UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to _________
Commission file number 1-14161
KEYSPAN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 11-3431358
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One MetroTech Center, Brooklyn, New York 11201
175 East Old Country Road, Hicksville, New York 11801
(Address of Principal Executive Offices) (Zip Code)
(718) 403-1000 (Brooklyn)
(516) 755-6650 (Hicksville)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes[X] No[ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes[X] No[ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Yes[ ] No[X]
Indicate by check mark whether the registrant is a large accelerated filer, or a
non-accelerated filler.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes[X] No[ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates (174,404,797 shares) of the registrant was $7,002,352,599.55
based on the closing price of the New York Stock Exchange on April 24, 2006, of
$40.15 per share.
As of April 24, 2006, there were 174,960,377 shares of common stock, $.01 par
value, outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to the KeySpan Corporation ("KeySpan") Form 10-K for the
year ended December 31, 2005 (the "2005 10-K Amendment") is being filed to
include certain information required in Part III, Items 10, 11, 12 and 13 that
we intended to incorporate by reference from our 2006 Proxy Statement. We are
filing this 2005 10-K Amendment to include such information since our 2006 Proxy
Statement will not be filed within the requisite time period allowing such
incorporation by reference.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............2
ITEM 11. EXECUTIVE COMPENSATION..........................................9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.....................16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................18
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.........................22
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES........................23
1
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of KeySpan
The following individuals were elected as directors of KeySpan at our last
annual meeting of shareholders held on May 20, 2005, to hold such position for a
one year term or until his or her successor is duly elected or chosen and
qualified:
Robert B. Catell - Age 69 - Director since May 1998
Chairman and Chief Executive Officer of KeySpan Corporation since July 1998.
Joined KeySpan's subsidiary, The Brooklyn Union Gas Company, in 1958 and was
elected Assistant Vice President in 1974, Vice President in 1977, Senior Vice
President in 1981 and Executive Vice President in 1984. Elected Brooklyn Union's
Chief Operating Officer in 1986 and President in 1990. Served as President and
Chief Executive Officer from 1991 to 1996. He was then elected Chairman and
Chief Executive Officer in 1996 and held such position through the
transformation of Brooklyn Union to KeySpan. He served as President and Chief
Operating Officer of KeySpan from May 1998 through July 1998 and was then
elected as the Chairman in July 1998. Serves on the boards of Alberta Northeast
Gas, Ltd., Edison Electric Institute, New York State Energy Research and
Development Authority, the Business Council of New York State, Inc. and the New
York City Partnership, and as Chairman of the Long Island Association. Served on
the board of J & W Seligman through November 2005. Mr. Catell also serves on the
board of directors of The Houston Exploration Company (NYSE:THX), Independence
Community Bank (NASDAQ:ICBC) and Keyera Energy Management Ltd. (TSX:KEY.UN).
Andrea S. Christensen - Age 66 - Director since January 2001
Special Counsel to the law firm of Kaye Scholer LLP since January 1, 2005.
Previously was a partner of Kaye Scholer LLP since 1976. Joined that firm in
1968 and previously was an associate with the law firm of Kelley, Drye & Warren.
Adjunct Professor at New York University School of Law from 1984 to 1994. Member
of the Association of the Bar of the City of New York, American Bar Association
and International Society for Labor Law and Social Security. Former Chairperson
of New York County Lawyers Association Committee on Labor Relations. Served as a
director of Brooklyn Union from 1980 to 2000, and the American Arbitration
Association from 1988 to 1999. Serves as a Member of the board of Inwood House
since 2000.
Robert J. Fani - Age 52 - Director since January 2005
President and Chief Operating Officer of KeySpan since October 2003. Joined
KeySpan's subsidiary, The Brooklyn Union in 1976 and has since held a variety of
management positions in distribution, engineering, planning, marketing, and
business development. Elected Vice President in 1992 and promoted to Senior Vice
President of Marketing and Sales in 1997 and was responsible for all marketing,
sales, rate and regulation activities. In September 1999, he became Senior Vice
President for Gas Operations and was promoted to Executive Vice President for
Strategic Services in February 2000 and then to President of the KeySpan Energy
2
Services and Supply Group in 2001 until assuming his current position as
President and Chief Operating Officer. Former Director of The Houston
Exploration Company (NYSE:THX) and serves as a director of the New York Building
Congress, the City College of New York, Stony Brook University and the Energy
Partnership of Long Island. He is also a member of the Society of Gas Lighters
and sits on the Board of the Gas Technology Institute.
Alan H. Fishman - Age 60 - Director since May 1998
President, Chief Executive Officer and a director of Independence Community Bank
Corp. (NASDAQ:ICBC), the parent savings and loan holding company of Independence
Community Bank, since March 2001. 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 Senior Vice President of AIG. Joined the
firm of Adler & Shaykin in 1990 as a Managing Partner. Former Managing Partner
and founder of Columbia Financial Partners, L.P. in 1992. President and Chief
Executive Officer of ContiFinancial Corporation from July 1999 to March 2001.
Chairman of the Brooklyn Academy of Music and the Brooklyn Navy Yard.
James R. Jones - Age 66 - Director since May 1998
Co-Chairman and Chief Executive Officer of Manatt Jones Global Strategies, LLP
since October 2001 and Chairman of GlobeRanger Corporation since September 1999.
Senior Counsel to the law firm of Manatt, Phelps & Phillips, LLP from March 1999
to present. Retired as President of Warnaco, Inc. - International Division in
1998. Director of Anheuser Busch (NYSE:BUD) since 1998 and Kansas City Southern
(NYSE:KSU) since 1997. 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 & Oshinsky LLP 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.
James L. Larocca - Age 62 - Director since January 2001
Distinguished Professor of Public Policy and former Dean of the College at Long
Island University's Southampton Graduate Campus since April 2000 and Adjunct
Professor of Public Policy at Hofstra University since January 1999. Practiced
law with the firm of Cullen and Dykman immediately prior to his appointment to
Southampton College. Served in the cabinets of two New York State governors as
Commissioner of Transportation, Commissioner of Energy, Director of Federal
Affairs, Trustee of the New York Power Authority and Chairman of the Energy
Research and Development Authority. Served as the President of the Long Island
Association from 1985 to 1993. Served as a director of Brooklyn Union from 1992
to 1993 and from 1995 to 2000. Former director of European American Bank and
ContiFinancial Corporation. Current director and past Chairman of the Long
Island Nature Conservancy.
3
Gloria C. Larson - Age 55 - Director since June 2003
Partner and Co-chair of the Government Practices Group at the law firm of Foley
Hoag LLP. Has held senior positions within the federal government and the
Commonwealth of Massachusetts government, including serving as the Massachusetts
Secretary of Economic Affairs, Deputy Director of Consumer Protection and legal
counsel for the Federal Trade Commission. Current Chairperson of the
Massachusetts Convention Center Authority since 1998. Director of RSA Security,
Inc. (NASDAQ:RSAS) and Unum Provident Corp. (NYSE:UNM). Serves as a member of
the Rose F. Kennedy Greenway Conservancy board, as well as several Boston-based
not-for-profit organizations, including the Massachusetts Technology
Collaborative, Greater Boston Chamber of Commerce and the Massachusetts Women's
Forum. Serves as Chair of the New England Council's e-commerce privacy task
force and is the Co-Chair of the board of directors of MassINC.
