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                             ALASKA PIPELINE COMPANY






                              ____________________

                                 NOTE AGREEMENT
                              ____________________




                            Dated as of: May 14, 1992




                $30,000,000 8.15% Series I Notes due July 1, 2001

                $10,000,000 8.64% Series J Notes due July 1, 2004

                $10,000,000 8.81% Series K Notes due July 1, 2009






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<PAGE>
<TABLE>
<CAPTION>


                                TABLE OF CONTENTS

Section                                                                    Page
<S>                                                                         <C>

1. Sale and Purchase of Notes.............................................. 1

2. Closing................................................................. 1

3. Conditions to Closing................................................... 2

     3.1.  Inducement Agreement............................................ 2
     3.2.  Sale of Other Notes............................................. 2
     3.3.  Representations and Warranties Correct.......................... 2
     3.4.  Performance; No Default......................................... 3
     3.5.  Compliance Certificate.......................................... 3
     3.6.  Opinions of Counsel............................................. 3      
     3.7.  Legal Investment................................................ 3
     3.8.  Proceedings and Documents....................................... 3
     3.9.  Private Placement Numbers....................................... 3
     3.10. Amendment to 1985 Inducement Agreement.......................... 4

4. Use of Proceeds......................................................... 4

5. Representations and Warranties.......................................... 4

     5.1.  Organization, Standing, etc..................................... 5
     5.2.  Subsidiaries.................................................... 5
     5.3.  Qualification................................................... 5
     5.4.  Financial Statements............................................ 5
     5.5.  Changes, etc.................................................... 6
     5.6.  Tax Returns and Liabilities..................................... 6
     5.7.  Indebtedness for Money Borrowed................................. 7
     5.8.  Title to Properties; Liens...................................... 7
     5.9.  Litigation...................................................... 8
     5.10. Compliance with Other Instruments............................... 8
     5.11. Patents, Trademarks, etc.; Franchises........................... 9
     5.12. Governmental Consent, etc. ..................................... 9
     5.13. Holding Company Act............................................. 9
     5.14. Gas Contracts................................................... 9
     5.15. Coverage of Fixed Charges....................................... 10
     5.16. Disclosure...................................................... 10
     5.17. Issue of Notes is Legal and Authorized.......................... 11
     5.18. ERISA........................................................... 11
     5.19. No Defaults..................................................... 13


<PAGE>


Section                                                                    Page
<S>                                                                         <C>
                      
     5.20. Private Offering................................................ 13
     5.21. Tax Sharing Agreement........................................... 13

6. Financial Statements and Information.................................... 14

7. Inspection of Properties and Books and Confidentiality.................. 18

     7.1. ................................................................. 18
     7.2. Confidentiality.................................................. 18

8. Prepayment of Notes..................................................... 19

     8.1. Fixed Prepayments ............................................... 19
     8.2. Optional Prepayment with Premium................................. 19
     8.3. Prepayment in Full at Option of  Noteholders
            under Certain Circumstances.................................... 20
     8.4. Allocation of Partial Prepayments................................ 20
     8.5. Notice of  Optional Prepayments.................................. 20
     8.6. Maturity; Exchange or Notation, Surrender, etc. ................. 21
     8.7. Purchase of Notes................................................ 21

9. General Covenants....................................................... 21

     9.1. Accounting and Reserves.......................................... 21
     9.2. Payment of Taxes and Claims; Tax Sharing Agreement............... 21
     9.3. Corporate Existence, etc......................................... 22
     9.4. Maintenance of Properties;  Conduct of Business;
           Company Certificate............................................. 22
     9.5. Insurance........................................................ 23

10.  Particular Covenants.................................................. 23

     10.1. Limitation on Indebtedness...................................... 23
     10.2. Restrictions on Investments, Loans, etc......................... 25
     10.3. Restricted Investments, Restricted Stock Payments and
             Restricted Subordinated Debts Payments........................ 26
     10.4. Restrictions on Lease-Backs, Rental Obligations, etc. .......... 28
     10.5. Restrictions on Liens, etc. .................................... 29
     10.6. Issuance and Sale, etc., of Subsidiary Stock; Disposition of
             Subsidiary Stock and Indebtedness............................. 33
     10.7. Consolidation or Merger of Subsidiaries; Disposition of
             Subsidiary Property as an Entirety............................ 34

<PAGE>

Section                                                                    Page
<S>                                                                         <C>

     10.8.  Consolidation or Merger of Company; Disposition of
             Company; Disposition of Company Property as an Entirety....... 34
     10.9.  Disposition of Company and Subsidiaries' Property.............. 35
     10.10. Gas Contracts.................................................. 36
     10.11. Intercompany Notes, etc. ...................................... 36
     10.12. Compliance with ERISA.......................................... 37

11.  Remedies.............................................................. 38

     11.1.  Events of Default; Acceleration................................ 38
     11.2.  Notice of Default.............................................. 42
     11.3.  Suits for Enforcement, etc. ................................... 43
     11.4.  Remedies Cumulative............................................ 43
     11.5.  Remedies Not Waived............................................ 43

12. Registration Books; Transfer and Exchange of Notes..................... 43

13. Replacement of Notes................................................... 44

14. Definitions............................................................ 44

15. Expenses, etc. ........................................................ 59

16. Survival of Agreements, etc. .......................................... 60

17. Amendments and Waivers................................................. 60

18. Representations of the Purchasers ..................................... 61

     18.1.  Purchase of  Notes............................................. 61
     18.2.  Source of Funds................................................ 61

19. Payments on Notes; Notice of Sale, etc................................. 62
20. Notices, etc........................................................... 63

21. Nonenforcement of Others .............................................. 63

22. Miscellaneous.......................................................... 63
</TABLE>

<PAGE>

Section

Schedule A - Information Relating to Purchasers

Exhibit A-1 - Form of Series I Notes

Exhibit A-2  -  Form of Series J Notes

Exhibit A-3 - Form of Series K Notes

Exhibit B - Form of Inducement Agreement

Exhibit C-1 - Form of Opinion of Andrews & Kruth

Exhibit C-2 - Form of Opinion of Hughs, Thorsness, Gantz, Powell & Brundin

Exhibit C-3 - Form of Opinion of Debevoise & Plimpton

Exhibit C-4 - Form of Opinion of Vinson & Elkins

Exhibit D - Statement of Exceptions

Exhibit E - List of Agreements Relating to Short-Term Borrowing and Funded Debt

Exhibit F - Tax Sharing Agreement

Exhibit G - Inducement Agreement Amendment


<PAGE>

                             ALASKA PIPELINE COMPANY
                                3000 Spenard Road
                             Anchorage, Alaska 99503


TO EACH OF THE PURCHASERS LISTED
   IN THE ATTACHED SCHEDULE A

                                              Dated as of :    May 14, 1992

Dear Sirs:

     ALASKA PIPELINE COMPANY (the "Company"), an Alaska corporation, agrees with
you as follows:

     1. Sale and Purchase of Notes.  The Company will duly  authorize  the issue
and sale of (a) $30,000,000  aggregate  principal  amount of the Company's 8.15%
Series I Notes de July 1, 2001 (the "Series I Notes"), (b) $10,000,000 aggregate
principal  amount of the  Company's  8.64%  Series J Notes due July 1, 2004 (the
"Series  J  Notes"),  and (c)  $10,000,000  aggregate  principal  amount  of the
Company's  8.81%  Series K Notes  due  July 1,  2009  (the  "Series  K  Notes"),
substantially in the forms of Exhibits A-1 through A-3,  respectively,  attached
hereto (such Notes,  together  with all Notes issued in exchange  therefor or in
replacement  thereof  pursuant to Sections 12 and 13,  being  herein  called the
"Notes").  The Company will issue and sell to you and,  subject to the terms and
conditions of this Agreement, you will purchase from the Company, at the Closing
provided for in Section 2, Notes in the  principal  amounts  specified  opposite
your name in  Schedule A attached  hereto at the  purchase  price of 100% of the
principal amount thereof.  Contemporaneously  with entering into this Agreement,
the Company is entering into separate Note Agreements  (the "Other  Agreements")
identical  with  this  Agreement  with  each of the  other  Purchasers  named in
Schedule  A (the  "Other  Purchasers"),  providing  for the  sale to each  Other
Purchaser,  at such Closing, of Notes in the principal amount specified opposite
its name in Schedule A. As used  herein,  the term "Note"  shall mean one of the
Notes; certain other capitalized terms used herein are defined in Section 14.

     2.  Closing.  The closing of the sale and  purchase of the Notes  hereunder
(the  "Closing")  shall take place at the office of  Debevoise &  Plimpton,  875
Third Avenue, New York, New York 10022, at 11:00 a.m., New York time, on July 1,
1992.  At the Closing the Company  will deliver to you the Notes to be purchased
by you in the form a single  Note (or such  greater  number  of Notes as you may
request in  denominations  of not less than $1,000,000) for each Series of Notes
being  purchased by you,  dated the date of the Closing,  payable to you or your
registered  assigns,  against  delivery  by you to the  Company  or its order of
immediately  available funds in the amount of the purchase price therefor. If at
the Closing the Company shall fail to tender such Notes as provided  herein,  or
if at the Closing any of the  conditions  specified  in Section 3 shall not have
been fulfilled to your satisfaction, you shall, at your election, be relieved of
all further obligations under this Agreement,  without thereby waiving any other
rights  you may  have  by  reason  of  such  failure  or  such  failure  or such
non-fulfillment. 
<PAGE>

     3. Conditions to Closing. Your obligation to accept delivery of and pay for
the Notes to be purchased by you hereunder is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of the following conditions:

     3.1. Inducement Agreement. Seagull shall have executed and delivered to you
an Inducement  Agreement  substantially in the form of Exhibit B attached hereto
(the "Inducement  Agreement"),  whereby,  in order to induce you to purchase the
Notes, Seagull shall make certain  representations and warranties and agreements
with respect to Seagull and the Division; and such Inducement Agreement shall be
in full force and effect with no default by Seagull thereunder.

     3.2.  Sale of Other Notes.  Contemporaneously  with the Closing the Company
shall sell to each of the Other  Purchasers  the Notes to be  purchased by it al
the Closing as specified in Schedule A.

     3.3.  Representatives  and  Warranties  Correct.  The  representations  and
warranties  contained in Section 5, in Section 1 of the Inducement Agreement and
otherwise  made  in  writing  by or on  behalf  of the  Company  or  Seagull  in
connection with the transactions  contemplated hereby shall be correct at and as
of the time of the  Closing,  except  as  affected  by the sale of the Notes and
except to the extent that such  representations and warranties  expressly relate
to an earlier date.

     3.4.  Performance;  No Default.  All agreements  and  conditions  contained
herein  required to be  performed  or  complied  with prior to or at the Closing
shall have been duly  performed or complied  with and at the time of the Closing
no  condition  or event  shall exist  which  constitutes  an Event of Default or
which,  after  notice  or lapse of time or both,  would  constitute  an Event of
Default.

     3.5.  Compliance   Certificate.   You  shall  have  received  an  Officer's
Certificate,  dated  the date of the  Closing,  certifying  that the  conditions
specified in Sections 3.2, 3.3 and 3.4 have been fulfilled.

     3.6. Opinions of Counsel. You shall have received favorable opinions, dated
the date of the Closing and  satisfactory in substance and form to you, (a) from
Andrews & Kurth, counsel for the Company and Seagull,  substantially in the form
of Exhibit C-1  attached  hereto,  (b) from Hughs,  Thorsness,  Gantz,  Powell &
Brundin,  Alaska counsel for the Company,  substantially  in the form of Exhibit
C-2 attached  hereto,  and (c) from Debevoise & Plimpton,  your special counsel,
substantially  in the form of Exhibit C-3 attached  hereto and (d) from Vinson &
Elkins, special counsel to the Company and Seagull, substantially in the form of
Exhibit C-4 attached hereto.

     3.7.  Legal  Investment.  At the time of the Closing your purchase of Notes
hereunder  shall be permitted by the laws of each  jurisdiction to which you may
be subject,  without recourse to provisions (such as Section 1405 (a) (8) of the
New  York  Insurance  Law)  permitting  limited  investments  by life  insurance
companies without restriction as to the character of the particular investment.
<PAGE>
     3.8.  Proceedings  and  Documents.  All corporate and other  proceedings in
connection  with the  transactions  contemplated  hereby and all  documents  and
instruments incident to such transactions shall be satisfactory in substance and
form to you and your special  counsel,  and your and your special  counsel shall
have  received  all such  counterpart  originals or certified or other copies of
such documents as your or they may reasonably request.

     3.9. Private  Placement  Numbers.  The Company shall have obtained for each
series of Notes a Private  Placement  Number  issued by Standard & Poor's  CUSIP
Service  Bureau (in  cooperation  with the  Securities  Valuation  Office of the
National Association of Insurance Commissioners).

     3.10.  Amendment to 1985 Inducement  Agreement.  Seagull,  the Company, The
Equitable Life Assurance Society of the United States,  The Travelers  Insurance
Company and The  Travelers  Life  Insurance  Company  shall have entered into an
Amendment to Inducement Agreement substantially in the form of Exhibit G hereto.

     4. Use of Proceeds.  The Company will apply the proceeds of the sale of the
Notes  to  repay   approximately   $47,000,000  of  the  Company's   outstanding
indebtedness  referred  to in items 2 and 3 of Exhibit E hereto and the  balance
for working  capital  purposes.  The Company will not directly or indirectly (i)
use any of the proceeds of the Notes for the purpose of  purchasing  or carrying
any "margin  stock" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System (12 C.F.R. 207, as amended),  or otherwise take or
permit  any  action  which  would  involve a  violation  of such  Regulation  G,
Regulation X (12 C.F.R.  224) or any other  regulation of the Board of Governors
of the Federal  Reserve  System,  or (ii) use any part of such  proceeds for the
purpose of engaging in any transaction prohibited by, or in violation of (x) the
Foreign Assets Control Regulations,  the Transactions  Control Regulations,  the
Cuban Assets Control  Regulations,  the Foreign Funds Control  Regulations,  the
Iranian Assets Control  Regulations,  the Nicaraguan Trade Control  Regulations,
the South African Transactions  Regulations,  the Libyan Sanctions  Regulations,
the Soviet Gold Coin Regulations, the Panamanian Transaction Regulations and the
Iraqi Sanctions  Regulations or (v) of the United States Treasury Department (31
C.F.R.,  Subtitle B,  Chapter V, as amended) or (z)  Executive  Orders  12722 or
12724 Blocking Iraqi Government Property and Prohibiting  Transactions with Iraq
and Executive Order 12775 (56 Fed. Reg. 50641) Prohibiting Certain  Transactions
with  Respect to Haiti.  No  Indebtedness  being  reduced or retired  out of the
proceeds of the Notes was incurred for the purpose of purchasing or carrying any
"margin stock" within the meaning of such Regulation G. The Company does not own
or have any present intention of acquiring any such margin stock.
<PAGE>
     5.  Representations  and  Warranties.  The Company  represents and warrants
that:

     5.1.  Organization,  Standing,  etc.  The  Company  is a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Alaska and has all  requisite  corporate  power and authority to own and operate
its  properties,  to carry on its business as now conducted,  to enter into this
Agreement,  to make the borrowings  hereunder,  to execute and deliver the Notes
and to carry out the terms hereof and thereof. All of the issued and outstanding
Common Stock of the Company is validly issued,  fully paid and nonassessable and
is owned by Seagull, free and clear of any security interest,  mortgage, pledge,
lien,  charge  or  encumbrance  or  conditional  sale or other  title  retention
agreement, except for the pledge by Seagull of all such Common Stock as security
for indebtedness of Seagull from time to time now outstanding  under one or more
loan agreements or credit agreements existing on the date hereof.

     5.2. Subsidiaries. The Company has no Subsidiaries.

     5.3.  Qualification.  The Company is duly qualified or licensed and in good
standing  as a  foreign  corporation  duly  authorized  to do  business  in each
jurisdiction  wherein the character of the properties owned or the nature of the
activities  conducted by it makes such  qualification  or  licensing  necessary,
except for such failures to be so qualified or licensed and in good standing, if
any,  which  when  taken  together  would not in the  aggregate  have a material
adverse effect on the condition, business or property of the Company .

     5.4.  Financial  Statements.  The Company has  delivered  to you  financial
statements  of the  Company  for the  years  ended  December  31,  1987 to 1991,
inclusive,  and of the Division  for the years ended  December 31, 1987 to 1991,
inclusive,  including  balance  sheets  of the  Company  (and  consolidated  and
consolidating  balance  sheets or combined and combining  balance  sheets of the
Company  and the  Division)  as at such  dates and  statements  of income and of
surplus of the Company  (and  consolidated  and  consolidating  or combined  and
combining  statements  of income and of surplus of the Company and the Division)
for the years then ended,  all as  certified by KPMG Peat  Marwick,  independent
certified  public  accountants.  Such  financial  statements  fairly present the
financial  condition of the Company and the Division as at the respective  dates
thereof and the results of the  operations  of the Company and the  Division for
the  respective  periods  covered  thereby,  were  prepared in  accordance  with
generally  accepted   accounting   principles  applied  on  a  consistent  basis
throughout  such  periods  and  reflect  all known  liabilities,  contingent  or
otherwise,  as at such dates which are required by generally accepted accounting
principles  to be reflected  therein.  The company had no  Subsidiaries  for the
period covered by such financial statements.
<PAGE>
     5.5. Changes, etc. Since December 31, 1991, there has been no change in the
condition of the Company or of the Division from that reflected in the combining
balance  sheets of the Company as at such date referred to in Section 5.4, other
than changes in the ordinary  course of business which have not been,  either in
any case or in the aggregate,  materially  adverse,  and, except as set forth in
Exhibit D attached hereto, since December 31, 1991, there has been no occurrence
or  development  which has had or in the  opinion of the Company (a) will have a
materially  adverse  effect on the  business or  prospects of the Company or the
Division or on any of their respective  properties or assets (individually or in
the aggregate material) or (b) constitutes or would result in a material adverse
change  in the  nature or the  extent  of the  business  of the  Company  or the
Division. During the period commencing on January 1, 1992 and ending on the date
hereof,  the  Company  has  not  directly  or  indirectly  made  any  Restricted
Investment or Restricted Stock Payment and has not made Restricted  Subordinated
Debt Payments other that those resulting from the payment to Seagull during such
period of (i) dividends aggregating not more than $2,000,000 and (ii) management
fees aggregating not more than $200,000.

     5.6.  Tax Returns  and  Liabilities.  The  Company  has filed (or  obtained
extensions  with respect to the filing of) all tax returns and reports  required
to be filed by it and has paid all  taxes,  assessments  and other  governmental
charges imposed upon it or any of its properties,  assets, income or franchises,
other than those currently  payable  without penalty or interest and those,  not
substantial in amount,  being  contested as permitted by Section 9.2. Since June
17,  1985,  the Company has been a member of the  affiliated  group,  within the
meaning of Section 1504 of the Code,  of which Seagull is the common parent and,
as such, joined in the filing of the consolidated  Federal income tax returns of
such affiliated group for the periods ending on or after such date. The charges,
accruals and  reserves on the books of the Company in respect of Federal,  state
and other income taxes for all fiscal periods are adequate in the opinion of the
Company,  and the Company does not know of any actual or proposed assessment for
additional Federal, state or other income taxes for any fiscal period.

     5.7.  Indebtedness  for Money Borrowed.  Exhibit E correctly  describes all
secured  and  unsecured  Short Term  Borrowing  and Funded  Debt of the  Company
outstanding,  or for  which the  Company  has  commitments,  on the date of this
Agreement.  The  Company is not in  default  in  respect of any such  Short-Term
Borrowing or Funded Debt or in respect of any  instrument or agreement  relating
thereto and no instrument  or agreement  applicable to or binding on the Company
contains any  restrictions  on the  incurrence of additional  Funded Debt by the
Company,  except the agreements relating to Short-Term  Borrowing or Funded Debt
referred to in items 2, 3 and 4 of Exhibit E,  complete  and  correct  copies of
which have been delivered to your special counsel.

     5.8. Title to Properties;  Liens. The Company has good and marketable title
in fee simple absolute to all its real property on which compressor stations are
located and good and  marketable  title to all of its other real property and to
all of its  personal  property  (except for  property and to all of its personal
property (except for property consisting of rights-of-way, licenses, permits and
franchises,  as to which the Company has  satisfactory  title for the purpose of
constructing,  operating and maintaining all property  located or proposed to be
located  on the real  property  covered  thereby),  in each case  subject  to no
mortgage,  pledge,  lien, security interest,  lease, charge or encumbrance other
than those of the character permitted by Section 10.5. None of the properties or
assets the value of which is reflected in the  combining  balance  sheets of the
Company and the Division as at December 31, 1991, referred to in Section 5.4, is
held by the  Company  or the  Division  as lessee  under or subject to any lease
(except  as  disclosed  in such  balance  sheets  or the  notes  thereto)  or as
conditional   vendee  under  any  conditional  sale  or  other  title  retention
agreement.  The Company enjoys  peaceful and  undisturbed  possession  under all
leases  under which it operates,  and all such leases are valid and  subsisting,
with no material  default on the part of the  Company  existing  thereunder.  No
financing statement under the Uniform Commercial Code which names the Company as
debtor has been filed in any state or other jurisdiction and the Company has not
signed any such financing  statement or any security  agreement  authorizing any
secured party  thereunder to file any such  financing  statement,  in each case,
except financing statements relating to the liens,  security interests and other
encumbrances permitted by Section 10.5.
<PAGE>
     5.9.  Litigation.  There  is no  litigation,  proceeding  or  investigation
pending  or,  to the best of the  Company's  knowledge,  threatened  against  or
affecting  the Company or any  Affiliate  of the  Company  which  questions  the
validity  of any of this  Agreement  or the Notes or any  action  taken or to be
taken  pursuant  hereto.  Except  as set  forth in the  notes  to the  financial
statements  of the Company and the Division  for the period  ended  December 31,
1991,  referred to in Section 5.4, and except as set forth in Exhibit D attached
hereto, there is no litigation,  proceeding or investigation  pending or, to the
best of the  Company's  knowledge,  threatened  against or affecting the Company
which involves the condemnation, purchase or other acquisition by any government
authority of any property  (individually  or in the  aggregate  material) of the
Company or which might result in any material  adverse  change in the condition,
business  or  prospects  of the  Company or in any of its  properties  or assets
(individually or in the aggregate material).  The Company is not subject to or a
party to any order of any court or governmental  body arising out of any action,
suit or  proceeding  under any statute or other law with  respect to  antitrust,
monopoly, restraint of trade, unfair competition or similar matters.

     5.10. Compliance with Other Instruments. The Company is not in violation of
any term of its charter or by-laws,  and neither the Company nor the Division is
in  violation  of any  material  term of any  agreement,  instrument,  judgment,
decree, order, statute, rule, governmental regulation,  franchise,  certificate,
permit or the like applicable to it, and the execution, delivery and performance
of this  Agreement and the Notes will not result in any such  violation or be in
conflict  with or  constitute  a default  under any such term,  or result in the
creation of any mortgage, lien, charge or encumbrance upon any of the properties
or assets of the Company  pursuant to any such term.  Except as set forth in the
notes to the financial statements of the Company and the Division for the period
ended December 31, 1991, referred to in Section 5.4, there is no such term which
materially adversely affects the business,  operations,  affairs or condition of
the Company or any of its properties or assets (individually or in the aggregate
material).

     5.11. Patents,  Trademarks, etc.; Franchises. The Company owns or possesses
all the permits, patents, trademarks, service marks, trade names, copyrights and
licenses, and rights with respect to the foregoing, necessary for the conduct of
its business as now  conducted,  without any known  conflict  with the rights of
others.  The  Company  has  received a  Certificate  of Public  Convenience  and
Necessity from the PUC (the "Company Certificate"),  the Division has received a
Certificate  of Public  Convenience  and Necessity  from the PUC (the  "Division
Certificate"),  and  each of the  Company  and the  Division  has  received  all
material   permits,   licenses,   franchises  and  other   authorizations   from
governmental or public bodies or authorities which are necessary for the conduct
of their business as now conducted and proposed to be conducted other than those
which are  expected  to be  obtained  without  difficulty  in due  course.  Such
Certificates of Public  Convenience and Necessity have been duly and effectively
granted,  are valid and  enforceable  in accordance  with their terms and are in
full force and effect,  and the  Company and the  Division  have  performed  and
complied  with in all material  respects all terms  thereof and of all orders of
the PUC relating  thereto required to be performed and complied with by them and
neither the Company nor the Division is in default in any material respect under
any such term.
<PAGE>
     5.12.  Governmental Consent, etc. The Company is not required to obtain any
consent, approval or authorization of, or to make any registration,  declaration
or filing  with,  any  governmental  or public body or  authority as a condition
precedent to the valid execution,  delivery and performance of this Agreement or
the Notes.

     5.13. Holding Company Act. The Company is not a "holding company",  as such
term is defined in the Public  Utility  Holding  Company Act of 1935, as amended
("PUHCA"),  nor is the Company  otherwise  subject to  regulation  under  PUHCA,
except as to Section 9 (a) (2)  thereof.  The Company is not in violation of the
provisions,  rules,  regulations  or  orders  of or under  PUHCA and none of the
transactions contemplated by this Agreement (including,  without limitation, the
issuance and sale of Notes to you) shall cause or  constitute a violation on the
part of the Company of any of the provisions, rules, regulations or orders of or
under  PUHCA.  PUHCA does not in any manner  impair the  legality,  validity  or
enforceability of the Notes. Reference is made to Section 1.10 of the Inducement
Agreement for a description  of certain  applications  filed by Seagull with the
Securities and Exchange Commission under Section 2(a) (8) of PUHCA.

