except as otherwise provided in the Certificate of Incorporation in
respect of any class or series of stock, now or hereafter authorized, ranking
prior or superior in right of payment to the Common Stock in respect of the
right to receive dividends or the right to receive payments out of the assets
of the Corporation upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the By-Laws of the Corporation may be amended
or repealed, or new By-Laws may be adopted, either (a) by a vote of
shareholders entitled to vote at any annual or special meeting of shareholders,
or (b) by a vote of the majority of the entire Board of Directors at any
regular or special meeting of directors; provided, however, that any amendment
or repeal of, or the adoption of any new By-Law or provision inconsistent with,
Article I (Section 1.2--"Special Meetings", 1.4--"Presiding at Meetings" or
1.12--"Notice of Shareholder Business and Nominations"), Article II (Section
2.1--"Number of Directors", 2.2--"Elections, Terms and Vacancies" or 2.9--
"Removal of Directors"), Article VI--"Indemnification", or Article VIII--
"Amendments to By-Laws" of the By-Laws, if by action of such shareholders,
shall be only upon the affirmative vote of not less than two-thirds of the
shares entitled to vote thereon at such annual or special meeting of
shareholders at which any such action is proposed and, if by action of the
Board of Directors, shall be only upon the approval of not less than two-thirds
of the entire Board of Directors at any regular or special meeting of
directors.
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FOURTH. The foregoing Restated Certificate of Incorporation was authorized
by the Board of Directors of the Corporation by unanimous written consent
dated December 18, 1996, followed by the unanimous written consent of the
shareholder of the Corporation dated December 18, 1996.
IN WITNESS WHEREOF, the undersigned have subscribed this Restated
Certificate of Incorporation and affirm the statements contained herein as
true under the penalties of perjury this day of , 1997.
KeySpan Energy Corporation
By __________________________________
Robert B. Catell
Chairman, President and Chief
Executive Officer
By __________________________________
Robert R. Wieczorek
Vice President, Secretary and
Treasurer
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EXHIBIT C
SECTIONS 623 AND 910
OF THE NEW YORK BUSINESS CORPORATION LAW
623 PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES.--(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate
action referred to therein is taken shall file with the corporation, before
the meeting of shareholders at which the action is submitted to a vote, or at
such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares if the action is
taken. Such objection is not required from any shareholder to whom the
corporation did not give notice of such meeting in accordance with this
chapter or where the proposed action is authorized by written consent of
shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not
to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he
dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied by the
return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the shareholder
is not entitled to receive payment for his shares, or the shareholder shall
otherwise lose his dissenter's rights, he shall not have the right to receive
payment for his shares and he shall be reinstated to all his rights as a
shareholder as of the consummation of the corporate action, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
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<PAGE>
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates for
such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer of
a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares
at a specified price which the corporation considers to be their fair value.
Such offer shall be accompanied by a statement setting forth the aggregate
number of shares with respect to which notices of election to dissent have
been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the
certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment
or statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute
a waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or, if
the corporation was not in existence throughout such twelve month period, for
the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were
furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon
the price to be paid for his shares, payment therefor shall be made within
sixty days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of dis-
senting shareholders and to fix the fair value of their shares. If, in the
case of merger or consolidation, the surviving or new corporation is
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<PAGE>
a foreign corporation without an office in this state, such proceeding
shall be brought in the county where the office of the domestic corpora-
tion, whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such pro-
ceeding for the same purpose not later than thirty days after the expira-
tion of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The corpo-
ration shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner pro-
vided by law for the service of a summons, and upon each nonresident dis-
senting shareholder either by registered mail and publication, or in such
other manner as is permitted by law. The jurisdiction of the court shall
be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is en-
titled to receive payment for his shares. If the corporation does not re-
quest any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value
as of the close of business on the day prior to the shareholders' authori-
zation date. In fixing the fair value of the shares, the court shall con-
sider the nature of the transaction giving rise to the shareholder's right
to receive payment for shares and its effects on the corporation and its
shareholders, the concepts and methods then customary in the relevant se-
curities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable circum-
stances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is
a party to the proceeding, the court may, in its discretion, permit pre-
trial disclosure, including, but not limited to, disclosure of any ex-
pert's reports relating to the fair value of the shares whether or not in-
tended for use at the trial in the proceeding and notwithstanding subdivi-
sion (d) of section 3101 of the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the cor-
poration in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so deter-
mined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of in-
terest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees in-
curred by the corporation against any or all of the dissenting sharehold-
ers who are parties to the proceeding, including any who have withdrawn
their notices of election as provided in paragraph (e), if the court finds
that their refusal to accept the corporate offer was arbitrary, vexatious
or otherwise not in good faith. The court may, in its discretion, appor-
tion and assess all or any part of the costs, expenses and fees incurred
by any or all of the dissenting shareholders who are parties to the pro-
ceeding against the corporation if the court finds any of the following:
(A) that the fair value of the shares as determined materially exceeds the
amount which the corporation offered to pay; (B) that no offer or required
advance payment was made by the corporation; (C) that the corporation
failed to institute the special proceeding within the period specified
therefor; or (D) that the action of the corporation in complying with its
obligations as provided in this section was arbitrary, vexatious or other-
wise not in good faith. In making any determination as provided in
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<PAGE>
clause (A), the court may consider the dollar amount or the percentage, or
both, by which the fair value of the shares as determined exceeds the cor-
porate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to
be due him, upon surrender of the certificate for any such shares repre-
sented by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the corpora-
tion, but have rights superior to the non-dissenting shareholders, and if
it is not liquidated, retain his right to be paid for his shares, which
right the corporation shall be obliged to satisfy when the restrictions of
this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under subpara-
graph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that pay-
ment for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice
given to him within twenty days after the expiration of such period of
thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except
that this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
910 RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR
SHARE EXCHANGE.--(a) A shareholder of a domestic corporation shall, subject to
and by complying with section 623 (Procedure to enforce shareholder's right to
receive payment for shares), have the right to receive payment of the fair
value of his shares and the other rights and benefits provided by such
section, in the following cases:
(1) any shareholder entitled to vote who does not assent to the taking of an
action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a party;
except that the right to receive payment of the fair value of his shares shall
not be available:
(i) To a shareholder of the parent corporation in a merger authorized by
section 905 (Merger of parent and subsidiary corporations), or paragraph
(c) of section 907 (Merger or consolidation of domestic and foreign corpo-
rations); and
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<PAGE>
(ii) To a shareholder of the surviving corporation in a merger autho-
rized by this article, other than a merger specified in subparagraph (i),
unless such merger effects one or more of the changes specified in subpar-
agraph (b)(6) of section 806 (Provisions as to certain proceedings) in the
rights of the shares held by such shareholder.
(B) Any sale, lease, exchange or other disposition of all or substantially
all of the assets of a corporation which requires shareholder approval under
section 909 (Sale, lease, exchange or other disposition of assets) other than a
transaction wholly for cash where the shareholders' approval thereof is
conditioned upon the dissolution of the corporation and the distribution of
substantially all its net assets to the shareholders in accordance with their
respective interests within one year after the date of such transaction.
(C) Any share exchange authorized by section 913 in which the corporation is
participating as a subject corporation; except that the right to receive
payment of the fair value of his shares shall not be available to a shareholder
whose shares have not been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in a merger authorized by
section 905 or paragraph (c) of section 907, or in a share exchange authorized
by paragraph (g) of section 913, who files with the corporation a written
notice of election to dissent as provided in paragraph (c) of section 623.
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<PAGE>
IMPORTANT
THE INTEREST AND COOPERATION OF ALL SHAREHOLDERS IN THE AFFAIRS OF THE
BROOKLYN UNION GAS COMPANY ARE CONSIDERED TO BE OF THE GREATEST IMPORTANCE
BY YOUR MANAGEMENT. EVEN THOUGH YOU EXPECT TO ATTEND THE ANNUAL MEETING,
IT IS URGENTLY REQUESTED THAT, WHETHER YOUR COMMON STOCK SHARE HOLDINGS
ARE LARGE OR SMALL, YOU PROMPTLY FILL IN, DATE, SIGN AND RETURN THE
ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED HEREWITH. IF YOU DO ATTEND
AND VOTE AT THE ANNUAL MEETING, THAT VOTE WILL SUPERSEDE ANY EARLIER VOTE
BY PROXY.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Indemnification. Pursuant to Article 6 of KeySpan's restated certificate
of incorporation, no director of KeySpan shall have personal liability to
KeySpan or its shareholders for damages for any breach of duty in such
capacity, except for the liability of any director for acts or omissions in
bad faith or involving intentional misconduct or a knowing violation of law,
or if such director personally gained in fact a financial profit or other
advantage to which such director was not legally entitled, or if such
director's act violated Section 719 of the New York Business Corporation Law.
Any amendment or repeal of such Article 6 may not apply to or have any effect
on the liability or alleged liability of any director of KeySpan for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
Article VII, Section 1 of KeySpan's by-laws provides that KeySpan shall
indemnify to the full extent permitted by law any person made, or threatened
to be made, a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer or
employee of KeySpan, or serves or served at the request of KeySpan with any
other enterprise as a director, officer or employee; expenses incurred by any
such person in defending any such action, suit or proceeding shall be paid or
reimbursed by KeySpan promptly upon receipt by it of an undertaking of such
person to repay such expenses if it shall ultimately be determined that such
person is not entitled to be indemnified by KeySpan. No amendment of this by-
law provision shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment. In addition, KeySpan
intends to enter into indemnification agreements with its officers and
directors which provide for indemnification to the maximum extent permitted by
law. These agreements will set forth certain procedures for the advancement by
KeySpan of certain expenses to indemnities.
(b) Insurance. KeySpan (with respect to indemnification liability) and its
directors and officers (in their capacities as such) are insured against
liability for wrongful acts (to the extent defined) under insurance policies.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
2(a) Agreement and Plan of Exchange (attached to Prospectus/Proxy Statement
as Exhibit A).
3(a) Restated Certificate of Incorporation of KeySpan Energy Corporation
(attached to Prospectus/Proxy Statement as Exhibit B).
3(b) By-Laws of KeySpan Energy Corporation.
3(c) Restated Certificate of Incorporation of The Brooklyn Union Gas
Company, as amended.
3(d) By-Laws of The Brooklyn Union Gas Company.
5(a) Opinion of Cullen and Dykman.
5(b) Opinion of Sullivan & Cromwell.
8 Opinion of Sullivan & Cromwell.
23(a) Consent of Cullen and Dykman (included in Exhibit 5(a)).
23(b) Consents of Sullivan & Cromwell (included in Exhibits 5(b) and 8).
23(c) Consent of Arthur Andersen LLP.
99(a) Form of Proxy Card and reminder letter.
99(b) Consents of persons to become directors of KeySpan Energy Corporation
at the effective time of the share exchange.
</TABLE>
(b) The financial statement schedules are incorporated by reference from
Brooklyn Union's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
(4) To remove from registration by means of a post-effective amendment
any shares of KeySpan common stock which are not issued in the share
exchange.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20, or otherwise
(other than by insurance), the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
under insurance policies and other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK ON THIS 16TH DAY OF DECEMBER, 1996.
KEYSPAN ENERGY CORPORATION
By: /s/ Robert B. Catell
----------------------------------
NAME:ROBERT B. CATELL
TITLE:Chairman, President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED, ON DECEMBER 16, 1996
SIGNATURE TITLE
/s/ Robert B. Catell Chairman, President, Chief Executive
- ------------------------------------- Officer, and Director
ROBERT B. CATELL
/s/ Vincent D. Enright Senior Vice President, Chief
- ------------------------------------- Financial Officer and Chief
VINCENT D. ENRIGHT Accounting Officer
II-3
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, and to all references to our Firm, included in or made part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
December 16, 1996
New York, New York
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ------
<C> <S> <C>
2(a) Agreement and Plan of Exchange (attached to Prospectus/Proxy
Statement as Exhibit A).
3(a) Restated Articles of Incorporation of KeySpan Energy
Corporation (attached to Prospectus/Proxy Statement as
Exhibit B).
3(b) By-Laws of KeySpan Energy Corporation.
3(c) Restated Certificate of Incorporation of The Brooklyn Union
Gas Company, as amended.
3(d) By-Laws of The Brooklyn Union Gas Company.
5(a) Opinion of Cullen and Dykman.
5(b) Opinion of Sullivan & Cromwell.
8 Opinion of Sullivan & Cromwell.
23(a) Consent of Cullen and Dykman (included in Exhibit 5(a)).
23(b) Consents of Sullivan & Cromwell (included in Exhibits 5(b)
and 8).
23(c) Consent of Arthur Andersen LLP.
99(a) Form of Proxy Card and reminder letter.
99(b) Consents of persons to become directors of the Keyspan Energy
Corporation at the effective time of the share exchange.
</TABLE>
<PAGE>
EXHIBIT 3(b)
KEYSPAN ENERGY CORPORATION
BY-LAWS
__________, 1996
BROOKLYN, NEW YORK
<PAGE>
KEYSPAN ENERGY CORPORATION
INDEX
PAGE
- ---------------------------
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1 Annual Meetings.......................... 1
Section 1.2 Special Meetings......................... 1
Section 1.3 Place of Meetings........................ 1
Section 1.4 Presiding at Meetings.................... 1
Section 1.5 Quorum................................... 1
Section 1.6 Adjournment.............................. 2
Section 1.7 Notice of Meetings....................... 2
Section 1.8 Waiver and Consent....................... 2
Section 1.9 Fixing Record Date....................... 3
Section 1.10 List of Shareholders at Meetings......... 3
Section 1.11 Proxies.................................. 3
Section 1.12 Notice of Shareholder Business
and Nominations.......................... 4
Section 1.13 Inspectors of Elections.................. 7
Section 1.14 Vote of Shareholders..................... 7
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number of Directors...................... 8
Section 2.2 Elections, Terms and Vacancies........... 8
Section 2.3 Meetings of the Board.................... 9
Section 2.4 Notice and Adjournment................... 9
Section 2.5 Fiscal Year.............................. 9
Section 2.6 Quorum................................... 9
Section 2.7 Unanimous Written Consent................... 10
Section 2.8 Resignation of Directors.................... 10
Section 2.9 Removal of Directors........................ 10
Section 2.10 Compensation of Directors................... 10
Section 2.11 Time and Place of Meetings.................. 10
Section 2.12 Special Meetings............................ 10
Section 2.13 Telephonic Meetings......................... 10
ARTICLE III
COMMITTEES
Section 3.1 Organization and Authority.................. 11
Section 3.2 Executive Committee......................... 11
Section 3.3 Organization and Nominating Committee....... 11
Section 3.4 Audit Committee............................. 12
Section 3.5 Action by a Committee....................... 12
Section 3.6 Quorum...................................... 12
Section 3.7 Reports to Board of Directors............... 12
Section 3.8 Compensation of Committee Members........... 12
Section 3.9 Resignation and Removal of Committee
Members................................... 12
Section 3.10 Unanimous Written Consent................... 12
Section 3.11 Place of Committee Meetings................. 12
Section 3.12 Notice...................................... 13
<PAGE>
ARTICLE IV
OFFICERS AND THEIR DUTIES
Section 4.1 Officers.................................... 13
Section 4.2 Term of Office; Resignation;
Removal; Vacancies........................ 13
Section 4.3 Powers and Duties........................... 13
Section 4.4 Salaries.................................... 14
Section 4.5 Chairman.................................... 14
Section 4.6 Vice Chairman............................... 14
Section 4.7 President................................... 14
Section 4.8 Vice President.............................. 14
Section 4.9 Secretary................................... 15
Section 4.10 Treasurer................................... 15
Section 4.11 Comptroller................................. 15
ARTICLE V
SHARES
CERTIFICATED SHARES
Section 5.1 Certificates, Registrar and
Transfer Agent............................ 16
Section 5.2 Authorization of Facsimile Signatures
and Seal.................................. 16
Section 5.3 Transfer of Certificated Shares............ 16
Section 5.4 Lost, Stolen or Destroyed Share
Certificates.............................. 17
UNCERTIFICATED SHARES
Section 5.5 Uncertificated Shares...................... 17
Section 5.6 Transfer of Uncertificated Shares.......... 17
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Applicability....................... 18
Section 6.2 Scope of Indemnification.................... 18
Section 6.3 Other Indemnification Provisions............ 18
Section 6.4 Survival of Indemnification................. 19
Section 6.5 Inability to Limit Indemnification.......... 19
Section 6.6 Severability................................ 19
ARTICLE VII
OTHER MATTERS
Section 7.1 Books to be Kept............................ 20
Section 7.2 Interest of Directors and Officers
in Transactions........................... 20
Section 7.3 Corporate Seal.............................. 21
Section 7.4 When Notice or Lapse of Time Unnecessary.... 21
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 8.1 By Directors................................ 21
Section 8.2 By Shareholders............................. 21
<PAGE>
KEYSPAN ENERGY CORPORATION
(THE "COMPANY")
BY-LAWS
____________, 1996
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1.1 ANNUAL MEETINGS
The annual meeting of the shareholders of the Company shall be held at such
date and time as may be designated by the Board of Directors, during the month
of February or March of each year for the election of Directors or for any other
proper business which may be transacted at an annual meeting.
SECTION 1.2 SPECIAL MEETINGS
Subject to the rights of the holders of any series of stock having a
preference over the Common Stock of the Company as to dividends or upon
liquidation ("Preferred Stock") with respect to such series of Preferred Stock,
special shareholders' meetings may be called only by the Chairman or by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of Directors which the Company would have if there were no vacancies. At
any special meeting, only such business may be transacted which is related to
the purpose(s) set forth in the notice of such special meeting given pursuant to
Section 1.7 of these By-laws.
SECTION 1.3 PLACE OF MEETINGS
Shareholders' meetings shall be held at the principal office of the Company
or at such other place as designated from time to time by the Board of Directors
and stated in the notice of such meeting.
SECTION 1.4 PRESIDING AT MEETINGS
At all shareholders' meetings, the Chairman, the President or a Vice
President, shall act as Chairman of the meeting as provided for in Sections 4.5,
4.7 and 4.8 and the Secretary or Assistant Secretary shall act as Secretary of
the meeting as provided for in Section 4.9.
SECTION 1.5 QUORUM
Holders of a majority of the shares of the Company entitled to vote must be
present, in person or by proxy, at each shareholders' meeting to constitute a
quorum at such meeting, less than a majority, however, having the power to
adjourn. When a specified item of business is required to be voted on by a
class or series, voting as a class, the holders of a majority of the shares of
such class or series shall constitute a quorum for the transaction of
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such specified item of business. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any shareholders.
Except as may be provided by or pursuant to the Certificate of
Incorporation, at all shareholders' meetings each shareholder entitled to vote
shall be entitled to one vote for each share held by him or her, and may vote
and otherwise act either in person or by proxy, as provided for in Section 1.11.
SECTION 1.6 ADJOURNMENT
The Chairman of the meeting, or a majority of the shares so represented at
the meeting, may adjourn the meeting despite the absence of a quorum. When a
shareholders' meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under this
Section 1.6.
SECTION 1.7 NOTICE OF MEETINGS
Written notice of the date, time and place of every shareholders' meeting
shall be given personally, or by first class mail (not less than ten (10) nor
more than fifty (50) days before the date of the meeting) or by third class mail
(not less than twenty-four (24) nor more than fifty (50) days before the date of
the meeting) or as otherwise may be permitted by law, to each shareholder of
record as of the date fixed by the Board of Directors, pursuant to Section 1.9
hereof, and such other notice shall be given as may be required by law.
Notice of a special shareholders' meeting shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting and
shall state the purpose(s) for which the meeting is called.
If mailed, such notice shall be deemed given when deposited in the United
States mail, with postage thereon prepaid, directed to the shareholder at his or
her address as it appears on the shareholders' list, record, or, if he or she
shall have filed with the Secretary of the Company a written request that
notices to him or her be mailed to some other address, then directed to him or
her at such other address.
SECTION 1.8 WAIVER AND CONSENT
Notice of meeting need not be given to any shareholder who
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submits a signed waiver of notice, in person or by proxy, whether before or
after the meeting. The attendance of any shareholder at a meeting, in person or
by proxy, without objecting to the lack of notice of such meeting prior to the
conclusion of the meeting, shall constitute a waiver of notice by such
shareholder.
The transactions of any shareholders' meeting, however called and noticed,
are as valid as though had at a meeting duly held after regular call and notice,
if a quorum is present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not present in person
or by proxy, signs a written waiver of notice, or a consent to the holding of
the meeting, or an approval of the minutes thereof.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Executors, administrators,
guardians, trustees, and other fiduciaries entitled to vote shares may sign such
waivers, consents and approvals.
SECTION 1.9 FIXING RECORD DATE
For the purpose of determining the shareholders entitled to notice of or to
vote at any shareholders' meeting or any adjournment thereof, or for the purpose
of determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board of
Directors may fix, in advance, a date as the record date for any such
determination. Such date shall not be more than fifty (50) nor less than ten
(10) days before the date of such meeting, nor more than fifty (50) days before
the date of such action.
SECTION 1.10 LIST OF SHAREHOLDERS AT MEETINGS
A list of shareholders as of the record date, certified by the Secretary or
any Assistant Secretary or by a transfer agent, shall be produced at any
shareholders' meeting upon the request thereat or prior thereto of any
shareholder. If the right to vote at any meeting is challenged, the inspectors,
or the person presiding thereat, shall require such list of shareholders to be
produced as evidence of the right of the persons challenged to vote at such
meeting, and all persons who appear from such list to be shareholders entitled
to vote thereat may vote at such meeting.
SECTION 1.11 PROXIES
(a) Generally. Every person entitled to vote or execute consents shall
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have the right to do so either in person or by one or more agents authorized by
a written proxy executed by such person or his duly authorized agent and filed
with the Secretary of the Company. Any executor, administrator, guardian,
trustee or other fiduciary, may give proxies.
(b) Term of Proxies. A proxy is not valid after the expiration of eleven
---------------
(11) months from the date of its execution,
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unless the length of time for which such proxy is to continue in force is
otherwise specified therein, which in no case shall exceed seven (7) years from
the date of its execution.
(c) Revocation and Suspension of Proxies. Any proxy duly executed
-------------------------------------
continues in full force and effect and is not revoked until an instrument
revoking it, or until a duly executed proxy bearing a later date, is filed with
the Secretary of the Company. A proxy is not revoked by the death or incapacity
of the maker unless, before the vote is counted or the authority is exercised,
written notice of the death or incapacity is given to the Company.
