Exhibit 10.3
SETTLEMENT AGREEMENT AND RELEASE
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This Settlement Agreement, dated as of the 1st day of January, 2006, is
by and among KEYSPAN CORPORATION ("KeySpan"), KEYSPAN GENERATION LLC ("Genco"),
KEYSPAN ELECTRIC SERVICES LLC, and KEYSPAN ENERGY TRADING SERVICES LLC
(collectively, the "KeySpan Parties") and the LONG ISLAND LIGHTING COMPANY d/b/a
LIPA ("LIPA") and the LONG ISLAND POWER AUTHORITY (the "Authority", collectively
with LIPA the "LIPA Parties").
W I T N E S S E T H :
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WHEREAS, the KeySpan Parties and the LIPA Parties or their respective
affiliates are parties to the Agreement and Plan of Merger (the "Merger
Agreement"), Management Services Agreement ("MSA"), Energy Management Agreement
("EMA"), Generation Purchase Right Agreement ("GPRA") and Power Supply Agreement
("PSA"), each dated as of June 26, 1997, and each as amended to date
(collectively, the "Existing Agreements");
WHEREAS, the LIPA Parties and the KeySpan Parties have been discussing the
Existing Agreements, the performance by the parties with respect thereto, their
respective rights and obligations thereunder, and certain matters that have
arisen under and pursuant to the operation of the Existing Agreements;
WHEREAS, the LIPA Parties and the KeySpan Parties have agreed to enter into
(i) an Amended and Restated Management Services Agreement, dated as of January
1, 2006 ("Amended MSA") and (ii) an Option and Purchase and Sale Agreement,
dated as of January 1, 2006 (the "Option Agreement"), (collectively, the "2006
Effective Agreements");
WHEREAS, the KeySpan Parties and the LIPA Parties have agreed to resolve
certain pending issues arising out of the Existing Agreements; and
WHEREAS, by this Settlement Agreement, the parties intend to adopt, by way
of compromise, and without prejudice to or waiver of their respective positions
in other matters, without trial or adjudication of any issues of fact or law,
and without admission by any party of liability or responsibility under the
Existing Agreements, a full and final settlement that releases and terminates
all rights, obligations and liabilities of the parties under the Existing
Agreements with respect to the matters specifically identified herein.
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties, intending to be legally bound hereby, agree as follows:
1. Resolved Matters. Attached hereto as Exhibit A is a list of certain
pending issues in dispute between the LIPA Parties and the KeySpan Parties
(collectively the "Resolved Matters"). Upon the Effective Date (as defined
below), each of the Resolved Matters shall be considered fully and finally
resolved and settled.
2. Permanent and Binding Resolution. This Settlement Agreement is a
permanent and binding resolution of the rights, obligations, and remedies of the
KeySpan Parties and the LIPA Parties with respect to all Resolved Matters.
3. Effective Date. This Settlement Agreement shall become effective on the
date (the "Effective Date") as of which (i) each of the 2006 Effective
Agreements has been executed and delivered by the parties thereto and has become
effective in accordance with its respective terms and (ii) receipt of all
regulatory and other governmental approvals required in connection with this
Settlement Agreement.
4. Settlement Consideration. KeySpan agrees to remit to LIPA on the
Effective Date $69,000,000.00 by wire transfer in immediately available funds to
such account as LIPA shall direct in writing. Upon the Effective Date, LIPA
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shall also be entitled to retain (i) $41,000,000 of LIPA Federal income tax
refunds related to the tax year ended March 31, 1999, regardless of the outcome
of the Federal tax audit for that year or any other year, and (ii) $10,000,000
of billings from KeySpan related to the 2004 Term Sheet previously withheld by
LIPA.
5. LILCO Tax Credits. KeySpan is obligated, pursuant to Schedule D to the
Merger Agreement, to pay LIPA's taxes for the period which began before the
Closing Date (as such term is defined in the Merger Agreement) and ended after
the Closing Date (the "1999 Tax Year"). Paragraph 4 of Schedule D to the Merger
Agreement provides that KeySpan (as the "Parent" thereunder) shall prepare or
cause to be prepared LIPA's tax returns for the 1999 Tax Year, and Paragraph
7(a) of Schedule D to the Merger Agreement provides that KeySpan has the right
to represent the interests of LIPA in any tax audit or administrative or court
proceeding relating to any LIPA tax return prepared and filed pursuant to
Schedule D. Paragraph 7(b) of Schedule D to the Merger Agreement further
provides that LIPA shall cooperate fully with KeySpan in connection with the
filing of any LIPA tax return filed pursuant to Schedule D and any audit related
thereto. In furtherance of these provisions, KeySpan is representing LIPA in
connection with the Internal Revenue Service's audit of LIPA's federal tax
returns for the 1996 through 1999 Tax Years. The parties hereto agree that
KeySpan will be permitted to use all available tax credits and any other tax
attributes available to LIPA, including LIPA's tax credit carryover of
approximately $145,000,000 not previously allocated to KeySpan, to the extent
necessary to satisfy any LIPA income tax liability for the 1999 Tax Year or any
prior tax year to the extent allowed by law. KeySpan's obligation under Schedule
D will, for the consideration paid and received herein, be limited to the net
tax liability as reduced by all available tax credits and other tax attributes.
