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EXECUTION COPY

 

 
PURCHASE AND SALE AGREEMENT
 
between
 
SOUTHERN UNION COMPANY
 
and
 
NATIONAL GRID USA
 

 
Dated as of February 15, 2006

 

 
 
 

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TABLE OF CONTENTS
 
Page

 
ARTICLE I
   
DEFINITIONS
 
Section 1.1
Certain Defined Terms.
  1
Section 1.2
Other Defined Terms.
11
 
ARTICLE II
   
PURCHASE AND SALE
 
Section 2.1
Purchase and Sale of Assets and Stock.
13
Section 2.2
Assumed Liabilities.
13
Section 2.3
Retained Liabilities.
14
Section 2.4
Condition on Assignment or Assumption of Contracts and Rights.
15
Section 2.5
Settlement of Intercompany Accounts.
16
 
ARTICLE III
   
PURCHASE PRICE
 
Section 3.1
Purchase Price.
16
Section 3.2
Adjustment to Estimated Purchase Price.
16
 
ARTICLE IV
   
REPRESENTATIONS AND WARRANTIES OF BUYER
 
Section 4.1
Organization, Existence and Qualification.
17
Section 4.2
Authority Relative to this Agreement and Binding Effect.
18
Section 4.3
Governmental and Other Required Consents.
18
Section 4.4
Availability of Funds.
18
Section 4.5
Filings.
18
Section 4.6
Brokers.
18
Section 4.7
Litigation.
19
Section 4.8
Independent Investigation.
19
Section 4.9
Investment Intent; Investment Experience; Restricted Securities.
19
Section 4.10
PUHCA.
19
 
ARTICLE V
   
REPRESENTATIONS AND WARRANTIES OF SELLER
 
Section 5.1
Organization, Existence and Qualification.
19
Section 5.2
Authority Relative to this Agreement and Binding Effect.
20
Section 5.3
Governmental and Other Required Consents.
20
Section 5.4
Capitalization of the Subsidiaries; Title to Stock.
20
Section 5.5
Title to Assets; Encumbrances.
21
Section 5.6
Financial Statements.
21
Section 5.7
Compliance with Legal Requirements; Governmental Permits.
22
Section 5.8
Legal Proceedings; Outstanding Orders.
22
Section 5.9
Taxes.
22
Section 5.10
Intellectual Property.
23
Section 5.11
Personal Property.
23
Section 5.12
Material Contracts.
24
Section 5.13
Employee Benefit Matters.
24
Section 5.14
Employee and Labor Matters.
26
Section 5.15
Environmental Matters.
27
Section 5.16
Absence of Certain Changes or Events.
28
Section 5.17
Regulatory Matters.
29
Section 5.18
Brokers.
29
Section 5.19
Disclaimer.
29
Section 5.20
Insurance.
30
Section 5.21
Absence of Undisclosed Liabilities.
30
Section 5.22
Sufficiency of Assets.
30
Section 5.23
PUHCA.
31
Section 5.24
Filings.
31
 
ARTICLE VI
   
COVENANTS
 
Section 6.1
Covenants of Seller.
31
Section 6.2
Covenants of Buyer.
35
Section 6.3
Governmental Filings.
36
Section 6.4
Seller Marks.
38
Section 6.5
Acknowledgment by Buyer.
38
Section 6.6
Transition Plan.
39
Section 6.7
Purchase of Leased Assets.
39
Section 6.8
Meter Reading.
39
Section 6.9
Insurance.
40
Section 6.10
Risk of Loss.
41
Section 6.11
Outstanding Payments and Bank Accounts.
41
Section 6.12
Collective Bargaining Agreements.
41
Section 6.13
Alternative Proposals.
42
 
ARTICLE VII
   
CONDITIONS PRECEDENT
 
Section 7.1
Seller’s Conditions Precedent to Closing.
43
Section 7.2
Buyer’s Conditions Precedent to Closing.
44
 
ARTICLE VIII
   
CLOSING
 
Section 8.1
Closing.
45
 
ARTICLE IX
   
TERMINATION
 
Section 9.1
Termination Rights.
46
Section 9.2
Limitation on Right to Terminate; Effect of Termination.
47
 
ARTICLE X
   
EMPLOYEE MATTERS
 
Section 10.1
Employee Agreement.
48
 
ARTICLE XI
   
TAX MATTERS
 
Section 11.1
Purchase Price Allocation.
48
Section 11.2
Cooperation with Respect to Like-Kind Exchange.
49
Section 11.3
Transaction Taxes.
49
Section 11.4
Real and Personal Property Taxes.
50
Section 11.5
Other Taxes.
50
Section 11.6
Straddle Period.
51
Section 11.7
Cooperation on Tax Matters.
51
Section 11.8
Tax Returns.
51
Section 11.9
Effect of Indemnity Payments.
51
Section 11.10
Survival of Obligations.
52
Section 11.11
Dispute Resolution.
52
Section 11.12
Termination of Tax Agreements.
52
 
ARTICLE XII
   
INDEMNIFICATION
 
Section 12.1
Indemnification by Seller.
52
Section 12.2
Indemnification by Buyer.
53
Section 12.3
Limitations on Seller’s Liability.
53
Section 12.4
Limitation on Buyer’s Liability.
56
Section 12.5
Claims Procedure.
56
Section 12.6
Exclusive Remedy.
57
 
ARTICLE XIII
   
GENERAL PROVISIONS
 
Section 13.1
Expenses.
57
Section 13.2
Notices.
57
Section 13.3
Assignment.
59
Section 13.4
Successor Bound.
59
Section 13.5
Governing Law.
59
Section 13.6
Cooperation.
59
Section 13.7
Construction of Agreement.
59
Section 13.8
Publicity.
60
Section 13.9
Waiver.
60
Section 13.10
Parties in Interest.
60
Section 13.11
Section and Paragraph Headings.
60
Section 13.12
Amendment.
60
Section 13.13
Entire Agreement.
61
Section 13.14
Counterparts.
61
Section 13.15
Severability.
61
Section 13.16
Consent to Jurisdiction.
61

 

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LIST OF EXHIBITS

 
Exhibit 6.6
Transition Services
Exhibit 8.1(d)
Litigation Support Agreement
Exhibit 10.1
Employee Agreement

 
 
LIST OF SCHEDULES
Schedule 1.1(a)
Base Statement
Schedule 1.1(b)
Certain Excluded Assets
Schedule 1.1(c)
Permits
Schedule 2.2
Assumed Proceedings
Schedule 4.3
Buyer’s Governmental and Other Required Consents
Schedule 5.2
Seller’s Authority
Schedule 5.3
Seller’s Governmental and Other Required Consents
Schedule 5.5(a)
Encumbrances
Schedule 5.5(b)
Easements
Schedule 5.6
Financial Statements
Schedule 5.7
Compliance with Legal Requirements; Governmental Permits
Schedule 5.8
Legal Proceedings; Outstanding Orders
Schedule 5.9
Taxes
Schedule 5.10
Intellectual Property
Schedule 5.12
Material Contracts
Schedule 5.13(a)
Employee Plans
Schedule 5.13(j)
 Post-Retirement Welfare Benefits
Schedule 5.13(l)
Severance or Other Compensation
Schedule 5.14(a)
Labor Agreements
Schedule 5.14(b)
Labor Matters
Schedule 5.14(c)
Labor Complaints
Schedule 5.15
Environmental Matters
Schedule 5.16
Absence of Certain Changes or Events
Schedule 5.17
Regulatory Matters
Schedule 5.18
Brokers
Schedule 5.20
Seller’s Insurance
Schedule 5.21
Absence of Undisclosed Liabilities
Schedule 5.22(a)
Sufficiency of Assets
Schedule 5.22(b)
.Location of Assets
Schedule 6.1
Conduct of the Business Prior to the Closing Date
Schedule 6.2(c)
Seller Guarantees and Surety Instruments
Schedule 6.7
Leased Assets
Schedule 6.12(a)
Renewal or Extension of Collective Bargaining Agreement
Schedule 6.12(b)
Early Renewal or Extension of Collective Bargaining Agreement

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PURCHASE AND SALE AGREEMENT
 
This PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of the 15th day
of February, 2006, by and between SOUTHERN UNION COMPANY, a Delaware corporation
(“Seller”), and NATIONAL GRID USA, a Delaware corporation (“Buyer”). Capitalized
terms used herein shall have the meanings ascribed to them in Article I, unless
otherwise provided.
 
W I T N E S S E T H :
 
WHEREAS, Seller or a Subsidiary owns all of the Assets and Seller owns, directly
or indirectly, all of the capital stock of each Subsidiary; and
 
WHEREAS, Buyer desires to purchase, and Seller desires to sell, the Assets owned
by Seller and the capital stock of each Subsidiary, subject in all respects to
the provisions of this Agreement.
 
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
 
 
ARTICLE I  
 
 
DEFINITIONS
 
Section 1.1  Certain Defined Terms. 
 
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Article I (such definitions to be equally applicable to
both the singular and plural forms of the terms defined):
 
“Affiliates” or “Affiliated Entities” — shall have the following meaning:
entities shall be deemed “Affiliated” as to each other to the extent (i) one of
the entities directly or indirectly controls the other, or the direct or
indirect control of one of the entities is exercised by the officers, directors,
stockholders, or partners of the other entity (whether or not such persons
exercise such control in their capacities as officers, directors, stockholders,
or partners) or (ii) is deemed to be an Affiliate under existing statutes or
regulations of the SEC.
 
“Assets” — means all of the assets, properties, rights, claims, contracts and
interests of every type and description, real, personal or mixed, tangible and
intangible, owned by Seller, directly or indirectly through any Subsidiary or
any Affiliate of Seller, and relating primarily to the Business other than the
Excluded Assets.
 
Without in any way limiting or expanding the foregoing, the Assets shall include
all right, title and interest of Seller and its Affiliates in, to and under the
following:
 

(a)  
all Real Property;

 

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(b)  
all tangible personal property, including machinery, mobile and immobile
equipment, furniture, furnishings, vehicles, tools, tooling, dies, stores,
parts, supplies and other tangible personal property that is either (x) located
on the Real Property or (y) primarily related to the Business;

 

(c)  
the Assumed Contracts, including all rights to receive goods and services
purchased pursuant to such Contracts and to assert claims and take other actions
in respect of breaches or other violations thereof;

 

(d)  
all Permits (to the extent transferable) held by Seller or any of its Affiliates
that are used, required or necessary for the lawful ownership or operation of
the Business (including the Permits listed on Schedule 1.1(c));

 

(e)  
any intellectual property owned by any Subsidiary;

 

(f)  
all books and records relating primarily to the Business;

 

(g)  
all rights under express or implied warranties relating primarily to the
Business from suppliers to the Business;

 

(h)  
inventory related primarily to the Business;

 

(i)  
prepaid expenses, advance payments, deposits and prepaid items, including
prepaid interest and deposits with lessors, suppliers or utilities, which relate
primarily to the Business;

 

(j)  
accounts receivable arising out of the conduct of the Business, including any
payments received by Seller or any of its Affiliates with respect thereto after
the Closing Date, and unpaid interest accrued on any accounts receivable and any
security or collateral relating thereto;

 

(k)  
promotional and advertising materials relating primarily to the Business,
including all catalogs, brochures, plans, customer lists, supplier lists,
manuals, handbooks, equipment and parts lists, and dealer and distributor lists,
to the extent that any of the foregoing materials do not include the name
“Southern Union”, “Southern”, “SU” or “SUG”; provided, however, that Buyer shall
be entitled to copies of any such excluded materials, and shall be entitled to
use any such excluded materials provided that Buyer covers or removes such
retained names from such materials;

 

(l)  
all rights, privileges, claims, demands, causes of action, claims in bankruptcy,
indemnification agreements with, and indemnification rights against, third
parties, warranty claims (to the extent transferable), offsets and other claims
relating primarily to the Business;

 

(m)  
any and all goodwill associated primarily with the Business; and

 

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(n)  
the confidentiality agreements entered into by or on behalf of Seller or any of
its Affiliates in connection with the sale of the Business or related to any
third party bid to purchase all or any part of the assets of the Business
(collectively, the “Sales Process Confidentiality Agreements”).

 
“Assumed Contract”— means any Contract to which Seller or any of its Affiliates
is a party that relates primarily to the Business, other than Contracts included
in Excluded Assets and listed on Schedule 1.1(b).
 
“Assumed Environmental Liabilities”— means all Environmental Liabilities of
Seller or any Subsidiary relating to the Business or the Assets, whether arising
or relating to the period before or after the Closing, other than the Retained
Environmental Liabilities.
 
“Assumed Indebtedness”— means all debt issued under the Indenture, dated as of
January 1, 1922 between Seller (as successor to The Providence Gas Company), and
U.S. Bank Trust Company, National Association (as successor to Rhode Island
Hospital Trust Company), as Trustee, and all indentures supplemental thereto.
 
“Base Statement”— means the statement as to the Working Capital of the Business
as of September 30, 2005 set forth in Schedule 1.1(a).
 
“Business”— means the business and operations conducted in Rhode Island by
Seller and the Subsidiaries, including:
 

(a)  
the regulated and non-regulated gas distribution business conducted in Rhode
Island by Seller through New England Gas Company and the provision of related
services and products and the engagement in related activities, including
agreements as to appliances and other equipment installed or serviced in Rhode
Island by Seller through New England Gas Company; and

 

(b)  
all activities conducted by any of the Subsidiaries, including the appliance and
equipment installation and servicing businesses.

 
“Business Day”— means any day that is not a Saturday, Sunday or other day on
which banks in New York City are authorized or required by law to close.
 
“CERCLA” — means the Comprehensive Environmental Response Compensation and
Liability Act (42 U.S.C. section 9601 et seq.), as amended.
 
“Claim Notice”— means a written notice of a claim given by a party seeking
indemnification pursuant to the terms of this Agreement that specifies in
reasonable detail the nature of the Losses and the estimated amount of such
Losses (in each case to the extent known).
 
“Confidentiality Agreement” — means that certain confidentiality agreement dated
as of January 31, 2006, between Buyer and Seller.
 

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“Consent”— means any approval, consent, ratification, waiver, clearance or other
authorization from any Person.
 
“Contract”— means any agreement, contract, document, note, bond, indenture,
mortgage, deed of trust, lease, sublease, instrument, obligation, promise or
undertaking (whether written or oral) that is legally binding, including
Easements.
 
“Current Assets”— means the current Assets (other than Excluded Assets) of the
Business as reflected in the categories set forth on the Base Statement as of
the relevant date of determination and prepared in accordance with Schedule
1.1(a).
 
“Current Liabilities” — means the current Assumed Liabilities of the Business as
reflected in the categories set forth on the Base Statement as of the relevant
date of determination and prepared in accordance with Schedule 1.1(a).
 
“Easements” — means all easements, rights of way, Permits, prescriptive rights
and other ways of necessity, whether or not of record, relating to real
property.
 
“Encumbrance”— means any charge, adverse claim, lien, option, encumbrance,
mortgage, pledge or security interest.
 
“Environmental Claim”— means any and all written administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, investigations,
proceedings or notices of noncompliance or violation by any third party
(including any Governmental Body) alleging potential liability (including
potential liability for enforcement, investigatory costs, damages, Losses,
contribution, indemnification, cost recovery, compensation, injunctive relief,
cleanup costs, governmental resource costs, removal costs, remedial costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (a) the presence, or Release or
threatened Release into the environment, of any Hazardous Materials at any
location operated, leased or managed by Seller or any Subsidiary; (b) any
violation of any Environmental Law; or (c) the storage, transportation,
treatment, disposal, discharge, recycling or Release of Hazardous Materials at
any location other than any location operated, leased or managed by Seller or
any Subsidiary.
 
“Environmental Law” — means any Order or Legal Requirement relating to pollution
or protection of human health or the environment or natural resources, including
those relating to (a) emissions, discharges, Releases or threatened Releases of
Hazardous Material into the environment (including ambient air, surface water,
groundwater or land), and (b) the treatment, storage or disposal of Hazardous
Material.
 
“Environmental Liability”— means any liability, responsibility or obligation
arising out of or relating to:
 

(a)  
the presence of any Hazardous Material in the fixtures, structures, soils,
groundwater, surface water or air on, under or about or emanating from the
Assets and properties, in each case currently or formerly used, operated, owned,
leased, controlled,

 

(b)  
possessed, occupied or maintained by a Person (including
predecessors-in-interest to such Person) and any such Hazardous Material
emanating to adjoining or other properties;

 

(c)  
the storage, disposal, Release, threatened Release, discharge, spillage, loss,
seepage or filtration of Hazardous Materials by a Person (including
predecessors-in-interest to such Person) or its employees, agents or contractors
from, on, under or about the assets or properties currently or formerly used,
operated, owned, leased, controlled, possessed, occupied or maintained by such
Person (including predecessors-in-interest to such Person) or the presence
therein or thereunder of any underground or above-ground tanks for the storage
of fuel, oil, gasoline and/or other petroleum products or by-products or other
Hazardous Material;

 

(d)  
the violation or noncompliance or alleged violation or noncompliance by a Person
(including predecessors-in-interest to such Person) or its employees, agents or
contractors of any Environmental Law;

 

(e)  
the failure by a Person or its employees, agents, or contractors to have
obtained or maintained in effect any Environmental Permit as a result of its or
their conduct, actions or operations or the use, operation, ownership, lease,
control, possession, occupancy, maintenance or condition of such Person’s assets
or properties;

 

(f)  
the storage, transportation, treatment, disposal, discharge, recycling or
Release of Hazardous Materials, or the arrangement for same, by a Person or a
predecessor-in-interest to such Person, at any Off-Site Location;

 

(g)  
any and all Proceedings arising out of any of the above-described matters,
including Proceedings by Governmental Bodies for enforcement, investigation,
monitoring, cleanup, containment, removal, treatment, response, restoration,
remedial or other actions or damages and Proceedings by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief; and

 

(h)  
any and all remedial work and other corrective action (including investigation
or monitoring of site conditions, or any clean-up, containment, treatment,
response, restoration or removal) taken by, or the costs of which are imposed
upon, a Person arising from any of the above-described matters.

 
“ERISA”— means the Employee Retirement Income Security Act of 1974, as amended,
or any successor law, and regulations and rules issued pursuant to that act or
any successor law.
 
“Excluded Assets”— means the following assets, each of which shall be excluded
from the Assets, and not acquired by Buyer, at Closing:
 

(a)  
assets of Seller located outside of the State of Rhode Island (none of which
relate primarily to the Business), other than the assets identified on Schedule
5.22(b);

 

(b)  
cash and cash equivalents (including cash held by the Subsidiaries), other than
petty cash held locally for the benefit of the Business;

 

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(c)  
assets to be retained by Seller as set forth in the Employee Agreement;

 

(d)  
the stock record and minute books of Seller;

 

(e)  
duplicate copies of all books and records transferred to Buyer, and all records
(other than the Sales Process Confidentiality Agreements) prepared in connection
with the sale of the Business (including bids received from third parties and
analyses relating to the Business), in each case subject to the confidentiality
provisions of Section 6.1(d);

 

(f)  
inventory disposed of by Seller or any Subsidiary after the date of this
Agreement to the extent such dispositions are not prohibited by this Agreement
or are approved by Buyer pursuant to Section 6.1;

 

(g)  
rights to refunds of Taxes for periods on or prior to the Closing Date payable
with respect to the Business, assets, properties or operations of Seller or any
member of any affiliated group of which any of them is a member;

 

(h)  
accounts owing, by and among Seller and its Affiliates, including the
Subsidiaries (other than accounts owing between or among the Subsidiaries);

 

(i)  
all deferred tax assets or collectibles;

 

(j)  
any insurance policy, bond, letter of credit or other similar item, and any cash
surrender value in regard thereto;

 

(k)  
the Seller Marks, subject to the provisions of Section 6.4;

 

(l)  
Seller’s ownership interest in Gooding Realty; and

 

(m)  
the other assets listed in Schedule 1.1(b).

 
“Final Order” — means an action by a Governmental Body as to which (a) no
request for stay of the action is pending, no such stay is in effect and if any
time period is permitted by statute or regulation for filing any request for
such stay, such time period has passed, (b) no petition for rehearing,
reconsideration or application for review of the action is pending and the time
for filing any such petition or application has passed, (c) such Governmental
Body does not have the action under reconsideration on its own motion and the
time in which such reconsideration is permitted has passed, and (d) no appeal to
a court or a request for stay by a court of the Governmental Body’s action is
pending or in effect and the deadline for filing any such appeal or request has
passed.
 
“GAAP”— means generally accepted United States accounting principles, applied on
a consistent basis.
 
“Good Utility Practices”— means any of the practices, methods and activities
approved by a significant portion of the gas distribution industry as good
practices applicable to operations
 

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of similar design, size and capacity or any of the practices, methods or
activities which, in the exercise of reasonable judgment by an operator of a gas
distribution business in light of the facts known at the time the decision was
made, would have been reasonably expected to accomplish the desired result at a
reasonable cost consistent with good business practices, reliability, safety,
expedition and applicable law. Good Utility Practices are not intended to be
limited to the optimal practices, methods or acts to the exclusion of all
others, but rather to be practices, methods or acts generally accepted in the
gas distribution industry.
 
“Governmental Body”— means any of the following that possesses competent
jurisdiction:
 
(a)  federal, state, county, local, municipal or other governmental body;
 
(b)  governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official or entity and any court or
other tribunal); or
 
(c)  any governmental body entitled to exercise any administrative, executive,
judicial, legislative, police, regulatory or taxing authority or power of any
nature.
 
“Hazardous Material”— means any waste or other chemical, material or substance
that is listed, defined, designated, or classified as, or otherwise determined
to be, hazardous, radioactive, toxic, or a pollutant or a contaminant, or words
of similar import, under or pursuant to any Environmental Law, including any
admixture or solution thereof, and specifically including oil, natural gas,
petroleum and all derivatives thereof or synthetic substitutes therefor,
asbestos or asbestos-containing materials, any flammable substances or
explosives, any radioactive materials, any toxic wastes of substances, urea
formaldehyde foam insulation, toluene or polychlorinated biphenyls.
 
“HSR Act” — means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, or any successor law, and regulations and rules issued by the U.S.
Department of Justice or the Federal Trade Commission pursuant to that act or
any successor law.
 
“IRC” — means the Internal Revenue Code of 1986, as amended.
 
“IRS” — means the Internal Revenue Service or any successor agency.
 
“Knowledge” — means with respect to Seller, the actual knowledge, after due
inquiry, of Julie H. Edwards, Seller’s Senior Vice President and Chief Financial
Officer, Michael I. German, Seller’s Senior Vice President, Utility Operations,
Thomas C. Robillard, President and Chief Operating Officer of New England Gas
Company, Sharon Partridge, Vice President, Finance, of New England Gas Company,
Michael Sullivan, Vice President, Operations, of New England Gas Company,
William Pratt, Director, Marketing & Business Development, of New England Gas
Company, D’Anna Soehnge, Vice President, Human Resources, of New England Gas
Company, Kevin England, Manager of Environmental Compliance of New England Gas
Company, and Karen Czaplewski, Vice President, Customer Service & I.T., of New
England Gas Company.
 

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“Legal Requirement” — means any federal, state, county, local, municipal,
foreign, international, multinational or other administrative Order,
constitution, law, ordinance, adopted code, principle of common law, regulation,
rule, directive, approval, notice, tariff, franchise agreement, statute or
treaty.
 
“Losses” — means all claims, losses, liabilities, causes of action, costs and
expenses (including, without limitation, involving theories of negligence or
strict liability and including court costs and reasonable attorneys’ fees and
disbursements in connection therewith).
 
“Material Adverse Effect” — means an occurrence or condition that (alone or
together with other similar occurrences or conditions) has, or is reasonably
likely to have, a material adverse effect on (a) the business, operation,
assets, financial condition or results of operations of the Business taken as a
whole or (b) the ability of Seller to perform its obligations under this
Agreement, including its obligation to complete the transactions contemplated
herein. For purposes of this Agreement, an occurrence or condition shall not
constitute a Material Adverse Effect if it arises from (i) the announcement of
this Agreement, (ii) general business, economic or financial market conditions,
or (iii) conditions generally affecting the industries in which the Business
operates, except with respect to clauses (ii) and (iii) to the extent that such
occurrence or condition disproportionately impacts the Business.
 
