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


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549




                                    FORM 8-K
                                 CURRENT REPORT



     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


       Date of Report (Date of earliest event reported) December 22, 2002




                             SOUTHERN UNION COMPANY
             (Exact name of registrant as specified in its charter)



          Delaware                          1-6407               75-0571592
(State or other jurisdiction of    (Commission File Number)   (I.R.S. Employer
       incorporation)                                        Identification No.)



              One PEI Center                             18711
        Wilkes-Barre, Pennsylvania                     (Zip Code)
(Address of principal executive offices)



       Registrant's telephone number, including area code: (570) 820-2400














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

<PAGE>


ITEM 5.  OTHER EVENTS AND REGULATION FD DISCLOSURE

On December 21, 2002, Southern Union Company ("Southern Union"), along with AIG
Highstar Capital, L.P. ("AIG Highstar"), a private equity fund sponsored by
American International Group, Inc. ("AIG"), entered into a definitive agreement
with CMS Energy Corporation (NYSE: CMS) to acquire the Panhandle Eastern Pipe
Line Company ("Panhandle") for approximately $1.8 billion, which includes $1.166
billion in gross Panhandle debt. The transaction has been approved by the boards
of directors of all companies and will close following clearance by the Federal
Trade Commission under the Hart-Scott-Rodino Act and certain state regulatory
approvals.


ITEM 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

   (c) Exhibit No.
       -----------

       99.a  Press Release issued by Southern Union Company dated December 22,
             2002.

       99.b  Stock Purchase Agreement by and between CMS Gas Transmission
             Company, AIG Highstar Capital, L.P., AIG Highstar II Funding
             Corporation, Southern Union Company and Southern Union Panhandle
             Corporation dated as of December 21, 2002.








<PAGE>



                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                 SOUTHERN UNION COMPANY
                                 ----------------------
                                      (Registrant)



Date    January 2, 2003          By  DAVID J. KVAPIL
      -------------------            ---------------
                                     David J. Kvapil
                                     Executive Vice President and Chief
                                     Financial Officer



<PAGE>



                                  EXHIBIT INDEX




Exhibit Number                           Description
--------------   ---------------------------------------------------------------

    99.a         Press Release issued by Southern Union Company dated
                 December 22, 2002.

    99.b         Stock Purchase Agreement by and between CMS Gas Transmission
                 Company, AIG Highstar Capital, L.P., AIG Highstar II Funding
                 Corporation, Southern Union Company and Southern Union
                 Panhandle Corporation dated as of December 21, 2002.







<PAGE>



                                                                    EXHIBIT 99.a


02-19
For further information:
Richard N. Marshall
Treasurer & Director of Investor Relations
570/829-8662

                    SOUTHERN UNION ALONG WITH AIG HIGHSTAR TO
                 ACQUIRE THE PANHANDLE COMPANIES FROM CMS ENERGY
                Conference Call Scheduled for Monday at 2 p.m. ET

         WILKES-BARRE, Pa. (December 22, 2002) - Southern Union Company
("Southern Union" or the "Company") (NYSE: SUG) along with AIG Highstar Capital,
L.P. ("AIG Highstar"), a private equity fund sponsored by American International
Group, Inc. ("AIG") (NYSE: AIG), have reached a definitive agreement with CMS
Energy Corporation (NYSE: CMS) to acquire the CMS Panhandle Companies ("CMS
Panhandle"). The agreement calls for a newly formed entity, Southern Union
Panhandle Corporation, owned by Southern Union and AIG Highstar to pay
approximately $1.8 billion, which includes $1.166 billion in gross debt. The
transaction has been approved by the boards of directors of all companies and
will close following clearance by the Federal Trade Commission under the
Hart-Scott-Rodino Act and certain state regulatory approvals.

         "We are extremely pleased to be acquiring CMS Panhandle," said
George L. Lindemann, Southern Union's Chairman and CEO. "This acquisition
further delivers on our stated strategy to re-deploy our assets and capitalize
on opportunities in the energy market."

         Thomas Karam, President and COO of Southern Union, added, "CMS
Panhandle is a well run and stable business, which will be accretive to our
earnings in the first year. We expect to execute a smooth and seamless
transition. We welcome the chance to work with the Panhandle's dedicated and
experienced management team."

         AIG Highstar's Managing Partner Christopher H. Lee stated, "Investment
in Southern Union Panhandle will be an excellent addition to AIG Highstar's
portfolio of energy infrastructure assets, which include power transmission and
generation and natural gas storage and transportation."

         The CMS Panhandle Companies include CMS Panhandle Eastern Pipe Line
Company, CMS Trunkline Gas Company, CMS Trunkline LNG Company, which operates an
LNG terminal complex at Lake Charles, La., and CMS Sea Robin Pipeline Company.
The CMS Panhandle Companies operate almost 11,000 miles of mainline natural gas
pipeline extending from the Gulf of Mexico to the Midwest and Canada. These
pipelines access the major natural gas supply regions of the Louisiana and Texas
Gulf Coasts as well as the Midcontinent and Rocky Mountains. The pipelines have
a combined peak day delivery capacity of 5.4 billion cubic feet per day, 88
billion cubic feet of underground storage capacity and 6.3 billion cubic feet of
above ground LNG storage facilities.

                                     -MORE-
<PAGE>
         Southern Union recently announced plans to sell its Southern Union Gas
division and related Texas assets to ONEOK, Inc. for $420 million in cash. The
transaction is expected to close in early January. Proceeds from the Texas
assets sale and other funds, including the AIG Highstar investment, will fund
the equity purchase price of the CMS Panhandle Companies.

         Southern Union will host a conference call and live webcast on Monday,
December 23, 2002 at 2:00 p.m. ET (1:00 p.m CT) to discuss the acquisition. To
participate, visit www.southernunionco.com or call 1- 800-218-0530 approximately
fifteen minutes prior to the start and refer to the Southern Union conference
call. A replay of the call will be available through Monday, December 30, 2002
by dialing 1-800-405-2236 and entering conference ID 517909#.

         Berenson Minella and Lehman Brothers acted as financial advisors to the
buyer in this transaction. CMS Energy Corporation is an integrated energy
company, which has as its primary business operations in electric and natural
gas utilities, natural gas pipeline systems and independent power generation.

         AIG Highstar Capital, L.P. is a private equity fund sponsored by
American International Group, Inc. to make structured equity investments in
infrastructure-related projects and operating companies.

         Southern Union Company is an international energy distribution company
serving approximately 1.5 million customers through its natural gas operating
divisions in Texas, Missouri, Pennsylvania, Rhode Island, Massachusetts and
Mexico. In addition to controlling several intrastate natural gas pipelines in
Texas, Southern Union also owns and operates electric generating facilities in
Pennsylvania. For further information, visit www.southernunionco.com.








         This release and other Company reports and statements issued or made
from time to time contain certain "forward-looking statements" concerning
projected future financial performance, expected plans or future operations.
Southern Union Company cautions that actual results and developments may differ
materially from such projections or expectations.

         Investors should be aware of important factors that could cause actual
results to differ materially from the forward-looking projections or
expectations. These factors include, but are not limited to: weather conditions
in the Company's service territories; cost of gas; regulatory and court
decisions; the receipt of timely and adequate rate relief; the achievement of
operating efficiencies and the purchase and implementation of any new
technologies for attaining such efficiencies; impact of relations with labor
unions of bargaining-unit employees; the effect of any stock repurchases; and
the effect of strategic initiatives (including: any recent, pending or potential
acquisitions or merger, recent corporate restructuring activities, any sales of
non-core assets, and any related financing arrangements including refinancings
and debt repurchases) on earnings and cash flow.

                                      #####




<PAGE>


                                                                  EXECUTION COPY













                            STOCK PURCHASE AGREEMENT

                                  by and among

                          CMS GAS TRANSMISSION COMPANY,

                           AIG HIGHSTAR CAPITAL, L.P.,

                         AIG HIGHSTAR II FUNDING CORP.,

                             SOUTHERN UNION COMPANY




                                       and

                         SOUTHERN UNION PANHANDLE CORP.



