<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
MarketSpan Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[LOGO] KEYSPAN One MetroTech Center
Brooklyn, New York 11201-3850
MARKETSPAN CORPORATION
d/b/a KeySpan Energy
Notice of 1999 Annual Meeting of Shareholders and
Proxy Statement
<PAGE>
[LOGO] KEYSPAN One MetroTech Center
Brooklyn, New York 11201-3850
LETTER TO SHAREHOLDERS
April 7, 1999
Dear Shareholder:
You are cordially invited to attend the first Annual Meeting of Shareholders
of MarketSpan Corporation d/b/a KeySpan Energy since the transaction involving
KeySpan Energy Corporation ("KSE") and Long Island Lighting Company ("LILCO")
(the "Combination"), at 10:00 a.m. Eastern Time on Thursday, May 20, 1999, at
the Opera House of the Brooklyn Academy of Music, 30 Lafayette Avenue,
Brooklyn, New York.
We will review our 1998 performance with you and our plans for the future.
This year we have prepared a proxy statement in what we believe is a simple
and easy to understand format. We have also introduced a procedure by which
you may provide a proxy by telephone in order to cast your vote more easily.
Whether you choose to provide a written proxy card, or one by telephone,
please vote as soon as possible. We hope you find these two changes more
convenient for you and welcome your comments.
I look forward to seeing you on May 20 at the Annual Meeting. Enclosed with
the Proxy Statement is your voting card. I would like to take this opportunity
to remind you that your vote is important.
/s/ Robert B. Catell
Robert B. Catell
Chairman and Chief Executive Officer
<PAGE>
[LOGO] KEYSPAN One MetroTech Center
Brooklyn, New York 11201-3850
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 7, 1999
Dear Shareholder:
The Annual Meeting of Shareholders of MarketSpan Corporation d/b/a KeySpan
Energy ("KeySpan" or the "Company") will be held on Thursday, May 20, 1999, at
10:00 a.m. Eastern Time, at the Opera House of the Brooklyn Academy of Music,
30 Lafayette Avenue, Brooklyn, New York 11217, to consider and take action on
the following proposals:
1. Election of fourteen directors;
2. Ratification of Arthur Andersen LLP as independent public accountants
for the Company for the fiscal year ending December 31, 1999;
3. Approval of an amendment to the Certificate of Incorporation to change
the Company's name;
4. Approval of an Employee Discount Stock Purchase Plan;
5. Approval of a Long-Term Performance Incentive Compensation Plan; and
6. Transact any other business properly before the Annual Meeting or any
adjournment thereof.
Shareholders of record as of the close of business on March 22, 1999 are
entitled to vote at the Annual Meeting or any postponement or adjournment
thereof.
The meeting room will be open at 9:00 a.m.
If your shares are held through a bank or brokerage firm and you plan to
attend the meeting, please request a letter or some other evidence of
ownership from your bank or firm as well as proper authorization if you wish
to vote your shares in person.
By Order of the Board of Directors,
/s/ Robert R. Wieczorek
Robert R. Wieczorek
Vice President, Secretary and Treasurer
<PAGE>
Directions to the
Opera House
BROOKLYN ACADEMY OF MUSIC
30 Lafayette Avenue
Brooklyn, New York 11217
[MAP APPEARS HERE]
By Car:
From Manhattan via the Manhattan Bridge: Continue straight off the bridge onto
Flatbush Avenue, proceed to Fulton Street. Turn left onto Fulton Street.
Proceed two blocks; turn right onto Ashland Place, proceed one block.
From Manhattan via the Brooklyn Bridge: Continue straight off the bridge and
make the first left turn possible which is Tillary Street. Continue on Tillary
Street and turn right onto Flatbush Avenue.
From Queens, Long Island and Connecticut: Take the Long Island Expressway to
the Brooklyn Queens Expressway. Exit at Tillary Street, exit 29. Follow exit
onto Tillary Street, two short blocks and turn left onto Flatbush Avenue.
From Staten Island: Cross the Verrazano-Narrows Bridge to the Brooklyn Queens
Expressway. Exit at Tillary Street, exit 29. Follow exit onto Tillary Street,
two short blocks and turn left onto Flatbush Avenue.
From New Jersey: Use the Holland Tunnel and continue east on Canal Street,
which leads directly across the Manhattan Bridge. Continue straight over the
bridge onto Flatbush Avenue.
By Subway:
The Brooklyn Academy of Music is within three blocks of the following
stations:
. 2, 3, 4, 5, D, Q: Atlantic Avenue
. B, N, M, R: Pacific Street
. G: Fulton Street
. LIRR: Flatbush Avenue
Parking:
All Brooklyn Academy of Music parking lots are patrolled continuously during
the work day and until 30 minutes after each event.
<PAGE>
PROXY STATEMENT OF MARKETSPAN CORPORATION
ANNUAL MEETING TO BE HELD ON MAY 20, 1999
Proxies are being solicited on behalf of the Board of Directors of the Company
for use at the Annual Meeting of Shareholders on May 20, 1999, and any
adjournments thereof. This Proxy Statement is first being mailed to the
shareholders of the Company on or about April 7, 1999.
Q:What am I voting on?
A: Election of fourteen directors, ratification of Arthur Andersen LLP as
independent public accountants for the fiscal year ending December 31,
1999, approval of a change to the Company's name, approval of an Employee
Discount Stock Purchase Plan, approval ofa Long-Term Performance Incentive
Compensation Plan and any other business properly before the meeting.
Q:Who is entitled to vote?
A: Common stock shareholders as of the close of business on March 22, 1999
(the "Record Date"). Each share of KeySpan Energy's common stock, par value
$.01 per share (the "Common Stock") is entitled to one vote.
Q:How do I vote?
A: As discussed in greater detail below, there are two methods. You may
complete and return your proxy card or you may also give a proxy by
telephone, by calling 1-800-574-6864. Please have your proxy card in hand
when you call. You do not have to mail your proxy card if you vote by
telephone. If a shareholder wishes to give a proxy to someone other than
the individuals named as proxies on the proxy card, he or she may cross out
the names appearing on the proxy card, insert the name of some other person
or persons, sign, date and give the proxy card to such person or persons
for use at the meeting.
Q:How does discretionary authority apply?
A: If you sign your proxy card, but do not make selections with respect to any
or all proposals submitted for vote, you give authority to Donald H.
Elliott and Stephen W. McKessy to vote on such proposals. A properly signed
and dated proxy card (or a proxy properly delivered via telephone) gives
these individuals the authority to vote, in their discretion, on any other
matter that may arise at the meeting.
Q:Is my vote confidential?
A: Yes. Only the inspectors of election, The Bank of New York and certain
employees have access to your card. All comments will remain confidential,
unless you ask that your name be disclosed.
Q:Who will count the votes?
A: The Bank of New York will tabulate the votes. Lance D. Myers and Brian M.
Nurse of the law firm Cullen and Dykman will act as inspectors of election.
Q:What if I get more than one proxy card?
A: Your shares are probably registered differently or are in more than one
account. Sign and return all proxy cards to ensure that all your shares are
voted. Please have all of your accounts registered exactly in the same name
and social security number. You may do this by contacting our transfer
agent, The Bank of New York, by calling 1-800-482-3638.
Q:What constitutes a quorum?
A: As of the close of business on March 22, 1999, the Record Date, 142,868,154
shares of Common Stock were issued and outstanding. A majority of the
outstanding shares, present or represented by proxy, constitutes a quorum.
For purposes of determining the presence of a quorum, shares represented by
abstentions and "broker non-votes" will be counted as present. If you vote
by proxy card or give a proxy by telephone, you will be considered part of
the quorum. In the absence of a quorum, the Annual Meeting may be
adjourned.
Q: What percentage of stock do the directors and officers own?
A: The directors and certain executive officers own approximately .08 percent
of our Common Stock, as of February 26, 1999.
Q: When are the shareholder proposals due for the 2000 Annual Meeting?
A: Shareholder proposals for the 2000 Annual Meeting must be received by
KeySpan Energy at its offices at One MetroTech Center, Brooklyn, New York
11201-3850, Attention: Secretary, not less than 120 calendar days prior to
the anniversary date of the release of the Company's proxy statement to
shareholders in connection with the 1999 Annual Meeting, to be considered
by the Company for possible inclusion in the proxy materials for the 2000
Annual Meeting. In addition, all shareholder proposals or nominations for
election as director for the 2000 Annual Meeting must be submitted to the
Company in accordance with Section 2.7 of the Company's By-Laws not less
than 60 nor more than 90 calendar days in advance of the first anniversary
date of the 1999 Annual Meeting.
1
<PAGE>
VOTING METHODS
You have the right to revoke your proxy any time before its use at the Annual
Meeting by delivering to the Company (attn: Robert R. Wieczorek, Vice
President, Secretary and Treasurer) a written notice of revocation or a duly
executed proxy bearing a later date or by attending the Annual Meeting and
voting in person. A proxy given by telephone can be revoked by calling the
number listed below in the telephone proxy instructions and re-entering your
voting instructions or by either of the methods described in the preceding
sentence.
Two methods of voting are available to you:
PROXY CARD VOTING
1. Mark your selections on the card.
2. Date and sign your name exactly as it appears on the card.
3. Return your card in the postage-paid envelope we have provided.
TELEPHONE PROXY--24 HOURS A DAY, 7 DAYS A WEEK
1. Use any touch-tone telephone to give your proxy. Have your proxy card in
hand when you call.
2. Dial 1-800-574-6864.
3. You will be prompted to enter your control number for telephonic proxies
found on your proxy card.
4. Follow the simple directions.
2
<PAGE>
PROPOSALS
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR each of the fourteen
nominees named below to serve as members of the Board of Directors for a one-
year term:
Nominees for election this year are:
.Lilyan H. Affinito .James R. Jones
.George Bugliarello .Stephen W. McKessy
.Robert B. Catell .Edward D. Miller
.Howard R. Curd .Basil A. Paterson
.Richard N. Daniel .James Q. Riordan
.Donald H. Elliott .Frederic V. Salerno
.Alan H. Fishman .Vincent Tese
Each director has served since May 1998 (except for Ms. Affinito, who has
served since December 1998) and, if elected, will hold office for one year or
until their successors are duly elected or chosen and qualified.
If any director is unable to stand for election, the Board may provide for a
lesser number of directors or designate a substitute. In the latter event,
shares represented by proxies may be voted for a substitute director. KeySpan
Energy does not anticipate that any of the individuals listed above will be
unable to serve the full term of office to which they may be elected. The
affirmative vote of a plurality of the shares of KeySpan Energy Common Stock
cast is required for the election of directors.
Nominees for the Board of Directors
LILYAN H. AFFINITO--Age 67
Retired Vice Chairman of the Board of Maxxam Group, Inc.
(formerly Simplicity Pattern Co.). Served as Controller,
[PHOTO] Treasurer and Chief Financial Officer for Maxxam Group from 1968
to 1976, President and Chief Operating Officer from 1976 to
1987, and Director from 1972 to 1991. Serves on the Boards of
Caterpiller Inc., Jostens Inc. and Kmart Corporation. Also
serves on the Board of the Mayo Foundation.
GEORGE BUGLIARELLO--Age 71
Chancellor of Polytechnic University, since 1994. President of
[PHOTO] Polytechnic University from 1973 to 1994. Serves on the Boards
of the Lord Corporation, Symbol Technologies, Comtech
Telecommunications Corp., the Teagle Foundation, the Jura
Corp., the Greenwall Foundation and Anser Corporation.
3
<PAGE>
ROBERT B. CATELL--Age 62
Chairman and Chief Executive Officer of KeySpan Energy since
July 1998. Joined KeySpan Energy's subsidiary, The Brooklyn
Union Gas Company, in 1958 and was elected Assistant Vice
President in 1974, Vice President in 1977, Senior Vice
President in 1981 and Executive Vice President in 1984.
Elected Brooklyn Union's Chief Operating Officer in 1986 and
[PHOTO] President in 1990. Mr. Catell served as President and Chief
Executive Officer from 1991 to 1996 when he was elected
Chairman and Chief Executive Officer. Serves on the Boards of
Alberta Northeast Gas, Ltd., Boundary Gas Inc., Taylor Gas
Liquids, Ltd., The Houston Exploration Company, Gas Research
Institute, Edison Electric Institute, New York State Energy
Research and Development Authority, Independence Community
Bank Corp., Business Council of New York State, Inc., New York
City Investment Fund, New York City Partnership and Long
Island Association.
HOWARD R. CURD--Age 60
Chairman and Chief Executive Officer of Uniroyal Technology
Corporation, since 1992, a developer and manufacturer of
proprietary plastic products and specialty chemical and
[PHOTO] polymer products. Served as President and Chief Executive
Officer of Uniroyal from 1991 to 1992. Formed his own business
in 1972 and, during the period 1972 to 1982, acquired
controlling interests in a 100-year old investment banking
firm, Polycast Technology Corporation and the U.S. Playing
Card Corporation. Serves on the Boards of Emcore Corporation
and Jamesway Corporation.
RICHARD N. DANIEL--Age 63
Retired Chairman and Chief Executive Officer of Handy &
Harman, a diversified industrial manufacturer and the parent
[PHOTO] company of a group of materials engineering and specialty
manufacturing companies. Joined Handy & Harman in 1971 and
held various officer positions from Vice President and
Controller to President and Chairman. Serves on the Board of
the Treasurer's Fund, Inc.
