Exhibit 10(a)

                           THIRD AMENDED AND RESTATED
                           REVOLVING CREDIT AGREEMENT

                            DATED AS OF MAY 28, 2004

                                  BY AND AMONG

                             SOUTHERN UNION COMPANY

                                 as the Borrower

                                       AND

                             THE BANKS NAMED HEREIN

                                  as the Banks

                                       AND

                               JPMORGAN CHASE BANK

                           as the Administrative Agent
                                       AND
                               FLEET NATIONAL BANK

                            as the Syndication Agent
                                       AND

                           WESTLB AG, NEW YORK BRANCH

                           as the Documentation Agent
                                       AND
                           J.P. MORGAN SECURITIES INC.

                    as the Sole Book Runner and Lead Arranger


<PAGE>




                                        8
050100:02807 : AUSTIN : 293492.6
              THIRD AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT


         Reference  is hereby made to that certain  Second  Amended and Restated
Revolving Credit Agreement (Long-Term Credit Facility) dated as of May 29, 2001,
executed by and between  SOUTHERN UNION COMPANY,  a corporation  organized under
the laws of Delaware (the "Borrower"),  the financial institutions listed on the
signature  pages of said  Revolving  Credit  Agreement  (each of said  financial
institutions  now or hereafter a party to said Revolving  Credit Agreement being
hereinafter  referred to collectively as "Banks" and  individually as a "Bank"),
and CHASE BANK OF TEXAS,  NATIONAL  ASSOCIATION,  a national banking association
now known as JPMORGAN  CHASE BANK  ("JPMorgan"),  in its  capacity as agent (the
"Agent") for the Banks.

         The  Borrower,  the Banks and the Agent have  previously  amended  said
Second Amended and Restated  Revolving Credit Agreement pursuant to the terms of
a First  Amendment to Second  Amended and Restated  Revolving  Credit  Agreement
(Long-Term  Credit  Facility) dated as of June 10, 2002 (the "First  Amendment")
and the terms of a Second  Amendment to Second  Amended and  Restated  Revolving
Credit  Agreement  (Long-Term  Credit  Facility)  dated as of April 3, 2003 (the
"Second Amendment").  Said Revolving Credit Agreement,  as previously amended by
the First  Amendment  and the Second  Amendment,  is  referred  to herein as the
"Original Agreement."

         As a result of certain discussions between the Borrower,  the Agent and
the Banks, the parties to the Original Agreement now desire to amend and restate
the Original Agreement in its entirety.  Accordingly,  the Original Agreement is
hereby amended and restated in its entirety to hereafter be and read as follows:

         SOUTHERN  UNION  COMPANY,  a  corporation  organized  under the laws of
Delaware (hereinafter called the "Borrower"),  the financial institutions listed
on the signature pages hereof  (collectively,  the "Banks" and  individually,  a
"Bank"),  JPMORGAN CHASE BANK, a New York banking corporation  ("JPMorgan"),  in
its capacity as  administrative  agent (the  "Agent")  for the Banks  hereunder,
FLEET NATIONAL BANK, in its capacity as syndication agent ("Syndication  Agent")
for the Banks  hereunder,  and WESTLB AG, NEW YORK  BRANCH,  in its  capacity as
documentation  agent  ("Documentation  Agent") for the Banks  hereunder,  hereby
agree as follows:

1. CERTAIN  DEFINITIONS.  As used in this  Agreement,  the following terms shall
have the following meanings:

         "Additional  Costs" shall mean,  with respect to any Rate Period in the
case of any Eurodollar Rate Loan, all costs,  losses or payments,  as determined
by any Bank in its sole and absolute  discretion (which  determination  shall be
conclusive  in the  absence of manifest  error)  that such Bank or its  Domestic
Lending  Office  or its  Eurodollar  Lending  Office  does,  or  would,  if such
Eurodollar Rate Loan were funded during such Rate Period by the Domestic Lending
Office or the Eurodollar  Lending Office of such Bank, incur,  suffer or make by
reason of:

         (a) any and all present or future taxes (including, without limitation,
any  interest  equalization  tax or any similar tax on the  acquisition  of debt
obligations,  or any stamp or  registration  tax or duty or  official  or sealed
papers  tax),  levies,  imposts  or any other  charge of any  nature  whatsoever
imposed  by  any  taxing  authority  on or  with  regard  to any  aspect  of the
transactions  contemplated  by  this  Agreement,  except  such  taxes  as may be
measured by the overall net income of such Bank or its Domestic  Lending  Office
or its  Eurodollar  Lending  Office  and  imposed  by the  jurisdiction,  or any
political subdivision or taxing authority thereof, in which such Bank's Domestic
Lending Office or its Eurodollar Lending Office is located; and

         (b)  any  increase  in the  cost to such  Bank of  agreeing  to make or
making,  funding or maintaining  any Eurodollar  Rate Loan because of or arising
from (i) the  introduction  of, or any change  (other  than any change by way of
imposition or increase of reserve  requirements,  in the case of any  Eurodollar
Rate Loan,  included in the  Eurodollar  Rate Reserve  Percentage)  in or in the
interpretation  or  administration  of,  any  law  or  regulation  or  (ii)  the
compliance  with  any  request  from  any  central  bank or  other  governmental
authority (whether or not having the force of law).

         "Affiliate" shall mean any Person  controlling,  controlled by or under
common control with any other Person. For purposes of this definition, "control"
(including   "controlled   by"  and  "under  common  control  with")  means  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 otherwise.  If any Person shall own, directly
or indirectly,  beneficially  or of record,  twenty percent (20%) or more of the
voting equity  (whether  outstanding  capital  stock,  partnership  interests or
otherwise) of another Person, such Person shall be deemed to be an Affiliate.

         "Agent" shall have the meaning set forth in the preamble hereto.

         "Agreement" shall mean this Revolving Credit Agreement, as the same may
be amended, modified, supplemented or restated from time to time.

         "Alternate  Base  Rate"  shall  mean,  for any day,  a rate,  per annum
(rounds  upward to the nearest 1/16 of 1%) equal to: (a) the greatest of (i) the
Prime Rate  (computed  on the basis of the actual  number of days elapsed over a
year of 365 or 366 days,  as the case may be) in effect on such day; or (ii) the
Federal  Funds Rate in effect for such day plus  one-half of one percent  (1/2%)
(computed  on the basis of the actual  number of days elapsed over a year of 360
days).

         "Alternate  Base Rate Loan" shall mean any Loan which bears interest at
the Alternate Base Rate.

         "Applicable Lending Office" shall mean, with respect to each Bank, such
Bank's (a) Domestic  Lending  Office in the case of an Alternate Base Rate Loan;
and (b) Eurodollar Lending Office in the case of a Eurodollar Rate Loan.

         "Approved  Fund" means any Person (other than a natural person) that is
engaged in making,  purchasing,  holding or  investing in bank loans and similar
extensions  of  credit  in the  ordinary  course  of its  business  and  that is
administered  or managed  by (a) a Bank,  (b) an  Affiliate  of a Bank or (c) an
entity or an Affiliate of an entity that administers or manages a Bank.

         "Assignment and Acceptance" shall have the meaning set forth in Section
13.13.

         "Bank"  shall have the  meaning  set forth in the  preamble  hereto and
shall include the Agent, in its individual capacity.

         "Borrower" shall have the meaning set forth in the preamble hereto.

          "Borrowing  Date"  shall  mean a date  upon  which  the  Borrower  has
requested a Loan is to be made in a Notice of  Borrowing  delivered  pursuant to
Section 2.1.

          "Business  Day" shall mean a day when the Agent is open for  business,
provided  that, if the applicable  Business Day relates to any  Eurodollar  Rate
Loan, it shall mean a day when the Agent is open for business and banks are open
for business in the London interbank market and in New York City.

         "Capital  Lease"  shall mean any lease of any Property  (whether  real,
personal,  or mixed)  which,  in  conformity  with GAAP,  is accounted  for as a
capital lease on the balance sheet of the lessee.

         "Capitalized  Lease  Obligations"  shall mean, for the Borrower and its
Subsidiaries,  any of their obligations that should, in accordance with GAAP, be
recorded as Capital Leases.

          "Cash Interest  Expense"  shall mean,  for any period,  total interest
expense  to the  extent  paid in  cash  (including  the  interest  component  of
Capitalized  Lease  Obligations and  capitalized  interest and all dividends and
interest paid on or with respect to  Borrower's  Structured  Securities)  of the
Borrower and any Subsidiary for such period all as determined in conformity with
GAAP.

         "Closing Date" shall mean May 28, 2004.

         "Code" shall mean the Internal Revenue Code of 1986, as amended, as now
or   hereafter  in  effect,   together   with  all   regulations,   rulings  and
interpretations thereof or thereunder issued by the Internal Revenue Service.

         "Commitment"  shall have the  meaning  set forth in Section  2.1(a) and
"Commitments" shall mean, collectively, the Commitments of all of the Banks.

         "Consolidated  Net Income"  shall mean for any period the  consolidated
net income of the Borrower and all  Subsidiaries,  determined in accordance with
GAAP, for such period.

         "Consolidated  Net Worth"  shall mean,  for any period for the Borrower
and all  Subsidiaries,  (a) the sum of the  following  consolidated  items,  all
determined in accordance  with GAAP and without  duplication:  the  consolidated
stockholders'  equity  of all  classes  of  stock  (whether  common,  preferred,
mandatorily  convertible  preferred  or  preference)  of the  Borrower  and  its
Subsidiaries; the Equity-Preferred Securities; the other preferred securities of
the Borrower's Subsidiaries not constituting  Equity-Preferred  Securities;  and
the minority interests in the Borrower's  Subsidiaries,  less (b) the sum of the
following  consolidated  items,  without  duplication:  the book  amount  of any
deferred charges  (including,  but not limited to, unamortized debt discount and
expenses,  organization  expenses,  experimental and development  expenses,  but
excluding  prepaid  expenses)  that are not  permitted  to be  recovered  by the
Borrower  or its  applicable  Subsidiaries  under  rates  permitted  under  rate
tariffs,  plus (c) the sum of all amounts contributed or paid by the Borrower to
the Rabbi Trusts for  purposes of funding the same,  but only to the extent such
contributions  and payments are  required to be deducted  from the  consolidated
stockholders'  equity of the Borrower and its  Subsidiaries  in accordance  with
GAAP.

         "Consolidated Total  Capitalization" shall mean at any time the sum of:
(a)  Consolidated  Net  Worth at such  time;  plus (b) the  principal  amount of
outstanding Debt (other than Equity-Preferred Securities (to the extent included
in Debt of the Borrower and its  Subsidiaries) not to exceed 10% of Consolidated
Total  Capitalization  [calculated for purposes of this clause without reference
to any Equity-Preferred Securities]) of the Borrower and its Subsidiaries.

         "Consolidated  Total  Indebtedness" shall mean all Debt of the Borrower
and all Subsidiaries  including any current  maturities  thereof,  plus, without
duplication,  all  amounts  outstanding  under  Standby  Letters of Credit  and,
without  duplication,  all Facility Letter of Credit Obligations,  less, without
duplication  and to  the  extent  included  in  Debt  of the  Borrower  and  its
Subsidiaries,  Equity-Preferred  Securities  not to exceed  10% of  Consolidated
Total  Capitalization  (calculated for purposes of this clause without reference
to any Equity-Preferred Securities).

         "Debt" means (without  duplication),  for any Person  indebtedness  for
money borrowed  determined in accordance  with GAAP but in any event  including,
(a)  indebtedness  of such  Person  for  borrowed  money or  arising  out of any
extension  of credit to or for the  account of such Person  (including,  without
limitation,  extensions  of  credit  in the  form of  reimbursement  or  payment
obligations of such Person  relating to letters of credit issued for the account
of such  Person) or for the  deferred  purchase  price of property or  services,
except  indebtedness which is owing to trade creditors in the ordinary course of
business  and which is due within  thirty (30) days after the  original  invoice
date; (b)  indebtedness  of the kind described in clause (a) of this  definition
which is  secured  by (or for  which the  holder  of such Debt has any  existing
right,  contingent or otherwise,  to be secured by) any Lien upon or in Property
(including,  without  limitation,  accounts and contract  rights)  owned by such
Person,  whether or not such Person has assumed or become liable for the payment
of such  indebtedness or obligations;  (c) Capitalized Lease Obligations of such
Person;  (d)  obligations  under  direct  or  indirect   Guaranties  other  than
Guaranties  issued by the Borrower  covering  obligations  of the Southern Union
Trusts under the Structured Securities. Whenever the definition of Debt is being
used herein in order to compute a financial ratio or covenant  applicable to the
consolidated  business  of the  Borrower  and its  Subsidiaries,  Debt  which is
already  included in such computation by virtue of the fact that it is owed by a
Subsidiary of the Borrower will not also be added by virtue of the fact that the
Borrower has executed a guaranty with respect to such Debt that would  otherwise
require such guaranteed  indebtedness  to be considered Debt hereunder.  Nothing
contained in the foregoing sentence is intended to limit the other provisions of
this Agreement  which contain  limitations on the amount and types of Debt which
may be incurred by the Borrower or its Subsidiaries.

         "Debtor Laws" shall mean all applicable  liquidation,  conservatorship,
bankruptcy, moratorium, arrangement,  receivership,  insolvency, reorganization,
or similar laws,  or general  equitable  principles  from time to time in effect
affecting the rights of creditors generally.

         "Default" shall mean any of the events specified in Section 11, whether
or not there has been satisfied any  requirement  in connection  with such event
for the giving of notice,  or the lapse of time, or the happening of any further
condition, event or act.

         "Dollars"  and "$" shall mean lawful  currency of the United  States of
America.

         "Domestic  Lending  Office" shall mean,  with respect to each Bank, the
office of such Bank  located at its  "Address  for  Notices" set forth below the
name of such Bank on the  signature  pages  hereof or such other  office of such
Bank as such Bank may from time to time specify to the Borrower and the Agent.

         "EBDIT"  shall  mean for any  period  the sum of (a)  consolidated  net
earnings  for the  Borrower  and its  Subsidiaries  (excluding  for all purposes
hereof all  extraordinary  items),  plus (b) each of the following to the extent
actually   deducted  in  deriving  such  net  earnings:   (i)  depreciation  and
amortization  expense;  (ii)  interest  expense;  (iii) federal and state income
taxes;  and  (iv)  dividends  charged  against  income  on or  with  respect  to
Structured  Securities,  in each case before adjustment for extraordinary items,
as shown in the financial  statements of Borrower and its Subsidiaries  referred
to in Section 7.2 hereof  (excluding for all purposes  hereof all  extraordinary
items),  and  determined in  accordance  with GAAP,  and (c) plus (or minus,  if
applicable)  the net amount of non-cash  deductions  from (or  additions  to, if
applicable)  such net earnings for such period  attributable  to fluctuations in
the market price(s) of securities which the Borrower is obligated to purchase in
future  periods under any of the Rabbi Trusts,  but only to the extent that such
deductions (or additions,  if applicable) are required to be taken in accordance
with GAAP.

         "Eligible  Assignee"  shall mean: (i) any Bank, or any Affiliate of any
Bank, any Approved Fund, or any institution 100% of the voting stock of which is
directly,  or indirectly owned by such Bank or by the immediate or remote parent
of such Bank;  or (ii) a commercial  bank, a foreign  branch of a United  States
commercial  bank,  a  domestic  branch  of a  foreign  commercial  bank or other
financial institution having in each case assets in excess of $1,000,000,000.00.

         "Environmental  Law"  shall  mean (a) the  Comprehensive  Environmental
Response,  Compensation  and  Liability Act of 1980 (as amended by the Superfund
Amendments and  Reauthorization  Act of 1986, 42 U.S.C.A.  ss. 9601 et seq.), as
amended  from  time to time,  and any and all rules  and  regulations  issued or
promulgated  thereunder  ("CERCLA");  (b) the Resource Conservation and Recovery
Act (as amended by the Hazardous and Solid Waste  Amendment of 1984, 42 U.S.C.A.
ss.  6901 et seq.),  as  amended  from  time to time,  and any and all rules and
regulations  promulgated thereunder ("RCRA"); (c) the Clean Air Act, 42 U.S.C.A.
ss.  7401 et seq.,  as  amended  from  time to time,  and any and all  rules and
regulations promulgated  thereunder;  (d) the Clean Water Act of 1977, 33 U.S.CA
ss.  1251 et seq.,  as  amended  from  time to time,  and any and all  rules and
regulations  promulgated  thereunder;  (e) the Toxic Substances  Control Act, 15
U.S.C.A.  ss. 2601 et seq., as amended from time to time,  and any and all rules
and regulations promulgated  thereunder;  or (f) any other federal or state law,
statute,  rule,  or  emulation  enacted in  connection  with or  relating to the
protection or  regulation of the  environment  (including,  without  limitation,
those laws, statutes,  rules, and regulations regulating the disposal,  removal,
production,   storing,   refining,   handling,   transferring,   processing,  or
transporting  of Hazardous  Materials) and any rules and  regulations  issued or
promulgated  in  connection  with  any of  the  foregoing  by  any  governmental
authority, and "Environmental Laws" shall mean each of the foregoing.

         "EPA" shall mean the Environmental  Protection Agency, or any successor
organization.

         "Equity-Preferred  Securities" means (i) Debt,  preferred equity or any
other  securities  that are  mandatorily  convertible by the issuer thereof at a
date certain, without cash payment by the issuer, into common shares of stock of
the Borrower or (ii) any other securities (A) that are issued by the Borrower or
any  Subsidiary,  (B) that are not subject to mandatory  redemption at any time,
directly or indirectly,  (C) that are perpetual or mature not less than 30 years
from the date of issuance, (D) the Debt component,  if any, issued in connection
therewith,  including any guaranty,  is  subordinate  in right of payment to all
other  unsecured and  unsubordinated  Debt of the issuer of such Debt  component
(including any such guaranty, if applicable),  and (E) the terms of which permit
the  issuer  thereof to defer at any time,  without  any  additional  payment or
premium,  the payment of any and all interest and/or  distributions  thereon, as
applicable, to a date occurring after the Maturity Date.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as  amended  from  time  to  time,  and  all  rules,  regulations,  rulings  and
interpretations thereof issued by the Internal Revenue Service or the Department
of Labor thereunder.

         "Eurocurrency Liabilities" shall have the meaning assigned to that term
in Regulation D of the Board of Governors of the Federal Reserve  System,  as in
effect from time to time.

         "Eurodollar  Lending Office" shall mean, with respect to each Bank, the
office of such Bank  located at its  "Address  for  Notices" set forth below the
name of such Bank on the signature  pages  hereof,  or such other office of such
Bank as such Bank may from time to time specify to the Borrower and the Agent.

         "Eurodollar Rate" shall mean with respect to the applicable Rate Period
in effect for each Eurodollar Rate Loan, the sum of (a) the quotient obtained by
dividing (i) the rate appearing on Page 3750 of the Dow Jones Market Service (or
on any  successor or  substitute  page of such  Service,  or any successor to or
substitute  for such  Service,  providing  rate  quotations  comparable to those
currently provided on such page of such Service, as determined by the Agent from
time to time for purposes of providing  quotations of interest rates  applicable
to dollar deposits in the London interbank market) at approximately  11:00 a.m.,
London time, two Business Days prior to the commencement of such Rate Period, as
the rate for dollar deposits with a maturity  comparable to such Rate Period (or
in the event that such rate quote is not  available at such time for any reason,
then  utilizing  the rate at  which  dollar  deposits  of  $5,000,000  and for a
maturity  comparable  to such Rate  Period are offered by the  principal  London
office of the  Agent in  immediately  available  funds in the  London  interbank
market at approximately  11:00 a.m., London time, two Business Days prior to the
commencement  of such Rate Period) by (ii) a percentage  equal to 100% minus the
Eurodollar Rate Reserve Percentage for such Rate Period,  plus (b) an additional
percentage  per annum  changing  with the  rating of the  Borrower's  unsecured,
non-credit  enhanced  Senior Funded Debt and  determined in accordance  with the
following grid:

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

                                                                     Additional
Rating of the Borrower's unsecured, non-credit enhanced           Percentage Per
Senior Funded Debt                                                     Annum
--------------------------------------------------------------------------------


Equal to or greater  than A3 by Moody's  Investor  Service,  Inc.
and equal to or greater  than A- by Standard  and Poor's  Ratings
Group                                                                     0.500%
--------------------------------------------------------------------------------


Baa1 by Moody's  Investor  Service,  Inc. or BBB+ by Standard and
Poor's Ratings Group                                                      0.625%
-------------------------------------------------------------------------------


Baa2 by Moody's  Investor  Service,  Inc. or BBB by Standard  and
Poor's Ratings Group                                                      0.750%
--------------------------------------------------------------------------------


Baa3 by Moody's  Investor  Service,  Inc. or BBB- by Standard and
Poor's Ratings Group                                                      1.000%
--------------------------------------------------------------------------------
-

Equal to or less than Ba1 by Moody's Investor  Service,  Inc. and
equal to or less than BB+ by Standard and Poor's Ratings Group            1.750%
================================================================================

Notwithstanding  the  foregoing  provisions,  in the event  that  ratings of the
Borrower's  unsecured,  non-credit  enhanced Senior Funded Debt under Standard &
Poor's  Ratings  Group and under  Moody's  Investor  Service,  Inc.  fall within
different rating categories which are not functional equivalents, the Eurodollar
Rate shall be based on the higher of such  ratings if there is only one category
differential between the functional equivalents of such ratings, and if there is
a two category differential between the functional  equivalents of such ratings,
the  component  of pricing  from the grid set forth  above shall be based on the
rating  category  which is then in the  middle of or  between  the two  category
ratings  which are then in effect,  and if there is greater  than a two category
differential  between the functional  equivalents of such ratings, the component
of pricing  from the grid set forth above shall be based on the rating  category
which is then one rating  category above the lowest of the two category  ratings
which are then in effect.  Additionally,  in the event that  Borrower  withdraws
from having its unsecured, non-credit enhanced Senior Funded Debt being rated by
Moody's Investor Service, Inc. or Standard and Poor's Ratings Group, so that one
or both of such  ratings  services  fails  to  rate  the  Borrower's  unsecured,
non-credit  enhanced  Senior Funded Debt, the component of pricing from the grid
set forth above for purposes of determining  the applicable  Eurodollar Rate for
all Rate  Periods  commencing  thereafter  shall be  1.750%  until  such time as
Borrower  subsequently  causes its unsecured,  non-credit enhanced Senior Funded
Debt to be rated by both of said ratings services.

       "Eurodollar  Rate Loan"  shall mean any Loan that bears  interest  at the
Eurodollar Rate.

       "Eurodollar Rate Reserve Percentage" of the Agent for any Rate Period for
any Eurodollar  Rate Loan shall mean the reserve  percentage  applicable  during
such Rate Period (or if more than one such  percentages  shall be so applicable,
the daily average of such  percentages for those days in such Rate Period during
which any such percentage shall be so applicable) under regulations  issued from
time to time by the Board of  Governors  of the Federal  Reserve  System (or any
successor) for determining the maximum reserve requirement  (including,  without
limitation, any emergency,  supplemental, or other marginal reserve requirement)
for  member  banks  of  the  Federal  Reserve  System  with  deposits  exceeding
$1,000,000,000  with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Rate Period.

       "Event of Default" shall mean any of the events  specified in Section 11,
provided that there has been satisfied any  requirement in connection  with such
event for the giving of notice,  or the lapse of time,  or the  happening of any
further condition, event or act.

       "Expiration Date" shall mean the last day of a Rate Period.

       "Facility  Letter(s) of Credit"  shall mean,  in the singular  form,  any
Standby  Letter  of Credit  issued by an  Issuing  Bank for the  account  of the
Borrower pursuant to Section 3 and, in the plural form, all such Standby Letters
of Credit issued for the account of the Borrower.

       "Facility Letter of Credit Fee Percentage"  shall mean a fee expressed as
a percent per annum for all periods  equal to a  percentage  per annum  changing
with the rating of the Borrower's  unsecured,  non-credit enhanced Senior Funded
Debt and determined in accordance with the following grid:


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

Rating of the Borrower's unsecured, non-credit enhanced Senior       Additional
Funded Debt                                                       Percentage Per
                                                                       Annum
--------------------------------------------------------------------------------


Equal to or greater  than A3 by Moody's  Investor  Service,  Inc. and
equal to or greater than A- by Standard and Poor's Ratings Group          0.500%
--------------------------------------------------------------------------------


Baa1 by  Moody's  Investor  Service,  Inc.  or BBB+ by  Standard  and
Poor's Rating                                                             0.625%
--------------------------------------------------------------------------------
-

Baa2 by Moody's Investor Service,  Inc. or BBB by Standard and Poor's
Rating Group                                                              0.750%
--------------------------------------------------------------------------------

Baa3 by  Moody's  Investor  Service,  Inc.  or BBB- by  Standard  and
Poor's Rating Group                                                       1.000%
--------------------------------------------------------------------------------


Equal to or less  than Ba1 by  Moody's  Investor  Service,  Inc.  and
equal to or less than BB+ by Standard and Poor's Rating Group             1.750%
================================================================================

Notwithstanding  the  foregoing  provisions,  in the event  that  ratings of the
Borrower's  unsecured,  non-credit  enhanced Senior Funded Debt under Standard &
Poor's  Ratings  Group and under  Moody's  Investor  Service,  Inc.  fall within
different rating categories which are not functional  equivalents,  the Facility
Letter of Credit Fee Percentage  shall be based on the higher of such ratings if
there is only one category  differential  between the functional  equivalents of
such ratings, and if there is a two category differential between the functional
equivalents  of such  ratings,  the component of pricing from the grid set forth
above  shall be based on the rating  category  which is then in the middle of or
between  the two  category  ratings  which are then in  effect,  and if there is
greater than a two category  differential between the functional  equivalents of
such  ratings,  the  component of pricing from the grid set forth above shall be
based on the rating  category which is then one rating category above the lowest
of the two category ratings which are then in effect. Additionally, in the event
that Borrower  withdraws from having its unsecured,  non-credit  enhanced Senior
Funded Debt being rated by Moody's Investor Service, Inc. or Standard and Poor's
Ratings  Group,  so that one or both of such ratings  services fails to rate the
Borrower's  unsecured,  non-credit enhanced Senior Funded Debt, the component of
pricing from the grid set forth above for purposes of determining the applicable
Facility  Letter of Credit Fee  Percentage for all periods  thereafter  shall be
1.750%  until  such time as the  Borrower  subsequently  causes  its  unsecured,
non-credit  enhanced  Senior  Funded  Debt to be rated  by both of said  ratings
services.

       "Facility  Letter of Credit  Obligations"  shall mean, at any  particular
time,  the sum of (a) the  Reimbursement  Obligations,  plus  (b) the  aggregate
undrawn face amount of all outstanding  Facility Letters of Credit, in each case
as determined by the Agent.

         "Federal Funds Rate" shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted  average of
the  rates  (rounded  to the  nearest  1/100 of 1%) on  overnight  federal  fund
transactions  with  members of the Federal  Reserve  System  arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next  preceding  Business Day) by the Federal  Reserve Bank of New York,
or, if such rate is not so  published  for any day which is a Business  Day, the
average of the  quotations  for such day on such  transactions  received  by the
Agent from  Fulton  Prebon and  Garvin  Guy  Butler or two other  federal  funds
brokers of recognized standing selected by the Agent.

         "Funded  Debt" means all Debt of a Person  which  matures more than one
year from the date of creation or matures  within one year from such date but is
renewable or  extendible,  at the option of such Person,  by its terms or by the
terms of any instrument or agreement  relating thereto,  to a date more than one
year from such date or arises  under a  revolving  credit or  similar  agreement
which  obligates  Banks to extend  credit  during a period of more than one year
from such date,  including,  without limitation,  all amounts of any Funded Debt
required to be paid or prepaid within one year from the date of determination of
the existence of any such Funded Debt.

         "GAAP" shall mean generally accepted accounting principles,  applicable
to the circumstances as of the date of determination,  applied consistently with
such principles as applied in the preparation of the Borrowers audited financial
statements referred to in Section 7.2.

         "General  Intangibles" shall mean all of the Borrower's contract rights
now  existing or  hereafter  acquired,  arising or created  under  contracts  or
arrangements for the purchase,  sale,  storage or transportation of gas or other
Inventory.

         "Governmental  Authority" shall mean any (domestic or foreign) federal,
state,  county,  municipal,  parish,  provincial,  or other  government,  or any
department, commission, board, court, agency (including, without limitation, the
EPA),  or any  other  instrumentality  of any of  them  or any  other  political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory,  or  administrative  functions  of, or  pertaining  to,  government,
including,  without  limitation,  any  arbitration  panel,  any  court,  or  any
commission.

         "Governmental  Requirement"  means  any  Order,  Permit,  law,  statute
(including,  without limitation,  any Environmental  Protection Statute),  code,
ordinance, rule, regulation,  certificate,  or other direction or requirement of
any Governmental Authority.

         "Guaranty"  means,   with  respect  to  any  Person,   any  obligation,
contingent or otherwise,  of such Person directly or indirectly guaranteeing any
Debt of another Person, including,  without limitation, by means of an agreement
to purchase or pay (or advance or supply  funds for the  purchase or payment of)
such Debt or to maintain financial  covenants,  or to assure the payment of such
Debt by an agreement to make payments in respect of goods or services regardless
of  whether  delivered  or to  purchase  or  acquire  the  Debt of  another,  or
otherwise,  provided that the term "Guaranty" shall not include endorsements for
deposit or collection in the ordinary course of business.

         "Hazardous  Materials" shall mean any substance which,  pursuant to any
Environmental Laws,  requires special handling in its collection,  use, storage,
treatment or disposal,  including but not limited to any of the  following:  (a)
any  "hazardous  waste" as defined by RCRA;  (b) any  "hazardous  substance"  as
defined  by  CERCLA;  (c)  asbestos;  (d)  polychlorinated  biphenyls;  (e)  any
flammables,  explosives or radioactive  materials;  and (f) any  substance,  the
presence of which on any of the  Borrower's  or any  Subsidiary's  properties is
prohibited by any Governmental Authority.

         "Highest  Lawful  Rate"  shall  mean,  with  respect to each Bank,  the
maximum nonusurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received with respect to the
Notes or on other amounts,  if any, due to such Bank pursuant to this Agreement,
under laws  applicable  to such Bank which are  presently in effect,  or, to the
extent  allowed by law,  under such  applicable  laws which may  hereafter be in
effect  and  which  allow  a  higher  maximum  nonusurious  interest  rate  than
applicable laws now allow.

         "Indemnified  Parties"  shall  have the  meaning  set forth in  Section
13.16.

         "Interest  Payment Date" shall mean (a) as to any Eurodollar  Rate Loan
in which the Rate Period  with  respect  thereto is not  greater  than three (3)
months,  the date on which such Rate Period ends; (b) as to any Eurodollar  Rate
Loan in which the Rate Period  with  respect  thereto is greater  than three (3)
months, the date on which the third month of such Rate Period ends, and the date
on which each such Rate Period ends;  (c) as to any Alternate  Base Rate Loan in
which the Rate Period with respect thereto is not greater than ninety (90) days,
the date on which such Rate Period ends;  (d) as to any Alternate Base Rate Loan
in which the Rate Period with respect  thereto is greater than ninety (90) days,
the  ninetieth  (90th) day of such Rate Period,  and the date on which each such
Rate Period  ends;  and (e) as to all Loans,  such time as the  principal of and
interest on the Notes shall have been paid in full.

