EMPLOYMENT AGREEMENT

      This  Agreement  dated as of  October  13,  1998 is between  Colonial  Gas
Company (the "Company"), a Massachusetts corporation,  its subsidiary,  Transgas
Inc.  ("Transgas") and Victor W. Baur (the "Executive").  It restates and amends
the Employment Agreement dated December 31, 1997 between the Company,
Transgas and the Executive.

      The  Company  believes  that it is  desirable,  in  order  to  induce  the
Executive  to remain in the employ of  Transgas,  where he  presently  serves as
President,  and to place him in a position to act in the best  interests  of the
Company  and its  stockholders  in the event of a proposal  for the  transfer of
control of the Company,  to provide certain severance  benefits to the Executive
if his employment with Transgas  terminates  under the  circumstances  described
below. Accordingly, the parties hereto agree as follows:

      1.   Employment Rights.

           (a) Except as otherwise  provided in paragraph  l(b), the Executive's
employment  may be  terminated  at any  time  by the  Company,  Transgas  or the
Executive,   subject  to  the  Company's  providing  the  benefits   hereinafter
specified.

           (b) In the event a tender or exchange  offer is made by any person or
group of persons within the meaning of Section 14(d) of the Securities  Exchange
Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit
plan  sponsored  by the  Company,  for 30% or more of the shares of stock of the
Company  entitled to vote for the election of directors,  the  Executive  agrees
that he will not  leave  the  employ  of  Transgas  (other  than as a result  of
disability,  retirement  or death)  until  such offer has been  terminated  or a
change in control of the Company (as hereinafter defined) has occurred.

      2. Termination Prior to Change in Control.  If the Executive's  employment
with Transgas is terminated  for any reason prior to the  occurrence of a change
in control of the Company,  he shall be entitled to receive such  benefits,  and
only such benefits, to which he is entitled without regard to this Agreement. If
a change in control  shall occur  within one year after the  termination  of the
Executive's  employment  by  Transgas,  such  termination  shall be treated as a
termination  after a change in  control  under  paragraph  3 hereof  unless  the
Company  shall  sustain the burden of proving  that the  termination  was not in
contemplation of the change in control.

      3. Termination  After a Change in Control.  If the Executive's  employment
with Transgas is terminated within 36 months after the occurrence of a change in
control of the  Company,  he shall be entitled to receive the benefits set forth
below.  For  purposes  of this  Agreement,  a "change in control" of the Company
shall  mean  (i)  the  acquisition  directly  or  indirectly  by any  person  of
beneficial  ownership of shares of stock of the Company resulting in such person
becoming  the  beneficial  owner  of 20% or more of the  shares  of stock of the
Company entitled to vote for the election of directors, (ii) the occurrence of a
change  during  any 24  consecutive  months in the  composition  of the Board of
Directors so that the Continuing  Directors (as  hereinafter  defined) cease for

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any reason to constitute a majority of the Company's Board of Directors or (iii)
a change in  control  of a nature  that  would be  required  to be  reported  in
response  to Item 1 (a) of the  Current  Report on Form 8-K, as in effect on the
date hereof,  pursuant to section 13 or 15(d) of the Exchange  Act.  "Continuing
Directors" shall mean the individuals who were directors at the beginning of the
24-month period or who were designated Continuing Directors by a majority of the
then  Continuing  Directors.  A  person  shall  be  deemed  to have  "beneficial
ownership" of stock if such person or any  "affiliate"  or  "associate"  of such
person  (as those  terms are  defined  in Rule 12b-2  under the  Exchange  Act),
directly or  indirectly,  controls  the voting of such stock or has any options,
warrants, conversion or other rights to acquire such stock.

           (a) Cause. Upon termination of the Executive's employment by Transgas
for cause,  the  Executive  shall be entitled  to his salary  through the period
ending with the date of such termination and any accrued  benefits,  and any and
all other rights of the Executive  under this Agreement shall terminate upon the
date of  termination.  "Cause"  shall  mean  and be  limited  to (i)  deliberate
dishonesty by the Executive in connection with his employment,  (ii) willful and
prolonged absence from work (other than as a result of illness or incapacity) in
circumstances  that  constitute  a  substantial  abdication  of the  Executive's
responsibilities  to Transgas after written notice thereof has been given by the
Company or Transgas to the  Executive or (iii) the  Executive's  conviction of a
felony.