DONALD H. ELLIOTT--Age 66
Partner in and previously counsel to the law firm of Hollyer
Brady Smith Troxell Barrett Rockett Hines & Mone LLP, since
[PHOTO] 1995. Partner in the law firm of Mudge Rose Guthrie Alexander
and Ferdon from 1991 to 1995. Partner in the law firm of
Webster & Sheffield from 1973 to 1991. Counsel to the Mayor of
New York City and then Chairman of the New York City Planning
Commission from 1966 to 1973. Serves on the boards of
Independence Community Bank Corp. and Long Island University.
4
<PAGE>
ALAN H. FISHMAN--Age 53
Managing Partner at Columbia Financial Partners, LP, a private
investment company, since 1992. Joined Chemical Bank in 1969,
named Chief Financial Officer in 1979 and elected Senior Vice
President responsible for worldwide investment banking
[PHOTO] activities in 1983. Joined Neuberger & Berman in 1988 and was
responsible for an investment partnership. Joined American
International Group, Inc. in 1989 as a Senior Vice President
and elected President of AIG Financial Services Group. Joined
the firm of Adler & Shaykin in 1990 as a Managing Partner.
Also Chairman of Affinity Technology Group, Inc., Director of
Brooklyn Academy of Music and Executive Committee Member of
the Brown University Annual Fund.
JAMES R. JONES--Age 59
Counsel to the law firm of Manatt, Phelps & Phillips, LLP,
since 1999. Retired President of Warnaco, Inc.--International
Division. White House Staff, Special Assistant and
[PHOTO] Appointments Secretary from 1965 to 1969 and Congressman from
Oklahoma from 1973 to 1987. Partner in the law firm of
Dickstein Shapiro & Morin from 1987 to 1989. Chairman and
Chief Executive Officer of the American Stock Exchange from
1989 to 1993. Served as United States Ambassador to Mexico
from 1993 to 1997.
STEPHEN W. McKESSY--Age 61
Retired Vice Chairman of Coopers & Lybrand L.L.P. Served in
various officer positions at Coopers & Lybrand from 1960 to
[PHOTO] 1997. Serves as a director for the Greater Boy Scouts of
America, the Board of Advisors of St. John's University
College of Business Administration, the Board of Governors of
the Silver Spring Country Club and the Board of the Sailfish
Point Golf Club.
EDWARD D. MILLER--Age 58
President and Chief Executive Officer of The Equitable
Companies Incorporated, since 1997, and Chairman and Chief
Executive Officer of The Equitable Life Assurance Society of
the United States, since 1998, the principal insurance
subsidiary of The Equitable Companies. Senior Vice Chairman of
[PHOTO] Chase Manhattan Corporation from 1995 to 1997 and President of
Chemical Bank (which merged with Chase in 1995) from 1994 to
1995 and Vice Chairman from 1991 to 1994. Serves on the Board
of The Equitable Companies and Equitable Life and the Board of
Alliance Capital Management Corporation and Donaldson, Lufkin
& Jenrette, Inc., both Equitable investment subsidiaries.
Since 1997, serves on the Executive Committee of the AXA
Group, Equitable's majority shareholder. Serves on the Boards
of the New York Blood Center, Pace University and Phoenix
House Foundation.
5
<PAGE>
BASIL A. PATERSON--Age 72
Partner in the law firm of Meyer, Suozzi, English and Klein,
P.C., since 1992. Served as Secretary of State of the State of
[PHOTO] New York from 1979 to 1982, as Deputy Mayor of New York City,
as a New York State Senator and as a commissioner of the Port
Authority of New York and New Jersey. Served as a professor at
a number of universities, as a member of the board of editors
of the New York Law Journal and as a member of the New York
State Commission on Judicial Nominations.
JAMES Q. RIORDAN--Age 71
Retired Vice Chairman and Chief Financial Officer of Mobil
Corp. Joined Mobil in 1957 as Tax Counsel, named a Director
[PHOTO] and Chief Financial Officer in 1969 and served as Vice
Chairman from 1986 until his retirement from Mobil Corp. in
1989. Joined Bekaert Corporation in 1989 and served as
President until his retirement in 1992. Serves on the Boards
of The Houston Exploration Company, Public Broadcasting
Service and Tri-Continental Corporation. Director/Trustee of
the mutual funds in the Seligman Group of investment
companies, Trustee of the Brooklyn Museum and a member of its
Committee for Economic Development and a member of the Policy
Council of the Tax Foundation.
FREDERIC V. SALERNO--Age 55
Senior Executive Vice President and Chief Financial Officer of
Bell Atlantic Corporation, since 1997. Vice President of the
New York Telephone Company from 1983 to 1985 and Vice
President and Chief Operating Officer of the New England
[PHOTO] Telephone Company from 1985 to 1987. President and Chief
Executive Officer of New York Telephone Company from 1987 to
1991. Held the positions of President of Worldwide Services
Group, Inc. and Vice Chairman, Finance and Business
Development at NYNEX from 1991 to 1997. Serves on the Boards
of AVNET, Inc., The Bear Stearns Companies Inc., Viacom, Inc.,
Orange and Rockland Utilities and Manhattan College.
VINCENT TESE--Age 56
Chairman of Wireless Cable International, Inc., since 1995.
New York Superintendent of Banks from 1983 to 1985 and
[PHOTO] Chairman and Chief Executive Officer of the Urban Development
Corporation from 1985 to 1994. Director of Economic
Development for New York State from 1987 to 1994. Serves on
the Boards of The Bear Stearns Companies Inc., Allied Waste
Industries, Inc., Bowne & Co., Inc., Cablevision, Inc., Mack-
Cali Realty Corporation, New York University School of Law,
and the New York and Presbyterian Hospital.
6
<PAGE>
Security Ownership of Management
The following table sets forth information as of February 26, 1999, with
respect to the number of shares of Common Stock beneficially owned and Common
Stock equivalents credited to each director, each executive officer of KeySpan
Energy named in the Summary Compensation Table and all directors and executive
officers as a group. Unless otherwise indicated, each person shown below has
the sole power to vote and the sole power to dispose of the shares of Common
Stock listed as beneficially owned. The percentage of shares held by any one
person, or all directors and officers as a group, does not exceed 1% of all
outstanding shares of KeySpan Energy's Common Stock.
<TABLE>
<CAPTION>
Total of Common
Name of Stock Beneficially Common Stock Common Stock
Beneficial Owner Owned & Equivalents Beneficially Owned(/1/) Equivalents(/2/)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
L.H. Affinito 344 0 344
- -----------------------------------------------------------------------------------
G. Bugliarello 4,075 880 3,195
- -----------------------------------------------------------------------------------
R.B. Catell 301,669 301,387 282
- -----------------------------------------------------------------------------------
H.R. Curd 1,896 0 1,896
- -----------------------------------------------------------------------------------
R.N. Daniel 2,209 1,000 1,209
- -----------------------------------------------------------------------------------
D.H. Elliott 13,965 1,705 12,260
- -----------------------------------------------------------------------------------
A.H. Fishman 9,647 2,925 6,723
- -----------------------------------------------------------------------------------
J.R. Jones 1,435 275 1,160
- -----------------------------------------------------------------------------------
S.W. McKessy 2,592 393 2,199
- -----------------------------------------------------------------------------------
E.D. Miller 12,994 7,271 5,722
- -----------------------------------------------------------------------------------
B.A. Paterson 3,624 1,036 2,588
- -----------------------------------------------------------------------------------
J.Q. Riordan 12,861 1,500 11,361
- -----------------------------------------------------------------------------------
F.V. Salerno 2,887 0 2,887
- -----------------------------------------------------------------------------------
V. Tese 2,887 0 2,887
- -----------------------------------------------------------------------------------
C.G. Matthews 181,146 180,863 282
- -----------------------------------------------------------------------------------
D.L. Phillips 37,652 37,647 5
- -----------------------------------------------------------------------------------
W.K. Feraudo 53,972 53,896 76
- -----------------------------------------------------------------------------------
A.J. DiBrita 48,272 48,155 117
- -----------------------------------------------------------------------------------
W.J. Catacosinos 49,601 49,601 0
- -----------------------------------------------------------------------------------
J.T. Flynn 19,461 19,461 0
- -----------------------------------------------------------------------------------
All directors and
executive
officers as a
group, including
those named above,
a total of
31 persons 935,880 880,543 55,337
- -----------------------------------------------------------------------------------
</TABLE>
(/1/)Includes shares issuable pursuant to options that are either currently
exercisable or exercisable within 60 days of the date of this Proxy
Statement as follows: Mr. Catell--280,000 shares; Mr. Matthews--167,000
shares; Mr. Phillips--37,000 shares; Mr. Feraudo--50,000 shares; Mr.
DiBrita--42,000 shares.
(/2/)The term Common Stock Equivalents refers to units of value which track the
performance of Common Stock. Such units do not possess voting rights and
have been issued pursuant to the Directors' Deferred Compensation Plan
(discussed below) or the Company's employee stock savings plan.
7
<PAGE>
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of December 31, 1998 with
respect to the number of shares of Common Stock owned by each person known by
KeySpan Energy to be the beneficial owner of more than 5% of the Company's
Common Stock.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount Beneficially Owned Percent of Class
- ------------------------------------ ------------------------- ----------------
<S> <C> <C>
Capital Research and Management Com-
pany 12,960,800 8.2%
333 South Hope Street
Los Angeles, California 90071
</TABLE>
Board of Directors--Committees
The Board of Directors is responsible under New York law and the Company's
Certificate of Incorporation and By-Laws with overseeing the business and
management of the Company. The Board of Directors met seven times between May
28, 1998, the date of the Combination and the acquisition of the non-nuclear
electric generation and gas distribution businesses of the Long Island
Lighting Company ("LILCO") (collectively, the "Transactions") and December 31,
1998. The Board maintains four standing committees and, during 1998,
maintained one additional committee. The function of such committees, number
of meetings held and composition of such committees are described below:
<TABLE>
<CAPTION>
-----------------------------------------------------
Committee
-----------------------------------------------------
Compensation
and Corporate
Director Executive Nominating Audit Responsibility Special
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L.H. Affinito X X
- ------------------------------------------------------------------------------
G. Bugliarello X X
- ------------------------------------------------------------------------------
R.B. Catell X (Chair)
- ------------------------------------------------------------------------------
H.R. Curd X X
- ------------------------------------------------------------------------------
R.N. Daniel X X
- ------------------------------------------------------------------------------
D.H. Elliott X X
- ------------------------------------------------------------------------------
A.H. Fishman X X (Chair)
- ------------------------------------------------------------------------------
J.R. Jones X X
- ------------------------------------------------------------------------------
S.W. McKessy X X
- ------------------------------------------------------------------------------
E.D. Miller X X (Chair) X
- ------------------------------------------------------------------------------
B.A. Paterson X X (Chair)
- ------------------------------------------------------------------------------
J.Q. Riordan X
- ------------------------------------------------------------------------------
F.V. Salerno X X X
- ------------------------------------------------------------------------------
V. Tese X X X
- ------------------------------------------------------------------------------
Meetings held from
May 28 to
December 31, 1998 2 3 2 1 17
- ------------------------------------------------------------------------------
</TABLE>
X:Member.
Chair: Committee Chairperson.
8
<PAGE>
Committees
- -------------------------------------------------------------------------------
Executive: Power to act on behalf Compensation and
of the Board of Directors whenever Nominating: Administers executive
the Board is not in session other compensation programs, policies and
than with respect to certain practices. Conducts director
matters as prescribed by New York candidate searches and recommends
law. directors. All members are non-
employee directors. The Committee
will not accept nominations for
election by shareholders at the
Annual Meeting, unless such
nominations were received within
the time period prescribed in
Section 2.7 of the Company's By-
Laws.
Audit: Reviews auditing,
accounting, financial reporting and
internal control functions.
Recommends independent public
accountants and reviews their
services. All members are non-
employee directors.
Corporate Special: Reviewed the payment by
Responsibility: Responsible for LILCO to its former officers of
ethics, community development, retirement benefits, incentive
environmental and equal employment compensation and benefits pursuant
opportunity oversight. to contracts with LILCO, including
litigation, investigations and
other inquiries.
Each of the directors attended 75% or more of all meetings of the Board and
each committee of which he or she was a member during the period from May 28,
1998 to December 31, 1998 or such shorter period for which he or she served on
the Board.
Director Compensation
The directors receive the following compensation:
. Non-employee directors:
$25,000 annual retainer,
$1,500 meeting fee (for each meeting of the Board of Directors and
each meeting of a committee of the Board of Directors attended),
$3,000 committee chairman retainer, and
500 share annual Common Stock equivalent grant.
Reimbursement for expenses incurred in attending Board and committee
meetings
. Employee directors:
Receive no additional compensation other than their normal salary
for serving on the Board or its committees.
The Board of Directors has adopted the Directors' Deferred Compensation Plan
to directly align the non-employee directors' financial interest with those of
the shareholders. The Directors' Deferred Compensation Plan requires all non-
employee directors to defer a minimum of 50% of their compensation as
directors in exchange for Common Stock equivalents as well as 100% of their
annual Common Stock equivalent grant, as referred to above. Common Stock
equivalents are valued by reference to the average of the high and low price
per share of KeySpan Energy's Common Stock reported on the New York Stock
Exchange Composite Transactions on the first trading day of the calendar
month. Compensation not subject to mandatory deferral into a Common Stock
equivalent account may, at the director's option, be deferred into a cash
account bearing interest at the prime rate. Upon retirement, death or
termination of service as a director, all amounts in a director's Common Stock
equivalent account and cash account shall, at the director's election, (i) be
paid in a lump sum in cash; (ii) be deferred for up to five years; and/or
(iii) be paid in the number of annual installments, up to ten, specified by
the director.