         "Inventory"  means, with respect to Borrower or any Subsidiary,  all of
such Person's now owned or hereafter acquired or created inventory in all of its
forms and of every  nature,  wherever  located,  whether  acquired by  purchase,
merger,  or  otherwise,  and all raw  materials,  work in process  therefor  and
finished  goods  thereof,  and all  supplies,  materials,  and products of every
nature  and  description  used,  usable,  or  consumed  in  connection  with the
manufacture,  packing, shipping,  advertising,  selling, leasing, furnishing, or
production  of such goods,  and shall  include,  in any event,  all  "inventory"
(within the meaning of such term in the Uniform Commercial Code in effect in any
applicable  jurisdiction),  whether in mass or joint, or other interest or right
of any kind in goods  which are  returned  to,  repossessed  by, or  stopped  in
transit by such  Person,  and all  accessions  to any of the  foregoing  and all
products of any of the foregoing.

         "Investment"  of any Person means any  investment so  classified  under
GAAP,  and,  whether or not so  classified,  includes (a) any direct or indirect
loan advance made by it to any other Person; (b) any direct or indirect Guaranty
for the  benefit  of such  Person;  provided,  however,  that  for  purposes  of
determining Investments of Borrower hereunder, the existing Guaranty by Borrower
of certain tax increment financing extended by The Fidelity Deposit and Discount
Bank to The Redevelopment  Authority of the County of Lackawanna shall be deemed
to not be an Investment;  (c) any capital  contribution to any other Person; and
(d) any ownership or similar interest in any other Person; and the amount of any
Investment  shall be the original  principal or capital amount thereof (plus any
subsequent  principal or capital  amount) minus all cash returns of principal or
capital thereof.

         "Issuing Bank" shall mean (a) any Bank and/or any Affiliate of any Bank
listed on the signature pages of this Agreement  attached hereto and made a part
hereof, or (b) any Bank or any Affiliate of any Bank not listed on the signature
pages of this Agreement,  but only in the event that such Bank or such Affiliate
agrees, in its sole discretion at the request of the Borrower,  and on the terms
and conditions mutually  acceptable to such Bank or such Affiliate,  as the case
may be,  to  become an  Issuing  Bank for the  purpose  of  issuing  one or more
Facility  Letters of Credit pursuant to Section 3. When a Bank is referred to as
an Issuing  Bank  under this  Agreement,  such  reference  to such Bank shall be
interpreted to refer to such Bank solely in its capacity as an Issuing Bank.

         "L/C  Subfacility"  shall mean that portion of the Commitments equal to
$40,000,000.00.

         "Letter(s) of Credit" shall mean, in the singular  form,  any letter of
credit  issued by any Person for the account of the Borrower  and, in the plural
form,  all such  letters of credit  issued by any Person for the  account of the
Borrower.

         "Letter of Credit  Commitment" shall mean, with respect to each Issuing
Bank, such Issuing Bank's commitment to issue Facility Letters of Credit.

         "Letter of Credit Reimbursement  Agreement" shall mean, with respect to
a  Facility  Letter of Credit,  such form of  application  therefor  and form of
reimbursement  agreement  therefor  (whether  in a single or several  documents,
taken  together) as the Issuing Bank from which the Facility Letter of Credit is
requested  may employ in the  ordinary  course of business  for its own account,
whether  or not  providing  for  collateral  security,  with such  modifications
thereto as may be agreed upon by such Issuing Bank and the account  party and as
are not materially adverse to the interests of any Bank;  provided,  however, in
the  event  of  any  conflict   between  the  terms  of  any  Letter  of  Credit
Reimbursement  Agreement and this  Agreement,  the terms of this Agreement shall
control; and provided,  further, that any grant or purported grant of a security
interest  in favor  of the  Issuing  Bank  contained  in any  Letter  of  Credit
Reimbursement Agreement shall be void.

         "Lien"  shall  mean  any  mortgage,  deed of  trust,  pledge,  security
interest,  encumbrance,  lien (including without  limitation,  any such interest
arising under any  Environmental  Law), or similar charge of any kind (including
without limitation,  any agreement to give any of the foregoing, any conditional
sale or other title retention agreement or any lease in the nature thereof),  or
the interest of the lessor under any Capital Lease.

         "Loan" or "Loans"  shall mean a loan or loans,  respectively,  from the
Banks to the Borrower made under Section 2.1.

         "Loan  Document"  shall  mean this  Agreement,  any Note,  or any other
document, agreement or instrument now or hereafter executed and delivered by the
Borrower  or any  other  Person  in  connection  with  any  of the  transactions
contemplated  by any of the foregoing,  as any of the foregoing may hereafter be
amended,   modified,   or   supplemented,   and  "Loan  Documents"  shall  mean,
collectively, each of the foregoing.

         "Majority  Bank" shall mean at any time Banks  holding more than 50% of
the unpaid principal amounts outstanding under the Notes, or, if no such amounts
are outstanding, more than 50% of the Pro Rata Percentages.

         "Material Adverse Effect" shall mean any material adverse effect on (a)
the financial condition,  business,  properties, assets, prospects or operations
of the Borrower and its Subsidiaries taken as a whole, or (b) the ability of the
Borrower to perform its obligations under this Agreement,  any Note or any other
Loan Document on a timely basis.

         "Maturity Date" shall mean May 28, 2009.

         "Non-Facility  Letter of Credit"  shall mean any Letter of Credit which
is not a Facility Letter of Credit.

         "Note" or "Notes" shall mean a promissory note or notes,  respectively,
of the Borrower, executed and delivered under this Agreement.

         "Notice  of  Borrowing"  shall  have the  meaning  set forth in Section
2.1(c).

         "Obligations"  shall mean (a) all  obligations  of the  Borrower to the
Bank under this Agreement, the Notes and all other Loan Documents to which it is
a party; (b) all Reimbursement Obligations; and (c) any other obligations of the
Borrower with respect to a Facility Letter of Credit.

         "Officer's  Certificate" shall mean a certificate signed in the name of
the Borrower or a Subsidiary,  as the case may be, by either its President,  one
of its Vice Presidents,  its Treasurer,  its Secretary,  or one of its Assistant
Treasurers or Assistant Secretaries.

         "Panhandle Eastern" shall mean Panhandle Eastern Pipe Line Company, a
Delaware corporation.

         "Panhandle  Eastern  Refinancing Debt" shall mean any Debt of Panhandle
Eastern  and/or  any of its  Subsidiaries  issued in  exchange  for,  or the net
proceeds  of which are used to extend,  refinance,  renew,  replace,  defease or
refund, any Debt of Panhandle Eastern and/or any of its Subsidiaries existing as
of the Closing Date, provided, that:

                  (a) the principal amount of such Panhandle Eastern Refinancing
         Debt does not exceed the then outstanding  principal amount of the Debt
         so extended, refinanced, renewed, replaced, defeased or refunded;

                  (b) the interest rate or rates to accrue under such  Panhandle
         Eastern  Refinancing  Indebtedness  do not exceed the lesser of (i) the
         interest  rate  or  rates  then  accruing  on  the  Debt  so  extended,
         refinanced,  renewed,  replaced,  defeased  or  refunded  or  (ii)  the
         prevailing  market interest rate or rates which are then applicable to,
         and generally  available  for,  Debt which is similar in type,  amount,
         maturity and other terms to the  Indebtedness so extended,  refinanced,
         renewed, replaced, defeased or refunded;

                  (c)  the  maturities,   amortization   schedules,   covenants,
         defaults, remedies, collateral security provisions (or absence thereof)
         and other terms of such  Panhandle  Eastern  Refinancing  Indebtedness,
         including  without  limitation,  any  restrictions  on the  payment  by
         Panhandle  Eastern and/or its applicable  Subsidiaries of any dividends
         or other shareholder  distributions,  are in each case the same or more
         favorable to Panhandle  Eastern and/or its applicable  Subsidiaries  as
         those in the Debt so extended, refinanced,  renewed, replaced, defeased
         or refunded; and

                  (d) no  Default  or  Event  of  Default  has  occurred  and is
         continuing  or would  result from the issuance or  origination  of such
         Panhandle Eastern Refinancing Indebtedness.

         "Person"  shall  mean  an  individual,   partnership,   joint  venture,
corporation,  joint stock  company,  bank,  trust,  unincorporated  organization
and/or a government or any department or agency thereof.

         "Plan" shall mean any plan subject to Title IV of ERISA and  maintained
for  employees  of the  Borrower  or of any  member  of a  "controlled  group of
corporations," as such term is defined in the Code, of which the Borrower or any
Subsidiary is a member, or any such plan to which the Borrower or any Subsidiary
is required to contribute on behalf of its employees.

         "Prime Rate" shall mean,  on any day, the rate  determined by the Agent
as being its prime  rate for that day.  Without  notice to the  Borrower  or any
other Person, the Prime Rate shall change automatically from time to time as and
in the amount by which said Prime Rate shall fluctuate, with each such change to
be effective as of the date of each change in such Prime Rate. The Prime Rate is
a  reference  rate and does not  necessarily  represent  the lowest or best rate
actually  charged to any customer.  The Agent may make commercial or other loans
at rates of interest at, above or below the Prime Rate.

         "Prior  Acquisitions"  shall mean collectively the Borrower's  previous
acquisitions  of and  mergers  with Fall River Gas  Company,  Providence  Energy
Corporation and Valley Resources, Inc.

         "Pro-Rata  Percentage"  shall mean with respect to any Bank, a fraction
(expressed as a percentage),  the numerator of which shall be the amount of such
Bank's  Commitment and the denominator of which shall be the aggregate amount of
all the  Commitments  of the Banks,  as adjusted from time to time in accordance
with Section 4.6.

         "Property"  shall mean any interest or right in any kind of property or
asset,  whether  real,  personal,  or  mixed,  owned  or  leased,   tangible  or
intangible, and whether now held or hereafter acquired.

         "Qualifying  Assets" shall mean (i) equity  interests owned one hundred
percent (100%) by the Borrower in entities  engaged  primarily in one or more of
the Borrower's lines of business described in Section 7.15 (singly, a "Qualified
Entity," collectively,  "Qualified Entities"),  or productive assets used in one
or more of such lines of  business;  and (ii) equity  interests of less than one
hundred percent (100%) owned by the Borrower in one or more Qualifying Entities,
provided that at any time the aggregate  amount of the Borrower's  investment in
Qualifying Assets described in clause (ii) that are then held by the Borrower as
of the applicable  determination  date (measured by the aggregate purchase price
paid therefor, including the aggregate amount of Debt assumed or deemed incurred
by Borrower in connection with such acquisitions) does not exceed twenty percent
(20%) of the  Consolidated  Net Worth of the Borrower and its Subsidiaries as of
the applicable determination date.

         "Rabbi Trusts" shall mean those four (4) certain non-qualified deferred
compensation  irrevocable  trusts  existing as of the Closing  Date,  previously
established by the Borrower for the benefit of its executive employees,  so long
as the assets in each of such trusts which have not yet been  distributed to one
or more executive  employees of the Borrower remain subject to the claims of the
Borrower's general creditors.

         "Rate  Period"  shall mean the  period of time for which the  Alternate
Base Rate or the  Eurodollar  Rate shall be in effect as to any  Alternate  Base
Rate Loan or  Eurodollar  Rate  Loan,  as the case may be,  commencing  with the
Borrowing Date or the Expiration Date of the immediately  preceding Rate Period,
as the  case may be,  applicable  to and  ending  on the  effective  date of any
reborrowing  made as provided in Section  2.2(a) as the  Borrower may specify in
the related  Notice of Borrowing,  subject,  however,  to the early  termination
provisions of the second  sentence of Section 2.3(c)  relating to any Eurodollar
Rate Loan; provided, however, that any Rate Period that would otherwise end on a
day  which is not a  Business  Day  shall  be  extended  to the next  succeeding
Business Day unless such Business Day falls in another  calendar month, in which
case such Rate Period  shall end on the next  preceding  Business  Day.  For any
Alternate  Base  Rate  Loan,  the Rate  Period  shall  be 90  days;  and for any
Eurodollar  Rate Loan the Rate Period may be 15 days,  1, 2, 3, or 6 months,  in
each case as specified in the  applicable  Notice of  Borrowing,  subject to the
provisions of Sections 2.2 and 2.3.

         "Reimbursement  Obligations"  shall mean the reimbursement or repayment
obligations  of the Borrower to Issuing Banks  pursuant to this Agreement or the
applicable  Letter of Credit  Reimbursement  Agreement  with respect to Facility
Letters of Credit issued for the account of the Borrower.

         "Release" shall mean a "release", as such term is defined in CERCLA.

         "Restricted  Payment" shall mean the Borrower's  declaration or payment
of any  dividend  on, or purchase or  agreement to purchase any of, or making of
any other  distribution  with respect to, any of its capital  stock,  except any
such dividend,  purchase or distribution  consisting  solely of capital stock of
the Borrower, and except any dividend or interest paid on or with respect to the
Borrower's Structured Securities to the extent that such amounts are included in
Cash Interest Expense.

         "Securities Act" shall have the meaning set forth in Section 13.1.

         "Senior  Funded Debt" shall mean Funded Debt of the Borrower  excluding
Debt that is contractually subordinated in right of payment to any other Debt.

         "Senior Notes" means (a) the  $475,000,000  of 7.6% Senior Notes of the
Borrower  previously placed with investors on or about January 31, 1994, and (b)
the  $300,000,000 of 8.25% Senior Notes of the Borrower  previously  placed with
investors  on or about  November 3, 1999,  as such Senior  Notes may be amended,
modified, or supplemented from time to time in accordance with the terms of this
Agreement; and "Senior Note" means each such note individually.

         "Significant Property" shall mean at any time property or assets of the
Borrower or any Subsidiary having a book value (net of accumulated  depreciation
taken in accordance with GAAP) of at least $5,000,000.00 or that contributed (or
is an integrated  physical portion of an assemblage of assets that  contributed)
at least 5% of the gross income of the owner thereof for the fiscal quarter most
recently ended.

         "Southern Union Panhandle" shall mean Southern Union Panhandle Corp., a
Delaware corporation formed by the Borrower for the purpose of ultimately owning
and holding  100% of all issued and  outstanding  equity  interests in Panhandle
Eastern.

         "Southern  Union Trust" means any of those  certain  Delaware  business
trusts organized for the sole purpose of purchasing Subordinated Debt Securities
constituting  a portion  of, and  described  in the  definition  of,  Structured
Securities  and issuing the  Preferred  Securities  and Common  Securities  also
constituting  a portion  of, and  described  in the  definition  of,  Structured
Securities,  and having no assets other than the  Borrower's  Subordinated  Debt
Securities,  the  Guaranties  (as  described  in the  definition  of  Structured
Securities) and the proceeds thereof.  Southern Union Trusts shall be considered
to be Subsidiaries for purposes hereof so long as their affairs are consolidated
under GAAP and for federal income tax purposes with the affairs of the Borrower.

         "Standby  Letter of  Credit"  shall mean any  standby  letter of credit
issued to support obligations (contingent or otherwise) of the Borrower.

         "Structured  Securities"  shall mean  collectively (a) the Subordinated
Debt  Securities,  the  Guaranties,  the  Common  Securities  and the  Preferred
Securities  of the Southern  Union  Trusts,  all as described and defined in the
Registration Statement on Form S-3 filed by the Borrower with the Securities and
Exchange  Commission on March 25, 1995, and (b)  subordinated  debt  securities,
guaranties,  common securities and/or preferred  securities issued in connection
with the  consummation of the Prior  Acquisitions in an aggregate face amount of
not more than  $150,000,000 upon terms and conditions  substantially  similar in
all material respects to the terms and conditions  described and defined in such
Registration Statement on Form S-3 filed by the Borrower with the Securities and
Exchange  Commission on March 25, 1995. For all purposes of this Agreement,  the
amounts  payable by Southern  Union Trusts under the  Preferred  Securities  and
Common Securities (or similar securities provided for under subclause (b) above)
and the amounts payable by the Borrower under the  Subordinated  Debt Securities
or the Guaranties (or similar securities provided for under subclause (b) above)
shall be treated  without  duplication,  it being  recognized  that the  amounts
payable by Southern  Union Trusts are funded with payments made or to be made by
the Borrower to Southern  Union Trusts and are also  guaranteed  by the Borrower
under the Guaranties described in the S-3 mentioned above (or similar guaranties
provided for under subclause (b) above).

         "Subsidiary"   or   "Subsidiaries"   shall  mean  any   corporation  or
corporations  organized  under  the laws of any  state of the  United  States of
America,  Canada, or any province of Canada,  which conduct(s) the major portion
of business in the United States of America or Canada and of which not less than
50% of the  voting  stock of  every  class  (except  for  directors'  qualifying
shares),  at the time as of which any  determination  is being made, is owned by
the Borrower either directly or indirectly through other Subsidiaries.

         "Term Loan Facility"  shall mean (a) that certain term loan facility to
be provided to the Borrower in an aggregate amount of $311,086,956.00  under the
terms of that certain Amended and Restated Term Loan Credit Agreement dated July
15,  2002 by and among the  Borrower,  JPMorgan  Chase Bank,  as  administrative
agent, and the banks or financial institutions now or hereafter a party thereto,
and (b) any and all amendments,  modifications,  increases,  supplements  and/or
restatements  of said credit  facility  now or hereafter  existing  from time to
time.

         "Trunkline LNG Holdings" shall mean CMS Trunkline LNG Holdings,  LLC, a
Delaware limited liability company.

         "Trunkline LNG Holdings Sale" shall mean the sale by Panhandle  Eastern
to  a  third-party  that  is  not  an  Affiliate  of  the  Borrower  of  all  or
substantially  all of the assets of Trunkline LNG Holdings and its  Subsidiaries
or all or a portion  of the  issued  and  outstanding  stock  and  other  equity
interests,  if any, in Trunkline LNG Holdings, so long as such sale is finalized
and consummated in substantial compliance with the following specified terms:

                (a) all cash  proceeds  received by Panhandle  Eastern from such
         sale, less customary and reasonable  transaction fees and the amount of
         all taxes payable by the Panhandle  Eastern  attributable to such sale,
         shall by fully  distributed  by  Panhandle  Eastern to  Southern  Union
         Panhandle, and in turn by Southern Union Panhandle to the Borrower;

                (b) all cash proceeds distributed to the Borrower from such sale
         shall be immediately applied against the Borrower's Debt under the Term
         Loan Facility, to the extent then outstanding; and

                (c) all requisite  approvals and consents from any  Governmental
         Authority  with  respect  to such  sale  shall  have been  received  by
         Panhandle Eastern in a form acceptable to the Agent.

         "Type" shall mean,  with respect to any Loan,  any Alternate  Base Rate
Loan or any Eurodollar Rate Loan.

         "Unused L/C Subfacility"  shall mean, at any time, the amount,  if any,
by which the L/C  Subfacility  then in effect exceeds the aggregate  outstanding
amount of all Facility Letter of Credit Obligations.

2. THE LOANS

     2.1  The Loans

               (a)  Subject to the terms and  conditions  and  relying  upon the
          representations  and warranties of the Borrower herein set forth, each
          Bank severally agrees to make Loans to the Borrower on any one or more
          Business Days prior to the Maturity Date, up to an aggregate principal
          amount of Loans not exceeding at any time outstanding:  (i) the amount
          set  opposite  such Banks name on the  signature  pages  hereof  (such
          Bank's  "Commitment");  minus (ii) such Bank's Pro Rata  Percentage of
          the  Facility  Letter of Credit  Obligations.  Within  such limits and
          during  such period and  subject to the terms and  conditions  of this
          Agreement, the Borrower may borrow, repay and reborrow hereunder.

               (b) The Borrower  shall execute and deliver to the Agent for each
          Bank to  evidence  the  Loans  made by each  Bank  under  such  Bank's
          Commitment,  a Note, which shall be: (i) dated the date of the Closing
          Date; (ii) in the principal amount of such Bank's maximum  Commitment;
          (iii) in  substantially  the form  attached  hereto as Exhibit A, with
          blanks appropriately filled; (iv) payable to the order of such Bank on
          the Maturity Date; and (v) subject to acceleration upon the occurrence
          of an Event of  Default.  Each Note shall bear  interest on the unpaid
          principal amount thereof from time to time outstanding at the rate per
          annum determined as specified in Sections 2.2(a),  2.2(b),  2.3(b) and
          2.3(c),  payable  on  each  Interest  Payment  Date  and at  maturity,
          commencing with the first Interest  Payment Date following the date of
          each Note.

               (c) Each Loan  shall be: (i) in the case of any  Eurodollar  Rate
          Loan,  in an  amount  of not less than  $1,000,000.00  or an  integral
          multiple of  $1,000,000.00  in excess thereof;  or (ii) in the case of
          any  Alternate  Base  Rate  Loan,  in  an  amount  of  not  less  than
          $500,000.00  or an integral  multiple of $100,000.00 in excess thereof
          and, at the option of the Borrower,  any borrowing  under this Section
          2.1(c) may be  comprised of two or more such Loans  bearing  different
          rates of interest. Each such borrowing shall be made upon prior notice
          from the Borrower to the Agent in the form attached  hereto as Exhibit
          B (the  "Notice of  Borrowing")  delivered to the Agent not later than
          11:00 am (Houston  time):  (i) on the third  Business Day prior to the
          Borrowing  Date, if such borrowing  consists of Eurodollar Rate Loans;
          and  (ii)  on the  Borrowing  Date,  if  such  borrowing  consists  of
          Alternate  Base  Rate  Loans.   Each  Notice  of  Borrowing  shall  be
          irrevocable  and  shall  specify:  (i)  the  amount  of  the  proposed
          borrowing  and of  each  Loan  comprising  a part  thereof;  (ii)  the
          Borrowing  Date;  (iii) the rate of interest that each such Loan shall
          bear;  (iv) the Rate  Period  with  respect  to each such Loan and the
          Expiration  Date of each such Rate Period;  and (v) the demand deposit
          account of the  Borrower  at JPMorgan  into which the  proceeds of the
          borrowing are to be deposited by the Agent.  The Borrower may give the
          Agent telephonic notice by the required time of any proposed borrowing
          under this Section 2.1(c);  provided that such telephonic notice shall
          be confirmed in writing by delivery to the Agent  promptly  (but in no
          event later than the Borrowing Date relating to any such borrowing) of
          a Notice of Borrowing.  Neither the Agent nor any Bank shall incur any
          liability  to the  Borrower  in  acting  upon  any  telephonic  notice
          referred to above which the Agent  believes in good faith to have been
          given by the  Borrower,  or for  otherwise  acting in good faith under
          this Section 2.1(c).

               (d) In the case of a proposed  borrowing  comprised of Eurodollar
          Rate  Loans,  the  Agent  shall  promptly  notify  each  Bank  of  the
          applicable  interest rate under  Section 2.2. Each Bank shall,  before
          11:00 am (Houston time) on the Borrowing  Date, make available for the
          account of its  Applicable  Lending Office to the Agent at the Agent's
          address  set forth in Section  13.4,  in same day funds,  its Pro Rata
          Percentage of such borrowing.  After the Agent's receipt of such funds
          and upon fulfillment of the applicable conditions set forth in Section
          8, on the Borrowing Date, the Agent shall make the borrowing available
          to the  Borrower  at its  Applicable  Lending  Office  in  immediately
          available  funds.  Each Bank shall post on a schedule  attached to its
          Note(s):  (i) the date and  principal  amount of each Loan made  under
          such Note;  (ii) the rate of  interest  each such Loan will bear;  and
          (iii) each payment of principal thereon;  provided,  however, that any
          failure  of such  Bank so to mark  such  Note  shall  not  affect  the
          Borrower's  obligations  thereunder;  and  provided  further that such
          Bank's records as to such matters shall be controlling  whether or not
          such Bank has so marked  such  Note.  Any  deposit  to the  Borrower's
          demand  deposit  account  by the Agent or by  JPMorgan  Chase Bank (of
          funds received from the Agent) pursuant to a request  (whether written
          or oral)  believed  by the Agent or by  JPMorgan  Chase  Bank to be an
          authorized  request  by the  Borrower  for a Loan  hereunder  shall be
          deemed to be a Loan hereunder for all purposes with the same effect as
          if the Borrower had in fact requested the Agent to make such Loan.

               (e) Unless the Agent shall have received notice from a Bank prior
          to the date of any borrowing that such Bank will not make available to
          the Agent such Bank's Pro Rata Percentage of such borrowing, the Agent
          may assume that such Bank has made such portion available to the Agent
          on the date of such borrowing in accordance  with this Section 2.1 and
          the Agent may, in reliance upon such assumption, make available to the
          Borrower  on such date a  corresponding  amount.  If and to the extent
          that  such  Bank  shall  not have so made  such  Pro  Rata  Percentage
          available to the Agent, such Bank and the Borrower  severally agree to
          repay to the Agent  forthwith  on  demand  such  corresponding  amount
          together with interest thereon, for each day from the date such amount
          is made available to the Borrower until the date such amount is repaid
          to the Agent,  (i) in the case of the  Borrower,  at the interest rate
          applicable at the time to the Loans  comprising  such  borrowing,  and
          (ii) in the case of such Bank, at the Federal Funds Rate. If such Bank
          shall  repay to the Agent such  corresponding  amount,  such amount so
          repaid shall constitute such Bank's Loan as part of such borrowing for
          purposes of this Agreement.

               (f) The  failure of any Bank to make the Loan to be made by it as
          part  of any  borrowing  shall  not  relieve  any  other  Bank  of its
          obligation,  if any,  hereunder  to make  its Loan on the date of such
          borrowing,  but no Bank shall be  responsible  for the  failure of any
          other  Bank to make the Loan to be made by such other Bank on the date
          of any borrowing.

     2.2  Interest Rate Determination

               (a) Except as specified in Sections 2.3(b) and 2.3(c),  the Loans
          shall bear interest on the unpaid  principal  amount thereof from time
          to time outstanding,  until maturity,  at a rate per annum (calculated
          based on a year of 360 days in the case of the Eurodollar  Rate or the
          Alternate  Base Rate based on the Federal Funds Rate and a year of 365
          or 366  days,  as the case may be, in the case of the  Alternate  Base
          Rate  based on the  Prime  Rate)  equal to the  lesser of (A) the rate
          specified in the Notice of Borrowing  with respect  thereto or (B) the
          Highest  Lawful  Rate from the first day to,  but not  including,  the
          Expiration  Date of the  Rate  Period  then  in  effect  with  respect
          thereto.

               (b)  Any  principal,   interest,   fees  or  other  amount  owing
          hereunder, under any Note or under any other Loan Document that is not
          paid  when  due  (whether  at  stated  maturity,  by  acceleration  or
          otherwise) shall bear interest at a rate per annum equal to the lesser
          of (i) two percent (2%) above the  Alternate  Base Rate in effect from
          time to time or (ii) the Highest Lawful Rate.

     2.3  Additional Interest Rate Provisions

               (a) The Note  may be held by each  Bank  for the  account  of its
          respective  Domestic  Lending  Office  or  its  respective  Eurodollar
          Lending Office, and may be transferred from one to the other from time
          to time as each Bank may determine.

               (b) If the Borrower  shall have chosen the  Eurodollar  Rate in a
          Notice of Borrowing and prior to the Borrowing  Date, any Bank in good
          faith determines  (which  determination  shall be conclusive) that (i)
          deposits in Dollars in the principal  amount of such  Eurodollar  Rate
          Loan are not being offered to the  Eurodollar  Lending  Office of such
          Bank in the Eurodollar  interbank  market selected by such Bank in its
          sole discretion in good faith or (ii) adequate and reasonable means do
          not exist for  ascertaining  the chosen  Eurodollar Rate in respect of
          such  Eurodollar  Rate Loan or (iii) the Eurodollar  Rate for any Rate
          Period for such Eurodollar  Rate Loan will not adequately  reflect the
          cost to such Bank of making  such  Eurodollar  Rate Loan for such Rate
          Period,  then such Bank will so notify the  Borrower and the Agent and
          such Eurodollar Rate shall not become  effective as to such Eurodollar
          Rate Loan on such Borrowing Date or at any time thereafter  until such
          time  thereafter as the Borrower  receives  notice from the Agent that
          the circumstances giving rise to such determination no longer apply.

               (c) Anything in this  Agreement to the contrary  notwithstanding,
          if at any time any Bank in good faith determines (which  determination
          shall be  conclusive)  that the  introduction  of or any change in any
          applicable law, rule or regulation or any change in the interpretation
          or  administration  thereof by any  governmental  or other  regulatory
          authority charged with the  interpretation  or administration  thereof
          shall make it unlawful for the Bank (or the Eurodollar  Lending Office
          of such Bank) to maintain or fund any Eurodollar  Rate Loan, such Bank
          shall give notice thereof to the Borrower and the Agent.  With respect
          to any  Eurodollar  Rate Loan which is  outstanding  when such Bank so
          notifies  the  Borrower,  upon such date as shall be specified in such
          notice the Rate Period  shall end and the lesser of (i) the  Alternate
          Base Rate or (ii) the Highest  Lawful Rate shall  commence to apply in
          lieu of the Eurodollar  Rate in respect of such  Eurodollar  Rate Loan
          and shall continue to apply unless and until the Borrower  changes the
          rate as provided  in Section  2.2(a).  No more than five (5)  Business
          Days after such  specified  date,  the Borrower shall pay to such Bank
          (x) accrued and unpaid  interest on such  Eurodollar  Rate Loan at the
          Eurodollar  Rate in  effect  at the  time of  such  notice  to but not
          including  such specified date plus (y) such amount or amounts (to the
          extent  that  such  amount or  amounts  would  not be  usurious  under
          applicable  law) as may be necessary to  compensate  such Bank for any
          direct or indirect costs and losses incurred by it (to the extent that
          such  amounts  have  not  been  included  in the  Additional  Costs in
          calculating such Eurodollar Rate), but otherwise  without penalty.  If
          notice  has  been  given  by  such  Bank  pursuant  to  the  foregoing
          provisions of this Section  2.3(c),  then,  unless and until such Bank
          notifies  the  Borrower  that the  circumstances  giving  rise to such
          notice no longer apply,  such Eurodollar Rate shall not again apply to
          such  Loan or any  other  Loan  and  the  obligation  of such  Bank to
          continue any Eurodollar  Rate Loan as a Eurodollar  Rate Loan shall be
          suspended.  Any such claim by such Bank for compensation  under clause
          (y) above shall be  accompanied  by a  certificate  setting  forth the
          computation upon which such claim is based, and such certificate shall
          be conclusive and binding for all purposes, absent manifest error.

