Note Agreement - Privately Place $20 million of 5.5% Senior Notes due 2020


    
      Exhibit
        4.1

    

     

    

      EXECUTION
        COPY

       

       


      CHESAPEAKE
        UTILITIES CORPORATION

       

      909
        Silver Lake Boulevard

       

      Dover,
        Delaware 19904

       

       

       

      


       

      NOTE
        AGREEMENT

       

      


       

      $20,000,000

       

      


       

      5.50%
        Senior Notes

       

      


       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Table
        of Contents

      (Not
        Part of Agreement)


      
        	 	 	
                 Page

              
	
                SECTION
                  1.

              	
                PURCHASE
                  AND SALE OF NOTES

              	
                1

              
	
                Section
                  1.1

              	
                Issue
                  of Notes

              	
                1

              
	
                Section
                  1.2

              	
                The
                  Closing

              	
                2

              
	
                Section
                  1.3

              	
                Expenses

              	
                2

              
	
                Section
                  1.4

              	
                Closing
                  Conditions

              	
                3

              
	 	 	 
	 	 	 
	
                SECTION
                  2.

              	
                PAYMENTS

              	
                5

              
	
                Section
                  2.1

              	
                Required
                  Payments

              	
                5

              
	
                Section
                  2.2

              	
                Optional
                  Prepayments

              	
                5

              
	
                Section
                  2.3

              	
                Partial
                  Payment Pro Rata

              	
                6

              
	
                Section
                  2.4

              	
                Request
                  for Delay of Closing Beyond December 28, 2006

              	
                6

              
	
                Section
                  2.5

              	
                Delayed
                  Delivery Fee

              	
                6

              
	
                Section
                  2.6

              	
                Cancellation
                  Fee

              	
                7

              
	
                Section
                  2.7

              	
                No
                  Delayed Delivery or Cancellation Fees Payable Under Certain
                  Circumstances

              	
                7

              
	 	 	 
	 	 	 
	
                SECTION
                  3.

              	
                INFORMATION
                  AS TO COMPANY

              	
                8

              
	
                Section
                  3.1

              	
                Financial
                  and Business Information

              	
                8

              
	
                Section
                  3.2

              	
                Officer's
                  Certificates

              	
                10

              
	
                Section
                  3.3

              	
                Accountants'
                  Certificates

              	
                10

              
	
                Section
                  3.4

              	
                Inspection

              	
                10

              
	 	 	 
	 	 	 
	
                SECTION
                  4.

              	
                COMPANY
                  BUSINESS COVENANTS

              	
                11

              
	
                Section
                  4.1

              	
                Payment
                  of Taxes and Claims

              	
                11

              
	
                Section
                  4.2

              	
                Maintenance
                  of Properties and Corporate Existence

              	
                11

              
	
                Section
                  4.3

              	
                Payment
                  of Notes and Maintenance of Office

              	
                12

              
	
                Section
                  4.4

              	
                Fixed
                  Charge Coverage Ratio

              	
                12

              
	
                Section
                  4.5

              	
                Minimum
                  Consolidated Net Worth

              	
                12

              
	
                Section
                  4.6

              	
                Incurrence
                  of Indebtedness

              	
                12

              
	
                Section
                  4.7

              	
                Guaranties

              	
                13

              
	
                Section
                  4.8

              	
                Liens
                  and Encumbrances

              	
                13

              
	
                Section
                  4.9

              	
                Restricted
                  Payments

              	
                14

              
	
                Section
                  4.10

              	
                Sale
                  of Property and Subsidiary Stock

              	
                14

              
	
                Section
                  4.11

              	
                Merger
                  and Consolidation

              	
                15

              
	
                Section
                  4.12

              	
                Transactions
                  with Affiliates

              	
                16

              
	
                Section
                  4.13

              	
                Loans,
                  Advances and Investments

              	
                16

              
	
                Section
                  4.14

              	
                Sale-Leaseback

              	
                16

              
	
                Section
                  4.15

              	
                ERISA
                  Compliance

              	
                16

              
	
                Section
                  4.16

              	
                Use
                  of Proceeds

              	
                17

              
	
                Section
                  4.17

              	
                Terrorism
                  Sanctions Regulations

              	
                17

              
	 	 	 
	 	 	 
	
                SECTION
                  5.

              	
                DEFAULT

              	
                17

              
	
                Section
                  5.1

              	
                Nature
                  of Default

              	
                17

              
	
                Section
                  5.2

              	
                Default
                  Remedies

              	
                19

              
	
                Section
                  5.3

              	
                Other
                  Remedies

              	
                19

              
	 	 	 
	 	 	 
	
                SECTION
                  6.

              	
                REPRESENTATIONS,
                  COVENANTS AND WARRANTIES

              	
                20

              
	
                Section
                  6.1

              	
                Organization,
                  Etc.

              	
                20

              
	
                Section
                  6.2

              	
                Financial
                  Statements

              	
                20

              
	
                Section
                  6.3

              	
                Actions
                  Pending

              	
                21

              
	
                Section
                  6.4

              	
                Outstanding
                  Indebtedness

              	
                21

              
	
                Section
                  6.5

              	
                Title
                  to Propoerties

              	
                21

              
	
                Section
                  6.6

              	
                Taxes

              	
                22

              
	
                Section
                  6.7

              	
                Conflicting
                  Agreements and Other Matters

              	
                22

              
	
                Section
                  6.8

              	
                Offering
                  of Notes

              	
                22

              
	
                Section
                  6.9

              	
                ERISA

              	
                22

              
	
                Section
                  6.10

              	
                Governmental
                  Consent

              	
                23

              
	
                Section
                  6.11

              	
                Environmental
                  Compliance

              	
                23

              
	
                Section
                  6.12

              	
                Permits
                  and Other Operating Rights

              	
                23

              
	
                Section
                  6.13

              	
                Disclosure

              	
                24

              
	
                Section
                  6.14

              	
                Regulatory
                  Status of Company; Trust Indenture Act

              	
                24

              
	
                Section
                  6.15

              	
                Foreign
                  Assets Control Regulations, Et.c

              	
                24

              
	
                Section
                  6.16

              	
                First
                  Mortgage Indenture

              	
                25

              
	 	 	 
	 	 	 
	
                SECTION
                  7.

              	
                INTERPRETATION
                  OF THIS AGREEMENT

              	
                25

              
	
                Section
                  7.1

              	
                Terms
                  Defined

              	
                25

              
	
                Section
                  7.2

              	
                Accounting
                  Principles

              	
                34

              
	
                Section
                  7.3

              	
                Directly
                  or Indirectly

              	
                34

              
	
                Section
                  7.4

              	
                Governing
                  Law; Consent to Jurisdiction

              	
                34

              
	 	 	 
	 	 	 
	
                SETION
                  8.

              	
                PURCHASERS'
                  SPECIAL RIGHTS

              	
                35

              
	
                Section
                  8.1

              	
                Note
                  Payment

              	
                35

              
	
                Section
                  8.2

              	
                Issue
                  Taxes

              	
                35

              
	
                Section
                  8.3

              	
                Registration
                  of Notes

              	
                36

              
	
                Section
                  8.4

              	
                Exchange
                  of Notes

              	
                36

              
	
                Section
                  8.5

              	
                Replacement
                  of Notes

              	 
	 	 	 
	 	 	 
	
                SECTION
                  9.

              	
                MISCELLANEOUS

              	
                36

              
	
                Section
                  9.1

              	
                Notices

              	
                36

              
	
                Section
                  9.2

              	
                Payments
                  Due on Non-Business Days

              	
                37

              
	
                Section
                  9.3

              	
                Reproduction
                  of Documents

              	
                37

              
	
                Section
                  9.4

              	
                Purchase
                  for Investment

              	
                37

              
	
                Section
                  9.5

              	
                Source
                  of Funds

              	
                37

              
	
                Section
                  9.6

              	
                Successors
                  and Assigns

              	
                39

              
	
                Section
                  9.7

              	
                Amendment
                  and Waiver; Acquisition of Notes

              	
                39

              
	
                Section
                  9.8

              	
                Duplicate
                  Originals

              	
                40

              
	
                Section
                  9.9

              	
                Confidential
                  Information

              	
                40

              
	 	 	 
	 	 	 
	
                Exhibits

              	 	 
	
                Exhibit
                  A

              	
                Form
                  of Note

              	 
	
                Exhibit
                  B-1

              	
                Form
                  of Opinion of Company's Counsel

              	 
	
                Exhibit
                  B-2

              	
                Form
                  of Opinion of Company's Special Delaware Counsel

              	 
	
                Exhibit
                  B-3

              	
                Form
                  of Opinion of Company's Special Maryland Counsel

              	 
	
                Exhibit
                  B-4

              	
                Form
                  of Opinion of Company's Special Florida Counsel

              	 
	 	 	 
	 	 	 
	
                Schedules

              	 	 
	
                Purchaser
                  Schedule

              	
                Existing
                  Indebtedness

              	 
	
                Schedule
                  4.6

              	
                Existing
                  Liens

              	 
	
                Schedule
                  4.8 (e)

              	
                Subsidiaries

              	 
	
                Schedule
                  6.1 (a)

              	
                List
                  of Agreements Restricting Debt

              	 
	
                Schedule
                  6.7

              	
                Existing
                  Investments

              	 
	
                Schedule
                  7.1

              	 	 


      

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      As
        of
        October 18, 2005

       

      To
        the
        Purchasers listed in the

       

      attached
        Purchaser Schedule

       

      Ladies
        and Gentlemen:

       

      Chesapeake
        Utilities Corporation, a Delaware corporation (the “Company”),
        hereby agrees with the purchasers listed in the attached Purchaser Schedule
        (collectively, the “Purchasers”
and,
        individually, a “Purchaser”)
        as
        follows:

       

      SECTION
        1. PURCHASE
        AND SALE OF NOTES

       

      Section
        1.1 Issue
        of Notes.

       

      The
        Company will authorize the issue of $20,000,000 principal amount of its 5.50%
        Senior Notes due on the Maturity Date (the “Notes”).
        Each
        Note will bear interest on the unpaid principal balance thereof, from the
        date
        of the Note or the most recent date to which interest thereon has been paid,
        until the same is due and payable, at an annual rate of 5.50% (computed on
        the
        basis of a 360-day year of twelve 30-day months), payable quarterly on each
        Quarterly Interest Payment Date, beginning with the first Quarterly Interest
        Payment Date to occur after the Closing Date. The Notes will be subject to
        certain mandatory principal repayments prior to maturity, as provided in
        Section
        2.1
        and will
        mature on the Maturity Date. Payments of principal, Make Whole Amount, if
        any,
        and, to the extent permitted by law, interest not paid when due will bear
        interest from the date such payment was due until paid at a rate per annum
        from
        time to time equal to the greater of (i) 7.50% or (ii) the rate of interest
        publicly announced by JPMorgan Chase Bank from time to time in New York City
        as
        its Prime Rate. The Notes will be registered notes in the form set out in
        Exhibit
        A.

       

      Section
        1.2 The
        Closing.

       

      The
        Company agrees to sell to each Purchaser and each Purchaser agrees to purchase
        from the Company, in accordance with the provisions of this Agreement, the
        principal amount of the Notes indicated for such Purchaser on the Purchaser
        Schedule attached hereto at par. The closing of the sale and purchase of
        the
        Notes will be held at 10:00 a.m. on the Closing Date, at the offices of Schiff
        Hardin LLP, 6600 Sears Tower, Chicago, Illinois. On the Closing Date, the
        Company will deliver to each Purchaser one or more Notes, as specified in
        the
        Purchaser Schedule attached hereto in the aggregate amount of each Purchaser’s
        purchase, dated the Closing Date and payable to such Purchaser or such
        Purchaser’s nominee(s), if any, listed in the Purchaser Schedule, against
        payment in immediately available funds. Each Purchaser’s obligations hereunder
        are several and not joint and no Purchaser shall have any obligation or
        liability to any Person for the performance or nonperformance by any other
        Purchaser hereunder.

       

      Section
        1.3 Expenses.

       

      Whether
        or not the Notes are sold, the Company will, upon presentation to the Company
        of
        documentation in reasonable detail, pay the following expenses relating to
        this
        Agreement, including:

       

      (a) the
        cost
        of reproducing this Agreement and the Notes;

       

      (b) the
        reasonable fees and disbursements (including the cost of obtaining the private
        placement number) of the Purchasers’ special counsel;

       

      (c) the
        cost
        of any fees of agents, brokers or dealers or otherwise incurred in connection
        with the sale of the Notes pursuant to this Agreement but not with respect
        to
        any subsequent resale;

       

      (d) each
        Purchaser’s reasonable out-of-pocket expenses incurred in negotiating this
        Agreement;

       

      (e) the
        cost
        of delivering to or from any Purchaser’s home office, insured to any Purchaser’s
        satisfaction, the Notes purchased by any Purchaser, any Note surrendered
        by any
        Purchaser to the Company pursuant to this Agreement and any Note issued to
        any
        Purchaser in substitution or replacement for a surrendered Note;
        and

       

      (f) all
        costs
        (including reasonable fees and expenses of counsel) related to proposed or
        actual modifications of, or proposed or actual consents under, this
        Agreement.

       

      The
        obligations of the Company under this Section
        1.3
        shall
        survive the payment of the Notes and the termination of this Agreement, and
        shall continue regardless of whether or not the Closing Date occurs and whether
        or not any Purchaser has purchased Notes hereunder.

       

      Section
        1.4 Closing
        Conditions.

       

      Each
        Purchaser’s obligation to purchase and pay for the Notes to be purchased by such
        Purchaser hereunder is subject to the satisfaction, on or before the Closing
        Date, of the following conditions:

       

      (a) Certain
        Documents.
        Such
        Purchaser shall have received the following dated the Closing Date:

       

      (i) The
        Notes
        to be purchased by such Purchaser.

       

      (ii) Certified
        copies of the resolutions of the Board of Directors of the Company approving
        this Agreement and the Notes, and of all documents evidencing other necessary
        corporate action and governmental approvals, if any, with respect to this
        Agreement and the Notes.

       

      (iii) A
        certificate of the Secretary or an Assistant Secretary of the Company certifying
        the names and true signatures of the officers of the Company authorized to
        sign
        this Agreement and the Notes and the other documents to be delivered
        hereunder.

       

      (iv) Certified
        copies of the Certificate of Incorporation and By-laws of the
        Company.

       

      (v) Good
        standing certificates for the Company from each of the Secretary of State
        of
        Delaware, the Secretary of State of Maryland, and the Secretary of State
        of
        Florida, dated of a recent date.

       

      (b) Opinion
        of Purchasers’ Special Counsel.
        Such
        Purchaser shall have received from Schiff Hardin LLP, who are acting as special
        counsel for the Purchasers in connection with this transaction, a favorable
        opinion satisfactory to the Purchasers as to such matters as the Purchasers
        may
        request.

       

      (c) Opinion
        of Company’s Special and Local Counsel.
        Such
        Purchaser shall have received from Covington & Burling, who are acting as
        special counsel for the Company in connection with this transaction, a favorable
        opinion satisfactory to the Purchasers substantially in the form of Exhibit
        B-1
        hereto,
        from Parkowski, Guerke and Swayze, who are acting as Delaware counsel for
        the
        Company in connection with this transaction, a favorable opinion satisfactory
        to
        the Purchasers substantially in the form of Exhibit
        B-2
        hereto,
        from DLA Piper Rudnick Gray US LLP, who are acting as Maryland counsel for
        the
        Company in connection with this transaction, a favorable opinion satisfactory
        to
        the Purchasers substantially in the form of Exhibit
        B-3
        hereto,
        and from Rose, Sundstrom & Bentley, LLP, who are acting as Florida counsel
        for the Company in connection with this transaction, a favorable opinion
        satisfactory to the Purchasers substantially in the form of Exhibit
        B-4
        hereto.
        The Company hereby directs each such counsel to deliver such opinions, agrees
        that the issuance and sale of any Notes will constitute a reconfirmation
        of such
        direction, and understands and agrees that each Purchaser will rely on such
        opinions.

       

      (d) Representations
        and Warranties; No Default.
        The
        representations and warranties contained in Section
        6
        shall be
        true on and as of the Closing Date, except to the extent of changes caused
        by
        the transactions herein contemplated; there shall exist on the Closing Date
        no
        Event of Default or Default; and the Company shall have delivered to such
        Purchaser an Officer’s Certificate, dated the Closing Date, to both such
        effects. The delivery of such Officer’s Certificate will constitute the
        repeating of such representations and warranties by the Company as of the
        Closing Date.

       

      (e) Purchase
        Permitted By Applicable Laws.
        The
        purchase of and payment for the Notes to be purchased by such Purchaser on
        the
        Closing Date on the terms and conditions herein provided (including the use
        of
        the proceeds of such Notes by the Company) shall not violate any applicable
        law
        or governmental regulation (including, without limitation, Section 5 of the
        Securities Act or Regulation T, U or X of the Board of Governors of the Federal
        Reserve System) and shall not subject such Purchaser to any tax, penalty,
        liability or other onerous condition under or pursuant to any applicable
        law or
        governmental regulation, and such Purchaser shall have received such
        certificates or other evidence as it may reasonably request to establish
        compliance with this condition. The order of the Florida Public Service
        Commission referred to in Section
        6.10
        shall
        have been obtained. The orders of the Delaware and Florida State Commissions
        referred to in Section
        6.10
        shall be
        satisfactory to such Purchaser and shall be final and in full force and effect
        on the Closing Date. No appeal, review or contest of either thereof shall
        be
        pending on the Closing Date, and, as of the Closing Date, the time for appeal
        or
        to seek review or reconsideration of such orders shall have expired. Any
        conditions contained in either order shall have been satisfied to such
        Purchaser’s reasonable satisfaction. Such Purchaser and its special counsel
        shall have received copies of such documents and papers (including, without
        limitation, a certified or attested copy of such orders) as such Purchaser
        may
        reasonably request in connection therewith or as a basis for the Purchasers’
special counsel’s closing opinion, all in form and substance satisfactory to
        such Purchaser and the Purchasers’ special counsel.

       

      (f) Structuring
        Fee.
        The
        Company shall have paid to each Purchaser, by wire transfer of immediately
        available funds, such Purchaser’s ratable portion (in proportion to the
        aggregate principal amount of the Notes to be purchased by such Purchaser)
        of a
        structuring fee in the aggregate amount, for all Purchasers, equal to (i)
        $15,000, minus (ii) 50% of the amount, if any, by which the fees and
        disbursements of Purchasers’ special counsel related to the preparation of this
        Agreement payable by the Company under Section 1.3(b) exceeds $25,000 (provided
        that such structuring fee shall not be less than zero).

       

      (g) Delayed
        Delivery Fee.
        The
        Company shall have paid to each Purchaser, by wire transfer of immediately
        available funds, any Delayed Delivery Fee due to such Purchaser under Section
        2.5.

       

      (h) Diversification
        Event.
        No
        Diversification Event shall have occurred.

       

      (i) Proceedings.
        All
        corporate and other proceedings taken or to be taken in connection with the
        transactions contemplated hereby and all documents incident thereto shall
        be
        satisfactory in substance and form to such Purchaser, and such Purchaser
        shall
        have received all such counterpart originals or certified or other copies
        of
        such documents as it may reasonably request.