9
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents the annual compensation paid to or accrued for
the Chief Executive Officer and the four other most highly compensated
executive officers, as well as information for two former officers of the
Company (the "Named Executive Officers"). The information shown for 1998
represents compensation paid by the Company and its predecessors for the
twelve months ended December 31, 1998. Similarly, the information shown for
1997 and 1996 represents compensation paid by the Company's predecessors for
the twelve months ended December 31, 1997 and 1996, respectively.
<TABLE> --------------------------------
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------------------------------------------------------------------------------
Shares LTIP
Salary Bonus Underlying Payouts All Other
Name Year ($) ($) Options ($) Comp ($)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Catell 1998 562,917 223,583 0 274,641(1) 25,673(2)
Chairman & CEO 1997 465,000 495,690 125,000 358,096(1) 20,520(2)
1996 477,000 248,040 100,000 376,169(1) 14,483(2)
----------------------------------------------------------------------------------------
Craig G. Matthews 1998 372,372 345,842 0 175,419(1) 109,520(2)(3)
President & COO 1997 335,833 297,815 75,000 261,703(1) 6,204(2)
1996 312,252 160,935 60,000 252,338(1) 6,143(2)
----------------------------------------------------------------------------------------
David L. Phillips 1998 213,750 148,756 0 0 54,572(2)(3)
Senior Vice President 1997 206,000 128,132 17,000 0 199,092(2)(4)
1996 N/A N/A N/A N/A N/A
----------------------------------------------------------------------------------------
William K. Feraudo 1998 206,167 195,845 0 18,513 54,810(2)(3)
Senior Vice President 1997 174,000 109,272 21,000 0 2,057(2)
1996 173,083 60,900 21,000 0 2,020(2)
----------------------------------------------------------------------------------------
Anthony J. DiBrita 1998 206,000 145,559 0 18,513 67,662(2)(3)
Senior Vice President 1997 194,500 103,402 17,000 0 9,470(2)
1996 189,420 41,400 17,000 0 7,935(2)
----------------------------------------------------------------------------------------
William J. Catacosinos 1998 408,333 600,240 N/A 743,750(6) 39,132,803(7)(8)(9)
Former Chairman 1997 656,567 841,527 N/A 762,982(6) 400,164(8)(9)
and CEO(5) 1996 580,413 195,170 N/A N/A 18,663(8)
----------------------------------------------------------------------------------------
James T. Flynn 1998 330,000 109,354 N/A 371,803(6) 1,027,403(8)(9)(11)
Former Executive Vice 1997 302,500 408,956 N/A 294,362(6) 1,816,817(8)(9)(12)
President(10) 1996 263,365 115,362 N/A N/A 5,800(8)
</TABLE>
-----------------------------------------------------------------------------
FOOTNOTES
(1) Includes Long-Term Incentive Compensation paid by subsidiaries of KeySpan
Energy.
(2) Includes the cost of life insurance paid by KeySpan Energy and allocated
to the named individual for income tax purposes during 1998, 1997 and
1996, as follows: Mr. Catell--$25,673, $20,520, $14,483; Mr. Matthews--
$9,520, $6,204, $6,143; Mr. Phillips--$1,060, $292, $0; Mr. Feraudo--
$2,470, $2,057, $2,020; and Mr. DiBrita--$10,162, $9,470, $7,935.
(3) Includes amounts paid upon election as an officer of the Company in
August 1998, as follows: Mr. Matthews--$100,000; Mr. Phillips--$53,750;
Mr. Feraudo--$56,250 and Mr. DiBrita--$57,500.
(4) Includes amounts paid upon accepting employment with KeySpan and
reimbursement of relocation expenses in the amount of $50,000 and
$148,800, respectively.
(5) Dr. Catacosinos resigned from KeySpan Energy on July 31, 1998.
10
<PAGE>
(6) Represents Long-Term Incentive Awards paid by LILCO prior to the
Transactions.
(7) Includes payments by LILCO in connection with the Transactions, as
follows: $2,100,000 and $2,660,000 relating to a change of control
severance agreement and consulting agreement, respectively, between Dr.
Catacosinos and LILCO; and $34,284,986 relating to a retirement benefit
payable pursuant to an employment agreement between Dr. Catacosinos and
LILCO.
(8) Includes the cost of life insurance paid by LILCO and allocated to the
named individual for income tax purposes. The amounts shown for 1998,
1997 and 1996 were as follows: Dr. Catacosinos--$36,663, $23,241 and
$18,653; Mr. Flynn--$12,018, $8,300 and $5,800.
(9) Includes payments by LILCO for accrued and unused vacation for 1998 and
1997, as follows: Dr. Catacosinos: $51,154, $376,923; Mr. Flynn: $25,385,
$12,058.
(10) Mr. Flynn retired from KeySpan Energy effective January 1, 1999.
(11) Includes $990,000 paid by LILCO in connection with the Transactions
pursuant to a change of control severance agreement.
(12) Includes $1,796,459 paid by LILCO in connection with the termination of a
supplemental retirement benefit plan.
Compensation and Nominating Committee Report on Executive Compensation
The Compensation and Nominating Committee (the "Committee") of the Board of
Directors, composed of six independent, non-employee Directors, administers
KeySpan Energy's executive compensation program. The members of the Committee
are Donald H. Elliott, James R. Jones, Edward D. Miller, Basil A. Paterson,
Frederic V. Salerno and Vincent Tese. None of such members is or has been an
officer or employee of KeySpan Energy or any of its subsidiaries.
The Committee was constituted by the Board of Directors following the
Combination. Although the Summary Compensation Table included elsewhere herein
includes compensation paid or accrued by the Company's predecessors for
periods prior to the Combination, the following report relates solely to
policies adopted by the Committee and determinations made with respect to
compensation of the Chief Executive Officer and other executive officers
subsequent to the Combination.
During 1998, the Committee used outside consultants from the Hay Group to
review the compensation levels of KeySpan Energy's officers, including the
Named Executive Officers, and to provide advice with respect to incentive
compensation plan design. The Committee also reviews, recommends and approves
changes to the Company's compensation policies and programs for the chief
executive officer, other senior executives and certain key employees. In
addition, the Committee makes recommendations concerning the Company's
employee benefit policies and exercises such powers and makes such other
compensation-related determinations as are entrusted to the Committee by the
Board of Directors. After review and approval by the Committee, all issues
relating to executive compensation are submitted to the entire Board for
ratification. There were no material decisions of the Committee which were
overruled or revised by the Board.
Executive Compensation Philosophy and Policies
The philosophy of KeySpan Energy with respect to executive compensation is
that the Chief Executive Officer and other executives should be compensated at
market-competitive levels to attract, motivate, and retain talented executives
needed to achieve KeySpan Energy's vision of becoming a premier energy
company. Through the Committee, the Board of Directors has developed a "pay
for performance" executive compensation philosophy and approved the
implementation of a total compensation plan designed to focus attention on
KeySpan Energy's strategic business initiatives and financial performance
objectives. The Committee adheres to the following compensation policies which
are intended to facilitate the achievement of KeySpan Energy's business
strategies and further the Company's vision:
. 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 business group performance goals.
11
<PAGE>
. A significant amount of compensation for executive officers should be
comprised of long-term, at-risk pay to focus such executives on the
long-term interests of shareholders and creating long-term value for the
shareholders.
. The compensation program elements for base salary, annual and long term
compensation should be competitive to the median of executive positions
of similar scope for the metropolitan New York City area for general
industry, with an appropriate recognition of both current and emerging
utility and energy sector practice. If KeySpan Energy's performance
exceeds that of the comparable group, compensation should be above the
median; likewise, if KeySpan Energy's performance falls below that of
the group, the compensation paid to executives should be below the
median of the comparable companies.
Components of Compensation
The Committee compares total compensation levels for KeySpan Energy's senior
executives to the compensation paid to executives in comparable general
industry and utility companies. In this regard, the Committee uses analyses
prepared by a national compensation consultant to review the 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.
The Committee strives to ensure that compensation for the Company's executive
officers provides a direct link to strategic financial measures and
shareholder value. To achieve this performance linkage, KeySpan Energy has
established three programs for the direct compensation of executive officers:
the Base Salary Program, the Corporate Annual Incentive Compensation Plan and
the Long-Term Performance Incentive Compensation Plan. The intent of these
programs is to place increased emphasis on performance-based pay and reduced
emphasis on base salary in determining total compensation.
Each of the three programs is discussed in greater detail below.
The Base Salary Program
In setting base salary levels for 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,
KeySpan Energy currently targets the 50th percentile of the comparable labor
market. The Committee also considers the experience level and actual
performance achieved by the executive as it relates to KeySpan Energy's
corporate goals in setting such executive's base salary.
When Mr. Catell was promoted to and elected as Chairman and Chief Executive
Officer on July 31, 1998, KeySpan Energy entered into an employment agreement
with Mr. Catell that provides a base salary of $700,000 per year, subject to
such increases that may be approved by the Board. The base salary level for
the Chief Executive Officer and other Named Executive Officers, compared to
competitive market data, is generally at or below the 50th percentile of
comparable positions at this time, as the Company continues to align base pay
to competitive market data. However, consistent with KeySpan Energy's ongoing
effort to reduce the emphasis upon base salary, the Committee, and the Board,
have determined that Mr. Catell's base salary not be increased during the
annual 1999 merit increase review process.
In addition to base salary, on August 13, 1998, the Committee approved for
each officer, other than Mr. Catell, a cash payment of 25% of base salary,
upon election as an officer of the Company, with such payment vesting over a
one year period. The purpose of such award was to encourage retention of such
officers following consummation of the Combination.
12
<PAGE>
The Corporate Annual Incentive Compensation Plan
The Board of Directors adopted the Corporate Annual Incentive Compensation
Plan (the "Corporate Plan") for KeySpan Energy on September 10, 1998. The
awards to be earned under this plan will be paid as cash based upon annual
performance results. For 1998, the performance measurement period included the
seven-month period from June 1, 1998 to December 31, 1998. The awards for this
period were paid in March 1999 and were based upon results achieved during the
seven month period. The Corporate Plan provides annual incentive awards to
officers and all management employees who, by the nature and scope of their
positions, regularly and directly make a significant contribution to the
success of KeySpan Energy in the achievement of corporate goals that the
Committee believes are important to the shareholders of KeySpan Energy. The
specific corporate goals for the Corporate Plan are established by management
and reviewed and approved by the Committee and the Board of Directors. The
goals are intended to improve corporate performance and include objectives
which encourage increase in total return to shareholders, improved corporate
earnings results, improved competitive position, improved customer
satisfaction and control of operating expenses. Incentive awards as a
percentage of base salary are based upon both Company and strategic business
group performance. The incentive award ranges are established annually by the
Committee for eligible management employees in the Corporate Plan. Incentive
award levels are intended to provide awards that are competitive within the
industry at target award levels when performance results are achieved.
The Corporate Plan approved by the Board of Directors on September 10, 1998,
provides for award opportunities to executives which range from zero to a
maximum of 60% of base salary at target levels of performance. The Chief
Executive Officer has a target award of 60% of base salary for both 1998 and
1999, based upon corporate performance goals established for total return to
shareholders and consolidated earnings per share. All executives in the
Corporate Plan have a portion of their incentive award target linked directly
to overall corporate performance goals for total return to shareholders and
consolidated earnings per share and to the results achieved in their strategic
business group.
The Long-Term Performance Incentive Compensation Plan
As a result of the Committee's review of the competitiveness of KeySpan
Energy's total compensation program, and an independent consultant review of
the long-term incentive plans used by a majority of utilities, the Committee
recommended, and the Board of Directors adopted, the KeySpan Energy Long-Term
Performance Incentive Compensation Plan (the "Incentive Plan") in March 1999.
The Incentive Plan is subject to approval of the shareholders at the 1999
Annual Meeting of Shareholders. The Incentive Plan provides for the award of
incentive stock options, nonqualified stock options, performance stock awards
and restricted shares to key employees and non-employee directors and
consultants of KeySpan Energy and its subsidiaries as determined by the
Committee. The purpose of the Incentive Plan is to optimize KeySpan Energy's
performance through incentives that directly link the participant's personal
interests to those of KeySpan Energy's shareholders and to attract and retain
participants who make significant contributions to the success of KeySpan
Energy.
The stock option component of the Incentive Plan entitles the participants to
purchase shares of Common Stock at an exercise price per share determined by
the Committee which is no less than the closing price of the Common Stock on
the New York Stock Exchange on the date of the grant. Following adoption of
the Incentive Plan, the Committee approved an initial annual grant for Mr.
Catell of 70,000 nonqualified stock options with three year pro-rata vesting,
and 235,000 nonqualified stock options as a retention grant, vesting in August
1999, to purchase shares of KeySpan Energy's Common Stock at an exercise price
of $27.75.
In addition, the Committee approved an award to Mr. Catell in recognition of
the extraordinary efforts required to accomplish the Combination. This award
provided for the grant of 111,000 nonqualified stock options, vesting December
1999, to purchase shares of KeySpan Energy's Common Stock at an exercise price
of $29.375. The Committee also awarded Mr. Catell 12,698 Shares of restricted
Common Stock, which restrictions lapse on July 31, 1999. In determining award
size, the Committee considered the level of effort required by Mr. Catell to
achieve the Combination, and the overall total compensation provided by base
salary, annual awards and long-term compensation to target the median level of
total compensation for comparable executive positions in the merger of
shareholder-owned utilities and gas companies nationwide.