               (d) THE BORROWER WILL INDEMNIFY EACH BANK AGAINST,  AND REIMBURSE
          EACH  BANK ON  DEMAND  FOR,  ANY LOSS  (INCLUDING  LOSS OF  REASONABLY
          ANTICIPATED  PROFITS  DETERMINED  USING  REASONABLE   ATTRIBUTION  AND
          ALLOCATION  METHODS),  OR  REASONABLE  COST  OR  EXPENSE  INCURRED  OR
          SUSTAINED  BY SUCH BANK  (INCLUDING  WITHOUT  LIMITATION,  ANY LOSS OR
          EXPENSE  INCURRED  BY REASON OF THE  LIQUIDATION  OR  REEMPLOYMENT  OF
          DEPOSITS OR OTHER FUNDS  ACQUIRED BY SUCH BANK TO FUND OR MAINTAIN ANY
          EURODOLLAR RATE LOAN) AS A RESULT OF (i) ANY ADDITIONAL COSTS INCURRED
          BY SUCH BANK;  (ii) ANY PAYMENT OR REPAYMENT  (WHETHER  AUTHORIZED  OR
          REQUIRED  HEREUNDER OR OTHERWISE) OF ALL OR A PORTION OF ANY LOAN ON A
          DAY OTHER  THAN THE  EXPIRATION  DATE OF A RATE  PERIOD FOR SUCH LOAN;
          (iii)  ANY  PAYMENT  OR  PREPAYMENT  (WHETHER  REQUIRED  HEREUNDER  OR
          OTHERWISE)  OF ANY  LOAN  MADE  AFTER  THE  DELIVERY  OF A  NOTICE  OF
          BORROWING BUT BEFORE THE APPLICABLE  BORROWING DATE IF SUCH PAYMENT OR
          PREPAYMENT   PREVENTS  THE  PROPOSED  BORROWING  FROM  BECOMING  FULLY
          EFFECTIVE;  OR  (iv)  AFTER  RECEIPT  BY  THE  AGENT  OF A  NOTICE  OF
          BORROWING, THE FAILURE OF ANY LOAN TO BE MADE OR EFFECTED BY SUCH BANK
          DUE TO ANY CONDITION  PRECEDENT TO A BORROWING NOT BEING  SATISFIED BY
          THE BORROWER OR DUE TO ANY OTHER  ACTION OR INACTION OF THE  BORROWER.
          ANY BANK DEMANDING  PAYMENT UNDER THIS SECTION 2.3(d) SHALL DELIVER TO
          THE BORROWER AND THE AGENT A STATEMENT  REASONABLY  SETTING  FORTH THE
          AMOUNT AND MANNER OF DETERMINING SUCH LOSS, COST OR EXPENSE. THE FACTS
          SET FORTH IN SUCH  STATEMENT  SHALL BE CONCLUSIVE  AND BINDING FOR ALL
          PURPOSES, ABSENT MANIFEST ERROR.

               (e) If,  after the date of this  Agreement,  any Bank  shall have
          determined that the adoption of any applicable  law, rule,  guideline,
          interpretation or regulation regarding capital adequacy, or any change
          therein, or any change in the interpretation or administration thereof
          by any  governmental  authority,  central  bank or  comparable  agency
          charged  with  the  interpretation  or  administration   thereof,   or
          compliance  by such  Bank  with any  request  or  directive  regarding
          capital adequacy  (whether or not having the force of law) of any such
          authority,  central bank or comparable  agency,  has or would have the
          effect of  reducing  the rate of return on such  Bank's  capital  as a
          consequence  of its  obligations  hereunder and under similar  lending
          arrangements to a level below that which such Bank could have achieved
          but for such adoption, change or compliance (taking into consideration
          such Bank's  policies  with respect to capital  adequacy) by an amount
          deemed by such Bank to be material then the Borrower shall pay to such
          Bank such  additional  amount or amounts as will  compensate such Bank
          for such reduction.

               (f) A  certificate  of such Bank  setting  forth  such  amount or
          amounts as shall be necessary to compensate  such Bank as specified in
          subparagraph  (e) above shall be delivered as soon as  practicable  to
          the  Borrower  (with a copy  thereof  to the  agent) and to the extent
          determined  in  accordance  with   subparagraph  (e)  above  shall  be
          conclusive and binding,  absent manifest error. The Borrower shall pay
          such  Bank the  amount  shown as due on any  such  certificate  within
          fifteen  (15) days  after  such Bank  delivers  such  certificate.  In
          preparing such certificate,  such Bank may employ such assumptions and
          allocations  (consistently  applied with  respect to advances  made by
          such Bank or  commitments  by such Bank to make advances) of costs and
          expenses  as it shall in good  faith deem  reasonable  and may use any
          reasonable averaging and attribution method (consistently applied with
          respect to advances made by such Bank or  commitments  by such Bank to
          make advances).

     2.4  Increase of Commitments

               (a) At any time after the Closing Date,  provided that no Default
          or Event  of  Default  shall  have  occurred  and be  continuing,  the
          Borrower  may request  from time to time one or more  increases of the
          Commitments  by notice to the Agent in  writing  of the amount of each
          such  proposed  increase  (each such notice,  a  "Commitment  Increase
          Notice"). Any such Commitment Increase Notice must offer each Bank the
          opportunity  to  subscribe  for its pro rata  share  of the  requested
          increase in the  Commitments,  and the Agent shall promptly provide to
          each Bank a copy of any  Commitment  Increase  Notice  received by the
          Agent.  Within 10  Business  Days  after  receipt  by the Agent of the
          applicable  Commitment Increase Notice, each Bank wishing to subscribe
          for its pro rata share of the  requested  increase in the  Commitments
          must deliver  written notice of such fact to the Agent. If any portion
          of the requested  increase in the Commitments is not subscribed for by
          the Banks within such 10-day  period,  the  Borrower  may, in its sole
          discretion, but with the consent of the Agent as to any Person that is
          not at such  time a Bank  (which  consent  shall  not be  unreasonably
          withheld or delayed so long as such  Person is an Eligible  Assignee),
          offer  to any  existing  Bank or to one or more  additional  banks  or
          financial  institutions  the  opportunity  to  participate in all or a
          portion of such unsubscribed  portion of the requested increase in the
          Commitments pursuant to Section 2.4 (b) or (c) below, as applicable;

               (b)  Any  additional  bank  or  financial  institution  that  the
          Borrower selects to offer a participation in the unsubscribed  portion
          of the  increased  Commitments,  and that  elects to become a party to
          this Agreement and obtain a Commitment,  shall execute an agreement (a
          "New Bank  Agreement"),  in the form  required by the Agent,  with the
          Borrower and the Agent,  whereupon such bank or financial  institution
          (a "New Bank") shall  become a Bank for all purposes  hereunder to the
          same extent as if  originally a party hereto and shall be bound by and
          entitled to the benefits of this  Agreement,  and the signature  pages
          hereof  shall be  deemed  to add the name and  Commitment  of such New
          Bank, provided that the Commitment of any such New Bank shall be in an
          amount not less than $5,000,000;

               (c) Any Bank that  accepts an offer by the  Borrower  to increase
          its  Commitment  pursuant  to this  Section  2.4 shall,  in each case,
          execute  a  commitment  increase  agreement  (a  "Commitment  Increase
          Agreement"),  in the form required by the Agent, with the Borrower and
          the Agent,  whereupon  such Bank shall be bound by and entitled to the
          benefits  of this  Agreement  with  respect to the full  amount of its
          Commitment  as so increased,  and the signature  pages hereof shall be
          deemed to be amended to reflect  such  increase in the  Commitment  of
          such Bank;

               (d) The  effectiveness  of any New Bank  Agreement or  Commitment
          Increase  Agreement  shall be contingent  upon receipt by the Agent of
          such  corporate  resolutions  of the  Borrower  and legal  opinions of
          in-house  counsel  to  the  Borrower,  if  any,  as  the  Agent  shall
          reasonably request with respect thereto;

               (e) If any  bank or  financial  institution  becomes  a New  Bank
          pursuant to Section  2.4(b) or if any Bank's  Commitment  is increased
          pursuant to Section 2.4(c),  additional Loans and additional liability
          for  Facility  Letters  of  Credit  made or  issued  on or  after  the
          effectiveness  thereof  (the  "Re-Allocation  Date") shall be made pro
          rata  based on each  Bank's  (including  each New  Bank's)  respective
          Commitment in effect on and after such  Re-Allocation  Date (except to
          the extent that any such pro rata borrowings or incurring of liability
          would result in any Bank making an aggregate principal amount of Loans
          and incurring  liability for the Facility  Letters of Credit in excess
          of its Commitment,  in which case such excess amount will be allocated
          to, and made or  incurred  by,  such New Bank  and/or  Banks with such
          increased  Commitments  to the extent of, and pro rata based on, their
          respective  Commitments),  and  continuations of Eurodollar Rate Loans
          outstanding on such  Re-Allocation Date shall be effected by repayment
          of such  Eurodollar  Rate  Loans on the  last  day of the Rate  Period
          applicable  thereto and the extension of new Eurodollar Rate Loans pro
          rata based on the Banks' respective Commitments in effect on and after
          such  Re-Allocation  Date. In the event that on any such Re-Allocation
          Date there are  Alternate  Base Rate Loans  outstanding,  the Borrower
          shall make  prepayments  thereof  and borrow new  Alternate  Base Rate
          Loans so that,  after giving effect  thereto,  the Alternate Base Rate
          Loans  outstanding  are held pro rata based on the  Banks'  respective
          Commitments  in effect on and after such  Re-Allocation  Date.  In the
          event that on any such  Re-Allocation  Date there are Eurodollar  Rate
          Loans outstanding, such Eurodollar Rate Loans shall remain outstanding
          with the  respective  holders  thereof  until the  expiration of their
          respective  Rate  Periods  (unless the  Borrower  elects to prepay any
          thereof  in  accordance   with  the  applicable   provisions  of  this
          Agreement),  and interest on and  repayments of such  Eurodollar  Rate
          Loans  will be paid  thereon  to the  respective  Banks  holding  such
          Eurodollar  Rate  Loans  pro rata  based on the  respective  principal
          amounts thereof outstanding;

               (f) Notwithstanding anything to the contrary in this Section 2.4,
          (i) no Bank shall have any obligation to increase its Commitment under
          this  Section  2.4  unless it agrees in  writing  to do so in its sole
          discretion,  (ii) no Bank shall have any right to decrease  the amount
          of its  Commitment  as a  result  of  any  requested  increase  of the
          Commitments  pursuant to this Section 2.4,  (iii) the Agent shall have
          no  obligation  to find or locate any New Bank to  participate  in any
          unsubscribed  portion of any increase in the Commitments  requested by
          the Borrower,  (iv) each increase in the Commitments  requested by the
          Borrower shall not be less than  $10,000,000,  (v) after giving effect
          to any increase in the  Commitments  pursuant to this Section 2.4, the
          sum of the Commitments shall not exceed $500,000,000,  and (vi) in the
          event the Borrower reduces the Commitments  pursuant to Section 4.6 or
          any other  provision of this  Agreement  more than one time during the
          term of  this  Agreement,  the  ability  of the  Borrower  to  request
          increases  in the  Commitments  pursuant  to this  Section  2.4  shall
          automatically terminate; and

               (g) The  Borrower  shall  execute  and  deliver to the Agent (for
          delivery by the Agent to each  applicable  Bank) a new Note payable to
          each applicable Bank  (including each New Bank)  participating  in any
          increase of the Commitments in the original  principal  amount of such
          Bank's  Commitment  after  giving  effect to any such  increase of the
          Commitments.

3.       LETTERS OF CREDIT

     3.1  Obligation  to Issue.  Subject  to the terms  and  conditions  of this
          Agreement,  and in reliance upon the representations and warranties of
          the  Borrower  set forth  herein or in any other Loan  Document,  each
          Issuing  Bank  hereby  severally  agrees to  issue,  from time to time
          during the period  commencing  on the  Closing  Date and ending on the
          Business Day  immediately  prior to the Maturity Date, for the account
          of the Borrower  through such of the Issuing Bank's branches as it and
          the Borrower may jointly agree, one or more Facility Letters of Credit
          in accordance with this Section 3.  Notwithstanding the foregoing,  no
          Issuing Bank shall have any obligation to issue,  and shall not issue,
          any Facility Letter of Credit at any time if:

               (a) the  aggregate  undrawn  face amount of  Facility  Letters of
          Credit theretofore issued by such Issuing Bank, after giving effect to
          all requested  but unissued  Facility  Letters of Credit,  exceeds any
          limit imposed by law or regulation upon such Issuing Bank;

               (b) after  taking into  account the face amount of the  requested
          Facility Letter of Credit the aggregate  principal  amount of Facility
          Letter of Credit  Obligations  with  respect  to  Facility  Letters of
          Credit  issued by such  Issuing  Bank for the account of the  Borrower
          (which  amount  shall  be  calculated  without  giving  effect  to the
          participation  of the Banks pursuant to Section 3.5) would exceed such
          Issuing Bank's Letter of Credit Commitment;

               (c)  immediately  after  giving  effect to the  issuance  of such
          Facility  Letter of Credit,  the aggregate  Facility  Letter of Credit
          Obligations would exceed the L/C Subfacility;

               (d)  immediately  after  giving  effect to the  issuance  of such
          Facility Letter of Credit,  the aggregate of outstanding  Loans, would
          exceed the Banks' aggregate Commitments; or

               (e) such  Facility  Letter of Credit has an expiry  date (i) more
          than one year after the date of  issuance;  or (ii) after the Business
          Day immediately preceding the Maturity Date.

     3.2  Conditions.  The  obligation  of an Issuing Bank to issue any Facility
          Letter of Credit, and of each Bank to participate  therein as provided
          in  Section  3.5  is  subject  to  the  satisfaction  in  full  of the
          applicable conditions precedent set forth in Section 8 and each of the
          following conditions:

               (a) the Borrower  shall have  delivered to the Issuing  Bank,  at
          such times and in such manner as such  Issuing Bank may  prescribe,  a
          Letter  of  Credit  application,  a  Letter  of  Credit  Reimbursement
          Agreement,  and such other  documents and materials as may be required
          pursuant to the terms thereof;

               (b) the terms of the proposed Facility Letter of Credit shall not
          be  inconsistent  with any term or  provision  of this  Agreement  and
          otherwise shall be satisfactory to such Issuing Bank; and

               (c) as of the date of issuance of such Facility Letter of Credit,
          no  order,   judgment,  or  decree  of  any  court,   arbitrator,   or
          governmental  authority  shall  purport  by its  terms  to  enjoin  or
          restrain the Issuing Bank from issuing such Facility Letter of Credit,
          and no law,  rule, or regulation  applicable to such Issuing Bank, and
          no request or directive  (whether or not having the force of law) from
          any governmental authority having jurisdiction over such Issuing Bank,
          shall  prohibit or request  that such  Issuing  Bank  refrain from the
          issuance  of Letters  of Credit,  generally  or the  issuance  of such
          Facility Letter of Credit.

     3.3  Issuance of Facility Letters of Credit

               (a)  The  Borrower  shall  give  the  Agent  written  notice  (or
          telephonic  notice confirmed in writing by the Borrower not later than
          the requested  issuance date of the Facility  Letter of Credit) of its
          request for the issuance of a Facility  Letter of Credit no later than
          11:00 a.m.  four (4)  Business  Days  prior to the date such  Facility
          Letter of Credit is  requested  to be  issued.  Such  notice  shall be
          irrevocable and shall specify, with respect to such requested Facility
          Letter of Credit,  the face  amount,  beneficiary,  effective  date of
          issuance, expiry date (which effective date and expiry date shall be a
          Business Day and,  with respect to the expiry date,  shall be no later
          than the Business Day immediately  preceding the Maturity  Date),  the
          identity of the Issuing Bank selected by the Borrower, and the purpose
          for which such Facility Letter of Credit is to be issued.  At the time
          a request for the issuance of a Facility Letter of Credit is made, the
          Borrower  shall  also  provide  the  Agent  with a copy of the form of
          Letter of Credit that the  proposed  Issuing Bank has agreed to issue.
          If the face amount of the requested  Facility Letter of Credit is less
          than or equal to the  Unused L/C  Subfacility,  as  determined  by the
          Agent  as of the  close of  business  on the  date of its  receipt  of
          written  notice of the requested  issuance,  the Agent shall so notify
          the proposed Issuing Bank in writing (or by telephonic notice promptly
          confirmed  thereafter in writing) not later than the close of business
          on the  second  Business  Day  following  the  Agent's  receipt of the
          Borrower's  written notice. The Issuing Bank shall issue such Facility
          Letter of Credit on the date requested by the Borrower,  unless (i) on
          or before the Business Day prior to such issuance  date,  such Issuing
          Bank shall have  received  written  notice  from the Agent or any Bank
          that the conditions  precedent to the issuance of a Facility Letter of
          Credit as set forth in Section  3.2 have not been met;  or (ii) on the
          requested  issuance date, such Issuing Bank has actual  knowledge that
          such  conditions  precedent  have not been  met.  If an  Issuing  Bank
          receives written notice, or has actual knowledge,  that the conditions
          precedent to the issuance of a Facility Letter of Credit have not been
          met,  then such Issuing Bank shall have no  obligation  to issue,  and
          shall not issue,  any Facility  Letter of Credit until (i) such notice
          is  withdrawn;  or (ii) such Issuing  Bank  receives a notice from the
          Agent that the condition(s)  described in such notice have been waived
          in accordance with the provisions of this Agreement.  The Issuing Bank
          shall  give the Agent  prompt  written  notice (or  telephonic  notice
          promptly  confirmed in writing) of the issuance of any Facility Letter
          of  Credit.  Any  Letter  of  Credit  issued  by an  Issuing  Bank  in
          compliance with the provisions of this Section 3.3 shall be a Facility
          Letter of Credit.

               (b) An Issuing Bank shall not extend or amend any Facility Letter
          of Credit  unless  the  requirements  of this  Section  3.3 are met as
          though a new Facility Letter of Credit was being requested and issued.

               (c) An Issuing Bank or any Bank may issue Non-Facility Letters of
          Credit  for  its  own  account,  and  at its  own  risk.  None  of the
          provisions of this Section 3 shall apply to any Non-Facility Letter of
          Credit.

     3.4  Reimbursement Obligations; Duties of Issuing Bank

               (a)  Notwithstanding any provisions to the contrary in any Letter
          of Credit Reimbursement Agreement:

                    (1) the Borrower shall reimburse the applicable Issuing Bank
               for a drawing  under a Facility  Letter of Credit  issued by such
               Issuing Bank no later than the earlier of (A) the time  specified
               in the related Letter of Credit Reimbursement  Agreement;  or (B)
               one (1)  Business  Day after the payment of such  drawing by such
               Issuing Bank; and

                    (2) the Borrower's Reimbursement Obligations with respect to
               a drawing  under a Facility  Letter of Credit shall bear interest
               from the  date of such  drawing  to the date  paid in full at the
               higher  of (A) the  interest  rate  specified  in the  applicable
               Letter of Credit  Reimbursement  Agreement;  or (B) the  interest
               rate for past due Alternate Base Rate Loans; but not greater than
               the Highest Lawful Rate.

               (b) No action  taken or omitted to be taken by an Issuing Bank in
          connection  with any Facility Letter of Credit shall (i) result in any
          liability on the part of such  Issuing  Bank to any Bank,  unless such
          Issuing Bank's action or omission  constitutes  willful  misconduct or
          gross  negligence;  or (ii) relieve any Bank of any of its obligations
          to such Issuing Bank  hereunder,  unless the Facility Letter of Credit
          in question was issued in  contravention  of the provisions of Section
          3.3 or at a time during which a notice, described in Section 3.3, from
          such Bank to such  Issuing Bank  remained in effect.  Each Bank agrees
          that,  prior to making any payment to a beneficiary  with respect to a
          drawing under a Facility  Letter of Credit,  the Issuing Bank shall be
          responsible  only to confirm that  documents  required by the terms of
          such  Facility  Letter  of  Credit  to  be  delivered  as a  condition
          precedent to such drawing have been delivered and that the same appear
          on their  face to conform  with the  requirements  thereof.  Each Bank
          further  agrees  that such  Issuing  Bank may  assume  that  documents
          appearing on their face to be the  documents  required to be delivered
          as a condition precedent to a drawing do in fact comply.

     3.5  Participations

               (a)  Immediately  upon the  issuance  by an  Issuing  Bank of any
          Facility Letter of Credit in compliance with the provisions of Section
          3.3,  and  immediately  upon  conversion  of a Letter  of Credit of an
          Issuing Bank to a Facility  Letter of Credit pursuant to Section 3.10,
          each  Bank  shall be deemed to have  irrevocably  and  unconditionally
          purchased  and received from such Issuing  Bank,  without  recourse or
          warranty,  an undivided  interest and  participation  to the extent of
          such Bank's Pro Rata  Percentage  in such  Facility  Letter of Credit,
          including  without  limitation,  all  obligations of the Borrower with
          respect  thereto and any  security  therefor  or  guaranty  pertaining
          thereto.

               (b) An Issuing  Bank  shall  promptly  notify the Agent,  and the
          Agent shall promptly  notify the other Banks, if the Borrower fails to
          reimburse  such Issuing Bank for payments made by such Issuing Bank in
          respect  of  drawings  by a  beneficiary  under a  Facility  Letter of
          Credit.  Upon each such other Banks receipt of such notice,  such Bank
          shall  unconditionally  pay to the  Agent,  for  the  account  of such
          Issuing  Bank,  an amount equal to such Bank's Pro Rata  Percentage of
          the unreimbursed  payment made by such Issuing Bank under the Facility
          Letter of Credit.  Such payment  shall be made by such Bank in Dollars
          and in same day funds on the day such Bank  receives  notice  from the
          Agent that such  payment is owing,  if such notice is received by such
          Bank prior to 11:00 a.m.  (Houston  time) on a Business  Day;  if such
          notice is not  received  by such time,  then such Bank shall remit its
          payment on the next  Business  Day  following  the day such  notice is
          received. Any amount payable by a Bank under this Section 3.5(b) which
          is not paid when due  pursuant to the terms hereof shall be payable on
          demand,  together with interest thereon at the Federal Funds Rate from
          the date such  payment was due until paid in full.  The failure of any
          Bank to make any payment  owing by it under this Section  3.5(b) shall
          neither  relieve nor increase the obligation of any other Bank to make
          any payment  owing by it under this  Section  3.5(b).  The Agent shall
          promptly remit to the applicable  Issuing Bank all amounts received by
          the  Agent,  for the  account  of such  Issuing  Bank,  from each Bank
          pursuant to this Section 3.5(b). No payment made by a Bank pursuant to
          this Section 3.5(b) shall  prejudice the ability of such Bank to claim
          that the  Issuing  Bank to which  such  payment  is made is subject to
          liability under Section 3.4(b).

               (c) Whenever an Issuing Bank receives a payment with respect to a
          Reimbursement  Obligation  (including any interest  thereon) for which
          such  Issuing  Bank has  received  payments  from a Bank  pursuant  to
          Section  3.5(b),  such Issuing Bank shall  promptly remit to the Agent
          and the Agent shall  promptly  remit to each Bank which has funded its
          participating interest therein, in Dollars and in the kind of funds so
          received,  an amount equal to each Bank's Pro Rata Percentage thereof.
          Each such payment  shall be made by the Issuing Bank or the Agent,  as
          the case may be, on the Business Day on which such Person receives the
          funds paid to such  Person  pursuant  to the  preceding  sentence,  if
          received prior to 11:00 a.m.  (Houston time) on such Business Day, and
          otherwise on the next succeeding Business Day.

               (d) Upon the  request of the Agent or any Bank,  an Issuing  Bank
          shall furnish to the Agent or each Bank copies of any Facility  Letter
          of  Credit,  Letter of Credit  Reimbursement  Agreement,  or Letter of
          Credit  application  to which  Issuing  Bank is party,  and such other
          documentation as may reasonably be requested by the Agent or such Bank
          with  respect to a Facility  Letter of Credit  issued by such  Issuing
          Bank.

               (e)  The  obligations  of a Bank  under  Section  3.5(b)  to make
          payments to the Agent for the account of an Issuing  Bank with respect
          to a Facility  Letter of Credit shall be  irrevocable,  not subject to
          any  qualification  or  exception  whatsoever,  and  shall  be made in
          accordance  with, but not subject to, the terms and conditions of this
          Agreement under all circumstances (assuming that such Issuing Bank has
          issued  such  Facility   Letter  of  Credit  in  compliance  with  the
          provisions of Section 3.3), including,  without limitation, any of the
          following circumstances:

                    (i) any lack of validity or enforceability of this Agreement
               or any other Loan Document;

                    (ii) the existence of any claim, set off, defense,  or other
               right  which  the  Borrower  may  have  at  any  time  against  a
               beneficiary   named  in  a  Facility  Letter  of  Credit  or  any
               transferee  of any  Facility  Letter of Credit (or any Person for
               whom any such transferee may be acting), the Agent, any Bank, the
               Issuing  Bank,  or any Person,  whether in  connection  with this
               Agreement,  any  Facility  Letter  of  Credit,  the  transactions
               contemplated herein, or any unrelated transactions (including any
               underlying  transactions between the Borrower and the beneficiary
               named in any Facility Letter of Credit);

                    (iii)  any  draft,   certificate,   of  any  other  document
               presented  under the  Facility  Letter of  Credit  proving  to be
               forged,  fraudulent,  invalid,  or insufficient in any respect or
               any statement therein being untrue or inaccurate in any respect;

                    (iv) the  surrender  or  impairment  of any security for the
               performance  or  observance  of  any  of the  terms  of any  Loan
               Document;

                    (v) any failure by the Agent or an Issuing  Bank to make any
               reports required pursuant to Section 3.8; or

                    (vi) the occurrence of any Default or Event of Default.

     3.6  Payment of Reimbursement Obligations

               (a) The Borrower agrees to pay to each Issuing Bank the amount of
          all Reimbursement Obligations,  interest, and other amounts payable to
          such Issuing Bank under or in connection  with any Facility  Letter of
          Credit  immediately  when due,  irrespective  of any  claim,  set off,
          defense,  or  other  right  which  the  Borrower  may have at any time
          against any Issuing Bank or any other Person.

               (b) In the event  any  payment  by the  Borrower  received  by an
          Issuing  Bank  with  respect  to  a  Facility  Letter  of  Credit  and
          distributed to Banks on account of their  respective  participation is
          thereafter set aside,  avoided, or recovered from such Issuing Bank in
          connection  with any  Debtor  Laws,  each  Bank  which  received  such
          distribution shall, upon demand by such Issuing Bank,  contribute each
          Bank's  Pro Rata  Percentage  of the amount  set  aside,  avoided,  or
          recovered  together  with  interest at the rate required to be paid by
          the Issuing Bank upon the amount required to be repaid by it.

     3.7  Exoneration.  As between the  Borrower,  each Bank,  and each  Issuing
          Bank, the Borrower  assumes all risks of the acts and omissions of, or
          misuse of the  Facility  Letter of Credit  issued by such Issuing Bank
          by, the respective beneficiaries of such Facility Letter of Credit. In
          furtherance  and not in  limitation of the  foregoing,  subject to the
          provisions of the Letter of Credit applications,  the Issuing Bank and
          the Banks shall not be responsible for:

               (a) the form, validity,  sufficiency,  accuracy,  genuineness, or
          legal effect of any document submitted by any party in connection with
          the application for and issuance of a Facility Letter of Credit,  even
          if it  should  in fact  prove  to be in any or all  respects  invalid,
          insufficient, inaccurate, fraudulent, or forged;

               (b) the validity or sufficiency of any instrument transferring or
          assigning  or  purporting  to transfer or assign a Facility  Letter of
          Credit or the rights or benefits  thereunder or proceeds  thereof,  in
          whole or in part, which may prove to be invalid or ineffective for any
          reason;

               (c) failure of the  beneficiary of a Facility Letter of Credit to
          comply  duly  with  conditions  required  in order to draw  upon  such
          Facility  Letter of Credit,  provided  that the Issuing Bank  complies
          with the provisions of Section 3.4(b);

               (d) errors, omissions,  interruptions,  or delays in transmission
          or delivery of any messages,  by mail,  cable,  telegraph,  telex,  or
          otherwise, whether or not they be in cipher;

               (e) errors in interpretation of technical terms;

               (f) any loss or delay in the  transmission  or  otherwise  of any
          document required in order to make a drawing under any Facility Letter
          of Credit or of the proceeds thereof;

               (g) the misapplication by the beneficiary of a Facility Letter of
          Credit; or

               (h) any  consequences  arising from causes  beyond the control of
          the  Agent,  any  Bank,  or  any  Issuing  Bank,  including,   without
          limitation,  any act or omission, whether rightful or wrongful, of any
          present  or  future  de jure or de facto  government  or  Governmental
          Authority.  In furtherance  and extension and not in limitation of the
          specific provisions hereinabove set forth, any action taken or omitted
          by an Issuing Bank under or in connection with the Facility Letters of
          Credit or any related certificates,  if taken or omitted in good faith
          and not constituting gross negligence or willful misconduct, shall not
          put the  Issuing  Bank,  the Agent,  or any Bank  under any  resulting
          liability  to the  Borrower  or  relieve  the  Borrower  of any of its
          obligations hereunder to any such Person.

     3.8  Issuing  Bank's  Reporting  Requirements.  In  addition to the reports
          required by Section 3.5,  each  Issuing Bank shall,  no later than the
          tenth (10th)  Business Day  following  the last day of each quarter of
          such Issuing Bank's fiscal year, provide to the Agent and the Borrower
          a schedule for Standby Letters of Credit issued as Facility Letters of
          Credit,  in form and substance  reasonably  satisfactory to the Agent,
          showing the date of issue, beneficiary,  face amount, expiration date,
          and the reference  number of each Facility  Letter of Credit issued by
          such  Issuing  Bank  which was  outstanding  at any time  during  such
          quarter and the aggregate  amount  payable by the Borrower  during the
          quarter pursuant to Section 3.9.

     3.9  Compensation for Facility Letters of Credit

               (a) Facility  Letter of Credit Fee. The Borrower agrees to pay to
          the Agent, for the account of each Bank, in the case of each Letter of
          Credit  issued as, or converted  to (for  transactions  which  convert
          Letters of Credit in existence on the Closing Date to Facility Letters
          of Credit  pursuant to Section 3.10), a Facility  Letter of Credit,  a
          facility  letter of credit fee (the  "Facility  Letter of Credit Fee")
          payable  quarterly in arrears equal to the applicable  Facility Letter
          of Credit Fee Percentage of the average  amount  available to be drawn
          under such Letter of Credit during the quarter then ending  multiplied
          by the actual  number of days during such quarter on which such Letter
          of Credit was outstanding, divided by 360 but no less than $500.00 per
          Facility Letter of Credit per year. The Borrower shall also pay to the
          Agent in the event of any  extension  or  modification  of a  Facility
          Letter of Credit which  extends the  expiration  date or increases the
          maximum  amount  available for drawing  thereunder  an additional  fee
          calculated  and  payable  on the same  basis as that set  forth in the
          first  sentence  of this  Section  3.9(a)  with  respect  to any  such
          extension or  additional  amount.  Whenever an Issuing Bank receives a
          payment  from  the  Borrower  with  respect  to any fees  incurred  in
          connection  with any Facility  Letter of Credit issued by such Issuing
          Bank,  such Issuing Bank shall  promptly  remit to the Agent,  and the
          Agent  shall  promptly  remit  to  each  Bank  which  has  funded  its
          participation  in such  Facility  Letter of Credit,  in Dollars and in
          same day funds,  an amount equal to such Bank's Pro Rata Percentage of
          such fees.

               (b) Issuing  Bank's  Charges.  Each  Issuing  Bank shall have the
          right to receive,  solely for its own account,  such amounts as it and
          the Borrower may agree,  in writing,  to compensate  such Issuing Bank
          with respect to issuance  fees and such Issuing  Bank's  out-of-pocket
          costs of issuing and servicing Facility Letters of Credit.