Specifically, no additional consideration will be due by KeySpan to LIPA related
to the use of credits or any other tax attribute in reduction of LIPA's
liability for the 1999 Tax Year or any other tax year.
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6. Interest. Each of the parties hereto hereby waives any right it may
have, by contract, by law or otherwise, to the accrual of any interest with
respect to any of the Resolved Matters.
7. Public Announcement. The parties agree that prior to making any media or
other public announcement with respect to the Settlement Agreement or any of the
transactions contemplated hereunder, they shall consult and coordinate with each
other as to the substance and timing of such announcement.
8. Release of KeySpan. For the consideration given by the KeySpan Parties
as set forth herein, each of the LIPA Parties irrevocably and unconditionally
(on behalf of itself and its successors and assigns) waives, releases and
forever discharges each KeySpan Party, its subsidiaries and other affiliates,
employees, officers, directors, members, and shareholders, from any and all
past, present and future causes of action, manner of promises, administrative,
civil and/or criminal complaints, grievances, liabilities, obligations, damages,
claims and demands, arising from, relating to, or pertaining to the items
identified as Resolved Matters and all other items described herein, in law or
equity, which either of the LIPA Parties or their respective successors and/or
assigns ever had, now have or hereafter can, shall or may have for, occurring up
to the date as specified in Exhibit A, or if not expressly stated, then up to
the date of this Settlement Agreement, including any claims under the laws of
any and all nations or international bodies inclusive of the laws of the United
States including all federal, state, or municipal statutes, regulations or
principles of common law or equity (inclusive of claims under contract or tort
law). Notwithstanding the foregoing, this Release does not apply to enforcement
of, or any claims regarding breach of any terms and/or conditions of this
Settlement Agreement.
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9. Release of LIPA. For the consideration given by the LIPA Parties as set
forth herein, each of the KeySpan Parties agree to irrevocably and
unconditionally (on behalf of itself and its successors and assigns) waive,
release and forever discharge each of the LIPA Parties, their respective
subsidiaries and other affiliates, employees, officers, directors, trustees,
members, shareholders and subsidiaries, from any and all past, present and
future causes of action, manner of promises, administrative, civil and/or
criminal complaints, grievances, liabilities, obligations, damages, claims and
demands, arising from, relating to, or pertaining to the items identified as
Resolved Matters and all other items described herein, in law or equity, which
each of the KeySpan Parties or their respective successors and/or assigns ever
had, now have or hereafter can, shall or may have for, occurring up to the date
as specified in Exhibit A, or if not expressly stated, then up to the date of
this Settlement Agreement, including any claims under the laws of any and all
nations or international bodies inclusive of the laws of the United States
including all federal, state, or municipal statutes, regulations or principles
of common law or equity (inclusive of claims under contract or tort law).
Notwithstanding the foregoing, this Release does not apply to enforcement of, or
any claims regarding breach of any terms and/or conditions of this Settlement
Agreement.
10. Governing Law and Jurisdiction. This Settlement Agreement shall be
governed by, construed and enforced in accordance with the laws of the State of
New York without giving effect to doctrines relating to conflicts of laws that
would require the application of the law of another jurisdiction. Any action
seeking enforcement of this Settlement Agreement and any claims alleging the
breach of any terms and/or conditions of this Settlement Agreement shall be
commenced in the Supreme Court of the State of New York, County of Nassau.
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11. Amendments; Waivers. This Settlement Agreement may not be modified,
amended, or terminated except by an instrument in writing, signed by each of the
parties hereto affected thereby. No failure to exercise, and no delay in
exercising, any right, remedy, or power under this Settlement Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power under this Settlement Agreement preclude any other or
further exercise thereof, or the exercise of any other right, remedy, or power
provided herein or by law or in equity.
12. Section Headings. The titles of the sections in this Settlement
Agreement are for convenience only, are not definitive, and shall not be
considered or referred to in resolving questions of interpretation or
construction.