13
<PAGE>
Subject to shareholder approval of the Incentive Plan, an aggregate of
1,676,000 nonqualified stock options and 12,698 shares of restricted Common
Stock have been granted to the executive officers as a group. These initial
grants of nonqualified stock options and restricted Common Stock were made to
executives generally determined on the basis of the executive's position
within KeySpan Energy and the level of such executive's base salary.
Under applicable accounting requirements, KeySpan Energy could be required to
incur a non-cash charge to earnings in 1999 if the fair market value of the
Common Stock exceeds the exercise price of previously granted nonqualified
stock options on the date shareholder approval of the Incentive Plan is
obtained. In such event, the Committee may consider replacing previously-
issued awards with new awards, which may be in greater amounts, or otherwise
have different terms, in order to compensate recipients of awards for any loss
in value attributable to the replacement awards.
The Committee believes that stock options are directly linked to KeySpan
Energy's performance. As the value of KeySpan Energy's Common Stock is
generally considered the strongest indicator of overall corporate performance,
stock option awards allow executives to benefit by appreciation in stock price
at no direct cost to KeySpan Energy and provide a strong incentive to
participants by linking compensation to the future value of KeySpan Energy's
Common Stock.
Policy with Respect to Section 162(m) Deduction Limit
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company cannot deduct compensation in excess of $1,000,000 paid
in any year to the chief executive officer or any of the four other most
highly compensated executive officers whose compensation must be detailed in
the proxy statement. Certain benefit plans and compensation paid under plans
that are performance-based is not subject to the $1,000,000 annual limit if
certain requirements are satisfied. Although the Company's compensation policy
is generally designed to relate compensation to performance, certain payments
do not meet such requirement because they allow the Committee to exercise
discretion in setting compensation. The Committee is of the opinion that it is
in the Company's best interest for the Committee to retain discretion in order
to preserve flexibility in compensating such executive officers, especially in
light of an increasingly competitive marketplace.
Conclusion
The Committee believes that KeySpan Energy's executive compensation policies
and programs serve both the interests of KeySpan Energy and its shareholders
effectively. The various compensation programs are appropriately balanced to
provide the motivation for executives to contribute to KeySpan Energy's
overall success and enhance the value of KeySpan Energy for the shareholders'
benefit.
The Committee will continue to monitor the effectiveness of KeySpan Energy's
total compensation program to meet the current and the future needs of KeySpan
Energy.
Compensation and Nominating
Committee
Edward D. Miller, Chairman
Donald H. Elliott
James R. Jones
Basil A. Paterson
Frederic V. Salerno
Vincent Tese
14
<PAGE>
Performance Graph
The following table presents, for the period beginning May 28, 1998 through
December 31, 1998, a comparison of cumulative total shareholder returns for
KeySpan Energy, the Standard & Poor's Utilities Index and the Standard &
Poor's 500 Index.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
May 28, December
1998 31, 1998
------- --------
<S> <C> <C>
KeySpan Energy.............................................. $100.00 $ 93.99
S&P Utilities Index......................................... $100.00 $108.57
S&P 500 Index............................................... $100.00 $113.65
</TABLE>
Assumes $100 invested on May 28, 1998 in shares of KeySpan Energy Common
Stock, the S&P Utilities Index and the S&P 500 Index, and that all dividends
were reinvested.
15
<PAGE>
Compensation Under Retirement Plans
The Company's Retirement Plan provides retirement benefits based upon the
individual participant's years of service and final average annual
compensation (as defined below). The following table sets forth the estimated
annual retirement benefits (exclusive of Social Security payments) payable to
participants in the specified compensation and years-of-service categories,
assuming continued active service until normal retirement age and that the
Company's Retirement Plan is in effect at such time.
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------
Remuneration 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
$750,000.................. $225,000 $281,000 $337,500 $393,750 $450,000 $506,250
$800,000.................. $240,000 $299,500 $360,000 $420,000 $480,000 $540,000
$850,000.................. $255,000 $318,000 $382,500 $446,250 $510,000 $573,750
$900,000.................. $270,000 $336,500 $405,000 $472,500 $540,000 $607,500
$950,000.................. $285,000 $355,000 $427,500 $498,750 $570,000 $641,250
</TABLE>
For purposes of the Retirement Plan, the final average annual compensation is
the average annual compensation for the highest five consecutive years of
earnings during the last ten years of credited service. The annual salary and
bonus for the current year for the Named Executive Officers is indicated in
the Annual Compensation column of the Summary Compensation Table.
The number of years of credited service for the Chief Executive Officer and
the four other highest paid executive officers currently employed by the
Company based on continued service to age 65, normal retirement age, will be
for R.B. Catell (44 years), C.G. Matthews (42 years), D.L. Phillips (24
years), W.K. Feraudo (45 years), and A.J. DiBrita (43 years).
The Code limits the annual compensation taken into consideration for and the
maximum annual retirement benefits payable to a participant under the
Company's Retirement Plan. For 1998, these limits were $160,000 and $130,000,
respectively. Annual retirement benefits attributable to amounts in excess of
these limits are provided under the Company's Supplemental Employee Retirement
Plan ("SERP") and not under the Company's Retirement Plan.
AGREEMENTS WITH EXECUTIVES
Employment Agreements
On September 10, 1998, KeySpan Energy entered into an employment agreement
with Mr. Catell relating to his services as Chairman and Chief Executive
Officer. The agreement covers the period beginning July 31, 1998 and ending
July 31, 2003. In addition to base salary, annual and long-term incentive
compensation and other employee benefits, Mr. Catell's employment agreement
provides for severance benefits to be paid to him in the event his employment
is terminated by KeySpan Energy without cause or if Mr. Catell terminates his
employment for good reason. The severance benefits to be provided during the
severance period would include:
16
<PAGE>
(a) payment to Mr. Catell in a single lump sum of (i) all accrued obligations
and (ii) the aggregate amount of salary and annual incentive compensation that
he would have received had he remained employed through the end of the
employment period; (b) continued accrual of SERP benefits (as provided in the
agreement) during the severance period; and (c) continuation of all other
employment benefits, as if he had remained employed by KeySpan Energy during
the severance period. If Mr. Catell voluntarily terminates his employment,
other than for good reason, the Company shall pay the accrued obligations to
Mr. Catell and he shall be entitled to supplemental retirement benefits. If
Mr. Catell's employment is terminated due to a "change of control" of KeySpan
Energy (as defined in the agreement), the severance period is defined to mean
the period from the date of termination through the end of the employment
period, or, if longer, the third anniversary of the date of termination.
KeySpan Energy also is party to an employment agreement with Mr. Phillips
relating to his services as Senior Vice President. The agreement was effective
January 1, 1997 and has an initial term of three years, after which it shall
extend for successive one-year renewal terms unless terminated by either party
upon six months' prior written notice. In addition to the amounts paid to Mr.
Phillips upon assuming employment, as reflected in the Summary Compensation
Table, the agreement provides for Mr. Phillips to receive a minimum base
salary of $206,000 each year, annual and long-term incentive compensation and
all employee benefits provided to other senior executives of the Company. The
agreement also contains provisions concerning noncompetition and
confidentiality applicable to Mr. Phillips following termination of his
employment with the Company.
Senior Executive Change of Control Severance Plan
In October 1998, the Board of Directors approved the Senior Executive Change
of Control Severance Plan (the "Change of Control Plan") in which Messrs.
Catell, Matthews, Phillips, Feraudo, DiBrita and 28 other senior executives
are participants. The Change of Control Plan provides for the payment of
severance and other benefits upon certain qualifying terminations of such
executives within three (3) years of a "change of control of the Company" (as
defined in the Change of Control Plan). The benefits payable under the Change
of Control Plan generally provide for (i) the payment of the sum of the
executive's base salary, incentive compensation and compensation previously
deferred by the executive, all through the date of termination; (ii) the
payment of an amount equal to three times an executive's base salary and
incentive compensation for the Chief Executive Officer, President and Chief
Operating Officer and all Senior Vice Presidents and two times an executive's
base salary and incentive compensation for Vice Presidents of the Company;
(iii) the payment of amounts under retirement plans; and (iv) the continuation
of certain other benefits for a period of two to three years depending on the
executive's position with the Company. The Change of Control Plan expires
October 30, 2003, unless extended for an additional period by the Board of
Directors; provided, that following a "change of control," the Change of
Control Plan shall continue until after all the executives who become entitled
to any payments thereunder shall have received such payments in full.
The Change of Control Plan supersedes any and all prior severance plans and
agreements between or binding the Company or any predecessor thereof with
respect to a change of control that occurred prior to October 1998, except
that in certain circumstances some of the executives may be able to elect to
receive payments and benefits provided pursuant to a prior agreement or plan
rather than the payments and benefits provided under the Change of Control
Plan.
PROPOSAL 2. RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS
In accordance with the recommendations of its Audit Committee, the Board of
Directors recommends that the shareholders ratify the appointment of the firm
of Arthur Andersen LLP ("Arthur Andersen"), independent public accountants, to
audit the books, records and accounts of KeySpan Energy and its subsidiaries
for the fiscal year ending December 31, 1999.
17
<PAGE>
On September 10, 1998, the Board of Directors of KeySpan Energy, on
recommendation of its Audit Committee, named Arthur Andersen as independent
public accountants for KeySpan Energy's nine-month period ending December 31,
1998. Arthur Andersen were independent public accountants for KSE and The
Brooklyn Union Gas Company ("Brooklyn Union"), and Ernst & Young LLP ("Ernst &
Young") were independent public accountants for LILCO, during such
corporations' respective fiscal years prior to consummation of the
Combination.
During the past two fiscal years, there has been no report on the financial
statements of KSE and Brooklyn Union by Arthur Andersen or of LILCO by Ernst &
Young, which contained an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope, or accounting
principles. During the past two fiscal years and the interim period through
September 10, 1998, there have been no disagreements with Arthur Andersen or
Ernst & Young on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
the satisfaction of Arthur Andersen or Ernst & Young, would have caused either
of such firms to make reference to the subject matter of such disagreements in
connection with its report.
Arthur Andersen representatives have direct access to the Audit Committee and
regularly attend the Committee's meetings. An Arthur Andersen representative
will attend the Annual Meeting to answer shareholder questions and will have
the opportunity to make a statement if he or she desires to do so.
The affirmative vote of a majority of the votes cast at the meeting is
required for approval of this proposal.
The Board of Directors unanimously recommends a vote FOR this proposal.
PROPOSAL 3. CORPORATE NAME CHANGE
In the fall of 1998, based on research that showed strong customer acceptance
of the KeySpan brand name, it was determined that the Company should continue
to employ the brand building strategy implemented by KSE prior to the
consummation of the Combination. As a result, at such time the Board of
Directors authorized the Company to conduct its business under the assumed
name "KeySpan Energy" and to adopt the symbol "KSE" as its trading symbol on
the New York and Pacific Stock Exchanges.
The Company now wishes to formally adopt the "KeySpan" name as it continues to
integrate its operations and enhance the value of such operations to
shareholders. In furtherance of these objectives, the Board of Directors has
authorized and shareholders are requested to approve an amendment to the
Company's Certificate of Incorporation to change its name from MarketSpan
Corporation to KeySpan Corporation. Accordingly, the following resolution will
be offered at the Annual Meeting:
RESOLVED, That the Certificate of Incorporation of MarketSpan
Corporation d/b/a KeySpan Energy be amended to read
substantially as follows and that the Board of Directors be
authorized and directed to take all steps necessary to amend the
Certificate of Incorporation as may be required by the laws of
the State of New York:
"Article I
Name
The name of the corporation shall be KeySpan Corporation."
The affirmative vote of a majority of the outstanding shares of KeySpan
Energy's Common Stock is required for approval of this proposal.
The Board of Directors unanimously recommends a vote FOR this proposal.
18
<PAGE>
PROPOSAL 4. EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
In May 1998, the Board of Directors adopted the Employee Discount Stock
Purchase Plan (the "Plan"), which is intended to encourage ownership of
KeySpan Energy's Common Stock by eligible employees of KeySpan Energy or its
wholly-owned subsidiaries by providing a convenient and systematic method for
employee acquisition. The Board has authorized the issuance of up to 750,000
shares of Common Stock and requests that KeySpan Energy's shareholders approve
the Plan and authorize the issuance of such shares under the Plan.
The Plan provides that eligible employees may purchase Common Stock each
calendar month at 95% of the average of the high and low sales price (the
"Purchase Price") for such shares on the last day of the month on which shares
are traded on the New York Stock Exchange. Generally, all of the approximately
7,100 employees of KeySpan Energy or its wholly-owned subsidiaries are
eligible to participate in the Plan except (i) employees who have not been on
the payroll for at least three months as of the beginning of a purchase
period; (ii) employees who customarily are employed less than five months in
any calendar year; (iii) part-time employees; (iv) Directors who are not also
employees of KeySpan Energy; and (v) employees of KeySpan Energy's wholly-
owned subsidiaries (or similar entities) which entities have not been approved
by KeySpan Energy as eligible to participate in the Plan.