               (c) Increased  Capital.  If either (i) the introduction of or any
          change in or in the  interpretation of any law or regulation,  or (ii)
          compliance  by any  Issuing  Bank or any Bank  with any  guideline  or
          request from any central bank or other Governmental Authority (whether
          or not having the force of law)  affects or would affect (by an amount
          deemed by such Issuing Bank to be  material)  the capital  required or
          expected to be maintained by it or any corporation controlling it, and
          such Bank or such Issuing Bank determines,  on the basis of reasonable
          allocations,  that the  amount of such  capital  is  increased  by (an
          amount  deemed by such  Issuing Bank to be material) or is based (to a
          degree  deemed by such Issuing Bank to be material)  upon its issuance
          or  maintenance of or  participation  in, or commitment to issue or to
          participate  in, the Facility  Letters of Credit then,  upon demand by
          such Bank or such Issuing Bank, the Borrower shall  immediately pay to
          the Agent (for the account of each Bank) or such  Issuing  Bank,  from
          time  to time  as  specified  by  such  Bank  or  such  Issuing  Bank,
          additional  amounts sufficient to compensate such Bank or such Issuing
          Bank  therefor.  A  certificate  as to such  amounts  submitted to the
          Borrower by such Bank or such  Issuing  Bank shall,  in the absence of
          manifest error, be conclusive and binding for all purposes.

     3.10 Transitional Provisions.  Schedule 3.10 contains a schedule of certain
          Letters of Credit issued for the account of the Borrower  prior to the
          Closing  Date by one or  more of the  Issuing  Banks.  Subject  to the
          satisfaction  of the conditions  precedent  contained in Section 8, on
          the  Closing  Date (a) such  Letters  of Credit  shall be deemed to be
          converted into Facility  Letters of Credit issued  pursuant to Section
          3.3;  and (b) the face  amount  of such  Letters  of  Credit  shall be
          included  in  the   calculation  of  the  Facility  Letter  of  Credit
          Obligations.



<PAGE>


4. PAYMENTS AND PREPAYMENTS

     4.1  Required Prepayments

               (a)  The  Borrower  agrees  that if at any  time it or the  Agent
          determines that the sum of (i) the aggregate principal amount of Loans
          outstanding  and (ii) the face  amount of  Facility  Letters of Credit
          issued hereunder exceeds the Commitments, then the Borrower shall make
          a prepayment  of principal of the Loans in an amount at least equal to
          such excess.

               (b)  Upon  the   Borrower's   reduction  or  termination  of  the
          Commitments   under   Section  4.6,  the  Borrower   shall  make  such
          prepayments as are required by the terms of Section 4.6.

               (c) All  cash  proceeds  distributed  to the  Borrower  from  the
          Trunkline LNG Holdings Sale shall be immediately  applied  against the
          Borrower's  Debt  under the Term Loan  Facility,  to the  extent  then
          outstanding.

     4.2  Repayment of the Loans.  Borrower shall repay the principal  amount of
          each Loan, on the last day of the Rate Period for such Loan,  together
          with  all  accrued  and  unpaid  interest  thereon  as of  such  date,
          irrespective of any claim, set off, defense,  or other right which the
          Borrower may have at any time against any Bank, the Agent or any other
          Person.

     4.3  Place of Payment or Prepayment.  All payments and prepayments  made in
          accordance with the provisions of this Agreement or of the Notes or of
          any other  Loan  Document  or of the  Letter  of Credit  Reimbursement
          Agreements in respect of  commitment  fees or of principal or interest
          on the Notes  shall be made to the Agent for the  account of the Banks
          at its Domestic Lending Office,  no later than noon,  Houston time, in
          immediately  available  funds.  Unless the Agent  shall have  received
          notice from the Borrower prior to the date on which any payment is due
          to the Banks hereunder that the Borrower will not make any payment due
          hereunder  in full,  the Agent may assume that the  Borrower  has made
          such  payment in full to the Agent on such date and the Agent may,  in
          reliance upon such assumption, cause to be distributed to each Bank on
          such due date an amount equal to the amount then due to such Bank.  If
          and to the extent the Borrower  shall not have so made such payment in
          full to the Agent,  each Bank shall  repay to the Agent  forthwith  on
          demand such amount  distributed  to such Bank  together  with interest
          thereon, for each day from the date such amount is distributed to such
          Bank until the date such Bank repays such amount to the Agent,  at the
          Federal Funds Rate.  If and to the extent that the Agent  receives any
          payment or prepayment  from the Borrower and fails to distribute  such
          payment  or  prepayment  to the  Banks  ratably  on the basis of their
          respective  Pro Rata  Percentage  on the day the Agent  receives  such
          payment or prepayment,  and such distribution  shall not be so made by
          the Agent in full on the  required  day,  the Agent  shall pay to each
          Bank such Bank's Pro Rata  Percentage  thereof  together with interest
          thereon  at the  Federal  Funds  Rate for each day from the date  such
          amount is paid to the Agent by the  Borrower  until the date the Agent
          pays such amount to such Bank.

     4.4  No Prepayment Premium or Penalty.  Each prepayment pursuant to Section
          4.1 or 4.3 shall be without premium or penalty, subject in the case of
          Eurodollar Rate Loans to the provisions of Section 2.3(d).

     4.5  Taxes. All payments (whether of principal, interest, reimbursements or
          otherwise)  under  this  Agreement  or on the Notes or in  respect  of
          Facility  Letter of Credit  Obligations  shall be made by the Borrower
          without  set off or  counterclaim  and shall be made free and clear of
          and without  deduction for any present or future tax, levy,  impost or
          any other charge,  if any, of any nature  whatsoever  now or hereafter
          imposed by any taxing  authority.  If the making of such  payments  is
          prohibited by law, unless such a tax, levy,  impost or other charge is
          deducted or withheld  therefrom,  the Borrower shall pay to the Banks,
          on the date of each such payment,  such  additional  amounts as may be
          necessary  in order that the net  amounts  received by the Banks after
          such deduction or withholding shall equal the amounts which would have
          been received if such deduction or withholding were not required.

     4.6  Reduction or Termination of Commitments.  The Borrower may at any time
          or from time to time reduce or terminate  the  Commitment of each Bank
          by giving not less than ten (10) full  Business  Days'  prior  written
          notice  to  such  effect  to the  Agent,  provided  that  any  partial
          reduction  shall be in the  amount  of  $1,000,000.00  or an  integral
          multiple   thereof.   Concurrently   with  each  such   reduction   or
          termination, all amounts in excess of the reduced Commitments shall be
          automatically   due  and  payable  and  it  is  a  condition   to  the
          effectiveness  of such reduction  that the Borrower shall  immediately
          prepay the entire  amount of such  excess  together  with all  accrued
          interest  thereon  and such other  amounts  that may be required to be
          paid in consequence of such prepayment under Section 2.3(d).  Promptly
          after the Agent's receipt of such notice of reduction, the Agent shall
          notify each Bank of the proposed reduction and such reduction shall be
          effective on the date specified in the Borrower's  notice with respect
          to such  reduction  and  shall  reduce  the  Commitment  of each  Bank
          proportionately  in accordance  with its Pro Rata Percentage (and such
          reduction  shall  also  ratably  reduce  the  Commitments  related  to
          Facility Letters of Credit). After each such reduction, the commitment
          fee  shall be  calculated  upon the  Commitments  as so  reduced.  The
          Commitment of each Bank shall automatically  terminate on the Maturity
          Date or in the  event  of  acceleration  of the  maturity  date of the
          Notes.   Each   reduction  of  the  Commitment   hereunder   shall  be
          irrevocable.

5. COMMITMENT FEE AND OTHER FEES

     5.1  Commitment  Fee.  The  Borrower  agrees  to pay to the  Agent  for the
          account  of each  Bank a  commitment  fee based on a year of 360 days,
          from the Closing Date to, but not  including,  the  Maturity  Date (or
          such earlier date as of which all Commitments  shall have terminated),
          on the daily  average  unused amount of each Bank's  Commitment,  such
          commitment fee to be payable  quarterly in arrears on (a) the last day
          of each March, June, September,  and December,  commencing on June 30,
          2004 and (b) the Maturity  Date, at a rate per annum changing with the
          rating of the Borrower's unsecured,  non-credit enhanced Senior Funded
          Debt, and determined in accordance with the following grid:



<PAGE>




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

Rating of the Borrower's unsecured, non-credit enhanced Senior    Percentage Per
Funded Debt                                                            Annum
--------------------------------------------------------------------------------

Equal to or greater  than A3 by Moody's  Investor  Service,  Inc.
and equal to or greater  than A- by Standard  and Poor's  Ratings
Group                                                                    0.100%
--------------------------------------------------------------------------------

Baa1 by Moody's  Investor  Service,  Inc. or BBB+ by Standard and
Poor's Ratings Group                                                     0.125%
--------------------------------------------------------------------------------

Baa2 by Moody's  Investor  Service,  Inc. or BBB by Standard  and
Poor's Ratings Group                                                     0.150%
--------------------------------------------------------------------------------

Baa3 by Moody's  Investor  Service,  Inc. or BBB- by Standard and
Poor's Ratings Group                                                     0.175%
--------------------------------------------------------------------------------

Equal to or less than Ba1 by Moody's Investor  Service,  Inc. and
equal to or less than BB+ by Standard and Poor's Ratings Group           0.300%
================================================================================

Notwithstanding  the  foregoing  provisions,  in the event  that  ratings of the
Borrower's  unsecured,  non-credit  enhanced Senior Funded Debt under Standard &
Poor's  Ratings  Group and under  Moody's  Investor  Service,  Inc.  fall within
different  rating   categories  which  are  not  functional   equivalents,   the
above-described  commitment  fee shall be based on the higher of such ratings if
there is only one category  differential  between the functional  equivalents of
such ratings, and if there is a two category differential between the functional
equivalents  of such  ratings,  the component of pricing from the grid set forth
above  shall be based on the rating  category  which is then in the middle of or
between  the two  category  ratings  which are then in  effect,  and if there is
greater than a two category  differential between the functional  equivalents of
such  ratings,  the  component of pricing from the grid set forth above shall be
based on the rating  category which is then one rating category above the lowest
of the two category ratings which are then in effect. Additionally, in the event
that Borrower  withdraws from having its unsecured,  non-credit  enhanced Senior
Funded Debt being rated by Moody's Investor Service, Inc. or Standard and Poor's
Ratings  Group,  so that one or both of such ratings  services fails to rate the
Borrower's  unsecured,  non-credit enhanced Senior Funded Debt, the component of
pricing from the grid set forth above for purposes of determining the applicable
commitment fee for all periods thereafter shall be 0.300% until such time as the
Borrower  subsequently  causes its unsecured,  non-credit enhanced Senior Funded
Debt to be rated by both of said ratings services.

     5.2  Facility  Letter of Credit Fee. The  Borrower  shall pay to the Agent,
          for the account of each Issuing  Bank,  the Facility  Letter of Credit
          Fees as set forth in Section 3.9.

     5.3  Fees Not Interest;  Nonpayment.  The fees  described in this Agreement
          represent  compensation  for  services  rendered  and  to be  rendered
          separate  and apart  from the  lending  of money or the  provision  of
          credit and do not constitute  compensation for the use, detention,  or
          forbearance  of money,  and the obligation of the Borrower to pay each
          fee described  herein shall be in addition to, and not in lieu of, the
          obligation  of the Borrower to pay interest,  other fees  described in
          this Agreement,  and expenses  otherwise  described in this Agreement.
          Fees shall be payable when due in Dollars and in immediately available
          funds.  The  commitment  fee  referred  to in  Section  5.1  shall  be
          non-refundable,  and shall,  to the fullest  extent  permitted by law,
          bear interest,  if not paid when due, at a rate per annum equal to the
          lesser of (a) five  percent (5%) above the  Alternate  Base Rate as in
          effect from time to time or (b) the Highest Lawful Rate.

     5.4  Utilization  Fee. The Borrower agrees to pay to Agent, for the account
          of each Bank, a  utilization  fee at a rate per annum equal to 0.125%,
          based  on a year of 360  days,  from  the  Closing  Date  to,  but not
          including,  the  Maturity  Date (or such  earlier date as of which the
          Commitments  have  been  terminated),  on  the  daily  average  of the
          aggregate principal amount of the Loans outstanding on those days when
          such  aggregate  principal  amount  of the Loans  outstanding  exceeds
          thirty-three percent (33%) of the aggregate amount of the Commitments,
          such  utilization  fee to be payable  quarterly  in arrears on (a) the
          last day of each March, June, September,  and December,  commencing on
          June 30, 2004, and (b) the Maturity Date.

6. APPLICATION OF PROCEEDS

     6.1  Application of Proceeds.  The Borrower agrees that the proceeds of the
          Loans  shall  be used  to  provide  working  capital  and for  general
          corporate  purposes,  including  without  limitation,   financing  the
          Borrower's  (i)  acquisition  of Qualifying  Assets,  (ii) open market
          acquisition  of its  Senior  Notes,  and (iii)  repurchase  of its own
          common stock and preferred  equity  securities to the extent permitted
          under the terms of Section 10.11.

7. REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants that:

     7.1  Organization and Qualification.  The Borrower and each Subsidiary: (a)
          are  corporations  duly  organized,  validly  existing,  and  in  good
          standing under the laws of their respective  states of  incorporation;
          (b) have the corporate or organizational power to own their respective
          properties  and  to  carry  on  their  respective  businesses  as  now
          conducted;  and (c) are duly qualified as foreign corporations (or, in
          the case of any Southern  Union Trust,  trusts) to do business and are
          in good standing in every  jurisdiction  where such  qualification  is
          necessary  except when the failure to so qualify would not or does not
          have  a  Material  Adverse  Effect.  The  Borrower  is  a  corporation
          organized under the laws of Delaware and has the  Subsidiaries  listed
          on  Schedule  7.1  attached  hereto  and  made a part  hereof  for all
          purposes,  and no  others,  each of  which is a  Delaware  corporation
          unless  otherwise  noted on  Schedule  7.1.  None of the  Subsidiaries
          listed on Schedule  7.1 as  "Inactive  Subsidiaries"  conducts or will
          conduct any  business,  and none of such  Subsidiaries  has any assets
          other than minimum legal capitalization.

     7.2  Financial  Statements.  The Borrower has  furnished the Banks with (a)
          the  Borrower's   annual  audit  reports   containing  the  Borrower's
          consolidated  balance sheets,  statements of income and  stockholder's
          equity  and a cash  flow  statements  as at and for the  twelve  month
          period ending June 30, 2003,  accompanied by the  certificate of Price
          Waterhouse Coopers and (b) the Borrower's  unaudited  financial report
          as of the fiscal quarter ending  December 31, 2003.  These  statements
          are complete and correct and present  fairly in accordance  with GAAP,
          consistently applied throughout the periods involved, the consolidated
          financial  position  of the  Borrower  and  the  Subsidiaries  and the
          results  of its  and  their  operations  as at the  dates  and for the
          periods indicated  subject,  as to interim statements only, to changes
          resulting from customary  end-of-year  credit adjustments which in the
          aggregate  will not be  material.  There has been no material  adverse
          change in the  condition,  financial or otherwise,  of the Borrower or
          any Subsidiary since December 31, 2003.

     7.3  Litigation. Except as disclosed on Schedule 7.3 or pursuant to Section
          7.16,  there is no:  (a)  action  or  proceeding  pending  or,  to the
          knowledge  of the  Borrower,  threatened  against the  Borrower or any
          Subsidiary before any court, administrative agency or arbitrator which
          is reasonably expected to have a Material Adverse Effect; (b) judgment
          outstanding  against the  Borrower  for the  payment of money;  or (c)
          other outstanding judgment,  order or decree affecting the Borrower or
          any  Subsidiary  before  or  by  any  administrative  or  governmental
          authority,  compliance with or satisfaction of which may reasonably be
          expected to have a Material Adverse Effect.

     7.4  Default.  Neither the Borrower nor any  Subsidiary is in default under
          or in violation of the  provisions of any  instrument  evidencing  any
          Debt or of any  agreement  relating  thereto or any  judgment,  order,
          writ,  injunction  or decree of any court or any order,  regulation or
          demand of any  administrative  or governmental  instrumentality  which
          default or violation might have a Material Adverse Effect.

     7.5  Title to  Assets.  The  Borrower  and each  Subsidiary  have  good and
          marketable  title  to their  respective  assets,  subject  to no Liens
          except those permitted in Section 10.2.

     7.6  Payment of Taxes.  The Borrower and each Subsidiary have filed all tax
          returns  required  to be filed and have  paid all taxes  shown on said
          returns and all assessments  which are due and payable (except such as
          are being contested in good faith by appropriate proceedings for which
          adequate  reserves for their  payment  have been  provided in a manner
          consistent with the accounting  practices  followed by the Borrower as
          of  December  31,  2003).  The  Borrower  is not aware of any  pending
          investigation  by  any  taxing  authority  or of  any  claims  by  any
          governmental  authority for any unpaid  taxes,  except as disclosed on
          Schedule 7.6.

     7.7  Conflicting  or  Adverse  Agreements  or  Restrictions.   Neither  the
          Borrower nor any Subsidiary is a party to any contract or agreement or
          subject to any restriction which would have a Material Adverse Effect.
          Neither the execution  and delivery of this  Agreement or the Notes or
          any other  Loan  Document  nor the  consummation  of the  transactions
          contemplated  hereby  nor  fulfillment  of  and  compliance  with  the
          respective terms,  conditions and provisions hereof or of the Notes or
          of any  instruments  required hereby will conflict with or result in a
          breach of any of the terms, conditions or provisions of, or constitute
          a  default  under,  or result  in any  violation  of, or result in the
          creation or  imposition  of any lien (other  than as  contemplated  or
          permitted by this Agreement) on any of the property of the Borrower or
          any Subsidiary pursuant to (a) the charter or bylaws applicable to the
          Borrower  or any  Subsidiary;  (b)  any law or any  regulation  of any
          administrative or governmental  instrumentality;  (c) any order, writ,
          injunction  or decree of any court;  or (d) the terms,  conditions  or
          provisions of any agreement or instrument to which the Borrower or any
          Subsidiary  is a party  or by  which  it is  bound  or to  which it is
          subject.

     7.8  Authorization, Validity, Etc. The Borrower has the corporate power and
          authority to make,  execute,  deliver and carry out this Agreement and
          the transactions  contemplated herein, to make the borrowings provided
          for  herein,  to execute  and  deliver  the Notes and to  perform  its
          obligations hereunder and under the Notes and the other Loan Documents
          to which it is a party and all such action has been duly authorized by
          all necessary  corporate  proceedings on its part.  This Agreement has
          been duly and validly  executed  and  delivered  by the  Borrower  and
          constitutes  the valid and legally  binding  agreement of the Borrower
          enforceable in accordance with its terms,  except as limited by Debtor
          Laws; and the Notes and the other Loan  Documents,  when duly executed
          and delivered by the Borrower pursuant to the provisions hereof,  will
          constitute  the valid and legally  binding  obligation of the Borrower
          enforceable  in  accordance   with  the  terms  thereof  and  of  this
          Agreement, except as limited by Debtor Laws.

     7.9  Investment  Company Act Not  Applicable.  Neither the Borrower nor any
          Subsidiary is an "investment  company" or a company "controlled" by an
          "investment company", within the meaning of the Investment Company Act
          of 1940, as amended.

     7.10 Public  Utility  Holding  Company  Act  Not  Applicable.  Neither  the
          Borrower nor any Subsidiary is a "holding  company",  or a "subsidiary
          company"  of a  "holding  company",  or an  "affiliate"  of a "holding
          company",  or an  affiliate  of a  "subsidiary  company" of a "holding
          company",  as such terms are  defined in the  Public  Utility  Holding
          Company Act of 1935, as amended.

     7.11 Regulations G, T, U and X. No Loan shall be a "purpose  credit secured
          directly  or  indirectly  by  margin  stock"  within  the  meaning  of
          Regulation U of the Board of Governors of the Federal  Reserve  System
          ("margin  stock");  none of the  proceeds  of any Loan will be used to
          extend  credit to others for the purpose of purchasing or carrying any
          margin stock,  or for any other purpose  which would  constitute  this
          transaction a "purpose credit secured directly or indirectly by margin
          stock" within the meaning of said Regulation U, as now in effect or as
          the same may  hereafter  be in effect.  Neither the  Borrower  nor any
          Subsidiary  will take or permit any action  which  would  involve  the
          Banks in a violation of  Regulation  G,  Regulation  T,  Regulation U,
          Regulation X or any other  regulation of the Board of Governors of the
          Federal  Reserve System or a violation of the Securities  Exchange Act
          of 1934,  in each case as now or hereafter in effect.  After  applying
          proceeds of the Loans used to acquire the equity  interests  described
          in the definition of "Qualifying  Assets",  not more than  twenty-five
          percent (25%) of the value (as determined by any reasonable method) of
          the assets subject to the negative pledge set forth in Section 10.2 of
          the Credit Agreement and the restrictions on disposition of assets set
          forth in Section 10.8 of the Credit Agreement is represented by margin
          stock.

     7.12 ERISA.  No Reportable  Event (as defined in ss.  4043(b) of ERISA) has
          occurred with respect to any Plan.  Each Plan complies in all material
          respects with a applicable  provisions of ERISA,  and the Borrower and
          each Subsidiary have filed all reports  required by ERISA and the Code
          to be filed with  respect to each Plan.  The Borrower has no knowledge
          of any event which could  result in a liability of the Borrower or any
          Subsidiary to the Pension Benefit Guaranty  Corporation.  The Borrower
          and each Subsidiary have met all requirements  with respect to funding
          the Plans imposed by ERISA or the Code.  Since the  effective  date of
          Title IV of ERISA, there have not been any, nor are there now existing
          any,  events or conditions that would permit any Plan to be terminated
          under circumstances which would cause the lien provided under ss. 4068
          of ERISA to attach to any property of the Borrower or any  Subsidiary.
          The value of the Plans' benefits guaranteed under Title IV of ERISA on
          the date  hereof  does not  exceed  the  value of such  Plans'  assets
          allocable to such benefits as of the date of this  Agreement and shall
          not be permitted to do so hereafter.

     7.13 No Financing of Certain Security Acquisitions. None of the proceeds of
          any Loan will be used to acquire any security in any transaction  that
          is subject to ss.13 or ss.14 of the  Securities  Exchange Act of 1934,
          as amended, except the equity interests described in subparagraph (ii)
          of the definition of "Qualifying Assets".

     7.14 Franchises,  Co-Licenses, Etc. The Borrower and each Subsidiary own or
          have obtained all the material governmental  permits,  certificates of
          authority,  leases, patents,  trademarks,  service marks, trade names,
          copyrights,  franchises and licenses, and rights with respect thereto,
          required or necessary (or, in the sole and independent judgment of the
          Borrower,  prudent) in connection with the conduct of their respective
          businesses as presently conducted or as proposed to be conducted.

     7.15 Lines of Business.  The nature of the Borrower's lines of business are
          predominately the following:  (a) the operation of energy distribution
          and transportation services, including without limitation, natural gas
          sales  and   transportation   and  distribution,   propane  sales  and
          distribution and promotion,  marketing and sale of compressed  natural
          gas and liquified  natural gas; (b) the  development  and marketing of
          fuel   cell   and   distributive   energy   options;    (c)   electric
          marketing/generation;  (d) the operation of fuel oil  distribution and
          transportation  networks;  and (e) sales  and  rentals  of  appliances
          utilizing one or more of the fuel or energy options  specified in this
          Section 7.15.

     7.16 Environmental  Matters.  Except as  disclosed  in Schedule  7.16,  all
          facilities  and  property  owned  or  leased  by the  Borrower  or any
          Subsidiary  have been and continue to be, owned or leased and operated
          by the Borrower and each  Subsidiary in material  compliance  with all
          Environmental  Laws;  (i) there has not been (during the period of the
          Borrower's,  or a  Subsidiary's  ownership  or lease)  any  Release of
          Hazardous  Materials  at, on or under  any  property  now (or,  to the
          Borrower's  knowledge,  previously) owned or leased by the Borrower or
          any Subsidiary (A) in quantities that would be required to be reported
          under any Environmental  Law, (B) that required,  or may reasonably be
          expected to require,  the Borrower to expend funds on  remediation  or
          cleanup  activities  pursuant  to any  Environmental  Law  except  for
          remediation  or  clean-up  activities  that  would  not be  reasonably
          expected to have a Material  Adverse  Effect,  or (C) that  otherwise,
          singly or in the  aggregate,  has,  or may  reasonably  be expected to
          have, a Material Adverse Effect; (ii) the Borrower and each Subsidiary
          have been  issued and are in  material  compliance  with all  permits,
          certificates,  approvals,  orders,  licenses and other  authorizations
          relating  to  environmental  matters  necessary  for their  respective
          businesses;  and (iii) there are no polychlorinated  biphenyls (PCB's)
          or asbestos-containing materials or surface impoundments in any of the
          facilities  now (or, to the  knowledge  of the  Borrower,  previously)
          owned  or  leased  by the  Borrower  or  any  Subsidiary,  except  for
          asbestos-containing  materials of the type and in quantities  that, to
          the knowledge of the borrower,  do not currently require  remediation,
          and if remediation of such asbestos-containing  materials is hereafter
          required  for  any  reason,  such  remediation  activities  would  not
          reasonably  be  expected  to  have a  Material  Adverse  Effect;  (iv)
          Hazardous Materials have not been generated,  used, treated, recycled,
          stored  or  disposed  of in  any of  the  facilities  or on any of the
          property now (or, to the knowledge of the Borrower,  previously) owned
          or leased by the  Borrower  or any  Subsidiary  during the time of the
          Borrower's or such Subsidiary's ownership or leased by the Borrower or
          any Subsidiary  during the time of the Borrower's or such Subsidiary's
          ownership   except  in  material   compliance   with  all   applicable
          Environmental  Laws; and (v) all underground  storage tanks located on
          the property now (or, to the  knowledge of the  Borrower,  previously)
          owned or leased by the  Borrower or any  Subsidiary  have been (and to
          the  extent  currently  owned or  leased  are)  operated  in  material
          compliance with all applicable Environmental Laws.

     7.17 No Agreements  Prohibiting  Pledge of Southern Union Panhandle  Stock.
          Except for the applicable negative covenants of this Agreement and the
          Term Loan  Facility,  the  Borrower is not a party to any  contract or
          other agreement with any Person that directly or indirectly  prohibits
          the Borrower  from granting any Lien against the stock or other equity
          interests in Southern Union Panhandle  (whether  common,  preferred or
          another  class of equity  ownership) at any time owned and held by the
          Borrower  as  security  for  any  Debt of the  Borrower  or any of its
          Subsidiaries.

8.       CONDITIONS

         The  obligation  of the Banks to make any  Loans or issue any  Facility
Letters of Credit is subject to the following conditions:

     8.1  Representations True and No Defaults

               (a) The  representations  and  warranties  contained in Section 7
          shall be true and correct on and as of the  particular  Borrowing Date
          as though made on and as of such date;

               (b) The Borrower  shall not be in default in the due  performance
          of any covenant on its part contained in this Agreement;

               (c) no material  adverse  change shall have occurred with respect
          to  the  business,  assets,  properties  or  condition  (financial  or
          otherwise)  of  the  Borrower  reflected  in the  quarterly  financial
          statements  of the  Borrower  dated  December 31, 2003 (copies of such
          audited  financial  statements  having been  supplied to the Agent and
          each Bank); and

               (d) no Event of  Default or Default  shall have  occurred  and be
          continuing.

     8.2  Governmental  Approvals.  The Borrower shall have obtained all orders,
          approvals or consents of all public regulatory bodies required for the
          making  and  carrying  out  of  this  Agreement,  the  making  of  the
          borrowings pursuant hereto, the issuance of the Notes to evidence such
          borrowings, and the execution and delivery of the Security Documents.

     8.3  Compliance  With Law. The business and  operations of the Borrower and
          each Subsidiary as conducted at all times relevant to the transactions
          contemplated  by this Agreement to and including the close of business
          on the  particular  Borrowing  Date  shall  have  been and shall be in
          compliance  in all material  respects  with all  applicable  State and
          Federal laws,  regulations and orders  affecting the Borrower and each
          Subsidiary and the business and operations of any of them.

     8.4  Notice of Borrowing and Other  Documents.  On each Borrowing Date, the
          Banks  shall have  received  (a) a Notice of  Borrowing;  and (b) such
          other documents and certificates  relating to the transactions  herein
          contemplated as the Banks may reasonably request.

     8.5  Payment of Fees and  Expenses.  The  Borrower  shall have paid (a) all
          expenses of the type  described  in Section  13.3  through the date of
          such Loan or the  issuance of such  Facility  Letter of Credit and (b)
          all  closing,  structuring  and  other  invoiced  fees  owed as of the
          Closing  Date to the  Agent,  any of the  Banks  and/or  J. P.  Morgan
          Securities  Inc. by the  Borrower  under this  Agreement  or any other
          written  agreement  between the Borrower and the Agent, the applicable
          Bank(s) or J. P. Morgan Securities Inc.

     8.6  Loan  Documents,  Opinions  and Other  Instruments.  As of the Closing
          Date,  the Borrower  shall have  delivered to the Agent the following:
          (a) this  Agreement,  each of the Notes and all other  Loan  Documents
          required by the Agent and the Banks to be executed  and  delivered  by
          the Borrower in connection with this Agreement; (b) a certificate from
          the  Secretary  of State of the State of Delaware as to the  continued
          existence  and good standing of the Borrower in the State of Delaware;
          (c) a certificate  from Secretary of State of the State of Texas as to
          the  continued  qualification  of the  Borrower  to do business in the
          State of  Texas;  (d) a  current  certificate  from the  Office of the
          Comptroller  of the  State of Texas  as to the  good  standing  of the
          Borrower in the State of Texas; (e) a Secretary's Certificate executed
          by the duly elected Secretary or a duly elected Assistant Secretary of
          the  Borrower,  in a  form  acceptable  to  the  Agent,  whereby  such
          Secretary or Assistant  Secretary certifies that one or more corporate
          resolutions  adopted by the Board of Directors of the Borrower  remain
          in full force and effect  authorizing the Borrower to secure Loans and
          Facility  Letters  of  Credit  in  accordance  with the  terms of this
          Agreement;  and (f) a legal  opinion  from  in-house  counsel  for the
          Borrower, dated as of the Closing Date, addressed to the Agent and the
          Lenders and  otherwise  acceptable in all respects to the Agent in its
          discretion.