Notwithstanding that a valid proxy is outstanding, if the person executing the
proxy is present at the meeting and elects to vote in person, then the powers of
the proxy holder are suspended, except in the case of a proxy coupled with an
interest (which states that fact on its face).
(d) Voting by Two or More Proxies. If any instrument of proxy designates
------------------------------
two or more persons to act as proxy, in the absence of any provision in the
proxy to the contrary, the persons designated may represent and vote the shares
in accordance with the vote or consent of the majority of the persons named as
such proxies. If only one such proxy is present, such proxy may vote all the
shares, and all the shares standing in the name of the principal(s) for whom
such proxy acts shall be deemed represented for the purpose of obtaining a
quorum. The foregoing provisions shall apply to the voting of shares by proxies
for any two or more administrators, executors, trustees, or other fiduciaries,
unless an instrument or order of court appointing them otherwise directs.
(e) Director's Determination of Execution and Use of Proxies. The Board of
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Directors may, in advance of any annual or special meeting of the shareholders,
prescribe additional regulations concerning the manner of execution and filing
of proxies and the validation of the same, which are intended to be voted at any
such meeting.
SECTION 1.12 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS
A. Annual Shareholders' Meetings
-----------------------------
(1) Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the shareholders may be
made at an annual shareholders' meeting (a) pursuant to the Company's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
shareholder of the Company who was a shareholder of record at the time of giving
of notice provided for in this Section 1.12 who is entitled to vote at the
meeting and who complies with the notice of procedures set forth in this Section
1.12.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of
this Section 1.12 of Article I, the shareholder
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must have given timely notice thereof in writing to the Secretary of the Company
and such other business must otherwise be a proper matter for shareholder
action. To be timely, a shareholder's notice shall be delivered to the
Secretary at the principal executive offices of the Company not later than the
close of business on the 60th day nor earlier than the close of business on the
90th day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, notice by
the shareholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and no later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Company. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the giving
of a shareholder's notice as described above. Such shareholder's notice shall
set forth (a) as to each person whom the shareholder proposes to nominate for
election or reelection as a Director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected); (b) as to any other business that the shareholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
shareholder, as they appear on the Company's books, and of such beneficial owner
and (ii) the class and number of shares of the Company which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 1.12 of Article I to the contrary, in the event that the number of
Directors to be elected to the Board of Directors of the Company is increased
and there is no public announcement by the Company naming all of the nominees
for Director or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by paragraph (A) of Section 1.12 of Article I
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Company not later than the close
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of business on the 10th day following the day on which such public announcement
is first made by the Company.
B. Special Shareholders' Meetings
------------------------------
Only such business shall be conducted at a special shareholders' meeting as
shall have been brought before the meeting pursuant to the Company's notice of
meeting. Nominations of persons for election to the Board of Directors may be
made at a special shareholders' meeting at which Directors are to be elected
pursuant to the Company's notice of meeting (a) by or at the direction of the
Board of Directors or (b) provided that the Board of Directors has determined
that Directors shall be elected at such meeting, by any shareholder of the
Company who is a shareholder of record at the time of giving of notice provided
for in this Section 1.12 who is entitled to vote at the meeting and who complies
with the notice procedures set forth in this Section 1.12. In the event the
Company calls a special shareholders' meeting for the purpose of electing one or
more Directors to the Board of Directors, any such shareholder may nominate a
person or persons (as the case may be), for election to such position(s) as
specified in the Company's notice of meeting, if the shareholder's notice
required by paragraph (A)(2) of this Section 1.12 of Article I shall be
delivered to the Secretary at the principal executive offices of the Company not
earlier than the close of business on the 90th day prior to such special meeting
and not later than the close of business on the later of the 60th day prior to
such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a shareholder's notice as described
above.
C. General
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(1) Only such persons who are nominated in accordance with the procedures
set forth in this Section 1.12 of Article I shall be eligible to serve as
Directors and only such business shall be conducted at a shareholders' meeting
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12 of Article I. Except as otherwise provided by
law, the Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12 of Article I and, if any proposed nomination or
business is not in compliance with this Section 1.12 of Article I, to declare
that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 1.12 of Article I, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with
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the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of
the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 1.12 of
Article I, a shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.12 of Article I. Nothing in this Section
1.12 of Article I shall be deemed to affect any rights (i) of shareholders to
request inclusion of proposals in the Company's proxy statement pursuant to Rule
14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred
Stock to elect Directors under specified circumstances.
SECTION 1.13 INSPECTORS OF ELECTIONS
Voting at shareholders' meetings need not be conducted by inspectors unless
a shareholder present in person or by proxy and entitled to vote at such meeting
so requests. The Board of Directors, in advance of any shareholders' meeting,
may appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
shareholders' meeting may, and on the request of any shareholder entitled to
vote thereat shall, appoint two inspectors. In case any person appointed fails
to appear or act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his or her ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them.
SECTION 1.14 VOTE OF SHAREHOLDERS
Subject to the rights of holders of any series of Preferred Stock,
Directors shall, except as otherwise required by law or by the Certificate of
Incorporation, be elected by a plurality of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote in the election. Subject
to the rights of holders of any series of Preferred Stock, whenever any
corporate action, other than the election of Directors, is to be taken by vote
of the
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shareholders, it shall, except as otherwise required by law or by the
Certificate of Incorporation, be authorized by a majority of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote thereon.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER OF DIRECTORS
The affairs of this Company shall be managed by no less than nine nor more
than twelve Directors as fixed by resolution adopted by a majority of the entire
Board.
SECTION 2.2 ELECTIONS, TERMS AND VACANCIES
The Board of Directors shall be divided into three classes designated Class
I, Class II and Class III. Such classes shall be as nearly equal in number as
the then total number of Directors constituting the entire Board permits. At the
first annual meeting of shareholders, or any special meeting in lieu thereof,
Class I, Class II and Class III Directors shall be elected for terms expiring at
the next succeeding annual meeting, the second succeeding annual meeting and the
third succeeding annual meeting, respectively, and until their respective
successors are elected and qualified. At each annual shareholders' meeting after
such first annual (or special) meeting of shareholders, the Directors chosen to
succeed those in the class whose terms then expire shall be elected by
shareholders for terms expiring at the third succeeding annual meeting after
election, or for such lesser term for which one or more may be nominated in a
particular case in order to assure that the number of Directors in each class
shall be appropriately constituted and until their respective successors are
elected and qualified. Newly created Directorships or any decrease in
Directorships resulting from increases or decreases in the number of Directors
shall be so apportioned among the classes of Directors as to make all the
classes as nearly equal in number as possible. Vacancies on the Board at any
time and for any reason except the removal of Directors without cause may be
filled by a majority of the Directors then in office, although less than a
quorum. A Director elected to fill a vacancy, unless elected by the
shareholders, shall hold office until the next meeting of shareholders at which
the election of Directors is in the regular order of business, and until his or
her successor has been elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Stock (other than the Common Stock) shall have the right,
voting separately by class or series, to elect Directors at an annual or special
shareholders' meeting, the election, term of office, filling of vacancies and
other features of such Directorships shall be governed by any terms of the
Certificate of Incorporation of the Company applicable thereto, and such
Directors so elected shall not be divided into classes
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pursuant to this Section 2.2 unless expressly provided by such terms.
SECTION 2.3 MEETINGS OF THE BOARD
An annual meeting of the Board of Directors shall be held in each year as
soon as practicable after the annual meeting of shareholders. Regular meetings
of the Board shall be held at such times as may be fixed by the Board. No
notice need be given of annual or regular meetings of the Board of Directors.
SECTION 2.4 NOTICE AND ADJOURNMENT
Notice of each special meeting of the Board shall be given to each director
either by mail not later than noon, New York time, on the fifth business day
prior to the meeting or by telegram, by facsimile transmission, by written
message or orally to the Directors not later than noon, New York time, on the
day prior to the meeting. Notices shall be deemed to have been given by mail
when deposited in the United States mail, by telegram at the time of filing, by
facsimile transmission upon confirmation of receipt, and by messenger at the
time of delivery by the messenger. Notices by mail, telegram, facsimile
transmission or messenger shall be sent to each Director at the address or
facsimile number designated by him or her for that purpose, or, if none has been
so designated, at his or her last known residence or business address. Notice
of a meeting of the Board of Directors need not be given to any Director who
submits a signed waiver of notice whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to him or her. A notice or waiver of notice need not specify
the purpose of any meeting of the Board of Directors. A majority of the
Directors present, whether or not a quorum is present, may adjourn any meeting
to another time and place. Notice of any adjournment of a meeting to another
time or place shall be given in the manner described above to the Directors who
were not present at the time of the adjournment and, unless such time and place
are announced at the meeting, to the other Directors.
SECTION 2.5 FISCAL YEAR
The fiscal year of the Company shall be fixed by the Board of Directors.
SECTION 2.6 QUORUM
Unless a greater quorum is required by law, a majority of the number of
directors at the time serving on the Board of Directors shall constitute a
quorum for the transaction of business, or of any specified item of business,
provided, however, that a quorum shall not consist of less than one-third of the
entire Board of Directors. Except where otherwise provided by law or in the
Certificate of Incorporation or these By-Laws, the vote of a majority of the
Directors present at a meeting at the time of such vote, if a quorum is then
present, shall be the act of the Board.
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SECTION 2.7 UNANIMOUS WRITTEN CONSENT
Any action authorized, in writing, by all of the Directors entitled to vote
thereon and filed with the minutes of the Company shall be the act of the Board
with the same force and effect as if the same had been passed by unanimous vote
at a duly called meeting of the Board.
SECTION 2.8 RESIGNATION OF DIRECTORS
Any Director of the Company may resign at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein, or, if
no time be specified, at the time of its receipt by the Chairman or Secretary.
The acceptance of a resignation shall not be necessary to make it effective
unless so specified therein.
SECTION 2.9 REMOVAL OF DIRECTORS
Directors may be removed for cause by a vote of shareholders entitled to
vote thereon, or by action of the Board of Directors. Directors shall not be
removed without cause by vote of the shareholders, except in the case of a
Director elected by the holders of any class or series (other than the Common
Stock), now or hereafter authorized, voting as a class or series, when so
entitled by the provisions of the Certificate of Incorporation applicable
thereto.
SECTION 2.10 COMPENSATION OF DIRECTORS
Members of the Board shall receive such fees and compensation fixed from
time to time by the Board and shall be reimbursed for reasonable expenses for
attending Board Meetings.
SECTION 2.11 TIME AND PLACE OF MEETINGS
Meetings of the Board of Directors shall be held in such month on such day
at such hour and at such place as the Board may from time to time direct.
SECTION 2.12 SPECIAL MEETINGS
Special meetings of the Board may be held on the call of the Chairman, the
President or the Secretary or upon written request of a majority of the
Directors at the time serving on the Board addressed to the Secretary.
SECTION 2.13 TELEPHONIC MEETINGS
Any one or more members of the Board or any committee of the Board may
participate in a meeting of the Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time; and participation by such
means shall constitute presence in person at a meeting.
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ARTICLE III
COMMITTEES
SECTION 3.1 ORGANIZATION AND AUTHORITY
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from among its members, such committees as the Board of
Directors may from time to time determine, including those created by Sections
3.2, 3.3 and 3.4 of this Article III, each consisting of three or more
Directors, and each of which, to the extent provided in the resolution, shall
have all the authority of the Board, except that no such committee shall have
authority as to (1) the submission to shareholders of any action that needs
shareholders' approval; (2) the filling of vacancies in the Board or in any
committee thereof; (3) the fixing of compensation of the Directors for serving
on the Board or on any committee thereof; (4) the amendment or repeal of the By-
Laws, or the adoption of new By-Laws; (5) the amendment or repeal of any
resolution of the Board which, by its terms, shall not be so amendable or
repealable; (6) the fixing or changing of the size of the Board; or (7) the
removal or indemnification of Directors. In the event of the absence of any
member(s) from a meeting of a committee replacements may be made from Directors
designated as alternate members of such committee by the Board. The Chairman,
or in his absence or should he so direct, the President, or in his absence, a
Vice President, if such officers are members of the committee, shall preside at
meetings of the committee, otherwise the presiding officer shall be designated
by majority vote of the committee. Vacancies in the membership of the committee
shall be filled by the Board of Directors at a regular or special meeting of the
Board of Directors. Unless the Board of Directors otherwise provides, each
committee designated by the Board may adopt, amend and repeal rules for the
conduct of its business.
SECTION 3.2 EXECUTIVE COMMITTEE
There shall be an Executive Committee of not more than six (6) Directors to
be designated by the Board. The Executive Committee shall have and may exercise
all of the authority and powers of the Board subject to limitations prescribed
by law or these by-laws. The Secretary of the Company shall be the Secretary of
the Executive Committee.
SECTION 3.3 ORGANIZATION AND NOMINATING COMMITTEE
There shall be an Organization and Nominating Committee of not more than
six (6) Directors to be designated by the Board. The Organization and
Nominating Committee shall have and may exercise all of the authority and powers
of the Board necessary to address executive compensation, review management
succession plans and recommend nominees to the Board, subject to limitations
prescribed by law or these by-laws. The Secretary of the Company shall be the
Secretary of the Organization and Nominating Committee.
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SECTION 3.4 AUDIT COMMITTEE
There shall be an Audit Committee of not more than six (6) Directors to be
designated by the Board. The Audit Committee shall have and may exercise all of
the authority and powers of the Board, necessary to review and monitor
accounting and control procedures, general auditing and business practices,
external financial reporting practices, and ethical standards for the Company,
subject to limitations prescribed by law or these by-laws. The Secretary of the
Company shall be the Secretary of the Audit Committee.
SECTION 3.5 ACTION BY A COMMITTEE
The act of a majority of the members of a committee present at any meeting
at which a quorum is present shall be the act of such committee. The members of
a committee shall act only as a committee, and the individual members thereof
shall have no individual powers as such. Each committee may make such rules as
it may deem expedient for the regulation and carrying on of its meetings and
proceedings.
SECTION 3.6 QUORUM
A majority of the members of a committee shall constitute a quorum.
SECTION 3.7 REPORTS TO BOARD OF DIRECTORS
Each such committee shall keep a record of its proceedings and make reports
to the Board at its next regular meeting.
SECTION 3.8 COMPENSATION OF COMMITTEE MEMBERS
Members of committees of the Board shall receive such fees and compensation
as fixed from time to time by the Board and shall be reimbursed for reasonable
expenses for attending committee meetings.
SECTION 3.9 RESIGNATION AND REMOVAL OF COMMITTEE MEMBERS
Any member of any committee may resign at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein, or, if
no time be specified, at the time of its receipt by the Chairman or Secretary.
The acceptance of a resignation shall not be necessary to make it effective
unless so specified therein. Committee members may be removed by action of the
Board of Directors, with or without cause.
SECTION 3.10 UNANIMOUS WRITTEN CONSENT
Any action authorized in writing, by all of the members of a committee and
filed with the minutes of the Company shall be the act of that committee with
the same force and effect as if the same had been passed by unanimous vote at a
duly called meeting of such committee.
SECTION 3.11 PLACE OF COMMITTEE MEETINGS
Meetings of each committee shall be held in such month on such
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day at such hour and at such place as such committee may from time to time
direct.
SECTION 3.12 NOTICE
Unless otherwise provided by resolution of the Board or by vote of a
majority of the members of the relevant committee, notice of committee meetings
shall be given in the same manner as notice of special meetings of the Board is
to be given under Section 2.4 of these By-Laws.
ARTICLE IV
OFFICERS AND THEIR DUTIES
SECTION 4.1 OFFICERS
As soon as may be after the election of the Directors at a meeting of the
shareholders, the Board of Directors shall elect one of its number President,
and may elect one of its number Chairman. The President shall be the Chief
Executive Officer except that if a Chairman be elected, the Board may designate
either the Chairman or the President as Chief Executive Officer. Any two or
more offices may be held by the same person, except the offices of President and
Secretary. The Board may elect or appoint such other officers and agents as it
may deem proper.
SECTION 4.2 TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES
Except as otherwise provided in the resolution of the Board of Directors
electing or appointing any officer, all officers shall be elected or appointed
to hold office until the meeting of the Board of Directors following the next
succeeding annual meeting of shareholders. Each officer shall hold office for
the term for which he or she is elected or appointed, and until his or her
successor has been elected or appointed and qualified. Any officer may resign
at any time by giving written notice to the Board or to the Chairman, if any, or
the President or the Secretary of the Company. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. Any
officer may be removed by the Board, with or without cause, at any time.
Removal of an officer without cause shall be without prejudice to his or her
contract rights, if any, with the Company, but the election or appointment of an
officer shall not of itself create contract rights. Any vacancy occurring in
any office of the Company by death, resignation, removal or otherwise may be
filled for the unexpired portion of the term by the Board.
SECTION 4.3 POWERS AND DUTIES
The officers of the Company shall have such authority and perform such
duties in the management of the Company as may be prescribed by the Board of
Directors and, to the extent not so
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prescribed, as generally pertain to their respective offices, subject to the
control of the Board. Securities of other companies held by the Company may be
voted by any officer designated by the Board and, in the absence of any such
designation, by the Chairman, the President, any Vice President, the Secretary
or the Treasurer. The Board may require any officer, agent or employee to give
security for the faithful performance of his duties.
SECTION 4.4 SALARIES
Salaries of all officers of the Company shall be fixed by the Board from
time to time; and salaries of all other employees of the Company shall be
regulated by the Chief Executive Officer.
SECTION 4.5 CHAIRMAN
The Chairman shall preside at all meetings of the shareholders and the
Board of Directors at which he or she shall be present. When the Chairman is
also designated the Chief Executive Officer, he or she shall have general and
active management of the business of the Company and shall see that all orders
and policies of the Board of Directors are carried into effect.
SECTION 4.6 VICE CHAIRMAN
The Vice Chairman shall do and perform all such duties as shall be assigned
to him or her by the Chairman or required by the Board of Directors.
SECTION 4.7 PRESIDENT
In the absence of a Chairman or should the Chairman so direct, the
President shall preside at all meetings of the shareholders and of the Board of
Directors at which he or she shall be present. In the case of the Chairman
having been designated as Chief Executive Officer, the President shall (subject
to the direction of the Chairman) exercise general control and supervision over
all the affairs of the Company and generally do and perform those duties as
usually appertain to the office of the President, or which may be assigned to
him or her by the Board of Directors. Should there be no Chairman or should the
President be designated Chief Executive Officer of the Company, the President
shall have general and active management of the business of the Company and
shall see that all orders and policies of the Board of Directors are carried
into effect; and the salaries of all employees of the Company, other than
officers, shall be regulated by him or her. If the office of the Chairman be
vacated, due to the incumbent's death, retirement, or inability to act, or
should the Directors elect to leave such office vacant, the President shall be
the Chief Executive Officer and shall assume all the duties as outlined in
Section 4.5 of this Article IV, until directed otherwise by the Board of
Directors.
SECTION 4.8 VICE PRESIDENT
The Vice Presidents, respectively, shall do and perform all such duties as
shall be assigned to them by the Chairman or the President or required of them
by the Board of Directors. If
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designated by the Board of Directors as a member of the Executive Committee, a
Vice President shall perform the duties of President in case of the President's
absence or inability to act or in case of a vacancy in that office. An
Assistant Vice President in the absence or disability of a Vice President may at
the discretion of the Chairman or the President perform the duties of a Vice
President and shall perform such other duties as may be assigned to him or her.
SECTION 4.9 SECRETARY
It shall be the duty of the Secretary to keep and attest true records of
the proceedings of all meetings of the Board and Executive Committee, to see
that all notices are duly given in accordance with the provisions of these By-
Laws or as required by law and safely keep and account for all documents, papers
and property of the Company which may come into his or her possession. He or she
shall be the custodian of the Corporate Seal of the Company and shall affix and
attest the same whenever it is necessary and proper so to do, and shall perform
such other duties as may be assigned to him by the Board. In the absence or
disability of the Secretary, an Assistant Secretary or any Vice President shall
perform his duties and such other duties as may be assigned to him or her.
SECTION 4.10 TREASURER
The Treasurer shall have the custody of all money, funds, securities and
valuable papers of the Company. He or she shall furnish such security for the
faithful performance of his or her duties as may be required by the Board of
Directors. He or she shall receive all money due to the Company and deposit the
same in its corporate name in such Banks or Trust Companies as the Board of
Directors shall determine. He or she shall sign all checks, drafts or orders
for the payment of money; and perform such other duties as may be required of
him or her by the Board of Directors. An Assistant Treasurer shall, in the
absence or disability of the Treasurer, perform his or her duties and such other
duties as may be assigned to him or her. In the absence or disability of the
Treasurer and Assistant Treasurers, any Vice President shall perform his or her
duties and such other duties as may be assigned to him or her. The Treasurer
shall, when directed by the Board of Directors, open special accounts in the
Company's depositories; all checks, drafts or orders for the payment of money
out of such special accounts shall be signed in such manner and by such officers
or employees of the Company as the Board of Directors shall designate; such
checks, drafts or orders for the payment of money shall also be signed, if, as
and when so directed by resolution of the Board of Directors, by such persons
and in such manner as the Board of Directors shall determine.
SECTION 4.11 COMPTROLLER
The Comptroller shall have charge of accounting and related
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records. He or she shall sign checks, drafts or orders for the payment of
money; such checks, drafts and orders to be also signed by the Treasurer, and
perform such other duties as may be required of him or her by the Board of
Directors. An Assistant Comptroller shall, in the absence or disability of the
Comptroller, perform his or her duties and such other duties as may be assigned
to him or her. In the absence or disability of the Comptroller and Assistant
Comptroller, the Chairman, the President or a Vice President, shall sign all
checks, drafts or orders for the payment of money; such checks, drafts and
orders to be also signed by any other authorized officer.
ARTICLE V
SHARES
CERTIFICATED SHARES
SECTION 5.1 CERTIFICATES, REGISTRAR AND TRANSFER AGENT
The Shares of the Company may be represented by certificates in such forms
as the Board of Directors may prescribe, signed by the Chairman, the President
or a Vice President and the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and sealed with the seal of the Company and
registered by such Bank or Trust Company as may be designated by the Board. If
the Company is authorized to issue shares of more than one class, each
certificate representing shares issued by the Company shall set forth upon the
face or back of the certificate, or shall state that the Company will furnish to
any shareholder upon request and without charge, a full statement of the
designation, relative rights, preferences and limitations of the shares of each
class authorized to be issued and the designation, relative rights, preferences
and limitations of each series of any class of preferred shares authorized to be
issued in series so far as the same have been fixed and the authority of the
Board of Directors to designate and fix the relative rights, preferences and
limitations of other series. Each certificate representing shares shall state
upon the face thereof (1) that the Company is formed under the laws of the State
of New York; (2) the name of the person or persons to whom issued; and (3) the
number and class of shares, and the designation of the series, if any, which
such certificate represents.