     5.14.  Gas  Contracts.  The Company has  delivered  to you and your special
counsel complete and correct copies of the Gas Purchase Contracts,  the Gas Sale
Contract and any other  agreements  relating to the purchase and sale of natural
gas to which the Company is a party.  The Gas  Purchase  Contract,  the Gas Sale
Contract  and any  other  such  agreement  are each  valid  and  enforceable  in
accordance with their respective terms and are in full force and effect,  and no
material default on the part of any party thereto exists thereunder.

     5.15.  Coverage of Fixed Charges.  The Company's net earnings available for
fixed  charges for the period of its last five fiscal  years have  averaged  per
year not less than one and  one-half  times its  average  annual  fixed  charges
applicable to such period,  and during at least one of its last two fiscal years
the Company's net earnings  available for fixed charges have been not less than
one and one-half  times its fixed  charges for such fiscal year, in each case on
an  unconsolidated  basis. As used in this Section 5.15, the terms "net earnings
available for fixed charges" and "fixed  charges" have the  respective  meanings
specified in Section 1404 of the New York Insurance Law.

     5.16.   Disclosure.   Neither  this  Agreement  not  any  other   document,
certificate  or  statement  furnished  to you by or on behalf of the  Company in
connection  with  the  transactions  contemplated  hereby  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  in
light of the  circumstances  under which they were made. There is no fact (other
than matters of a general economic nature) known to the Company which materially
adversely affects or in the future may (so far as the Company can now reasonable
foresee)  materially  adversely  affect  the  business,  operations,  affairs or
condition 
<PAGE>

of the Company,  the Division or any of their  respective  properties  or assets
(individually or in the aggregate material) which has not been set forth in this
Agreement or in the other documents, certificates or statements furnished to you
by or on behalf of the Company prior to the date hereof in  connection  with the
transactions contemplated hereby.

     5.17.  Issue of Notes is Legal and  Authorized.  The Company has full power
and legal right to execute, deliver and perform this Agreement and the Notes and
has taken all corporate action necessary  thereto.  This Agreement  constitutes,
and the Notes,  when  executed and  delivered by the Company,  will  constitute,
legal,  valid and binding  obligations  of the Company  enforceable  against the
Company in accordance  with their  respective  terms,  except as the enforcement
thereof may be limited by  applicable  bankruptcy,  insolvency  or similar  laws
affecting  the  enforcement  of rights of creditors  generally and except to the
extent that  enforcement of rights and remedies set forth therein may be limited
by judicial  discretion  regarding the  enforcement  of, or by  applicable  laws
affecting,  remedies  (whether  considered  in a court of law or a proceeding in
equity).

     5.18.  ERISA.  (a)  The  Company  has not  engaged  in any  transaction  in
connection  with which the Company  could be subjected to either a civil penalty
assessed  pursuant to Section 502 (i) of ERISA or a tax imposed by Section  4975
of the Code which, in either case, would be materially adverse to the Company.

          (b) No Plan  subject to Title IV of ERISA or any trust  created  under
     any such Plan has been terminated within the past 10 years. No liability to
     the Pension  Benefit  Guaranty  Corporation  has been or is expected by the
     Company  to be  incurred  with  respect  to any Plan by the  Company or any
     Related  Person  which is or would be  materially  adverse to the  Company.
     There has been no reportable  event (within the meaning of Section 4043 (b)
     of ERISA) or any other event or  condition  with  respect to any Plan which
     presents  a risk of  termination  of any such Plan by the  Pension  Benefit
     Guaranty  Corporation under circumstances which in any case could result in
     liability   which  would  be  materially   adverse  to  the  Company.   The
     representation  in the  preceding  sentence  is  made  to the  best  of the
     Company's knowledge to the extent it relates to Multi-employer Plans.

          (c) Full timely  payment  has been made of (i) all  amounts  which the
     company is required  under  applicable  law, the terms of each Plan and the
     terms of any  applicable  collective  bargaining  agreement to have paid as
     contributions  to such Plan and (ii) all amounts required to have been paid
     by each Related  Person to each Plan pursuant to section 412 of the Code or
     section 302 of ERISA to the extent  such  amounts,  individually  or in the
     aggregate,  are material or could result in the  imposition of a lien under
     Section 412 (n) of the Code if not paid; 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 Plan  maintained by the Company;
     and no accumulated  funding deficiency (as so defined) that could result in
     the  imposition of an excise tax on the Company  exists with respect to any
     Plan maintained by and Related Person.
<PAGE>
          (d) The  present  value of all  benefit  liabilities  under  all Plans
     subject to Title IV of ERISA,  determined  as of the beginning of each such
     Plan's most recently ended plan year on the basis of actuarial assumptions,
     each of which is reasonable, did not exceed the current value of the assets
     of such Plans  allocable to such benefit  liabilities by more than $500,000
     and nothing has occurred since such date that could  reasonably be expected
     to cause  such  benefit  liabilities  to  exceed  such  assets by more than
     $500,000.   The  terms  "present   value,"  "current  value"  and  "benefit
     liabilities"  have the meanings  specified in sections 3 and 4001 of ERISA,
     respectively.

          (e) The  Company is not  presently  obligated,  nor has it at any time
     within  the  last  six  years  been   obligated,   to   contribute  to  any
     Multiemployer Plan.

          (f) The  execution  and  delivery  of  this  Agreement  and the  Other
     Agreements and the issuance and sale of the Notes  hereunder and thereunder
     will not involve any  transaction  which is subject to the  prohibitions of
     Section  406 of ERISA or in  connection  with  which a tax could be imposed
     pursuant to Section 4975 of the Code. The  representation by the Company in
     the preceding sentence is made in reliance upon and subject to the accuracy
     of your representation in Section 18.2 of this Agreement and the respective
     representations  of the  Other  Purchasers  in  Section  18.2 of the  Other
     Agreements as to the source of the funds used to pay the purchase  price of
     the Notes purchased by you and the Other  Purchasers.  The Company is not a
     party in interest with respect to any employee  benefit plan whose name has
     been  disclosed to the Company  pursuant to Section 18.2 and  securities of
     the Company are not employer securities with respect to any such plan.

     As used in this  Section 5.18 (f), the terms  "employee  benefit  plan" and
"party in interest" have the respective meanings specified in Section 3 of ERISA
and the term "employer  securities" has the meaning specified in Section 407 (d)
(1) of ERISA.

     5.19.  No Defaults.  No event has  occurred  and no condition  exists which
constitutes  a Default or Event of Default  under this  Agreement.  No event has
occurred and no condition exists which constitutes, or which with the passage of
time or the giving of notice or both would constitute, an event of default under
any agreement relating to any Indebtedness of the Company for money borrowed, or
a material  default in the  performance  of any covenant or condition  under any
other mortgage,  indenture,  contract or other  instrument or under any order of
any court, governmental authority,  arbitration board or tribunal, applicable to
the Company or any of its property.

     5.20.  Private  Offering.  Neither the Company nor any Person authorized or
employed by the Company as agent, broker, dealer or otherwise has offered any of
the Notes of any  similar  security  of the  Company  for sale to, or  solicited
offers to buy any thereof  from,  or otherwise  approached  or  negotiated  with
respect thereto with anyone other than you and the Other Purchasers. The Company
agrees that  neither the Company nor anyone  acting on its behalf will offer the
Notes or any part  thereof or any  similar  securities  for issue or sale to, or
solicit  any offer to acquire  any of the same  from,  anyone so as to bring the
issuance  and sale of the  Notes  within  the  provisions  of  Section  5 of the
Securities Act of 1933, as amended (the "Securities Act").
<PAGE>
     5.21. Tax Sharing Agreement. A complete and correct copy of the Tax Sharing
Agreement  is attached as Exhibit F hereto.  The Tax Sharing  Agreement is valid
and enforceable in accordance with its term and is in full force and effect.

     6.  Financial  Statements  and  Information.  The Company  will deliver (in
duplicate) to you, so long as you are committed to purchase  Notes  hereunder or
shall  hold any  Notes,  and to each  other  holder of 10% or more in  principal
amount of the Notes at the time outstanding:

          (a) as soon as available and in any event within 60 days after the end
     of the first, second and third quarterly  accounting periods in each fiscal
     year of the Company,  combined and combining balance sheets of the Company,
     its  Subsidiaries  and the  Division  as at the end of such  period and the
     related combined and combining statements of income and surplus and of cash
     flows of the Company,  its  Subsidiaries  and the Division for such period,
     for the periods from the beginning of the current fiscal year to the end of
     such  quarterly  period,  and for  the  12-month  period  ended  with  such
     quarterly  period,  setting  forth in each case,  in  comparative  form the
     figures for the  corresponding  periods of the previous fiscal year, all in
     reasonable detail and certified, subject to changes resulting form year-end
     audit adjustments, by a principal financial officer of the Company;

          (b) as soon as  available  and in any event  within 100 days after the
     end of each fiscal year of the  Company,  combined  and  combining  balance
     sheets of the Company,  its Subsidiaries and the Division (and, in case the
     Company shall have any  Subsidiaries  which are not  Wholly-Owned  Domestic
     Subsidiaries,  a combined  balance sheet of the Company,  its  Wholly-Owned
     Domestic  Subsidiaries  and the Division) as at the end of such fiscal year
     and the related combined and combining statements of income and surplus and
     of changes in financial  position of the Company,  its Subsidiaries and the
     Division  (and, in case the Company shall have any  Subsidiaries  which are
     not Wholly-Owned Domestic  Subsidiaries,  combined statements of income and
     surplus  and of  cash  flows  of the  Company,  its  Wholly-Owned  Domestic
     Subsidiaries and the Division) for such fiscal year,  setting forth in each
     case, in comparative  form the figures for the precious fiscal year, all in
     reasonable  detail and  accompanied  by the report and  opinion  thereon of
     independent public accountants of recognized  national standing selected by
     the  Company  and  reasonably  satisfactory  to you,  if you shall  then be
     committed to purchase Notes hereunder or shall hold any Notes;

          (c) together  with each delivery of financial  statements  pursuant to
     subdivisions (a) and (b) above, an Officer's Certificate of the Company (x)
     stating that the signer has reviewed the relevant  terms of this  Agreement
     and  of the  Notes  and  have  made,  or  caused  to be  made  under  their
     supervision,  a review of the transactions and condition of the Company and
     its  Subsidiaries  during the period in question,  and that such review has
     not disclosed the existence during such period and that the signer does not
     have  knowledge  of  the  existence  as  of  the  date  of  such  Officer's
     Certificate  of the Company of any  condition or event which  constitutes a
     Default or an Event of Default or, if any such  Default or Event of Default
     existed or exists,  specifying  the nature and period of existence  thereof
     and what action the Company has taken or is taking or proposes to take with
     respect   thereto,   and  (y)  specifying  the  amount  of  all  Restricted
     Investments,  Restricted  Stock Payments and Restricted  Subordinated  Debt
     Payments made during such period and the amount available
<PAGE>
     as at the end of such period for Restricted  Investments,  Restricted Stock
     Payments and  Restricted  Subordinated  Debt  Payments in  compliance  with
     Section 10.3 and showing in reasonable detail the calculations thereof;

          (d) together  with each delivery of financial  statements  pursuant to
     subdivision  (b)  above,  a  separate  report  by  the  independent  public
     accountants  reporting  thereon  (i)  stating  that their  examination  has
     included a review of the relevant terms of this  Agreement,  the Inducement
     Agreement and the Notes as they relate to accounting matters,  (ii) stating
     whether to not their examination has disclosed the existence or occurrence,
     during  or as at the end of the  fiscal  year  covered  by  such  financial
     statements,  of any  condition or event which  constitutes  a Default or an
     Event of Default, and, if their examination has disclosed such a Default or
     Event of Default specifying the nature and period of existence thereof, and
     (iii) specifying the amount of all Restricted Investments, Restricted Stock
     Payments and Restricted  Subordinated Debt Payments made during such fiscal
     year  and  the  amount  available  as at the end of such  fiscal  year  for
     Restricted   Investments,   Restricted   Stock   Payments  and   Restricted
     Subordinated  Debt Payments in compliance  with Section 10.3 and showing in
     reasonable detail the calculations thereof;

          (e)  within 15 days of (i) any  material  amendment,  modification  or
     supplement to the Gas Sale Contract,  including any amendment not permitted
     by Section 10.10,  or (ii) the existence of a payment default under the Gas
     Sale Contract, an Officer's Certificate of the Company, with respect to the
     period  beginning  on the later of the date hereof and the date of the last
     such  certificate and ending on the date of such certificate (x) specifying
     the nature of any  amendment,  modification  or  supplement to the Gas Sale
     Contract (and attaching a copy thereof) made during such period and stating
     whether such  amendment,  modification  or  supplement  is permitted by the
     terms of  Section  10.10,  (y)  specifying  the  amounts  and  dates of all
     payments made during such period by Seagull to the Company  pursuant to the
     Gas Sale  Contract,  demonstrating  in  reasonable  detail the  calculation
     thereof, and (z) stating that the signer has reviewed the relevant terms of
     the Gas Sale  Contract and that such review has not disclosed the existence
     during  such period of any  payment  default by Seagull of its  obligations
     under the Gas Sale Contract, and that the signer does not have knowledge of
     the  existence  as at the date of such  Officer's  Certificate  of any such
     default by Seagull or, if any such  default  existed or exists,  specifying
     the nature and period of  existence  thereof  and what  action  Seagull has
     taken or is taking or proposes to take with respect thereto;

          (f) prior to  becoming  liable  with  respect to any Funded  Debt,  an
     Officer's  Certificate of the Company  stating that the signer has reviewed
     the relevant  terms of this Agreement and that the Funded Debt with respect
     to which the Company proposes to become liable is permitted by Section 10.1
     and  showing  in  reasonable  detail  the  calculations  thereof,  with the
     confirmation  thereof endorsed thereon by independent public accountants of
     recognized  national  standing  selected by the Company and satisfactory to
     you, if you shall then be committed to purchase Notes  hereunder,  or shall
     hold any Notes,  except that such confirmation shall not be required if the
     officer  signing such  Officer's  Certificate  of the Company is engaged in
     accounting work of business, whether or not a certified, licensed or public
     accountant,  provided, however, that the Company's obligation to deliver an
     Officer's  Certificate  pursuant to this Section 6 (f), shall continue only
     as long
<PAGE>
     as it is obligated to deliver a similar Officer's  Certificate  pursuant to
     note  agreements  under which the  Company's  (i) 12.70% Series F Notes due
     July 1, 1995,  (ii) 12.80% Series G Notes due July 1, 2000 and (iii) 12.75%
     Series H Notes due July 1, 2000, were issued;

          (g)  promptly  upon  receipt  thereof,  copies  of all  audit  reports
     submitted to the Company or Seagull by  independent  public  accountants in
     connection  with each annual,  interim or special  audit of the accounts of
     the  Company  or any of its  Subsidiaries  or the  Division  made  by  such
     accountants;

          (h)  promptly  upon  transmission  thereof,  copies of each  report on
     Federal Energy  Regulatory  Commission  Form 2 (or similar report) filed by
     the Company with the PUC or any governmental authority succeeding to any of
     its functions (and, to the extent  requested by you or such holder,  copies
     of all  regular  and  periodic  reports  filed by the Company or any of its
     Subsidiaries with the PUC or any governmental  authority  succeeding to any
     of its functions)  and copies of all regular and periodic  reports filed by
     the Company or any of its Subsidiaries with any securities exchange or with
     the  Securities  and  Exchange  Commission  or any  governmental  authority
     succeeding to any of its functions;

          (i)  forthwith  upon any  principal  officer of the Company  obtaining
     knowledge of any condition or event which constitutes a Default or an Event
     of Default,  an Officer's  Certificate of the Company specifying the nature
     and period of existence thereof and what action the Company has taken or is
     taking or proposes to take with respect thereto; and

          (j) with reasonable  promptness,  such other information and data with
     respect to the Company of any of its  Subsidiaries  or the  Division or the
     performance  by the Company of this  Agreement or by Seagull of the Seagull
     Documents as from time to time may be reasonably requested.

     7. Inspection of Properties and Books and Confidentiality. 7.1. The Company
will permit you or your authorized  representative designated by you, so long as
you shall be committed to purchase Notes hereunder,  or shall hold any Notes, to
visit and inspect,  at your expense,  any of the properties of the Company,  its
Subsidiaries or the Division,  to examine its and their books of account (and to
make copies  thereof and take extracts  therefrom)  and to discuss its and their
affairs,  finances and accounts  (including  transactions,  agreements and other
relations with any stockholders) with, and to be advised as to the same by , its
and their officers and independent  public  accountants,  all at such reasonable
times and  intervals  as you may  desire,  provided  in all cases  that,  when a
Default or Event of Default  shall not have occurred and be  continuing,  notice
shall be given at least 24  hours  in  advance  to a  principal  officer  of the
Company. The Company shall be entitled to be present at all discussions with its
independent public accountants, provided that the Company hereby authorizes such
accountants  to discuss  with your  representatives  the  affairs,  finances and
accounts of the Company,  its Subsidiaries and the Division,  whether or not the
Company is present.  As a condition to exercising your  inspection  rights under
this  Section  7,  each of you  shall be  required  to  comply  with the  normal
requirements of the Company,  its Subsidiaries and the Division regarding health
and safety.
<PAGE>
     7.2. Confidentiality.  You agree that you will use your best efforts not to
disclose without the prior consent of the Company (other than to your employees,
auditors or counsel who need to know the information and who are informed of the
confidential  nature thereof, or to another holder of the Notes) any information
with respect to the Company or any  Subsidiary  which is  furnished  pursuant to
Section 6 or this  Section 7 and which is  designated  by the  Company to you in
writing as confidential, provided that you may disclose any such information (a)
as has become  generally  available  to the  public,  (b) as may be  required or
appropriate  in any report,  statement or testimony  submitted to any municipal,
state or Federal  regulatory body having or claiming to have  jurisdiction  over
you or to  the  National  Association  of  Insurance  Commissioners  or  similar
organizations  or their  successors,  (c) as may be required or  appropriate  in
response to any summons or subpoena or in connection with any litigation, (d) to
the extent that you believe it appropriate  in order to protect your  investment
in the Notes or in order to comply  with any law,  order,  regulation  or ruling
applicable to you or (e) to the  prospective  transferee in connection  with any
contemplated  transfer of any of the Notes by you,  provided that (except in the
case of financial statements) such prospective  transferee is informed by you of
the confidential nature of the information.

     8. Prepayment of the Series K Notes. 8.1. Fixed Prepayments.

          (a)  Prepayment  of the Series I Notes.  On July 1, 1997,  and on each
     July 1  thereafter  until the Series I Notes are paid in full,  the Company
     will prepay without  premium  $6,000,000  principal  amount of the Series I
     Notes or such  lesser  principal  amount  thereof as then  remains  unpaid,
     leaving $6,000,000  principal amount or such other principal amount thereof
     as then remains  unpaid,  of the Series I Notes for payment at their stated
     maturity on July 1, 2001.

          (b)  Prepayment  of the Series J Notes.  On July 1, 2000,  and on each
     July 1  thereafter  until the Series J Notes are paid in full,  the Company
     will prepay without  premium  $2,000,000  principal  amount of the Series J
     Notes or such  lesser  principal  amount  thereof as then  remains  unpaid,
     leaving $2,000,000 principal amount, or such other principal amount thereof
     as then remains  unpaid,  of the Series J Notes for payment at their stated
     maturity on July 1, 2004.

          (c)  Prepayment  of the Series K Notes.  On July 1, 2005,  and on each
     July 1  thereafter  until the Series K Notes are paid in full,  the Company
     will prepay without  premium  $2,000,000  principal  amount of the Series K
     Notes or such  lesser  principal  amount  thereof as then  remains  unpaid,
     leaving $2,000,000 principal amount, or such other principal amount thereof
     as then remains  unpaid,  of the Series K Notes for payment at their stated
     maturity on July 1, 2009.

          (d) No Relief From  Required  Prepayments.  No partial  payment of the
     Notes pursuant to Section 8.2 shall relieve the Company from its obligation
     to make the required prepayments provided for in this Section 8.1.

     8.2. Optional Prepayment with Premium. The Company may, at its option, upon
notice as  provided  in Section  8.5,  prepay at any time,  all, or from time to
time,  any part (in an  integral  multiple of $1,000 and a minimum of $50,000 of
each series of Notes at the principal amount so prepaid,  together with interest
accrued on the 
<PAGE>
principal  amount so prepaid to the date of prepayment,  plus a premium equal to
the Make-whole  Premium,  if any. Any optional  payment pursuant to this Section
8.2, shall be allocated  between the Series I Notes,  the Series J Notes and the
Series K Notes pro rata in accordance with the respective  outstanding principal
amounts of each Series.

     8.3.   Prepayment   in  Full  at  Option  of   Noteholders   under  Certain
Circumstances.  In the event  that (a)  substantially  all of the  assets of the
Company or the Division shall be subject to Total Taking or a Total  Destruction
or (b) the Division  Certificate is terminated,  canceled or changed in a manner
materially adverse to the Division,  the Company shall forthwith deliver to each
holder of any Note an Officer's  Certificate of the Company certifying as to the
occurrence  of such event and a notice  fixing a date  (which  shall be not less
than 60 or more than 90 days  after the  delivery  of such  notice) on which the
Company will make  prepayment  of the Notes if requested to do so as provided in
this Section 8.3, and at the written  request of the holders of at least 66 2/3%
in  principal  amount  of the  Notes at the time  outstanding,  received  by the
Company at any time within 30 days after delivery of such Officer's  Certificate
of the Company and such notice,  the Company will prepay,  on the date specified
therefor in such  notice,  all,  but not less than all, of the Notes at the time
outstanding, such prepayment to be made without premium.

     8.4. Allocation of Partial  Prepayments.  In the case of each prepayment of
less than all of a given Series of Notes, the principal amount of each Series of
Notes to be prepaid shall be allocated  (in integral  multiples of $1,000) among
all of the Notes of such Series at the time outstanding in proportion, as nearly
as  practicable,   to  the  respective  unpaid  principal  amounts  thereof  not
theretofore called for prepayment,  with adjustments, to the extent practicable,
to compensate for any prior prepayments not made exactly in such proportion.

     8.5.  Notice of Optional  Prepayments.  In the case of each  prepayment  of
Notes under  Section 8.2, the Company will give written  notice  thereof to each
holder of any of the  Notes not less than 30 nor more than 60 days  prior to the
date fixed for such prepayment, in each case specifying such date, the aggregate
principal  amount  of each  Series  of Notes to be  prepaid  on such  date,  the
principal amount of each Note, if any, held by such holder to be prepaid on such
date, the amount of interest on such  principal  amount accrued to such date and
the premium, if any, applicable to such prepayment.

     8.6. Maturity;  Exchange or Notation,  Surrender,  etc. In the case of each
prepayment  of Notes,  the  principal  amount of each note to be  prepaid  shall
mature  and  become  due and  payable  on the date  fixed  for such  prepayment,
together with  interest on such  principal  amount  accrued to such date and the
applicable  premium,  if any.  Except as  otherwise  provided in Section 20, the
Company  may, as a condition  to  prepaying  any Note in part only,  require the
holder  thereof to make such Note  available to require the Company at the place
of payment  specified  therein or pursuant  thereto for notation  thereon of the
portion of the principal amount thereof then being prepaid. 
<PAGE>
Any Note  prepaid in full shall be  surrendered  to the Company and canceled and
shall  not be  reissued,  and no Note  shall be  issued  in lieu of any  prepaid
principal amount of any Note.

     8.7.  Purchase  of Notes.  The  Company  will not,  and will not permit any
Subsidiary  or  Affiliate of the Company to,  purchase or otherwise  acquire any
Note except  pursuant to the  provisions  for  prepayment  provided  for in this
Section 8.

     9. General Covenants.  9.1. Accounting and Reserves.  The Company will, and
will cause each  Subsidiary  to, (a) maintain a standard  and uniform  system of
accounting  and keep proper books of record and account in which full,  true and
correct  entries  will be  made  of its  transactions,  all in  accordance  with
Required  Accounting  Practice,  and (b) set aside on its books for each  fiscal
year  all  such  proper  reserves  for  depreciation,  depletion,  obsolescence,
amortization,  bad debts and other  purposes in connection  with its business as
shall be required by Required Accounting Practices.

     9.2. Payment of Taxes and Claims;  Tax Sharing  Agreement.  

          (a) The  Company  will,  and will  cause each  Subsidiary  to, pay all
     taxes,  assessments,  rates,  excises,  levies, fees and other governmental
     charges imposed upon it or any of its properties or assets or in respect of
     any of its  franchises,  business,  income or profits before any penalty or
     interest accrues thereon,  and all claims (including,  without  limitation,
     claims for labor,  services,  materials  and  supplies) for sums which have
     become  due and  payable  and  which by law have or might  become a lien or
     charge upon any of its  properties or assets,  provided that no such charge
     or claim need be paid if the amount,  applicability  or validity thereof is
     currently  being  contested in good faith by  appropriate  action  promptly
     initiated and diligently conducted and if such reserve or other appropriate
     provision,  if any, as shall be required  by Required  Accounting  Practice
     shall have been made therefor.

          (b) The Company  will not enter into any  amendment of the Tax Sharing
     Agreement which would materially  adversely affect the Company's obligation
     to make or right to receive payments thereunder.

     9.3. Corporate  Existence,  etc. The Company will preserve and keep in full
force and effect its corporate  existence,  rights and  franchises  and those of
each of its  Subsidiaries,  except as otherwise  permitted by Sections  10.7 and
10.8 and except where any such failure to maintain  such  existence,  rights and
franchises of its  Subsidiaries  could no be expected to have a material adverse
effect on the Company and its Subsidiaries taken as a whole.