       

      SECTION
        2. PAYMENTS

       

      Section
        2.1 Required
        Payments.

       

      (a) Until
        the
        Notes are paid in full, the Company will pay $2,000,000 in aggregate principal
        amount of the Notes on each Annual Principal Amortization Date. The entire
        outstanding principal amount and unpaid interest thereon shall be due and
        payable on the Maturity Date. Prepayments on each holder’s Notes under
Section
        2.2
        shall be
        applied to mandatory payments on such Notes in inverse order of maturity
        and the
        Company’s obligation to make the payments required by this Section
        2.1
        shall
        not be reduced by any payment pursuant to Section
        2.2.
        Notwithstanding the foregoing, upon any payment of less than all of the
        outstanding Notes pursuant to Section
        2.1(b)
        hereof
        or any acquisition of any Notes by the Company or any Subsidiary or Affiliate
        permitted by Section
        9.6(b)
        hereof,
        the principal amount of such required prepayment of the Notes becoming due
        under
        this Section
        2.1
        on or
        after the day of such payment or acquisition shall be reduced in the same
        proportion as the aggregate unpaid principal amount of the Notes is reduced
        as a
        result of such prepayment or purchase.

       

      (b) If,
        at
        any time, the aggregate net book value of all assets that are used in the
        regulated utilities business segments of the Company and its Subsidiaries
        is
        less than 50% of Consolidated Total Assets (a “Diversification
        Event”),
        any
        holder of any of the Notes then outstanding may elect, at its option, by
        notice
        to the Company, to declare the outstanding Notes held by such holder to be
        due
        and payable on the next business day after the 30th day following such notice
        (the “Required
        Payment Date”).
        Upon
        such election by any holder of the Notes, the Company will pay the aggregate
        principal amount of such holder’s Notes on the Required Payment Date, together
        with interest accrued to the Required Payment Date on such principal amount,
        and
        a premium equal to the Make Whole Amount, if any, applicable to such payment.
        Upon the occurrence of a Diversification Event, the Company shall deliver
        to
        each holder of the outstanding Notes a notice that such event has occurred
        and
        the reason or reasons for such occurrence.

       

      Section
        2.2 Optional
        Prepayments.

       

      (a) At
        a
        Premium.
        The
        Company may prepay the Notes in whole or part, at any time and from time
        to
        time, in multiples of $100,000, by payment of 100% of the principal amount
        then
        being prepaid, together with interest accrued to the date of prepayment on
        the
        principal amount being prepaid and a premium equal to the Make Whole Amount,
        if
        any, applicable to such prepayment; provided
        that no
        partial prepayment shall be in an amount less than (i) $1,000,000 or (ii)
        the
        aggregate principal amount remaining outstanding, whichever is
        less.

       

      (b) Notice
        of Optional Prepayment.
        The
        Company will give written notice of any optional prepayment of the Notes
        to each
        holder of Notes at least 15 but not more than 45 days before the date fixed
        for
        prepayment, specifying (1) such date (the “Prepayment
        Date”),
        and
        (2) the amount of principal and interest with respect to the Notes and such
        holder’s Notes to be prepaid on such date. Any such notice of prepayment will be
        irrevocable. Upon the giving of such notice by the Company, the principal
        amount
        of the Notes specified in the notice, together with interest accrued to the
        Prepayment Date on such principal amount, and a premium equal to the Make
        Whole
        Amount, if any, applicable to such payment, shall be due and payable on the
        Prepayment Date, and the Company shall pay such amount on the Prepayment
        Date.
        The Company shall, on or before the day on which it gives written notice
        of any
        prepayment pursuant to Section
        2.2(a),
        give
        telephonic notice of the principal amounts of the Note to be prepaid and
        the
        prepayment date to each Purchaser which shall have designated a recipient
        of
        such notices in the Purchaser Schedule attached hereto or by notice in writing
        to the Company.

       

      Section
        2.3 Partial
        Payment Pro Rata.

       

      If
        there
        is more than one Note outstanding, the principal amount of each required
        or
        optional partial payment of the Notes, other than a prepayment pursuant to
        Section
        2.1(b),
        will be
        allocated among the Notes at the time outstanding in proportion, as nearly
        as
        practicable, to the respective outstanding principal amounts of the
        Notes.

       

      Section
        2.4 Request
        for Delay of Closing Beyond December 28, 2006.

       

      If
        the
        Closing Date is December 28, 2006 and the Company fails to tender to any
        Purchaser the Notes to be purchased by such Purchaser on December 28, 2006,
        or
        any of the conditions specified in Section 1.4 shall not have been fulfilled
        on
        December 28, 2006, the Company shall, prior to 1:00 P.M., New York City local
        time, on December 28, 2006, notify Prudential (which notification shall be
        deemed received by each Purchaser) in writing whether (i) such closing of
        the
        purchase or sale of the Notes is to be rescheduled (such rescheduled date
        to be
        a Business Day not before December 29, 2006 and not later than January 15,
        2007
        (the “Rescheduled
        Closing Date”))
        and
        certify to Prudential (which certification shall be for the benefit of each
        Purchaser) that the Company reasonably believes that it will be able to comply
        with the conditions set forth in Section 1.4 on such Rescheduled Closing
        Date
        and that the Company will pay the Delayed Delivery Fee in accordance with
        Section 2.5 or (ii) such closing is to be canceled. In the event that the
        Company shall fail to give the notice referred to in the preceding sentence,
        the
        Company shall be deemed to have elected that such closing is to be cancelled
        as
        of December 28, 2006. Notwithstanding anything to the contrary appearing
        in this
        Agreement, the Company may not elect to reschedule the closing on more than
        one
        occasion, unless the Purchasers shall have otherwise consented in
        writing.

       

      Section
        2.5 Delayed
        Delivery Fee.

       

      If
        the
        closing of the purchase and sale of the Note(s) to be sold to any Purchaser
        is
        delayed for any reason beyond December 28, 2006, then, except as otherwise
        provided in Section 2.7, the Company will pay to such Purchaser on the
        Cancellation Date or actual closing date of such purchase and sale, a fee
        (herein called the “Delayed
        Delivery Fee”)
        calculated as follows:

       

      (BEY
        -
        MMY) X DTS/360 X PA

       

      where
        “BEY”
        means
        Bond Equivalent Yield, i.e., the bond equivalent yield per annum of the Notes;
        “MMY”
        means
        Money Market Yield, i.e., the yield per annum on a commercial paper investment
        of the highest quality selected by Prudential and having a maturity date
        or
        dates the same as, or closest to, the Rescheduled Closing Date or Rescheduled
        Closing Dates for such the Notes (a new alternative investment being selected
        by
        Prudential each time such closing is delayed); “DTS”
        means
        Days to Settlement, i.e., the number of actual days elapsed from and including
        December 28, 2006 to but excluding the date of such payment; and “PA”
        means
        Principal Amount, i.e., the principal amount of the Note for which such
        calculation is being made. In no case shall the Delayed Delivery Fee be less
        than zero. Nothing contained herein shall obligate any Purchaser to purchase
        any
        Note on any day other than the Closing Date, as the same may be rescheduled
        from
        time to time by mutual agreement of the Company and the Purchasers.

       

      Section
        2.6 Cancellation
        Fee.

       

      If
        the
        Company at any time notifies Prudential in writing that the Company is canceling
        the closing of the purchase and sale of the Notes, if the Company is deemed
        to
        have elected pursuant to the penultimate sentence of Section 2.4 that the
        closing of the purchase and sale of the Notes is to be canceled, or if the
        Closing Date is rescheduled to a Rescheduled Closing Date pursuant to Section
        2.4 but the Company fails to tender to any Purchaser the Notes to be purchased
        by such Purchaser on such Rescheduled Closing Date or any of the conditions
        specified in Section 1.4 shall not have been either fulfilled or expressly
        waived in writing by the Purchasers on such Rescheduled Closing Date and
        such
        closing does not occur on such Rescheduled Closing Date (the date of any
        such
        notification or deemed election or such Rescheduled Closing Date, as the
        case
        may be, being herein called the “Cancellation
        Date”),
        then,
        except as otherwise provided in Section 2.7, the Company will pay to each
        Purchaser on the Cancellation Date in immediately available funds an amount
        (the
“Cancellation
        Fee”)
        calculated as follows:

       

      PI
        X
        PA

       

      where
        “PI”
        means
        Price Increase, i.e., the quotient (expressed in decimals) obtained by dividing
        (a) the excess of the ask price (as determined by Prudential) of the Hedge
        Treasury Note(s) on the Cancellation Date over the bid price (as determined
        by
        Prudential) of the Hedge Treasury Notes(s) on June 29, 2005 by (b) such bid
        price; and “PA”
        has the
        meaning ascribed to it in Section 2.5; provided, however, the Cancellation
        Fee
        shall be no less than $50,000. The foregoing bid and ask prices shall be
        as
        reported by TradeWeb LLC (or, if such data for any reason ceases to be available
        through TradeWeb LLC, any publicly available source of similar market data).
        Each price shall be rounded to the second decimal place. In no case shall
        the
        Cancellation Fee be less than $50,000.

       

      Section
        2.7 No
        Delayed Delivery or Cancellation Fees Payable Under Certain
        Circumstances.

       

      Notwithstanding
        the provisions of Section 2.5 or 2.6, in the event that either (i) all
        conditions set forth in Section 1.4 have been satisfied on the Closing Date
        but
        any Purchaser refuses to purchase the Notes to be purchased by such Purchaser
        hereunder, or (ii) any Purchaser refuses to purchase the Notes to be purchased
        by such Purchaser hereunder on the grounds that such purchase would violate
        any
        applicable law or government regulation binding on such Purchaser or subject
        such Purchaser to any tax, penalty, liability or other onerous condition
        under
        or pursuant to any such applicable law or governmental regulation, no
        Cancellation Fee or Delayed Delivery Fee will be payable to such
        Purchaser.

       

      SECTION
        3. INFORMATION
        AS TO COMPANY

       

      Section
        3.1 Financial
        and Business Information.

       

      The
        Company will deliver in duplicate to each Purchaser, if at the time such
        Purchaser or such Purchaser’s nominee holds any Notes (or if such Purchaser is
        obligated to purchase any Notes), and to each other Institutional Holder
        of
        outstanding Notes:

       

      (a) Quarterly
        Statements--as
        soon
        as practicable and in any event within sixty (60) days after the end of each
        of
        the first three quarterly fiscal periods in each fiscal year of the
        Company:

       

      (i) a
        consolidated balance sheet of the Company and its Subsidiaries as at the
        end of
        such quarter and as at the end of the corresponding quarter in the most recently
        completed fiscal year and a consolidating balance sheet of the Company and
        its
        Subsidiaries as of the end of such quarter, and

       

      (ii) consolidated
        statements of income, retained earnings and cash flows of the Company and
        its
        Subsidiaries for that quarter and for the portion of the fiscal year ending
        with
        such quarter, and for the corresponding periods in the prior fiscal year
        and
        consolidating statements of income, retained earnings and cash flows of the
        Company and its Subsidiaries for such quarter and for the portion of the
        fiscal
        year ending with such quarter,

       

      setting
        forth in the statements of income for each fiscal period, the specific dollar
        amounts of depreciation charged, lease rental expense and interest expense
        on
        Indebtedness, accompanied by a certificate signed by a principal financial
        officer of the Company stating that such financial statements present fairly
        the
        financial condition of the companies being reported upon and have been prepared
        in accordance with generally accepted accounting principles consistently
        applied, with such adjustments as may be required to present fairly the
        financial statements therein contained; provided that if the Company is subject
        to the reporting requirements of the Exchange Act, the delivery to such
        recipients of the Company’s Quarterly Report on Form 10-Q containing such
        information within the specified time period shall satisfy this
        requirement;

       

      (b) Annual
        Statements--as
        soon
        as practicable and in any event within one hundred twenty (120) days after
        the
        end of each fiscal year of the Company:

       

      (i) a
        consolidated and consolidating balance sheet of the Company and its
        Subsidiaries, as at the end of that fiscal year, and

       

      (ii) consolidated
        and consolidating statements of income, retained earnings and cash flows
        of the
        Company and its Subsidiaries, for that year,

       

      setting
        forth in the case of such consolidated financial statements, the figures
        for the
        previous fiscal year in comparative form, and setting forth in such statements
        of income, the specific dollar amounts of depreciation charged, lease rental
        expense, and interest expense on Indebtedness, and accompanied in the case
        of
        such consolidated financial statements by an opinion of a firm of independent
        public accountants of recognized national standing stating that such financial
        statements present fairly the results of the operations and financial condition
        of the companies being reported upon and have been prepared in accordance
        with
        generally accepted accounting principles consistently applied (except for
        changes in application in which such accountants concur); provided that if
        the
        Company is subject to the reporting requirements of the Exchange Act, the
        delivery to such recipients of the Company’s Quarterly Report on Form 10-K
        containing such information within the specified time period shall satisfy
        this
        requirement;

       

      (c) Audit
        Reports--promptly
        upon receipt thereof, one copy of each other report submitted to the Company
        or
        any Subsidiary by independent accountants in connection with any annual,
        interim
        or special audit made by them of the books of the Company or any
        Subsidiary;

       

      (d) SEC
        and Other Reports--promptly
        upon their becoming available, copies of each periodic report (including
        Forms
        8-K, 10-K, and 10-Q, proxy statement and registration statement or prospectus
        (other than registration statements on Form S-8 and any corresponding
        prospectus) relating to Securities of the Company filed with or delivered
        to any
        securities exchange, the Securities and Exchange Commission or any successor
        agency, and promptly upon transmission thereof, copies of such other financial
        statements, notices and reports, if any, as the Company or any Subsidiary
        shall
        send to its public stockholders;

       

      (e) Annual
        Regulatory Reports--promptly
        upon their becoming available, copies of each annual report required to be
        filed
        by the Company or any Subsidiary with any of the State Commissions or with
        the
        FERC;

       

      (f) Notice
        of Default or Event of Default--
        immediately upon becoming aware of the existence of any Default or Event
        of
        Default, a notice describing in reasonable detail its nature and what action
        the
        affected Company or Subsidiary is taking or proposes to take with respect
        thereto;

       

      (g) Notice
        of Claimed Default--immediately
        upon becoming aware that the holder of any Note or of any other evidence
        of
        Indebtedness or other Security of the Company or any Subsidiary has given
        notice
        (or taken any other action) with respect to a claimed default, breach, Default
        or Event of Default, a notice describing in reasonable detail the notice
        given
        (or action taken) and in reasonable detail the nature of the claimed default,
        breach, Default or Event of Default and what action the affected Company
        or
        Subsidiary is taking or proposes to take with respect thereto;

       

      (h) Report
        on Proceedings--promptly
        upon the Company’s making public information with respect to (1) any proposed or
        pending investigation of it or any Subsidiary by any governmental authority
        or
        agency, or (2) any court or administrative proceeding, which in either case
        involves the possibility of materially and adversely affecting the Properties,
        business, prospects, profits or financial condition of the Company and its
        Subsidiaries taken as a whole, a notice specifying its nature and the action
        the
        Company is taking with respect thereto; and

       

      (i) Requested
        Information--with
        reasonable promptness, any other data and information which may be reasonably
        requested from time to time, including without limitation any information
        required to be made available at any time to any prospective transferee of
        any
        Notes in order to satisfy the requirements of Rule 144A under the Securities
        Act
        of 1933, as amended.

       

      Section
        3.2 Officer’s
        Certificates.

       

      With
        each
        set of financial statements delivered pursuant to Section
        3.1(a)
        or
3.1(b),
        the
        Company will deliver to each Purchaser a certificate signed by its Chief
        Financial Officer and setting forth:

       

      (a) Covenant
        Compliance--the
        information required in order to establish compliance with Section
        4
        during
        the period covered by the financial statements then being furnished;
        and

       

      (b) Default
        or Event of Default--that
        the signer has reviewed the relevant terms of this Agreement and has made,
        or
        caused to be made, under the signer’s supervision, a review of the transactions
        and condition of the Company and its Subsidiaries from the beginning of the
        period covered by the  financial
        statements then being furnished and that the review has not disclosed the
        existence of any Default or Event of Default or, if a Default or Event of
        Default exists, describing its nature.

       

      Section
        3.3 Accountants’
        Certificates.

       

      Each
        set
        of annual financial statements delivered pursuant to Section
        3.1(b)
        will be
        accompanied by a certificate of the accountants who certify such financial
        statements, stating that, in making the audit necessary to the certification
        of
        such financial statements, they have reviewed this Agreement and obtained
        no
        knowledge of any Event of Default or Default, or, if they have obtained
        knowledge of any Event of Default or Default, specifying the nature and period
        of existence thereof.

       

      Section
        3.4 Inspection.

       

      The
        Company will permit each Purchaser’s representatives, while such Purchaser or
        such Purchaser’s nominee holds any Note, and the representatives of any other
        Institutional Holder of the Notes to visit and inspect any of the Properties
        of
        the Company or any Subsidiary, to examine and make copies and extracts of
        all
        their books of account, records, reports and other papers, and to discuss
        their
        respective affairs, finances and accounts with their respective officers,
        employees with management duties and independent public accountants (and
        by this
        provision the Company authorizes said accountants to so discuss the finances
        and
        affairs of the Company and its Subsidiaries), all upon reasonable notice,
        at
        reasonable times and as often as may be reasonably requested. Any holder
        making
        any visit or inspection pursuant to this Section
        3.4
        shall
        pay its own costs and expenses thereof unless, at the time of such visit
        or
        inspection, there shall exist a Default or Event of Default, in which event
        the
        Company shall bear the costs and expenses thereof.

       

      SECTION
        4. COMPANY
        BUSINESS COVENANTS

       

      The
        Company covenants that on and after the date of this Agreement until the
        Notes
        are paid in full:

       

      Section
        4.1 Payment
        of Taxes and Claims.

       

      The
        Company shall, and shall cause each Subsidiary to, pay, before they become
        delinquent,

       

      (a) all
        taxes, assessments and governmental charges or levies imposed upon it or
        its
        Property, and

       

      (b) all
        claims or demands of materialmen, mechanics, carriers, warehousemen, landlords
        and other like Persons which, if unpaid, might result in the creation of
        a Lien
        upon its Property,

       

      provided
        that
        items of the foregoing description need not be paid while being contested
        in
        good faith and by appropriate proceedings and provided further
        that
        adequate book reserves have been established with respect thereto and
provided further
        that the
        owning company’s title to, and its right to use, its Property is not materially
        adversely affected thereby.

       

      Section
        4.2 Maintenance
        of Properties and Corporate Existence.