Stephen W. McKessy - Age 68 - Director since May 1998
Elected as the Lead Director of KeySpan effective January 1, 2006. Retired
partner of PricewaterhouseCoopers. Served in various management and leadership
positions at PricewaterhouseCoopers from 1960 to 1997. Serves as a director of
The Houston Exploration Company (NYSE:THX), and the Boy Scouts of America.
Member of the board of advisors of St. John's University College of Business
Administration, past president and current member of the board of governors of
the Silver Spring Country Club, and member of the Property Owners Association at
SailFish Point, Florida.
Edward D. Miller - Age 65 - Director since May 1998
Served as a member of the supervisory board and senior advisor to the Chief
Executive Officer of AXA Group from June 2001 to April 2003. Served as President
and Chief Executive Officer of AXA Financial, Inc. from August 1997 through May
2001. Chairman and Chief Executive Officer of The Equitable Life Assurance
Society, the principal insurance subsidiary of AXA Financial, Inc., from August
1997 through May 2001. Served as Senior Vice Chairman of The Chase Manhattan
Bank from 1996 through 1997. Serves as a member of the board of directors of
American Express Company (NYSE:AXP), Topps Company, Incorporated (NASDAQ:TOPP),
and Korn/Ferry International (NYSE:KFY). Member of the board of governors of the
United Way of Tri-State and Chairman of the board of directors of Phoenix House.
Trustee of the Inner-City Scholarship Fund, the New York City Police Foundation,
Pace University and the New York Blood Center. Chairman of the New York City
Partnership's Security and Risk Management Task Force.
Vikki L. Pryor - Age 52 - Director since March 2004
President and Chief Executive Officer of SBLI USA Mutual Life Insurance Company,
Inc. and its family of companies since 1999. Served as Senior Vice President of
Oxford Health Plans from June 1998 to January 1999. Served in various Senior
Vice President and Vice President positions at Blue Cross Blue Shield of
Massachusetts from 1993 to 1997. Served as Director and in a variety of senior
level positions at Allstate Life Insurance Company from 1986 to 1992. Served in
various positions including acting assistant district counsel, senior attorney
4
and associate in the Office of Chief Counsel of the Internal Revenue Service,
Chicago office, from 1978 to 1986. Served on the boards of the Life Insurance
Council of New York (LICONY), New Jersey Chamber of Commerce, UST Corporation
and the Pension Reserves Investment Management board. Serves on the Dean's
Advisory Council of the University at Buffalo Law School. Ms. Pryor is also a
member of the board of the New York City Partnership and serves on the board of
River Source Funds, a mutual fund company.
Audit Committee
The Audit Committee provides oversight with respect to the quality and integrity
of our financial statements; compliance with legal and regulatory requirements;
the independent auditor's qualifications and independence; the performance of
our internal audit function and independent auditors, our business practices,
risk assessment and risk management, and the preparation of the Audit Committee
report required to be included in our annual proxy statement. Pursuant to the
rules of New York Stock Exchange ("NYSE") all members of the Audit Committee of
our board of directors are independent directors. Our board of directors has
determined that Mr. Fishman and Ms. Pryor meet the qualifications of an "audit
committee financial expert," as that term is defined by the rules of the
Securities and Exchange Commission ("SEC"). In addition, our board of directors
has determined that Mr. Fishman, Mr. McKessy and Ms. Pryor have "accounting or
related financial management expertise," in accordance with the NYSE corporate
governance standards rules, section 303A.07. Each of the members of the Audit
Committee is financially literate, in accordance with the NYSE corporate
governance standards rules, section 303A.07. None of the Audit Committee members
simultaneously serves on the audit committees of more than three public
companies. The Audit Committee is composed of five independent directors and
operates under a written charter adopted by our board of directors, as amended
and restated as of January 26, 2006; and can be found on the Investor Relations
section of our website at http://www.keyspanenergy.com or directly at our
corporate governance website (http://governance.keyspanenergy.com). The Audit
Committee is comprised of Mr. Fishman, Ms. Christensen, Mr. Larocca, Mr. McKessy
and Ms. Pryor.
Director Independence
Pursuant to our Corporate Governance Guidelines, which can be found on the
Investor Relations section of our website at http://www.keyspanenergy.com or
directly on our corporate governance website
(http://governance.keyspanenergy.com), our board undertook a review of director
independence. As a result of this review, our board affirmatively determined
that all of the directors are independent under the standards set forth in the
Corporate Governance Guidelines, and the relevant NYSE and SEC rules and
regulations, with the exception of Robert B. Catell and Robert J. Fani. Mr.
Catell can not be deemed independent under the Corporate Governance Guidelines
or applicable rules and regulations because he serves as Chief Executive Officer
of the Corporation. Mr. Fani can not be deemed independent under the Corporate
Governance Guidelines or applicable rules and regulations because he serves as
Chief Operating Officer and President of the Corporation.
5
The basis for our board's determination that the independent directors are
indeed independent is set forth in our Corporate Governance Guidelines and is
set forth, in relevant part, below:
At all times, a majority of the directors shall be independent directors
under the rules of the NYSE and the Sarbanes-Oxley Act of 2002 and the
regulations promulgated thereunder. The following guidelines are
established to assist our board in determining the independence of a
director:
a. A director will not be considered independent if, within the preceding
three years: (i) the director was employed by KeySpan or one of its
subsidiaries; (ii) an immediate family member of the director was
employed by KeySpan as an officer; (iii) the director received more
than $100,000 in direct compensation from KeySpan or its subsidiaries,
other than for board service or pension or deferred compensation; (vi)
an immediate family member of the director received more than $100,000
in direct compensation from KeySpan or its subsidiaries, other than
for Board service or pension or deferred compensation; (v) the
director was employed by or affiliated with KeySpan's independent
auditor; (vi) an immediate family member of the director was employed
by KeySpan's independent auditor; (vii) the director was employed as
an executive officer of another company where any of KeySpan's
officers serve on that company's compensation committee; or (viii) an
immediate family member of the director was employed as an executive
officer of another company where any of KeySpan's officers serve on
that company's compensation committee;
b. A director will not be considered independent if: (i) the director or
an immediate family member of the director currently serves as an
executive officer of another company that does business with KeySpan
and the annual sales to, or purchases from, KeySpan in any of the
preceding three years, exceeds the greater of $1 million or two
percent of the annual consolidated gross revenues of the company; (ii)
the director is an executive officer of another company which is
indebted to KeySpan, or to which KeySpan is indebted, and the total
amount of either company's indebtedness to the other is greater than
one percent of the total consolidated assets of the company he or she
serves as an executive officer; and (iii) if a director serves as an
officer, director or trustee of a tax exempt organization, and
KeySpan's charitable contributions to the organization are greater
than $1 million or two percent of that organization's total
consolidated gross revenues. The Board will annually review all
commercial and charitable relationships of the directors.
