PRICING SUPPLEMENT
- ------------------
(To prospectus dated January 21, 2000 and
prospectus supplement dated January 21, 2000)
$400,000,000
KeySpan Gas East Corporation
7 7/8% Notes due February 1, 2010
Guaranteed Fully and Unconditionally by
KeySpan Corporation
----------------------
Interest on the notes will be payable on February 1 and August 1 of
each year beginning on August 1, 2000. The notes will mature on February 1,
2010. The notes will be unsecured and unsubordinated obligations of KeySpan
Gas East Corporation, doing business as Brooklyn Union of Long Island, the
Issuer, and will rank equally with the Issuer's other unsecured and
unsubordinated debt. Each note will be issued in denominations of $1,000 and
integral multiples of $1,000. For more information on the notes, see
"Description of the Notes" in the accompanying prospectus supplement and
"Description of Securities--Description of Debt Securities" in the
accompanying prospectus.
The Issuer may redeem the notes at any time in whole or in part before
maturity at a make-whole redemption price described more fully in this
pricing supplement.
The payment of principal, premium, if any, and interest on the notes
will be guaranteed fully and unconditionally by KeySpan Corporation, doing
business as KeySpan Energy, the Guarantor. For more information on the
guarantees, see "Description of Securities--Description of the Guarantees"
in the accompanying prospectus.
Investing in the notes involves certain risks which are described
in the "Risk Factors" section beginning on page S-3 of the accompanying
prospectus supplement.
----------------------
PS-1
<PAGE>
Per Note Total
-------- -----
Public offering price<F1> . . . . . . 99.836% $399,344,000
Underwriting discount . . . . . . . . .65% $2,600,000
Proceeds, before expenses, to KeySpan 99.186% $396,744,000
Gas East Corporation . . . . . . . .
[FN]
<F1> Plus accrued interest from February 1, 2000, if settlement occurs after
that date.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
pricing supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about February 1, 2000.
----------------------
Merrill Lynch & Co.
Chase Securities Inc.
J.P. Morgan & Co.
----------------------
The date of this pricing supplement is January 27, 2000.
PS-2
<PAGE>
USE OF PROCEEDS
The net proceeds from the offering of the notes will be used to
reimburse the Guarantor for $397 million of indebtedness of the Guarantor
allocated to the Issuer, which was repaid by the Guarantor in July 1999. The
indebtedness had an interest rate of 7.3%.
RECENT DEVELOPMENT
The following tables set forth selected financial information for the
Guarantor for the three months ended December 31, 1998 and 1999, the nine
months ended December 31, 1998 and the twelve months ended December 31, 1999:
Three Months Ended Three Months Ended
December 31, 1998 <Fa> December 31, 1999
---------------------- -----------------
Operating Revenues . . $723,044,000 $911,509,000
Net Income (Loss) . . . $(186,527,000) $83,385,000
Nine Months Ended Twelve Months Ended
December 31, 1998 (a), (b) December 31, 1999
------------------------- -------------------
Operating Revenues . . $1,728,481,000 $2,954,613,000
Net Income (Loss) . . . $(166,933,000) $258,611,000
[FN]
<Fa> Reported results reflect after-tax charges related to the transaction
with the Long Island Power Authority of $97.6 million for the quarter
and $107.9 million for the nine months ended December 31, 1998. In
addition, reported results for both periods reflect charges associated
with an early retirement program and the write-off of a customer billing
system that was in development for $83.5 million after-tax. Further,
results for both periods include the Guarantor's share of a non-cash
impairment charge recorded by a Guarantor subsidiary of $54.1 million
after-tax to reflect the effect of low wellhead prices on the valuation
of proved gas reserves and a $13.0 million after-tax donation to
establish the KeySpan Foundation.
<Fb> As required by purchase accounting rules, operating revenues include the
results of the former Long Island Lighting Company only for the period
April 1, 1998 through May 28, 1998 and of the consolidated entity,
KeySpan Corporation, for the period May 29, 1998 through December 31,
1998. Due to the change in the Guarantor's fiscal year-end from March
31 to December 31 these results exclude revenues from the Guarantor's
prime gas-heating months of January, February and March.
