Document:

<PAGE>

                                                                 Exhibit 10.3

                  AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT

            THIS AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT is dated as of July
31, 1991, by and among CELITE HOLDINGS CORPORATION, a Delaware corporation ("New
Celite"), CELITE CORPORATION, a Delaware corporation and a wholly-owned
subsidiary of New Celite ("Buyer"), and MANVILLE SALES CORPORATION, a Delaware
corporation ("Seller").

                                  WITNESSETH:

            WHEREAS, Seller, Buyer and New Celite have heretofore entered into
that certain Asset Purchase Agreement dated as of July 1, 1991 ("Agreement"),
pursuant to which Seller agreed to sell and convey to Buyer certain properties
assets; and

            WHEREAS, Seller, Buyer and New Celite desire to amend the Agreement
as provided herein;

            NOW, THEREFORE, the parties hereto agree as follows:

            1. Amendment of Section 4.10(a). Section 4.10(a) of the Agreement is
hereby amended to provide that, in addition to the representations and
warranties contained therein, Seller hereby represents and warrants to Buyer and
New Celite that Seller has good and marketable title to the patented mining
claims at No Agua, New Mexico described in Schedule 4.10 to the Agreement
("Patented Mining Claims"). Notwithstanding anything to the contrary contained
in the Agreement, the foregoing representation and warranty shall expire as of
the earlier of (i) the expiration of the survival period provided for in Section
9.01 to the Agreement, or (ii) the date on which the Title Insurer shall issue
to Buyer an ALTA Owner's Policy of title insurance for the Patented Mining
Claims in the amount of Four Million Seven Hundred Ninety-Five Thousand Dollars
($4,795,000), subject only to the Title Insurer's pro forma exclusions, liens
for Taxes not yet due and payable and such other exclusions from coverage as do
not materially adversely affect the use or value of the Patented Mining Claims
as currently used or reserved for use, together with a mechanics' lien
indorsement acceptable to Buyer and such other indorsements as Buyer shall have
reasonably requested ("Mining Claims Title Policy").

            2. Amendment of Section 7.09. Section 7.09 of the Agreement is
hereby amended to provide that the Title Insurer's commitment to issue the
Mining Claims Title Policy at or prior to the Closing shall not be a condition
to Buyer's obligations under the Agreement.

<PAGE>

            3. Indemnification. The $650,000 threshold on Claims provided for in
Section 9.02(b)(i) of the Agreement shall not apply to a Claim incurred by a
Buyer Indemnitee under Section 9.02(a)(i) of the Agreement by reason of a breach
of the representation and warranty contained in Section 1 of this Amendment.
Notwithstanding the provisions of Section 9.02(b)(ii) of the Agreement, any
claim for indemnification with respect to any such Claim shall be made within
the period of time provided for in Section 1 of this Amendment.

            4. Capitalized Terms. Unless otherwise defined herein, capitalized
terms used in this Amendment shall have the meanings attributed to them in the
Agreement.

            5. Limitation on Amendment. Except as modified by this Amendment,
all of the terms and conditions contained in the Agreement shall remain in full
force and effect and hereby ratified and confirmed.

            IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by the duly authorized officers on New Celite, Buyer and Seller of the
date first above written.

                                                CELITE HOLDINGS CORPORATION,
                                                   a Delaware corporation

                                                By: /s/ David B. Cuming
                                                    ---------------------------

                                                CELITE  CORPORATION,
                                                   a Delaware corporation

                                                By: /s/ David B. Cuming
                                                    ---------------------------

                                                MANVILLE  SALES  CORPORATION,
                                                   a Delaware corporation

                                                By: /s/ Charles R. Engles
                                                    ---------------------------

                                      -2-<PAGE>

                                                                    EXHIBIT 10.4

                     AMENDMENT TO ASSET PURCHASE AGREEMENT

      Mineral Holdings, Inc.(f/k/a Celite Holdings Corporation) ("Holdings"), a
Delaware corporation Celite Corporation ("Celite"), a Delaware corporation, and
Johns Manville (f/k/a Johns Manville International, Inc., f/k/a Manville Sales
Corporation) ("Manville"), a Delaware corporation, hereby amend the Asset
Purchase Agreement dated July 1, 1991 among Celite Holdings Corporation, Celite
Corporation and Manville Sales Corporation ("APA").

      WHEREAS, Section 10.03 of the APA provides that the APA may be amended
solely by written instrument signed on behalf of all the parties to the APA; and

      WHEREAS, Article 9 of the APA sets forth the parties' agreement concerning
indemnification obligations; and

      WHEREAS, during the period from the closing of the APA through the date
hereof, the parties have developed mutually satisfactory procedures for handling
claims that are or may be subject to Article 9 of the APA; and

      WHEREAS, the parties mutually desire to continue such procedures and to
extend the duration of the indemnification obligations provided for in Article 9
of the APA for an additional three years,

      IT IS HEREBY AGREED as follows:

      1. Each of Section 9.02(b)(v) and Section 9.02(d)(v) of to APA is amended
so that the words "within fifteen years from the Closing Date" are changed to
"no later than July 31, 2009".

      2. This Amendment does not alter, amend or waive any term, condition or
provision of the APA other than Sections 9.02(b)(v) and 9.02(d)(v).

<PAGE>

      3. This Amendment may be executed simultaneously in counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.

MINERAL HOLDINGS, INC.                           CELITE CORPORATION
(f/k/a Celite Holdings Corporation)

/s/ Susan Radcliffe                              /s/ Francois Macquet
------------------------------------------       -------------------------------
By: Susan Radcliffe                              By: Francois Macquet
Title: Secretary                                 Title: Treasurer
Date: 5-11-06                                    Date: 5-11-06

JOHNS MANVILLE
(f/k/a Johns Manville International, Inc.,
f/k/a Manville Sales Corporation)

/s/ Sandra S. Hall
------------------------------------------
By: Sandra S. Hall
Title: Associate General Counsel
Date: 5-11-06EX-4.A

 

Exhibit 4(a)

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

DATED AS OF FEBRUARY 25, 2006

between

NATIONAL GRID PLC,

NATIONAL GRID US8 INC.

and

KEYSPAN CORPORATION

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE I THE MERGER	 	 	2	 
	 
	 	 	 	 	 	 
	1.1.
	 	Effective Time of the Merger	 	 	2	 
	 
	 	 	 	 	 	 
	1.2.
	 	Closing	 	 	3	 
	 
	 	 	 	 	 	 
	1.3.
	 	Effects of the Merger	 	 	3	 
	 
	 	 	 	 	 	 
	1.4.
	 	Certificate of Incorporation and By-Laws	 	 	3	 
	 
	 	 	 	 	 	 
	1.5.
	 	Directors and Officers	 	 	4	 
	 
	 	 	 	 	 	 
	ARTICLE II EFFECT OF THE MERGER ON
THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; SURRENDER

        OF CERTIFICATES	 	 	5	 
	 
	 	 	 	 	 	 
	2.1.
	 	Effect on Capital Stock	 	 	5	 
	 
	 	 	 	 	 	 
	2.2.
	 	Surrender of Certificates	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES	 	 	12	 
	 
	 	 	 	 	 	 
	3.1.
	 	Representations and Warranties of KeySpan	 	 	12	 
	 
	 	 	 	 	 	 
	3.2.
	 	Representations and Warranties of Parent and Merger Sub	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS	 	 	13	 
	 
	 	 	 	 	 	 
	4.1.
	 	Covenants of KeySpan	 	 	13	 
	 
	 	 	 	 	 	 
	4.2.
	 	Covenants of Parent	 	 	13	 
	 
	 	 	 	 	 	 
	4.3.
	 	Advice of Changes; Governmental Filings	 	 	13	 
	 
	 	 	 	 	 	 
	4.4.
	 	Transition Planning	 	 	13	 
	 
	 	 	 	 	 	 
	4.5.
	 	Control of Other Party’s Business	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE V ADDITIONAL AGREEMENTS	 	 	13	 
	 
	 	 	 	 	 	 
	5.1.
	 	Preparation of Proxy Statement and Circular; Stockholders Meetings	 	 	13	 
	 
	 	 	 	 	 	 
	5.2.
	 	Corporate Governance	 	 	13	 
	 
	 	 	 	 	 	 
	5.3.
	 	Access to Information	 	 	13	 
	 
	 	 	 	 	 	 
	5.4.
	 	Reasonable Best Efforts	 	 	13	 
	 
	 	 	 	 	 	 
	5.5.
	 	No Solicitation by KeySpan	 	 	13	 
	 
	 	 	 	 	 	 
	5.6.
	 	KeySpan Stock Options and Other Stock Awards; Employee Benefits Matters	 	 	13	 
	 
	 	 	 	 	 	 
	5.7.
	 	Fees and Expenses	 	 	13	 
	 
	 	 	 	 	 	 
	5.8.
	 	Directors’ and Officers’ Indemnification and Insurance	 	 	13	 
	 
	 	 	 	 	 	 
	5.9.
	 	Public Announcements	 	 	13	 
	 
	 	 	 	 	 	 
	5.10.
	 	Conveyance Taxes	 	 	13	 

i

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	5.11.
	 	Restructuring of Merger	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE VI CONDITIONS PRECEDENT	 	 	13	 
	 
	 	 	 	 	 	 
	6.1.
	 	Conditions to Each Party’s Obligation to Effect the Merger	 	 	13	 
	 
	 	 	 	 	 	 
	6.2.
	 	Additional Conditions to Obligations of Parent and Merger Sub	 	 	13	 
	 
	 	 	 	 	 	 
	6.3.
	 	Additional Conditions to Obligations of KeySpan	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE VII TERMINATION AND AMENDMENT	 	 	13	 
	 
	 	 	 	 	 	 
	7.1.
	 	Termination	 	 	13	 
	 
	 	 	 	 	 	 
	7.2.
	 	Effect of Termination	 	 	13	 
	 
	 	 	 	 	 	 
	7.3.
	 	Amendment	 	 	13	 
	 
	 	 	 	 	 	 
	7.4.
	 	Extension; Waiver	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE VIII GENERAL PROVISIONS	 	 	13	 
	 
	 	 	 	 	 	 
	8.1.
	 	Non-Survival of Representations, Warranties and Agreements	 	 	13	 
	 
	 	 	 	 	 	 
	8.2.
	 	Notices	 	 	13	 
	 
	 	 	 	 	 	 
	8.3.
	 	Interpretation	 	 	13	 
	 
	 	 	 	 	 	 
	8.4.
	 	Counterparts	 	 	13	 
	 
	 	 	 	 	 	 
	8.5.
	 	Entire Agreement; Third Party Beneficiaries	 	 	13	 
	 
	 	 	 	 	 	 
	8.6.
	 	Governing Law	 	 	13	 
	 
	 	 	 	 	 	 
	8.7.
	 	No Limitation on Other Representation	 	 	13	 
	 
	 	 	 	 	 	 
	8.8.
	 	Severability	 	 	13	 
	 
	 	 	 	 	 	 
	8.9.
	 	Assignment	 	 	13	 
	 
	 	 	 	 	 	 
	8.10.
	 	Submission to Jurisdiction; Waivers	 	 	13	 
	 
	 	 	 	 	 	 
	8.11.
	 	Enforcement	 	 	13	 
	 
	 	 	 	 	 	 
	8.12.
	 	Definitions	 	 	13	 
	 
	 	 	 	 	 	 
	8.13.
	 	Other Agreements	 	 	13	 

ii

 

INDEX OF DEFINED TERMS

	 	 	 	 	 
	 	 	Page(s)	 
	Acquisition Agreement
	 	 	32	 
	 
	 	 	 	 
	Additional KeySpan Consents
	 	 	31	 
	 
	 	 	 	 
	Agreement
	 	 	1	 
	 
	 	 	 	 
	Antitrust Law
	 	 	31	 
	 
	 	 	 	 
	Benefit Plans
	 	 	14	 
	 
	 	 	 	 
	Blue Sky Laws
	 	 	8	 
	 
	 	 	 	 
	Board of Directors
	 	 	46	 
	 
	 	 	 	 
	Business Day
	 	 	46	 
	 
	 	 	 	 
	Canceled Option
	 	 	34	 
	 
	 	 	 	 
	Certificate of Merger
	 	 	1	 
	 
	 	 	 	 
	Certificates
	 	 	3	 
	 
	 	 	 	 
	Circular
	 	 	27	 
	 
	 	 	 	 
	Closing
	 	 	1	 
	 
	 	 	 	 
	Closing Date
	 	 	1	 
	 
	 	 	 	 
	Code
	 	 	4	 
	 
	 	 	 	 
	Companies Act
	 	 	20	 
	 
	 	 	 	 
	Confidentiality Agreement
	 	 	30	 
	 
	 	 	 	 
	Constituent Corporations
	 	 	2	 
	 
	 	 	 	 
	DOJ
	 	 	30	 
	 
	 	 	 	 
	Effective Time
	 	 	1	 
	 
	 	 	 	 
	End Date
	 	 	41	 
	 
	 	 	 	 
	Environmental Laws
	 	 	17	 
	 
	 	 	 	 
	Environmental Permits
	 	 	17	 
	 
	 	 	 	 
	ERISA
	 	 	14	 
	 
	 	 	 	 
	Exchange Act
	 	 	8	 
	 
	 	 	 	 
	Exchange Agent
	 	 	3	 
	 
	 	 	 	 
	Exchange Fund
	 	 	3	 
	 
	 	 	 	 
	FCC
	 	 	8	 
	 
	 	 	 	 
	Federal Power Act
	 	 	8	 
	 
	 	 	 	 
	FERC
	 	 	10	 

 

 

	 	 	 	 	 
	 	 	Page(s)	 
	Final Order
	 	 	38	 
	 
	 	 	 	 
	GAAP
	 	 	9	 
	 
	 	 	 	 
	Governmental Entity
	 	 	8	 
	 
	 	 	 	 
	HSR Act
	 	 	8	 
	 
	 	 	 	 
	Indemnified Parties
	 	 	36	 
	 
	 	 	 	 
	Joint Venture
	 	 	5	 
	 
	 	 	 	 
	KeySpan
	 	 	1	 
	 
	 	 	 	 
	KeySpan Benefit Plans
	 	 	14	 
	 
	 	 	 	 
	KeySpan Board Approval
	 	 	12	 
	 
	 	 	 	 
	KeySpan Certificates
	 	 	3	 
	 
	 	 	 	 
	KeySpan Common Stock
	 	 	2	 
	 
	 	 	 	 
	KeySpan Disclosure Schedule
	 	 	5	 
	 
	 	 	 	 
	KeySpan Employees
	 	 	35	 
	 
	 	 	 	 
	KeySpan Financial Advisor
	 	 	13	 
	 
	 	 	 	 
	KeySpan Financial Statements
	 	 	9	 
	 
	 	 	 	 
	KeySpan Intellectual Property
	 	 	17	 
	 
	 	 	 	 
	KeySpan Material Contracts
	 	 	17	 
	 
	 	 	 	 
	KeySpan Required Approvals
	 	 	8	 
	 
	 	 	 	 
	KeySpan SEC Reports
	 	 	9	 
	 
	 	 	 	 
	KeySpan Stockholders Meeting
	 	 	28	 
	 
	 	 	 	 
	Knowledge
	 	 	46	 
	 
	 	 	 	 
	Law
	 	 	8	 
	 
	 	 	 	 
	Liens
	 	 	7	 
	 
	 	 	 	 
	LSE
	 	 	19	 
	 
	 	 	 	 
	Material Adverse Effect
	 	 	46	 
	 
	 	 	 	 
	Materials of Environmental Concern
	 	 	17	 
	 
	 	 	 	 
	Merger
	 	 	1	 
	 
	 	 	 	 
	Merger Consideration
	 	 	2	 
	 
	 	 	 	 
	Merger Sub
	 	 	1	 
	 
	 	 	 	 
	Merger Sub Common Stock
	 	 	2	 
	 
	 	 	 	 
	NHPUC
	 	 	8	 
	 
	 	 	 	 
	NLRB
	 	 	15	 
	 
	 	 	 	 
	NYBCL
	 	 	1	 

iv

 

	 	 	 	 	 
	 	 	Page(s)	 
	NYPSC
	 	 	8	 
	 
	 	 	 	 
	Order
	 	 	8	 
	 
	 	 	 	 
	Other KeySpan Stock Awards
	 	 	34	 
	 
	 	 	 	 
	Parent
	 	 	1	 
	 
	 	 	 	 
	Parent Acquisition Transaction
	 	 	42	 
	 
	 	 	 	 
	Parent Board Approval
	 	 	21	 
	 
	 	 	 	 
	Parent Disclosure Schedule
	 	 	18	 
	 
	 	 	 	 
	Parent Required Approvals
	 	 	20	 
	 
	 	 	 	 
	Parent Shareholders Meeting
	 	 	29	 
	 
	 	 	 	 
	Parent Termination Fee
	 	 	42	 
	 
	 	 	 	 
	Permits
	 	 	11	 
	 
	 	 	 	 
	Person
	 	 	47	 
	 
	 	 	 	 
	Process Agent
	 	 	45	 
	 
	 	 	 	 
	Proxy Statement
	 	 	27	 
	 
	 	 	 	 
	PUHCA
	 	 	10	 
	 
	 	 	 	 
	Required KeySpan Vote
	 	 	12	 
	 
	 	 	 	 
	Required Parent Vote
	 	 	21	 
	 
	 	 	 	 
	Restraints
	 	 	38	 
	 
	 	 	 	 
	SEC
	 	 	9	 
	 
	 	 	 	 
	Securities Act
	 	 	9	 
	 
	 	 	 	 
	Significant Subsidiary
	 	 	47	 
	 
	 	 	 	 
	SOX
	 	 	9	 
	 
	 	 	 	 
	Subsidiary
	 	 	47	 
	 
	 	 	 	 
	Superior Proposal
	 	 	33	 
	 
	 	 	 	 
	Surviving Corporation
	 	 	2	 
	 
	 	 	 	 
	Surviving Corporation By-laws
	 	 	2	 
	 
	 	 	 	 
	Surviving Corporation Certificate of Incorporation
	 	 	2	 
	 
	 	 	 	 
	Takeover Proposal
	 	 	33	 
	 
	 	 	 	 
	Tax
	 	 	14	 
	 
	 	 	 	 
	Tax Return
	 	 	14	 
	 
	 	 	 	 
	Termination Fee
	 	 	41	 
	 
	 	 	 	 
	The Other Party
	 	 	47	 
	 
	 	 	 	 
	UK Listing Rules
	 	 	20	 

v

 

	 	 	 	 	 
	 	 	Page(s)	 
	UKLA
	 	 	20	 
	 
	 	 	 	 
	Violation
	 	 	8	 
	 
	 	 	 	 
	WARN Act
	 	 	16	 

vi

 

AGREEMENT AND PLAN OF MERGER

     AGREEMENT AND PLAN OF MERGER, dated as of February 25, 2006 (this “Agreement”), by and
among NATIONAL GRID PLC, a public limited company incorporated under the laws of England and Wales
with registration number 4031152 (“Parent”), NATIONAL GRID US8 INC. a New York corporation
(“Merger Sub”) and KEYSPAN CORPORATION, a New York corporation (“KeySpan”).