                                   Dated as of

                                December 21, 2002








<PAGE>

                                TABLE OF CONTENTS

                                                                           Page

                              ARTICLE I DEFINITIONS

Section 1.1 Specific Definitions........................................    1


                          ARTICLE II SALE AND PURCHASE

Section 2.1 Agreement to Sell and Purchase..............................    15

Section 2.2 Time and Place of Closing...................................    15

Section 2.3 Pre-Closing Matters.........................................    16

Section 2.4 Estimated Purchase Price....................................    17

Section 2.5 Post-Closing Adjustment.....................................    17

Section 2.6 Deliveries by Seller at the Closing.........................    19

Section 2.7 Deliveries by Buyer at the Closing..........................    20

Section 2.8 Cooperation with Respect to Like-Kind Exchange..............    20


              ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER

Section 3.1 Corporate Organization; Qualification.......................    21

Section 3.2 Authority Relative to this Agreement........................    21

Section 3.3 Shares......................................................    22

Section 3.4 Consents and Approvals......................................    23

Section 3.5 No Conflict or Violation....................................    23

Section 3.6 Financial Information.......................................    24

Section 3.7 Contracts...................................................    24

Section 3.8 Compliance with Law.........................................    25

Section 3.9 Permits.....................................................    25

Section 3.10 Litigation.................................................    25

Section 3.11 Title to Properties........................................    26

Section 3.12 Employee Matters...........................................    26

Section 3.13 Labor Relations............................................    28

Section 3.14 Intellectual Property......................................    29

Section 3.15 Representations with Respect to Environmental Matters......    29

Section 3.16 Tax Matters................................................    30

Section 3.17 Absence of Certain Changes or Events.......................    31


<PAGE>
Section 3.18 Absence of Undisclosed Liabilities.........................    31

Section 3.19 Brokerage and Finders' Fees................................    31

Section 3.20 Affiliated Transactions....................................    31

Section 3.21 Insurance..................................................    32

Section 3.22 Regulatory Matters.........................................    32

Section 3.23 Opinions of Financial Advisors.............................    32

Section 3.24 No Other Representations or Warranties.....................    33


      ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND THE SPONSORS

Section 4.1 Corporate Organization; Qualification.......................    33

Section 4.2 Authority Relative to this Agreement........................    33

Section 4.3 Consents and Approvals......................................    34

Section 4.4 No Conflict or Violation....................................    34

Section 4.5 Litigation..................................................    34

Section 4.6 Availability of Funds.......................................    35

Section 4.7 Brokerage and Finders' Fees.................................    35

Section 4.8 Investment Representations..................................    35

Section 4.9 Buyer Capitalization; Other Interests.......................    36

Section 4.10 No Other Representations or Warranties.....................    37


                       ARTICLE V COVENANTS OF THE PARTIES

Section 5.1 Conduct of Business.........................................    37

Section 5.2 Access to Properties and Records............................    39

Section 5.3 Consents and Approvals......................................    40

Section 5.4 Further Assurances..........................................    42

Section 5.5 Employee Matters............................................    42

Section 5.6 Tax Covenants...............................................    46

Section 5.7 Intercompany Accounts.......................................    53

Section 5.8 Related Agreements..........................................    54

Section 5.9 Preliminary Transfer........................................    54

Section 5.10 Maintenance of Insurance Policies..........................    54

Section 5.11 Preservation of Records....................................    56

Section 5.12 Public Statements..........................................    56


<PAGE>
Section 5.13 Certain Transactions.......................................    56

Section 5.14 CMS Panhandle Holdings, LLC................................    57

Section 5.15 Change of Corporate Name...................................    57

Section 5.16 Transitional Use of Seller's Trademarks....................    57

Section 5.17 Reasonable Best Efforts....................................    58

Section 5.18 No Shopping................................................    59

Section 5.19 Sponsor Covenants..........................................    59

Section 5.20 Closing Delay..............................................    60

Section 5.21 Restated Financials........................................    61


                              ARTICLE VI CONDITIONS

Section 6.1 Mutual Conditions to the Closing............................    61

Section 6.2 Buyer's Conditions to the Closing...........................    62

Section 6.3 Seller's Conditions to the Closing..........................    63


                     ARTICLE VII TERMINATION AND ABANDONMENT

Section 7.1 Termination.................................................    64

Section 7.2 Procedure and Effect of Termination.........................    65


                     ARTICLE VIII SURVIVAL; INDEMNIFICATION

Section 8.1 Survival....................................................    66

Section 8.2 Indemnification.............................................    67

Section 8.3 Calculation of Damages......................................    69

Section 8.4 Procedures for Third-Party Claims...........................    69

Section 8.5 Procedures for Inter-Party Claims...........................    71


                       ARTICLE IX MISCELLANEOUS PROVISIONS

Section 9.1 Interpretation..............................................    71

Section 9.2 Disclosure Letters..........................................    72

Section 9.3 Payments....................................................    72

Section 9.4 Expenses....................................................    72

Section 9.5 Choice of Law...............................................    72

Section 9.6 Assignment..................................................    72

Section 9.7 Notices.....................................................    72

Section 9.8 Consent to Jurisdiction.....................................    74
<PAGE>
Section 9.9 Resolution of Disputes......................................    75

Section 9.10 Waiver of Jury Trial.......................................    76

Section 9.11 No Right of Setoff.........................................    76

Section 9.12 Time is of the Essence.....................................    76

Section 9.13 Specific Performance.......................................    76

Section 9.14 Entire Agreement...........................................    76

Section 9.15 Third Party Beneficiaries..................................    77

Section 9.16 Counterparts...............................................    77

Section 9.17 Severability...............................................    77

Section 9.18 Headings...................................................    77

Section 9.19 Waiver.....................................................    77

Section 9.20 Amendment..................................................    78



<PAGE>

EXHIBITS
--------

A        Intellectual Property Agreement
B        Access and Support Agreement
C        Assumption Agreement
D        Form of Opinions from Seller's Counsel
E        Form of Opinions from Counsel to Buyer, Southern Union, Highstar and
         Funding





<PAGE>

                            STOCK PURCHASE AGREEMENT

         This STOCK PURCHASE AGREEMENT, dated as of December 21, 2002 (this
"Agreement"), is made and entered into by and among CMS Gas Transmission
Company, a Michigan corporation (the "Seller"), AIG Highstar Capital, L.P., a
Delaware limited partnership ("Highstar"), AIG Highstar II Funding Corp., a
Delaware corporation ("Funding"), Southern Union Company, a Delaware corporation
("Southern Union", and together with Highstar and Funding, the "Sponsors"), and
Southern Union Panhandle Corp., a Delaware corporation (the "Buyer").

                              W I T N E S S E T H:

         WHEREAS, Panhandle Eastern Pipe Line Company, a Delaware corporation
("Panhandle"), itself and through its subsidiaries, owns and operates a network
of integrated natural gas and condensate pipeline and is engaged in the business
of the interstate transportation of natural gas, natural gas storage services,
the storage and regasification of liquefied natural gas and the separation and
measurement of condensate;

         WHEREAS, Seller owns all of the issued and outstanding shares of
Panhandle (the "Shares");

         WHEREAS, the Sponsors have formed Buyer for the purpose of effecting
the transactions contemplated in this Agreement;

         WHEREAS, Seller desires to sell all of the Shares;

         WHEREAS, the Sponsors desire to cause Buyer to purchase all of the
Shares; and

         WHEREAS, each of the Boards of Directors or other governing body of
each of Seller, Buyer, Southern Union, Highstar and Funding has approved, and
deems it advisable and in the best interests of their respective shareholders
and partners to consummate the transactions contemplated by, this Agreement upon
the terms and subject to the conditions set forth herein;

         NOW, THEREFORE, for and in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, Seller,
Buyer, Southern Union, Highstar and Funding, intending to be legally bound
hereby, hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

                  Section 1.1  Specific Definitions  For purposes of this
                               --------------------
Agreement, the following terms shall have the meanings set forth below:


                                       1

<PAGE>
"743 Schedule"         shall have the meaning set forth in Section 5.6(f).

"1935 Act"             shall have the meaning set forth in Section 3.22.

"Access and Support    shall mean the access and support agreement to be entered
Agreement"             into on the Closing Date between Seller and Buyer,
                       substantially in the form of the agreement attached
                       hereto as Exhibit B.

"Action"               shall mean any administrative, regulatory, judicial or
                       other formal proceeding, action, Claim, suit,
                       investigation or inquiry by or before any Governmental
                       Authority, arbitrator  or mediator.

"Affected Employees"   shall mean Panhandle Employees on the Closing Date.

"Affiliate"            shall have the meaning set forth in Rule 12b-2 of the
                       General Rules and Regulations under the Exchange Act.
                       For purposes of Section 5.3 of this Agreement and only
                       under Section 5.3 of this Agreement, Southern Star
                       Central shall be deemed to be an Affiliate of Highstar,
                       Funding and Buyer.  Notwithstanding the foregoing,
                       American International Group, Inc. and its Affiliates
                       (other than Highstar and Funding) and any portfolio
                       investment of Highstar and Funding shall be deemed not to
                       be an Affiliate of Buyer, Highstar or Funding for
                       purposes of this Agreement.

"Agreement"            shall mean this Stock Purchase Agreement, together with
                       the Seller Disclosure Letter, Buyer Disclosure Letter and
                       Exhibits hereto, as the same may be amended or
                       supplemented from time to time in accordance with the
                       provisions hereof.

"Annual Financial      shall have the meaning set forth in Section 6.2(i).
Statements"

"Applicable Law"       shall mean any statute, law, ordinance, executive order,
                       rule or regulation (including a regulation that has been
                       formally promulgated in a rule-making proceeding but,
                       pending final adoption, is in proposed or temporary form
                       having the force of law); guideline or notice having the
                       force of law; or approval, permit, license, franchise,
                       judgment, order, decree, injunction or writ of any
                       Governmental Authority applicable to a specified Person
                       or specified property, as in effect from time to time.