PS-3
<PAGE>
TERMS OF THE NOTES
The notes are Fixed Rate Notes (as defined in the accompanying
prospectus supplement) and are part of a series of Medium-Term Notes Due Nine
Months or More from Date of Issue, Series A, of the Issuer described in the
accompanying prospectus and prospectus supplement. The notes will bear
interest at the rate per annum shown on the cover page of this pricing
supplement from February 1, 2000, or from the most recent date to which
interest has been paid. Interest will be payable on February 1 and August 1
of each year, beginning on August 1, 2000, to the persons in whose names the
notes are registered at the close of business on the fifteenth calendar day,
whether or not a business day, immediately preceding the interest payment
date. Interest payable at maturity will be payable to the person to whom
principal is payable. Interest on the notes will be computed on the basis of
a 360-day year of twelve 30-day months. The notes will mature on February 1,
2010.
The notes will be unsecured and unsubordinated obligations of the Issuer
and will rank equally with all the Issuer's other unsecured and
unsubordinated debt.
The payment of principal, premium, if any, and interest on the notes
will be guaranteed fully and unconditionally by the Guarantor.
The notes will be issued in book-entry form through the facilities of
The Depository Trust Company in minimum denominations of $1,000 and integral
multiples of $1,000.
Optional Redemption
The notes will be redeemable at the option of the Issuer, in whole at
any time or in part from time to time, at a redemption price equal to the
greater of (i) 100% of their principal amount and (ii) the sum, as determined
by the Independent Investment Banker, of the present values of the principal
amount and the remaining scheduled payments of interest on the notes to be
redeemed, discounted from their scheduled payment dates to the redemption
date on a semiannual basis (assuming a 360-day year consisting of twelve 30-
day months) at the Adjusted Treasury Rate, plus accrued but unpaid interest
thereon to the redemption date.
Notice of any redemption must be given at least 30 days but not more
than 60 days before the redemption date to each registered holder of notes to
be redeemed. If money sufficient to pay the redemption price of and accrued
interest on all of the notes (or portion thereof), to be redeemed on the
redemption date is deposited with the trustee on or before the redemption
date and certain other conditions are satisfied, then on and after such date,
PS-4
<PAGE>
interest will cease to accrue on such notes (or such portion thereof), called
for redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, calculated on the third business day preceding
that redemption date using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for that redemption date, plus 25 basis points.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the notes to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the notes to be redeemed.
"Comparable Treasury Price" means, with respect to any redemption date,
the average of the Reference Treasury Dealer Quotations for that redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or if the trustee obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the trustee after consultation with the Issuer.
"Reference Treasury Dealers" means Merrill Lynch Government Securities
Inc., Chase Securities Inc., J.P. Morgan Securities Inc. and Salomon Smith
Barney Inc. or their affiliates which are primary U.S. Government securities
dealers, and their respective successors and any other primary U.S.
Government securities dealers in New York City (each a "Primary Treasury
Dealer") selected by the Issuer in addition to, or in substitution for, such
firms. However, if any of the foregoing ceases to be a Primary Treasury
Dealer, the Issuer will substitute another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined
by the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by that Reference Treasury Dealer at 5:00 p.m., New
York City time, on the third business day preceding the redemption date.
----------------------
For further information regarding the terms of the notes, see
"Description of the Notes" in the accompanying prospectus supplement and
PS-5
<PAGE>
"Description of Securities--Description of Debt Securities" in the
accompanying prospectus. The guarantees are described under the caption
"Description of Securities--Description of the Guarantees" in the prospectus.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Issuer, the Guarantor and the underwriters named below have entered
into a distribution agreement dated January 21, 2000, as supplemented by a
terms agreement dated January 27, 2000. Subject to conditions, each of the
underwriters has severally and not jointly agreed to purchase from the Issuer
the principal amount of the notes indicated in the following table:
Principal
Underwriter Amount
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . $240,000,000
Chase Securities Inc. . . . . . . . . . . . . . . . . . . 80,000,000
80,000,000
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . ----------
Total . . . . . . . . . . . . . . . $400,000,000
------------
------------
The underwriters have informed the Issuer that they propose initially to
offer the notes to the public at the public offering price set forth on the
cover page of this pricing supplement, and also to dealers at the public
offering price minus a concession not in excess of .4 % of the principal
amount per note. The underwriters and the dealers they have sold notes to may
grant a discount not in excess of .25% of the principal amount per note to
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Issuer estimates that the total expenses of the offering payable by
the Issuer, excluding underwriting discounts and commissions, will be
approximately $515,000. The underwriters have agreed to reimburse the Issuer
for certain of its expenses.