“Material Contract” — means an Assumed Contract that (a) involves a total
commitment by or to any party thereto of at least $250,000 on an annual basis
and that cannot be terminated by Seller or any Subsidiary upon 90 days’ notice
or less without penalty to Seller or any Subsidiary, (b) prohibits or limits the
right of the Business to compete or prohibits or restricts the ability of the
owner of the Business (or any of its Affiliates) to deal with any Person or in
any geographical area, or (c) that is material to the Business, taken as a
whole.
 
“New England Gas Company” — means New England Gas Company, a division of Seller.
 
“Off-Site Location” — means any real property other than: (a) the real
properties currently or formerly used, operated, owned, leased, controlled,
possessed or occupied by Seller or any Subsidiary (including their
predecessors-in-interest) and (b) the real properties adjacent to or in the
vicinity of the real property described in clause (a) of this definition that
have been impacted by Hazardous Materials that have been Released, disposed,
discharged or emitted at the real properties described in clause (a) of this
definition.
 
“Order” — means any award, decision, injunction, judgment, order, writ, decree,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, other Governmental Body, or by any arbitrator, each of
which possesses competent jurisdiction.
 
“Organizational Documents” — means the articles or certificate of incorporation
and the bylaws of a corporation or the comparable organizational and governing
documents of other Persons.
 
“PCBs” — means polychlorinated biphenyls.
 

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“Permits” — means all authorizations, licenses, identification numbers, permits,
certificates and registrations under any Legal Requirement.
 
“Permitted Encumbrances” — means any of the following:
 

(a)  
mechanics’, carriers’, workers’ and other similar liens arising in the ordinary
course of business, which (i)(x) are not yet delinquent or (y) are being
contested in proceedings in good faith and, in the case of clause (y), for which
adequate reserves have been taken and are reflected in the Working Capital of
the Business as of the Closing Date set forth in the Closing Statement, and (ii)
in the aggregate are not substantial in amount and do not interfere with the
present use of the Assets to which they apply;

 

(b)  
liens for (x) current Taxes and assessments not yet due and payable or (y) Taxes
the validity of which is being contested in good faith, and, in the case of
clause (y), for which adequate reserves have been taken and are reflected in the
Working Capital of the Business as of the Closing Date set forth in the Closing
Statement;

 

(c)  
usual and customary non-monetary real property Encumbrances, covenants,
imperfections in title, Easements, restrictions and other title matters (whether
or not the same are recorded) that do not materially interfere with the
operation of that portion of the Business currently conducted on such real
property;

 

(d)  
Encumbrances securing the payment or performance of any of the Assumed
Liabilities;

 

(e)  
all applicable zoning ordinances and land use restrictions, provided that such
restrictions do not materially interfere with the operation of that portion of
the Business currently conducted on such Real Property; and

 

(f)  
with respect to any Asset that consists of a leasehold or other possessory
interest in real property, all Encumbrances, covenants, imperfections in title,
Easements, restrictions and other title matters (whether or not the same are
recorded) to which the underlying fee estate in such real property is subject
that do not currently materially interfere with the operation of that portion of
the Business currently conducted on such real property.

 
“Person”— means any individual, corporation (including any nonprofit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization or Governmental Body.
 
“Proceeding” — means any claim, action, arbitration, hearing, audit, litigation
or suit commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
 
“Real Property” — means all real property owned or leased by Seller or any of
its Affiliates (including any Subsidiary) and relating primarily to the
operation of the Business, together with all interests in real property
(including Easements) used or held for use by Seller or any of its Affiliates
(including any Subsidiary) and relating primarily to the operation of the
Business.
 

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“Related Documents” — means any Contract provided for in this Agreement to be
entered into by one or more of the parties hereto in connection with the
transactions contemplated by this Agreement, including the Employee Agreement,
the transition agreement contemplated by Section 6.6, special warranty deeds or
quitclaim deeds (with each interest in Real Property owned by Seller to be
conveyed to Buyer with a special warranty deed to the extent Seller was provided
with a special warranty deed when it acquired such Real Property interest and
each interest in Real Property owned by Seller to be conveyed to Buyer with a
quitclaim deed to the extent Seller was provided with a quitclaim deed when it
acquired such Real Property interest), quitclaim blanket easement assignments
(one easement assignment document per county or applicable jurisdiction; Seller
shall not be obligated to provide a conveyance document for each individual
easement unless an individual document is required by a Governmental Body having
jurisdiction in order to complete documentation of the transfer to Buyer or to
record notice of the transfer to Buyer), conveyances, motor vehicle certificates
of title and special assignment and assumption instruments.
 
“Release” — means any presence, emission, dispersal, disposal, spilling,
leaking, emitting, discharging, depositing, pumping, pouring, escaping,
leaching, dumping, releasing or migration into the indoor or outdoor environment
(including the abandonment or disposal of any barrels, containers or other
closed receptacles containing any Hazardous Materials), or in, into or from any
facility, including the movement of any Hazardous Materials through the air,
soil, surface water, groundwater or property.
 
“Representative” — means with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants and financial advisors.
 
“Retained Environmental Liabilities” — means the following Environmental
Liabilities of Seller or its Affiliates, including without limitation any
Subsidiary: (a) all Environmental Liabilities arising out of or relating to
operations or activities unrelated to the Business, whether arising or related
to the period before or after Closing, including, without limitation, (i) the
petroleum marketing business and (ii) litigation related to the Cory's Lane and
Bay Street, Tiverton, Rhode Island sites; (b) all Environmental Liabilities
relating to the release of mercury, wherever such release occurred or occurs and
regardless of whether such release occurred prior to the Closing or occurs at
any time after the Closing, which was stored at one time at Seller's Tidewater
Street facility in Pawtucket, Rhode Island, as described in Schedule 5.15 and
Seller's due diligence schedule SUG - 007.1 and related materials, including
without limitation the litigation filed in Providence County Superior Court,
docket no. PC 06-0356, captioned Angel Arriaga, et al, vs. New England Gas
Company et al. matter; (c) all Environmental Liabilities of which Seller has
Knowledge arising out of or relating to the storage, transportation, treatment,
disposal, discharge, recycling or Release of Hazardous Materials or the
arrangement for the same, at any Off-Site Location, by Seller or any Subsidiary
(or any predecessor-in-interest) with respect to the Business where such
activities occurred prior to the Closing Date; (d) all Environmental Liabilities
of which Seller has Knowledge arising out of or related to any real property or
assets formerly owned by Seller or any Subsidiary with respect to the Business,
but no longer owned (and not being transferred to Buyer) as of the Closing Date,
with the exception that the exclusion set forth in clause (d) shall not apply to
any formerly owned manufactured gas
 

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plant-related properties; and (e) any fines or penalties imposed by a
Governmental Body arising from violations or alleged violations of Environmental
Law prior to the Closing Date.
 
“SEC” — means the United States Securities and Exchange Commission or any
successor agency.
 
“Settlement Interest”— means, with respect to any payment required to be made
pursuant to Section 3.2(c) (a “Settlement Payment”), the sum of accrued interest
on the amount of such Settlement Payment, calculated at the Settlement Rate as
from time to time in effect, for the period from the Closing Date to and
including the date upon which such Settlement Payment is made (calculated on the
basis of the actual number of days elapsed in a year of 365 or 366 days, as the
case may be).
 
“Settlement Rate”— means, on any date, with respect to the Settlement Payment,
the “target” federal funds rate reported in the “Money Rates” section of the
Eastern Edition of The Wall Street Journal published for such date. In the event
The Wall Street Journal ceases publication of such federal funds rate or fails
on any particular date to publish such federal funds rate, the Settlement Rate
shall instead refer to the rate for the last transaction in overnight federal
funds arranged prior to such date by JP Morgan Chase.
 
“Stock”— means all of the capital stock of the Subsidiaries listed in (a) and
(d) of the definition of Subsidiary below.
 
“Subsidiary”— means any of the following:
 
(a)  Newport America Corporation, a Rhode Island corporation;
 
(b)  Patience Realty Corp., a Rhode Island corporation;
 
(c)  Prudence Corporation, a Rhode Island corporation; and
 
(d)  Valley Appliance and Merchandising Company, a Rhode Island corporation.
 
“Tax” — means any tax (including any income tax, capital gains tax, value-added
tax, sales and use tax, franchise tax, payroll tax, withholding tax or property
tax), levy, assessment, tariff, duty (including any customs duty), deficiency,
franchise fee or payment, payroll tax, utility tax, gross receipts tax or other
fee or payment, and any related charge or amount (including any fine, penalty,
interest or addition to tax), imposed, assessed or collected by or under the
authority of any Governmental Body.
 
“Tax Return” — means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
 

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“Threatened” — shall have the following meaning: a claim, dispute, or other
matter will be deemed to have been “Threatened” if any demand or statement has
been made or any notice has been given, and Seller has Knowledge of the same.
 
“Working Capital”— means the amount by which Current Assets exceeds Current
Liabilities as of the relevant date of determination, determined in accordance
with Schedule 1.1(a).
 
“Working Capital Target”— means $34,529,872.
 
Section 1.2  Other Defined Terms. 
 
In addition to the terms defined in Section 1.1, certain other terms are defined
elsewhere in this Agreement as indicated below and, whenever such terms are used
in this Agreement, they shall have their respective defined meanings.
 
Term Section
Agreement Recitals
Allocation 11.1
Alternative Proposal 6.13
Antitrust Authorities 6.3
Assumed Liabilities 2.2
Balance Sheet 5.6
Buyer Indemnitees 12.1
Closing 8.1
Closing Date 8.1
Closing Statement 3.2(a) 
CPA Firm 3.2(b)
Deductible 12.3(c)
Divestiture 6.2(a)
Employee Employee Agreement
Employee Agreement 10.1
Employee Plans 5.13(a)
Environmental Permits 5.14(a)(ii)
ERISA Affiliate 5.13(a)
Estimated Purchase Price 3.1
Final Closing Statement 3.2(b)
Final Purchase Price 3.1
Financial Statements 5.6
Former Employee Employee Agreement
Indemnified Party 12.5(a)
Indemnifying Party 12.5(a)
Large Volume Meters 6.8
Leased Assets 6.7
Notice Period 12.5(a)
Objection 3.2(b)
PBGC 5.13(c)

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Pre-Closing Tax Period 11.5
Proxy Statement 6.1(f)(i)
PUHCA 2005 4.10
Purchase Price  3.1
Representatives 6.1(d)
Restricted Information 6.1(d)
Retained Contract Liabilities 2.2(b)(i)
Retained Liabilities 2.3
Review Period 3.2(b)
Seller Indemnitees 12.2
Seller Marks 6.4
Seller’s Pension Plans Employee Agreement
Seller’s 401(k) Plan Employee Agreement
Seller’s Stockholder Approval 7.1(g)
Settlement Payment 1.1
Seller's Meeting 6.1(f)(iii)
Straddle Period 11.6
Transition Services Agreement 6.6
Transaction Taxes 11.3
Upset Date 9.1(e)
WARN Act Employee Agreement

 
ARTICLE II  
 
 
PURCHASE AND SALE
 
Section 2.1  Purchase and Sale of Assets and Stock. 
 
Upon the terms and subject to the conditions contained herein, at the Closing,
Seller shall sell, transfer, assign, convey and deliver to Buyer, and Buyer
shall purchase and accept delivery from Seller, all of the Assets owned directly
or indirectly by Seller or any of its Affiliates, free and clear of any
Encumbrances, other than Permitted Encumbrances, and all of the Stock.
 
Section 2.2  Assumed Liabilities. 
 
In further consideration for the sale of the Assets and the Stock, at the
Closing, and subject to the other terms and conditions of this Agreement, Buyer
will satisfy Buyer’s obligations under the Employee Agreement and will assume
and agree to pay, perform and discharge when due, or cause the appropriate
Subsidiary to pay, perform and discharge when due, all the liabilities and
obligations, of every kind or nature, of Seller or any of its Affiliates arising
out of or relating to:
 
(a)  the ownership of the Assets and the conduct or operation of the Business
prior to the Closing Date, other than the Retained Liabilities;
 
(b)  the ownership or use of the Assets by Buyer or any Subsidiary or the
conduct or operation of the Business by Buyer or any Subsidiary, in each case
after the
 

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Closing Date, including all liabilities, responsibilities and obligations
relating to or arising from the following:
 
 
(i)  performance of the Assumed Contracts included in the Assets and assigned to
Buyer at Closing or retained by any Subsidiary, except that Buyer shall not
assume any liabilities or obligations for (x) any breach or default by Seller or
any Subsidiary under any such Contract occurring or arising prior to the Closing
Date or (y) the payment of money with respect to any obligation arising under
any such Contract prior to the Closing Date, except in the case of this clause
(y) to the extent such obligation is reflected in the Working Capital of the
Business as of the Closing Date set forth in the Closing Statement (such
obligations and liabilities referred to in clauses (x) and (y), the “Retained
Contract Liabilities”);
 
 
(ii)  customer advances, customer deposits and construction advances,
unperformed service obligations, Easement relocation obligations, and
engineering and construction required to complete scheduled construction,
construction work in progress, and other capital expenditure projects, in each
case relating to the Business and outstanding on or arising after the Closing
Date;
 
 
(iii)  the Assumed Environmental Liabilities;
 
 
(iv)  Taxes for periods after the Closing Date to the extent Buyer or any
Subsidiary is legally obligated to pay such Taxes in accordance with Article XI;
 
 
(v)  Proceedings based on conduct, actions, inaction, facts, circumstances or
conditions arising or occurring on or after the Closing Date, Proceedings
described in Schedule 2.2, Proceedings arising from or related to any other
Assumed Liability; and
 
 
(vi)  the Assumed Indebtedness; and
 
(c)  obligations and liabilities of Buyer and its Affiliates under the Employee
Agreement.
 
The liabilities, responsibilities and obligations to be assumed by Buyer or
retained by the Subsidiaries pursuant to this Section 2.2 are hereinafter
collectively referred to as the “Assumed Liabilities.” Subject to the other
terms and conditions of this Agreement, Buyer, for itself and each of its
Affiliates (including each Subsidiary upon Closing), hereby irrevocably and
unconditionally waives and releases Seller from all Assumed Liabilities and all
liabilities or obligations relating to the Business or the Assets to the extent
arising from events or occurrences on or after the Closing Date or to the extent
otherwise relating to the period after the Closing; provided, however, that for
the avoidance of doubt, Buyer and its Affiliates shall not be deemed to have
waived, and nothing in this sentence shall be deemed or interpreted in any way
to limit, any right of indemnification that any Buyer Indemnitee may have in
respect of any such matter pursuant to Article XII. Notwithstanding anything in
this Section 2.2 to the contrary, Assumed Liabilities shall not include any
liabilities, responsibilities or obligations expressly stated to be Retained
Liabilities pursuant to Section 2.3.
 

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Section 2.3  Retained Liabilities. 
 
Buyer shall not assume, and Seller shall retain and pay, perform and discharge
when due, all of the liabilities and obligations, of every kind and nature,
relating to or arising from the following (collectively, the “Retained
Liabilities”):
 
(a)  all obligations of Seller or any Subsidiary with respect to any
indebtedness for money borrowed by Seller or any Subsidiary (including items due
to Seller’s Affiliates), other than the Assumed Indebtedness, and payment
obligations arising on or after the Closing Date relating to the Business under
any equipment or vehicle lease or under any line extension Contracts or similar
construction arrangements, it being understood and agreed that such leases,
Contracts and similar arrangements do not create indebtedness for money
borrowed;
 
(b)  Taxes for periods on or prior to the Closing Date to the extent Seller or
any Subsidiary is legally obligated to pay such Taxes in accordance with Article
XI;
 
(c)  Excluded Assets and all liabilities or obligations of Seller and its
Affiliates related to their businesses other than the Business, in each case
whether arising before, on or after the Closing Date;
 
(d)  the Retained Environmental Liabilities;
 
(e)  Proceedings involving Seller, any Subsidiary, any of the Assets or the
Business based on conduct (including Seller’s or any Subsidiary's performance or
failure to perform under any Contract included among the Assets), action,
inaction, facts, circumstances or conditions arising or occurring before the
Closing Date (whether or not such Proceeding existed before the Closing Date),
but expressly excluding any such liabilities or obligations for Proceedings
relating to Assumed Liabilities (including Proceedings described in
Section 2.2(b)(v));
 
(f)  the Retained Contract Liabilities; and
 
(g)  obligations and liabilities of Seller and its Affiliates under the Employee
Agreement.
 
Seller, for itself and each of its Affiliates, hereby irrevocably and
unconditionally waives and releases Buyer and each of its Affiliates from all
Retained Liabilities.
 
Section 2.4  Condition on Assignment or Assumption of Contracts and Rights. 
 
Anything in this Agreement to the contrary notwithstanding, this Agreement shall
not constitute an agreement to assign or assume any Contract or any claim or
right or any benefit arising thereunder or resulting therefrom if an attempted
assignment or assumption thereof, without the Consent of a third party thereto,
would constitute a breach thereof. Any transfer or assignment to Buyer by Seller
or any of its Affiliates of any property or property rights or any

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Contract that requires the Consent of any third party shall be made subject to
such Consent being obtained. If such Consent is not obtained, or if an attempted
assignment thereof would be ineffective or would affect the rights of Seller or
its Affiliate thereunder such that Buyer would not in fact receive all such
rights, Seller will cooperate with Buyer in any arrangement that does not
constitute a breach of such Contract, including an operating or other services
agreement if reasonably required by Buyer, reasonably designed to provide for
Buyer the benefits under any such Contract or rights including enforcement for
the benefit of Buyer of any and all rights of Seller or its Affiliates against a
third party or Governmental Body thereto arising out of the breach or
cancellation by such third party or Governmental Body or otherwise. To the
extent that Buyer does receive all of the benefits of any such Contract or
rights pursuant to the preceding sentence, Buyer shall accept, and shall
indemnify Seller from and against, the burdens (including the out-of-pocket
costs and expenses incurred by Seller in performing such arrangement) and
perform the obligations under such Contract as subcontractor of Seller to the
extent of the benefit received, and to the extent such burdens and obligations
would have constituted an Assumed Liability if such Contract had been
transferred to Buyer at the Closing. Seller shall and shall cause its Affiliates
to exercise or exploit their respective rights and options under all such
Contracts referred to in this Section 2.4 only as reasonably directed by Buyer.
Furthermore, if the other party(ies) to such a Contract subsequently Consent to
the assignment of such Contract to Buyer, Buyer shall thereupon agree to assume
and perform all liabilities and the obligations arising thereunder after the
date of such Consent, at which time such Contract shall be deemed an Asset,
without the payment of further consideration, and the obligations so assumed
thereunder shall be deemed Assumed Liabilities.

 
Section 2.5  Settlement of Intercompany Accounts. 
 
At or prior to the Closing, Seller shall cause all intercompany payables,
receivables and loans between New England Gas Company or any of the Subsidiaries
relating to the Business, on the one hand, and Seller and its Affiliates (other
than New England Gas Company and the Subsidiaries), on the other hand, to be
settled or cancelled.
 
 
ARTICLE III  
 
 
PURCHASE PRICE
 
Section 3.1  Purchase Price. 
 
Subject to the terms and conditions of this Agreement, the aggregate purchase
price (the “Purchase Price”) for the Assets owned directly by Seller and for the
Stock shall be an amount in cash equal to FIVE HUNDRED SEVENTY-FIVE MILLION
DOLLARS ($575,000,000) less the aggregate outstanding principal amount of, and
accrued and unpaid interest on, the Assumed Indebtedness as of the Closing Date
(the “Estimated Purchase Price”), and as adjusted in accordance with Section 3.2
(as so adjusted, the “Final Purchase Price”), plus the assumption by Buyer at
Closing of the Assumed Liabilities (including the Assumed Indebtedness).
 
Section 3.2  Adjustment to Estimated Purchase Price.
 

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(a)  Within 90 days following the Closing Date, Buyer shall prepare and deliver
to Seller a statement (the “Closing Statement”), utilizing the same accounting
methods, policies, practices, procedures and adjustments as were used in the
preparation of the Base Statement as described on Schedule 1.1(a) (and otherwise
in accordance with GAAP, with such exceptions to GAAP as indicated on
Schedule 1.1(a)) and shall set forth in reasonable detail the amount of Working
Capital of the Business as of 11:59 p.m. on the Closing Date (as well as the
adjustments contemplated in Section 6.8), and a calculation of the adjustment to
the Estimated Purchase Price that is payable based upon the difference between
the Working Capital Target and the Working Capital in the Closing Statement.
Seller agrees, at no cost to Buyer, to give Buyer and its authorized
representatives reasonable access to such employees, officers and other
facilities and such books and records of Seller and its Affiliates as are
reasonably necessary to allow Buyer and its authorized representatives to
prepare the Closing Statement. The Closing Statement shall be prepared in
accordance with Schedule 1.1(a). The Base Statement was prepared using the same
accounting methods, policies, practices, procedures and adjustments as were used
in the preparation of the Financial Statements and otherwise in accordance with
GAAP (and with such exceptions to GAAP as indicated on Schedule 1.1(a)).
 
(b)  Following its receipt from Buyer of the Closing Statement, Seller shall
have 15 Business Days to review the Closing Statement and to inform Buyer in
writing of any disagreement (the “Objection”) that it may have with the Closing
Statement, which objection shall specify in reasonable detail Seller's
disagreement with the Closing Statement. If Buyer does not receive the Objection
within such 15-Business Day period, the amount of Working Capital set forth on
the Closing Statement delivered pursuant to Section 3.2(a) shall be deemed to
have been accepted by Seller and shall become binding upon Seller. If Seller
does timely deliver an Objection to Buyer, Buyer shall then have 15 Business
Days from the date of receipt of such Objection (the “Review Period”) to review
and respond to the Objection. Seller and Buyer shall attempt in good faith to
resolve any disagreements with respect to the determination of the Working
Capital of the Business as of the Closing Date or the amount of the adjustment
to the Estimated Purchase Price. If they are unable to resolve all of their
disagreements with respect to the determination of Working Capital of the
Business as of the Closing Date or the amount of the adjustment to the Estimated
Purchase Price within 15 Business Days following the expiration of Buyer's
Review Period, they may refer, at the option of either Buyer or Seller, their
differences to Ernst & Young, or if Ernst & Young declines to accept such
engagement, another internationally recognized firm of independent public
accountants selected jointly by Buyer and Seller, which accountants shall
determine, only with respect to the disagreements so submitted, whether and to
what extent, if any, the amount of Working Capital of the Business as of the
Closing Date set forth in the Closing Statement requires adjustment. If Buyer
and Seller are unable to so select the independent public accountants within 15
Business Days of Ernst & Young declining to accept such engagement, either Buyer
or Seller may thereafter request that the American Arbitration Association make
such selection (as applicable, Ernst & Young, the firm selected by Buyer and
Seller or the firm selected by the American Arbitration Association is herein
referred to as the “CPA Firm”). Buyer and Seller shall direct the CPA Firm to
use its reasonable best efforts to render its determination within 30 days after
the issue is first submitted to the CPA Firm. The CPA Firm’s determination shall
be conclusive and binding upon Buyer and Seller. The fees and disbursements of
the CPA Firm shall be shared equally by Buyer and
 

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Seller. Buyer and Seller shall make readily available to the CPA Firm all
relevant books and records relating to the Closing Statement and all other items
reasonably requested by the CPA Firm. The Closing Statement as agreed to by
Buyer and Seller or as determined by the CPA Firm shall be referred to as the
“Final Closing Statement.”
 
(c)  In the event of a positive difference between Working Capital on the Final
Closing Statement from the Working Capital Target, Buyer shall pay to Seller in
cash the amount of such difference, plus the Settlement Interest thereon. In the
event of a negative difference between the Working Capital Target from the
Working Capital on the Final Closing Statement, Seller shall pay to Buyer in
cash the amount of such difference, plus the Settlement Interest thereon. All
amounts payable under this Section 3.2(c) shall be paid within five Business
Days of the determination of the Final Closing Statement by wire transfer of
immediately available funds to a bank account in the United States of America
designated in writing by the recipient not less than one Business Day before
such payment.
 
 
ARTICLE IV  
 
 
REPRESENTATIONS AND WARRANTIES OF BUYER
 
Section 4.1  Organization, Existence and Qualification. 
 