"Assumption            shall mean the agreement between Buyer and CMS Capital,
Agreement"             L.L.C. whereby Buyer shall assume CMS Capital L.L.C.'s
                       obligation pursuant to its note payable to Panhandle
                       dated as of January 1, 2002, substantially in the form of
                       the agreement attached hereto as Exhibit C.


                                       2

<PAGE>
"Auditor"              shall have the meaning set forth in Section 2.5(b).
                                  ~.
"Base Net Working      shall have the meaning set forth in Section 2.3.
Capital"

"Base Total Debt"      shall have the meaning set forth in Section 2.3.

"Bonus Accrual"        shall have the meaning set forth in Section 5.5(e).

"Burdensome Condition" shall have the meaning set forth in Section 5.3(b).

"Business Day"         shall mean a day other than a Saturday, Sunday or other
                       day on which banks located in New York City are
                       authorized or required by law to close.

"Business Materials"   shall have the meaning set forth in Section 5.16(a).

"Buyer"                shall have the meaning set forth in the preamble to this
                       Agreement.

"Buyer Account Plan"   shall have the meaning set forth in Section 5.5(a).

"Buyer Adjustment"     shall have the meaning set forth in Section 2.5(c).

"Buyer Counterparty"   shall mean each Sponsor that executes and delivers any of
                       the Related Agreements.

"Buyer Indemnified     shall have the meaning set forth in Section 8.2(a).
Parties"

"Buyer Plans"          shall have the meaning set forth in Section 5.5(d).

"Cap Amount"           shall have the meaning set forth in Section 8.2(d).

"Casualty Insurance    shall have the meaning set forth in Section 5.10(a).
Claims"

"Centennial"           shall have the meaning set forth in Section 5.9(a).

"Claims"               shall mean any and all claims, lawsuits, demands, causes
                       of action, investigations and other proceedings (whether
                       or not before a Governmental Authority).

"Closing Adjustment    shall have the meaning set forth in Section 2.5(a).
Amount"                           ~.


                                       3

<PAGE>
"Closing Balance       shall have the meaning set forth in Section 2.5(a).
Sheet"

"Closing Date"         shall have the meaning set forth in Section 2.2.

"Closing"              shall have the meaning set forth in Section 2.2.

"CMSGCFS"              shall have the meaning set forth in Section 5.9(a).

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

"Comparable            shall have the meaning ascribed to such term in the
Employment"            applicable Separation Plan.

"Confidentiality       shall mean the confidentiality agreement entered into by
Agreement"             and between Highstar and CMS Energy Corporation
                       ("Parent"), dated September 20, 2002, as modified by the
                         ------
                       letter agreement dated December 6, 2002.

"Consolidated Income   shall have the meaning set forth in Section 5.6(b)(ix)
Tax Return"            hereof.

"Corporate Name Change shall have the meaning set forth in Section 5.15.
Transition Period"

"Damages"              shall mean all demands, Claims, causes of action, suits,
                       judgments, damages, amounts paid in settlement (with the
                       approval of the Indemnifying Party where applicable),
                       penalties, Liabilities, losses or deficiencies, costs and
                       expenses, including reasonable attorney's fees, court
                       costs, expenses of arbitration or mediation, and other
                       out-of-pocket expenses incurred in investigating or
                       preparing the foregoing.  "Damages" does not include
                       incidental, indirect or consequential damages, damages
                       for lost profits or other special damages or punitive or
                       exemplary damages; provided, however, that in the case of
                                          --------  -------
                       Third-Party Claims, "Damages" shall be deemed to include
                       all forms of relief, monetary and otherwise, asserted
                       therein, without any of the foregoing exceptions.

"Delay Penalty"        shall have the meaning set forth in Section 5.20.

"Determination Date"   shall have the meaning set forth in Section 2.5(b).

"Disabled Employee"    shall have the meaning set forth in Section 5.5(b)(i).

"Dispute"              shall have the meaning set forth in Section 9.9.


                                       4


<PAGE>
"Election"             shall have the meaning set forth in Section 5.6(a)(i).

"Employee Benefit      shall have the meaning set forth in Section 3.12(c).
Plans"

"Encumbrances"         shall mean any Claims, mortgages, pledges, liens,
                       security interests, conditional and installment sale
                       agreements or other title retention agreements, activity
                       and use limitations, easements, deed restrictions, title
                       defects, reservations, encumbrances and charges of any
                       kind, options, subordination agreements or adverse claim
                       of any kind.

"Environmental Laws"   shall mean all foreign, federal, state and local laws,
                       regulations, rules and ordinances relating to pollution
                       or protection of human health or the environment,
                       including laws relating to releases or threatened
                       releases of Hazardous Substances into the environment
                       (including ambient air, surface water, groundwater, land,
                       surface and subsurface strata).

"Environmental Permit" shall mean any Permit, formal exemption, identification
                       number or other authorization issued by a Governmental
                       Authority pursuant to an applicable Environmental Law.

"ERISA Plan(s)"        shall have the meaning set forth in Section 3.12(a).

"ERISA"                shall mean the Employee Retirement Income Security Act of
                       1974, as amended, and the regulations promulgated
                       thereunder.

"Estimated Adjustment  shall have the meaning set forth in Section 2.3.
Amount"

"Estimated Closing     shall have the meaning set forth in Section 2.3.
Debt"

"Estimated Closing     shall have the meaning set forth in Section 2.3.
Net Working Capital
Amount"

"Estimated Purchase    shall have the meaning set forth in Section 2.3.
Price"

"Exchange Act"         shall mean the Securities Exchange Act of 1934, as
                       amended.

"Final Form 8023"      shall have the meaning set forth in Section 5.6(a)(ii).


                                       5

<PAGE>
"Final 743 Schedule"   shall have the meaning set forth in Section 5.6(f)(i)

"Financial Statements" shall mean the Year End Financial Statements and the
                       Interim Financial Statements.

"Funding"              shall have the meaning set forth in the preamble to this
                       Agreement.

"GAAP"                 shall mean United States generally accepted accounting
                       principles as in effect from time to time, applied on a
                       consistent basis.

"Governmental          shall mean any executive, legislative, judicial, tribal,
Authority"             regulatory, taxing or administrative agency, body,
                       commission, department, board, court, tribunal,
                       arbitrating body or authority of the United States or any
                       foreign country, or any state, local or other
                       governmental subdivision thereof.

"Guardian"             shall have the meaning set forth in Section 5.9(a).

"Hazardous Substances" shall mean any chemicals, materials or substances defined
                       as or included in the definition of "hazardous
                       substances", "hazardous wastes", "hazardous materials",
                       "hazardous constituents", "restricted hazardous
                       materials", "extremely hazardous substances", "toxic
                       substances", "contaminants", "pollutants", "toxic
                       pollutants", or words of similar meaning and regulatory
                       effect under any applicable Environmental Law.

"Highstar"             shall have the meaning set forth in the recitals.

"HSR Act"              shall have the meaning set forth in Section 6.1(a).

"Indemnified Party"    shall have the meaning set forth in Section 8.2(c).

"Indemnifying Party"   shall have the meaning set forth in Section 8.2(c).

"Initial Termination   shall have the meaning set forth in Section 7.1(b).
Date"

"Insurance Policies"   shall have the meaning set forth in Section 3.21(a).

"Intellectual Property shall mean the Intellectual Property Agreement to be
Agreement"             entered into between Seller and Buyer, as of the Closing
                       Date, substantially in the form of the agreement attached
                       hereto as Exhibit A.


                                       6

<PAGE>
"Interim Financial     shall mean the unaudited balance sheet and statement of
Statements"            income as of and for (i) the three months ended March 31,
                       2002, (ii) the six months ended June 30, 2002, and (iii)
                       the nine months ended September 30, 2002, in each case
                       for Panhandle and the Panhandle Subsidiaries on a
                       consolidated basis.

"Knowledge"            shall mean, as to each of Seller, Panhandle and the
                       Panhandle Subsidiaries, the actual knowledge, after due
                       inquiry, of the persons listed on Section 1.1(a) of the
                       Seller Disclosure Letter, or any Person who replaces any
                       of such listed persons between the date of this Agreement
                       and the Closing Date, and in the case of Buyer and the
                       Sponsors, the actual knowledge, after due inquiry, of
                       those persons listed on Section 1.1(a) of the Buyer
                       Disclosure Letter, applicable to Buyer or such Sponsor,
                       as the case may be, or any Person who replaces any of
                       such listed persons between the date of this Agreement
                       and the Closing Date.

"Liabilities"          shall mean any and all debts, liabilities, commitments
                       and obligations, whether or not fixed, contingent or
                       absolute, matured or unmatured, liquidated or
                       unliquidated, accrued or unaccrued, known or unknown,
                       whether or not required by GAAP to be reflected in
                       financial statements or disclosed in the notes thereto.