9. AFFIRMATIVE COVENANTS

         The Borrower  covenants  and agrees  that,  so long as the Borrower may
borrow  hereunder  and  until  payment  in full  of the  Notes,  and  its  other
obligations under this Agreement and the other Loan Documents the Borrower will:

     9.1  Financial Statements and Information. Deliver to the Banks:

               (a) as soon as available,  and in any event within 120 days after
          the end of each  fiscal  year of the  Borrower,  a copy of the  annual
          audit report of the Borrower and the Subsidiaries for such fiscal year
          containing  a balance  sheet,  statements  of income and  stockholders
          equity  and a cash  flow  statement,  all  in  reasonable  detail  and
          certified by Price Waterhouse Coopers or another independent certified
          public  accountant of recognized  standing  satisfactory to the Banks.
          The  Borrower  will  obtain from such  accountants  and deliver to the
          Banks at the time said financial  statements are delivered the written
          statement of the accountants that in making the examination  necessary
          to said  certification they have obtained no knowledge of any Event of
          Default  or  Default,  or if  such  accountants  shall  have  obtained
          knowledge  of any such Event of Default or  Default,  they shall state
          the nature and period of existence thereof in such statement; provided
          that such  accountants  shall not be liable  directly or indirectly to
          the Banks for failure to obtain knowledge of any such Event of Default
          or Default; and

               (b) as soon as available, and in any event within sixty (60) days
          after the end of each quarterly  accounting period in each fiscal year
          of the Borrower (excluding the fourth quarter), an unaudited financial
          report  of the  Borrower  and the  Subsidiaries  as at the end of such
          quarter  and for the period then ended,  containing  a balance  sheet,
          statements  of  income  and  stockholders   equity  and  a  cash  flow
          statement,  all in  reasonable  detail and  certified  by a  financial
          officer of the Borrower to have been prepared in accordance with GAAP,
          except as may be explained in such certificate; and

               (c) copies of all statements and reports sent to  stockholders of
          the Borrower or filed with the Securities and Exchange Commission; and

               (d) such additional  financial or other  information as the Banks
          may reasonably request including,  without limitation,  copies of such
          monthly, quarterly, and annual reports of gas purchases and sales that
          the  Borrower  is  required  to deliver  to or file with  governmental
          bodies pursuant to tariffs and/or franchise agreements.

All  financial  statements  specified  in  clauses  (a) and (b)  above  shall be
furnished  in  consolidated  and  consolidating  form for the  Borrower  and all
Subsidiaries with comparative  consolidated figures for the corresponding period
in the  preceding  year.  Together  with each  delivery of financial  statements
required by clauses (a) and (b) above,  the  Borrower  will deliver to the Banks
(i) such  schedules,  computations  and other  information as may be required to
demonstrate  that the Borrower is in  compliance  with its  covenants in Section
10.1 or reflecting any  noncompliance  therewith as at the  applicable  date and
(ii) an Officer's  Certificate  stating that there exists no Event of Default or
Default, or, if any such Event of Default or Default exists,  stating the nature
thereof,  the period of existence thereof and what action the Borrower has taken
or proposes to take with respect thereto.  The Banks are authorized to deliver a
copy of any financial  statement  delivered to it to any regulatory  body having
jurisdiction  over them,  and to disclose same to any  prospective  assignees or
participant Lenders.

     9.2  Lease and Investment Schedules. Deliver to the Banks:

               (a) from time to time and,  in any event,  with each  delivery of
          annual financial statements under Section 9.1(a), a current,  complete
          schedule (in the form of Schedule  9.2) of all  agreements  to rent or
          lease any property (personal, real or mixed, but not including oil and
          gas leases) to which the Borrower or any  Subsidiary is a party lessee
          and which, considered  independently or collectively with other leases
          with the same  lessor,  involve an  obligation  by the  Borrower  or a
          Subsidiary  to make  payments of at least  $1,000,000.00  in any year,
          showing  the total  amounts  payable  under each such  agreement,  the
          amounts  and  due  dates  of  payments  thereunder  and  containing  a
          description  of  the  rented  or  leased   property,   and  all  other
          information the Majority Banks may request; and

               (b) with each  delivery  of  annual  financial  statements  under
          Section  9.1(a) a current  complete  schedule (in the form of Schedule
          9.2) listing all debt  exceeding  $1,000,000.00  in  principal  amount
          outstanding and equity owned or held by the Borrower or any Subsidiary
          containing all information required by, and in a form satisfactory to,
          the Banks, except for such debt or equity of Subsidiaries.

     9.3  Books and Records.  Maintain,  and cause each  Subsidiary to maintain,
          proper books of record and account in accordance with sound accounting
          practices in which true,  full and correct entries will be made of all
          their respective dealings and business affairs.

     9.4  Insurance.  Maintain, and cause each Subsidiary to maintain, insurance
          with financially  sound,  responsible and reputable  companies in such
          types and amounts and against such casualties, risks and contingencies
          as  is  customarily  carried  by  owners  of  similar  businesses  and
          properties,  and furnish to the Banks,  together with each delivery of
          annual  financial   statements  under  Section  9.1(a),  an  Officer's
          Certificate containing full information as to the insurance carried.

     9.5  Maintenance  of  Property.  Cause  its  Significant  Property  and the
          Significant  Property of each Subsidiary to be maintained,  preserved,
          protected and kept in good repair, working order and condition so that
          the  business  carried on in  connection  therewith  may be  conducted
          properly and efficiently,  except for normal wear and tear;  provided,
          however,  that the improved properties of Lavaca Realty Company should
          be maintained, preserved and protected in a manner consistent with the
          maintenance,  preservation  and  protection  of improved real property
          held for sale.

     9.6  Inspection  of Property and Records.  Permit any officer,  director or
          agent of the Agent or any Bank,  on  written  notice and at such Banks
          expense,  to visit and inspect during normal business hours any of the
          properties,  corporate books and financial records of the Borrower and
          each Subsidiary and discuss their respective affairs and finances with
          their principal  officers,  all at such times as the Agent or any Bank
          may reasonably request.

     9.7  Existence,  Laws, Obligations.  Maintain, and cause each Subsidiary to
          maintain,  its  corporate  existence and  franchises,  and any license
          agreements  and tariffs  that permit the recovery of a return that the
          Borrower  considers  to be fair (and as to licenses,  franchises,  and
          tariffs that are subject to regulatory  determinations  of recovery of
          returns, the Borrower has presented or is presenting favorable defense
          thereof); and to comply, and cause each Subsidiary to comply, with all
          statutes and governmental  regulations  noncompliance with which might
          have a Material Adverse Effect,  and pay, and cause each Subsidiary to
          pay, all taxes,  assessments,  governmental charges, claims for labor,
          supplies,  rent and other  obligations  which if unpaid might become a
          lien  against the property of the  Borrower or any  Subsidiary  except
          liabilities  being  contested  in  good  faith.   Notwithstanding  the
          foregoing,  the  Borrower  may  dissolve  those  certain  inactive and
          minimally capitalized Subsidiaries designated as such on Schedule 7.1.

     9.8  Notice of Certain  Matters.  Notify the Agent  Bank  immediately  upon
          acquiring  knowledge of the occurrence of any of the following events:
          (a) the  institution  or  threatened  institution  of any  lawsuit  or
          administrative  proceeding  affecting  the Borrower or any  Subsidiary
          that is not covered by insurance (less applicable  deductible amounts)
          and which, if determined adversely to the Borrower or such Subsidiary,
          could  reasonably be expected to have a Material  Adverse Effect;  (b)
          the occurrence of any material adverse change, or of any event that in
          the good faith  opinion  of the  Borrower  is  likely,  to result in a
          material  adverse  change,  in  the  assets,  liabilities,   financial
          condition,  business or affairs of the Borrower or any Subsidiary; (c)
          the occurrence of any Event of Default or any Default; or (d) a change
          by Moody's Investors  Service,  Inc. or by Standard and Poor's Ratings
          Group in the rating of the Borrower's Funded Debt.

     9.9  ERISA. At all times:

               (a) maintain and keep in full force and effect each Plan;

               (b) make  contributions to each Plan in a timely manner and in an
          amount  sufficient  to  comply  with  the  minimum  funding  standards
          requirements of ERISA;

               (c)  immediately  upon  acquiring  knowledge  of any  "reportable
          event" or of any "prohibited  transaction"  (as such terms are defined
          in the Code ss. 4043) in connection  with any Plan,  furnish the Banks
          with a statement  executed by the president or chief financial officer
          of the Borrower setting forth the details thereof and the action which
          the Borrower  proposes to take with respect  thereto and,  when known,
          any action taken by the Internal Revenue Service with respect thereto;

               (d) notify the Banks promptly upon receipt by the Borrower or any
          Subsidiary of any notice of the institution of any proceeding or other
          action which may result in the  termination of any Plan and furnish to
          the Banks copies of such notice;

               (e) acquire and  maintain  in amounts  satisfactory  to the Banks
          from either the Pension  Benefit  Guaranty  Corporation  or authorized
          private insurers,  when available,  the contingent  employer liability
          coverage insurance required under ERISA;

               (f) furnish the Banks with  copies of the summary  annual  report
          for each Plan filed with the Internal  Revenue Service as the Agent or
          the Banks may request; and

               (g)  furnish  the Banks with  copies of any request for waiver of
          the  funding  standards  or  extension  of  the  amortization  periods
          required  by ss.  303 and ss.  304 of  ERISA  or ss.  412 of the  Code
          promptly  after the  request  is  submitted  to the  Secretary  of the
          Treasury,  the Department of Labor or the Internal Revenue Service, as
          the case may be.

     9.10 Compliance with Environmental Laws. At all times: (a) use and operate,
          and cause each Subsidiary to use and operate,  all of their respective
          facilities   and   properties   in   material   compliance   with  all
          Environmental  Laws;  keep,  and cause each  Subsidiary  to keep,  all
          necessary permits, approvals, orders, certificates, licenses and other
          authorizations  relating to environmental matters in effect and remain
          in material compliance therewith; handle, and cause each Subsidiary to
          handle,  all  Hazardous  Materials  in  material  compliance  with all
          applicable  Environmental Laws; and dispose, and cause each Subsidiary
          to dispose,  of all Hazardous  Materials  generated by the Borrower or
          any  Subsidiary  or at  any  property  owned  or  leased  by  them  at
          facilities or with carriers that maintain  valid  permits,  approvals,
          certificates, licenses or other authorizations for such disposal under
          applicable Environmental Laws;

               (b) promptly  notify the Agent and provide copies upon receipt of
          all written claims,  complaints,  notices or inquiries relating to the
          condition of the  facilities  and  properties of the Borrower and each
          Subsidiary  under, or their  respective  compliance  with,  applicable
          Environmental  Laws wherein the condition or the noncompliance that is
          the subject of such claim, complaint,  notice, or inquiry involves, or
          could reasonably be expected to involve,  liability of or expenditures
          by the Borrower and its Subsidiaries of $10,000,000.00 or more; and

               (c) provide such information and  certifications  which the Banks
          may reasonably  request from time to time to evidence  compliance with
          this Section 9.10.

     9.11 PGA  Clauses.  The  Borrower  will use its best efforts to maintain in
          force  provisions in all of its tariffs and franchise  agreements that
          permit the Borrower to recover from customers substantially all of the
          amount by which the cost of gas purchases exceeds the amount currently
          billed to customers for the delivery of such gas  (sometimes  referred
          to as PGA clauses).

10. NEGATIVE COVENANTS

         So long as the Borrower may borrow  hereunder and until payment in full
of the Notes, except with the written consent of the Banks:

     10.1 Capital Requirements. The Borrower will not:

               (a)  permit its  Consolidated  Net Worth at the end of any fiscal
          quarter  to be less  than the sum of (i)  $1,267,663,000,  (ii) 40% of
          Consolidated  Net Income (if  positive)  for the period  commencing on
          January 1, 2004 and ending on the date of  determination,  and treated
          as a single accounting  period;  (iii) the difference between (A) 100%
          of the net proceeds of any  issuance of capital or preferred  stock or
          any  other   Equity-Preferred   Securities  by  the  Borrower  or  any
          consolidated  Subsidiary received by the Borrower or such consolidated
          Subsidiary  at any time after  January 1, 2004;  and (B) the aggregate
          amount of all  redemption or repurchase  payments  hereafter  made, if
          any,  by  the  Borrower  and  any  such  consolidated   Subsidiary  in
          connection   with  the   repurchase   by  the  Borrower  or  any  such
          consolidated   Subsidiary  of  any  of  their  respective  capital  or
          preferred stock; (iv) without duplication,  the difference between (A)
          100% of the net  proceeds  heretofore  and  hereafter  received by the
          Borrower and any consolidated Subsidiary in respect of the issuance by
          the  Borrower  or  such  consolidated  Subsidiary  of  the  Structured
          Securities,  and (B) the aggregate  amount of all redemption  payments
          hereafter  made,  if any, by the  Borrower  and any such  consolidated
          Subsidiary in connection  with the redemption of any of the Structured
          Securities;   and  (v)  the  minority   interests  in  the  Borrower's
          Subsidiaries; or

               (b) permit the ratio of its  Consolidated  Total  Indebtedness to
          its Consolidated Total  Capitalization to be greater than 0.65 to 1.00
          at the end of any fiscal quarter; or

               (c)  acquire,  or permit any  Subsidiary  to acquire,  any assets
          other than (i)  investments  permitted  under  Section  10.4,  or (ii)
          Qualifying Assets; or

               (d) permit the ratio of EBDIT to Cash  Interest  Expense  for the
          four fiscal  quarters  most  recently  ended  (considered  as a single
          accounting  period)  at any time to be less  than  2.00 to 1.00 at all
          times.

     10.2 Mortgages,  Liens, Etc. The Borrower will not, and will not permit any
          Subsidiary  to,  create or permit  to exist  any Lien  (including  the
          charge upon assets  purchased  under a  conditional  sales  agreement,
          purchase money mortgage,  security  agreement or other title retention
          agreement)  upon any of its  respective  assets,  whether now owned or
          hereafter acquired, or assign or otherwise convey any right to receive
          income, except:

               (a) Liens for  taxes not yet due or that are being  contested  in
          good faith by appropriate proceedings;

               (b) other Liens  incidental to the conduct of its business or the
          ownership of its assets that were not incurred in connection  with the
          borrowing of money or the obtaining of advances or credit, and that do
          not in the aggregate  materially detract from the value of such assets
          or  materially  impair  the  use  thereof  in the  operation  of  such
          business;

               (c) Liens on assets of a Subsidiary to secure obligations of such
          Subsidiary to the Borrower or another Subsidiary; and

               (d) Liens on property existing at the time of acquisition thereof
          by the Borrower or any Subsidiary,  including without limitation,  (i)
          any property  acquired by the Borrower in consummating  and finalizing
          any of the Prior Acquisitions, (ii) any Liens existing on any property
          of Panhandle  Eastern or any of its  Subsidiaries  to secure  existing
          Debt of Panhandle Eastern or any of its Subsidiaries as of the Closing
          Date, and (iii) any Liens against any property of Panhandle Eastern or
          any of its Subsidiaries to secure Panhandle  Eastern  Refinancing Debt
          (provided  such Liens are limited to property of Panhandle  Eastern or
          any of its  Subsidiaries  securing the Debt so  extended,  refinanced,
          renewed,  replaced,  defeased or  refunded),  or purchase  money Liens
          placed  on an  item  of real or  personal  property  purchased  by the
          Borrower or any  Subsidiary to secure a portion of the purchase  price
          of such property; provided that no such Lien may encumber or cover any
          other property of the Borrower or any Subsidiary.

     10.3 Debt.  The Borrower will not, and will not permit any  Subsidiary  to,
          incur or permit to exist any Debt, except:

               (a) Debt  evidenced by the Notes,  the Facility  Letter of Credit
          Obligations  or  outstanding  under  the Term  Loan  Facility  and any
          Equity-Preferred  Securities (to the extent the same constitutes Debt)
          not in default, as well as (i) Debt of Panhandle Eastern and/or any of
          its  Subsidiaries  outstanding  as  of  the  Closing  Date,  (ii)  any
          Panhandle Eastern Refinancing Debt, (iii) any loans or advances by the
          Borrower  to  Panhandle  Eastern  and/or any of the  Borrower's  other
          Subsidiaries  permitted  under  Section  10.4(b)  and (iv) any working
          capital credit facility or facilities  provided  directly to Panhandle
          Eastern and/or any of Panhandle  Eastern's  Subsidiaries  by any party
          other than the Borrower,  so long as the principal  amount of all such
          outstanding working capital facilities,  together with the outstanding
          principal  amount of any  working  capital  loans or  advances  by the
          Borrower  to  Panhandle  Eastern  and/or  any of  Panhandle  Eastern's
          Subsidiaries,  does not exceed (A) $50,000,000 in the aggregate at any
          time that the ratio of Consolidated Total Indebtedness to Consolidated
          Total  Capitalization  for Panhandle  Eastern and Panhandle  Eastern's
          Subsidiaries (excluding the Borrower and all other Subsidiaries of the
          Borrower for purposes of such calculation) is greater 0.65 to 1.00 and
          (B)  $75,000,000  in the  aggregate  at any  time  that  the  ratio of
          Consolidated Total  Indebtedness to Consolidated Total  Capitalization
          for Panhandle Eastern and Panhandle Eastern's Subsidiaries  (excluding
          the Borrower and all other  Subsidiaries  of the Borrower for purposes
          of such calculation) is less than or equal to 0.65 to 1.00;

               (b)  Debt  of  any  Subsidiary  to  the  Borrower  or  any  other
          Subsidiary,  except to the  extent  limited  by the  terms of  Section
          10.4(b), and Debt of the Borrower to any Subsidiary;

               (c)  Debt  existing  as of  December  31,  2003 as  reflected  on
          financial  statements  delivered under Section 7.2(b) and refinancings
          thereof  other than Debt that has been  refinanced  by the proceeds of
          Loans;

               (d) endorsements in the ordinary course of business of negotiable
          instruments in the course of collection;

               (e)  Debt of the  Borrower  or any  Subsidiary  representing  the
          portion of the purchase price of property  acquired by the Borrower or
          such  Subsidiary  that is secured by Liens permitted by the provisions
          of  Section  10.2(d);  provided,  however,  that  at no  time  may the
          aggregate  principal  amount of such Debt  outstanding  exceed  thirty
          percent  (30%) of the  Consolidated  Net Worth of the Borrower and its
          Subsidiaries as of the applicable determination date;

               (f) Debt evidenced by Senior Notes;

               (g) additional Debt of the Borrower and Structured  Securities of
          the Borrower and the Southern Union Trusts  provided that after giving
          effect to the issuance thereof,  there shall exist no Default or Event
          of Default;  and: (i) the ratio of Consolidated  Total Indebtedness to
          Consolidated  Total  Capitalization  shall be no greater  than 0.65 to
          1.00 at all  times;  (ii)  the  ratio of  EBDIT  for the  four  fiscal
          quarters  most recently  ended to pro forma Cash Interest  Expense for
          the following  four fiscal  quarters shall be no less than 2.00 to 1.0
          at all times; provided, however, that if the additional Debt for which
          the  determinations  required to be made by this subparagraph (g) will
          be used to finance in whole or in part the consideration to be paid by
          the Borrower for the  acquisition  of any entity  otherwise  permitted
          under  the terms of this  Agreement,  the  determination  of EBDIT for
          purposes  of this  ratio  shall  include  not  only  the  EBDIT of the
          Borrower  and its  Subsidiaries  for the  four  fiscal  quarters  most
          recently ended,  but shall also include the EBDIT of such entity to be
          acquired for such four fiscal quarters most recently ended;  and (iii)
          (A) such Debt and Structured Securities shall have a final maturity or
          mandatory  redemption  date,  as the case may be, no earlier  than the
          Maturity  Date and shall mature or be subject to mandatory  redemption
          or  mandatory  defeasance  no earlier  than the  Maturity  Date (as so
          extended) and shall be subject to no mandatory  redemption or "put" to
          the Borrower or any Southern Union Trust exercisable,  or sinking fund
          or other similar mandatory  principal payment  provisions that require
          payments to be made toward principal,  prior to such Maturity Date (as
          so  extended);  or (B) (x) such  additional  Debt  shall  have a final
          maturity date prior to the Maturity  Date,  (y) such  additional  Debt
          shall not exceed Two Hundred Fifty Million  Dollars  ($250,000,000.00)
          in the  aggregate  plus Twenty  Million  Dollars  ($20,000,000.00)  of
          reimbursement  obligations  incurred in connection  with  Non-Facility
          Letters of Credit issued by a Bank or Banks or by any other  financial
          institution;  provided,  however, that for purposes of determining the
          aggregate  amount  of  such  additional  Debt  for  purposes  of  this
          subclause  (y), the Debt of the Borrower  under the Term Loan Facility
          shall not be included and such Debt under the Term Loan Facility shall
          be deemed to be permitted Debt for purposes of this subclause (y), and
          (z) such  additional  Debt shall be borrowed from a Bank or Banks as a
          loan or loans arising  independent  of this Agreement or the Term Loan
          Facility or shall be borrowed from a financial institution that is not
          a Bank under this Agreement or the Term Loan Facility; and

               (h)  additional  Debt of  Trunkline  LNG  Holdings  or any of its
          Subsidiaries,  so long as (i) such Debt is to  Trunkline  LNG Holdings
          and/or any of its Subsidiaries only and is not recourse in any respect
          to the Borrower or any other  Subsidiary  of the Borrower  (other than
          Panhandle  Eastern and its  Subsidiaries),  (ii) the  proceeds of such
          Debt is used solely to finance  capital  expenditures of Trunkline LNG
          Holdings  and/or its  Subsidiaries,  and (iii) after giving  effect to
          such Debt, no Default or Event of Default shall exist.

     10.4 Loans,  Advances and Investments.  The Borrower will not, and will not
          permit any Subsidiary to, make or have outstanding any loan or advance
          to, or own or acquire any stock or securities of or equity interest or
          other Investment in, any Person, except (without duplication):

               (a) stock or other equity interests of (i) the Subsidiaries named
          in Section 7.1; (ii) other  entities that are acquired by the Borrower
          or any  Subsidiary  but that  are  promptly  merged  with and into the
          Borrower;  (iii) Southern Union Panhandle,  Panhandle  Eastern and any
          Subsidiaries  of  Panhandle  Eastern  acquired  as  a  result  of  the
          Panhandle Eastern  Acquisition;  and (iv) the same Qualifying Entities
          as the Qualifying  Entities under  subparagraph (ii) of the definition
          of  "Qualifying  Assets,"  provided  that at any  time  the  aggregate
          purchase price paid for such stock and other equity  interests in such
          Qualifying  Entities  then held by the  Borrower as of the  applicable
          determination date,  including the aggregate amount of Debt assumed or
          deemed  incurred by Borrower in  connection  with the purchase of such
          stock and other  equity  interests,  is not more than  twenty  percent
          (20%)  of  the   Consolidated  Net  Worth  of  the  Borrower  and  its
          Subsidiaries as of the applicable determination date;

               (b) loans or advances to a Subsidiary;  provided,  however,  that
          the  principal  amount of such loans and advances for working  capital
          purposes at any time  outstanding  to Panhandle  Eastern and/or any of
          Panhandle Eastern's  Subsidiaries,  together with the principal amount
          of any  outstanding  working  capital  credit  facility or  facilities
          provided  directly  to  Panhandle  Eastern  and/or  any  of  Panhandle
          Eastern's Subsidiaries by any party other than the Borrower,  does not
          exceed $25,000,000 in the aggregate at any time;

               (c)  Securities  maturing no more than 180 days after  Borrower's
          purchase that are either:

                    (i)  readily  marketable  securities  issued  by the  United
               States or its agencies or instrumentalities; or

                    (ii) commercial  paper rated "Prime 2" by Moody's  Investors
               Service,  Inc.  ("Moody's") or A-2 by Standard and Poor's Ratings
               Group ("S & P"); or

                    (iii)  certificates  of deposit or  repurchase  contracts on
               customary terms with financial institutions in which deposits are
               insured by any agency or instrumentality of the United States; or

                    (iv) readily marketable securities received in settlement of
               liabilities created in the ordinary course of business; or

                    (v) obligations of states,  agencies,  counties,  cities and
               other  political  subdivisions  of any state  rated at lest MIG2,
               VMIG2 or Aa by Moody's or AA by S & P; or

                    (vi) loan  participations in credits in which the borrower's
               debt is rated at least Aa or Prime 2 by Moody's or AA or A-2 by S
               & P; or

                    (vii) money market  mutual  funds that are  regulated by the
               Securities  and  Exchange  Commission,   have  a  dollar-weighted
               average stated maturity of 90 days or fewer on their  investments
               and include in their  investment  objectives the maintenance of a
               stable net asset value of $1 for each share.

               (d) other equity  interests  owned by a Subsidiary on the date of
          this Agreement and such additional equity interests to the extent (but
          only to the  extent)  that such  Subsidiary  is legally  obligated  to
          acquire those interests on the date of this Agreement, in each case as
          disclosed to the Banks in writing;

               (e) loans or advances by the Borrower to customers in  connection
          with and pursuant to marketing  and  merchandising  products  that the
          Borrower  reasonably  expects to  increase  sales of the  Borrower  or
          Subsidiaries,  provided  that: (i) such loans must be either less than
          $2,000,000.00  to any one customer (or group of affiliated  customers,
          shown on the Borrower's records to be Affiliates) or must be disclosed
          on  Schedule  9.2  hereof;  and (ii) all such  loans  must not  exceed
          $24,000,000.00 in the aggregate outstanding at any time;

               (f)  travel  and  expense  advances  in the  ordinary  course  of
          business to officers and employees;

               (g) stock or  securities  of or equity  interests  in, any Person
          provided that,  after giving effect to the  acquisition  and ownership
          thereof,  the Borrower is in compliance with the provisions of Section
          10.1(c) of this Agreement; and

               (h) loans,  advances or other  Investments by the Borrower or any
          Subsidiary not otherwise  permitted under the other provisions of this
          Section 10.4, so long as the sum of the outstanding  balance of all of
          such loans and advances  and the  purchase  price paid for all of such
          other  Investments does not exceed in the aggregate seven percent (7%)
          of the  Consolidated Net Worth of the Borrower and its Subsidiaries as
          of the applicable determination date.

     10.5 Stock and Debt of  Subsidiaries.  The Borrower  will not, and will not
          permit any Subsidiary  to, sell or otherwise  dispose of any shares of
          stock, other equity interests or Debt of any Subsidiary, or permit any
          Subsidiary  to issue or dispose of its stock  (other  than  directors'
          qualifying shares),  except for the following:  (i) the sale, transfer
          or issuance of stock, other equity interests or Debt of any Subsidiary
          to the Borrower or another  Subsidiary of the Borrower;  (ii) the sale
          of stock in Trunkline  LNG Holdings and Debt of Trunkline LNG Holdings
          as a result of the  Trunkline  LNG  Holdings  Sale;  (iii) the sale of
          stock in Sea Robin  Pipeline  Company  and Debt of Sea Robin  Pipeline
          Company,  (iv) the  issuance by  Southern  Union  Trusts of  preferred
          beneficial  interests  in public  offerings of  Borrower's  Structured
          Securities, and (v) the issuance by other Subsidiaries of the Borrower
          formed for the purpose of issuing Equity-Preferred Securities.

     10.6 Merger, Consolidation, Etc. The Borrower will not, and will not permit
          any Subsidiary to, merge or consolidate with any other Person or sell,
          lease, transfer or otherwise dispose of (whether in one transaction or
          a series of  transactions)  all or a substantial part of its assets or
          acquire (whether in one transaction or a series of  transactions)  all
          or a substantial part of the assets of any Person, except that:

               (a) any  Subsidiary  may merge or  consolidate  with the Borrower
          (provided  that the  Borrower  shall be the  continuing  or  surviving
          corporation) or with any one or more Subsidiaries;

               (b) any Subsidiary may sell, lease, transfer or otherwise dispose
          of any of its assets to the Borrower or another Subsidiary;

               (c) the Borrower  may acquire the assets of any Person,  provided
          that,  after  giving  effect to such  acquisition,  the Borrower is in
          compliance with the provisions of Sections 10.1(c); and

               (d) the Borrower or any  Subsidiary  may sell,  lease,  assign or
          otherwise dispose of assets as otherwise permitted under Section 10.8.

     10.7 Supply and Purchase  Contracts.  The  Borrower  will not, and will not
          permit any Subsidiary to, enter into or be a party to any contract for
          the purchase of materials, supplies or other property if such contract
          requires that payment for such  materials,  supplies or other property
          shall be made  regardless  of whether or not  delivery is ever made or
          tendered of such  materials,  supplies and other  property,  except in
          those  circumstances and involving those supply or purchase  contracts
          that the Borrower  reasonably  considers to be necessary or helpful in
          its  operations  in the  ordinary  course  of  business  and  that the
          Borrower  reasonably  considers not to be unnecessarily  burdensome on
          the Borrower or its Subsidiaries.

     10.8 Sale or Other  Disposition of Assets.  The Borrower will not, and will
          not permit any Subsidiary  to, except as permitted  under this Section
          10.8,  sell,  assign,  lease, or otherwise  dispose of (whether in one
          transaction  or in a series  of  transactions)  all or any part of its
          Property (whether now owned or hereafter acquired); provided, however,
          that (i) the Borrower or any Subsidiary may in the ordinary  course of
          business  dispose of (a) Property  consisting  of  Inventory;  and (b)
          Property  consisting of goods or equipment that are, in the opinion of
          the Borrower or any Subsidiary,  obsolete or  unproductive,  but if in
          the  good  faith  judgment  of the  Borrower  or any  Subsidiary  such
          disposition  without replacement thereof would have a Material Adverse
          Effect,  such goods and equipment shall be replaced,  or their utility
          and function substituted,  by new or existing goods or equipment; (ii)
          the  Borrower  may  transfer  or  dispose  of any  of its  Significant
          Property  (in  any  transaction  or  series  of  transactions)  to any
          Subsidiary or  Subsidiaries  only if such Property so  transferred  or
          disposed of after the Closing Date has an aggregate value  (determined
          after  depreciation  and in accordance with GAAP) of not more than ten
          percent (10%) of the aggregate  value of all of the Borrower's and its
          Subsidiaries'  real property and tangible personal property other than
          Inventory  considered on a  consolidated  basis and  determined  after
          depreciation  and in  accordance  with GAAP,  as of December 31, 2003;
          (iii) the  Borrower  may  dispose of its real  property in one or more
          sale/leaseback  transactions,  provided  that  any  Debt  incurred  in
          connection with such  transaction does not create a Default as defined
          herein;  (iv) a Southern  Union Trust may  distribute  the  Borrower's
          subordinated debt securities  constituting a portion of the Structured
          Securities,  on the  terms and  under  the  conditions  set out in the
          registration statement therefor filed with the Securities and Exchange
          Commission  on March 25,  1995 or any similar  registration  statement
          filed with the Securities and Exchange  Commission in connection  with
          any other  Structured  Securities  issued in connection with the Prior
          Acquisitions;  (v) the Borrower or any  Subsidiary may dispose of real
          property  or  tangible  personal  property  other than  Inventory  (in
          consideration  of such  amount as in the good  faith  judgment  of the
          Borrower or such Subsidiary represents a fair consideration therefor),
          provided  that  the  aggregate  value  of such  property  disposed  of
          (determined after  depreciation and in accordance with GAAP) after the
          Closing Date does not exceed ten percent (10%) of the aggregate  value
          of all of the  Borrower's  and its  Subsidiaries'  real  property  and
          tangible  personal  property  other  than  Inventory  considered  on a
          consolidated basis and determined after depreciation and in accordance
          with GAAP,  as of December 31, 2003;  (vi) the Borrower may dispose of
          Qualifying  Assets  of  the  type  described  in  clause  (ii)  of the
          definition of Qualifying  Assets,  provided that the Borrower  applies
          the net proceeds from such  disposition  against the  Borrower's  Debt
          under the Term Loan Facility, to the extent then outstanding,  and the
          balance of such net sales  proceeds,  if any, shall be applied against
          the Loans in an amount  equal to the lesser of (a) the balance of such
          net sales proceeds not applied against the Term Loan Facility, and (b)
          the  amount  of Loan  proceeds  previously  advanced  to  finance  the
          acquisition of such clause (ii) Qualifying Assets;  (vii) the Borrower
          may dispose of other  Investments of the type acquired under the terms
          of  Section  10.4(h),  provided  that  the  Borrower  applies  the net
          proceeds from such  disposition  against the Borrower's Debt under the
          Term Loan Facility, to the extent then outstanding, and the balance of
          such net sales proceeds, if any, shall be applied against the Loans in
          an amount  equal to the  lesser of (a) the  balance  of such net sales
          proceeds  not  applied  against  the Term Loan  Facility,  and (b) the
          amount of Loan proceeds previously advanced to finance the acquisition
          of such other Investments; (viii) Panhandle Eastern may sell all stock
          or all or  substantially  all of the assets in Trunkline  LNG Holdings
          pursuant to the Trunkline LNG Holdings Sale; and (ix) the Borrower may
          sell all stock or all or substantially  all of the assets in Sea Robin
          Pipeline Company.