     9.4. Maintenance of Properties;  Conduct of Business;  Company Certificate.

          (a) The Company  will  maintain  or cause to maintain in good  repair,
     working order and condition all  properties  used or useful in the business
     of the  Company  and its  Subsidiaries,  and from time to time will make or
     cause  to be  made  all  appropriate  repairs,  renewals  and  replacements
     thereof,  so that the business  carried on in  connection  therewith may be
     properly and advantageously conducted at all times.
<PAGE>
          (b) The Company will carry on its business and will cause the business
     of its  Subsidiaries to be carried on in an efficient  manner and will not,
     and will not permit any  Subsidiary  to, engage in any business  other than
     the  transmission,  transportation  or  distribution  of natural gas and in
     businesses directly related thereto,  provided that neither the Company nor
     any  Subsidiary  will engage in the business of exploring for or developing
     natural gas or other hydrocarbon reserves.

          (c) The  Company  will at all times  perform  and  observe  all of the
     covenants,  agreements,  terms, conditions and limitations contained in the
     Company  Certificate and do all things  necessary to keep unimpaired all of
     the Company's  rights  thereunder and to prevent any default by the Company
     thereunder or any  forfeiture or impairment  thereof.  The Company will not
     cancel or  terminate,  or permit the  cancellation  or  termination  of, or
     default  under,  or  make  or  agree  to  any  amendment,  modification  or
     alteration which would result in a material adverse change in the rights of
     the Company under the Company Certificate.

     9.5.  Insurance.  The Company  will keep or cause to be kept all of its and
its  Subsidiaries'  property  and  business  of a character  usually  insured by
companies of  established  reputation  similarly  situated  insured by reputable
insurance  companies or associations of high standing  against loss or damage by
fire and such other hazards and risks  (including,  without  limitation,  public
liability,  workmen's  compensation,  war risk and earthquake risk if and to the
extent  war  risk  and  earthquake  risk  insurance  are at the  time  generally
available)  as are  customarily  insured  against by  companies  of  established
reputations  similarly situated, in such amounts as such properties and business
are usually insured by such companies.  The Company will comply,  and will cause
each  Subsidiary to comply,  with all the terms and  conditions of all insurance
policies  with respect to its property and business or any part thereof and with
all requirements of Boards of Underwriters or similar bodies applicable thereto.

     10. Particular  Covenants.  10.1.  Limitation on Indebtedness.  (a) General
Restrictions on Company Funded Debt. The Company will not directly or indirectly
create,  incur,  issue,  assume,  guarantee,  agree to purchase or repurchase or
provide  funds in respect of or  otherwise  become  liable  with  respect to any
Funded  Debt,  unless  immediately  after  giving  effect  thereto  and  to  the
application of proceeds thereof,

          (i) aggregate principal amount of all Consolidated Funded Debit of the
     Company and its Wholly-Owned  Domestic Subsidiaries at the time outstanding
     would not exceed 65% of the then Consolidated  Total  Capitalization of the
     Company and its Wholly-Owned Domestic Subsidiaries; and

          (ii)  consolidated  Net  Income  as  Defined  of the  Company  and its
     Wholly-Owned  Domestic  Subsidiaries  for the preceding  fiscal year of the
     Company plus income taxes and interest on  Indebtedness  of the Company and
     its  Wholly-Owned   Domestic  Subsidiaries  deducted  in  determining  such
     Consolidated Net Income as Defined plus the amount of Division Income Taxes
     for  such  preceding  fiscal  year  would be at  least  200% of the  annual
     interest charges on all such Indebtedness then outstanding.
<PAGE>
               (b) Restriction on Consolidated Total Debt. The Company will not,
          and will not permit any Wholly-Owned Domestic Subsidiary,  directly or
          indirectly,  to create,  incur,  issue,  assume,  guarantee,  agree to
          purchase or  repurchase  or provide  funds in respect of or  otherwise
          constitute  Consolidated  Total Debt unless  immediately  after giving
          effect  thereto  and  the  application  of the  proceeds  thereof  the
          aggregate  principal  amount of  Consolidated  Total  Debt at the time
          outstanding  would not  exceed 75% of the then  Consolidated  Adjusted
          Total  Capitalization  of the  Company and its  Wholly-Owned  Domestic
          Subsidiaries.

               (c)  Restrictions  on  Subsidiary   Funded  Debt  and  Short-Term
          Borrowing.  The Company  will not permit any  Subsidiary,  directly or
          indirectly,  to create,  incur,  issue,  assume,  guarantee,  agree to
          purchase or  repurchase  or provide  funds in respect of or  otherwise
          become liable with respect to any Funded Debt or Short-Term  Borrowing
          other than (i)  secured or  unsecured  Funded  Debt of a  Wholly-Owned
          Domestic  Subsidiary  owing to the Company or a Wholly-Owned  Domestic
          Subsidiary  and (ii)  secured or unsecured  Short-Term  Borrowing of a
          Wholly-Owned   Domestic   Subsidiary   owing  to  the   Company  or  a
          Wholly-Owned Domestic Subsidiary.

               (d)  Prohibition  of  Incurrence  of Funded  Debt and  Short-Term
          Borrowing During Gas Sale Contract  Payment  Default.  Notwithstanding
          the foregoing provisions of this Section 10.1, neither the Company nor
          any Subsidiary  will directly or  indirectly,  create,  incur,  issue,
          assume,  guaranty, agree to purchase or repurchase or provide funds in
          respect of or otherwise  become liable with respect to any Funded Debt
          or Short-Term  Borrowing at a time when a payment default has occurred
          and is  continuing  by Seagull in the due and punctual  payment of the
          price for natural  gas under the Gas Sale  Contract  and such  default
          shall be continuing.

     10.2.  Restrictions on Investments,  Loans,  etc. The Company will not, and
will not permit any Subsidiary to, directly or indirectly  purchase or otherwise
acquire  or own  any  Securities  of any  other  Person,  or  make  any  capital
contribution,  loan or advance to any other  Person,  or be obligated to provide
funds to guarantee any  obligation of any other Person,  or otherwise  invest in
any other  Person,  including,  in any such case, a transfer of property to such
person for an aggregate  consideration of less than the amount determined by the
Company  in  good  faith  to be  the  aggregate  fair  value  of  such  property
(collectively "Investments"), except that:

          (a) the Company and any  Subsidiary  may purchase  and own  marketable
     direct obligations of the United States of America maturing within one year
     from the date of acquisition thereof;
<PAGE>
          (b) the Company and any Wholly-Owned  Domestic Subsidiary may purchase
     and own (i)  certificates  of  deposit of any  member  bank of the  Federal
     Reserve  System which either has (x) a combined  capital and surplus of not
     less than  $250,000,000  or (y) which has a Standard  & Poor's  corporation
     credit  rating  on its  outstanding  securities  of not  less  than AA or a
     Moody's  Investors  Service  corporation  credit rating on its  outstanding
     securities  of not less than Aa2, and (ii)  certificates  of deposit of the
     National Bank of Alaska and of First  National  Bank of Anchorage,  in each
     case not exceeding $1,000,000 in the aggregate at any time;

          (c)  subject  to  Section  10.3,  the  Company  may  purchase  and own
     Securities  of,  or make  capital  contributions  to,  or make  any loan or
     advance to, or be obligated to provide funds to, any Wholly-Owned  Domestic
     Subsidiary or any  corporation  which  simultaneously  therewith  becomes a
     Wholly-Owned Domestic Subsidiary;

          (d) so long as no Default or Event of Default  shall have occurred and
     be  continuing,  the  Company  may  make  any loan or  advance  to  Seagull
     evidenced by Intercompany  Notes,  which  Intercompany Notes are secured by
     the  Intercompany  Mortgage  and bear  interest  at the rate of required by
     Section  2.02 of the  Intercompany  Mortgage,  but only if  either  (i) the
     proceeds  of any such loan or advance  made  after  December  31,  1991 are
     applied  solely to  finance,  or to replace  funds used in  financing,  the
     construction,  acquisition or improvement after January 1, 1992 of property
     which is used or useful or intended for use in the Division's  business and
     which is subjected to the lien of the Intercompany  Mortgage, or (ii) after
     giving  effect to such loan or advance,  the Company  would be permitted to
     make at least $1.00 in Restricted Stock Payments pursuant to Section 10.3;

          (e) the  Company may  purchase  and own  commercial  paper which has a
     credit rating not less than (i) A-2 from Standard and Poor's Corporation or
     (ii) P2 from Moody's Investors Service, Inc., and which is not issued by an
     Affiliate of the Company; and

          (f) investments in money market funds  substantially all of the assets
     of which  consist of  certificates  of  deposits of the type  described  in
     Section 10.2 (b and/or  commercial  paper of the type  described in Section
     10.2 (e).

For the purpose of clause (d) above,  any  extension or renewal of  Intercompany
Notes  shall  constitute  a new  loan or  advance  to the  Division  unless  the
requirements with respect to fixing the interest rate applicable to Intercompany
Notes set forth in Section 2.02 of the  Intercompany  Mortgage are complied with
as of the time of such extension and renewal.

     10.3.  Restricted  Investments,  Restricted  Stock  Payments and Restricted
Subordinated Debt Payments. The Company will not, directly or indirectly,

          (a)  make any  Restricted  Investment,  Restricted  Stock  Payment  or
     Restricted  Subordinated  Debt  Payment so long as any  Default or Event of
     Default shall have occurred and be continuing; or
<PAGE>
          (b)  make any  Restricted  Investment,  Restricted  Stock  Payment  or
     Restricted  Subordinated  Debt  Payment  from and after  December 31, 1991,
     unless, after giving effect to the proposed action, the aggregate amount of
     such  Restricted   Investment,   such  Restricted  Stock  Payment  or  such
     Restricted Subordinated Debt Payment plus all other Restricted Investments,
     Restricted  Stock Payments and Restricted  Subordinated  Debt Payments made
     from and after December 31, 1991 plus the aggregate unpaid principal amount
     of all loans and advances made by the Company to Seagull after December 31,
     1991  pursuant to clause (d) (ii) of Section  10.2 would not exceed the sum
     of the following:

          (i) $10,000,000; plus

          (ii) Consolidated Adjusted Net Earnings accrued during the period from
     December 31, 1991 to the end of the next preceding  quarterly fiscal period
     (the "Computation Period"); plus

          (iii) the  aggregate  amount of net cash  proceeds to the Company from
     sales during the Computation Period of shares of any class of its stock;

     provided  that the  restrictions  in this  paragraph  (b) shall not prevent
     Restricted  Investments  not exceeding  $500,000 in the aggregate,  but the
     aggregate amount of each such Restricted  Investment shall  nevertheless be
     included  in  all  subsequent  calculations  of  the  aggregate  amount  of
     Restricted Investments pursuant to this paragraph (b).

     The Company will not, directly or indirectly,  declare any dividend (except
a dividend payable solely in Common Stock of the Company) for payment,  or order
any  distribution  to be made to any holders of any stock of the  Company,  on a
date more than 60 days after the declaration of such dividend or the ordering of
such  distribution,  as the  case  may be.  The  Company  will  not  permit  any
Subsidiary  to  purchase  or  otherwise  acquire  or own  shares of stock of the
Company of any class or any Subordinated  Indebtedness or any warrant, option or
right  to  purchase,  subscribe  for or  otherwise  acquire  any  such  stock or
securities.

     10.4. Restrictions of Lease-Backs, Rental Obligations, etc. (a) The Company
will not, and will not permit any  Subsidiary  to, become or be or remain liable
as lessee,  directly  or  indirectly,  upon or with  respect to any lease of any
property, real or personal,

          (i)  previously  owned  by the  Company  or a  Subsidiary  and sold or
     transferred by the Company or such Subsidiary  after December 31, 1991 with
     a view to the leasing of the same back to the Company or a Subsidiary, or
<PAGE>
          (ii) on terms involving or contemplating the substantial equivalent of
     a purchase thereof or an eventual rental thereof at a rent materially below
     the fair market value thereof at the time the lease is entered into, or

          (iii)  involving  any  option to the  lessee to  purchase  the  leased
     property for an amount  materially  below the fair market value  thereof at
     the time the lease is entered into.

     (b) The  Company  will not permit the  aggregate  amount  (determined  on a
consolidated  basis)  of the  net  rental  obligations  of the  Company  and its
Subsidiaries  for any current or future 12-month period under all leases of real
and/or personal  property to be at any time in excess of $100,000,000  exclusive
of rental obligations under

          (i) leases of office and warehouse space,

          (ii) leases of office furniture and equipment, automobiles, airplanes,
     mobile  transportation   equipment,   stores  equipment,   shop  equipment,
     laboratory  equipment,  tools and work equipment and mobile  communications
     equipment,

          (iii) leases having a term  (including  terms of renewal at the option
     of the lessor or the lessee,  whether or not the lease has theretofore been
     renewed) expiring less than 3 years after the time of determination, and

          (iv) leases of and leasehold  interests in oil and gas  properties and
     the land covered  thereby having net rental  obligations of the Company and
     its Subsidiaries for any current or future 12-month period not exceeding an
     aggregate of $75,000.

For purposes of this paragraph (b), the net rental obligations of the Company or
any  Subsidiary for any current or future  12-month  period under any such lease
shall be the sum of the rental  and other  amounts  required  to be paid in such
12-month  period  by the  Company  or  such  Subsidiary,  as the  case  may  be,
thereunder  and with respect  thereto,  not including,  however  (whether or not
designated in such lease as rental or additional rental payable thereunder), (x)
amounts not exceeding  $75,000 in the aggregate during any such 12-month period,
paid as  "bonuses" or similar  charges  with  respect to the entering  into such
leases of oil and gas properties and lands,  and (y) any amounts  required to be
paid on account of maintenance and repairs, insurance, taxes, assessments, water
rights and similar charges.

     10.5. Restrictions on Liens, etc. The Company will not, and will not permit
any Subsidiary to, directly or indirectly, create, assume or suffer to exist any
mortgage,  lien,  pledge,  charge or encumbrance on or conditional sale or other
title retention arrangement with respect to or security in any property or asset
of the Company or any Subsidiary,  whether now owned or hereafter  acquired,  or
upon any income or profits  therefrom,  or give its consent to any subordination
of any right or claim of the Company or such Subsidiary to any right or claim of
any other Person, other than

          (a) liens on property of a Subsidiary  securing  Indebtedness  of such
     Subsidiary owing to the Company;

          (b) liens of  taxes,  assessments  and  governmental  charges  not yet
     payable,  or payable  without  penalty so long as so  payable,  or deposits
     created in the
<PAGE>
     ordinary  course of business as security for compliance  with laws imposing
     taxes, assessments or governmental charges;

          (c) liens of taxes,  assessments and governmental charges the validity
     of which are being  contested in good faith by appropriate  action promptly
     initiated and diligently  conducted,  if such reserve or other  appropriate
     provision,  if any, as shall be required  by Required  Accounting  Practice
     shall have been made therefor;

          (d) carriers', warehousemen's, materialmen's, mechanics', repairmen's,
     employees'  or other  similar  liens for  services  arising in the ordinary
     course  of  business  not yet due or  being  contested  in  good  faith  by
     appropriate  action promptly  initiated in good faith by appropriate action
     promptly  initiated  and  diligently  conducted,  if such  reserve or other
     appropriate provision,  if any, as shall be required by Required Accounting
     Practice shall have been made therefor;

          (e) liens incurred or deposits made in the ordinary course of business
     in connection with workmen's compensation, unemployment insurance and other
     social security, or to secure the performance of leases ( provided that all
     such liens incurred and deposits made in connection with such leases do not
     at any time exceed  $250,000),  tenders statutory  obligations,  surety and
     appeal  bonds,  performance  and  return-of-money  bonds and other  similar
     obligations  (exclusive  of  obligations  incurred in  connection  with the
     borrowing of money or the obtaining of advances or credit);

          (f) any  judgment  lien,  unless the  judgment  it secures  shall not,
     within 30 days after the entry thereof,  have been  discharged or execution
     thereof stayed pending appeal,  or shall not have been discharged within 30
     days after the expiration of any such stay;

          (g) leases  granted in the  ordinary  course of  business or leases to
     which any property  acquired in the ordinary course of business is subject,
     provided that such leases are permitted by this Agreement;

          (h)  encumbrances  (other  than  to  secure  the  payment  of  money),
     easements,  rights-of-way,  servitudes,  permits, reservations,  leases and
     other  rights in respect of gravels,  minerals,  oil,  gases or water or in
     respect of grazing,  logging,  mining, canals,  ditches,  reservoirs or the
     like, conditions,  covenants,  party wall agreements or other restrictions,
     or easements for streets,  alleys,  highways,  pipe lines, telephone lines,
     power lines,  railways and other  rights-of-way,  on, over or in respect of
     property  (other than property used or to be used  primarily for compressor
     stations) owned by the Company or a Subsidiary or over which the Company or
     Subsidiary owns  rights-of-way,  easements,  permits or licenses,  provided
     that such  encumbrances,  easements,  rights-of-way,  servitudes,  permits,
     reservations,  leases, rights, conditions, covenants, party wall agreements
     or other restrictions are such that they will not either individually or in
     the aggregate,  if exercised or availed of,  interfere  materially with the
     proper use or operation of the  property  affected  thereby for the purpose
     for which such property is or is to be used, and provided, further, that,
<PAGE>
     in the case of such of the same as relate only to  property  on, over or in
     respect  of  which  the  Company  or a  Subsidiary  owns  rights-of-way  or
     easements  exclusively  for pipe line  purposes or locations  for regulator
     stations or other pipe line facilities  (other than  compressor  stations),
     the Company or such  Subsidiary  has power under eminent  domain or similar
     statutes to remove the same;

          (i)  rights  reserved  to or  vested  in any  municipality  or  public
     authority  to  control  or  regulate  any  property  of  the  Company  or a
     Subsidiary or to use such property of the Company or a Subsidiary or to use
     such  property in any manner  which does not  materially  impair the use of
     such  property for the purposes for which it is held by the Company or such
     Subsidiary;

          (j) obligations or duties,  affecting the property of the Company or a
     Subsidiary,  to any  municipality  or public  authority with respect to any
     certificate of public convenience and necessity,  franchise, grant, license
     or permit which do not  materially  impair the use of such property for the
     purposes for which it is held by the Company or such Subsidiary;

          (k) zoning laws and ordinances;

          (l)  irregularities in or deficiencies of title to any  rights-of-way,
     licenses or permits for pipe lines,  telephone  lines,  power lines,  water
     lines and/or  appurtenances  thereto or other improvements  thereon, and to
     any real estate used or to be used primarily for  right-of-way  purposes or
     for regulator stations or other pipe line facilities (other than compressor
     stations),  provided  that the Company or a Subsidiary  shall have obtained
     from  the  apparent  owner  of the  land  or  estate  covered  by any  such
     right-of-way,  license or permit a  sufficient  right,  by the terms of the
     instrument granting such right-of-way, license or permit to the use thereof
     for the construction,  operation or maintenance of the lines, appurtenances
     or improvements  for which the same is used or is to be used, and provided,
     further, that the Company or such Subsidiary has power under eminent domain
     or similar statutes to remove such irregularities or deficiencies;

          (m)  reservations  and other matters  relating to titles to leases and
     leasehold  interests  in oil  and gas  properties  and  the  lands  covered
     thereby,  if such  reservations and other matters do not, in the aggregate,
     materially  affect  the  marketability  of the  title  thereto,  and do not
     materially  impair the use of such leases or  leasehold  interests  for the
     purposes for which they are held or the value of the interest therein;

          (n)  liens  and  other   encumbrances   incurred  in  connection  with
     Indebtedness  of the  Company  not in  excess  of  $10,000,000  at any time
     outstanding, issued by a municipality or development corporation to finance
     the  construction  of premises  to be used by the  Company or a  Subsidiary
     thereof,  the  interest  on which is exempt from  federal  income tax under
     Section  103(b)  of  the  Code,   provided  that  the  incurrence  of  such
     Indebtedness secured thereby is permitted by Section 10.1;
<PAGE>
          (o) purchase money mortgages,  liens or security  interests in respect
     of  property  either  acquired  by the Company or upon which the Company is
     constructing  improvements  after the date of this Agreement,  or mortgage,
     liens or security  interests  existing  in respect of such  property at the
     time of acquisition thereof, securing Indebtedness of the Company, provided
     that (i) no such  mortgage,  lien or security  interest  shall extend to or
     cover any other property,  or secure any other  Indebtedness of the Company
     or any Subsidiary, (ii) the incurrence of such Indebtedness secured thereby
     is permitted by Section 10.1,  (iii) the aggregate  principal amount of all
     Indebtedness  of the  Company  secured  by all such  mortgages,  liens  and
     security interests shall not exceed $2,500,000 at any time outstanding, and
     (iv) the aggregate principal amount of all Indebtedness secured by all such
     mortgages,  liens  or  other  security  interests  in  respect  of any such
     property  shall  not  exceed  90% of the  cost or  fair  market  value  (as
     determined by the Company in good faith), whichever shall be lower, of such
     property at the time of the acquisition thereof by the Company; and

          (p) liens and other encumbrances resulting from the placement in trust
     of United States  government  securities  for the benefit of holders of any
     Indebtedness of the Company or such Subsidiary  under  circumstances  where
     such  Indebtedness  is deemed to be extinguished  under generally  accepted
     accounting  principles but for which the Company or such Subsidiary remains
     legally  liable,  provided that the current  market value as of the date of
     such  placement  in trust of such  securities  shall not  exceed the unpaid
     balance of such Indebtedness.

     The Company will not, and will not permit any  Subsidiary  to, sign or file
in any state or other  jurisdiction  a  financing  statement  under the  Uniform
Commercial Code which names the Company or such Subsidiary as debtor or sign any
security  agreement  authorizing  any secured party  thereunder to file any such
financing statement, except, in any such case, a financing statement filed or to
be filed to perfect or protect a  security  interest  which the  Company or such
Subsidiary  is entitled to create,  assume or incur,  or permit to exist,  under
this Section 10.5.

     10.6.  Issuance  and  Sale,  etc.  of  Subsidiary  Stock;   Disposition  of
Subsidiary Stock and Indebtedness. The Company will not permit any Subsidiary to
issue,  sell or  otherwise  dispose of any shares of stock of any class,  or any
security  convertible  into or exchangeable  for or carrying rights to subscribe
for shares of stock of any class,  of such  Subsidiary  to any Person other than
the Company or a Wholly-owned  Domestic Subsidiary,  except to qualify directors
if  required  by law.  The  Company  will  not  permit  any  Subsidiary  to have
outstanding  any shares of Preferred  Stock,  except  shares of Preferred  Stock
owned  or held by the  Company  or a  Wholly-Owned  Domestic  Subsidiary  of the
Company.  The Company will not sell or otherwise  dispose of any shares of stock
or any Indebtedness of any Subsidiary or permit any Subsidiary to sell, transfer
or  otherwise  dispose  of  any  shares  of  stock  or any  Indebtedness  of any
Subsidiary  except (a) to qualify  directors  if  required  by law or (b) to the
Company or a Wholly-Owned Domestic Subsidiary of the Company.

     10.7.  Consolidation or Merger of  Subsidiaries;  Disposition of Subsidiary
Property  as an  Entirety.  The  Company  will  not  permit  any  Subsidiary  to
<PAGE>
consolidate  with  or  merge  into  any  Person  other  than  the  Company  or a
Wholly-Owned Domestic Subsidiary of the Company. The Company will not permit any
Subsidiary to sell,  lease or otherwise  dispose of its properties and assets as
an  entirety  or  substantially  as an  entirety  except  to  the  Company  or a
Wholly-Owned Domestic Subsidiary of the Company.

     10.8.   Consolidation  or  Merger  of  Company;   Disposition  of  Company;
Disposition of Company Property as an Entirety. The Company will not consolidate
with,  merge into, or sell,  lease or otherwise  dispose of its  properties  and
assets as an entirety or substantially as an entirety to, any Person, unless

          (a) the successor  formed by or resulting from such  consolidation  or
     merger or to which such disposition shall have been made shall be a solvent
     corporation  organized  under the laws of the United States of America or a
     state thereof or the District of Columbia;

          (b)  simultaneously  with such  consolidation,  merger or disposition,
     such successor  corporation shall execute and deliver to each holder of any
     of the  Notes  at the  time  outstanding  an  instrument,  satisfactory  in
     substance and form to each such recipient,  expressly  assuming the due and
     punctual payment of the principal of and the premium,  if any, and interest
     on all of the Notes at the time outstanding,  according to their tenor, and
     the  due  and  punctual  performance  and  observance  of  all  the  terms,
     covenants, agreements and conditions of such Notes and this Agreement to be
     performed  or  observed  by the  Company,  to the  same  extent  as if such
     successor  corporation  had originally  executed this Agreement in place of
     the Company and had been the original maker of such Notes;

          (c) immediately after giving effect to such  consolidation,  merger or
     sale,  the Company  could incur $1 of additional  Indebtedness  pursuant to
     Section 10.1 (a) and 10.1 (b) of this Agreement; and

          (d) immediately after giving effect to such  consolidation,  merger or
     sale (and the  execution  and  delivery  of the  instrument  of  assumption
     required  under  clause (b) of this  Section  10.8),  no condition or event
     shall exist which constitutes a Default or an Event of Default.

No sale,  lease,  transfer  or other  disposition  of assets  permitted  by this
Section 10.8 shall have the effect of releasing  Alaska Pipeline Company (or any
corporation  which shall at any time have assumed the liabilities or obligations
of the Company hereunder to with respect to any of the Notes) from any liability

<PAGE>

or obligation hereunder or with respect to any of the Notes.