Employees will be able to purchase shares either by payroll deduction or by
making lump sum payments or both. In any one month purchase period, the total
payments by an employee to purchase shares, including both payroll deductions
and lump sum payments, cannot exceed 20% of his or her salary at the beginning
of such period. Moreover, the fair market value of shares purchased by an
employee under the Plan, during any calendar year, cannot exceed $25,000, nor
may any employee purchase shares if the purchase would cause him/her to own 5%
or more of the total combined voting power or value of all shares of Common
Stock of KeySpan Energy.
Employees may also sell any or all of their shares acquired under the Plan at
a price based on the weighted average of all shares sold by the Plan
Administrator during a given selling period, adjusted to exclude brokerage
commissions.
The Board of Directors will have the right, without shareholder approval, to
suspend, terminate or modify the Plan. In the event shareholders do not vote
to approve the Plan, the Plan will not be qualified under current Code
regulations, and employees will be taxed on the difference between the market
price of the Common Stock and the discounted purchase price.
The proceeds received by KeySpan Energy from purchases under the Plan will be
used for general corporate purposes or for the purchase of shares on the open
market on behalf of a participant.
On March 22, 1999, the closing price of KeySpan Energy's Common Stock as
reported on the NYSE listing of composite transactions was $25.875 per share.
The following resolution will be proposed for approval by holders of KeySpan
Energy's Common Stock:
RESOLVED, that the Employee Discount Stock Purchase Plan and
the issuance of shares thereunder is hereby approved, ratified
and confirmed.
The affirmative vote of a majority of the votes cast at the meeting is
required for approval of this proposal.
The Board of Directors unanimously recommends a vote FOR this proposal.
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PROPOSAL 5. LONG-TERM PERFORMANCE INCENTIVE COMPENSATION PLAN
THE COMPANY'S LONG-TERM PERFORMANCE INCENTIVE COMPENSATION PLAN
Terms of the Plan
In March 1999, the Board of Directors of KeySpan Energy adopted the KeySpan
Energy Long-Term Performance Incentive Compensation Plan (the "Plan"), subject
to shareholder approval prior to December 31, 1999. The Plan will become
effective on the date of its approval by the shareholders. The Plan is
intended to promote the interests of KeySpan Energy and its shareholders by
attracting and retaining key employees, directors and consultants of KeySpan
Energy and its subsidiaries, motivating such persons by means of performance-
related incentives to achieve long-range performance goals, and enabling such
persons to participate in the long-term growth and financial success of
KeySpan Energy. The Plan will be administered by the Committee consisting
solely of directors who are "non-employee directors" as defined in Rule 16b-3
under the Exchange Act and "outside directors" as defined in Section 162(m) of
the Code.
The Plan provides for the granting of four types of awards on a stand alone,
combination or tandem basis, specifically, stock options, incentive stock
options, restricted shares and performance stock awards. The Plan provides
that the total number of shares of Common Stock with respect to which awards
may be granted under the Plan may not exceed 10,500,000 shares, and that the
total number of shares of Common Stock with respect to which stock options
(including incentive stock options) and performance stock awards may be
granted in any one year to any individual participant may not exceed 750,000
shares (subject, in each case, to adjustment in the event of a stock split,
stock dividend, combination or exchange of shares, exchange for other
securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization, or other such change). As of the date hereof,
approximately 2,500 persons are eligible to participate in the Plan. No
payments or contributions are required to be made by the persons who
participate in the Plan other than the payment of any purchase price upon the
exercise of a stock option and any payment required by the Committee with
respect to an award of restricted shares.
A stock option award grants the recipient the right to buy a specified number
of shares of Common Stock at a fixed exercise price during a specified time,
and subject to such other terms and conditions, all as the Committee may
determine; provided that the exercise price of any stock option shall not be
less than 100% of the fair market value of the Common Stock on the date of
grant of the award. An incentive stock option award granted pursuant to the
Plan is an award in the form of a stock option which complies with the
requirements of Section 422 of the Code or any successor Section as it may be
amended from time to time. All other stock option awards granted under the
Plan are nonqualified stock options. The exercise price of all stock option
awards under the Plan is payable, as determined by the Committee, in cash, in
shares of already owned Common Stock of KeySpan Energy, in any combination of
cash and shares, or by any other method deemed appropriate by the Committee.
Each option grant may be exercised in whole, at any time, or in part, from
time to time, after the grant becomes exercisable.
A grant of restricted shares pursuant to the Plan is a transfer of shares of
Common Stock, for such consideration and subject to such restrictions, if any,
on transfer or other incidents of ownership, for such periods of time as the
Committee may determine. The certificates representing the restricted shares
shall be held by KeySpan Energy as escrow agent until the end of the
applicable period of restriction, during which the shares may not be sold,
assigned, transferred, pledged, exchanged, encumbered or disposed of. However,
during the period of restriction, the recipient of restricted shares will be
entitled to vote the restricted shares and to retain cash dividends paid
thereon.
A performance stock award is a right granted to a participant to receive
restricted shares that are not issued to the participant until after the
satisfaction of the performance goals during a performance period. A
performance
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stock award is earned by the participant over a time period determined by the
Committee on the basis of performance goals established by the Committee at
the time of grant. Performance goals established by the Committee may be based
on one or more of the following criteria: earnings or earnings growth;
earnings per share; return on equity, assets, capital employed or investment;
revenues or revenue growth; gross profit; gross margin; operating profit;
operating margin; operating cash flow; stock price appreciation and total
shareholder return. If the performance goals set by the Committee are not met,
no restricted shares may be issued pursuant to the performance stock award.
In the event of a change of control of KeySpan Energy, the following shall
occur with respect to any and all awards outstanding: (i) automatic lapse of
all restrictions and acceleration of any time periods relating to the exercise
or vesting of stock options and restricted shares so that awards become
immediately exercisable or vested; and automatic satisfaction of performance
goals on a pro rata or other basis set forth in the award agreement with
respect to the number of restricted shares issuable pursuant to a performance
stock award so that such pro rata or other portion of such restricted shares
becomes immediately vested and (ii) all awards become non-cancelable.
Except as otherwise provided in the Plan, the Board may at any time terminate,
and, from time to time, amend or modify the Plan. Any such action of the Board
may be taken without the approval of KeySpan Energy's shareholders, but only
to the extent that such shareholder approval is not required by applicable law
or regulation. Furthermore, no amendment, modification, or termination of the
Plan shall adversely affect any awards already granted to a participant
without his or her consent. No amendment or modification of the Plan may
change any performance goal, or increase the benefits payable for the
achievement of a performance goal, once established for a performance stock
award.
Grants under the Plan
Following adoption of the Plan by the Board of Directors, the Committee
approved the following grants of stock options under the Plan to Named
Executive Officers:
<TABLE>
<CAPTION>
Exercise
Number of Price Per
Name Options Share
- ---- --------- ---------
<S> <C> <C>
Robert B. Catell............................................ 305,000 27.75
111,000 29.375
Craig G. Matthews........................................... 220,000 27.75
William K. Feraudo.......................................... 101,000 27.75
Anthony J. DiBrita.......................................... 101,000 27.75
David L. Phillips........................................... 101,000 27.75
Executive Officers.......................................... 1,676,000 see below
</TABLE>
Options to purchase 1,292,000 shares, described in the foregoing table, at an
exercise price of $27.75 will become exercisable in August 1999, with options
to purchase an additional 86,000 shares becoming exercisable in each of 2000
and 2001. Options to purchase 89,666 and 111,000 shares at an exercise price
of $29.375 will become exercisable in October 1999 and December 1999,
respectively, with options to purchase an additional 5,667 shares becoming
exercisable in each of October 2000 and 2001.
The Committee also approved an aggregate grant of 929,000 stock options to the
Executive Officers at an exercise price per share equal to the closing price
of KeySpan Energy's Common Stock on the date the Plan is approved by
shareholders. These options vest rateably over a three-year period from such
date. Awards of such options to the Named Executive Officers were made as
follows: Mr. Catell - 280,000 options; Mr. Matthews - 135,000 options; Mr.
Feraudo - 45,000 options; Mr. DiBrita - 45,000 options; and Mr. Phillips -
45,000 options.
In addition to the stock options granted to Executive Officers, as set forth
above, the Committee has granted options to purchase an aggregate of 1,258,000
shares of Common Stock to key employees and approved the grant
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<PAGE>
of 12,698 restricted shares to Mr. Catell. Except as set forth above, no other
awards have been granted under the Plan, and the grants of all of the above
awards are subject to shareholder approval of the Plan. The benefits accruing
pursuant to the above awards are not presently determinable.
Federal Income Tax Consequences of Grants under the Plan
The following discussion generally summarizes the Federal income tax
consequences to participants who may receive grants of awards under the Plan.
Stock Options. For Federal income tax purposes, no income is recognized by a
participant upon the grant of a stock option under the Plan. Upon the exercise
of an option, however, compensation taxable as ordinary income will be
realized by the participant in an amount equal to the excess of the fair
market value of a share of KeySpan Energy's Common Stock on the date of such
exercise over the exercise price. A subsequent sale or exchange of such shares
will result in gain or loss measured by the difference between (i) the
exercise price, increased by any compensation reported upon the participant's
exercise of the option, and (ii) the amount realized on such sale or exchange.
Such gain or loss will be capital in nature if the shares were held as a
capital asset and will be long-term if such shares were held for more than one
year.
The Company generally is entitled to a deduction (subject to the provisions of
Section 162(m) of the Code) for compensation paid to a participant at the same
time and in the same amount as the participant is considered to have realized
compensation by reason of the exercise of an option.
Incentive Stock Options. No taxable income generally is realized by the
participant for Federal income tax purposes upon the grant or exercise of an
incentive stock option. If shares of KeySpan Energy's Common Stock are issued
to a participant pursuant to the exercise of an incentive stock option granted
under the Plan, and if no disqualifying disposition of such shares is made by
such participant within two years after the date of grant or within one year
after the transfer of such shares to a participant, then (a) upon sale of such
shares, any amount realized in excess of the option price will be taxed to
such participant as a long-term capital gain and any loss sustained will be a
long-term capital loss, and (b) no deduction will be allowed KeySpan Energy
for Federal income tax purposes. Upon exercise of an incentive stock option,
the participant may be subject to alternative minimum tax on certain items of
tax preference.
If shares of KeySpan Energy's Common Stock acquired upon the exercise of an
incentive stock option are disposed of prior to the expiration of the two-
years-from-grant/one-year-from-transfer holding period, generally (a) the
participant will realize ordinary income in the year of disposition in the
amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on the disposition of the shares)
over the option price thereof, and (b) KeySpan Energy will be entitled to
deduct such amount (subject to the provisions of Section 162(m) of the Code).
Any further gain or loss realized will be taxed as capital gain or loss, which
will be long-term or short-term depending on whether the shares were held for
more than one year, and will not result in any deduction by KeySpan Energy.
If an incentive stock option is exercised at a time when it no longer
qualifies as an incentive stock option, the option is treated as a
nonqualified stock option.
Restricted Shares; Performance Stock Awards. Awards of restricted shares
generally will not result in taxable income to the employee for Federal income
tax purposes at the time of grant. A recipient of restricted shares generally
will receive compensation subject to tax at ordinary income rates on the
excess, if any, of the fair market value of KeySpan Energy's Common Stock at
the time the restricted shares are no longer subject to forfeiture over the
amount, if any, paid for the shares. However, a recipient who so elects under
Section 83(b) of the Code within 30 days of the date of the grant will have
ordinary taxable income on the date of the grant equal to the amount of any
such excess determined as if such shares were unrestricted and could be sold
immediately. If the restricted shares subject to such election are forfeited,
the recipient will not be entitled to any deduction, refund or loss for tax
purposes with respect to the amount included in taxable income as a result of
the election. Upon sale of the restricted shares after the forfeiture period
has expired, the holding period to determine whether the recipient has long-
term or short-term capital gain or loss begins when the restriction period
expires and the
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<PAGE>
tax basis will be equal to the fair market value of the restricted shares on
the date the restriction period expires. However, if the recipient timely
elects to be taxed as of the date of the grant, the holding period commences
on the date of the grant and the tax basis will be equal to the fair market
value of the restricted shares on the date of the grant as if such shares were
then unrestricted and could be sold immediately.
The award of a performance stock award generally will not result in taxable
income to the employee for Federal income tax purposes at the time of grant. A
recipient of a performance stock award generally will be subject to tax at the
same time and in the same manner as applicable to recipients of restricted
shares as described above.
The Company is generally entitled to a deduction (subject to the provisions of
Section 162(m) of the Code) for compensation paid to a participant in the same
amount as the participant is considered to have realized compensation with
respect to restricted shares or a performance stock award.
Limits on Deductions. Under Section 162(m) of the Code, the deduction
allowable to the Company in a taxable year for compensation paid to the Chief
Executive Officer and the four other most highly paid executive officers of
KeySpan Energy (including its subsidiaries) is limited to $1,000,000 per
person, except that compensation that is performance-based will be excluded
for purposes of calculating the amount of compensation subject to this
$1,000,000 limitation. The ability of KeySpan Energy to claim a deduction for
compensation paid to any other person is not affected by this provision.
The Company has structured the Plan so that any compensation for which KeySpan
Energy may claim a deduction in connection with the exercise of nonqualified
stock options, the disposition by an optionee of shares acquired upon the
exercise of incentive stock options and the lapse of restrictions on
restricted shares received pursuant to performance stock awards is intended to
be performance-based within the meaning of Section 162(m) of the Code. All
other awards under the Plan are not performance-based, and therefore any
deduction KeySpan Energy may claim with respect to such awards made to the
persons listed above will be subject to the limitations on deductibility in
Section 162(m) of the Code.