     10.9 Discount or Sale of  Receivables.  The Borrower will not, and will not
          permit  any  Subsidiary,   other  than  Southern  Union  Total  Energy
          Services,  Inc., to discount or sell with  recourse,  or sell for less
          than the face value thereof  (including  any accrued  interest) any of
          its notes  receivable,  receivables  under  leases  or other  accounts
          receivable,  unless all net proceeds received by the Borrower from any
          such discount or sale are applied  against the  Borrower's  Debt under
          the Term Loan Facility.

    10.10 Change in  Accounting  Method.  The  Borrower  will not,  and will not
          permit any  Subsidiary  to, make any change in the method of computing
          depreciation  for either tax or book  purposes  or any other  material
          change in  accounting  method  representing  any  departure  from GAAP
          without the Majority Banks' prior written approval.

    10.11 Restricted  Payment.   The  Borrower  will  not  pay  or  declare  any
          Restricted  Payment unless immediately prior to such payment and after
          giving effect to such payment, the Borrower could incur at least $1 of
          additional  Debt without  violating the provisions of Section  10.3(g)
          and after giving effect  thereto no Default or Event of Default exists
          hereunder;  provided, however, that the Borrower's ability to purchase
          or  agree  to  purchase  its  common  stock  and/or  preferred  equity
          securities (including without limitation, Equity-Preferred Securities)
          shall be  limited as  follows:  (a) not more than  $50,000,000  in the
          aggregate  of common  stock and  preferred  equity  securities  may be
          repurchased per each fiscal year of the Borrower at any time the ratio
          of   Consolidated    Total    Indebtedness   to   Consolidated   Total
          Capitalization  for the Borrower and its  Subsidiaries is greater than
          0.60 to 1.00;  (b) not more  than  $100,000,000  in the  aggregate  of
          common stock and preferred  equity  securities may be repurchased  per
          each fiscal year of the Borrower at any time the ratio of Consolidated
          Total  Indebtedness  to  Consolidated  Total  Capitalization  for  the
          Borrower and its  Subsidiaries  is less than or equal to 0.60 to 1.00;
          and (c) no repurchases of common stock or preferred equity  securities
          may be made if the Borrower's  unsecured,  non-credit  enhanced senior
          debt as  specified  by  Standard & Poor's  Ratings  Group and  Moody's
          Investor Service, Inc. falls below either BBB- or Baa3, respectively.

    10.12 Securities   Credit   Regulations.   Neither  the   Borrower  nor  any
          Subsidiary  will take or permit any action which might cause the Loans
          or the  Facility  Letter of Credit  Obligations  or this  Agreement to
          violate  Regulation G, Regulation T, Regulation U, Regulation X or any
          other  regulation  of the Board of  Governors  of the Federal  Reserve
          System or a violation of the Securities  Exchange Act of 1934, in each
          case as now or hereafter in effect.

    10.13 Nature of Business;  Management.  The Borrower  will not, and will not
          permit any  Subsidiary  to: (a) change its principal line of business;
          or (b) enter into any  business  not within the scope of Section  7.15
          and the  definition of Qualifying  Assets;  or (c) permit any material
          overall change in the management of the Borrower.

    10.14 Transactions  with Related  Parties.  The Borrower  will not, and will
          not permit any Subsidiary to, enter into any  transaction or agreement
          with any officer,  director or holder of ten percent  (10%) or more of
          any class of the  outstanding  capital  stock of the  Borrower  or any
          Subsidiary  (or any  Affiliate of any such Person)  unless the same is
          upon terms  substantially  similar  to those  obtainable  from  wholly
          unrelated sources.

    10.15 Hazardous  Materials.  The Borrower  will not, and will not permit any
          Subsidiary  to (a)  cause or  permit  any  Hazardous  Materials  to be
          placed,  held,  used,  located,  or disposed of on, under or at any of
          such  Person's  property or any part thereof by any Person in a manner
          which could  reasonably be expected to have a Material Adverse Effect;
          (b) cause or permit any part of any of such  Person's  property  to be
          used as a  manufacturing,  storage,  treatment  or  disposal  site for
          Hazardous Materials, where such action could reasonably be expected to
          have a Material Adverse Effect; or (c) cause or suffer any liens to be
          recorded against any of such Person's property as a consequence of, or
          in any way  related  to, the  presence,  remediation,  or  disposal of
          Hazardous  Materials  in or  about  any  of  such  Person's  property,
          including  any  so-called  state,  federal or local  "superfund"  lien
          relating to such matters,  where such recordation  could reasonably be
          expected to have a Material Adverse Effect.

    10.16 Limitations on Payments on  Subordinated  Debt. The Borrower will not,
          and will not permit any  Subsidiary to, make any payment in respect of
          interest on,  principal of, or otherwise  relating to, the  borrower's
          subordinated  debt securities issued in connection with the Structured
          Securities if, after giving effect to such payment, a Default or Event
          of Default would exist.

    10.17 No Agreements  Prohibiting  Pledge of Southern Union Panhandle  Stock.
          The Borrower will not enter into any contract or other  agreement with
          any Person that  directly or  indirectly  prohibits  the Borrower from
          granting  any Lien  against  the stock or other  equity  interests  in
          Southern Union Panhandle  (whether common,  preferred or another class
          of equity  ownership)  at any time owned and held by the  Borrower  as
          security  for any  Debt of the  Borrower  or any of its  Subsidiaries,
          other than the applicable negative covenants of this Agreement and the
          Term Loan Facility.

11. EVENTS OF DEFAULT; REMEDIES

         If any of the following events shall occur, then the Agent shall at the
request,  or may with the  consent,  of the  holders of more than fifty  percent
(50%) in principal  amount of the Notes then  outstanding or, if no Note is then
outstanding,  Banks having more than fifty percent (50%) of the Commitments, (a)
by notice to the Borrower,  declare the  Commitment of each Bank and the several
obligation of each Bank to make Loans hereunder to be terminated,  whereupon the
same shall  forthwith  terminate,  and (b)  declare  the Notes and all  interest
accrued and unpaid thereon,  and all other amounts payable under the Notes, this
agreement  and the  other  Loan  Documents,  to be  forthwith  due and  payable,
whereupon the Notes, all such interest and all such other amounts,  shall become
and be  forthwith  due and payable  without  presentment,  demand,  protest,  or
further notice of any kind (including,  without  limitation,  notice of default,
notice of intent to  accelerate  and notice of  acceleration),  all of which are
hereby expressly waived by the Borrower; provided, however, that with respect to
any  Event  of  Default  described  in  Sections  11.7 or 11.8  hereof,  (i) the
Commitment  of each Bank and the  obligation  of the Banks to make  Loans  shall
automatically  be terminated and (ii) the entire unpaid  principal amount of the
Notes,  all  interest  accrued and unpaid  thereon,  and all such other  amounts
payable  under the Notes,  this  Agreement and the other Loan  Documents,  shall
automatically  become immediately due and payable,  without  presentment demand,
protest,  or any notice of any kind (including,  without  limitation,  notice of
default,  notice of intent to  accelerate  and notice of  acceleration),  all of
which are hereby expressly waived by the Borrower:

     11.1 Failure to Pay Principal or Interest. The Borrower does not pay, repay
          or prepay any principal of or interest on any Note when due.

     11.2 Failure to Pay Commitment Fee or Other Amounts.  The Borrower does not
          pay any commitment fee or any other obligation or amount payable under
          this  Agreement,  the  Notes,  or any  Letter of Credit  Reimbursement
          Agreement  within  five (5)  calendar  days  after the same shall have
          become due.

     11.3 Failure to Pay Other Debt. The Borrower or any Subsidiary fails to pay
          principal  or  interest  on  any  other  Debt  aggregating  more  than
          $3,000,000.00  when due and any related  grace period has expired,  or
          the holder of any of such other Debt  declares  such Debt due prior to
          its stated  maturity  because of the  Borrower's  or any  Subsidiary's
          default thereunder and the expiration of any related grace period.

     11.4 Misrepresentation  or  Breach  of  Warranty.   Any  representation  or
          warranty  made by the Borrower  herein or  otherwise  furnished to the
          Bank in  connection  with this  Agreement  or any other Loan  Document
          shall be incorrect,  false or misleading in any material  respect when
          made.

     11.5 Violation of Negative  Covenants.  The Borrower violates any covenant,
          agreement or condition  contained in Sections 10.2,  10.3, 10.5, 10.6,
          10.8, 10.9, 10.10, 10.11, or 10.15.

     11.6 Violation of Other  Covenants,  Etc.  The Borrower  violates any other
          covenant,  agreement or  condition  contained  herein  (other than the
          covenants,  agreements  and  conditions  set  forth  or  described  in
          Sections 11.1,  11.2, 11.3, 11.4, and 11.5 above) or in any other Loan
          Document and such violation  shall not have been remedied  within (30)
          days after the earlier of (i) actual discovery by the Borrower of such
          violation  or (ii)  written  notice has been  received by the Borrower
          from the Bank or the holder of the Note.

     11.7 Bankruptcy and Other Matters. The Borrower or any Subsidiary (a) makes
          an assignment  for the benefit of creditors;  or (b) admits in writing
          its  inability  to pay its debts  generally as they become due; or (c)
          generally  fails to pay its debts as they  become  due; or (d) files a
          petition or answer seeking for itself, or consenting to or acquiescing
          in,  any  reorganization,   arrangement,  composition,   readjustment,
          liquidation,  dissolution,  or  similar  relief  under any  applicable
          Debtor Law  (including,  without  limitation,  the Federal  Bankruptcy
          Code);  or (i) there is appointed a receiver,  custodian,  liquidator,
          fiscal agent,  or trustee of the Borrower or any  Subsidiary or of the
          whole or any substantial part of their respective  assets; or (ii) any
          court enters an order,  judgment or decree  approving a petition filed
          against  the  Borrower  or  any  Subsidiary  seeking   reorganization,
          arrangement, composition,  readjustment,  liquidation, dissolution, or
          similar  relief under any Debtor Law and either such order,  decree or
          judgment so filed  against it is not  dismissed or stayed  (unless and
          until such stay is no longer in  effect)  within  thirty  (30) days of
          entry  thereof or an order for relief is entered  pursuant to any such
          law.

     11.8 Dissolution.  Any  order is  entered  in any  proceeding  against  the
          Borrower or any  Subsidiary  decreeing the  dissolution,  liquidation,
          winding-up  or split-up of the Borrower or such  Subsidiary,  and such
          order remains in effect for thirty (30) days.

     11.9 Undischarged  Judgment.  Final Judgment or judgments in the aggregate,
          that might be or give rise to Liens on any property of the Borrower or
          any  Subsidiary,  for the payment of money in excess of  $5,000,000.00
          shall be rendered  against the Borrower or any Subsidiary and the same
          shall  remain  undischarged  for a period of thirty  (30) days  during
          which execution shall not be effectively stayed.

    11.10 Environmental  Matters.  The occurrence of any of the following events
          that could result in liability to the Borrower or any Subsidiary under
          any Environmental Law or the creation of a Lien on any property of the
          Borrower or any Subsidiary in favor of any  governmental  authority or
          any other Person for any liability under any  Environmental Law or for
          damages  arising  from costs  incurred by such Person in response to a
          Release  or  threatened  Release  of  Hazardous   Materials  into  the
          environment   if  any  such   asserted   liability   or  Lien  exceeds
          $10,000,000.00  and if any such lien would  cover any  property of the
          Borrower or any Subsidiary  which  property is or would  reasonably be
          considered  to be integral to the  operations  of the  Borrower or any
          Subsidiary in the ordinary course of business:

               (a) the Release of Hazardous  Materials at, upon, under or within
          the property  owned or leased by the Borrower or any Subsidiary or any
          contiguous property;

               (b) the receipt by the Borrower or any Subsidiary of any summons,
          claim, complaint,  judgment, order or similar notice that it is not in
          compliance with or that any  governmental  authority is  investigating
          its compliance with any Environmental Law;

               (c) the receipt by the Borrower or any  Subsidiary  of any notice
          or claim to the effect  that it is or may be liable for the Release or
          threatened Release of Hazardous Materials into the environment; or

               (d) any  governmental  authority  incurs  costs  or  expenses  in
          response to the Release of any Hazardous Material which affects in any
          way the properties of the Borrower or any Subsidiary.

    11.11 Other  Remedies.  In  addition  to and  cumulative  of any  rights  or
          remedies expressly provided for in this Section 11, if any one or more
          Events of Default shall have occurred, the Agent shall at the request,
          and may with the consent, of the Majority Banks proceed to protect and
          enforce  the  rights  of  the  Banks   hereunder  by  any  appropriate
          proceedings. The Agent shall at the request, and may with the consent,
          of the Majority Banks also proceed either by the specific  performance
          of any  covenant  or  agreement  contained  in  this  Agreement  or by
          enforcing  the payment of the Notes or by enforcing any other legal or
          equitable  right  provided  under  this  Agreement  or  the  Notes  or
          otherwise existing under any law in favor of the holder of the Notes.

    11.12 Remedies  Cumulative.  No remedy,  right or power  conferred  upon the
          Banks is intended to be exclusive of any other remedy,  right or power
          given  hereunder  or now or hereafter  existing at law, in equity,  or
          otherwise,  and  all  such  remedies,   rights  and  powers  shall  be
          cumulative.

    11.13 Default  under  Term  Loan  Facility.  The  occurrence  of an Event of
          Default (as defined  under the credit  agreement  evidencing  the Term
          Loan  Facility)  shall also  constitute an Event of Default under this
          Agreement.

12. THE AGENT

     12.1 Authorization  and Action.  Each Bank hereby appoints  JPMorgan as its
          Agent under and irrevocably  authorizes the Agent (subject to Sections
          12.1 and 12.7) to take such  action as the Agent on its  behalf and to
          exercise  such  powers  under  this  Agreement  and the  Notes  as are
          delegated to the Agent by the terms thereof, together with such powers
          as  are  reasonably  incidental  thereto.  Without  limitation  of the
          foregoing,  each  Bank  expressly  authorizes  the  Agent to  execute,
          deliver,  and perform its  obligations  under this  Agreement,  and to
          exercise  all rights,  powers,  and  remedies  that the Agent may have
          hereunder.  As to any  matters  not  expressly  provided  for by  this
          Agreement (including, without limitation, enforcement or collection of
          the Notes), the Agent shall not be required to exercise any discretion
          or take any action,  but shall be required to act, or to refrain  from
          acting (and shall be fully  protected in so acting or refraining  from
          acting),  upon  the  instructions  of the  Majority  Banks,  and  such
          instructions  shall be binding  upon all the Banks and all  holders of
          any Note; provided,  however,  that the Agent shall not be required to
          take any action which exposes the Agent to personal liability or which
          is contrary to this  Agreement or applicable  law. The Agent agrees to
          give to each  Bank  prompt  notice of each  notice  given to it by the
          Borrower pursuant to the terms of this Agreement.

     12.2 Agent's  Reliance,  Etc.  Neither the Agent nor any of its  directors,
          officers,  agents,  or  employees  shall be liable to any Bank for any
          action  taken  or  omitted  to be  taken  by it or  them  under  or in
          connection  with  this  Agreement,   the  Notes  and  the  other  Loan
          Documents,  except  for its or their own gross  negligence  or willful
          misconduct. Without limitation of the generality of the foregoing, the
          Agent:  (a) may treat the original or any successor holder of any Note
          as the holder  thereof until the Agent  receives  notice from the Bank
          which is the  payee of such Note  concerning  the  assignment  of such
          Note; (b) may employ and consult with legal counsel (including counsel
          for the Borrower),  independent public accountants,  and other experts
          selected  by it and shall  not be  liable  to any Bank for any  action
          taken,  or  omitted  to be  taken,  in  good  faith  by it or  them in
          accordance  with the advice of such counsel,  accountants,  or experts
          received  in  such  consultations  and  shall  not be  liable  for any
          negligence or misconduct  of any such counsel,  accountants,  or other
          experts; (c) makes no warranty or representation to any Bank and shall
          not be  responsible  to any  Bank  for any  opinions,  certifications,
          statements,  warranties,  or representations  made in or in connection
          with  this  Agreement;  (d)  shall  not  have  any duty to any Bank to
          ascertain or to inquire as to the  performance or observance of any of
          the terms,  covenants,  or conditions  of this  Agreement or any other
          instrument or document furnished pursuant thereto or to satisfy itself
          that all conditions to and  requirements for any Loan have been met or
          that the  Borrower is entitled to any Loan or to inspect the  property
          (including  the books and records) of the Borrower or any  Subsidiary;
          (e)  shall  not be  responsible  to any  Bank  for the due  execution,
          legality, validity, enforceability, genuineness, sufficiency, or value
          of this  Agreement  or any  other  instrument  or  document  furnished
          pursuant thereto; and (f) shall incur no liability under or in respect
          of this Agreement by acing upon any notice, consent,  certificate,  or
          other instrument or writing (which may be by telegram,  cable,  telex,
          or  otherwise)  believed by it to be genuine and signed or sent by the
          proper party or parties.

     12.3 Defaults.  The Agent  shall not be  deemed  to have  knowledge  of the
          occurrence of a Default  (other than the nonpayment of principal of or
          interest  hereunder  or of any fees)  unless  the  Agent has  received
          notice from a Bank or the Borrower specifying such Default and stating
          that such notice is a Notice of  Default.  In the event that the Agent
          receives such a notice of the occurrence of a Default, the Agent shall
          give  prompt  notice  thereof  to the Banks  (and shall give each Bank
          prompt notice of each such  nonpayment).  The Agent shall  (subject to
          Section 12.7) take such action with respect to such Default;  provided
          that,  unless and until the Agent shall have  received the  directions
          referred to in Sections 12.1 or 12.7,  the Agent may (but shall not be
          obligated  to) take such  action,  or refrain from taking such action,
          with  respect to such  Default as it shall deem  advisable  and in the
          best interest of the Banks.

     12.4 JPMorgan and Affiliates. With respect to its Commitment, any Loan made
          by it, and the Note issued to it,  JPMorgan shall have the same rights
          and powers under this Agreement as any other Bank and may exercise the
          same as though it were not the Agent;  and the term  "Bank" or "Banks"
          shall, unless otherwise expressly  indicated,  include JPMorgan in its
          individual capacity. JPMorgan and its respective Affiliates may accept
          deposits from, lend money to, act as trustee under  indentures of, and
          generally  engage in any kind of business with,  the Borrower,  any of
          its  respective  Affiliates and any Person who may do business with or
          own  securities  of the  Borrower  or any  such  Affiliate,  all as if
          JPMorgan  were not the Agent and without any duty to account  therefor
          to the Banks.

     12.5 Non-Reliance  on Agent and Other Banks.  Each Bank agrees that it has,
          independently and without reliance on the Agent or any other Bank, and
          based on such documents and information as it has deemed  appropriate,
          made its own credit  analysis of the Borrower and each  Subsidiary and
          its  decision  to enter  into the  transactions  contemplated  by this
          Agreement and that it will,  independently  and without  reliance upon
          the  Agent  or any  other  Bank,  and  based  on  such  documents  and
          information as it shall deem appropriate at the time, continue to make
          its own  analysis and  decisions in taking or not taking  action under
          this  Agreement.  The  Agent  shall  not be  required  to keep  itself
          informed as to the  performance  or observance by the Borrower of this
          Agreement or to inspect the properties or books of the Borrower or any
          Subsidiary.  Except for  notices,  reports,  and other  documents  and
          information  expressly  required to be  furnished  to the Banks by the
          Agent hereunder,  the Agent shall not have any duty or  responsibility
          to provide  any Bank with any credit or other  information  concerning
          the affairs,  financial condition,  or business of the Borrower or any
          Subsidiary  (or any of  their  Affiliates)  which  may  come  into the
          possession of the Agent or any of its Affiliates.

     12.6 Indemnification.  Notwithstanding  anything  to  the  contrary  herein
          contained,  the Agent shall be fully  justified in failing or refusing
          to take any action  hereunder  unless it shall first be indemnified to
          its  satisfaction  by the  Banks  against  any  and  all  liabilities,
          obligations,  losses, damages,  penalties,  actions, judgments, suits,
          costs,  expenses,  and  disbursements of any kind or nature whatsoever
          which may be imposed on, incurred by or asserted  against the Agent in
          any way relating to or arising out of its taking or continuing to take
          any action. Each Bank agrees to indemnify the Agent (to the extent not
          reimbursed by the Borrower), according to such Bank's Commitment, from
          and against any and all  liabilities,  obligations,  losses,  damages,
          penalties,   actions,   judgments,   suits,   costs,   expenses,   and
          disbursements  of any kind or nature  whatsoever  which may be imposed
          on, incurred by, or asserted  against the Agent in any way relating to
          or arising out of this  Agreement  or the Notes or any action taken or
          omitted by the Agent under this Agreement or the Notes;  provided that
          no  Bank  shall  be  liable  for  any  portion  of  such  liabilities,
          obligations,  losses, damages,  penalties,  actions, judgments, suits,
          costs, expenses, or disbursements  resulting from the gross negligence
          or willful  misconduct of the person being  indemnified;  and provided
          further that it is the  intention of each Bank to indemnify  the Agent
          against the  consequences of the Agent's own negligence,  whether such
          negligence  be sole,  joint,  concurrent,  active or passive.  Without
          limitation of the  foregoing,  each Bank agrees to reimburse the Agent
          promptly upon demand for its Pro Rata Percentage of any  out-of-pocket
          expenses  (including   attorneys'  fees)  incurred  by  the  Agent  in
          connection with the preparation, administration, or enforcement of, or
          legal  advice in respect  of rights or  responsibilities  under,  this
          Agreement  and  the  Notes,  to  the  extent  that  the  Agent  is not
          reimbursed for such expenses by the Borrower.

     12.7 Successor  Agent. The Agent may resign at any time as Agent under this
          Agreement  by  giving  written  notice  thereof  to the  Banks and the
          Borrower  and may be removed at any time with or without  cause by the
          Majority  Banks.  Upon any such  resignation or removal,  the Majority
          Banks  shall  have the  right to  appoint  a  successor  Agent.  If no
          successor  Agent shall have been so appointed by the Majority Banks or
          shall have accepted such appointment within thirty (30) days after the
          retiring  Agent's  giving  of notice of  resignation  or the  Majority
          Banks' removal of the retiring Agent,  then the retiring Agent may, on
          behalf of the  Banks,  appoint a  successor  Agent,  which  shall be a
          commercial  bank  organized  under  the laws of the  United  States of
          America or of any State  thereof  and having a  combined  capital  and
          surplus  of at  least  $500,000,000.00.  Upon  the  acceptance  of any
          appointment as Agent  hereunder by a successor  Agent,  such successor
          Agent  shall  thereupon  succeed  to and  become  vested  with all the
          rights,  powers,  privileges and duties of the retiring Agent, and the
          retiring  Agent shall be  discharged  from its duties and  obligations
          under  this  Agreement.  After any  retiring  Agent's  resignation  or
          removal  hereunder as Agent,  the  provisions of this Section 12 shall
          inure to its benefit as to any actions taken or omitted to be taken by
          it while it was Agent under this Agreement.

     12.8 Agent's  Reliance.  The Borrower  shall notify the Agent in writing of
          the names of its officers and  employees  authorized to request a Loan
          on behalf of the Borrower and shall  provide the Agent with a specimen
          signature  of each  such  officer  or  employee.  The  Agent  shall be
          entitled  to  rely   conclusively  on  such  officer's  or  employee's
          authority to request a Loan on behalf of the Borrower  until the Agent
          receives  written notice from the Borrower to the contrary.  The Agent
          shall  have  no duty  to  verify  the  authenticity  of the  signature
          appearing on any Notice of  Borrowing,  and,  with respect to any oral
          request  for a Loan,  the  Agent  shall  have no  duty to  verify  the
          identity of any Person representing  himself as one of the officers or
          employees  authorized  to make such request on behalf of the Borrower.
          Neither  the  Agent nor any Bank  shall  incur  any  liability  to the
          Borrower in acting upon any telephonic  notice referred to above which
          the Agent or such Bank  believes in good faith to have been given by a
          duly authorized officer or other Person authorized to borrow on behalf
          of the Borrower or for otherwise acting in good faith.

13.      MISCELLANEOUS

     13.1 Representation  by the  Banks.  Each  Bank  represents  that it is the
          intention of such Bank, as of the date of its acquisition of its Note,
          to  acquire  the  Note  for  its  account  or for the  account  of its
          Affiliates,  and not with a view to the  distribution or sale thereof,
          and,  subject to any applicable  laws, the  disposition of such Bank's
          property shall at all times be within its control.  The Notes have not
          been  registered  under the  Securities  Act of 1933,  as amended (the
          "Securities  Act"),  and may  not be  transferred,  sold or  otherwise
          disposed of except (a) in a registered  Offering  under the Securities
          Act; (b) pursuant to an exemption from the registration  provisions of
          the  Securities  Act; or (c) if the  Securities Act shall not apply to
          the Notes or the  transactions  contemplated  hereunder as  commercial
          lending transactions.

     13.2 Amendments,  Waivers,  Etc. No amendment or waiver of any provision of
          any Loan  Document,  nor  consent  to any  departure  by the  Borrower
          therefrom, shall in any event be effective unless the same shall be in
          writing and signed by the Borrower and the  Majority  Banks,  and then
          such  waiver  or  consent  shall  be  effective  only in the  specific
          instance  and for the  specific  purpose  for which  given;  provided,
          however,  that no  amendment,  waiver,  or  consent  shall,  unless in
          writing and signed by each Bank,  do any of the  following:  (a) waive
          any of the  conditions  specified  in  Section  8;  (b)  increase  the
          Commitment of any Bank or alter the term thereof,  or subject any Bank
          to any  additional or extended  obligations;  (c) change the principal
          of, or rate of  interest  on, any Note,  or any fees or other  amounts
          payable  hereunder;  (d)  postpone  any date fixed for any  payment of
          principal  of,  or  interest  on,  any Note,  or any fees  (including,
          without limitation,  any fee) or other amounts payable hereunder;  (e)
          change the percentage of the  Commitments  or of the aggregate  unpaid
          principal  amount of any Note,  or the number of Banks  which shall be
          required for Banks, or any of them, to take any action  hereunder;  or
          (f) amend this Section 13.2; and provided, further, that no amendment,
          waiver, or consent shall, unless in writing and signed by the Agent in
          addition to each Bank,  affect the rights or duties of the Agent under
          any Loan Document.  No failure or delay on the part of any Bank or the
          Agent in exercising  any power or right  hereunder  shall operate as a
          waiver  thereof  nor shall any single or partial  exercise of any such
          right or  power,  or any  abandonment  or  discontinuance  of steps to
          enforce such a right or power,  preclude any other or further exercise
          thereof  or the  exercise  of any other  right or power.  No course of
          dealing  between the Borrower and any Bank or the Agent shall  operate
          as a waiver of any right of any Bank or the Agent.  No modification or
          waiver of any  provision of this  Agreement or the Note nor consent to
          any  departure  by  the  Borrower  therefrom  shall  in any  event  be
          effective unless the same shall be in writing, and then such waiver or
          consent shall be effective  only in the specific  instance and for the
          purpose for which given. No notice to or demand on the Borrower in any
          case shall  entitle  the  Borrower  to any other or further  notice or
          demand in similar or other circumstances.

     13.3 Reimbursement of Expenses.  The Borrower agrees to reimburse each Bank
          for its reasonable  out-of-pocket  expenses,  including the reasonable
          fees and  expenses  of counsel to each Bank,  in  connection  with the
          transactions  contemplated  by this  Agreement,  whether  or not  such
          contemplated  transactions  shall be  consummated,  or any of them, or
          otherwise  in   connection   with  this   Agreement,   including   its
          negotiation, preparation, execution, administration,  modification and
          enforcement,  and all reasonable  fees,  including the reasonable fees
          and expenses of counsel to the Agent and each Bank, costs and expenses
          of the Agent for  environmental  consultants and costs and expenses of
          the   Agent  and  each  Bank  in   connection   with  due   diligence,
          transportation,  computer  time  and  research  and  duplication.  The
          Borrower  agrees to pay any and all stamp and other taxes which may be
          payable or determined  to be payable in connection  with the execution
          and delivery of this Agreement or the Notes, and to save any holder of
          any Note  harmless  from any and all  liabilities  with  respect to or
          resulting  from any  delay or  omission  to pay any  such  taxes.  The
          obligations  of the Borrower under this Section 13.3 shall survive the
          termination of this Agreement and/or the payment of the Notes.

     13.4 Notices.  All notices  and other  communications  provided  for herein
          shall  be  in   writing   (including   telex,   facsimile,   or  cable
          communication)  and shall be mailed,  telecopied,  telexed,  cabled or
          delivered addressed as follows:

         (a) If to the Borrower, to it at: Southern Union Company
                                           One PEI Center
                                           Wilkes-Barre, Pennsylvania
                                           18711-0601
                                           Attention: Mr.Richard N.Marshall
                                           Fax:(570) 820-2401

             with copies to:               Southern Union Company
                                           One PEI Center
                                           Wilkes-Barre, Pennsylvania 18711-0601
                                           Attention:  Dennis K. Morgan, Esq.
                                           Fax:  (570) 820-2402

         (b) If to the Agent,to it at:     JPMorgan Chase Bank
                                           700 Lavaca, 2nd Floor
                                           Austin, Texas
                                           78701 Attention:
                                           Manager/Commercial
                                           Lending Fax: (512)
                                           479-2853

             with a copy to:               JPMorgan Chase Bank
                                           Loan and Agency Services
                                           1111 Fannin, Floor 10
                                           Houston, Texas  77002
                                           Attention: Michelle Straley
                                           Fax:  (713) 427-6307

and if to any Bank,  at the address  specified  below its name on the  signature
pages hereof, or as to the Borrower or the Agent, to such other address as shall
be  designated  by such party in a written  notice to the other party and, as to
each other party,  at such other address as shall be designated by such party in
a  written  notice  to  the  Borrower  and  the  Agent.  All  such  notices  and
communications shall, when mailed, telecopied,  telexed, transmitted, or cabled,
become  effective  when  deposited in the mail,  confirmed by telex answer back,
transmitted to the  telecopier,  or delivered to the cable company,  except that
notices and  communications  to the Agent under Sections 2.1(c) or 2.2 shall not
be effective until actually received by the Agent.