     10.9.  Disposition of Company and Subsidiaries'  Property. The Company will
not, and will not permit any  Wholly-Owned  Domestic  Subsidiary to, directly or
indirectly sell or otherwise  dispose of any of its properties and assets (other
than in a  transaction  permitted by Section 10.7 or 10.8)  unless,  immediately
after giving effect to any such disposition,

          (a) the Aggregate  Value of all such  properties and assets so sold or
     disposed of during the period of 12 consecutive calendar months ending with
     the calendar month of the date of such disposition  would not exceed 10% of
     Consolidated  Net  Tangible  Assets  of the  Company  and its  Wholly-Owned
     Domestic Subsidiaries as at the December 31 next preceding the date of such
     disposition; or

          (b) the Company could become liable (in  compliance  with Section 10.1
     (a) (i)) with respect to $1 of additional Funded Debt.

If the aggregate net cash proceeds of all such sales and other  dispositions  of
assets of the  Company and its  Wholly-Owned  Domestic  Subsidiaries  during any
fiscal year of the Company,  commencing  with the fiscal year ending on December
31, 1991,  shall  exceed the  aggregate  amount  expended by the Company and its
Wholly-Owned  Domestic  Subsidiaries  offset  against such net cash  proceeds as
hereinafter  provided,  then and in each such case the Company  will,  not later
than November 15 of the next  succeeding  fiscal year,  apply such excess to the
prepayment  of its Funded Debt (other than  tax-exempt  Funded Debt) at the time
outstanding. For purposes of the fore-going, there may be offset against the net
cash proceeds of sales and other  dispositions  of properties  and assets during
any fiscal  year all or any  portion of the  aggregate  amount  expended  by the
Company and its  Wholly-Owned  Subsidiaries  for  property,  plant and equipment
during the period of such fiscal  year and the next  following  12-month  period
thereafter, provided that no portion of the amount so expended which has been so
offset  against the  proceeds of sales and  dispositions  shall again be offset,
directly or indirectly, against the proceeds of any other sales or dispositions.

     10.10. Gas Contracts. The Company will at all times perform and observe all
the material covenants, agreements, terms, conditions and limitations applicable
to it contained in the Gas Contracts,  and will do all things  necessary to keep
unimpaired  all its  material  rights  thereunder  and to prevent  any  material
default thereunder or any material forfeiture or impairment thereof.  Nothing in
this  Section  10.10 will  permit the  Company to take  action,  or fail to take
action,  that could result in the  termination  of any of the Gas Contracts or a
setoff of amounts  owing to the  Company  under the Gas  Contracts.  In case the
Company shall at any time receive any notice, demand or other communication from
any other party to any of the Gas Contracts  relating to any alleged,  potential
or  actual  material  default  thereunder  or  material  breach  of  any  of the
covenants,  agreements,  terms, conditions or limitations thereof, or purporting
to terminate or in any other way materially  adversely  affect the rights of the
Company  thereunder,  the Company will immediately deliver to the holders of all
Notes a copy of such notice, demand or other communication. The Company will not
amend, modify, supplement,  surrender, cancel, terminate or in any way waive any
covenant,  agreement, term, condition or limitation of any of the Gas Contracts,
except that the Company may amend, modify or supplement any of the Gas Contracts
if such amendment,  modification or supplement is desirable in, or will not have
a material adverse effect on, the business of the Company and will not be in any
way prejudicial to the holders of the Notes.

     10.11.  Intercompany  Notes, etc. The Company will not transfer,  assign or
encumber any of the  Intercompany  Notes or its rights and privileges  under the
<PAGE>
Intercompany  Notes or its rights and privileges under the Intercompany Notes or
its rights and privileges under the Intercompany  Mortgage, nor will the Company
amend, modify, supplement,  surrender, cancel, terminate or in any way waive any
covenant,  agreement, term, condition or limitation of the Intercompany Mortgage
or any Intercompany Note, unless,  such action is desirable in, or will not have
a material adverse effect on, the business of the Company and will not be in any
way  prejudicial to the holders of the Notes.  The Company will promptly  notify
the holders of the Notes in the event it becomes aware of any default under,  or
material  breach  of any of the  covenants,  agreements,  terms,  conditions  or
limitations  contained in, the Intercompany  Mortgage or any of the Intercompany
Notes.  The Company will cause the  Intercompany  Mortgage  and all  supplements
thereto  at all  times to be  recorded,  registered  and  filed  and to be kept,
recorded,  registered and filed in such manner and in such places,  and will pay
or cause to be paid all such mortgage registration,  recording, filing and other
taxes  and  fees,  and will  comply or cause  Seagull  to  comply  with all such
statutes  and  regulations,  all as may be  required  by law in  order  fully to
create, preserve,  maintain and protect the lien of the Intercompany Mortgage on
the property subject thereto.

     10.12. Compliance with ERISA. The Company will not, and will not permit any
Subsidiary or Related Person to,

          (a) engage in any  transaction in connection with which the Company or
     any Subsidiary could be subject to either a civil penalty assessed pursuant
     to Section 502 (i) of ERISA or a tax  imposed by Section  4975 of the Code,
     terminate any Plan (other than a Multiemployer  Plan) in a manner,  or take
     any other action with  respect to any such Plan,  which could result in any
     liability of the Company or any Subsidiary to the Pension Benefit  Guaranty
     Corporation, fail to make full payment when due of all amounts which, under
     the  provisions of  applicable  law, or the terms of any Plan or collective
     bargaining  agreement,  the Company or any Subsidiary is required to pay as
     contributions   thereto,   or  permit  to  exist  any  accumulated  funding
     deficiency,  whether or not waived,  with respect to any Plan (other than a
     Multiemployer  Plan),  if, in any such  case,  such  penalty or tax or such
     liability,  or the failure to make such  payment,  or the existence of such
     deficiency, as the case may be, could have a material adverse effect on the
     Company or any of its Subsidiaries;

          (b) permit the  aggregate  present  value of all  benefit  liabilities
     under all Plans maintained at such time by the Company,  any Subsidiary and
     any Related  Persons (other than  Multiemployer  Plans) that are subject to
     Title IV of ERISA to exceed the  aggregate  current  value of the assets of
     such Plans allocable to such benefit  liabilities by more than  $2,500,000;
     or

          (c) permit the  aggregate  complete  or partial  withdrawal  liability
     under Title IV of ERISA with respect to Multiemployer Plans incurred by the
     Company, its Subsidiaries and Related Persons to exceed $3,000,000.

As used in this Section 10.12, the term "accumulated funding deficiency" has the
meaning specified in Section 302 of ERISA and Section 412 of the Code, the terms
"present value,"  "benefit  liabilities" and "current value" have the respective
meanings specified in Sections 3 and 4001 of ERISA.

     11. Remedies. 11.1. Events of Default;  Acceleration. If any one or more of
the following events ("Events of Default") shall occur and be continuing:

          (a) if default  shall be made by the  Company in the due and  punctual
     payment of any  principal  or premium,  if any, on any Note when and as the
     same shall become due and payable,  whether at maturity or a date fixed for
     prepayment or by declaration or otherwise;

          (b) if default  shall be made in the due and  punctual  payment of any
     interest  on any  Note  when  and as such  interest  shall  become  due and
     payable, and such default shall have continued for a period of 5 days;

          (c) if  default  shall  be made  by  Seagull  in the due and  punctual
     payment of any principal or premium,  if any, on any Intercompany Note when
     and as the same shall become due and payable, whether at maturity or a date
     fixed for prepayment or by declaration or otherwise;

          (d) if  default  shall  be made  by  Seagull  in the due and  punctual
     payment of any interest on any Intercompany  Note when and as such interest
     shall become due and payable,  and such default shall have  continued for a
     period of 5 days;

          (e) if  default  shall be made by the  Company in the  performance  or
     observance of any term contained in Section 9.2, 9.3, 9.4(b), 9.4 (c) or 10
     (other than immaterial defaults under Section 10.2, 10.4 and 10.5);

          (f) if default  shall be made by the  Company in the  performance  and
     observance  of any term and  provision  of  Section  10,  other  than those
     referred to above in this Section 11.1,  and if capable of being  remedied,
     such default shall continue for 30 days;

          (g) if default shall be made in the  performance  or observance of any
     term  contained in this  Agreement  (other than those  referred to above in
     this Section  11.1),  and such default shall have continued for a period of
     30 days after  written  notice  thereof to the Company by the holder of any
     Note;

          (h) if  default  shall  be  made  by  Seagull  in the  performance  or
     observance of any term contained in Section 5 of the  Inducement  Agreement
     (other than immaterial defaults under Section 5.1, 5.2, 5.4 and 5.5);

          (i) if default shall be made by Seagull in  performance  or observance
     of any term contained in Section 5 of the Inducement Agreement,  other that
     those referred to above in this Section 11.1.,  and such default shall have
     continued for a period of 30 days;
<PAGE>
          (j) if  default  shall  be made  by  Seagull  in the due and  punctual
     payment of the price for natural gas under the Gas Sale  Contract  and such
     default  shall have  continued for a period of 90 days after the end of the
     quarterly fiscal period in which such default occurred;

          (k) if any  representation  made by or on  behalf  of the  Company  or
     Seagull  in  this  Agreement  or  the   Inducement   Agreement  or  in  any
     certificate,  report or other instrument delivered under or pursuant to any
     term hereof or thereof  shall prove to have been false or  incorrect in any
     material respect on the date as of which made;

          (l) if Seagull  shall  fail to perform or comply  with any term of the
     Seagull  Documents  other than those referred to above in this Section 11.1
     and such default shall have continued for a period of 30 days after written
     notice thereof to the Company by the holder of any Note;

          (m) if the Company or any Subsidiary shall (i) be generally not paying
     its debts as they become due,  (ii) file, or consent by answer or otherwise
     to the filing against it of, or fail to deny the material allegations of or
     to contest,  a petition for relief or  reorganization or arrangement or any
     other  petition in bankruptcy or insolvency law or other act for the relief
     or aid of debtors of any  jurisdiction,  (iii) make an  assignment  for the
     benefit of its creditors,  (iv) consent to or acquiesce in the  appointment
     of a  custodian,  receiver,  liquidator,  fiscal  agent,  trustee  or other
     officer with similar  powers of itself or themselves or of the whole or any
     substantial part of its properties and assets, (v) be adjudicated insolvent
     or a bankrupt,  or (vi) take corporate action for the purpose of any of the
     foregoing;

          (n) if a court or  governmental  authority of  competent  jurisdiction
     shall enter an order, judgment or decree appointing, without the consent or
     the  acquiescence  of the  Company or a  Subsidiary,  as the case may be, a
     custodian,  receiver,  liquidator,  fiscal agent,  trustee or other officer
     with similar  powers of the Company or such  Subsidiary  or of the whole or
     any  substantial  part of its  properties  and  assets,  or if an order for
     relief  shall be  entered  in any case or  proceeding  for  liquidation  or
     reorganization  or  otherwise  to  take  advantage  of  any  bankruptcy  or
     insolvency  law  of  any  jurisdiction,  or  ordering  the  reorganization,
     arrangement,    composition,    readjustment,    dissolution,   winding-up,
     liquidation or similar relief of the Company or such Subsidiary,  or if any
     petition  for any such  relief  shall be filed  against the Company or such
     Subsidiary  and such  petition,  order,  judgment  or  decree  shall not be
     dismissed or discharged within 60 days;

          (o) if, under the provisions of any other law for the relief or aid of
     debtors,  any court or  competent  jurisdiction  shall  assume  custody  or
     control of the Company or any Subsidiary or of the whole or any substantial
     part of its  properties and assets and such custody or control shall remain
     unterminated  or  unstayed  for an  aggregate  of 60 days  (whether  or not
     consecutive) from the date of assumption of such custody or control;
<PAGE>
          (p) if final  judgment  for the payment of money in excess of $500,000
     shall  be  rendered  by a  court  of  record  against  the  Company  or any
     Subsidiary and the Company or such Subsidiary  shall not (i) within 60 days
     from the date of  entry  thereof,  discharge  the same or  provide  for its
     discharge  in  accordance  with its terms or  procure  a stay of  execution
     thereof,  and (ii) if execution of such  judgment  shall be stayed,  within
     such period of 60 days or such longer period during which execution of such
     judgment shall have been stayed,  appeal  therefrom and cause the execution
     thereof  to be stayed  during  such  appeal,  or,  within 60 days after the
     expiration  of any such stay or the denial of such  appeal,  discharge  the
     same or provide for its discharge; or

          (q) if the Company or any Subsidiary shall default (as principal or as
     guarantor or other  surety) in the payment of any  principal of or premium,
     if any, or interest on any  Indebtedness for borrowed money (other than the
     Notes),  or if any event shall occur or condition shall exist in respect of
     any such Indebtedness or under any evidence of any such Indebtedness, or of
     any mortgage,  indenture or Other  Agreements  relating thereto which would
     permit  or  shall  have  cased  the  acceleration  of the  payment  of such
     Indebtedness,  and such default, event or condition shall continue for more
     than the period of grace, if any, specified therein and shall not have been
     waived pursuant thereto;

     Then  and in any  such  event  any  holder  or  holders  of 25% or  more in
     principal  amount  of the  Notes  at the time  outstanding  may at any time
     (unless all defaults shall  theretofore have been remedied) at its or their
     option, by written notice or notices to the Company,  declare all the Notes
     to be due and payable, whereupon the same shall forthwith mature and become
     due and payable together with interest accrued thereon and, with respect to
     each Series of Notes, to the extent  permitted by applicable law, a premium
     equal to the Make-Whole Premium,  without presentment,  demand,  protest or
     notice, all of which are hereby waived,  provided that during the existence
     of an Event of Default  described  in  subdivision  (a) of this Section 11,
     then,  irrespective  of  whether  the  holder or  holders of 25% or more in
     principal  amount of Notes then  outstanding  shall have  declared  all the
     Notes to be due and payable  pursuant to this Section 11, any holder of the
     Notes at the time  outstanding  (excluding any Notes directly or indirectly
     owned by the Company or nay of its  Subsidiaries or Affiliates) may, at its
     option, by notice in writing to the Company, declare the Notes then held by
     such holder to be due and  payable,  whereupon  the Notes then held by such
     holder shall  forthwith  mature and become due and payable,  together  with
     interest  accrued  thereon and with respect to each Series of Notes, to the
     extent  permitted  by  applicable  law, a premium  equal to the  Make-Whole
     Premium,  without presentment,  demand, protest or notice, all of which are
     hereby  waived.  If a declaration  is made pursuant to this Section 11.1 by
     the  holder or holders  of at least 25% in  principal  amount of the Notes,
     then and in each  such  case,  the  holders  of at least  75% in  aggregate
     principal  amount  of the Notes at the time  outstanding  may,  by  written
     notice or notices to the Company,  rescind and annul such  declaration  and
     the  consequences  thereof,  provided that at the time such  declaration is
     annulled and rescinded,  (i) no judgment or decree has been entered for the
     payment of any moneys due pursuant to the Notes or this Agreement, (ii) all
     arrears of interest upon all the Notes and all other sums payable under the
     Notes and under this  Agreement  (except any  principal  or interest on the
     Notes which has become due and payable solely by reason of such declaration
     under this Section 11.1) shall have been duly paid, and (iii) each
<PAGE>
     and every other default and Event of Default shall have been remedied,  and
     provided, further, that no such rescission and annulment shall extend to or
     affect  any  subsequent  default  or Event of  Default  or impair any right
     consequent thereon.

     11.2.  Notice of Default.  If any holder of any Note shall serve any notice
or take any other  action in  respect of a claimed  default,  the  Company  will
forthwith  give written notice thereof the all other holders of the Notes at the
time outstanding  describing such notice or action and the nature of the claimed
default.

     11.3. Suits for Enforcement, etc. In case any one or more Events of Default
shall have  occurred  and be  continuing,  the holder of any Note may proceed to
protect and  enforce its rights by suit in equity or action at law,  whether for
the  specific  performance  of any term  contained  in this  Agreement or for an
injunction  against any breach of any such term or in aid of the exercise of any
power granted in this  Agreement,  or may proceed to enforce the payment of such
Note or to  enforce  any other  legal or  equitable  right of the holder of such
Note, or may take any one or more of such  actions.  In case of a default in the
payment of any  principal  of or premium,  if any, or interest on any Note,  the
Company will pay to the holder  thereof on demand such further  amounts as shall
be sufficient to pay the costs and expenses of  collection,  including,  without
limitation, reasonable attorney's fees, expenses and disbursements.

     11.4. Remedies Cumulative.  No right, power or remedy conferred upon you or
the holder of any Note shall be exclusive,  and each such right, power or remedy
shall be  cumulative  and in  addition to every  other  right,  power or remedy,
whether conferred hereby or by any Note or now or hereafter  available at law or
in equity or by statute or otherwise.

     11.5. Remedies Not Waived. No course of dealing between the Company and you
or the holder of any Note, and no delay in exercising any right, power or remedy
conferred hereby or by any Note or now or hereafter existing at law or in equity
or by statute or otherwise,  shall operate as a waiver of or otherwise prejudice
any such right, power or remedy.

     12.  Registration  Books;  Transfer and Exchange of Notes. The Company will
keep or cause to be kept,  at its  principal  office (or the office of its agent
for such  purpose) in  Anchorage,  Alaska,  proper  books in which the names and
addresses of the holders of all Notes issued by the Company  shall be registered
and in which  transfers of Notes may be registered.  Upon due presentment of any
Note for registration of transfer at such office,  or upon surrender of any Note
for exchange at such  office,  the Company at its expense will issue in exchange
therefor a new Note or Notes, in such  denomination or  denominations  as may be
requested  ($1,000 and integral  multiples  thereof) which  aggregate the unpaid
principal amount of the presented or surrendered Note, registered as such holder
or transferee may request, dated the date to which interest has been paid on the
presented or  surrendered  Note and  otherwise  of like tenor.  Prior to the due
presentment of any Note for registration of transfer,  the Company may treat the
registered  holder  thereof as the  absolute  owner  thereof  for the purpose of
receiving all payments of principal,  premium,  if any, and interest thereon and
for all other  purposes  thereof  and  hereof.  Notwithstanding  the  foregoing,


<PAGE>
neither you nor any other  Noteholder  shall  transfer any Note (or any interest
therein) except in compliance  with applicable  securities laws and then only to
an  institutional  investor or to an  intermediary  for  immediate  resale to an
institutional investor.

     13. Replacement of Notes. Upon receipt of evidence reasonably  satisfactory
to the Company of the loss, theft, destruction or mutilation of any Note and, in
the case of any such loss,  theft or  destruction  of any  indemnity  reasonably
satisfactory  to the  Company  in form and  amount,  or, in the case of any such
mutilation,  upon the surrender of such Note for  cancellation  at the office of
the Company  maintained  pursuant to Section 12, the Company at its expense will
execute and deliver, in lie thereof, a new Note of like tenor, dated the date to
which interest has been paid on such lost, stolen, destroyed or mutilated Note.

     14.Definitions.  As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:

     "Affiliate"  of  any  Person  shall  mean  any  Person  which  directly  or
indirectly  controls or is  controlled  by or is under common  control with such
Person.  For  the  purposes  of  this  definition,  "control"  (including,  with
correlative meaning, the terms "controlled by" and "under common control with"),
as used with  respect to any  Person,  shall mean the  possession,  directly  or
indirectly,  of the power to direct or cause the direction of the management and
policies of such Person,  whether through the ownership of voting  Securities or
by contract or otherwise.

     "Aggregate  Value"  shall  mean,  with  reference  to  any  disposition  of
properties  and assets,  the greater of (a) the net book value of all properties
and  assets  disposed  of,  as  shown  on the  books  of  the  Company  and  its
Wholly-Owned Domestic  Subsidiaries as at the date of such disposition,  and (b)
the fair market value of such properties and assets, as determined in good faith
by the Board of Directors of the Company.

     "Board of Directors" of any  corporation  shall mean the Board of Directors
of such  corporation  or, to the  extent  permitted  by  applicable  law and the
articles  of  incorporation  and  by-laws  of such  corporation,  the  Executive
Committee of such Board of Directors.

     "Closing" shall have the meaning specified in Section 2.

     "Code" shall mean the Internal  Revenue Code of 1986,  as amended from time
to time.

     "Common Stock" shall mean stock or shares of any class or classes  (however
designated) of a  corporation,  association  or business  trust,  the holders of
which are ordinarily and generally, in the absence of contingencies, entitled to
vote for the  election of a majority  of the  directors  (or persons  performing
similar  functions) of such  corporation,  association or business  trust,  even
though  the  right  so  to  vote  has  been  suspended  by  the  happening  of a
contingency.
<PAGE>
     "Company" shall mean Alaska Pipeline Company, an Alaska corporation.

     "Company Certificate" shall have the meaning specified in Section 5.11.

     "Consolidated  Adjusted Net Earnings" shall mean, as applied to the Company
and its Wholly-Owned  Domestic  Subsidiaries,  the aggregate of the Consolidated
Net Income as Reported of the Company and its Wholly-Owned Domestic Subsidiaries
for each fiscal year or portion thereof during the period in question,  provided
that

          (a) there shall be deducted an amount equal to the excess,  if any, of
     (i) the sum of (x) the aggregate  amount applied by the Company during such
     period to the payment,  redemption,  retirement and purchase of Funded Debt
     of the Company (other than any amount payable at the scheduled  maturity of
     any such Funded Debt or on account of any  mandatory  or required  sinking,
     purchase or other  analogous fund with respect to any such Funded Debt) and
     (y) the aggregate  amount  applied by the Company during such period to the
     repayment  during such  period of advances to the Company by Seagull,  over
     (ii) the sum of (x) the aggregate  amount of depreciation  and amortization
     deducted  during  such  period in  determining  Consolidated  Net Income as
     Reported , (y) the  aggregate  principal  amount of Funded Debt incurred by
     the Company  during such  period for the  purpose of  renewing,  extending,
     refinancing, refunding, rearranging or replacing any Funded Debt taken into
     account  under  subclause  (i) (x) above and (z) the sinking fund  payments
     made by  Seagull to the  Company  during  such  period in  accordance  with
     indebtedness of the Division to the Company  evidenced by the  Intercompany
     Notes;

          (b) such reserves as shall be required by Required Accounting Practice
     for  deferred  income  tax  resulting  from  accelerated   depreciation  or
     amortization shall be deducted; and

          (c) if net gains from the sale,  abandonment  or other  disposition of
     capital assets and from the purchase, sale, conversion or other disposition
     of Securities shall exceed $25,000, such excess shall be excluded and taxes
     in respect of such excess shall not be deducted.

Capital assets as used in this definition  shall include all fixed assets,  both
tangible (such as land, buildings, machinery and equipment) and intangible (such
as patents, copyrights, trademarks, franchises and good will), and Securities.

     "Consolidated  Adjusted Total Capitalization" shall mean, as applied to the
Company and its  Wholly-Owned  Domestic  Subsidiaries at any date, the aggregate
Consolidated Total  Capitalization of the Company and its Wholly-Owned  Domestic
Subsidiaries  as  at  such  date,  plus  the  aggregate   principal   amount  of
Consolidated Short Term Borrowing outstanding on such date.
<PAGE>
     "Consolidated  Funded  Debt" shall mean,  as applied to the Company and its
Wholly-Owned  Domestic  Subsidiaries,  the  aggregate  of the Funded Debt of the
Company and its  Wholly-Owned  Domestic  Subsidiaries  outstanding on such date,
determined on a consolidated  basis and in accordance  with Required  Accounting
Practice.

     "Consolidated  Net Cash Flow" shall mean, as applied to the Company and its
Wholly-Owned  Domestic  Subsidiaries,  Consolidated Net Income as Defined of the
Company  and  its  Wholly-Owned  Domestic  Subsidiaries  during  the  period  in
question,  less all amounts  included in the  determination  of Consolidated Net
Income as Defined in respect of undistributed earnings of all Subsidiaries, plus
all amounts deducted in the  determination of Consolidated Net Income as Defined
in respect of depreciation and amortization,  Division Depreciation and deferred
income taxes.

     "Consolidated  Net Income as Defined" shall mean, as applied to the Company
and its  Wholly-Owned  Domestic  Subsidiaries,  the  Consolidated  Net Income as
Reported for the period in question plus or minus,  as the case may be,  without
duplication,  the net  income  or net loss of the  Division  for such  period as
stated in the  statement of income of the Division for such period  furnished to
the Noteholders pursuant to Section 3 of the Inducement Agreement.

     "Consolidated Net Income as Reported" shall mean, as applied to the Company
and its  Wholly-Owned  Domestic  Subsidiaries,  the  consolidated net income (or
deficit) of the  Company  and its  Wholly-Owned  Domestic  Subsidiaries  for the
period in question, as stated in the combined statement of income of the Company
and its  Wholly-Owned  Domestic  Subsidiaries  for such period  furnished to the
Noteholders pursuant to Section 6.

     "Consolidated Net Tangible Assets" shall mean as applied to the Company and
its Wholly-Owned  Domestic Subsidiaries at any date, the gross book value of all
assets   (exclusive  of   franchises,   licenses,   permits,   patents,   patent
applications,  copyrights,  trademarks, trade names, good will, experimental and
organizational   expense  and  other  like  intangibles,   treasury  shares  and
unamortized debt discount) properly appearing on a consolidated balance sheet of
the Company and its Wholly-Owned  Domestic Subsidiaries as at such date prepared
in accordance with Required  Accounting  Practice on a consolidated  basis after
eliminating all intercompany items, less the sum (without duplication) of:

          (a) the amount  included in such assets of any write-up  subsequent to
     December  31,  1991 in the book value of any asset  owned by the Company or
     any  Wholly-Owned  Domestic  Subsidiary  on such  date  resulting  from the
     revaluation  thereof  subsequent to such date, or any write-up in excess of
     cost of any asset  acquired  subsequent to such date except as permitted by
     clause (d).