Buyer is a corporation duly incorporated, validly existing, and in good standing
under the laws of its state of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, to perform its
obligations under all Contracts to which it is a party, and to execute and
deliver this Agreement and the Related Documents to which Buyer is a party.
Buyer is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state in which the failure to be so qualified or
in good standing would materially adversely affect the business or properties of
Buyer, taken as a whole, or Buyer’s ability to consummate the transactions
contemplated hereby.
 
Section 4.2  Authority Relative to this Agreement and Binding Effect. 
 
The execution, delivery and performance by Buyer of this Agreement and the
Related Documents and the consummation of the transactions contemplated thereby
have been duly authorized by all necessary corporate action. Neither the
execution, delivery and performance of this Agreement and the Related Documents
by Buyer nor the consummation by Buyer of the transactions contemplated thereby
will (a) result in any conflict with or breach or violation of or default under
the Organizational Documents of Buyer, (b) result in a violation or breach of
any term or provision of or a loss of any right or benefit under, constitute a
default or accelerate the performance required under, result in the termination
of or a right of termination, cancellation or amendment, or result in the
creation of any Encumbrance upon any of the respective properties or assets of
Buyer under any material Contract to which Buyer is a party or by which its
assets are bound, whether with or without notice or the passage of time or both,
or (c) a violation of any Order of any Governmental Body. This Agreement
constitutes, and the Related Documents to be executed by Buyer when executed and
delivered will constitute, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as such
enforceability may be limited by (i) bankruptcy or similar laws from time to
time in effect
 

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affecting the enforcement of creditors’ rights generally or (ii) the
availability of equitable remedies generally.
 
Section 4.3  Governmental and Other Required Consents. 
 
Except for those Consents described in Schedule 4.3, no Consent of any
Governmental Body or third party is required to be obtained by Buyer in
connection with the execution and delivery by Buyer of this Agreement or the
Related Documents or the consummation by Buyer of the transactions contemplated
by this Agreement or the Related Documents. Buyer has no knowledge of any facts
or circumstances relating to Buyer or its Affiliates that reasonably would be
likely to preclude or prolong either (i) the receipt of such required consents
or (ii) consummation of the transactions contemplated by this Agreement in
accordance with its terms.
 
Section 4.4  Availability of Funds. 
 
Buyer will have available on the Closing Date sufficient funds to enable it to
consummate the transactions contemplated by this Agreement.
 
Section 4.5  Filings. 
 
No statement furnished by Buyer for inclusion in any filing with any
Governmental Body in connection with obtaining such Governmental Body’s Consent
for the consummation of the transactions contemplated by this Agreement will
contain, as of the date such information is so provided, any untrue statement of
a material fact or will omit to state, as of the date such information is so
provided, any material fact that is necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
 
Section 4.6  Brokers. 
 
Except for Rothschild, Inc., no broker or finder has acted for or on behalf of
Buyer or any Affiliate of Buyer in connection with this Agreement or the
transactions contemplated by this Agreement. No broker or finder is entitled to
any brokerage or finder’s fee, or to any commission, or to any other
compensation based in any way on agreements, arrangements or understandings made
by or on behalf of Buyer or any Affiliate of Buyer for which Seller or any
Affiliate of Seller has or will have any liability or obligation (contingent or
otherwise).
 
Section 4.7  Litigation. 
 
There are no pending or, to the knowledge of Buyer, threatened Proceedings by
any Person against Buyer that would reasonably be expected to have a material
adverse effect on the ability of Buyer to perform or comply with its obligations
under this Agreement and the Related Documents to which Buyer will be a party or
the consummation of the transfer of the Assets and Stock to Buyer and the
assumption of the Assumed Liabilities by Buyer.
 
Section 4.8  Independent Investigation. 
 

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Buyer is knowledgeable about the businesses engaged in by Seller through New
England Gas Company and the Subsidiaries and of the usual and customary
practices of companies engaged in businesses similar to the Business and has had
access to the Assets, the officers and employees of Seller, and the books,
records and files of Seller relating to the Business and the Assets. In making
the decision to enter into this Agreement and to consummate the transactions
contemplated hereby, Buyer has relied solely on the basis of its own independent
due diligence investigation of the Business and upon the representations and
warranties made in Article V.
 
Section 4.9  Investment Intent; Investment Experience; Restricted Securities. 
 
Buyer is acquiring the Stock for its own account for investment and not with a
view to, or for sale or other disposition in connection with, any distribution
of all or any part thereof in violation of federal or state securities law. In
acquiring the Stock, Buyer is not offering or selling, and will not offer or
sell, for Seller in connection with any distribution of the Stock, and Buyer
does not have a participation and will not participate in any such undertaking
or in any underwriting of such an undertaking except in compliance with
applicable federal and state securities laws. Buyer acknowledges that it is able
to fend for itself, can bear the economic risk of its investment in the Stock,
and has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of an investment in the Stock.
Buyer is an “accredited investor” as such term is defined in Regulation D under
the Securities Act. Buyer understands that the Stock has not been registered
pursuant to the Securities Act or any applicable state securities laws, that the
Stock will be characterized as “restricted securities” under federal securities
laws and that under such laws and applicable regulations the Stock cannot be
sold or otherwise disposed of without registration under the Securities Act or
an exemption therefrom.
 
Section 4.10  PUHCA. 
 
Buyer is a “holding company” under the Public Utility Holding Company Act of
2005 (“PUHCA 2005”). The execution and delivery of this Agreement by Buyer do
not and will not violate any provision of PUHCA 2005 or any rules or regulations
thereunder pertaining to Buyer.
 
 
ARTICLE V  
 
 
REPRESENTATIONS AND WARRANTIES OF SELLER
 
Section 5.1  Organization, Existence and Qualification. 
 
Seller and each Subsidiary is a corporation duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation, with full corporate power and authority to conduct the portion of
the Business conducted by it as it is now being conducted, to own or use its
portion of the Assets and to perform its obligations under all Contracts to
which it is a party. Seller has full corporate power and authority to execute
and deliver this Agreement and the Related Documents to which Seller is a party.
Seller and each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing under the laws of the State of Rhode Island
and each other state in which the failure to be so qualified
 

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or in good standing, individually or in the aggregate, would be reasonably
likely to have a Material Adverse Effect.
 
Section 5.2  Authority Relative to this Agreement and Binding Effect. 
 
The execution, delivery and performance by Seller of this Agreement, the Related
Documents and the consummation of the transactions contemplated thereby have
been duly authorized by all requisite corporate action. Except as set forth in
Schedule 5.2, neither the execution, delivery and performance of this Agreement
and the Related Documents by Seller, nor the consummation of the transactions
contemplated thereby, will (a) result in any conflict with or breach or
violation of or default under the Organizational Documents of Seller or any
Subsidiary, (b) result in a violation or breach of any term or provision of or a
loss of any right or benefit under, constitute a default or accelerate the
performance required under, result in the termination of or a right of
termination, cancellation or amendment, or result in the creation of any
Encumbrance upon any of the respective properties or assets of Seller or any of
its Affiliates (including the Subsidiaries) under any Contract to which Seller
or any of its Affiliates (including the Subsidiaries) is a party or by which any
of their respective assets are bound, whether with or without notice or the
passage of time or both, or (c) a violation of any Order of any Governmental
Body, except for such exceptions to the foregoing clause (b) that, individually
or in the aggregate, would not be reasonably likely to have a Material Adverse
Effect or that will be cured, waived or otherwise remedied on or prior to the
Closing Date. This Agreement constitutes, and the Related Documents to be
executed by Seller when executed and delivered will constitute, valid and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as enforceability may be limited by (i)
bankruptcy or similar laws from time to time in effect affecting the enforcement
of creditors’ rights generally or (ii) the availability of equitable remedies
generally.
 
Section 5.3  Governmental and Other Required Consents. 
 
Except as set forth in Schedule 5.3, no Consent of any Governmental Body or
third party is required to be obtained by Seller or any Subsidiary in connection
with the execution and delivery by Seller of this Agreement or the Related
Documents or the consummation of the transactions contemplated by this Agreement
or the Related Documents, other than any Consent the failure of which to be
obtained would not be reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect. Seller has no knowledge of any facts or
circumstances relating to Seller, any Subsidiary or their Affiliates that
reasonably would be likely to preclude or prolong either (i) the receipt of such
required consents or (ii) consummation of the transactions contemplated by this
Agreement in accordance with its terms.
 
Section 5.4  Capitalization of the Subsidiaries; Title to Stock. 
 
(a)  Seller owns all of the issued and outstanding shares of the capital stock
of Newport America Corporation and Valley Appliance and Merchandising Company;
Newport America Corporation owns all of the issued and outstanding shares of the
capital stock of each of Patience Realty Corp. and Prudence Corporation, in each
case free and clear of any Encumbrances, other than transfer restrictions
imposed on equity securities by federal securities laws, and all of such shares
are duly authorized and validly issued and are fully paid, non-
 

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assessable and free of preemptive rights. None of the Subsidiaries has, or is
bound by, any outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the purchase or issuance of any
security of any such Subsidiary, including any securities representing the right
to purchase or otherwise receive any shares of capital stock or any other equity
security of any such Subsidiary. None of the Subsidiaries may be required to
acquire by any means, directly or indirectly, any capital stock, voting rights,
equity interests or investments in another Person.
 
(b)  Except as set forth in Section 5.4(a), none of the Subsidiaries has any
direct or indirect interest in any other Person.
 
Section 5.5  Title to Assets; Encumbrances. 
 
(a)  Seller or the appropriate Subsidiary has good and indefeasible title to the
Assets reflected in the Financial Statements except those that in the aggregate
are not material to the Business and those disposed of since the date of the
Financial Statements in the ordinary course of business or otherwise disposed of
in accordance with this Agreement. None of the Assets are subject to any
Encumbrance except (i) Encumbrances described in Schedule 5.5(a) and
(ii) Permitted Encumbrances.
 
(b)  Except as set forth in Schedule 5.5(b), Seller or the appropriate
Subsidiary owns or possesses all Easements necessary to conduct the Business as
now being conducted without any known conflict with the rights of others, in
each case except to the extent that the failure to own or possess such Easements
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.
 
(c)  Except in cases that individually or in the aggregate are not reasonably
likely to have a Material Adverse Effect, (x) Seller or the appropriate
Subsidiary enjoys peaceful and undisturbed possession under all material leases
of Real Property, and (y) all such leases are valid and subsisting and in full
force and effect.
 
Section 5.6  Financial Statements.
 
(a)  Schedule 5.6 sets forth the unaudited combined statement of assets and
liabilities of the Business as of September 30, 2005 (the “Balance Sheet”) and
the unaudited combined statement of profit of the Business for the nine-month
period ended September 30, 2005 (collectively, the “Financial
Statements”). Except as set forth in Schedule 5.6, the Financial Statements have
been prepared on a pre-tax basis consistent with Seller’s consolidated audited
financial statements as of, and for its fiscal year ended, December 31, 2004,
which Seller financial statements were prepared, in all material respects, in
accordance with GAAP. Except as set forth in Schedule 5.6, the Balance Sheet
presents fairly in all material respects the combined financial condition of the
Business as of its date and the statements of profit included in the Financial
Statements present fairly in all material respects the combined results of
operations of the Business for the period covered thereby. The books and records
of Seller and the Subsidiaries from which the Financial Statements were derived
were complete and accurate in all material respects at the time of such
preparation.
 

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(b)  Seller and its Affiliates (including the Subsidiaries) maintain a system of
internal accounting controls with respect to the Business sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management’s general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
 
(c)  Seller has established, maintains and evaluates controls and procedures
with respect to the Business that are designed to ensure that material
information relating to the Business is made known to Seller’s Chief Executive
Officer and its Chief Financial Officer by others in the Business, and such
controls and procedures are effective to perform the functions for which they
were established.
 
Section 5.7  Compliance with Legal Requirements; Governmental Permits. 
 
Except as relates to tax matters (which are provided for in Section 5.9),
employee benefit matters (which are provided for in Section 5.13) or
environmental matters (which are provided for in Section 5.15) and except as set
forth in Schedule 5.7, (a) neither Seller nor any of its Affiliates (including
any Subsidiary) is or has been in violation of any Legal Requirement or Order
that is applicable to it that is material to the conduct or operation of the
Business, or to the ownership or use of any of the Assets, in either case taken
as a whole; and (b) Seller or the appropriate Subsidiary possesses all Permits
from Governmental Bodies required by any applicable Legal Requirement or Order
material to the operation of the Business substantially in the manner in which
it is currently being conducted by Seller and its Affiliates (including the
Subsidiaries), taken as a whole.
 
Section 5.8  Legal Proceedings; Outstanding Orders. 
 
Except as set forth in Schedule 5.8, there is no pending or Threatened
Proceeding (a) that has been commenced against Seller or any of its Affiliates
(including any Subsidiary) that would be reasonably likely to have an adverse
financial effect on the Business of more than $400,000, or otherwise would be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect or (b) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the transactions
contemplated hereby. Except as disclosed in Schedule 5.8, there are no
outstanding Orders against Seller or its Affiliates (including any Subsidiary)
that relate to or arise out of the conduct of the Business or the ownership,
condition or operation of the Business or the Assets (other than any Order
relating to rates, tariffs and similar matters arising in the ordinary course of
business) which individually or in the aggregate would (x) have an adverse
financial effect on the Business of more than $400,000 or (y) otherwise be
reasonably likely individually or in the aggregate to have a Material Adverse
Effect.
 
Section 5.9  Taxes. 
 

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Seller or the appropriate Subsidiary has filed all United States federal, state,
local and foreign Tax Returns required to be filed by Seller or such Subsidiary
with respect to the Assets, Subsidiaries, or assets of any Subsidiary or
requests for extensions to file such Tax Returns have been timely filed, and
Seller or such Subsidiary has timely paid and discharged or made adequate
provision for all Taxes (other than Retained Liabilities) except where the
failure to so file, pay, discharge or make adequate provision for are not,
individually or in the aggregate, reasonably likely to have a material impact on
the Business. All such Tax Returns are true, correct and complete in all
material respects. There are no pending audits, other examinations, or
Threatened Proceedings relating to any Tax matters of the Subsidiaries or
relating to the Business except as set forth in Schedule 5.9. There are no Tax
liens on the Assets or the assets of any Subsidiary. As of the date of this
Agreement, neither Seller (with respect to the Business) nor any Subsidiary has
granted any waiver of any statute of limitations, or any extension of a period
for the assessment of, any Tax except as set forth in Schedule 5.9. As of the
Closing Date, none of the Subsidiaries nor the Seller (but only to the extent
secured by the Business or the Assets) will be a party to, be bound by or have
any obligation under any Tax sharing agreement, Tax indemnity or similar
agreement, understanding or arrangement pursuant to which any of the
Subsidiaries or Seller has assumed an obligation to satisfy any Tax obligations
of another person or entity. Up to and including the Closing Date, none of the
Subsidiaries has carried on its business and other activities in such a way that
would result in the recognition by any Subsidiary of liabilities for Taxes after
the Closing Date as result of such activities (for example, none of the
Subsidiaries has engaged in a IRC Section 355 transaction nor has engaged in any
activity or accounting practice that is a “reportable transaction” as defined in
Treas. Reg. Section 1.6011-4). Except for liability for Taxes arising as part of
an affiliated, consolidated or combined group with Southern Union Company and
its Affiliates under Treasury Regulation Section 1.1502-6 or any similar
provision under state, local or foreign law, none of the Subsidiaries has any
liability for the Taxes of any person as a transferee, or successor or otherwise
(including any liability under Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law). The Subsidiaries have
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, member or other third party. None of the Assets or assets of the
Subsidiaries are (a) required, pursuant to section 168(g) of the IRC, to be
depreciated under the “alternative depreciation system” within the meaning of
section 168(g)(2) of the IRC, (b) subject to the provisions of section 168(f) of
the IRC, or (c) subject to a tax benefit transfer lease subject to the
provisions of former section 168(f)(8) of the IRC. The only representations and
warranties given in respect of tax matters are those contained in this Section
5.9 and none of the other representations and warranties set forth in this
Agreement shall be deemed to constitute, directly or indirectly, a
representation or warranty in respect of tax matters.
 
Section 5.10  Intellectual Property. 
 
Except as set forth on Schedule 5.10, Seller and each Subsidiary possesses or
has adequate rights to use all trademarks, trade names, patents, service marks,
brand marks, brand names, computer programs, databases, industrial designs and
copyrights necessary for the operation of the Business in the manner in which it
is currently being conducted by Seller or such Subsidiary, except for the
failure to possess or have adequate rights to use such properties
 

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that, individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect. Except as set forth on Schedule 5.10, Seller has no
Knowledge of (a) any infringement or claimed infringement by Seller or any
Subsidiary of any patent, trademark, service mark or copyright of others or (b)
any infringement of any patent, trademark, service mark or copyright owned by or
under license to Seller or any Subsidiary except for any such infringements of
the type described in clause (a) or (b) that are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect.
 
Section 5.11  Personal Property. 
 
Except for such exceptions as are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect, the machinery, equipment
and vehicles included among the Assets are in normal operating condition and in
a state of reasonable maintenance and repair and are suitable in all material
respects for the purposes for which they are now being used in the conduct of
the Business.
 
Section 5.12  Material Contracts. 
 
Schedule 5.12 contains a complete list of all Material Contracts. Seller has
made available to Buyer a true and correct copy of each Material Contract,
including all amendments and modifications thereof. Except as described in
Schedule 5.12, all of the Material Contracts are in full force and effect
(subject to the expiration of the stated term of any such Material Contract in
accordance with its terms) and there are no defaults under any such Contracts by
Seller or any of its Affiliates (including the Subsidiaries) or, to Seller's
Knowledge, the counter parties to such Contracts, except for any failure to be
in full force and effect and for any default that, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect.
 
Section 5.13  Employee Benefit Matters. 
 
(a)   Schedule 5.13(a) contains a true and complete list of each deferred
compensation and each incentive compensation, stock purchase, stock option and
other equity compensation plan, program, agreement or arrangement; each
severance or termination pay, medical, surgical, hospitalization, life insurance
and other “welfare” plan, fund or program (within the meaning of section 3(1) of
ERISA); each profit-sharing, stock bonus or other “pension” plan, fund or
program (within the meaning of section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to by the Seller or by any trade
or business, whether or not incorporated (an “ERISA Affiliate”), that together
with the Seller would be deemed a “single employer” within the meaning of
section 4001(b) of ERISA, or to which the Seller or an ERISA Affiliate is party
for the benefit of any Employee or Former Employee of the Seller (the “Employee
Plans”).  Seller’s Pension Plans and Seller’s 401(k) Plan are the only Employee
Plans that are intended to be qualified under Section 401(a) of the IRC.  Each
employee benefit plan (within the meaning of Section 3(3) of ERISA) that is
sponsored, maintained or contributed to or required to be contributed to by
Seller or an ERISA Affiliate of Seller and that is subject to
 

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Section 302 or Title IV of ERISA or section 412 of the IRC is hereinafter
referred to as a “Title IV Plan.” 
 
(b)  With respect to each Employee Plan, Seller has heretofore delivered to
Buyer true and complete copies of the Employee Plan and any amendments thereto
(or if the Employee Plan is not a written Employee Plan, a description thereof),
any related trust or other funding vehicle, any reports or summaries required
under ERISA or the IRC and the most recent determination letter received from
the Internal Revenue Service with respect to each Employee Plan intended to
qualify under section 401 of the IRC.
 
(c)  No liability under Title IV or section 302 of ERISA has been incurred by
the Seller or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to the Seller or any ERISA
Affiliate of incurring any such liability, other than liability for premiums due
the Pension Benefit Guaranty Corporation (“PBGC”) (which premiums have been paid
when due).  Insofar as the representation made in this Section 5.13(c) applies
to sections 4064, 4069 or 4204 of Title IV of ERISA, it is made with respect to
any employee benefit plan, program, agreement or arrangement subject to Title IV
of ERISA to which the Seller or any ERISA Affiliate made, or was required to
make, contributions during the five (5)-year period ending on the last day of
the most recent plan year ended prior to the Closing Date.
 
(d)  The PBGC has not instituted proceedings to terminate any Title IV Plan and
no condition exists that presents a material risk that such proceedings will be
instituted.
 
(e)  No Title IV Plan or any trust established thereunder has incurred any
“accumulated funding deficiency” (as defined in section 302 of ERISA and section
412 of the IRC), whether or not waived, as of the last day of the most recent
fiscal year of each Title IV Plan ended prior to the Closing Date.  All
contributions required to be made with respect to any Employee Plan on or prior
to the Closing Date have been timely made.
 
(f)  No Title IV Plan is a “multiemployer pension plan,” as defined in section
3(37) of ERISA, nor is any Title IV Plan a plan described in section 4063(a) of
ERISA.  Neither the Seller nor any ERISA Affiliate has made or suffered a
“complete withdrawal” or a “partial withdrawal,” as such terms are respectively
defined in sections 4203 and 4205 of ERISA (or any liability resulting therefrom
has been satisfied in full).
 
(g)  Neither the Seller or any Subsidiary, any Employee Plan, any trust created
thereunder, nor any trustee or administrator thereof has engaged in a
transaction in connection with which the Seller or any Subsidiary, any Employee
Plan, any such trust, or any trustee or administrator thereof, or any party
dealing with any Employee Plan or any such trust could be subject to either a
civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax
imposed pursuant to section 4975 or 4976 of the IRC.
 
(h)  Each Employee Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the IRC.
 

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(i)  Each Employee Plan intended to be “qualified” within the meaning of section
401(a) of the IRC is so qualified and the trusts maintained thereunder are
exempt from taxation under section 501(a) of the IRC. Each Employee Plan
intended to satisfy the requirements of Section 501(c)(9) has satisfied such
requirements.
 
(j)  Except as disclosed in Schedule 5.13(j), no Employee Plan provides medical,
surgical, hospitalization, death or similar benefits (whether or not insured)
for Employees or Former Employees of the Seller or any Subsidiary for periods
extending beyond their retirement or other termination of service, other than
(i) coverage mandated by applicable law, (ii) death benefits under any “pension
plan,” or (iii) benefits the full cost of which is borne by the Employee or
Former Employee (or his beneficiary).
 
(k)  No amounts payable under the Employee Plans will fail to be deductible for
federal income tax purposes by virtue of section 280G of the IRC.
 
(l)  Except as disclosed in Schedule 5.13(l), the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another event, (i) entitle any Employee, Former Employee or
officer of the Seller or any Subsidiary to severance pay or any other payment,
except as expressly provided in this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
Employee, Former Employee or officer.
 
(m)  There are no pending, threatened or anticipated claims by or on behalf of
any Employee Plan, by any employee or beneficiary covered under any such
Employee Plan, or otherwise involving any such Employee Plan (other than routine
claims for benefits).
 
(n)  The Subsidiaries do not employ any Employees or any other individuals and
do not currently maintain any Employee Plan.
 
(o)  The only representations and warranties given in respect of employee
benefit matters are those contained in this Section 5.13 and Section 5.14 and
none of the other representations and warranties set forth in this Agreement
shall be deemed to constitute, directly or indirectly, a representation or
warranty in respect of employee benefit matters.
 
Section 5.14  Employee and Labor Matters.
 
(a)  Schedule 5.14(a) lists each collective bargaining, union or other employee
association agreement to which Seller or any of the Subsidiaries is a party or
bound with respect to the Business.
 
(b)  Except as set forth on Schedule 5.14(b) with respect to the Business:
 
 
(i)  To Seller's Knowledge, (A) no labor union or labor organization has made a
pending demand for recognition or certification, and (B) there are no
 

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representation or certification proceedings or petitions seeking a
representation proceeding presently pending or Threatened to be brought or filed
with the National Labor Relations Board or any other Governmental Body.
 
 
(ii)  From January 1, 2003 to the date of this Agreement, there has been no
actual or, to Seller's Knowledge, Threatened, strikes, lockouts, slowdowns or
work stoppages against or affecting the Business.
 