"Liens"                shall mean any lien, mortgage, pledge, charge, claim
                       assignment by way of security or similar security
                       interest.

"Material Adverse      shall mean any change or effect that is materially
Effect"                adverse to the business, financial condition or assets of
                       the business of Panhandle and the Panhandle Subsidiaries,
                       taken as a whole; provided, however, that Material
                                         --------  -------
                       Adverse Effect shall exclude any change or effect due to
                       (a) negotiation, execution, announcement, and
                       consummation of this Agreement and the transactions
                       contemplated hereby, including the impact thereof on
                       relationships, contractual or otherwise, with customers,
                       suppliers, distributors, partners, joint owners or
                       venturers, or employees, (b) any action taken by Seller,
                       Panhandle, the Panhandle Subsidiaries, Buyer or any of
                       their respective representatives or Affiliates or other
                       action required or permitted by the terms of this
                       Agreement or necessary to consummate the transactions
                       contemplated by this Agreement, (c) the general state
                       of the industries in which Panhandle or the Panhandle
                       Subsidiaries operate (including (i) pricing levels, (ii)
                       changes in the international, national, regional or local
                       wholesale or retail markets for natural gas, (iii)
                       changes in the North American, national, regional or


                                       7

<PAGE>
                       local interstate natural gas pipeline systems, and (iv)
                       rules, regulations or decisions of the FERC or the courts
                       affecting the interstate natural gas transmission
                       industry as a whole, or rate orders, motions, complaints
                       or other actions affecting Panhandle or the Panhandle
                       Subsidiaries), except, in all cases for such effects
                       which disproportionately impact Panhandle and the
                       Panhandle Subsidiaries, taken as a whole, (d) general
                       legal, regulatory, political, business, economic, capital
                       market and financial market conditions (including
                       prevailing interest rate levels), or conditions otherwise
                       generally affecting the industries in which Panhandle or
                       the Panhandle Subsidiaries operate, except, in all cases,
                       for such effects which disproportionately impact
                       Panhandle and the Panhandle Subsidiaries, taken as a
                       whole, and (e) any condition described in the Seller
                       Disclosure Letter (but only to the extent set forth in
                       such Seller Disclosure Letter).

"Material Contract"    shall have the meaning set forth in Section 3.7(a)

"Minimum Claim         shall have the meaning set forth in Section 8.2(d)
Amount"

"Net Working Capital   shall have the meaning set forth in Section 2.3.
Amount"

"NGA"                  shall have the meaning set forth in Section 3.22.

"Organizational        shall mean certificates of incorporation, by-laws,
Documents"             certificates of formation, limited liability company
                       operating agreements, partnership or limited partnership
                       agreements or other formation or governing documents of a
                       particular entity.

"Panhandle"            shall have the meaning set forth in the recitals to this
                       Agreement.

"Panhandle Employees"  shall mean all employees employed by Panhandle or the
                       Panhandle Subsidiaries including employees on short-term
                       disability, military leave, maternity leave or paternity
                       leave and other approved leaves of absence from active
                       employment.

"Panhandle             shall mean CMS Pan Gas Storage Company, LLC, a Delaware
Subsidiaries"          limited liability company (d/b/a Southwest Gas Storage
                       Company); Trunkline Field Services Company, a Delaware
                       Corporation; CMS Panhandle Holdings, LLC, a Delaware
                       limited liability company; CMS Panhandle Storage Company,
                       a Delaware corporation; CMS Trunkline Gas Company, LLC, a
                       Delaware limited liability company; CMS Trunkline
                       Offshore Pipeline Company, LLC, a Delaware limited


                                       8


<PAGE>
                       liability company; CMS Trunkline Deepwater Pipeline
                       Company, LLC, a Delaware limited liability company; Sea
                       Robin Pipeline Company, an unincorporated joint venture;
                       CMS Trunkline Gas Resources, LLC a Delaware limited
                       liability company; MG Ventures Storage, Inc., a Delaware
                       corporation; CMS Panhandle Eastern Resources, Inc., a
                       Delaware corporation; CMS Panhandle Lake Charles
                       Generation Company, LLC, a Delaware limited liability
                       company; CMS Trunkline LNG Company, LLC, a Delaware
                       limited liability company, CMS Trunkline LNG Holdings,
                       LLC, a Delaware limited liability company, Panhandle
                       Partner LLC, a Delaware limited liability company, CMS
                       Panhandle LNG Acquisition Company, a Delaware
                       corporation, and DekaTherm Investor Trust, a Delaware
                       trust. On and after the date of the transfer of CMSGCFS
                       to Panhandle or a Panhandle Subsidiary pursuant to
                       Section 5.9 hereof, CMSGCFS shall be deemed a Panhandle
                       Subsidiary for all purposes of this Agreement.

                       Without limiting the foregoing, for purposes of Section
                       3.16 of this Agreement, a Panhandle Subsidiary shall also
                       include any Subsidiary of a Panhandle Subsidiary and any
                       entity which was merged or combined under state corporate
                       law with, liquidated into, or converted into a Panhandle
                       Subsidiary or a Subsidiary of a Panhandle Subsidiary.

"PBOPs"                shall have the meaning set forth in Section 5.5(d).

"Permits"              shall have the meaning set forth in Section 3.9.

"Permitted             shall mean (a) zoning, planning and building codes and
Encumbrances"          other applicable laws regulating the use, development and
                       occupancy of real property and permits, consents and
                       rules under such laws; (b) encumbrances, easements,
                       rights-of-way, covenants, conditions, restrictions and
                       other matters affecting title to real property which do
                       not materially detract from the value of such real
                       property or materially restrict the use of such real
                       property; (c) leases and subleases of real property; (d)
                       all easements, encumbrances or other matters which are
                       necessary for utilities and other similar services on
                       real property; (e) Encumbrances to secure indebtedness
                       reflected on the Financial Statements, (f) Encumbrances
                       to secure indebtedness incurred in the ordinary course of
                       business, consistent with past practice, after the date
                       thereof, to the extent permitted pursuant to Section
                       5.1(b)(xi), (f) Liens for Taxes and other governmental
                       levies not yet due and payable or, if due, (i) not
                       delinquent or (ii) being contested in good faith by
                       appropriate proceedings during which collection or


                                       9

<PAGE>
                       enforcement against the property is stayed and with
                       respect to which adequate reserves have been established
                       and are being maintained to the extent required by GAAP,
                       (g) mechanics', workmen's, repairmen's, materialmen's,
                       warehousemen's, carriers' or other Liens, including all
                       statutory Liens, arising or incurred in the ordinary
                       course of business, (h) original purchase price
                       conditional sales contracts and equipment leases with
                       third parties entered into in the ordinary course of
                       business, (i) Liens that do not materially interfere with
                       or materially affect the value or use of the respective
                       underlying asset to which such Liens relate, (j)
                       Encumbrances which are capable of being cured through
                       condemnation procedures under the Natural Gas Act at a
                       total cost to Panhandle and the Panhandle Subsidiaries of
                       less than $1 million and (k) Encumbrances which are
                       reflected in any Material Contract.

"Person"               shall mean any natural person, corporation, company,
                       general partnership, limited partnership, limited
                       liability partnership, joint venture, proprietorship,
                       limited liability company, or other entity or business
                       organization or vehicle, trust, unincorporated
                       organization or Governmental Authority or any department
                       or agency thereof.

"Post-Closing Taxes"   shall have the meaning set forth in Section 5.6(b)(iii)

"Pre-Closing Taxes"    shall have the meaning set forth in Section 5.6(b)(iv).

"Pro Forma Adjusted    shall mean the September 30, 2002 Interim Financial
Balance Sheet"         Statements, adjusted to:

                       (A) reflect, among the other matters reflected in the
                           adjustments set forth in Section 1.1(b)(ii) of the
                           Seller Disclosure Letter, the following pro forma
                           adjustments:

                           (i)   the consolidation of 100 percent of CMS
                                 Trunkline LNG Holdings, LLC, following the
                                 purchase of Dekatherm Investors Trust's
                                 interest therein by Panhandle or a subsidiary
                                 of Panhandle,

                           (ii)  the consolidation of 100% of CMSGCFS,

                           (iii) the elimination of 100% of Panhandle's interest
                                 in Centennial,

                           (iv)  the elimination of 100% of Panhandle's interest
                                 in Guardian, and

                           (v)   the elimination of all account balances
                                 relating to the Supplemental Retirement Plan.