          (b)  all  reserves  for  depreciation,   depletion,  obsolescence  and
     amortization  of  properties  (other  than those  excluded  as  hereinabove
     provided)  as shown in such  balance  sheet and all other  proper  reserves
     (other than general  contingency  reserves and reserves  representing  mere
     appropriations of surplus) which in
<PAGE>
     accordance  with  Required  Accounting  Practice  should  be set  aside  in
     connection with the business conducted;

          (c) all  liabilities  (including tax and other proper  accruals) which
     would, in accordance with Required  Accounting  Practice,  be classified as
     current   liabilities  of  the  Company  and  its   Wholly-Owned   Domestic
     Subsidiaries (including current maturities of Funded Debt); and

          (d) the amount  included in such assets of the excess,  if any, of (i)
     the cost of any assets acquired by the Company or any Wholly-Owned Domestic
     Subsidiary subsequent to December 31, 1991 upon the consolidation or merger
     of any other  corporation  with or into the  Company  or such  Wholly-Owned
     Domestic  Subsidiary  or  upon  the  acquisition  by  the  Company  or  any
     Wholly-Owned  Domestic Subsidiary of all or substantially all of the assets
     or any other  corporation,  over (ii) the book value of such  assets on the
     books of such other corporation at the time of such  consolidation,  merger
     or acquisition (other than a write-up of the book value of an asset made in
     accordance with generally accepted accounting principles in connection with
     the acquisition of such assets).

     "Consolidated  Short Term Borrowing"  shall mean, as applied to the Company
and its  Wholly-Owned  Domestic  Subsidiaries  at any date, the aggregate of the
Short Term Borrowing of the Company and its Wholly-Owned  Domestic  Subsidiaries
as at such date,  determined  on a  consolidated  basis and in  accordance  with
Required Accounting Practice.

     "Consolidated Total  Capitalization"  shall mean, as applied to the Company
and its  Wholly-Owned  Domestic  Subsidiaries  at any date, the aggregate of the
Total Capitalization of the Company and its Wholly-Owned  Domestic  Subsidiaries
as at such date,  determined  on a  consolidated  basis and in  accordance  with
Required Accounting Practice.

     "Consolidated  Total Debt"  shall  mean,  as applied to the Company and its
Wholly-Owned Domestic Subsidiaries at any date, the aggregate of the Funded Debt
and the Short  Term  Borrowing  of the  Company  and its  Wholly-Owned  Domestic
Subsidiaries  as at  such  date,  determined  on a  consolidated  basis  and  in
accordance with Required Accounting Practice.

     "Corporation"  shall  include,  except for the purposes of Section 10.8, an
associate,  joint stock company,  business trust or other similar  organization,
and shall not include, without limitation, partnerships.

     "Default" shall mean an event or condition which, with the lapse of time or
the giving of notice or both, would become an Event of Default.

     "Division"  shall mean all the current gas  distribution  and sales systems
business located in the State of Alaska, which are presently operating under the
name "ENSTAR  Natural Gas Company".  Such business  comprises and shall comprise
the distribution, transportation and sale of natural, manufactured and mixed gas
in Alaska for  residential,  commercial,  industrial and electrical  power plant
use, the sale of gas ranges, water heaters, gas burners and other appliances and
equipment  related to the use of such gas, all similar  activities in Alaska and
all  assets,  whether or not located in the State of Alaska,  directly  relating
thereto or used or intended for use therein.
<PAGE>
     "Division Certificate" shall have the meaning specified in Section 5.11.

     "Division Depreciation" shall mean, for the period in question, all amounts
of  depreciation  deducted  in  determining  the net  income  or net loss of the
Division as stated in the  statement  of income of the  Division for such period
furnished to the Noteholders pursuant to Section 6.

     "Division Income Taxes" shall mean, for the period in question, all amounts
of  income  taxes  deducted  in  determining  the net  income or net loss of the
Division for such period furnished to the Noteholders pursuant to Section 6.

     "Domestic  Subsidiary" shall mean a Subsidiary  incorporated under the laws
of the United  States of America or a State  thereof or the District of Columbia
and owning  substantially all its property and conducting  substantially all its
business in the State of Alaska.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended from time to time.

     "Event of Default" shall have the meaning specified in Section 11.1.

     "Funded  Debt"  shall  mean,  as  applied  to any  Person at any date,  all
Indebtedness of such Person which would, in accordance with Required  Accounting
Practice,  be  classified as funded debt,  including,  without  limitation,  all
Indebtedness  for borrowed money (whether secured or unsecured) and Indebtedness
of the character  referred to in  subdivisions  (b) and (c) of the definition of
Indebtedness,  in each case  maturing  more than one year  after the date of the
creation  thereof,  or directly or indirectly  renewable or  extendible,  by its
terms or  otherwise,  at the option of such  Person,  beyond such year,  and all
Indebtedness (whether secured or unsecured) incurred under a revolving credit or
similar  agreement  extending  for  more  than one  year  after  the date of the
creation  thereof.  Any  Indebtedness  which is extended or renewed  (other than
pursuant to an option of the debtor) shall be deemed to have been created at the
date of the extension or renewal.

     "Gas  Contracts"  shall  mean  the Gas  Purchase  Contracts,  the Gas  Sale
Contract  and all other  contracts  and  agreements  for the  purchase  or other
acquisition,  sale or other disposition,  exchange or transportation of natural,
manufactured  or mixed gas to which the Company is now or hereafter may become a
party,  and all renewals,  extensions  additions,  amendments and  modifications
thereof entered into as permitted hereby.  Notwithstanding  the foregoing,  "Gas
Contracts" shall not include any contract or agreement for the transportation by
the  Company of natural,  manufactured  or mixed gas which (i) is owned by third
parties and (ii) will not be  acquired  by the Company for sale to the  Division
pursuant to the Gas Sale Contract.
<PAGE>
     "Gas Purchase Contracts" shall mean (i) the Gas Purchase  Agreement,  dated
May 1, 1998, as amended to the date hereof, between the Company and Marathon Oil
Company, (ii) the Gas Purchase Contract,  dated December 20, 1982, as amended to
the  date  hereof,   between  the  Company  and  Shell  Western  E  &  P,  Inc.,
(successor-in-interest  to Shell Oil Company) and ARCO Alaska, Inc. (assignee of
Shell  Western E & P,  Inc.,  and ARCO  Alaska,  Inc.)  and (iii) all  renewals,
extensions,  additions,  amendments and  modifications  thereof  entered into as
permitted hereby.

     "Gas Sale Contract"  shall mean the Gas Sale Contract,  dated as of January
1, 1984,  as amended,  between the Company and the  Division,  and all renewals,
extensions,  additions,  amendments and  modifications  thereof  entered into as
permitted hereby.

     "Indebtedness" shall mean, as applied to any Person at any date,

          (a) all items which in accordance  with Required  Accounting  Practice
     would be included on the liability side of the balance sheet of such Person
     at such  date,  except  (i) items of  capital  stock and of  surplus,  (ii)
     reserves for deferred income tax resulting from accelerated depreciation or
     amortization,  (iii) contributions in aid of construction, (iv) unallocated
     contingency reserves,  and (iv) unallocated  contingency reserves,  and (v)
     reserves  properly  deductible  from  assets in  accordance  with  Required
     Accounting Practice;

          (b) all  indebtedness,  obligations  and  liabilities  secured  by any
     mortgage,  pledge, lien, charge,  conditional sale agreement or other title
     retention  agreement  existing on all property  held by such Person at such
     date subject to such mortgage,  pledge,  lien, charge or agreement;  all of
     such  indebtedness,   obligations  and  liabilities  shall  be  treated  as
     Indebtedness  of such Person,  whether or not such Person is in fact liable
     therefor;

          (c) all indebtedness, obligations and liabilities of other Persons, of
     the character referred to in the foregoing  subdivisions (a) and (b), which
     such Person has directly or  indirectly  guaranteed or upon or with respect
     to which  such  Person is  directly  or  indirectly  liable  (by  discount,
     endorsement -- other than for deposit for collection -- sale with recourse,
     repurchase  agreement or  otherwise)  or in respect of which such Person is
     obligated to advance or supply funds; and

          (d)   adequate   reserves  in  respect  of   disputed  or   contingent
     indebtedness,  obligations and liabilities of the character  referred to in
     the  foregoing  subdivisions  (a),  (b) and (c), to the extent not included
     pursuant to such subdivisions.
<PAGE>
Notwithstanding  the foregoing,  in determining  the  Indebtedness of any Person
there  shall be  included  all  indebtedness  of such  Person  of the  character
referred to in  subdivisions  (a), (b) and (c) deemed to be  extinguished  under
generally  accepted  accounting  principles  but for which such  Person  remains
legally liable.

     "Inducement Agreement" shall have the meaning specified in Section 3.1.

     "Intercompany  Mortgage" means the first Mortgage and Deed of Trust,  dated
as of August 1, 1960, between Seagull (as successor in interest to Alaska Public
Service  Corporation) and the Company, as heretofore  supplemented,  amended and
restated by a  Supplemental  Mortgage  dated as of  September  9, 1960, a Second
Supplemental  Mortgage  dated as of May 1, 1961, a Third  Supplemental  Mortgage
dated as of  December  15,  1969,  a Fourth  Supplemental  Mortgage  dated as of
February 18, 1972, a Fifth Supplemental  Mortgage dated as of November 15, 1975,
a  Sixth  Supplemental  Mortgage  dated  as of  December  30,  1977,  a  Seventh
Supplemental  Mortgage  dated as of  January  1,  1984,  an  Eight  Supplemental
Mortgage dated as of June 17, 1985 and a Ninth Supplemental Mortgage dated as of
June 1, 1991 and as hereafter  further  supplemented  and amended in  accordance
with this Agreement.

     "Intercompany  Notes"  shall mean the Notes as defined in the  Intercompany
Mortgage.

     "Investment" shall have the meaning given in Section 10.2.

     "Make-Whole Premium" shall mean a premium, determined as of the date of any
prepayment pursuant to Section 8.2 or any acceleration pursuant to Section 11 in
respect of each Note (or portion  thereof) of the series  being  prepaid or each
Note being accelerated, equal to the amount (but not less than zero) obtained by
subtracting (a) the sum of the unpaid  principal amount of such Note (or portion
thereof) of the series being prepaid or  accelerated  and the amount of interest
thereon accred to the prepayment date or the date of  acceleration  from (b) the
sum of the Current  Values of all amounts of principal and interest on such Note
(or portion  thereof)  being prepaid or  accelerated  that would  otherwise have
become  due on and  after the date of such  determination  if such Note were not
being prepaid or  accelerated  (each such amount of principal or interest  being
referred to herein as an "Amount Payable").

     The  "Current  Value" of any  Amount Payable  means  such  Amount  Payable
discounted  (on a  semiannual  basis)  to  its  present  value  on the  date  of
determination at the Treasury Yield plus 50 basis points, in accordance with the
following formula:


                         Current Value = Amount Payable
                                   (1 = d/2)n

where "d" is the sum of (i) Treasury Yield per annum  expressed as a decimal and
(ii) 50 basis points and "n" is an exponent (which need not be an integer) equal
to the number of semiannual  periods and portions thereof (any such portion of a
period to be  determined  by dividing the number of days in such portion of such
period by the total number of days in such period, both computed on the basis of
<PAGE>
twelve 30-day  months in a 360-day year) between the date of such  determination
and the due date of the Amount  Payable.  For such  purposes the due date of any
amount of  principal  of a Note  being  paid means the date or dates as of which
such amount is to be  credited  against  the  obligation  of the Company to make
scheduled  payments  of  principal  at  maturity  of such Note or the  scheduled
required  principal  prepayments  of such Note, if any,  pursuant to Section 8.2
taking into account the relevant  provisions  of Section 8.4 with respect to the
manner in which partial prepayments shall be applied.

     The  "Treasury  Yield" shall be  determined by reference to the most recent
Federal  Reserve  Statistical  Release  H.15  (519)  which has  become  publicly
available  at  least  two  Business  Days  prior to the  date of  prepayment  or
acceleration  (or,  if such  Statistical  Release  is no longer  published,  any
publicly  available source of similar market data), and shall be the most recent
weekly average yield on actively traded U.S. Treasury  securities  adjusted to a
constant maturity equal to the then remaining  weighted average life to maturity
of all  Amounts  Payable  constituting  principal  of any Note  (the  "Remaining
Life"),  computed by dividing (a) the sum of all such  Amounts  Payable into (b)
the total of the products  obtained by  multiplying  (i) the amount of each such
Amount  Payable  by  (ii)  the  number  of  years  (calculated  to  the  nearest
one-twelfth)  which will elapse between the date as of which such computation is
made and the due date of such Amount Payable. If the Remaining Life is not equal
to the constant  maturity of a U.S. Treasury security for which a weekly average
yield is given,  the  Treasury  Yield shall be obtained by linear  interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of (a) the actively traded U.S.  Treasury  security with the duration closest to
and greater than the Remaining  Life and (b) the actively  traded U.S.  Treasury
security with the duration  closest to and less than the  Remaining  Life except
that is the Remaining  Life is less than one year,  the weekly  average yield on
actively traded U.S. Treasury  securities adjusted to a constant maturity of one
year shall be used.  The Treasury  Yield shall be computed to the fifth  decimal
place (one  thousandth  of a  percentage  point) and then  rounded to the fourth
decimal place (one hundredth of a percentage point).

     "Multiemployer  Plan" shall mean a Plan which is a "multiemployer  plan" as
such term is defined in Section 4001 (a) (3) of ERISA.

     "Note" and "Notes" shall have the meanings specified in Section 1.

     "Officer's  Certificate" shall mean a certificate executed on behalf of any
corporation by such corporation's  President,  Vice-President - Finance or Chief
Financial Officer.

     "Person" shall mean an individual,  a corporation,  a partnership,  a joint
venture,  a trust, an unincorporated  organization or a government or any agency
or political subdivision thereof.

     "Plan"  shall  mean any  "employee  pension  benefit  plan" as such term is
defined in Section 3 of ERISA,  which is or has been  established or maintained,
<PAGE>
or to which  contributions  are or have been made, by the Company or any Related
Person or as to which the  Company or any Related  Person  would be treated as a
contributing  sponsor  under  Section  4069 of  ERISA  is such  plan  were to be
terminated.

     "Preferred  Stock",  as applied to the  capital  stock of any  corporation,
shall mean capital stock of any class or classes (however  designated)  which is
preferred as to the payment of dividends,  or as to the  distribution  of assets
upon  any  voluntary  or   involuntary   liquidation   or  dissolution  of  such
corporation,   over  shares  of  capital  stock  of  any  other  class  of  such
corporation.

     "PUC" shall mean the Alaska Public Utilities Commission.

     "Related  Person"  shall  mean  any  trade  or  business,  whether  or  not
incorporated,  which,  together  with the Company,  would be treated as a single
employer under Section 414 of the Code.

     "Required  Accounting  Practice"  shall  mean,  as to  any  corporation  or
division  thereof,  the  accounting  rules or  regulations,  if any, at the time
prescribed by the regulatory body or bodies under the jurisdiction of which such
corporation or division,  as the case may be, is at the time operating,  and, to
the  extent  that a matter is not  covered  by such  rules or  regulations,  the
accounting  rules or  regulations  at the time  prescribed by the Federal Energy
Regulatory  Commission  for  companies of  established  reputation  engaged in a
business  similar to that of such  corporation or division,  as the case may be,
which are at the time  operating  under the  jurisdiction  of the Federal Energy
Regulatory Commission.

     "Restricted Investment" shall mean an Investment in a Wholly-Owned Domestic
Subsidiary  of  the  kind  referred  to in  Section  10.2  (c).  The  amount  of
Investments which constitute  Restricted  Investments shall, for all purposes of
this  Agreement,  be the aggregate  cost to the Company of all such  Investments
determined in accordance  with generally  accepted  accounting  principles,  but
without  regard to  unrealized  increases or  decreases  in value or  write-ups,
write-downs  or  write-offs,  of such  Investments  (except to the  extent  that
Consolidated  Adjusted Net Earnings has been  increased or reduced as the result
thereof) and without  regard to the existence of any  undistributed  earnings or
accrued  interest with respect  thereto  accrued after the  respective  dates on
which such Investments were made, less any net return of capital realized during
such period upon the sale,  repayment or other  liquidation of such  Investments
(determined in accordance with generally  accepted  accounting  principles,  but
without  regard to any amounts  received  during such period as earnings (in the
form of dividends,  interest or otherwise) on such  Investments or as loans from
any Persons in whom such Investments have been made).

     "Restricted Stock Payment" shall mean any of the following:

          (a) any direct or  indirect  declaration  ordering,  setting  aside of
     funds for,  payment or making of any dividend or other  distribution  on or
     with respect to any stock of the Company of any class now or hereafter
<PAGE>

     outstanding,  other than a dividend  payable  solely in Common Stock of the
     Company; or

          (b) any direct or indirect purchase,  redemption,  retirement or other
     acquisition  of any stock of the  Company  of any  class  now or  hereafter
     outstanding  or of any securities  convertible  into shares of its stock of
     any class (other than payments of Indebtedness evidenced thereby) or of any
     warrant,  option or right to purchase,  subscribe for or otherwise  acquire
     any such stock or securities,  other than one effected for a  consideration
     consisting  solely  of  Common  Stock of the  Company.  The  amount  of any
     Restricted Stock of the Company. The amount of any Restricted Stock Payment
     in property  of the  Company  shall be deemed to be the greater of the fair
     value of such  property  (as  determined  by the Board of  Directors of the
     Company) or the net book value of such property on the Company's  books (in
     accordance with Required Accounting Practice).

     "Restricted  Subordinated  Debt Payment"  shall mean any direct or indirect
payment or other distribution on account of the principal of or the premium,  if
any,  or  interest  on,  or  any  purchase,  redemption,   retirement  or  other
acquisition  of, any  Subordinated  Indebtedness of the Company now or hereafter
outstanding,  provided  that for the purpose of paragraph  (b) of Section  10.3,
Restricted  Subordinated Debt Payments shall not include payments, not exceeding
$750,000 during any twelve-month period, on account of Subordinated Indebtedness
consisting of management fees incurred in the ordinary course of business.

     "Seagull" shall mean Seagull Energy Corporation,  a Texas corporation,  and
any successor to such corporation.

     "Seagull Documents" shall mean the Inducement  Agreement,  the Intercompany
Mortgage, the Intercompany Notes and the Gas Sale Contract.

     "Securities" shall mean any stocks, any bonds,  debentures,  notes or other
evidences  of  Indebtedness,  and  any  other  instruments  generally  known  as
securities;  any  certificates  of interest or  participation  in,  temporary or
interim  certificates for, receipts for, guaranties of, or warrants or rights to
subscribe to our purchase any of the foregoing; and any agreements,  indentures,
mortgages or other instruments providing for or securing any of the foregoing.

     "Series I Notes" shall have the meaning specified in Section 1.

     "Series J Notes" shall have the meaning specified in Section 1.

     "Series K Notes" shall have the meaning specified in Section 1.

     "Short Term  Borrowing"  shall mean,  as applied to any Person at any date,
all  Indebtedness for borrowed money of such Person maturing on demand or within
one year or less  from the date of the  creation  thereof  and not  directly  or
indirectly renewable or extendible,  by its terms or otherwise, at the option of
<PAGE>
the  debtor,  beyond such year,  and not  incurred  under a revolving  credit or
similar agreement extending for more than one year.

     "Subordinated  Indebtedness"  shall mean all Indebtedness of the Company to
Seagull, now existing or hereafter incurred,  including, without limitation, all
Indebtedness   in  respect  of  advances,   open  accounts,   accounts   payable
obligations,  loans, notes, bonds, debentures or other evidences of debt whether
for principal, premium, if any, or interest, and all instruments constituting or
evidencing  any of the  foregoing,  whether or not held by Seagull;  all of such
Indebtedness being subordinated to the prior payment in full of the Notes.

     "Subsidiary"  shall mean as to any  entity a  corporation,  association  or
business trust a majority (by number of votes) of either the Voting Stock or the
Common  Stock  of  which  is at  the  time  owned  or  controlled,  directly  or
indirectly, by such entity.

     "Tax Sharing  Agreement" shall mean the Tax Sharing  Agreement,  dated June
17, 1985, between the Company and Seagull, as amended from time to time.

     "Total Capitalization" shall mean, as applied to a corporation,  the sum of
the following,  all determined in accordance with Required  Accounting  Practice
and as shown on the books of account of such corporation:

          (a) the principal amount of all Funded Debt of such corporation at the
     time outstanding, plus
 
          (b) the amount of the capital stock liability of such  corporation and
     any premium thereon, plus

          (c) the  amount  of any  earned  surplus,  capital  surplus  and other
     surplus of such corporation, less

          (d) the amount of any deficit of such corporation.

     "Total  Destruction"  shall mean, with respect to any assets, any damage to
or  destruction  of such a substantial  part of such assets so that, in the good
faith  judgment of the owner of such assets,  the  restoration,  replacement  or
rebuilding of such assets or any portion  thereof as nearly as possible to their
value and  condition  immediately  prior to such  damage or  destruction  is not
economically feasible.

     "Total  Taking"  shall mean,  with respect to any assets,  the  acquisition
(other than for temporary use) of such a substantial  part of such assets by any
one  or  more  governments  or  municipal  corporations  or  other  governmental
subdivisions or governmental  authorities or any nominee or designee  thereof by
the exercise of the power of condemnation or eminent domain,  by the exercise of
a right reserved to purchase the same or by a sale or conveyance by the owner of
such assets in lieu of and in reasonable  anticipation of the impending exercise
of such a power or of such a right,  so that, in the good faith  judgment of the
owner of such assets, the restoration,  replacement or rebuilding of such assets
or any  portion  thereof  as nearly as  possible  to their  value and  condition
immediately prior to such taking is not economically feasible.
<PAGE>
     "Voting Stock" shall mean stock or shares of any class or classes  (however
designated) of a  corporation,  association  or business  trust,  the holders of
which are at the time  entitled  to vote for the  election  of a majority of the
directors  (or  persons  performing  similar  functions)  of  such  corporation,
association or business trust, whether or not the right to vote exists by reason
of the happening of a contingency.

     "Wholly-Owned  Domestic Subsidiary" shall mean a Domestic Subsidiary all of
the  outstanding  stock of which,  of whatever class and having  whatever rights
(other than director's qualifying shares, if required,  options to acquire which
for a  nominal  consideration  shall  have  been  obtained,  together  with  the
certificates  therefor,  duly endorsed in blank or  accompanied  by stock powers
duly executed in blank), is at the time owned by the Company.

     15.  Expenses,  etc. Whether or not the  transactions  contemplated  hereby
shall  be  consummated,  the  Company  will pay (a) the  cost  and  expenses  of
preparing  and  reproducing  this  Agreement and the Notes,  of  furnishing  all
opinions by counsel for the Company  (including  any opinions  requested by your
counsel as to the legal matter arising hereunder) and all certificates on behalf
of the Company,  and of the Company's  performance  of and  compliance  with all
agreements  and  conditions  contained  herein  on its part to be  performed  or
complied with (b) the cost of  delivering  to your home office,  insured to your
satisfaction, the Notes acquired by you hereunder and any Notes delivered to you
upon any exchange or surrender pursuant hereto and of your delivering any Notes,
insured  to your  satisfaction,  for any such  exchange  or  surrender,  (c) the
reasonable  fees,   expenses  and  disbursements  of  your  special  counsel  in
connection  with the  transactions  contemplated  hereby,  any  matters  arising
hereunder and any  amendments,  waivers and consents under or in respect hereof,
and (d) the reasonable out-of-pocket expenses incurred by you in connection with
the  transactions  contemplated  hereby and any matters arising  hereunder.  The
Company will also pay and save you and each holder of any Notes harmless against
all  liabilities,  if any,  with  respect to all taxes,  other than income taxes
(including  interest and penalties)  which may be payable in connection with the
execution  and delivery of this  Agreement  and the  Inducement  Agreement,  the
offer,  issue,  sale and  delivery of the Notes,  and any  amendment,  waiver or
consent  under or in  respect of any such  instrument.  The  obligations  of the
Company  under this Section 15 shall survive any  disposition  of payment of the
Notes.

     16.  Survival of  Agreements,  etc.  All  agreements,  representations  and
warranties contained herein or made in writing by or on behalf of the Company in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement,  any investigation at any time made by you or on
your behalf,  and the issue,  sale and delivery of the Notes and any disposition
or payment of the Notes.  All statements  contained in any  certificate or other
instrument  delivered by or on the behalf of the Company  pursuant  hereto or in
connection   with  the   transactions   contemplated   hereby  shall  be  deemed
representations and warranties by the Company hereunder.
<PAGE>
     17. Amendments and Waivers. Any term of this Agreement or of the Notes may,
with the consent of the Company,  be amended and the  observance  of any term of
this  Agreement  or of  the  Notes  may  be  waived  (either  generally  or in a
particular  instance  and  either  retroactively  or  prospectively)  only by an
instrument or instruments in writing signed by you, so long as you are committed
to purchase Notes hereunder, and by the holders of at least 66-2/3% in principal
amount of the Notes at the time  outstanding  (excluding  any Notes  directly or
indirectly  owned  by the  Company  or any of its  Subsidiaries  or  Affiliates)
provided  that no such  amendment  or waiver  shall,  without the prior  written
consent of the holders of all the Notes at the time outstanding,  (a) change the
stated  maturity or principal  amount of any Note, (b) reduce the rate or change
the time of payment of interest  on any Note,  (c) change the amount or the time
of payment of any principal or premium, if any, payable on any prepayment of any
Note,  (d) change any of the  provisions of Section 11, (e) reduce the aforesaid
percentage of the principal amount of Notes the holders of which are required to
consent to any such  amendment  or  waiver,  or (f)  change  the  percentage  of
principal  amount of the Notes the holders of which are  entitled to  accelerate
the maturity of the Notes,  or reduce the percentage of the principal  amount of
the Notes  the  holders  of which are  entitled  to  rescind  and annul any such
declaration,  as provided in Section 11.1.  Any amendment or waiver  effected in
accordance with this Section 17 shall be binding upon each holder of any Note at
the time outstanding, each future holder of any Note and the Company.