SECTION 5.2 AUTHORIZATION OF FACSIMILE SIGNATURES AND SEAL
The Board of Directors may authorize the signatures of the Chairman, the
President, a Vice President, the Secretary or an Assistant Secretary, and the
Corporate Seal of the Company, to be facsimiled, engraved or printed.
SECTION 5.3 TRANSFER OF CERTIFICATED SHARES
The Shares of the Company shall be transferable or assignable in person or
by attorney, only on the books of the Company, upon the surrender of the
certificate representing the shares to be
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transferred or assigned with proper endorsement on the certificate or on a
separate accompanying document, together with such evidence of the payment of
transfer taxes and compliance with other provisions of law as the Company or its
transfer agent may require. The Transfer Agent of the Company shall be such Bank
or Trust Company as may be designated by the Board.
SECTION 5.4 LOST, STOLEN OR DESTROYED SHARE CERTIFICATES
The Company may issue a new certificate for shares in place of any
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Company may require the owner of the lost or destroyed certificate, or
such owner's legal representative, to give the Company a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate or the issuance of any such
new certificate.
UNCERTIFICATED SHARES
SECTION 5.5 UNCERTIFICATED SHARES
The shares of the Company may be uncertificated shares. Within a reasonable
time after the issuance, or within two business days after a transfer, of
uncertificated shares, the Company shall send a written notice to the registered
owner of such shares and to any other party required by law to receive such
notice. Each such notice shall state (1) that the Company is formed under the
laws of the State of New York; (2) the name of the person or persons to whom
issued; (3) the number and class of shares, and the designation of the series,
if any, with respect to which such notice was issued; and (4) any other
information required by law to be contained therein. If the Company is
authorized to issue shares of more than one class, each such notice shall
contain, or shall state that the Company will furnish to any shareholder upon
request and without charge, a full statement of the designation, relative
rights, preferences and limitations of the shares of each class authorized to be
issued and the designation, relative rights, preferences and limitations of each
series of any class of preferred shares authorized to be issued in series so far
as the same have been fixed and the authority of the Board of Directors to
designate and fix the relative rights, preferences and limitations of other
series. Except as otherwise expressly provided by law, the rights and
obligations of the holders of uncertificated shares representing shares of the
same class and series shall be identical.
SECTION 5.6 TRANSFER OF UNCERTIFICATED SHARES
Shares of the Company shall be transferable on the record of shareholders
upon presentation to the Company or a transfer agent of a transfer request
indicating the shares requested to be transferred, with proper endorsement on a
separate accompanying document, together with such evidence of the payment of
transfer taxes and compliance with other provisions of law as the Company or
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its transfer agent may require.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 GENERAL APPLICABILITY
Except to the extent expressly prohibited by the New York Business
Corporation Law, the Company shall indemnify each person made, or threatened to
be made, a party to any action or proceeding, whether criminal or civil, by
reason of the fact that such person or such person's testator or intestate is or
was a Director or Officer of the Company, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including attorney's fees
and expenses, reasonably incurred in enforcing such person's right to
indemnification, incurred in connection with such action or proceeding, or any
appeal therein, provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such person establishes that
such person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that such person personally gained in fact a financial profit or other
advantage to which such person was not legally entitled, and provided further
that no such indemnification shall be required with respect to any settlement or
other nonadjudicated disposition of any threatened or pending action or
proceeding unless the Company has given its prior consent to such settlement or
other disposition.
SECTION 6.2 SCOPE OF INDEMNIFICATION
The Company shall advance or promptly reimburse upon request to any person
entitled to indemnification hereunder all reasonable expenses, including
attorney's fees and expenses, reasonably incurred in defending any action or
proceeding in advance of the final disposition thereof upon receipt of an
undertaking by or on behalf of such person to repay such amount if such person
is ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so advanced or reimbursed
exceed the amount to which such person is entitled; provided, however, that such
person shall cooperate in good faith with any request by the Company that common
counsel be used by the parties to an action or proceeding who are similarly
situated unless to do so would be inappropriate due to actual or potential
differing interests between or among such parties.
SECTION 6.3 OTHER INDEMNIFICATION PROVISIONS
Nothing herein shall limit or affect any right of any Director, Officer or
other corporate personnel otherwise than hereunder to indemnification or
expenses, including attorney's fees, under any statute, rule, regulation,
certificate of incorporation, by-law, insurance policy, contract or otherwise;
without affecting or limiting the rights of any Director, Officer
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or other corporate personnel pursuant to this Article VI, the Company is
authorized to enter into agreements with any of its Directors, Officers or other
corporate personnel extending rights to indemnification and advancement of
expenses to the fullest extent permitted by applicable law.
Unless limited by resolution of the Board of Directors or otherwise, the
Company shall advance the payment of expenses to the fullest extent permitted by
applicable law to, and shall indemnify, any Director, Officer or other corporate
person who is or was serving at the request of the Company, as a director,
officer, partner, trustee, employee or agent of another corporation, whether for
profit or not-for-profit, or a partnership, joint venture, trust or other
enterprise, whether or not such other enterprise shall be obligated to indemnify
such person.
SECTION 6.4 SURVIVAL OF INDEMNIFICATION
Anything in these By-laws to the contrary notwithstanding, no elimination
or amendment of this Article VI adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective until
the 60th day following notice to such person of such action, and no elimination
of or amendment to this Article VI shall deprive any such person's rights
hereunder arising out of alleged or actual occurrences, acts or failures to act
prior to such 60th day.
SECTION 6.5 INABILITY TO LIMIT INDEMNIFICATION
The Company shall not, except by elimination or amendment of this Article
VI in a manner consistent with the preceding Section 6.4 and with the provisions
of Article VIII ("Amendments to By-Laws"), take any corporate action or enter
into any agreement which prohibits, or otherwise limits the rights of any person
to, indemnification in accordance with the provisions of this Article VI. The
indemnification of any person provided by this Article VI shall continue after
such person has ceased to be a Director or Officer of the Company and shall
inure to the benefit of such person's heirs, executors, administrators and legal
representatives.
SECTION 6.6 SEVERABILITY
In case any provision in this Article VI shall be determined at any time to
be unenforceable in any respect, the other provisions of this Article VI shall
not in any way be affected or impaired thereby, and the affected provision shall
be given the fullest possible enforcement in the circumstances, it being the
intention of the Company to afford indemnification and advancement of expenses
to its Directors or Officers, acting in such capacities or in the other
capacities mentioned herein, to the fullest extent permitted by law.
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ARTICLE VII
OTHER MATTERS
SECTION 7.1 BOOKS TO BE KEPT
The Company shall keep (a) correct and complete books and records of
account, (b) minutes of the proceedings of the shareholders, Board of Directors
and Executive Committee, if any, and (c) a current list of the Directors and
Officers and their residence addresses. The Company shall also keep, at its
office located in the County of Kings in the State of New York or at the office
of its transfer agent or registrar in the State of New York, if any, a record
containing the names and addresses of all shareholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof. Any of the foregoing books, minutes or records may be in written
form or in any other form capable of being converted into written form within a
reasonable time.
SECTION 7.2 INTEREST OF DIRECTORS AND OFFICERS IN TRANSACTIONS
In the absence of fraud, no contract or other transaction between the
Company and one or more of its Directors, or between the Company and any other
company, firm, association or other entity in which one or more of its Directors
are Directors or Officers, or have a substantial financial interest, shall be
either void or voidable, irrespective of whether such interested Director or
Directors are present at the meeting of the Board of Directors, or of a
committee thereof, which approves such contract or transaction and irrespective
of whether his, her or their votes are counted for such purpose:
(1) If the material facts as to such Director's interest in such contract
or transaction and as to any such common Directorship, officership or
financial interest are disclosed in good faith or known to the Board of
Directors, or a committee thereof, and the Board or committee approves such
contract or transaction by a vote sufficient for such purpose without
counting the vote of such interested Director or, if the votes of the
disinterested Directors are insufficient to constitute an act of the Board
under Article II hereof, by unanimous vote of the disinterested Directors;
or
(2) If the material facts as to such Director's interest in such contract
or transaction and as to any such common Directorship, officership or
financial interest are disclosed in good faith or known to the shareholders
entitled to vote thereon, and such contract or transaction is approved by
vote of such shareholders.
If there was no such disclosure or knowledge, or if the vote of such
interested Director was necessary for the approval of such
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contract or transaction at a meeting of the Board or committee at which it was
approved, the Company may avoid the contract or transaction unless the party or
parties thereto shall establish affirmatively that the contract or transaction
was fair and reasonable as to the Company at the time it was approved by the
Board, a committee or the shareholders.
SECTION 7.3 CORPORATE SEAL
The Board of Directors may adopt a corporate seal, alter such seal at
pleasure, and authorize it to be used by causing it or a facsimile to be affixed
or impressed or reproduced in any other manner.
SECTION 7.4 WHEN NOTICE OR LAPSE OF TIME UNNECESSARY
Whenever for any reason the Company or the Board of Directors or any
committee thereof is authorized to take any action after notice to any person or
persons or after the lapse of a prescribed period of time, such action may be
taken without notice and without the lapse of such period of time if at any time
before or after such action is completed the person or persons entitled to such
notice or entitled to participate in the action to be taken or, in the case of a
shareholder, his or her attorney-in-fact, submit a signed waiver of notice of
such requirements.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
SECTION 8.1 BY DIRECTORS
By-laws may be adopted, amended, or repealed or new By-laws may be adopted
by the vote of a majority of the entire Board of Directors at any regular or
special meeting of the Board at which a quorum is present; provided, however,
that any adoption of, amendment to or repeal of any new By-law or provision
inconsistent with Article I (Section 1.2 - "Special meetings", 1.4 - "Presiding
at Meetings" or 1.12 - "Notice of Shareholder Business and Nominations"),
Article II (Section 2.1 - "Number of Directors", 2.2 - "Elections, Terms and
Vacancies" or 2.9 - "Removal of Directors"), Article VI - "Indemnification" or
this Article VIII -"Amendments to By-Laws" hereof, if by action of the Board,
shall be only upon the approval of not less than two-thirds of the entire Board
at any such regular or special meeting of the Board of Directors.
SECTION 8.2 BY SHAREHOLDERS
By-laws may be adopted, amended, or repealed by the vote of a majority of
the shareholders entitled to vote in the election of any Directors (as herein
provided) at any annual or special shareholders' meeting at which a quorum is
present, if notice of such proposed action shall have been given in accordance
with the notice requirements of Section 1.12 of these By-laws; provided,
however, that any adoption of, amendment to or repeal of any new
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By-laws or provision inconsistent with Article I (Section 1.2 -"Special
meetings", 1.4 - "Presiding at Meetings" or 1.12 - "Notice of Shareholder
Business and Nominations"), Article II (Section 2.1 - "Number of Directors", 2.2
- - "Elections, Terms and Vacancies" or 2.9 - "Removal of Directors"), Article VI
- - "Indemnification" or this Article VIII - "Amendments to By-Laws" hereof, if by
action of shareholders, shall be only upon the affirmative vote of not less than
two-thirds of the shares entitled to vote thereon at such annual or special
shareholders' meeting at which any such action is proposed.
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Exhibit 3(c)
RESTATED CERTIFICATE OF INCORPORATION
OF
THE BROOKLYN UNION GAS COMPANY
Under Section 807 of the Business Corporation Law
We the undersigned Elwin S. Larson being the President and Chief Executive
Officer and Harold E. H. Knight, Jr. being Vice President and Secretary of The
Brooklyn Union Gas Company hereby certify:
(1) The name of the Corporation is The Brooklyn Union Gas Company.
(2) The Certificate of Incorporation was filed by the Department of State
on the ninth day of September, 1895.
(3) The text of the Certificate of Incorporation as heretofore amended is
hereby restated without further amendment or change to read as hereinafter set
forth in full:
Certificate of Incorporation
of
The Brooklyn Union Gas Company
Article I. The name of the Corporation is The Brooklyn Union Gas Company.
Article II. The objects, purposes and powers of the Corporation shall
include the manufacture, production, acquisition, purchase, distribution and
supply of natural, manufactured or mixed gas and of electricity, for public and
private use, in the County of Kings, the County of Queens and the County of
Richmond, all in the City and State of New York, and such other purposes and
such additional powers as corporations incorporated for the foregoing specified
purposes are authorized by law to have and to exercise.
In furtherance of the foregoing purposes, and not in limitation of the
aforesaid objects, purposes and powers, the Corporation shall have the following
powers:
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To produce, manufacture, use, acquire, purchase, store, transport,
distribute, sell and deal in gas, electricity and other forms of energy as
necessary, incidental or convenient to supplement the supply of gas and
electricity;
To produce, manufacture, use, acquire, purchase, store, sell and deal in
derivatives of gas, electricity or other forms of energy; by-products of the
manufacture, use and storage of gas, electricity or other forms of energy;
instruments and devices for the production, conversion or utilization of energy;
energy produced or converted as a by-product or derivative of, or convenient
adjunct to, the manufacture and storage of gas, electricity or other forms of
energy as aforesaid;
To purchase, acquire, make, sell, finance, and lease any and all machines,
instruments, substances, apparatus and equipment in furtherance of or convenient
to the sale of gas or electricity or other forms of energy as aforesaid;
To purchase, take, receive, subscribe for, or otherwise acquire, own, hold,
vote, employ, sell, lend, lease, exchange, transfer or otherwise dispose of,
mortgage, pledge, use and otherwise deal in and with bonds and other
obligations, shares, or other securities or interests issued by others, whether
engaged in similar or different business, governmental, or other activities, all
as more fully set forth in Section 202 of the Business Corporation Law of New
York State;
To exercise all of, the powers of a corporation organized for the aforesaid
purposes which are or may hereafter be authorized or permitted by law;
To have and exercise all powers related or incidental to, or necessary or
convenient to effect, any or all of the purposes for which the corporation is
formed.
Article III. The Secretary of State of the State of New York is hereby
designated as the agent of the Corporation upon whom process in any action or
proceeding against it may be served.
The office of the Corporation in the State of New York is located in the
City of New York, County of Kings and the address to which the Secretary of
State of the State of New York shall mail a copy of process in any action or
proceeding against the Corporation that may be served upon him is 195 Montague
Street, Brooklyn, New York 11201.
Article IV. The amount of Capital Stock shall be one hundred fifty-seven
million five hundred thousand dollars.
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Article V. The shares which the Corporation may henceforth have are to be
classified as follows:
Nine-Hundred Thousand (900,000) of the shares are to be Cumulative Preferred
Stock of the par value of $100 per share (hereinafter called the
"Preferred Stock"); two million (2,000,000) of the shares are to be
Cumulative Preferred Stock of the par value of $25 per share (hereinafter
called the "$25 Cumulative Preferred Stock"); and thirty-five million
(35,000,000) of the shares are to be Common Stock of the par value of $.50
per share (hereinafter called the "Common Stock").
The designations, relative rights, limitations, privileges and voting
powers of such classes of stock of the Corporation and the restrictions or
qualifications thereof are to be as follows:
DIVISION FIRST
No holder of Common Stock, whether now or hereafter authorized, shall have
any preemptive rights as now or hereafter defined by the laws of the State of
New York.
DIVISION SECOND
The shares of the Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix at one time or from
time to time, before issuance, the designations, preferences, privileges and
voting powers of the shares of such series or, if more than one series, of
each series, of the Preferred Stock, and the restrictions or qualifications
thereof, respectively, in respect to the matters set forth in the paragraphs
below lettered (a) to (g), inclusive. All shares of any particular series
shall be alike in every particular except as to the date from which dividends
shall be cumulative, and the shares of all series shall rank equally and be
identical in all respects, except in respect to the matters set forth in the
following paragraphs lettered (a) to (g), inclusive:
(a) Designation of series;
(b) The dividend rate;
(c) The date from which dividends shall be cumulative and the dates on
which dividends, if declared, shall be payable;
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(d) The sum per share payable upon the voluntary dissolution,
liquidation or winding up of the Corporation, which sum shall be a
stated amount (not less than $100) with respect to dissolution,
liquidation or winding up during any specified period or periods,
plus an amount equal to the dividends accrued and unpaid thereon,
whether or not earned or declared, and payable out of the net
assets of the Corporation.
(e) The extent to which and, subject to subdivision (B) below
(excluding the first sentence thereof), the terms upon which the
Preferred Stock shall be redeemable and the redemption price or
prices per share, which prices, in each and every case, shall be a
stated amount with respect to redemption during any specified
period or periods during which Preferred Stock is redeemable, plus
an amount the equal to the dividends accrued and unpaid thereon to
the date fixed for redemption, whether or not earned or declared;
(f) The price or prices or the rate or rates, if any, at which, and
the terms, if any, upon which the shares of any series may be
convertible into shares of Common Stock of the Corporation, and
the adjustments, if any, in the price or rate at which any such
conversion may be made; and
(g) The terms of any sinking or purchase fund or other arrangements
for the redemption or retirement of shares of the Preferred Stock,
and any other relative, participating, optional or other rights,
preferences, privileges, restrictions or qualifications of the
shares of each series, not inconsistent with the provisions
applicable to all shares of the Preferred Stock irrespective of
series.
The following provisions shall apply to all shares of the Preferred Stock
irrespective of series:
(A) The holders of the Preferred Stock of each series, in preference to the
holders of any junior stock, shall be entitled to receive, but only when and as
declared by the Board of Directors out of funds legally available therefor, cash
dividends at the annual rate fixed for such series and no more. Such dividends
shall be payable on such dividend dates as may be fixed for said series,
respectively, and shall be cumulative from such dates as may be fixed for said
series, respectively.
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Dividends in full shall not be paid or set apart for payment on the Preferred
Stock of any one series for any dividend period unless dividends in full have
been paid or are set apart for payment on the Preferred Stock of all series for
all dividend periods terminating on the same or an earlier date. When the
stated dividends are not paid in full on all series of the Preferred Stock, the
shares of all series shall share ratably in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be payable on
said shares if all dividends were declared and paid in full. A "dividend
period" is the period between any two consecutive dividend payment dates (or,
when shares are originally issued, the period from the date from which dividends
are cumulative to the first dividend payment date) as fixed for a particular
series. Accruals of dividends shall not bear interest.
In no event so long as any shares of the Preferred Stock shall be
outstanding, shall any dividend be paid or declared, nor any distribution made,
on any junior stock nor shall any shares of junior stock be purchased, redeemed,
or otherwise acquired by the Corporation, nor shall any moneys be paid to or set
aside or made available for a sinking fund for the purchase or redemption of any
junior stock unless all dividends on the Preferred Stock of all series for all
dividend periods terminating on or prior to the date of such declaration,
payment or distribution shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside; provided that, notwithstanding the
foregoing, the Corporation may at any time (1) pay dividends in junior stock or
(2) purchase, redeem or otherwise acquire junior stock in exchange for, or out
of the net cash proceeds from the concurrent sale of, other junior stock.
Subject to the provisions of the preceding paragraph and such further
provisions as shall be fixed by the Board of Directors pursuant to paragraphs
(a) to (g) above, and not otherwise, such dividends and distributions as may be
determined by the Board of Directors of the Corporation may, from time to time,
be declared and paid or made upon shares of junior stock, out of funds legally
available therefor, and the Preferred Stock shall not be entitled to participate
in any such dividend or distribution so declared and paid or made upon junior
stock.
(B) To the extent and (subject to the provisions of this subdivision (B)
other than this sentence) upon the terms fixed by the Board of Directors with
respect to any particular series, the Corporation, at the option of the Board of
Directors, may redeem the whole or from time to time any part of one or more
series of the Preferred Stock, by paying therefor in cash the amount per share
fixed by the Board of Directors for the shares
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of such series to be redeemed as herein authorized. Such sum is hereinafter in
this subdivision referred to as the "redemption price". If less than all
outstanding shares of any series are to be redeemed, the shares to be redeemed
shall be selected either by lot or pro rata in such manner as may be prescribed
by resolution of the Board of Directors. At least thirty (30) days prior to the
redemption date, notice of the proposed redemption shall be mailed to the
holders of record of the Preferred Stock to be redeemed, such notice to be
addressed to each such stockholder at his post office address as shown on the
records of the Corporation and the time of mailing such notice shall be deemed
to be the time of the giving of such notice. On or after the date of redemption
stated in such notice (sometimes referred to in this paragraph as the
"redemption date"), each holder of Preferred Stock called for redemption shall
surrender his certificate for such stock to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the redemption price. In case less than all the shares represented by any such
surrendered certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. On and after the redemption date, unless
default shall be made by the Corporation in providing moneys at the time and
place specified for the payment of the redemption price, or, if the Corporation
shall so elect, on and after a date (which shall be prior to the redemption date
and which, together with the fact of such election, shall be set forth in the
notice of redemption) on which the Corporation shall provide moneys for the
payment of the redemption price by depositing the amount thereof as a trust fund
for the account of the holders of the Preferred Stock entitled thereto, with a
bank or trust company doing business in the Borough of Manhattan, City, County
and State of New York, having capital, surplus and undivided profits of at least
Five Million Dollars ($5,000,000), all dividends on the Preferred Stock thereby
called for redemption notwithstanding that the certificates representing any
shares of Preferred Stock called for redemption shall not have been surrendered,
shall cease to accrue and, subject to any conversion rights of any particular
series which may continue to the close of business of the redemption date, all
rights of the holders thereof as stockholders of the Corporation, except only
the right, upon surrender of certificates therefor to receive the redemption
price thereof, without interest, shall cease and determine, and such shares
shall not be deemed to be outstanding for any purpose. Any moneys so deposited
and remaining unclaimed at the end of six (6) years from the redemption date
shall, if thereafter requested by resolution of the Board of Directors, be
repaid to the Corporation, and in the event of such repayment to the
Corporation, such holders of record of the shares of Preferred Stock so called
for redemption as shall not have made
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claim against such moneys prior to such repayment to the Corporation shall look
only to the Corporation for payment thereof. Any interest accrued on any funds
so deposited shall belong to the Corporation and be paid to it from time to
time.