Prior to the offering, there has been no public market for the notes.
The Issuer has been advised by the underwriters that they intend to make a
market in the notes but are not obligated to do so and may discontinue any
market making at any time without notice. The notes will not be listed on any
stock exchange and it is possible that there will be no secondary market for
PS-6
<PAGE>
the notes or that there will be little or no liquidity in a secondary market
if one develops.
The Issuer has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. For more information on how the notes will be distributed, see
"Plan of Distribution" in the accompanying prospectus and "Plan of
Distribution" in the accompanying prospectus supplement.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities
Inc. and J.P. Morgan Securities Inc. may provide investment banking services
to the Issuer and the Guarantor and their affiliates from time to time. Chase
Securities Inc. and J.P. Morgan Securities Inc. are affiliated with
commercial banking institutions that may from time to time in the ordinary
course of their business engage in general financing and banking transactions
with the Issuer and the Guarantor and their affiliates. Chase Securities Inc.
is an affiliate of the trustee.
PS-7
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 21, 2000)
$600,000,000
[LOGO]
KEYSPAN GAS EAST CORPORATION
Medium-Term Notes, Series A
Due Nine Months or More from Date of Issue
Guaranteed Fully and Unconditionally by
KEYSPAN CORPORATION
_________________________
The Notes:
- - The Issuer will offer notes from time to time and specify the terms and
conditions of each issue of notes in a pricing supplement.
- - The notes will be senior unsecured debt securities of the Issuer.
- - The notes will have stated maturities of nine months or more from the
date they are originally issued.
- - The Issuer will pay amounts due on the notes in U.S. dollars or any
other consideration described in the applicable pricing supplement.
- - The notes may bear interest at fixed or floating rates or may not bear
any interest. If the notes bear interest at a floating rate, the
floating rate may be based on one or more indices or formulas plus or
minus a fixed amount or multiplied by a factor.
- - The Issuer will specify whether the notes can be redeemed or repaid
before their maturity and whether they are subject to mandatory
redemption, redemption at the option of the Issuer or repayment at the
option of the holder of the notes.
The Guarantees:
- The payment of principal, premium, if any, and interest, if any, on the
notes will be guaranteed fully and unconditionally by KeySpan
Corporation, as Guarantor.
<PAGE>
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" ON PAGE S-3.
<TABLE>
<CAPTION>
Per Note Total(1)
-------------------------- ---------------------------------
<S> <C> <C>
Public Offering Price . . . . . . . . . . . . . . . . . . . . . 100% $600,000,000
Agents' Discounts and Commissions . . . . . . . . . . . . . . . .125%-.750% $750,000-$4,500,000
Proceeds, before expenses, to KeySpan Gas East Corporation . . 99.875%-99.250% $599,250,000-$595,500,000
(1) Or the equivalent in one or more foreign currencies or currency units.
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement, the accompanying prospectus or any pricing
supplement is truthful or complete. Any representation to the contrary is a
criminal offense.
The Issuer may sell notes to the agents referred to below as principal
for resale at varying or fixed offering prices or through an agent as agent
using its reasonable efforts on the Issuer's behalf. The Issuer may also sell
notes without the assistance of any agent, whether acting as principal or as
agent.
If the Issuer sells other securities referred to in the accompanying
prospectus, the amount of notes that the Issuer may offer and sell under this
prospectus supplement may be reduced.
_________________________
Merrill Lynch & Co.
Chase Securities Inc.
J.P. Morgan & Co.
_________________________
The date of this prospectus supplement is January 21, 2000.
S-2
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . S-6
United States Federal Income Tax Consequences . . . . . . . . . . . . . S-33
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Prospectus
Page
----
About this Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Where You Can Find More Information . . . . . . . . . . . . . . . . . . . . 1
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . 2
The Issuer and the Guarantor . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . . . . . . . . 5
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 6
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
As used in this prospectus supplement, except as the context otherwise
requires, "Guarantor" means KeySpan Corporation, "Issuer" means KeySpan Gas
East Corporation and references to "we" "us" and "our" mean KeySpan
Corporation, together with its consolidated subsidiaries, including KeySpan
Gas East Corporation.