(c)  Except as set forth on Schedule 5.14(c), to Seller's Knowledge, there are
no (i) unfair labor practice charges or complaints presently pending or
Threatened before the National Labor Relations Board or any other Governmental
Body against Seller or the Subsidiaries; (ii) complaints, grievances or
arbitrations arising out of any collective bargaining agreement, or any charge
or complaint with respect to or relating to Seller or any Subsidiary presently
pending before the Equal Employment Opportunity Commission or any other
Governmental Body responsible for the prevention of unlawful employment
practices; or (iii) presently pending or Threatened Proceedings against Seller
or any Subsidiary by or on behalf of any present or former employee, any
applicant for employment or classes of the foregoing alleging breach of any
express or implied Contract, any applicable Legal Requirements governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship; other than,
with respect to (i), (ii) or (iii), charges, complaints or Proceedings which,
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect.
 
(d)  Neither Seller nor any Subsidiary is delinquent in any material payments to
any present or former employees or consultants for any services or amounts
required to be reimbursed or otherwise paid.
 
(e)  To the Knowledge of Seller, no employee is in any respect in violation of
any employment agreement, nondisclosure agreement, common law nondisclosure
obligation, fiduciary duty, noncompetition agreement, restrictive covenant or
other obligation to a former employer relating to the right of such employee to
be employed by Seller or any Subsidiary or the employee's knowledge or use of
trade secrets or proprietary information.
 
Section 5.15  Environmental Matters.
 
(a)  Except as set forth in Schedule 5.15:
 
 
(i)  Compliance. Seller and each Subsidiary are in compliance with all
Environmental Laws applicable to the Assets or the Business except where the
failure to be in compliance with such Environmental Laws would not, individually
or in the aggregate, be reasonably likely to have an adverse financial effect on
the Business of more than $400,000. Seller and each Subsidiary have been in
compliance since January 1, 2001 with all Environmental Laws applicable to the
Assets or the Business except where the failure to be in compliance with such
Environmental Laws would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Neither Seller nor any of the
Subsidiaries has received any written communication that alleges that either
Seller or any Subsidiary is not in compliance with applicable Environmental Laws
related to the Assets or the
 

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Business except for any such written communications relating to matters that
would not, individually or in the aggregate, have an adverse financial effect on
the Business of more than $400,000. To the Knowledge of Seller with respect to
the Assets or the Business, neither Seller nor any Subsidiary has used any waste
disposal site, or otherwise disposed of, or transported, or arranged for the
transportation of, any Hazardous Materials to any location in violation in any
material respect of any Environmental Law or that is likely to result in an
Environmental Liability of more than $400,000.
 
 
(ii)  Environmental Permits. Seller and each Subsidiary have obtained or applied
in a timely manner, for all environmental, health and safety Permits
(collectively, the “Environmental Permits”) necessary for the construction of
their facilities or the conduct of their present operations related to the
Assets or the Business, and all such Environmental Permits are in good standing
or, where applicable, a renewal application has been timely filed and is pending
agency approval, and Seller and each Subsidiary is in compliance with all terms
and conditions of its respective Environmental Permits related to the Assets or
the Business, in each case except where the failure to obtain or apply or be in
compliance with such Environmental Permits or the requirement to make any
expenditure in connection with such Environmental Permits would not,
individually or in the aggregate, have an adverse financial effect on the
Business of more than $400,000.
 
 
(iii)  Environmental Claims. There is no Environmental Claim related to the
Assets or the Business pending (x) against Seller or any of its Affiliates
(including any Subsidiary), (y) to the Knowledge of Seller, against any person
or entity whose liability for any Environmental Claim Seller or any of its
Affiliates (including any Subsidiary) has retained or assumed either
contractually or by operation of law, or (z) against any real or personal
property or operations that Seller or any of its Affiliates (including any
Subsidiary) owns, leases or manages, in whole or in part, or, to the Knowledge
of Seller, against any real or personal property or operations that Seller or
any of its Affiliates (including any Subsidiary) formerly owned, leased or
managed, in whole or in part, which, in the cases of (x), (y) or (z) would
reasonably be expected to have, in the aggregate, an adverse financial effect on
the Business of more than $400,000.
 
 
(iv)  Releases. Seller has no Knowledge of any Releases of any Hazardous
Material related to the Assets or the Business and its current or former assets,
properties and operations that would reasonably be expected to form the basis of
any Environmental Claim against Seller, or any of its Affiliates (including any
Subsidiary), or against any person or entity whose liability for any
Environmental Claim Seller or any of its Affiliates (including any Subsidiary)
has retained or assumed either contractually or by operation of law, or any
requirement under any Environmental Law to investigate or remediate such Release
except for Releases of Hazardous Materials, the liability for which would not
reasonably be expected to have, in the aggregate, an adverse financial effect on
the Business of more than $400,000, or would not constitute an Assumed
Liability.
 
 
(v)  Predecessors. Seller has no Knowledge, with respect to any predecessor of
Seller or any of its Affiliates (including any Subsidiary), of any Environmental
Claim or Environmental Liability related to the Assets or the Business pending
or threatened, or of any Release of Hazardous Materials that would reasonably be
expected to form the basis of
 

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any Environmental Claim or Environmental Liability, that would reasonably be
expected to have individually or in the aggregate, an adverse financial effect
on the Business of more than $400,000.
 
 
(vi)  Disclosure. Seller has no Knowledge of any material facts related to the
Assets or the Business that Seller reasonably believes would form the basis of
an Environmental Claim or Environmental Liability that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
 
(b)  With the exception of Section 5.16 and 5.21, the only representations and
warranties given in respect of environmental matters and compliance with and
liability under Environmental Laws are those contained in this Section 5.15 and
none of the other representations and warranties shall be deemed to constitute,
directly or indirectly, a representation or warranty in respect of environmental
matters and compliance with and liability under Environmental Laws.
 
Section 5.16  Absence of Certain Changes or Events. 
 
Except (a) as set forth in Schedule 5.16, (b) for any intercompany receivables
or payables that will be paid, cancelled or offset prior to Closing as
contemplated in Section 2.5 and (c) any actions taken by Seller or any
Subsidiary that would be permitted by Section 6.1(a), since September 30, 2005,
the Business has been conducted in the ordinary course (it being acknowledged
that Seller has conducted a sales process with respect to the Business and that,
in connection therewith, several parties were permitted access to confidential
information of the Business pursuant to Sales Process Confidentiality
Agreements). Since September 30, 2005, there has not been any event or
condition, or series of events or conditions, occurring outside the normal
course of business affecting the Assets that individually or in the aggregate
either (i) has resulted in, or (ii) to Seller’s Knowledge, would be reasonably
likely to result in, a Material Adverse Effect.
 
Section 5.17  Regulatory Matters.
 
(a)  Schedule 5.17 sets forth all of the currently pending rate filings relating
to the Business heretofore made by Seller before any Governmental Body and each
other currently pending rate Proceeding of any Governmental Body relating to the
Business (other than Proceedings that also affect other Persons engaged in a
business similar to the Business such as generic or industry-wide Proceedings).
 
(b)  All currently effective material filings relating to the Business
heretofore made by Seller or any Subsidiary with any Governmental Body were made
in material compliance with Legal Requirements then applicable thereto and the
information contained therein was true and correct in all material respects as
of the respective dates of such filings.
 
(c)  Seller has certificates of public convenience from the Rhode Island
Division of Public Utilities and Carriers or is otherwise legally entitled to
provide service in all areas (a) where it currently provides service to its
customers as part of the Business or (b) as identified on its tariff.
 

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Section 5.18  Brokers. 
 
Except as set forth on Schedule 5.18, no broker or finder has acted for or on
behalf of Seller or any Affiliate of Seller in connection with this Agreement or
the transactions contemplated by this Agreement. No broker or finder is entitled
to any brokerage or finder’s fee, or to any commission, or to any other
compensation based in any way on agreements, arrangements or understandings made
by or on behalf of Seller or any Affiliate of Seller for which Buyer has or will
have any liability or obligation (contingent or otherwise).
 
Section 5.19  Disclaimer. 
 
Except as otherwise expressly set forth in this Article V, Seller expressly
disclaims any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets or properties
currently or formerly used, operated, owned, leased, controlled, possessed,
occupied or maintained by Seller or any Subsidiary, and Seller SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO SUCH ASSETS OR PROPERTIES,
OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY
DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS
AND PROPERTIES ARE BEING ACQUIRED, “AS IS, WHERE IS” ON THE CLOSING DATE, AND IN
THEIR PRESENT CONDITION, WITH ALL FAULTS AND THAT BUYER SHALL RELY ON ITS OWN
EXAMINATION AND INVESTIGATION THEREOF.
 
Section 5.20  Insurance.
 
(a)  Schedule 5.20 sets forth a true and complete list of all current policies
of property and casualty insurance, insuring the properties, assets, employees
and/or operations of the Business (collectively, the “Policies”). All premiums
payable under such Policies have been paid in a timely manner and Seller and
each Subsidiary have complied in all material respects with the terms and
conditions of all such Policies.
 
(b)  All material Policies are in full force and effect. Neither Seller nor any
of its Affiliates (including any Subsidiary) is in material default under any
provisions of the Policies, and there is no claim by Seller or any of its
Affiliates (including any Subsidiary) or any other Person pending under any of
the Policies as to which coverage has been questioned, denied or disputed by the
underwriters or issuers of such Policies.
 
Section 5.21  Absence of Undisclosed Liabilities. 
 
Except as disclosed on Schedule 5.21, neither Seller nor any of its Affiliates
(including any Subsidiary) has any indebtedness or liability, absolute or
contingent, related to the Assets or the Business of a nature required by GAAP
to be reflected in a consolidated corporate balance sheet relating solely to the
Business, except liabilities, obligations or contingencies that (a) are accrued
or reserved against in the Financial Statements or reflected in the notes
thereto, (b) were
 

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incurred or accrued in the ordinary course of business (including liens of
current taxes and assessments not in default) since September 30, 2005, or (c)
would not reasonably be expected, individually or in the aggregate, to have an
adverse financial effect on the Business of more than $1,000,000.
 
Section 5.22  Sufficiency of Assets.
 
(a)  Except as set forth on Schedule 5.22(a), the Assets include all assets,
properties and rights necessary for the operation of the Business consistent
with past practice and as currently operated.
 
(b)  Except as set forth on Schedule 5.22(b), none of the assets of Seller or
any of its Affiliates which are located outside of the State of Rhode Island
relate primarily to the Business.
 
Section 5.23  PUHCA. 
 
Seller is not a “holding company” as defined in PUHCA 2005. The execution and
delivery of this Agreement by Seller does not and will not violate any provision
of PUHCA 2005 or any rules or regulations thereunder pertaining to Seller.
 
Section 5.24  Filings. 
 
No statement furnished by Seller or its Affiliates, including the Subsidiaries,
for inclusion in any filing with any Governmental Body in connection with
obtaining such Governmental Body’s Consent for the consummation of the
transactions contemplated by this Agreement will contain, as of the date such
information is so provided, any untrue statement of a material fact or will omit
to state, as of the date such information is so provided, any material fact that
is necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
 
 
ARTICLE VI  
 
 
COVENANTS
 
Section 6.1  Covenants of Seller. 
 
Seller agrees to observe and perform the following covenants and agreements:
 
(a)  Conduct of the Business Prior to the Closing Date. With respect to the
Business, except (x) as contemplated in this Agreement or in Schedule 6.1,
(y) as required by any Legal Requirement or Order or (z) as otherwise expressly
consented to in writing by Buyer, which consent will not be unreasonably
withheld or delayed, prior to the Closing, Seller will, and will cause its
Affiliates (including each Subsidiary) to:
 
 
(i)  not make or permit any change in the general nature of the Business;
 

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(ii)  maintain the Business in the ordinary course of business consistent with
Good Utility Practices, and maintain the Assets in their present condition,
reasonable wear and tear excepted, subject to retirements in the ordinary course
of business;
 
 
(iii)  not enter into, assign, amend, renew or extend, any material transaction
or Material Contract other than in the ordinary course of business, provided
that such ordinary course exception shall not be applicable to any collective
bargaining agreement (as to which Section 6.12 shall apply);
 
 
(iv)  not (A) sell, lease (as lessor) or dispose of or otherwise transfer or
make any Contract for the sale, lease (as lessor), disposition or transfer of,
or subject to any Encumbrance (other than a Permitted Encumbrance), any Assets,
other than (m) the sale of inventory in the ordinary course of business or (n)
the sale or lease (as lessor) of Assets in excess of $100,000 in the aggregate ,
or (B) purchase or lease (as lessee), or make any Contract for the purchase or
lease (as lessee) of, any Assets, other than (x) the purchase of inventory in
the ordinary course of business, (y) pursuant to any capital expenditure
reflected in the capital expenditure budget previously delivered to Buyer, or
(z) the purchase or lease (as lessee) of Assets in excess of $100,000 in the
aggregate;
 
 
(v)  not (A) hire any new employee or (B) transfer any existing employee of
Seller or any Affiliate to any position with the Business or any of the
Subsidiaries, in each case unless such employee is a bona fide replacement for
either a presently-filled position or a vacancy in an authorized position with
the Business;
 
 
(vi)  not make any unbudgeted capital expenditure or capital expenditure
commitment in excess of $500,000 in the aggregate except in the event of service
interruption, emergency or casualty loss;
 
 
(vii)  comply in all material respects with all applicable material Legal
Requirements and Orders, including those relating to the filing of reports and
the payment of Taxes due to be paid prior to the Closing, other than those
contested in good faith for which reserves have been established in accordance
with GAAP;
 
 
(viii)  except in the ordinary course of business or in accordance with the
terms of any existing Contract which has been disclosed on Schedule 5.13(l),
Employee Plan or collective bargaining agreement, not grant any material
increase or change in total compensation or benefits (taken as a whole) to any
of the Transferred Employees or enter into any employment, severance or similar
Contract with any Person or amend any such existing Contracts to increase any
amounts payable thereunder or benefits provided thereunder;
 
 
(ix)  not terminate any Material Contract except in the case of a breach of such
Contract by the other party thereto;
 
 
(x)  not create, incur, assume, guarantee or otherwise become liable with
respect to any indebtedness for money borrowed other than intercompany debt (it
being understood and agreed that customer advances, customer deposits and
construction
 

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advances do not create indebtedness for money borrowed), except pursuant to
advances made by Seller to the Business or to any Subsidiary;
 
 
(xi)  not amend the Organizational Documents of any Subsidiary;
 
 
(xii)  not make any change in the stock ownership of any Subsidiary and not
grant, issue, sell, dispose of, pledge or otherwise encumber any interest in any
Subsidiary;
 
 
(xiii)  solely in the case of the Subsidiaries, not declare, set aside or pay
any non-cash dividend or other non-cash distribution with respect to its capital
stock;
 
 
(xiv)  to the extent exclusively relating to the Business or the Subsidiaries,
not (A) change any material financial or Tax accounting methods, policies or
practices except as required by a change in GAAP, (B) make, revoke or amend any
material Tax election, (C) file any material amended Tax Return or claim for
refund which may result in an adjustment of any item of income, gain, deduction
or loss with respect to the Business, (D) consent to extend the period of
limitations for the payment or assessment of any material Tax, (E) enter into
any closing agreement affecting any material Tax liability or refund, or (F)
settle or compromise any material Tax liability or refund; and
 
 
(xv)  not make any commitment to take any of the actions prohibited by this
Section 6.1(a).
 
(b)  Access to the Business, Assets and Records; Updating Information.
 
 
(i)  From and after the date hereof and until the Closing Date, Seller shall
permit Buyer and its Representatives to have, on reasonable notice and at
reasonable times, reasonable access to all properties, employees, offices and
books, papers and records to the extent that they reasonably relate to the
ownership, operation, obligations and liabilities of the Business, the
Subsidiaries and the Assets; provided, however, that such access shall not
unreasonably interfere with the operation of the Business; and provided,
further, that Buyer hereby agrees to defend, indemnify and hold harmless Seller
from and against all Losses arising out of or relating to Buyer’s access
provided pursuant to this Section 6.1(b)(i). Without limiting the application of
the Confidentiality Agreement, all documents or information furnished by Seller
or obtained by Buyer hereunder shall be subject to the Confidentiality
Agreement. Notwithstanding the foregoing or any provision of the Confidentiality
Agreement, Seller acknowledges and agrees that, from and after the Closing, all
information relating to the Business shall be deemed to be confidential
information of Buyer and shall not be subject to the terms of the
Confidentiality Agreement.
 
 
(ii)  Seller will notify Buyer as promptly as practicable of any (x) significant
change in the ordinary course of business for the Business, (y) material
Proceedings (Threatened or pending) involving or affecting the Business or the
transactions contemplated by this Agreement, and (z) unbudgeted capital
expenditure or commitment in excess of $100,000, individually, and shall use
reasonable efforts to keep Buyer fully informed of such events.
 

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(c)  Consents. Subject to Section 2.4, Seller will use its commercially
reasonable efforts and act diligently to obtain all necessary Consents required
to consummate the transactions contemplated hereby in a timely manner, including
any Consent required under any Legal Requirement or Contract applicable to the
Business and all Consents listed in Schedule 5.3. Seller will use its
commercially reasonable efforts and act diligently to obtain all necessary
Consents of its stockholders, if any, that may be required to consummate the
transactions contemplated hereby in a timely manner.
 
(d)  Confidentiality. From and after the Closing Date, Seller shall, and shall
cause its Affiliates and their respective officers, directors, employees, agents
and representatives (collectively, “Representatives”) to, keep confidential and
not disclose all information relating to the Business (whether in the possession
of Seller, its Affiliate or such Representative at the time of the Closing or
subsequently obtained by Seller, any Affiliate of Seller or any such
Representative from Buyer pursuant to this Agreement or any Related Document)
(“Restricted Information”), and shall not directly or indirectly use such
Restricted Information for any purpose, except as and to the extent permitted by
the terms of this Agreement or any Related Document. The obligation to keep such
Restricted Information confidential shall continue indefinitely from the Closing
Date and shall not apply to any information which (i) is in the public domain,
(ii) is published or otherwise becomes part of the public domain through no
fault of Seller, any of its Affiliates or any of their Representatives or (iii)
becomes available to Seller, any of its Affiliates or any of their
Representatives on a non-confidential basis from a source that did not acquire
such information (directly or indirectly) from Seller or Buyer on a confidential
basis. Notwithstanding the foregoing, Seller may make disclosures required by
law; provided, that Seller, to the extent practicable, shall provide Buyer with
prompt notice thereof so that Buyer may seek a protective order or other
appropriate remedy or waive compliance with the provisions of this Section
6.1(d). In the event that such protective order or other remedy is not obtained
or Buyer waives compliance with the provisions of this Section 6.1(d), Seller
shall or shall cause the Person required to disclose such Restricted Information
to furnish only that portion of the information that such Person is advised by
an opinion of Seller’s counsel is legally required, and, to the extent
practicable, Seller shall exercise its reasonable best efforts to obtain
reliable assurance that confidential treatment is accorded the Restricted
Information so furnished.
 
(e)  Non-Solicitation of Employees. Except as otherwise set forth in the
Employee Agreement, for a period of two years after the Closing Date, Seller
shall not, and shall cause its Affiliates not to, without the prior written
approval of Buyer, directly or indirectly, solicit, encourage, entice or induce
any Transferred Employee (as defined in the Employee Agreement) to terminate his
or her employment with Buyer or any of its Affiliates (including, after the
Closing, the Subsidiaries), provided, however, that such prohibition shall not
apply to any person who responds to a general solicitation.
 
(f)  Board Meeting; Duty to Recommend.
 
 
(i)  Proxy Statement. If the Seller's Stockholder Approval is required by the
Rhode Island Division of Public Utilities and Carriers, as soon as reasonably
 

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practicable following the date of this Agreement, Seller shall prepare and file
with the SEC a proxy statement in preliminary form (together with any amendments
or supplements thereto, the “Proxy Statement”) in connection with obtaining the
Seller's Stockholder Approval. Each of Seller and Buyer shall use their
respective commercially reasonable efforts to furnish the information required
to be included by the SEC in the Proxy Statement. After consultation with Buyer,
Seller shall respond promptly to any comments made by the SEC with respect to
the Proxy Statement and cause a definitive Proxy Statement to be mailed to its
stockholders as promptly as practicable following the date of this Agreement,
and the parties shall respond promptly to any comments with respect to any other
statement or schedule filed by them. No filing of, or amendment or supplement
to, the Proxy Statement or any other statement or schedule will be made by
Seller without providing Buyer a reasonable opportunity to review and comment on
the portions thereof pertaining to the transactions contemplated by this
Agreement. If at any time after the date the Proxy Statement is mailed to
Seller's stockholders and prior to the Seller Meeting any information relating
to Seller, Buyer or any of their respective affiliates, officers or directors,
should be discovered by Seller or Buyer which is required to be set forth in an
amendment or supplement to the Proxy Statement, so that the Proxy Statement will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, rule or
regulation, disseminated to the stockholders of Seller.
 
 
(ii)  Buyer Information. Buyer agrees that it will provide Seller with all
information concerning Buyer necessary or reasonably appropriate to be included
in the Proxy Statement.
 
 
(iii)  Seller's Stockholder Meeting. If the Seller's Stockholder Approval is
required by the Rhode Island Division of Public Utilities and Carriers, Seller,
acting through the board of directors of Seller, shall, in accordance with its
certificate of incorporation and bylaws and with applicable law, promptly and
duly call, give notice of, convene and hold, as soon as practicable following
the date upon which the Proxy Statement is cleared by the SEC, and in no event
later than 75 days after such date, a special meeting of its stockholders for
the sole purpose of considering and taking action upon this Agreement and the
transactions contemplated hereby (the “Seller's Meeting”); provided, however,
that in lieu of calling a special meeting, Seller shall be entitled to submit
this Agreement and the transactions contemplated hereby to a vote of its
stockholders at Seller's 2006 annual meeting of its stockholders (provided such
annual meeting is held no later than May 15, 2006), in which case references
herein to the “Seller's Meeting” shall be deemed references to Seller's 2006
annual meeting of its stockholders.
 
 
(iv)  Recommendation. Seller, acting through the board of directors of Seller,
shall (a) recommend adoption of this Agreement and the transactions contemplated
hereby and include such recommendation in the Proxy Statement, and (b) use its
commercially reasonable efforts to solicit and obtain such adoption. Neither the
board of directors of Seller nor any committee thereof shall directly or
indirectly (x) withdraw (or amend or modify in a manner adverse to Buyer), or
publicly propose to withdraw (or amend or modify
 

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in a manner adverse to Buyer), the approval, recommendation or declaration of
advisability by the board of directors of Seller of this Agreement or the
transactions contemplated hereby or (y) recommend, adopt or approve, or propose
publicly to recommend, adopt or approve, any Alternative Proposal.
 
Section 6.2  Covenants of Buyer. 
 
Buyer agrees to observe and perform the following covenants and agreements:
 
(a)  Consents. Buyer will use its commercially reasonable efforts and act
diligently to assist Seller in obtaining all necessary Consents required to
consummate the transactions contemplated hereby in a timely manner, including
any Consent required under any Legal Requirement or Contract applicable to the
Business, and all Consents listed in Schedule 5.3, and will use its commercially
reasonable efforts and act diligently to obtain all Consents described in
Section 4.3 in a timely manner.
 
(b)  Access to Information. After Closing, Buyer will, and will cause its
Representatives to, afford to Seller, including its Representatives, reasonable
access to all books, records, files and documents related to the Business in
order to permit Seller to prepare and file its Tax Returns and to prepare for
and participate in any investigation with respect thereto, to prepare for and
participate in any other investigation and defend any Proceedings relating to or
involving Seller, any Subsidiary or the Business for which Seller may be
responsible, to discharge its obligations under this Agreement and the other
Related Documents to which it is a party and for other reasonable purposes and
will afford Seller reasonable assistance in connection therewith. Buyer will
cause such records to be maintained for not less than seven years from the
Closing Date and will not dispose of such records without first offering in
writing to deliver them to Seller; provided, however, that in the event that
Buyer transfers all or a portion of the Business to any third party during such
period, Buyer may transfer to such third party all or a portion of the books,
records, files and documents related thereof, provided such third party
transferee expressly assumes in writing the obligations of Buyer under this
Section 6.2(b). In addition, on and after the Closing Date, at Seller’s request,
Buyer shall make available to Seller and its Affiliates, employees,
representatives and agents, those employees of Buyer requested by Seller in
connection with any Proceeding, including to provide testimony, to be deposed,
to act as witnesses and to assist counsel; provided, however, that (i) such
access to such employees shall not unreasonably interfere with the normal
conduct of the operations of Buyer and (ii) Seller shall reimburse Buyer for the
out-of-pocket costs reasonably incurred by Buyer in making such employees
available to Seller. Without limiting the application of Section 6.1(d), all
documents or information furnished by Buyer or obtained by Seller or its
Representatives hereunder shall be subject to Section 6.1(d).
 