Unless all dividends on the Preferred Stock of all series for all dividend
periods terminating on or prior to the date of such redemption or purchase shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside, the Corporation may not (other than by the use of unapplied funds, if
any, theretofore paid into, or set aside for, a sinking or purchase fund or
funds) (i) redeem any shares of the Preferred Stock unless all shares thereof
are redeemed or (ii) purchase or otherwise acquire for a consideration any
shares of the Preferred Stock except upon conversion or pursuant to offers of
sale made by holders of the Preferred Stock in response to an invitation for
tenders given simultaneously by the Corporation by mail to all holders of record
of shares of the Preferred Stock then outstanding. Subject to such restriction,
nothing herein contained shall limit any legal right of the Corporation to
purchase any shares of the Preferred Stock and the same may be retired by the
Corporation in any manner provided by law.
Any shares of Preferred Stock redeemed, purchased or otherwise acquired by
the Corporation, including acquisitions upon conversion, shall have the status
of authorized and unissued shares, undesignated as to series, and may thereafter
in the discretion of the Board of Directors and to the extent permitted by law,
be sold or reissued from time to time, as part of the same or another series,
subject to the terms and conditions herein provided and subject to any
provisions fixed by the Board of Directors with respect to the issuance of
additional shares of such series.
(C) Upon any voluntary liquidation, dissolution or winding up of the
Corporation the Preferred Stock of each series shall be entitled, before any
distribution shall be made to any junior stock, to be paid, out of the net
assets of the Corporation, the full preferential amount fixed by the Board of
Directors for such series as herein authorized, and, in the event of involuntary
liquidation, dissolution or winding up of the Corporation, the Preferred Stock
of each series shall be entitled to be paid the sum of $100 per share, plus in
each case an amount which shall be equal to the dividends accrued and unpaid
thereon, whether or not earned or declared, to the date of final distribution to
the holder thereof; but the Preferred Stock shall not be entitled to any further
payment. If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the net assets of the
Corporation shall be insufficient to permit the payment to all
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outstanding shares of Preferred Stock of all series of the full amounts to which
they are respectively entitled as aforesaid, then the entire net assets of the
Corporation shall be distributed ratably to all outstanding shares of Preferred
Stock in proportion to the full amount to which each such share is entitled as
aforesaid. Neither a consolidation nor merger of the Corporation with or into
any other corporation or corporations, nor the sale of all or substantially all
of the assets of the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation, within the meaning of this
paragraph.
(D) Consent of the holders of at least two-thirds in amount of the Preferred
Stock at the time outstanding, given in person or by proxy, at a special meeting
called for that purpose at which the Preferred Stock shall vote as a class,
shall be necessary for effecting or validating
(1) any amendment, alteration or repeal of any of the provisions of
the Certificate of Incorporation, as amended, relating to the
Preferred Stock which would adversely affect the Preferred Stock;
provided, however, that if any such amendment, alteration or
repeal shall affect adversely the rights or preferences of one or
more, but not all, of the series of Preferred Stock at the time
outstanding, the consent of the holders of at least two-thirds of
the shares then outstanding of each such series so adversely
affected only shall be required in lieu of the consent of the
holders of two-thirds of the shares of Preferred Stock as a class;
and provided further that, whether or not the holders of the
Preferred Stock shall at the time be entitled to elect members of
the Board of Directors as provided in subdivision (G) below, an
amendment of the Certificate of Incorporation which increases or
decreases the number of members of the Board of Directors or
provides that the number of such members shall be fixed by the by-
laws within minimum and maximum limits shall not be deemed to be
an amendment which would adversely affect the Preferred Stock
within the meaning of this clause (1); or
(2) the authorization or creation of shares having preferences which
are in any respect superior to the preferences of the outstanding
shares of the Preferred Stock, or the authorization or creation of
any stock or other securities convertible into or evidencing the
right to purchase any such
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<PAGE>
shares having preferences which are in any respect superior to the
preferences of the outstanding shares of the Preferred Stock; or
(3) the issue of any additional shares of the Preferred Stock or of
any class of stock ranking on a parity with the Preferred Stock
with respect to dividends or rights upon dissolution, liquidation
or winding up of the Corporation's affairs, whether voluntary or
involuntary, unless the net earnings available for interest for
any twelve consecutive calendar months within the fifteen calendar
months immediately preceding the month within such shares are
proposed to be issued, have been at least one and one-half times
the sum of (a) interest charges for twelve months on the funded
debt outstanding at the date of the proposed issue of such shares
(excluding any funded debt proposed to be retired in connection
with such issue); and (b) the dividend requirements for one full
year on all shares of Preferred Stock and all stock ranking on a
parity therewith to be outstanding immediately after such
proposed issuance, provided, that nothing herein contained shall
prevent the Corporation from issuing shares of Preferred Stock or
of any class of such parity stock in connection with the purchase,
redemption or other acquisition of or in exchange for shares of
Preferred Stock if the aggregate amount of annual dividends
payable on the shares to be issued shall not exceed the aggregate
amount of annual dividends payable on such shares of Preferred
Stock.
(E) Consent of the holders of at least a majority in amount of the
Preferred Stock at the time outstanding, given in person or by proxy, at a
special meeting called for that purpose at which the Preferred Stock shall vote
as a class, shall be necessary for effecting or validating
(1) the sale, lease or transfer (except to a wholly-owned subsidiary)
of all or substantially all of the property or business of the
Corporation; or
(2) a merger or consolidation of the Corporation with any other
corporation, unless (i) the company resulting from such merger or
consolidation will, immediately after such merger or
consolidation, have only such authorized classes of stock and
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such outstanding shares of stock as would have been permitted
immediately prior to such merger or consolidation under the
provisions hereof without any consent of the holders of the
Preferred Stock, and (ii) each holder of the Preferred Stock
immediately preceding such merger or consolidation shall receive
the same number of shares, with the same rights and preferences,
of the resulting company. For the purpose of this clause (2),
in so far as any earnings test may be applicable, the earnings,
interest charges on funded debt and dividend requirements of the
merging or consolidating companies shall be determined on a
combined basis.
(F) No holder of the Preferred Stock of the Corporation shall be entitled as
of right to purchase or subscribe for any part of the unissued stock of the
Corporation or of any stock of the Corporation to be issued by reason of any
increase of the authorized capital stock of the Corporation, or to purchase or
subscribe for any bonds, certificates of indebtedness, debentures or other
securities convertible into or carrying options or warrants to purchase stock or
other securities of the Corporation or to purchase or subscribe for any stock of
the Corporation purchased by the Corporation or by its nominee or nominees, or
to have any other preemptive rights as now or hereafter defined by the laws of
the State of New York.
(G) Except as and to the extent otherwise provided herein or required by
law, the Preferred Stock shall not entitle any holder thereof to vote at any
meeting of stockholders or election of the Corporation, or otherwise to
participate in any action taken by the Corporation or the stockholders thereof;
provided, however, that whenever dividends payable on the Preferred Stock shall
be in default in an aggregate amount equivalent to four full quarterly dividends
on all shares of such Preferred Stock then outstanding, the holders of shares of
the Preferred Stock, voting separately as a class and regardless of series,
shall be entitled to elect two directors, and the holders of any other class or
classes of stock of the Corporation entitled to vote for the election of
directors shall be entitled, voting separately, to elect the remainder of the
Board of Directors of the Corporation, as then constituted. The right of the
holders of the Preferred Stock voting separately as a class to elect members of
the Board of Directors of the Corporation as aforesaid shall continue until such
time as all dividends accumulated on the Preferred Stock shall have been paid in
full, or declared and set apart for payment (and such dividends shall be paid,
or declared and set apart for payment, out of assets available therefor as soon
as is reasonably
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practicable, at which time the right of the holders of shares of the Preferred
Stock voting separately as a class to elect members of the Board of Directors as
aforesaid and the right of any other class or classes of stock of the
Corporation entitled to vote for the election of directors voting separately to
elect the remainder of the Board of Directors as aforesaid shall terminate,
subject to revesting in the event of each and every subsequent default of the
character above mentioned.
The aforesaid rights of the Preferred Stock and of any other class or
classes of stock of the Corporation to vote separately for the election of
members of the Board of Directors may be exercised at any annual meeting of
stockholders of the Corporation or at a special meeting of stockholders of the
Corporation held for the purpose of electing directors.
At such time when the right of the holders of the Preferred Stock to elect
members of the Board of Directors as aforesaid shall have become vested as
aforesaid, a special meeting of stockholders of the Corporation may be called
and held for the purpose of electing directors in the following manner (unless
under the provisions of the by-laws of the Corporation, as then in effect, an
annual meeting of stockholders of the Corporation is to be held within sixty
(60) days after the vesting in the holders of the Preferred Stock of the right
to elect members of the Board of Directors).
Upon the written request of any holder of record of the Preferred Stock then
outstanding, regardless of series, addressed to the Secretary of the
Corporation, the Secretary or an Assistant Secretary of the Corporation shall
call a special meeting of the stockholders entitled to vote for the election of
directors, for the purpose of electing the members of the Board of Directors to
be elected by the vote of the Preferred Stock, and the remainder of the Board of
Directors to be elected by the vote of such other class or classes of stock as
may then be entitled to voted for the election of directors, voting separately
as hereinbefore provided. Such meeting shall be held within fifty (50) days
after personal service of the said written request upon the Secretary of the
Corporation, or within fifty (50) days after mailing the same within the United
States of America by registered mail addressed to the Secretary of the
Corporation at its principal office, but not less than ten (10) nor more than
forty (40) days after the notice of the meeting is given to the stockholders.
If such meeting shall not be called within twenty (20) days of such personal
service or mailing, then the holders of record of five per cent (5%) of the
Preferred Stock then outstanding, regardless of series, may designate in writing
any holder of record of the Preferred Stock to call such special meeting at the
expense of the Corporation,
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and such meeting may be called by such person so designated upon the notice
required for annual meetings of stockholders and shall be held at the place for
the holding of annual meetings of stockholders of the Corporation. Any holder
of the Preferred Stock so designated shall have access to the stock books of the
Corporation for the purpose of causing said meeting to be called as aforesaid.
At any annual or special meeting held for the purpose of electing directors
when the holders of the Preferred Stock shall be entitled to elect members of
the Board of Directors as aforesaid, the presence in person or by proxy of the
holders of a majority of the total number of outstanding shares of the class or
classes of stock of the Corporation other than the Preferred Stock entitled to
elect directors as aforesaid shall be required to constitute a quorum of such
class or classes for the election of directors by such class or classes, and the
presence in person or by proxy of the holders of a majority of the total number
of outstanding shares of the Preferred Stock shall be required to constitute a
quorum of such class for the election of directors by such class.
At any meeting held for the purpose of electing directors at which the
holders of the Preferred Stock shall have the right, voting separately as a
class, to elect directors as aforesaid, or at any adjournment thereof, (a) the
absence of a quorum of the Preferred Stock shall not prevent the election of
directors to be elected by the holders of stock other than the Preferred Stock
and the absence of a quorum of stock other than the Preferred Stock shall not
prevent the election of the directors to be elected by the Preferred Stock, or
prevent the Preferred Stock from designating, upon the failure of the then
acting Board of Directors so to designate, the directors whose terms of office
shall terminate upon the election and qualification of their successors, and (b)
in the absence of such quorum, either of the Preferred Stock or of stock other
than the Preferred Stock, or both, a majority of the holders present in person
or by proxy of the stock, or stocks, which lack a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled to
elect from time to time without notice other than announcement at the meeting
until a quorum shall be present. The term of office of the directors in office
at any time when the holders of the Preferred Stock, voting separately as a
class, shall as aforesaid be entitled to elect directors, shall terminate upon
the election of any new directors to succeed them at any meeting of
stockholders.
Upon any termination of the right of the holders of the Preferred Stock to
elect members of the Board of Directors as aforesaid, the term of office of the
directors then in office
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<PAGE>
shall terminate upon the election of a new Board of Directors at a
meeting of the holders of the class or classes of stock of the Corporation
then entitled to vote for directors, which meeting may be held at any time after
such termination of such right, and shall be called upon request of any holder
of record of such class or classes of stock then entitled to vote for directors,
in like manner and subject to similar conditions as hereinbefore in this
paragraph (G) provided with respect to the call of a special meeting of
stockholders for the election of directors by the holders of the Preferred
Stock.
In case of any vacancy in the office of a director occurring among the
directors elected by the holders of the Preferred Stock as aforesaid, or of a
successor to any such director, the remaining director so elected may elect a
successor or successors to hold office for the unexpired term of the director
whose place shall be vacant, and such successor shall be deemed to have been
elected by the holders of the Preferred Stock as aforesaid. Likewise, in case
of any vacancy in the office of a director occurring (at a time when the holders
of the Preferred Stock shall be entitled to elect members of the Board of
Directors as aforesaid) among the directors elected by the holders of the class
or classes of stock of the Corporation other than the Preferred Stock, or of a
successor to any such director, the remaining directors so elected, by
affirmative vote of a majority thereof, or the remaining director so elected if
there be but one, may elect, a successor or successors to hold office for the
unexpired term of the director or directors whose place or places shall be
vacant, and such successor or successors shall be deemed to have been elected
by such holders of the class or classes of stock of the Corporation other than
the Preferred Stock. In case, at a time when the holders of the Preferred Stock
shall be entitled to elect members of the Board of Directors as aforesaid,
holders of the class or classes of stock of the Corporation other than the
Preferred Stock shall become entitled to elect an additional director or
directors by reason of an increase in the aggregate membership of the Board of
Directors, the additional director or directors may be elected by the directors
elected by the holders of the class or classes of stock of the Corporation other
than the Preferred Stock, by affirmative vote of a majority thereof, and the
additional director or directors so elected shall be deemed to have been elected
by the holders of the class or classes of stock of the Corporation other than
the Preferred Stock.
Except as herein otherwise expressly provided and except when some mandatory
provision of law shall be controlling and except, as regards any special rights
of any series of the Preferred Stock, as provided in the resolutions creating
such series, whenever shares of two or more series of the Preferred
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<PAGE>
Stock are outstanding, no particular series of the Preferred Stock shall be
entitled to vote as a separate series on any matter and all shares of the
Preferred Stock of all series shall be deemed to constitute but one class for
any purpose for which a vote of the stockholders of the Corporation by classes
may now or hereafter be required.
(H) Wherever used in this Article and in any resolution adopted by the Board
of Directors providing for the issue of any particular series of Preferred Stock
as herein authorized, the following terms shall have the meanings set forth
below.
The term "junior stock" means any stock of the corporation over which the
Preferred Stock has preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
The term "accrued dividends", when used with reference to any shares of
Preferred Stock of any series, means an amount computed at the annual dividend
rate for the particular series determined by the Board of Directors as herein
authorized, from the date or dates from which the dividends on such shares
become cumulative to the date to which dividends are stated to be accrued less
the aggregate of the dividends theretofore paid thereon.
The term "subsidiary" means a corporation at least fifty-one per cent (51%)
of the capital stock of which having voting power for the election of directors
(either at all times or so long as no senior stock has voting power for the
election of directors because of defaulted dividends) is at the time in question
owned or controlled by the Corporation, directly or indirectly through one or
more subsidiaries.
The term "net earnings available for interest" means the net earnings of
the Corporation, or the consolidated net earnings of the Corporation and its
subsidiaries if there shall be any subsidiaries, available for interest on
funded debt before deducting taxes based on net income and in accordance with
generally accepted accounting practice. In computing such net earnings, (i)
there shall be included the net earnings available for interest on funded debt
of all properties owned by the Corporation and its subsidiaries, if any, at the
date of such computation and of all properties to be acquired by the Corporation
and its subsidiaries, if any, with the proceeds of any stock in connection with
the proposed issuance of which such computation is made, the net earnings
available for interest on funded debt of any such property to be computed, in
the manner stated above, as if such property had been owned by the Corporation
or its subsidiaries, if any, during the entire
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<PAGE>
period for which such computation is made, (ii) appropriate adjustment shall be
made to give effect to any changes in such net earnings resulting from any
redemption, acquisition, purchase, sale or exchange of securities by the
Corporation or its subsidiaries, if any, either prior to the issuance of the
stock then to be issued or in connection therewith, (iii) no effect shall be
given to any discount or expense applicable to securities of the Corporation or
its subsidiaries, if any, outstanding at any time during the period for which
the computation is made, and (iv) interest credits charged to construction shall
be added to net earnings.
The term "funded debt" means any indebtedness maturing by its terms more than
twelve months from the date of the original creation thereof and shall include
all such indebtedness issued, assumed or guaranteed by the Corporation or any
subsidiary.
The certificate of any firm of independent public accountant of recognized
standing, selected by the Board of Directors, shall be conclusive evidence of
the amount of net earnings available for interest and of the amount of any items
used in ascertaining any of the amounts required to be determined in this
Article or in any resolution adopted by the Board of Directors pursuant to this
Article.
DIVISION THIRD
The $25 Cumulative Preferred Stock shall be a class of stock
ranking on a parity with the Preferred Stock both in the.payment of
dividends and in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
The shares of the $25 Cumulative Preferred Stock may be issued
from time to time in one or more series. The Board of Directors is
authorized to fix at one time or from time to time, before issuance, the
designations, preferences, privileges and voting powers of the shares of
such series or, if more than one series, of each series, of the $25
Cumulative Preferred Stock, and the restrictions or qualifications
thereof, respectively, in respect to the matters set forth in the
paragraphs below lettered (a) to (g), inclusive. All shares of any
particular series shall be alike in every particular except as to the
date from which dividends shall be cumulative, and the shares of all
series shall rank equally and be identical in all respects, except in
respect to the matters set forth in the following paragraphs lettered
(a) to (g), inclusive:
(a) Designation of series;
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(b) The dividend rate;
(c) The date from which dividends shall be cumulative;
(d) The sum or sums per share payable upon the voluntary and
involuntary dissolution, liquidation or winding up of the Corporation, which sum
or sums shall be a stated amount (not less than $25) with respect to
dissolution, liquidation or winding up during any specified period or periods,
plus an amount equal to the dividends accrued and unpaid thereon, whether or not
earned or declared, and payable out of the net assets of the Corporation;
(e) The extent to which and, subject to subdivision (B) below (excluding the
first sentence thereof), the terms upon which the $25 Cumulative Preferred
Stock shall be redeemable and the redemption price or prices per share, which
prices, in each and every case, shall be a stated amount with respect to
redemption during any specified period or periods during which the $25
Cumulative Preferred Stock is redeemable, plus an amount equal to the dividends
accrued and unpaid thereon to the date fixed for redemption, whether or not
earned or declared;
(f) The price of prices or the rate or rates, if any, at which, and the
terms, if any, upon which the shares of any series may be convertible into
shares of Common Stock of the Corporation, and the adjustments, if any, in the
price or rate at which any such conversion may be made; and
(g) The terms of any sinking or purchase fund or other arrangements for the
redemption or retirement of shares of the $25 Cumulative Preferred Stock, and
any other relative, participating, optional or other rights, preferences,
privileges, restrictions or qualifications of the shares of each series, not
inconsistent with the provisions applicable to all shares of the $25 Cumulative
Preferred Stock irrespective of series.
The following provisions shall apply to all shares of the $25 Cumulative
Preferred Stock irrespective of series.
(A) The holders of the $25 Cumulative Preferred Stock of each series, in
preference to the holders of any junior stock, shall be entitled to receive, but
only when and as declared by the Board of Directors out of funds legally
available therefor, cash dividends at the annual rate fixed for such series and
no more. Such dividends shall be cumulative from such dates as may be fixed for
said series, respectively. Dividends in full shall not be paid or set apart for
payment on the $25 Cumulative Preferred Stock of any one series for any dividend
period unless
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dividends in full have been paid or are set apart for payment on the $25
Cumulative Preferred Stock of all series for all dividend periods terminating on
the same or an earlier date. When the stated dividends are not paid in full on
all series of the $25 Cumulative Preferred Stock, the shares of all series
shall share ratably in the payment of dividends, including accumulations, if
any, in accordance with the sums which would be payable on said shares if all
dividends were declared and paid in full. A "dividend period" is the period
between any two consecutive dividend payment dates (or, when shares are
originally issued, the period from the date from which dividends are cumulative
to the first dividend payment date) as fixed for a particular series. Accruals
of dividends shall not bear interest.
No dividends shall be paid on, or declared or set side for, any share of the
$25 Cumulative Preferred Stock or any share of Preferred Stock of any series for
any dividend period unless at the same time a like proportionate dividend for
the same dividend period, ratably in proportion to the respective annual
dividend rates fixed therefor, shall be paid on, or declared and set aside for,
all shares of the $25 Cumulative Preferred Stock and all shares of Preferred
Stock of all series then issued and outstanding and entitled to receive
dividends. The dates on which dividends, if declared, shall be payable on
shares of all series of the $25 Cumulative Preferred Stock and Preferred Stock
shall be March 1, June 1, September 1 and December 1 of each year, commencing
with the date determined for a particular series by the Board of Directors when
fixing the designation, relative rights, preferences and limitations of the
shares of such series.
In no event so long as any shares of the $25 Cumulative Preferred Stock shall
be outstanding, shall any dividend be paid or declared, nor any distribution
made, on any junior stock nor shall any shares of Junior stock be purchased,
redeemed, or otherwise acquired by the Corporation, nor shall any moneys be paid
to or set aside or made available for a sinking fund for the purchase or
redemption of any junior stock, unless all dividends on the $25 Cumulative
Preferred Stock of all series for all dividend periods terminating on or prior
to the date of such declaration, payment or distribution shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside;
provided that notwithstanding the foregoing, the Corporation may at any time (1)
pay dividends in junior stock or (2) purchase, redeem or otherwise acquire
junior stock in exchange for, or out of the net cash proceeds from the
concurrent sale of, other junior stock.
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Subject to the provisions of the preceding paragraph and such further
provisions as shall be fixed by the Board of Directors pursuant to paragraphs
(a) to (g) above, and not otherwise, such dividends and distributions as may be
determined by the Board of Directors of the Corporation may, from time to time,
be declared and paid or made upon shares of junior stock, out of funds legally
available therefor, and the $25 Cumulative Preferred Stock shall not be entitled
to participate in any such dividend or distribution so declared and paid or made
upon junior stock.