W I T N E S S E T H :

     WHEREAS, the Boards of Directors of Parent, Merger Sub and KeySpan have each approved, and
deem it advisable and in the best interests of their respective stockholders to consummate, the
business combination transaction provided for herein pursuant to which Merger Sub would merge with
and into KeySpan (the “Merger”), with KeySpan as the surviving entity, as a result of which
Parent will, directly or indirectly, own all of the issued and outstanding common shares of
KeySpan; and

     WHEREAS, Parent, Merger Sub and KeySpan desire to make certain representations, warranties
covenants and agreements in connection with the Merger and also to prescribe various conditions to
the Merger.

     NOW, THEREFORE, in consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, the parties hereto agree as follows:

ARTICLE I

THE MERGER

     1.1. Effective Time of the Merger. Subject to the provisions of this Agreement, a
certificate of merger (the “Certificate of Merger”) shall be duly prepared and executed by
KeySpan as the Surviving Corporation (as defined in Section 1.3) and thereafter delivered to the
Secretary of State of the State of New York for filing, in such form as is required by and executed
in accordance with the New York Business Corporation Law (the “NYBCL”), on the Closing Date
(as defined in Section 1.2). The Merger shall become effective upon the filing of the Certificate
of Merger with the Secretary of State of the State of New York or at such subsequent time
thereafter as is provided in the Certificate of Merger (the “Effective Time”).

     1.2. Closing. The closing of the Merger (the “Closing”) will take place at
10:00 a.m. (New York City time) on the date (the “Closing Date”) that is the fifth business
day after the satisfaction or waiver (subject to applicable law) of the conditions set forth in
Article VI (excluding conditions that, by their terms, are to be satisfied on the
Closing Date), unless another time or date is agreed to by the parties hereto. The Closing
shall be held at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New
York 10017, unless another place is agreed to by the parties hereto.

     1.3. Effects of the Merger. At and after the Effective Time, Merger Sub shall be
merged with and into KeySpan and the separate existence of Merger Sub shall cease. The

 

 

Merger will
have the effects set forth in §906 of the NYBCL. As used in this Agreement, “Constituent
Corporations” shall mean each of Merger Sub and KeySpan, and “Surviving Corporation”
shall mean KeySpan, at and after the Effective Time, as the surviving corporation in the Merger.

     1.4. Certificate of Incorporation and By-Laws. The Certificate of Incorporation of
Merger Sub as in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation (the “Surviving Corporation Certificate of
Incorporation”) except that the name of the Surviving Corporation shall be changed to KeySpan.
The By-laws of Merger Sub as in effect immediately prior to the Effective Time, shall be the
By-laws of the Surviving Corporation (the “Surviving Corporation By-laws”) except that the
name of the Surviving Corporation shall be changed to KeySpan.

     1.5. Directors and Officers. The directors of Merger Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and by-laws of the Surviving Corporation. At the
Effective Time, the officers of the Surviving Corporation shall be the officers of Merger Sub
immediately prior to the Effective Time, together with any additional officers as may be agreed
upon prior thereto by Parent and KeySpan or as may be appointed thereafter.

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE

CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES

     2.1. Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof:

     (a) Merger Consideration. Each share of common stock par value $0.01 per share of KeySpan
(“KeySpan Common Stock”), including, without limitation, each restricted share of KeySpan
Common Stock granted under the KeySpan Benefit Plans, that is issued and
outstanding immediately prior to the Effective Time (other than shares of KeySpan Common Stock to
be cancelled in accordance with Section 2.1(c)), shall automatically be converted into the right to
receive $42.00 in cash per share (such per share amount, as adjusted pursuant to the following
sentence, the “Merger Consideration”), without interest, payable to the holder of such
shares of KeySpan Common Stock, upon surrender, in the manner provided in Section 2.2, of the
certificate that formerly evidenced such share of KeySpan Common Stock. All such shares of KeySpan
Common Stock, when so converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate representing any
such shares of KeySpan Common Stock shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration therefor, without interest, upon the surrender of such
certificate in accordance with Section 2.2.

     (b) Conversion of Merger Sub Common Stock. Each share of common stock par value $0.01
per share of Merger Sub (“Merger Sub Common Stock”) issued and outstanding immediately
prior to the Effective Time shall be converted into one duly authorized, fully paid and
nonassessable share of KeySpan Common Stock.

2

 

     (c) Cancellation of Certain KeySpan Capital Stock. Each share of KeySpan Common Stock
that is owned as treasury stock by KeySpan or owned by any wholly-owned Subsidiary of KeySpan, and
all shares of KeySpan Common Stock that are owned by Parent, Merger Sub or any other wholly-owned
subsidiary of Parent shall be canceled and retired and shall cease to exist and no cash or other
consideration shall be delivered in exchange therefor.

     2.2. Surrender of Certificates.

     (a) Exchange Agent. Prior to the Effective Time, Parent shall select a bank or trust
company reasonably acceptable to KeySpan to act as the exchange agent (the “Exchange
Agent”) for the holders of shares of KeySpan Common Stock in connection with the Merger and
shall enter into an agreement with the Exchange Agent which is reasonably acceptable to KeySpan.
As of the Effective Time, Parent shall deposit, or shall cause to be deposited, with the Exchange
Agent, in trust for the benefit of the holders of certificates or evidence of shares in book entry
form which immediately prior to the Effective Time evidenced shares of KeySpan Common Stock
(collectively, the “KeySpan Certificates”), cash in an aggregate amount equal to the
product of (i) the number of shares of KeySpan Common Stock issued and outstanding at the Effective
Time (other than shares of KeySpan Common Stock to be cancelled in accordance with Section 2.1(c))
and (ii) the Merger Consideration. Any funds deposited with the Exchange Agent shall hereinafter
be referred to as the “Exchange Fund.”

     (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record of a certificate or
certificates (the “Certificates”) which represented shares of KeySpan Common Stock
immediately prior to the Effective Time and whose shares were converted into the right to receive
the Merger Consideration pursuant to Section 2.1: (i) a letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the KeySpan Certificates shall pass,
only upon delivery of the KeySpan Certificates to the Exchange Agent, and which letter shall be in
such form and have such other provisions as KeySpan may reasonably specify prior to the Effective
Time and (ii) instructions for use in effecting the surrender of the KeySpan Certificates in
exchange for the Merger Consideration to which such holder is entitled pursuant to Section 2.1.
Upon surrender of a KeySpan Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed, completed in accordance with the instructions thereto, and
such other documents as the Exchange Agent may reasonably require, the holder of such KeySpan
Certificate shall be entitled to receive in exchange therefor the aggregate Merger Consideration
which such holder has the right to receive pursuant to Section 2.1 (after taking into account all
shares of KeySpan Common Stock surrendered by such holder) and the Certificate so surrendered shall
forthwith be cancelled. Until so surrendered, each Certificate will represent, from and after the
Effective Time, only the right to receive the Merger Consideration in cash as contemplated by this
Article II. No interest shall accrue or be paid on the amounts payable pursuant to this Article II
upon surrender of a Certificate.

     (c) No Further Ownership Rights in KeySpan Common Stock. From and after the Effective
Time, the holders of KeySpan Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of KeySpan Common Stock except as otherwise
provided herein or by applicable law. The Merger Consideration paid in exchange for shares of
KeySpan Common Stock in accordance with the

3

 

terms hereof shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of KeySpan Common Stock previously represented
by such Certificates. As of the Effective Time, the stock transfer books of KeySpan shall be
closed and there shall be no further registration of transfers on the records of the Surviving
Corporation of shares of KeySpan Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, such Certificates shall be cancelled and
exchanged as provided for in this Article II.

     (d) Termination of Exchange Fund. Any portion of the Exchange Fund which remains
undistributed to the holders of KeySpan Certificates for twelve months after the Effective Time
shall be delivered to the Surviving Corporation, upon demand, and any holders of KeySpan
Certificates who have not theretofore complied with this Article II shall thereafter look only to
the Surviving Corporation for payment, as general creditors thereof, of their claim for the Merger
Consideration, without interest, to which such holders would be entitled pursuant to Section 2.1.

     (e) No Liability. None of Parent, Merger Sub, KeySpan or the Surviving Corporation
shall be liable to any Person in respect of any Merger Consideration for any amount properly
delivered to a public official pursuant to any applicable abandoned property, escheat or similar
law.

     (f) Lost, Stolen or Destroyed Certificates. If any KeySpan Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming
such KeySpan Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against claim that may be made against it with respect to such
KeySpan Certificate, the Exchange Agent will deliver in exchange for such lost, stolen or destroyed
KeySpan Certificate the Merger Consideration to which the holder thereof is entitled pursuant to
this Article II.

     (g) Withholding. Each of the Exchange Agent, KeySpan, Parent, Merger Sub and the
Surviving Corporation shall be entitled to deduct and withhold from payments otherwise payable
pursuant to this Agreement to any holder of shares of KeySpan Common Stock such amounts as they are
respectively required to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended, (the “Code”) and the rules and regulations
promulgated thereunder, or any provision of state, local or foreign Tax law. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the shares of KeySpan Common Stock in respect of which such
deduction and withholding was made.

     (h) Transfers of Ownership. If the Merger Consideration is to be paid to a Person other
than the Person in whose name the surrendered Certificate formerly evidencing shares of KeySpan
Common Stock is registered, it will be a condition of payment that the Certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer and that the Person requesting
such payment will have paid to Parent or any agent designated by it any transfer or other Taxes
required by reason of the payment of the amount specified in

4

 

Section 2.1(a) to a Person other than
the registered holder of the Certificates surrendered, or established to the satisfaction of the
Parent or any agent designated by it that such Tax has been paid or is not payable.

     (i) Further Action. After the Effective Time, the officers and directors of Parent and the
Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of
KeySpan and Merger Sub, any deeds, bills of sale, assignments or assurances and to take and do, in
the name and on behalf of KeySpan and Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     3.1. Representations and Warranties of KeySpan. Except as set forth in the Disclosure
Schedule delivered by KeySpan to Parent prior to the execution of this Agreement (the “KeySpan
Disclosure Schedule”) and except as set forth in the KeySpan SEC Reports (as defined in Section
3.1(e)) filed prior to the date of this Agreement (only to the extent the qualifying nature of such
disclosure is readily apparent from the face of such KeySpan SEC Reports):

     (a) Organization, Standing and Power. (i) Each of KeySpan and each of its
Subsidiaries (as defined in Section 8.12) is a corporation or other entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary, except in each case as would not
reasonably be expected to result in a Material Adverse Effect (as defined in Section 8.12) on
KeySpan. The copies of the certificate of incorporation and by-laws of KeySpan which were
previously furnished to Parent are true, complete and correct copies of such documents as in effect
on the date of this Agreement.

     (ii) Each of the Joint Ventures of KeySpan (as defined below) is a corporation or other entity
duly incorporated or otherwise organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification necessary, except
in each case as would not reasonably be expected to result in a Material Adverse Effect on KeySpan.
As used in this Agreement, “Joint Venture” with respect to any person shall mean any
corporation or other entity (including partnerships and other business associations and joint
ventures) in which such person or one or more of its Subsidiaries owns an equity interest that is
less than a majority of any class of the outstanding voting securities or equity, other than equity
interests held for investment purposes that (a) are less than 10% of any

5

 

class of the outstanding
voting securities or equity or (b) with respect to which the net book value as of December 31, 2005
of such person’s interest does not exceed $35,000,000.

     (b) Subsidiaries. Section 3.1(b) of the KeySpan Disclosure Schedule contains a
description as of the date hereof of all Subsidiaries and Joint Ventures of KeySpan, including the
name of each such entity, the state or jurisdiction of its incorporation or organization and
KeySpan’s interest therein.

     (c) Capital Structure.

     (i) As of February 23, 2006, the authorized capital stock of KeySpan consisted of (A)
450,000,000 shares of KeySpan Common Stock, of which 174,573,840 shares were outstanding,
(B) 16,000,000 shares of Preferred Stock, par value $25 per share, of which no shares were
outstanding, (C) 1,000,000 shares of Preferred Stock, par value
$100 per share, of which no shares were outstanding and (D) 83,000,000 shares of Preferred Stock, par value $.01 per
share, of which no shares were outstanding. From February 23, 2006 to the date of this
Agreement, there have been no issuances of shares of the capital stock of KeySpan or any
other securities of KeySpan other than issuances of shares pursuant to options or rights
outstanding as of February 23, 2006 under the KeySpan Benefit Plans (as defined in Section
3.1(o)) and shares of the capital stock of KeySpan or any other securities of KeySpan issued
pursuant to The KeySpan Investor Program. All issued and outstanding shares of the capital
stock of KeySpan are duly authorized, validly issued, fully paid and nonassessable, and no
class of capital stock is entitled to preemptive rights. There were outstanding as of
February 23, 2006 no options, warrants or other rights to acquire capital stock from
KeySpan, and no options or warrants or other rights to acquire capital stock from KeySpan
have been issued or granted from February 23, 2006 to the date of this Agreement. There are
no outstanding or authorized deferred stock units, stock appreciation rights, security-based
performance units, “phantom” stock, profit participation or other similar rights or other
agreements, arrangements or commitments of any character (contingent or otherwise) pursuant
to which any Person is or may be entitled to receive any payment or other value based on the
revenues, earnings or financial performance, stock price performance or other attribute of
KeySpan or any of its Subsidiaries or assets or calculated in accordance therewith. There
are no contractual obligations for KeySpan or any of its Subsidiaries to file a registration
statement under the Securities Act or which otherwise relate to the registration of any
securities of KeySpan or its Subsidiaries under the Securities Act.

     (ii) As of the date of this Agreement, no bonds, debentures, notes or other
indebtedness of KeySpan having the right to vote on any matters on which stockholders may
vote are issued or outstanding.

     (iii) All of the outstanding shares of capital stock of, or other equity interests in,
each of KeySpan’s Subsidiaries and to the Knowledge of KeySpan all of the shares of capital
stock or other equity interests which KeySpan owns in all of its Joint Ventures have been
duly authorized and validly issued and are fully paid and nonassessable and are owned
directly or indirectly by KeySpan, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature

6

 

whatsoever (collectively,
“Liens”) (other than any customary provisions contained in the applicable
investment, stockholder, joint venture or similar agreements governing any Joint Venture of
KeySpan which have been provided to Parent prior to the date hereof).

     (iv) Except as otherwise set forth in this Section 3.1(c) or as contemplated by Section
5.6, as of the date of this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to which KeySpan
or any of its Subsidiaries is a party, or by which any of them is bound, obligating KeySpan
or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or other
voting securities of KeySpan or any of its Subsidiaries or obligating KeySpan or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of this Agreement,
there are no outstanding obligations of KeySpan or any of its Subsidiaries containing any
right of first refusal with respect to, or obligations to repurchase, redeem or otherwise
acquire, any shares of capital stock of KeySpan or any of its Subsidiaries.

     (v) Neither KeySpan nor any of its Subsidiaries is a party to any voting agreement with
respect to the voting of any shares of capital stock or other voting securities or other
equity interests in KeySpan or any of its Subsidiaries.

     (vi) There are no outstanding contractual obligations of KeySpan or any of its
Subsidiaries to make any loan to, or any equity or other investment (in the form of a
capital contribution or otherwise) in, any Subsidiary of KeySpan or any other Person, other
than guarantees by KeySpan of any indebtedness (pursuant to agreements that have been made
available to Parent) or of any other obligations of any wholly-owned Subsidiary of KeySpan.

     (d) Authority; No Conflicts.

     (i) KeySpan has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, subject in the case of the
consummation of the Merger to the adoption of this Agreement by the Required KeySpan Vote
(as defined in Section 3.1(j)). The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of KeySpan, subject in the case of the consummation
of the Merger to the adoption of this Agreement by the Required KeySpan Vote. This
Agreement has been duly executed and delivered by KeySpan and constitutes a valid and
binding agreement of KeySpan, enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally or by general equity principles
(regardless of whether such enforceability is considered in a proceeding in equity or at
law).

     (ii) The execution and delivery of this Agreement by KeySpan do not, and the
consummation by KeySpan of the Merger and the other transactions contemplated hereby will
not, result in any violation of, or constitute a default (with or

7

 

without notice or lapse of
time, or both) under, or give rise to a right of termination, amendment, cancellation or
acceleration of any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on any assets (any such
conflict, violation, default, right of termination, amendment, cancellation or acceleration,
loss or creation, a “Violation”) pursuant to: (A) any provision of the certificate
of incorporation or by-laws of KeySpan or (B) except as would not reasonably be expected to
result in a Material Adverse Effect on KeySpan, subject to obtaining or making the consents,
approvals, orders, permits, authorizations, registrations, declarations, notices and filings
referred to in paragraph (iii)
below, any loan or credit agreement, note, contract, mortgage, bond, indenture, lease,
Benefit Plan (as defined below) or other agreement, obligation, instrument, permit,
concession, franchise, license, or judgment, order, writ or decree (collectively
“Order”), statute, law, ordinance, rule or regulation (collectively “Law”)
of any kind to which KeySpan or any of its Subsidiaries is now subject to, a party to or by
which any of them or any of their respective properties or assets may be bound or affected.