           (b) Death, Disability,  or Retirement.  If the Executive's employment
is  terminated  by reason of death,  permanent  disability  or  retirement,  the
Executive  shall be entitled to such benefits as may be provided to him pursuant
to the Company's or Transgas' employee benefit plans, including any supplemental
arrangements  maintained  for his benefit which are set forth in writing and (1)
are  described  in the attached  Exhibit A or (2) are adopted  after the date of
this  Agreement.  Any and all other rights of the Executive under this Agreement
shall  terminate upon the  occurrence of a termination  of his employment  under
this   subparagraph  and  the  provisions  of  subparagraph  (c)  shall  not  be
applicable.  For purposes of this  paragraph,  "permanent  disability"  shall be
deemed to exist when,  in the good faith  judgment of the Board of  Directors of
Transgas,  the  Executive  is unable to perform his duties for  Transgas  due to
illness or incapacity and such disability has continued for a period of not less
than six months,  unless he shall have returned to the full time  performance of
his duties within 30 days after written notice of the Board's  determination has
been given to him.  For  purposes  of this  paragraph,  "retirement"  shall mean
termination by the Executive on or after his normal retirement date as set forth
in the  Company's or Transgas'  pension plan now in effect (or any  successor or
substitute  plan or plans of the Company or Transgas  put into effect prior to a
change in control) or voluntary early  retirement by the Executive in accordance
with  such  plan  prior  to  his  normal  retirement  date.  Written  notice  of
termination of employment based on retirement shall be given at least 60 days in
advance.

           (c) Good Reason.  If the Executive's  employment is terminated (1) by
the Executive for Good Reason (as hereinafter  defined) or (2) by the Company or
Transgas  without cause,  in lieu of further  salary for subsequent  periods the
Executive shall be entitled to the following benefits:

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                (i) The Company shall  forthwith pay the Executive,  in addition
      to his  salary  and  accrued  benefits  through  the date of  termination,
      severance  pay in an amount  equal to 2.99 times the sum of (A) the higher
      of (x) his  annual  salary in effect  immediately  prior to the  change in
      control  or (y) his  annual  salary  in  effect  immediately  prior to the
      termination  and (B) the higher of (x) the  average of the last two annual
      bonuses  (annualized  in the case of any  bonus  paid  with  respect  to a
      partial year) paid to him preceding the change in control or preceding the
      date of termination, which ever is greater, and (y) the most recent annual
      bonus  (annualized in the case of any bonus paid with respect to a partial
      year) paid to him preceding the change in control or preceding the date of
      termination, whichever is greater.

                (ii) The Company  shall  maintain in full force and effect,  for
      the continued  benefit of the Executive  and his  dependents  for a period
      ending on the earlier of the commencement date of equivalent benefits from
      a new employer or his normal retirement date (after which the terms of the
      applicable  pension  plan  shall  govern),  the health  insurance,  dental
      insurance and group term life  insurance  plans in which the Executive was
      entitled  to  participate  immediately  prior  to the  termination  of his
      employment or reasonably equivalent benefits,  provided that the Executive
      continues to pay an amount equal to the employee's  share of contributions
      in effect prior to the change in control.

                (iii)If  the  Executive  is  age 55 or  older  on  the  date  of
      termination  of his  employment,  the Executive  will continue to receive,
      until his normal  retirement  date,  service credit under the Company's or
      Transgas' pension plans and any supplemental  arrangements  maintained for
      his  benefit  in  effect  immediately  prior  to  the  termination  of his
      employment,  and the benefit  levels  thereunder  shall be  calculated  as
      though the Executive had received an annual increase in compensation until
      his  normal  retirement  date in an  amount  equal to the  average  annual
      compensation increase of all salaried personnel of the Company included in
      such plans.  To the extent that payment of any amounts  resulting from the
      foregoing  may not be made  from such  plans,  the  Company  will pay such
      amounts to the Executive as supplemental benefits.

