SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[KeySpan Logo] 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>
[KeySpan Logo] 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 of 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.
Robert B. Catell
Chairman and Chief Executive Officer
<PAGE>
[KeySpan Logo] 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,
Robert R. Wieczorek
Vice President, Secretary and Treasurer
<PAGE>
[ map and directions to the Brooklyn Academy of Music ]
<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
adjournment 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 of a 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. 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.
1
<PAGE>
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 in the same name and
address. 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, 142,880,852
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.
2
<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. Please contact The
Bank of New York, by calling 1-800-482-3638, if you have any questions.
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.
3
<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
George Bugliarello
Robert B. Catell
Howard R. Curd
Richard N. Daniel
Donald H. Elliott
Alan H. Fishman
James R. Jones
Stephen W. McKessy
Edward D. Miller
Basil A. Paterson
James Q. Riordan
Frederic V. Salerno
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 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, 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
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.
ROBERT B. CATELL - Age 62
Chairman and Chief Executive Officer of KeySpan Energy since
July 1998. Joined KeySpan Energy's subsidiary, The Brooklyn
4
<PAGE>
Union Gas Company, in 1958 and was elected Assistant Vice
President in 1974, Vice President in 1977, Senior Vice
President in 1981 and Executive Vice President in 1984.
Elected Brooklyn Union's Chief Operating Officer in 1986 and
President in 1990. 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
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
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
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.
ALAN H. FISHMAN - Age 53
Managing Partner at Columbia Financial Partners, LP, a private
5
<PAGE>
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
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
Retired President of Warnaco, Inc. - International Division.
White House Staff, Special Assistant and Appointments
Secretary from 1965 to 1969 and Congressman from Oklahoma from
1973 to 1987. Partner in the law firm of Dickstein Shapiro &
Morin 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
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
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.
6
<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
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
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 Dow Jones & Co., Inc., 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
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
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
7
<PAGE>
York University School of Law, and the New York and
Presbyterian Hospital.
8
<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
Stock Beneficially Common Stock
Name of Owned & Beneficially Common Stock
Beneficial Owner Equivalents 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 935,880 880,543 55,337
executive officers
as a group,
including those
named above, a
total of 31
persons
<FN>
(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.
</FN>
</TABLE>
9
<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 Company 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:
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<PAGE>
Committee
---------
Compensation
and Corporate
Director Executive Nominating Audit Responsibility Special
- -------- --------- ---------- ----- -------------- -------
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 2 3 2 1 17
December 31,
1998
X: Member.
Chair: Committee Chairperson.
COMMITTEES
----------
EXECUTIVE: Power to act on behalf of the Board of Directors whenever the Board
is not in session other than with respect to certain matters as prescribed by
New York law.
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 RESPONSIBILITY: Responsible for ethics, community development,
environmental and equal employment opportunity oversight.
COMPENSATION AND NOMINATING: Administers executive compensation programs,
policies and practices. Conducts director candidate searches and recommends
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.
SPECIAL: Reviewed the payment by LILCO to its former officers of retirement
benefits, incentive compensation and benefits pursuant to contracts with LILCO,
including litigation, investigations and other inquiries.
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<PAGE>
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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents the annual compensation paid to or accrued for the
Chief
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<PAGE>
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
Name Year Salary Bonus ($) Underlying Payouts
---- ---- ($) --------- Options ($) All Other 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 1997 206,000 128,132 17,000 0 199,092 (2)(4)
President 1996 N/A N/A N/A N/A N/A
William K. 1998 206,167 195,845 0 18,513 54,810 (2)(3)
Feraudo 1997 174,000 109,272 21,000 0 2,057 (2)
Senior Vice 1996 173,083 60,900 21,000 0 2,020 (2)
President
Anthony J. 1998 206,000 145,559 0 18,513 67,662 (2)(3)
DiBrita 1997 194,500 103,402 17,000 0 9,470 (2)
Senior Vice 1996 189,420 41,400 17,000 0 7,935 (2)
President
William J. 1998 408,333 600,240 N/A 743,750(6) 39,132,803 (7)(8)(9)
Catacosinos 1997 656,567 841,257 N/A 762,982(6) 400,164 (8)(9)
Former Chairman 1996 580,413 195,170 N/A N/A 18,663 (8)
and CEO (5)
James T. Flynn 1998 330,000 109,354 N/A 371,803 (6) 1,027,403 (8)(9)(11)
Former Executive 1997 302,500 408,956 N/A 294,362 (6) 1,816,817 (8)(9)(12)
Vice President 1996 263,365 115,362 N/A N/A 5,800 (8)
(10)
<FN>
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.