       

      The
        Company shall, and shall cause each Subsidiary to:

       

      (a) Property--maintain
        its Property in good condition and make all necessary renewals, replacements,
        additions, betterments and improvements thereto;

       

      (b) Insurance--maintain,
        with financially sound and reputable insurers, insurance with respect to
        its
        Properties and business against such casualties and contingencies, of such
        types
        (including public liability, larceny, embezzlement or other criminal
        misappropriation insurance) and in such amounts as is customary in the case
        of
        corporations of established reputations engaged in the same or a similar
        business and similarly situated;

       

      (c) Financial
        Records--keep
        true books of records and accounts in which full and correct entries will
        be
        made of all its business transactions, and will reflect in its financial
        statements adequate accruals and appropriations to reserves, all in accordance
        with generally accepted accounting principles;

       

      (d) Corporate
        Existence and Rights--do
        or
        cause to be done all things necessary (a) to preserve and keep in full force
        and
        effect its existence, rights and franchises and (b) except as provided in
        Section
        4.10
        or
4.11,
        to
        maintain each Subsidiary as a Subsidiary; and

       

      (e) Compliance
        with Law--comply
        with all laws (including but not limited to environmental laws), ordinances,
        or
        governmental rules and regulations (including, without limitation, federal,
        state and local environmental laws, rules and regulations) to which it is
        subject and maintain any licenses, permits, franchises or other governmental
        authorizations necessary to the ownership of its Properties or to the conduct
        of
        its business, if the failure to so comply or the failure to so maintain might
        materially adversely affect the Properties, business, prospects, profits
        or
        condition (financial or otherwise) of the Company and its Subsidiaries or
        the
        ability of the Company to perform its obligations set forth in this Agreement
        and in the Notes.

       

      Section
        4.3 Payment
        of Notes and Maintenance of Office.

       

      The
        Company will punctually pay or cause to be paid the principal and interest
        (and
        premium, if any) to become due in respect of the Notes according to the terms
        thereof and will maintain an office at the address of the Company set forth
        in
Section
        9.1
        where
        notices, presentations and demands in respect of this Agreement or the Notes
        may
        be made upon it. Such office shall be maintained at such address until such
        time
        as the Company shall notify the holders of the Notes of a change of location
        of
        such office within such State.

       

      Section
        4.4 Fixed
        Charge Coverage Ratio.

       

      The
        Company will, for each fiscal year of the Company, maintain Consolidated
        Net
        Earnings Available for Fixed Charges at not less than 120% of Consolidated
        Fixed
        Charges.

       

      Section
        4.5 Minimum
        Consolidated Net Worth.

       

      The
        Company will at all times maintain Consolidated Net Worth at not less than
        $50,000,000.

       

      Section
        4.6 Incurrence
        of Indebtedness.

       

      The
        Company will not, nor will it permit any of its Subsidiaries to, create,
        incur,
        assume, become liable for, or guaranty, or permit any of its Property to
        become
        subject to, any Funded Indebtedness (and in the case of a Subsidiary, Current
        Indebtedness) other than:

       

      (i) Funded
        Indebtedness represented by the Notes and the outstanding Indebtedness set
        forth
        in Schedule
        4.6;

       

      (ii) Unsecured
        Funded Indebtedness of the Company, if after giving effect thereto and to
        any
        concurrent transactions, the aggregate principal amount of outstanding secured
        and unsecured Funded Indebtedness of the Company and secured and unsecured
        Current and Funded Indebtedness of the Subsidiaries (excluding Indebtedness
        owed
        by a Subsidiary to the Company or a Wholly-Owned Subsidiary) does not exceed
        65%
        of Total Capitalization; and

       

      (iii) Purchase
        Money Indebtedness of the Company or a Subsidiary and unsecured Current or
        Funded Indebtedness of a Subsidiary, if after giving effect thereto and to
        any
        concurrent transactions, (a) the conditions set forth in Section
        4.6(ii)
        are
        satisfied, and (b) the aggregate principal amount of outstanding Purchase
        Money
        Indebtedness of the Company and its Subsidiaries and the unsecured Current
        and
        Funded Indebtedness of the Subsidiaries, excluding Current or Funded
        Indebtedness owed by a Subsidiary to the Company or a Wholly-Owned Subsidiary,
        does not exceed 20% of Consolidated Tangible Net Worth.

       

      Section
        4.7 Guaranties.

       

      The
        Company will not, and will not permit any Subsidiary to, become liable for
        or
        permit any of its Property to become subject to any Guaranty except Guaranties
        under which the maximum aggregate amount of Indebtedness, dividend or other
        obligation being guaranteed can be mathematically determined at the time
        of
        issuance. Each Guaranty permitted by this Section
        4.7
        must
        comply with the applicable requirements of Section
        4.6
        above.

       

      Section
        4.8 Liens
        and Encumbrances.

       

      The
        Company will not, and will not permit any Subsidiary to, cause or permit
        or
        agree or consent to cause or permit in the future (upon the happening of
        a
        contingency or otherwise), any of its Property, whether now owned or
        subsequently acquired, to be subject to a Lien except:

       

      (a) Liens
        securing the payment of taxes, assessments or governmental charges or levies
        or
        the demands of suppliers, mechanics, carriers, warehousers, landlords and
        other
        like Persons, provided
        that
        payment thereof is not at the time required by Section
        4.1;

       

      (b) Liens
        incurred or deposits made in the ordinary course of business (i) in connection
        with worker’s compensation, unemployment insurance, social security and other
        like laws, or (ii) to secure the performance of letters of credit, bids,
        tenders, sales contracts, leases, statutory obligations, surety, appeal and
        performance bonds and other similar obligations, in each case not incurred
        in
        connection with the borrowing of money, the obtaining of advances or the
        payment
        of the deferred purchase price of Property;

       

      (c) attachment,
        judgment and other similar Liens arising in connection with court proceedings,
        provided
        that (i)
        execution and other enforcement are effectively stayed, (ii) all claims which
        the Liens secure are being actively contested in good faith and by appropriate
        proceedings, (iii) adequate book reserves have been established with respect
        thereto, and (iv) the owning company’s right to use, its Property is not
        materially adversely affected thereby;

       

      (d) Liens
        on
        Property of a Subsidiary, provided
        that
        they secure only obligations owing to the Company or a Wholly-Owned
        Subsidiary;

       

      (e) the
        Liens
        existing at the date of this Agreement which are set forth in Schedule
        4.8(e);

       

      (f) Liens
        securing Purchase Money Indebtedness of the Company or a Subsidiary,
provided
        (i) the
        incurrence of such Purchase Money Indebtedness is then permitted by Section
        4.6,
        and
        (ii) after giving effect to the incurrence of such Purchase Money Indebtedness
        and to any concurrent transactions, the aggregate amount of outstanding Purchase
        Money Indebtedness of the Company and its Subsidiaries and the unsecured
        Current
        and Funded Indebtedness of the Subsidiaries (excluding Indebtedness owed
        by a
        Subsidiary to the Company or a Wholly-Owned Subsidiary) does not exceed 20%
        of
        Consolidated Tangible Net Worth; and provided further
        that no
        such Lien shall extend to or cover any Property not originally subject thereto,
        other than improvements to the Property originally subject thereto;
        and

       

      (g) other
        Liens securing obligations that in the aggregate do not exceed
        $100,000.

       

      Section
        4.9 Restricted
        Payments.

       

      Except
        as
        provided in this Section
        4.9,
        the
        Company will not, and the Company will not permit any Subsidiary
        to,

       

      (a) declare
        or pay any dividends, either in cash or property, on any shares of capital
        stock
        of the Company (except dividends payable solely in shares of capital stock
        of
        the Company);

       

      (b) directly
        or indirectly, purchase, redeem or retire any share of capital stock of the
        Company or any warrants, rights or options to purchase or acquire any shares
        of
        capital stock of the Company (other than shares of capital stock or warrants,
        rights or options to purchase or acquire shares of capital stock issued to
        employees, directors or agents of the Company pursuant to a benefit or
        compensation plan or agreement of the Company); or

       

      (c) make
        any
        other payment or distribution, either directly or indirectly, in respect
        of
        capital stock of the Company (such declarations, payments, redemptions or
        retirements being called “Restricted
        Payments”),

       

      if
        at the
        time of any such Restricted Payment and after giving effect thereto, the
        aggregate amount of all Restricted Payments made, paid or declared since
        the
        Closing Date would exceed the sum of (x) $10,000,000 plus (y) 100% of
        Consolidated Net Income for the period beginning on January 1, 2003 and ending
        on the date of the proposed Restricted Payment, computed on a cumulative
        basis
        (or if Consolidated Net Income is a deficit figure for the period, then minus
        100% of such deficit).

       

      Section
        4.10 Sale
        of Property and Subsidiary Stock.

       

      (a) The
        Company will not, and will not permit any Subsidiary to, except in the ordinary
        course of business, sell, lease, transfer or otherwise dispose of any of
        its
        assets (not including Excluded Assets); provided
        that the
        foregoing restriction does not apply to the sale of assets for a cash
        consideration to a Person other than an Affiliate, if all of the following
        conditions are met:

       

      (i) the
        amount of such assets (valued at net book value), together with all other
        assets
        of the Company and Subsidiaries previously disposed of (other than in the
        ordinary course of business) as permitted by this Section
        4.10(a)
        and the
        assets of any Subsidiary disposed of as permitted by Section
        4.10(b)(ii)
        during
        the fiscal year in which the disposition occurs does not exceed 10% of
        Consolidated Total Assets as of the end of the fiscal year then most recently
        ended; provided
        that
        assets, as so valued, may be sold in excess of 10% of Consolidated Total
        Assets
        in any fiscal year if either (1) within one year of such sale, the proceeds
        from
        the sale of such assets are used, or committed by the Company’s Board of
        Directors to be used, to acquire other assets of at least equivalent value
        and
        earning power, or (2) with the written consent of the holders of the Notes,
        the
        proceeds from sale of such assets are used immediately upon receipt to prepay
        pro rata the Notes under Section
        2.2(a)
        hereof
        and other senior Funded Indebtedness of the Company; and

       

      (ii) in
        the
        opinion of the Company’s Board of Directors, the sale is for fair value and is
        in the best interest of the Company; and

       

      (iii) immediately
        after the consummation of the sale, and after giving effect thereto, no Default
        or Event of Default would exist.

       

      (b) The
        Company will not, and will not permit any Subsidiary to, dispose of its
        investment in any Subsidiary, and the Company will not, and will not permit
        any
        Subsidiary to, issue or transfer any shares of a Subsidiary’s capital stock or
        any other Securities exchangeable or convertible into such Subsidiary’s stock
        (such stock and other Securities being called “Subsidiary
        Stock”),
        if
        the effect would be to reduce the direct or indirect proportionate interest
        of
        the Company in the outstanding Subsidiary Stock of the Subsidiary whose shares
        are the subject of the transaction, provided
        that
        these restrictions do not apply to (x) the issue of directors’ qualifying shares
        or (y) the sale for a cash consideration to a Person other than an Affiliate
        of
        the entire investment of the Company and its other Subsidiaries (i) in any
        Excluded Assets or (ii) in any other Subsidiary provided
        the
        Company would be permitted to dispose of all of the assets of such other
        Subsidiary at the time in compliance with the conditions specified in paragraphs
        (i), (ii) and (iii) of Section
        4.10(a).

       

      Section
        4.11 Merger
        and Consolidation.

       

      The
        Company will not, and will not permit any Subsidiary to, be a party to any
        merger or consolidation or sell, lease or otherwise transfer all or
        substantially all of its Property, provided
        that the
        Company may merge or consolidate with, or sell substantially all of its assets
        to, another corporation if all of the following conditions are met:

       

      (i) the
        surviving or acquiring corporation is organized under the laws of the United
        States or a jurisdiction thereof,

       

      (ii) the
        surviving or acquiring corporation, if not the Company, expressly and
        unconditionally assumes in writing the covenants and obligations to be performed
        by the Company under the Notes and this Agreement, such assumption to be
        in a
        form acceptable to the holder or holders of not less than 66-2/3% in principal
        amount of all Notes at the time outstanding, and

       

      (iii) the
        surviving or acquiring corporation could, immediately after giving effect
        to the
        transaction, incur at least $1.00 of additional Funded Indebtedness pursuant
        to
Section
        4.6(ii),
        and at
        the time of such transaction and immediately after giving effect thereto,
        no
        Default or Event of Default shall have occurred and be continuing; and


       

      provided,
        further,
        that
        any Subsidiary may merge or consolidate with or into the Company or any other
        Subsidiary so long as (x) immediately after giving effect to the transaction,
        the Company can incur at least $1.00 of additional Funded Indebtedness
        consistent with Section 4.6(ii), (y) at the time of such transaction and
        immediately after giving effect thereto, no Default or Event of Default shall
        have occurred and be continuing, and (z) in any merger or consolidation
        involving the Company, the Company shall be the surviving or continuing
        corporation.

       

      Section
        4.12 Transactions
        with Affiliates.

       

      The
        Company will not, and will not permit any Subsidiary to, enter into any
        transaction (including the purchase, sale or exchange of Property or the
        rendering of any service) with any Affiliate except in the ordinary course
        of
        and pursuant to the reasonable requirements of such Company’s or Subsidiary’s
        business and upon fair and reasonable terms which are at least as favorable
        to
        the Company or the Subsidiary as would be obtained in a comparable arm’s-length
        transaction with a non-Affiliate.

       

      Section
        4.13 Loans,
        Advances and Investments.

       

      The
        Company will not, and will not permit any Subsidiary to, make or permit to
        remain outstanding any investment in any Property or own, purchase or acquire
        any stock, obligations or securities of, or any other interest in, or make
        any
        capital contribution to, or make or permit to remain outstanding any loan
        or
        advance to, any Person, (herein collectively referred to as “Investments”)
        except
        that the Company or a Subsidiary may make or permit to remain outstanding
        Permitted Investments.

       

      Section
        4.14 Sale-Leaseback.

       

      Without
        the written consent of the holder or holders of not less than 66-2/3% in
        principal amount of all Notes at the time outstanding, neither the Company
        nor
        any Subsidiary will sell and lease back (whether or not under a Financing
        Lease)
        any Property. 

       

      Section
        4.15 ERISA
        Compliance.

       

      (a) The
        Company will not permit the present value of all employee benefits vested
        under
        all Defined Benefit Plans maintained by the Company and its Subsidiaries,
        determined as of the end of any Defined Benefit Plan year, to exceed the
        present
        value of the assets allocable to such vested benefits as of such date of
        determination;

       

      (b) All
        assumptions and methods used to determine the actuarial valuation of vested
        employee benefits under Defined Benefit Plans and the present value of assets
        of
        Defined Benefit Plans shall be reasonable in the good faith judgment of the
        Company and shall comply with all requirements of law, provided,
        however,
        that
        for purposes of the foregoing the Company shall be entitled to rely upon
        the
        independent actuaries for its Defined Benefit Plans; and

       

      (c) The
        Company will not permit at any time, and will not permit any Subsidiary at
        any
        time to permit, any Pension Plan maintained by it to:

       

      (i) engage
        in
        any “prohibited transaction” as such term is defined in section 4975 of the Code
        or described in section 406 of ERISA;

       

      (ii) incur
        any
“accumulated funding deficiency” as such term is defined in section 302 of
        ERISA, whether or not waived; or

       

      (iii) terminate
        under circumstances which could result in the imposition of a Lien on the
        Property of the Company or any Subsidiary pursuant to section 4068 of
        ERISA.

       

      Section
        4.16 Use
        of Proceeds.

       

      Neither
        the Company nor any Subsidiary owns or has any present intention of acquiring
        any “margin stock” as defined in Regulation U (12 CFR Part 221) of the Board of
        Governors of the Federal Reserve System (herein called “margin stock”). The
        proceeds of sale of the Notes will be used to refinance outstanding short-term
        debt previously used to fund capital expenditures and for general corporate
        purposes, including to fund capital expenditures. None of such proceeds will
        be
        used, directly or indirectly, for the purpose, whether immediate, incidental
        or
        ultimate, of purchasing or carrying any margin stock or for the purpose of
        maintaining, reducing or retiring any Indebtedness which was originally incurred
        to purchase or carry any stock that is currently a margin stock or for any
        other
        purpose which might constitute this transaction a “purpose credit” within the
        meaning of such Regulation U. Neither the Company nor any agent acting on
        its
        behalf has taken or will take any action which might cause this Agreement
        or the
        Notes to violate Regulation T, Regulation U or any other regulation of the
        Board
        of Governors of the Federal Reserve System or to violate the Exchange Act,
        in
        each case as in effect now or as the same may hereafter be in
        effect.

       

      Section
        4.17 Terrorism
        Sanctions Regulations.

       

      The
        Company will not and will not permit any Subsidiary to (a) become a Person
        described or designated in the Specially Designated Nationals and Blocked
        Persons List of the Office of Foreign Assets Control or in Section 1 of the
        Anti-Terrorism Order or (b) knowingly engage in any dealings or
        transactions with any such Person.

       

      SECTION
        5. DEFAULT

       

      Section
        5.1 Nature
        of Default.

       

      An
        “Event
        of Default”
shall
        exist if any of the following occurs and is continuing:

       

      (a) Principal,
        Premium or Interest Payments--failure
        to pay principal or Make Whole Amount on any Note on or before the date the
        payment is due, or failure to pay interest on any Note on or before the fifth
        day after the payment is due;

       

      (b) Breach
        of Particular Covenants--failure
        to comply with any covenant contained in Sections
        4.4
        through
4.11
        or
Section
        4.14,
        4.15
        or
4.17;

       

      (c) Other
        Breaches--failure
        to comply with any other provision of this Agreement, which continues for
        more
        than 30 days after it first becomes known to the chief executive officer,
        president, chief financial officer or treasurer of the Company;

       

      (d) Default
        on Indebtedness or Other Security--
        failure by the Company or any Subsidiary to make one or more payments due
        on
        aggregate indebtedness exceeding $1,000,000; or any event, other than the
        giving
        of a notice of voluntary prepayment, shall occur or any condition shall exist,
        the effect of which event or condition is to cause (or permit one or more
        Persons to cause) more than $1,000,000 of aggregate indebtedness or other
        Securities of the Company or any Subsidiary to become due before its (or
        their)
        stated maturity or before its (or their) regularly scheduled dates of
        payment;

       

      (e) Involuntary
        Bankruptcy Proceedings, Etc.--a
        custodian, receiver, liquidator or trustee of the Company or any Subsidiary,
        or
        of any of the Property of either, is appointed or takes possession and such
        appointment or possession remains in effect for more than 60 days; or the
        Company or any Subsidiary generally fails to pay its debts as they become
        due;
        or the Company or any Subsidiary is adjudicated bankrupt or insolvent; or
        an
        order for relief is entered under the Federal Bankruptcy Code against the
        Company or any Subsidiary; or any of the Property of either is sequestered
        by
        court order and the order remains in effect for more than 60 days; or a petition
        is filed against the Company or any Subsidiary under any bankruptcy,
        reorganization, arrangement, insolvency, readjustment of debt, dissolution
        or
        liquidation law of any jurisdiction, whether now or subsequently in effect,
        and
        is not dismissed within 60 days after filing;

       

      (f) Voluntary
        Bankruptcy Proceedings, Etc.--the
        Company or any Subsidiary files a voluntary petition in bankruptcy or seeking
        relief under any provision of any bankruptcy, reorganization, arrangement,
        insolvency, readjustment of debt, dissolution or liquidation law of any
        jurisdiction, whether now or subsequently in effect; or consents to the filing
        of any petition against it under any such law; or consents to the appointment
        of
        or taking possession by a custodian, receiver, trustee or liquidator of the
        Company, or a Subsidiary, or of all or any part of the Property of either;
        or
        makes an assignment for the benefit of its creditors;

       

      (g) Warranties
        or Representations--any
        warranty, representation or other statement by or on behalf of the Company
        contained in this Agreement or in any document, certificate or instrument
        furnished in compliance with or in reference to this Agreement shall prove
        to
        have been false or misleading in any material respect on the date as of which
        it
        was made; or

       

      (h) Undischarged
        Final Judgments--a
        final
        judgment for the payment of money is outstanding against one or more of the
        Company and its Subsidiaries and has been outstanding for more than 60 days
        from
        the date of its entry and has not been discharged in full or effectively
        stayed.