     (iii) No material consent, approval, order, license, permit or authorization of, or
registration, declaration, notice or filing with, any supranational, national, state,
municipal or local government, any instrumentality, subdivision, court, administrative
agency or commission or other authority thereof, or any quasi-governmental or private body
exercising any regulatory, taxing, importing or other governmental or quasi-governmental
authority (a “Governmental Entity”) is necessary or required to be obtained or made
by or with respect to KeySpan or any Subsidiary of KeySpan in connection with the execution
and delivery of this Agreement by KeySpan or the performance and consummation by KeySpan of
the Merger and the other transactions contemplated hereby, except for those required under
or in relation to (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the “HSR Act”), (B) state securities or “blue sky” laws (the “Blue Sky
Laws”), (C) the Securities Exchange Act of 1934, as amended and the rules and
regulations promulgated thereunder (the “Exchange Act”), (D) the NYBCL with respect
to the filing of the Certificate of Merger, (E) rules and regulations of the NYSE and the
Pacific Stock Exchange, (F) applicable state public utility Laws, rules and regulations
promulgated by the New York Public Service Commission (“NYPSC”), and the New
Hampshire Public Utilities Commission (“NHPUC”), (G) Section 203 of the Federal
Power Act, as amended and the rules and regulations promulgated thereunder (the “Federal
Power Act”), (H) Federal Communications Commission (“FCC”), (I) antitrust or
other competition laws of other jurisdictions, and (J) the consents, approvals, orders,
permits, authorizations, registrations, declarations, notices and filings set forth in
Section 3.1(d)(iii) of the KeySpan Disclosure Schedule. Consents, approvals, orders,
permits, authorizations, registrations, declarations, notices and filings required under or
in relation to any of the foregoing clauses (A) through (H) are hereinafter referred to as
the “KeySpan Required Approvals”.

     (e) Reports and Financial Statements.

     (i) KeySpan and its Subsidiaries have filed each form, report, schedule, registration
statement, registration exemption, if applicable, definitive proxy

8

 

statement and other
document (together with all amendments thereof and supplements thereto) required to be filed
by KeySpan or any of its Subsidiaries pursuant to the Securities Act of 1933, as amended and
the rules and regulations promulgated thereunder (the “Securities Act”) or
the Exchange Act with the Securities and
Exchange Commission (“SEC”) since January 1, 2003 (as such documents have since
the time of their filing been amended or supplemented, the “KeySpan SEC Reports”).
As of their respective dates, the KeySpan SEC Reports (A) complied as to form in all
material respects with the requirements of the Securities Act or the Exchange Act, if
applicable, as the case may be, and, to the extent in effect and applicable, the
Sarbanes-Oxley Act of 2002 (“SOX”), and (B) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under which they were
made, not misleading.

     (ii) KeySpan has provided to Parent copies of all correspondence sent to or received
from the SEC by or on behalf of KeySpan and its Subsidiaries since December 31, 2003.

     (iii) Each of the principal executive officers of KeySpan and the principal financial
officer of KeySpan (or each former principal executive officer of KeySpan and each former
principal financial officer of KeySpan, as applicable) has made all certifications required
by Rule 13a-14 or 15d-14 under the Exchange Act or Sections 302 and 906 of SOX and the rules
and regulations of the SEC promulgated thereunder with respect to the KeySpan SEC Reports.
For purposes of the preceding sentence, “principal executive officer” and
“principal financial officer” shall have the meanings given to such terms in SOX.
Since the effectiveness of SOX, neither KeySpan nor any of its Subsidiaries has arranged any
outstanding “extensions of credit” to directors or executive officers within the
meaning of Section 402 of SOX.

     (iv) The audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto) included in the
KeySpan SEC Reports (the “KeySpan Financial Statements”) complied as to form in all
material respects with the published rules and regulations of the SEC with respect thereto,
were prepared in accordance with United States generally accepted accounting principles
(“GAAP”) applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto and except with respect to unaudited statements as
permitted by rules and regulations promulgated by the SEC) and fairly present (subject, in
the case of the unaudited interim financial statements, to normal, recurring year-end audit
adjustments that have not or are not reasonably expected to result in a Material Adverse
Effect on KeySpan) the consolidated financial position of KeySpan and its consolidated
Subsidiaries as of the respective dates thereof and the consolidated results of their
operations and cash flows for the respective periods then ended. No restatement of the
KeySpan Financial Statements has occurred or is reasonably likely to occur.

     (v) All filings (other than immaterial filings) required to be made by KeySpan or any
of its Subsidiaries since January 1, 2003 and in the case of any filing made pursuant to the
Public Utility Holding Company Act of 1935, as amended and in

9

 

effect prior to its repeal
effective February 8, 2006 (the “PUHCA”), prior to February 8, 2006, under the
Federal Power Act, the Communications Act of 1934, as amended by the Telecommunications Act of 1996, the Natural Gas Act of 1938, as
amended, the PUHCA and applicable state laws and regulations, have been filed with the
Federal Energy Regulatory Commission (“FERC”), the Department of Energy, the SEC and
the FCC or any applicable state public utility commissions (including, to the extent
required, the NYPSC, the Massachusetts Department of Telecommunications and Energy, and the
NHPUC), as the case may be, including all forms, statements, reports, agreements (oral or
written) and all documents, exhibits, amendments and supplements appertaining thereto,
including all rates, tariffs, franchises, service agreements and related documents and all
such filings complied, as of their respective dates, with all applicable requirements of the
applicable statute and the rules and regulations thereunder, except for filings the failure
of which to make or the failure of which to make in compliance with all applicable
requirements of the applicable statute and the rules and regulations thereunder, have not
had and could not reasonably be expected to have a Material Adverse Effect on KeySpan.

     (vi) KeySpan maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain asset
accountability; (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 the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. Since December 31, 2003, KeySpan has not received any oral
or written notification of a (x) “reportable condition” or (y) “material weakness” in its
internal controls. The terms “reportable condition” and “material weakness” shall have the
meanings assigned to them in the Statements of Auditing Standards 60, as in effect on the
date hereof.

     (vii) The management of KeySpan has (x) designed disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act), or caused such disclosure controls and
procedures to be designed under their supervision, to ensure that material information
relating to KeySpan, including its consolidated Subsidiaries, is made known to the
management of KeySpan by others within those entities and (y) has disclosed, based on its
most recent evaluation of internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act), to KeySpan’s outside auditors and the audit committee of the
Board of Directors of KeySpan (A) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect KeySpan’s ability to record, process, summarize and report
financial information and (B) any fraud, whether or not material, that involves management
or other employees who have a significant role in KeySpan’s internal control over financial
reporting. KeySpan has disclosed to Parent all matters set forth in clauses (A) and (B)
above discovered or disclosed since December 31, 2003. Since December 31, 2003, any
material change in internal control over financial reporting required to be disclosed in any
KeySpan SEC Report has been so disclosed.

10

 

     (viii) Since December 31, 2003, (x) neither KeySpan nor any of its Subsidiaries nor, to
the Knowledge of the Executive Officers (for the purposes of this Section 3.1(e)(viii), as
such term is defined in Section 3b-7 of the Exchange Act) of KeySpan, any director, officer,
employee, auditor, accountant or representative of KeySpan or any of its Subsidiaries has
received or otherwise obtained Knowledge of any material complaint, allegation, assertion or
claim, whether written or oral, regarding the accounting or auditing practices, procedures,
methodologies or methods of KeySpan or any of its Subsidiaries or their respective internal
accounting controls relating to periods after December 31, 2003, including any material
complaint, allegation, assertion or claim that KeySpan or any of its Subsidiaries has
engaged in questionable accounting or auditing practices (except for any of the foregoing
after the date hereof which have no reasonable basis), and (y) to the Knowledge of the
Executive Officers of KeySpan, no attorney representing KeySpan or any of its Subsidiaries,
whether or not employed by KeySpan or any of its Subsidiaries, has reported evidence of a
material violation of securities laws, breach of fiduciary duty or similar violation,
relating to periods after December 31, 2003, by KeySpan or any of its officers, directors,
employees or agents to the Board of Directors of KeySpan or any committee thereof or to any
director or Executive Officer of KeySpan.

     (f) Compliance; Permits. KeySpan and its Subsidiaries hold all permits, licenses,
certificates, franchises, consents, authorizations and approvals of all Governmental Authorities
(“Permits”) necessary for the lawful conduct of their respective businesses as currently
conducted, except where failures to so hold has not had and could not reasonably be expected to
have a Material Adverse Effect on KeySpan. KeySpan and its Subsidiaries are in compliance with the
terms of such Permits, except where failure to so comply has not had and could not reasonably be
expected to have a Material Adverse Effect on KeySpan. KeySpan, and its Subsidiaries and the Joint
Ventures of KeySpan are not in violation of or default under any Law or Order of any Governmental
Entity, except for such violations or defaults that have not had and could not reasonably be
expected to have a Material Adverse Effect on KeySpan. Without limitation to the foregoing,
KeySpan is, and has been, in compliance in all material respects with the applicable listing
standards and corporate governance rules and regulations of the NYSE and the Pacific Stock
Exchange. This Section 3.1(f) does not relate to matters with respect to Taxes, such matters being
the subject of Section 3.1(n), benefits plans, such matters being the subject of Section 3.1(o),
labor matters, such matters being the subject of Section 3.1(p) and Environmental Laws, such
matters being the subject of Section 3.1(r).

     (g) Information Supplied. None of the information to be contained in the Proxy Statement
(as defined in Section 5.1) or any proxy supplement will, at the date it is first mailed to
KeySpan’s stockholders or at the time of the KeySpan Stockholders Meeting (as defined in Section
5.1), contain any untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation is made by KeySpan with respect to statements made or
incorporated by reference
therein based on information supplied by or on behalf of Parent or Merger Sub for inclusion or
incorporation by reference in the Proxy Statement. None of the information supplied or to be
supplied by KeySpan for inclusion or

11

 

incorporation by reference in the Circular (as defined in
Section 5.1) will, at the date it is first mailed to Parent’s Shareholders or at the time of the
Parent Shareholders Meeting (as defined in Section 5.1), contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made, not misleading.

     (h) Absence of Certain Changes or Events; Absence of Undisclosed Liabilities.

     (i) Since December 31, 2005, KeySpan and its Subsidiaries have conducted their business in the
ordinary course of business and no event has occurred which has had, and no fact or circumstance
exists that has resulted in or would reasonably be expected to result in, a Material Adverse Effect
on KeySpan.

     (ii) Neither KeySpan nor any of its Subsidiaries has any liabilities or obligations (whether
absolute, contingent, accrued or otherwise) of a nature required by GAAP to be reflected in a
consolidated corporate balance sheet, except liabilities, obligations or contingencies that are
accrued or reserved against in the consolidated financial statements of KeySpan or are reflected in
the notes thereto for the year ended December 31, 2005, that were incurred in the ordinary course
of business since December 31, 2005. Neither KeySpan nor any of its Subsidiaries is a party to, or
has any commitment to become a party to, any joint venture, off-balance sheet partnership or any
similar contract or arrangement (including any contract relating to any transaction or relationship
between or among KeySpan and any of its Subsidiaries, on the one hand, and any unconsolidated
affiliate, including any structured finance, special purpose or limited purpose entity or person,
on the other hand or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation
S-K of the SEC)), where the result, purpose or effect of such contract is to avoid disclosure of
any material transaction involving, or material liabilities of, KeySpan or any of its Subsidiaries,
in KeySpan’s or any of its Subsidiary’s audited financial statements or other KeySpan SEC Reports.

     (i) Board Approval. The Board of Directors of KeySpan, by resolutions duly adopted at
a meeting duly called and held and not subsequently rescinded or modified in any way (the
“KeySpan Board Approval”), has duly (i) determined that this Agreement and the Merger are
advisable and in the best interests of KeySpan and its stockholders, (ii) adopted this Agreement
and approved the Merger and (iii) recommended that the stockholders of KeySpan adopt this Agreement
and approve the Merger.

     (j) Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of KeySpan Common Stock is the only vote of the holders of any class or series
of KeySpan capital stock necessary to adopt this Agreement and approve the transactions
contemplated hereby (the “Required KeySpan Vote”).

     (k) Takeover Statutes. No “fair price,” “moratorium,” “control share acquisition” or
other similar antitakeover statute or regulation enacted under state or federal laws
in the United States applicable to KeySpan is applicable to the Merger or the other
transactions contemplated hereby.

12

 

     (l) Brokers or Finders. No agent, broker, investment banker, financial advisor or
other firm or Person is or will be entitled to any broker’s or finder’s fee or any other similar
commission or fee in connection with any of the transactions contemplated by this Agreement based
on arrangements made by or on behalf of KeySpan, except Lazard Freres & Co. LLC (the “KeySpan
Financial Advisor”), whose fees and expenses will be paid by KeySpan in accordance with
KeySpan’s agreement with such firm, based upon arrangements made by or on behalf of KeySpan and
previously disclosed to Parent.

     (m) Opinion of KeySpan Financial Advisor. KeySpan has received the opinion of KeySpan
Financial Advisor, dated the date of this Agreement, to the effect that, as of such date, the
Merger Consideration is fair to the holders of KeySpan Common Stock from a financial point of view,
a copy of which opinion has been made available to Parent.

     (n) Taxes. Each of KeySpan and each of its Subsidiaries have timely filed with the
relevant taxing authority all material Tax Returns required to be filed by any of them, and have
timely paid (or KeySpan has timely paid on their behalf), or have set up an adequate reserve for
the payment of, all material Taxes in accordance with GAAP. Such Tax Returns are true, correct and
complete in all material respects. No material deficiencies or other claims for any Taxes have
been proposed, asserted or assessed against KeySpan or any of its Subsidiaries that are not
adequately reserved for in accordance with GAAP. There are no Liens with respect to Taxes upon any
of the assets or properties of either KeySpan or its Subsidiaries, other than with respect to Taxes
not yet due and payable, or for Taxes that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided. There is no outstanding audit,
assessment, dispute, claim or administrative or judicial proceeding concerning any material Tax
liability of KeySpan or any of its Subsidiaries either within KeySpan’s knowledge or claimed,
pending or raised by any Governmental Entity in writing. All material Taxes required to be
withheld, collected or deposited by or with respect to KeySpan and each of its Subsidiaries have
been timely withheld, collected or deposited as the case may be, and to the extent required, have
been paid to the relevant taxing authority. The tax years in the principal jurisdictions in which
KeySpan and each of its Subsidiaries pay income Tax are closed through the dates enumerated in
Section 3.1(n) of the KeySpan Disclosure Schedule. Neither KeySpan nor any of its Subsidiaries is
a party to, bound by or has any material obligation under any Tax allocation, Tax sharing, Tax
indemnity or similar agreement, arrangement or understanding. The income Tax Returns delivered to
Parent for inspection are true and complete copies. All material written communications to or from
any federal, New York State or New York City taxing authority have been delivered to Parent for
inspection. Neither KeySpan nor any of its Subsidiaries has constituted either a “distributing
corporation” or a “controlled corporation” under Section 355 of the Code (i) in the two years prior
to the date of this Agreement or (ii) in a distribution which could otherwise constitute part of a
“plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger. Neither KeySpan nor any of its Subsidiaries has participated in a
“reportable transaction” as defined in Treasury Regulation Section 1.6011-4 (as in effect at the
relevant time) (or any comparable regulations of jurisdictions other than the United States).
Neither KeySpan nor any of its Subsidiaries (A) has ever been a member of a consolidated, combined,
unitary or aggregate group filing a consolidated federal income Tax Return (other than a group the common parent of
which was KeySpan) or (B) has any material liability arising from the application of Treasury
Regulation Section 1.1502-6 or any analogous provision of state, local or foreign law, or as a

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transferee or successor, by contract or otherwise. All closing agreements with the Internal
Revenue Service have been provided to Parent for inspection. For the purpose of this Agreement,
the term “Tax” (including, with correlative meaning, the terms “Taxes” and
“Taxable”) shall mean all Federal, state, local and foreign income, profits, franchise,
gross receipts, payroll, sales, employment, use, property, withholding, excise, occupancy and other
Taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts, and “Tax Return” shall mean any return,
report, information return or other document (including any related or supporting information)
required to be filed with any taxing authority with respect to Taxes, including information
returns, claims for refunds of Taxes and any amendments or supplements to any of the foregoing.

     (o) Benefit Plans. (i) With respect to each material employee benefit plan
(including, without limitation, any “employee benefit plan”, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including, without
limitation, multiemployer plans within the meaning of ERISA Section 3(37)) and all stock purchase,
stock option, severance, employment, change-in-control, fringe benefit, collective bargaining,
bonus, incentive, deferred compensation and other material employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA, (all the foregoing being
herein called “Benefit Plans”), under which any employee, former employee, consultant,
former consultant or director of KeySpan or any of its Subsidiaries has any present or future right
to benefits, maintained or contributed to by KeySpan or by any trade or business, whether or not
incorporated (an “ERISA Affiliate”), that together with KeySpan would be deemed a “single
employer” within the meaning of Section 4001(b) of ERISA, or under which KeySpan or any of its
Subsidiaries has any present or future liability or potential liability (the “KeySpan Benefit
Plans”), KeySpan has made available, or within 30 days after the execution hereof will make
available, to Parent a true and correct copy of (A) the most recent annual report (Form 5500) filed
with the IRS, (B) such KeySpan Benefit Plan, (C) each trust agreement relating to such KeySpan
Benefit Plan, (D) the most recent summary plan description for each KeySpan Benefit Plan for which
a summary plan description is required by ERISA, (E) the most recent actuarial report or valuation
relating to a KeySpan Benefit Plan subject to Title IV of ERISA and (F) the most recent
determination letter issued by the IRS with respect to any KeySpan Benefit Plan qualified under
Section 401(a) of the Code.