S-3
<PAGE>
RISK FACTORS
Your investment in the notes involves certain risks. In consultation
with your own financial and legal advisers, you should carefully consider,
among other matters, the following discussion of risks before deciding
whether an investment in the notes is suitable for you. The notes are not an
appropriate investment for you if you are unsophisticated with respect to the
significant components of their relationships.
STRUCTURE RISKS OF NOTES INDEXED TO INTEREST RATE, CURRENCY OR OTHER INDICES
OR FORMULAS
If you invest in notes indexed to one or more interest rate, currency or
other indices or formulas, there will be significant risks not associated
with a conventional fixed rate or floating rate debt security. These risks
include fluctuation of the indices or formulas and the possibility that you
will receive a lower, or no, amount of principal, premium or interest and at
different times than you expected. We have no control over a number of
matters, including economic, financial and political events, that are
important in determining the existence, magnitude and longevity of these
risks and their results. In addition, if an index or formula used to
determine any amounts payable in respect of the notes contains a multiplier
or leverage factor, the effect of any change in that index or formula will be
magnified. In recent years, values of certain indices and formulas have been
volatile and volatility in those and other indices and formulas may be
expected in the future. However, past experience is not necessarily
indicative of what may occur in the future.
REDEMPTION MAY ADVERSELY AFFECT YOUR RETURN ON THE NOTES
If your notes are redeemable at the Issuer's option or are otherwise
subject to mandatory redemption, the Issuer may, in the case of optional
redemption, or must, in the case of mandatory redemption, choose to redeem
your notes at times when prevailing interest rates may be relatively low.
Accordingly, you generally will not be a documents. We have
included copies of these documents in an exhibit to our registration
statement of which this prospectus is a part.
The SEC allows the Guarantor to "incorporate by reference" the
information the Guarantor files with the SEC, which means that we can
disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be
part of this prospectus, and later information that the Guarantor files
with the SEC will automatically update and supersede this information.
The Guarantor incorporates by reference the documents listed below and
any future filings made with the SEC under Sections 13(a), 13(c), 14, or
15(d) of the Securities Exchange Act of 1934 until the Issuer sells all
the debt securities.
- Annual Report on Form 10-K of KeySpan Corporation (formerly known
as MarketSpan Corporation) for the transition period from April
1, 1998 to December 31, 1998;
4
<PAGE>
- Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999;
- Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1999;
- Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999;
- Current Reports on Form 8-K dated February 4, 1999, February 12,
1999, March 31, 1999, May 20, 1999, June 22, 1999, September 16,
1999, November 5, 1999, December 2, 1999 and January 19, 2000.
You may request a copy of these filings, at no cost, over the
Internet at our web site at http://www.keyspanenergy.com or by writing or
telephoning us at the following address:
Investor Relations
KeySpan Corporation
One MetroTech Center
Brooklyn, New York, 11201
(718) 403-3265
You should rely only on the information incorporated by reference
or provided in this prospectus or any supplement or term sheet. We have
not authorized anyone else to provide you with different information. We
are not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information in this
prospectus or any supplement is accurate as of any date other than the
date on the front of these documents.
FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus, any prospectus
supplement or term sheet and the documents we have incorporated by
reference contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. Such
statements relate to future events or our future financial performance.
We use words such as "anticipate", "believe", "expect", "may", "project",
"will" or other similar words to identify forward-looking statements.
Without limiting the foregoing, all statements relating to our
- anticipated capital expenditures,
- future cash flows and borrowings,
- pursuit of potential future acquisition opportunities, and
- sources of funding
5
<PAGE>
are forward-looking statements. These forward-looking statements are
based on numerous assumptions that we believe are reasonable, but they
are open to a wide range of uncertainties and business risks and actual
results may differ materially from those discussed in these statements.
Among the factors that could cause actual results to differ
materially are:
- available sources and costs of fuel;
- federal and state regulatory initiatives that increase
competition, threaten cost and investment recovery and impact
rate structure;
- our ability to successfully reduce our cost structures;
- the successful integration of our subsidiaries;
- the degree to which we develop unregulated business ventures;
- our ability to identify and make complementary acquisitions, as
well as the successful integration of those acquisitions; and
- inflationary trends and interest rates.