     18.  Representations  of the  Purchasers.  You  represent to the Company as
follows:

     18.1.  Purchase of Notes.  You are  purchasing  the Notes  hereunder on the
Closing  Date for  investment  and  without a view to the  distribution  of such
Notes,  provided that the  disposition  of your  property  shall at all times be
within your control.

     You  understand  that  such  Notes  have  not  been  registered  under  the
Securities  Act  and may not be sold  or  otherwise  transferred  by you  except
pursuant to an effective  registration  statement  under the  Securities  Act or
pursuant to an available exemption therefrom under the Securities Act.

     18.2. Source of Funds. Either:

          A. no part of the funds used by you to purchase the Notes will be from
     the assets of any separate  account or fund  maintained by you in which any
     employee benefit plan (or its related trust) has an interest; or

          B. if any part of the funds used by you to purchase  the Notes will be
     from the assets of any separate  account of fund maintained by you in which
     any employee benefit plan has an interest,

               (i) at least two  Business  Days  prior to the  Closing  Date you
          shall  have  disclosed  to the  Company  in  writing  the name of each
          employee  benefit  plan  the  assets  of  which  are in such  separate
          account, or
<PAGE>
               (ii) such fund is a "collective  investment fund" entitled to the
          exemption granted by the Prohibited  Transaction Class Exemption 91-38
          issued by the  United  States  Department  of Labor,  and at least two
          Business  Days prior to the Closing  Date you shall have  disclosed to
          the Company in writing the names of each  employee  benefit plan whose
          interest  in such fund  exceeds  or is  expected  to exceed 10% of the
          total assets of such fund as of the Closing Date, or

               (iii)  such  separate  account  is a  "pooled  separate  account"
          entitled to the exemption granted by the Prohibited  Transaction Class
          Exemption 90-1 issued by the United States Department of Labor, and at
          least two  Business  Days  prior to the  Closing  Date you shall  have
          disclosed to the Company in writing the names of each employee benefit
          plan whose assets in such separate  account  exceed or are expected to
          exceed 10% of the total assets of such account as of the Closing Date.

For  purposes  of clauses  (ii) and (iii)  above,  all  employee  benefit  plans
maintained  by the same  employer  or employee  organization  are deemed to be a
single employee  benefit plan. As used in this Section 18.2, the terms "separate
account" and "employee benefit plan" shall have the respective meanings assigned
to them in ERISA.

     19. Payments on Notes;  Notice of Sale, etc. So long as you or your nominee
shall be the holder of any Note,, and notwithstanding  anything contained herein
or in such Note to the  contrary,  the Company will pay all sums becoming due on
such Note for principal,  premium, if any, and interest by the method and at the
address  specified  for such purpose in the Schedule of  Purchasers,  or by such
other commercially  reasonable method or at such other address as you shall have
from time to time specified to the Company in writing for such purchase  without
the  presentation  or  surrender  of such  Note or the  making  of any  notation
thereon,  except that any Note paid or prepaid in full shall be  surrendered  to
the Company at its principal office for cancellation. Prior to any sale or other
disposition of any Note held by you or your nominee, you will, at your election,
either endorse  thereon (or on a paper annexed  thereto) the amount of principal
paid  thereon  and the last  date to which  interest  has been paid  thereon  or
surrender  such Note to the Company in exchange for a new Note or Notes pursuant
to  Section  13.  You will  promptly  notify  the  Company  of any sale or other
disposition  of any Note held by you,  specifying  the name and  address  of the
transferee,  if known to you.  The  Company  will  afford the  benefits  of this
Section  19 to any  institutional  investor  which  is the  direct  or  indirect
transferee of any Note  purchased by you under this Agreement and which has made
the same agreement relating to such note as you have made in this Section 19.

     20. Notices,  etc. All notices and other  communications  hereunder  (other
than  referred to in Section 19) Shall be in writing and shall be deemed to have
been given when delivered or when mailed by first class mail,  postage  prepaid,
addressed (a) if to you, at your address  specified on the attached  Schedule A,
or at such other address as you shall have  furnished to the Company in writing,
<PAGE>
or (b) if to any other  holder of any Note,  at the most recent  address of such
holder as it appears on the registration books maintained by or on the behalf of
the Company pursuant to Section 12, or (c) if to the Company,  at its address as
set forth in the  beginning of this  Agreement,  or at such other address as the
Company shall have  furnished to you and each holder of any Note in writing with
a copy to Seagull at its address set forth in the  Inducement  Agreement or such
other address as Seagull shall have furnished to you and each holder of any Note
in writing.

     21.  Nonenforcement for Others.  Neither this Agreement nor any disposition
of any of the Notes shall be deemed to create any liability or obligation of any
holder of any Note (including you) to enforce any provision  hereof or of any of
the Notes for the  benefit or on the  behalf of any other  Person who may be the
holder of any Note.

     22.  Miscellaneous.  This  Agreement  shall be  construed  and  enforced in
accordance  with  and  governed  by the  laws of the  State  of New  York.  This
Agreement  shall be  binding  upon and  shall  inure  to the  benefit  of and be
enforceable  by the  respective  successors  and assigns of the parties  hereto,
including, except as expressly limited herein, any holder or holders at the time
of the Notes or any part  thereof,  provided  that you shall not be obligated to
purchase  Notes of any Person other than the present  Alaska  Pipeline  Company.
Except as stated in Section 17, this Agreement embodies the entire agreement and
understanding  between you and the Company and supersedes  all prior  agreements
and  understandings  relating to the subject matter hereof. The headings in this
Agreement are for the purpose of reference only and shall not limit or otherwise
affect the meaning hereof. Any reference herein to a section refers to a section
of the Agreement unless otherwise specifically stated herein. This agreement may
be executed in any number of  counterparts,  each of which shall be an original,
but all of which together shall constitute one instrument.

     If you are in  agreement  with  the  foregoing,  please  sign  the  form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement between you and the Company. Please then return
one of such signed counterparts to the Company.

                                        Very truly yours,

                                        ALASKA PIPELINE COMPANY
     
          
                                        By:  /s/   Richard F. Barnes          
                                        Title:  President                       
<PAGE>

The foregoing Agreement is hereby agreed to as of the date thereof.

AID ASSOCIATION FOR LUTHERANS



By:     /s/ James Abitz
-----------------------------------------
Title: Vice President - Securities

THE EQUITABLE LIFE ASSURANCE SOCIETY
   OF THE UNITED STATES



By:     /s/ William Gobbo, Jr.
-----------------------------------------
Title:  Investment Officer

EQUITABLE VARIABLE LIFE INSURANCE COMPANY



By:     /s/ William Gobbo, Jr.
-----------------------------------------
Title:  Investment Officer



PROVIDENT LIFE & ACCIDENT
  INSURANCE COMPANY



By:    /s/ James T. Rogers
-----------------------------------------
Title: Vice President


TEACHERS INSURANCE & ANNUITY
  ASSOCIATION OF AMERICA


By:    /s/ Kevin R. Lorenz
-----------------------------------------
Title: Associate Director
          Private Placements


<PAGE>

                       Information Relating to Purchasers

                                                  Principal Amount of
Name and Address of  Purchaser                    Notes to be Purchased

AID ASSOCIATION FOR LUTHERANS                     Series I:   $10,000,000

(1)      All payments by wire transfer of immediately
           available funds to:

             Harris Trust and Savings Books
             111 West Monroe Street
             Chicago, Illinois  60690

             ABA #:071 000 288

             A/C Aid Association for Lutherans
             Account No. 164-096-0, regarding
             Alaska Pipeline Company 8.15%
             Series I Notes due July 1, 2001

(2)      All notices of payments and written confirmations
           of such wire transfers:

             Aid Association for Lutherans
             4321 North Ballard Road
             Appleton, Wisconsin  54919
             Attention: Investment Accounting

(3)      All other communications:

             Aid Association for Lutherans
             4321 North Ballard Road
             Appleton, Wisconsin  54919
             Attention:  Investment Department

(4)      Securities to be delivered to:

             Aid Association for Lutherans
             4321 North Ballard Road
             Appleton, Wisconsin  54919
             Attention:   Judith A. Hooyman
                          Assistant Treasurer
<PAGE>
   
                                                   Principal Amount of
Name and Address of Purchaser                      Notes of be Purchases

THE EQUITABLE LIFE ASSURANCE SOCIETY               Series J:  $10,000,000
  OF THE UNITED STATES

(1)      All payments by wire transfer of
          immediately available funds to:

             The Chase Manhatten Bank, N.A.
             110 West 52nd Street
             New York, New York  10019

             A/C The Equitable Life Assurance
             Society of the United States
             Account No. 037-2-409417

(2)      All notices of payments to:

             The Equitable Life Assurance
               Society of the United States
             c/o Equitable Capital Management Corporation
             135 West 50th Street, 5th Floor
             New York, New York  10020
             Attention:  Cash Operations Department

(3)      All other communications to:

             The Equitable Life Assurance
               Society of the United States
             c/o Equitable Capital Management Corporation
             1285 Avenue of the Americas, 19th Floor
             New York, New York  10019
             Attention:  Corporate Finance Department







<PAGE>

                                                   Principal Amount of
Name and Address of Purchaser                      Notes of be Purchases

THE EQUITABLE LIFE INSURANCE COMPANY               Series I:  $10,000,000

(1)      All payments by wire transfer of immediately
           available funds to:

             The Chase Manhatten Bank, N.A.
             110 West 52nd Street
             New York, New York  10019

             A/C Equitable Variable Life
               Insurance Company
             Account No. 037-2-411256

         Each such wire transfer shall set forth the name
         of the Company, PPN number ___, the amount
         of principal and interest being paid, due date of
         the payment being made and if such payment is
         a final payment.

(2)      All notices of payments and written confirmations of
         such wire transfers to be sent to:

             Equitable Variable Life Insurance Company
             c/o Equitable Capital Management Corporation
             135 West 50th Street
             5th Floor
             New York, New York  10019
             Attention: Cash Operations

(3)      All other communications to be sent to:

             Equitable Variable Life Insurance Company
             c/o Equitable Capital Management Corporation
             1285 Avenue of the Americas, 19th Floor
             New York, New York  10019
             Attention: Corporate Finance Department

(4)      Securities to be delivered  to:

             Equitable Capital Management Corporation
             135 West 50th Street, 5th Floor
             New York, New York  10019
             Attention:  Cash Operations

(5)      Tax ID:  13-272-9441


<PAGE>

                                                   Principal Amount of
Name and Address of Purchaser                      Notes of be Purchases

PROVIDENT LIFE AND ACCIDENT INSURANCE              Series K:  $10,000,000
  COMPANY

Name of Nominee in which Notes are to be issued:  PEPA & CO.

(1)      In case of payment on account of the Notes:

         By bank wire transfer of Federal funds together
         with an advice setting forth (a) the full name,
         interest rate and maturity date of the Note; (b)
         allocation of payment between principal and
         interest; (c) name of Issuer; and (d) confirmation
         of principal balance to:

             PEPA & CO.
             c/o Bankers Trust Company
             New York, N.Y.
             ABA #0210010033
             Attention:  01419540

             for credit to Provident Life and Accident
               Insurance Company
             Custodian Account No. 99296

             with sufficient information to identify
             the source and application of funds

(2)      In the case of all communications with respect
         with respect to payments and all other
         communications to:

             Provident Life and Accident Insurance Company
             Investment Department
             One Fountain Square
             Chattanooga, Tennessee  37402
             Attention:  Private Placements


 
<PAGE>

                                                   Principal Amount of
Name and Address of Purchaser                      Notes of be Purchases

TEACHERS INSURANCE AND ANNUITY                     Series I:  $10,000,000
  ASSOCIATION OF AMERICA

(1)      All payments by wire transfer of immediately
           available funds to:

             Morgan Guaranty Trust Company
             of  New York
             23 Wall Street
             New York, New York  10015

             A/C Teachers Insurance and Annuity
             Association of America
             Account No.  121-85-001

         with sufficient information to identify the
         source and application of such funds and
         with instructions to telephone advice of
         credit to:

             Teachers Insurance and Annuity
               Association of America
             Treasury Services Department
             (212) 916-4000


(2)      All other communications to:

             Teachers Insurance and Annuity
               Association of America
             730 Third Avenue
             New York, New York  10017
             Attention:   Securities Division

             Telecopier Numbers:

             (212) 916-6581Securities Division
             (212) 953-9879Investment Law Division

<PAGE>


                             ALASKA PIPELINE COMPANY

                      8.15% Series I Notes Due July 1, 2001

No._________                                           New York, New York
                                                              [date]


     ALASKA PIPELINE COMPANY, (the "Company"), an Alaska corporation,  for value
received,  hereby  promises  to pay  to________________________,  or  registered
assigns,  the principal amount of  ______________ on July 1, 2001, with interest
(computed on the basis of a 360-day year, 30-day month) on the unpaid balance of
such  principal  amount from the date  hereof,  payable on January 1, 1993,  and
thereafter  semi-annually on each July 1 and January 1, at the rate of 8.15% per
annum until the same shall  become due and payable  (whether at maturity or at a
date fixed for prepayment or by declaration or otherwise),  and with interest on
any overdue  principal  (including  any overdue  prepayment  of  principal)  and
premium,  if any,  and (to the extent  permitted  under  applicable  law) on any
overdue  installment  of  interest,  at the rate of 10.15% per annum until paid,
payable  semi-annually  as aforesaid or, at the option of the holder hereof,  on
demand.

     Payments of  principal,  premium,  if any,  and  interest  shall be made in
lawful money of the United States of America at the principal office of Chemical
Bank in the Borough of Manhattan, City and State of New York.

     1. The Series I Notes.  This Note is one of the  Company's  8.15%  Series I
Notes due July 1, 2001 (the  "Series I Notes", such term to include any Series I
Notes  issued in exchange  therefor or in  replacement  thereof),  issued in the
original aggregate principal amount of $30,000,000  pursuant to a Note Agreement
(the "Note  Agreement"),  dated as of May 14,  1992,  between  the  Company  and
certain institutional  investors. The holder hereof is entitled to the benefits,
and is subject to the  provisions,  of the Note  Agreement  and may  enforce the
agreements of the Company  contained  therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.

     2. Prepayment of Notes. As provided in the Note Agreement, the Company will
prepay on July 1, 1997,  and on every July 1 thereafter  so long as any Series I
Notes shall be outstanding,  a principal  amount of the Series I Notes specified
in the Note  Agreement,  in each case without premium but together with interest
on  the  principal  amount  so  prepaid  accrued  to the  date  fixed  for  such
prepayment.  In addition,  the Series I Notes are subject to prepayment in whole
or in part, in certain  cases with a premium,  in other cases without a premium,
all as specified in the Note Agreement.

     3. Registration of Transfers, etc. Transfers of this Series I Note shall be
registered upon  registration  books maintained for such purpose by or on behalf
of the Company as provided in the Note  Agreement.  Prior to presentment of this
Series I Note for registration of transfer, the Company may treat the registered
holder  hereof as the  absolute  owner of this  Series I Note for the purpose of
<PAGE>
receiving all payments of principal,  premium,  if any, and interest  hereon and
for all other purposes hereof and of the Note Agreement.

     4. Event of Default.  In case an Event of  Default,  as defined in the Note
Agreement,  shall  occur,  the unpaid  balance of the  principal  amount of this
Series I Note may be  declared  and become due and  payable in the manner of and
with the effect provided in the Note Agreement.

     5.  Governing  Law.  This Series I Note shall be construed  and enforced in
accordance with and governed by the laws of the State of New York.

                                        ALASKA  PIPELINE COMPANY


                                        By___________________________
                                                  President
<PAGE>

                             ALASKA PIPELINE COMPANY

                     8.64 % Series J Notes Due July 1, 2004

 No. __________                                           New York, New York
                                                                [date]

     ALASKA PIPELINE COMPANY, (the "Company"), an Alaska corporation,  for value
received,  hereby  promises to pay to  ________________________,  or  registered
assigns,  the  principal  amount of  __________________  on July 1,  2004,  with
interest  (computed on the basis of a 360-day year,  30-day month) on the unpaid
balance of such  principal  amount form the date  hereof,  payable on January 1,
1993, and thereafter  semi-annually on each July 1 and January 1, at the rate of
8.64% per annum until the same shall become due and payable (whether at maturity
or at a date fixed for  prepayment or by  declaration  or  otherwise),  and with
interest  on  any  overdue  principal   (including  any  overdue  prepayment  of
principal) and premium,  if any, and (to the extent  permitted under  applicable
law) on any overdue  installment  of  interest,  at the rate of 10.64% per annum
until paid,  payable  semi-annually as aforesaid or, at the option of the holder
hereof, on demand.

     Payments of  principal,  premium,  if any,  and  interest  shall be made in
lawful money of the United States of America at the principal office of Chemical
Bank in the Borough of Manhattan, City and State of New York.

     1. The Series J Notes.  This Note is one of the  Company's  8.64%  Series J
Notes due July 1, 2004 (the  "Series J Notes," such term to include any Series J
Notes  issued in exchange  therefor or in  replacement  thereof),  issued in the
original aggregate principal amount of $10,000,000  pursuant to a Note Agreement
(the "Note  Agreement"),  dated as of May 14,  1992,  between  the  Company  and
certain institutional investors. The holder thereof is entitled to the benefits,
and is subject to the  provisions,  of the Note  Agreement  and may  enforce the
agreements of the Company  contained  therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.

     2. Prepayment of Notes. As provided in the Note Agreement, the Company will
prepay on July 1,  2000,  and every  July 1  thereafter  so long as any Series J
Notes Shall be outstanding,  a principal  amount of the Series J Notes specified
in the Note  Agreement,  in each case without premium but together with interest
on  the  principal  amount  so  prepaid  accrued  to the  date  fixed  for  such
prepayment.  In addition,  the Series J Notes are subject to prepayment in whole
or in part,  in  certain  cases  with a  premium  and in other  cases  without a
premium, all as specific in the Note Agreement.

     3. Registration of Transfers, etc. Transfers of this Series J Note shall be
registered upon  registration  books maintained for such purpose or on behalf of
the Company as  provided in the Note  Agreement.  Prior to  presentment  of this
Series J Note for registration of transfer, the Company may treat the registered
<PAGE>
holder  thereof as the  absolute  owner of this Series J Note for the purpose of
receiving all payments of principal,  premium,  if any, and interest  hereon and
for all other purposes hereof and of the Note Agreement.

     4. Event of Default.  In case an Event of  Default,  as defined in the Note
Agreement,  shall  occur,  the unpaid  balance of the  principal  amount of this
Series J Notes may be  declared  and become due and payable in the manner of and
with the effect provided in the Note Agreement.

     5.  Governing  Law.  This Series J Note shall be construed  and enforced in
accordance with and governed by the laws of the State of New York.

                                              ALASKA PIPELINE COMPANY


                                             By___________________________
                                                        President



<PAGE>

                             ALASKA PIPELINE COMPANY

                      8.81% Series K Notes Due July 1, 2009

No. ________                                             New York, New York
                                                               [date]

     ALASKA PIPELINE COMPANY, (the "Company"), an Alaska corporation,  for value
received, hereby promises to pay to ___________________,  or registered assigns,
the principal  amount of  $____________________  on July 1, 2009,  with interest
(computed on the basis of a 360-day year, 30-day month) on the unpaid balance of
such  principal  amount from the date  hereof,  payable on January 1, 1993,  and
thereafter  semi-annually on each July 1 and January 1, at the rate of 8.81% per
annum until the same shall  become due and payable  (whether at maturity or at a
date fixed for prepayment or by declaration or otherwise),  and with interest on
any overdue  principal  (including  any overdue  prepayment  of  principal)  and
premium,  if any,  and (to the extent  permitted  under  applicable  law) on any
overdue  installment  of  interest,  at the rate of 10.81% per annum until paid,
payable  semi-annually  has aforesaid or, at the option of the holder hereof, on
demand.

     Payments of  principal,  premium,  if any,  and  interest  shall be made in
lawful money of the United States of America at the principal office of Chemical
Bank, Borough of Manhattan, City and State of New York.

     1. The Series K Notes.  This Note is one of the  Company's  8.81%  Series K
Notes due July 1, 2009 (the  "Series K Notes," such term to include any Series K
Notes  issued in exchange  therefor or in  replacement  thereof),  issued in the
original aggregate principal amount of $10,000,000  pursuant to a Note Agreement
(the "Note  Agreement"),  dated as of May 14,  1992,  between  the  Company  and
certain institutional investors. The holder thereof is entitled to the benefits,
and is subject to the  provisions,  of the Note  Agreement  and may  enforce the
agreements of the Company  contained  therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.

     2. Prepayment of Notes. As provided in the Note Agreement, the Company will
prepay on July 1,  2005,  and every  July 1  thereafter  so long as any Series K
Notes shall be outstanding,  a principal  amount of the Series K Notes specified
in the Note  Agreement,  in each case without premium but together with interest
on  the  principal  amount  so  prepaid  accrued  to the  date  fixed  for  such
prepayment.  In addition,  the Series K Notes are subject to prepayment in whole
or in part,  in  certain  cases  with a  premium  and in other  cases  without a
premium, all as specified in the Note Agreement.

     3. Registration of Transfers, etc. Transfers of this Series K Note shall be
registered upon registration  books maintained for such purposes or on behalf of
the Company as  provided in the Note  Agreement.  Prior to  presentment  of this
Series K Note for registration of transfer, the Company may treat the registered
holder  thereof as the  absolute  owner of this Series K Note for the purpose of
<PAGE>
receiving all payments of principal,  premium,  if any, and interest  hereon and
for all other purposes hereof and of the Note Agreement.

     4. Event of Default.  In case of Event of  Default,  as defined in the Note
Agreement,  shall  occur,  the unpaid  balance of the  principal  amount of this
Series K Note may be  declared  and become due and  payable in the manner of and
with the effect provided in the Note Agreement.

     5.  Governing  Law.  This Series K Note shall be construed  and enforced in
accordance with and governed by the laws of the State of New York.

                                         ALASKA PIPELINE COMPANY


                                        By____________________________
                                                  President
<PAGE>
  



================================================================================




                           SEAGULL ENERGY CORPORATION


                                       TO

                          AID ASSOCIATION FOR LUTHERANS

                     THE EQUITABLE LIFE ASSURANCE SOCIETY OF
                                THE UNITED STATES

                    EQUITABLE VARIABLE LIFE INSURANCE COMPANY

                   PROVIDENT LIFE & ACCIDENT INSURANCE COMPANY

                                       AND

               TEACHERS INSURANCE & ANNUITY ASSOCIATION OF AMERICA


                           ___________________________

                              INDUCEMENT AGREEMENT
                           ___________________________





                            Dated as of: May 14, 1992





================================================================================

<PAGE>
<TABLE>
<CAPTION>


                                TABLE OF CONTENTS

Section                                                                   Page
<S>                                                                         <C>

1.   Representation by Seagull.............................................  2

     1.1   Incorporation, Standing, etc. ..................................  2
     1.2.  Qualification...................................................  2
     1.3.  Authority; Binding Effect.......................................  2
     1.4.  Financial Statements............................................  3
     1.5.  Changes, etc. ..................................................  3
     1.6.  Litigation, etc.................................................  4
     1.7.  Compliance with Other Instruments, etc. ........................  4
     1.8.  Governmental Consent, etc.......................................  4
     1.9.  Title to Properties; Liens......................................  5
     1.10. Holding Company Act.............................................  5
     1.11. Disclosure......................................................  6
2.   Subordination.........................................................  6

3.   Financial Statements and Other Information............................  11

4.   Inspection............................................................  13

5.   Covenants of Seagull..................................................  14

     5.1. Accounting and Reserves..........................................  14
     5.2. Insurance........................................................  14
     5.3. Maintenance of Corporate Existence, Franchises,
            etc.; Restrictions on Business.................................  14
     5.4. Maintenance and Improvement of
            Division Property..............................................  15
     5.5. Restrictions on Liens, etc. .....................................  15
     5.6. Recordation of Intercompany Mortgage.............................  19
     5.7. Performance of Franchises; Extension,
            Amendment, etc. of Division Certificate........................  20
     5.8. Gas Sale Contract................................................  20
     5.9. Sale, Merger and Consolidation...................................  21

6.   Cost and Expenses.....................................................  22

7.   Notices, etc..........................................................  22

8.   Miscellaneous.........................................................  22
</TABLE>

<PAGE>

                           SEAGULL ENERGY CORPORATION
                             1001 Fannin, Suite 1700
                              Houston, Texas 77002


                                                    Dated as of: May 14, 1992


Aid Association for Lutherans
222 West College Avenue
Appleton, Wisconsin  54919
Attention:

The Equitable Life Assurance Society of the United States
1285 Avenue of the Americas - 19th Floor
New York, New York  10019
Attention:  Corporate Finance Department

Equitable Variable Life Insurance Company
c/o Equitable Capital Management Corporation
1285 Avenue of the Americas
19th Floor
New York, New York  10019
Attention:  Corporate Finance Department

Provident Life & Accident Insurance Company
Investment Department
One Fountain Square
Chattanooga, Tennessee  37402
Attention:  Securities Department

Teachers Insurance & Annuity Association of America
730 Third Avenue - 3rd Floor
New York, New York  10017
Attention:   Securities Division

Dear Sirs:

     You  expect to  purchase,  collectively,  $30,000,000  aggregate  principal
amount of the 8.15%  Series I Notes  due July 1,  2001 (the  "Series I  Notes"),
$10,000,000  aggregate  principal amount of the 8.64% Series J Notes due July 1,
2004 (the "Series J Notes") and $10,000,000  aggregate  principal  amount of the
8.81% Series K Notes due July 1, 2009 (the "Series K Notes" and,  together  with
the  Series  I and J  Notes,  the  "Notes")  of  Alaska  Pipeline  Company  (the
<PAGE>
"Company").  Such  purchases  by each of you will be made  pursuant to identical
Note  Agreements,  dated the date  hereof,  between  the Company and each of you
(collectively,  the "Note  Agreements").  Capitalized  terms used herein without
definition are defined in the Note  Agreements.  Seagull Energy  Corporation,  a
Texas corporation ("Seagull"), is the owner of all of the issued and outstanding
capital stock of the Company and the assets and liabilities of the Division.  In
order to induce you to enter into the Note  Agreements and to purchase the Notes
pursuant thereto, Seagull agrees with each of you as follows:

     1. Representations by Seagull. Seagull represents and warrants to you that:

     1.11   Incorporation's   by  Seagull.   Seagull  is  a   corporation   duly
incorporated,  validly existing and in good standing under the laws of the State
of Texas and has all requisite  corporate power and authority to own and operate
its properties, to carry on its business as now conducted and as now proposed to
be conducted, and to enter into and perform the Seagull Documents.