     (ii) With respect to the KeySpan Benefit Plans, individually and in the aggregate, no event
has occurred and there exists no condition or set of circumstances, in connection with which
KeySpan or any of its Subsidiaries could be subject to any liability that would reasonably be
expected to have a Material Adverse Effect on KeySpan under ERISA, the Code or any other applicable
law. Without limiting the generality of the foregoing, except as would not reasonably be expected
to have a Material Adverse Effect on KeySpan, (i) no liability under Title IV or section 302 of
ERISA has been incurred by KeySpan or any ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a risk to KeySpan 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), (ii) the PBGC
has not instituted proceedings to terminate any KeySpan Benefit Plan that is subject to Title IV
of ERISA (a “Title IV Plan”) and no condition exists that presents a risk that such proceedings
will be instituted and (iii) no Title IV Plan or any trust established thereunder has incurred any
“accumulated funding deficiency” (as defined in Section 302 or ERISA and Section

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412 of the Code),
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.

     (iii) Prior to the date of this Agreement, KeySpan has delivered to Parent a report that sets
forth KeySpan’s good faith estimate, as of the date of such report, of (x) the amount to be paid
under all KeySpan Benefit Plans (subject to the exceptions described in such report and based upon
the assumptions described in such report) to the current officers and key employees of KeySpan and
its Subsidiaries who have contractual entitlements under any KeySpan Benefit Plan to receive
“gross-up” payments for golden parachute excise taxes that may be imposed pursuant to Section 280G
of the Code (or the amount by which any of their benefits may be accelerated or increased) as a
result of (i) the execution of this Agreement, (ii) the obtaining of stockholder approval of the
Merger, (iii) the consummation of the Merger or (iv) the termination or constructive termination of
the employment of such officers or key employees following one of the events set forth in clauses
(i) through (iii) above and (y) the ramifications of such payments under Sections 280G and 4999 of
the Code.

     (p) Labor Matters. As of the date hereof, neither KeySpan nor any of its Subsidiaries
is a party to, bound by or in the process of negotiating any collective bargaining agreement or
other labor agreement with any union or labor organization. As of the date of this Agreement (i)
there are no disputes, grievances or arbitrations pending or, to the Knowledge of KeySpan,
threatened between KeySpan or any of its Subsidiaries and any trade union or other representatives
of its employees, (ii) there is no charge or complaint pending or threatened in writing against
KeySpan or any of its Subsidiaries before the National Labor Relations Board (the “NLRB”),
the Equal Employment Opportunity Commission or any similar Governmental Entity, (iii) there are no
litigations, lawsuits, claims, charges, complaints, arbitrations, actions, investigations or
proceedings pending or, to the Knowledge of KeySpan, threatened between or involving KeySpan or any
of its Subsidiaries and any of their respective current or former employees, independent
contractors, applicants for employment or classes of the foregoing, except in each case as have not
had and could not reasonably be expected to have a Material Adverse Effect on KeySpan and, (iv) to
the Knowledge of KeySpan, as of the date of this Agreement, there are no material organizational
efforts presently being made involving any of the employees of KeySpan or any of its Subsidiaries.
No labor union, labor organization or group of employees of KeySpan or any of its Subsidiaries has
made a pending demand for recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding presently pending or
threatened to be brought or filed with the NLRB or any other Governmental Entity. From January 1,
2003, to the date of this Agreement, there has been no work stoppage, strike, slowdown or lockout
by or affecting the employees of KeySpan or any of its Subsidiaries and, to the Knowledge of
KeySpan, no such action has been threatened in writing. KeySpan and its Subsidiaries are in
compliance with all material applicable Laws respecting employment and employment practices,
including, without limitation, all material legal requirements respecting terms and conditions of
employment, equal opportunity, affirmative action, workplace health and safety, wages and hours,
child labor, immigration, discrimination, disability rights or benefits, facility closures and layoffs,
workers’ compensation, labor relations, employee leaves and unemployment insurance. Since January
1, 2003, neither KeySpan nor any of its Subsidiaries has engaged in any “plant closing” or “mass
layoff”, as defined in the Worker Adjustment Retraining and Notification Act or any comparable
state or local Law (the “WARN Act”), without complying with the notice requirements of such

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Laws. To the Knowledge of KeySpan (i) none of the employees of KeySpan or any of its Subsidiaries
is in any material respect in violation of any term of any employment agreement, nondisclosure
agreement, common law nondisclosure obligation, fiduciary duty, non-competition agreement,
restrictive covenant or other obligation to a former employer relating to the right of such
employee to be employed by KeySpan or any of its Subsidiaries or the employee’s knowledge or use of
trade secrets or proprietary information, and (ii) no employees of KeySpan or any of its
Subsidiaries earning $100,000 or more per year intend to terminate his or her employment with
KeySpan or any of its Subsidiaries.

     (q) Litigation. Except for claims, actions, suits, proceedings or investigations that
would not reasonably be expected to result in a Material Adverse Effect on KeySpan, there are no
claims, actions, suits, proceedings, audits, arbitrations or investigations pending or, to the
Knowledge of KeySpan, threatened against, relating to or affecting KeySpan or any of its
Subsidiaries, or any of their respective assets or properties, before or by any Governmental
Entity. As of the date hereof, neither KeySpan nor any of its Subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment, injunction, decree or award
having, or which would reasonably be expected to result in, a Material Adverse Effect on KeySpan.

     (r) Environmental Matters. Except as would not reasonably be expected to result in a
Material Adverse Effect on KeySpan: (i) KeySpan and each of its Subsidiaries (x) comply, and at
all times have complied, with all applicable Environmental Laws (as defined below), and possess and
comply with all Environmental Permits (as defined below) required under any applicable
Environmental Laws to operate as they presently operate, which Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed with and is pending
approval by all applicable Governmental Entities, and (y) possess all air emission allowances and
air emissions reduction credits required under any applicable Environmental Laws to operate as they
presently operate; (ii) to the Knowledge of KeySpan, there are no Materials of Environmental
Concern (as defined below) at any current or former assets, facilities or properties owned or
operated by KeySpan or any of its predecessors or Subsidiaries, or under circumstances that are
reasonably likely to result in liability of KeySpan or any Subsidiary or any of their predecessors
under any applicable Environmental Laws; (iii) neither KeySpan nor any of its Subsidiaries has
received any written notification alleging that it is liable for, or has received any request for
information pursuant to Section 104(e) of the Comprehensive Environmental Response, Compensation
and Liability Act or similar state statute or any other similar applicable Environmental Laws
concerning, any release or threatened release of Materials of Environmental Concern at any
location; (iv) to the Knowledge of KeySpan, no capital expenditures are or will be required of
KeySpan or any of its Subsidiaries to achieve or maintain compliance with any applicable
Environmental Laws; and (v) to the Knowledge of KeySpan, neither KeySpan nor any of its
Subsidiaries is subject to or has contractually assumed or retained from any person or entity
(including any Governmental Entity), liability for any matters arising under or pursuant to any
Environmental Laws or arising from or relating to Materials of Environmental Concern. For purposes of this Agreement, the
following terms shall have the following meanings: (x) “Environmental Laws” shall mean all
foreign, federal, state, or local statutes, regulations, ordinances, common law, codes, or decrees
and any binding administrative or judicial interpretation thereof relating to the protection of the
environment, including protection of the ambient air, soil, natural resources, surface water or

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groundwater and protection of human health or safety as affected by the environment, (y)
“Environmental Permits” shall mean all permits, licenses, registrations, and other
authorizations under applicable Environmental Laws; and (z) “Materials of Environmental
Concern” shall mean any hazardous, dangerous, radioactive, acutely hazardous, or toxic
substance or waste defined, characterized, regulated or as to which liability could reasonably be
expected to be imposed under any applicable Environmental Laws, including without limitation the
federal Comprehensive Environmental Response, Compensation and Liability Act and the federal Clean
Air Act, Clean Water Act, Toxic Substances Control Act, Resource Conservation and Recovery Act and
any analogous state and local laws and regulations.

     (s) Intellectual Property. KeySpan and its Subsidiaries own or have a valid license
to use all trademarks, service marks and trade names (including any registrations or applications
for registration of any of the foregoing) (collectively, the “KeySpan Intellectual
Property”) necessary to carry on their business substantially as currently conducted, except
where such failures to own or validly license such KeySpan Intellectual Property would not
reasonably be expected to have a Material Adverse Effect on KeySpan. Neither KeySpan nor any such
Subsidiary has received any notice of infringement of or conflict with, and there are no
infringements of or conflicts with, the rights of others with respect to the use of any KeySpan
Intellectual Property that, in either such case, would reasonably be expected to have a Material
Adverse Effect on KeySpan.

     (t) Insurance. Except for failures to maintain insurance or self-insurance that have
not had and could not reasonably be expected to have a Material Adverse Effect on KeySpan, from
January 1, 2003, through the date of this Agreement, each of KeySpan and its Subsidiaries has been
continuously insured with financially responsible insurers or has self-insured, in each case in
such amounts and with respect to such risks and losses as are customary for companies in the United
States conducting the business conducted by KeySpan and its Subsidiaries during such time period.
Neither KeySpan nor any of its Subsidiaries has received any notice of cancellation or termination
with respect to any insurance policy of KeySpan or any of its Subsidiaries, except with respect to
any cancellation or termination that, has not had and could not reasonably be expected to have a
Material Adverse Effect on KeySpan.

     (u) Interested Party Transactions. Since January 1, 2005, no event has occurred that
would be required to be reported as a Certain Relationship or Related Transaction pursuant to
Statement of Financial Accounting Standards No. 57 or Item 404 of Regulation S-K of the SEC.

     (v) Material Contracts.

     (i) All “material contracts” (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC) (“KeySpan Material Contracts”) required to be have been filed with
the SEC have been filed, so and no such material contract has been amended or modified,
except for such amendments or modifications which have been filed as an exhibit to a
subsequently dated and filed SEC document or are not required to be filed with the SEC.

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     (ii) No Breach. All KeySpan Material Contracts are valid and in full force and
effect and enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting
the rights and remedies of creditors generally and to general principles of equity
(regardless of whether considered in a proceeding in equity or at law), except to the extent
that (x) they have previously expired in accordance with their terms or (y) the failure to
be in full force and effect, individually or in the aggregate, would not reasonably be
likely to have a Material Adverse Effect. Neither KeySpan nor any of its Subsidiaries, nor,
to KeySpan’s Knowledge, any counterparty to any KeySpan Material Contract, has violated any
provision of, or committed or failed to perform any act which, with or without notice, lapse
of time or both, would constitute a default under the provisions of any KeySpan Material
Contract, except in each case for those violations or defaults which, individually or in the
aggregate, would not reasonably be likely to have a Material Adverse Effect.

     (w) Foreign Corrupt Practices and International Trade Sanctions(i) . To the Knowledge
of KeySpan, neither KeySpan, nor any of its Subsidiaries, nor any of their respective directors,
officers, agents, employees or any other Persons acting on their behalf has, in connection with the
operation of their respective businesses, (i) used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to
political activity to government officials, candidates or members of political parties or
organizations, or established or maintained any unlawful or unrecorded funds in violation of
Section 104 of the Foreign Corrupt Practices Act of 1977, as amended, or any other similar
applicable foreign, Federal or state law, (ii) paid, accepted or received any unlawful
contributions, payments, expenditures or gifts, or (iii) violated or operated in noncompliance with
any export restrictions, anti-boycott regulations, embargo regulations or other applicable domestic
or foreign laws and regulations.

     3.2. Representations and Warranties of Parent and Merger Sub. Except as set forth in
the Disclosure Schedule delivered by Parent and Merger Sub to KeySpan prior to the execution of
this Agreement (the “Parent Disclosure Schedule”), Parent and Merger Sub, jointly and
severally, represent and warrant to KeySpan as follows:

     (a) Organization, Standing and Power. (i) Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and, with respect to Merger Sub only, in good
standing under the laws of its respective jurisdiction of incorporation, has all requisite power
and authority to own, lease and operate its properties and to carry on its business as now being
conducted and is duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties makes such
qualification necessary except in each case as would not reasonably be expected to result in a
Material Adverse Effect on Parent or Merger Sub, as the case may be. The copies of the certificate
of incorporation and by-laws (or similar organizational documents) of Parent and Merger Sub which
were previously furnished to KeySpan are true, complete and correct copies of such documents as in
effect on the date of this Agreement.

     (b) Authority; No Violations.

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     (i) Each of Parent and Merger Sub has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated hereby, subject to
approval of the consummation of the Merger set forth in this Agreement by the Required
Parent Vote (as defined in Section 3.2(j)). The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Parent and Merger Sub, subject in the case of
the consummation of the Merger to the approval of this Agreement by the Required Parent
Vote. This Agreement has been duly executed and delivered by each of Parent and Merger Sub
and constitutes a valid and binding agreement enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors generally, by
general equity principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) or by an implied covenant of good faith and fair dealing.

     (ii) The execution and delivery of this Agreement by each of Parent and Merger Sub does
not, and the consummation by each of Parent and Merger Sub of the Merger and the other
transactions contemplated hereby will not, result in a Violation pursuant to: (A) any
provision of the certificate of incorporation or by-laws (or similar organizational
documents) of Parent or Merger Sub or (B) except (x) as would not reasonably be expected to
result in a Material Adverse Effect on Parent or Merger Sub or (y) would or would reasonably
be expected to, individually or in the aggregate, prevent Parent or Merger Sub from
performing, or materially impair the ability of Parent or Merger Sub to perform, their
respective obligations under this Agreement.

     (iii) No material consent, approval, order, license, permit or authorization of, or
registration, declaration, notice or filing with, any Governmental Entity is necessary or
required to be obtained or made by or with respect to Parent, Merger Sub or any other
Subsidiary of Parent in connection with the execution and delivery of this Agreement by
Parent and Merger Sub or the performance and consummation by Parent and Merger Sub of the
Merger and the other transactions contemplated hereby except for those required under or in
relation to (A) the HSR Act, (B) the Blue Sky Laws, (C) the Exchange Act, (D) the NYBCL with
respect to the filing of the Certificate of Merger, (E) rules and regulations of the NYSE
and the London Stock Exchange plc (the “LSE”) and the UK Listing Rules (as defined
in 3.2(e)), (F) applicable state public utility Laws, rules and regulations promulgated by
the NYPSC, and the NHPUC, (G) Section 203 of the Federal Power Act, (H) if required, the
Atomic Energy Act, (I) the FCC, (J) notice to the Committee on Foreign Investment
(CFIUS) pursuant to the Exon-Florio Act, (K) antitrust or other competition laws of other
jurisdictions, and (L) the consents, approvals, orders, permits, authorizations,
registrations, declarations, notices and filings set forth in Section 3.2(b)(iii) of the
Parent Disclosure Schedule. Consents, approvals, orders, permits, authorizations,
registrations, declarations, notices and filings required under or in relation to any of the
foregoing clauses (A) through (J) are hereinafter referred to as the “Parent Required
Approvals”.

     (c) Compliance. Parent and Merger Sub and the Subsidiaries of Parent are not in
violation of or default under any Law or Order of any Governmental Entity, except for

19

 

such violations or defaults that have not had and could not reasonably be expected to have a
Material Adverse Effect on Parent or Merger Sub.

          (d) Litigation. Except for claims, actions, suits, proceedings or investigations that
would not reasonably be expected to, individually or in the aggregate, prevent Parent or Merger Sub
from performing, or materially impair the ability of Parent or Merger Sub to perform, their
respective obligations under this Agreement, there are no claims, actions, suits, proceedings,
audits, arbitrations or investigations pending or, to the Knowledge of Parent, threatened against,
relating to or affecting Parent or any of Parent’s Subsidiaries, or any of their respective assets
or properties, before or by any Governmental Entity. As of the date hereof, neither Parent nor any
of Parent’s Subsidiaries nor any of their respective properties is or are subject to any order,
writ, judgment, injunction, decree or award having, or which would reasonably be expected to,
individually or in the aggregate, prevent Parent or Merger Sub from performing, or materially
impair the ability of Parent or Merger Sub to perform, their respective obligations under this
Agreement.

          (e) Information Supplied. None of the information to be contained in the Circular or
any supplementary circular will, at the date it is first mailed to Parent’s Shareholders or at the
time of the Parent Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading. The Circular
will comply in all material respects with all United Kingdom statutory and other legal and
regulatory provisions (including, without limitation, the Companies Act 1985, as amended, (the
“Companies Act”), the Financial Services and Markets Act 2000, as amended, and the rules
and regulations made thereunder, the listing rules (the “UK Listing Rules”) promulgated by
the United Kingdom Listing Authority (the “UKLA”) and the rules and requirements of the LSE
except that no representation is made by Parent or Merger Sub with respect to statements made or
incorporated by reference therein based on information supplied by or on behalf of KeySpan for
inclusion or incorporation by reference in the Circular. None of the information supplied or to be
supplied by Parent or Merger Sub for inclusion or incorporation by reference in the Proxy Statement
will, at the date it is first mailed to KeySpan’s stockholders or at the time of the KeySpan
Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.

          (f) Operations of Merger Sub. Merger Sub is an indirect, wholly owned subsidiary of
Parent, was formed solely for the purpose of engaging in the Transactions, has engaged in no other
business activities and has conducted its operations only as contemplated by this Agreement.

          (g) Brokers or Finders. No agent, broker, investment banker, financial advisor or
other firm or Person is or will be entitled to any broker’s or finder’s fee or any other similar
commission or fee in connection with any of the transactions contemplated by this Agreement based
on arrangements made by or on behalf of Parent or Merger Sub, except Rothschild, Inc., whose fees
and expenses will be paid by Parent or Merger Sub in accordance with Parent or Merger Sub’s
agreement with such firm, based upon arrangements made by or on behalf of Parent or Merger Sub and
previously disclosed to KeySpan.

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          (h) Availability of Funds. Parent and Merger Sub will have at the Effective Time
sufficient immediately available funds to pay the Merger Consideration, consummate the transactions
contemplated hereby and to pay all related fees and expenses.

          (i) Board Approval. The Board of Directors of Parent, by resolutions duly adopted at a
meeting duly called and held and not subsequently rescinded or modified in any way (the “Parent
Board Approval”), has duly (i) determined that this Agreement and the Merger are advisable and
in the best interests of Parent and its shareholders, (ii) approved this Agreement and approved the
Merger and (iii) will recommend that the shareholders of Parent approve this Agreement and the
Merger in connection with the mailing of the Circular.