When considering these forward-looking statements, you should keep
in mind the cautionary statements in this document, any prospectus
supplement or term sheet and the documents incorporated by reference. We
will not update these statements unless the securities laws require us to
do so.
6
<PAGE>
THE ISSUER AND THE GUARANTOR
The Issuer
The Issuer, KeySpan Gas East Corporation, does business under the
name Brooklyn Union of Long Island. It is a wholly owned subsidiary of
KeySpan Corporation, which does business under the name KeySpan Energy.
The Issuer conducts the gas distribution business formerly carried
on by the Long Island Lighting Company. It sells, distributes and
transports natural gas in a service territory of approximately 1,230
square miles in the Long Island counties of Nassau and Suffolk and the
Rockaway peninsula of Queens County. It owns and operates gas
distribution, transmission and storage systems that consist of
approximately 6,292 miles of distribution pipelines, 333 miles of
transmission pipelines and a gas storage facility. The Issuer serves
approximately 467,000 customers, of which approximately 418,000, or 90%,
are residential.
The Issuer offers gas for sale to residential customers on a "firm"
basis, and to commercial and industrial customers on a "firm" or
"interruptible" basis. The Issuer offers "firm" service to customers
under rate schedules or contracts that anticipate no interruptions. It
offers "interruptible" service to customers under rate schedules or
contracts that anticipate and permit interruption on short notice,
generally in peak-load seasons. Gas is available at any time of the year
on an "interruptible" basis, if the supply is sufficient and the supply
system is adequate.
The Issuer also participates in the interstate markets by releasing
pipeline capacity or bundling pipeline capacity with gas for "off-system"
sales. An "off-system" customer consumes gas at facilities located
outside the Issuer's service territory, by connecting to the Issuer's
facilities or one of its transporter's facilities, at a point of delivery
agreed to by the Issuer and the customer.
The Issuer purchases its natural gas for sale to its customers
under long-term supply contracts and short-term spot contracts. This
gas is transported under both firm and interruptible transportation
contracts. In addition, the Issuer has commitments from third parties for
the provision of gas storage capability and peaking supplies.
The Issuer was incorporated in 1998 when all of the assets used in
the gas distribution business formerly owned by the Long Island Lighting
Company were transferred to it. The principal address of the Issuer is
175 East Old Country Road, Hicksville, New York 11801.
7
<PAGE>
The Guarantor
The Guarantor was formed in connection with a business combination
in May 1998 of KeySpan Energy Corporation, the parent of The Brooklyn
Union Gas Company, and certain businesses of the Long Island Lighting
Company. Our core business is gas distribution, conducted by our two
subsidiaries, Brooklyn Union of New York and the Issuer, which together
distribute gas to approximately 1.6 million customers.
We are also a major, and growing, generator of electricity. We own
and operate five large generating plants and 42 smaller facilities in
Nassau and Suffolk Counties on Long Island and a major facility in Queens
County in New York City. Under contractual arrangements, we provide
power, electric transmission-and-distribution services, billing and
other customer services for approximately one million electric customers
of the Long Island Power Authority. Our other subsidiaries are involved
in gas storage, wholesale and retail gas and electric marketing,
appliance service, and large energy-system ownership, installation and
management. We also invest in, and participate in the development of,
pipelines and other energy projects, domestically and internationally.
In November 1999, the Guarantor and Eastern Enterprises ("Eastern")
announced that they had signed a definitive merger agreement under which
we will acquire all of the common stock of Eastern for $64.00 per share
in cash. The transaction has a total value of approximately $2.5 billion
($1.7 billion in equity and $0.8 billion in assumed debt and preferred
stock). The Guarantor expects to raise $1.7 billion of initial financing
for the transaction in short-term markets which will ultimately be
replaced with long-term financing. The transaction will be accounted for
as a purchase.
Eastern owns and operates Boston Gas Company, Colonial Gas Company,
Essex Gas Company, Midland Enterprises Inc., Transgas Inc. and ServicEdge
Partners, Inc. The following table shows Eastern's revenues, operating
earnings and net earnings for the years 1996 through 1998 and the nine
months ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
1996 1997 1998 1998 1999(1)
($ in thousands)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . $1,057,271 $1,023,740 $935,264 $677,228 $660,327
Operating earnings $ 130,234 $ 115,317 $100,405 $ 62,902 $ 54,813
Net earnings . . . $ 64,501 $ 55,916 $105,981<F2> $$86,348<F2> $ 26,905
<FN>
<F1> Eastern acquired Colonial Gas Company on August 31, 1999 in a
transaction accounted for as a purchase.