                                       10

<PAGE>
                       (B) reflect, among the other matters reflected in the
                           adjustments set forth in Section 1.1(b)(ii) of the
                           Seller Disclosure Letter, the following adjustments
                           for purposes of calculating the Net Working Capital
                           Amount:

                           (i)   current assets shall include the non-current
                                 portion of the system gas account, as reflected
                                 on the applicable balance sheet,

                           (ii)  current assets shall exclude (x) any Tax asset
                                 (current or deferred) or (y) any mark to market
                                 adjustments related to any swap agreements
                                 listed in Section 1.1(b)(i) of the Seller
                                 Disclosure Letter, and

                           (iii) current liabilities shall exclude (w) any Tax
                                 liability (current or deferred), (x) any mark
                                 to market adjustments related to any swap
                                 agreements listed in Section 1.1(b)(i) of the
                                 Seller Disclosure Letter, (y) short term debt
                                 and current portions of long term debt or (z)
                                 bonus amounts accrued for Affected Employees
                                 which will be paid by Buyer, who will be
                                 reimbursed by Seller, pursuant to Section
                                 5.5(e) hereof; and

                       (C) reflect that current assets and current liabilities
                           relating to amounts owed by (or owed to) Panhandle or
                           the Panhandle Subsidiaries on the one hand to (or by)
                           Seller or any of its Affiliates, other than Panhandle
                           and the Panhandle Subsidiaries, on the other hand
                           shall be excluded; provided, however, that none of
                                              --------  -------
                           the following shall be excluded:

                           (i)   receivables and/or payables for the purchase or
                                 sale of natural gas, natural gas liquids and
                                 other commodities between Panhandle or the
                                 Panhandle Subsidiaries on the one hand, and
                                 Seller (or any of its Affiliates, other than
                                 Panhandle and the Panhandle Subsidiaries) on
                                 the other hand;

                           (ii)  receivables for services rendered in the
                                 ordinary course of business by Panhandle or


                                       11

<PAGE>
                                 the Panhandle Subsidiaries on the one hand, to
                                 Seller (or any of its Affiliates, other than
                                 Panhandle and the Panhandle Subsidiaries) on
                                 the other hand; and

                           (iii) payables for services rendered, other than
                                 allocated corporate expenses in the ordinary
                                 course of business for Panhandle or the
                                 Panhandle Subsidiaries on the one hand, by
                                 Seller (or any of its Affiliates, other than
                                 Panhandle and the Panhandle Subsidiaries) on
                                 the other hand.

                       The Pro Forma Adjusted Balance Sheet, reflecting the
                       adjustments listed above, is set forth in Section
                       1.1(b)(ii) of the Seller Disclosure Letter.

"Prohibited            shall have the meaning set forth in Section 5.18.
Transactions"

"Purchase Price"       shall mean the purchase price for the Shares as set forth
                       in Section 2.5(d).

"Related Agreements"   shall mean the Transition Services Agreement, the
                       Intellectual Property Agreement, the Access and Support
                       Agreement, and the Assumption Agreement.

"Related Companies"    shall mean Centennial, Guardian and Lee 8 Storage
                       Partnership, a Michigan general partnership.  On and
                       after the date of the transfer of the holding company,
                       whose sole asset is 100 percent of the ownership
                       interests in CMSGCFS, to Panhandle or a Panhandle
                       Subsidiary, Atchafalaya Pipeline, L.L.C., a Delaware
                       limited liability company shall also be considered a
                       Related Company.  On and after the date of the transfer
                       of Centennial and Guardian to Seller, Centennial and
                       Guardian shall no longer be deemed Related Companies for
                       all purposes of this Agreement.

"Real Property"        shall have the meaning set forth in Section 3.11.

"Restated Financials"  shall have the meaning set forth in Section 6.2(i).

"Rights-Of-Way"        shall have the meaning set forth in Section 3.11.


                                       12

<PAGE>
"Section 5.3(b)        shall mean any of Southern Union and its Subsidiaries
Person"                (taken as a whole), Highstar and Funding (taken as
                       whole), Buyer, or Southern Star Central.

"Seller Adjustment"    shall have the meaning set forth in Section 2.5(c)

"Seller Counterparty"  shall mean each of Seller's Affiliates that executes and
                       delivers any of the Related Agreements.

"Seller Indemnified    shall have the meaning set forth in Section 8.2(b).
Parties"

"Seller Plans"         shall have the meaning set forth in Section 5.5(b)

"Seller Returns"       shall have the meaning set forth in Section 5.6(b)(i).

"Seller"               shall have the meaning set forth in the preamble to this
                       Agreement.

"Seller's Marks"       shall have the meaning set forth in Section 5.16.

"Seller's Savings      shall have the meaning set forth in Section 5.5(a).
Plan"

"Separation Plans"     shall mean (i) Separation Allowance Plan for Employees of
                       Panhandle and the Panhandle Subsidiaries, adopted on
                       November 1, 2002; (ii) Executive Separation Allowance
                       Plan for Employees of Panhandle and the Panhandle
                       Subsidiaries, adopted on November 1, 2002; (iii)
                       Executive Separation Allowance Plan for Designated
                       Officers of Panhandle and the Panhandle Subsidiaries,
                       adopted on November 1, 2002; and (iv) Executive
                       Separation Allowance Plan for Designated Senior Officers
                       of Panhandle Eastern Pipe Line Company, adopted on
                       November 1, 2002.

"Shares"               shall have the meaning set forth in the recitals to this
                       Agreement.

"Southern Union"       shall have the meaning set forth in the recitals to this
                       Agreement.

"Southern Star         shall mean, collectively, Southern Star Central Corp. and
Central"               its Subsidiaries.

"Sponsors"             shall have the meaning set forth in the recitals to this
                       Agreement.

"Straddle Period       shall have the meaning set forth in Section 5.6(b)(ii).
Return(s)"


                                       13

<PAGE>
"Straddle Period"      shall have the meaning set forth in Section 5.6(b)(ii).

"Straddle Statement"   shall have the meaning set forth in Section 5.6(b)(ii).

"Subsidiary"           of any entity means, at any date, any Person (a) the
                       accounts of which would be consolidated with and into
                       those of the applicable entity in such entity's
                       consolidated financial statements if such financial
                       statements were prepared in accordance with GAAP as of
                       such date or (b) of which securities or other ownership
                       interests representing more than fifty percent (50%) of
                       the equity or more than fifty percent (50%) of the
                       ordinary voting power or, in the case of a partnership,
                       more than fifty percent(50%) of the general partnership
                       interests or more than fifty percent (50%) of the profits
                       or losses of which are, as of such date, owned,
                       controlled or held by the applicable entity or one or
                       more subsidiaries of such entity.

"Survival Period"      shall have the meaning set forth in Section 8.1(c).

"Tax Claim"            shall have the meaning set forth in Section 5.6(e)(i).

"Tax Indemnified       shall have the meaning set forth in Section 5.6(e)(i).
Party"

"Tax Indemnifying      shall have the meaning set forth in Section 5.6(e)(i).
Party"

"Tax Return"           shall mean any report, return, declaration, or other
                       information required to be supplied to a Governmental
                       Authority in connection with Taxes including any claim
                       for refund or amended return.

"Taxes"                shall mean all taxes, levies or other like assessments,
                       including net income, gross income, gross receipts,
                       capital gains, profits, environmental, excise, value
                       added, ad valorem, real or personal property,
                       withholding, asset, sales, use, transfer, registration,
                       license, payroll, transaction, capital, business,
                       occupation, corporation, employment, withholding, wage,
                       net worth, franchise, minimum, alternative minimum, and
                       estimated taxes, or other governmental taxes imposed by
                       or payable to any foreign, Federal, state or local taxing
                       authority, whether computed on a separate, consolidated,
                       unitary, combined or any other basis; and in each
                       instance such term shall include any interest, penalties
                       or additions to tax attributable to any such Tax.


                                       14

<PAGE>
"Third-Party Claim"    shall have the meaning set forth in Section 8.4(a).

"Threshold Amount"     shall have the meaning set forth in Section 8.2(d).

"Total Debt"           shall mean all short-term and long-term indebtedness of
                       Panhandle and the Panhandle Subsidiaries as reflected on
                       a consolidated balance sheet, prepared in accordance with
                       GAAP, of Panhandle and the Panhandle Subsidiaries as of
                       a particular date, but excluding any debt payable to
                       Seller or Seller's Affiliates by Panhandle or a Panhandle
                       Subsidiary which is eliminated by Panhandle or a
                       Panhandle Subsidiary prior to the Closing Date in
                       accordance with Section 5.7.

"Transfer Tax(es)"     shall have the meaning set forth in Section 5.6(g).

"Transitional License" shall have the meaning set forth in Section 5.16.

"Transition Services   shall mean the transition services agreement to be
Agreement"             entered into on the Closing Date between Seller and Buyer
                       in a form mutually acceptable to both parties.

"Treasury Regulation"  shall mean the income Tax regulations, including
                       temporary and proposed regulations, promulgated under the
                       Code, as amended.

"Year End Financial    shall mean the audited balance sheet and statement of
Statements"            income, as of and for the twelve (12) months ended
                       December 31, 2001 for Panhandle and the Panhandle
                       Subsidiaries on a consolidated basis.