Information contained herein relating to the Plan is qualified in its entirety
by reference to such plan, which is attached to this Proxy Statement as
Appendix A.
The following resolution will be proposed for approval by holders of KeySpan
Energy's Common Stock:
RESOLVED, that the KeySpan Energy Long-Term Performance
Incentive Compensation Plan is hereby approved, ratified and
confirmed.
The affirmative vote of a majority of the votes cast at the meeting is
required for approval of this proposal.
The Board of Directors recommends a vote "FOR" approval of this proposal.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Legal Services
Frederick M. Lowther was appointed General Counsel of KeySpan Energy on
September 10, 1998 and is also a member of the law firm of Dickstein Shapiro
Morin & Oshinsky LLP. During 1998, this firm represented KeySpan Energy in a
variety of matters. The total fees paid to this firm during 1998 (including
fees attributable to Mr. Lowther's service as General Counsel) were
approximately $1,300,000. Mr. Lowther is not separately compensated by the
Company for his services as General Counsel.
Steven L. Zelkowitz was appointed Senior Vice President and Deputy General
Counsel of KeySpan Energy effective October 1, 1998. Prior to such date he was
a member of the law firm of Cullen and Dykman. During 1998, this firm also
represented KeySpan Energy in a variety of general and specific matters. The
total fees paid to this firm during 1998 were approximately $5,900,000.
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<PAGE>
Directors and Officers Liability Insurance and Indemnity
KeySpan Energy currently has in place Director and Officer ("D&O") liability
insurance for the purpose of reimbursing the Company when it has indemnified
its Directors and Officers. D&O liability insurance also provides direct
payment to KeySpan Energy's Directors and Officers under certain circumstances
when KeySpan Energy has not previously provided indemnification. KeySpan
Energy also has liability insurance which provides fiduciary coverage for
KeySpan Energy, its Directors, Officers and employees for any alleged breach
of fiduciary duty under ERISA. The D&O liability insurance was purchased from
Associated Electric & Gas Insurance Services ("AEGIS") for a one-year period
commencing May 28, 1998 at a total cost of $1,294,299. The fiduciary liability
insurance was also purchased from AEGIS for a one-year period commencing
August 26, 1998 at a total cost of $80,000.
LITIGATION
Subsequent to the closing of the Combination, former shareholders of LILCO
commenced 13 class action lawsuits in the New York State Supreme Court, Nassau
County, against KeySpan Energy and each of the former officers and directors
of LILCO. These actions were consolidated in August 1998. The consolidated
action alleges that, in connection with certain payments LILCO had determined
were payable in connection with the Combination to LILCO's chairman, and to
former officers of LILCO (the "Payments"): (i) the named defendants breached
their fiduciary duty owed to LILCO and KSE former and/or current Company
shareholders as a result of the Payments; (ii) the named defendants intended
to defraud such shareholders by means of manipulative, deceptive and wrongful
conduct, including materially inaccurate and incomplete news reports and
filings with the SEC; and (iii) the named defendants recklessly and/or
negligently failed to disclose material facts associated with the Payments.
In addition, three shareholder derivative actions have been commenced pursuant
to which such shareholders seek the return of the Payments or damages
resulting from among other things, an alleged breach of fiduciary duty on the
part of the former LILCO officers and directors. One action was brought on
behalf of LILCO in federal court. KeySpan Energy moved to dismiss this action
in September 1998. The other two actions were brought on behalf of KeySpan
Energy in New York State Supreme Court, Nassau County. In one of these state
court actions, KeySpan Energy's directors and the recipients of the Payments
are also named as defendants.
Finally, two class action securities suits were filed in federal court
alleging that certain officers and directors of LILCO violated the federal
securities laws by failing to properly disclose that the Combination would
trigger the Payments. These actions were consolidated in October 1998.
On March 17, 1999, KeySpan Energy signed a Memorandum of Understanding to
settle the above-referenced actions, except the federal court derivative
action, in exchange for (i) $7.9 million to be distributed (less plaintiffs'
attorneys fees) to former LILCO and KSE shareholders and (ii) KeySpan Energy's
agreement to implement certain corporate governance and executive compensation
procedures. The entire $7.9 million settlement commitment will be funded from
insurance. The parties intend to submit the settlement to the Nassau County
Supreme Court for its review and approval. If that Court approves the
settlement, the parties will then make an application to the federal court for
an order and final judgment, dismissing the three federal court actions,
including the federal court derivative action, based, among other things, on
the binding effect of the state court judgment.
In addition to the above-mentioned actions, a class action lawsuit has also
been filed in the New York State Supreme Court, Suffolk County, by the County
of Suffolk against LILCO's former officers and/or directors. The County of
Suffolk alleges that the Payments were improper, and seeks to recover the
Payments for the benefit of Suffolk County ratepayers. KeySpan Energy moved to
consolidate this action with the above-mentioned consolidated action in
October 1998.
24
<PAGE>
Finally, certain other proceedings have been commenced relating to the
Payments and disclosures made by LILCO with respect thereto. These proceedings
include investigations by the New York State Attorney General, the NYPSC and
LIPA, joint hearings conducted by two committees of the New York State
Assembly, and an informal, non-public inquiry by the SEC. In December 1998,
KeySpan Energy settled with LIPA and the NYPSC. The agreement includes a
payment of $5.2 million by KeySpan Energy to LIPA that will be used by LIPA to
supply postage-paid bill return envelopes to customers for the next three
years. KeySpan Energy also agreed to fully reimburse and indemnify LIPA for
costs incurred by LIPA, amounting to approximately $765,000, for attorneys and
other consultants involved in the investigation. Such amounts are not covered
by insurance. KeySpan Energy is cooperating fully with the investigations of
the New York State Attorney General and the SEC. To date, no action has been
taken either by the New York State Attorney General or the SEC.
At this time KeySpan Energy is unable to determine the outcome of the ongoing
proceedings, or any of the remaining lawsuits described above.
OTHER INFORMATION
Shareholder Rights Plan
On March 30, 1999, the Board of Directors entered into a Rights Agreement
pursuant to which one preferred stock purchase right (a "Right") per share of
Common Stock will be distributed as a dividend to shareholders of record on
the close of business on April 14, 1999. Each Right, when exercisable, will
entitle the holder thereof to purchase one one-hundredth of a share of Series
D Preferred Stock at a price of $95.00 per share. The Rights will be
exercisable only if a person or a group acquires 20% or more of the
outstanding shares of Common Stock or announces a tender offer following which
it would hold 20% or more of such outstanding Common Stock. The Rights entitle
the holders, other than the acquiring person, to purchase Common Stock having
a market value of two times the exercise price of the Right. If, following the
acquisition by a person or group of 20% or more of KeySpan Energy's
outstanding shares of Common Stock, KeySpan Energy were acquired in a merger
or other business combination, each Right would be exercisable for that number
of the acquiring company's shares of common stock having a market value of two
times the exercise price of the Right. Subject to the terms of the Rights
Agreement, KeySpan Energy may redeem the Rights at one cent per Right at any
time until ten days following the occurrence of an event that causes the
Rights to become exercisable for Common Stock. The Rights expire in ten years.
The foregoing description of the Rights Agreement, and of the Rights is
qualified in its entirety by the terms of the Rights Agreement, dated March
30, 1999, by and between KeySpan Energy and The Bank of New York Company, Inc.
as Rights Agent, a copy of which has been filed as an exhibit to KeySpan
Energy's Current Report on Form 8-K dated March 30, 1999.
Deadline For Shareholder Proposals
Shareholder proposals for the 2000 Annual Meeting must be received by the
Secretary at KeySpan Energy's principal executive office, not less than 120
calendar days prior to the anniversary date of the release of the Company's
proxy statement to shareholders in connection with the 1999 Annual Meeting, to
be considered by the Company for possible inclusion in the proxy materials for
the 2000 Annual Meeting.
In addition, all shareholder proposals for the 2000 Annual Meeting must be
submitted to the Company in accordance with Section 2.7 of the Company's By-
Laws not less than 60 nor more than 90 calendar days in advance of the
anniversary date of the 1999 Annual Meeting.
Additional Information
KeySpan Energy's Annual Report for the nine-month period ended December 31,
1998 is being mailed to shareholders on or about the date of this Proxy
Statement. KeySpan Energy files an Annual Report on Form
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10-K with the Securities and Exchange Commission (the "SEC") which includes
additional information concerning KeySpan Energy and its operations. THE
COMPANY'S ANNUAL REPORT OR ANNUAL REPORT ON FORM 10-K, EXCEPT FOR EXHIBITS,
WILL BE FURNISHED AT NO COST TO SHAREHOLDERS UPON WRITTEN REQUEST TO THE
SECRETARY, KEYSPAN ENERGY, ONE METROTECH CENTER, BROOKLYN, NEW YORK 11201-
3850.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires KeySpan Energy's directors,
executive officers and persons who own more than ten percent (10%) of a
registered class of KeySpan Energy's equity securities to file with the SEC
initial reports of beneficial ownership and reports of changes in beneficial
ownership of Common Stock and other equity securities of KeySpan Energy.
Executive officers, directors and greater than ten percent (10%) shareholders
are required by SEC regulation to furnish KeySpan Energy with copies of all
Section 16(a) forms which they file.
To KeySpan Energy's knowledge, based solely on review of information furnished
to KeySpan Energy, reports filed through KeySpan Energy and representations
that no other reports were required, all Section 16(a) filing requirements
applicable to its directors, executive officers and greater than ten percent
(10%) beneficial owners were complied with during the nine-month period ended
December 31, 1998, except that James R. Jones, a director of KeySpan Energy,
failed to timely file two reports relating to two transactions.
Method and Cost of Solicitation of Proxies
KeySpan Energy will bear the cost of soliciting proxies. In addition to the
use of the mails, proxies may be solicited personally or by telephone by
KeySpan Energy directors, officers and employees for no additional
compensation. In addition, KeySpan Energy will reimburse brokers, bank
nominees and other institutional holders for their reasonable out-of-pocket
expenses in forwarding proxy materials to the beneficial owners of the
Company's Common Stock.
Disclosure of "Broker Non-Votes" And Abstentions
Securities and Exchange Commission rules provide that specifically designated
blank spaces are provided on the proxy card for shareholders to mark if they
wish either to withhold authority to vote for one or more nominees for
director or to abstain on one or more of the proposals. Votes withheld in
connection with the election of one or more of the nominees for director will
not be counted as votes cast for or against such individuals. With respect to
the proposals relating to selection of auditors and approval of the Employee
Discount Stock Purchase Plan and Long-Term Performance Incentive Compensation
Plan, abstentions are not counted in determining the number of votes cast in
connection with these proposals, since New York State law requires a majority
of only those votes cast "for" or "against" approval, while broker non-votes
are treated as shares not entitled to vote, thus giving both abstentions and
non-votes no effect. With respect to the proposal relating to an amendment to
the Certificate of Incorporation to change the Company's name, abstentions
from voting are treated as votes against, while broker non-votes are treated
as shares not entitled to vote. The proposal relating to the Long-Term
Performance Incentive Compensation Plan is considered "non-discretionary" and
brokers who have received no instructions from their clients do not have the
authority to vote on this proposal. All abstentions and broker non-votes are
counted towards the establishment of a quorum.
Confidential Voting
KeySpan Energy has adopted a policy to the effect that all proxy (voting
instruction) cards, ballots and vote tabulations which identify the particular
vote of a shareholder are to be kept secret from KeySpan Energy, its
directors, officers and employees. Accordingly, proxy cards are returned in
envelopes addressed to the tabulator, The Bank of New York, which receives and
tabulates the proxies and is independent of KeySpan Energy. The final
tabulation is inspected by inspectors of election who also are independent of
KeySpan Energy, its directors, officers and employees. The identity and vote
of any shareholder shall not be disclosed to KeySpan Energy, its directors
officers or employees, nor to any third party except (i) to allow the
independent inspectors of election
26
<PAGE>
to certify the results of the vote to KeySpan Energy, its directors officers
and employees; (ii) as necessary to meet applicable legal requirements and to
assert or defend claims for or against KeySpan Energy; (iii) in the event of a
proxy solicitation based on an opposition proxy statement filed, or required
to be filed, with the Securities and Exchange Commission; or (iv) in the event
a shareholder has made a written comment on such form of proxy.
Other Matters
As of the date of this proxy statement, KeySpan Energy knows of no business
that will be presented for consideration at the Annual Meeting other than the
proposals discussed above. If any matter is properly brought before the
meeting for action by the shareholders, proxies in the form returned to
KeySpan Energy will be voted in accordance with the recommendation of the
Board of Directors or, in the absence of such a recommendation, in accordance
with the judgment of the proxy holder.
By Order of the Board of Directors
/s/ Robert B. Catell
Robert B. Catell
Chairman and Chief Executive Officer
Dated: April 7, 1999
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[LOGO] KEYSPAN One MetroTech Center
Brooklyn, New York 11201-3850
MARKETSPAN CORPORATION
d/b/a KeySpan Energy
Long-Term Performance Incentive Compensation Plan
APPENDIX A
<PAGE>
KEYSPAN ENERGY
LONG-TERM PERFORMANCE
INCENTIVE COMPENSATION PLAN
1. ADOPTION AND PURPOSE
MarketSpan Corporation d/b/a KeySpan Energy (the "Company") hereby adopts this
Long-Term Performance Incentive Compensation Plan, subject to the approval
required under Section 17 (the "Plan"). The purposes of the Plan are to
promote the interests of the Company and its stockholders by (a) attracting
and retaining key employees, directors and consultants of the Company and its
Subsidiaries (as defined below); (b) motivating such persons by means of
performance-related incentives to achieve long-range performance goals; and
(c) enabling such persons to participate in the long-term growth and financial
success of the Company.
2. DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
"Award" means, individually or collectively, a grant under this Plan of Stock
Options or Restricted Shares or a Performance Stock Award. The issuance of
Restricted Shares pursuant to a Performance Stock Award shall not be a new
Award under this Plan.
"Award Agreement" means a written agreement entered into between the Company
and a Participant setting forth the terms and conditions of an Award made to
such Participant under this Plan, in the form prescribed by the Committee.
"Beneficial Owner or Beneficial Ownership" shall have the meaning ascribed to
such terms in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act.
"Board" means the Board of Directors of the Company.
"Business Combination" shall have the meaning specified in Section 12(b)(iii).
"Change of Control" shall have the meaning specified in Section 12(b).
"Code" means the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Committee" means the Compensation and Nominating Committee of the Board, or
such other committee appointed by the Board, each member of which shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange
Act and shall be an "outside director" within the meaning of Section 162(m) of
the Code. The Committee shall be composed of at least two (2) such directors.
"Common Stock" means the common stock of the Company.
"Company" means MarketSpan Corporation d/b/a KeySpan Energy, a New York
corporation.
"Consultant" means any Person who is not a Director or an employee of the
Company or a Subsidiary and who provides bona fide services to the Company or
a Subsidiary, provided that such services are not rendered in connection with
the offer or sale of securities in a capital-raising transaction.
"Director" means a member of the Board of Directors of the Company or a
Subsidiary who is not an employee of the Company or a Subsidiary.
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"Effective Date" means the effective date of this Plan as defined in Section
17.
"Employee" means a key employee of the Company or a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the Exchange Act or regulation thereunder
shall include such section or regulation, any valid regulation promulgated
under such section, and any comparable provision of any future legislation or
regulation amending, supplementing or superseding such section or regulation.
"Fair Market Value" means the closing price of the Common Stock as reported on
the New York Stock Exchange on the relevant valuation date or, if there were
no Common Stock transactions on the valuation date, on the next preceding date
on which there were Common Stock transactions.
"Incentive Stock Option" has the meaning specified in Section 6(b).
"Incumbent Board" shall have the meaning specified in Section 12(b)(ii).
"Negative Discretion" means other factors to be applied by the Committee in
reducing the number of Restricted Shares to be issued pursuant to a
Performance Stock Award if the Performance Goals have been met or exceeded if,
in the Committee's sole judgment, such application is appropriate in order to
act in the best interest of the Company and its shareholders.
"Outstanding Company Common Stock" shall have the meaning specified in Section
12(b)(i).
"Outstanding Company Voting Securities" shall have the meaning specified in
Section 12(b)(i).
"Participant" means an Employee, Director or Consultant who has been granted
an Award under this Plan.
"Performance Goals" means, with respect to any Performance Period, performance
goals based on any of the following criteria and established by the Committee
prior to the beginning of such Performance Period or performance goals based
on any of the following criteria and established by the Committee after the
beginning of such Performance Period that meet the requirements to be
considered pre-established performance goals under Section 162(m) of the Code:
earnings or earnings growth; earnings per share; return on equity, assets,
capital employed or investment; revenues or revenue growth; gross profit;
gross margin; operating profit; operating margin; operating cash flow; stock
price appreciation and total shareholder return. Such Performance Goals may be
particular to a Participant or the division, department, branch, line of
business, Subsidiary or other unit in which the Participant works, or may be
based on the performance of the Company generally.
"Performance Period" means the period of time designated by the Committee
applicable to a Performance Stock Award during which the Performance Goals
shall be measured.
"Performance Stock Award" shall have the meaning specified in Section 6(d).
"Person" shall have the meaning ascribed to such term in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
group as defined in Section 13(d) thereof.
"Plan" means this KeySpan Energy Long-Term Performance Incentive Compensation
Plan.
"Plan Year" means an annual period coinciding with the Company's fiscal year.
"Reporting Person" means an officer or director of the Company subject to the
reporting requirements of Section 16 of the Exchange Act.
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"Restricted Shares" shall have the meaning specified in Section 6(c).
"Restriction Period" shall have the meaning specified in Section 6(c).
"Securities Act" means the Securities Act of 1933, as amended. Reference to a
specific section of the Securities Act or regulation thereunder shall include
such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
"Stock Option" has the meaning specified in Section 6(a).
"Subsidiary" means any corporation or other entity, whether domestic or
foreign, in which the Company has or obtains, directly or indirectly, a
proprietary interest of more than 50% by reason of stock ownership or
otherwise.
3. ELIGIBILITY
Any Employee, Director or Consultant selected by the Committee is eligible to
receive an Award.
4. PLAN ADMINISTRATION
(a) This Plan shall be administered by the Committee. The Committee shall
periodically make determinations with respect to participation in this Plan
and, except as otherwise required by law or this Plan, the grant terms of
Awards including vesting schedules, price, performance standards (including
Performance Goals), length of relevant performance, restriction or option
period, dividend rights, post-retirement and termination rights, and such
other terms and conditions as the Committee deems appropriate. Except as
otherwise required by this Plan, the Committee shall have authority to
interpret and construe the provisions of this Plan and the Award Agreements
and make determinations pursuant to any Plan provision or Award Agreement,
which determinations shall be final and binding on all persons.
(b) The Committee, in its sole discretion and on such terms and conditions as
it may provide, may delegate all or any part of its authority and powers under
this Plan to one or more directors or officers of the Company; provided,
however, that the Committee may not delegate its authority and powers (i) with
respect to Reporting Persons, or (ii) in any way which would jeopardize this
Plan's qualification under Section 162(m) of the Code or Rule 16b-3 of the
Exchange Act.
(c) All determinations and decisions made by the Committee, the Board and any
delegate of the Committee pursuant to Section 4(b) shall be final, conclusive,
and binding on all persons, and shall be given the maximum deference permitted
by law.
5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN
(a) The stock subject to the provisions of this Plan shall either be shares of
authorized but unissued Common Stock, shares of Common Stock held as treasury
stock or previously issued shares of Common Stock reacquired by the Company,
including shares purchased on the open market. Subject to adjustment in
accordance with the provisions of Section 10, the total number of shares of
Common Stock with respect to which Awards may be granted under this Plan may
not exceed 10,500,000 shares.
(b) Subject to adjustment in accordance with Section 10, and subject to
Section 5(a), the total number of shares of Common Stock with respect to which
Stock Options and Performance Stock Awards may be granted in any Plan Year to
any Participant shall not exceed 750,000 shares.
(c) For purposes of calculating the total number of shares of Common Stock
available for grants of Awards, the grant of an Award of Restricted Shares or
a Performance Stock Award shall be deemed to be equal to the maximum number of
shares of Common Stock which may be issued under the Award.
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(d) Subject to Section 5(b), there shall again be available for Awards under
this Plan, all of the following: (i) shares of Common Stock represented by
Awards which have been canceled, forfeited, surrendered, terminated or expire
unexercised during preceding Plan Years; and (ii) the excess amount of
variable Awards which become fixed at less than their maximum limitations.
6. AWARDS UNDER THIS PLAN
Subject to the provisions of this Plan, the Committee shall have the sole and
complete authority to determine the Employees, Directors and Consultants to
whom Awards shall be granted and the type, terms and conditions of such Awards
(which need not be the same for each Participant). As the Committee may
determine, the following types of Awards may be granted under this Plan on a
stand alone, combination or tandem basis:
(a) Stock Option. A right to buy a specified number of shares of Common Stock
at a fixed exercise price during a specified time, and subject to such other
terms and conditions, all as the Committee may determine; provided that the
exercise price of any Stock Option shall not be less than 100% of the Fair
Market Value of the Common Stock on the date of grant of the Award.
(b) Incentive Stock Option. An award in the form of a Stock Option to an
Employee which shall comply with the requirements of Section 422 of the Code
or any successor Section as it may be amended from time to time.
(c) Restricted Shares. A transfer of shares of Common Stock to a Participant,
for such consideration and subject to such restrictions, if any, on transfer
or other incidents of ownership, for such periods of time (with respect to
each Award, a "Restriction Period") as the Committee may determine. The stock
certificate or certificates representing Restricted Shares shall be registered
in the name of the Participant to whom such Restricted Shares shall have been
awarded. During the Restriction Period, certificates representing the
Restricted Shares shall bear a restrictive legend to the effect that ownership
of the Restricted Shares, and the enjoyment of all rights appurtenant thereto,
are subject to the restrictions, terms and conditions provided in the Plan and
the applicable Award Agreement. Such certificates shall remain in the custody
of the Company and the Participant shall deposit with the Company stock powers
or other instruments of assignment, each endorsed in blank, so as to permit
retransfer to the Company of all or any portion of the Restricted Shares that
shall be forfeited or otherwise not become vested in accordance with the Plan
and the applicable Award Agreement.
Restricted Shares shall constitute issued and outstanding shares of Common
Stock for all corporate purposes. The Participant will have the right to vote
such Restricted Shares, to receive and retain all dividends and distributions
paid or distributed on such Restricted Shares, and to exercise all other
rights, powers and privileges of a holder of Common Stock with respect to such
Restricted Shares; except that (i) the Participant will not be entitled to
delivery of the stock certificate or certificates representing such Restricted
Shares until the Restriction Period shall have expired and unless all other
vesting requirements with respect thereto shall have been fulfilled or waived;
(ii) the Company will retain custody of the stock certificate or certificates
representing the Restricted Shares during the Restriction Period; (iii) any
such dividends and distributions paid in shares of Common Stock shall
constitute Restricted Shares and be subject to all of the same restrictions
during the Restriction Period as the Restricted Shares with respect to which
they were paid; (iv) the Participant may not sell, assign, transfer, pledge,
exchange, encumber or dispose of the Restricted Shares or his or her interest
in any of them during the Restriction Period; and (v) a breach of any
restrictions, terms or conditions provided in the Plan or established by the
Committee with respect to any Restricted Shares will cause a forfeiture of
such Restricted Shares on the terms and conditions established by the
Committee.
(d) Performance Stock Awards. A right, granted to a Participant, to receive
Restricted Shares (as defined in Section 6(c) hereof) that are not to be
issued to the Participant until after the satisfaction of the Performance
Goals during a Performance Period.
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7. PERFORMANCE STOCK AWARDS
(a) Administration. Performance Stock Awards may be granted to Participants
either alone or in addition to other Awards granted under this Plan. The
Committee shall determine the Participants to whom Performance Stock Awards
shall be awarded for any Performance Period, the duration of the applicable
Performance Period, the number of Restricted Shares to be awarded at the end
of a Performance Period to Participants if the Performance Goals are met or
exceeded (which Restricted Shares may, but need not, contain restrictions on
transfer or other incidents of ownership as permitted in Section 6(c)), and
the terms and conditions of the Performance Stock Award in addition to those
contained in this Section 7.
(b) Payment of Award. During or after the end of a Performance Period, the
financial performance of the Company during such Performance Period shall be
measured against the Performance Goals. If the Performance Goals are not met,
no Restricted Shares shall be issued pursuant to the Performance Stock Award.
If the Performance Goals are met or exceeded, the Committee shall certify that
fact in writing in the Committee minutes or elsewhere and certify the number
of Restricted Shares to be issued under each Performance Stock Award in
accordance with the related Award Agreement. The Committee may, in its sole
discretion, apply Negative Discretion to reduce the number of Restricted
Shares to be issued under a Performance Stock Award.
8. OTHER TERMS AND CONDITIONS
(a) Assignability. Except as otherwise determined by the Committee, no Stock
Option or Performance Stock Award shall be assignable or transferable except
by will or by the laws of descent and distribution and during the lifetime of
a Participant, Stock Options shall be exercisable only by such Participant.
(b) Award Agreement. Each Award under this Plan shall be evidenced by an Award
Agreement.
(c) Rights as a Shareholder. Except as otherwise provided in this Plan or in
any Award Agreement, a Participant shall have no rights as a shareholder with
respect to shares of Common Stock covered by an Award until the date the
Participant is the holder of record of such shares.
(d) No Obligation to Exercise. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Awards for
which a payment is due from a Participant may be payable: (i) in U.S. dollars
by personal check, bank draft or money order payable to the order of the
Company, by money transfers or direct account debits; (ii) through the
delivery or deemed delivery based on attestation to the ownership of shares of
Common Stock with a Fair Market Value equal to the total payment due from the
Participant; (iii) by a combination of the methods described in (i) and (ii)
above; or (iv) by such other methods as the Committee may deem appropriate.
(f) Tax Withholding. The Company shall have the power and the right to deduct
or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required to be withheld with respect to an
Award or any dividends or other distributions payable with respect thereto.
Subject to the requirements of Rule 16b-3 of the Exchange Act, the Committee,
in its sole discretion and pursuant to such procedures as it may specify from
time to time, may permit a Participant to satisfy such tax withholding
obligation, in whole or in part, by (i) electing to have the Company withhold
otherwise deliverable shares of Common Stock having a Fair Market Value not
exceeding the minimum amount required to be withheld, or (ii) delivering to
the Company shares of Common Stock then owned by the Participant. The amount
of the withholding obligation satisfied by shares of Common Stock withheld or
delivered shall be the Fair Market Value of such shares determined as of the
date that the taxes are required to be withheld.