6
For relationships not covered by the guidelines in subsection (b)
above, the determination of whether the relationship is material or
not, and therefore whether the director would be independent or not,
shall be made by the directors who satisfy the independence guidelines
set forth in subsections (a) and (b) above. For example, if a director
is the chief executive officer of a company that purchases products
and services from KeySpan that are not more than two percent of that
company's annual revenues, the independent directors could determine,
after considering all of the relevant circumstances, whether such a
relationship was material or immaterial, and whether the director
would therefore be considered independent.
KeySpan will not make any personal loans or extensions of credit to
directors or officers.
Our directors complete and submit an annual director questionnaire to identify
and assess relationships so that the entire Board can determine independence
under these standards. The directors also complete and submit an annual
statement that they are in compliance with our Corporate Policy Statement
Concerning Ethical Business Conduct and our Corporate Policy Statement
Concerning Affiliate Transactions. In addition, in 2006, the directors adopted
and will now annually certify that they have, and continue to agree to comply
with, the KeySpan Corporation Board Of Directors Code of Ethics which sets forth
standards of diligence, loyalty, good faith and the avoidance of conflicts of
interests for the directors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires KeySpan's directors, executive
officers and persons who own more than ten percent (10%) of a registered class
of KeySpan'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. Executive officers, directors and
greater than ten percent (10%) shareholders are required by SEC regulation to
furnish KeySpan with copies of all Section 16(a) forms that they file.
To KeySpan's knowledge, based solely on review of information furnished to us,
reports filed through KeySpan and representations that no other reports were
required, all Section 16(a) filing requirements applicable to our directors,
executive officers and greater than ten percent (10%) beneficial owners were
complied with during the twelve-month period ended December 31, 2005, except
that a Form 4 Report was filed late to disclose a transaction by John J. Haran,
an executive officer of us, in which Mr. Haran transferred shares out of the
KeySpan 401(k) plan to another investment.
7
Codes of Ethics
We adopted a code of ethics applicable to our directors, a code of ethics
applicable to our senior financial officers, and an ethical business conduct
statement applicable to all of our directors, officers and employees. Our codes
of ethics, ethical business conduct statement, corporate governance guidelines
and committee charters can each be found on the Investor Relations section of
our website, (http://www.keyspanenergy.com) or directly at the Corporation's
corporate governance website (http://governance.keyspanenergy.com), and provide
information on the framework and high standards set by us relating to our
corporate governance. Additionally, these documents are available in print to
any stockholder requesting a copy. The codes of ethics, ethical business conduct
statement, corporate governance guidelines and committee charters have all been
approved by the board of directors and are vital to securing the confidence of
our stockholders, customers, employees, governmental authorities and the
investment community.
8
ITEM 11. EXECUTIVE COMPENSATION
Director Compensation
The directors receive the following compensation:
o Non-employee directors:
$43,500 annual retainer;
$2,000 committee meeting fee;
$5,000 committee chairman retainer;
$10,000 audit committee chairman retainer;
$10,000 Lead Director retainer; and
$64,000 in common stock equivalents granted under the
Directors' Deferred Compensation Plan.
o Employee directors:
Receive no additional compensation for serving on the
Board or its committees.
Directors' Deferred Compensation Plans
The board of directors has adopted Directors' Deferred Compensation Plans (pre
2005 and post 2004 plans) to directly align the non-employee directors'
financial interest with those of the shareholders. The Directors' Deferred
Compensation Plans provide all non-employee directors with the opportunity to
defer any portion of their cash compensation received as directors, in exchange
for common stock equivalents or into a deferred cash account. Common stock
equivalents are valued by utilizing the average of the high and low price per
share of our common stock on the first trading day of the quarter following the
quarter in which contributions are received. Dividends are paid on common stock
equivalents in additional common stock equivalents in the same proportion as
dividends paid on common stock. Compensation not deferred and exchanged for
common stock equivalents may be deferred into a cash account bearing interest at
the prime rate. Additionally, a director may elect to invest his or her
compensation by participating in the KeySpan Investor Program (a dividend
reinvestment plan). Upon retirement, death or termination of service as a
director, all amounts in a director's common stock equivalent account and/or
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. Our current
non-employee directors are not entitled to benefits under any of our retirement
plan.
In addition, directors are required to own shares of our stock (i.e., common
stock, deferred stock units and/or common stock equivalents) with a value equal
to five times the directors' annual retainer within five years of being elected
to our board of directors.
9
Executive Officers Compensation
Summary Compensation Table
The following table presents the annual compensation paid to the Chief Executive
Officer and the four other most highly compensated executive officers, or the
"named executive officers".
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Annual Compensation Long-Term Compensation
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Other
Annual Restricted LTIP
Comp- Stock Shares Pay- All Other
Salary Bonus ensation Awards Underlying out Compensation
Name Year ($) ($)(1) ($) ($) Options ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert B. Catell 2005 1,073,500 1,047,343(2) 186,135(3) 0(4) 0 0 127,070(5)(6)
Chairman & Chief 2004 1,032,231 1,056,938(7) 171,574(8) 0 225,100(9) 0 132,893(10)(11)
Executive Officer 2003 938,000 1,089,056(12) 165,489(13) 0 208,800(14)(15) 0 136,105(16)(17)
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Robert J. Fani 2005 729,807 545,573(2) 164,949(3) 0(4) 125,800(18) 0 62,553(5)(6)
President & Chief 2004 618,269 452,485(7) 134,336(8) 0 95,600(9) 0 51,878(10)(11)
Operating Officer 2003 450,000 307,958(12) 129,377(13) 0 69,500(14)(15) 0 35,807(16)(17)
- ------------------------------------------------------------------------------------------------------------------------------------
Wallace P. Parker Jr. 2005 585,576 361,902(2) 148,660(3) 0(4) 88,600(18) 0 46,750(5)(6)
President, KeySpan 2004 546,152 386,515(7) 147,752(8) 0 74,700(9) 0 47,417(10)(11)
Energy Delivery and 2003 450,000 348,288(12) 139,314(13) 0 69,500(14) 0 43,448(16)(17)
KeySpan Services
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Steven L. Zelkowitz 2005 542,230 372,768(2) 136,672(3) 0(4) 88,600(18) 0 42,990(5)(6)
President, Energy 2004 469,884 323,180(7) 136,880(8) 0 59,600(9) 0 41,198(10)(11)
Assets and Supply 2003 392,000 278,750(12) 40,914(13) 0 43,300(14) 0 36,225(16)(17)
Group
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Gerald Luterman 2005 462,153 462,355(2) 13,350(3) 196,250(4)(19) 54,800(18) 0 42,870(5)(6)
Executive Vice 2004 419,231 248,559(7) 13,628(8) 0 41,500(9) 0 30,763(10)(11)
President & CFO 2003 375,000 387,496(12) 9,009(13) 0 43,300(14)(15) 0 28,899(16)(17)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Bonus awards paid each year are attributable to performance during the
previous year.