       

      Section
        5.2 Default
        Remedies.

       

      (a) Acceleration--If
        an
        Event of Default of the type described in Sections
        5.1(e)
        or
5.1(f)
        shall
        occur, the, entire outstanding principal amount of the Notes shall automatically
        become due and payable, without the taking of any action on the part of any
        holder of the Notes or any other Person and without the giving of any notice
        with respect thereto. If an Event of Default of the type described in
Section
        5.1(a)
        exists,
        any holder of Notes may, at its option, exercise any right, power or remedy
        permitted by law, including the right, by notice to the Company, to declare
        the
        Notes held by such holder to be immediately due and payable. If any other
        Event
        of Default exists, the holder or holders of at least 66-2/3% in outstanding
        principal amount of the Notes (exclusive of Notes owned by the Company,
        Subsidiaries and Affiliates) may, at its or their option, exercise any right,
        power or remedy permitted by law, including the right, by notice to the Company,
        to declare all the outstanding Notes to be immediately due and payable. Upon
        each such acceleration, the principal of the Notes declared due or automatically
        becoming due shall be immediately payable, together with all accrued interest
        and the Make Whole Amount, if any, applicable thereto, and the Company will
        immediately make payment, without any presentment, demand, protest or other
        notice of any kind, all of which are hereby expressly waived.

       

      No
        course
        of dealing or delay or failure to exercise any right on the part of any holder
        of the Notes shall operate as a waiver of such right or otherwise prejudice
        such
        holder’s rights, powers or remedies. The Company will pay or reimburse the
        holders of the Notes for all costs and expenses (including reasonable attorneys’
fees) incurred by them in collecting any sums due on the Notes or in otherwise
        enforcing any of their rights.

       

      (b) Annulment
        of Acceleration--In
        the
        event of each declaration or automatic acceleration pursuant to Section
        5.2(a),
        the
        holder or holders of at least 75% of the outstanding principal amount of
        the
        Notes (exclusive of Notes owned by the Company, Subsidiaries and Affiliates)
        may
        annul such declaration or automatic acceleration and its consequences if
        no
        judgment or decree has been entered for the payment of any amount due pursuant
        to such declaration or automatic acceleration and if all sums payable under
        the
        Notes and under this Agreement (except any principal or interest on the Notes
        which has become payable solely by reason of such declaration or automatic
        acceleration) shall have been duly paid.

       

      Section
        5.3 Other
        Remedies.

       

      If
        any
        Event of Default or Default shall occur and be continuing, the holder of
        any
        Note may proceed to protect and enforce its rights under this Agreement and
        such
        Note by exercising such remedies as are available to such holder in respect
        thereof under applicable law, either by suit in equity or by action at law,
        or
        both, whether for specific performance of any covenant or other agreement
        contained in this Agreement or in aid of the exercise of any power granted
        in
        this Agreement. No remedy conferred in this Agreement upon any Purchaser
        or any
        other holder of any Note is intended to be exclusive of any other remedy,
        and
        each and every such remedy shall be cumulative and shall be in addition to
        every
        other remedy conferred herein or now or hereafter existing at law or in equity
        or by statute or otherwise.

       

      SECTION
        6. REPRESENTATIONS,
        COVENANTS AND WARRANTIES

       

      The
        Company represents, covenants and warrants as follows:

       

      Section
        6.1 Organization,
        Etc.

       

      (a) Due
        Organization, Foreign Qualifications, Stock Ownership.
        The
        Company is a corporation duly organized and existing in good standing under
        the
        laws of the State of Delaware, and is qualified to do business and is in
        good
        standing in the States of Florida and Maryland, which are the only jurisdictions
        where the ownership by it of property or the nature of the business conducted
        by
        it makes such qualification necessary. Each Subsidiary of the Company is
        duly
        organized and existing in good standing under the laws of the jurisdictions
        in
        which it is incorporated. Neither the ownership by any Subsidiary of property
        or
        the nature of the business conducted by any Subsidiary requires any Subsidiary
        to be qualified to do business in any jurisdiction in which it is not already
        qualified to do business. The names of the Subsidiaries of the Company and
        the
        jurisdiction of incorporation of such (i) as of the date of this Agreement
        are
        listed on Schedule
        6.1(a)
        hereto,
        and (ii) as of the date upon when this representation is repeated as provided
        in
        Section 1.4(d), as such Schedule may have been updated by the delivery by
        the
        Company to the Purchasers of an updated version thereof on or before such
        date.

       

      (b) Power
        and Authority.
        The
        Company and each of its Subsidiaries has all requisite corporate power to
        conduct their respective businesses as currently conducted and as currently
        proposed to be conducted. The Company has all requisite corporate power to
        execute, deliver and perform its obligations under this Agreement and the
        Notes.
        The execution, delivery and performance of the obligations of the Company
        under
        this Agreement and the Notes have been duly authorized by all requisite
        corporate action on the part of the Company. The Company has duly executed
        and
        delivered this Agreement, and this Agreement constitutes the legal, valid
        and
        binding obligation of the Company, enforceable against the Company in accordance
        with its terms subject, as to enforceability, to applicable laws relating
        to
        bankruptcy, insolvency, reorganization, moratorium, or other similar laws
        affecting creditor’s rights generally and subject to general principles of
        equity. As of the Closing Date, the Company shall have duly executed and
        delivered the Notes being issued on such Closing Date, and such Notes shall
        be
        the legal, valid and binding obligations of the Company enforceable against
        the
        Company in accordance with their terms subject, as to enforceability, to
        applicable laws relating to bankruptcy, insolvency, reorganization, moratorium,
        or other similar laws affecting creditor’s rights generally and subject to
        general principles of equity.

       

      Section
        6.2 Financial
        Statements.

       

      The
        Company has furnished each Purchaser with the following financial statements,
        identified by a principal financial officer of the Company: (i) a consolidated
        balance sheet of the Company and its Subsidiaries as at December 31 in each
        of
        the five fiscal years of the Company most recently completed prior to the
        date
        as of which this representation is made or repeated as provided in Section
        1.4(d) (other than fiscal years completed within 90 days prior to such date
        for
        which audited financial statements have not been released) and consolidated
        statements of income, stockholders’ equity and cash flows of the Company and its
        Subsidiaries for each such year, accompanied by the opinion thereon of
        PricewaterhouseCoopers, L.L.P. (or, in the case of financial statements
        delivered subsequent to the date of this Agreement, accompanied by the opinion
        thereon of a registered public accounting firm of national standing); and
        (ii) a
        consolidated balance sheet of the Company and its Subsidiaries as at the
        end of
        each quarterly period ended after December 30, 2004 and prior to the date
        this
        representation is made or repeated as provided in Section 1.4(d) (other than
        quarterly periods completed within 45 days prior to such date for which
        financial statements have not been released) and consolidated statements
        of
        income, stockholders’ equity and cash flows for the year-to-date periods ended
        on each such date, prepared by the Company. Such financial statements (including
        any related schedules and/or notes) are true and correct in all material
        respects (subject, as to interim statements, to changes resulting from audits
        and year-end adjustments), have been prepared in accordance with generally
        accepted accounting principles consistently followed throughout the periods
        involved and show all liabilities, direct and contingent, of the Company
        and its
        Subsidiaries required to be shown in accordance with such principles. The
        balance sheets fairly present the condition of the Company and its Subsidiaries
        as at the dates thereof, and the statements of income, stockholders’ equity and
        cash flows fairly present the results of the operations of the Company and
        its
        Subsidiaries and their cash flows for the periods indicated. There has been
        no
        material adverse change in the business, condition (financial or otherwise)
        or
        operations of the Company and its Subsidiaries taken as a whole since December
        31, 2004.

       

      Section
        6.3 Actions
        Pending.

       

      Except
        as
        disclosed in the Company’s Form 10-K most recently filed with the Securities and
        Exchange Commission before the date of this Agreement or subsequent Forms
        10-Q
        or Forms 8-K filed with the Securities and Exchange Commission before the
        date
        of this Agreement, there is no action, suit, investigation or proceeding
        pending
        or, to the knowledge of the Company, threatened against the Company or any
        of
        its Subsidiaries, or any properties or rights of the Company or any of its
        Subsidiaries, by or before any court, arbitrator or administrative or
        governmental body not covered by insurance which could reasonably be expected
        to
        result in any material adverse change in the business, condition (financial
        or
        otherwise) or operations of the Company and its Subsidiaries taken as a
        whole.

       

      Section
        6.4 Outstanding
        Indebtedness.

       

      Neither
        the Company nor any of its Subsidiaries has outstanding any Indebtedness
        except
        as permitted by Section
        4.6.
        There
        does not exist any default under the provisions of any instrument evidencing
        such Debt or of any agreement relating thereto.

       

      Section
        6.5 Title
        to Properties.

       

      The
        Company has and each of its Subsidiaries has good and marketable title to
        its
        respective real properties (other than properties which it leases) and good
        title to all of its other respective properties and assets, including the
        properties and assets reflected in the balance sheet as of December 31, 2004
        referred to in Section
        6.2
        (other
        than properties and assets disposed of in the ordinary course of business),
        subject to no Lien of any kind except Liens permitted by Section
        4.8.
        All
        leases necessary in any material respect for the conduct of the respective
        businesses of the Company and its Subsidiaries are valid and subsisting and
        are
        in full force and effect.

       

      Section
        6.6 Taxes.

       

      The
        Company has and each of its Subsidiaries has filed all federal, state and
        other
        income tax returns which, to the knowledge of the officers of the Company,
        are
        required to be filed, and each has paid all taxes as shown on such returns
        and
        on all assessments received by it to the extent that such taxes have become
        due,
        except such taxes as are being contested in good faith by appropriate
        proceedings for which adequate reserves have been established in accordance
        with
        generally accepted accounting principles.

       

      Section
        6.7 Conflicting
        Agreements and Other Matters.

       

      Neither
        the execution nor delivery of this Agreement or the Notes, nor the offering,
        issuance and sale of the Notes, nor fulfillment of nor compliance with the
        terms
        and provisions hereof and of the Notes will conflict with, or result in a
        breach
        of the terms, conditions or provisions of, or constitute a default under,
        or
        result in any violation of, or result in the creation of any Lien upon any
        of
        the properties or assets of the Company or any of its Subsidiaries pursuant
        to,
        the charter or by-laws of the Company or any of its Subsidiaries, any award
        of
        any arbitrator or any agreement (including any agreement with stockholders),
        instrument, order, judgment, decree, statute, law, rule or regulation to
        which
        the Company or any of its Subsidiaries is subject. Neither the Company nor
        any
        of its Subsidiaries is a party to, or otherwise subject to any provision
        contained in, any instrument evidencing Indebtedness of the Company or such
        Subsidiary, any agreement relating thereto or any other contract or agreement
        (including its charter) which limits the amount of, or otherwise imposes
        restrictions on the incurring of, Debt of the Company of the type to be
        evidenced by the Notes except as set forth in the agreements listed in
Schedule
        6.7
        attached
        hereto.

       

      Section
        6.8 Offering
        of Notes.

       

      Neither
        the Company nor any agent acting on its behalf has, directly or indirectly,
        offered the Notes or any similar security of the Company for sale to, or
        solicited any offers to buy the Notes or any similar security of the Company
        from, or otherwise approached or negotiated with respect thereto with, any
        Person other than institutional investors, and neither the Company nor any
        agent
        acting on its behalf has taken or will take any action which would subject
        the
        issuance or sale of the Notes to the provisions of Section 5 of the Securities
        Act or to the provisions of any securities or Blue Sky law of any applicable
        jurisdiction.

       

      Section
        6.9 ERISA.

       

      No
        accumulated funding deficiency (as defined in section 302 of ERISA and section
        412 of the Code), whether or not waived, exists with respect to any Pension
        Plan
        (other than a Multiemployer Plan). No liability to the Pension Benefit Guaranty
        Corporation has been or is expected by the Company or any ERISA Affiliate
        to be
        incurred with respect to any Pension Plan (other than a Multiemployer Plan)
        by
        the Company, any Subsidiary or any ERISA Affiliate which is or would be
        materially adverse to the business, condition (financial or otherwise) or
        operations of the Company and its Subsidiaries taken as a whole. Neither
        the
        Company, any Subsidiary nor any ERISA Affiliate has incurred or presently
        expects to incur any withdrawal liability under Title IV of ERISA with respect
        to any Multiemployer Plan which is or would be materially adverse to the
        business, condition (financial or otherwise) or operations of the Company
        and
        its Subsidiaries taken as a whole. The execution and delivery of this Agreement
        and the issuance and sale of the Notes will be exempt from, or will not involve
        any transaction which is subject to, the prohibitions of section 406 of ERISA
        and will not involve any transaction in connection with which a penalty could
        be
        imposed under section 502(i) of ERISA or a tax could be imposed pursuant
        to
        section 4975 of the Code. The representation by the Company in the next
        preceding sentence is made in reliance upon and subject to the accuracy of
        each
        Purchaser’s representation in Section
        9.5.

       

      Section
        6.10 Governmental
        Consent.

       

      Neither
        the nature of the Company or of any Subsidiary, nor any of their respective
        businesses or properties, nor any relationship between the Company or any
        Subsidiary and any other Person, nor any circumstance in connection with
        the
        offering, issuance, sale or delivery of the Notes is such as to require any
        authorization, consent, approval, exemption or other action by or notice
        to or
        filing with any court or administrative or governmental body, including,
        without
        limitation, the Maryland State Commission, (other than routine filings after
        the
        date of closing with the Securities and Exchange Commission and/or state
        Blue
        Sky authorities, if any) in connection with the execution and delivery of
        this
        Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment
        of or compliance with the terms and provisions hereof or of the Notes, other
        than (a) Order No. 6708 of the Public Service Commission of the State of
        Delaware entered in PSC Docket No. 05-290 dated September 6, 2005, which
        order
        has been duly issued, is final and in full force and effect, no appeal, review
        or contest thereof is pending and the time for appeal or to seek review or
        reconsideration thereof has expired, and (b) an order of the Florida Public
        Service Commission. The Company has delivered to each Purchaser true and
        complete copies of such order of the Public Service Commission of the State
        of
        Delaware and, prior to the Closing Date, the Company will have delivered
        to each
        Purchaser a true and complete copy of such order of Florida Public Service
        Commission.

       

      Section
        6.11 Environmental
        Compliance.

       

      Except
        as
        disclosed in the Company’s Form 10-K most recently filed with the Securities and
        Exchange Commission before the date of this Agreement or subsequent Forms
        10-Q
        or Forms 8-K filed with the Securities and Exchange Commission before the
        date
        of this Agreement, the Company and its Subsidiaries and all of their respective
        properties and facilities have complied at all times and in all respects
        with
        all federal, state, local and regional statutes, laws, ordinances and judicial
        or administrative orders, judgments, rulings and regulations relating to
        protection of the environment except, in any such case, where failure to
        comply
        would not reasonably be expected to result in a material adverse effect on
        the
        business, condition (financial or otherwise) or operations of the Company
        and
        its Subsidiaries taken as a whole.

       

      Section
        6.12 Permits
        and Other Operating Rights.

       

      The
        Company and each of its Subsidiaries has all such valid and sufficient
        franchises, licenses, permits, operating rights, certificates of convenience
        and
        necessity, other authorizations from federal, state, regional, municipal
        and
        other local regulatory bodies or administrative agencies or other governmental
        bodies having jurisdiction over the Company or any of its Subsidiaries or
        any of
        its respective properties, easements and rights-of-way as are necessary for
        the
        ownership, operation and maintenance of its respective businesses and respective
        properties, subject to minor exceptions and deficiencies which do not materially
        affect its business and operations considered as a whole or any material
        part
        thereof, and neither the Company nor any of its Subsidiaries is in violation
        of
        any thereof in any material respect.

       

      Section
        6.13 Disclosure.

       

      Neither
        this Agreement nor any other document, certificate or statement furnished
        to any
        Purchaser by or on behalf of the Company in connection herewith contains
        any
        untrue statement of a material fact or omits to state a material fact necessary
        in order to make the statements contained herein and therein not misleading.
        There is no fact peculiar to the Company or any of its Subsidiaries which
        materially adversely affects or in the future may (so far as the Company
        can now
        foresee) materially adversely affect the business, property or assets, or
        financial condition of the Company or any of its Subsidiaries taken as a
        whole
        and which has not been set forth in this Agreement or in the other documents,
        certificates and statements furnished to each Purchaser by or on behalf of
        the
        Company prior to the date hereof in connection with the transactions
        contemplated hereby.

       

      Section
        6.14 Regulatory
        Status of Company; Trust Indenture Act.

       

      The
        Company is not an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
        as amended. The Company is not a “holding company” or a “subsidiary company” or
        an “affiliate” of a “holding company” within the meaning of the Public Utility
        Holding Company Act of 1935, as amended, or the Energy Policy Act of 2005,
        and
        is not a “public utility” within the meaning of the Federal Power Act, as
        amended. By purchasing the Notes, no Purchaser will be (a) a “public utility
        company,” a “holding company” or an “affiliate” of a “holding company” or a
“subsidiary company” of a “holding company” within the meaning of the Public
        Utility Holding Company Act of 1935, as amended, or the Energy Policy Act
        of
        2005, (b) a “transmitting utility” or an “electric utility” within the meaning
        of the Federal Power Act, as amended, (c) a “public utility” or an “electric
        utility” under Delaware law, Florida law, Maryland law or the law of any other
        state or (d) subject to the jurisdiction of the Federal Energy Regulatory
        Commission, the Public Service Commission of the State of Delaware, the Public
        Service Commission of the State of Florida or any other commission or person
        in
        any other state.

       

      Section
        6.15. Foreign
        Assets Control Regulations, Etc.

       

      (a) The
        use
        of the proceeds of the sale of the Notes by the Company hereunder will not
        violate the Trading with the Enemy Act, as amended, or any of the foreign
        assets
        control regulations of the United States Treasury Department (31 CFR,
        Subtitle B, Chapter V, as amended) or any enabling legislation or
        executive order relating thereto. 

       

      (b) Neither
        the Company nor any Subsidiary (i) is a Person described or designated in
        the Specially Designated Nationals and Blocked Persons List of the Office
        of
        Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or
        (ii) to its knowledge, engages in any dealings or transactions with any
        such Person. The Company and its Subsidiaries are in compliance, in all material
        respects, with the USA Patriot Act. 

       

      (c) No
        part
        of the proceeds from the sale of the Notes hereunder will be used, directly
        or
        indirectly, for any payments to any governmental official or employee, political
        party, official of a political party, candidate for political office, or
        anyone
        else acting in an official capacity, in order to obtain, retain or direct
        business or obtain any improper advantage, in violation of the United States
        Foreign Corrupt Practices Act of 1977, as amended.

       

      Section
        6.16. First
        Mortgage Indenture.

       

      No
        Bonds
        are outstanding. The First Mortgage Indenture has been terminated and discharged
        and no further Bonds may be issued thereunder.

       

      SECTION
        7. INTERPRETATION
        OF THIS AGREEMENT

       

      Section
        7.1 Terms
        Defined.