                                   ARTICLE II

                                SALE AND PURCHASE

                  Section 2.1  Agreement to Sell and Purchase.
                               ------------------------------

         Subject to the terms and conditions of this Agreement, at the Closing,
Seller shall sell, convey, assign, transfer and deliver to Buyer the Shares,
free and clear of all Encumbrances, and Buyer shall purchase and accept such
Shares from Seller.

                  Section 2.2  Time and Place of Closing.
                               -------------------------

         Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 4 Times Square, New York, New York, at 10:00 a.m.,
local time, on the third (3rd) day following the date on which all of the
conditions set forth in Article VI of this Agreement have been satisfied or


                                       15

<PAGE>
waived (other than those conditions contemplated to be satisfied at the
Closing), or at such other place or time as Buyer and Seller may mutually agree
in writing; provided, however, that in no event shall the Closing take place
            --------  -------
earlier than January 2, 2003. The date and time at which the Closing actually
occurs is hereinafter referred to as the "Closing Date."
                                          ------- ----

                  Section 2.3  Pre-Closing Matters.
                               -------------------

         At least five (5) Business Days prior to Closing, Seller shall deliver
to Buyer its good faith estimate of the Net Working Capital Amount at Closing
(the "Estimated Closing Net Working Capital Amount") and its good faith estimate
      --------------------------------------------
of the amount of Total Debt at Closing (the "Estimated Closing Debt"), in each
                                             ----------------------
case together with a reasonably detailed computation of such estimates, which
shall be computed in accordance with GAAP (subject to the exceptions from GAAP
relating to the adjustments reflected on the Pro Forma Adjusted Balance Sheet)
and on a basis consistent with the preparation of the Pro Forma Adjusted Balance
Sheet. "Net Working Capital Amount" shall mean (a) the current assets of
        --------------------------
Panhandle and the Panhandle Subsidiaries minus (b) the current liabilities of
Panhandle and the Panhandle Subsidiaries, with both current assets and current
liabilities determined in accordance with GAAP, applied in a manner consistent
with the preparation of the Pro Forma Adjusted Balance Sheet (and subject to the
exceptions from GAAP relating to the adjustments reflected on the Pro Forma
Adjusted Balance Sheet), except for the calculation of Estimated Closing Net
Working Capital and Net Working Capital Amount as of the Closing Date with
respect to System Gas Inventory and Imbalance Related Accounts, which is
addressed below. For purposes of this Section 2.3, capitalized terms used but
not otherwise defined herein shall be deemed to refer to the corresponding line
items in Sections 1.1(b)(ii) or 1.1(b)(iii) of the Seller Disclosure Letter, as
applicable. For purposes of the Net Working Capital calculation, System Gas
Inventory and Imbalance Related Accounts shall be valued at $29,114,046 plus
(less) the excess (deficiency) of the actual on hand quantity of Net System Gas
Owned at the closing date less the net quantity of system gas owned at
September 30, 2002 (10,789,959 MMBTU) times the average of the closing Henry Hub
spot market price for natural gas for the five business days prior to the
Closing Date as reported in the Wall Street Journal, except for purposes of the
calculation of the Estimated Closing Net Working Capital which shall be valued
based on the quantity of Net System Gas Owned ten (10) days prior to the Closing
Date times the average closing Henry Hub spot market price for natural gas for
the five (5) business days ended ten (10) days prior to the Closing Date. System
Gas Inventory and Imbalance Related Accounts shall be defined as System Gas
Inventory, Accounts Receivable - Exchanges, Accounts Payable - Exchanges, Fuel
Tracker and Line Pack as shown in the Section 1.1(b)(ii) of the Seller
Disclosure Letter. Net System Gas Owned shall be defined as System Gas Inventory
plus Accounts Receivable - Exchanges, Accounts Payable - Exchange, including
Fuel Tracker and Line Pack as shown in the Section 1.1(b)(iii) of the Seller
Disclosure Letter. Seller shall deliver to Buyer its calculations of the
Estimated Purchase Price and the Estimated Adjustment Amount within five (5)
Business Days prior to the Closing Date and shall provide upon reasonable
advance notice, Buyer and Buyer's accountants prompt and full reasonable access
during normal business hours to the personnel, accountants and books and records
of Seller, to the extent reasonably related to the preparation of the Estimated


                                       16

<PAGE>
Purchase Price and the Estimated Adjustment Amount (and the elements of such
calculation). Buyer and Seller shall in good faith attempt to resolve any
objections of Buyer to such calculation of the Estimated Adjustment Amount; if
Buyer and Seller are in disagreement with respect to the calculation of the
Estimated Adjustment Amount as of the Closing, the Estimated Purchase Price paid
pursuant to Section 2.4 shall be based on the amount of the Estimated Adjustment
Amount delivered to Buyer pursuant to this Section 2.3, as adjusted to reflect
any changes to the Estimated Adjustment Amount agreed to by the parties prior to
Closing.

                  Section 2.4  Estimated Purchase Price.
                               ------------------------

         In consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery to Buyer of the Shares and the agreement of Seller to
enter into this Agreement, and subject to the adjustments set forth in Section
2.5, at the Closing, Buyer shall pay in full to Seller (or its designated
Affiliates) an amount in cash equal to (a) $662,300,000 plus (b) the Estimated
Adjustment Amount (the result of such calculation, the "Estimated Purchase
                                                        ------------------
Price"). The "Estimated Adjustment Amount" shall mean the amount equal to (a)
-----         ---------------------------
the Estimated Closing Net Working Capital Amount, minus (b) the Net Working
Capital Amount as of September 30, 2002, as shown in the Pro Forma Adjusted
Balance Sheet ($92,934,493), minus (c) the Estimated Closing Debt, plus (d) the
amount of Total Debt as of September 30, 2002, ($1,165,519,106). The calculation
of the Estimated Adjustment Amount may result in an amount that is positive or
negative. The Estimated Purchase Price will be payable at the Closing by wire
transfer of same day funds to an account or accounts and in such amounts as
designated by Seller. Seller shall designate such account or accounts and
amounts in writing at least two (2) Business Days prior to Closing.

                  Section 2.5  Post-Closing Adjustment.
                               -----------------------

                           (a) As soon as reasonably practicable following the
Closing Date, and in any event within sixty (60) days thereafter, Seller shall
prepare and deliver to Buyer (i) a consolidated balance sheet of Panhandle and
the Panhandle Subsidiaries as of the close of business on the date immediately
prior to the Closing Date (the "Closing Balance Sheet"), and (ii) a calculation
of the "Closing Adjustment Amount", which shall mean the amount equal to (a) the
Net Working Capital Amount as of the Closing Date, as reflected on the Closing
Balance Sheet, minus (b) the amount of the Base Net Working Capital Amount, plus
(c) the amount of the Base Total Debt, minus (d) the Total Debt as of the
Closing Date, as reflected on the Closing Balance Sheet, which calculation may
result in an amount that is positive or negative (together with reasonable
back-up information providing the basis for such balance sheet and
calculations). In order for Seller to prepare the Closing Balance Sheet and
calculate the Closing Adjustment Amount, Buyer will provide to Seller and
Seller's accountants prompt and full access to the personnel, accountants and
books and records of Panhandle and the Panhandle Subsidiaries (and shall provide
copies of the applicable portions of such books and records as may be reasonably
requested), to the extent reasonably related to the preparation of the Closing


                                       17

<PAGE>
Balance Sheet and the calculation of the Closing Adjustment Amount (and the
elements of such calculation). In order for Buyer to review the Closing Balance
Sheet and review the calculation of the Closing Adjustment Amount, Seller will
provide to Buyer and Buyer's accountants prompt and full access to the
personnel, accountants and books and records used by Seller (and shall provide
copies of the applicable portions of such books and records as may be reasonably
requested), to the extent reasonably related to the preparation of the Closing
Balance Sheet and the calculation of the Closing Adjustment Amount (and the
elements of such calculation). The Closing Balance Sheet and the calculation of
Closing Adjustment Amount shall be prepared in accordance with GAAP, applied in
a manner consistent with the preparation of the Pro Forma Adjusted Balance Sheet
(and subject to the exceptions from GAAP relating to the adjustments reflected
on the Pro Forma Adjusted Balance Sheet).