          (j) Vote Required. The only vote of the holders of any class of shares of Parent that
is required to approve the consummation of the Merger set out in this Agreement and the other
transactions contemplated thereby, but not, for the avoidance of doubt, any fee payable by Parent
pursuant to Article VII herein, (in respect of which no vote shall be required) is the affirmative
vote of a majority of such ordinary shareholders of Parent as (being entitled to do so) are present
in person and vote (or, in the case of a vote taken on a poll, the affirmative vote by shareholders
representing a majority of the Parent Ordinary Shares in respect of which votes were validly
exercised) at the Parent Shareholders’ Meeting in relation to this Agreement, the Merger and other
transactions contemplated hereby (the “Required Parent Vote”).

          (k) Ownership of KeySpan Common Stock. Neither Parent nor any of its subsidiaries or
other affiliates beneficially owns any KeySpan Common Stock.

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS

          4.1. Covenants of KeySpan. During the period from the date of this Agreement and
continuing until the Effective Time, KeySpan agrees as to itself and its Subsidiaries that (except
as expressly contemplated or permitted by this Agreement or as otherwise indicated on Section 4.1
of the KeySpan Disclosure Schedule or as required by a Governmental Entity of competent
jurisdiction or by applicable law, rule or regulation, or to the extent that Parent shall otherwise
consent in writing (which consent not to be unreasonably delayed or withheld)):

          (a) Ordinary Course of Business. KeySpan shall, and shall cause its Subsidiaries to,
carry on its and their businesses in the usual, regular and ordinary course consistent with past
practice and good utility practice and use reasonable best efforts to preserve intact in all
material respects their present business organizations and relationships with customers, suppliers,
Governmental Entities and others having significant business dealings with them and, subject to
prudent management of their workforces and business needs, keep available the services of their
present officers and employees.

          (b) Dividends and Distributions, etc. KeySpan shall not, and shall not permit any of
its Subsidiaries to: (i) declare or pay any dividends on or make other distributions in respect of
any of their capital stock other than (A) by a wholly owned Subsidiary or by a partially

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owned Subsidiary (provided that KeySpan or a Subsidiary of KeySpan receives its proportionate
share of such dividend or distribution), (B) dividends required to be paid on preferred stock of
any Subsidiaries in accordance with their terms, (C) regular dividends on KeySpan Common Stock with
usual record and payment dates at a rate not in excess of $0.465 per share per quarter and (D) with
respect to any quarter in which the Effective Time occurs, a special dividend with respect to
KeySpan Common Stock in an amount consisting of the pro rata portion of the dividend permitted
under clause (C), for the period from and including the ex-dividend date (as referred to in Rule
235 of the New York Stock Exchange Constitution and Rules) through, but not including, the day of
the Effective Time; (ii) split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of its capital stock; or (iii) directly or indirectly redeem, repurchase
or otherwise acquire any shares of their capital stock other than (x) in the ordinary course of
business consistent with past practice in connection with: (1) repurchases, redemptions and other
acquisitions in connection with the administration of the KeySpan Benefit Plans in the ordinary
course of operation of such plans, (2) redemptions, purchases or acquisitions required by the terms
of any series of preferred stock of any Subsidiary or (3) in connection with the refunding of the
preferred stock of any Subsidiary through the issuance of additional preferred stock of any
Subsidiary or indebtedness either at its stated maturity or at a lower cost of funds (calculating
such cost on an aggregate after-Tax basis) or through the incurrence of indebtedness permitted
under Section 4.1(h) and (y) intercompany redemptions, repurchases or acquisitions, of capital
stock.

          (c) Issuance of Securities. KeySpan shall not, and shall not permit any of its
Subsidiaries to, issue, sell, pledge, dispose of, grant, transfer, encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer or encumbrance of any shares of capital stock
of, or other equity interests in, KeySpan or any of its Subsidiaries of any class, or securities
convertible or exchangeable or exercisable for any shares of such capital stock or other equity
interests, or any options, warrants or other rights of any kind to acquire any shares of such
capital stock or other equity interests or such convertible or exchangeable securities, or any
other ownership interest, of KeySpan or any of its Subsidiaries, except for (x) in the ordinary
course of business consistent with past practice in connection with: (1) the refunding of the
preferred stock of any Subsidiary through the issuance of additional preferred stock of any
Subsidiary either at its stated maturity or at a lower cost of funds (calculating such cost on an
aggregate after-Tax basis) or through the incurrence of indebtedness permitted under Section
4.1(h), (2) the issuance of KeySpan Common Stock pursuant to the terms of the KeySpan 401(k) Plans
and the KeySpan Employee Discount Stock Purchase Plan, (3) the issuance of KeySpan Common Stock
upon exercise or settlement of KeySpan stock options and Other KeySpan Stock Awards, (4) the
granting of awards of performance shares, restricted shares, stock options, stock appreciation or
similar rights, as the case may be, pursuant to the KeySpan Benefit Plans in the ordinary course of
the operation of such plans, provided that the aggregate number of shares of KeySpan Common Stock
issuable upon the exercise or settlement, as the case may be, of any such awards granted after the
date of this Agreement shall not exceed 450,000 shares, (5) the issuance by a Subsidiary of shares
of its capital stock to KeySpan or a Subsidiary of KeySpan, and (6) the issuance of securities by
KeySpan pursuant to The KeySpan Investor Program.

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          (d) Charter Documents. KeySpan shall not amend or propose to amend its certificate of
incorporation or its bylaws or the certificate of incorporation or the bylaws (or other
organizational document) of any of its Subsidiaries.

          (e) Acquisitions. Except for acquisitions of the entities, assets and facilities
identified in Section 4.1(e) of the KeySpan Disclosure Schedule, KeySpan shall not, nor shall it
permit any of its Subsidiaries to, acquire or agree to acquire (whether by merger, consolidation,
purchase or otherwise) any person or assets or make any investment in any entity in excess of
$150,000,000 in the aggregate. For the purposes of this Section 4.1(e), the value of any
acquisition or series of related acquisitions shall mean the greater of (i) the book value or (ii)
the sales price, in each case of the person, asset or property which is the subject of such
acquisition or capital expenditure, including liabilities assumed. Notwithstanding anything to the
contrary in this Agreement, KeySpan shall not make any acquisition involving, or otherwise enter
into, in any manner, any line of business that is not conducted by KeySpan, its Subsidiaries or
Joint Ventures as of the date of this Agreement.

          (f) Capital Expenditures. Except for (x) capital expenditures relating to matters
identified in Section 4.1(f) of the KeySpan Disclosure Schedule, and (y) capital expenditures (1)
required by law or Governmental Authorities or (2) incurred in connection with the repair or
replacement of facilities destroyed or damaged due to casualty or accident (whether or not covered
by insurance) necessary to provide or maintain safe, adequate and reliable electric and natural gas
service (after consultation with Parent), KeySpan shall not, nor shall it permit any of its
Subsidiaries to, make any capital expenditures in excess of $15,000,000 in the aggregate. For the
purposes of this Section 4.1(f), the value of any capital expenditure or series of related capital
expenditures shall mean the greater of (i) the book value or (ii) the sales price, in each case of
the person, asset or property which is the subject of such capital expenditure, including
liabilities assumed.

          (g) No Dispositions. Except for (x) dispositions set forth in Section 4.1(g) of the
KeySpan Disclosure Schedule, (y) dispositions of obsolete equipment or assets or dispositions of
assets being replaced and (z) dispositions by KeySpan or its Subsidiaries of its assets in
accordance with the terms of restructuring and divestiture plans required by applicable local or
state regulatory agencies prior to the date hereof and previously disclosed to Parent, KeySpan
shall not, nor shall it permit any of its Subsidiaries to, pledge, sell, lease, grant any security
interest in or otherwise dispose of or encumber any of its assets or properties in excess of
$5,000,000 individually or $25,000,000 in the aggregate. For the purposes of this Section 4.1(g),
the value of any disposition or series of related dispositions shall mean the greater of (i) the
book value or (ii) the sales price, in each case of the person, asset or property which is the
subject of such disposition, including liabilities assigned.

          (h) Indebtedness. KeySpan shall not, and shall not permit any of its Subsidiaries to,
incur or guarantee any indebtedness or enter into any “keep well” or other agreement to maintain
the financial condition of another person or enter into any arrangement having the economic effect
of any of the foregoing (including any capital leases, “synthetic” leases or conditional sale or
other title retention agreements) other than (i) indebtedness set forth in Section 4.1(h) of the
KeySpan Disclosure Schedule, (ii) indebtedness incurred in connection with the refinancing of
existing indebtedness either at its stated maturity or at a lower cost of

23

 

funds (calculating such cost on an aggregate after-Tax basis) and (iii) indebtedness and
guarantees among KeySpan and its Subsidiaries.

          (i) Compensation and Benefits. During the period from the date of this Agreement and
continuing until the Effective Time, KeySpan agrees as to itself and its Subsidiaries that it will
not, without the prior written consent of Parent, (i) other than in the ordinary course of
business, enter into, adopt, amend (except for such amendments as may be required by law or
reasonably necessary to avoid adverse tax consequences to KeySpan or its employees) or terminate
any KeySpan Benefit Plan, or any other employee benefit plan or any agreement, arrangement, plan or
policy or any equity-based award (or agreement governing the terms of such award) between KeySpan
or a Subsidiary of KeySpan and one or more of its directors or officers, (ii) except for normal
payments, awards and increases in the ordinary course of business or as required by any plan or
arrangement as in effect as of the date hereof, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by any plan or
arrangement as in effect as of the date hereof or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing or (iii) enter into or renew any contract, agreement,
commitment or arrangement (other than a renewal occurring in accordance with the terms thereof)
providing for the payment to any director, officer or employee of such party of compensation or
benefits contingent, or the terms of which are materially altered, upon the occurrence of any of
the transactions contemplated by this Agreement.

          (j) Accounting. KeySpan shall not, and shall not permit any of its Subsidiaries to,
make any changes in their accounting methods materially affecting the reported consolidated assets
liabilities or results of operations of KeySpan, except as required by law or GAAP or permitted by
GAAP and consented to by its independent auditors.

          (k) Collective Bargaining Agreements. KeySpan shall not, and shall not permit any of
its Subsidiaries to negotiate the renewal or extension of any of the collective bargaining
agreements listed in Section 3.1(p) of the KeySpan Disclosure Schedule without providing Parent
with access to all information relating to the renewal or extension of any such collective
bargaining agreement and permitting Parent to consult with KeySpan or its Subsidiaries and their
counsel on the progress thereof from time to time.

          (l) Regulatory Status. Except as disclosed in Section 4.1(k) of the KeySpan
Disclosure Schedule, KeySpan shall not, nor shall it permit any of its Subsidiaries to, agree or
consent to any material agreements or material modifications of existing agreements or course of
dealings with any Governmental Entity in respect of the operations of their businesses, except as
required by law to obtain or renew Permits or agreements in the ordinary course of business
consistent with past practice.

          (m) Insurance. KeySpan shall, and shall cause its Subsidiaries, to maintain with
financially responsible insurance companies (or through self-insurance not inconsistent with such
party’s past practice), insurance in such amounts and against such risks and losses as are
customary for companies engaged in the utility industry.

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          (n) Certain Consents. If requested by Parent, KeySpan shall use reasonable best
efforts to obtain the consents identified in Sections 3.2(b)(ii) and 3.2(b)(iii) of the Parent
Disclosure Schedule (provided that such consents and any obligations thereunder shall not be
effective until the Closing).

          (o) Taxes. Neither KeySpan nor its Subsidiaries shall (i) change any Tax accounting
methods, policies or practices of KeySpan or its Subsidiaries, (ii) make, revoke or amend any
material Tax election of KeySpan or its Subsidiaries, (iii) file any amended Tax Return of KeySpan
or its Subsidiaries, (iv) enter into any closing agreement affecting any Tax liability or refund of
KeySpan or its Subsidiaries, (v) settle or compromise any material Tax liability or refund of
KeySpan or its Subsidiaries, or (vi) extend or waive the application of any statute of limitations
regarding the assessment or collection of any material Tax of KeySpan or its Subsidiaries (except
with respect to regular and routine extensions of Tax Returns); provided, however,
that Parent shall be deemed to have consented to any request with respect to clauses (i) and (iii)
above to the extent that Parent does not notify KeySpan or any of its Subsidiaries of its consent
or withholding of consent within ten (10) Business Days of receipt of the request made by KeySpan
or its Subsidiaries.

          (p) Claims Settlement. KeySpan shall not settle any claim, action, proceeding or
investigation, whether civil, criminal, administrative or investigative, except (A) in the ordinary
course of business consistent with past practice, (B) settlements to the extent subject to reserves
existing as of the date hereof in accordance with GAAP or (C) the settlement of any Claim that
would not reasonably be expected to have a Material Adverse Effect, except in the case of clauses
(A) and (C) for such claims as are set forth in Section 4.1(p) of the KeySpan Disclosure Schedule,
which shall require the consent of Parent.

          (q) Waiver of Rights. KeySpan shall not modify, amend or terminate, or waive, release
or assign any material rights or claims with respect to any confidentiality or standstill agreement
to which KeySpan or any Subsidiary is a party.

          (r) No Restrictions on Future Business Activities. KeySpan shall not enter into any
agreements or arrangements that limit or otherwise restrict KeySpan or any of its Subsidiaries or
any of their respective Affiliates or any successor thereto or that could, after the Effective
Time, limit or restrict Parent or any of its Affiliates (including the Surviving Corporation) or
any successor thereto, from engaging or competing in any line of business or product line or in any
geographic area.

          (s) Actions to Impede Merger. KeySpan shall not take any action that is intended or
is reasonably likely to result in any of the conditions to the Merger set forth in Article VI not
being satisfied.

          (t) Agreement to do the Foregoing. KeySpan shall not authorize or enter into any
agreement or otherwise make any commitment to do any of the foregoing in this Section 4.1.

25

 

          4.2. Covenants of Parent. During the period from the date of this Agreement and
continuing until the Effective Time, Parent and Merger Sub each agree as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this Agreement or as otherwise
indicated on the Parent Disclosure Schedule or as required by a Governmental Entity of competent
jurisdiction or by applicable law, rule or regulation, or to the extent that KeySpan shall
otherwise consent in writing (which consent not to be unreasonably delayed or withheld)):

          (a) Conduct of Business of Merger Sub. Parent shall cause Merger Sub to (i) perform its
obligations under this Agreement, (ii) not engage directly or indirectly in any business or
activities of any type or kind and not enter into any agreements or arrangements with any person,
or be subject to or bound by any obligation or undertaking, which is inconsistent with this
Agreement.

          (b) Conduct of Business of Parent. Parent agrees that, during the period from the date
hereof and continuing until the earlier of the termination of this Agreement or the Effective Time,
except as expressly contemplated or permitted by this Agreement or as required by applicable law,
and except as may be consented to in writing by KeySpan (such consent not to be unreasonably
withheld or delayed), Parent shall not, and shall not permit any of its Subsidiaries to enter into
or consummate any agreements or transactions for an acquisition (via stock purchase, merger,
consolidation, purchase of assets or otherwise), merger or joint venture or other agreement or
otherwise if, in any such cases, such agreement or transaction would or would reasonably be
expected to, individually or in the aggregate, prevent Parent or Merger Sub from performing, or
materially impair the ability of Parent or Merger Sub to perform, their respective obligations
under this Agreement.

          4.3. Advice of Changes; Governmental Filings. KeySpan shall file all reports required
to be filed by it with the SEC (and all other Governmental Entities) between the date of this
Agreement and the Effective Time and shall (to the extent permitted by law or regulation or any
applicable confidentiality agreement) deliver to Parent copies of all such reports, announcements
and publications promptly after the same are filed. Subject to applicable laws relating to the
exchange of information, each of Parent and KeySpan shall have the right to review in advance, and
will consult with the other with respect to, all the information relating to the other party and
each of their respective Subsidiaries, which appears in any filings, announcements or publications
made with, or written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly as practicable. Each
party agrees that, to the extent practicable and as timely as practicable, it will consult with,
and provide all appropriate and necessary assistance to, the other party with respect to the
obtaining of all permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other party apprised of the status of matters relating to
completion of the transactions contemplated hereby.

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          4.4. Transition Planning. KeySpan and Parent shall each appoint one or more
representatives to a committee that will be responsible for coordinating transition planning and
implementation relating to the Merger.

          4.5. Control of Other Party’s Business. Nothing contained in this Agreement shall be
deemed to give Parent or Merger Sub, directly or indirectly, the right to control or direct
KeySpan’s operations prior to the Effective Time. Prior to the Effective Time, KeySpan shall
exercise, consistent with the terms and conditions of this Agreement, complete control and
supervision over its operations.

ARTICLE V

ADDITIONAL AGREEMENTS

          5.1. Preparation of Proxy Statement and Circular; Stockholders Meetings. (a) As
promptly as practicable following the date hereof, KeySpan shall, in cooperation with Parent,
prepare and file with the SEC preliminary proxy materials (such proxy statement, and any amendments
or supplements thereto, the “Proxy Statement”). The Proxy Statement shall comply as to
form in all material respects with the applicable provisions of the Exchange Act. KeySpan shall,
as promptly as practicable after receipt thereof, provide copies of any written comments received
from the SEC with respect to the Proxy Statement to Parent and advise Parent of any oral comments
with respect to the Proxy Statement received from the SEC. KeySpan agrees that none of the
information supplied or to be supplied by KeySpan for inclusion or incorporation by reference in
the Proxy Statement or any supplemental proxy, at the time of mailing thereof and at the time of
the KeySpan Stockholders Meeting, will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Parent agrees that none of
the information supplied or to be supplied by Parent for inclusion or incorporation by reference in
the Proxy Statement or any supplemental proxy, at the time of mailing thereof and at the time of
the KeySpan Stockholders Meeting, will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. For purposes of the
foregoing, it is understood and agreed that information concerning or related to KeySpan and the
KeySpan Stockholders Meeting will be deemed to have been supplied by KeySpan and information
concerning or related to Parent or Merger Sub shall be deemed to have been supplied by Parent.
KeySpan will provide Parent with a reasonable opportunity to review and comment on the Proxy
Statement and any amendment or supplement to the Proxy Statement prior to filing such with the SEC,
and will provide Parent with a copy of all such filings made with the SEC. No amendment or
supplement to the information supplied by Parent for inclusion in the Proxy Statement shall be made
without the approval of Parent, which approval shall not be unreasonably withheld or delayed.