(2) Bonus awards paid in 2005 include amounts deferred by the named executive
officers into the Officers' Deferred Stock Unit Plan as follows: R. B.
Catell - $523,672; R. J. Fani - $272,787; W. P. Parker Jr. - $180,951; S.
L. Zelkowitz - $186,384; and G. Luterman - $104,942.
(3) The amounts include the value of a chauffeured car for commutation and all
other perquisites in the following respective amounts: R. B. Catell -
$163,175, $22,960; R. J. Fani - $149,746, $15,203; W. P. Parker Jr. -
$128,005, $20,655; S. L. Zelkowitz - $126,277, $10,395; and G. Luterman -
$10,450 and $2,900 for a leased vehicle and all other perquisites,
respectively.
(4) As of December 31, 2005, the aggregate value of the restricted stock awards
and number of restricted stock awards previously awarded and held by each
of the named executive officers are as follows: R. B. Catell - $570,183;
15,976 shares; R. J. Fani - $183,339; 5,137 shares; W. P. Parker Jr. -
$183,339; 5,137 shares; S. L. Zelkowitz - $125,664; 3,521 shares; and G.
Luterman - $310,645; 8,704 shares. The aggregate restricted stock values
are based on the closing price per share of $35.69 at December 31, 2005.
(5) Amounts are also comprised of the value of a 20% match provided by us in
2005 on amounts payable under our Corporate Annual Incentive Compensation
and Gain Sharing Plan but deferred by the named executive officers into the
Officers' Deferred Stock Unit Plan. The amounts attributable to each of the
named executive officers are as follows: R. B. Catell - $104,734; R. J.
Fani - $54,557; W. P. Parker Jr. - $36,190; S.L. Zelkowitz - $32,277; and
G. Luterman - $20,988.
10
(6) The amounts are also comprised of the cost of life insurance paid by us and
allocated to the named executive officers for income tax reporting
purposes. The amounts attributable to each of the named executive officers
during 2005 with respect to the cost of life insurance paid are as follows:
R. B. Catell - $22,336; R. J. Fani - $7,996; W. P. Parker Jr. - $10,560; S.
L. Zelkowitz - $10,713; and G. Luterman - $21,882.
(7) Bonus awards paid in 2004 include amounts deferred by the named executive
officers into the Officers' Deferred Stock Unit Plan as follows: R. B.
Catell - $528,469; R. J. Fani - $226,242; W. P. Parker Jr. - $193,257; S.
L. Zelkowitz - $161,590; and G. Luterman - $74,567.
(8) The amounts include the value of a chauffeured car for commutation and all
other perquisites in the following respective amounts: R. B. Catell -
$149,437, $22,137; R. J. Fani - $125,145, $9,191; W. P. Parker Jr. -
$133,832, $13,920; S. L. Zelkowitz - $124,074, - $12,806; and G. Luterman -
$10,728 and $2,900 for a leased vehicle and all other perquisites,
respectively.
(9) The amounts are comprised of stock options granted on March 10, 2004, based
on the closing price as of such date. The options shall vest pro-rata over
a 5 year period with a 10 year exercise period. Vesting may accelerate in
the third year based upon achievement of certain goals.
(10) The amounts are also comprised of the cost of life insurance paid by us and
allocated to the named executive officers for income tax reporting
purposes. The amounts attributable to each of the named executive officers
during 2004 with respect to the cost of life insurance paid are as follows:
R. B. Catell - $27,200; R. J. Fani - $6,630; W. P. Parker Jr. - $8,766;
S.L. Zelkowitz - $8,880; and G. Luterman - $15,850.
(11) Amounts are also comprised of the value of a 20% match provided by us in
2004 on amounts payable under our Corporate Annual Incentive Compensation
and Gain Sharing Plan but deferred by the named executive officers into the
Officers' Deferred Stock Unit Plan. The amounts attributable to each of the
named executive officers are as follows: R. B. Catell - $105,693; R. J.
Fani - $45,248; W. P. Parker Jr. - $38,651; S.L. Zelkowitz - $32,318; and
G. Luterman - $14,913.
(12) Bonus awards paid in 2003 include amounts deferred by the named executive
officers into the Officers' Deferred Stock Unit Plan as follows: R. B.
Catell - $544,528; R. J. Fani - $153,978; W. P. Parker Jr. - $174,144; S.
L. Zelkowitz - $139,375; and G. Luterman - $71,873.
(13) The amounts include the value of a chauffeured car for commutation and all
other perquisites in the following respective amounts: R. B. Catell -
$141,939, $23,550; R. J. Fani - $118,092, $11,285; W. P. Parker Jr. -
$124,451, - $14,863; S. L. Zelkowitz - $31,497, $9,417; and G. Luterman -
$7,814 and $1,195 for a leased vehicle and all other perquisites,
respectively.
(14) The amounts are comprised of stock options granted on March 5, 2003, based
on the closing price as of March 5, 2003. The options shall vest pro-rata
over a 5 year period with a 10 year exercise period from the date of the
grant. Vesting would have accelerated in the third year based upon
achievement of certain goals, however such goals were not met and such
acceleration did not occur.
(15) The named executive officer also received 2,000 stock options on September
22, 2003 and 2,000 shares of restricted stock on November 7, 2003 granted
by The Houston Exploration Company (a former subsidiary) as compensation
for such person's service as a director of The Houston Exploration Company.
(16) Amounts are comprised of the cost of life insurance paid by us and
allocated to the named executive officers for income tax reporting
purposes. The amounts attributable to each of the named executive officers
during 2003 are as follows: R. B. Catell - $27,200; R. J. Fani - $5,012; W.
P. Parker Jr. - $8,620; S.L. Zelkowitz - $8,350; and G. Luterman - $14,524.
(17) Amounts are also comprised of the value of a 20% match provided by us in
2003 on amounts payable under our Corporate Annual Incentive Compensation
and Gain Sharing Plan but deferred by the named executive officers into the
Officers' Deferred Stock Unit Plan. The amounts attributable to each of the
named executive officers are as follows: R. B. Catell - $108,905; R. J.
Fani - $30,795; W. P. Parker Jr. - $34,828; S.L. Zelkowitz - $27,875; and
G. Luterman - $14,375.
(18) The amounts are comprised of stock options granted on February 24, 2005,
based on the closing price as of such date. The options shall vest pro-rata
over a 5 year period with a 10 year exercise period. Vesting may accelerate
in the third year based upon achievement of certain goals.
(19) On February 24, 2005, Mr. Luterman was granted a special recognition award
of 5,000 shares of restricted stock. The restricted stock has a two year
restriction period, including all dividends paid on the restricted stock.
The value is based on the closing price per share of $39.25 on the grant
date.