(B) To the extent and (subject to the provisions of this subdivision (B) other
than this sentence) upon the terms fixed by the Board of Directors with respect
to any particular series, the Corporation, at the option of the Board of
Directors, may redeem the whole or from time to time any part of one or more
series of the $25 Cumulative Preferred Stock, by paying therefor in cash the
amount per share fixed by the Board of Directors for the shares of such series
to be redeemed as herein authorized. Such sum is hereinafter in this
subdivision referred to as the "redemption price". If less than all outstanding
shares of any series are to be redeemed, the shares to be redeemed shall be
selected either by lot or pro rata in such manner as may be prescribed by
resolution of the Board of Directors. At least thirty (30) days prior to the
redemption date, notice of the proposed redemption shall be mailed to the
holders of record of the $25 Cumulative Preferred Stock to be redeemed, such
notice to be addressed to each such stockholder at his post office address as
shown on the records of the Corporation and the time of mailing such notice
shall be deemed to be the time of the giving of such notice. On or after the
date of redemption stated in such notice (sometimes referred to in this
paragraph as the "redemption date"), each holder of $25 Cumulative Preferred
Stock called for redemption shall surrender his certificate for such stock to
the Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the redemption price. In case less than all the
shares represented by any such surrendered certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares. On and after
the redemption date, unless default shall be made by the Corporation in
providing moneys at the time and place specified for the payment of the
redemption price, or, if the Corporation shall so elect, on and after a date
(which shall be prior to the redemption date and which, together with the fact
of such election, shall be set forth in the notice of redemption) on which the
Corporation shall provide moneys for the payment of the redemption price by
depositing the amount thereof as a trust fund for the account of the holders of
the $25 Cumulative Preferred Stock entitled thereto, with a bank or trust
company doing business in the Borough of Manhattan,
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City, County and State of New York, having capital, surplus and undivided
profits of at least Five Million Dollars ($5,000,000), all dividends on the $25
Cumulative Preferred Stock thereby called for redemption, notwithstanding that
the certificates representing any shares of $25 Cumulative Preferred Stock
called for redemption shall not have been surrendered, shall cease to accrue
and, subject to any conversion rights of any particular series which may
continue to the close of business of the redemption date, all rights of the
holders thereof as stockholders of the Corporation, except only the right, upon
surrender of certificate therefor to receive the redemption price thereof,
without interest, shall cease and determine, and such shares shall not be deemed
to be outstanding for any purpose. Any moneys so deposited and remaining
unclaimed at the end of six (6) years from the redemption date shall, if
thereafter requested by resolution of the Board of Directors, be repaid to the
Corporation, and in the event of such repayment to the Corporation, such holders
of record of the shares of $25 Cumulative Preferred Stock so called for
redemption as shall not have made claim against such moneys prior to such
repayment to the Corporation shall look only to the Corporation for payment
thereof. Any interest accrued on any funds so deposited shall belong to the
Corporation and be paid to it from time to time.
Unless all dividends on the $25 Cumulative Preferred Stock of all series for
all dividend periods terminating on or prior to the date of such redemption or
purchase shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside, the Corporation may not other than by the use of
unapplied funds, if any, theretofore paid into, or set aside for, a sinking or
purchase fund or funds (i) redeem any shares of the $25 Cumulative Preferred
Stock unless all shares thereof and all shares of Preferred Stock are redeemed
or (ii) purchase or otherwise acquire for a consideration any shares of the $25
Cumulative Preferred Stock except upon conversion or pursuant to offers of sale
made by holders of the $25 Cumulative Preferred Stock in response to an
invitation for tenders given simultaneously by the Corporation by mail to all
holders of record of shares of the $25 Cumulative Preferred Stock and of shares
of the Preferred Stock then outstanding. Subject to such restriction, nothing
herein contained shall limit any legal right of the Corporation to purchase any
shares of the $25 Cumulative Preferred Stock and the same may be retired by the
Corporation in any manner provided by law.
Any shares of $25 Cumulative Preferred Stock, redeemed, purchased or
otherwise acquired by the Corporation, including acquisitions upon conversion,
shall have the status of authorized and unissued shares, undesignated as to
series, and may thereafter in the discretion of the Board of Directors and
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to the extent permitted by law, be sold or reissued from time to time, as part
of the same or another series, subject to the terms and conditions herein
provided and subject to any provisions fixed by the Board of Directors with
respect to the issuance of additional shares of such series.
(C) Upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation the $25 Cumulative Preferred Stock of each series shall be
entitled, before any distribution shall be made to any junior stock, to be
paid, out of the net assets of the Corporation, the full preferential amounts
(not less than $25 per share) fixed by the Board of Directors for such series as
herein authorized, plus in each case an amount which shall be equal to the
dividends accrued and unpaid thereon, whether or not earned or declared, to the
date of final distribution to the holder thereof; but the $25 Cumulative
Preferred Stock shall not be entitled to any further payment. If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the net assets of the Corporation shall be insufficient to permit
the payment to all outstanding shares of $25 Cumulative Preferred Stock of all
series of the full amounts to which they are respectively entitled as aforesaid,
then the entire net assets of the Corporation shall be distributed ratably to
all outstanding shares of $25 Cumulative Preferred Stock in proportion to the
full amount to which each such share is entitled as aforesaid. Neither a
consolidation nor merger of the Corporation with or into any other corporation
or corporations, nor the sale of all or substantially all of the assets of the
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation, within the meaning of this paragraph subdivision (C).
If upon any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary, the net assets of the Corporation available
for distribution shall be insufficient to permit the payment to all outstanding
shares of $25 Cumulative Preferred Stock and all outstanding shares of Preferred
Stock of all series of the full amounts to which they are respectively entitled,
then such outstanding shares of $25 Cumulative Preferred Stock and outstanding
shares of Preferred Stock of all series shall share ratably in any such
distribution of assets in proportion to the full amounts to which they are
respectively entitled if all such amounts were paid in full.
(D) Consent of the holders of at least two-thirds in amount of the $25
Cumulative Preferred Stock at the time outstanding, given in person or by proxy,
at a special meeting called for that purpose at which the $25 Cumulative
Preferred Stock shall vote as a class, shall be necessary for effecting or
validating
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(1) any amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation, as amended, relating to the $25 Cumulative
Preferred Stock which would adversely affect the $25 Cumulative Preferred
Stock; provided, however, that if any such amendment, alteration or repeal
shall affect adversely the rights or preferences of one or more, but not all,
of the series of $25 Cumulative Preferred Stock at the time outstanding, the
consent of the holders of at least two-thirds of the shares then outstanding
of each such series so adversely affected only shall be required in lieu of
the consent of the holders of two-thirds of the shares of $25 Cumulative
Preferred Stock as a class; and provided further that, whether or not the
holders of the $25 Cumulative Preferred Stock shall at the time be entitled to
elect members of the Board of Directors as provided in subdivision (G) below,
an amendment of the Certificate of Incorporation which increases or decreases
the number of members of the Board of Directors or provide that the number of
such members shall be fixed by the by-laws within minimum and maximum limits
shall not be deemed to be an amendment which would adversely affect the $25
Cumulative Preferred Stock within the meaning of this clause (1); or
(2) the authorization or creation of shares having preferences which are in
any respect superior to the preferences of the outstanding shares of the $25
Cumulative Preferred Stock, or the authorization or creation of any stock or
other securities convertible into or evidencing the right to purchase any such
shares having preferences which are in any respect superior to the preferences
of the outstanding shares of the $25 Cumulative Preferred Stock; or
(3) the issue of any additional shares of the $25 Cumulative Preferred Stock
or of any class of stock ranking on a parity with the $25 Cumulative Preferred
Stock with respect to dividends or rights upon dissolution, liquidation or
winding up of the Corporation's affairs, whether voluntary or involuntary,
unless the net earnings available for interest for any twelve consecutive
calendar months within the fifteen calendar months immediately preceding the
month within such shares are proposed to be issued, have been at least one and
one-half times the sum of (a) interest charges for twelve months on the funded
debt outstanding at the date of the proposed issue of such shares (excluding
any funded debt proposed to be retired in connection with such issue); and (b)
the dividend requirements for one full year on all shares of $25 Cumulative
Preferred Stock and all stock ranking on a parity therewith to be outstanding
immediately after such proposed issuance, provided, that nothing herein
contained shall prevent the Corporation from issuing shares of $25
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Cumulative Preferred Stock or of any class of such parity stock in connection
with the purchase, redemption or other acquisition of or in exchange for
shares of $25 Cumulative Preferred Stock or any shares of any class of such
parity stock if the aggregate amount of annual dividends payable on the shares
to be issued shall not exceed the aggregate amount of annual dividends payable
on such shares so purchased, redeemed, acquired or exchanged.
(E) Except as and to the extent otherwise required by law, consent of the
holders of at least a majority in amount of the $25 Cumulative Preferred Stock
at the time outstanding, given in person or by proxy, at a special meeting
called for that purpose at which the $25 Cumulative Preferred Stock shall vote
as a class, shall be necessary for effecting or validating
(1) the sale, lease or transfer (except to a wholly-owned subsidiary) of
all or substantially all of the property or business of the Corporation; or
(2) a merger or consolidation of the Corporation with any other
corporation, unless (i) the company resulting from such merger or
consolidation will, immediately after such merger or consolidation, have only
such authorized classes of stock and such outstanding shares of stock as would
have been permitted immediately prior to such merger or consolidation under
the provisions hereof without any consent of the holders of the $25 Cumulative
Preferred Stock, and (ii) each holder of the $25 Cumulative Preferred Stock
immediately preceding such merger or consolidation shall receive, the same
number of shares, with the same rights and preferences, of the resulting
company. For the purpose of this clause (2), in so far as any earnings test
may be applicable, the earnings, interest charges on funded debt and dividend
requirements of the merging or consolidating companies shall be determined on
a combined basis.
(F) No holder of the $25 Cumulative Preferred Stock of the Corporation shall
be entitled as of right to purchase or subscribe for any part of the unissued
stock of the Corporation or of any stock of the Corporation to be issued by
reason of any increase of the authorized capital stock of the Corporation, or to
purchase or subscribe for any bonds, certificates of indebtedness, debentures or
other securities convertible into or carrying options or warrants to purchase
stock or other securities of the Corporation or to purchase or subscribe for
any stock of the Corporation purchased by the Corporation or by its nominee or
nominees, or to have any other preemptive rights as now or hereafter defined by
the laws of the State of New York.
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(G) Except as and to the extent otherwise provided herein or required by
law, the $25 Cumulative Preferred Stock shall not entitle any holder thereof to
vote at any meeting of stockholders or election of the Corporation, or otherwise
to participate in any action taken by the Corporation or the stockholders
thereof; provided, however, that whenever dividends payable on the $25
Cumulative Preferred Stock shall be in default in an aggregate amount equivalent
to four full quarterly dividends on all shares of such $25 Cumulative Preferred
Stock then outstanding, the holders of shares of the $25 Cumulative Preferred
Stock, voting separately as a class and regardless of series, shall be entitled
to elect two directors, and the holders of any other class or classes of stock
of the Corporation entitled to vote for the election of directors shall be
entitled, voting separately, to elect the remainder of the Board of Directors of
the Corporation, as then constituted. The right of the holders of the $25
Cumulative Preferred Stock voting separately as a class to elect members of the
Board of Directors of the Corporation as aforesaid shall continue until such
time as all dividends accumulated on the $25 Cumulative Preferred Stock shall
have been paid in full, or declared and set apart for payment (and such
dividends shall be paid, or declared and set apart for payment, out of assets
available therefor as soon as is reasonably practicable), at which time the
right of the holders of shares of the $25 Cumulative Preferred Stock voting
separately as a class to elect members of the Board of Directors as aforesaid
and the right of any other class or classes of stock of the Corporation entitled
to vote for the election of directors voting separately to elect the remainder
of the Board of Directors as aforesaid shall terminate, subject to revesting in
the event of each and every subsequent default of the character above mentioned.
The aforesaid rights of the $25 Cumulative Preferred Stock and of any other
class or classes of stock of the Corporation to vote separately for the election
of members of the Board of Directors may be exercised at any annual meeting of
stockholders of the Corporation or at a special meeting of stockholders of the
Corporation held for the purpose of electing directors.
At such time when the right of the holders of the $25 Cumulative Preferred
Stock to elect members of the Board of Directors as aforesaid shall have become
vested as aforesaid, a special meeting of stockholders of the Corporation may
be called and held for the purpose of electing directors in the following manner
(unless under the provisions of the by-laws of the Corporation, as then in
effect, an annual meeting of stockholders of the Corporation is to be held
within sixty (60) days after the vesting in the holders of the $25 Cumulative
Preferred Stock of the right to elect members of the Board of Directors).
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Upon the written request of any holder of record of the $25 Cumulative
Preferred Stock then outstanding, regardless of series, addressed to the
Secretary of the Corporation, the Secretary or an Assistant Secretary of the
Corporation shall call a special meeting of the stockholders entitled to vote
for the election of directors, for the purpose of electing the members of the
Board of Directors to be elected by the vote of the $25 Cumulative Preferred
Stock, and the remainder of the Board of Directors to be elected by the vote of
such other class or classes of stock as may then be entitled to vote for the
election of directors, voting separately as hereinbefore provided. Such meeting
shall be held within fifty (50) days after personal service of the said written
request upon the Secretary of the Corporation, or within fifty (50) days after
mailing the same within the United States of America by registered mail
addressed to the Secretary of the Corporation at its principal office, but not
less that ten (10) nor more than forty (40) days after the notice of the meeting
is given to the stockholders. If such meeting shall not be called within twenty
(20) days of such personal service or mailing, then the holders of record of
five per cent (5%) of the $25 Cumulative Preferred Stock then outstanding,
regardless of series, may designate in writing any holder of record of the $25
Cumulative Preferred Stock to call such special meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholders and shall be held at the
place for the holding of annual meetings of stockholders of the Corporation.
Any holder of the $25 Cumulative Preferred Stock so designated shall have
access to the stock books of the Corporation for the purpose of causing said
meeting to be called as aforesaid.
At any annual or special meeting held for the purpose of electing directors
when the holders of the $25 Cumulative Preferred Stock shall be entitled to
elect members of the Board of Directors as aforesaid, the presence in person or
by proxy of the holders of a majority of the total number of outstanding shares
of the class or classes of stock of the Corporation other than the $25
Cumulative Preferred Stock entitled to elect directors as aforesaid shall be
required to constitute a quorum of such class or classes for the election of
directors by such class or classes, and the presence in person or by proxy of
the holders of a majority of the total number of outstanding shares of the $25
Cumulative Preferred Stock shall be required to constitute a quorum of such
class for the election of directors by such class.
At any meeting held for the purpose of electing directors at which the
holders of the $25 Cumulative Preferred Stock shall have the right, voting
separately as a class, to elect directors
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as aforesaid, or at any adjournment thereof, (a) the absence of a quorum of the
$25 Cumulative Preferred Stock shall not prevent the election of directors to be
elected by the holders of stock other than the $25 Cumulative Preferred Stock
and the absence of a quorum of stock other than the $25 Cumulative Preferred
Stock shall not prevent the election of the directors to be elected by the $25
Cumulative Preferred Stock, or prevent the $25 Cumulative Preferred Stock from
designating, upon the failure of the then acting Board of Directors so to
designate, the directors whose terms of office shall terminate upon the election
and qualification of their successors, and (b) in the absence of such quorum,
either of the $25 Cumulative Preferred Stock or of stock other than the $25
Cumulative Preferred Stock, or both, a majority of the holders present in person
or by proxy of the stock, or stocks, which lack a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled to
elect from time to time without notice other than announcement at the meeting
until a quorum shall be present. The term of office of the directors in office
at any time when the holders of the $25 Cumulative Preferred Stock, voting
separately as a class, shall as aforesaid be entitled to elect directors, shall
terminate upon the election of any new directors to succeed them at any meeting
of stockholders.
Upon any termination of the right of the holders of the $25 Cumulative
Preferred Stock to elect members of the Board of Directors as aforesaid, the
term of office of the directors then in office shall terminate upon the election
of a new Board of Directors at a meeting of the holders of the class or classes
of stock of the Corporation then entitled to vote for directors, which meeting
may be held at any time after such termination of such right, and shall be
called upon request of any holder of record of such class or classes of stock
then entitled to vote for directors, in like manner and subject to similar
conditions as hereinbefore in this paragraph (G) provided with respect to the
call of a special meeting of stockholders for the election of directors by the
holders of the $25 Cumulative Preferred Stock.
In case of any vacancy in the office of a director occurring among the
directors elected by the holders of the $25 Cumulative Preferred Stock as
aforesaid, or of a successor to any such director, the remaining director so
elected may elect a successor or successors to hold office for the unexpired
term of the director whose place shall be vacant, and such successor shall be
deemed to have been elected by the holders of the $25 Cumulative Preferred Stock
as aforesaid. Likewise, in case of any vacancy in the office of the director
occurring (at a time when the holders of the $25 Cumulative Preferred Stock
shall be entitled to elect members of the Board of Directors as aforesaid) among
the directors elected by the holders of the
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class or classes of stock of the Corporation other than the $25 Cumulative
Preferred Stock, or of a successor to any such director, the remaining directors
so elected, by affirmative vote of a majority thereof, or the remaining director
so elected if there be but one, may elect, a successor or successors to hold
office for the unexpired term of the director or directors whose place or places
shall be vacant, and such successor or successors shall be deemed to have been
elected by such holders of the class or classes of stock of the Corporation
other than the $25 Cumulative Preferred Stock. In case, at a time when the
holders of the $25 Cumulative Preferred Stock shall be entitled to elect members
of the Board of Directors as aforesaid, holders of the class or classes of stock
of the Corporation other than the $25 Cumulative Preferred Stock shall become
entitled to elect an additional director or directors by reason of an increase
in the aggregate membership of the Board of Directors, the additional director
or directors may be elected by the directors elected by the holder of the class
or classes of stock of the Corporation other than the $25 Cumulative Preferred
Stock, by affirmative vote of a majority thereof, and the additional director or
directors so elected shall be deemed to have been elected by the holders of the
class or classes of stock of the Corporation other than the $25 Cumulative
Preferred Stock.
Except as herein otherwise expressly provided and except when some mandatory
provision of law shall be controlling and except, as regards any special rights
of any series of the $25 Cumulative Preferred Stock, as provided in the
resolutions creating such series, whenever shares of two or more series of the
$25 Cumulative Preferred Stock are outstanding, no particular series of the $25
Cumulative Preferred Stock shall be entitled to vote as a separate series on any
matter and all shares of the $25 Cumulative Preferred Stock of all series shall
be deemed to constitute but one class for any purpose for which a vote of the
stockholders of the Corporation by classes may now or hereafter be required.
(H) Wherever used in this Article and in any resolution adopted by the Board
of Directors providing for the issue of any particular series of $25 Cumulative
Preferred Stock as herein authorized, the following terms shall have the
meanings set forth below.
The term "junior stock" means any stock of the Corporation over which the $25
Cumulative Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
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The term "accrued dividends", when used with reference to any shares of $25
Cumulative Preferred Stock of any series, means an amount computed at the annual
dividend rate for the particular series determined by the Board of Directors as
herein authorized, from the date or dates from which the dividends on such
shares become cumulative to the date to which dividends are stated to be accrued
less the aggregate of the dividends theretofore paid thereon.
The term "subsidiary" means a corporation at least fifty-one per cent (51%)
of the capital stock of which having voting power for the election of
directors (either at all times or so long as no senior stock has voting power
for the election of directors because of defaulted dividends) is at the time in
question owned or controlled by the Corporation, directly or indirectly through
one or more subsidiaries.
The term "net earnings available for interest" means the net earnings of the
Corporation, or the consolidated net earnings of the Corporation and its
subsidiaries if there shall be any subsidiaries, available for interest on
funded debt before deducting taxes based on net income and in accordance with
generally accepted accounting practice. In computing such net earnings, (i)
there shall be included the net earnings available for interest on funded debt
of all properties owned by the Corporation and its subsidiaries, if any, at the
date of such computation and of all properties to be acquired by the Corporation
and its subsidiaries, if any, with the proceeds of any stock in connection with
the proposed issuance of which such computation is made, the net earnings
available for interest on funded debt of any such property to be computed, in
the manner stated above, as if such property had been owned by the Corporation
or its subsidiaries, if any, during the entire period for which such computation
is made, (ii) appropriate adjustment shall be made to give effect to any
changes in such net earnings resulting from any redemption, acquisition,
purchase, sale or exchange of securities by the Corporation or its subsidiaries,
if any, either prior to the issuance of the stock then to be issued or in
connection therewith, (iii) no effect shall be given to any discount or expense
applicable to securities of the Corporation or its subsidiaries, if any,
outstanding at any time during the period for which the computation is made, and
(iv) interest credits charged to construction shall be added to net earnings.
The term "funded debt" means any indebtedness maturing by its terms more than
twelve months from the date of the original creation thereof and shall include
all such indebtedness issued, assumed or guaranteed by the Corporation or any
subsidiary.
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The certificate of any firm of independent public accountants of recognized
standing, selected by the Board of Directors, shall be conclusive evidence of
the amount of net earnings available for interest and of the amount of any items
used in ascertaining any of the amounts required to be determined in this
Article or in any resolution adopted by the Board of Directors pursuant to this
Article.
Article VI.
(1) Series B Preferred Stock
150,000 authorized shares of Preferred Stock, of the par value of $100 each,
none of which has been issued, shall be issued in and as a series to be
designated "4.60% Cumulative Preferred Stock, Series B, $100 par value". Said
series is hereinafter called the "Series B Preferred Stock". The term
"Preferred Stock" as used herein shall include all shares of the Cumulative
Preferred Stock, $100 par value, authorized by the Certificate of Incorporation
of the Corporation, of which the Series B Preferred Stock is a series.
The designation, relative rights, preferences and limitations of all shares of
the Series B Preferred Stock, insofar as not already fixed by the Certificate
of Incorporation, as heretofore amended and supplemented by certificates filed
pursuant to law, shall, as fixed by the Corporation's Board of Directors in the
exercise of authority conferred by the Certificate of Incorporation, as
heretofore amended and supplemented by certificates filed pursuant to law, and
as permitted by Section 502 of the Business Corporation Law, be as follows:
A. The annual dividend rate for the Series B Preferred Stock shall be 4.60%
per annum of the par value thereof; the dates on which dividends shall be
payable, if declared, shall be March 1, June 1, September 1 and December 1 of
each year, and the date from and after which dividends on the Series B Preferred
Stock shall be cumulative is March 1, 1965.
B. The Series B Preferred Stock shall be subject to redemption, at the option
of the Corporation, in whole at any time or from time to time in part, on the
notice and otherwise upon the terms set forth in the Certificate of
Incorporation of the Corporation, at the following redemption prices:
Price
Per Share
---------
If redeemed prior to March 1, 1975, $105
If redeemed on or after March 1, 1975,
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and prior to March 1, 1980, 104
If redeemed on or after March 1, 1980,
and prior to March 1, 1985, and 103
If redeemed on or after March 1, 1985, 102
plus, in each case, an amount equal to the dividends accrued and unpaid thereon
to the redemption date, whether or not earned or declared; provided, however,
that prior to March 1, 1970 none of the shares of the Series B Preferred Stock
may be redeemed directly or indirectly from the proceeds of, or in anticipation
of, any refunding operation through the incurring of debt, or through the
issuances of Preferred Stock (or of any other class of stock ranking prior to or
on a parity with the Series B Preferred Stock as to dividends or rights upon
dissolution, liquidation or winding up) if such debt has an interest cost, or
such Preferred Stock or other stock has a dividend cost to the Corporation,
calculated in each case in accordance with customary financial practice, of less
than 4.60%.