(c)  Seller Guarantees and Surety Instruments. Buyer shall use its commercially
reasonable efforts to assist Seller in obtaining full and complete releases on
the guarantees, letters of credit, bonds and other surety instruments provided
by Seller in connection with the Business or for the benefit of any Subsidiary,
all of which have been listed by Seller on Schedule 6.2(c). For purposes of this
Section 6.2(c), commercially reasonable efforts shall include: (i) Buyer’s
assumption of the Contracts on the terms set forth in this Agreement; and
(ii) an obligation on the part of Buyer to provide a guaranty, letter of credit,
bond or other surety
 

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instrument at Closing to the extent required by any Contract assumed by Buyer or
retained by any Subsidiary at Closing and, in general, no later than 90 days
after the Closing Date but effective as of the Closing Date, an equivalent
surety instrument to be substituted for any surety instrument provided by Seller
to any beneficiary in connection with the Business or for the benefit of any
Subsidiary. Buyer shall indemnify, defend and hold harmless Seller and its
Affiliates for any and all Losses (in each case without deduction or set off)
incurred on account of Seller’s guarantees, letters of credit, bonds and other
surety instruments on or after the Closing Date insofar as such Losses relate to
any failure of Buyer or any Subsidiary to perform or discharge any Assumed
Liability following the Closing.
 
Section 6.3  Governmental Filings. 
 
(a)  HSR Act Filing. Buyer and Seller shall use reasonable efforts to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby within ten Business Days
following the execution of this Agreement. Buyer and Seller shall supply as
promptly as practicable any additional information or documentary material that
may be requested pursuant to the HSR Act and shall take all other actions
necessary to cause the expiration or termination of the applicable waiting
periods under the HSR Act as soon as practicable. Buyer and Seller shall comply
substantially with any additional requests for information, including requests
for production of documents and production of witnesses for interviews or
depositions, made by the Antitrust Division of the United States Department of
Justice, the United States Federal Trade Commission or the antitrust or
competition law authorities of any other jurisdiction (the “Antitrust
Authorities”) and take all other reasonable actions to obtain clearance from the
Antitrust Authorities, or if such clearance cannot be obtained, to reach an
agreement, settlement, consent providing for divestiture, a “hold separate”
agreement, contractual undertakings with third parties or any other relief with
the concerned Antitrust Authority in order to permit the consummation of the
transactions contemplated by this Agreement. Buyer shall exercise its
commercially reasonable efforts, and Seller shall cooperate fully with Buyer, to
prevent the entry in any Proceeding brought by an Antitrust Authority or any
Governmental Body of an Order that would prohibit, make unlawful or delay the
consummation of the transactions contemplated by this Agreement. Seller shall
not oppose any efforts of Buyer, including Buyer’s proffer of consent to any
Order, to complete lawfully the transactions contemplated by this Agreement, and
shall cooperate in good faith with Buyer and the Antitrust Authorities to the
same effect.  Notwithstanding the foregoing, neither party shall be required to
agree to any sale, transfer, license, separate holding, divestiture or other
disposition of, or to any prohibition of or any limitation on, the acquisition,
ownership, operation, effective control or exercise of full rights of ownership
(each, a “Divestiture”) relating (x) to the Business to the extent such
Divestiture would have a Material Adverse Effect thereon, (y) to The
Narragansett Electric Company to the extent that such Divestiture constitutes
other than an immaterial restriction on the operations thereof, or (z) to any
material business unit of such party or any subsidiary or Affiliate of such
party to the extent that such Divestiture would have a material adverse effect
thereon.  
 
(b)  Other Regulatory Filings. Buyer and Seller will, as soon as reasonably
practicable following the execution of this Agreement, but no later than twenty
Business Days thereafter with respect to the joint application to the Rhode
Island Division of Public Utilities and Carriers, prepare and file with each
Governmental Body requests for such
 

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Consents as may be necessary for the consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement. Buyer and
Seller will diligently pursue such Consents and will cooperate with each other
in seeking such Consents. To such end, the parties agree to make available the
personnel and other resources of their respective organizations in order to
obtain all such Consents. Each party will promptly inform the other party of any
communication received by such party from, or given by such party to, any
Governmental Body from which any such Consent is required and of any material
communication received or given in connection with any Proceeding by a private
party, in each case regarding any of the transactions contemplated hereby, and
will permit the other party to review any communication given by it to, and
consult with each other in advance of any meeting or conference with, any such
Governmental Body or, in connection with any Proceeding by a private party, with
such other Person, and to the extent permitted by such Governmental Body or
other Person, give the other party the opportunity to attend and to participate
in such meetings and conferences. Neither party shall take any action in
connection with obtaining any Consent from any Governmental Body that is
intended to create, allocate, or shift to the other party any liability arising
from the obtaining of such Consent. Notwithstanding the foregoing, neither party
shall be required to agree to any divestiture of or material restriction on, a
material business, a material asset or a material group of related assets that,
in any such case, is owned or operated by it or any of its Affiliates.
 
(c)  Seller, with the full cooperation of Buyer, shall take all commercially
reasonable actions necessary to effect the transfer or reissuance of any Permit
required for the operation of the Assets and the Business, including, without
limitation, all Environmental Permits, prior to the Closing Date, to the extent
required by applicable Legal Requirements.
 
Section 6.4  Seller Marks. No later than 180 days after the Closing Date, Buyer
shall cease using any names, marks, trade names, trademarks and corporate
symbols and logos incorporating “Southern Union”, “Southern,” “SU,” “SUG,” “New
England Gas Company” and “Negasco” (collectively and together with all other
names, marks, trade names, trademarks and corporate symbols and logos owned by
Seller or any of its Affiliates (other than the Subsidiaries), the “Seller
Marks”); shall use commercially reasonable efforts to remove from the Assets any
and all Seller Marks and shall amend the relevant Organizational Documents of
each Subsidiary to change the name of each Subsidiary to a name that does not
include any Seller Mark or any name or term confusingly similar to any Seller
Mark. Thereafter, except as required by Legal Requirement or Order or with the
written consent of Seller, Buyer shall not use any Seller Mark or any name or
term confusingly similar to any Seller Mark in connection with the sale of any
products or services, in the corporate or doing business name of any of its
Affiliates or otherwise in the conduct of its or any of its Affiliates’
businesses or operations. In the event that Buyer breaches this Section 6.4,
Seller shall be entitled to specific performance of this Section 6.4 and to
injunctive relief against further violations, as well as any other remedies at
law or in equity available to Seller.
 
Section 6.5  Acknowledgment by Buyer. 
 
In order to induce Seller to enter into and perform this Agreement and the
Related Documents, Buyer acknowledges and agrees with Seller as follows:
 

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THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE V OF THIS AGREEMENT
CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF SELLER TO
BUYER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND BY THE RELATED
DOCUMENTS, AND THERE ARE NO REPRESENTATIONS, WARRANTIES, COVENANTS,
UNDERSTANDINGS OR AGREEMENTS, ORAL OR WRITTEN, IN RELATION THERETO BETWEEN THE
PARTIES OTHER THAN THOSE INCORPORATED HEREIN AND THEREIN. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE V OF THIS
AGREEMENT, BUYER DISCLAIMS RELIANCE ON ANY REPRESENTATIONS OR WARRANTIES, EITHER
EXPRESS OR IMPLIED, BY OR ON BEHALF OF SELLER OR ITS AFFILIATES OR
REPRESENTATIVES. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, BUYER
ACKNOWLEDGES AND AGREES THAT, EXCEPT AS PROVIDED IN SECTIONS 5.11, 5.15, 5.16
AND 5.21 THERE ARE NO REPRESENTATIONS OR WARRANTIES OF SELLER WITH RESPECT TO
THE CONDITION OF THE ASSETS, COMPLIANCE WITH ENVIRONMENTAL LAWS AND
ENVIRONMENTAL PERMITS OR THE PRESENCE OR RELEASES OF HAZARDOUS MATERIAL IN THE
FIXTURES, SOILS, GROUNDWATER, SURFACE WATER OR AIR ON, UNDER OR ABOUT OR
EMANATING FROM ANY OF THE PROPERTIES OR ASSETS OF SELLER OR ANY SUBSIDIARY.
 
Section 6.6  Transition Plan. 
 
Within 15 days after the execution date of this Agreement, Buyer shall deliver
to Seller a list of its proposed representatives to a joint transition team,
which shall include individuals with expertise from various functional
specialties associated or involved in providing billing, payroll and other
support services provided to the Business by any automated or manual process
using facilities or employees that are not included among the Assets or
Transferred Employees. Seller will add its representatives to such team within
15 days after receipt of Buyer’s list. Such team will be responsible for
preparing as soon as reasonably practicable after the execution date of this
Agreement, and timely implementing, a transition plan that will identify and
describe substantially all of the various transition activities that the parties
will cause to occur before and after the Closing and any other transfer of
control matters that any party reasonably believes should be addressed in such
transition plan, including the matters set forth on Exhibit 6.6. Buyer and
Seller shall use their commercially reasonable efforts to cause their
Representatives on such transition team to cooperate in good faith and take all
reasonable steps necessary to develop a mutually acceptable transition plan by
no later than 60 days after the date of this Agreement. The terms and conditions
governing such transition activities will be more fully set forth in a
transition services agreement (the “Transition Services Agreement”) reasonably
satisfactory to the parties, including the matters set forth on Exhibit 6.6, to
be executed and delivered by Buyer and Seller at the Closing.
 
Section 6.7  Purchase of Leased Assets. 
 
Buyer and Seller shall use commercially reasonable efforts to arrange for Buyer,
on the Closing Date, to enter into new lease agreements covering the motor
vehicles and other equipment listed on Schedule 6.7 and leased by the lessors to
Seller and/or any Subsidiary as identified on Schedule 6.7 (the “Leased
Assets”), or if unable to do so, then for Buyer to
 

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purchase any Leased Assets directly from any such lessor on, or promptly after,
the Closing Date upon Buyer’s payment directly to any lessor of the purchase
price for any of the Leased Assets under the applicable lease. Each party shall
be responsible for one-half of any related transfer, registration, sales tax or
similar fees associated with the transfer of such leases from Seller to Buyer.
 
Section 6.8  Meter Reading. 
 
On and prior to the Closing Date, Seller shall read the customer meters in their
normal cycle and in due course render the related bills to its customers served
by the Business. Seller shall also read each daily read transportation customer
meter (collectively, “Large Volume Meters”) on the day immediately preceding the
Closing Date. Seller shall provide Buyer with the last meter reading from each
of the Large Volume Meters made on the day immediately preceding the Closing
Date as soon as practicable after the Closing Date. After the Closing Date,
Buyer shall read the customer meters for their first time, in the normal cycle,
and in due course render bills for service during the period between Seller’s
last reading in the normal cycle and Buyer’s first reading in the normal cycle
to the customers. Buyer shall determine the volume of gas sold by Seller prior
to the Closing Date through Large Volume Meters by Seller’s meter readings on
the day immediately preceding Closing Date. Buyer shall determine by allocation
the volumes of gas sold by Seller through all meters other than Large Volume
Meters, prior to the Closing Date, and the gas sold by Seller, on and after the
Closing Date and prior to its first meter reading through meters without charts.
Such allocation shall be consistent with Seller’s past practices for unbilled
revenues. Once such determinations have been made by Buyer, the estimated
amounts of accounts receivable and earned but unbilled revenue and any other
related payables or liabilities shall be adjusted based upon such determinations
for purposes of the Working Capital adjustment.
 
Section 6.9  Insurance.
 
(a)  At Buyer’s request, Seller agrees to use commercially reasonable efforts to
assert and diligently pursue all rights to insurance coverage under the Policies
(other than with respect to Workman’s Compensation and punitive damage policies)
and any past insurance policies of Seller relating to the Business or the Assets
(such Policies and past insurance policies shall collectively be referred to
herein as the “Insurance Policies”) with respect to insured claims asserted
prior to the Closing for matters included in the Assumed Liabilities pursuant to
Section 2.2(b)(v). Seller retains the exclusive right, in its sole discretion,
to make and settle insurance claims under past insurance policies for all
matters, whether relating to Assumed Liabilities or Retained Liabilities. As
part of any such settlement(s), Seller may relinquish all rights in and to such
past insurance policies with respect to such matters, including Assumed
Liabilities. Seller shall remit to Buyer insurance proceeds (net of Seller’s
costs and expenses) obtained by Seller after Closing with respect to such
insured claims allocable to the Assumed Liabilities, as determined by the
insurers with whom such claims are settled (or in the absence of such allocation
by the insurers, by Seller in proportion to the weight attributable to the
claims related to the Assumed Liabilities to the totality of Seller’s claims to
such insurers), but in no event shall Buyer be entitled to receive more than
$4,000,000 (net of Seller’s costs and expenses) in the aggregate in respect of
the Business under such past insurance policies. Subject to the preceding
sentence, Seller agrees to use commercially reasonable efforts to negotiate with
 

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each of its insurance companies in order to provide Buyer the benefit of the
coverage under the Policies for all claims asserted on or after the Closing Date
(to the extent available) and to cooperate with Buyer with any efforts to obtain
“tail” coverage, all at Buyer’s sole cost, with respect to any “claims made
policies.” Seller shall provide access to Buyer to all of the non-privileged
information relating to these matters and shall consult with Buyer on the
progress thereof from time to time.
 
(b)  After the Closing, Buyer shall be responsible for, and neither Seller nor
any of its Affiliates shall have any responsibility for, the payment of any
deductible amounts or underlying limits attributable to the Insurance Policies
for claims relating to Assumed Liabilities. Buyer acknowledges that certain of
the Insurance Policies may require Seller or any of its Affiliates to provide an
indemnity to the insurance carrier for deductible amounts and to provide
collateral to secure such indemnity obligations. Buyer shall enter into an
indemnification agreement in form mutually acceptable to Buyer and Seller
wherein Buyer agrees to indemnify and hold harmless Seller or any of its
Affiliates (as applicable) for any and all of the costs of maintaining such
collateral and for any charges made against such collateral or indemnification
payments in connection with claims arising or alleged to arise from the
operations of the Business required to be paid by Seller of any of its
Affiliates (as applicable) under or with respect to such Insurance Policies from
and after the Closing Date.
 
(c)  Seller makes no representation or warranty with respect to the
applicability, validity or adequacy of any Insurance Policies, and Seller shall
not be responsible to Buyer or any of its Affiliates for the failure of any
insurer to pay under such Insurance Policy.
 
(d)  Nothing in this Agreement is intended to provide or shall be construed as
providing a benefit or release to any insurer or claims service organization of
any obligation under any Insurance Policy. Nothing herein shall be construed as
creating or permitting any insurer or claims service organization the right of
subrogation against Seller or Buyer or any of their Affiliates in respect of
payments made by one to the other under any Insurance Policy.
 
Section 6.10  Risk of Loss. 
 
The risk of any loss, damage, impairment, confiscation or condemnation of any of
the Assets from any cause whatsoever shall be borne by Seller at all times prior
to the Closing, and by Buyer at all times thereafter. If any such loss, damage,
impairment, confiscation or condemnation occurs, Seller shall apply the proceeds
of any insurance policy, judgment or award with respect thereto to impair,
replace or restore the Assets as soon as possible to their prior condition;
provided, however, anything contained in this Agreement to the contrary
notwithstanding, Seller shall not be obligated to expend sums in excess of the
proceeds of any insurance policy, judgment or award with respect to any loss,
damage, impairment, confiscation or condemnation of any of the Assets in order
to repair, replace or restore such Assets to their prior condition. The
provisions of this Section 6.10 shall apply in the event (“Casualty Event”) of
any damage or destruction to the Assets which would result in the
nonsatisfaction of a condition precedent to Buyer's obligation to consummate
this Agreement. If a Casualty Event shall occur, Buyer at its option, may
proceed to close this Agreement on the Closing Date, in which event Seller shall
pay or assign to Buyer the proceeds from any insurance policies
 

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covering Assets subject to the Casualty Event to the extent such proceeds are
received by or payable to Seller and have not been used in or committed to the
restoration or replacement of Assets subject to the Casualty Event as of the
Closing Date.
 
Section 6.11  Outstanding Payments and Bank Accounts.
 
(a)  Notwithstanding anything contained herein to the contrary, (i) all of the
bank accounts and lock boxes of Seller used in or in connection with the
Business shall be considered “Assets” for the purposes of this Agreement and
shall be transferred to Buyer at the Closing, (ii) any checks that are in the
possession of Seller at the Closing that relate to accounts receivable (or any
other asset) included in the Assets shall be transferred to Buyer at the Closing
and (iii) any checks that are in the possession of Seller at the Closing that
relate to accounts receivable (or any other asset) not included in the Assets
shall be retained by Seller.
 
(b)  From and after the Closing, (i) if Seller or any of its Affiliates receives
or collects any funds relating to any accounts receivable (or any other asset)
included in the Assets, Seller or its Affiliates shall remit any such amounts to
Buyer as promptly as practicable but no later than ten (10) days after Seller or
any of its Affiliates receives such sum, and (ii) Seller and its Affiliates
shall promptly forward all mail, remittances, receipts or other mailings
received by any of them relating to the Business to Buyer.
 
Section 6.12  Collective Bargaining Agreements. 
 
Seller has advised Buyer that Seller (a) intends to negotiate a renewal or
extension of that certain collective bargaining agreement listed on Schedule
6.12(a) and (b) intends to negotiate an early renewal or extension of that
certain collective bargaining agreement listed on Schedule 6.12(b). Seller
agrees to negotiate such renewals or extensions diligently to achieve
commercially reasonable terms and conditions consistent with past practice.
Seller shall give Buyer access to all information relating to the renewals or
extensions of any such collective bargaining agreement and shall permit Buyer to
consult with Seller and its counsel on the progress thereof from time to time.
Notwithstanding the foregoing, Seller shall have discretion to conduct such
negotiations in the manner consistent with the foregoing standards, but Seller
shall not enter into any such renewal or extension without the prior written
consent of Buyer , such consent not to be unreasonably withheld.
 
Section 6.13  Alternative Proposals.
 
(a)  Seller agrees that it shall not, and Seller shall cause its Affiliates and
its and its Affiliates' respective Representatives not to, (i) directly or
indirectly initiate, solicit, knowingly encourage or facilitate (including by
way of furnishing information) any inquiries or the making or submission of any
proposal that constitutes, or could reasonably be expected to lead to, an
Alternative Proposal, (ii) participate or engage in discussions or negotiations
with, or disclose any non-public information or data relating to Seller or any
of its Affiliates or afford access to the properties, books or records of Seller
or any of its Affiliates to any Person that has made an Alternative Proposal or
to any Person in contemplation of an Alternative Proposal, or (iii) accept an
Alternative Proposal or enter into any agreement, including any letter of
intent, memorandum of understanding, agreement in principle, merger agreement,
acquisition
 

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agreement, option agreement, joint venture agreement, partnership agreement or
other similar agreement, arrangement or understanding, (A) constituting or
related to, or that is intended to or could reasonably be expected to lead to,
any Alternative Proposal or (B) requiring, intended to cause, or which could
reasonably be expected to cause Seller to abandon, terminate or fail to
consummate the sale and transfer of the Assets and Stock to Buyer or any other
transaction contemplated by this Agreement.
 
(b)  Seller shall advise Buyer in writing promptly (but in no event more than
the later of 24 hours after Seller's or any Affiliate's receipt thereof) of (i)
any request for information by any Person in contemplation of an Alternative
Proposal, (ii) any Alternative Proposal received from any Person, (iii) the
terms and conditions of any such request or proposal, and (iv) the identity of
the Person or group making any such request, Alternative Proposal or inquiry,
and Seller shall promptly provide to Buyer copies of any written materials
received in connection with any of the foregoing.
 
(c)  For purposes of this Agreement, “Alternative Proposal” shall mean any bona
fide proposal, whether or not in writing, for the (i) direct or indirect
acquisition or purchase of any assets that constitute 10% or more of the net
revenues, net income or the assets (based on the fair market value thereof) of
the Business, or (ii) direct or indirect acquisition or purchase of any of the
Stock; provided, however, that “Alternative Proposal” shall not be deemed to
include any proposal to engage in any merger, consolidation, restructuring, or
other business combination transaction, sale of shares of capital stock (other
than any tracking or similar shares related in whole or in part to the Business
or any part thereof), tender offer, exchange offer, recapitalization, stock
repurchase program or other similar transaction involving Seller, so long as
such transaction would not result in Seller ceasing to own and conduct all or
any part of the Business or ceasing to own all or any part of the Assets or
Stock.
 
(d)  Immediately after the execution and delivery of this Agreement, Seller
shall, and shall instruct its Affiliates and its and their respective
Representatives to, terminate any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any possible
Alternative Proposal.
 
 
ARTICLE VII  
 
 
CONDITIONS PRECEDENT
 
Section 7.1  Seller’s Conditions Precedent to Closing. 
 
The obligation of Seller to consummate the transactions contemplated by this
Agreement shall be subject to fulfillment at or prior to the Closing of the
following conditions, any one or more of which may be waived in writing by
Seller:
 
(a)  Representations and Warranties True as of the Closing Date. Buyer’s
representations and warranties in this Agreement shall have been true and
correct in all material respects as of the date of this Agreement and shall be
true and correct in all material respects as of the Closing Date as if made on
the Closing Date, subject to changes expressly contemplated and permitted by
this Agreement, except that representations and warranties made
 

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as of, or in respect of, only a specified date or period shall be true and
correct in all material respects as of, or in respect of, such date or period.
 
(b)  Compliance with Agreements. The covenants, agreements and conditions
required by this Agreement and the Employee Agreement to be performed and
complied with by Buyer shall have been performed and complied with in all
material respects prior to or at the Closing Date.
 
(c)  Certificate. Buyer shall execute and deliver to Seller a certificate of an
authorized officer of Buyer, dated the Closing Date, stating that the conditions
specified in Sections 7.1(a) and 7.1(b) of this Agreement have been satisfied.
 
(d)  Governmental Approvals. Buyer and Seller shall have each obtained all
Consents of Governmental Bodies by Final Order that are required in order to
consummate the transactions contemplated hereby and to transfer the Assets and
the Stock to Buyer without Seller incurring material liability under any Legal
Requirement or Order.
 
(e)  HSR Act. The applicable waiting period under the HSR Act with respect to
the transactions contemplated hereby shall have expired or have been terminated.
 
(f)  No Injunctions. On the Closing Date, there shall be no Orders that operate
to restrain, enjoin or otherwise prevent the consummation of the transactions
contemplated by this Agreement.
 
(g)  Seller’s Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
holders of at least two-thirds (2/3s) of the issued and outstanding shares of
Seller's common stock (the “Seller’s Stockholder Approval”), if required by the
Rhode Island Division of Public Utilities and Carriers.
 
(h)  Third Party Consents. Seller shall have obtained all Consents of Persons
(other than Governmental Bodies) listed on Schedule 5.3 that are required in
order to consummate the transactions contemplated hereby without incurring
material liability to obtain such Consents and such Consents shall remain in
full force and effect, other than those the failure of which to obtain or keep
in full force and effect would not, individually or in the aggregate, have a
Material Adverse Effect.
 
(i)  Documents. Buyer shall have delivered or shall stand ready to deliver all
the certificates, instruments, Contracts and other documents specified to be
delivered by it hereunder on or before the Closing Date, including pursuant to
Section 8.1, and shall have taken such actions as Seller may have requested
pursuant to Section 11.2.
 
(j)  Proceedings Seeking an Injunction. No action or proceeding initiated by any
Governmental Body seeking an Order prohibiting the consummation of the
transactions contemplated by this Agreement shall be pending.
 
Section 7.2  Buyer’s Conditions Precedent to Closing. 
 