     13.5 Governing Law;  Venue.  THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
          BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
          THE UNITED STATES OF AMERICA;  provided,  however, that Chapter 346 of
          the Texas Finance Code, as amended,  shall not apply to this Agreement
          and the Notes issued hereunder. Travis County, Texas shall be a proper
          place of venue to enforce payment or performance of this Agreement and
          the other Loan Documents by the Borrower,  unless the Agent shall give
          its prior written  consent to a different  venue.  The Borrower hereby
          irrevocably  waives,  to the  fullest  extent  permitted  by law,  any
          objection which it may now or hereafter have to the laying of venue of
          any suit,  action or  proceeding  arising out of or relating to any of
          the Loan Documents in the District Courts of Travis County,  Texas, or
          in the United States District Court for the Western District of Texas,
          Austin Division, and hereby further irrevocably waives any claims that
          any such suit, action or proceeding brought in any such court has been
          brought in an  inconvenient  forum.  The Borrower  hereby  irrevocably
          agrees  that,   provided   that  the  Borrower  can  obtain   personal
          jurisdiction  over  and  service  of  process  upon  the  Agent or the
          applicable  Bank, any legal  proceeding  against the Agent or any Bank
          arising out of or in connection  with this Agreement or the other Loan
          Documents  shall be brought in the district  courts of Travis  County,
          Texas, or in the United States District Court for the Western District
          of Texas, Austin Division. Nothing contained in this Section or in any
          other  provision  of any  Loan  Document  (unless  expressly  provided
          otherwise) shall be deemed or construed as an agreement by any Bank to
          be subject to the jurisdiction of such courts.

     13.6 Survival   of   Representations,   Warranties   and   Covenants.   All
          representations,  warranties and covenants contained herein or made in
          writing by the  Borrower  in  connection  herewith  shall  survive the
          execution and delivery of this Agreement and the Notes,  and will bind
          and inure to the benefit of the  respective  successors and assigns of
          the parties  hereto,  whether so expressed or not,  provided  that the
          undertaking  of the Banks to make the Loans to the Borrower  shall not
          inure to the benefit of any  successor or assign of the  Borrower.  No
          investigation  at any time made by or on  behalf  of the  Banks  shall
          diminish the Banks' rights to rely on any representations  made herein
          or in connection herewith. All statements contained in any certificate
          or other written instrument delivered by the Borrower or by any Person
          authorized by the Borrower  under or pursuant to this  Agreement or in
          connection with the transactions  contemplated hereby shall constitute
          representations  and  warranties  hereunder as of the time made by the
          Borrower.

     13.7 Counterparts.  This Agreement may be executed in several counterparts,
          and  by  the  parties  hereto  on  separate  counterparts,   and  each
          counterpart,  when so executed  and  delivered,  shall  constitute  an
          original   instrument  and  all  such  separate   counterparts   shall
          constitute but one and the same instrument.

     13.8 Separability.  Should any clause,  sentence,  paragraph  or section of
          this Agreement be judicially declared to be invalid,  unenforceable or
          void,  such  decision  shall not have the  effect of  invalidating  or
          voiding the remainder of this Agreement,  and the parties hereto agree
          that  the  part or  parts  of this  Agreement  so held to be  invalid,
          unenforceable  or void will be deemed to have been  stricken  herefrom
          and the  remainder  will have the same force and  effectiveness  as if
          such part or parts had  never  been  included  herein.  Each  covenant
          contained  in this  Agreement  shall be  construed  (absent an express
          contrary provision herein) as being independent of each other covenant
          contained  herein,  and  compliance  with any one  covenant  shall not
          (absent  such an  express  contrary  provision)  be  deemed  to excuse
          compliance with one or more other covenants.

     13.9 Descriptive Headings. The section headings in this Agreement have been
          inserted  for  convenience  only and  shall  be  given no  substantive
          meaning  or  significance  whatsoever  in  construing  the  terms  and
          provisions of this Agreement.

    13.10 Accounting  Terms.  All  accounting  terms used  herein  which are not
          expressly  defined in the  Agreement,  or the  respective  meanings of
          which are not otherwise qualified,  shall have the respective meanings
          given to them in accordance with GAAP.

    13.11 Limitation of  Liability.  No claim may be made by the Borrower or any
          other  Person  against  the  Agent  or any  Bank  or  the  Affiliates,
          directors,  officers, employees,  attorneys, or agents of the Agent or
          any Bank for any special, indirect, consequential, or punitive damages
          in  respect  to any claim for  breach of  contract  arising  out of or
          related to the  transactions  contemplated by this  Agreement,  or any
          act,  omission,  or event  occurring  in  connection  herewith and the
          Borrower hereby waives, releases, and agrees not to sue upon any claim
          for any such damages,  whether or not accrued and whether or not known
          or suspected to exist in its favor.

    13.12 Set-Off.  The Borrower  hereby gives and confirms to each Bank a right
          of  set-off  of all  moneys,  securities  and  other  property  of the
          Borrower  (whether  special,  general  or  limited)  and the  proceeds
          thereof,  now or  hereafter  delivered to remain with or in transit in
          any manner to such Bank, its Affiliates, correspondents or agents from
          or  for  the  Borrower,  whether  for  safekeeping,  custody,  pledge,
          transmission,  collection  or otherwise or coming into  possession  of
          such Bank, its  Affiliates,  correspondents  or agents in any way, and
          also, any balance of any deposit  accounts and credits of the Borrower
          with,  and any and all claims of security for the payment of the Notes
          and of all other  liabilities and obligations now or hereafter owed by
          the Borrower to such Bank,  contracted  with or acquired by such Bank,
          whether such liabilities and obligations be joint, several,  absolute,
          contingent, secured, unsecured, matured or unmatured, and the Borrower
          hereby authorizes each Bank, its Affiliates,  correspondents or agents
          at any time or times,  without  prior  notice,  to apply  such  money,
          securities,  other property, proceeds, balances, credits of claims, or
          any part of the foregoing,  to such  liabilities in such amounts as it
          may select,  whether  such  liabilities  be  contingent,  unmatured or
          otherwise,  and whether  any  collateral  security  therefor is deemed
          adequate or not. The rights  described  herein shall be in addition to
          any collateral  security,  if any, described in any separate agreement
          executed by the Borrower.

     13.13 Sale or Assignment

               (a)  Subject  to the prior  written  consent of the Agent and the
          Borrower,  such  consent not to be  unreasonably  withheld or delayed,
          each Bank may assign to an Eligible  Assignee  all or a portion of its
          rights  and  obligations  under  this  Agreement  (including,  without
          limitation,  all or a portion of its  Commitments and the Note held by
          it); provided,  however,  that: (i) each such assignment shall be of a
          constant, and not a varying,  percentage of all of the assigning Banks
          rights and obligations  under this  Agreement;  (ii) the amount of the
          Commitments so assigned shall equal or exceed $5,000,000.00; (iii) the
          Commitment of each Bank shall be not less than $5,000,000.00  (subject
          only to reductions  pursuant to Sections 4.6 and 11 hereof);  (iv) the
          parties  to each such  assignment  shall  execute  and  deliver to the
          Agent,   for  its   acceptance  and  recording  in  the  Register  (as
          hereinafter  defined),  an  Assignment  and  Acceptance in the form of
          Exhibit C attached hereto and made a part hereof (the  "Assignment and
          Acceptance"),  together with any Note subject to such assignment and a
          processing and recordation  fee of $5,000.00;  (v) any such assignment
          from one Bank to another  Bank shall not  require  the  consent of the
          Agent or the Borrower if such  assignment  does not result in any Bank
          holding more than 60% of the aggregate  outstanding  Commitments;  and
          (vi) any such assignment shall not require the consent of the Borrower
          if a Default  or Event of  Default  shall  have  occurred  and is then
          continuing. Upon such execution,  delivery, acceptance, and recording,
          from and after the effective  date  specified in each  Assignment  and
          Acceptance,  which  effective  date  shall be the  date on which  such
          Assignment and  Acceptance is accepted by the Agent,  (A) the Eligible
          Assignee  thereunder  shall be a party  hereto and, to the extent that
          rights and obligations  hereunder have been assigned to it pursuant to
          such Assignment and  Acceptance,  have the rights and obligations of a
          Bank under the Loan  Documents,  and (B) the Bank assignor  thereunder
          shall, to the extent that rights and  obligations  hereunder have been
          assigned by it pursuant to such Assignment and Acceptance,  relinquish
          its  rights  and be  released  from  its  obligations  under  the Loan
          Documents  (and, in the case of an Assignment and Acceptance  covering
          all or  the  remaining  portion  of an  assigning  Bank's  rights  and
          obligations  under the Loan  Documents,  such Bank shall cease to be a
          party thereto).

               (b) By executing and delivering an Assignment and Acceptance, the
          Bank assignor  thereunder and the Eligible Assignee thereunder confirm
          to and agree with each other and the other parties  hereto as follows:
          (i) other than as provided in such  Assignment  and  Acceptance,  such
          assigning  Bank makes no  representation  or  warranty  and assumes no
          responsibility  with  respect  to  any  statements,   warranties,   or
          representations made in or in connection with any Loan Document or the
          execution,    legality,   validity,    enforceability,    genuineness,
          sufficiency,  or value of any Loan Document or any other instrument or
          document furnished pursuant thereto; (ii) such assigning Bank makes no
          representation or warranty and assumes no responsibility  with respect
          to the  financial  condition of the Borrower or any  Subsidiary or the
          performance  or observance  by the Borrower of any of its  obligations
          under any Loan Document or any other instrument or document  furnished
          pursuant  thereto;  (iii) such Eligible  Assignee confirms that it has
          received a copy of the Loan  Documents,  together  with  copies of the
          financial  statements  referred  to in  Section  7.2  and  such  other
          documents and information as it has deemed appropriate to make its own
          credit  analysis  and  decision  to enter  into  such  Assignment  and
          Acceptance;  (iv) such Eligible  Assignee,  independently  and without
          reliance upon the Agent, such assigning Bank, or any Bank and based on
          such  documents and  information  as it shall deem  appropriate at the
          time, will continue to make its own credit  decisions in taking or not
          taking  action  under  this  Agreement;  (v)  such  Eligible  Assignee
          appoints and  authorizes the Agent to take such action as agent on its
          behalf and to  exercise  such  powers  under any Loan  Document as are
          delegated to the Agent by the terms thereof, together with such powers
          as are reasonably  incidental thereto; and (vi) such Eligible Assignee
          agrees that it will perform in accordance  with their terms all of the
          obligations which by the terms of any Loan Document are required to be
          performed by it as a Bank.

               (c) The  Agent  shall  maintain  at its  address  referred  to in
          Section 13.4 a copy of each Assignment and Acceptance delivered to and
          accepted  by it and a register  for the  recordation  of the names and
          addresses of Banks and the Commitment of, and principal  amount of the
          Loans  owing to,  each Bank  from time to time (the  "Register").  The
          entries  in the  Register  shall be  conclusive  and  binding  for all
          purposes,  absent manifest  error,  and the Borrower,  the Agent,  and
          Banks may treat each Person  whose name is recorded in the Register as
          Bank  hereunder for all purposes of the Loan  Documents.  The Register
          shall be available  for  inspection by the Borrower or any Bank at any
          reasonable time and from time to time upon reasonable prior notice.

               (d) Upon its receipt of an Assignment and Acceptance  executed by
          an assigning Bank,  together with any Note subject to such assignment,
          the Agent, if such Assignment and Acceptance has been completed and is
          in  substantially  the  form of  Exhibit  C,  shall  (i)  accept  such
          Assignment  and  Acceptance;  (ii)  record the  information  contained
          therein in the Register;  and (iii) give prompt notice  thereof to the
          Borrower.  Within  three (3)  Business  Days after its receipt of such
          notice, the Borrower at its own expense,  shall execute and deliver to
          the  Agent in  exchange  for each  surrendered  Note a new Note to the
          order of such Eligible  Assignee in an amount equal to the  Commitment
          assumed by it pursuant to such  Assignment and Acceptance  and, if the
          assigning Bank has retained a Commitment hereunder,  a new Note to the
          order of the  assigning  Bank in an  amount  equal  to the  Commitment
          retained  by it  hereunder.  The new  Notes  shall be in an  aggregate
          principal  amount  equal  to the  aggregate  principal  amount  of the
          surrendered   Notes,  shall  be  dated  the  effective  date  of  such
          Assignment and Acceptance and shall otherwise be in substantially  the
          form of Exhibit C attached hereto and made a part hereof. Upon receipt
          by the Agent of each such new Note conforming to the  requirements set
          forth in the  preceding  sentences,  the  Agent  shall  return  to the
          Borrower  each  such  surrendered  Note  marked to show that each such
          surrendered Note has been replaced,  renewed, and extended by such new
          Note.

               (e) Each  Bank may sell  participations  to one or more  banks or
          other  entities  in or to  all  or a  portion  of  its  rights  and/or
          obligations under this Agreement (including,  without limitation,  all
          or a portion  of its  Commitment  and the Note held by it);  provided,
          however,  that  (i)  each  Bank's  obligations  under  this  Agreement
          (including,   without  limitation,  its  Commitment  to  the  Borrower
          hereunder) shall remain unchanged;  (ii) such Bank shall remain solely
          responsible  to the other parties  hereto for the  performance of such
          obligations;  (iii) except as provided  below,  such Bank shall remain
          the holder of any such Note for all  purposes of this  Agreement;  and
          (iv) the  participating  banks or other  entities shall be entitled to
          the  benefits of  Sections  2.3 and 4.6 to recover  costs,  losses and
          expenses in the  circumstances,  and to the extent provided in Section
          2.3, as though such participant were a Bank;  provided,  however,  the
          amounts to which a participant shall be entitled to obtain pursuant to
          Sections  2.3  and  4.6  shall  be  determined  by  reference  to such
          participant's  selling Bank and shall be recoverable  solely from such
          selling Bank and (v) the Borrower, the Agent and the other Banks shall
          continue  to  deal  solely  and  directly  with  the  selling  Bank in
          connection  with  such  Bank's  rights  and  obligations   under  this
          Agreement and the other Loan Documents; provided, however, the selling
          Bank  may  grant  a  participantrights  with  respect  to  amendments,
          modification or waivers with respect to any fees payable  hereunder to
          such Bank (including the amount and the dates fixed for the payment of
          any such  fees) or the  amount of  principal  or the rate of  interest
          payable on, the dates fixed for any payment of  principal  or interest
          on,  the Loans,  or the  release of any  obligations  of the  Borrower
          hereunder  and under the other Loan  Documents,  or the release of any
          security  for any of the  Obligations.  Except  with  respect  to cost
          protections contained in Sections 2.3 and 4.6, no participant shall be
          a third party  beneficiary of this Agreement and shall not be entitled
          to enforce any rights provided to its selling Bank against the Company
          under this Agreement.

               (f)  Notwithstanding  anything herein to the contrary,  each Bank
          may pledge and assign all or any  portion of its rights and  interests
          under the Loan Documents to any Federal Reserve Bank.

               (g)  Notwithstanding  anything herein to the contrary,  each Bank
          may assign all or a portion of its interests,  rights and  obligations
          under this Agreement (including,  without limitation, all or a portion
          of its  Commitments  and the  Note  held  by it) to one or  more  Bank
          Affiliates  without the prior  written  consent of the  Borrower.  For
          purposes of this Section 12.13,  "Bank  Affiliate" shall mean (a) with
          respect to any Bank,  (i) an Affiliate of such Bank or (ii) any entity
          (whether  a  corporation,  partnership,  trust or  otherwise)  that is
          engaged in making, purchasing,  holding or otherwise investing in bank
          loans and similar  extensions of credit in the ordinary  course of its
          business and is  administered  or managed by a Bank or an Affiliate of
          such  Bank  and (b) with  respect  to any  Bank  that is a fund  which
          invests in bank loans and similar extensions of credit, any other fund
          that  invests in bank loans and  similar  extensions  of credit and is
          managed by the same investment advisor as such Bank or by an Affiliate
          of such  investment  advisor.  Each Bank Affiliate shall be deemed for
          purposes hereof to be an "Eligible Assignee."

    13.14 Non  U.S.  Banks.   Prior  to  the  date  of  the  initial  Borrowings
          hereunder,  and  from  time to time  thereafter  if  requested  by the
          Borrower  or the  Agent,  each  Bank  organized  under  the  laws of a
          jurisdiction  outside the United  States of America  shall provide the
          Agent and the  Borrower  with the  forms  prescribed  by the  Internal
          Revenue Service of the United States of America  certifying such Banks
          exemption  from United  States  withholding  taxes with respect to all
          payments to be made to such Bank  hereunder or under such Bank's Note.
          Unless  the  Borrower  and the  Agent  have  received  forms  or other
          documents  satisfactory to them indicating that payments  hereunder or
          under such Bank's Note are not  subject to United  States  withholding
          tax or are subject to such tax at a rate reduced by an applicable  tax
          treaty,  the  Borrower  or the Agent  shall  withhold  taxes from such
          payments at the  applicable  statutory rate in the case of payments to
          or for any Bank organized under the laws of a jurisdiction outside the
          United States.

    13.15 Interest.  All agreements between the Borrower, the Agent or any Bank,
          whether now existing or hereafter arising and whether written or oral,
          are  hereby  expressly  limited  so that in no  contingency  or  event
          whatsoever,  whether  by reason of  demand  being  made on any Note or
          otherwise,  shall the amount paid,  or agreed to be paid, to the Agent
          or any Bank for the use, forbearance,  or detention of the money to be
          loaned  under  this  Agreement  or  otherwise  or for the  payment  or
          performance of any covenant or obligation  contained  herein or in any
          document  related hereto exceed the amount  permissible at the Highest
          Lawful  Rate.  If,  as  a  result  of  any  circumstances  whatsoever,
          fulfillment of any provision  hereof or of any of such  documents,  at
          the time  performance  of such  provision  shall be due, shall involve
          transcending the limit of validity prescribed by applicable usury law,
          then, ipso facto,  the obligation to be filled shall be reduced to the
          limit of such validity, and if, from any such circumstance,  the Agent
          or any Bank shall ever  receive  interest or  anything  which might be
          deemed  interest  under  applicable  law which would exceed the amount
          permissible  at the Highest  Lawful  Rate,  such amount which would be
          excessive  interest shall be applied to the reduction of the principal
          amount  owing on  account of the Notes or the  amounts  owing on other
          obligations  of the  Borrower  to the  Agent  or any Bank  under  this
          Agreement  or any  document  related  hereto and not to the payment of
          interest,  or if such excessive  interest exceeds the unpaid principal
          balance of the Notes and the amounts owing on other obligations of the
          Borrower to the Agent or any Bank under this Agreement or any document
          related  hereto,  as the case may be, such excess shall be refunded to
          the  Borrower.  All sums paid or agreed to be paid to the Agent or any
          Bank for the use, forbearance, or detention of the indebtedness of the
          Borrower to the Agent or any Bank shall,  to the extent  permitted  by
          applicable  law,  be  amortized,   prorated,   allocated,  and  spread
          throughout the full term of such indebtedness until payment in full of
          the  principal  thereof  (Including  the  period  of  any  renewal  or
          extension   thereof)   so  that  the   interest  on  account  of  such
          indebtedness  shall not exceed the Highest  Lawful Rate. The terms and
          provisions of this Section  13.15 shall  control and  supersede  every
          other provision of all agreements between the Borrower and the Banks.

    13.16 Indemnification.  THE BORROWER AGREES TO INDEMNIFY,  DEFEND,  AND SAVE
          HARMLESS  THE  AGENT,   EACH  BANK  AND  THEIR  RESPECTIVE   OFFICERS,
          DIRECTORS,  EMPLOYEES,  AGENTS,  AND ATTORNEYS,  AND EACH OF THEM (THE
          "INDEMNIFIED  PARTIES"),  FROM AND AGAINST ALL CLAIMS, ACTIONS, SUITS,
          AND OTHER LEGAL PROCEEDINGS, DAMAGES, COSTS, INTEREST, CHARGES, TAXES,
          COUNSEL  FEES,  AND OTHER  EXPENSES AND PENALTIES  (INCLUDING  WITHOUT
          LIMITATION  ALL  ATTORNEY  FEES AND COSTS OR EXPENSES  OF  SETTLEMENT)
          WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR BY REASON OF
          OR ARISING OUT OF (a) THE MAKING OF ANY LOAN HEREUNDER,  THE EXECUTION
          AND DELIVERY OF THIS AGREEMENT AND THE NOTES AND THE  CONSUMMATION  OF
          THE TRANSACTIONS  CONTEMPLATED  THEREBY AND THE EXERCISE OF ANY OF THE
          BANKS'  RIGHTS  UNDER  THIS  AGREEMENT  AND THE  NOTES  OR  OTHERWISE,
          INCLUDING,  WITHOUT LIMITATION,  DAMAGES, COSTS, AND EXPENSES INCURRED
          BY ANY OF THE  INDEMNIFIED  PARTIES IN  INVESTIGATING,  PREPARING FOR,
          DEFENDING AGAINST,  OR PROVIDING  EVIDENCE,  PRODUCING  DOCUMENTS,  OR
          TAKING  ANY OTHER  ACTION IN RESPECT OF ANY  COMMENCED  OR  THREATENED
          LITIGATION UNDER ANY FEDERAL  SECURITIES LAW OR ANY SIMILAR LAW OF ANY
          JURISDICTION OR AT COMMON LAW OR (b) ANY AND ALL CLAIMS OR PROCEEDINGS
          (WHETHER  BROUGHT  BY  A  PRIVATE  PARTY,  GOVERNMENTAL  AUTHORITY  OR
          OTHERWISE) FOR BODILY INJURY, PROPERTY DAMAGE, ABATEMENT, REMEDIATION,
          ENVIRONMENTAL  DAMAGE,  OR  IMPAIRMENT  OR ANY OTHER  INJURY OR DAMAGE
          RESULTING  FROM OR RELATING TO THE RELEASE OF ANY HAZARDOUS  MATERIALS
          LOCATED UPON,  MIGRATING INTO, FROM, OR THROUGH OR OTHERWISE  RELATING
          TO ANY  PROPERTY  OWNED OR LEASED BY THE  BORROWER  OR ANY  SUBSIDIARY
          (WHETHER OR NOT THE RELEASE OF SUCH HAZARDOUS  MATERIALS WAS CAUSED BY
          THE BORROWER,  ANY SUBSIDIARY,  A TENANT, OR SUBTENANT OF THE BORROWER
          OR ANY SUBSIDIARY,  A PRIOR OWNER, A TENANT, OR SUBTENANT OF ANY PRIOR
          OWNER OR ANY OTHER PARTY AND WHETHER OR NOT THE ALLEGED  LIABILITY  IS
          ATTRIBUTABLE TO THE HANDLING, STORAGE, GENERATION,  TRANSPORTATION, OR
          DISPOSAL  OF ANY  HAZARDOUS  MATERIALS  OR THE  MERE  PRESENCE  OF ANY
          HAZARDOUS MATERIALS ON SUCH PROPERTY; PROVIDED THAT THE BORROWER SHALL
          NOT BE LIABLE TO THE  INDEMNIFIED  PARTIES  WHERE THE  RELEASE OF SUCH
          HAZARDOUS  MATERIALS  OCCURS AT ANY TIME AT WHICH THE  BORROWER OR ANY
          SUBSIDIARY CEASES TO OWN OR LEASE SUCH PROPERTY); AND PROVIDED FURTHER
          THAT NO  INDEMNIFIED  PARTY SHALL BE ENTITLED TO THE  BENEFITS OF THIS
          SECTION  13.16 TO THE  EXTENT  ITS OWN  GROSS  NEGLIGENCE  OR  WILLFUL
          MISCONDUCT  CONTRIBUTED TO ITS LOSS;  AND PROVIDED  FURTHER THAT IT IS
          THE  INTENTION OF THE BORROWER TO INDEMNIFY  THE  INDEMNIFIED  PARTIES
          AGAINST THE  CONSEQUENCES OF THEIR OWN  NEGLIGENCE.  THIS AGREEMENT IS
          INTENDED TO PROTECT AND INDEMNIFY THE INDEMNIFIED  PARTIES AGAINST ALL
          RISKS HEREBY  ASSUMED BY THE  BORROWER.  FOR PURPOSES OF THE FOREGOING
          SECTION  13.16,   THE  PHRASE   "CONSUMMATION   OF  THE   TRANSACTIONS
          CONTEMPLATED  THEREBY"  SET  FORTH IN  SUBPARAGRAPH  (a)  ABOVE  SHALL
          INCLUDE,  BUT  NOT BE  LIMITED  TO,  THE  FINANCING  OF ANY  CORPORATE
          TAKEOVER  PERMITTED  HEREUNDER  AND  THE  BORROWER'S  USE OF THE  LOAN
          PROCEEDS FOR THE PURPOSE OF ACQUIRING ANY EQUITY  INTERESTS  DESCRIBED
          IN  SUBPARAGRAPH  (ii) OF THE  DEFINITION OF  "QUALIFYING  ASSETS" SET
          FORTH IN THIS AGREEMENT (AS AMENDED).  THE OBLIGATIONS OF THE BORROWER
          UNDER  THIS  SECTION  13.16  SHALL  SURVIVE  ANY  TERMINATION  OF THIS
          AGREEMENT AND THE REPAYMENT OF THE NOTES.

    13.17 Payments Set Aside.  To the extent that the  Borrower  makes a payment
          or  payments  to the  Agent  or any  Bank  or the  Agent  or any  Bank
          exercises  its right of set off,  and such  payment or payments or the
          proceeds  of  such  set  off  or any  part  thereof  are  subsequently
          invalidated,  declared to be  fraudulent  or  preferential,  set aside
          and/or  required  to be repaid  to a  trustee,  receiver  or any other
          Person under any Debtor Law or equitable cause, then, to the extent of
          such recovery,  the obligation or part thereof originally  intended to
          be satisfied,  and all rights and remedies therefor,  shall be revived
          and shall continue in full force and effect as if such payment had not
          been made or set off had not occurred.

    13.18 Loan   Agreement   Controls.   If   there   are   any   conflicts   or
          inconsistencies  among this Agreement and any other document  executed
          in connection with the transactions connected herewith, the provisions
          of this Agreement shall prevail and control.

    13.19 Obligations   Several.   The  obligations  of  each  Bank  under  this
          Agreement and the Note to which it is a party are several, and no Bank
          shall be  responsible  for any  obligation  or Commitment of any other
          Bank under this Agreement and the Note to which it is a party. Nothing
          contained in this Agreement or the Note to which it is a party, and no
          action  taken  by any  Bank  pursuant  thereto,  shall  be  deemed  to
          constitute  the Banks to be a  partnership,  an  association,  a joint
          venture, or any other kind of entity.

    13.20 Pro Rata  Treatment.  All  Loans  under,  and all  payments  and other
          amounts received in connection with this Agreement (including, without
          limitation,  amounts  received as a result of the exercise by any Bank
          of any  right of set off)  shall be  effectively  shared  by the Banks
          ratably in accordance with the respective Pro Rata  Percentages of the
          Banks.  If any Bank  shall  obtain  any  payment  (whether  voluntary,
          involuntary,  through  the  exercise  of  any  right  of set  off,  or
          otherwise)  on account of the principal of, or interest on, or fees in
          respect  of,  any Note  held by it (other  than  pursuant  to  Section
          2.3(d)) in excess of its Pro Rata Percentage of payments on account of
          similar  Notes  obtained by all the Banks,  such Bank shall  forthwith
          purchase  from the other  Banks  such  participations  in the Notes or
          Loans made by them as shall be necessary to cause such purchasing Bank
          to share the  excess  payment  ratably  with  each of them;  provided,
          however,  that  if  all or any  portion  of  such  excess  payment  is
          thereafter  recovered from such  purchasing  Bank,  such purchase from
          each  Bank  shall  be  rescinded  and  such  Bank  shall  repay to the
          purchasing  Bank the  purchase  price to the  extent of such  recovery
          together with an amount equal to such Bank's ratable share  (according
          to the proportion of (a) the amount of such Bank's required  repayment
          to (b) the total amount so recovered from the purchasing  Bank) of any
          interest  or other  amount paid or payable by the  purchasing  Bank in
          respect of the total amount so recovered. Disproportionate payments of
          interest shall be shared by the purchase of separate participations in
          unpaid interest obligations,  disproportionate  payments of fees shall
          be shared by the  purchase  of separate  participations  in unpaid fee
          obligations,  and  disproportionate  payments  of  principal  shall be
          shared by the purchase of separate  participations in unpaid principal
          obligations.  The  Borrower  agrees  that  any  Bank so  purchasing  a
          participation from another Bank pursuant to this Section 13.20 may, to
          the  fullest  extent  permitted  by law,  exercise  all its  rights of
          payment  (including  the  right  of  set-off)  with  respect  to  such
          participation as fully as if such Bank were the direct creditor of the
          Borrower  in the  amount of such  participation.  Notwithstanding  the
          foregoing,  a Bank may  receive  and retain an amount in excess of its
          Pro Rata  Percentage  to the extent but only to the extent,  that such
          excess results from such Bank's Highest Lawful Rate exceeding  another
          Bank's Highest Lawful Rate.

    13.21 No   Rights,   Duties  or   Obligations   of   Syndication   Agent  or
          Documentation Agent. The Borrower, the Agent and each Bank acknowledge
          and  agree  that  except  for  the  rights,  powers,  obligations  and
          liabilities  under this  Agreement  and the other Loan  Documents as a
          Bank,  Fleet National Bank, as Syndication  Agent,  and WestLB AG, New
          York Branch, as Documentation  Agent, shall have no additional rights,
          powers,  obligations or liabilities  under this agreement or any other
          Loan   Documents  in  their   capacities  as   Syndication   Agent  or
          Documentation Agent, respectively

    13.22 Final  Agreement.   THIS  WRITTEN   AGREEMENT   REPRESENTS  THE  FINAL
          AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
          OF PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENT'S  OF THE
          PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

    13.23 WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
          EXTENT  PERMITTED BY APPLICABLE  LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
          BY JURY IN ANY LEGAL PROCEEDING  DIRECTLY OR INDIRECTLY ARISING OUT OF
          OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS  CONTEMPLATED HEREBY
          (WHETHER  BASED ON  CONTRACT,  TORT OR ANY OTHER  THEORY).  EACH PARTY
          HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY
          OTHER PARTY HAS REPRESENTED,  EXPRESSLY OR OTHERWISE,  THAT SUCH OTHER
          PARTY  WOULD NOT,  IN THE EVENT OF  LITIGATION,  SEEK TO  ENFORCE  THE
          FOREGOING  WAIVER AND (B)  ACKNOWLEDGES  THAT IT AND THE OTHER PARTIES
          HERETO HAVE BEEN INDUCED TO ENTER INTO THIS  AGREEMENT BY, AMONG OTHER
          THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

         IN WITNESS WHEREOF,  the parties hereto,  by their respective  officers
thereunto duly  authorized,  have executed this Agreement on the dates set forth
below to be effective as of May 28, 2004.