11
Stock Option Grants in Last Calendar Year
The following table provides information on stock option grants during 2005 for
the named executive officers and the grant date present value of such officers'
unexercised options at December 31, 2005:
- ------------------ -------------------------- -------------------- ----------------- -------------------------- -------------------
Percent of
Number of Total Grant Date
Securities Number of Option Present
Underlying Options Exercise Value of
Options Granted to Price Expiration Options(2)
Name Granted(1) Employees ($/Share) Date ($)
- ------------------ -------------------------- -------------------- ----------------- -------------------------- -------------------
R.B. Catell - - - - -
- ------------------ -------------------------- -------------------- ----------------- -------------------------- -------------------
R.J. Fani 125,800 8.67% 39.25 2/23/2015 585,000
- ------------------ -------------------------- -------------------- ----------------- -------------------------- -------------------
W.P. Parker Jr. 88,600 6.10% 39.25 2/23/2015 412,000
- ------------------ -------------------------- -------------------- ----------------- -------------------------- -------------------
S.L. Zelkowitz 88,600 6.10% 39.25 2/23/2015 412,000
- ------------------ -------------------------- -------------------- ----------------- -------------------------- -------------------
G. Luterman 54,800 3.78% 39.25 2/23/2015 255,000
- ------------------ -------------------------- -------------------- ----------------- -------------------------- -------------------
(1) Options vest ratably over a five-year period with the first one-fifth
having vested on February 24, 2006 (accelerated vesting in third year
applies upon achievement of certain prescribed goals).
(2) Options have been valued using the binomial methodology adapted to reflect
the specific provisions of the Long Term Performance Incentive Compensation
Plan and related assumptions regarding exercisability. The values shown are
theoretical and do not necessarily reflect the actual values that may be
realized upon the future exercise of the options. Any actual value will
result to the extent that the market value of the common stock at a future
date exceeds the exercise price. Assumptions for modeling are based on the
dividend yield, risk-free rate of return, standard deviation of prices over
a relevant period as of the grant date and the expected lives of the
options.
Stock Option Exercises Table
The following table provides information on aggregated stock option exercises in
2005 and fiscal year end option values for the named executive officers:
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Value Number of Securities Underlying Value of In-The-Money
Acquired Realized Unexercised Options at Fiscal Year End Options at Fiscal Year End
on ($) ($)
Name Exercise
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Total Exercisable Unexercisable Total
- ------------------------------------------------------------------------------------------------------------------------------------
R.B. Catell - - 1,915,141 507,560 2,422,701 13,718,280 863,035 14,581,316
- ------------------------------------------------------------------------------------------------------------------------------------
R.J. Fani - - 311,814 307,620 619,434 1,802,602 282,633 2,085,235
- ------------------------------------------------------------------------------------------------------------------------------------
W. P. Parker Jr. - - 363,701 253,700 617,401 2,052,187 282,633 2,334,820
- ------------------------------------------------------------------------------------------------------------------------------------
S. L. Zelkowitz 55,667 843,769 201,440 207,060 408,500 1,195,309 184,858 1,380,167
- ------------------------------------------------------------------------------------------------------------------------------------
G. Luterman - - 221,287 158,780 380,067 1,154,837 184,858 1,339,695
- ------------------------------------------------------------------------------------------------------------------------------------
12
Long-Term Incentive Plans - Awards in Last Calendar Year
The following table provides information on the long term performance awards
granted to each named executive officer during 2005. Performance is measured
over a three year period and potential payouts shall be linked to certain
performance levels. At threshold, 50% of the number of shares granted will be
awarded. At target, 100% of the number of shares granted will be awarded. At
maximum, 150% of the number of shares granted will be awarded. Performance below
threshold will result in forfeiture of the award. The performance share award
amounts have been valued using the binomial methodology (described above) at a
value of $35.98 per share.
- ---------------------------------------------------------------------------------------------------------------------------------
Estimated Future Payouts Under Non-
Stock Price-Based Plans
- --------------------------------- ----------------- -----------------------------------------------------------------------------
Number Performance
of Shares, Or Other Period
Units Or Until
Other Maturation or
Name Rights Payout Threshold Target Maximum
- --------------------------------- ----------------- -------------------------- -------------------- ----------------- -----------
Robert B. Catell 80,700 1/01/05 - 40,350 80,700 121,050
Chairman & Chief 12/31/07
Executive Officer
- --------------------------------- ----------------- -------------------------- -------------------- ----------------- -----------
Robert J. Fani 16,300 1/01/05 - 8,150 16,300 24,450
President & Chief 12/31/07
Operating Officer
- --------------------------------- ----------------- -------------------------- -------------------- ----------------- -----------
Wallace P. Parker Jr. 11,400 1/01/05 - 5,700 11,400 17,100
President, KeySpan 12/31/07
Energy Delivery and
KeySpan Services Inc.
- --------------------------------- ----------------- -------------------------- -------------------- ----------------- -----------
Steven L. Zelkowitz 11,400 1/01/05 - 5,700 11,400 17,100
President, Energy Assets 12/31/07
and Supply
Group
- --------------------------------- ----------------- -------------------------- -------------------- ----------------- -----------
Gerald Luterman 7,100 1/01/05 - 3,550 7,100 10,650
Executive Vice 12/31/07
President & Chief
Financial Officer
- --------------------------------- ----------------- -------------------------- -------------------- ----------------- -----------
13
Compensation Under Retirement Plans
Our 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 the named executive officers
in the specified compensation and years-of-service categories, assuming
continued active service until normal retirement age and that our retirement
plan is in effect at such time.
Benefits ($)
Years of Service
-----------------------------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35 40 45 50
- ------------
($)
--------- ---------- ----------- ------------ ------------ ------------ ------------ ----------
275,000. . . . 61,875 82,500 103,125 123,750 144,375 165,000 185,625 206,250
350,000. . . . 75,750 105,000 131,250 157,500 183,750 210,000 236,500 262,500
425,000. . . . 95,625 127,500 159,375 191,250 223,125 255,000 286,875 318,750
500,000. . . . 112,500 150,000 187,500 225,000 262,500 300,000 337,500 375,000
575,000. . . . 129,375 172,500 215,625 258,750 301,875 345,000 388,125 431,250
650,000. . . . 146,250 195,000 243,750 292,500 341,250 390,000 438,750 487,500
725,000. . . . 163,125 217,500 271,875 326,250 380,625 435,000 489,375 543,750
800,000. . . . 180,000 240,000 300,000 360,000 420,000 480,000 540,000 600,000
875,000. . . . 196,875 262,500 328,125 393,750 459,375 525,000 590,625 656,250
950,000. . . . 213,750 285,000 356,250 427,500 498,750 570,000 641,250 712,500
1,025,000. . . 230,625 307,500 384,375 461,250 538,125 615,000 691,875 768,750
1,100,000. . . 247,500 330,000 412,500 495,000 577,500 660,000 742,500 825,000
1,175,000. . . 264,375 352,500 440,625 528,750 616,875 705,000 793,125 881,250
1,250,000. . . 281,250 375,000 468,750 562,500 656,250 750,000 843,750 937,500
1,325,000. . . 298,125 397,500 496,875 596,250 695,625 795,000 894,375 993,750
1,400,000. . . 315,000 420,000 525,000 630,000 735,000 840,000 945,000 1,050,000
1,475,000. . . 331,875 442,500 553,125 663,750 774,375 885,000 995,625 1,106,250
1,550,000. . . 348,750 465,000 581,250 697,500 813,750 930,000 1,046,250 1,162,500
1,625,000. . . 365,625 487,500 609,375 731,250 853,125 975,000 1,096,875 1,218,750
1,700,000. . . 382,500 510,000 637,500 765,000 892,500 1,020,000 1,147,500 1,275,000
1,775,000. . . 399,375 532,500 665,625 798,750 931,875 1,065,000 1,198,125 1,331,250
1,850,000. . . 416,250 555,000 693,750 832,500 971,250 1,110,000 1,248,750 1,387,500
1,925,000. . . 433,125 577,500 721,875 866,250 1,010,625 1,155,000 1,299,375 1,443,750
2,000,000. . . 450,000 600,000 750,000 900,000 1,050,000 1,200,000 1,350,000 1,500,000
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 year 2005 for the named executive officers is indicated in the
Annual Compensation columns of the Summary Compensation Table. For purposes of
determining the pension for Mr. Catell pursuant to his employment agreement, the
final average annual compensation will be based upon 65% of his highest three
years earnings (excluding any earnings from LTIP) offset by 50% of his primary
social security benefit.