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The obligation of Buyer to consummate the transactions contemplated by this
Agreement shall be subject to fulfillment at or prior to the Closing of the
following conditions, any one or more of which may be waived in writing by
Buyer:
 
(a)  Representations and Warranties. (i) the representations and warranties of
Seller set forth in the first and second sentences of Section 5.4(a) and the
first sentence of Section 5.5(a) of this Agreement shall be true and correct, in
each case, both at and as of the date of this Agreement and at and as of the
Closing Date, as if made at and as of such time; and (ii) the representations
and warranties of Seller set forth in this Agreement (other than the
representations and warranties of Seller set forth in the first and second
sentences of Section 5.4(a) and the first sentence of Section 5.5(a)) shall be
true and correct (without giving effect to any limitation as to “materiality” or
“Material Adverse Effect” set forth therein) both at and as of the date of this
Agreement and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
“materiality” or “Material Adverse Effect” set forth therein) individually or in
the aggregate has not had, and would not be reasonably likely to have or result
in, a Material Adverse Effect.
 
(b)  Compliance with Agreements. The covenants, agreements and conditions
required by this Agreement or the Employee Agreement to be performed and
complied with by Seller shall have been performed and complied with in all
material respects prior to or at the Closing Date.
 
(c)  Certificate. Seller shall execute and deliver to Buyer a certificate of an
authorized officer of Seller, dated the Closing Date, stating that the
conditions specified in Sections 7.2(a) and 7.2(b) of this Agreement have been
satisfied.
 
(d)  Governmental Approvals. Buyer and Seller shall have each obtained all
Consents of Governmental Bodies by Final Order that are required in order to
consummate the transactions contemplated hereby. Such Consents of Governmental
Bodies shall contain no condition that could reasonably be expected to have a
material adverse effect on the Assets or the Business or Buyer or any of its
Affiliates.
 
(e)  HSR Act. The applicable waiting period under the HSR Act with respect to
the transactions contemplated hereby shall have expired or have been terminated.
 
(f)  No Injunctions. On the Closing Date, there shall be no Orders that operate
to restrain, enjoin or otherwise prevent the consummation of the transactions
contemplated by this Agreement.
 
(g)  Documents. Seller shall have delivered or shall stand ready to deliver all
of the certificates, instruments, Contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 8.1.
 

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(h)  No Material Adverse Effect. No occurrence or condition (alone or together
with other occurrences or conditions) giving rise to a Material Adverse Effect
shall have occurred since the date of this Agreement; for the avoidance of
doubt, the failure of Buyer or its designee to have a tariff (including
reasonable evidence of the existence of such tariff) sufficient to generate
revenues to operate the Business after Closing will be deemed to be a Material
Adverse Effect.
 
(i)  Third Party Consents. Seller shall have obtained all Consents of Persons
(other than Governmental Bodies) that are required under any loan or credit
agreement, note, mortgage, indenture, lease, license, charter or other agreement
or instrument in order to consummate the transactions contemplated hereby and
such Consents shall remain in full force and effect, other than those the
failure of which to obtain or keep in full force and effect would not,
individually or in the aggregate, have a Material Adverse Effect.
 
(j)  Proceedings Seeking an Injunction. No action or proceeding initiated by any
Governmental Body seeking an Order prohibiting the consummation of the
transactions contemplated by this Agreement shall be pending.
 
 
ARTICLE VIII  
 
 
CLOSING
 
Section 8.1  Closing. 
 
The closing of the purchase and sale of the Assets (the “Closing”) will take
place at the offices of Fleischman and Walsh, L.L.P., 1919 Pennsylvania Avenue,
N.W., Suite 600, Washington, D.C. 20006, on the fifth business day after the
date on which the conditions specified in Sections 7.1 and 7.2 (excluding
conditions that, by their terms, cannot be satisfied until the Closing) are
satisfied or waived, unless another time, date and place is agreed to in writing
by the parties; provided, however, that neither Seller nor Buyer shall be
required to close the transactions contemplated by this Agreement until all
conditions to the obligations of Seller or Buyer, as the case may be, shall have
been satisfied or waived in accordance with the provisions of Article VII. Buyer
shall have the right to designate any of its Subsidiaries to execute any
documents or perform any actions on its behalf pursuant to this Section 8.1;
provided that such designation shall not relieve Buyer of any of its obligations
hereunder. The date of the Closing is referred to in this Agreement as the
“Closing Date.” The transactions to be consummated on the Closing Date shall be
deemed to have been consummated as of 12:01 a.m., local time, on the Closing
Date. At the Closing, the following events shall occur, each event being deemed
to have occurred simultaneously with the other events.
 
(a)  Bill of Sale; Collective Bargaining Agreement Assignment and Assumption.
Seller and Buyer shall execute and deliver a bill of sale and assignment and
assumption agreement in a form reasonably acceptable to the parties. Seller and
Buyer shall execute and deliver assignment and assumption agreements relating to
all collective bargaining agreements listed on Schedule 5.14(a) (or any
successor agreement entered into in accordance with Section 6.12 of this
Agreement) in a form reasonably acceptable to the parties.
 

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(b)  Stock Certificates; Resignations; FIRPTA. Seller shall deliver to Buyer:
(i) the certificates representing the Stock, duly and validly endorsed to or
registered in the name of Buyer or its nominees or accompanied by separate stock
powers duly and validly executed by Seller, (ii) letters of resignation,
effective as of the Closing Date, from each director and each officer of each
Subsidiary and (iii) a certification of its non-foreign status as set forth in
Section 1445 of the IRC and the Treasury regulations promulgated thereunder.
 
(c)  Transition Services Agreement. Seller and Buyer shall execute and deliver
the Transition Services Agreement in a form reasonably acceptable to the
parties.
 
(d)  Litigation Support Agreement. Seller and Buyer shall execute and deliver
the Litigation Support Agreement, substantially in the form attached hereto as
Exhibit 8.1(d).
 
(e)  Payment of Estimated Purchase Price. Buyer will pay to Seller an amount
equal to the Estimated Purchase Price by wire transfer, in lawful money of the
United States of America in immediately available funds, to such account as
Seller shall have designated by notice to Buyer. Notwithstanding any other
provision of this Agreement, if Seller does not deliver the certificates
described in clause (iii) of Section 8.1(b) at or prior to the Closing, Buyer
shall be permitted to withhold from the Estimated Purchase Price the amount
required to be withheld pursuant to Section 1445 of the IRC as calculated by
Buyer in good faith.
 
(f)  Other Related Documents. To the extent consistent with the other provisions
of this Agreement, Seller (or the appropriate Affiliate of Seller) and Buyer
shall execute and deliver such other Related Documents and shall obtain and
deliver such other certificates reasonably requested by a party that are
necessary in order to satisfy any applicable Legal Requirements relating to the
transfer of the Assets or the Stock to Buyer or the assumption of the Assumed
Liabilities by Buyer; provided, however, that nothing in this clause (f) shall
obligate Seller or any Affiliate of Seller to execute or deliver any document
that affects, in a manner adverse to Seller, Seller’s liability to Buyer as
expressed herein.
 
 
ARTICLE IX  
 
 
TERMINATION
 
Section 9.1  Termination Rights. 
 
This Agreement may be terminated in its entirety at any time prior to the
Closing:
 
(a)  By the mutual written agreement of Seller and Buyer;
 
(b)  By Buyer, on the one hand, or Seller, on the other hand, in writing if
there shall be in effect a nonappealable Order prohibiting, enjoining or
restricting the transactions contemplated by this Agreement;
 
(c)  By either party in writing if there shall have been a material breach of or
any inaccuracy in any of the representations or warranties set forth in this
Agreement on the
 

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part of the other party, which breach is not cured within 30 days following
receipt by the breaching party of written notice of such breach from the
terminating party, or which breach, by its nature, cannot be cured prior to the
Closing; provided, however, that neither party shall have the right to terminate
this Agreement pursuant to this Section 9.1(c) unless the breach of
representation or warranty, together with all other such breaches, would entitle
the party receiving such representation not to consummate the transactions
contemplated by this Agreement under Section 7.2(a) (in the case of a breach of
representation or warranty by Seller) or Section 7.1(a) (in the case of a breach
of representation or warranty by Buyer) and provided, further, that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein;
 
(d)  By either party in writing if there shall have been a material breach of
any of the covenants or agreements set forth in this Agreement on the part of
the other party, which breach shall not have been cured within 30 days following
receipt by the breaching party of written notice of such breach from the
terminating party, or which breach, by its nature, cannot be cured prior to the
Closing (provided that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained herein);
 
(e)  By either party in writing if the Closing has not occurred by August 25,
2006 (the “Upset Date”); provided, however, that the right to terminate this
Agreement under this Section 9.1(e) will not be available to any party that is
in material breach of its representations, warranties, covenants or agreements
contained herein; and provided further that in the event either party's
conditions precedent to Closing set forth in Sections 7.1(d) or 7.1(e) or
Sections 7.2(d) or 7.2(e) have not been satisfied prior to the Upset Date but
are reasonably capable of being satisfied thereafter, then either party may,
following written notice to the other, extend the Upset Date in thirty day
increments (up to an aggregate of 120 days);
 
(f)  By Seller, if at Closing Buyer fails to make the payments required to be
made by Buyer at Closing; or
 
(g)  By Buyer, on the one hand, or Seller, on the other hand, in writing if
Seller’s Stockholder Approval is not obtained upon the taking of such vote at
the Southern Union Company stockholders’ meeting held for the purposes of
obtaining such Seller’s Stockholder Approval or any adjournment or postponement
thereof; provided that the right to terminate this Agreement pursuant to this
Section 9.1(g) shall not be available to Seller if it has not complied with its
obligations under Section 6.1(f).
 
Section 9.2  Limitation on Right to Terminate; Effect of Termination.
 
(a)  A party shall not be allowed to exercise any right of termination pursuant
to Section 9.1 if the event giving rise to the termination right shall be due to
the willful failure of such party seeking to terminate this Agreement to perform
or observe in any material respect any of the covenants or agreements hereunder
to be performed or observed by such party.
 
(b)  If this Agreement is terminated as permitted under Section 9.1, such
termination shall be without liability of or to any party to this Agreement, or
any shareholder or Representative of such party; provided, however, that if such
termination shall
 

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result from the willful failure of any party to fulfill a condition to the
performance of any other party or to perform a covenant of this Agreement or
from a material and willful breach by any party to this Agreement (it being
understood that the failure to cure a breach shall not, by itself, be a willful
breach of this Agreement), then such party shall (subject to the last sentence
of this Section 9.2(b)) be fully liable for any and all damages sustained or
incurred by the other party. If prior to Closing either party to this Agreement
resorts to legal proceedings to enforce this Agreement, the prevailing party in
such proceedings shall be entitled to recover all costs incurred by such party
including reasonable attorney’s fees, in addition to any other relief to which
such party may be entitled; provided, however, and notwithstanding anything to
the contrary in this Section 9.2(b), in no event shall either party be entitled
to receive any punitive, exemplary, special, remote, speculative, indirect or
consequential damages (including any damages on account of lost profits or
opportunities) in connection with any termination of this Agreement.
 
 
ARTICLE X  
 
 
EMPLOYEE MATTERS
 
Section 10.1  Employee Agreement. 
 
The parties have addressed the transfer of employees and employee benefit
matters in a separate agreement, entitled Employee Agreement, executed and
delivered of even date herewith, the terms and provisions of which agreement are
incorporated into this Agreement as if fully set forth herein and a copy of
which is attached hereto as Exhibit 10.1 (the “Employee Agreement”).
 
 
ARTICLE XI  
 
 
TAX MATTERS
 
Section 11.1  Purchase Price Allocation. 
 
Within 180 days after the Closing Date, Buyer and Seller shall use their good
faith efforts to agree upon the allocation (the “Allocation”) of the Purchase
Price to the individual assets or classes of assets within the meaning of
Section 1060 of the IRC and the Treasury Regulations thereunder. If Buyer and
Seller agree to such Allocation, Buyer and Seller covenant and agree that (a)
the values assigned to the assets by the parties’ mutual agreement shall be
conclusive and final for all purposes, (b) neither Buyer nor Seller will take
any position before any Governmental Body or in any Proceeding that is in any
way inconsistent with such Allocation and (c) Buyer and Seller shall file all
federal, state, local and foreign Tax Returns and IRS Forms 8594 and 8883 (and
any similar forms required for state or local Tax purposes) in accordance with
the Allocation. Notwithstanding the foregoing, if Buyer and Seller cannot agree
to an Allocation, Buyer and Seller covenant and agree to file, and to cause
their respective Affiliates to file, all Tax Returns and schedules thereto
(including, for example, amended returns, claims for refund, and those returns
and forms required under Section 1060 of the IRC and any Treasury regulations
promulgated thereunder) consistent with each of such party’s good faith
Allocations, unless otherwise required because of a change in any Legal
Requirement. Each of Buyer and Seller agrees to provide the other promptly with
any other information reasonably required to complete Form 8594 and Form 8883
(and any similar forms required for state or local Tax
 

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purposes). Each of Buyer and Seller shall notify the other in the event of an
examination, audit or other proceeding regarding the Allocation determined under
this Section 11.1.
 
Section 11.2  Cooperation with Respect to Like-Kind Exchange. 
 
Buyer agrees that Seller may, at Seller’s election prior to the Closing Date,
direct that all or a portion of the Purchase Price be delivered to a “qualified
intermediary” (as defined in Treasury Regulation Section 1.1031(k) - 1(g)(4)) in
order to enable Seller’s relinquishment of the Assets to qualify as part of a
like-kind exchange of property covered by Section 1031 of the IRC. If Seller so
elects, Buyer shall cooperate with Seller in connection with Seller’s efforts to
effect such like-kind exchange, which cooperation shall include, without
limitation, taking such actions as Seller requests in order to enable Seller to
qualify such transfer as part of a like-kind exchange of property covered by
Section 1031 of the IRC (including any actions required to facilitate the use of
a “qualified intermediary”); provided, however, that Buyer shall have no
obligation to take (or agree to take) any action that, in its reasonable
discretion, may create any adverse consequences to Buyer, including but not
limited to adverse Tax, financial or regulatory consequences for the
transactions contemplated by this Agreement. Notwithstanding anything herein,
the structuring of the transactions in a manner that qualifies the transactions
as part of a like-kind exchange shall not be a condition to Closing. Buyer
agrees that Seller may assign all or part of its rights and delegate all or part
of its obligations under this Agreement to a person or entity acting as a
qualified intermediary to qualify the transfer of the Assets as part of a
like-kind exchange of property covered by Section 1031 of the IRC. Any and all
representations, obligations, agreements, warranties and covenants made by
Seller to Buyer in connection with this Agreement shall remain in full force and
effect and continue to inure to the benefit of Buyer, notwithstanding any
assignment of this Agreement to a third party in connection with such Section
1031 exchange. Nothing in this Section 11.2 shall in any manner relieve Seller
from any of its obligations under this Agreement, and Seller shall remain
primarily liable to Buyer pursuant to the terms of this Agreement. Buyer and
Seller agree in good faith to use reasonable efforts to coordinate the
transactions contemplated by this Agreement with any other transactions engaged
in by either Buyer or Seller; provided that such efforts do not result in an
unreasonable delay in the consummation of the transactions contemplated by this
Agreement. Seller shall indemnify and hold Buyer harmless from any out-of-pocket
cost or expense (including but not limited to legal fees, opinions of counsel or
other costs incurred in implementing any transaction under this Section 11.2),
or any obligation or liability incurred by Buyer in connection with any action
taken by Buyer under Section 11.2 or such Section 1031 exchange. Notwithstanding
anything to the contrary in this Section 11.2, in no event shall Seller transfer
title to any of the Assets to any Person other than directly to Buyer or its
designee.
 
Section 11.3  Transaction Taxes. 
 
All transfer, documentary, recording, notarial, sales, use, registration, stamp
and other similar taxes, fees and expenses (including, but not limited to, all
applicable stock transfer, real estate transfer or gains Taxes and including any
penalties, interest and additions to such tax) (“Transaction Taxes”) incurred in
connection with this Agreement and the transactions contemplated hereby shall be
borne one-half by Buyer and one-half by Seller, regardless of whether the Tax
authority seeks to collect such Taxes from Seller or Buyer. Buyer and Seller
shall cooperate in timely making and filing all Tax Returns as may be required
to comply with
 

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the provisions of laws relating to such Transaction Taxes. Seller shall prepare
all tax filings related to any Transaction Taxes. Fifteen days prior to making
such filings, Seller shall provide to Buyer Seller’s work papers for Buyer’s
review and approval. Buyer shall also be responsible for (a) administering the
payment of such Transaction Taxes, (b) defending or pursuing any proceedings
related thereto and (c) paying any expenses related thereto. Seller shall give
prompt written notice to Buyer of any proposed adjustment or assessment of any
Transaction Taxes with respect to the transaction, or of any examination of said
transaction in a sales, use, transfer or similar Tax audit. In any proceedings,
whether formal or informal, Seller shall permit Buyer to participate and control
the defense of such proceeding and shall take all actions and execute all
documents required to allow such participation. Seller shall not negotiate a
settlement or compromise of any Transaction Taxes without the prior written
consent of Buyer, which consent shall not be unreasonably withheld or delayed.
 
Section 11.4  Real and Personal Property Taxes. 
 
All real (including public utility realty tax) and personal property Taxes and
assessments arising with respect to the Assets and the assets of Subsidiary and
any similar utility Taxes of any other jurisdiction shall be prorated between
Buyer and Seller based on the relative periods of time the Assets were owned by
each respective party or their respective Affiliates during the fiscal period
for which such Taxes are imposed by the applicable taxing jurisdiction (as such
fiscal period is or may be reflected on the bill rendered by such taxing
jurisdiction, but in the case of Taxes imposed based on the specific day of
ownership of assets, a fiscal period shall be deemed to be the 365 day period
ending with such date). Upon receipt by Buyer of the tax bill, invoice or other
statement regarding such real and personal property Taxes, Buyer shall calculate
the pro rata share of such tax bill, invoice or other statement attributable to
Buyer and Seller. Buyer then shall forward, as soon as practicable, to Seller a
copy of such tax bill, invoice or statement along with the supporting
documentation relating to the calculation of the pro rata share to Seller.
Seller then shall forward to Buyer payment in immediately available funds of its
pro rata share of such Taxes as soon as practicable in advance of the due date
of the tax bill, invoice or statement and in time to avoid the incurrence of
penalties or interest. Upon its receipt of such payment, Buyer will pay the full
amount of the tax bill, invoice or statement to the applicable taxing authority.
In the event Seller first receives a tax bill, invoice or statement relating to
the Assets from a taxing authority, Seller shall immediately forward such tax
bill, invoice or statement to Buyer.
 
Section 11.5  Other Taxes. 
 
Except as otherwise provided in Sections 11.3 and 11.4, Seller shall indemnify
Buyer from and against and in respect of any and all losses incurred by Buyer,
which may be imposed on, sustained, incurred or suffered by or assessed against
Buyer, directly or indirectly, to the extent relating to or arising from (a) all
Taxes (or the non-payment thereof) of Seller and its Subsidiaries or with
respect to the Assets for all taxable periods ending on or before the Closing
Date and, with respect to any Straddle Period, the portion of such Straddle
Period deemed to end on and include the Closing Date (“Pre-Closing Tax Period”),
(b) all Taxes of any member of an affiliated, consolidated, combined or unitary
group of which Seller or any its Subsidiaries (or any predecessor of any of the
foregoing) is or was a member on or prior to the Closing Date, including
pursuant to Treasury Regulation §1.1502-6 or any analogous or similar state,
local, or
 

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foreign law or regulation, (c) any and all Taxes of any Person (other than
Seller and its Subsidiaries) imposed on Seller or its Subsidiaries as a
transferee or successor, by contract or pursuant to any law, rule, or
regulation, which Taxes relate to an event or transaction occurring on or before
the Closing, (d) any Taxes of Seller that do not relate to the Business or the
Assets purchased pursuant to this Agreement, and (e) any breach or inaccuracy in
the representations and warranties set forth in Section 5.9.
 
Section 11.6  Straddle Period. 
 
In the case of any taxable period that includes (but does not end on) the
Closing Date (a “Straddle Period”), the amount of any Taxes based on or measured
by income or receipts of Seller and its Subsidiaries for the Pre-Closing Tax
Period shall be determined based on an interim closing of the books as of the
close of business on the Closing Date (and for such purpose, the taxable period
of any partnership or other pass-through entity in which Seller or its
Subsidiaries holds a beneficial interest shall be deemed to terminate at such
time) and the amount of other Taxes of Seller and its Subsidiaries for a
Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be
the amount of such Tax for the entire taxable period multiplied by a fraction
the numerator of which is the number of days in the taxable period ending on and
including the Closing Date and the denominator of which is the number of days in
such Straddle Period.
 
Section 11.7  Cooperation on Tax Matters. 
 
Buyer, the Seller and its Subsidiaries shall cooperate fully, as and to the
extent reasonably requested by the other Party, in connection with the filing of
Tax Returns pursuant to this Article XI and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other Party's request) the provision of records and information
that are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
 
Section 11.8  Tax Returns. 
 
Except as otherwise provided in Sections 11.3 and 11.4,
 
(a)  Seller shall prepare and file or cause to be prepared and filed when due
(including extensions) all Tax Returns that are required to be filed by the
Seller or the Subsidiaries with respect to the Assets or Subsidiaries for
taxable years or periods ending on or before the Closing Date, and Seller shall
remit or cause to be remitted any Taxes due in respect of such Tax Returns. All
such Tax Returns shall be prepared in a manner consistent with past practice.
 
(b)  Buyer shall prepare and file or cause to be prepared and filed when due all
Tax Returns that are required to be filed by the Subsidiaries or with respect to
the Assets for taxable years or periods ending after the Closing Date, and Buyer
shall remit or cause to be remitted any Taxes due in respect of such Tax
Returns.
 

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(c)  Upon the written request of Buyer setting forth in detail the computation
of the amount owed, Seller shall pay to Buyer, no later than five (5) days prior
to the due date for the applicable Tax Return, the Taxes for which Seller is
liable pursuant to Section 11.5 but which are payable with any Tax Return to be
filed by Buyer with respect to any Straddle Period.
 
Section 11.9  Effect of Indemnity Payments. 
 
Buyer and Seller hereby agree that any and all indemnity payments made pursuant
to this Agreement shall, to the maximum extent permitted by applicable law, be
treated for all Tax purposes as an adjustment to the Purchase Price.
 
Section 11.10  Survival of Obligations. 
 
Notwithstanding any other provision of this Agreement, the obligations of Buyer
and Seller set forth in this Article XI shall not be subject to any restrictions
or limitations other than those expressly set forth in this Article XI and shall
survive the Closing.
 
Section 11.11  Dispute Resolution. 
 
In the event that Seller and Buyer disagree as to the amount or calculation of
any payment to be made under this Agreement relating to Taxes, or the
interpretation or application of any provision under this Agreement relating to
Taxes, the Parties shall attempt in good faith to resolve such dispute. If such
dispute is not resolved within sixty (60) days following the commencement of the
dispute, Seller and Buyer shall jointly retain a nationally recognized law or
accounting firm, which firm is independent of both parties (the “Independent
Firm”), to resolve the dispute. The Independent Firm shall act as an arbitrator
to resolve all points of disagreement and its decision shall be final and
binding upon all parties involved. Following the decision of the Independent
Firm, Seller and Buyer shall each take or cause to be taken any action necessary
to implement the decision of the Independent Firm. The fees and expenses
relating to the Independent Firm shall be borne equally by Seller and Buyer.
 
Section 11.12  Termination of Tax Agreements. 
 
All Tax allocation, Tax sharing, Tax indemnity or similar agreements between
Seller or any of its Affiliates (other than the Subsidiaries), on the one hand,
and the Subsidiaries, on the other hand, shall be terminated with respect to the
Subsidiaries prior to the Closing Date, and, after the Closing Date, neither
Seller or any of its Affiliates (other than the Subsidiaries), on the one hand,
nor the Subsidiaries, on the other hand, shall be bound thereby or have any
further liability or obligation thereunder to the other party with respect to
periods prior to the Closing Date.
 

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ARTICLE XII  
 
 
INDEMNIFICATION
 
Section 12.1  Indemnification by Seller. 
 