       

      As
        used
        in this Agreement (including Exhibits and Schedules), the following terms
        have
        the respective meanings set forth below or in the Section indicated. Unless
        the
        context otherwise requires, (a) words denoting the singular number only shall
        include the plural and vice versa and (b) references to a gender shall include
        all genders.

       

      Affiliate--means
        a
        Person (other than a Subsidiary) (1) which directly or indirectly controls,
        or
        is controlled by, or is under common control with, the Company, (2) which
        owns
        5% or more of the Voting Stock of the Company or (3) 5% or more of the Voting
        Stock (or in the case of a Person which is not a corporation, 5% or more
        of the
        equity interest) of which is owned by the Company or a Subsidiary. The term
        “control” means the possession, directly or indirectly, of the power to direct
        or cause the direction of the management and policies of a Person, whether
        through the ownership of Voting Stock, by contract or otherwise.

       

      Agreement--means
        this Note Agreement dated as of October 18, 2005 between the Company and
        each
        Purchaser (including Exhibits and Schedules), as amended or modified from
        time
        to time.

       

      Annual
        Principal Amortization Dates--means
        (i) if the Closing Date is prior to December 28, 2006, then the dates
        which are the 5th,
        6th,
        7th,
        8th,
        9th,
        10th,
        11th,
        12th
        and
        13th
        annual
        anniversary dates of the Closing Date, or (ii) if the Closing Date is on
        or
        after December 28, 2006, then December 28, 2011,
        December 28, 2012, December 28, 2013,
        December 28, 2014, December 28, 2015,
        December 28, 2016, December 28, 2017,
        December 28, 2018 and December 28, 2019.

       

      Anti-Terrorism
        Order--means
        Executive Order No. 13,224 of September 24, 2001, Blocking Property and
        Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support
        Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended.

       

      Bonds--has
        the
        meaning that was specified in the First Mortgage Indenture.

       

      Business
        Day--means
        any day other than a Saturday, a Sunday or a day on which commercial banks
        in
        New York City are required or authorized to be closed.

       

      Called
        Principal--means,
        with respect to any Note, the principal of such Note that is to be prepaid
        pursuant to Section
        2.2(a)
        or is
        declared to be due and payable pursuant to Section
        2.1(b)
        or
5.2(a),
        as the
        context requires.

       

      Cancellation
        Date--Section
        2.6.

       

      Cancellation
        Fee--Section
        2.6.

       

      Closing
        Date--means
        (i) except as otherwise provided in clause (ii) of this definition, the Business
        Day prior to December 28, 2006 specified as the “Closing Date” in a notice given
        to the Purchasers by the Company no less than 10 Business Days prior to and
        no
        more than 25 Business Days prior to the date so specified in such notice
        as the
        Closing Date, or (ii) if (a) the Company has provided a notice of a Closing
        Date
        pursuant to clause (i) of this definition but the Company fails to tender
        to any
        Purchaser the Notes to be purchased by such Purchaser on such Closing Date
        or
        any of the conditions specified in Section 1.4 shall not have been fulfilled
        on
        such Closing Date, or (b) the Company has not provided a notice of a Closing
        Date pursuant to clause (i) of this definition prior to November 29, 2006,
        then
        December 28, 2006, or, if the closing of the purchase and sale of the Notes
        is
        rescheduled pursuant to Section 2.4, the Rescheduled Closing Date. The Company
        may give only one notice pursuant to clause (i) of this definition and any
        additional notices that may be given by the Company shall be
        ineffective.

       

      Code--means
        the Internal Revenue Code of 1986, as amended.

       

      Confidential
        Information--means
        information delivered to any Purchaser by or on behalf of the Company or
        any
        Subsidiary in connection with the transactions contemplated by or otherwise
        pursuant to this Agreement that is proprietary in nature and that was clearly
        marked or labeled or otherwise adequately identified when received by such
        Purchaser as being confidential information of the Company or such Subsidiary,
        provided that such term does not include information that (a) was publicly
        known
        or otherwise known to such Purchaser prior to the time of such disclosure,
        (b)
        subsequently becomes publicly known through no act or omission by such Purchaser
        or any person acting on such Purchaser’s behalf, (c) otherwise becomes known to
        such Purchaser other than through disclosure by the Company or any Subsidiary
        or
        (d) constitutes financial statements delivered to such Purchaser under Section
        3.1 that are otherwise publicly available.

       

      Company--Preamble.

       

      Consolidated
        Fixed Charges--for
        any
        period, means the net amount deducted, in determining Consolidated Net Income
        for such period, for interest on Indebtedness and lease rental expense of
        the
        Company and its Subsidiaries.

       

      Consolidated
        Net Earnings Available for Fixed Charges--for
        any
        period, means Consolidated Net Income for such period plus
        the net
        amount deducted in the determination thereof for (i) interest on Indebtedness,
        (ii) lease rental expense and (iii) income taxes.

       

      Consolidated
        Net Income--for
        any
        period, means the gross revenue of the Company and its Subsidiaries determined
        on a consolidated basis minus all proper expenses (including income taxes)
        determined on a consolidated basis for such period, but in any event
        excluding:

       

      
        	 	
                (1)

              	
                any
                  gain or loss on the sale of Investments or fixed assets, and any
                  taxes on
                  such excluded gain or loss;

              


      

       

      
        	 	
                (2)

              	
                any
                  proceeds from life insurance;

              


      

       

      
        	 	
                (3)

              	
                any
                  portion of the net earnings of any Subsidiary which for any reason
                  is
                  unavailable to pay dividends to the Company or any other
                  Subsidiary;

              


      

       

      
        	 	
                (4)

              	
                any
                  gain arising from any write-up or reappraisal of
                  assets;

              


      

       

      
        	 	
                (5)

              	
                any
                  deferred or other credit representing the excess of equity of an
                  acquired
                  Person over the amount invested by the Company and its Subsidiaries
                  in
                  such Person;

              


      

       

      
        	 	
                (6)

              	
                any
                  gain arising from the acquisition of any Securities of the Company
                  or any
                  Subsidiary;

              


      

       

      
        	 	
                (7)

              	
                net
                  earnings of any Person (other than a Subsidiary) in which the Company
                  or
                  any Subsidiary has an ownership interest unless those net earnings
                  have
                  actually been received by the Company or the Subsidiary in the
                  form of
                  cash distributions or, to the extent of their fair market value,
                  in the
                  form of any other freely transferable Property;
                  and

              


      

       

      
        	 	
                (8)

              	
                earnings
                  of any Person accrued prior to the date it becomes a Subsidiary
                  or its
                  assets are acquired by the Company or a
                  Subsidiary.

              


      

       

      Consolidated
        Net Worth--means
        as of any date, the sum of the amounts that would be shown on a consolidated
        balance sheet of the Company and its Subsidiaries at such date for (i) capital
        stock, (ii) capital surplus and (iii) retained earnings.

       

      Consolidated
        Tangible Net Worth--means
        as of any date Consolidated Net Worth at such date minus
        the
        amount at which any assets other than Tangible Assets would be shown on a
        consolidated balance sheet of the Company and its Subsidiaries at such
        date.

       

      Consolidated
        Total Assets--means
        as of any date the aggregate amount at which the assets of the Company and
        its
        Subsidiaries would be shown on a consolidated balance sheet at such
        date.

       

      Current
        Indebtedness--with
        respect to any Person, means all liabilities for borrowed money and all
        liabilities secured by any Lien existing on Property owned by that Person
        (whether or not those liabilities have been assumed) which, in either case,
        are
        payable on demand or within one year from their creation, plus the aggregate
        amount of Guaranties by that Person of all such liabilities of other Persons,
        except:

       

      
        	 	
                (1)

              	
                any
                  liabilities which are renewable or extendible at the option of
                  the debtor
                  to a date more than one year from the date of creation thereof;
                  and

              


      

       

      
        	 	
                (2)

              	
                any
                  liabilities which, although payable within one year, constitute
                  principal
                  payments on indebtedness expressed to mature more than one year
                  from the
                  date of its creation.

              


      

       

      Default--means
        an event or condition which will, with the lapse of time or the giving of
        notice
        or both, become an Event of Default.

       

      Defined
        Benefit Plan--means
        a
        plan (within the meaning of section 4001(a)(15) of ERISA) that is covered
        by
        Title IV of ERISA.

       

      Delayed
        Delivery Fee--Section
        2.5.

       

      Discounted
        Value--means,
        with respect to the Called Principal of any Note, the amount obtained by
        discounting all Remaining Scheduled Payments with respect to such Called
        Principal from their respective scheduled due dates to the Settlement Date
        with
        respect to such Called Principal, in accordance with accepted financial practice
        and at a discount factor (as converted to reflect the periodic basis on which
        interest on such Note is payable, if interest is payable other than on a
        semi-annual basis) equal to the Reinvestment Yield with respect to such Called
        Principal.

       

      Diversification
        Event--Section
        2.1(b).

       

      Energy
        Policy Act of 2005--means
        the Energy Policy Act of 2005.

       

      ERISA--means
        the Employee Retirement Income Security Act of 1974, as amended.

       

      ERISA
        Affiliate--
        shall
        mean any corporation which is a member of the same controlled group of
        corporations as the Company within the meaning of section 414(b) of the Code,
        or
        any trade or business which is under common control with the Company within
        the
        meaning of section 414(b) of the Code.

       

      Event
        of Default--Section
        5.1.

       

      Exchange
        Act--means
        the Securities Exchange Act of 1934, as amended.

       

      Excluded
        Assets--
        means
        (i) each of the following Subsidiaries or the assets of any of the following
        Subsidiaries: Sharp Water, Inc.; Sam Shannahan Well Co., Inc.; Sharp Water
        of
        Minnesota, Inc.; Sharp Water of Idaho, Inc.; BravePoint, Inc.; Skipjack,
        Inc.;
        Eastern Shore Real Estate, Inc.; aQuality Company, Inc.; Peninsula Pipeline
        Company, Inc.; Peninsula Energy Services Company, Inc.; and OnSight Energy
        LLC
        and (ii) any Subsidiary that the Company may create or acquire after the
        date
        hereof which is not (x) a “public utility company,” a “holding company” or an
“affiliate” of a “holding company” or a “subsidiary company” of a “holding
        company” within the meaning of the Public Utility Holding Company Act of 1935,
        as amended, or the Energy Policy Act of 2005 or (y) a “transmitting utility”
within the meaning of the Federal Power Act, as amended.

       

      FERC--means
        the Federal Energy Regulatory Commission or a successor thereto.

       

      Financing
        Lease--means
        any lease which is shown or is required to be shown in accordance with generally
        accepted accounting principles as a liability on a balance sheet of the lessee
        thereunder.

       

      Financing
        Lease Obligation--means
        the obligation of the lessee under a Financing Lease. The amount of a Financing
        Lease Obligation at any date is the amount at which the lessee’s liability under
        the Lease would be required to be shown on its balance sheet at such
        date.

       

      First
        Mortgage Indenture--means
        the Indenture formerly in effect dated as of December l, 1959, between
        Chesapeake Utilities Corporation and Fidelity-Baltimore National Bank, Trustee,
        as amended and supplemented.

       

      Funded
        Indebtedness--with
        respect to any Person, means without duplication:

       

      
        	 	
                (1)

              	
                its
                  liabilities for borrowed money, other than Current Indebtedness;
                  

              


      

       

      
        	 	
                (2)

              	
                liabilities
                  secured by any Lien existing on Property owned by the Person (whether
                  or
                  not those liabilities have been
                  assumed);

              


      

       

      
        	 	
                (3)

              	
                the
                  aggregate amount of Guaranties by the Person, other than Guaranties
                  which
                  constitute Current Indebtedness;
                  and

              


      

       

      
        	 	
                (4)

              	
                its
                  Financing Lease Obligations.

              


      

       

      Guaranty--with
        respect to any Person, means all guaranties of, and all other obligations
        which
        in effect guaranty, any indebtedness, dividend or other obligation of any
        other
        Person (the “primary obligor”) in any manner (except any indebtedness or other
        obligation of any Subsidiary or any Funded Indebtedness of the Company),
        including obligations incurred through an agreement, contingent or otherwise,
        by
        such Person:

       

      
        	 	
                (1)

              	
                to
                  purchase such indebtedness or obligation or any Property constituting
                  security therefor;

              


      

       

      
        	 	
                (2)

              	
                to
                  advance or supply funds

              


      

       

      
        	 	
                (A)

              	
                for
                  the purchase or payment of such indebtedness or obligation, or
                  

              


      

       

      
        	 	
                (B)

              	
                to
                  maintain working capital or any balance sheet or income statement
                  condition;

              


      

       

      
        	 	
                (C)

              	
                to
                  lease Property, or to purchase Securities or other Property or
                  services,
                  primarily for the purpose of assuring the owner of such indebtedness
                  or
                  obligation of the ability of the primary obligor to make payment
                  of the
                  indebtedness or obligation; or

              


      

       

      
        	 	
                (D)

              	
                otherwise
                  to assure the owner of such indebtedness or obligation, or the
                  primary
                  obligor, against loss;

              


      

       

      but
        excluding endorsements in the ordinary course of business of negotiable
        instruments for deposit or collection.

       

      The
        amount of any Guaranty shall be deemed to be the maximum amount for which
        such
        Person may be liable, upon the occurrence of any contingency or otherwise,
        under
        or by virtue of the Guaranty.

       

      Hedge
        Treasury Note(s)--means,
        with respect to any Note, the United States Treasury Note or Notes whose
        duration (as determined by Prudential) most closely matches the duration
        of such
        Note.

       

      Indebtedness--means
        Current Indebtedness and Funded Indebtedness.

       

      Institutional
        Holder--means
        a
“qualified institutional buyer” as defined in Regulation 230.144A issued
        pursuant to the Securities Act of 1933, as amended.

       

      Investments--Section
        4.13.

       

      Lien--means
        any interest in Property securing an obligation owed to, or a claim by, a
        Person
        other than the owner of the Property, whether the interest is based on common
        law, statute or contract (including the security interest lien arising from
        a
        mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease,
        consignment or bailment for security purposes). The term “Lien” shall not
        include minor reservations, exceptions, encroachments, easements, rights-of-way,
        covenants, conditions, restrictions and other minor title exceptions affecting
        Property, provided
        that
        they do not constitute security for a monetary obligation. For the purposes
        of
        this Agreement, the Company or a Subsidiary shall be deemed to be the owner
        of
        any Property which it has acquired or holds subject to a Financing Lease
        or a
        conditional sale agreement or other arrangement pursuant to which title to
        the
        Property has been retained by or vested in some other Person for security
        purposes, and such retention or vesting shall be deemed to be a
        Lien.

       

      Make
        Whole Amount--means,
        with respect to any Note, an amount equal to the excess, if any, of the
        Discounted Value of the Called Principal of such Note over the sum of (i)
        such
        Called Principal plus (ii) interest accrued thereon as of (including interest
        due on) the Settlement Date with respect to such Called Principal. The Make
        Whole Amount shall in no event be less than zero.

       

      Maturity
        Date--means
        (i) if the Closing Date is prior to December 28, 2006, then the date which
        is
        the 14th
        annual
        anniversary date of the Closing Date, or (ii) if the Closing Date is on or
        after
        December 28, 2006, then December 28, 2020.

       

      Notes--Section
        1.1.

       

      Pension
        Plan--means
        any “employee pension benefit plan” (as such term is defined in Section 3 of
        ERISA) maintained by the Company and its Related Persons, or in which employees
        of the Company or any Related Person are entitled to participate, as from
        time
        to time in effect.

       

      Permitted
        Investments--means:

       

      
        	 	
                (1)

              	
                Investments
                  in any Person outstanding on the date hereof, which are set forth
                  in
                  Schedule
                  7.1
                  hereto;

              


      

       

      
        	 	
                (2)

              	
                Investments
                  in any Person which is or would immediately thereafter become a
                  Subsidiary
                  or a division of the Company or a Subsidiary, whether by acquisition
                  of
                  stock, indebtedness, other obligation or Security, or by loan,
                  Guaranty,
                  advance, capital contribution, or
                  otherwise;

              


      

       

      
        	 	
                (3)

              	
                Investments
                  in cash equivalent short-term investments maturing within one year
                  of
                  acquisition;

              


      

       

      
        	 	
                (4)

              	
                Investments
                  in mutual funds which invest only in either money market securities
                  or
                  direct obligations of the United States of America or any of its
                  agencies,
                  or obligations fully guaranteed by the United States of America,
                  which
                  mature within three years from the date
                  acquired;

              


      

       

      
        	 	
                (5)

              	
                Investments
                  in related industries;

              


      

       

      
        	 	
                (6)

              	
                Direct
                  obligations of the United States of America or any of its agencies,
                  or
                  obligations fully guaranteed by the United States of America, provided
                  that such obligations mature within one year from the date
                  acquired;

              


      

       

      
        	 	
                (7)

              	
                Negotiable
                  certificates of deposit maturing within one year from the date
                  acquired
                  and issued by a bank or trust company organized under the laws
                  of the
                  United States or any of its states, and having capital, surplus
                  and
                  undivided profits aggregating at least
                  $100,000,000;

              


      

       

      
        	 	
                (8)

              	
                commercial
                  paper rated A-1 or better by Standard & Poor’s Corporation on the date
                  of acquisition and maturing not more than 270 days from the date
                  of
                  creation thereof; and

              


      

       

      
        	 	
                (9)

              	
                other
                  investments in an aggregate amount not in excess of 20% of Consolidated
                  Net Worth at any one time.

              


      

       

      Person--means
        an individual, partnership, corporation, limited liability company, trust
        or
        unincorporated organization, and a government or a governmental agency or
        political subdivision.

       

      Prepayment
        Date--Section
        2.2(b).

       

      Process
        Agent--Section
        7.4.

       

      Property--means
        any interest in any kind of property or asset, whether real, personal or
        mixed,
        or tangible or intangible.

       

      Prudential--means
        Prudential Investment Management, Inc.

       

      PTE--Section
        9.5.

       

      Purchaser--Preamble.

       

      Purchase
        Money Indebtedness--means
        Indebtedness of the Company which is secured by a Lien on Property of the
        Company which either existed at the time of the original acquisition of the
        Property by the Company or was granted or retained in connection with the
        acquisition or improvement of the Property by the Company in order to facilitate
        the financing of such acquisition or improvement.

       

      Quarterly
        Interest Payment Date--means
        (i) if the Closing Date is prior to December 28, 2006, then each date which
        is a
        numerically corresponding date of the Closing Date in each 3rd
        month
        anniversary of the Closing Date in each year (provided that if there is no
        such
        numerically corresponding date in any such 3rd
        month,
        then the last date of such 3rd
        month),
        or (ii) if the Closing Date is on or after December 28, 2006, then each March
        28, June 28, September 28 and December 28 in each year.