(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.
</FN>
</TABLE>
<PAGE>
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
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<PAGE>
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.
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.
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<PAGE>
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.
16
<PAGE>
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.
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
17
<PAGE>
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 successful 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.
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
18
<PAGE>
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.
19
<PAGE>
COMPENSATION AND NOMINATING COMMITTEE
Edward D. Miller, Chairman
Donald H. Elliott
James R. Jones
Basil A. Paterson
Frederic V. Salerno
Vincent Tese
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.
May 28, 1998 December 31, 1998
------------ -----------------
KeySpan Energy $100.00 $ 93.99
S&P Utilities Index $100.00 $ 108.57
S&P 500 Index $100.00 $ 113.65
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.
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.
20
<PAGE>
<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:
(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
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<PAGE>
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. In the event of a change of control, Mr. Catell may elect the
benefits as provided under his agreement, or elect the benefits as provided
under the Senior Executive Change of Control Severance Plan (the "Change of
Control Plan"), described below, in lieu of the benefits provided by his
agreement.
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 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.
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
22
<PAGE>
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.
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.
23
<PAGE>
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 February 26, 1999, the closing price of KeySpan Energy's Common Stock as
reported on the NYSE listing of composite transactions was $26.50 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.
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
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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
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
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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:
Name Number of Options Exercise Price Per Share
- ------------------------ ------------------------ ------------------------
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
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, as set forth above, the Committee
approved the grant 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.
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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 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.
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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.
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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.
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 KeySpan Energy
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
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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.
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 the 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
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 mail to shareholders on or about the date of this Proxy Statement.
KeySpan Energy files an Annual Report on Form 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.
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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 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
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accordance with the judgment of the proxy holder.
By Order of the Board of Directors
Robert B. Catell
Chairman and Chief Executive Officer
Dated: April 7, 1999
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[KeySpan Logo]
One MetroTech Center
Brooklyn, New York 11201-3850
MARKETSPAN CORPORATION
D/B/A KEYSPAN ENERGY
LONG-TERM PERFORMANCE INCENTIVE COMPENSATION PLAN
APPENDIX A
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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.
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"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.
"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.
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"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.
"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.
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(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.
(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
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<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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 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-cancellable.
(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
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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 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
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<PAGE>
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 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.
<PAGE>
[KEYSPAN ENERGY LOGO]
PROXY CARD
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL PROPOSALS.
1. 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. Elliott 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
/ / / / / /
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "FOR ALL NOMINEES EXCEPT AS INDICATED" BOX AND WRITE THE NOMINEE'S NAME IN
THE SPACE PROVIDED BELOW.)
Exceptions _____________________________________________________________________
2. PROPOSAL NUMBER 2
Ratification of Arthur Andersen LLP as independent public accountants
For Against Abstain
/ / / / / /
3. PROPOSAL NUMBER 3
Approval to change the Company's name to KeySpan Corporation
For Against Abstain
/ / / / / /
4. PROPOSAL NUMBER 4
Approval of the Employee Discount Stock Purchase Plan
For Against Abstain
/ / / / / /
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<PAGE>
5. PROPOSAL NUMBER 5
Approval of the Long-Term Performance Incentive Compensation Plan
For Against Abstain
/ / / / / /
I have included comments, or have included a change of address. / /
I already receive an Annual Report and do not wish to receive one
for this account. / /
I plan to attend the Annual Meeting. / /
Please sign exactly as name or names appear on this proxy.
When signing as an attorney, executor, administrator, trustee, custodian,
guardian or corporate officer, give full title. If more than one trustee, all
should sign.
Dated: __________________________________, 1999
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Signature of Shareholder
- -------------------------------------------------------
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Votes MUST be indicated (x) in Black or Blue ink.
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<PAGE>
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: _________________________________________________________________
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
If you have written in the above space, please mark the comments notification
box on the reverse side.
MARKETSPAN CORPORATION
P.O. BOX 11278
NEW YORK, NY 10203-0278
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