The Series B Preferred Stock shall also be subject to redemption through the
operation of the Sinking Fund established in paragraph D below at the redemption
price (the "Sinking Fund Redemption Price") of $100 per share, plus an amount
equal to the dividends accrued and unpaid thereon to the redemption date,
whether or not earned or declared.
In addition, the Corporation shall have the right, at its option, to redeem
at the Sinking Fund Redemption Price on March 1, 1970 and on any March 1
thereafter a number of shares of Series B Preferred Stock up to, but not
exceeding, the number of shares which on such March 1 the Corporation is
obligated to redeem pursuant to the Sinking Fund established in paragraph D
below (computed before deduction of any credits permitted under said paragraph
D). This right shall not be cumulative and shall be lost to the extent not
exercised on any such March 1. Any shares redeemed pursuant to this paragraph
shall not be considered as having been redeemed through the operation of such
Sinking Fund and therefore shall be available at the election of the Corporation
as a credit against the Sinking Fund established in paragraph D below.
Whenever some but less than all shares of Series B Preferred Stock are to be
redeemed, the Corporation shall redeem that portion (to the nearest 10 shares)
of the shares held by each holder which bears the same ratio to the aggregate
number of shares held by such holder as the number of shares to be redeemed
bears to the aggregate number of shares of Series B preferred Stock outstanding.
For the purpose of this paragraph, the stock books of the Corporation shall be
conclusive as to the persons, firms or corporations holding shares of Series B
Preferred Stock.
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Shares of Series B Preferred Stock redeemed shall not be reissued or
otherwise disposed of as shares of Series B Preferred Stock.
C. Upon any voluntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series B Preferred Stock shall be entitled,
before any distribution shall be made to any junior stock, to be paid, out of
the net assets of the Corporation, an amount equal to the then applicable
optional redemption price fixed in the foregoing paragraph B, plus an amount
which shall be equal to the dividends accrued and unpaid thereon to the date of
final distribution to such holders, whether or not earned or declared.
D. There shall be a sinking fund (hereinafter called the "Sinking Fund")
for the benefit of the shares of Series B Preferred Stock. For the purposes of
the Sinking Fund, out of any net assets of the Corporation legally available
therefor remaining after full cumulative dividends upon all series of the
Preferred Stock then outstanding to the end of the last preceding dividend
period therefor shall have been paid, or declared and a sum sufficient for the
payment thereof set apart for such payment, the Corporation shall set aside in
cash annually on March 1 in each year commencing with March 1, 1970, so long as
there shall be outstanding any shares of Series B Preferred Stock, an amount
sufficient to redeem, at the Sinking Fund Redemption Price, 2% of the highest
number of shares of Series B Preferred Stock outstanding at any time prior to
the close of business on March 1, 1970; provided, however, that there shall be
allowed to the Corporation as a credit thereagainst shares of Series B
Preferred Stock which the Corporation may have redeemed (otherwise than through
the operation of the Sinking Fund established in this paragraph D) which have
not theretofore been used for the purpose of any such credit and which the
Corporation shall elect to apply as a credit against the Sinking Fund. The Sink-
ing Fund shall be cumulative so that if on any such March 1 the net assets of
the Corporation legally available therefor shall be insufficient to permit any
such amount to be set aside in full, or if for any other reason such amount
shall not have been set aside in full, the amount of the deficiency shall be set
aside, but without interest, before any dividend shall be paid or declared, or
any distribution made, on any junior stock or any shares of junior stock shall
be purchased, redeemed, or otherwise acquired by the Corporation, or any moneys
shall be paid to or set aside or made available for a sinking fund for the
purchase or redemption of any junior stock. Notwithstanding the foregoing, the
Corporation may at any time (1) pay dividends in junior stock or (2) purchase,
redeem or otherwise acquire junior stock in exchange for, or out of the net cash
proceeds from the concurrent sale of, other junior stock.
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Moneys in the Sinking Fund shall be applied on such March 1 to the
redemption of shares of Series B Preferred Stock as above provided, and the
Corporation shall pay on such redemption from its general funds an amount equal
to the accrued and unpaid dividends on the shares so called for redemption. The
Corporation shall, prior to each such Sinking Fund redemption, give notice of
redemption in the manner provided in the Certificate of Incorporation of the
Corporation of such number of shares of Series B Preferred Stock as may be
required to exhaust the Sinking Fund. The term "junior stock" as used in this
paragraph D shall have the meaning assigned to that term herein.
If for any reason the aggregate amount required to be set aside for the
Sinking Fund shall not have been set aside in full through the last preceding
March 1, the Corporation shall, so long as any such deficiency exists, set aside
or apply to the sinking or purchase fund for each series of Preferred Stock,
including the Series B Preferred Stock, only such amounts as shall be in
proportion to the respective amounts which would be set aside or payable on
account of each such sinking or purchase fund if such sinking or purchase fund
were set aside or paid in full.
(2) Series C Preferred Stock
150,000 authorized shares of Preferred Stock, of the par value of $100 each,
none of which has been issued, shall be issued in and as a series to be
designated "8.60% Cumulative Preferred Stock, Series C, $100 par value". Said
series is hereinafter called the "Series C Preferred Stock". The term
"Preferred Stock" as used herein shall include all shares of the Cumulative
Preferred Stock, $100 par value, authorized by the Certificate of Incorporation
of the Corporation, of which the Series C Preferred Stock is a series.
The designation, relative rights, preferences and limitations of all shares
of the Series C Preferred Stock, insofar as not already fixed by the Certificate
of Incorporation, as heretofore amended and supplemented by certificates filled
pursuant to law, shall, as fixed by the Corporation's Board of Directors in the
exercise of authority conferred by the Certificate of Incorporation, as
heretofore amended and supplemented by certificates filed pursuant to law, and
as permitted by Section 502 of the Business Corporation Law, be as follows:
A. The annual dividend rate for the Series C Preferred Stock shall be 8.60%
per annum of the par value thereof; the dates on which dividends shall be
payable, if declared, shall be
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<PAGE>
March 1, June 1, September 1 and December 1 of each year, and the date from and
after which dividends on the Series C Preferred Stock shall be cumulative is the
date of issuance thereof.
B. The Series C Preferred Stock shall be subject to redemption, at the
option of the Corporation, in whole at any time or from time to time in part, on
the notice and otherwise upon the terms set forth in Certificate of
Incorporation of the Corporation, at the following redemption prices:
Price
Per Share
---------
If redeemed prior to June 1, 1976, $110.37
If redeemed on or after June 1, 1976
and prior to June 1, 1981, 108.22
If redeemed on or after June 1, 1981,
and prior to June 1, 1986, and 106.07
If redeemed on or after June 1, 1986, 103.92
plus, in each case, an amount equal to the dividends accrued and unpaid thereon
to the redemption date, whether or not earned or declared; provided, however,
that prior to June 1, 1976 none of the shares of the Series C Preferred Stock
may be redeemed directly or indirectly from the proceeds of, or in anticipation
of, any refunding operation through the incurring of debt, or through the
issuance of Preferred Stock (or of any other class of stock ranking prior to or
on a parity with the Series C Preferred Stock as to dividends or rights upon
dissolution, liquidation or winding up) if such debt has an interest cost, or
such Preferred Stock or other stock has a dividend cost to the Corporation,
calculated in each case in accordance with customary financial practice, of less
than 8.59%.
The Series C Preferred Stock shall also be subject to redemption through the
operation of the Sinking Fund established in paragraph D below at the
redemption price (the "Sinking Fund Redemption Price") of $100 per share, plus
an amount equal to the dividends accrued and unpaid thereon to the redemption
date, whether or not earned or declared.
In addition, the Corporation shall have the right, at its option, to redeem
at the Sinking Fund Redemption Price on June 1, 1976 and on any June 1
thereafter a number of shares of Series C Preferred Stock up to, but not
exceeding, the number of shares which on such June 1 the Corporation is
obligated to redeem pursuant to the Sinking Fund established in paragraph D
below (computed before deduction of any credits permitted under said paragraph
D). This right shall not be cumulative and shall be lost to the extent not
exercised on any such June 1. Any
32
<PAGE>
shares redeemed pursuant to this paragraph shall not be considered as having
been redeemed through the operation of such Sinking Fund for purposes of the
credit against such Sinking Fund permitted by paragraph D below and therefore
shall be available at the election of the Corporation as such a credit.
Whenever some but less than all shares of Series C Preferred Stock are to be
redeemed, the Corporation shall redeem that portion (to the nearest 10 shares)
of the shares held by each holder which bears the same ratio to the aggregate
number of shares held by such holder as the number of shares to be redeemed
bears to the aggregate number of shares of Series C Preferred Stock outstanding.
For the purposes of this paragraph, the stock books of the Corporation shall be
conclusive as to the persons, firms or corporations holding shares of Series C
Preferred Stock.
Shares of Series C Preferred Stock redeemed shall not be reissued or
otherwise disposed of as shares of Series C Preferred Stock.
C. Upon any voluntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series C Preferred Stock shall be entitled,
before any distribution shall be made to any junior stock, to be paid, out of
the net assets of the Corporation, an amount equal to the then applicable
optional redemption price fixed in the foregoing paragraph B, plus an amount
which shall be equal to the dividends accrued and unpaid thereon to the date of
final distribution to such holders, whether or not earned or declared.
D. There shall be a sinking fund (hereinafter called the "Sinking Fund") for
the benefit of the shares of Series C Preferred Stock. For the purposes of the
Sinking Fund, out of any net assets of the Corporation legally available
therefor remaining after full cumulative dividends upon all series of the
Preferred Stock then outstanding to the end of the last preceding dividend
period therefor shall have been paid, or declared and a sum sufficient for the
payment thereof set apart for such payment, the Corporation shall set aside in
cash annually on June 1 in each year commencing with June 1, 1976, so long as
there shall be outstanding any shares of Series C Preferred Stock, an amount
sufficient to redeem at the Sinking Fund Redemption Price, 2% of the highest
number of shares of Series C Preferred Stock outstanding at any time prior to
the close of business on June 1, 1976; provided, however, that there shall be
allowed to the Corporation as a credit thereagainst shares of Series C
Preferred Stock which the Corporation may have redeemed (otherwise than through
the operation of the Sinking Fund established in this paragraph D) which have
not
33
<PAGE>
theretofore been used for the purpose of any such credit and which the
Corporation shall elect to apply as a credit against the Sinking Fund. The
Sinking Fund shall be cumulative so that if on any such June 1 the net assets of
the Corporation legally available therefor shall be insufficient to permit any
such amount to be set aside in full, or if for any other reason such amount
shall not have been set aside in full, the amount of the deficiency shall be set
aside, but without interest, before any dividend shall be paid or declared, or
any distribution made, on any junior stock or any shares of junior stock shall
be purchased, redeemed, or otherwise acquired by the Corporation, or any moneys
shall be paid to or set aside or made available for a sinking fund for the
purchase or redemption of any junior stock. Notwithstanding the foregoing, the
Corporation may at any time (1) pay dividends in junior stock or (2) purchase,
redeem or otherwise acquire junior stock in exchange for, or out of the net cash
proceeds from the concurrent sale of, other junior stock.
Moneys in the Sinking Fund shall be applied on such June 1 to the redemption
of shares of Series C Preferred Stock as above provided, and the Corporation
shall pay on such redemption from its general funds an amount equal to the
accrued and unpaid dividends on the shares so called for redemption. The
Corporation shall, prior to each such Sinking Fund redemption, give notice of
redemption in the manner provided in the Certificate of Incorporation of the
Corporation of such number of shares of Series C Preferred Stock as may be
required to satisfy the Sinking Fund. The term "junior stock" as used in
paragraphs C and D shall have the meaning assigned to that term herein.
If for any reason the aggregate amount required to be set aside for the
Sinking Fund shall not have been set aside in full through the last preceding
June 1, the Corporation shall, so long as any such deficiency exists, set aside
or apply to the sinking or purchase fund for each series of Preferred Stock,
including the Series C Preferred Stock, only such amounts as shall be in
proportion to the respective amounts which would be set aside or payable on
account of each such sinking or purchase fund if such sinking or purchase fund
were set aside or paid in full.
(3) Series D Preferred Stock
200,000 authorized shares of Preferred Stock, of the par value of $100 each,
none of which has been issued, shall be issued in and as a series to be
designated "8.92% Cumulative Preferred Stock, Series D, $100 par value". Said
series is hereinafter called the "Series D Preferred Stock". The term
34
<PAGE>
"Preferred Stock" as used herein shall include all shares of the Cumulative
Preferred Stock, $100 par value, authorized by the Certificate of Incorporation
of the Corporation, of which the Series D Preferred Stock is a series.
The designation, relative rights, preferences and limitations of all shares
of the Series D Preferred Stock, insofar as not already fixed by the
Certificate of Incorporation, as heretofore amended and supplemented by
certificates filed pursuant to law, shall, as fixed by the Corporation's Board
of Directors in the exercise of authority conferred by the Certificate of
Incorporation, as heretofore amended and supplemented by certificates filed
pursuant to law, and as permitted by Section 502 of the Business Corporation
Law, be as follows:
A. The annual dividend rate for the Series D Preferred Stock shall be 8.92%
per annum of the par value thereof; the dates on which dividends shall be
payable, if declared, shall be and March 1, June 1, September 1 and December 1
of each year, and the date from and after which dividends on the Series D
Preferred Stock shall be cumulative is the date of issuance thereof.
B. The Series D Preferred Stock shall be subject to redemption, at the
option of the Corporation, in whole at any time or from time to time in part, on
the notice and otherwise upon the terms set forth in the Certificate of
Incorporation of the Corporation, at the following redemption prices:
Price
Per Share
---------
If redeemed prior to March 1, 1979, $110.28
If redeemed on or after March 1, 1979
and prior to March 1, 1984, 108.05
If redeemed on or after March 1, 1984,
and prior to March 1, 1989, and 105.82
If redeemed on or after March 1, 1989, 103.59
plus, in each case, an amount equal to the dividends accrued and unpaid thereon
to the redemption date, whether or not earned or declared; provided, however,
that prior to March 1, 1979 none of the shares of the Series D Preferred
Stock may be redeemed directly or indirectly from the proceeds of, or in
anticipation of, any refunding operation through the incurring of debt, or
through the issuance of Preferred Stock (or of any other class of stock ranking
prior to or on a parity with the Series D Preferred Stock as to dividends or
rights upon dissolution, liquidation or winding up) if such debt has an
effective interest cost, or such Preferred Stock or other stock has an
35
<PAGE>
effective dividend cost, to the Corporation, calculated in each case in
accordance with customary financial practice, of less than 8.914%.
The Series D Preferred Stock shall also be subject to redemption through
the operation of the Sinking Fund established in paragraph D below at the
redemption price (the "Sinking Fund Redemption Price") of $100 per share, plus
an amount equal to the dividends accrued and unpaid thereon to the redemption
date, whether or not earned or declared.
In addition, the Corporation shall have the right, at its option, to redeem
at the Sinking Fund Redemption Price on March 1, 1979 and on any March 1
thereafter a number of shares of Series D Preferred Stock up to, but not
exceeding, the number of shares which on such March 1 the Corporation is
obligated to redeem pursuant to the Sinking Fund established in paragraph D
below (computed before deduction of any credits permitted under said paragraph
D). This right shall not be cumulative and shall be lost to the extent not
exercised on any such March 1. Any shares redeemed pursuant to this paragraph
shall not be considered as having been redeemed through the operation of such
Sinking Fund for purposes of the credit against such Sinking Fund permitted by
paragraph D below and therefore shall be available at the election of the
Corporation as such a credit.
Whenever some but less than all shares of Series D Preferred Stock are to be
redeemed, the Corporation shall redeem that portion (to the nearest 10 shares)
of the shares held by each holder which bears the same ratio to the aggregate
number of shares held by such holder as the number of shares to be redeemed
bears to the aggregate number of shares of Series D Preferred Stock outstanding.
For the purpose of this paragraph, the stock books of the Corporation shall be
conclusive as to the persons, firms or corporations holding shares of Series D
Preferred Stock.
Shares of Series D Preferred Stock redeemed shall not be reissued or
otherwise disposed of as shares of Series D Preferred Stock.
C. Upon any voluntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series D Preferred Stock shall be entitled,
before any distribution shall be made to any junior stock, to be paid, out of
the net assets of the Corporation, an amount equal to the then applicable
optional redemption price fixed in the foregoing paragraph B, plus an amount
which shall be equal to the dividends accrued and unpaid thereon to the date of
final distribution to such holders, whether or not earned or declared.
36
<PAGE>
D. There shall be a sinking fund (hereinafter called the "Sinking Fund") for
the benefit of the shares of Series D Preferred Stock. For the purpose of the
Sinking Fund, out of any net assets of the Corporation legally available
therefor remaining after full cumulative dividends upon all series of the
Preferred Stock then outstanding to the end of the last preceding dividend
period therefor shall have been paid, or declared and a sum sufficient for the
payment thereof set apart for such payment, the Corporation shall set aside in
cash annually on March 1 in each year commencing with March 1, 1979, so long
as there shall be outstanding any shares of Series D Preferred Stock, an amount
sufficient to redeem, at the Sinking Fund Redemption Price, 2% of the highest
number of shares of Series D Preferred Stock outstanding at any time prior to
the close of business on March 1, 1979; provided, however, that there shall be
allowed to the Corporation as a credit thereagainst shares of Series D Preferred
Stock which the Corporation may have acquired or redeemed (otherwise than
through the operation of the Sinking Fund established in this paragraph D) which
have not theretofore been used for the purpose of any such credit and which the
Corporation shall elect to apply as a credit against the Sinking Fund. The
Sinking Fund shall be cumulative so that if on any such March 1 the net assets
of the Corporation legally available therefor shall be insufficient to permit
any such amount to be set aside in full, or if for any other reason such amount
shall not have been set aside in full, the amount of the deficiency shall be set
aside, but without interest, before any dividend shall be paid or declared, or
any distribution made, on any junior stock or any shares of junior stock shall
be purchased, redeemed, or otherwise acquired by the Corporation, or any moneys
shall be paid to or set aside or made available for a sinking fund for the
purchase or redemption of any junior stock. Notwithstanding the foregoing, the
Corporation may at any time (1) pay dividends in junior stock or (2) purchase,
redeem or otherwise acquire junior stock in exchange for, or out of the net cash
proceeds from the concurrent sale of, other junior stock.
Moneys in the Sinking Fund shall be applied on such March 1 to the
redemption of shares of Series D Preferred Stock as above provided, and the
Corporation shall pay on such redemption from its general fund an amount equal
to the accrued and unpaid dividends on the shares so called for redemption. The
37
<PAGE>
Corporation shall, prior to each such Sinking Fund redemption, give notice of
redemption in the manner provided in the Certificate of Incorporation of the
Corporation of such number of shares of Series D Preferred Stock as may be
required to satisfy the Sinking Fund. The term "junior stock" as used in
paragraphs C and D shall have the meaning assigned to that term herein.
If for any reason the aggregate amount required to be set aside for the
Sinking Fund shall not have been set aside in full through the last preceding
June 1, the Corporation shall, so long as any such deficiency exists, set aside
or apply to the sinking or purchase fund for each series of Preferred Stock,
including the Series D Preferred Stock, only such amounts as shall be in
proportion to the respective amounts which would be set aside or payable on
account of each such sinking or purchase fund if such sinking or purchase fund
were set aside or paid in full.
(4) Series I Preferred Stock
800,000 authorized shares of $25 Cumulative Preferred Stock, none of which
has been issued, shall be issued in and as a series to be designated "$2.47
Cumulative Preferred Stock, Series I, $25 par value". Said series is
hereinafter called the "Series I Preferred Stock". The term "$25 Cumulative
Preferred Stock" as used herein shall include all 2,0000,000 shares of the
Cumulative Preferred Stock, $25 par value, authorized by the Certificate of
Incorporation of the Corporation, of which the Series I Preferred Stock is a
series.
The designation, relative rights, preferences and limitations of all shares
of the Series I Preferred Stock, insofar as not already fixed by the Certificate
of Incorporation, as heretofore amended and supplemented by certificates filed
pursuant to law, shall, as fixed by the Corporation's Board of Directors in the
exercise of authority conferred by the Certificate of Incorporation, as
heretofore amended and supplemented by certificates filed pursuant to law, and
as permitted by Section 502 of the Business Corporation Law, be as follows:
A. The annual dividend rate for the Series I Preferred Stock shall be $2.47
per share; the dates on which dividends shall be payable, if declared, shall be
March 1 June 1, September 1 and December 1 of each year, and the date from and
after which dividends on the Series I Preferred Stock shall be cumulative is the
date of issuance thereof.
38
<PAGE>
B. The Series I Preferred Stock shall be subject to redemption, at the
option of the Corporation, in whole at any time or from time to time in part, on
the notice and otherwise upon the terms set forth in the Certificate of
Incorporation of the Corporation, at the following redemption prices:
Price
Per Share
---------
If redeemed prior to September 1, 1981, $28.47
If redeemed on or after September 1, 1981,
and prior to September 1, 1986, 27.92
If redeemed on or after September 1, 1986,
and prior to September 1, 1991, 27.36
If redeemed on or after September 1, 1991,
and prior to September 1, 1996 26.81
If redeemed on or after September 1, 1996 26.25
plus, in each case, an amount equal to the dividends accrued and unpaid thereon
to the redemption date, whether or not earned or declared; provided, however,
that prior to September 1, 1981 none of the shares of the Series I Preferred
Stock may be redeemed directly or indirectly from the proceeds of, or in
anticipation of, any refunding operation through the incurring of debt, or
through the issuance of $25 Cumulative Preferred Stock (or of any other class of
stock ranking prior to or on a parity with the Series I Preferred Stock as to
dividends or rights upon dissolution, liquidation or winding up) if such debt
has an effective interest cost, or such Cumulative Preferred Stock or other
stock has an effective dividend cost, to the Corporation, calculated in each
case in accordance with customary financial practice, of less than 9.50%.