                           (b) Disputes. If Buyer disagrees with the calculation
                               --------
of the Closing Adjustment Amount, it shall notify Seller of such disagreement in
writing within thirty (30) days after its receipt of the Closing Balance Sheet,
which notice shall set forth in detail the particulars of such disagreement. In
the event that Buyer does not provide such a notice of disagreement within such
thirty (30) day period, Buyer shall be deemed to have accepted the Closing
Balance Sheet and the calculation of the Closing Adjustment Amount (and each
element of such calculation), respectively delivered by Seller, which shall be
final, binding and conclusive for all purposes hereunder. In the event any such
notice of disagreement is timely provided by Buyer, Buyer and Seller shall use
their reasonable best efforts for a period of thirty (30) days (or such longer
period as they may mutually agree) to resolve any disagreements with respect to
the calculation of the Closing Adjustment Amount (or any element thereof). If,
at the end of such period, they are unable to resolve such disagreements, then,
upon the written request of either party, an independent accounting firm (not
providing services to Buyer or Seller) acceptable to Buyer and Seller (the
"Auditor") shall resolve any remaining disagreements. The Auditor shall
 -------
determine as promptly as practicable (but in any event within sixty (60) days)
following the date on which such dispute is referred to the Auditor, based
solely on written submissions, which shall be forwarded by Buyer and Seller to
the Auditor within thirty (30) days following the Auditor's selection, whether
the Closing Balance Sheet was prepared in accordance with the standards set
forth in this Section 2.5 with respect to any items identified as disputed in
the notice of disagreement and not previously resolved by Buyer and Seller, and
if not, whether and to what extent (if any) the Closing Adjustment Amount (or
any element thereof) requires adjustment. Each party shall bear its own expenses
and the fees and expenses of its own representatives and experts in connection
with the preparation, review, dispute (if any) and final determination of the
Closing Balance Sheet and the Closing Adjustment Amount. The parties shall share
the costs, expenses and fees of the Auditor in inverse proportion to the extent
to which their respective positions are sustained (e.g., if Seller's position is
one hundred percent (100%) sustained, it shall bear none of such costs,
expenses, and fees of the Auditor). The determination of the Auditor shall be
final, conclusive and binding on the parties. The Auditor's determination of the
amount of the Closing Adjustment Amount shall then be deemed to be the Closing
Adjustment Amount for purposes of this Section 2.5. The date on which such
items are accepted or finally determined in accordance with this Section 2.5
is referred as to the "Determination Date." As used in this Agreement, the term
                       ------------------


                                       18

<PAGE>
"reasonable best efforts" shall not include efforts which require the performing
party (i) to do any act that is unreasonable under the circumstances, (ii) to
make any capital contribution not expressly contemplated hereunder, (iii) to
amend or waive any rights under this Agreement, or (iv) to incur or expend any
funds other than reasonable out-of-pocket expenses incurred in satisfying its
obligation hereunder, including the reasonable fees, expenses and disbursements
of accountants, counsel and other professionals.

                           (c) Purchase Price Adjustment. If the Estimated
                               -------------------------
Adjustment Amount is (x) less than the Closing Adjustment Amount, then the Buyer
shall pay to Seller an amount equal to such shortfall (the "Buyer Adjustment")
                                                            ----------------
or (y) greater than the Closing Adjustment Amount, then Seller shall pay to
Buyer an amount equal to such excess (the "Seller Adjustment").
                                           -----------------

                           (d) Adjustment Amounts. The Estimated Purchase Price
                               ------------------
minus the Seller Adjustment, if any, plus the Buyer Adjustment, if any, shall
equal the "Purchase Price".  The Seller Adjustment, if any, and the Buyer
           --------------
 Adjustment, if any, shall bear simple interest at a rate equal to daily average
one month LIBOR plus one percent (1%) per annum measured from the Closing Date
to the date of such payment. Amounts owing by Seller, if any, pursuant to this
Section 2.5 shall be paid by Seller by delivery of immediately available funds
to an account designated by Buyer within five (5) Business Days after the
Determination Date. Amounts owing by Buyer, if any, pursuant to this Section 2.5
shall be paid by Buyer by delivery of immediately available funds to an account
designated by Seller within five (5) Business Days after the Determination Date.

                  Section 2.6  Deliveries by Seller at the Closing.
                               -----------------------------------

         At the Closing, Seller shall deliver, or cause its appropriate
Affiliates to deliver, to Buyer:

                           (a) stock certificates representing one hundred
percent (100%) of the Shares;

                           (b) a cross-receipt acknowledging the receipt of the
Purchase Price;

                           (c) a certificate from an authorized officer of
Seller, dated as of the Closing Date, to the effect that the conditions set
forth in Section 6.2(a), Section 6.2(c) and Section 6.2(j) of this Agreement
have been satisfied;

                           (d) all other previously undelivered documents,
including duly executed original copies of the Related Agreements, required by
this Agreement to be delivered by Seller or its Affiliates to Buyer at or prior
to the Closing;

                           (e) resignations of each of the directors and
officers of Panhandle and the Panhandle Subsidiaries who are not employees of
Panhandle or any of the Panhandle Subsidiaries; and


                                       19

<PAGE>
                           (f) all such other deeds and instruments of sale,
assignment, conveyance and transfer and releases, consents and waivers as in the
reasonable opinion of Buyer may be necessary to effect the sale, transfer,
assignment, conveyance and delivery of the Shares to Buyer in accordance with
this Agreement and the Related Agreements, and where necessary or desirable, in
recordable form, in each case, as is necessary to effect the transactions
contemplated by this Agreement.

                  Section 2.7  Deliveries by Buyer at the Closing.
                               ----------------------------------

         Subject to Section 5.19 hereof, at the Closing, Buyer and the Sponsors
shall deliver to Seller:

                           (a) the Estimated Purchase Price in
US-dollar-denominated funds by wire transfer of immediately available funds or
by such other means as are agreed to by Seller and Buyer:

                           (b) a cross-receipt acknowledging receipt of the
Shares;

                           (c) a certificate from an authorized officer of Buyer
and each of the Sponsors, dated as of the Closing Date, to the effect that the
conditions set forth in Section 6.3(a) and Section 6.3(c) of this Agreement have
been satisfied; and

                           (d) all other previously undelivered documents,
including duly executed original copies of the Related Agreements, required by
this Agreement to be delivered by Buyer or a Sponsor to Seller at or prior to
the Closing.

                  Section 2.8  Cooperation with Respect to Like-Kind Exchange.
                               ----------------------------------------------

         With the consent of the Seller, which consent shall not unreasonably be
withheld, the rights of Buyer under this Agreement may be assigned in whole or
in part to Southern Union. In the event Seller consents to such assignment to
Southern Union pursuant to Section 9.6 of this Agreement, Buyer may desire that
the transactions contemplated in this Agreement and the Related Agreements be
accomplished in a manner enabling Southern Union's purchase to qualify as part
of a like-kind exchange of property covered by Section 1031 of the Code. Seller
agrees to cooperate and consider in good faith any reasonable request or
proposal made by Southern Union in connection with efforts to effect such
like-kind exchange, including any reasonable use of a "qualified intermediary",
an "exchange accommodation titleholder" or a "qualified exchange accommodation
agreement" within the meaning of the United States Treasury Regulations and
related authority; provided, however, that Seller shall have no obligation to
take (or agree to take) any action that, in its reasonable discretion, may
create any adverse consequences to the Seller, including but not limited to
adverse Tax, financial or regulatory consequences for the transactions
contemplated by this Agreement and the Related Agreements or may cause an
unreasonable delay in the consummation of the transactions contemplated by this
Agreement and the Related Agreements; provided further, that Seller shall have
no further obligation under this Section 2.8 if Buyer has not made a proposal
reasonably acceptable to Seller by January 8, 2003. Buyer agrees that it will
reimburse Seller for any out-of-pocket costs incurred in connection its


                                       20

<PAGE>
cooperation, including but not limited to legal fees, opinions of counsel or
other costs incurred in implementing Buyer's proposals.  Notwithstanding
anything herein, the structuring of the transactions in a manner that qualifies
the transactions as part of a like-kind exchange shall not be a condition to
Closing.

                                   ARTICLE III

                    REPRESENTATIONS AND WARRANTIES OF SELLER

         Seller hereby represents and warrants to Buyer and the Sponsors as
follows:

                  Section 3.1  Corporate Organization; Qualification.
                               -------------------------------------

                           (a) Seller and Panhandle are each corporations duly
organized, validly existing and duly qualified or licensed and in good standing
under the laws of the state or jurisdiction of their respective incorporation
and have all requisite corporate power, as applicable, to own, lease and operate
their respective properties and to carry on their respective businesses as
currently conducted. Seller and Panhandle are each duly qualified or licensed to
do business as foreign corporations, and are, and have been, in good standing in
each jurisdiction in which the nature of the respective businesses conducted by
them or the property they own, lease or operate requires them to so qualify, be
licensed or be in good standing, except for such failures to be qualified,
licensed or in good standing that would not have a Material Adverse Effect. True
and correct copies of the Organizational Documents of Panhandle and the
Panhandle Subsidiaries with all amendments thereto to the date hereof, have been
made available by Seller to Buyer or its representatives.