<F2> Includes reversal of reserves resulting in an extraordinary gain of
$48.4 million on an after-tax basis.
</TABLE>
8
<PAGE>
At September 30, 1999, Eastern had total assets of $1.9 billion, long-
term debt and preferred stock of $0.5 billion and shareholders' equity of
$0.7 billion.
In July 1999, Eastern announced it had entered into an agreement to
acquire EnergyNorth Inc., owner of New Hampshire's largest natural gas
distributor. EnergyNorth is located across the border from, but
contiguous to, areas served by Eastern's gas distribution subsidiaries.
In connection with our acquisition of Eastern, Eastern has amended its
agreement with EnergyNorth to provide for an all cash acquisition of
EnergyNorth shares at a price per share of $61.13. The restructured
EnergyNorth merger is expected to close contemporaneously with the
KeySpan/Eastern transaction.
The merger of KeySpan Corporation and Eastern is conditioned, among
other things, upon the approval of Eastern's shareholders, the SEC and
the New Hampshire Public Utility Commission. We anticipate that the
transaction can be completed in 6 to 9 months but we are unable to
determine when or if all of the required approvals will be obtained.
The increased size and scope of the combined organization should
enable the combined company to provide enhanced, cost-effective customer
service and to capitalize on the above-average growth opportunities for
natural gas in the Northeast and provide additional resources to our
unregulated businesses. The combined company will serve approximately 2.4
million customers.
9
<PAGE>
USE OF PROCEEDS
The Issuer plans to use the proceeds of the offering for the
satisfaction of outstanding obligations, the construction of utility
plants, for reimbursement of the Issuer's treasury, and for any other
proper corporate purposes, including investment in short-term securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our consolidated ratio of earnings to
fixed charges for the periods indicated.
Nine Months Nine Months
Years Ended Ended Ended
- --------------------------------------------------------------------------
December December March September
31, 31, March 31, 31, December 31, 30,
1995 1996 1997 1998 1998 1999
- --------------------------------------------------------------------------
2.06 2.15 2.21 2.44 <F1> 3.31
<F1> For the nine months ended December 31, 1998, earnings were
insufficient to cover fixed charges by $365.0 million. During the
nine months ended December 31, 1998, the Guarantor incurred the
following special charges (after tax): charges associated with the
transaction with the Long Island Power Authority of $107.9 million;
charges associated with the combination of Long Island Lighting
Company's gas and electric services businesses with KeySpan Energy
Corporation of $83.5 million; an impairment charge of $54.1 million
to write-down the value of proved gas reserves; and a charge of
$13.0 million to establish a not-for-profit philanthropic
foundation.
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DESCRIPTION OF SECURITIES
The debt securities and the guarantees will be issued under an
indenture, dated as of December 1, 1999, among the Issuer, the Guarantor
and The Chase Manhattan Bank, as trustee. The indenture provides for the
issuance from time to time of debt securities in an unlimited dollar
amount and an unlimited number of series. The debt securities will be
guaranteed by the Guarantor under the guarantees described below.
The following description of the terms of the debt securities and
the guarantees summarizes the material terms that will apply to the debt
securities and the guarantees. The description is not complete, and we
refer you to the indenture, a copy of which is an exhibit to the
registration statement of which this prospectus is a part. For your
reference, in several cases below we have noted the section in the
indenture that the paragraph summarizes. Capitalized terms have the
meanings assigned to them in the indenture. The referenced sections of
the indenture and the definitions of capitalized terms are incorporated
by reference in the following summary.
Prospective purchasers of debt securities should be aware that
special U.S. Federal income tax, accounting and other considerations may
be applicable to instruments such as the debt securities. The prospectus
supplement or term sheet relating to an issue of debt securities will
describe these considerations, if they apply.
Description of Debt Securities
Specific terms of each series
Each time that the Issuer issues a new series of debt securities,
the prospectus supplement or term sheet relating to that new series will
specify the particular amount, price and other terms of those debt
securities. These terms may include:
- the title of the debt securities;
- any limit on the total principal amount ayed delivery contracts,
the prospectus supplement or term sheet will state that as well as the
conditions to which these delayed delivery contracts will be subject and the
commissions payable for that solicitation.