       

      Reinvestment
        Yield--means,
        with respect to the Called Principal of any Note, 0.50% over the yield to
        maturity implied by (i) the yields reported as of 10:00 a.m. (New York City
        local time) on the Business Day next preceding the Settlement Date with respect
        to such Called Principal for actively traded U.S. Treasury securities having
        a
        maturity equal to the Remaining Average Life of such Called Principal as
        of such
        Settlement Date on the display designated as “Page PX1” on the Bloomberg
        Financial Services Screen (or such other display as may replace Page PX1
        on the
        Bloomberg Financial Services Screen or, if Bloomberg Financial Services shall
        cease to report such yields or shall cease to be the customary source of
        information for calculating make-whole amounts on privately placed notes,
        then
        such source as is then the customary source of such information), or if such
        yields shall not be reported as of such time or the yields reported as of
        such
        time shall not be ascertainable, (ii) the Treasury Constant Maturity Series
        yields reported, for the latest day for which such yields shall have been
        so
        reported as of the Business Day next preceding the Settlement Date with respect
        to such Called Principal, in Federal Reserve Statistical Release H.15 (519)
        (or
        any comparable successor publication) for actively traded U.S. Treasury
        securities having a constant maturity equal to the Remaining Average Life
        of
        such Called Principal as of such Settlement Date. Such implied yield shall
        be
        determined, if necessary, by (a) converting U.S. Treasury bill quotations
        to
        bond equivalent yields in accordance with accepted financial practice and
        (b)
        interpolating linearly between yields reported for various maturities. The
        Reinvestment Yield shall be rounded to that number of decimal places as appears
        in the coupon of the applicable Note.

       

      Related
        Person--means
        any Person (whether or not incorporated) which is under common control with
        the
        Company within the meaning of section 414(c) of the Internal Revenue Code
        of
        1986, as amended, or of section 4001(b) of ERISA.

       

      Remaining
        Average Life--means,
        with respect to the Called Principal of any Note, the number of years
        (calculated to the nearest one-twelfth year) obtained by dividing (i) such
        Called Principal into (ii) the sum of the products obtained by multiplying
        (a)
        each Remaining Scheduled Payment of such Called Principal (but not of interest
        thereon) by (b) the number of years (calculated to the nearest one-twelfth
        year)
        which will elapse between the Settlement Date with respect to such Called
        Principal and the scheduled due date of such Remaining Scheduled
        Payment.

       

      Remaining
        Scheduled Payments--means,
        with respect to the Called Principal of any Note, all payments of such Called
        Principal and interest thereon that would be due on or after the Settlement
        Date
        with respect to such Called Principal if no payment of such Called Principal
        were made prior to its scheduled due date.

       

      Required
        Payment Date--Section
        2.1(b).

       

      Rescheduled
        Closing Date--Section
        2.4.

       

      Restricted
        Payments--Section
        4.9.

       

      Security--shall
        have the same meaning as in Section 2(1) of the Securities Act of 1933, as
        amended.

       

      Settlement
        Date--means,
        with respect to the Called Principal of any Note, the date on which such
        Called
        Principal is to be prepaid pursuant to Section
        2.2(a)
        or is
        declared to be due and payable pursuant to Section
        2.1(b)
        or
5.2(a),
        as the
        context requires.

       

      Source--Section
        9.5.

       

      State
        Commissions--means
        the Delaware, Florida and Maryland public utilities commissions or other
        bodies
        which regulate the rates of the Company or its Subsidiaries as a natural
        gas
        distribution company or otherwise.

       

      Subsidiary--means
        any corporation organized under the laws of any State of the United States
        of
        America, which conducts the major portion of its business in and makes the
        major
        portion of its sales to Persons located in the United States of America,
        and not
        less than 80% of the total combined voting power of all classes of Voting
        Stock,
        and 80% of all other equity securities, of which shall, at the time as of
        which
        any determination is being made, be owned by the Company either directly
        or
        through Subsidiaries.

       

      Subsidiary
        Stock--Section
        4.10.

       

      Tangible
        Assets--means
        all assets except:

       

      
        	 	
                (1)

              	
                deferred
                  assets, other than prepaid insurance and prepaid
                  taxes;

              


      

       

      
        	 	
                (2)

              	
                patents,
                  copyrights, trademarks, trade names, franchises, good will, experimental
                  expense and other similar
                  intangibles;

              


      

       

      
        	 	
                (3)

              	
                treasury
                  stock;

              


      

       

      
        	 	
                (4)

              	
                unamortized
                  debt discount and expense; and

              


      

       

      
        	 	
                (5)

              	
                assets
                  located and notes and receivables due from obligors domiciled outside
                  the
                  United States of America or Canada.

              


      

       

      Total
        Capitalization--means
        at any date, the aggregate amount at that date, as determined on a consolidated
        basis, of the Funded Indebtedness of the Company and its Subsidiaries,
plus
        Consolidated Net Worth.

       

      USA
        Patriot Act--means
        United States Public Law 107-56, Uniting and Strengthening America by Providing
        Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT
        ACT)
        Act of 2001, as amended from time to time, and the rules and regulations
        promulgated thereunder from time to time in effect.

       

      Voting
        Stock--means
        Securities, the holders of which are ordinarily, in the absence of
        contingencies, entitled to elect the corporate directors (or Persons performing
        similar functions).

       

      Wholly-Owned
        Subsidiary--means
        any Subsidiary whose financial results are consolidated with the financial
        results of the Company, and all of the equity Securities of which (except
        director’s qualifying shares) are owned by the Company and/or one or more
        Wholly-Owned Subsidiaries of the Company.

       

      Section
        7.2 Accounting
        Principles.

       

      The
        character or amount of any asset or liability or item of income or expense
        required to be determined under this Agreement and each consolidation or
        other
        accounting computation required to be made under this Agreement, shall be
        determined or made in accordance with generally accepted accounting principles
        at the time in effect, to the extent applicable, except where such principles
        are inconsistent with the requirements of this Agreement.

       

      Section
        7.3 Directly
        or Indirectly.

       

      Where
        any
        provision in this Agreement refers to any action which any Person is prohibited
        from taking, the provision shall be applicable whether the action is taken
        directly or indirectly by such Person, including actions taken by, or on
        behalf
        of, any partnership in which such Person is a general partner and all
        liabilities of such partnerships shall be considered liabilities of such
        Person
        under this Agreement.

       

      Section
        7.4 Governing
        Law; Consent to Jurisdiction.

       

      This
        Agreement shall be construed and enforced in accordance with, and the rights
        of
        the parties shall be governed by, the law of the State of New York. The Company
        irrevocably agrees that any legal action or proceeding with respect to this
        Agreement or the Notes may be brought in the courts of the State of New York
        or
        any court of the United States of America located in the State of New York,
        and,
        by execution and delivery of this Agreement, the Company accepts for itself,
        generally and unconditionally, and agrees to submit to the jurisdiction of
        each
        of the above-mentioned courts and irrevocably waives, to the fullest extent
        permitted by law, any objection which it may now or later have based on venue
        or
forum
        non conveniens
        with
        respect to any action instituted therein. The Company hereby irrevocably
        appoints Corporation Service Company (the “Process
        Agent”),
        with
        an office on the date hereof at 80 State Street, 6th Floor, Albany, New York
        12207-2543, United States, as its agent to receive, on the Company’s behalf and
        on behalf of the Company’s property, service of copies of the summons and
        complaint and any other process which may be served in any such action or
        proceeding. Such service may be made by mailing or delivering a copy of such
        process to the Company in care of the Process Agent at the Process Agent’s above
        address, and the Company hereby irrevocably authorizes and directs the Process
        Agent to accept such service on its behalf.

       

      SECTION
        8. PURCHASERS’
        SPECIAL RIGHTS

       

      Section
        8.1 Note
        Payment.

       

      The
        Company agrees that, so long as any Purchaser shall hold any Note, it will
        make
        payments of principal of, interest on and any Make Whole Amount payable with
        respect to such Note, which comply with the terms of this Agreement, by wire
        transfer of immediately available funds for credit (not later than 12:00
        noon,
        New York City time, on the date due) to the account or accounts as specified
        in
        the Purchaser Schedule attached hereto or such other account or accounts
        in the
        United States as any Purchaser may designate in writing, notwithstanding
        any
        contrary provision herein or in any Note with respect to the place of payment.
        Each Purchaser agrees that, before disposing of any Note, such Purchaser
        will
        make a notation thereon (or on a schedule attached thereto) of all principal
        payments previously made thereon and of the date to which interest thereon
        has
        been paid. The Company agrees to afford the benefits of this paragraph 8.1
        to
        any transferee of any Note which shall have made the same agreement as made
        in
        this paragraph 8.1.

       

      Section
        8.2 Issue
        Taxes.

       

      The
        Company will pay all issuance, stamp and similar taxes in connection with
        the
        issuance and sale of the Notes to the Purchasers and in connection with any
        modification of the Notes and will save each Purchaser harmless against any
        and
        all liabilities relating to such taxes. The obligations of the Company under
        this Section
        8.2
        shall
        survive the payment of the Notes and the termination of this
        Agreement.

       

      Section
        8.3 Registration
        of Notes.

       

      The
        Company will cause to be kept a register for the registration and transfer
        of
        the Notes. The names and addresses of the holders of the Notes, and all
        transfers of and the names and addresses of the transferees of any of the
        Notes,
        will be registered in the register. The Person in whose name any Note is
        registered shall be deemed and treated as the owner thereof for all purposes
        of
        this Agreement, and the Company shall not be affected by any notice or knowledge
        to the contrary.

       

      Section
        8.4 Exchange
        of Notes.

       

      Upon
        surrender of any Note to the Company, the Company, upon request, will execute
        and deliver at its expense (except as provided below), new Notes, in
        denominations of at least $1,000,000 (or, if less, the outstanding principal
        amount of the surrendered Note), in an aggregate principal amount equal to
        the
        outstanding principal amount of the surrendered Note. Each new Note (a) shall
        be
        payable to any Person as the surrendering holder may request and (b) shall
        be
        dated and bear interest from the date to which interest has been paid on
        the
        surrendered Note or dated the date of the surrendered Note if no interest
        has
        been paid thereon. The Company may require payment of a sum sufficient to
        cover
        any stamp tax or governmental charge imposed in respect of any
        transfer.

       

      Section
        8.5 Replacement
        of Notes.

       

      Upon
        receipt by the Company of evidence reasonably satisfactory to it (provided
        that if
        the holder of the Note is an Institutional Holder, its own certification
        shall
        be deemed to be satisfactory evidence) of the ownership of and the loss,
        theft,
        destruction or mutilation of any Note and

       

      (a) in
        the
        case of loss, theft or destruction, of indemnity reasonably satisfactory
        to it
        (provided
        that if
        the holder of the Note is an Institutional Holder, its own agreement of
        indemnity shall be deemed to be satisfactory), or

       

      (b) in
        the
        case of mutilation, upon surrender and cancellation of the Note,

       

      the
        Company at its expense will execute and deliver a new Note, dated and bearing
        interest from the date to which interest has been paid on the lost, stolen,
        destroyed or mutilated Note or dated the date of the lost, stolen, destroyed
        or
        mutilated Note if no interest has been paid thereon.

       

      SECTION
        9. MISCELLANEOUS

       

      Section
        9.1 Notices.

       

      (a) All
        notices, requests, demands or other communications under this Agreement or
        under
        the Notes will be in writing and will be given by telecopy, telex, first
        class
        registered or certified mail (postage prepaid) or personal
        delivery:

       

      (i) if
        to
        Prudential or any holder of any Note, in the manner provided in the Purchaser
        Schedule or in any other manner as Prudential or such holder may have most
        recently advised the Company in writing, or

       

      (ii) if
        to the
        Company, at its address shown at the beginning of this Agreement, or at any
        other address as it may have most recently furnished in writing to Prudential
        and each Purchaser and to all other holders of the Notes.

       

      (b) Notice
        shall be deemed to be given upon the receipt thereof at the notice address
        specified.

       

      Section
        9.2 Payments
        Due on Non-Business Days.

       

      Anything
        in this Agreement or the Note to the contrary notwithstanding, any payment
        of
        principal of or interest on any Note that is due on a date other than a Business
        Day shall be made on the next succeeding Business Day.

       

      Section
        9.3 Reproduction
        of Documents.

       

      This
        Agreement and all related documents, including (a) consents, waivers and
        modifications which may subsequently be executed, (b) documents received
        by each
        Purchaser at the closing of each Purchaser’s purchase of the Notes (except the
        Notes themselves), and (c) financial statements, certificates and other
        information previously or subsequently furnished to any Purchaser, may be
        reproduced by any Purchaser by any photographic, photostatic, microfilm,
        micro-card, miniature photographic or other similar process and any Purchaser
        may destroy any original document so reproduced. The Company agrees and
        stipulates that any such reproduction shall, to the extent permitted by
        applicable law, be admissible in evidence as the original itself in any judicial
        or administrative proceeding (whether or not the original is in existence
        and
        whether or not the reproduction was made by any Purchaser in the regular
        course
        of business) and that any enlargement, facsimile or further reproduction
        of the
        reproduction shall likewise be admissible in evidence.

       

      Section
        9.4 Purchase
        for Investment.

       

      Each
        Purchaser represents to the Company that such Purchaser (i) is a “qualified
        institutional buyer” as defined by Rule 144A and (ii) is purchasing the Notes
        for its own account for investment or for resale under Rule 144A under the
        Securities Act of 1933, as amended, and with no present intention of
        distributing or reselling any of the Notes, but without prejudice to such
        Purchaser’s right at all times to sell or otherwise dispose of all or part of
        the Notes under an effective registration statement under the Securities
        Act of
        1933, as amended, or under a registration exemption available under that
        Act.

       

      Section
        9.5 Source
        of Funds.

       

      Each
        Purchaser represents to the Company that at least one of the following
        statements is an accurate representation as to each source of funds (a
“Source”)
        to be
        used by such Purchaser to pay the purchase price of the Notes to be purchased
        by
        it hereunder:

       

      (a) the
        Source is an “insurance company general account” (as that term is defined in the
        United States Department of Labor’s Prohibited Transaction Exemption
        (“PTE”)
        95-60)
        in respect of which the reserves and liabilities (as defined by the annual
        statement for life insurance companies approved by the National Association
        of
        Insurance Commissioners (the “NAIC
        Annual Statement”))
        for
        the general account contract(s) held by or on behalf of any employee benefit
        plan together with the amount of the reserves and liabilities for the general
        account contract(s) held by or on behalf of any other employee benefit plans
        maintained by the same employer (or affiliate thereof as defined in PTE 95-60)
        or by the same employee organization in the general account do not exceed
        10% of
        the total reserves and liabilities of the general account (exclusive of separate
        account liabilities) plus surplus as set forth in the NAIC Annual Statement
        filed with such Purchaser’s state of domicile; or

       

      (b) the
        Source is a separate account that is maintained solely in connection with
        such
        Purchaser’s fixed contractual obligations under which the amounts payable, or
        credited, to any employee benefit plan (or its related trust) that has any
        interest in such separate account (or to any participant or beneficiary of
        such
        plan (including any annuitant)) are not affected in any manner by the investment
        performance of the separate account; or

       

      (c) the
        Source is either (i) an insurance company pooled separate account, within
        the
        meaning of PTE 90-1, or (ii) a bank collective investment fund, within the
        meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the
        Company in the writing most recently delivered pursuant to this clause (c)
        before the date the Company’s representation in Section 6.9 is being made or
        repeated, no employee benefit plan or group of plans maintained by the same
        employer or employee organization beneficially owns more than 10% of all
        assets
        allocated to such pooled separate account or collective investment fund;
        or

       

      (d) the
        Source constitutes assets of an “investment fund” (within the meaning of Part V
        of PTE 84-14 (the “QPAM
        Exemption”))
        managed by a “qualified professional asset manager” or “QPAM” (within the
        meaning of Part V of the QPAM Exemption), no employee benefit plan’s assets that
        are included in such investment fund, when combined with the assets of all
        other
        employee benefit plans established or maintained by the same employer or
        by an
        affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
        such
        employer or by the same employee organization and managed by such QPAM, exceed
        20% of the total client assets managed by such QPAM, the conditions of Part
        I(c)
        and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person
        controlling or controlled by the QPAM (applying the definition of “control” in
        Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company
        and (i) the identity of such QPAM and (ii) the names of all employee benefit
        plans whose assets are included in such investment fund have been disclosed
        to
        the Company in writing pursuant to this clause (d); or

       

      (e) the
        Source constitutes assets of a “plan(s)” (within the meaning of Section IV of
        PTE 96-23 (the “INHAM
        Exemption”))
        managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV
        of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the
        INHAM
        Exemption are satisfied, neither the INHAM nor a person controlling or
        controlled by the INHAM (applying the definition of “control” in Section IV(h)
        of the INHAM Exemption) owns a 5% or more interest in the Company and (i)
        the
        identity of such INHAM and (ii) the name(s) of the employee benefit plan(s)
        whose assets constitute the Source have been disclosed to the Company in
        writing
        pursuant to this clause (e); or

       

      (f) the
        Source is a governmental plan; or

       

      (g) the
        Source is one or more employee benefit plans, or a separate account or trust
        fund comprised of one or more employee benefit plans, each of which has been
        identified to the Company in writing pursuant to this clause (g);
        or

       

      (h) the
        Source does not include assets of any employee benefit plan, other than a
        plan
        exempt from the coverage of ERISA.

       

      As
        used
        in this Section 9.5, the terms “employee
        benefit plan”,
        “governmental
        plan”,
        and
“separate
        account”
        shall
        have the respective meanings assigned to such terms in Section 3 of
        ERISA.

       

      Section
        9.6 Successors
        and Assigns.

       

      This
        Agreement shall inure to the benefit of and be binding upon the successors
        and
        assigns of each of the parties except that each Purchaser’s obligations to
        purchase the Notes (as provided in Section
        1.2)
        shall
        be a right which is personal to the Company and such right shall not be
        transferable or assignable by the Company to any other Person (including
        successors at law) whether voluntarily or involuntarily. The provisions of
        this
        Agreement are intended to be for the benefit of all holders, from time to
        time,
        of the Notes, and shall be enforceable by any holder, whether or not an express
        assignment of rights under this Agreement has been made by any Purchaser
        or any
        Purchaser’s successor or assign.

       

      Section
        9.7 Amendment
        and Waiver; Acquisition of Notes.

       

      (a) Amendment
        and Waiver.
        This
        Agreement may be amended, and the observance of any term of this Agreement
        may
        be waived, with (and only with) the written consent of the Company and the
        holders of at least 66-2/3% of the outstanding principal amount of the Notes
        (exclusive of Notes then owned by the Company, Subsidiaries and Affiliates),
        provided
        that no
        amendment or waiver of any of the provisions of Sections
        1,
        6
        and
8
        shall be
        effective as to any holder of the Notes unless consented to by such holder
        in
        writing, and provided further,
        that no
        amendment or waiver shall, without the written consent of the holders of
        all the
        outstanding Notes, (1) subject to Section
        5.2(b),
        change
        the amount or time of any prepayment, payment of principal or premium or
        the
        rate or time of payment of interest, (2) amend Section
        5,
        or (3)
        amend this Section
        9.7(a).
        Executed or complete and correct copies of any amendment or waiver effected
        pursuant to the provisions of this Section
        9.7(a)
        shall be
        delivered by the Company to each holder of outstanding Notes promptly following
        the date on which the same shall become effective.

       

      (b) Acquisition
        of Notes.
        The
        Company will not, and will cause each Subsidiary and, insofar as it is within
        its power to do so, each Affiliate not to, directly or indirectly, acquire
        or
        make any offer to acquire any Notes unless the Company or such Subsidiary
        or
        Affiliate shall contemporaneously offer to acquire Notes, pro rata, from
        all
        holders of the Notes and upon the same terms. Any Notes acquired by the Company,
        any Subsidiary or any Affiliate shall not be considered outstanding for any
        purpose under this Agreement.