13. Attorneys' Fees and Other Costs. Each party hereto shall be responsible
for paying its own attorneys' fees and all of its other costs incurred in
connection with (1) the negotiation and preparation of this Settlement
Agreement; and (2) any of the Resolved Matters. Nevertheless, in any action or
proceeding to enforce this Settlement Agreement, the prevailing party shall be
entitled to payment of its reasonable costs and expenses (including reasonable
and documented fees and disbursements of counsel and other professionals and
including costs and expenses incurred in connection with enforcing the terms of
this sentence) arising in connection with such action or proceeding.
14. Remedies. The parties hereto acknowledge and agree that a breach of
this Settlement Agreement may not be adequately compensable by money damages
alone and that a breach may cause the non-breaching party or parties'
irreparable injury for which the non-breaching party or parties shall be
entitled to all equitable remedies, including a temporary restraining order,
preliminary injunction and permanent injunction.
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15. Construction. This Settlement Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors (whether by
consolidation, merger or otherwise) and assigns. This Settlement Agreement shall
be construed without regard to any presumption or other rule requiring
construction against the party causing this Settlement Agreement to be drafted.
All terms and words used in this Settlement Agreement, regardless of the number
or gender in which they are used, shall be deemed to include any other number
and any other gender as the context may require.
16. Voluntary Agreement. The parties hereto further represent and declare
that they have carefully read this Settlement Agreement and know the contents
thereof and that they sign the Settlement Agreement freely and voluntarily.
17. Drafting. The drafting and negotiation of this Settlement Agreement
have been participated in by each of the parties hereto through their respective
counsel, and for all purposes, this Settlement Agreement shall be deemed to have
been drafted jointly by each of the parties hereto.
18. Counterparts. If this Settlement Agreement is executed in counterparts,
each counterpart shall be deemed an original and all counterparts so executed
shall constitute one and the same agreement binding on all of the parties
hereto, notwithstanding that all of the parties are not signatory to the same
counterpart. This Settlement Agreement may be executed by original or facsimile
signature, each of which shall be equally binding.
19. Entire Agreement. All agreements, covenants, representations and
warranties, express or implied, oral or written, of the parties hereto
concerning the subject matter hereof are contained herein. No other agreements,
covenants, representations or warranties, express or implied, oral or written,
have been made by any party hereto to any other party concerning the subject
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matter hereof. All prior and contemporaneous conversations, negotiations,
possible and alleged agreements, representations, covenants and warranties
concerning the subject matter hereof are merged herein. This is an integrated
agreement.
20. Compromise. This Settlement Agreement and the releases contained herein
effect the compromise and settlement of disputed and contested claims and
nothing contained herein shall be construed as an admission by any party hereto
of any liability of any kind to any other party. It is expressly understood and
agreed that no party is admitting to liability of any party by entering into the
Settlement Agreement or complying with any of the terms set forth herein.
Neither this Settlement Agreement nor the exhibit hereto, nor the fact of the
existence of this Settlement Agreement or the exhibit hereto, nor any of the
terms of this Settlement Agreement or the exhibit hereto, nor any press release
or other statement or report by the parties or by others concerning this
Settlement Agreement or the exhibit hereto, their existence or terms, nor any
negotiations or proceedings thereof or hereunder shall be used in any proceeding
between the parties, except one to enforce this Settlement Agreement or the
exhibit hereto or as a defense by a released party to any claim being released
hereunder, nor shall they be deemed to constitute in any proceeding any evidence
or admission of liability or wrongdoing on the part of any of the parties, which
is expressly and unequivocally denied.
21. Further Assurances. The parties hereto agree to take such other action
as may be reasonably necessary to further the purposes of this Settlement
Agreement.
22. Representations and Warranties. Each of the parties hereto hereby
represents and warrants to the other parties that:
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(a) Due Authorization and Binding Obligation. Such party has duly
authorized the execution and delivery of this Settlement Agreement. This
Settlement Agreement has been duly executed and delivered by such party. No
consent or authorization of, filing with, notice to or other act by or in
respect of any governmental authority or any other person is required in
connection with the execution, delivery, performance, validity or
enforceability of this Settlement Agreement except for, in the case of the
LIPA Parties, (i) receipt of approval of the New York Attorney General (as
to form) and (ii) receipt of approval of the New York State Comptroller
(the approvals in clauses (i) and (ii), the "Governmental Approvals").
(b) No Conflict. Neither the execution nor the delivery by such party
of the Settlement Agreement nor the performance by such party of its
obligations hereunder nor the consummation by such party of the
transactions contemplated hereby (1) will, upon receipt of the Governmental
Approvals, conflict with, violate or result in a breach of any law or
governmental regulation applicable to such party or (2) conflicts with,
violates or results in a breach of any term or condition of any judgment,
decree, agreement or instrument to which such party is a party or by which
such party or any of its properties or assets are bound, or constitutes a
default under such judgment, decree, agreement or instrument.