                                    SOUTHERN UNION COMPANY



                                    By:  s/ Richard N. Marshall
                                    --------------------------------------------
                                    Name: Richard N. Marshall
                                    --------------------------------------------
                                    Title: Vice President and Treasurer
                                    --------------------------------------------




Commitment:                         JPMORGAN CHASE BANK,
$28,000,000                         for itself and as Agent for the Banks

                                    By:        s/ Ken M. Sample
                                    --------------------------------------------
                                    Name:      Ken M. Sample
                                    --------------------------------------------
                                    Title:     Vice President
                                    --------------------------------------------


<PAGE>




Commitment:                         FLEET NATIONAL BANK
$20,000,000
                                    By:        s/ Kevin P. Bertelsen
                                    --------------------------------------------
                                    Name:      Kevin P. Bertelsen
                                    --------------------------------------------
                                    Title:     Vice President
                                    --------------------------------------------

                                    Address for Notices:

                                    Fleet National Bank
                                    100 N. Tryon Street, 13th Floor
                                    Charlotte, North Carolina 28255
                                    Attention:  Kevin Bertelsen
                                    Fax No.:  (704) 386-1319

                                    Separate Domestic and Eurodollar Lending
                                    Office:

                                    Fleet National Bank
                                    100 Federal Street
                                    Boston, Massachusetts 02110




Commitment:                     WESTLB AG, NEW YORK BRANCH
$20,000,000
                                By: s/ Duncan Robertson   s/ Jeffrey S. Davidson
                                ------------------------------------------------
                                Name:  Duncan Robertson      Jeffrey S. Davidson
                                ------------------------------------------------
                                Title: Executive Director    Associate Director
                                ------------------------------------------------


                                Address for Notices:

                                WestLB AG, New York Branch
                                1211 Avenue of the Americas
                                New York, New York 10036
                                Attention:  Jeffrey S. Davidson
                                Fax No.:  (212) 852-6148




<PAGE>


Commitment:                     KBC BANK N.V.
$20,000,000
                                By:  s/ Robert Snauffer    s/ Eric Raskin
                                -----------------------------------------------
                                Name:Robert Snauffer          Eric Raskin
                                -----------------------------------------------
                                Title: First Vice President   Vice President
                                ------------------------------------------------


                                Address for Notices:

                                KBC Bank, N.V.
                                Atlanta Representative Office
                                245 Peachtree Center Avenue, Suite 2550
                                Atlanta, Georgia 30303
                                Attention:  Thomas Van Craen
                                Fax No.:  (404) 584-5465

                                Separate Domestic and Eurodollar Lending Office:

                                KBC Bank, N.V.
                                New York Branch
                                125 West 55th Street
                                New York, New York 10019


Commitment:                     WELLS FARGO BANK, NA
$20,000,000
                                By:        s/ Carlos L. Quinteros
                                -----------------------------------------------
                                Name:      Carlos L. Quinteros
                                -----------------------------------------------
                                Title:     Relationship Manager
                                -----------------------------------------------


                                Address for Notices:

                                Wells Fargo Bank, NA
                                1000 Louisiana Street, 3rd Floor
                                Houston, Texas 77002
                                Attention:  Carlos Quinteros
                                Fax No.:  (713) 739-1087

                                Separate Domestic and Eurodollar Lending Office:

                                Wells Fargo Bank, NA
                                1740 Broadway, 3rd Floor
                                Denver, Colorado 80274



<PAGE>



Commitment:                     CALYON NEW YORK BRANCH
$20,000,000
                                By:   s/ Olivier Audemard
                                      ------------------------------------------
                                Name: Olivier Audemard
                                      ------------------------------------------
                                Title:Managing Director
                                      ------------------------------------------


                                Address for Notices:

                                Calyon New York Branch
                                1301 Travis, Suite 2100
                                Houston, Texas 77002
                                Attention:  Fabien Stal
                                Fax No.:  (713) 890-8666

                                Separate Domestic and Eurodollar Lending Office:

                                Calyon New York Branch
                                1301 Avenue of the Americas
                                New York, New York 10019



Commitment:                     MERRILL LYNCH BANK USA
$20,000,000

                                By:        s/ Louis Alder
                                Name:      Louis Alder
                                           -------------------------------------
                                Title:     Director
                                           -------------------------------------

                                Address for Notices:

                                Merrill Lynch Bank USA
                                15 W. South Temple, Suite 300
                                Salt Lake City, Utah 84101
                                Attention:  Derek Befus
                                Fax No.:  (801) 531-7470




Commitment:                     SOVEREIGN BANK
$20,000,000

                                By:        s/ Robert Lanigan
                                           -------------------------------------
                                Name:      Robert Lanigan
                                           ---------------
                                Title:     Senior Vice President
                                           -------------------------------------


                                Address for Notices:

                                Sovereign Bank
                                75 State Street, 4th Floor
                                Boston, Massachusetts 02109
                                Attention:  Robert Lanigan
                                Fax No.:  (617) 346-7249




Commitment:                     MANUFACTURERS AND TRADERS TRUST
$20,000,000                     COMPANY

                                By:        s/ Thomas V. Amico
                                           ---------------------
                                Name:      Thomas V. Amico
                                           ---------------------
                                Title:     Vice President
                                           ---------------------


                               Address for Notices:

                               Manufacturers and Traders Trust Company
                               15 South Franklin
                               Wilkes-Barre, Pennsylvania 18711
                               Attention:  Thomas V. Amico
                               Fax No.:  (570) 821-8639

                               Separate Domestic and Eurodollar Lending Office:

                               Manufacturers and Traders Trust Company
                               One Fountain Plaza
                               Buffalo, New York 14204




<PAGE>





Commitment:                    THE NORINCHUKIN BANK,
                               NEW YORK BRANCH
$20,000,000
                               By:        s/ Fumiaki Ono
                                          ------------------
                               Name:      Fumiaki Ono
                                          ------------------
                               Title:     General Manager
                                          ------------------


                               Address for Notices:

                               The Norinchukin Bank, New York Branch
                               245 Park Ave., 29th Floor
                               New York, New York 10167
                               Attention:  Kenji Kawashima
                               Fax No.:  (212) 697-5754




Commitment:                    BAYERISCHE LANDESBANK,
$15,000,000                    CAYMAN ISLANDS BRANCH

                               By:   s/ Dietmar Rieg      s/ Richard Jackson Jr.
                                     -------------------------------------------
                               Name: Dietmar Rieg            Richard Jackson Jr.
                                     -------------------------------------------
                               Title:Senior Vice President Second Vice President
                                     -------------------------------------------

                               Address for Notices:

                               Bayerische Landesbank,
                               Cayman Islands Branch
                               560 Lexington Avenue
                               New York, New York 10022
                               Attention:  Stephen Christenson
                               Fax No.:  (212) 310-9868


<PAGE>


Commitment:                    BANK HAPOALIM B.M.
$15,000,000
                               By:   s/ James P. Surless    s/ Laura Anne Raffa
                                      ------------------------------------------
                               Name: James P. Surless          Laura Anne Raffa
                                      ------------------------------------------
                               Title:Vice President      Exec VP & Corp. Manager
                                      ------------------------------------------


                               Address for Notices:

                               Bank Hapoalim B.M.
                               1177 Avenue of the Americas
                               New York, New York 10036
                               Attention:  James P. Surless
                               Fax No.:  (212) 782-2382






Commitment:                    CREDIT SUISSE FIRST BOSTON
$15,000,000

                               By:   s/ Sarah Wu               s/ David J. Dodd
                                     -------------------------------------------
                               Name: Sarah Wu                     David J. Dodd
                                     -------------------------------------------
                               Title:Vice President               Associate
                                     -------------------------------------------

                               Address for Notices:

                               Credit Suisse First Boston
                               Eleven Madison Avenue
                               New York, New York 10010
                               Attention:  Sarah Wu
                               Fax No.:  (212) 325-8321



<PAGE>



Commitment:                    PNC BANK, NATIONAL ASSOCIATION
$15,000,000
                               By:   s/ Michael Nardo
                                     -----------------
                               Name: Michael Nardo
                                     -----------------
                               Title:Managing Director
                                     -----------------


                               Address for Notices:

                               PNC Bank, National Association
                               Two Tower Center Blvd.
                               East Brunswick, New Jersey 08816
                               Attention:  Michael Nardo
                               Fax No.:  (732) 220-3270





Commitment:                    SUMITOMO MITSUI BANKING CORP.,
$15,000,000                    NEW YORK


                               By:        s/ Leo E. Pagarigan
                                          --------------------------------------
                               Name:      Leo E. Pagarigan
                                          --------------------------------------
                               Title:     Senior Vice President
                                          -------------------------

                               Address for Notices:

                               Sumitomo Mitsui Banking Corp., New York
                               277 Park Avenue
                               New York, New York 10172
                               Attention:  Robert Dupree
                               Fax No.:  (212) 224-4384



<PAGE>



Commitment:                    UFJ BANK LIMITED, NEW YORK BRANCH
$15,000,000
                               By:        s/ John T. Feeney
                                          ------------------
                               Name:      John T. Feeney
                                          ------------------
                               Title:     Vice President
                                          -----------------


                               Address for Notices:

                               UFJ Bank Limited, New York Branch
                               55 East 52nd Street
                               New York, New York 10055
                               Attention:  John T. Feeney
                               Fax No.:  (212) 754-1304





Commitment:                    MIZUHO CORPORATE BANK (USA)
$15,000,000


                               By:        s/ Michisuke Araki
                                     -----------------------
                               Name:         Michisuke Araki
                                     -----------------------
                               Title:       President & CEO
                                     -----------------------

                               Address for Notices:

                               Mizuho Corporate Bank (USA)
                               1251 Avenue of the Americas
                               New York, New York 10020-1104
                               Attention:  Yoshimi Tsushima
                               Fax No.:  (212) 282-4488



<PAGE>


Commitment:                    CITIZENS BANK OF RHODE ISLAND
$12,000,000
                               By:        s/ Timothy M. Cadigan
                                          -----------------------
                               Name:      Timothy M. Cadigan
                                          --------------------
                               Title:     Vice President
                                          -----------------------


                               Address for Notices:

                               Citizens Bank of Rhode Island
                               One Citizens Plaza
                               Mail Stop RC0480
                               Providence, Rhode Island 02903
                               Attention:  Marian L. Barrette
                               Fax No.:  (401) 455-5404





Commitment:                    BANK OF TOKYO-MITSUBISHI, LTD.
$12,000,000


                               By:   s/ Donald W. Herrick Jr.
                                     -------------------------
                               Name: Donald W. Herrick Jr.
                                     -------------------------
                               Title:Vice President
                                     -------------------------

                               Address for Notices:

                               Bank of Tokyo-Mitsubishi, Ltd.
                               1100 Louisiana, Suite 2800
                               Houston, Texas 77002
                               Attention:  Bryan E. Hulshof
                               Fax No.:  (713) 658-0116



<PAGE>


Commitment:                    CHANG HWA COMMERCIAL BANK, LTD.,
$12,000,000                    LOS ANGELES BRANCH


                               By:   s/ Jim Chen
                                     ----------------------
                               Name: Jim Chen
                                     ----------------------
                               Title:VP & General Manager
                                     ----------------------


                               Address for Notices:

                               Chang Hwa Commercial Bank, Ltd.,
                               Los Angeles Branch
                               3333 South Grand Avenue, Suite 600
                               Loa Angeles, California 90071
                               Attention:  Cecilia Huynh
                               Fax No.:  (213) 620-7227





Commitment:                    BANK OF CHINA, NEW YORK BRANCH
$12,000,000

                               By:        s/ William W. Smith Jr.
                                          -------------------------
                               Name:      William W. Smith Jr.
                                          -------------------------
                               Title:     Chief Lending Officer
                                          -------------------------

                               Address for Notices:

                               Bank of China, New York Branch
                               410 Madison Avenue
                               New York, New York 10017
                               Attention:  Joseph Zeng
                               Fax No.:  (212) 308-4993



<PAGE>


Commitment:                    ROYAL BANK OF CANADA
$12,000,000

                               By:        s/ David A. McCluskey
                                          --------------------------
                               Name:      David A. McCluskey
                                          --------------------------
                               Title:     Authorized Signatory
                                          --------------------------

                               Address for Notices:

                               Royal Bank of Canada
                               New York Branch
                               One Liberty Plaza, 3rd Floor
                               New York, NY 10006-1404
                               Attention:  Compton Singh
                               Fax No.:  (212) 428-2372




Commitment:                    UMB BANK, N.A.
$12,000,000

                               By:   s/ David A. Proffitt
                                     ----------------------
                               Name: David A. Proffitt
                                     ------------------
                               Title:Senior Vice President
                                     ----------------------

                               Address
for Notices:

                               UMB Bank, N.A.
                               1010 Grand Blvd.
                               Kansas City, Missouri 64106
                               Attention:  David A. Proffitt
                               Fax No.:  (816) 860-7143




<PAGE>



Commitment:                    BANK OF COMMUNICATIONS,
$5,000,000                     NEW YORK BRANCH


                               By:        s/ Hong Tu
                                        --------------------
                               Name:      Hong Tu
                                        --------------------
                               Title:     General Manager
                                        --------------------

                               Address for Notices:

                               Bank of Communications,
                               New York Branch
                               One Exchange Plaza
                               55 Broadway, 31st Floor
                               New York, New York 10006-3008
                               Attention:  Richard Thornhill
                               Fax No.:  (212) 376-8089



Commitment:                    BANK OF TAIWAN, NEW YORK AGENCY
$5,000,000

                               By:        s/ Eunice S. J. Teh
                                          ---------------------
                               Name:      Eunice S. J. Yeh
                                          ---------------------
                               Title:     SVP & GM
                                          ------------

                               Address for Notices:

                               Bank of Taiwan, New York Agency
                               100 Wall Street, 11th Floor
                               New York, New York 10005
                               Attention:  Jeffrey Wang
                               Fax No.:  (212) 968-8370





Commitment:                    CHINATRUST COMMERCIAL BANK,
$5,000,000                     NEW YORK BRANCH


                               By:        s/ Eric Kan
                                          -----------------------
                               Name:      Eric Kan
                                          -----------------------
                               Title:     Senior Vice President
                                          -----------------------

                               Address for Notices:

                               Chinatrust Commercial Bank,
                               New York Branch
                               366 Madison Avenue, 3/F
                               New York, New York 10017
                               Attention:  Laurence Chui
                               Fax No.: (212) 949-4774

<PAGE>


                                    EXHIBIT A

                                 REVOLVING NOTE


$___________                                                 ____________, 200__

         FOR  VALUE  RECEIVED,  the  undersigned,   SOUTHERN  UNION  COMPANY,  a
corporation  organized  under  the laws of  Delaware  (the  "Borrower"),  HEREBY
PROMISES  TO  PAY  to  the  order  of  ___________________________________  (the
"Bank"),  on  or  before  _______________________  (the  "Maturity  Date"),  the
principal sum of ________________ Million and No/ 100ths Dollars ($_,000,000.00)
in  accordance  with the terms and  provisions of that certain Third Amended and
Restated  Revolving  Credit  Agreement  dated May ____,  2004,  by and among the
Borrower,  the Bank, the other banks named on the signature  pages thereof,  and
JPMORGAN CHASE BANK, as Agent (the "Credit  Agreement").  Capitalized terms used
herein and not otherwise  defined shall have the meanings ascribed to such terms
in the Credit Agreement.

         The  outstanding  principal  balance  of this  Revolving  Note shall be
payable at the  Maturity  Date.  The  Borrower  promises to pay  interest on the
unpaid  principal  balance  of this  Revolving  Note  from  the date of any Loan
evidenced by this Revolving Note until the principal  balance thereof is paid in
full.  Interest  shall  accrue  on the  outstanding  principal  balance  of this
Revolving  Note  from  and  including  the date of any  Loan  evidenced  by this
Revolving Note to but not including the Maturity Date at the rate or rates,  and
shall be due and payable on the dates,  set forth in the Credit  Agreement.  Any
amount not paid when due with respect to principal  (whether at stated maturity,
by acceleration or otherwise), costs or expenses, or, to the extent permitted by
applicable  law,  interest,  shall bear  interest  from the date when due to and
excluding  the date the same is paid in full,  payable  on  demand,  at the rate
provided for in Section 2.2(b) of the Credit Agreement.

         Payments of principal and interest, and all amounts due with respect to
costs  and  expenses,  shall be made in  lawful  money of the  United  States of
America  in  immediately   available  funds,  without  deduction,   set  off  or
counterclaim  to the  account of the Agent at the  principal  office of JPMorgan
Chase  Bank in  Houston,  Texas (or such other  address  as the Agent  under the
Credit Agreement may specify) not later than noon (Houston time) on the dates on
which such payments  shall become due pursuant to the terms and  provisions  set
forth in the Credit Agreement.

         If any payment of interest or principal herein provided for is not paid
when due, then the owner or holder of this Revolving Note may at its option,  by
notice to the Borrower,  declare the unpaid, principal balance of this Revolving
Note,  all accrued and unpaid  interest  thereon and all other  amounts  payable
under this  Revolving  Note to be  forthwith  due and  payable,  whereupon  this
Revolving  Note,  all such  interest  and all such  amounts  shall become and be
forthwith due and payable in full, without presentment,  demand, protest, notice
of intent to accelerate,  notice of actual acceleration or further notice of any
kind, all of which are hereby expressly waived by the Borrower.

         If any payment of  principal or interest on this  Revolving  Note shall
become due on a Saturday,  Sunday,  or public  holiday on which the Agent is not
open for business,  such payment shall be made on the next  succeeding  Business
Day and such  extension  of time  shall in such case be  included  in  computing
interest in connection with such payment.

         In addition to all  principal  and accrued  interest on this  Revolving
Note, the Borrower agrees to pay (a) all reasonable costs and expenses  incurred
by the Agent and all owners and  holders of this  Revolving  Note in  collecting
this Revolving Note through any probate,  reorganization bankruptcy or any other
proceeding and (b) reasonable attorneys' fees when and if this Revolving Note is
placed in the hands of an attorney for collection after default.

         All agreements  between the Borrower and the Bank, whether now existing
or hereafter  arising and whether written or oral, are hereby expressly  limited
so that in no contingency or event whatsoever, whether by reason of demand being
made on this Revolving Note or otherwise, shall the amount paid, or agreed to be
paid,  to the Bank for the use,  forbearance,  or  detention  of the money to be
loaned  under the Credit  Agreement  and  evidenced  by this  Revolving  Note or
otherwise  or for the  payment or  performance  of any  covenant  or  obligation
contained  in the Credit  Agreement  or this  Revolving  Note  exceed the amount
permissible  at  Highest  Lawful  Rate.  If as a  result  of  any  circumstances
whatsoever,  fulfillment of any provision  hereof or of the Credit  Agreement at
the time performance of such provision shall be due, shall involve  transcending
the limit of validity  prescribed by applicable usury law, then, ipso facto, the
obligation to be fulfilled  shall be reduced to the limit of such validity,  and
if from any such circumstance,  the Bank shall ever receive interest or anything
which might be deemed  interest  under  applicable  law which  would  exceed the
amount  permissible  at the Highest  Lawful  Rate,  such  amount  which would be
excessive  interest  shall be applied to the reduction of the  principal  amount
owing  on  account  of  this  Revolving  Note  or the  amounts  owing  on  other
obligations  of the Borrower to the Bank under the Credit  Agreement  and not to
the  payment of  interest,  or if such  excessive  interest  exceeds  the unpaid
principal  balance  of this  Revolving  Note  and the  amounts  owing  on  other
obligations of the Borrower to the Bank under the Credit Agreement,  as the case
may be, such excess shall be refunded to the Borrower. In determining whether or
not the interest  paid or payable under any specific  contingencies  exceeds the
Highest  Lawful Rate,  the Borrower  and the Bank shall,  to the maximum  extent
permitted under applicable law, (a) characterize any nonprincipal  payment as an
expense,  fee  or  premium  rather  than  as  interest;  (b)  exclude  voluntary
prepayments and the effects  thereof,  and (c) amortize,  prorate,  allocate and
spread  in  equal  parts  during  the  period  of the full  stated  term of this
Revolving Note, all interest at any time contracted  for,  charged,  received or
reserved in connection with the indebtedness evidenced by this Revolving Note.

         This  Revolving  Note  is one of the  Notes  provided  for  in,  and is
entitled to the benefits of, the Credit Agreement, which Credit Agreement, among
other things,  contains  provisions for acceleration of the maturity hereof upon
the happening of certain stated events,  for prepayments on account of principal
hereof prior to the maturity  hereof upon the terms and  conditions and with the
effect therein specified,  and provisions to the effect that no provision of the
Credit  Agreement or this Revolving Note shall require the payment or permit the
collection of interest in excess of the Highest Lawful Rate. It is  contemplated
that by reason of prepayments  or repayments  hereon prior to the Maturity Date,
there may be times when no  indebtedness  is owing hereunder prior to such date;
but  notwithstanding  such occurrence this Revolving Note shall remain valid and
shall be in full  force  and  effect as to Loans  made  pursuant  to the  Credit
Agreement subsequent to each such occurrence.

         Except as otherwise  specifically provided for in the Credit Agreement,
the Borrower and any and all endorsers,  guarantors and sureties severally waive
grace, demand,  presentment for payment, notice of dishonor or default, protest,
notice of protest,  notice of intent to accelerate,  notice of acceleration  and
diligence in collecting and bringing of suit against any party hereto, and agree
to all  renewals,  extensions or partial  payments  hereon and to any release or
substitution  of security  hereof,  in whole or in part, with or without notice,
before or after maturity.

         THIS  REVOLVING  NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW.

         IN WITNESS  WHEREOF,  the Borrower has caused this Revolving Note to be
executed and delivered by its officer thereunto duly authorized  effective as of
the date first above written.

                                 SOUTHERN UNION COMPANY


                                 By:_________________________________
                                 Name:_______________________________
                                 Title:________________________________



<PAGE>


                                    EXHIBIT B

                               NOTICE OF BORROWING

         The  undersigned  hereby  certifies that s/he is an officer of SOUTHERN
UNION  COMPANY,  a  corporation  organized  under  the  laws  of  Delaware  (the
"Borrower"),  authorized  to execute  this Notice of  Borrowing on behalf of the
Borrower.  With  reference to that certain Third Amended and Restated  Revolving
Credit  Agreement  dated  May  ___,  2004 (as  same  may be  amended,  modified,
increased,   supplemented  and/or  restated  from  time  to  time,  the  "Credit
Agreement")  entered into by and between the Borrower,  JPMORGAN  CHASE BANK, as
Agent,  and the Banks identified  therein,  the undersigned  further  certifies,
represents  and  warrants  to Banks on behalf of the  Borrower  that to his best
knowledge and belief after reasonable and due investigation  and review,  all of
the following statements are true and correct (each capitalized term used herein
having the same meaning  given to it in the Credit  Agreement  unless  otherwise
specified):

         (a)  Borrower  requests  that the Banks  advance  to the  Borrower  the
aggregate sum of $__________by no later than ____________, 200__ (the "Borrowing
Date").  Immediately  following such Loan, the aggregate  outstanding balance of
Loans shall equal $__________. Borrower requests that the Loans bear interest as
follows:

                    (i) The principal  amount of the Loans,  if any, which shall
         bear  interest at the Alternate  Base Rate  requested to be made by the
         Banks is $________.  The initial Rate Period for such Loans shall be 90
         days.

                    (ii) The principal  amount of the Loans, if any, which shall
         bear interest at the Eurodollar Rate for which the Rate Period shall be
         fifteen days requested to be made by the Banks is
         $----------------.

                    (iii) The principal amount of the Loans, if any, which shall
         bear interest at the Eurodollar Rate for which the Rate Period shall be
         one month requested to be made by the Banks is $__________.

                    (iv) The principal  amount of the Loans, if any, which shall
         bear interest at the Eurodollar Rate for which the Rate Period shall be
         two months requested to be made by the Banks is $_________.

                    (v) The  principal  amount of the Revolving  Loans,  if any,
         which  shall bear  interest at the  Eurodollar  Rate for which the Rate
         Period shall be three months requested to be made by the Banks is
         $---------.

                    (vi) The principal  amount of the Revolving  Loans,  if any,
         which  shall bear  interest at the  Eurodollar  Rate for which the Rate
         Period shall be six months requested to be made by the Banks is
         $----------.

         (b) The proceeds of the borrowing  shall be deposited  into  Borrower's
demand deposit account at JPMorgan Chase Bank more fully described as follows:

         Account No. 09916100522, styled Southern Union Company.

         (c) Of  the  aggregate  sum  to be  advanced,  $_____________  will  be
advanced to provide  working  capital  pursuant to Section  6.1(a) of the Credit
Agreement and  $__________will be advanced for the purposes set forth in Section
6.1(b)  of the  Credit  Agreement;  and  $__________  will be  advanced  for the
purposes set forth in Section 6.1(c) of the Credit  Agreement;  and $___________
will be advanced for the purposes of replacing Loans currently outstanding under
the Credit Agreement.

         (d) The  Expiration  Date of each Rate  Period  specified  in (a) above
shall be the last day of such Rate Period.

         (e)  As of the  date  hereof,  and as a  result  of the  making  of the
requested  Loans,  there  does not and will not  exist any  Default  or Event of
Default.

         (f) The  representations  and warranties  contained in Section 7 of the
Credit  Agreement  are true and correct in all material  respects as of the date
hereof and shall be true and correct upon the making of the requested Loan, with
the same  force  and  effect  as though  made on and as of the date  hereof  and
thereof.

         (g) No  change  that  would  cause a  material  adverse  effect  on the
business,  operations or condition  (financial or otherwise) of the Borrower has
occurred since the date of the most recent financial  statements provided to the
Banks dated as of __________, 200__.

         EXECUTED AND DELIVERED this _____  day of  _______________, 200__.


                                      SOUTHERN UNION COMPANY



                                      By:_________________________
                                      Name:_______________________
                                      Title:________________________



<PAGE>




                                    EXHIBIT C

                            ASSIGNMENT AND ACCEPTANCE


                              [NAME AND ADDRESS OF
                                 ASSIGNING BANK]



                                                         _______________, 200__





         Re: Southern Union Company Third Amended and Restated Revolving
             Credit Agreement

Ladies and Gentlemen:
         We have entered  into a Third  Amended and  Restated  Revolving  Credit
Agreement  dated as of May ___,  2004 (the "Credit  Agreement"),  among  certain
banks  (including  us),  JPMorgan  Chase Bank (the  "Agent") and Southern  Union
Company (the "Company"). Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Credit Agreement.

         Each  reference  to the  Credit  Agreement,  the  Notes,  or any  other
document evidencing or governing the Loans (all such documents collectively, the
"Financing  Documents")  includes  each  such  document  as  amended,  modified,
extended or replaced from time to time. All times are Houston times.

1. ASSIGNMENT.  We hereby sell you and assign to you without  recourse,  and you
hereby  unconditionally and irrevocably acquire for your own account and risk, a
percent ( %) undivided interest ("your assigned share") in each of the following
(the "Assigned Obligations"):

         a. our Note;

         b. all Loans and  interest  thereon  as  provided  in  Section 2 of the
Credit  Agreement  [,except that interest shall accrue on your assigned share in
the  principal  of  Alternate  Base Rate Loans and  Eurodollar  Rate Loans at an
annual rate equal to the rate provided in the Credit  Agreement  minus  _____%];
and

         c.  commitment  fees  payable  pursuant  to  Section  5 of  the  Credit
Agreement[,  except that your assigned  share in such fees shall be at an annual
rate equal to the rate provided in the Credit Agreement minus ____%].

2. MATERIALS PROVIDED ASSIGNEE

         a. We will promptly  request that the Company issue new Notes to us and
to you in substitution  for our Note to reflect the assignment set forth herein.
Upon  issuance of such  substitute  Notes,  (i) you will become a Bank under the
Credit  Agreement,  (ii)  you will  assume  our  obligations  under  the  Credit
Agreement  to the extent of your  assigned  share,  and (iii) the  Company  will
release us from our obligations  under the Credit  Agreement to the extent,  but
only to the extent, of your assigned share. The Company consents to such release
by signing this Agreement where indicated below. As a Bank, you will be entitled
to the benefits and subject to the obligations of a "Bank",  as set forth in the
Credit  Agreement,  and your rights and  liabilities  with  respect to the other
Banks and the Agent will be governed by the Credit Agreement,  including without
limitation Section 12 thereof.

         b. We have furnished you copies of the Credit  Agreement,  our Note and
each other Financing Document you have requested. We do not represent or warrant
(i) the priority,  legality,  validity,  binding effect or enforceability of any
Financing  Document  or any  security  interest  created  thereunder,  (ii)  the
truthfulness  and  accuracy of any  representation  contained  in any  Financing
Document,  (iii) the filing or recording of any Financing  Document necessary to
perfect any security interest created  thereunder,  (iv) the financial condition
of the Company or any other Person obligated under any Financing  Document,  any
financial or other information, certificate, receipt or other document furnished
or to be  furnished  under any  Financing  Document or (v) any other  matter not
specifically  set forth herein  having any relation to any  Financing  Document,
your interest in one Note, the Company or any other Person.  You represent to us
that you are able to make, and have made, your own independent investigation and
determination  of the foregoing  matters,  including,  without  limitation,  the
credit worthiness of the Company and the structure of the transaction.

3.  GOVERNING  LAW;  JURISDICTION.  This  Agreement  shall be  governed  by, and
construed in accordance  with, the laws of the State of Texas.  You  irrevocably
submit to the  jurisdiction  of any State or  Federal  court  sitting in Austin,
Texas in any suit,  action or  proceeding  arising  out of or  relating  to this
Agreement  and  irrevocably  waive any  objection you may have to this laying of
venue of any such suit,  action or proceeding  brought in any such court and any
claim  that  any  such  suit,  action  or  proceeding  has  been  brought  in an
inconvenient  forum. We may serve process in any manner permitted by law and may
bring proceedings against you in any other jurisdiction.

4.  NOTICES.  All notices and other  communications  given  hereunder to a party
shall be given in  writing  (including  bank  wire,  telecopy,  telex or similar
writing) at such party's address set forth on the signature pages hereof or such
other address as such party may hereafter  specify by notice to the other party.
Notice may also be given by telephone to the Person, or any other officer in the
office,  listed on the signature pages hereof if confirmed  promptly by telex or
telecopy.  Notices shall be effective immediately,  if given by telephone;  upon
transmission,  if given by bank wire, telecopy or telex; five days after deposit
in the mails, if mailed; and when delivered, if given by other means.

5. AUTHORITY. Each of us represents and warrants that the execution and delivery
of this Agreement have been validly authorized by all necessary corporate action
and that this  Agreement  constitutes  a valid and  legally  binding  obligation
enforceable against it in accordance with its terms.

6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, and
by each party on separate  counterparts,  each of which shall be an original but
all of which taken together shall be but one instrument.

7.  AMENDMENTS.  No amendment  modification  or waiver of any  provision of this
Agreement  shall be effective  unless in writing and signed by the party against
whom enforcement is sought.

         If the foregoing correctly sets forth our agreement, please so indicate
by signing the enclosed copy of this Agreement and returning it to us.

                                   Very truly yours,


                                   ------------------------------------------

                                   By: _________________________________________
                                   Name: _______________________________________
                                   Title: _____________________________________

                                   [Street Address]
                                                    ____________________________
                                   [City, State, Zip Code]
                                                          ______________________
                                   Telephone:
                                             ___________________________________
                                    Telecopy:
                                             ___________________________________

AGREED AND ACCEPTED:

-------------------------------

By:____________________________
   ____________________________
   ____________________________
   ____________________________

Attention:        ___________________
Telephone:        ___________________
Telecopy:         ___________________
Account for Payments: _______________

         ASSIGNMENT  APPROVED  PURSUANT TO SECTION 13.13 OF THE CREDIT AGREEMENT
AND RELEASE APPROVED IN SECTION 2 OF THIS AGREEMENT:

SOUTHERN UNION COMPANY


By:      _______________________
Name:    _______________________
Title:   _______________________