       

      Section
        9.8 Duplicate
        Originals.

       

      Two
        or
        more duplicate originals of this Agreement may be signed by the parties,
        each of
        which shall be an original but all of which together shall constitute one
        and
        the same instrument.

       

      Section
        9.9 Confidential
        Information.

       

      Each
        Purchaser shall maintain the confidentiality of such Confidential Information
        in
        accordance with procedures adopted by such Purchaser in good faith to protect
        confidential information of third parties delivered to such Purchaser, provided
        that such Purchaser may deliver or disclose Confidential Information to
        (a) its directors, officers, employees, agents, attorneys and affiliates
        (to the extent such disclosure reasonably relates to the administration of
        the
        investment represented by its Notes), (b) its financial advisors and other
        professional advisors who agree to hold confidential the Confidential
        Information substantially in accordance with the terms of this Section 9.9,
        (c)
        any other holder of any Note, (d) any Institutional Holder to which it sells
        or
        offers to sell such Note or any part thereof or any participation therein
        (if
        such Person has agreed in writing prior to its receipt of such Confidential
        Information to be bound by the provisions of this Section 9.9), (e) any Person
        from which it offers to purchase any security of the Company (if such Person
        has
        agreed in writing prior to its receipt of such Confidential Information to
        be
        bound by the provisions of this Section 9.9), (f) any federal or state
        regulatory authority having jurisdiction over such Purchaser, (g) the National
        Association of Insurance Commissioners or the Securities Valuation Office
        of the
        National Association of Insurance Commissioners (or any successor to such
        Office) or, in each case, any similar organization, or any nationally recognized
        rating agency that requires access to information about such Purchaser’s
        investment portfolio, or (h) any other Person to which such delivery or
        disclosure may be necessary or appropriate (w) to effect compliance with
        any
        law, rule, regulation or order applicable to such Purchaser, (x) in response
        to
        any subpoena or other legal process, (y) in connection with any litigation
        to
        which such Purchaser is a party or (z) if an Event of Default has occurred
        and
        is continuing, to the extent such Purchaser may reasonably determine such
        delivery and disclosure to be necessary or appropriate in the enforcement
        or for
        the protection of the rights and remedies under such Purchaser’s Notes and this
        Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed
        to
        have agreed to be bound by and to be entitled to the benefits of this Section
        9.9 as though it were a party to this Agreement. On reasonable request by
        the
        Company in connection with the delivery to any holder of a Note of information
        required to be delivered to such holder under this Agreement or requested
        by
        such holder (other than a holder that is a party to this Agreement or its
        nominee), such holder will enter into an agreement with the Company embodying
        the provisions of this Section 9.9.

       

      [Signatures
        Follow]

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      If
        this
        Agreement is satisfactory to each Purchaser, please so indicate by signing
        the
        acceptance at the foot of a counterpart of this Agreement and return a
        counterpart to the Company, whereupon this Agreement will become binding
        between
        us in accordance with its terms.

       

      Very
        truly yours, 

       

      


       

      CHESAPEAKE
        UTILITIES CORPORATION

       

      


       

      


       

      


       

      By: 

       

      Name: 

       

      Title: 

       

      Accepted:

       

      


       

      THE
        PRUDENTIAL INSURANCE COMPANY

       

      OF
        AMERICA

       

      


       

      


       

      


       

      By: 

       

      Vice
        President

       

       

       

      PRUDENTIAL
        RETIREMENT INSURANCE

       

      AND
        ANNUITY COMPANY

       

      


       

      By: Prudential
        Investment Management, Inc.,

       

      as
        investment manager

       

      


       

      


       

      


       

      By: 

       

      Vice
        President

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      UNITED
        OF OMAHA LIFE INSURANCE COMPANY

       

      


       

      By: Prudential
        Private Placement Investors, L.P.

       

      (as
        Investment Advisor)

       

      


       

      By: Prudential
        Private Placement Investors, Inc.

       

      (as
        its
        General Partner)

       

      


       

      


       

      


       

      By: 

       

      Vice
        President

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

     

    

      PURCHASER
        SCHEDULE

       

      Chesapeake
        Utilities Corporation

       

      5.50%
        Senior Notes

       

      
        	 	 	
                Aggregate

                Principal

                Amount
                  of Notes

                to
                  be Purchased

              	
                 

                 

                Note

                Denomination(s)

              
	 	
                THE
                  PRUDENTIAL INSURANCE COMPANY OF

                AMERICA

              	
                 

                $12,450,000

              	
                 

                $6,000,000

              
	 	 	 	
                $6,450,000

              
	
                (1)

              	
                All
                  payments on account of Notes held by such purchaser shall be made
                  by wire
                  transfer of immediately available funds for credit to: 

              	 	 
	 	 	 	 
	 	
                Account
                  No.: P86188 (please do not include spaces) (in the case of payments
                  on
                  account of the Note originally issued in the principal amount of
                  $6,000,000)

              	 	 
	 	 	 	 
	 	
                Account
                  No.: P86189 (please do not include spaces) (in the case of payments
                  on
                  account of the Note originally issued in the principal amount of
                  $6,450,000)

              	 	 
	 	 	 	 
	 	
                JPMorgan
                  Chase Bank

                New
                  York, NY

                ABA
                  No.: 021-000-021

              	 	 
	 	 	 	 
	 	
                Each
                  such wire transfer shall set forth the name of the Company, a reference
                  to
                  "5.50% Senior Notes, Security No. INV00925, PPN _____" and the
                  due date
                  and application (as among principal, interest and Make-Whole Amount)
                  of
                  the payment being made. 

              	 	 
	 	 	 	 
	
                (2)

              	
                Address
                  for all notices relating to payments:

              	 	 
	 	 	 	 
	 	
                The
                  Prudential Insurance Company of America

                c/o
                  Investment Operations Group

                Gateway
                  Center Two, 10th Floor

                100
                  Mulberry Street

                Newark,
                  NJ 07102-4077

              	 	 
	 	 	 	 
	 	
                Attention:
                  Manager, Billings and Collections

              	 	 
	 	 	 	 
	
                (3)

              	
                Address
                  for all other communications and notices:

              	 	 
	 	 	 	 
	 	
                The
                  Prudential Insurance Company of America

                c/o
                  Prudential Capital Group

                2200
                  Ross Avenue, Suite 4200E

                Dallas,
                  TX 75201

              	 	 
	 	 	 	 
	 	
                Attention:
                  Managing Director

              	 	 
	 	 	 	 
	
                (4)

              	
                Recipient
                  of telephonic prepayment notices:

              	 	 
	 	 	 	 
	 	
                Manager,
                  Trade Management Group

              	 	 
	 	 	 	 
	 	
                Telephone:
                  (973) 367-3141

              	 	 
	 	
                Facsimile:
                  (800) 224-2278

              	 	 
	 	 	 	 
	
                (5)

              	
                Address
                  for Delivery of Notes:

              	 	 
	 	 	 	 
	 	
                Send
                  physical security by nationwide overnight delivery service
                  to:

                 

                Prudential
                  Capital Group

                2200
                  Ross Avenue, Suite 4200E

                Dallas,
                  TX 75201

                 

                Attention:
                  Thomas P. Donahue

                Telephone:
                  (214) 720-6202

              	 	 
	 	 	 	 
	
                (6)

              	
                Tax
                  Identification No.: 22-1211670

              	 	 


      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      
        	 	 	
                Aggregate

                Principal

                Amount
                  of Notes

                to
                  be Purchased

              	
                 

                 

                Note

                Denomination(s)

              
	 	
                PRUDENTIAL
                  RETIREMENT INSURANCE AND

                ANNUITY
                  COMPANY

              	
                 

                $4,000,000

              	
                 

                $4,000,000

              
	 	 	 	 
	
                (1)

              	
                All
                  payments on account of Notes held by such purchaser shall be made
                  by wire
                  transfer of immediately available funds for credit to: 

              	 	 
	 	 	 	 
	 	
                JP
                  Morgan Chase Bank

                New
                  York, NY

                ABA
                  No. 021000021

                Account
                  No. P86327 (please do not include spaces)

              	 	 
	 	 	 	 
	 	
                Each
                  such wire transfer shall set forth the name of the Company, a reference
                  to
                  "5.50% Senior Notes, Security No. INV00925, PPN _____" and the
                  due date
                  and application (as among principal, interest and Make-Whole Amount)
                  of
                  the payment being made. 

              	 	 
	 	 	 	 
	
                (2)

              	
                Address
                  for all notices relating to payments:

              	 	 
	 	 	 	 
	 	
                Prudential
                  Retirement Insurance and Annuity Company

                c/o
                  Prudential Investment Management, Inc.

                Private
                  Placement Trade Management

                PRIAC
                  Administration

                Gateway
                  Center Four, 7th Floor

                100
                  Mulberry Street

                Newark,
                  NJ 07102

                 

                Telephone:
                  (973) 802-8107

                Facsimile:
                  (800) 224-2278

              	 	 
	 	 	 	 
	
                (3)

              	
                Address
                  for all other communications and notices:

              	 	 
	 	 	 	 
	 	
                Prudential
                  Retirement Insurance and Annuity Company

                c/o
                  Prudential Capital Group

                2200
                  Ross Avenue, Suite 4200E

                Dallas,
                  TX 75201

              	 	 
	 	 	 	 
	 	
                Attention:
                  Managing Director

              	 	 
	 	 	 	 
	
                (4)

              	
                Address
                  for Delivery of Notes:

              	 	 
	 	 	 	 
	 	
                Send
                  physical security by nationwide overnight delivery service
                  to:

                 

                Prudential
                  Capital Group

                2200
                  Ross Avenue, Suite 4200E

                Dallas,
                  TX 75201

                 

                Attention:
                  Thomas P. Donahue

                Telephone:
                  (214) 720-6202

              	 	 
	 	 	 	 
	
                (5)

              	
                Tax
                  Identification No.: 06-1050034

              	 	 


      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	 	 	
                Aggregate

                Principal

                Amount
                  of Notes

                to
                  be Purchased

              	
                 

                 

                Note

                Denomination(s)

              
	 	
                UNITED
                  OF OMAHA LIFE INSURANCE COMPANY

              	
                $3,550,000

              	
                $3,550,000

              
	 	 	 	 
	
                (1)

              	
                All
                  principal, interest and Make-Whole Amount payments on account of
                  Notes
                  held by such purchaser shall be made by wire transfer of immediately
                  available funds for credit to:

              	 	 
	 	 	 	 
	 	
                JPMorgan
                  Chase Bank

                ABA
                  No. 021-000-021

                Private
                  Income Processing

                 

                For
                  credit to:

                United
                  of Omaha Life Insurance Company

                Account
                  No. 900-9000200

                a/c:
                  G09588

              	 	 
	 	 	 	 
	 	
                Each
                  such wire transfer shall set forth the name of the Company, a reference
                  to
                  "5.50% Senior Notes, PPN ___" and the due date and application
                  (as among
                  principal, interest and Make-Whole Amount) of the payment being
                  made.

              	 	 
	 	 	 	 
	
                (2)

              	
                All
                  payments, other than principal, interest or Make-Whole Amount,
                  on account
                  of Notes held by such purchaser shall be made by wire transfer
                  of
                  immediately available funds for credit to:

              	 	 
	 	 	 	 
	 	
                JPMorgan
                  Chase Bank

                ABA
                  No. 021-000-021

                Account
                  No. G09588

                Account
                  Name: United of Omaha Life Insurance Co.

              	 	 
	 	 	 	 
	 	
                Each
                  such wire transfer shall set forth the name of the Company, a reference
                  to
                  "5.50% Senior Notes, PPN ___" and the due date and application
                  (e.g., type
                  of fee) of the payment being made.

              	 	 
	 	 	 	 
	
                (3)

              	
                Address
                  for all notices relating to payments:

              	 	 
	 	 	 	 
	 	
                JPMorgan
                  Chase Bank

                14201
                  Dallas Parkway - 13th Floor

                Dallas,
                  TX 75254-2917

                 

                Attn:
                  Income Processing - G. Ruiz

                a/c:
                  G09588

              	 	 
	 	 	 	 
	
                (4)

              	
                Address
                  for all other communications and notices:

              	 	 
	 	 	 	 
	 	
                Prudential
                  Private Placement Investors, L.P.

                Gateway
                  Center 3, 18th Floor

                100
                  Mulberry Street

                Newark,
                  NJ 07102

                 

                Attention:
                  Albert Trank, Managing Director

                Telephone:
                  (973) 802-8608

                Facsimile:
                  (973) 367-3234

              	 	 
	 	 	 	 
	
                (5)

              	
                Address
                  for Delivery of Notes:

              	 	 
	 	 	 	 
	 	
                (a) Send
                  physical security by nationwide overnight delivery service
                  to:

                 

                JPMorgan
                  Chase Bank

                 

                4
                  New York Plaza

                 

                Ground
                  Floor Receive Window

                 

                New
                  York, NY 10004

                 

                Please
                  include in the cover letter accompanying the Notes a reference
                  to the
                  Purchaser's account number (United of Omaha Life Insurance Company;
                  Account Number: G09588).

                 

                (b) Send
                  copy by nationwide overnight delivery service to:

                 

                Prudential
                  Capital Group

                Gateway
                  Center 4

                100
                  Mulberry, 7th Floor

                Newark,
                  NJ 07102

                 

                Attention:
                  Trade Management, Manager

                Telephone:
                  (973) 367-3141

              	 	 
	 	 	 	 
	
                (6)

              	
                Tax
                  Identification No.: 47-0322111

              	 	 


      

      


      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      EXHIBIT
        A

       

      


       

      [FORM
        OF NOTE]

       

      CHESAPEAKE
        UTILITIES CORPORATION

       

      


       

      5.50%
        Senior Note due __________ [Insert the Maturity Date]

       

      No.
        R-_____PPN
        _________

       

      


       

      $ [Date]

       

      CHESAPEAKE
        UTILITIES CORPORATION, a Delaware corporation (the “Company”), for value
        received, hereby promises to pay to ________________ or registered assigns
        the
        principal sum of ___________ Dollars ($_________) on _________ [Insert the
        Maturity Date]; and to pay interest (computed on the basis of a 360-day year
        of
        twelve 30-day months) on the unpaid principal balance hereof from the date
        of
        this Note at the rate of 5.50% per annum, quarterly on the ___ day of _________,
        __________, __________ and _________ [Insert Quarterly Interest Payment Dates]
        in each year, commencing on the first such date after the date hereof, until
        the
        principal amount hereof shall become due and payable; and to pay on demand
        interest on any overdue principal (including any overdue prepayment of
        principal) and premium, if any, and (to the extent permitted by applicable
        law)
        on any overdue payment of interest, at a rate per annum from time to time
        equal
        to the greater of (i) 7.50% or (ii) the rate of interest publicly announced
        by
        JPMorgan Chase Bank, or its successor, from time to time in New York City
        as its
        Prime Rate.

       

      Subject
        to Section 8.1 of the Note Agreement referred to below, payments of principal,
        premium, if any, and interest shall be made in such coin or currency of the
        United States of America as at the time of payment is legal tender for the
        payment of public and private debts by check mailed and addressed to the
        registered holder hereof at the address shown in the register maintained
        by the
        Company for such purpose, or, at the option of the holder hereof, in such
        manner
        and at such other place in the United States of America as the holder hereof
        shall have designated to the Company in writing.

       

      This
        Note
        is one of an issue of Notes of the Company issued in an aggregate principal
        amount limited to $20,000,000 pursuant to the Company’s Note Agreement dated as
        of October 18, 2005 between the Company and the respective Purchasers named
        therein and is entitled to the benefits thereof. As provided in such Agreement,
        this Note is subject to prepayment, in whole or in part, with a premium as
        specified in said Agreement. The Company agrees to make required payments
        on
        account of said Notes in accordance with the provisions of said
        Agreement.

       

      This
        Note
        is a registered Note and is transferable only by surrender hereof at the
        principal office of the Company in Dover, Delaware, duly endorsed or accompanied
        by a written instrument of transfer duly executed by the registered holder
        of
        this Note or his attorney duly authorized in writing.

       

      Under
        certain circumstances, as specified in said Agreement, the principal of this
        Note may be declared due and payable in the manner and with the effect provided
        in said Agreement.

       

      This
        Note
        and said Agreement are governed by and construed in accordance with New York
        law.

       

      CHESAPEAKE
        UTILITIES CORPORATION

       

      


       

      


       

      


       

      (CORPORATE
        SEAL) By: 

       

      Name: 

       

      Title: 

       

      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      EXHIBIT
        B-1

       

      [COVINGTON
        & BURLING]

       

      [Closing
        Date]

       

      [Purchasers]

       

      Ladies
        and Gentlemen:

       

      We
        have
        acted as special counsel for Chesapeake Utilities Corporation, a Delaware
        corporation (the “Company”), in connection with the Note Agreement, dated as of
        October 18, 2005, between the Company and each of you (the “Note Agreement”),
        pursuant to which the Company has issued to each of you on the date hereof
        its
        5.50% Senior Notes due _____________ in the aggregate principal amount of
        $20,000,000. Unless otherwise defined herein, capitalized terms used herein
        have
        the respective meanings specified in the Note Agreement. This letter is being
        delivered to each of you pursuant to Section 1.4(c) of the Note
        Agreement.

       

      In
        rendering the opinions set forth herein, we have reviewed (i) the Note
        Agreement, (ii) the Notes and (iii) such corporate records, certificates
        and
        other documents, and such questions of law, as we have deemed necessary or
        appropriate for the purposes of this opinion. 

       

      We
        have
        assumed that all signatures are genuine (other than, in the case of the Note
        Agreement and the Notes, those of the Company), that all documents submitted
        to
        us as originals are authentic and that all copies of documents submitted
        to us
        conform to the originals. We also have assumed:

       

      (i) as
        to
        factual matters, the accuracy of the warranties and representations contained
        in
        the Note Agreement, including the representations of the Purchasers in Section
        9.4 of the Note Agreement and in the certificates delivered by officers of
        the
        Company pursuant to Section 1.4(d) of the Note Agreement; 

       

      (ii) that
        any
        authorization, consent, approval, exemption or other action by, or notice
        to or
        filing with, any court, administrative or governmental body that is required
        for
        the execution and delivery of the Note Agreement and the Notes or the
        consummation of the transactions contemplated thereby in accordance with
        the
        terms thereof (other than to the extent addressed in paragraph 6 below) has
        been
        duly obtained or made or shall be timely and duly obtained or made;

       

      (iii) that,
        other than to the extent addressed in paragraph 7 below, the execution and
        delivery of the Note Agreement and the Notes, the offering, issuance and
        sale of
        the Notes and the consummation by the Company of the transactions contemplated
        in the Note Agreement and the Notes in accordance with the terms thereof
        do not
        violate or contravene any statute, law, rule or regulation or any judgment,
        order, decree or permit issued by any court, arbitrator or governmental or
        regulatory authority; and 

       

      (iv) that
        the
        Note Agreement is a binding and enforceable agreement of each party thereto
        other than the Company. 

       

      We
        have
        made no investigation for the purpose of verifying these
        assumptions.