     1.2.  Qualification.  Seagull is duly  qualified  or  licensed  and in good
standing as a foreign corporation duly authorized to do business in the State of
Alaska and in each jurisdiction wherein the character of the properties owned or
the  nature  of  the  activities  conducted  by  Seagull  makes  necessary  such
qualification or licensing as a foreign corporation, except for such failures to
be so  qualified  or licensed  and in good  standing,  if any,  which when taken
together  would  not in the  aggregate  have a  material  adverse  effect on the
condition, business or property of Seagull.

     1.3. Authority; Binding Effect. The execution,  delivery and performance by
Seagull or this  Agreement and other Seagull  Documents  heretofore  executed or
assumed by it have been duly  authorized by all necessary  action on the part of
Seagull.  This  Agreement  has been  duly  executed  and  delivered  by the duly
authorized  officers of Seagull and, assuming due  authorization,  execution and
delivery by the other parties  thereto,  constitutes a legal,  valid and binding
obligation of Seagull  enforceable against Seagull in accordance with its terms,
except as the  enforcement  thereof  may be  limited by  applicable  bankruptcy,
insolvency or similar laws affecting the  enforcement of the rights of creditors
generally and except to the extent that  enforcement  of rights and remedies set
forth therein may be limited by judicial  discretion  regarding the  enforcement
of, or by applicable  laws affecting,  remedies  (whether in a court of law or a
proceeding in equity).  When executed and delivered by Seagull each of the other
Seagull  Documents  shall  have been duly  executed  and  delivered  by the duly
authorized  officers of Seagull and, assuming due  authorization,  execution and
delivery by the other parties thereto, shall constitute legal, valid and binding
obligations  of Seagull  enforceable  against  Seagull in accordance  with their
respective terms, except as the enforcement thereof may be limited by applicable
bankruptcy,  insolvency or similar laws affecting the  enforcement of the rights
of creditors  generally and except to the extent that  enforcement of rights and
remedies set forth therein may be limited by judicial  discretion  regarding the
enforcement of, or by applicable laws affecting, remedies (whether in a court of
law or a proceeding in equity).
<PAGE>
     1.4.  Financial   Statements.   Seagull  has  delivered  to  you  financial
statements of Seagull for the years ended December 31, 1990 to 1991,  inclusive,
containing   consolidated   balance  sheets  to  Seagull  and  its  consolidated
subsidiaries as at such dates and the related consolidated  statements of income
and  surplus  for such  years,  all as  certified  by KPMG  Peat  Marwick.  Such
financial  statements have been prepared in accordance  with generally  accepted
accounting  principles  applied on a  consistent  basis  throughout  the periods
involved  and  fairly  present  the  financial  condition  and  the  results  of
operations of Seagull and its consolidated subsidiaries as at such dates and for
such years.  Seagull has also  delivered to you copies of (i)  Seagull's  Annual
Report on Form 10-K for the year ended December 31, 1991 (the "1991 10-K"), (ii)
the  Prospectus  dated  December 5, 1991  relating to the  under-written  public
offering by Seagull of 1,500,000  shares of its common stock (the  "Prospectus")
and (iii)  Seagull's  Annual Report to  Shareholders  for 1991.  The Company has
delivered to you the financial  statements  relating to the Division referred to
in Section 5.4 of the Note Agreements (the "Division Financial Statements"). The
1991 10-K, the Prospectus,  the Division Financial  statements and the financial
statements  referred to in this Section 1.4 are hereinafter  collectively called
the "Disclosure Documents".

     1.5.  Changes,  etc.  Since  December 31, 1991,  there has been no material
adverse  change in the  financial  condition  of  Seagull  and its  consolidated
subsidiaries,  taken as a whole, from that reflected in the consolidated balance
sheet  as at such  date  referred  to in  Section  1.4,  and  there  has been no
occurrence or development which has had or in the opinion of Seagull will have a
materially  adverse  effect  on  the  financial  condition  of  Seagull  and  it
consolidated  subsidiaries,  the  Company  or the  Division,  or the  ability of
Seagull to perform its obligations under the Seagull Documents.

     1.6. Litigation,  etc. There is no litigation,  proceeding or investigation
pending or, to the best of Seagull's knowledge, threatened against Seagull which
questions  the  validity of the Seagull  Documents  or any action taken or to be
taken  pursuant  to  any  thereof.   There  is  no  litigation,   proceeding  or
investigation pending or, to the best of Seagull's knowledge, threatened against
Seagull which involves the  condemnation,  purchase or other  acquisition by any
governmental  authority  of  any  property  (individually  or in  the  aggregate
material)  of Seagull,  the Company or the Division or which might result in any
materially  adverse change in the  condition,  business or prospects of Seagull,
the Company or the Division or in any of their  respective  properties or assets
(individually  or in  the  aggregate  material),  except  as  described  in  the
Disclosure Documents.

     1.7.  Compliance with Other Instruments,  etc. The execution,  delivery and
performance by the Company of the Note  Agreements or the Gas  Contracts,  or by
Seagull of the Seagull  Documents,  and the issuance and sale of the Notes, will
not result in any  violation of any term or  condition  of (i) the  charterff or
by-laws  of  Seagull,  or (ii) any  material  contract,  agreement,  instrument,
judgment, decree, order, franchise,  certificate, permit and the like or, to the
actual  knowledge  of the  executive  officers of Seagull,  any  statute,  rule,
regulation  or ordinance of any court or  governmental  authority  applicable to
Seagull or by which it is bound or to which any of its  properties  or assets is
subject.

     1.8. Governmental Consent, etc. Except for (i) routine filings and the like
required in the  ordinary  course of  business  of  Seagull,  the Company or the
Division  and (ii) any filings  required  pursuant  to Section  5.6, no consent,
<PAGE>
approval or authorization  of, or registration,  declaration or filing with, any
governmental  or public body or  authority  is required in  connection  with the
valid execution,  delivery and performance by Seagull of the Seagull  Documents,
or the carrying out of any of the transactions contemplated by any thereof.

     1.9. Title to Properties;  Liens.  Seagull has good and marketable title to
(i)  substantially  all of the Division's real and personal property (except for
property  consisting of rights-of way, licenses,  permits and franchises,  as to
which  Seagull  will have  satisfactory  title for the purpose of  constructing,
operating and maintaining all property  located or proposed to be located on the
real  property  covered  thereby),  and (ii)  all of the  issued  subject  to no
mortgage,  pledge,  lien,  security  interest,  lease,  charge or encumbrance or
conditional  sale or other title  retention  agreement  other than, with respect
only to the Division's  real and personal  property,  those permitted by Section
5.5 and other than, with respect to the outstanding Common Stock of the Company,
the pledge  thereof as security  for  indebtedness  of Seagull from time to time
outstanding under one or more loan agreements or credit  agreements  existing on
the day thereof.

     1.10.  Holding  Company Act.  Neither  Seagull nor any of its  subsidiaries
(including  the Company) (i) is subject to regulation  under the Public  Utility
Holding  Company Act of 1935, as amended  ("PUCHA").  except as to Section 9 (a)
(2) thereof,  or (ii) is in violation of the provisions,  rules,  regulations or
orders of or under PUHCA. Further, none of the transactions contemplated by this
Agreement or the Note Agreements,  including,  without limitation, the issue and
sale of the Notes pursuant to the Note  Agreements,  shall cause or constitute a
violation on the part of Seagull or the Company of any of the provisions, rules,
regulations  or  orders of PUHCA and PUHCA  does not in any  manner  impair  the
legality,  validity or enforceability  of the Notes.  Seagull has filed with the
Securities  and Exchange  Commission  (the "SEC") good faith  applications  (the
"Applications")  under  Section  2(a) (8)of  PUHCA with  respect to each  Person
(each,  a  "Specified  Stockholder")  which  owns,  directly  or  indirectly,  a
sufficient  quantity  of the  "voting  stock" of  Seagull to be  construed  as a
"holding  company",  as such terms are defined in PUHCA with respect to Seagull.
All of the information contained in the Applications, as amended, was true as of
the most recent  filing date,  it being  understood  and agreed that Seagull has
relied solely upon written  information  furnished by any Specified  Shareholder
with respect to background  information about such Specified Shareholder and the
nature of the ownership by such  Specified  Shareholder or its Affiliates of the
"voting  stock"  of  Seagull.  Moreover,  Seagull  knows of no  reason  why each
Application,  if acted upon by the SEC, would not be approved.  True and correct
copies of the Applications and any amendments  thereto,  as filed, since January
1, 1991 have been furnished to special counsel for the Purchasers.

     1.11. Disclosure. Neither this Agreement nor any certificate,  statement or
other  document  furnished  by or on behalf of  Seagull in  connection  with the
transactions  referred to in this Agreement  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  in  light  of  the
circumstances  under which they were made.  There is no fact (other than matters
of a general  economic  nature)  known to  Seagull  which  materially  adversely
<PAGE>
affects  or in the future may (so far as  Seagull  can now  reasonably  foresee)
materially  adversely  affect the business  operations,  affairs or condition of
Seagull,  the  Company  or the  Division  or any of  its  properties  or  assets
(individually or in the aggregate material) which has not been set forth in this
Agreement,  or in the other documents,  certificates or statements  furnished to
you by or on behalf  of  Seagull  prior to the date  hereon  pursuant  hereto in
connection with such transactions.

     2. Subordination.  All Indebtedness of the Company to Seagull, now existing
or hereafter incurred, incurred,  including, without limitation, all obligations
of the Company to repay any amount with respect to any Shortfall Amount (as such
term is defined in Article V of the Gas Sale Contract)  pursuant to Article V of
the Gas Sale Contract,  all Indebtedness in respect of advances,  open accounts,
accounts payable obligations, loans, notes, bonds, debentures or other evidences
of debt whether for principal, premium, if any, or interest, and all instruments
constituting or evidencing any of the foregoing,  whether or not held by Seagull
(the "Subordinated  Indebtedness")  shall be subordinate,  subject and junior in
right of payment to the prior payment in full of all the Notes in the manner and
with the effect provided below in this Section 2:

               (a) Upon the  happening  of an event  which  would  constitute  a
          Default under any of the Note Agreements unless and until such Default
          shall have been  remedied or waived or shall have ceased to exist,  no
          direct or indirect  payment (in cash,  property  or  securities  or by
          set-off or otherwise) shall be made or agreed to be made on account of
          the principal of, or premium,  if any, or interest on any Subordinated
          Indebtedness,  or as a sinking fund for the Subordinated Indebtedness,
          or in  respect  of  any  redemption,  retirement,  purchase  or  other
          acquisition of any of the Subordinated Indebtedness.

               (b) In the event of (i) any insolvency, bankruptcy, receivership,
          liquidation,   reorganization,   readjustment,  composition  or  other
          similar proceeding relative to the Company, its creditors, as such, or
          its property, (ii) any proceeding for the liquidation,  dissolution or
          other winding-up of the Company, voluntary or involuntary,  whether or
          not  involving  insolvency  or  bankruptcy   proceedings,   (iii)  any
          assignment  by the Company for the benefit of  creditors,  or (iv) any
          other  marshaling  of the assets of the Company,  then and in any such
          event:

                    (1) the holders of  Subordinated  Indebtedness  shall not be
               entitled to receive any payment or distribution of any character,
               whether in cash,  securities or other property, in respect of any
               Subordinated   Indebtedness   unless  and  until  all  the  Notes
               (including any interest  thereon accruing at the legal rate after
               the  commencement  of any  such  proceedings  and any  additional
               interest  thereon  that would have  accrued  thereon  but for the

<PAGE>
               commencement of such proceedings) shall have been paid in full;

                    (2) all Subordinated Indebtedness shall forthwith become due
               and payable  (notwithstanding  the terms thereof) and any payment
               or distribution of any character,  whether in cash, securities or
               other property,  which would otherwise (but for the terms of this
               Section  2)  be  payable  or   deliverable   in  respect  of  any
               Subordinated  Indebtedness shall be paid or delivered directly to
               the holders of the Senior Notes (defined  below),  to be applied,
               pro rata,  to the  reduction  of the then  outstanding  principal
               balance of the Senior Notes (and accrued interest  thereon) until
               all the Senior Notes shall have been paid in full;

                    (3) the  holders of  Subordinated  Indebtedness  irrevocably
               authorize and empower you to demand, sue for, collect and receive
               all such payments and distributions and to receipt therefor,  and
               to file and prove all such claims and take all such other  action
               in the  name of the  holders  of  Subordinated  Indebtedness,  or
               otherwise,  as you may  determine to be necessary or  appropriate
               for the enforcement of this Section 2; and

                    (4) the holders of  Subordinated  Indebtedness  will execute
               and deliver to you all such further  instruments  confirming  the
               above authorization,  and all such powers of attorney,  proofs of
               claim, assignments of claim and other instruments,  and will take
               all such other  action as may be  reasonably  requested by you in
               order to enable you to enforce  all claims  upon such  payment or
               distribution in respect of Subordinated Indebtedness.
 

          (c) As used in this Section 2, "Senior Notes" means, collectively, (i)
     the Notes,  (ii) the Company's  10-1/4% Series B Notes due January 1, 1995,
     (iii)  the  Company's  9.95%  Series D Notes due  April 1,  1997,  (iv) the
     Company's  12.70% Series F Notes due July 1, 1995, (v) the Company's 12.80%
     Series G Notes due July 1, 2000,  (vi) the Company's  12.75% Series H Notes
     due July 1, 2000 and (vii) all promissory notes of the Company which may be
     issued for money  borrowed  after the Closing Date but, in the case of each
     such  promissory  note,  only if (x) such  promissory  note has an original
     average  life of not less than two years and (y)  neither  such  promissory
     note, nor the instrument pursuant to which it is outstanding, provides that
     the  indebtedness  evidenced  thereby is subordinate in right of payment to
     any of the Notes described in clauses (i) through (vi) above.


<PAGE>
          (d) In the event that any  Subordinated  Indebtedness  is declared due
     and  payable  as a result  of the  occurrence  of one or more  defaults  in
     respect thereof under  circumstances  when the terms of subdivision (b) are
     not  applicable,  no payment  shall be made in respect of any  Subordinated
     Indebtedness  unless and until all the Senior Notes outstanding at the time
     such  Subordinated  Indebtedness  is so declared due and payable shall have
     been paid in full or such declaration and its consequences  shall have been
     rescinded and all such defaults shall have been remedied or waived or shall
     have ceased to exist.

          (e) If any payment or distribution of any character,  whether in cash,
     securities or other  property in respect of any  Subordinated  Indebtedness
     (other than  payments  not  prohibited  pursuant to this  Section 2) shall,
     despite  the  foregoing  pursuant  to this  Section 2) shall,  despite  the
     foregoing  terms, be received by any holders of  Subordinated  Indebtedness
     before all the Senior  Notes shall have been paid in full,  such payment or
     distribution  shall be  received in trust for the benefit of the holders of
     the Senior Notes. Such trust and all claims of the holdersof the Senior
<PAGE>
     Notes with  respect to any such  payment or  distribution  received  by any
     holder of Subordinated  Indebtedness  shall terminate 365 days of following
     the receipt of such payment or distribution by such holders of Subordinated
     Indebtedness  unless,  (x) prior or the expiration of such 365-day  period,
     such holders of Subordinated  Indebtedness  shall have actual  knowledge or
     should  have had  actual  knowledge  that a Default  had  occurred  and was
     continuing  under any of the Note Agreements at the time of such payment or
     distribution  or (y) such  Default  shall  relate to any act or omission of
     Seagull or any  condition  with  respect to Seagull.  Unless such trust and
     such claims shall  terminate in accordance  with the prior  sentence,  each
     such payment and  distribution  so received shall be paid over or delivered
     and transferred to the holders of the Senior Notes, and applied,  pro rata,
     to the reduction of the then  outstanding  principal  balance of the Senior
     Notes to the extent  necessary to pay all the Senior Notes in full.  In the
     event of the  failure of the  holder of any  Subordinated  Indebtedness  to
     endorse or assign any such payment,  distribution or security,  each holder
     of the Senior Notes is hereby  irrevocably  authorized to endorse or assign
     the same.
 
          (f) No present or future  holder of the Notes shall be  prejudiced  in
     the right to enforce subordination of Subordinated  Indebtedness by any act
     or failure to act on the part of the Company.

          (g) The  Company  will not  execute and  deliver,  issue or give,  and
     neither  Seagull nor any other  holder of  Subordinated  Indebtedness  will
     demand,  accept  or  receive,  any  instrument  or  other  evidence  of any
     Subordinated Indebtedness.

          (h)  Unless  and  until all the  Notes  shall  have been paid in full,
     neither  Seagull nor any other  holder of  Subordinated  Indebtedness  will
     assign or otherwise transfer any Subordinated Indebtedness without, in each
     case, your prior written consent, except that all Subordinated Indebtedness
     held  by  Seagull  may be  transferred  to  any  corporation  assuming  the
     obligations of Seagull hereunder in accordance with a transaction permitted
     by Section 5.

          (i)  Seagull  and the  Company  will each mark its books of account in
     such  manner  as  shall  be  effective   to  give  proper   notice  of  the
     subordination effected by this Agreement.

          (j) This agreement  shall continue to be effective,  or be reinstated,
     as the case may be, if at any time payment,  in whole or in part, of any of
     the sums due any holder of the Notes for principal, interest or premium, if
     any, is rescinded or must  otherwise be restored or returned by such holder
     upon the insolvency, bankruptcy, dissolution, liquidation or reorganization
     of the Company,  or upon or as a result of the  appointment of a custodian,
     receiver,  liquidator,  fiscal agent, trustee or other officer with similar
     powers with respect to the Company or any substantial part of its property,
     or  otherwise,  all as though  such  payments  had not been  made.  For the
     purposes  of this  Agreement,  no Note shall be deemed to have been paid in
<PAGE>
     full unless the holder  thereof shall have received  (free and clear of any
     lien, charge or encumbrance created by or through the Company),  cash equal
     to the principal amount of such Note at the time remaining unpaid, together
     with interest, and premium, if any, then due thereon, and none of such cash
     shall be  required  to be  restored or returned by such holder for a reason
     set forth above or for any other reason.
 
          (k)  Upon  the  payment  in full  of all the  Notes,  the  holders  of
     Subordinated  Indebtedness shall be subrogated to all rights of any holders
     of the Notes to receive any further payments or distributions applicable to
     the Notes until the Subordinated Indebtedness shall have been paid in full,
     and for the  purposes  of such  subrogation,  no  payment  or  distribution
     received by the holders of the Notes of cash,  securities or other property
     to which the  holders  of the  Subordinated  Indebtedness  would  have been
     entitled except for these  subordination  provisions  shall, as between the
     Company and its creditors  other than the holders of the Notes,  on the one
     hand, and the holders of Subordinated Indebtedness, on the other, be deemed
     to be a payment  or  distribution  by the  Company  to or on account of the
     Notes.

     3.  Financial  Statements and Other  Information.  Seagull will deliver (in
duplicate) to you, so long as you shall hold any Notes, and to each other holder
of at least 10% in principal amount of the Notes at the time outstanding:

          (a) as soon as available and in any event within 60 days after the end
     of the first, second and third quarterly  accounting periods in each fiscal
     year of Seagull, a balance sheet of the Division and a consolidated balance
     sheet of Seagull and its  consolidated  subsidiaries  as at the end of such
     period and the related  statements  of income and surplus and cash flows of
     the Division  and  consolidated  statements  of income and surplus and cash
     flows of Seagull and its consolidated  subsidiaries for the period from the
     beginning of the current fiscal year to the end of such  quarterly  period,
     setting forth in each case in comparative periods of the previous year, all
     in  reasonable  detail and  certified,  subject to changes  resulting  from
     year-end audit adjustments, by a principal financial officer of Seagull;

          (b) as soon as  available  and in any event  within 100 days after the
     end of each fiscal year of Seagull,  a balance  sheet of the Division and a
     consolidated balance sheet of Seagull and its consolidated  subsidiaries as
     at the end of such  fiscal year and the  related  statements  of income and
     surplus  and cash flows of the  Division  and  consolidated  statements  of
     income  and  surplus  and  cash  flows  of  Seagull  and  its  consolidated
     subsidiaries  for  such  fiscal  year,   setting  forth  in  each  case  in
     comparative  form  the  figures  for  the  previous  fiscal  year,  all  in
     reasonable  detail and  accompanied  by the report and  opinion  thereon of
     independent public accountants of recognized  national standing selected by
     Seagull;

          (c) together  with each delivery of financial  statements  pursuant to
     subdivisions (a) and (b) above, an Officer's  Certificate  stating that the
     signer has reviewed the relevant  terms of the Seagull  Documents,  and has
<PAGE>
     made,  or  caused  to be  made  under  his  supervision,  a  review  of the
     transactions  and  conditions  of the  Division  and  of  Seagull  and  its
     consolidated  subsidiaries  during  the period in  question,  and that such
     review has not  disclosed the  existence  during such period,  and that the
     signer  did not  have  knowledge  of the  existence  as at the date of such
     Officer's  Certificate,  of  any  default  by  Seagull  under  any  Seagull
     Documents or, if any such default existed or exists,  specifying the nature
     and period of  existence  thereof and what  action  Seagull has taken or is
     taking or proposes to take with respect thereto;

          (d) together  with each delivery of financial  statements  pursuant to
     subdivision  (b)  above,  a  separate  report  by  the  independent  public
     accountants  reporting  thereon  (i)  stating  that their  examination  has
     included a review of the relevant terms of the Seagull  Documents,  as they
     relate  to  accounting  matters,  and (ii)  stating  whether  or not  their
     examination  has  disclosed the  existence,  during or as at the end of the
     fiscal year covered by such financial statements,  of any default under any
     Seagull  Document and, if their  examination  has disclosed such a default,
     specifying the nature and period of existence thereof;

          (e)  promptly  upon  transmission  thereof,  copies of each  report on
     Federal Energy  Regulatory  Commission  Form 2 (or similar report) filed by
     Seagull with the PUC or any governmental authority succeeding to any of its
     functions  (and, to the extent  requested by you or such holder,  copies of
     all  regular  and  periodic  reports  filed by Seagull  with the PUC or any
     governmental  authority  succeeding to any of its  functions) and copies of
     all regular  and  periodic  reports  filed by Seagull  with any  securities
     exchange or with the Securities and Exchange Commission or any governmental
     authority succeeding to any of its functions; and

          (f)  with  reasonable  promptness,   such  other  financial  data  and
     information as from time to time may be reasonably requested.


     4. Inspection. At any and all reasonable times, Seagull will permit you (or
any agents or representatives  designated by you), so long as you shall hold any
Notes,  and  each  other  registered  holder  of at least  10% of the  aggregate
principal amount of the Notes then outstanding, or any agents or representatives
designated  by it, to examine  all the books of  account,  records,  reports and
other  papers of Seagull and of the  Division  (and to make copies and  extracts
therefrom),  to inspect  any  property  of Seagull  and of the  Division  and to
discuss the  business  and affairs of Seagull and of the  Division  with its and
their officers and  independent  public  accountants;  provided,  however,  that
Seagull shall have no obligation to provide  access to (i) trade  secrets,  (ii)
proprietary  information of Seagull or any of its  subsidiaries  (other than the
Division),  (iii) any information  covered by a  confidentiality  restriction or
covenant  entered  into in good  faith and  applicable  to Seagull or any of its
<PAGE>
Subsidiaries  (other  than the  Division)  or (iv) any  information  (including,
without  limitation,  Seagull's  shareholder lists) not relating to the Division
and not  reasonably  related to the  performance  by Seagull of its  obligations
under the Seagull Documents.  As a condition to exercising its rights under this
Section 4, each holder shall be required  (i) to give at least 24 hours  advance
notice to Seagull  except when a Default  shall have  occurred and be continuing
and  (ii) to  comply  with  normal  requirements  of  Seagull  and the  Division
regarding  health and  safety.  Seagull  shall be  entitled to be present at all
discussions with its or the Division's  independent public accountants (provided
that  Seagull  hereby   authorizes   such   accountants  to  discuss  with  your
representatives the affairs,  finances and accounts of Seagull and the Division,
whether or not Seagull is present).