The Series I Preferred Stock shall also be subject to redemption through the
operation of the Sinking Fund established in paragraph D below at the following
redemption prices (the "Sinking Fund Redemption Prices")
Price
Per Share
---------
If redeemed on September 1, 1982 or any
September 1 thereafter prior to September
1, 1987 $25.75
If redeemed on September 1, 1987 or any
September 1 thereafter prior to September
1, 1992 25.50
If redeemed on September 1, 1992 or any
September 1 thereafter prior to September
1, 1997 25.25
If redeemed on September 1, 1997 or any
September 1 thereafter 25.00
39
<PAGE>
plus, in each case, an amount equal to the dividends accrued and unpaid on the
shares of Series I Preferred Stock so redeemed to the redemption date, whether
or not earned or declared.
In addition, the Corporation shall have the right, at its option, to redeem
at the applicable Sinking Fund Redemption Price on September 1, 1982 and on any
September 1 thereafter a number of shares of Series I Preferred Stock up to, but
not exceeding, the number of shares which on such September 1 the Corporation is
obligated to redeem pursuant to the Sinking Fund established in paragraph D
below (computed before deduction of any credits permitted under said paragraph
D). This right shall not be cumulative and shall be lost to the extent not
exercised on any such September 1. Any shares redeemed pursuant to this
paragraph shall not be considered as having been redeemed through the operation
of such Sinking Fund for purposes of the credit against such Sinking Fund
permitted by paragraph D below and therefore shall be available at the election
of the Corporation as such a credit.
Shares of Series I Preferred Stock redeemed, either at the option of the
Corporation or through the operation of the Sinking Fund, and shares of Series I
Preferred Stock for which credit shall have been taken against the requirements
of the Sinking Fund, shall not be reissued or otherwise disposed of as shares
of Series I Preferred Stock.
C. Upon any liquidation, dissolution or winding up of the Corporation, the
holders of the Series I Preferred Stock shall be entitled, before any
distribution shall be made to any junior stock, to be paid, out of the net
assets of the Corporation, (i) in the event any such liquidation, dissolution or
winding up is voluntary, an amount equal to the then applicable optional
redemption price fixed in the foregoing paragraph B, and (ii) in the event any
such liquidation, dissolution or winding up is involuntary, $25 per share, plus
in either case an amount which shall be equal to the dividends accrued and
unpaid thereon to the date of final distribution to such holders, whether or not
earned or declared.
D. There shall be a sinking fund (hereinafter called the "Sinking Fund") for
the benefit of the shares of Series I Preferred Stock. For the purposes of the
Sinking Fund, out of any net assets of the Corporation legally available
therefor remaining after full cumulative dividends upon all series of the $25
Cumulative Preferred Stock then outstanding to the end of the last preceding
dividend period therefor shall have been paid, or declared and a sum sufficient
for the payment thereof set apart for such payment, the Corporation shall set
aside in cash annually on September 1 in each year commencing with
40
<PAGE>
September 1, 1982, so long as there shall be outstanding any shares of Series I
Preferred Stock, an amount sufficient to redeem at the applicable Sinking
Fund Redemption Price, 24,000 shares of Series I Preferred Stock; provided,
however, that there shall be allowed to the Corporation as a credit
thereagainst shares of Series I Preferred Stock which the Corporation may have
acquired or redeemed (otherwise than through the operation of the Sinking Fund
established in this paragraph D) which have not theretofore been used for the
purpose of any such credit and which the Corporation shall elect to apply as a
credit against the Sinking Fund. The Sinking Fund shall be cumulative so that if
on any such September 1 the net assets of the Corporation legally available
therefor shall be insufficient to permit any such amount to be set aside in
full, or if for any other reason such amount shall not have been set aside in
full, the amount of the deficiency shall be set aside, but without interest,
before any dividend shall be paid or declared, or any distribution made, on any
junior stock or any shares of junior stock shall be purchased, redeemed, or
otherwise acquired by the Corporation, or any moneys shall be paid to or set
aside or made available for a sinking fund for the purchase or redemption of any
junior stock. Notwithstanding the foregoing, the Corporation may at any time (1)
pay dividends in junior stock or (2) purchase, redeem or otherwise acquire
junior stock in exchange for, or out of the net cash proceeds from the
concurrent sale of, other junior stock.
Moneys in the Sinking Fund shall be applied on such September 1 to the
redemption of shares of Series I Preferred Stock as above provided, and the
Corporation shall pay on such redemption from its general funds an amount equal
to the accrued and unpaid dividends on the shares so called for redemption.
The Corporation shall, prior to each such Sinking Fund redemption, give notice
of redemption in the manner provided in the Certificate of Incorporation of the
Corporation of such number of shares of Series I Preferred Stock as may be
required to satisfy the Sinking Fund. The term "junior stock" as used in
paragraphs C and D shall have the meaning assigned to that term herein.
If for any reason the aggregate amount required to be set aside for the
Sinking Fund shall not have been set aside in full through the last preceding
September 1, the Corporation shall, so long as any such deficiency exists, set
aside or apply to the sinking or purchase fund for each series of $25 Cumulative
Preferred Stock, including the Series I Preferred Stock, only such amounts as
shall be in proportion to the respective amounts which would be set aside or
payable on account of each such sinking or purchase fund if such sinking or
purchase fund were set aside or paid in full.
41
<PAGE>
Article VII. The duration of the Corporation shall be perpetual.
Article VIII. No director of the Corporation shall have personal liability to
the Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that the foregoing shall not eliminate or limit the
liability of any director if a judgment or other final adjudication adverse to
him establishes that this acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law or that he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled or that his act violated Section 719 of the Business Corporation Law of
New York. No amendment to or repeal of this Article VIII shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the Business Corporation Law of
New York is amended hereafter to expand or limit the liability of a director,
then the liability of a director of the Corporation shall be expanded to the
extent required or limited to the extent permitted by the Business Corporation
Law of New York, as so amended.
(4) This Restatement of the Certificate of Incorporation was authorized by
vote of the Board of Directors at a regular meeting held June 28, 1989.
IN WITNESS WHEREOF this Certificate has been signed this 28th day of June
1989 by the undersigned who each affirm the statements contained herein as true
under the penalties of perjury.
/s/ E. S. Larson
--------------------------
Elwin S. Larson
President and Chief Executive Officer
/s/ Harold Knight, Jr.
----------------------------
Harold E. H. Knight, Jr.
Vice President and Secretary
42
<PAGE>
CERTIFICATE OF CHANGE
OF
THE BROOKLYN UNION GAS COMPANY
Under Section 805-A of the Business Corporation Law
We, the undersigned, Robert B. Catell being the President and Chief
Executive Officer, and Harold E. H. Knight, Jr., being Vice President and
Secretary, hereby certify:
1. The name of the corporation is The Brooklyn Union Gas Company.
2. The certificate of incorporation was filed by the Department of
State on the ninth day of September, 1895, fixing the duration
as fifty years, which was amended by a certificate filed April
3, 1943, extending the duration to perpetual, and subsequently a
Restated Certificate of Incorporation was filed on August 1,
1989.
3. The Restated Certificate of Incorporation is amended to change
the address to which the Secretary of State shall mail a copy of
the process in any action or proceeding against the Corporation
that may be served upon him or her.
Article III, which sets forth the address to which the Secretary
of State shall mail a copy of the process in any action or
proceeding against the Corporation that may be served upon him
or her, is hereby changed to read as follows:
The office of the Corporation in the State of New York
is located in the City of New York, County of Kings and the
address to which the Secretary of State of the State of New York
shall mail a copy of the process in any action or proceeding
against the Corporation that may be served upon him or her is
One MetroTech Center, Brooklyn, New York 11201.
This change was authorized by vote of the Board of Directors at a
regular meeting held on September 25, 1991.
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed this 6th day of
December, 1991 by the undersigned who each affirm the statements contained
herein as true under the penalties of perjury.
/s/ Robert B. Catell
-----------------------------
Robert B. Catell
President and
Chief Executive Officer
/s/ Harold E. S. Knight, Jr.
-----------------------------
Harold E. S. Knight, Jr.
Vice President and Secretary
Sworn to before me this
6th day of December, 1991
[NOTARY PUBLIC SEAL]
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE BROOKLYN UNION GAS COMPANY
purs. SEC - 805 of the B.C.L.
--------------
We, the undersigned, Robert B. Catell and Harold E.H. Knight, Jr.,
being respectively the President and Chief Executive officer, and the Vice
President and Secretary, of The Brooklyn Union Gas Company (hereinafter referred
to as the Corporation), hereby certify that:
1. The name of the Corporation is The Brooklyn Union Gas Company.
2. The Certificate of Incorporation was filed in the Office of the
Secretary of State of the State of New York on September 9, 1895.
3. The Certificate of Incorporation is hereby amended, as authorized
by subparagraph (7) of paragraph (b) of Section 801 of the Business Corporation
Law, to increase the authorized number of shares of Common Stock per share from
35,000,000 to 70,000,000 shares of the par value of $.50 per share.
1
<PAGE>
4. Article IV of the Certificate of Incorporation setting forth the
amount of Capital Stock is hereby amended and the full text of such provision as
amended is set forth below:
Article IV. The amount of Capital Stock shall be one hundred
seventy-five million dollars.
5. The introductory paragraph of Article V of the Certificate of
Incorporation setting forth the number of authorized shares in each class of
Capital Stock is hereby amended and the full text of such paragraph as amended
is set forth below:
Article V. The shares which the Corporation may henceforth have
are to be classified as follows:
Nine Hundred Thousand (900,000) of the shares are to be Cumulative
Preferred Stock of the par value of $100 per share (hereinafter called
the "Preferred Stock"); two million (2,000,000) of the shares are to
be Cumulative Preferred Stock of the par value of $25 per share
(hereinafter called the "$25 Cumulative Preferred Stock"); and seventy
million (70,000,000) of the shares are to be Common Stock of the par
value of $.5O per share (hereinafter called the "Common Stock").
6. The foregoing amendments to the Certificate of Incorporation were
authorized by a vote of the holders of a majority of all outstanding shares of
Capital Stock of the Corporation entitled to vote thereon at a meeting duly
called and held on February 6, 1992.
2
<PAGE>
IN WITNESS WHEREOF, this certificate of Amendment has been subscribed
by the undersigned this 14th day of February, 1992 who each affirm the
statements contained herein as true under the penalties of perjury.
/s/ Robert B. Catell
----------------------------------------
ROBERT B. CATELL
President and Chief Executive
Officer
The Brooklyn Union Gas Company
/s/ Harold E.H. Knight, Jr.
-----------------------------------------
HAROLD E.H. KNIGHT, JR.
Vice President and Secretary
The Brooklyn Union Gas Company
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE BROOKLYN UNION GAS COMPANY
UNDER SECTION 805
OF
THE BUSINESS CORPORATION LAW
------------------
We, the undersigned, Robert B. Catell and H.E.H. Knight, Jr., being
respectively the President and Chief Executive Officer, and Vice President and
Secretary of The Brooklyn Union Gas Company (hereinafter referred to as the
Corporation), hereby certify that:
1. The name of the Corporation is The Brooklyn Union Gas Company.
2. The Certificate of Incorporation was filed in the Office of the Secretary
of State of the State of New York on September 9, 1895.
3. The Certificate of Incorporation is hereby amended in accordance with
subparagraphs (8) and (11) of paragraph (b) of Section 801 of the Business
Corporation Law, (A) to effect a three-for-two stock split of the seventy
million (70,000,000) authorized shares, comprises of 29,532,158 issued shares
and 40,467,842 unissued shares, all of the par value $.50 per share, resulting
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in one hundred five million (105,000,000) authorized shares of which 44,298,237
will be issued shares and 60,701,763 will be unissued shares, all with the par
value of $.33 1/3 per share, to be effectuated by the issuance of three new
shares of Common Stock of the Corporation with the par value of $.33 1/3 per
share for each two old shares of Common Stock of the Corporation with a par
value of $.50 per share, and (B) to then cancel 35,000,000 unissued shares of
Common Stock of the Corporation with a par value of $.33 1/3 per share,
resulting in 44,298,237 issued shares and 25,701,763 unissued shares, resulting
in an aggregate of seventy million (70,000,000) authorized shares of Common
Stock, all with a par value of $.33 1/3 per share.
4. Article IV is hereby amended and the full text of such provision is set
forth below:
Article IV. The amount of Capital Stock shall be one hundred sixty-
three million three hundred thirty-three thousand one hundred dollars.
5. The first two paragraphs of Article V of the Certificate of Incorporation
setting forth the number of authorized shares in each class of Capital Stock are
hereby amended and the full text of such provisions as amended is set forth
below:
Article V. The shares which the Corporation may henceforth have are
to be classified as follows:
Nine Hundred Thousand (900,000) of the shares are to be
Cumulative Preferred Stock of the par value of $100 per share
(hereinafter called the "Preferred Stock"); two million (2,000,000) of
the shares are to be Cumulative Preferred Stock of the par value of
$25 per share (hereinafter called the "$25
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Cumulative Preferred Stock"); and seventy million (70,000,000) of the
shares are to be Common Stock of the par value of $.33 1/3 per share
(hereinafter called the "Common Stock").
6. The foregoing amendment to the Certificate of Incorporation was
authorized by vote of the board of directors at a meeting duly held on April 28,
1993 followed by a vote of the holders of a majority of all outstanding shares
of Capital Stock of the Corporation entitled to vote thereon at a meeting duly
called and held on June 23, 1993.
IN WITNESS WHEREOF, this Certificate of Amendment has been subscribed by the
undersigned this 29th day of June, 1993 who each affirm the statements contained
herein as true under the penalties of perjury.
/s/ Robert B. Catell
--------------------------------
Robert B. Catell
President and Chief Executive Officer
The Brooklyn Union Gas Company
/s/ H. E.H. Knight, Jr.
--------------------------------
H.E.H. Knight, Jr.
Vice President and Secretary
The Brooklyn Union Gas Company
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STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
Albany, N. Y., July 1, 1993
CASE 93-G-0264 - Petition of The Brooklyn Union Gas Company for the Approval of
an Amendment to its Certificate of Incorporation to effect a
three-for-two split of the Company's common stock, and to amend
the Commission's Order in Cases 89-G-094 and 92-G-1040
concerning the petitioner's various stock plans.
* * * *
The Public Service Commission hereby consents to and approves this
Certificate of Amendment of Certificate of Incorporation of The Brooklyn Union
Gas Company under Section 805 of the Business Corporation Law, executed July 1,
1993, in accordance with the order of the Public Service Commission dated June
8, 1993.
By the Commission
/s/
Secretary
<PAGE>
EXHIBIT 3(d)
The Brooklyn Union Gas Company
By-Laws
February 1, 1996
Brooklyn, New York
[LOGO]Brooklyn
Union [ART]
<PAGE>
THE BROOKLYN UNION GAS COMPANY
INDEX
ARTICLE I
MEETINGS OF SHAREHOLDERS ...................................... 1
Section 1. Annual Meeting
Section 2. Special Meetings
Section 3. Notice of Meetings
Section 4. Quorum
Section 5. Adjournment
Section 6. Notice of Shareholder Business and Nominations
Section 7. Inspectors of Election
Section 8. Chairman and Secretary of Meetings
ARTICLE II
BOARD OF DIRECTORS ............................................ 6
Section 1. Number of Directors
Section 2. Elections and Vacancies
Section 3. Quorum
Section 4. Election of Chairman and President
ARTICLE III
EXECUTIVE COMMITTEE ........................................... 7
Section 1. Organization and Authority
Section 2. Reports to Board of Directors
Section 3. Secretary
Section 4. Fees
ARTICLE IV
MEETINGS OF DIRECTORS ......................................... 8
Section 1. Fees and Time and Place of Meeting
Section 2. Special Meetings
Section 3. Telephonic Meetings
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ARTICLE V
OFFICERS AND THEIR DUTIES ..................................... 9
Section 1. Chairman
Section 2. President
Section 3. Vice President
Section 4. Secretary
Section 5. Treasurer
Section 6. Comptroller
ARTICLE VI
SHARES ....................................................... 12
Section 1. Certificates, Registrar and Transfer Agent
Section 2. Authorization of Facsimile Signatures and Seals
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS .................... 12
Section 1. General Applicability
Section 2. Scope of Indemnification
Section 3. Other Indemnification Provisions
Section 4. Survival of Indemnification
Section 5. Inability to Limit Indemnification
Section 6. Severability
ARTICLE VIII
AMENDMENTS TO BY-LAWS ........................................ 14
Section 1. By Directors
Section 2. By Shareholders
ii
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THE BROOKLYN UNION GAS COMPANY
BY-LAWS
FEBRUARY 1, 1996
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. Annual Meeting
The annual meeting of the shareholders of the Company shall be held at the
office of the Company or other suitable place as designated from time to time by
the Board of Directors, on the first Thursday in February of each year.
SECTION 2. Special Meetings
Subject to the rights of the holders of any series of stock having a preference
over the Common Stock of the Company as to dividends or upon liquidation
("Preferred Stock") with respect to such series of Preferred Stock, special
meetings of the shareholders may be called only by the Chairman of the Board or
by the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Company would have if there were no
vacancies.
SECTION 3. Notice of Meetings
Notice of the time and place of every meeting of shareholders shall be mailed to
each shareholder of record, and such other notice shall be given as may be
required by law. The Board of Directors may fix a date not less than ten (10)
nor more than fifty (50) days prior the day of holding any meeting of
shareholders as the day as of which shareholders shall be entitled to notice of,
and to vote at, such meeting.
SECTION 4. Quorum
Holders of a majority of the shares of the Company entitled to vote thereat must
be present in person or by proxy at each meeting of its shareholders to
constitute such meeting, less than a majority, however,
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having the power to adjourn. At all meetings of shareholders, each shareholder
entitled to vote thereat shall be entitled to one vote for each share held by
him, and may vote and otherwise act either in person or by proxy.
SECTION 5. Adjournment
The Chairman of the meeting or a majority of the shares so represented may
adjourn the meeting from time to time, whether or not there is such a quorum.
No notice of the time and place of adjourned meetings need be given except as
required by law. The shareholders present at a duly called meeting at which a
quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 6. Notice of Shareholder Business and Nominations
A. Annual Meetings of Shareholders
(1) Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the shareholders may be
made at an annual meeting of shareholders (a) pursuant to the Company's notice
of meeting, (b) by or at the direction of the Board of Directors or (c) by any
shareholder of the Company who was a shareholder of record at the time of giving
of notice provided for in this Section 6 of Article I, who is entitled to vote
at the meeting and who complies with the notice procedures set forth in this
Section 6 of Article I.
(2) For nominations or other business to be properly brought before an annual
meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of this
Section 6 of Article I, the shareholder must have given timely notice thereof in
writing to the Secretary of the Company and such other business must otherwise
be a proper matter for shareholder action. To be timely, a shareholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Company not later than the close of business on the 60th day nor earlier than
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the shareholder to be timely must be so
delivered not
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earlier than the close of business on the 90th day prior to such annual meeting
and not later than the close of business on the later of the 60th day prior to
such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the Company. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a shareholder's notice as described
above. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareholder, as they appear on the Company's
books, and of such beneficial owner and (ii) the class and number of shares of
the Company which are owned beneficially and of record by such shareholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this
Section 6 of Article I to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Company is increased
and there is no public announcement by the Company naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by paragraph (A) of Section 6 of Article I shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Company not later than the close of
business on the 10th
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day following the day on which such public announcement is first made by the
Company.
B. Special Meetings of Shareholders
Only such business shall be conducted at a special meeting of shareholders as
shall have been brought before the meeting pursuant to the Company's notice of
meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of shareholders at which directors are to be elected
pursuant to the Company's notice of meeting (a) by or at the direction of the
Board of Directors or (b) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any shareholders of the
Company who is a shareholder of record at the time of giving of notice provided
for in this Section 6 of Article I, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 6 of
Article I. In the event the Company calls a special meeting of shareholders for
the purpose of electing one or more directors to the Board of Directors, any
such shareholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Company's notice of meeting, if
the shareholder's notice required by paragraph (A)(2) of this Section 6 of
Article I shall be delivered to the Secretary at the principal executive offices
of the Company not earlier than the close of business on the 90th day prior to
such special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a shareholder's
notice as described above.
C. General
(1) Only such persons who are nominated in accordance with the procedures set
forth in this Section 6 of Article I shall be eligible to serve as directors and
only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section 6 of Article I. Except as otherwise provided by law, the Chairman
of the meeting shall have the
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power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 6 of Article I and, if
any proposed nomination or business is not in compliance with this Section 6 of
Article I, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Section 6 of Article I, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 6 of Article I, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 6 of Article I. Nothing in this Section 6 of Article I
shall be deemed to affect any rights (i) of shareholders to request inclusion of
proposals in the Company's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
SECTION 7. Inspectors of Elections
Inspectors of election shall be appointed by the Directors. If they fail to
make such appointments, or if their appointee, or appointees, fail to appear at
any meeting, the person presiding thereat shall appoint an inspector or
inspectors, as may be required for that meeting.
SECTION 8. Chairman and Secretary of Meetings
At all meetings of shareholders, the Chairman, the President or a Vice
President, shall act as chairman of the meeting as hereinafter provided and the
Secretary or Assistant Secretary shall act as secretary of the meeting.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number of Directors
The affairs of this Company shall be managed by no less than eight nor more than
eleven Directors as fixed by resolution adopted by a majority of the entire
Board. At least two Directors shall be residents of the State of New York.
SECTION 2. Elections and Vacancies
The Board of Directors shall be divided into three classes designated Class I,
Class II and Class III. Such classes shall be as nearly equal in number as the
then total number of Directors constituting the entire Board permits. At the
1981 Annual Meeting of Shareholders, or any special meeting in lieu thereof,
three Class I, three Class II and three Class III Directors shall be elected for
initial terms expiring at the next succeeding annual meeting, the second
succeeding annual meeting and the third succeeding annual meeting, respectively,
and until their respective successors are elected and qualified. At each annual
meeting of shareholders after 1981, the Directors chosen to succeed those in the
class whose terms expire shall be elected by shareholders for terms expiring at
the third succeeding annual meeting after election, or for such lesser term as
may be appropriate in the particular case in order to assure that the number of
Directors in each class shall remain constant and until their respective
successors are elected and qualified. Newly created Directorships or any
decrease in Directorships resulting from increases or decreases in the number of
Directors shall be so apportioned among the classes of Directors as to make all
the classes as nearly equal in number as possible. Vacancies occurring in the
Board for any reason except the removal of Directors without cause may be filled
by a majority of the Directors then in office, although less than a quorum
exists.