(c) No Litigation. There is no action, suit or other proceeding, at
law or in equity, before or by any court or governmental authority pending
or to such party's best knowledge, threatened, which relates to the
Settlement Agreement, or which would materially and adversely affect the
performance by such party of its obligations hereunder.
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(d) No Legal Prohibition. Upon receipt of the Governmental Approvals,
there will be no law applicable to such party which would prohibit the
performance by such party of this Settlement Agreement or any of the
transactions contemplated hereby.
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23. Signatures. The parties hereby signify their agreement to the above
terms by their signatures below.
KEYSPAN CORPORATION
By /s/ John J. Bishar, Jr.
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Name: John J. Bishar, Jr.
Title: Executive Vice President
Date: February 1, 2006
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KEYSPAN GENERATION LLC
By /s/ James K. Brennan
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Name: James K. Brennan
Title: Vice President
Date: February 1, 2006
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KEYSPAN ENERGY TRADING SERVICES LLC
By /s/ Richard A. Rapp, Jr.
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Name: Richard A. Rapp, Jr.
Title: President
Date: February 1, 2006
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KEYSPAN ELECTRIC SERVICES LLC
By /s/ Anthony Nozzolillo
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Name: Anthony Nozzolillo
Title: President
Date: February 1, 2006
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LONG ISLAND POWER AUTHORITY
By /s/ Richard M. Kessel
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Name: Richard M. Kessel
Title: Chairman
Date: January 31, 2006
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LONG ISLAND LIGHTING COMPANY d/b/a LIPA
By /s/ Richard M. Kessel
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Name: Richard M. Kessel
Title: Chairman
Date: January 31, 2006
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EXHIBIT A
Resolved Matters
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Matters Description
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A&G Allocations The Resolved Matters include all invoiced costs and any claims
1998-2005 or disputes relating to the allocation of Administrative and General ("A&G") costs under
the Existing Agreements for all periods, up to and including, those ending on or prior to
December 31, 2005.
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Customer Business System The Resolved Matters include all invoiced costs and any claims or disputes relating to
the recovery of costs associated with the Customer Business System ("CBS") pursuant to the
MSA and the May 27,1998 MSA Side Letter.
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Common Plant Charge The Resolved Matters include all invoiced costs and any claims, disputes or true-ups
True-Up relating to the charge for use of Manager Owned Assets pursuant to Section 6.2(A)(1)
of the MSA and the May 27, 1998 MSA Side Letter, up to and including December 31, 2005.
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LILCO Tax Credits and The Resolved Matters include all invoiced costs and any claims or disputes relating
Other Tax Attributes to KeySpan's reimbursement to LIPA for use of LIPA's tax credits, and any other tax
attributes, to offset LIPA's income tax liability which was assumed by KeySpan.
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MSA Term Sheet The Resolved Matters include all invoiced costs and any claims or disputes relating to
Reconciliations all MSA Term Sheet reconciliations, as defined in the reconciliation process in Section
1998-2004 5.3, 5.4, 6.3 and 6.8 of the MSA, for Years 1998-2004.
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Asbestos Defense Invoices The Resolved Matters include all disputed costs relating to the following Asbestos
invoices: LIPA0400312 (8/23/04), LIPA0400383(11/8/04), LIPA0500045(2/18/05) and
LIPA0500127(5/16/05).
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Real Property Tax The Resolved Matters include all invoiced costs and any claims or disputes relating
Allocations 1998-2005 to real property tax allocations for common parcels for all periods, up to and including,
those ending on or prior to December 31, 2005.
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PSA True-Up - Real The Resolved matters include all invoiced costs and any claims relating to the PSA
Property Tax real property tax true-up, specifically the dispute concerning the property taxes
related to the certain land removed from GENCO's rate base.
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Matters Description
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Cablevision Refund The Resolved Matters include all invoiced costs and any claims or disputes relating to
the improperly installed meter at Cablevision's facility in Woodbury, including the
and related interest payment.
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System Growth Factor The Resolved Matters include all invoiced costs and any claims relating to KeySpan's
recovery of incremental costs associated with system growth in the Direct Cost Budget
calculation.
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Repowering Study The Resolved Matters include all invoiced costs and any claims or disputes relating to
the costs associated with the 2003 Lockwood & Greene Repowering Study.
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LIRR Underbilling Issue The Resolved Matters include any claims relating to any billing error on the account of
the Long Island Railroad.
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Overstatement of Unbilled The Resolved Matters include all invoiced costs and any claims or disputes relating to
Revenue any cost incurred by LIPA in connection with the overstatement of LIPA's unbilled revenue.
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Mutual Aid The Resolved Matters include all invoiced costs and any claims or disputes relating to
Mutual Aid events prior to September 30, 2005.
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