                (iv) At the request of the Executive,  the Company shall pay the
      costs of an out-placement service used by the Executive as a result of the
      termination  of his  employment,  provided such service is approved by the
      Company, which approval will not unreasonably be withheld.

                (v) Except as  specifically  set forth above,  the amount of any
      payment or benefit under this paragraph 3(c) shall not be reduced,  offset
      or  subject  to  recovery  by the  Company  or  Transgas  by reason of any
      compensation  earned  by the  Executive  as the  result of  employment  by
      another  employer after the termination of his employment with the Company
      or Transgas or otherwise.

      For purposes of this  paragraph  3(c),  "Good  Reason" shall mean that the
Executive  has  determined  in good faith that (1) the Company or  Transgas  has

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failed to assign to him on a consistent  basis executive  duties  performable at
the  location  at which he worked  before  the change in  control  (which  shall
include any location in Massachusetts within 25 miles of such location or within
50 miles of the Company's  executive offices  immediately prior to the change in
control) which are commensurate  with the level of executive duties performed by
him  immediately  prior to such change in control,  (2) he is  prevented  by the
Company or Transgas from continuing to fulfill his  responsibilities  at a level
commensurate with that prior to the change in control,  (3) his salary in effect
immediately  prior to the  change  in  control  is  reduced  by the  Company  or
Transgas,  (4) the  Company or  Transgas  has failed to  continue  in effect any
health,  welfare,  retirement,  vacation and other fringe  benefit  plans of the
Company  or  Transgas  in which the  Executive  participated  at the time of the
change in control (or plans providing  substantially  equivalent benefits) other
than as a result of the normal  expiration of any such plan in  accordance  with
its terms as in effect at the time of the change in  control,  or the Company or
Transgas  shall have taken or failed to take any action  which  would  adversely
affect the Executive's continued  participation in or the benefits receivable by
the  Executives  under any such  plan as in effect at the time of the  change in
control,  or (5) the  Company  shall have failed to obtain,  at the  Executive's
request,  an assent to the Company's  performance of its obligations  under this
Agreement  from any person  that  succeeds  to or has the  practical  ability to
control  (either  immediately  or  with  the  passage  of  time),   directly  or
indirectly, the Company's business, including the business of Transgas.

           (d) Automobile.  Upon  termination of the Executive's  employment for
any reason,  he shall have the right to purchase the automobile  supplied to him
by  Transgas  immediately  prior to the  change in  control,  or any  automobile
substituted therefore with his approval, at its depreciated cost as shown on the
books of Transgas.

      4.   Taxes.

           (a) Withholding.  All payments to be made to the Executive under this
Agreement  will be subject to any  required  withholding  of federal,  state and
local income and employment taxes.

           (b) Payment Limitation. Notwithstanding anything in this Agreement to
the contrary, if the Company determines, based on the opinion of its independent
accountants  serving as such  immediately  prior to the  change in control  (the
"Accounting  Firm"),  that any of the payments  provided for in this  Agreement,
together with any other  payments  that must be included in such  determination,
would  constitute an "Excess  Parachute  Payment" (as defined in Section 280G of
the Internal  Revenue Code of 1986,  as amended (the  "Code"),  and proposed and
final regulations thereunder),  the payments pursuant to this Agreement shall be
reduced  to the  maximum  amount  that  would  permit a  determination  that the
Executive has not received an Excess  Parachute  Payment (the "Maximum  Amount")
unless the after-tax amount payable to the Executive hereunder without regard to
the foregoing limitation ("Uncapped After-Tax Amount," as defined below) exceeds
the after-tax  amount  payable to the Executive  with regard to such  limitation
("Capped  After-Tax  Amount,"  as  defined  below)  by 10%  or  more.  Any  such
determination  or reduction in amounts payable  pursuant to this Agreement shall
be made in accordance with the follow provisions:

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                (i) For purposes of determining  whether the amounts  payable to
      the Executive  pursuant to this Agreement  shall be reduced to the Maximum
      Amount, the following terms shall have the meanings indicated:

                     (x) The "Uncapped  After-Tax  Amount" shall be equal to the
           sum of the amounts payable pursuant this Agreement (without regard to
           this  paragraph  4(b)) and  pursuant to all benefit and  compensation
           plans and arrangements  that must be included in determining  whether
           an Excess Parachute Payment has been made, less the Income Tax Amount
           on such sum and the 20%  excise  tax under  Section  4999 of the Code
           that would be due on all Excess Parachute Payments.