14
Currently, Robert.B. Catell, our Chairman and Chief Executive Officer, is age 69
and has 48 years of service. Pursuant to his employment agreement, upon a change
of control his employment period shall be extended for a two year period
following the change of control. The number of years of credited service for
each of the other named executive officers based on continued service with us to
age 65, normal retirement age, will be as follows: R. J. Fani - 43 years, W. P.
Parker Jr. - 44 years, S.L. Zelkowitz - 18 years, and G. Luterman - 11 years.
Pursuant to the Supplemental Retirement agreements described below in Item 13
under the caption "Employment Agreements" both Mr. Zelkowitz and Mr. Luterman
will receive certain additional retirement benefits in excess to the amounts set
forth above.
The Internal Revenue Code limits the annual compensation taken into
consideration for, and the maximum annual retirement benefits payable to, a
participant under our retirement plan. For 2005, these limits were $210,000 and
$170,000, respectively. Annual retirement benefits attributable to amounts in
excess of these limits are provided for under our excess benefit plan and not
under our retirement plan. For 2006, these limits are $220,000 and $175,000,
respectively.
Compensation Committee Interlocks and Insider Participation
Neither Ms. Larson nor Messrs. Jones, Larocca, McKessy and Miller, the current
members of the Compensation and Management Development Committee, is an officer
or employee, or former officer or employee, of us or any of our subsidiaries. No
interlocking relationship exists between the members of our board or
Compensation and Management Development Committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
As of April 3, 2006, there were no beneficial owners of more than 5% of our
common stock.
Security Ownership of Management
The following table sets forth information as of April 3, 2006, with respect to
the number of shares of common stock beneficially owned (including vested stock
options), common stock equivalents and/or deferred stock units and performance
shares credited to each director, each named executive officer and all directors
and executive officers as a group.
- ------------------------- ----------------------------------------------------------------------------------------------------------
Name of Amount and Nature of Common Stock Performance Percent of
Beneficial Beneficial Ownership of Equivalents or Shares(3) Outstanding
Owner Common Stock (including Deferred Stock Common
Vested Stock Options)(1) Units(2) Stock
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
R. B. Catell 2,320,539(4)(5)(6) 85,162 112,980 1.4%
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
A. S. Christensen 8,603(4)(5)(6) 16,916 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
R. J. Fani 432,331(4)(5)(6) 31,914 68,940 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
A. H. Fishman 12,864(4)(5)(6) 23,987 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
J. R. Jones 11,177(4)(5)(6) 13,148 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
J. L. Larocca 14,275(4)(5)(6) 14,423 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
G. C. Larson 531(5) 7,505 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
G. Luterman 295,828(4)(5)(6) 16,379 31,410 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
S. W. McKessy 10,538(4)(5)(6) 20,294 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
E. D. Miller 20,776(4)(5)(6) 30,117 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
W. P. Parker Jr. 458,558(4)(5)(6) 32,143 46,430 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
V. L. Pryor 0 5,101 0 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
S. L. Zelkowitz 285,663(4)(5)(6) 27,959 47,440 **
- ------------------------- ---------------------------------- ------------------------- ---------------------- ----------------------
All directors and
executives as a
group, including 5,358,951 440,641 544,335 4.0%
those named
above, a total of
28 persons.
- ------------------------------------------------------------------------------------------------------------------------------------
** Less than 1%.
(1) Beneficial ownership of common stock includes holdings in KeySpan's 401(k)
Plan, Employee Discount Stock Purchase Plan, Dividend Reinvestment Plan
and/or in other stock accounts, as well as issued and outstanding vested
stock options. Such stock options give the holder the right to purchase
underlying shares of common stock at the respective exercise price per
share of the option. All such stock options were granted at an exercise
price equal to the closing price of our common stock on the respective date
of grant.
(2) Includes common stock equivalents or deferred stock units. 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 Plans. The term "deferred
16
stock units" also 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 Officers' Deferred Stock Unit Plans.
(3) Performance shares have been granted with a three-year performance period
with a threshold, target and maximum performance level. At threshold
performance, 50% of the award shall be earned; at target, 100% of the award
shall be earned; and at maximum, 150% of the award shall be earned. The
number of shares set forth above assumes the target level of performance
with a 100% payout.
(4) Includes shares of common stock held in KeySpan's 401(k) Plan, Employee
Discount Stock Purchase Plan, Dividend Reinvestment Plan and/or in other
stock accounts in the following amounts: Mr. Catell - 89,119 shares; Ms.
Christensen - 4,233 shares; Mr. Fani - 17,495 shares; Mr. Fishman - 3,894
shares; Mr. Jones - 2,207 shares; Mr. Larocca - 5,305 shares; Mr. Luterman
- 9,406 shares; Mr. McKessy - 1,568 shares; Mr. Miller - 11,806 shares; Mr.
Parker - 20,455 shares and Mr. Zelkowitz - 13,957 shares.
(5) Includes shares of restricted stock in the following amounts: Mr. Catell -
101,699 shares; Ms. Christensen - 1,070 shares; Mr. Fani - 5,202 shares;
Mr. Fishman - 1,070 shares; Mr. Jones - 1,070 shares; Mr. Larocca - 1,070
shares; Ms. Larson - 531 shares; Mr. Luterman - 8,815 shares; Mr. McKessy -
1,070 shares; Mr. Miller - 1,070 shares; Mr. Parker - 5,202 shares and Mr.
Zelkowitz - 3,566.