          (b) Parent shall, in cooperation with KeySpan, prepare and file with the UKLA a circular to
shareholders (such circular, and any amendments or supplements thereto, the “Circular”).
The Circular shall comply as to form in all material respects with the applicable provisions of the
UK Listing Rules. Parent shall, as promptly as practicable after receipt thereof, provide copies
of any written comments received from the UKLA with respect to the Circular to

27

 

KeySpan and advise KeySpan of any oral comments with respect to the Circular received from the
UKLA. Parent agrees that none of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in the Circular or any supplementary circular, at the time
of mailing thereof and at the time of the Parent Shareholders Meeting, will contain an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under which they were made,
not misleading. KeySpan agrees that none of the information supplied or to be supplied by KeySpan
for inclusion or incorporation by reference in the Circular or any supplementary circular, at the
time of mailing thereof and at the time of the Parent Shareholders Meeting, will contain an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under which they were made,
not misleading. For purposes of the foregoing, it is understood and agreed that information
concerning or related to Parent or Merger Sub and the Parent Shareholders Meeting will be deemed to
have been supplied by Parent and information concerning or related to KeySpan shall be deemed to
have been supplied by KeySpan. Parent will provide KeySpan with a reasonable opportunity to review
and comment on any amendment or supplement to the Circular prior to filing such with the UKLA, and
will provide KeySpan with a copy of all such filings made with the UKLA. No amendment or
supplement to the information supplied by KeySpan for inclusion in the Circular shall be made
without the approval of KeySpan, which approval shall not be unreasonably withheld or delayed.

          (c) KeySpan shall take all lawful action to solicit proxies in favor of the adoption of this
Agreement, and the transactions contemplated hereby, by the Required KeySpan Vote and the Board of
Directors of KeySpan shall recommend adoption of this Agreement, and the transactions contemplated
hereby, by the stockholders of KeySpan unless the Board of Directors of KeySpan determines in its
reasonable good faith judgment, after consultation with outside counsel, that taking any such
action would be inconsistent with its fiduciary duties under applicable law. KeySpan shall, as
soon as reasonably practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of its stockholders (the “KeySpan Stockholders Meeting”) for the
purpose of obtaining the Required KeySpan Vote. Without limiting the generality of the foregoing,
KeySpan agrees that its obligations pursuant to the second sentence of this Section 5.1(c) shall
not be affected by (i) the commencement, public proposal, public disclosure or communication to
KeySpan of any Takeover Proposal (as defined in Section 5.5), (ii) the withdrawal or modification
by the Board of Directors of KeySpan of its approval or recommendation of this Agreement, the
Merger or the other transactions contemplated hereby, or (iii) subject to KeySpan’s right to
terminate this Agreement under Section 7.1(e), the approval or recommendation of any KeySpan
Superior Proposal. Notwithstanding any of the events set forth in clauses (i), (ii) and (iii) of
the immediately preceding sentence, in the event KeySpan fulfills its obligations pursuant to this
Section 5.1(c) and the KeySpan Stockholder Approval is not obtained at the KeySpan Stockholders
Meeting, Parent shall not thereafter have the right to terminate this Agreement pursuant to Section
7.1(d), as a result of the Board of Directors of KeySpan (or any committee thereof) having
withdrawn or modified, or proposed publicly to withdraw or modify, the approval or recommendation
by the KeySpan Board of Directors of this Agreement or the Merger, provided Parent shall retain all
other rights to terminate this Agreement set forth in Section 7.1.

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          (d) Parent shall recommend approval of this Agreement, and the transactions contemplated
hereby, by the shareholders of Parent. Parent shall duly call, give notice of, convene and hold
its general meeting of shareholders (the “Parent Shareholders Meeting”) at which
shareholders shall be asked to vote to approve the Merger. Without limiting the generality of the
foregoing, Parent agrees that its obligations pursuant to the second sentence of this Section
5.1(d) shall not be affected by (i) the commencement, public proposal, public disclosure or
communication to Parent of any Parent Acquisition Transaction (as defined in Section 7.2) or (ii)
the withdrawal or modification by the Board of Directors of Parent of its approval or
recommendation of this Agreement, the Merger or the other transactions contemplated hereby.

          (e) KeySpan and Parent will use their reasonable best efforts to hold the KeySpan Stockholders
Meeting and the Parent Shareholders Meeting as soon as practicable after the date of this
Agreement; provided, however, that Parent may hold the Parent Shareholder Meeting
as part of its Annual General Meeting scheduled for July 31, 2006; provided,
further that the Parent Shareholder Meeting shall in any event be held no later than August
31, 2006.

          5.2. Corporate Governance. (a) The name of the Surviving Corporation shall initially
be KeySpan. The headquarters of the Surviving Corporation shall be in Brooklyn, New York.

          (b) At or prior to the Effective Time, Parent shall take all actions necessary to appoint two
directors who immediately prior to the Effective Time served as directors of KeySpan to the Board
of Directors of Parent. One such director shall be the Person specified on Exhibit A hereto and
the second such director shall be appointed pursuant to the conditions and process set forth on
Exhibit A hereto. Exhibit A hereto shall also set forth (i) as of the Effective Time the Chairman
of the Board of Directors of the Surviving Corporation, (ii) the manner in which certain senior
officers of the Surviving Corporation as of the Effective Time will be selected after the date
hereof and prior to the Effective Time and (iii) certain other matters. All appointments made
pursuant to this Section 5.2 and Exhibit A hereto shall be effective as of the Effective Time and
shall comply with the applicable listing and corporate governance rules of the NYSE, the UKLA, the
LSE and the applicable provisions of the Exchange Act and all other applicable laws and
regulations, in each case, as in effect at the Effective Time.

          (c) During the four-year period immediately following the Effective Time, the Surviving
Corporation shall provide, directly or indirectly, charitable contributions and traditional local
community support within the service areas of KeySpan and each of its Subsidiaries that are
utilities at levels substantially comparable to and no less than the levels of charitable
contributions and community support provided by KeySpan and such Subsidiaries within their service
areas within the four-year period immediately prior to the date of this Agreement, as set forth on
Section 5.2 of the KeySpan Disclosure Schedule. Without limitation to the foregoing, the Surviving
Corporation will for such period continue to support the KeySpan Foundation in a manner
substantially comparable to the manner in which KeySpan supported the KeySpan Foundation within the
four-year period immediately prior to the date of this Agreement, as set forth on Section 5.2 of
the KeySpan Disclosure Schedule.

          5.3. Access to Information. Upon reasonable notice, KeySpan shall (and shall cause
its Subsidiaries to) afford to the officers, employees, accountants, counsel, financial

29

 

advisors and other representatives of Parent reasonable access during normal business hours,
during the period prior to the Effective Time, to all its properties, books, contracts, commitments
and records (including, without limitation, any Tax Returns) and, during such period, KeySpan shall
(and shall cause its Subsidiaries to) furnish promptly to Parent (a) a copy of each report,
schedule, registration statement and other document filed, published, announced or received by it
during such period pursuant to the requirements of Federal or state securities laws, as applicable
(other than documents which such party is not permitted to disclose under applicable law), and (b)
consistent with its legal obligations, all other information concerning its business, properties
and personnel as Parent may reasonably request; provided however, that KeySpan may restrict the
foregoing access to the extent that (i) a Governmental Entity requires KeySpan or any of its
Subsidiaries to restrict access to any properties or information reasonably related to any such
contract on the basis of applicable laws and regulations with respect to national security matters,
(ii) any law, treaty, rule or regulation of any Governmental Entity applicable to KeySpan requires
KeySpan or its Subsidiaries to restrict access to any properties or information, (iii) KeySpan or
its Subsidiaries is bound by a confidentiality agreement that requires KeySpan or its Subsidiaries
to restrict such access or (iv) where such access would be reasonably likely to waive the
attorney-client privilege. The parties will hold any such information which is non-public in
confidence to the extent required by, and in accordance with, the provisions of the letter dated
June 13, 2005 between KeySpan and Parent (the “Confidentiality Agreement”). Any
investigation by KeySpan or Parent shall not affect the representations and warranties of KeySpan
or Parent, as the case may be.

          5.4. Reasonable Best Efforts. (a) Subject to the terms and conditions of this Agreement,
each party shall, and shall cause its respective Subsidiaries to, use its reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the Merger and the other
transactions contemplated by this Agreement as soon as practicable after the date hereof. In
furtherance and not in limitation of the foregoing, each party hereto agrees to make an appropriate
filing (and to share equally in the filing fees) of a Notification and Report Form pursuant to the
HSR Act with respect to the transactions contemplated hereby at a mutually agreed time and to
supply as promptly as practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and to take all other actions necessary to cause the expiration
or termination of the applicable waiting periods under the HSR Act as soon as practicable.

          (b) Each of Parent and KeySpan shall, and shall cause its respective Subsidiaries to, in
connection with the efforts referenced in Section 5.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR Act or any other
applicable law or regulation, use its reasonable best efforts to (i) make all appropriate filings
and submissions with any Governmental Entity that may be necessary, proper or advisable under
applicable laws or regulations in respect of any of the transactions contemplated by this
Agreement, (ii) cooperate in all respects with each other in connection with any such filing or
submission and in connection with any investigation or other inquiry, including any proceeding
initiated by a private party, (iii) promptly inform the other party of any communication received
by such party from, or given by such party to, the Antitrust Division of the Department of Justice
(the “DOJ”) or any other Governmental Entity and of any material communication received or
given in connection with any proceeding by a private party, in each

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case regarding any of the transactions contemplated hereby and (iv) as reasonably practical,
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, the DOJ or any such other Governmental Entity or, in
connection with any proceeding by a private party, with any other Person.

          (c) Each of Parent and KeySpan shall, and shall cause its respective Subsidiaries, in
connection with the efforts referenced in Section 5.4 (a), to obtain all requisite approvals and
authorizations for the transactions contemplated by the Agreement, and use its reasonable best
efforts to obtain the KeySpan Required Approvals and the Parent Required Approvals; provided,
however, that Parent shall have primary responsibility for the preparation and filing of any
applications, filings or other materials with the FERC, the NYPSC and the NHPUC. If Parent
determines to make a filing with the Massachusetts Department of Telecommunications and Energy in
connection with the Merger, KeySpan shall cooperate with Parent in connection with such filing.
KeySpan and Parent shall cooperate in connection with seeking the consents set forth in Section
5.4(c) of the KeySpan Disclosure Letter (the “Additional KeySpan Consents”) subject to the terms
and conditions set forth therein. KeySpan shall have the right to review and approve in advance
all characterizations of the information relating to KeySpan and the Merger that appear in any
application, notice, petition or filing made in connection with the Merger. KeySpan and Parent
agree that they will consult and cooperate with each other with respect to the obtaining of the
KeySpan Required Approvals, the Parent Required Approvals and the Additional KeySpan Consents, as
well as any additional necessary approvals and authorizations of Governmental Authorities.

          (d) In furtherance and not in limitation of the covenants of the parties contained in Sections
5.4(a), (b) and (c), if any objections are asserted with respect to the transactions contemplated
by this Agreement or if any suit is instituted (or threatened to be instituted) by any Governmental
Entity or any private party challenging any of the transactions contemplated hereby as violative of
any Antitrust Law or other Law or otherwise brought under any such Law that would otherwise
prohibit or materially impair or materially delay the consummation of the transactions contemplated
hereby, each of Parent, Merger Sub and KeySpan shall use its reasonable best efforts to resolve any
such objections or suits so as to permit consummation of the transactions contemplated by this
Agreement, including in order to resolve such objections or suits which, in any case if not
resolved, could reasonably be expected to prohibit or materially impair or delay the consummation
of the transactions contemplated hereby, including selling, holding separate or otherwise disposing
of or conducting its business in a manner which would resolve such objections or suits or agreeing
to sell, hold separate or otherwise dispose of or conduct its business in a manner which would
resolve such objections or suits or permitting the sale, holding separate or other disposition of,
any of its assets or the assets of its Subsidiaries or the conducting of its business in a manner
which would resolve such objections or suits; provided, however, that no party
shall be required to, or may, in the case of KeySpan, take any such actions to resolve any such
objections or suits which actions, individually or in the aggregate, (x) are not conditional on the
consummation of the Merger, or (y) would have a Material Adverse Effect on National Grid USA or
KeySpan. Without excluding other possibilities, the transactions contemplated by this Agreement
shall be deemed to be materially delayed if unresolved objections or suits delay or could
reasonably be expected to delay the consummation of the transactions contemplated hereby beyond the
End Date (as defined in Section 7.1(h)). For purposes of this Agreement, “Antitrust Law”
shall mean the

31

 

Sherman Act, as amended, the Clayton Act, as amended, Council Regulation (EC) 139/2004, the
HSR Act, the FTC Act, as amended, and all other federal, state and foreign statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and other laws that are
designed or intended to prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade or impeding or lessening of competition through merger or
acquisition, in any case that are applicable to the transactions contemplated by this Agreement.

          (e) Subject to the obligations under Section 5.4(d), in the event that any administrative or
judicial action or proceeding is instituted (or threatened to be instituted) by a Governmental
Entity or private party challenging any transaction contemplated by this Agreement, or any other
agreement contemplated hereby each of Parent and KeySpan shall cooperate in all respects with each
other and use its respective reasonable best efforts to contest and resist any such action or
proceeding.

          (f) Notwithstanding the foregoing or any other provision of this Agreement, nothing in this
Section 5.4 shall limit a party’s right to terminate this Agreement pursuant to Section 7.1(h) so
long as such party has up to then complied in all material respects with its obligations under this
Section 5.4.

          5.5. No Solicitation by KeySpan. (a) From the date hereof until the earlier of the
Effective Time or the date on which this Agreement is terminated in accordance with the terms
hereof, KeySpan shall not, nor shall it permit any of its Subsidiaries to, nor shall it or its
Subsidiaries authorize or permit any of their respective officers, directors, employees,
representatives or agents to, directly or indirectly, (i) solicit, initiate or knowingly encourage
or facilitate (including by way of furnishing non-public information) any inquiries regarding, or
the making of any proposal which constitutes or that may reasonably be expected to lead to, any
Takeover Proposal, (ii) enter into any letter of intent or agreement related to any Takeover
Proposal (each, an “Acquisition Agreement”) or (iii) participate in any discussions or
negotiations regarding, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or that may reasonably be expected to lead to, any Takeover Proposal;
provided, however, that if, at any time after the date hereof and prior to the
KeySpan Stockholders Meeting, KeySpan receives an unsolicited bona fide written Takeover Proposal
from any third Person that in the reasonable good faith judgment of KeySpan’s Board of Directors
constitutes, or is reasonably likely to result in, a Superior Proposal and the Board of Directors
of KeySpan determines in its reasonable good faith judgment, after consultation with outside
counsel, that failure to take any such action would be inconsistent with its fiduciary duties under
applicable law, KeySpan may, in response to such Superior Proposal, (x) furnish information with
respect to KeySpan to any such Person pursuant to a confidentiality agreement no more favorable to
such Person than the Confidentiality Agreement is to Parent and (y) participate in negotiations
with such Person regarding such Superior Proposal if (A) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such third Person, KeySpan or
any of its Subsidiaries provides at least four business days advance written notice to Parent of
the identity of the third Person making, and the proposed terms and conditions of, such Superior
Proposal and a copy of all written materials delivered by such third Person to KeySpan or any of
its Subsidiaries, (B) KeySpan shall have provided to Parent a copy of all written materials
delivered to the third Person making the Superior Proposal in connection with such Superior
Proposal and made available to Parent all materials and information made

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available to the third Person making the Superior Proposal in connection with such Superior
Proposal and (C) KeySpan shall have fully complied with this Section 5.5. For purposes of this
Agreement, “Takeover Proposal” means any inquiry, proposal or offer from any Person (other
than Parent and its Affiliates) relating to any direct or indirect acquisition or purchase of 20%
or more of the assets of KeySpan and its Subsidiaries or 20% or more of the voting power of the
capital stock of KeySpan or the capital stock of any of its Significant Subsidiaries then
outstanding, any tender offer or exchange offer that if consummated would result in any Person
beneficially owning 20% or more of the voting power of the capital stock of KeySpan or the capital
stock of such Subsidiaries then outstanding, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving KeySpan or any of its
Significant Subsidiaries, other than the transactions with Parent and Merger Sub contemplated by
this Agreement. For purposes of this Agreement, a “Superior Proposal” means any unsolicited
bona fide written offer made by any Person (other than Parent and its Affiliates) to acquire,
directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of
the voting power of the capital stock of KeySpan then outstanding or all or substantially all the
assets of KeySpan and otherwise on terms which the Board of Directors of KeySpan determines in its
reasonable good faith judgment (after consultation with its financial advisors) to be more
favorable (taking into account (i) all financial and strategic considerations, including relevant
legal, financial, regulatory and other aspects of such Takeover Proposal and the Merger and the
other transactions contemplated by this Agreement deemed relevant by the Board of Directors, (ii)
the identity of the third party making such Takeover Proposal, (iii) the conditions and prospects
for completion of such Takeover Proposal and (iv) all other factors that the Board of Directors of
KeySpan are permitted to consider pursuant to §717 of the NYBCL; provided, however,
that no Takeover Proposal consisting of all cash consideration may be deemed a Superior Proposal
unless the per share cash consideration proposed pursuant to the Takeover Proposal is greater than
the Merger Consideration (as such consideration may be proposed to be changed by Parent pursuant to
the terms of this Agreement) to KeySpan’s stockholders than the Merger and the other transactions
contemplated by this Agreement (taking into account all of the terms of any proposal by Parent to
amend or modify the terms of the Merger and the other transactions contemplated by this Agreement).

          (b) Except as set forth in Section 7.1(e), neither the Board of Directors of KeySpan nor any
committee thereof shall (i) approve or recommend, or propose to approve or recommend, any Takeover
Proposal or (ii) authorize or permit KeySpan or any of its Subsidiaries to enter into any
Acquisition Agreement.