                     (y) The "Capped After-Tax Amount" shall be equal to the sum
           of the Maximum Amount and all amounts payable pursuant to all benefit
           and  compensation  plans and  arrangements  that must be  included in
           determining  whether an Excess Parachute  Payment has been made, less
           the Income Tax Amount on such sum.

                     (z) The "Income Tax Amount" shall be equal to the amount of
           federal,  state and local income taxes and the  Executive's  share of
           Federal  Insurance  Contributions  Act taxes  that would be due on an
           amount  (after  taking into  account the  deductibility  of state and
           local  income taxes for federal  income tax  purposes) if the highest
           marginal  federal,  state and local  income tax rate in effect at the
           time of the  change  in  control  were  imposed  on the  value of the
           payments assuming that the amounts payable pursuant to this Agreement
           and all  benefit and  compensation  plans and  arrangements  shall be
           treated as paid in full on the date of the change in control.

                (ii) If the Accounting Firm determines that payments pursuant to
      this Agreement should be reduced to the Maximum Amount,  the Company shall
      promptly  give  the  Executive  notice  to that  effect  and a copy of the
      detailed  calculation  thereof,  and the Executive may then elect,  in his
      sole discretion, which and how much of the payments shall be eliminated or
      reduced (as long as after such election the present value of the aggregate
      payments  equals the  Maximum  Amount),  and shall  advise the  Company in
      writing of his  election  within 10 days of his  receipt of notice.  If no
      such election is made by the Executive within such period, the Company may
      elect which and how much of the payments  shall be  eliminated  or reduced
      (as  long as after  such  election  the  present  value  of the  aggregate
      payments  equals  the  Maximum  Amount)  and shall  notify  the  Executive
      promptly of such election.  All determinations made by the Accounting Firm
      under this  paragraph 4 shall be based upon  Sections 280G and 4999 of the
      Code  and on  proposed  or  final  regulations  for  applying  those  Code
      sections,  or on substantial  authority within the meaning of Section 6662
      of the Code, shall be binding upon the Company and the Executive and shall
      be made within 60 days of a termination of employment of the Executive. As
      promptly as practicable  following such  determination,  the Company shall

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      pay to or distribute for the benefit of the Executive such payments as are
      then due to the Executive  under this  Agreement and shall promptly pay to
      or distribute for the benefit of the Executive in the future such payments
      as become due to the Executive under this Agreement.

                (iii)As a result of possible  uncertainty in the  application of
      Section  280G  of the  Code  at the  time  of  the  determinations  by the
      Accounting Firm hereunder, amounts may have been paid that should not have
      been paid  ("Overpayment")  or  additional  amounts may not have been paid
      that could have been paid ("Underpayment"),  in each case, consistent with
      the  calculations  required  to be made  hereunder.  In the event that the
      Internal Revenue Service asserts a deficiency against the Executive or the
      Company  in  such a case  and  the  Accounting  Firm  determines  that  an
      Overpayment has been made, any such  Overpayment  shall be treated for all
      purposes as a loan to the  Executive  from the date such  Overpayment  was
      made in an amount equal to the value of such  Overpayment,  which loan the
      Executive  shall  repay  to the  Company  together  with  interest  at the
      applicable federal rate under Section  7872(f)(2)(B) of the Code within 60
      days  after   receipt  by  the   Executive  of  written   notice  of  such
      determination by the Accounting Firm, including the amount of the loan and
      interest calculation; provided, however, that no such loan shall be deemed
      to have been made and no amount  shall be payable by the  Executive to the
      Company if and to the extent such deemed loan and repayment  with interest
      would not  eliminate the excise tax under Section 4999 of the Code, or the
      disallowance  of the deduction  under Section 280G(a) of the Code, for the
      amounts previously paid to the Executive. In the event that the Accounting
      Firm  determines that an  Underpayment  has been made,  such  Underpayment
      shall be promptly  paid by the  Company to the  Executive,  together  with
      interest  at  the   applicable   federal  rate  provided  for  in  Section
      7872(f)(2)(B) of the Code.