From and after Closing and subject to the other provisions of this Article XII,
Seller shall indemnify and hold harmless Buyer, its Representatives, Affiliates
(which after the Closing shall include the Subsidiaries), successors and
permitted assigns (collectively, the “Buyer Indemnitees”) from and against any
and all Losses actually incurred by a Buyer Indemnitee, and resulting from:
 
(a)  (i) any representations and warranties made by Seller in this Agreement or
in any certificate furnished by or on behalf of Seller to Buyer pursuant to this
Agreement not being true and correct when made, or (ii) any representations and
warranties made by Seller in this Agreement not being true and correct as of the
Closing Date, each of which representations and warranties will be deemed for
purposes of this Section 12.1(a)(ii) to have been made by Seller as of the
Closing Date, except that those representations and warranties that are made as
of a specific date will be deemed for purposes of this Section 12.1(a)(ii) to
have been made by Seller as of such date;
 
(b)  any breach or default by Seller in the performance of its covenants,
agreements, or obligations under this Agreement, the Employee Agreement or the
Transition Services Agreement;
 
(c)  the Retained Liabilities; and
 
(d)  the Excluded Assets.
 
Section 12.2  Indemnification by Buyer. 
 
From and after Closing and subject to the other provisions of this Article XII,
Buyer shall indemnify and hold harmless Seller, its Representatives, Affiliates,
successors and permitted assigns (collectively, the “Seller Indemnitees”) from
and against any and all Losses actually incurred by a Seller Indemnitee, and
resulting from:
 
(a)  (i) any representations and warranties made by Buyer in this Agreement or
in any certificate furnished by or on behalf of Buyer to Seller pursuant to this
Agreement not being true and correct when made, or (ii) any representations and
warranties made by Buyer in this Agreement not being true and correct as of the
Closing Date, each of which representations and warranties will be deemed for
purposes of this Section 12.2(a)(ii) to have been made by Buyer as of the
Closing Date, except that those representations and warranties that are made as
of a specific date will be deemed for purposes of this Section 12.2(a)(ii) to
have been made by Buyer as of such date;
 

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(b)  any breach or default by Buyer in the performance of its covenants,
agreements, or obligations under this Agreement, the Employee Agreement or the
Transition Services Agreement; and
 
(c)  the Assumed Liabilities.
 
Section 12.3  Limitations on Seller’s Liability. 
 
Notwithstanding anything to the contrary in this Agreement, the liability of
Seller under this Agreement and any documents delivered in connection herewith
or contemplated hereby shall be limited as follows:
 
(a)  EXCEPT TO THE EXTENT ARISING OUT OF FRAUD, IN NO EVENT SHALL SELLER BE
LIABLE TO THE BUYER INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT,
CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided, however, that if Buyer
is held liable to a third party for any of such damages and Seller is obligated
to indemnify Buyer for the matter that gave rise to such damages, then Seller
shall be liable for, and obligated to reimburse Buyer for, such damages.
 
(b)  Notwithstanding anything in this Agreement to the contrary, for purposes of
Section 12.1 and this Section 12.3, (x) a breach of a representation or warranty
shall be deemed to exist either if such representation or warranty is actually
inaccurate or breached or would have been inaccurate or breached if such
representation or warranty had not contained any limitation or qualification as
to materiality, Material Adverse Effect (which instead will be read as adverse
effect or change) or similar language, or any dollar limitation or threshold and
(y) the amount of Losses in respect of any breach of a representation or
warranty, including any deemed breach resulting from the application of clause
(x), shall be determined without regard to any limitation or qualification as to
materiality, Material Adverse Effect (which instead will be read as adverse
effect or change) or similar language or any dollar limitation or threshold set
forth in such representation or warranty.
 
(c)  Except as provided below, the representations and warranties of Seller set
forth in this Agreement shall survive the Closing until the date that is
eighteen months after the Closing Date; provided however, that (i) the
representations and warranties set forth in Section 5.2 (Authority Relative to
this Agreement and Binding Effect), in the first two sentences of Section 5.4(a)
(Capitalization of the Subsidiaries; Title to Stock), in Section 5.5(a) (Title
to Assets; Encumbrances), and in Section 5.18 (Brokers) shall survive
indefinitely, (ii) the representations and warranties set forth in Section 5.9
(Taxes) shall survive for a period equal to the applicable statute of
limitations for the taxable year for each Tax (giving effect to any extensions
or waivers thereof), and (iii) the representations and warranties set forth in
Section 5.15 (Environmental Matters) shall survive until the second anniversary
of the Closing Date. The other terms of this Agreement and the agreements
delivered in connection herewith shall survive the Closing. All representations
and warranties, covenants and agreements of Seller under this Agreement and the
indemnities granted by Seller in Section 12.1 shall terminate at
 

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5:00 p.m., East Coast time, on the applicable survival termination date set
forth above; provided, however, that such indemnities shall survive with respect
only to any specific matter that is the subject of a proper Claim Notice
delivered in good faith in compliance with the requirements of this Section 12.3
until the earlier to occur of (i) the date on which a final nonappealable
resolution of the matter described in such Claim Notice has been reached,
including the determination of all related Losses, if any, regardless of when
such Losses are finally determined or (ii) the date on which the matter
described in such Claim Notice has otherwise reached final resolution, including
the determination of all related Losses, if any, regardless of when such Losses
are finally determined. In no event shall any amounts be recovered from Seller
under Section 12.1 or otherwise for any matter for which a Claim Notice is not
delivered to Seller prior to the close of business on the applicable expiration
date set forth above.
 
(d)  Notwithstanding anything to the contrary in this Agreement, in no event
shall Seller indemnify the Buyer Indemnitees, or be otherwise liable in any way
whatsoever to the Buyer Indemnitees, for any Losses (determined after giving
effect to the other provisions of this Section 12.3) otherwise subject to
indemnification by Seller pursuant to Section 12.1(a) (other than in respect of
any claim for any inaccuracy or breach (or deemed inaccuracy or breach) of the
representations and warranties contained in the first two sentences of Section
5.4(a) or in Sections 5.5(a) or (c), which claims shall not be subject to the
limitations set forth in this Section 12.3(d)) until the Buyer Indemnitees have
incurred Losses otherwise indemnifiable pursuant to Section 12.1(a) that in the
aggregate exceed Five Million Dollars ($5,000,000) (the “Deductible”), after
which Seller shall then be liable for all Losses incurred by the Buyer
Indemnitees that are indemnifiable pursuant to Section 12.1(a) in excess of such
amount up to the maximum amount set forth in Section 12.3(e). Losses subject to
indemnification by Seller pursuant to Section 12.1(a) (other than in respect of
any claim for any inaccuracy or breach (or deemed inaccuracy or breach) of the
representations and warranties contained in the first two sentences of Section
5.4(a) or in Section 5.5(a)) relating to any single breach or series of related
breaches by Seller shall not constitute Losses, and therefore shall not be
applied toward the Deductible or be indemnifiable hereunder, unless such Losses
relating to any single breach or series of related breaches exceed $20,000.
 
(e)  Notwithstanding anything to the contrary in this Agreement, (i) in no event
shall Seller indemnify the Buyer Indemnitees, or be otherwise liable in any way
whatsoever to the Buyer Indemnitees, for any Losses (determined after giving
effect to the other provisions of this Section 12.3) otherwise subject to
indemnification by Seller pursuant to Section 12.1(a) (other than in respect of
any claim for any inaccuracy or breach (or deemed inaccuracy or breach) of the
representations and warranties contained in the first two sentences of Section
5.4(a) or in Sections 5.5(a) or (c)) that in the aggregate exceed One Hundred
Million Dollars ($100,000,000), and (ii) in no event shall Seller indemnify the
Buyer Indemnitees, or be otherwise liable in any way whatsoever to the Buyer
Indemnitees, for any Losses (determined after giving effect to the other
provisions of this Section 12.3) otherwise subject to indemnification by Seller
pursuant to Section 12.1(a) (solely in respect of any claim for any inaccuracy
or breach (or deemed inaccuracy or breach) of the representations and warranties
contained in the first two sentences of Section 5.4(a) or in Sections 5.5(a) or
(c)) that in the aggregate exceed the Purchase Price; provided, however, that in
the event Seller makes any indemnification payment to any Buyer Indemnitee for
any Loss pursuant to Section 12.1(a), regardless of whether such claim is for
any inaccuracy or breach (or deemed inaccuracy or
 

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breach) of the representations and warranties contained in the first two
sentences of Section 5.4(a) or in Sections 5.5(a) or (c), then the amount of
such payment shall be credited against each of the limitations set forth in
clause (i) and clause (ii) of this Section 12.3(e).
 
(f)  Seller shall have no liability for any portion of any claim or Loss for
which (i) Buyer receives or is entitled to receive (and which are collectible)
any insurance proceeds or any indemnity, contribution or other similar payment
from any other insurer or other third party (whether in a lump sum or stream of
payments) or (ii) Buyer recovers or is entitled to recover through rates,
provided that Buyer shall have made a good faith effort to recover any such
claim or loss through rates and that such recovery is not indeterminable due to
the terms of any rate settlement agreed to by Buyer. No cost or expense relating
to any such claim or Loss that is actually recovered on the basis of the
foregoing shall be included in determining the extent of Losses suffered by the
Buyer Indemnitees for purposes of Section 12.3(c) or Section 12.3(d). Buyer
agrees to use its commercially reasonable efforts to give timely and effective
written notice to the appropriate insurance carrier(s) of any occurrence or
circumstances that, in the judgment of Buyer consistent with its customary risk
management practices, appear likely to give rise to a claim against Buyer that
is likely to involve one or more insurance policies of Buyer. Any such notice
shall be given in good faith by Buyer without regard to the possibility of
indemnification payments by Seller under Section 12.1, and shall be processed by
Buyer in good faith and in a manner consistent with its risk management
practices involving claims for which no third party contractual indemnification
is available. Buyer agrees that (x) if it is entitled to receive payment from
Seller for a Loss, and (y) if Buyer has obtained insurance that may cover the
claim or matter giving rise to such Loss, then (z) such insurance shall be
primary coverage and Buyer will make a claim under such insurance (if such claim
can be made in good faith) before enforcing its right to receive payment from
Seller. If at any time subsequent to the receipt by a Buyer Indemnitee of an
indemnity payment from Seller hereunder, such Buyer Indemnitee (or any Affiliate
thereof) receives any recovery, settlement or other similar payment with respect
to the Loss for which it receives such indemnity payment, such Buyer Indemnitee
shall promptly pay to Seller an amount equal to the amount of such recovery,
less any expense incurred by such Buyer Indemnitee (or its Affiliates) in
connection with such recovery, but in no event shall any such payment exceed the
amount of such indemnity payment.
 
(g)  Notwithstanding any language contained in any Related Document (including
deeds and other conveyance documents relating to the Real Property), the
representations and warranties of Seller set forth in this Agreement will not be
merged into any such Related Document and the indemnification obligations of
Seller, and the limitations on such obligations, set forth in this Agreement
shall control. No provision set forth in any such Related Document shall be
deemed to enlarge, alter or amend the terms or provisions of this Agreement.
 
Section 12.4  Limitation on Buyer’s Liability. 
 
EXCEPT TO THE EXTENT ARISING OUT OF FRAUD, IN NO EVENT SHALL BUYER BE LIABLE TO
THE SELLER INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT,
CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided, however, that if Seller
is held liable to a third party for any of such damages and Buyer is obligated
to indemnify Seller for the matter that gave rise to such damages, then Buyer
shall be liable for, and obligated to reimburse Seller for, such damages.
 

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Section 12.5  Claims Procedure.
 
(a)  All claims for indemnification under Section 12.1 or 12.2, or any other
provision of this Agreement except as otherwise expressly provided in this
Agreement, shall be asserted and resolved pursuant to this Article XII. Any
Person claiming indemnification hereunder is referred to as the “Indemnified
Party” and any Person against whom such claims are asserted hereunder is
hereinafter referred to as the “Indemnifying Party.” In the event that any
Losses are asserted against or sought to be collected from or threatened to be
sought from an Indemnified Party by a third party, including a Governmental
Body, said Indemnified Party shall with reasonable promptness provide to the
Indemnifying Party a Claim Notice. The Indemnifying Party shall not be obligated
to indemnify the Indemnified Party with respect to any such Losses if the
Indemnified Party fails to notify the Indemnifying Party thereof in accordance
with the provisions of this Agreement in reasonably sufficient time so that the
Indemnifying Party’s ability to defend against the Losses is not prejudiced. The
Indemnifying Party shall have 30 days from the personal delivery or receipt of
the Claim Notice (the “Notice Period”) to notify the Indemnified Party (i)
whether or not it disputes the liability of the Indemnifying Party to the
Indemnified Party hereunder with respect to such Losses and/or (ii) whether or
not it desires, at the sole cost and expense of the Indemnifying Party, to
defend the Indemnified Party against such Losses; provided, however, that any
Indemnified Party is hereby authorized prior to and during the Notice Period to
file any motion, answer or other pleading that it shall reasonably deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party (and of which it shall have given notice and opportunity to comment to the
Indemnifying Party) and not prejudicial to the Indemnifying Party. In the event
that the Indemnifying Party notifies the Indemnified Party within the Notice
Period that it desires to defend the Indemnified Party against such Losses, the
Indemnifying Party shall have the right to defend all appropriate proceedings,
and with counsel of its own choosing, which proceedings shall be promptly
settled or prosecuted by them to a final conclusion. If the Indemnified Party
desires to participate in, but not control, any such defense or settlement it
may do so at its sole cost and expense. If requested by the Indemnifying Party,
the Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any Losses that the Indemnifying Party elects to contest
or, if appropriate and related to the claim in question, in making any
counterclaim against the Person asserting the third party Losses, or any
cross-complaint against any Person. No claim may be settled or otherwise
compromised without the prior written consent of the Indemnifying Party.
 
(b)  The Indemnified Party shall provide reasonable assistance to the
Indemnifying Party and provide access to its books, records and personnel as the
Indemnifying Party reasonably requests in connection with the investigation or
defense of the Losses. The Indemnifying Party shall promptly upon receipt of
reasonable supporting documentation reimburse the Indemnified Party for
out-of-pocket costs and expenses incurred by the latter in providing the
requested assistance.
 
(c)  With regard to third party claims for which Buyer or Seller is entitled to
indemnification under Section 12.1 or 12.2, such indemnification shall be paid
by the Indemnifying Party upon (i) the entry of an Order against the Indemnified
Party and the expiration of any applicable appeal period or (ii) a settlement
with the consent of the
 

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Indemnifying Party, provided that no such consent need be obtained if the
Indemnifying Party fails to respond to the Claim Notice as provided in Section
12.5(a). Notwithstanding the foregoing but subject to Section 12.5(a), and
provided that there is no dispute as to the applicability of indemnification,
expenses of counsel to the Indemnified Party shall be reimbursed on a current
basis by the Indemnifying Party as if such expenses are a liability of the
Indemnifying Party.
 
Section 12.6  Exclusive Remedy. 
 
Except (i) for claims arising out of fraud or criminal misrepresentation, and
(ii) as otherwise provided in Sections 3.2(b), 6.4, 9.2 or 11.11, the rights,
remedies and obligations of the Buyer Indemnitees and the Seller Indemnitees set
forth in this Article XII will be the exclusive rights, remedies and obligations
of such Persons after the Closing with respect to all post-Closing claims
relating to this Agreement, the events giving rise to this Agreement and the
transactions provided for herein or contemplated hereby or thereby. Except as
provided above, no Proceeding for termination or rescission, or claiming
repudiation, of this Agreement may be brought or maintained by either party
against the other following the Closing Date no matter how severe, grave or
fundamental any breach, default or nonperformance may be by one party.
Accordingly, except as otherwise provided in this Section 12.6, the parties
hereby expressly waive and forego any and all rights they may possess to bring
any such Proceeding.
 
 
ARTICLE XIII  
 
 
GENERAL PROVISIONS
 
Section 13.1  Expenses. 
 
Except as otherwise specifically provided herein, each party will pay all costs
and expenses of its performance of and compliance with this Agreement, provided,
however, that notwithstanding anything to the contrary contained herein, Buyer
will pay the filing fees associated with the HSR Act.
 
Section 13.2  Notices. 
 
All notices, requests and other communications hereunder shall be in writing and
shall be deemed to have been given upon receipt if either (a) personally
delivered with written acknowledgment of such receipt, (b) sent by prepaid first
class mail, and registered or certified and a return receipt requested, as of
the date such receipt indicates by signature, (c) sent by overnight delivery via
a nationally recognized carrier with written acknowledgment of such receipt or
(d) by facsimile with, and as of the date of, completed transmission being
acknowledged:
 
If to Seller, to:
 

 
Southern Union Company
5444 Westheimer Road
Houston, TX 77056
Attention: Julie H. Edwards
SVP and CFO
Telecopier: (713) 989-1166

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with a copy (which shall not constitute notice), to:
 

 
Southern Union Company
5444 Westheimer Road
Houston, TX 77056
Attention: Monica M. Gaudiosi,
SVP and Associate General Counsel
Telecopier: (713) 989-1213
 
and a copy (which shall not constitute notice) to:

Fleischman and Walsh, L.L.P.
1919 Pennsylvania Avenue, N.W., Suite 600
Washington, D.C. 20006
Attention: Seth M. Warner, Esquire
Telecopier: (202) 265-5706
 
If to Buyer, to:
 
National Grid USA
25 Research Dr.
Westborough, MA 01582
Attention: John Cochrane
Treasurer and Chief Financial Officer
Facsimile: 508 389-2605

with copies (which shall not constitute notice) to:

Skadden, Arps, Slate, Meagher & Flom LLP
1600 Smith, Suite 4400
Houston, Texas 77002
Telephone: (713) 655-5100
Facsimile: (713) 655-5200
Attn: Frank Ed Bayouth II
 
and
 
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036-6522
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
Attn: Sheldon S. Adler
 

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or at such other address or number as shall be given in writing by a party to
the other party.
 
Section 13.3  Assignment. 
 
This Agreement may not be assigned, by operation of law or otherwise, by any
party hereto without the prior written consent of the other party hereto, such
consent not to be unreasonably withheld; provided, however, in the event of any
such assignment by a party by operation of law without the consent of the other
party as required above, such other party may consent to such assignment after
it has occurred and, in such event, this Agreement and all the provisions hereof
shall be binding upon the Person receiving such assignment by operation of law.
Notwithstanding the foregoing, Seller may assign all or part of its rights or
delegate all or part of its duties under this Agreement, without the prior
written consent of Buyer, to a qualified intermediary chosen by Seller to
structure all or part of the transactions contemplated hereby as a like-kind
exchange of property covered by Section 1031 of the IRC; provided that no such
assignment or delegation shall relieve Seller of its obligations hereunder, and
Seller shall remain primarily liable to Buyer pursuant to the terms of this
Agreement.
 
Section 13.4  Successor Bound. 
 
Subject to the provisions of Section 13.3, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
 
Section 13.5  Governing Law. 
 
The validity, performance, and enforcement of this Agreement and all Related
Documents, unless expressly provided to the contrary, shall be governed by the
laws of the State of New York without giving effect to the principles of
conflicts of law of such state.
 
Section 13.6  Cooperation. 
 
Each of the parties hereto agrees to use its commercially reasonable efforts to
take or cause to be taken all action, and to do or cause to be done all things
necessary, proper or advisable under applicable laws, regulations or otherwise,
to consummate and to make effective the transactions contemplated by this
Agreement, including the timely performance of all actions and things
contemplated by this Agreement to be taken or done by each of the parties
hereto.
 
Section 13.7  Construction of Agreement. 
 
The terms and provisions of this Agreement represent the results of negotiations
between Buyer and Seller, each of which has been represented by counsel of its
own choosing, and neither of which has acted under duress or compulsion, whether
legal, economic or otherwise. Accordingly, the terms and provisions of this
Agreement shall be interpreted and construed in accordance with their usual and
customary meanings, and Buyer and Seller hereby waive the application in
connection with the interpretation and construction of this Agreement of any
rule of law to the effect that ambiguous or conflicting terms or provisions
contained in this Agreement shall be interpreted or construed against the party
whose attorney prepared the
 

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executed draft or any earlier draft of this Agreement. It is understood and
agreed that neither the specification of any dollar amount in the
representations and warranties contained in this Agreement nor the inclusion of
any specific item in the Schedules or Exhibits is intended to imply that such
amounts or higher or lower amounts, or the items so included or other items, are
or are not material, and none of the parties shall use the fact of the setting
of such amounts or the fact of any inclusion of any such item in the Schedules
or Exhibits in any dispute or controversy between the parties as to whether any
obligation, item or matter is or is not material for purposes hereof. The word
“including” in this Agreement shall mean including without limitation. Words in
the singular shall be held to include the plural and vice versa and words of one
gender shall be held to include the other genders as the context requires. The
terms “hereof,” “herein,” and “herewith” and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole
(including all of the Schedules and Exhibits hereto) and not to any particular
provision of this Agreement, and Article, Section, paragraph, Exhibit and
Schedule references are to the Articles, Sections, paragraphs, Exhibits and
Schedules to this Agreement unless otherwise specified.
 
Section 13.8  Publicity. 
 
Neither party hereto shall issue, make or cause the publication of any press
release or other announcement with respect to this Agreement or the transactions
contemplated hereby, or otherwise make any disclosures relating thereto, without
the consent of the other party, such consent not to be unreasonably withheld or
delayed; provided, however, that such consent shall not be required where such
release or announcement is required by applicable law or the rules or
regulations of a securities exchange, in which event the party so required to
issue such release or announcement shall endeavor, wherever possible, to furnish
an advance copy of the proposed release to the other party.
 
Section 13.9  Waiver. 
 
Except as otherwise expressly provided in this Agreement, neither the failure
nor any delay on the part of any party to exercise any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise or waiver of any such right, power or privilege preclude any other or
further exercise thereof, or the exercise of any other right, power or privilege
available to each party at law or in equity.
 
Section 13.10  Parties in Interest. 
 
This Agreement (including the documents and instruments referred to herein) is
not intended to confer upon any Person, other than the parties hereto and their
successors and permitted assigns, any rights or remedies hereunder provided,
however, that the indemnification provisions in Article XII shall inure to the
benefit of the Buyer Indemnitees and the Seller Indemnitees as provided therein.
 
Section 13.11  Section and Paragraph Headings. 
 
The section and paragraph headings in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
 

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Section 13.12  Amendment. 
 
This Agreement may be amended only by an instrument in writing executed by the
parties hereto.
 
Section 13.13  Entire Agreement. 
 
This Agreement, the Exhibits and Schedules hereto and the documents specifically
referred to herein and the Confidentiality Agreement constitute the entire
agreement, understanding, representations and warranties of the parties hereto,
and supersede all prior agreements, both written and oral, between Buyer and
Seller. All Exhibits and Schedules annexed hereto or referred to herein are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Disclosure of any fact or item in any Schedule referenced by a
particular paragraph or Section in this Agreement shall, should the existence of
the fact or item or its contents be relevant to any other paragraph or Section,
be deemed to be disclosed with respect to that other paragraph or Section
whether or not any explicit cross-reference appears therein but only to the
extent that such relevance is clearly and readily apparent from the face of such
disclosure; provided, however, that notwithstanding the foregoing, no
disclosures shall be deemed to be disclosed on Schedule 5.21 except for such
disclosures explicitly set forth thereon or explicitly incorporated by reference
into Schedule 5.21.
 
Section 13.14  Counterparts. 
 
This Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument.
 
Section 13.15  Severability. 
 
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
 
Section 13.16  Consent to Jurisdiction. 
 
The parties hereby irrevocably submit to the exclusive jurisdiction of the
courts of the State of New York located in the Borough of Manhattan and the
federal courts of the United States of America located in the Southern District
of the State of New York over any dispute arising out of or relating to this
Agreement or any of the transactions contemplated hereby, and each party
irrevocably agrees that all claims in respect of such dispute or proceeding
shall be heard and determined in such courts. The parties hereby irrevocably
waive, to the fullest extent
 

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permitted by applicable law, any objection which they may now or hereafter have
to the venue of any dispute arising out of or relating to this Agreement or any
of the transactions contemplated hereby brought in such court or any defense of
inconvenient forum for the maintenance of such dispute. Each party agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by applicable law.
 

 

 
[signature page to follow]

 

 

 
 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their duly authorized officers as of the date first written above.
 

SOUTHERN UNION COMPANY 

By: /s/ Julie H. Edwards 
Julie H. Edwards
Senior Vice President and Chief Financial Officer

NATIONAL GRID USA 

By: /s/ Michael E. Jesanis 
Michael E. Jesanis
President and Chief Executive Officer

[Signature page to Purchase and Sale Agreement between
Southern Union Company and National Grid USA]
 
 

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EXECUTION COPY

EMPLOYEE AGREEMENT

This EMPLOYEE AGREEMENT (this “Agreement”), is made as of the 15th day of
February, 2006, by and between SOUTHERN UNION COMPANY, a Delaware corporation
(“Seller”), and National Grid USA, a Delaware corporation (“Buyer”).