(6) Includes vested stock options that are currently exercisable. The number of
vested stock options held are as follows: Mr. Catell - 2,129,721 options;
Ms. Christensen - 3,300 options; Mr. Fani - 409,634 options; Mr. Fishman -
7,900 options; Mr. Jones - 7,900 options; Mr. Larocca - 7,900 options; Mr.
Luterman - 277,607 options; Mr. McKessy - 7,900 options; Mr. Miller - 7,900
options; Mr. Parker - 432,901 options and Mr. Zelkowitz - 268,140 options.
17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and Officers Liability Insurance and Indemnity
We have director and officer, or "D&O" liability insurance for the purpose of
reimbursing us when we have indemnified our directors and officers. D&O
liability insurance also provides direct payment to our directors and officers
under certain circumstances when we have not previously provided
indemnification. We also have liability insurance which provides fiduciary
coverage for us, our directors, officers and employees for any alleged breach of
fiduciary duty under the Employee Retirement Income Security Act. Our D&O
liability insurance was purchased from Associated Electric & Gas Insurance
Services, Energy Insurance Mutual, Zurich American, Hartford, Starr Excess,
Quanta and Liberty Mutual for a one year period commencing on May 28, 2005 at a
cost of $3,277,035. Fiduciary liability insurance from the American
International Group, CHUBB, Zurich American and Energy Insurance Mutual for a
one year period commencing on August 26, 2005 at a cost of $666,552. We plan to
renew both programs upon expiration.
Transactions with Management and Others
Employment Agreements
In September 1998, we entered into an employment agreement with Mr. Robert B.
Catell relating to his services as Chairman and Chief Executive Officer which
was amended on February 24, 2000 and June 26, 2002 (the "1998 Agreement"). The
1998 Agreement covered the period beginning July 31, 1998 and ending July 31,
2005.
Effective January 1, 2005, we entered into a new agreement (the "2005
Agreement"), which supersedes the 1998 Agreement, relating to Mr. Catell's
service as Chairman and Chief Executive Officer. The 2005 Agreement provides for
Mr. Catell's continued employment until July 31, 2006. However, this employment
term will be extended until two years following the consummation of a "change of
control" (as defined in the 2005 Agreement), if we enter into a definitive
agreement that, if consummated, would result in a change of control and the
change of control occurs. This provision has been triggered as a result of the
definitive agreement of merger between National Grid plc and KeySpan. The period
from the execution of the definitive agreement until two years following the
consummation of the change of control is the "protection period". Mr. Catell is
not a participant in the Senior Executive Change of Control Severance Plan (the
"Change of Control Plan") described below.
In addition to his base salary, annual and long-term incentive compensation and
other employee benefits, Mr. Catell is entitled to a "supplemental pension
benefit" which was previously provided for in the 1998 Agreement and continued
under the 2005 Agreement. The supplemental pension benefit is determined based
upon actual base salary and actual annual incentives paid. In the event the
annual incentive target is decreased, Mr. Catell's supplemental pension benefit
under the 2005 Agreement will be determined based upon the highest annual target
level approved by our board during his employment.
18
Mr. Catell's employment agreement also provides for severance benefits to be
paid to him in the event his employment is terminated without cause or if Mr.
Catell terminates his employment for good reason. The severance benefits to be
provided during the severance period (as defined below) 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 Supplemental Executive Retirement Plan benefits
(as provided in the 2005 Agreement) during the severance period; (c)
continuation of all other employee benefits; and (d) acceleration of vesting of
all equity awards, as if he had remained employed by us during the severance
period. If Mr. Catell's employment is terminated, the severance period is
defined to mean the period from the date of termination through the end of the
employment period.
If Mr. Catell voluntarily terminates his employment, other than for good reason,
we shall pay the accrued obligations to Mr. Catell and he shall be entitled to
his supplemental pension benefit. If Mr. Catell is terminated without cause or
resigns for good reason during the Protection Period, Mr. Catell will be
provided with severance at a multiple of two times base salary and annual bonus,
continued benefits and additional supplement pension benefit accrual for the two
year period following his termination. Mr. Catell may resign for any reason in
the thirteenth month following a change of control with severance benefits. In
the event that any payments Mr. Catell receives from us or otherwise are subject
to a parachute excise tax, then Mr. Catell will be entitled to a gross-up
payment in order to put him in the same after-tax position he would have been in
without the imposition of the excise tax.
We have entered into a supplemental retirement agreement with Mr. Zelkowitz
dated as of July 1, 2002. The agreement provides one year of credited service
for each year worked, up to a maximum of ten years, in the calculation of
pension benefits. The maximum enhancement would provide an incremental benefit
of 15% of the executive's final five-year average earnings under the current
pension plan formula. In addition, at retirement, Mr. Zelkowitz will receive
paid medical and dental coverage at the same level in effect at retirement,
which will be grossed up for federal and state taxes. Mr. Zelkowitz must remain
employed through December 2006 in order to fully vest in this benefit. For
retirement prior to this date, the benefit will vest pro-rata over a five-year
period or 20% per year. If there is a change-in-control, termination without
cause, or if Mr. Zelkowitz resigns for good reason, then the five-year vesting
requirement will be waived and Mr. Zelkowitz will immediately vest in all
additional service provided for in this agreement.
We have also entered into a supplemental retirement agreement with Mr. Luterman
dated as of July 1, 2002.. The agreement provides that Mr. Luterman will receive
an annual supplemental retirement amount determined by multiplying Mr.
Luterman's qualified and non-qualified pension accruals at age 62 by 35%. This
annual supplemental amount will be aggregated with his actual qualified and
non-qualified pension benefit at his retirement date. In addition, at
retirement, Mr. Luterman will receive paid medical and dental coverage at the
same level in effect at retirement, which will be grossed up for federal and
state taxes. Mr. Luterman's interest in this benefit fully vested as of June
2005.
19
On March 24, 2006, KeySpan entered into an additional agreement with Mr.
Luterman to provide him with separation benefits at his current level of three
times base salary, plus his highest annual bonus pursuant to the Change of
Control Plan without regard to his age as of any date of termination.
Senior Executive Change of Control Severance Plan
As of February 23, 2006, with the exception of Mr. Catell, 45 officers
participate in the Change of Control Plan. The Change of Control Plan, as
amended, provides for the payment of severance and other benefits upon certain
qualifying terminations of such executives within two (2) years of a "change of
control" (as defined in the Change of Control Plan). The protection period under
the Change of Control Plan commences upon the date that we enter into a
definitive agreement, the transaction contemplated by which will, when
consummated, constitute a change of control under the Change of Control Plan and
will continue for a period of two years after the effective date of the actual
change of control. Upon the signing of the definitive merger agreement with
National Grid, the protection period went into effect on February 25, 2006. The
benefits payable under the Change of Control Plan generally provide for (i) the
payment of the executive's base salary 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 highest annual bonus
for any president, any executive vice president and any senior vice president
and two times an executive's base salary and highest annual bonus for other
officers; (iii) the payment of amounts under retirement plan formulas, including
the applicable two to three year period; and (iv) the continuation of certain
other benefits for a period of two to three years depending on the executive's
position with us. On October 29, 2003, our board of directors authorized a five
year extension of the Change of Control Plan. The Change of Control Plan expires
October 30, 2008, unless extended for an additional period by our 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.