      5. Term. The term of this Agreement  shall commence on the date hereof and
shall  continue in effect  until  December 31, 1999 and shall  automatically  be
extended for one additional year on that date and on each December 31 thereafter
unless the Company,  Transgas or the Executive shall give at least 90 days prior
written notice that this Agreement  shall not be extended.  Notwithstanding  the
foregoing,  this Agreement shall continue in effect for the period  specified in
paragraph  3 hereof if a change in control of the  Company  shall have  occurred
during such term.  The  respective  obligations  of and benefits to the Company,
Transgas and the  Executive as provided in paragraphs 3, 4, 6 and 7 hereof shall
survive termination of this Agreement.

      6. Disclosure of Information. The Executive agrees to receive confidential
and proprietary information of the Company or Transgas in confidence, and not to
disclose such  information to others,  except pursuant to the performance of his
duties for the Company or Transgas, unless and until such information has become
public  knowledge  or has come into the  possession  of such others by legal and
equitable means.

<PAGE>


      7. Fees and  Expenses.  The  Company  shall pay all legal fees and related
expenses  incurred  by the  Executive  as a result of his  seeking  to obtain or
enforce any right or benefit  provided by this  Agreement  following a change in
control of the Company.

      8.   Miscellaneous.

           (a) Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the Company and Transgas, its successors and assigns and
the Executive, his successors, personal representatives and heirs, and shall not
be assignable  by the Executive  except with respect to any payments or benefits
hereunder.  In the event that the Company is consolidated or merged with or into
any other  corporation,  the term "Company" as used herein shall mean such other
corporation, and this Agreement shall continue in full force and effect.

           (b) Amendment;  Waiver. This Agreement may not be modified or amended
in any manner except by an instrument in writing  signed by the parties  hereto.
The waiver by either party of compliance with any provision of this Agreement by
the other  party  shall not  operate  or be  construed  as a waiver of any other
provision  of this  Agreement,  or of any  subsequent  breach by such party or a
provision of that Agreement.

           (c) Notices.  All notices  hereunder  shall be sufficient if given in
writing sent by registered or certified mail, addressed as follows:

                To the Company:

                     Colonial Gas Company
                     40 Market Street
                     Lowell, Massachusetts 01852
                     Attention: President

                To Transgas:

                     Transgas Inc.
                     c/o Colonial Gas Company
                     40 Market Street
                     Lowell, MA  01852
                     Attention: V. P. Human Resources

                To the Executive:

                     Victor W. Baur
                     137 Lexington Road
                     Dracut, MA  01826
<PAGE>

           (d) Heading.  The headings of paragraphs  herein are included  solely
for   convenience   of   reference   and  shall  not   control  the  meaning  of
interpretations of any of the provisions of this Agreement.

           (e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or  enforceability  of any other
provision of this Agreement, which shall remain in full force and effect.

           (f) Applicable  Law. This Agreement  shall be governed by the laws of
Massachusetts.

           (g)  Counterparts.  This  Agreement  may be  executed  in one or more
counterparts,  all of which shall be considered  one and the same  agreement and
each of which shall be deemed an original.

      IN WITNESS  WHEREOF,  the  Company  and  Transgas  have each  caused  this
Agreement to be executed by its duly  authorized  officer and the  Executive has
executed this Agreement as of the date first written above.

COLONIAL GAS COMPANY                TRANSGAS INC.


By:__________________________       By:___________________________



                                    By:__________________________
                                          Victor W. Baur


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                                                          Exhibit A

                 SUPPLEMENTAL PENSION ARRANGEMENT

Supplemental Executive Retirement Plan.