(g) Restrictions on Sale and Exercise. If and to the extent required to comply
with rules promulgated under Section 16 of the Exchange Act, (i) no Award
providing for exercise, a vesting period, a Restriction Period or the
attainment of performance standards shall permit unrestricted ownership of
shares of Common Stock by the
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Participant for at least six months from the date of grant, and (ii) shares of
Common Stock acquired pursuant to an Award granted under this Plan may not be
sold or otherwise disposed of for at least six months after the date of the
grant of the Award.
(h) Requirements of Law. The granting of Awards and the issuance of shares of
Common Stock upon the exercise of Awards shall be subject to all applicable
requirements imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any
stock exchanges upon which the Common Stock may be listed. As a condition
precedent to the issuance of shares of Common Stock pursuant to the grant or
exercise of an Award, the Company may require the Participant to take any
reasonable action to meet such requirements.
(i) Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock
and cash otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
(j) Unfunded Plan. Neither the Company nor any Subsidiary shall be required to
segregate any cash or any shares of Common Stock which may at any time be
represented by Awards and the Plan shall constitute an "unfunded" plan of the
Company. Neither the Company nor any Subsidiary shall, by any provisions of
the Plan, be deemed to be a trustee of any Common Stock or any other property,
and the liabilities of the Company and any Subsidiary to any Participant
pursuant to the Plan shall be those of a debtor pursuant to such contract
obligations as are created by or pursuant to the Plan, and the rights of any
Participant or beneficiary under the Plan shall be limited to those of a
general creditor of the Company or the applicable Subsidiary, as the case may
be. In its sole discretion, the Board may authorize the creation of trusts or
other arrangements to meet the obligations of the Company under the Plan,
provided, however, that the existence of such trusts or other arrangements is
consistent with the unfunded status of the Plan.
(k) Legends. In addition to any legend contemplated by Section 6(c), each
certificate evidencing Common Stock subject to an Award shall bear such
legends as the Committee deems necessary or appropriate to reflect or refer to
any terms, conditions or restrictions of the Award applicable to such shares,
including, without limitation, any to the effect that the shares represented
thereby may not be disposed of unless the Company has received an opinion of
counsel, acceptable to the Company, that such disposition will not violate any
federal or state securities laws.
(l) Company's Rights. The grant of Awards pursuant to the Plan shall not
affect in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
(m) Designation of Beneficiaries. If permitted by the Committee, a Participant
may designate a beneficiary or beneficiaries in the event of the death of the
Participant and may change such designation from time to time by filing a
written designation of beneficiary or beneficiaries with the Committee on a
form to be prescribed by it, provided that no such designation shall be
effective unless so filed prior to the death of such Participant.
9. AMENDMENTS
(a) Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan. Any such
action of the Board may be taken without the approval of the Company's
shareholders, but only to the extent that such shareholder approval is not
required by applicable law or regulation, including specifically Rule 16b-3
under the Exchange Act and Section 162(m) of the Code.
(b) No amendment, modification or termination of this Plan shall in any manner
adversely affect any Awards theretofore granted to a Participant under this
Plan without the consent of such Participant. No amendment or
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modification of this Plan may change any Performance Goal, or increase the
benefits payable for achievement of a Performance Goal, once established for a
Performance Stock Award.
10. RECAPITALIZATION
The aggregate number of shares of Common Stock as to which Awards may be
granted to Participants, the number of shares thereof covered by each
outstanding Award, and the price per share thereof in each such Award, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, stock dividend,
combination or exchange of shares, exchange for other securities,
reclassification, reorganization, redesignation, merger, consolidation,
recapitalization or other such change. Any such adjustment may provide for the
elimination of fractional shares.
11. NO RIGHT TO EMPLOYMENT
No person shall have any claim or right to be granted an Award, and the grant
of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or a Subsidiary. Nothing in this Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
12. CHANGE OF CONTROL
(a) Notwithstanding anything contained in this Plan or any Award Agreement to
the contrary, in the event of a Change of Control, as defined below, the
following shall occur with respect to any and all Awards outstanding as of
such Change of Control:
(i) automatic lapse of all restrictions and acceleration of any time periods
relating to the exercise or vesting of Stock Options and Restricted Shares so
that such Awards become immediately exercisable (and shall remain exercisable
until the end of the original expiration period fixed in the Award Agreement)
or vested in full; and automatic satisfaction of Performance Goals on a pro
rata basis with respect to the maximum number of Restricted Shares issuable
pursuant to a Performance Stock Award, or on such other basis as set forth in
the Award Agreement, so that such pro rata or other portion of such Restricted
Shares becomes immediately vested; and
(ii) all Awards become non-cancelable.
(b) A "Change of Control" of the Company shall be deemed to have occurred upon
the happening of any of the following events:
(i) The acquisition by any Person of Beneficial Ownership of 20% or more of
either (x) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Person controlled by the Company, or (D) any
acquisition by any Person pursuant to a transaction which complies with
clauses (A), (B), and (C) of paragraph (iii) below; or
(ii) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
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considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"),
in each case, unless, following such Business Combination, (A) all of
substantially all of the individuals and entities who were the Beneficial
Owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
Outstanding Company Common Stock and the combined voting power of the
Outstanding Company Voting Securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from
such Business Combination including, without limitation, a corporation which
as a result of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more, of, respectively, the Outstanding Company Common
Stock of the corporation resulting from such Business Combination or the
combined voting power of the Outstanding Company Voting Securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the members of the Board
of Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
13. GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall be
construed in accordance with and governed by the law of the State of New York.
14. CAPTIONS
Captions are provided herein for convenience of reference only, and shall not
serve as a basis for interpretation or construction of this Plan.
15. RESERVATION OF SHARES
The Company, during the term of the Plan, will at all times reserve and keep
available the number of shares of Common Stock as shall be sufficient to
satisfy the requirements of the Plan. The inability of the Company to obtain
the necessary approvals from any regulatory body having jurisdiction or
approval deemed necessary by the Company's counsel to the lawful issuance and
sale of any shares of Common Stock under the Plan shall relieve the Company of
any liability in respect of the nonissuance or sale of such shares of Common
Stock as to which such requisite authority shall not have been obtained.
16. SAVINGS CLAUSE
This Plan is intended to comply in all respects with applicable law and
regulation, including, with respect to those Participants who are Reporting
Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the
provisions of this Plan shall be held invalid, illegal or unenforceable in any
respect under applicable law and regulation (including Rule 16b-3), the
validity, legality and enforceability of the remaining provisions shall not
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in any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by law, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan
to be construed in compliance with all applicable laws (including Rule 16b-3)
so as to foster the intent of this Plan. Notwithstanding anything in this Plan
to the contrary, the Committee, in its sole and absolute discretion, may
bifurcate this Plan so as to restrict, limit or condition the use of any
provision of this Plan to Participants who are Reporting Persons without so
restricting, limiting or conditioning this Plan with respect to other
Participants. All Awards of Stock Options and Performance Stock Awards are
intended to comply with Section 162(m) of the Code.
17. EFFECTIVE DATE AND TERM
The effective date (the "Effective Date") of this Plan shall be the date of
its approval by the Company's shareholders. If such approval is not obtained
on or before December 31, 1999, this Plan shall terminate on such date. No new
Awards shall be granted under this Plan after the tenth anniversary of the
Effective Date. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority
of the Board or the Committee under this Plan shall, continue after the
authority for grant of new Awards hereunder has been exhausted.
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ADMISSION TICKET
MARKETSPAN CORPORATION
d/b/a KeySpan Energy
ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 1999 AT 10:00 A.M.
BROOKLYN ACADEMY OF MUSIC
30 Lafayette Avenue
Brooklyn, New York 11217
Directions
By Car:
From Manhattan via the Manhattan Bridge: Continue straight off the bridge onto
Flatbush Avenue, proceed on Fulton Street. Turn left onto Fulton Street. Proceed
two blocks, turn right onto Ashland Place, proceed one block.
From Manhattan via the Brooklyn Bridge: Continue straight off the bridge and
make the first left turn possible which is Tillary Street. Continue on Tillary
Street and turn right onto Flatbush Avenue.
From Queens, Long Island and Connecticut: Take the Long Island Expressway to the
Brooklyn Queens Expressway. Exit at Tillary Street, exit 29. Follow exit onto
Tillary, two short blocks and turn left onto Flatbush Avenue.
From Staten Island: Cross the Verrazano-Narrows Bridge to the Brooklyn Queens
Expressway. Exit at Tillary Street, exit 29. Follow exit onto Tillary Street,
two short blocks and turn left onto Flatbush Avenue.
From New Jersey: Use the Holland Tunnel and continue east on Canal Street, which
leads directly across the Manhattan Bridge. Continue straight over the bridge
onto Flatbush Avenue.
By Subway and Railroad:
The Brooklyn Academy of Music is within three blocks of the following stations:
. 2, 3, 4, 5, D, Q: Atlantic Avenue
. B, N, M, R: Pacific Street
. G: Fulton Street
. LIRR: Flatbush Avenue
Parking
All Brooklyn Academy of Music parking lots are patrolled continuously during the
work day and until 30 minutes after each event.
MARKETSPAN CORPORATION d/b/a KeySpan Energy PROXY/VOTING INSTRUCTION CARD
--------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MARKETSPAN
CORPORATION
D/B/A KEYSPAN ENERGY FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 20, 1999
The undersigned appoints Donald H. Elliott and Stephen W. McKessy, and
each of them, with full power of substitution in each, the proxies of the
undersigned, to represent the undersigned and vote all shares of MarketSpan
Corporation d/b/a KeySpan Energy Common Stock which the undersigned may be
entitled to vote at the Annual Meeting of Shareholders to be held on May 20,
1999, and at any adjournment or postponement thereof, as indicated on the
reverse side. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING, INCLUDING, WITHOUT
LIMITATION, ANY MOTION TO ADJOURN THE MEETING TO ANOTHER TIME OR PLACE
(INCLUDING FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES).
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR ALL PROPOSALS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Comments:______________________
_______________________________
MARKETSPAN CORPORATION d/b/a KeySpan Energy
_______________________________ P.O. BOX 11278
NEW YORK, N.Y. 10203-0278
_______________________________
If you have written in the above space,
please mark the comments notification box
on the reverse side.
(Continued, and to be signed and dated on the reverse side.)
<PAGE>
MarketSpan Corporation VOTE BY TELEPHONE
d/b/a KeySpan Energy 24 HOURS A DAY, 7 DAYS A WEEK
TELEPHONE MAIL
800-574-6864
Use any touch-tone telephone to Mark, sign and date your proxy
vote your proxy. Have your proxy card and return it in the postage
card in hand when you call. You -paid envelope we have provided.
will be prompted to enter your
control number, located in the box
below, and then follow the simple
directions.
Your telephone vote authorized the If you have submitted your proxy by
name proxies to vote your shares telephone there is no need for you
in the same manner as if you marked, to mail back your proxy.
signed and returned the proxy card.
Call Toll-Free To Vote . It's Fast And Convenient
800-574-6864 CONTROL NUMBER FOR
TELEPHONE VOTING
DETACH PROXY CARD HERE IF YOU ARE NOT
VOTING BY TELEPHONE
[ARROW DOWN] Please Detach Here [ARROW DOWN]
You Must Detach This Portion of the Proxy Card
Before Returning it in the Enclosed Envelope
- --------------------------------------------------------------------------------
[ ] Proxy Card
The Board of Directors recommends a vote "FOR" all proposals.
Proposal Number 1.
Election of Directors
The Board of Directors recommends a vote "FOR" the nominees listed below:
Nominees: 01 Lilyan H. Affinito 08 James R. Jones
02 George Bugliarello 09 Stephen W. McKessy
03 Robert B. Catell 10 Edward D. Miller
04 Howard R. Curd 11 Basil A. Paterson
05 Richard N. Daniel 12 James Q. Riordan
06 Donald H. Elliot 13 Frederic v. Salerno
07 Alan H. Fishman 14 Vincent Tese
FOR all WITHHOLD AUTHORITY FOR all nominees
nominees listed to vote for all nominees listed except as indicated
[x] [x] [x]
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "FOR ALL NOMINEES EXCEPT AS INDICATED" BOX AND WRITE THAT NOMINEE'S NAME IN
THE SPACE PROVIDED BELOW.
Exceptions ______________________
FOR AGAINST ABSTAIN
2. Proposal Number 2
Ratification of Arthur Andersen LLP as [x] [x] [x]
independent public accountants
3. Proposal Number 3
Approval to change the Company's name [x] [x] [x]
to KeySpan Corporation
4. Proposal Number 4
Approval of the Employee Discount Stock [x] [x] [x]
Purchase Plan
5. Proposal Number 5
Approval of the Long-Term Performance [x] [x] [x]
Incentive Compensation Plan
The shares represented by this proxy when signed and returned will be voted as
directed by the shareholder. If no direction is given, such shares will be voted
FOR all proposals and as said Proxies deem advisable on such other matters as
may properly come before the meeting.
I have included
comments, or have [x]
included a change
of address.
I already receive
an Annual Report [x]
and do not wish
to receive one
for this account.
I plan to attend
the Annual [x]
Meeting.
Please sign exactly as name or names appear on this proxy.
When signing as attorney, executor, administrator, trustee, custodian,
guardian or corporate officer, give full title.
If more than one trustee, all should sign.
Dated: ______________________, 1999
___________________________________
Signature of Shareowner
___________________________________