Agents
The Issuer may also sell debt securities through agents designated
by us from time to time. We will name any agents involved in the offer or
sale of the debt securities and will list commissions payable by the
Issuer to these agents in the prospectus supplement or term sheet. These
agents will be acting on a best efforts basis to solicit purchases for
the period of their appointment, unless we state otherwise in the
prospectus supplement or term sheet.
Direct sales
The Issuer may sell debt securities directly to purchasers. In this
case, the Issuer will not engage underwriters or agents in the offer and
sale of debt securities.
Remarketing transactions
The Issuer may also sell debt securities that we have purchased,
redeemed or repaid through one or more remarketing firms acting as
principals for their own accounts or as our agents. The applicable
prospectus supplement or term sheet will identify any remarketing firms
and describe the terms of our agreement with them and their compensation.
Remarketing firms may be deemed to be underwriters of the debt securities
under the Securities Act of 1933, as amended.
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Indemnification
We may indemnify underwriters, dealers or agents who participate in
the distribution of debt securities against certain liabilities,
including liabilities under the Securities Act, and agree to contribute
to payments which these underwriters, dealers or agents may be required
to make.
No assurance of liquidity
Each series of debt securities will be a new issue of securities
with no established trading market. Any underwriters that purchase debt
securities from the Issuer may make a market in these debt securities.
The underwriters will not be obligated, however, to make a market in the
debt securities and may discontinue market-making at any time without
notice to holders of debt securities. We cannot assure you that there
will be liquidity in the trading market for any debt securities of any
series.
LEGAL OPINIONS
The validity of the debt securities offered by the Issuer and the
guarantees offered by the Guarantor in this prospectus will be passed
upon for the Issuer and the Guarantor by Steven L. Zelkowitz, Senior Vice
President and Deputy General Counsel of the Guarantor. Mr. Zelkowitz has
been granted options to purchase up to 146,000 shares of common stock of
the Guarantor. Certain other legal matters will be passed upon for the
Issuer and the Guarantor by Dickstein Shapiro Morin & Oshinsky LLP,
Washington, D.C., or other counsel identified in the prospectus
supplement or term sheet. Frederick M. Lowther, a partner of Dickstein
Shapiro Morin & Oshinsky LLP, serves as the General Counsel of the
Guarantor and has been granted options to purchase up to 45,000 shares of
the Guarantor's common stock. In addition, other Dickstein Shapiro Morin
& Oshinsky LLP attorneys may be deemed to be beneficial owners of the
Guarantor's common stock having a fair market value of approximately
$50,000. Certain legal matters will be passed upon for any agents or
underwriters by Simpson Thacher & Bartlett, New York, New York, or other
counsel identified in the prospectus supplement or term sheet. Simpson
Thacher & Bartlett also acts as counsel for us from time to time.
EXPERTS
Arthur Andersen LLP, independent accountants, audited certain
financial statements for the nine months ended December 31, 1998 and
related schedules incorporated by reference in this prospectus and
elsewhere in the registration statement. These documents are incorporated
by reference herein in reliance upon the authority of Arthur Andersen
LLP, as experts in accounting and auditing in giving the report.
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Ernst & Young LLP, independent auditors, have audited the financial
statements of Long Island Lighting Company as of March 31, 1998 and for
the twelve months ended March 31, 1998, the three months ended March 31,
1997 and the twelve months ended December 31, 1996 and related schedule
included in our Annual Report on Form 10-K, as amended, for the
Transition Period from April 1, 1998 to December 31, 1998, as set forth
in their Report, which is incorporated by reference, in this prospectus
and elsewhere in the registration statement. These financial statements
and schedule are incorporated by reference herein in reliance upon Ernst
& Young LLP's report, given upon their authority, as experts in
accounting and auditing.
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$400,000,000
KeySpan Gas East Corporation
7 7/8% Notes due February 1, 2010
Guaranteed Fully and Unconditionally by
KeySpan Corporation
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PRICING SUPPLEMENT
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Merrill Lynch & Co.
Chase Securities Inc.
J.P. Morgan & Co.
January 27, 2000
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