          (c) Nothing contained in this Section 5.5 shall prohibit KeySpan from complying with Rules
14d-9 or 14e-2 promulgated under the Exchange Act with respect to a Takeover Proposal; provided,
however, that compliance with such rules shall not in any way limit or modify the effect that any
action taken pursuant to such rules has under any other provision of this Agreement, including
Section 7.1(d).

          (d) KeySpan agrees that it and its Subsidiaries shall, and KeySpan shall direct and cause its
and its Subsidiaries’ respective officers, directors, employees, representatives and agents to,
immediately cease and cause to be terminated any activities, discussions or negotiations with any
Persons with respect to any Takeover Proposal. KeySpan agrees that it will notify Parent in
writing as promptly as practicable (and in any event within 24 hours) after

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any Takeover Proposal is received by, any information is requested from, or any discussions or
negotiations relating to a Takeover Proposal are sought to be initiated or continued with, KeySpan,
its Subsidiaries, or their officers, directors, employees, representatives or agents. The notice
shall indicate the name of the Person making such Takeover Proposal or taking such action, the
material terms and conditions of any proposals or offers and a copy of all written materials
delivered by such Person making the Takeover Proposal to KeySpan or any of its Subsidiaries, and
thereafter KeySpan shall keep Parent informed, on a current basis, of the status and material terms
of any such proposals or offers and the status and details of any such discussions or negotiations
and provide Parent with copies of all written materials delivered by such Person making the
Takeover Proposal to KeySpan or any of its Subsidiaries and keep Parent informed of any amendments
or prospective amendments to such information. KeySpan also agrees that it will promptly request
each Person that has heretofore executed a confidentiality agreement in connection with any
Takeover Proposal to return or destroy all confidential information heretofore furnished to such
Person by or on behalf of it or any of its Subsidiaries. KeySpan shall provide Parent with
reasonable advance notice of any meeting of the KeySpan Board of Directors to discuss or consider a
Takeover Proposal.

          5.6. KeySpan Stock Options and Other Stock Awards; Employee Benefits Matters. (a)
Options. KeySpan shall take all action reasonably necessary so that, immediately prior to
the Effective Time, each outstanding stock option issued under the KeySpan Benefit Plans shall
become vested and exercisable as of the Effective Time and shall be canceled and the holder thereof
shall be entitled to receive at the Effective Time from KeySpan or as soon as practicable
thereafter (but in no event later than 10 days after the Effective Time) from Parent or the
Surviving Corporation in consideration for such stock option an amount in cash equal to (A) the
excess, if any, of the Merger Consideration per share over the exercise price per share previously
subject to such stock option, less any required withholding taxes, multiplied by (B) the number of
shares of KeySpan Common Stock previously subject to such stock option (a “Canceled
Option”). As soon as practicable after the Effective Time, Parent shall deliver or cause to be
delivered to each holder of Canceled Options an appropriate notice setting forth such holder’s
rights to receive cash payments with respect to Cancelled Options pursuant to the KeySpan Benefit
Plans and this Section 5.6(a).

          (b) Other KeySpan Stock Awards. All shares of KeySpan Common Stock and any other
KeySpan stock unit awards (and any dividend equivalent rights thereunder) granted subject to
vesting, deferral or other lapse restrictions pursuant to any KeySpan Benefit Plan (collectively,
the “Other KeySpan Stock Awards”) which are outstanding immediately prior to the Effective
Time shall vest and become free of such restrictions as of the Effective Time, and shall be
cancelled to the extent provided by the terms of such KeySpan Benefit Plans and the award
agreements governing such Other KeySpan Stock Awards at the Effective Time, and each holder thereof
shall be entitled to receive the product of (i) the Merger Consideration, multiplied by (ii) the
total number of shares of KeySpan Common stock subject to such Other KeySpan Stock Award, less any
required withholding taxes.

          (c) Employment Related Obligations; Employee Benefits.

          (i) Obligations of Parent; Comparability of Benefits. Parent shall cause the
Surviving Corporation and each of its Subsidiaries to honor all employment

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related obligations and agreements with respect to any current and former employees,
directors and consultants of KeySpan or any of its Subsidiaries (“KeySpan
Employees”) (including without limitation (A) recognizing and, as required by Law,
bargaining with, or continuing to recognize and, as required by Law, bargain with, the
current exclusive collective bargaining representatives of the KeySpan Employees and (B)
honoring, or continuing to honor, all current collective bargaining agreements. As of the
Effective Time, each KeySpan Employee covered by a collective bargaining agreement listed on
Section 3.1(p) of the KeySpan Disclosure Schedule shall remain covered by such collective
bargaining agreement. In addition, each KeySpan Benefit Plan shall be assumed by the
Surviving Corporation at the Effective Time (and Parent shall cause the Surviving
Corporation to make all required payments pursuant to such KeySpan Benefit Plans and any
trusts thereunder). For at least two years thereafter, Parent shall cause the Surviving
Corporation and each of its Subsidiaries to provide each KeySpan Employee, who is not
covered by a collective bargaining agreement listed on Section 3.1(p) of the KeySpan
Disclosure Schedule, with a base salary or hourly wages, as applicable, at least equal to
that provided to such KeySpan Employee immediately prior to the Effective Time, and to
provide benefits to KeySpan Employees, who are not covered by a collective bargaining
agreement listed on Section 3.1(p) of the KeySpan Disclosure Schedule, that are no less
favorable than the benefits provided, in the aggregate, to KeySpan Employees immediately
prior to the Effective Time; provided, however, that for such two-year period, each KeySpan
Employee who is not covered by a collective bargaining agreement listed on Section 3.1(p) of
the KeySpan Disclosure Schedule shall be eligible to receive severance payments and benefits
no less favorable than those provided under the KeySpan severance plans and policies as set
forth in Section 5.6(c) of the KeySpan Disclosure Schedule. Notwithstanding the foregoing,
nothing herein shall require the continuation of any particular KeySpan Benefit Plan or
prevent the amendment or termination thereof (subject to the maintenance of the benefits as
provided in the preceding sentence and subject to satisfaction of any legal duty to bargain
with the collective bargaining representatives of KeySpan Employees with respect to such
matters).

          (ii) Pre-Existing Limitations; Deductible; Service Credit. With respect to any
KeySpan Benefit Plans in which KeySpan Employees participate after the Effective Time,
Parent shall: (A) to the extent satisfied or inapplicable under applicable KeySpan Benefit
Plans immediately prior to the Effective Time, waive all limitations as to pre-existing
conditions, exclusions and waiting periods with respect to participation and coverage
requirements applicable to KeySpan Employees under any Parent Benefit Plan in which such
employees may be eligible to participate after the Effective Time, (B) provide each KeySpan
Employee with credit for any co-payments and deductibles paid prior to participation in such
Parent Benefit Plan in satisfying any applicable deductible or out-of-pocket requirements
under any welfare Parent Benefit Plan in which such employees may be eligible to participate
after the Effective Time, and (C) recognize all service except to the extent such
recognition would result in duplication of benefits (unless such duplication is expressly
contemplated in a plan, agreement or other arrangement of, or approved by, Parent) of
KeySpan Employees with KeySpan and its current and former affiliates for purposes (of
eligibility to participate, vesting credit and entitlement for benefits (but not for
purposes of benefit accrual under any defined benefit

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pension plan) in any Parent Benefit Plan in which such employees may be eligible to
participate after the Effective Time, to the same extent taken into account under a
comparable KeySpan Benefit Plan immediately prior to the Effective Time.

          5.7. Fees and Expenses(a) . Except as provided in this Section 5.7 and Section 7.2,
all fees and expenses incurred in connection with the Merger, this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated, except that each of Parent and KeySpan shall bear and pay
one-half of the costs and expenses incurred in connection with the filings of the premerger
notification and report forms under the HSR Act (including filing fees).

          5.8. Directors’ and Officers’ Indemnification and Insurance. (a) After the Effective
Time through the sixth anniversary of the Effective Time, Parent shall, or shall, cause the
Surviving Corporation to, indemnify and hold harmless each present (as of the Effective Time) or
former officer, director or employee of KeySpan and its Subsidiaries (the “Indemnified
Parties”), against all claims, losses, liabilities, damages, judgments, fines and reasonable
fees, costs and expenses (including attorneys’ fees and expenses) incurred in connection with any
claim, action, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to (i) the fact that the Indemnified Party is or was an
officer, director or employee of KeySpan or any of its Subsidiaries or (ii) matters existing or
occurring at or prior to the Effective Time (including this Agreement and the transactions and
actions contemplated hereby), whether asserted or claimed prior to, at or after the Effective Time,
to the fullest extent permitted under applicable law; provided that no Indemnified Party may settle
any such claim without the prior approval of Parent (which approval shall not be unreasonably
withheld or delayed). Each Indemnified Party will be entitled to advancement of expenses incurred
in the defense of any claim, action, proceeding or investigation from Parent within ten Business
Days of receipt by Parent from the Indemnified Party of a request therefor; provided that any
person to whom expenses are advanced provides an undertaking, to the extent required by the NYBCL,
to repay such advances if it is ultimately determined that such person is not entitled to
indemnification.

          (b) Parent shall cause the Surviving Corporation to maintain in effect (i) in its certificate
of incorporation and by-laws for a period of six years after the Effective Time, the current
provisions regarding elimination of liability of directors and indemnification of, and advancement
of expenses to, officers, directors and employees contained in the certificate of incorporation and
by-laws of KeySpan and (ii) at the election of Parent, for a period of six years after the
Effective Time, (A) maintain in effect the current policies of directors’ and officers’ liability
insurance and fiduciary liability insurance maintained by KeySpan (provided that Parent may
substitute therefor policies of at least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to the insured) with respect to claims
arising from facts or events that occurred on or before the Effective Time; provided, however, that
in no event shall the Surviving Corporation be required to expend in any one year an amount in
excess of 200% of the annual premiums currently paid by KeySpan for such insurance; and, provided,
further, that if the annual premiums of such insurance coverage exceed such amount, Parent or the
Surviving Corporation shall be obligated to obtain a policy with the greatest coverage available
for a cost not exceeding such amount or (B) provide tail coverage for such persons covered by
current policies of directors’ and officers’ liability insurance and

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fiduciary liability insurance maintained by KeySpan which tail coverage shall provide coverage
for a period of six years for acts prior to the Effective Time on terms no less favorable than the
terms of such current insurance coverage.

          (c) Notwithstanding anything herein to the contrary, if any claim, action, proceeding or
investigation (whether arising before, at or after the Effective Time) is made against any
Indemnified Party on or prior to the sixth anniversary of the Effective Time, the provisions of
this Section 5.8 shall continue in effect until the final disposition of such claim, action,
proceeding or investigation.

          (d) In the event that Parent, any of its successors or assigns or the Surviving Corporation
(i) consolidates with or merges into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors or assigns of Parent or the Surviving Corporation,
as the case may be, shall succeed to the obligations set forth in Section 5.6 and this Section 5.8.

          5.9. Public Announcements. KeySpan and Parent shall cooperate to develop a joint
communications plan and cooperate (i) to ensure that all press releases and other public statements
with respect to the transactions contemplated hereby shall be consistent with such joint
communications plan, and (ii) unless otherwise required by applicable law or by obligations
pursuant to any listing agreement with or rules of any securities exchange, to consult with each
other before issuing any press release or otherwise making any public statement with respect to
this Agreement or the transactions contemplated hereby.

          5.10. Conveyance Taxes. KeySpan and Parent shall cooperate in the preparation,
execution and filing of all Tax Returns, questionnaires, applications or other documents regarding
any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp
Taxes, any transfer, recording, registration and other fees and any similar Taxes which become
payable in connection with the transactions contemplated by this Agreement that are required or
permitted to be paid on or before the Effective Time.

          5.11. Restructuring of Merger. It may be preferable to effectuate a business
combination between Parent and KeySpan by means of an alternative structure to the Merger.
Accordingly, if prior to satisfaction of the conditions contained in Article VI hereto, Parent
proposes the adoption of an alternative structure that otherwise preserves for Parent and KeySpan
the economic benefits of the Merger and will not materially delay the consummation thereof, then
the parties shall use their respective reasonable best efforts to effect a business combination
among themselves by means of a mutually agreed upon structure other than the Merger that so
preserves such benefits; provided, however, that prior to closing any such restructured
transaction, all material third party and Governmental Authority declarations, filings,
registrations, notices, authorizations, consents or approvals necessary for the effectuation of
such alternative business combination shall have been obtained and all other conditions to the
parties’ obligations to consummate the Merger and other transactions contemplated hereby, as
applied to such alternative business combination, shall have been satisfied or waived.

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ARTICLE VI

CONDITIONS PRECEDENT

          6.1. Conditions to Each Party’s Obligation to Effect the Merger. The obligations of
KeySpan and Parent to effect the Merger are subject to the satisfaction or mutual waiver on or
prior to the Closing Date of the following conditions:

          (a) Required KeySpan Vote. KeySpan shall have obtained the Required KeySpan Vote for
the adoption of this Agreement by the stockholders of KeySpan.

          (b) Required Parent Vote. Parent shall have obtained the Required Parent Vote for the
approval of this Agreement.

          (c) No Injunctions or Restraints; Illegality. No federal, state, local or foreign,
law, statute, regulation, code, ordinance or decree shall have been adopted or promulgated, and no
temporary restraining order, preliminary or permanent injunction or other order issued by a court
or other Governmental Entity of competent jurisdiction (collectively “Restraints”) shall be
in effect, having the effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger.

          (d) Approvals. The KeySpan Required Approvals and the Parent Required Approvals shall
have been obtained (including, in each case and without limitation, the waiting period (and any
extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall
have expired) at or prior to the Effective Time, such approvals shall have become Final Orders and
such Final Orders, together with the Additional KeySpan Consents, shall not individually or in the
aggregate, impose terms or conditions that would reasonably be expected to result in a Material
Adverse Effect on National Grid USA or KeySpan. “Final Order” means action by the relevant
Governmental Entity that has not been reversed, stayed, enjoined, set aside, annulled or suspended,
with respect to which any waiting period prescribed by law before the transactions contemplated
hereby may be consummated has expired (but without the requirement for expiration of any applicable
rehearing or appeal period), and as to which all conditions to the consummation of such
transactions prescribed by law, regulation or order have been satisfied. Any reference in this
Agreement to the “obtaining” of any such approvals shall mean making such declarations, filings,
registrations, giving such notice, obtaining such authorizations, orders, consents, permits or
approvals and having such waiting periods expire as are, in each case, necessary to avoid a
violation of law.

          6.2. Additional Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are subject to the satisfaction of, or waiver by
Parent and Merger Sub, on or prior to the Closing Date of the following additional conditions:

          (a) Representations and Warranties. The representations and warranties of KeySpan set
forth herein shall be true and correct both when made 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

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true and correct (without giving effect to any limitation as to “materiality” or “material
adverse effect” set forth therein) does not have, and could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on KeySpan; provided, that the
representation and warranties of KeySpan in Section 3.1(h)(i) shall be true in all respects without
disregarding the reference to Material Adverse Effect therein.

          (b) Performance of Obligations of KeySpan. KeySpan shall have performed or complied
in all material respects with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date.

          (c) Absence of Certain Changes or Events. Since the date of this Agreement, no event
has occurred which has had, and no fact or circumstance exists that has resulted in or would
reasonably be expected to result in, a Material Adverse Effect on KeySpan.

          (d) Certificate. Parent shall have received a certificate, dated as of the closing
date, executed on behalf of KeySpan by the chief executive officer or the chief financial officer
of KeySpan, to such effect that the conditions specified in paragraphs (a), (b) and (c) of this
Section 6.2 have been satisfied.

          6.3. Additional Conditions to Obligations of KeySpan. The obligations of KeySpan to
effect the Merger are subject to the satisfaction of, or waiver by KeySpan, on or prior to the
Closing Date of the following additional conditions:

          (a) Representations and Warranties. The representations and warranties of Parent and
Merger Sub set forth herein shall be true and correct both when made 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) does not have, and could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent or Merger Sub.

          (b) Performance of Obligations of Parent and Merger Sub. Parent and Merger Sub shall
have performed or complied in all material respects with all agreements and covenants required to
be performed by it under this Agreement at or prior to the Closing Date.

          (c) Certificate. KeySpan shall have received a certificate, dated as of the closing
date, executed on behalf of Parent by the chief executive officer or the chief financial officer of
Parent, to such effect that the conditions specified in paragraphs (a) and (b) of this Section 6.3
have been satisfied.