20
Change of Control/Severance Agreements
The following table shows the amount of potential cash severance (not including
potential gross-up payments for "golden parachute" excise taxes) payable to our
current executive officers pursuant to the Change of Control Plan, or in the
case of Mr. Catell, his 2005 Agreement as a result of the acquisition by merger
of us by National Grid. The table also shows the estimated present value of
continuing coverage for the benefits under our group health, dental, life
insurance and retirement plans. The amounts indicated are payable only in the
event the named executive officers are not retained upon a change of control and
their employment is terminated and are based on a pro forma termination date of
April 1, 2006. Mr. Catell has agreed to serve as Deputy Chairman of the board of
National Grid plc and Executive Chairman of National Grid USA for a two-year
period. Assuming he serves in such capacities for such period, he will not be
entitled to receive the payments listed below. Likewise, in the event the other
named executive officers continue their employment beyond a two-year protection
period, they also will not be entitled to receive the payments listed below.
Potential Cash Pro-Rated Estimated PV Estimated PV of
Executive Officers Severance Bonus of Welfare Retirement
Payment(1) Payment(2) Benefits(3) Benefits(4)
Robert B. Catell(5) $ 5,080,000 $ 466,667 $ 22,396 $ 2,052,233
Robert J. Fani $ 4,569,525 $ 247,058 $ 32,691 $ 3,902,482
Wallace P. Parker Jr. $ 3,525,271 $ 183,363 $ 32,691 $ 2,474,294
Steven L. Zelkowitz $ 3,414,387 $ 171,043 $ 32,691 $ 2,604,495
Gerald Luterman $ 2,628,844 $ 129,427 $ 32,691 $ 616,122
(1) Cash severance benefit is a lump sum payment based on the annual base
salary prior to termination plus the highest annual bonus times the
severance multiple. Highest annual bonus is defined as the greater of the
bonus most recently paid prior to the change of control or the average of
the three prior years. The severance multiple for Mr. Catell pursuant to
his employment agreement is two times while all other officers listed above
have a multiple of three times. In addition to the cash severance payments
indicated in the table above, the executive officers are entitled to
receive additional cash gross-up payments to eliminate the effect on any
"golden parachute" excise taxes that may be imposed on the executives under
Sections 280G and 4999 of the Internal Revenue Code. The amount of such
gross-up payments (if any) will depend on each executive's individual
circumstances, including factors such as the executive's average
compensation over the five calendar years preceding the change of control
date and the extent to which any potential "parachute payments" constitute
reasonable compensation for services rendered prior to or after the change
in control date. All other federal, state and local income taxes will be
paid by the individual.
(2) Reflects the pro-rated amount of the highest annual bonus for the period
January 1, 2006 through the pro forma date of termination April 1, 2006.
(3) Includes the cost of continuation of employee coverage for medical, dental
and life insurance during the severance period.
(4) Represents the net present value of the increase in the annual lifetime
pension annuity attributed to the added service and compensation associated
with the severance period.
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(5) Mr. Catell's severance benefits are provided pursuant to his employment
agreement dated January 1, 2005. Mr. Catell is not a participant in the
Senior Executive Change of Control Severance Plan.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table provides information on the aggregate fees for services
performed by Deloitte & Touche LLP ("Deloitte & Touche"), the member firms of
Deloitte & Touche Tohmatsu, and their respective affiliates for the years ended
December 31, 2005 and December 31, 2004:
2005 2004
---- ----
Audit Fees (a) $ 3,682,325 $ 4,172,682
Audit-Related Fees (b) 88,000 80,000
Tax Fees (c) 385,522 848,453
All Other Fees (d) 50,121 0
------------- -------------
Total $ 4,205,968 $ 5,101,135
(a) In 2005, audit fees include base fees for the annual and statutory
financial statement audits, audit of internal control over financial
reporting, and quarterly reviews of $3,212,089; $185,498 for fees related
to financings and fees for consultations on financial accounting standards
as part of the audit of $284,738. In 2004, audit fees include base fees for
the annual and statutory financial statement audits, audit of internal
control over financial reporting, and quarterly reviews of $3,796,756;
$19,970 for fees related to financings and fees for consultations on
financial accounting standards as part of the audit of $355,956.
(b) Audit-related fees include benefit plan audits
(c) Fees for tax services billed in 2005 and 2004 consisted of tax compliance,
tax consultation services and property tax assistance. Fees for tax
compliance services totaled $313,738 and $458,050 in 2005 and 2004,
respectively. Tax compliance services include services such as assistance
with federal, state and local income tax returns. Fees for tax consultation
services totaled $71,784 and $390,403 in 2005 and 2004, respectively.
(d) Other fees include training.
In accordance with the Audit Committee Charter and the rules and regulations of
the SEC, the Audit Committee reviews the scope of the audit and approves the
nature and cost of all services provided by Deloitte & Touche. The Audit
Committee has reviewed the nature and scope of the services provided by Deloitte
& Touche and considers such to have been compatible with the maintenance of
Deloitte & Touche's independence throughout its service to KeySpan.
The Audit Committee has also determined that the scope of services to be
provided by Deloitte & Touche in 2006 will generally be limited to audit and
audit related services and tax services. The Audit Committee will expressly
approve the provision of any services by Deloitte & Touche outside the scope of
the foregoing services. Although it is the intent of the Audit Committee to
pre-approve all non-audit services to be provided by Deloitte & Touche, any
inadvertent failure to do so will not be deemed a breach of the Audit Committee
charter if: (i) the aggregate amount of all such non-audit services provided to
the Corporation constitutes not more than five percent of the total amount of
revenues paid by the Corporation to its auditor during the fiscal year in which
the non-audit services are provided; (ii) such services were not recognized by
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the Corporation at the time of the engagement to be non-audit services; and
(iii) such services are promptly brought to the attention of the Committee and
approved prior to the completion of the audit by the Committee or its Chairman
pursuant to delegated authority.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(b) Exhibits
Exhibits listed below which have been filed with the SEC pursuant to the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, and which were filed as noted below, are hereby incorporated by
reference and made a part of this report with the same effect as if filed
herewith.
31.1* Certification of the Chairman and Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of the Executive Vice President and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of the Chairman and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certification of the Executive Vice President and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KEYSPAN CORPORATION
(Registrant)
Signature: Date:
By: /s/Gerald Luterman April 28, 2006
------------------
Gerald Luterman
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures: Date:
By: /s/Robert B. Catell April 28, 2006
-------------------
Robert B. Catell
Chairman of the Board of Directors
and Chief Executive Officer
By: /s/Gerald Luterman April 28, 2006
------------------
Gerald Luterman
Executive Vice President and
Chief Financial Officer
By: /s/Theresa A. Balog April 28, 2006
-------------------
Theresa A. Balog
Vice President and
Chief Accounting Officer
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