     5. Covenants of Seagull.

     5.1.  Accounting  and  Reserves.  Seagull  will (a) maintain a standard and
uniform  system of  accounting  and keep  proper  books of record and account in
which  full,  true and correct  entries  will be made of its  transactions  and,
separately,  transactions  of the  Division,  all in accordance  with  generally
accepted  accounting  principles  or,  in the  case  of the  Division,  Required
Accounting  Practice,  and (b) set  aside  its  books  and on the  books  of the
Division  for each  fiscal  year  all such  proper  reserves  for  depreciation,
depletion,   obsolescence,   amortization,  bad  debts  and  other  purposes  in
connection  with its  business  and the  business  of the  Division  as shall be
required by Required Accounting Practice.

     5.2.  Insurance.  Seagull  will keep or cause to be kept all of its and its
Subsidiaries'  property,  directly relating to or used or useful or intended for
use in the  business  of the  Division  and of a  character  usually  insured by
companies of  established  reputation  similarly  situated  insured by reputable
insurance  companies or associations of high standing  against loss or damage be
fire and such other hazards and risks  (including,  without  limitation,  public
liability,  workmen's compensation and war risks and earthquake risks, if and to
the extent  war risk and  earthquake  risk  insurance  is at the time  generally
available)  as are  customarily  insured  against by  companies  of  established
reputation  similarly situated,  in such amount as such property and business is
usually  insured by such  companies.  Seagull will comply with all the terms and
conditions of all insurance  policies with respect to such property and business
or any part  thereof  and with all  requirements  of Boards of  Underwriters  or
similar bodies applicable thereto.

     5.3. Maintenance of Corporate Existence,  Franchises, etc.; Restrictions on
Business.  (a)  Seagull  will at all  times  maintain  and keep and  cause to be
maintained  and kept in full  force and  effect its  corporate  existence,  good
standing,  franchises,  rights and privileges as a foreign corporation under the
laws of the State of Alaska and its qualification and good standing as a foreign
corporation in each  jurisdiction  wherein the character of the properties owned
or the nature of the activities  conducted makes such qualification or licensing
necessary,  except  where any such  failure to maintain  franchises,  rights and
privileges  in such  jurisdictions  could  not be  reasonably  expected  (in the
judgment of Seagull's  executive  officers) to have a material adverse effect on
Seagull, the Division or the Company;  provided,  however,  that nothing in this
paragraph shall prohibit Seagull from merging or  consolidating  with any entity
(whether  as the  surviving  or  resulting  corporation  or not)  to the  extent
permitted by Section 5.8.
<PAGE>
 
          (b) The  Division  will not  engage  in any  business  other  than the
     construction,  ownership,  operation  and  maintenance  of systems  for the
     distribution or transportation  of natural,  manufactured or mixed gas, and
     activities incidental to the foregoing.

     5.4. Maintenance and Improvement of Division Property.  Seagull will at all
times maintain, preserve and keep all of its property used or useful or intended
for use in the Division's  business and all of the Division's property in proper
repair,  working order and condition's property in proper repair,  working order
and  condition,  and  make  all  necessary  or  appropriate  repairs,  renewals,
replacements,  additions, betterments and improvements to such property, so that
the efficiency of all such property shall at all times be properly preserved and
maintained,   provided  that  Seagull  need  not  make  such  repair,   renewal,
replacement,  addition, betterment or improvement if Seagull shall in good faith
determine  that such  repair,  renewal,  replacement,  addition,  betterment  or
improvement  is not  necessary  or desirable  for the  continued  efficient  and
profitable operation of the Division's properties and business.

     5.5.  Restrictions on Liens,  etc.  Seagull will not directly or indirectly
create,  assume  or  suffer  to exist  any  mortgage,  lien,  pledge,  charge or
encumbrance on or conditional  sale or other title  retention  arrangement  with
respect to any property or asset of the  Division,  whether owned on the date of
delivery  hereof  or  subsequently  acquired,  or upon  any  income  or  profits
therefrom, other than:

          (a) the lien of the Intercompany Mortgage;

          (b) liens of  taxes,  assessments  and  governmental  charges  not yet
     payable,  or payable  without  penalty so long as so  payable,  or deposits
     created in the ordinary  course of business of the Division as security for
     compliance with laws imposing taxes, assessments or governmental charges;

          (c) liens of taxes,  assessments and governmental charges the validity
     of which are being  contested in good faith by appropriate  action promptly
     initiated and diligently  conducted,  if such reserve or other  appropriate
     provision,  if any, as shall be required  by Required  Accounting  Practice
     shall have been made therefor;

          (d) carriers' warehousemen's,  materialmen's mechanics',  repairmen's,
     employees'  or other  similar  liens for  services  arising in the ordinary
     course of the business of the  Division  not yet due or being  contested in
     good  faith  by  appropriate   action  promptly  initiated  and  diligently
     conducted, if such reserve or other appropriate provision, if any, as shall
     be required by Required Accounting Practice shall have been made therefor;


          (e) liens  incurred or  deposits  made in the  ordinary  course of the
     business  of  the  Division  in  connection  with  workmen's  compensation,
     unemployment  insurance  and  other  social  security,  or  to  secure  the
     performance  of leases  (provided that all such liens incurred and deposits
     made in connection with such leases do not at any time exceed  $1,000,000),

<PAGE>
     tenders,  statutory obligations,  surety and appeal bonds,  performance and
     return-of-money   bonds  and  other  similar   obligations   (exclusive  of
     obligations  incurred  in  connection  with the  borrowing  of money or the
     obtaining of advances of credit);

          (f) any  judgment  lien,  unless the  judgment  it secures  shall not,
     within 30 days after the entry thereof,  have been  discharged or execution
     thereof stayed pending appeal,  or shall not have been discharged within 30
     days after the expiration of any such stay;

          (g)  leases  granted in the  ordinary  course of the  business  of the
     Division or leases to which any property acquired in the ordinary course of
     the business of the Division is subject;

          (h)  encumbrances  (other  than  to  secure  the  payment  of  money),
     easements,  rights-of-way,  servitudes,  permits, reservations,  leases and
     other  rights in respect of gravels,  minerals,  oil,  gases or water or in
     respect of grazing,  logging,  mining, canals,  ditches,  reservoirs or the
     like, conditions,  covenants,  party wall agreements or other restrictions,
     or easements for streets,  alleys,  highways,  pipe lines, telephone lines,
     power lines,  railways and other  rights-of-way,  on, over or in respect of
     property  (other than property used or to be used  primarily for compressor
     stations)  owned by  Seagull  or over  which  Seagull  owns  rights-of-way,
     easements, permits or licenses, provided that such encumbrances, easements,
     rights-of-way,   servitudes,   permits,   reservations,   leases,   rights,
     conditions, covenants, party wall agreements or other restrictions are such
     that they will not either individually or in the aggregate, if exercised or
     availed of,  interfere  materially  with the proper use or operation of the
     property  affected thereby for the purpose for which such property is or is
     to be  used,  and  provided,  further,  that in case of such of the same as
     relate  only to  property  on,  over or in  respect of which  Seagull  owns
     rights-of-way or easements  exclusively for pipe line purposes or locations
     for regulator stations or other pipe line facilities (other than compressor
     stations),  Seagull has power under eminent  domain or similar  statutes to
     remove the same;

          (i)  rights  reserved  to or  vested  in any  municipality  or  public
     authority  to control or  regulate  any  property of Seagull or to use such
     property  in any manner  which does not  materially  impair the use of such
     property for the purposes for which it is held;

          (j) obligations or duties,  affecting the property of Seagull,  to any
     municipality or public  authority with respect to any certificate of public
     convenience or necessity,  franchise, grant, license or permit which do not
     materially impair the use of such property for the purposes for which it is
     held;

          (k) zoning laws and ordinances;

          (l)  irregularities in or deficiencies of title to any  rights-of-way,
     licenses or permits for pipe lines,  telephone  lines,  power lines,  water
     lines and/or  appurtenances  thereto or other improvements  thereon, and to

<PAGE>
     any real estate used or to be used primarily for  right-of-way  purposes or
     for regulator stations or other pipe line facilities (other than compressor
     stations),  provided  that Seagull  shall have  obtained  from the apparent
     owner of the land or estate covered by any such  right-of-way,  licenses or
     permits,  and shall hold as an asset of the Division a sufficient right, by
     the terms of the instrument  granting such right-of-way,  license or permit
     to the use thereof for the  construction,  operation or  maintenance of the
     lines, appurtenances or improvements for which the same is used or is to be
     used, and provided, further, that Seagull has power under eminent domain or
     similar statutes to remove such irregularities or deficiencies;

          (m)  reservations  and other matters  relating to titles to leases and
     leasehold  interests  in oil  and gas  properties  and  the  lands  covered
     thereby,  if such  reservations and other matters do not, in the aggregate,
     materially  affect  the  marketability  of the  title  thereto,  and do not
     materially  impair the use of such leases or  leasehold  interests  for the
     purposes for which they are held or the value of the interest therein;

          (n)  liens  and  other   encumbrances   incurred  in  connection  with
     Indebtedness   of  Seagull  not  in  excess  of  $10,000,000  at  any  time
     outstanding issued by a municipality or development  corporation to finance
     the acquisition and construction of the property subject to such lien to be
     used by the  Company or a  Subsidiary  thereof,  the  interest  on which is
     exempt from federal income tax under section 103(b) of the Code; and

          (o) purchase money mortgages,  liens or security  interests in respect
     of property held as an asset of the Division  either acquired by Seagull or
     upon which  Seagull  is  constructing  improvements  after the date of this
     Agreement,  or mortgages,  liens, or security interests existing in respect
     of such property at the time of acquisition thereof,  securing Indebtedness
     of Seagull,  provided that (i) no such mortgage,  lien or security interest
     shall  extend  to  or  cover  any  other  property,  or  secure  any  other
     Indebtedness  of  Seagull,  (ii)  the  aggregate  principal  amount  of all
     Indebtedness of Seagull  secured by all such mortgages,  liens and security
     interest shall not exceed $2,500,000 at any time outstanding, and (iii) the
     aggregate  principal  amount  of  all  Indebtedness  secured  by  all  such
     mortgages, liens or other security interest in respect of any such property
     shall not exceed 90% of the cost or fair  market  value (as  determined  by
     Seagull in good faith),  whichever  shall be lower, of such property at the
     time of the acquisition thereof by Seagull.

Seagull  will not sign or file in any state or other  jurisdiction  a  financing
statement under the Uniform Commercial Code with respect to any such property or
asset or sign any security  agreement with respect to any such property or asset
authorizing statement,  except, in any such case, a financing statement filed or
to be filed to perfect or protect a security  interest which Seagull is entitled
to create,  assume or incur,  or permit to exist,  under this Section 5.5. In no
event  will the  capital  stock  of the  Company  constitute,  or be  deemed  to
constitute,  an asset or property of the  Division  for purposes of this Section
5.5.
<PAGE>
     5.6. Recordation of Intercompany Mortgage. Seagull, at its expense, will at
all times cause the Intercompany Mortgage and any instruments amendatory thereof
or  supplemental  thereto and any  instruments  of  assignment  thereof (and any
appropriate  financing statements or other instruments and continuations thereof
with respect to any thereof) to be recorded, registered and filed and to be kept
recorded,  registered and filed in such manner and in such places,  and will pay
all such recording, registration, filing fees and other charges, and will comply
with all such  statutes  and  regulations  as may be required by law in order to
establish,  preserve,  perfect and protect the lien of the Intercompany Mortgage
as a valid,  direct first mortgage lien on and first priority perfected security
interest in the  property  subject  thereto,  subject  only to any  encumbrances
permitted  thereby.  Seagull  will pay or cause to be paid all taxes  (including
interest and  penalties) at any time payable in  connection  with the filing and
recording  of  the  Intercompany  Mortgage  and  any  and  all  supplements  and
amendments  thereto.  Seagull,  at its expense,  will execute and deliver to the
Company  (and  will  record)  an  instrument  supplemental  to the  Intercompany
Mortgage, whenever such an instrument is necessary or desirable under applicable
law to subject to the lien of the  Intercompany  Mortgage  all right,  title and
interest of the  Division in and to all  property  required by the  Intercompany
Mortgage to be subject to the lien thereof and  acquired by the  Division  since
the  date  of  the  Intercompany  Mortgage  or  the  date  of  the  most  recent
supplemental instrument so subjecting property to the lien thereof, whichever is
later.  Seagull,  at its expense,  will furnish to the holders of the Notes upon
request from you, so long as you hold any Notes, or any other holder of at least
10% of the aggregate  principal amount of Notes then outstanding,  an opinion of
counsel reasonably satisfactory to you specifying the action taken by Seagull to
comply with this Section 5.6 since the date of the most recent opinion furnished
pursuant to this Section 5.6 (or, if no opinion has been so furnished, since the
date  hereof),  stating that in the opinion of such counsel such action has been
duly taken and stating that no other action is at the time  required to be taken
pursuant to this Section 5.6 or if any such action is then required,  specifying
the same;  provided,  however,  that in no event  shall  Seagull be  required to
furnish more than one such opinion of counsel during any 12-month period.

     5.7.  Performances of Franchises;  Extension,  Amendment,  etc. of Division
Certificate.  (a)  Seagull  will at all times  perform  and  observe  all of the
material contained in the Division  Certificate and all other franchises for the
distribution  of gas at the time held by the  Division  or held by  Seagull  and
directly  relating to or used or useful or intended for use in the operations of
the Division,  and do all things  necessary to keep  unimpaired all of Seagull's
rights  thereunder  and to prevent  any  default by  Seagull  thereunder  or any
forfeiture or impairment thereof.

          (b) Seagull will not cancel or terminate,  or permit the  cancellation
     or  termination  of, or default  under,  or make or agree to any amendment,
     modification or alteration  which would result in a material adverse change
     in the rights of Seagull under the Division Certificate.

     5.8.  Gas Sale  Contract.  Seagull  will not  assign,  pledge,  mortgage or
otherwise   hypothecate,   or  permit  the  assignment,   pledge,   mortgage  or
hypothecation  of, any of its right,  title or interest  in, to or under the Gas

<PAGE>
Sale Contract. Seagull will at all times perform and observe all the convenants,
agreements,  terms, conditions and limitations applicable to it contained in the
Gas Sale Contract and will do all things  necessary to keep  unimpaired  all its
rights under the Gas Sale Contract and to prevent any default  thereunder or any
forfeiture or impairment thereof; and, without limitation,  Seagull,  subject to
delays  resulting  from  disputes  in  good  faith  and  to  adverse  claims  of
independent  third  parties,  will  promptly  make the  payments  to the Company
specified in the Gas Sale Contract,  provided however, that nothing contained in
this  Section  5.8 will  permit a delay in the prompt  payment by Seagull of any
Shortfall  Amounts  pursuant to the Gas Sale  Contract.  Seagull will not amend,
modify, supplement,  surrender, cancel, terminate or replace or in any way waive
any covenant, agreement, term, condition or limitation of the Gas Sale Contract,
except that Seagull may amend,  modify or  supplement  the Gas Sale  Contract if
such amendment, modification or supplement does not contravene the provisions of
Article  IV or  Article V of the Gas Sale  Contract  and if,  in the good  faith
judgment of Seagull, such amendment, modification or supplement is desirable in,
or will not have a material  adverse effect on, the business of the Division and
will not be in any way prejudicial to the holders of the Notes.

     5.9.  Sale,  Merger  and  Consolidation.   Seagull  will  not  directly  or
indirectly sell,  transfer,  or otherwise dispose of all or substantially all of
its  properties  and  assets,  or  merge  into or  consolidate  with  any  other
corporation,  or permit any other  corporation to consolidate with or merge into
it, unless

          (a) such sale of properties  and assets,  or such merger,  as the case
     may be,  effects the transfer of the  properties and assets of the Division
     and all of the then issued and outstanding Common Stock of the Company as a
     unit to the  acquiring or surviving  Person or results in the  retention of
     the same, as a unit, by Seagull;

          (b) if such properties and assets are so transferred, the acquiring or
     surviving Person shall be a corporation  incorporated under the laws of the
     United  States of America or any state  thereof and (if other than Seagull)
     shall  expressly  assume in writing all  obligations  of Seagull  under the
     Seagull Documents; and

          (c)   immediately   after  giving  effect  to  such  action  (and,  if
     applicable,  such  assumption)  no default  shall  exist  under any Seagull
     Document,  provided that no such sale, transfer or other disposition of all
     or substantially  all of the properties and assets of Seagull shall release
     Seagull from any of its  obligations  hereunder  or under the  Intercompany
     Notes  or the  Intercompany  Mortgage.  Except  as  provided  in the  prior
     sentences,  Seagull  will not  directly  or  indirectly  sell,  transfer or
     otherwise  dispose of all or substantially all of the properties and assets
     of the Division.

     6. Costs and Expenses.  Seagull will pay (or provide reimbursement for) all
costs and expenses (including, without limitation, attorney's fees and expenses)
reasonably  incurred by or on behalf of any holder of the Notes in enforcing the
obligation of Seagull under this Agreement or in connection  with any amendment,
modification or waiver of this Agreement.
<PAGE>
     7. Notices,  etc. Any notice or other  communication  hereunder shall be in
writing  and  shall be deemed to have been  properly  given  when a single  copy
thereof  shall  have  been  delivered  or mailed by first  class  registered  or
certified mail, postage prepaid, addressed

          (a) if to the holder of any Note at the last  address  of such  holder
     appearing on the registration books of the Company  maintained  pursuant to
     the Note  Agreements,  or at such other  address as such holder  shall have
     furnished to the Company and Seagull in writing; or

          (b) if to the Company, at 3000 Spenard Road, Anchorage,  Alaska, or at
     such other address as the Company shall have  furnished to Seagull and each
     holder of a Note in writing, with a copy to Seagull; (b) if to the Company,
     at 3000 Spenard Road,  Anchorage,  Alaska,  or at such other address as the
     Company  shall  have  furnished  to  Seagull  and each  holder of a Note in
     writing, with a copy to Seagull;  provided that failure to deliver any such
     notices or communication to Seagull pursuant to this Section 7 (b) will not
     affect the effectiveness of such notice or communication to the Company; or

          (c) if to Seagull, at 1001 Fannin,  Suite 1700, Houston,  Texas 77002,
     or at such other  address as Seagull  shall furnish to the Company and each
     holder of a Note in writing.

     8.  Miscellaneous.  This  Agreement may be changed,  waived,  discharged or
terminated only by an instrument in writing signed by the Company,  Seagull and,
so  long  as any of the  Notes  remain  unpaid,  by the  holders  of 66  2/3% in
principal  amount  of the Notes at the time  outstanding.  Any  change,  waiver,
discharge or termination  pursuant to the preceding sentence shall apply equally
to all  holders of the Notes and shall be binding  upon them,  upon each  future
holder of any Note and upon Seagull and the  Company.  This  Agreement  shall be
binding upon the  respective  successors  and assigns of the Company and Seagull
and shall inure to the  benefit of you and each other  holder of Notes and shall
be enforceable by each of you, so long as you shall hold any Notes,  and by each
other holder of at least 10% in  principal  amount of any Series of the Notes at
the time  outstanding.  This Agreement shall be construed in accordance with and
governed  by the laws of the  State of New York.  This  Agreement  embodies  the
entire  agreement and  understanding  between you and Seagull and supersedes all
prior agreements and  understandings  relating to the subject matter hereof. The
headings in this  Agreement are for the purpose of reference  only and shall not
limit or otherwise affect the meaning hereof.  Nothing contained herein shall be
construed to constitute a guarantee by Seagull of the Notes or of the payment by
the Company of any principal,  premium or interest due or to become due thereon.
This Agreement may be executed in any number of  counterparts,  each of which is
an original, but all of which shall constitute one instrument.

     If you are in  agreement  with  the  foregoing,  please  sign  the  form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement between you and Seagull. Please then return one
of such signed counterparts to Seagull.

Very truly yours,

SEAGULL ENERGY CORPORATION


By:/s/  Robert W. Shower___________
Title:   Senior Vice President

<PAGE>

     The Company hereby  acknowledges  receipt of this Inducement  Agreement and
agrees to  perform  and  observe  all the  provisions  therein  relating  to the
Company.

                                          ALASKA PIPELINE COMPANY


                                             
                                          By:/s/ Richard F. Barnes
                                          Title: President

The foregoing Agreement is hereby
  agreed to as of the date hereof.

AID ASSOCIATION FOR LUTHERANS


By: /s/ James Abitz___________________
Title:   Vice President-Securities

THE EQUITABLE LIFE ASSURANCE SOCIETY
  OF THE UNTIED STATES


By: \s\ William Gobbo, Jr._____________
Title:   Investment Officer

EQUITABLE VARIABLE LIFE INSURANCE
  COMPANY


By: /s/ William Gobbo, Jr._____________
Title:   Investment Officer

PROVIDENT LIFE & ACCIDENT
  INSURANCE COMPANY


By: /s/ James T. Rogers_______________
Title:   Vice President

TEACHERS INSURANCE & ANNUITY
  ASSOCIATION OF AMERICA


By: /s/ Kevin R. Lorenz______________
Title:  Associate Director Private Placements
   <PAGE>
                  
                                    AMEDMENT
                                       TO
                            1985 INDUCEMENT AGREEMENT

     THIS AMENDMENT dated as of  ______________,  1992 (this  "Amendment") among
SEAGULL  ENERGY  CORPORATION,   ALASKA  PIPELINE  COMPANY,  THE  EQUITABLE  LIFE
ASSURANCE  SOCIETY OF THE UNITED STATE, THE TRAVELERS  INSURANCE COMPANY and THE
TRAVELERS LIFE INSURANCE COMPANY.

     WHEREAS, the parties hereto are parties to an Inducement Agreement dates as
of June 17, 1985 (the "1985 Inducement Agreement"); and

     WHEREAS,  the parties hereto wish to amend the 1985 Inducement Agreement in
certain respects.

     NOW,  THEREFORE,  in  consideration  of the premises and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties hereto agree as follows:

     1. Section 3 of the 1985 Inducement Agreement is hereby amended by changing
clause (2) of paragraph (b) thereof to read in its entirety as follows:

          (2) all  Subordinated  Indebtedness  shall  forthwith  become  due and
     payable (notwithstanding the terms thereof) and any payment or distribution
     of any  character,  whether in cash,  securities or other  property,  which
     would  otherwise  (but  for the  terms of this  Section  3) be  payable  or
     deliverable in respect of any  Subordinated  Indebtedness  shall be paid or
     delivered  directly to the holders of the Senior Notes (defined below),  to
     be applied,  pro rata, to the reduction of the then  outstanding  principal
     balance of the Senior Notes (and accrued  interest  thereon)  until all the
     Senior  Notes  shall  have  been  paid in full.  2.  Section  3 of the 1985
     Inducement  Agreement is hereby further  amended by relettering  paragraphs
     (c), (d), (e), (f), (g), (h), (i), (j) thereof as paragraphs (d), (e),
     (f),  (g),  (h),  (i),  (j) and (k),  respectively.

     3. Section of the 1985  Inducement  Agreement is hereby further  amended by
adding the following new paragraph (c) immediately after paragraph (b) thereof:

          (c) As used in this section 3, "Senior Notes" means, collectively, (i)
     the Notes,  (ii) the Company's 8.15% Series I Notes Due July 1, 2001, (iii)
     the Company's  8.64% Series J Notes Due July 1, 2004 and (iv) the Company's
     8.81% Series K Notes Due July 1, 2009 and (v) all  promissory  notes of the

<PAGE>
     Company which may be issued for money  borrowed after the Closing Date but,
     in the case of each such promissory  note, only if (x) such promissory note
     has an  original  average  life of not less than two years and (y)  neither
     such  promissory  note,  nor  the  instrument   pursuant  to  which  it  is
     outstanding,   provides  that  the   indebtedness   evidenced   thereby  is
     subordinate  in right of payment to any of the Notes  described  in clauses
     (i) through (v) above.

     4. Section 3 of the 1985 Inducement  Agreement is hereby further amended by
replacing  the term  "Notes",  wherever  it  appears in  paragraphs  (d) and (e)
(formerly paragraphs (c) and (d),  respectively)  thereof, with the term "Senior
Notes".

     5. Each reference in the 1985 Inducement  Agreement,  or in any document or
instrument referred to therein, to the 1985 Inducement Agreement shall be deemed
to be a reference to the 1985 Inducement Agreement as amended hereby.

     6.  Except as herein  otherwise  expressly  provided,  the 1985  Inducement
Agreement shall remain unchanged and in full force and effect.

     7. This Amendment shall be construed in accordance with and governed by the
laws of the State of New York.

     8. This  Amendment  shall be binding  upon the  respective  successors  and
assigns of the parties hereto.

     9. This  Amendment may be executed in any number of  counterparts,  each of
which is an original, but all of which shall constitute one instrument.



<PAGE>


     IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be duly executed.

                                             SEAGULL ENERGY CORPORATION

                                             By:_____________________________
                                             Name:___________________________
                                             Title:__________________________


                                             ALASKA PIPELINE COMPANY

                                             By:____________________________
                                             Name:__________________________
                                             Title:_________________________


                                             THE EQUITABLE LIFE ASSURANCE
                                             SOCIETY OF THE UNITED STATES

                          
                                             By:____________________________
                                             Name:__________________________
                                             Title:_________________________


                                             THE TRAVELERS INSURANCE
                                              COMPANY

                                             By:____________________________
                                             Name:__________________________
                                             Title:_________________________


                                             THE TRAVELERS LIFE INSURANCE
                                              COMPANY

                                             By:____________________________
                                             Name:__________________________
                                             Title:_________________________