ARTICLE VII

TERMINATION AND AMENDMENT

          7.1. Termination. This Agreement may be terminated at any time prior to the Effective
Time, whether before or after the Required KeySpan Vote or the Required Parent Vote:

          (a) by mutual written consent of KeySpan and Parent;

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          (b) by either KeySpan or Parent if any Restraint having any of the effects set forth in
Section 6.1(c) shall be in effect and shall have become final and nonappealable; provided that the
party seeking to terminate this Agreement pursuant to this Section 7.1(b) shall have fulfilled its
obligations pursuant to Section 5.4;

          (c) by Parent if there has been a breach of any representation, warranty, covenant or other
agreement made by KeySpan in this Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, in each case such that Section 6.2(a) or Section
6.2(b) would not be satisfied and such breach or condition is not curable or, if curable, is not
cured within 30 days after written notice thereof is given by Parent to KeySpan;

          (d) by Parent if (i) the Board of Directors of KeySpan shall not have recommended, or the
Board of Directors of KeySpan (or any committee thereof) shall have withdrawn or shall have
qualified or modified in any manner adverse to Parent its recommendation of, this Agreement or its
approval of or declaration that this Agreement and the Merger are advisable and fair to, and in the
best interests of, KeySpan and its stockholders or shall have taken any other action or made any
other statement in connection with the KeySpan Stockholders Meeting inconsistent with such
recommendation, approval or declaration, (ii) the Board of Directors of KeySpan (or any committee
thereof) shall have approved or recommended any Takeover Proposal, (iii) the Board of Directors of
KeySpan (or any committee thereof) shall have proposed or resolved to do any of the foregoing in
clauses (i) and (ii) or (iv) a tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of KeySpan is commenced, and the Board of Directors of KeySpan fails to
recommend against acceptance of such tender offer or exchange offer by its stockholders within 10
business days after such commencement (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders);

          (e) by KeySpan prior to the KeySpan Stockholders Meeting if (A) the Board of Directors of
KeySpan authorizes KeySpan, subject to complying with the terms of this Agreement, to enter into a
definitive agreement concerning a transaction that constitutes a Superior Proposal, (B) Parent does
not make, or cause to be made, within four business days of receipt of KeySpan’s written
notification of its intention to enter into a definitive agreement for a Superior Proposal, an
offer that the Board of Directors of KeySpan determines, in its reasonable good faith judgment
after consultation with its financial advisors, is at least as favorable, from a financial point of
view, to the stockholders of KeySpan as the Superior Proposal and (C) KeySpan, prior to or
concurrently with such termination pays to Parent in immediately available funds the amount
required by Section 7.2(b). KeySpan agrees (x) that it will not enter into a definitive agreement
referred to in clause (A) above until at least the fifth business day after it has provided the
notice to Parent required thereby and (y) to notify Parent promptly in writing if its intention to
enter into a definitive agreement referred to in its notification shall change at any time after
giving such notification;

          (f) by KeySpan if there has been a breach of any representation, warranty, covenant or other
agreement made by Parent or Merger Sub in this Agreement, or any such representation and warranty
shall have become untrue after the date of this Agreement, in each case such that Section 6.3(a) or
Section 6.3(b) would not be satisfied and such breach or

40

 

condition is not curable or, if curable, is not cured within 30 days after written notice
thereof is given by KeySpan to Parent;

          (g) by either KeySpan or Parent if (i) at the KeySpan Stockholders Meeting (including any
adjournment or postponement thereof), the Required KeySpan Vote shall not have been obtained, or
(ii) at the Parent Shareholders Meeting (including any adjournment or postponement thereof), the
Required Parent Vote shall not have been obtained; or

          (h) by either Parent or KeySpan, if the Merger shall not have been consummated by the 15-month
anniversary of the date of this Agreement (the “End Date”); provided, however, that if all
other conditions set forth in Article VI (other than conditions that by their nature are to be
satisfied on the Closing Date) are satisfied other than the condition to the Closing set forth in
Section 6.1(d) which remains capable of being fulfilled, then either Parent or KeySpan by written
notice delivered prior to the End Date, may extend such period by three months after the End Date;
provided, further, that the right to terminate this Agreement under this Section 7.1(h) shall not
be available to any party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before the End Date.

          7.2. Effect of Termination. (a) In the event of a termination of this Agreement by either
KeySpan or Parent as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or KeySpan or their
respective officers or directors, except with respect to Section 3.1(l), Section 3.2(g), Section
5.7, this Section 7.2 and Article VIII; provided, however, that nothing herein shall relieve any
party for liability for any willful or knowing breach hereof.

          (b) In the event of a termination of this Agreement by Parent pursuant to Section 7.1(d) or by
KeySpan pursuant to Section 7.1(e), then KeySpan shall, on the date of such termination, pay to
Parent, by wire transfer of immediately available funds, the amount of $250,000,000 (the
“Termination Fee”).

          (c) In the event that between the date hereof and the termination of this Agreement any Person
shall have directly or indirectly publicly disclosed to KeySpan and/or publicly disclosed or made
known to KeySpan’s stockholders (x) a Takeover Proposal or (y) generally that if the Merger is not
consummated such Person or one of its Affiliates will make a Takeover Proposal and thereafter, in
each case, this Agreement is terminated by Parent or KeySpan pursuant to Section 7.1(g)(i) or
Section 7.1(h), and if concurrently with such termination or within twelve months of such
termination KeySpan or any of its Subsidiaries enters into a definitive agreement with respect to a
Takeover Proposal or consummates a Takeover Proposal, then KeySpan shall, upon the earlier of entry
into a definitive agreement with respect to a Takeover Proposal or consummation of a Takeover
Proposal, pay to Parent, by wire transfer of immediately available funds, the Termination Fee.

          (d) In the event that between the date hereof and the termination of this Agreement (A) any
Person shall have directly or indirectly publicly disclosed to Parent and/or publicly disclosed or
made known to Parent’s shareholders (x) a proposal with respect to a Parent Acquisition Transaction
or (y) generally that if the Merger is not consummated such

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Person or one of its Affiliates will commence a Parent Acquisition Transaction and (B)
thereafter this Agreement is terminated by KeySpan or Parent pursuant to Section 7.1(g)(ii), and if
concurrently with such termination or within twelve months of such termination a Parent Acquisition
Transaction occurs or Parent or any of its Subsidiaries shall enter into a definitive agreement
with respect to a Parent Acquisition Transaction then Parent shall, upon the earlier of the date on
which such Parent Acquisition Transaction occurs or the date on which Parent enters into a
definitive agreement with respect to a Parent Acquisition Transaction, pay to KeySpan by wire
transfer of immediately available funds the amount of the Parent Termination Fee. For the purposes
of this Agreement (i) “Parent Termination Fee” means the lesser of $250,000,000 or one
percent of the market capitalization of Parent on the date such payment becomes due and payable and
(ii) “Parent Acquisition Transaction” means the acquisition, directly or indirectly, for
consideration consisting of cash and/or securities, of more than 50% of the voting power of the
capital stock of Parent then outstanding or all or substantially all the assets of Parent.

          (e) KeySpan and Parent acknowledge that the agreements contained in Sections 7.2(b) through
(e) are an integral part of the transactions contemplated by this Agreement, and that, without
these agreements, Parent or KeySpan, as applicable, would not enter into this Agreement;
accordingly, if KeySpan or Parent, as applicable, fails to promptly pay the amount due pursuant to
Section 7.2(b), (c) or (d), as the case may be, and, in order to obtain such payment, Parent or
KeySpan, as applicable, commences a suit which results in a judgment against KeySpan or Parent, as
applicable, for any of the amounts set forth in Section 7.2(b), (c) or (d), as the case may be,
KeySpan or Parent, as applicable, shall pay to Parent or KeySpan, as applicable, its costs and
expenses (including attorneys’ fees) in connection with such suit. Interest shall accrue on any
amounts due under Section 7.2(b), (c), or (d) from and after 30 days of the date such amount is due
at the prime rate of Citibank N.A. in effect on the date such payment was required to be made.

          7.3. Amendment. This Agreement may be amended by the parties at any time before or
after the Required KeySpan Vote or the Required Parent Vote; provided, however, that after any such
approval, there shall not be made any amendment that by law requires further approval by the
stockholders of KeySpan or shareholders of Parent without the further approval of such stockholders
or such shareholders. This Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties.

          7.4. Extension; Waiver. At any time prior to the Effective Time, a party may (a)
extend the time for the performance of any of the obligations or other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties of the other parties contained in
this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other parties with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.

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ARTICLE VIII

GENERAL PROVISIONS

          8.1. Non-Survival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and other agreements in this Agreement or in any instrument
delivered pursuant to this Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and other agreements, shall survive the Effective Time,
except for those covenants and agreements contained herein and therein that by their terms apply or
are to be performed in whole or in part after the Effective Time and this Article VIII. Nothing in
this Section 8.1 shall relieve any party for any breach of any representation, warranty, covenant
or other agreement in this Agreement occurring prior to termination.

          8.2. Notices. All notices and other communications hereunder shall be in writing and
shall be deemed duly given (a) on the date of delivery if delivered personally, or by telecopy or
facsimile, upon confirmation of receipt, (b) on the first Business Day following the date of
dispatch if delivered by a recognized next-day courier service, or (c) on the tenth Business Day
following the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party to receive such
notice:

	 	(a)	 	if to Parent or Merger Sub to:
	 
	 	 	 	National Grid USA

25 Research Drive

Westborough, Massachusetts 01582

Attention: Lawrence J. Reilly

Telecopy No.: (508) 389-2605

	 
	 	 	 	with a copy to:
	 
	 	 	 	Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Attention: Sheldon S. Adler

Telecopy No.: (212) 735-2000
	 
	 	(b)	 	if to KeySpan to:
	 
	 	 	 	KeySpan Corporation

One MetroTech Center

Brooklyn, New York 11201

Attention: John J. Bishar, Jr.

Telecopy No.: (718) 403-2809

	 
	 	 	 	with a copy to:

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	 	 	 	Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Mario A. Ponce

Telecopy No.: (212) 455-2502

          8.3. Interpretation. When a reference is made in this Agreement to Sections, Exhibits
or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement
unless otherwise indicated. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement,
they shall be deemed to be followed by the words “without limitation”.

          8.4. Counterparts. This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other parties, it being
understood that the parties need not sign the same counterpart.

          8.5. Entire Agreement; Third Party Beneficiaries. (a) This Agreement constitutes the
entire agreement and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, other than the Confidentiality
Agreements, which shall survive the execution and delivery of this Agreement.

          (b) This Agreement shall be binding upon and inure solely to the benefit of each party hereto,
and nothing in this Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement,
other than, immediately after the Effective Time, Section 5.8 (which is intended to be for the
benefit of the Persons covered thereby and may be enforced by such Persons).

          8.6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.

          8.7. No Limitation on Other Representation. Except as otherwise expressly provided in this
Agreement, nothing in any representation or warranty in this Agreement shall in any way limit or
restrict the scope, applicability or meaning of any other representation or warranty made by
KeySpan herein. It is the intention of the parties that, to the extent possible, unless provisions
are mutually exclusive and effect cannot be given to both or all such provisions, the
representations, warranties, covenants and closing conditions in this Agreement shall be construed
to be cumulative and that each representation, warranty, covenant and closing condition in this
Agreement shall be given full separate and independent effect.

          8.8. Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any law or public policy, all other terms 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

44

 

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 in order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.

          8.9. Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole or in part (whether
by operation of law or otherwise), without the prior written consent of the other parties, and any
attempt to make any such assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.

          8.10. Submission to Jurisdiction; Waivers. Any suit, action or proceeding against any
party hereto may be brought in any federal or state court of competent jurisdiction located in the
Borough of Manhattan in the State of New York, and each party hereto irrevocably consents to the
jurisdiction and venue in the United States District Court for the Southern District of New York
and in the courts hearing appeals therefrom unless no federal subject matter jurisdiction exists,
in which event, each party hereto irrevocably consents to jurisdiction and venue in the Supreme
Court of the State of New York, New York County, and in the courts hearing appeals therefrom. Each
party hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this Agreement, any claim
that it is not personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to serve process in accordance with this Section 8.10, that it or its
property is exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise), and to the fullest
extent permitted by applicable law, that the suit, action or proceeding in any such court is
brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper, or
that this Agreement, or the subject matter hereof or thereof, may not be enforced in or by such
courts and further irrevocably waives, to the fullest extent permitted by applicable law, the
benefit of any defense that would hinder, fetter or delay the levy, execution or collection of any
amount to which the party is entitled pursuant to the final judgment of any court having
jurisdiction. Each party hereto agrees that promptly following the date hereof (and in no event
more than ten (10) days following the date hereof) it shall irrevocably designate a New York
Person, such person, upon such designation, to be set forth (along with the address of such U.S.
Person) across from such party’s name on Exhibit B hereto (each a “Process Agent”), as the
designees, appointees and agents of such party to receive, for and on such party’s behalf, service
of process in such jurisdiction in any legal action or proceeding with respect to this Agreement
and such service shall be deemed complete upon delivery thereof to the Process Agent; provided that
in the case of any such service upon a Process Agent, the party effecting such service shall also
deliver a copy thereof to the party who designated such Process Agent in the manner provided in
Section 8.2. Each party shall take all such action as may be necessary to continue said
appointment in full force and effect or to appoint another agent so that it will at all times have
an agent for service of process for the above purposes in New York, New York. Each party further
irrevocably consents to the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered airmail, postage prepaid, to
such party at its address set forth in

45

 

this Agreement, such service of process to be effective upon acknowledgement of receipt of
such registered mail. Nothing herein shall affect the right of any party to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise proceed against the
other party in any other jurisdiction in which the other party may be subject to suit. Each party
expressly acknowledges that the foregoing waiver is intended to be irrevocable under the laws of
the State of New York and of the United States of America; provided that each such party’s consent
to jurisdiction and service contained in this Section 8.10 is solely for the purpose referred to in
this Section 8.10 and shall not be deemed to be a general submission to said courts or in the State
of New York other than for such purpose. This Agreement does not involve less than $250,000, and
the parties intend that §5-1401 of the New York General Obligations Law shall apply to this
Agreement.

          In the event of the transfer of all or substantially all of the assets and business of a
Process Agent to any other corporation by consolidation, merger, sale of assets or otherwise, such
other corporation shall be substituted hereunder for such Process Agent with the same effect as if
originally named herein in place of such party’s Process Agent.

          8.11. Enforcement. The parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance with their specific
terms. It is accordingly agreed that the parties shall be entitled to specific performance of the
terms hereof, this being in addition to any other remedy to which they are entitled at law or in
equity.

          8.12. Definitions. As used in this Agreement:

          (a) “Board of Directors” means the Board of Directors of any specified Person and any
committees thereof.

          (b) “Business Day” means any day on which banks are not required or authorized to
close in the City of New York or the City of London.

          (c) “Knowledge” when used with respect to any party means the knowledge, after
reasonable investigation, of any executive officer of such party and with respect to KeySpan, shall
also include those individuals listed in Section 8.12 of the KeySpan Disclosure Schedule.

          (d) “Material Adverse Effect” means, when used with reference to any entity, any
event, effect, change or development that, individually or in the aggregate with other events,
effects, changes or developments (a) is, or would reasonably be expected to be, material and
adverse to the financial condition, business, assets, liabilities (contingent or otherwise),
operations or results of operations of such entity and any of its Subsidiaries, taken as a whole,
or (b) prevents or has a material and adverse effect on the ability of such entity to perform its
material obligations under this Agreement or to consummate the transactions contemplated hereby by
the End Date; provided, however, that to the extent any event, effect, change or
development is caused by or results from any of the following, in each case, it shall not be taken
into account in determining whether there has been (or would reasonably be expected to be) a
“Material Adverse Effect”: (i) factors affecting the economy, financial markets or capital

46

 

markets as a whole except to the extent that such entity and any of its Subsidiaries, taken as
a whole, are materially and adversely affected in a disproportionate manner as compared to
comparable participants in the utility industry, (ii) factors affecting the utility industry as a
whole, except to the extent that such entity and any of its Subsidiaries, taken as a whole, are
materially and adversely affected in a disproportionate manner as compared to comparable
participants in the utility industry, (iii) the announcement of the execution of this Agreement,
(iv) changes in laws, rules or regulations of any Governmental Entity affecting the utility
industry as a whole except to the extent that such entity and any of its Subsidiaries, taken as a
whole, are materially and adversely affected in a disproportionate manner as compared to comparable
participants in the utility industry, (v) any change in generally accepted accounting principles by
the Financial Accounting Standards Board, the SEC or any other regulatory body unless such change
results in a cash impact on such party or (vi) any matter to the extent identified in Section 8.12
of the KeySpan Disclosure Schedule or Section 8.12 of the Parent Disclosure Schedule. For the
avoidance of doubt, it is expressly agreed that (a) the failure to obtain any consent pursuant to
the terms of items 9, 10 and 11 on Section 3.1(d)(ii) of the KeySpan Disclosure Schedule or
necessary to prevent consummation of the Merger from being a default under the terms of items 9, 10
and 11 on Section 3.1(d)(ii) of the KeySpan Disclosure Schedule, the costs of obtaining any such
consent and the impact of any agreements entered into in connection with obtaining such consents,
shall be included in determining whether a Material Adverse Effect on KeySpan shall have occurred
or shall be reasonably expected to occur and (b) with respect to regulatory approvals sought in
connection with the Merger, only the terms and conditions of the KeySpan Required Approvals, the
Parent Required Approvals and the Additional KeySpan Consents, as set forth in Section 6.1(d) of
this Agreement, shall be included in determining whether a Material Adverse Effect on KeySpan shall
have occurred or shall be reasonably expected to occur.

          (e) “The Other Party” means, with respect to KeySpan, Parent and means, with respect
to Parent, KeySpan.

          (f) “Person” means an individual, corporation, limited liability company, partnership,
association, trust, unincorporated organization, other entity or group (as defined in the Exchange
Act).

          (g) “Significant Subsidiary” of any person means a Subsidiary of such Person that
would constitute a “significant subsidiary” of such Person within the meaning of Rule 1.02(w) of
Regulation S-X as promulgated by the SEC.

          (h) “Subsidiary” when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, (i) of which such party or any other
Subsidiary of such party is a general partner (excluding partnerships, the general partnership
interests of which held by such party or any Subsidiary of such party do not have a majority of the
voting interests in such partnership), (ii) of which at least a majority of the securities or other
interests which have by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such corporation or other
organization are owned by such party or one or more of its Subsidiaries or (iii) that is directly
or indirectly controlled by such party or by any one or more of its Subsidiaries, or by such party
and one or more of its Subsidiaries.

47

 

          8.13. Other Agreements. The parties hereto acknowledge and agree that, except as
otherwise expressly set forth in this Agreement, the rights and obligations of KeySpan, Parent and
Merger Sub under any other agreement between the parties shall not be affected by any provision of
this Agreement.

[Remainder of page intentionally left blank]

48

 

          IN WITNESS WHEREOF, Parent, Merger Sub and KeySpan have caused this Agreement to be signed by
their respective officers thereunto duly authorized, all as of the day and year first above
written.

	 	 	 	 	 
	 	NATIONAL GRID PLC

 	 
	 	By:  	/s/ Steven Holliday
 	 
	 	 	Name:  	Steven Holliday 	 
	 	 	Title:  	Group Director 	 
	 
	 	NATIONAL GRID US8 INC.

 	 
	 	By:  	/s/ Michael E. Jesanis
 	 
	 	 	Name:  	Michael E. Jesanis 	 
	 	 	Title:  	President 	 
	 
	 	KEYSPAN CORPORATION

 	 
	 	By:  	/s/ Robert B. Catell
 	 
	 	 	Name:  	Robert B. Catell 	 
	 	 	Title:  	Chairman and Chief Executive Officer 	 
	 

49

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