Notwithstanding the foregoing whenever the holders of any one or more classes or
series of preferred stock issued by the Company shall have the right, voting
separately by class or series, to elect Directors at an annual or special
meeting of shareholders, the election, term of office, filling of vacancies and
other features of such Directorships shall be governed
by any terms of the Certificate of Incorporation of the Company applicable
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thereto, and such Directors so elected shall not be divided into classes
pursuant to this Section 2 unless expressly provided by such terms.
SECTION 3. Quorum
A majority of the Directors shall constitute a quorum of the Board.
SECTION 4. Election of Chairman and President
As soon as may be after the election of the Directors at a meeting of the
shareholders, the Board of Directors shall elect one of its number President,
and may elect one of its number Chairman. The President shall be the Chief
Executive Officer except that if a Chairman be elected, the Board may designate
either the Chairman or the President as Chief Executive Officer. The Board may
elect or appoint such other officers and agents as it may deem proper, and may
remove any officer or agent at pleasure.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Organization and Authority
There shall be an Executive Committee of not more than six Directors to be
designated by the Board, which shall have and exercise all of the authority and
powers of the Board subject to limitations prescribed by law. A majority of the
members of the Executive Committee as then constituted shall constitute a
quorum. In the event of the absence of any member or members from a meeting of
the Executive Committee replacements may be made from Directors designated as
alternate members of such Committee by the Board. The Chairman, or in his
absence or should he so direct, the President, or in his absence, a Vice
President, if such officers are members of the Committee, shall preside at
meetings of the Committee, otherwise the presiding officer shall be designated
by majority vote of the Committee.
SECTION 2. Reports to Board of Directors
Such Committee shall keep a record of its proceedings and make reports to the
Board at its next regular meeting.
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SECTION 3. Secretary
The Secretary of the Company shall be Secretary of the Executive Committee.
SECTION 4. Fees
Members of Committees of the Board shall receive fees as fixed from time to time
by the Board and shall be reimbursed for reasonable expenses for attending a
Committee Meeting.
ARTICLE IV
MEETINGS OF DIRECTORS
SECTION 1. Fees and Time and Place of Meeting
Meetings of the Board of Directors shall be held on such day of each month at
such hour as the Board may from time to time direct. Members of the Board shall
receive fees as fixed from time to time by the Board and shall be reimbursed
for reasonable expenses for attending a Board Meeting.
SECTION 2. Special Meetings
Special meetings of the Board may be held on the call of the Chairman, the
President or Secretary or upon the written request of two Directors addressed to
the Secretary.
SECTION 3. Telephonic Meetings
Any one or more members of the Board or any Committee of the Board may
participate in a meeting of the Board or Committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time; and participation by such
means shall constitute presence in person at a meeting.
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ARTICLE V
OFFICERS AND THEIR DUTIES
SECTION 1. Chairman
The Chairman shall preside at all meetings of the shareholders and the Board of
Directors and, when designated the Chief Executive Officer, shall have general
and active management of the business of the Company and shall see that all
orders and policies of the Board of Directors are carried into effect.
Salaries of all officers of the Company shall be fixed by the Board from time to
time; and salaries of all other employees of the Company shall be regulated by
the Chairman when he shall have been designated Chief Executive Officer.
SECTION 2. President
In the absence of a Chairman or should the Chairman so direct, the President
shall preside at all meetings of the shareholders and of the Board of Directors.
In the case of the Chairman having been designated as Chief Executive Officer
the President shall, subject to the direction of the Chairman, exercise a
general control and supervision over all the affairs of the Company and
generally do and perform those duties as usually appertain to the office of
President, or which may be assigned to him by the Board of Directors.
Should there be no Chairman or should the President be designated Chief
Executive Officer of the Company, the President shall have general and active
management of the business of the Company and shall see that all orders and
polices of the Board of Directors are carried into effect; and the salaries of
all employees of the Company, other than officers, shall be regulated by him.
If the office of the Chairman be vacated, due to the incumbent's death,
retirement, or inability to act, or should the Directors elect to leave such
office vacant, the President shall be the Chief Executive Officer and shall
assume all the duties as outlined in Section 1 of this Article, until directed
otherwise by the Board of Directors.
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SECTION 3. Vice President
The Vice Presidents, respectively, shall do and perform all such duties as shall
be assigned to them by the Chairman or President or required of them by the
Board of Directors. A Vice President, if designated by the Board of Directors
as a member of the Executive Committee, shall perform the duties of President in
case of the President's absence or inability to act or in case of a vacancy in
that office.
An Assistant Vice President in the absence or disability of a Vice President may
at the discretion of the Chairman or the President perform the duties of a Vice
President and shall perform such other duties as may be assigned to him.
SECTION 4. Secretary
It shall be the duty of the Secretary to keep and attest true records of the
proceedings of all meetings of the Board and Executive Committee, to notify
members of the Board and Executive Committee of all meetings and safely keep and
account for all documents, papers and property of the Company which may come
into his possession.
He shall be the custodian of the Corporate Seal of the Company and shall affix
and attest the same whenever it is necessary and proper so to do, and shall
perform such other duties as may be assigned to him by the Board.
In the absence or disability of the Secretary, an Assistant Secretary or any
Vice President shall perform his duties and such other duties as may be assigned
to him.
SECTION 5. Treasurer
The Treasurer shall have the custody of all money, funds, securities and
valuable papers of the Company. He shall furnish such security for the faithful
performance of his duties as may be required by the Board of Directors. He
shall receive all money due to the Company and deposit the same in its
corporate name in such Banks or Trust Companies as the Board of Directors shall
determine. He shall sign all checks, drafts or
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orders for the payment of money; and perform such other duties as may be
required of him by the Board of Directors.
An Assistant Treasurer shall, in the absence or disability of the Treasurer,
perform his duties and such other duties as may be assigned to him.
In the absence or disability of the Treasurer and Assistant Treasurers, any Vice
President shall perform his duties and such other duties as may be assigned to
him.
The Treasurer shall, when directed by the Board of Directors, open special
accounts in the Company's depositories; all checks, drafts or orders for the
payment of money out of such special accounts shall be signed in such manner and
by such officers or employees of the Company as the Board of Directors shall
designate; such checks, drafts or orders for the payment of money shall also be
signed, if, as and when so directed by resolution of the Board of Directors, by
such persons and in such manner as the Board of Directors shall determine.
SECTION 6. Comptroller
The Comptroller shall have charge of accounting and related records.
He shall sign all checks, drafts or orders for the payment of money; such
checks, drafts and orders to be also signed by the Treasurer, and perform such
other duties as may be required of him by the Board of Directors.
An Assistant Comptroller shall, in the absence or disability of the Comptroller,
perform his duties and such other duties as may be assigned to him.
In the absence or disability of the Comptroller and Assistant Comptrollers, the
Chairman, the President or a Vice President, shall sign all checks, drafts or
orders for the payment of money; such checks, drafts and orders to be also
signed by any other authorized officer.
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ARTICLE VI
SHARES
SECTION 1. Certificates, Registrar and Transfer Agent
The Shares of the Company shall be represented by certificates signed by the
Chairman, the President or a Vice President and Secretary or Assistant Secretary
and sealed with the Corporate Seal of the Company and registered by such Bank or
Trust Company as may be designated by the Board. The Shares of the Company shall
be transferable or assignable only on the books of the Company in person or by
attorney, upon the surrender of the certificate therefor. The Transfer Agent of
the Company shall be such Bank or Trust Company as may be designated by the
Board.
SECTION 2. Authorization of Facsimile Signatures and Seal
The Board of Directors may authorize the signatures of the Chairman, the
President, a Vice President, Secretary or an Assistant Secretary, and the
Corporate Seal of the Company, to be facsimiled, engraved or printed.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. General Applicability
Except to the extent expressly prohibited by the New York Business Corporation
Law, the Company shall indemnify each person made, or threatened to be made, a
party to any action or proceeding, whether criminal or civil, by reason of the
fact that such person or such person's testator or intestate is or was a
Director of Officer of the Company, against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses, including attorney's fees and
expenses, reasonably incurred in enforcing such person's right to
indemnification, incurred in connection with such action or proceeding, or any
appeal therein, provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such person establishes that
such person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that such person personally gained in fact a financial profit or other
advantage to which such person was not legally entitled, and
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provided further that no such indemnification shall be required with respect to
any settlement or other nonadjudicated disposition of any threatened or pending
action or proceeding unless the Company has given its prior consent to such
settlement or other disposition.
SECTION 2. Scope of Indemnification
The Company shall advance or promptly reimburse upon request any person entitled
to indemnification hereunder for all reasonable expenses, including attorney's
fees and expenses, reasonably incurred in defending any action or proceeding in
advance of the final disposition thereof upon receipt of an undertaking by or on
behalf of such person to repay such amount if such person is ultimately found to
be entitled to indemnification or, where indemnification is granted, to the
extent the expenses so advanced or reimbursed exceed the amount to which such
person is entitled; provided, however, that such person shall cooperate in good
faith with any request by the Company that common counsel be used by the parties
to an action or proceeding who are similarly situated unless to do so would be
inappropriate due to actual or potential differing interests between or among
such parties.
SECTION 3. Other Indemnification Provisions
Nothing herein shall limit or affect any right of any Director, Officer or other
corporate personnel otherwise than hereunder to indemnification or expenses,
including attorney's fees, under any statute, rule, regulation, certificate of
incorporation, by-law, insurance policy, contract or otherwise; without
affecting or limiting the rights of any Director, Officer or other corporate
personnel pursuant to this Article VII, the Company is authorized to enter into
agreements with any of its Directors, Officers or other corporate personnel
extending rights to indemnification and advancement of expenses to the fullest
extent permitted by applicable law.
Unless limited by resolution of the Board of Directors or otherwise, the Company
shall advance the payment of expenses to the fullest extent permitted by
applicable law to, and shall indemnify, any Director, Officer or other corporate
person who is or was serving at the request of the Company, as a director,
officer, partner, trustee, employee or agent of another corporation, whether for
profit or not-for-profit, or a partnership,
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joint venture, trust or other enterprise, whether or not such other enterprise
shall be obligated to indemnify such person.
SECTION 4. Survival of Indemnification
Anything in these By-laws to the contrary notwithstanding, no elimination or
amendment of this Article VII adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective until
the 60th day following notice to such person of such action, and no elimination
of or amendment to this Article VII shall deprive any such person's rights
hereunder arising out of alleged or actual occurrences, acts or failures to act
prior to such 60th day.
SECTION 5. Inability to Limit Indemnification
The Company shall not, except by elimination or amendment of this Article VII in
a manner consistent with the preceding Section 4, take any corporate action or
enter into any agreement which prohibits, or otherwise limits the rights of any
person to, indemnification in accordance with the provisions of this Article
VII. The indemnification of any person provided by this Article VII shall
continue after such person has ceased to be a Director or Officer of the Company
and shall inure to the benefit of such person's heirs, executors, administrators
and legal representatives.
SECTION 6. Severability
In case any provision in this Article VII shall be determined at any time to be
unenforceable in any respect, the other provisions of this Article VII shall not
in any way be affected or impaired thereby, and the affected provision shall be
given the fullest possible enforcement in the circumstances, it being the
intention of the Company to afford indemnification and advancement of expenses
to its Directors or Officers, acting in such capacities or in the other
capacities mentioned herein, to the fullest extent permitted by law.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
SECTION 1. By Directors
By-laws may be amended, repealed or adopted by the Board of Directors
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of the Company at any meeting of the Board if notice of such proposed action
shall have been given with the notice of meeting, or if all the Directors shall
be present.
SECTION 2. By Shareholders
By-laws may be amended, repealed or adopted by the holders of the shares at the
time entitled to vote in the election of any Directors; and any By-law adopted
by the Board of Directors may be amended or repealed by the shareholders
entitled to vote thereon as herein provided.
15
<PAGE>
EXHIBIT 5(a)
December 17, 1996
KeySpan Energy Corporation
One MetroTech Center
Brooklyn, New York 11201-3850
Dear Sirs:
Reference is made to the Registration Statement on Form S-4, as amended
(Registration No. 33- ), (the "Registration Statement") filed with the
Securities and Exchange Commission by you, as Registrant, for the purpose of
registering under the Securities Act of 1933, as amended (the "Act"), 51,000,000
shares of Common Stock, par value $.331/3 per share (the "Common Stock") of
KeySpan Energy Corporation, a New York corporation (the "Company"). We are
acting as your general counsel and are supervising corporate proceedings in
connection with the authorization, issuance and exchange of the Common Stock.
In arriving at the opinions expressed below, we have examined such corporate
records, certificates and other documents as we have considered necessary or
appropriate for purposes of this opinion. We have also examined and relied upon
(1) information obtained from public officials, officers of the Company and
officers of The Brooklyn Union Gas Company ("Brooklyn Union") and other sources
we believe to be responsible; and (2) such other documents, and have made such
investigations of law as we have deemed appropriate as a basis for the opinions
expressed below. In rendering the opinions expressed below, we have assumed the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
On the basis of such examination, we advise you that upon (i) the Boards of
Directors of the Company and Brooklyn Union having taken all required corporate
action, (ii) the Registration Statement relating to the Common Stock having
become effective under the Act, (iii) the Agreement and Plan of Exchange (the
"Exchange Agreement") attached as Exhibit A to the Prospectus/Proxy Statement
contained in the Registration Statement (the "Prospectus") having been duly
adopted by Brooklyn Union common shareholders at Brooklyn Union's Annual Meeting
to be held on February
<PAGE>
KeySpan Energy Corporation -2- December 17, 1996
6, 1997, (iv) all conditions in the Exchange Agreement to the effectiveness of
the share exchange provided for therein having been satisfied and a Restated
Certificate of Incorporation of the Company substantially in the form attached
as Exhibit B to the Prospectus having been duly filed with the Department of
State of the State of New York (the "Department of State"), (v) a Certificate of
Exchange under Section 913 of the New York Business Corporation Law having been
duly filed with the Department of State, and (vi) the Common Stock having been
duly issued and sold in the transactions contemplated by the Exchange Agreement
and the Prospectus, then, in our opinion, the Common Stock will have been
validly issued, and will be fully paid, and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the State of New York, and we are expressing no opinion as to
the effect of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name in the Prospectus under the caption "Legal Matters." In giving this
consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Cullen & Dykman
<PAGE>
EXHIBIT 5(b)
December 17, 1996
KeySpan Energy Corporation,
One MetroTech Center,
Brooklyn, New York 11201-3850.
Dear Sirs:
In connection with the registration under the Securities Act of 1933 (the
"Act") of 51,000,000 shares (the "Securities") of Common Stock, par value $.33
1/3 per share, of KeySpan Energy Corporation, a New York corporation (the
"Company"), we, as your special counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, we advise you that, in our opinion, when (i) the
Board of Directors of the Company and The Brooklyn Union Gas Company ("Brooklyn
Union") have taken all required corporate action, (ii) the registration
statement relating to the Securities (the "Registration Statement") has become
effective under the Act, (iii) the
<PAGE>
KeySpan Energy Corporation -2-
Agreement and Plan of Exchange (the "Exchange Agreement") attached as Exhibit A
to the Prospectus/Proxy Statement contained in the Registration Statement (the
"Prospectus") has been duly adopted by Brooklyn Union shareholders at Brooklyn
Union's Annual Meeting to be held on February 6, 1997, (iv) all conditions in
the Exchange Agreement to the effectiveness of the share exchange provided for
therein have been satisfied and a Restated Certificate of Incorporation of the
Company substantially in the form attached as Exhibit B to the Prospectus has
been duly filed with the Department of State of the State of New York (the
"Department of State"), (v) a Certificate of Exchange under Section 913 of the
New York Business Corporation Law has duly filed with the Department of State,
and (vi) the Securities have been duly issued and sold in the transactions
contemplated by the Exchange Agreement and the Prospectus, the Securities will
be validly issued, fully paid, and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the State of New York, and we are expressing no opinion as to
the effect of the laws of any other jurisdiction.
<PAGE>
KeySpan Energy Corporation -3-
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Company and Brooklyn Union and other sources
believed by us to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity of
KeySpan Common Stock" in the Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE>
Exhibit 8
December 17, 1996
The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201
KeySpan Energy Corporation
One MetroTech Center
Brooklyn, NY 11201
Ladies and Gentlemen:
We have acted as special counsel to The Brooklyn Union Gas Company, a New
York corporation (the "Company"), and KeySpan Energy Corporation, a New York
corporation (the "Holding Company"), in connection with a planned corporate
restructuring (the "Exchange") in which the Company will become a subsidiary of
the Holding Company, and the current holders of the outstanding shares of the
Company's Common Stock, par value $.33 1/3 per share ("Company Common Stock"),
will become holders of all the outstanding shares of the Holding Company's
Common Stock, par value $.33 1/3 per share ("Holding Company Common Stock").
The Exchange and related transactions are more fully described in the Form
S-4 Registration Statement of the Holding Company filed with the Securities and
Exchange Commission (the "Registration Statement"), to which this opinion is an
exhibit, and in the Prospectus/Proxy Statement (the "Prospectus") comprising a
part of the Registration Statement.
The Exchange will be effected pursuant to an Agreement and Plan of Exchange
(the "Exchange Agreement"), attached as Exhibit A to the Prospectus, between the
Company and the Holding Company. Capitalized terms used herein and not
otherwise defined shall have the meanings specified in the Exchange Agreement.
In connection with this opinion, we have assumed, with your consent, that
(1) the Exchange will be effected in accordance with the Exchange Agreement and
the laws of the State of New York and in the manner described in the
Registration Statement, (2) all the provisions of the Exchange Agreement will be
complied with, (3) the Exchange Agreement and the Prospectus describe the entire
transaction and all related transactions, (4) the facts and representations made
to us in a letter from the Holding Company dated December 17, 1996, executed by
a duly appointed officer of the Holding Company, are true and correct, and (5)
<PAGE>
there will be no change in any of the facts or representations material to this
opinion between the date of this opinion and the Effective Time.
Based upon and subject to the foregoing, we hereby confirm to you our
opinion as set forth under the heading "Certain Federal Income Tax Consequences"
in the Prospectus, subject to the limitations set forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Certain
Federal Income Tax Consequences" in the Prospectus. In giving such consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
and to all references to our Firm, included in or made part of this registration
statement.
/s/ ARTHUR ANDERSEN LLP
December 16, 1996
New York, New York
<PAGE>
EXHIBIT 99(a)
PROXY
THE BROOKLYN UNION GAS COMPANY
One Metro Tech Center, Brooklyn, NY 11201
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Robert B. Catell, Donald H. Elliott and James
L. Larocca as Proxies, each with the power to appoint a substitute, and each
with full power to act without the others, and hereby authorizes them, and each
of them, to represent and to vote, as designated on the reverse side, and any
other business that may come before the meeting, all shares of Common Stock of
the Company held of record by the undersigned on December 18, 1996 at the Annual
Meeting of Shareholders to be held on February 6, 1997 and any adjournment
thereof.
Election of Directors: Charles Uribe
Craig G. Matthews
Andrea S. Christensen
Alan H. Fishman
James Q. Riordan
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
ANNUAL MEETING OF
THE BROOKLYN UNION GAS COMPANY SHAREHOLDERS
THURSDAY, FEBRUARY 6, 1997
10:00 A.M.
ONE METROTECH CENTER
BROOKLYN, NEW YORK 11201
<PAGE>
[x] Please mark your
vote with an X. 7061
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3 AND AGAINST PROPOSAL 4.
- --- -------
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
---
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN FOR WITHHELD
1. Adoption of the [_] [_] [_] 2. Election of Directors: [_] [_]
Agreement and FOR all nominees
Plan of listed on the reverse
Exchange. side (except as
indicated to the
contrary).
For, except vote withheld from the
following nominee(s):
----------------------------------
FOR AGAINST ABSTAIN
3. Ratification of Arthur [_] [_] [_]
Andersen LLP as
Independent Public
Accountants.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST Proposal 4.
-------
------------------------------------------------------------
FOR AGAINST ABSTAIN
4. Shareholder [_] [_] [_]
Proposal as to
Cumulative Voting.
Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor, ad-
ministrator, trustee or guardian, please give full title as
such.
-----------------------------------------------------------
-----------------------------------------------------------
SIGNATURE(S) DATE
YOUR VOTE IS IMPORTANT TO US.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN
THE ENCLOSED ENVELOPE.
<PAGE>
[ROBERT B. CATELL LETTERHEAD]
January 17, 1997
IMPORTANT REMINDER
------------------
Dear Shareholder:
We have previously mailed the prospectus/proxy statement and proxy materials to
you for the Annual Meeting of Shareholders of Brooklyn Union to be held on
Thursday, February 6, 1997. According to our records, we have not received your
completed proxy card for this important meeting.
Your vote is important to us and the company's restructuring will help us meet
the new competition introduced by the across-the-board "unbundling" of gas
supply from gas distribution. The New York State Public Service Commission's
Order on gas competition now allows residential and small-business customers to
purchase gas from qualified gas-marketers, an option previously available only
to large-volume customers. We believe our holding company structure will allow
us to adapt to this changing energy-market environment quickly and more
effectively.
Your Board of Directors believes the restructuring of Brooklyn Union as a
holding company is in the best interests of our shareholders, employees and
customers, and unanimously recommends that everyone support our holding company
proposal.
If you haven't previously mailed your proxy card, please take a moment to sign,
date and mail the enclosed duplicate proxy card promptly in the return envelope,
with a vote "FOR" proposals 1, 2 and 3 and "AGAINST" proposal 4.
Thank you for your cooperation and continued support.
Sincerely,
<PAGE>
EXHIBIT 99(b)
CONSENT
The undersigned, a director of The Brooklyn Union Gas Company ("Brooklyn
Union"), hereby consents (i) to being named as a prospective director of KeySpan
Energy Corporation ("KeySpan") in the Prospectus/Proxy Statement of KeySpan and
Brooklyn Union relating to the Annual Meeting of Shareholders of Brooklyn Union
to be held on February 6, 1997, and (ii) to his election as a director of
KeySpan, for the term indicated in such Prospectus/Proxy Statement, prior to
effectiveness of the share exchange provided for in the Agreement and Plan of
Exchange attached to such Prospectus/Proxy Statement as Exhibit A. The
undersigned understands that (i) he will be elected a director of KeySpan if and
only if he is, at the time of such election, serving as a director of Brooklyn
Union, and (ii) he will be elected to serve as a director of KeySpan (subject to
removal, resignation, death, or disability) for the term specified in such
Prospectus/Proxy Statement.
December 5, 1996 -----------------------------