W I T N E S S E T H:

WHEREAS, Seller is engaged in the Business;

WHEREAS, Seller and Buyer have entered into the Purchase and Sale Agreement,
dated as of February 15, 2006 (the “Sale Agreement”), in which this Agreement is
incorporated by reference;

WHEREAS, Buyer intends to offer, or cause an Affiliate of Buyer to offer,
employment to all persons who are employed in the Business; and

WHEREAS, Seller and Buyer have determined that it is desirable to provide detail
with respect to the manner in which assets and liabilities will be allocated by
and among Seller and Buyer in connection with the transactions contemplated by
the Sale Agreement with respect to Employees and Former Employees;

NOW, THEREFORE, in consideration of the respective covenants, representations
and
warranties herein contained, the parties agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1 General. Capitalized terms used in this Agreement (including
Schedules to this Agreement) not defined herein shall have the meanings ascribed
to them in the Sale Agreement. For purposes of this Agreement (including
Schedules to this Agreement), the following terms shall have the meanings set
forth below.

“Base Compensation” shall mean an Employee’s base hourly wages or base salary,
as applicable.

“COBRA” shall mean the continuation coverage requirements for group health plans
under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and as codified in IRC Section 4980B and ERISA Sections 601-608.

“Collective Bargaining Agreements” shall mean (1) the Collective Bargaining
Agreement between New England Gas Company and United Steelworkers of America,
AFL-CIO-CLC, on behalf of United Steelworkers of America, Local 12431-01, (2)
the Collective Bargaining Agreement between Southern Union Company d/b/a New
England Gas Company

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and United Steelworkers of America, AFL-CIO-CLC, on behalf of United
Steelworkers of America Local 12431-02, and (3) the Collective Bargaining
Agreement between New England Gas Company and Utility Workers Union of America,
AFL-CIO, and Local Union No. 472.
 
“Continuation Period” shall mean the one-year period following the Closing Date.
 
“Employee” shall mean a person who is a full-time or part-time employee of
Seller, whether or not covered by a Collective Bargaining Agreement, whose
responsibilities pertain primarily to the Business on the Closing Date,
including an employee who is not actively at work on the Closing Date because
the employee is on workers’ compensation, on an approved leave of absence
(including an approved leave of absence with a legal or contractual right to
reinstatement, military leave, maternity leave, or leave under the Family and
Medical Leave Act of 1993) or absent due to vacation, disability, illness or
other similar circumstance, except that a person who is absent due to, and who
is on, long-term disability shall not be deemed to be an “Employee” hereunder
where such person is unable to perform the essential functions of his or her
job, with or without reasonable accommodation (or otherwise consistent with
applicable Legal Requirements). A preliminary list of Employees, as of January
31, 2006, is set forth in Schedule 1.1.

“For Cause” shall mean (1) the commission by the Transferred Employee of a
criminal or other act that causes or is reasonably likely to cause economic
damage to Buyer or injury to the business reputation of Buyer, (2) the
commission by the Transferred Employee of an act of fraud, theft or financial
dishonesty in the performance of the Transferred Employee’s duties, (3) the
continuing failure or continuing refusal of the Transferred Employee to
satisfactorily perform the duties of the Transferred Employee to Buyer, (4) the
disregard or violation by the Transferred Employee of the legal rights of any
employees of the Buyer or of the Buyer’s written policies regarding harassment
or discrimination, or (5) any other conduct materially detrimental to the
Buyer’s business.

“Former Employee” shall mean a person who was formerly employed by Seller, a
former owner of the Business, or an Affiliate of either, whose responsibilities
pertained primarily to the Business and who is not an Employee on the Closing
Date.

“Liabilities” shall mean any direct or indirect liability (whether absolute,
accrued or unaccrued, fixed or unfixed, choate or inchoate, secured or
unsecured, liquidated or unliquidated, matured or unmatured, known or unknown,
contingent or otherwise), indebtedness, obligation, expense, claim, charge,
cause of action, deficiency, guarantee or endorsement of or by a party,
including those arising under any applicable law or action, under any award of
any court, administrative agency, tribunal or arbitrator, and under any contract
or undertaking.

“New England FAS 106 Reports” shall mean “The Southern Union Company
Postretirement Medical and Death Benefits for ProvEnergy Employees Application
of Statement of Financial Accounting Standards Nos. 106 and 132 to the Fiscal
Year Ending December 31, 2005” and “The Southern Union Company Postretirement
Medical, Dental and Death Benefits for Valley Resources Employees Application of
Statement of Financial Accounting Standards

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Nos. 106 and 132(R) to the Fiscal Year Ending December 31, 2005,” draft copies
of which Seller has provided to Buyer.   

“Transferred Employee” shall mean an Employee who accepts Buyer’s offer of
employment pursuant to Section 2.3 and commences employment with Buyer or its
Affiliate.

Section 1.2 Terms Defined Elsewhere. For purposes of this Agreement (including
Schedules to this Agreement), the following terms have the meanings set forth in
the sections indicated.

Term     Section

 
Absent Employee……………………………………2.3(a)
Absent Employee’s Start Date…  …………………2.3(a)
Agreement  Preamble
Buyer  Preamble
Buyer’s 401(k) Plan 3.2
New England VEBAs………………  …………….. 4.6
Sale Agreement ………………………......…. Preamble
Seller Preamble
Seller’s 401(k) Plan 3.2
Seller’s Flex Plan…………………………..……….. 4.5
Seller’s Pension Plans 3.1
Severance Benefits ………………………………… 2.4(b)
WARN Act…………………………………………. 7.3(a)
 
ARTICLE II
EMPLOYEES

Section 2.1 Employee List. Not later than five (5) business days following the
execution of the Sale Agreement, Seller shall provide to Buyer an updated list,
as of the date of the Sale Agreement, of Employees originally provided to Buyer
in Schedule 1.1, which shall consist not only of the names, but also (to the
extent permitted by applicable Legal Requirements) job titles, job locations,
Base Compensation, employment status (e.g., active, inactive, on leave), date of
hire, and union or non-union status, of all Employees. Seller shall provide
Buyer with a revised Schedule 1.1, updated as of the Closing Date, within ten
(10) days following the Closing Date. Seller agrees that, during the period
following the execution of the Sale Agreement and prior to the Closing Date,
Seller shall not transfer an employee of Seller or any Affiliate of Seller,
whose responsibilities prior to the transfer do not pertain primarily to the
Business, to a position where the employee has responsibilities that pertain
primarily to the Business.

Section 2.2 Collective Bargaining Agreements. Effective as of the Closing Date,
Buyer shall assume and agree to perform all obligations of Seller and/or New
England Gas

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Company under the Collective Bargaining Agreements, and the Collective
Bargaining Agreements shall thereafter be binding on Buyer.
 
Section 2.3 Offers of Employment to Employees

(a) At least thirty (30) days prior to the anticipated Closing Date, Buyer shall
offer employment to all Employees (including Employees who are not actively at
work on the Closing Date because the Employee is on workers’ compensation, on an
approved leave of absence (including an approved leave of absence with a legal
or contractual right to reinstatement, military leave, maternity leave, or leave
under the Family and Medical Leave Act of 1993) or absent due to vacation,
disability, illness or other similar circumstance (each, an “Absent Employee”)),
effective as of 12:01 a.m. on the Closing Date (except as provided in the
following sentence), with at least the same level of Base Compensation as was in
effect for each such Employee immediately prior to the Closing Date. The offer
to an Absent Employee shall be made for employment effective as of the
expiration of the approved leave of absence or the Absent Employee’s other
return from workers’ compensation, vacation, disability, illness or other
similar circumstance, provided that such offer of employment shall remain open
no later than (1) one hundred eighty (180) days following the Closing Date, or
(2) such longer period as may be consistent with applicable Legal Requirements
(as to each Absent Employee, the “Absent Employee’s Start Date”). An Absent
Employee who does not return to work after the expiration of an approved leave
of absence or otherwise under the preceding sentence shall not be considered a
Transferred Employee hereunder. Notwithstanding the foregoing, Seller and Buyer
agree that the Employees listed in Schedule 2.3(a) may have the opportunity to
continue employment with Seller; provided that Buyer shall have reasonable
access to the Employees listed in Schedule 2.3(a) prior to and after the Closing
Date.

(b) Buyer shall notify Seller of the Employees’ responses to Buyer’s offers of
employment under this Section 2.3 as soon as administratively feasible after
receiving each Employee’s response. Buyer and Seller shall cooperate fully to
facilitate the preparation of Buyer’s offers of employment and such offers shall
include the language set forth in Schedule 2.3(b) or similar language reasonably
acceptable to Buyer and Seller.

Section 2.4 Employment of Transferred Employees

(a) Buyer shall employ, as of 12:01 a.m. on the Closing Date, all of the
Employees who accept Buyer’s offer of employment, except that each Absent
Employee shall be deemed employed by Buyer as of 12:01 a.m. on the Absent
Employee’s Start Date.

(b) In the event that (1) on the Closing Date or during the Continuation Period,
the employment of a Transferred Employee (other than a Transferred Employee
covered by a collective bargaining agreement) is terminated by the Buyer or an
Affiliate of Buyer, other than For Cause, or (2) during the Continuation Period,
Buyer fails to provide a Transferred Employee (other than a Transferred Employee
covered by a collective bargaining agreement) with at least the same level of
Base Compensation as was in effect immediately prior to the Closing Date, then
Buyer shall be responsible for and shall pay to such Transferred Employee, in a
lump sum payment, not later than sixty (60) days following the date of the
Transferred Employee’s

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termination of employment, the following severance benefit (the “Severance
Benefits”): two weeks of the Employee’s Base Compensation at termination of
employment for each full or partial year of service, measured from the
Transferred Employee’s date of hire reflected in Schedule 1.1, not to exceed
fifty-two (52) weeks of such Base Compensation; provided, however, that in no
event shall such Severance Benefit be less than six (6) weeks of such Base
Compensation. The costs incurred, directly or indirectly, in connection with the
termination of employment of any Transferred Employee on or after the Closing
Date shall be borne exclusively by Buyer. Buyer’s obligation to provide the
Severance Benefits shall be subject to the Transferred Employee executing a
release of all claims against the Buyer and its Affiliates, and the Seller and
its Affiliates, in a form reasonably satisfactory to Buyer.
 
Section 2.5 Prior Service Credit. On and after the Closing Date, for each
Transferred Employee not covered by a Collective Bargaining Agreement and, to
the extent consistent with Section 2.2, each Transferred Employee covered by a
Collective Bargaining Agreement, Buyer and its Affiliates shall recognize
service for Seller, a former owner of the Business, or an Affiliate of either,
prior to the Closing Date, for all employee benefit and employment-related
purposes, other than for purposes of defined benefit plans and post-retirement
health, dental and life insurance benefits (except as required by Section 3.1 or
Section 4.6).

Section 2.6 Vacation. Buyer shall permit each Transferred Employee to carry
forward (to the same extent allowed to be carried forward by Seller) and to
receive paid time off for all vacation days (including sick days and personal
days) accrued prior to the Closing Date. As soon as administratively feasible
following execution of the Sale Agreement, Seller shall provide to Buyer a list
reflecting the paid time off balances standing to the credit of each Transferred
Employee as of the date of the Sale Agreement. Seller shall provide Buyer with a
revised list, updated as of the Closing Date, within ten (10) days following the
Closing Date.

ARTICLE III
PENSION, 401(k) AND NONQUALIFIED PLANS

Section 3.1 Pension Plans. Seller has no defined benefit plans that cover the
Employees and that are intended to be qualified plans other than the Southern
Union Company ProvEnergy Pension Plan for Non-Bargaining Unit Employees, the
Southern Union Company ProvEnergy Pension Plan for Bargaining Unit Employees,
the Southern Union Company Valley Resources Employees’ Retirement Plan and the
Southern Union Company Valley Resources Employees’ Pension Plan (collectively,
“Seller’s Pension Plans”). Effective as of the Closing Date, Buyer shall assume
sponsorship of, and all assets (held in trust), liabilities and obligations
under, Seller’s Pension Plans, including liability for any contributions due on
or after the Closing Date. Seller and Buyer shall take all action necessary and
appropriate to establish Buyer, effective as of the Closing Date, as successor
to Seller as to all rights, assets (held in trust), duties, liabilities and
obligations under or with respect to Seller’s Pension Plans. Buyer shall be
responsible for the preparation and filing of any annual reports relating to
plan years that include the Closing Date; provided, however, that Seller shall
furnish Buyer with such information concerning Seller’s Pension Plans as is
necessary to prepare such forms.

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Section 3.2 401(k) Plans. Seller has no defined contribution plan that covers
the Employees and that is intended to be a qualified plan other than the
Southern Union Savings Plan, which includes a qualified cash or deferred
arrangement under IRC Section 401(k) (“Seller’s 401(k) Plan”). As of the Closing
Date, Seller shall vest the Transferred Employees in their account balances
under Seller’s 401(k) Plan. If the Transferred Employees will be eligible to
participate in a defined contribution plan maintained by Buyer ("Buyer’s 401(k)
Plan"), immediately following the Closing Date, Buyer shall take all actions
necessary to ensure that Buyer’s 401(k) Plan accepts from any Transferred
Employee a rollover or direct rollover of all of his or her account balance
under Seller’s 401(k) Plan, including his or her loan balances and related loan
documentation; provided that a Transferred Employee shall only be permitted to
roll over his or her loan balances and related loan documentation if the
Transferred Employee makes a rollover or direct rollover of all of his or her
account balance under Seller’s 401(k) Plan. If the Transferred Employees will be
eligible to participate in Buyer’s 401(k) Plan, the trustee or recordkeeper of
Seller’s 401(k) Plan shall transfer to the trustee or recordkeeper of Buyer’s
401(k) Plan any loan documentation for loans to be rolled over or transferred to
Buyer’s 401(k) Plan.  The Transferred Employees shall not be required to roll
over, or otherwise transfer, their account balances under Seller’s 401(k) Plan
to Buyer’s 401(k) Plan.

Section 3.3 Nonqualified Deferred Compensation Plans and Individual Deferred
Compensation and Other Arrangements. Except as provided in Section 4.6, Buyer
shall assume no liability or responsibility, and the Seller shall retain all
liabilities and responsibilities, with respect to (a) the Southern Union Company
Supplemental Deferred Compensation Plan, which is a nonqualified deferred
compensation plan maintained by Seller, (b) the five (5) nonqualified deferred
compensation plans listed in Item 1 of Schedule 3.3, and (c) the three (3)
individual deferred compensation and other arrangements listed in Item 2 of
Schedule 3.3. Under the Sale Agreement, “Excluded Assets” include the assets
held in the three rabbi trusts listed in Item 3 of Schedule 3.3 and other life
insurance policies purchased to support obligations under the nonqualified
deferred compensation plans and individual deferred compensation and other
arrangements described in this Section 3.3.

ARTICLE IV
OTHER BENEFITS

Section 4.1 Welfare Benefit Plans. Coverage of all Transferred Employees under
each Employee Plan that is an “employee welfare benefit plan” within the meaning
of Section 3(1) of ERISA to which Seller or any Affiliate of Seller is a party
or by which any of them is bound, shall cease as of the Closing Date (or in the
case of an Absent Employee, on the Absent Employee’s Start Date, unless sooner
terminated in accordance with Seller’s policies or the terms of an Employee
Plan). To the extent that Buyer or an Affiliate of Buyer offers health insurance
benefits to any employees, Buyer agrees to offer health insurance benefits to
all Transferred Employees.  
 
Section 4.2 COBRA. Seller shall provide continuation coverage required under
COBRA to all eligible Employees and Former Employees and their qualified
beneficiaries attributable to a “qualifying event” (as defined in COBRA) that
occurs on or prior to the Closing

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Date. After the Closing Date, Buyer shall provide continuation coverage required
under COBRA to all eligible Transferred Employees and their qualified
beneficiaries attributable to a “qualifying event” (as defined in COBRA) that
occurs after the Closing Date.

Section 4.3 Individuals on Long-Term Disability. Any individual who, as of the
Closing Date, is eligible for long-term disability benefits shall be covered
under Seller’s long-term disability plan. In addition, any Employee who, as of
the Closing Date, is absent due to short-term disability, who does not become a
Transferred Employee, and who becomes eligible for long-term disability benefits
under Seller’s long-term disability plan after the Closing Date shall be covered
under Seller’s long-term disability plan.

Section 4.4 Workers’ Compensation. The parties agree that workers’ compensation
benefits for the Transferred Employees will be handled as provided in this
Section 4.4. With respect to occurrences on or after the Closing Date, workers’
compensation benefits shall be subject to Buyer’s workers’ compensation
policies, programs and plans, and Buyer shall bear sole financial responsibility
with respect to such benefits. With respect to occurrences prior to the Closing
Date, workers’ compensation benefits shall be subject to Seller’s workers’
compensation policies, programs and plans, and Seller shall have financial
responsibility for all expenses. The expenses referred to in the preceding
sentence include all expenses not recoverable under Seller’s insurance
(specifically including settlement amounts, third party administrator expenses,
and expenses as set forth or defined in applicable Travelers Insurance
agreements such as deductible plan charges, retrospective premium adjustments,
non-loss responsive premiums and adjustments, miscellaneous charges, tax
assessments and surcharges, collection costs and damages, and collateral costs).

Section 4.5 Flexible Spending Accounts. As soon as administratively feasible
after the Closing Date, Seller shall transfer to Buyer’s flexible benefits plan,
in cash, any health care and dependent care balances standing to the credit of
Transferred Employees under the Southern Union Company Flexible Benefit Plan
(“Seller’s Flex Plan”) as of the day immediately preceding the Closing Date, and
Buyer shall reimburse Transferred Employees for all eligible health and
dependent care expenses submitted on or after the Closing Date. As soon as
administratively feasible after the Closing Date, Seller shall provide to Buyer
a list of those Transferred Employees who have participated in the health or
dependent care reimbursement accounts under Seller’s Flex Plan, together with
their elections made prior to the Closing Date with respect to such accounts,
and balances standing to their credit as of the day immediately prior to the
Closing Date.

Section 4.6 Post-Retirement Benefit Plans. Effective as of the Closing Date,
Buyer shall assume and be responsible for all liabilities and obligations of
Seller and/or New England Gas Company to provide post-retirement health, dental
and life insurance benefits described in and/or valued under the New England FAS
106 Reports, whether such benefits are currently being paid or are to be paid in
the future to any Employee or Former Employee, including (a) post-retirement
life insurance benefits under the agreement listed in Item 2.a of Schedule 3.3,
and (b) other post-retirement health, dental and life insurance benefits for
eligible individuals and their beneficiaries covered under the plans and
arrangements described in Section 3.3. Seller and Buyer shall take all action
necessary and appropriate to establish Buyer, effective as of the

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Closing Date, as successor to Seller as to all rights, assets (held in trust),
duties, liabilities and obligations under or with respect to the “New England
VEBAs,” as defined in the following sentence. The “New England VEBAs” are (1)
the Southern Union Company ProvEnergy Non-Bargaining VEBA, (2) the Southern
Union Company ProvEnergy Bargaining VEBA, and (3) the Valley Gas Company
Employee Benefit Trust (under which separate accounts are maintained for union
and non-union benefits). Seller and Buyer shall take all action necessary and
appropriate to have the New England VEBAs make reimbursements for claims
incurred prior to the Closing Date. Seller shall retain all liabilities and
responsibilities for the post-retirement health, dental and life insurance
benefits that are not described in and/or valued under the New England FAS 106
Reports, specifically (a) the post-retirement dental insurance benefit under the
agreement listed in Item 2.a of Schedule 3.3, and (b) the post-retirement
health, dental and vision insurance benefits for the individual and his spouse
under the agreement listed in Item 2.c of Schedule 3.3.  
ARTICLE V
LIABILITIES

Except as otherwise provided in this Agreement, Buyer, for itself and its
Affiliates, assumes and agrees to pay, perform, fulfill and discharge when due
all Liabilities, including litigation costs, with respect to a Transferred
Employee or a dependent or beneficiary of a Transferred Employee relating to,
arising out of or resulting from employment in connection with the Business
prior to, on or after the Closing Date. Except as otherwise provided in this
Agreement, Seller retains and shall pay, perform, fulfill and discharge all
Liabilities with respect to Former Employees and Employees who are not
Transferred Employees.
 
ARTICLE VI
RECORDS AND INFORMATION

Section 6.1 Records. On or soon after the Closing Date, Seller shall deliver to
Buyer, to the extent permitted by applicable Legal Requirements, all personnel
files and records in its possession relating to the Transferred Employees,
including active contracts, litigation files, annual reviews, grievances and any
other information that is part of the personnel file of a Transferred Employee.
Prior to the Closing Date, subject to applicable Legal Requirements, Seller
shall provide Buyer with reasonable access to information and records in its
possession relating to the Transferred Employees. Subject to applicable Legal
Requirements, from and after the Closing Date, all such files and records shall
be the property of Buyer, provided, that Seller may copy such files and records
prior to transferring them to Buyer.

Section 6.2 Access to Information. From and after the Closing Date, Buyer shall
afford to Seller reasonable and timely access and duplicating rights, during
normal business hours and upon reasonable advance notice, to the personnel files
and records in the possession or control of Buyer, insofar as such access is
reasonably required for a reasonable business purpose, subject to applicable
Legal Requirements. Without limiting the foregoing, information may be requested
under this Section 6.2 for audit, accounting, claims, litigation and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations.

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Section 6.3 Confidentiality. Buyer and its Affiliates shall preserve the
confidentiality, in accordance with all applicable Legal Requirements, of all
information contained in the personnel files and records obtained from Seller
pursuant to this Agreement.

ARTICLE VII
GENERAL PROVISIONS

Section 7.1 Cooperative Actions. Seller and Buyer shall cooperate with each
other in carrying out, implementing and defending the terms of this Agreement,
including cooperating with each other with respect to any claims or litigation
challenging any of the terms of this Agreement. Seller and Buyer agree to good
faith mutual cooperation in any investigation, inquiry or litigation which
jointly involves them or in which a party makes a reasonable request for
cooperation. Each party will make its employees available on a reasonable basis
to give testimony and assistance in connection with any lawsuit, dispute,
investigation or proceeding involving the other party; provided, however, that
such other party shall pay for all out-of-pocket costs incurred in connection
with providing such testimony and assistance. Except as otherwise provided in
this Agreement, each party will pay all costs and expenses of its performance of
and compliance with this Agreement.

Section 7.2 Parties in Interest. No provision of this Agreement shall confer
upon any person, other than the parties hereto, their Affiliates, successors and
permitted assigns, any rights or remedies hereunder, including any rights or
remedies with respect to the employment, compensation, benefits or other terms
and conditions of employment of any person.

Section 7.3 WARN Act.

(a) On or before the Closing Date, Seller shall provide a list of the name and
site of employment of any and all employees of Seller who have experienced, or
who will experience, an employment loss or layoff (as defined by the Worker
Adjustment and Retraining Notification Act of 1988 or any similar applicable
state or local law requiring notice to employees in the event of a closing or
layoff (the “WARN Act”)) within ninety (90) days prior to the Closing Date.
Seller shall update this list up to and including the Closing Date.

(b) For a period of ninety (90) days after the Closing Date, Buyer shall not
engage in any conduct which would result in an employment loss or layoff for a
sufficient number of employees of Buyer which, if aggregated with any such
conduct on the part of Seller prior to the Closing Date, would trigger the WARN
Act.

Section 7.4 Satisfaction of Liabilities by Affiliate. Obligations of Buyer
hereunder may be satisfied by an Affiliate of Buyer.

 
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their duly authorized officers as of the date first written above.

SOUTHERN UNION COMPANY 

By: /s/ Julie H. Edwards_______________
Name: Julie H. Edwards
Title: Senior Vice President & Chief
Financial Officer

NATIONAL GRID USA

By: /s/ John G. Cochrane_______________
Name: John G. Cochrane
Title: Executive Vice President, Treasurer
and Chief Financial Officer

[Signature page to Employee Agreement between
Southern Union Company and National Grid USA]