       

      Where
        statements in this opinion are qualified by the expression “known to us,” such
        statements refer to the actual knowledge, but not constructive or imputed
        knowledge, of the attorneys in our firm who have given substantive attention
        to
        the transaction that is the subject of this opinion, without any representation
        or implication that any inquiry has been made with respect to such
        statements.

       

      Based
        on
        the foregoing, and subject to the qualifications and assumptions set forth
        herein, we are of the opinion that, insofar as the law of the State of New
        York,
        the Delaware General Corporation Law (the “DGCL”) and the Federal law of the
        United States of America are concerned:

       

      1. The
        Company is a corporation duly incorporated, validly existing and in good
        standing under the laws of the State of Delaware. 

       

      2. The
        Company has the corporate power and authority to execute, deliver and perform
        its obligations under the Note Agreement and the Notes. 

       

      3. The
        Note
        Agreement and the Notes have been duly authorized by all requisite corporate
        action and duly executed and delivered by authorized officers of the Company
        and
        constitute the valid and binding obligations of the Company, enforceable
        against
        the Company in accordance with their terms, subject to bankruptcy, insolvency,
        fraudulent transfer, reorganization, moratorium, and other similar laws of
        general applicability relating to or affecting creditors’ rights and to general
        equity principles.

       

      4. It
        is not
        necessary in connection with the offer, issuance, sale and delivery of the
        Notes
        to the Purchasers under the circumstances contemplated by the Note Agreement
        to
        register the Notes under the Securities Act of 1933, as amended, or to qualify
        an indenture in respect of the Notes under the Trust Indenture Act of 1939,
        as
        amended.

       

      5. Neither
        the issuance and the sale of the Notes by the Company nor the use of the
        proceeds thereof as described in the Note Agreement violates Regulation X
        of the
        Board of Governors of the Federal Reserve System or will cause any of the
        Purchasers to violate Regulation T or U of the Board of Governors of the
        Federal
        Reserve System to the extent any of them may be subject thereto.

       

      6. No
        consent, approval, authorization or other action by or filing with any
        governmental agency or instrumentality of the State of New York or the United
        States of America or under the DGCL is required on the part of the Company
        for
the
        execution and delivery of the Note Agreement and the Notes or for the
        consummation by the Company of the transactions contemplated thereby, or
        the
        performance of its obligations thereunder, in accordance with the terms
        thereof.

       

      7. The
        execution and delivery of the Note Agreement and the Notes, the offering,
        issuance and sale of the Notes and the consummation by the Company of the
        transactions contemplated thereby, and the performance of its obligations
        thereunder, in accordance with the terms thereof (i) do not violate the DGCL,
        any New York or Federal statute, law, rule or regulation to which the Company
        is
        subject, or the usury laws of the State of New York or (ii) do not conflict
        with, breach the terms, conditions or provisions of, or constitute a default
        under, violate, or result in the creation of any Lien upon any of the properties
        or assets of the Company pursuant to (A) the Certificate of Incorporation
        or
        Bylaws of the Company or (B) any of the instruments or agreements listed
        on
        Schedule 6.7 of the Note Agreement.

       

      The
        foregoing opinion is subject to the following qualifications:

       

      (a) We
        express no opinion as to:

       

      
        	 	
                (i)

              	
                waivers
                  of the rights to object to venue or other rights or benefits bestowed
                  by
                  operation of law;

              


      

       

      
        	 	
                (ii)

              	
                provisions
                  for liquidated damages and penalties, penalty interest and interest
                  on
                  interest, it being understood that the provisions of Section 2.2
                  and 5.2
                  of the Note Agreement are not excluded under this clause (ii); 

              


      

       

      
        	 	
                (iii)

              	
                provisions
                  purporting to require a prevailing party in a dispute to pay attorneys’
                  fees and expenses, or other costs, to a non-prevailing
                  party;

              


      

       

      
        	 	
                (iv)

              	
                provisions
                  purporting to supersede equitable principles, including provisions
                  requiring amendments and waivers to be in
                  writing;

              


      

       

      
        	 	
                (v)

              	
                provisions
                  purporting to make a party’s determination conclusive;
                  or

              


      

       

      
        	 	
                (vi)

              	
                exclusive
                  jurisdiction or venue provisions.

              


      

       

      (b) We
        express no opinion with regard to (i) any state securities or Blue Sky laws,
        (ii) any commodities, insurance or tax laws or (iii) the Employee Retirement
        Income Security Act of 1974, or any comparable state laws.

       

      (c) Except
        as
        addressed in paragraphs 5 and 7(i), we express no opinion as to any legal
        requirements or restrictions applicable to the Purchasers.

       

      (d) Our
        opinions in paragraphs 6 and 7(i) above are limited to laws and regulations
        normally applicable to transactions of the type contemplated by the Note
        Agreement and do not extend to laws or regulations relating to, or to licenses,
        permits, approvals and filings necessary for, the conduct of the business
        of the
        Company or any of its subsidiaries, including, without limitation, any
        environmental laws or regulations.

       

      We
        are
        members of the bars of the District of Columbia and the State of New York.
        We do
        not express any opinion herein on any laws other than the laws of the State
        of
        New York, the DGCL and the Federal law of the United States. 

       

      This
        letter is given solely for your benefit as Purchasers of Notes and for the
        benefit of any other person or entity to whom you may transfer any of the
        Notes.
        It may not be relied upon by any other person or entity and, except with
        respect
        to regulatory authorities exercising jurisdiction over any of you (which
        shall
        be deemed to include the National Association of Insurance Commissioners),
        this
        opinion may not be disclosed to any other person or entity without our written
        consent.

       

      Very
        truly yours,

       

      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      EXHIBIT
        B-2

       

      [PARKOWSKI,
        GUERKE & SWAYZE, P.A.]

       

      [Closing
        Date]

       

      [Purchasers]

       

      Ladies
        and Gentlemen:

       

      We
        have
        acted as special Delaware counsel for Chesapeake Utilities Corporation (the
        “Company”) in connection with the Note Agreement, dated as of October 18, 2005,
        between the Company and each of you (the “Note Agreement”), pursuant to which
        the Company has issued to each of you today 5.50% Senior Notes due
        ________________ of the Company in the aggregate principal amount of
        $20,000,000. All terms used herein that are defined in the Note Agreement
        have
        the respective meanings specified in the Note Agreement. This letter is being
        delivered to each of you in satisfaction of the condition set forth in Section
        1.4(c) of the Note Agreement and with the understanding that each of you
        is
        purchasing the Notes in reliance on the opinions expressed herein.

       

      In
        this
        connection, we have examined such certificates of public officials, certificates
        of officers of the Company and copies certified to our satisfaction of corporate
        documents and records of the Company and of other papers, and have made such
        other investigations, as we have deemed relevant and necessary as a basis
        for
        our opinion hereinafter set forth. We have relied upon such certificates
        of
        public officials and of officers of the Company with respect to the accuracy
        of
        material factual matters contained therein which were not independently
        established. With respect to the opinion expressed in paragraph 3 below,
        we have
        also relied upon the representations made by each of you in Sections 9.4
        and 9.5
        of the Note Agreement.

       

      Based
        on
        the foregoing, it is our opinion that:

       

      a. The
        Company has the corporate power and authority to carry on the business as
        now
        being conducted.

       

      b. The
        execution and delivery of the Note Agreement and the Notes, the offering,
        issuance and sale of the Notes and fulfillment of and compliance with the
        respective provisions of the Note Agreement and the Notes will not require
        any
        authorization, consent, approval, exemption or other action by or notice
        to or
        filing with any Delaware court, Delaware administrative or Delaware governmental
        body (other than the State of Delaware Public Service Commission and routine
        filings after the date hereof with the Securities and Exchange Commission
        and/or
        State Blue Sky authorities) pursuant to, any Delaware applicable law (including
        any securities or Blue Sky law), statute, rule or regulation of the State
        of
        Delaware. The Public Service Commission of the State of Delaware has duly
        entered Order No. 6708 in PSC Docket No. 05-290 dated September 6, 2005,
        such
        Order is final and in full force and effect, no appeal, review or contest
        thereof is pending, and no further action by the Public Service Commission
        of
        the State of Delaware is a requirement to execution and delivery of the Note
        Agreement or the Notes or the offering, issuance or sale of the Notes or
        the
        fulfillment of compliance with the requisite provisions of the Note Agreement
        and the Notes.

       

      Our
        opinions may not be relied upon by any person or entity other than each of
        you,
        transferees of each of you and Schiff Hardin LLP, your special counsel, in
        connection with the matters referred to herein.

       

      Our
        opinions are limited to the laws of the State of Delaware. 

       

      Sincerely
        yours,

       

      


       

      PARKOWSKI,
        GUERKE & SWAYZE, P.A.

       

      


       

      


       

      


       

      BY: 

       

      William
        A. Denman, Esq.

       

      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      
        	 	
                DLA
                  Piper Rudnick Gray Cary US LLP

                The
                  Marbury Building

                6225
                  Smith Avenue

                Baltimore,
                  Maryland 21209-3600

                T 410.580.3000
                  

                F 410.580.3001
                  

                W
                  www.dlapiper.com

              
	 	 
	 	
                Marta
                  D. Harting

                marta.harting@piperrudnick.com

                T 410.580.4171
                  F 410.580.3794
                  

              


      

       

      [Closing
        Date]

       

      [Purchasers]

       

      Ladies
        and Gentlemen:

       

      We
        have
        acted as special Maryland regulatory counsel for Chesapeake Utilities
        Corporation (the “Company”) in connection with the Note Agreement, dated as of
        October 18, 2005, between the Company and each of you (the “Note
        Agreement”), pursuant to which the Company has issued to each of you today 5.50%
        Senior Notes due ______________ of the Company in the aggregate principal
        amount
        of $20,000,000. All terms used herein that are defined in the Note Agreement
        have the respective meanings specified in the Note Agreement. This letter
        is
        being delivered to each of you with the understanding that each of you is
        purchasing the Notes in reliance on the opinions expressed herein.

       

      Based
        on
        the foregoing and assuming approval of the subject transaction by the Delaware
        Public Service Commission in PSC Docket No. _____, it is our opinion
        that:

       

      The
        execution and delivery of the Note Agreement and the Notes, the offering,
        issuance and sale of the Notes and fulfillment of and compliance with the
        respective provisions of the Note Agreement and the Notes do not require
        any
        authorization, consent, approval, exemption or other action by or notice
        to or
        filing with any Maryland state administrative or governmental body, including,
        without limitation, the Public Service Commission of Maryland, pursuant to
        any
        applicable law (including any securities or Blue Sky law), statute, rule,
        regulation or other requirement of the State of Maryland.

       

      Our
        opinion may not be relied upon by any person or entity other than each of
        you,
        transferees of each of you and Schiff Hardin LLP your special counsel in
        connection with the matters referred to herein, and neither this opinion
        nor
        this opinion letter may be circulated, quoted, or relied upon by any other
        person for any other purpose without prior written consent (except to regulatory
        authorities having jurisdiction over you, including the National Association
        of
        Insurance Commissioners).

       

      Very
        truly yours,

       

      


       

      


       

      Marta
        D.
        Harting

       

      MDH/vc

      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      EXHIBIT
        B-4

       

      [ROSE,
        SUNDSTROM & BENTLEY, LLP]

       

      [Closing
        Date]

       

      [Purchasers]

       

      Ladies
        and Gentlemen:

       

      We
        have
        acted as special Florida counsel for Chesapeake Utilities Corporation (the
        “Company”) in connection with the Note Agreement, dated as of October 18, 2005,
        between the Company and each of you (the “Note Agreement”), pursuant to which
        the Company has issued to each of you today 5.50% Senior Notes due
        ________________ of the Company in the aggregate principal amount of
        $20,000,000. All terms used herein that are defined in the Note Agreement
        have
        the respective meanings specified in the Note Agreement. This letter is being
        delivered to each of you in satisfaction of the condition set forth in Section
        1.4(c) of the Note Agreement and with the understanding that each of you
        is
        purchasing the Notes in reliance on the opinions expressed herein.

       

      In
        this
        connection, we have examined such certificates of public officials, certificates
        of officers of the Company and copies certified to our satisfaction of corporate
        documents and records of the Company and of other papers, and have made such
        other investigations, as we have deemed relevant and necessary as a basis
        for
        our opinion hereinafter set forth. We have relied upon such certificates
        of
        public officials and of officers of the Company with respect to the accuracy
        of
        material factual matters contained therein which were not independently
        established.

       

      Based
        on
        the foregoing, it is our opinion that:

       

      a. The
        Company is qualified to do business and is in good standing under the laws
        of
        the State of Florida.

       

      b. The
        execution and delivery of the Note Agreement and the Notes, the issuance
        and
        sale of the Notes and fulfillment of and compliance with the respective
        provisions of the Note Agreement and the Notes will not require any
        authorization, consent, approval, exemption or other action by or notice
        to or
        filing with any court, administrative or governmental body (other than the
        Public Service Commission of the State of Florida) pursuant to any applicable
        law, statute, rule or regulation of the State of Florida. The Public Service
        Commission of the State of Florida has duly entered Order No. ___________dated
        ___________, which order is final and in full force and effect, no appeal,
        review or contest thereof is pending and the time for appeal or to seek review
        or reconsideration thereof has expired and no further action by the Public
        Service Commission of the State of Florida is a requirement to execution
        and
        delivery of the Note Agreement or the Notes or the issuance or sale of the
        Notes
        or the fulfillment of compliance with the requisite provisions of the Note
        Agreement and the Notes.

       

      Our
        opinion may not be relied upon by any person or entity other than each of
        you,
        transferees of each of you and Schiff Hardin LLP your special counsel in
        connection with the matters referred to herein.

       

      Our
        opinion is limited to the laws of the State of Florida.

       

      Sincerely,

       

      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      SCHEDULE
        4.6

       

      EXISTING
        INDEBTEDNESS

       

      The
        Existing Indebtedness of the Company and Subsidiaries as of June 30, 2005
        is as
        follows:

       

      Funded
        Debt:

       

      
        	
                $
                  2,463,000

              	
                8.25%
                  Convertible Debentures, Due March 1, 2014

              
	
                $
                  3,000,000

              	
                7.97%
                  Senior Unsecured Notes, due February 1, 2008

              
	
                $
                  5,454,545

              	
                6.91%
                  Senior Unsecured Note, due October 1, 2010

              
	
                $
                  7,000,000

              	
                6.85%
                  Senior Unsecured Note, due January 1, 2012

              
	
                $
                  20,000,000

              	
                7.83%
                  Senior Unsecured Note, due January 1, 2015

              
	
                $
                  30,000,000

              	
                6.64%
                  Senior Unsecured Notes, due October 31, 2017

              
	
                $
                  120,000

              	
                Promissory
                  Note of Sharp Energy

              
	 	 


      

       

       

      Current
        Debt:

       

      
        	
                $
                  0

              	
                Short-term
                  borrowing under line of credit agreements with Bank of
                  America

              
	
                $
                  0

              	
                Short-term
                  borrowing under line of credit agreements with PNC Bank


              
	
                $
                  0

              	
                Short-term
                  borrowing under line of credit agreement with Wilmington
                  Trust

              


      

      


      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      SCHEDULE
        4.8(e)

       

      EXISTING
        LIENS

       

      The
        Liens
        of Property of the Company and Subsidiaries as of June 30, 2005 (other than
        Liens of the types described in clauses (i) through (iv) of Section
        4.8(a))
        and the
        obligations secured thereby are as follows:

       

      None.

       

      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      SCHEDULE
        6.1(a)

       

      SUBSIDIARIES

       

      


      
        	
                Subsidiary

              	
                Jurisdiction
                  of Incorporation

              
	
                Chesapeake
                  Utilities Corporation

              	
                Delaware

              
	
                Eastern
                  Shore Natural Gas Company

              	
                Delaware

              
	
                Skipjack,
                  Inc.

              	
                Delaware

              
	
                Sharpgas,
                  Inc.

              	
                Delaware

              
	
                BravePoint,
                  Inc.

              	
                Georgia

              
	
                Sharp
                  Energy, Inc.

              	
                Delaware

              
	
                Chesapeake
                  Investment Company

              	
                Delaware

              
	
                Chesapeake
                  Service Company

              	
                Delaware

              
	
                Tri-County
                  Gas Co., Inc.

              	
                Maryland

              
	
                Eastern
                  Shore Real Estate, Inc.

              	
                Maryland

              
	
                Sam
                  Shannahan Well Co., Inc.

              	
                Maryland

              
	
                Xeron,
                  Inc.

              	
                Mississippi

              
	
                Sharp
                  Water, Inc.

              	
                Delaware

              
	
                Sharp
                  Water of Minnesota, Inc.

              	
                Delaware

              
	
                Sharp
                  Water of Idaho, Inc.

              	
                Delaware

              
	
                AQuality
                  Company, Inc.

              	
                Delaware

              
	
                Peninsula
                  Pipeline Company, Inc.

              	
                Delaware

              
	
                OnSight
                  Energy, LLC

              	
                Delaware

              
	
                Peninsula
                  Energy Services Company, Inc.

              	
                Delaware

              
	 	 


      

      


      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      SCHEDULE
        6.7

       

      LIST
        OF AGREEMENTS RESTRICTING DEBT

       

      The
        contracts or agreements of the Company or a Subsidiary which restrict the
        right
        of ability of the Company to issue the Notes or to perform its obligation
        under
        the Agreement are as follows:

       

      a. 8.25%
        Convertible Debentures, due March 1, 2014.

       

      b. 7.97%
        Senior Unsecured Notes, due February 1, 2008, by and between Chesapeake
        Utilities Corporation, Massachusetts Mutual Life Insurance Company and
        Massachusetts Mutual Life Pension Insurance Company.

       

      c. 6.91%
        Senior Unsecured Note, due October 1, 2010, by and between Chesapeake Utilities
        Corporation and Prudential Insurance Company of America.

       

      d. 6.85%
        Senior Unsecured Note, due January 1, 2012, by and between Chesapeake Utilities
        Corporation and Swanbird and Company.

       

      e. 7.83%
        Senior Unsecured Note, due January 1, 2015, by and between Chesapeake Utilities
        Corporation and Pacific Life Insurance Company.

       

      f. 6.64%
        Senior Unsecured Notes, due October 31, 2017, by and between Chesapeake
        Utilities Corporation, The State Life Insurance Company, Massachusetts Mutual
        Life Insurance Company, C.M. Life Insurance Company, American United Life
        Insurance Company and Pioneer Mutual Life Insurance Company.

       

      g. $10,000,000
        Committed Line of Credit for short-term borrowing, by and between Chesapeake
        Utilities Corporation and PNC Bank.

       

      h. $5,000,000
        Committed Line of Credit for short-term borrowing, by and between Chesapeake
        Utilities Corporation and Bank of America.

       

      



      
        
          
            


          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
            


          

        

      



      SCHEDULE
        7.1

       

      EXISTING
        INVESTMENTS

       

      The
        outstanding Investments of the Company and Subsidiaries as of June 30, 2005,
        are
        as follows:

       

      
        	 	
                1)

              	
                Rabbi
                  Trust - Investment of $335,000 associated with the acquisition
                  of Xeron,
                  Inc.

              


      

       

      2)     Rabbi
        Trust - 401(k) Supplemental Executive Retirement Plan of
        $1,247,000.