                           (b) The Panhandle Subsidiaries are each corporations,
or other entities, as applicable, duly organized, validly existing and duly
qualified or licensed and in good standing under the laws of the state or
jurisdiction of their respective incorporation or formation and have all
requisite corporate or other power, as applicable, to own, lease and operate
their respective properties and to carry on their respective businesses as
currently conducted. The Panhandle Subsidiaries are each duly qualified or
licensed to do business as foreign corporations, or other entities, as
applicable, and are, and have been, in good standing in each jurisdiction in
which the nature of the respective businesses conducted by them or the property
they own, lease or operate requires them to so qualify, be licensed or be in
good standing except where the failure to be so authorized, qualified or
licensed and in good standing would not have a Material Adverse Effect. Section
3.1(b) of the Seller Disclosure Letter sets forth all of the jurisdictions in
which Panhandle and the Panhandle Subsidiaries are qualified to do business.

                           (c) Section 3.1(c) of the Seller Disclosure Letter
sets forth the ownership interest of Seller (or any Subsidiary) in each Related
Company.

                  Section 3.2  Authority Relative to this Agreement.
                               ------------------------------------

         Seller has full corporate power and authority to execute and deliver
this Agreement, the Related Agreements and the other agreements, documents and


                                       21

<PAGE>
instruments to be executed and delivered by it in connection with this Agreement
or the Related Agreements, and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement,
the Related Agreements and the other agreements, documents and instruments to be
executed and delivered in connection with this Agreement or the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all the necessary action on the
part of Seller, and no other corporate or other proceedings on the part of
Seller are necessary to authorize this Agreement, the Related Agreements and the
other agreements, documents and instruments to be executed and delivered in
connection with this Agreement or the Related Agreements or to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and the
Related Agreements and the other agreements, documents and instruments to be
executed and delivered in connection with this Agreement or the Related
Agreements as of the Closing Date will be, duly and validly executed and
delivered by Seller or the Seller Counterparties, as applicable, and assuming
that this Agreement, the Related Agreements and the other agreements, documents
and instruments to be executed and delivered in connection with this Agreement
or the Related Agreements constitute legal, valid and binding agreements of
Buyer and the Buyer Counterparties and each of the Sponsors, as applicable, are
(in the case of this Agreement) or will be as of the Closing Date (in the case
of the Related Agreements and the other agreements, documents and instruments to
be executed and delivered in connection with this Agreement or the Related
Agreements) enforceable against Seller and the Seller Counterparties in
accordance with their respective terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally or general
principles of equity.

                  Section 3.3  Shares.
                               ------

                           (a) The Shares are duly authorized, validly issued
and fully paid and were not issued in violation of any preemptive rights. Excep
as set forth in Section 3.3(a) of the Seller Disclosure Letter, (i) there are no
shares of Panhandle authorized, issued or outstanding or reserved for any
purpose, and (ii) there are no (A) existing options, warrants, calls, rights of
first refusal, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the Shares, obligating
Seller or any of its Affiliates to issue, transfer or sell, or cause to be
issued, transferred or sold, any of the Shares, (B) outstanding securities of
Seller or its Affiliates that are convertible into or exchangeable or
exercisable for any of the Shares, (C) options, warrants or other rights to
purchase from Seller or its Affiliates any such convertible or exchangeable
securities or (D) other than this Agreement, contracts, agreements or
arrangements of any kind relating to the issuance of any of the Shares, or any
such options, warrants or rights, pursuant to which, in any of the foregoing
cases, Seller or its Affiliates are subject or bound.

                           (b) Except as set forth in Section 3.3(b) of the
Seller Disclosure Letter, Seller owns all of the issued and outstanding Shares
and has good, valid and marketable title to the Shares, free and clear of all
Encumbrances or other defects in title, and the Shares have not been pledged or


                                       22

<PAGE>
assigned to any Person. At the Closing, the Shares will be transferred to Buyer
free and clear of all Encumbrances. The Shares owned by Seller are not subject
to any restrictions on transferability other than those imposed by this
Agreement and by applicable securities laws.

                           (c) Except for the ownership of the Panhandle
Subsidiaries and the Related Companies, Panhandle does not have any subsidiaries
or any stock or other equity interest (controlling or otherwise) in any
corporation, limited liability company, partnership, joint venture or other
entity. Except as set forth in Section 3.3(c)(i) of the Seller Disclosure
Letter, all of the outstanding shares of capital stock or other ownership
interests, as applicable, of each of the Panhandle Subsidiaries are owned
directly or indirectly by Panhandle, free and clear of all Encumbrances, and are
validly issued, fully paid and nonassessable.  At the Closing, all of such
shares or other ownership interests will be free and clear of all Encumbrances.
Except as set forth in Section 3.3(c)(ii) of the Seller Disclosure Letter, the
number of outstanding shares of capital stock or other ownership interests, as
applicable, of each of the Related Companies indicated on Section 3.1(c) of the
Seller Disclosure Letter are owned directly or indirectly by Panhandle, free and
clear of all Encumbrances or other defects in title, and such shares or
ownership interests have not been pledged or assigned to any Person. Except as
set forth in Section 3.3(a) of the Seller Disclosure Letter, (i) there are no
shares of a Panhandle Subsidiary authorized, issued or outstanding or reserved
for any purpose, and (ii) there are no (A) existing options, warrants, calls,
rights of first refusal, preemptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character, relating to the shares
of a Panhandle Subsidiary, obligating Panhandle or any of its Affiliates to
issue, transfer or sell, or cause to be issued, transferred or sold, any of the
shares of a Panhandle Subsidiary, (B) outstanding securities of Panhandle or its
Affiliates that are convertible into or exchangeable or exercisable for any of
the shares of a Panhandle Subsidiary, or (C) options, warrants or other rights
to purchase from Panhandle or its Affiliates any such convertible or
exchangeable securities.

                  Section 3.4  Consents and Approvals.
                               ----------------------

         Except as set forth in _Ref19092262 ~ of the Seller Disclosure Letter,
Seller requires no consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Authority, or any other
Person as a condition to the execution and delivery of this Agreement or the
performance of the obligations hereunder, except where the failure to obtain
such consent, approval or authorization of, or filing of, registration or
qualification with, any Governmental Authority, or any other Person would not
materially and adversely impact the operations, as currently conducted, of
Panhandle and the Panhandle Subsidiaries, taken as a whole.

                  Section 3.5  No Conflict or Violation.
                               ------------------------

         Except as set forth in Section 3.5 of the Seller Disclosure Letter, the
execution, delivery and performance by the Seller of this Agreement does not:


                                       23

<PAGE>
                           (a) violate or conflict with any provision of the
organizational documents or bylaws of Seller, Panhandle or the Panhandle
Subsidiaries;

                           (b) violate any applicable provision of a law,
statute, judgment, order, writ, injunction, decree, award, rule or regulation of
any Governmental Authority, except where such violation would not have a
Material Adverse Effect; or

                           (c) violate, result in a breach of, constitute (with
due notice or lapse of time or both) a default or cause any obligation, penalty
or premium to arise or accrue under any Material Contract, lease, loan,
mortgage, security agreement, trust indenture or other material agreement or
instrument to which Panhandle or the Panhandle Subsidiaries are a party or by
which any of them is bound or to which any of their respective properties or
assets is subject, except as would not have a Material Adverse Effect.

                  Section 3.6  Financial Information.
                               ---------------------

         Seller has previously furnished to Buyer the Financial Statements.
Except as set forth in Section 3.6 of the Seller Disclosure Letter, as of the
Date of this Agreement, the Financial Statements present fairly in all material
respects, in accordance with GAAP consistently applied, on a consolidated basis,
the financial condition and results of operation of Panhandle and the Panhandle
Subsidiaries as of the date thereof and for the periods set forth therein,
except for the absence of footnotes and as otherwise noted therein, and subject,
in the case of the Interim Financial Statements, to normal recurring year-end
adjustments which are not material either individually or in the aggregate. At
Closing, the Restated Financials will present fairly in all material respects,
in accordance with GAAP consistently applied, on a consolidated basis, the
financial condition and results of operation of Panhandle and the Panhandle
Subsidiaries as of the date thereof and for the periods set forth therein,
except for the absence of footnotes and as otherwise noted therein, and subject,
in the case of the Interim Financial Statements, to normal recurring year-end
adjustments which are not material either individually or in the aggregate.

                  Section 3.7  Contracts.
                               ---------

                           (a) Section 3.7(a) of the Seller Disclosure Letter
sets forth a list, as of the date hereof, of each material contract and lease to
which any of Panhandle or the Panhandle Subsidiaries is a party, other than (i)
any purchase or sale orders arising in the ordinary course of business, (ii) any
contract involving the payment or receipt of less than $1,000,000 in the
aggregate and (iii) any contract listed in any other Section of the Seller
Disclosure Letter (each contract set forth in Section 3.7(a) of the Seller
Disclosure Letter being referred to herein as a "Material Contract").
                                                 -----------------

                           (b) Section 3.7(b) of the Seller Disclosure Letter
sets forth a list, as of the date hereof, of each contract that any of Panhandle
or the Panhandle Subsidiaries has with an Affiliate, other than with respect to
any purchases and sales arising in the ordinary course of business.


                                       24

<PAGE>
                           (c) Except as set forth in Section 3.7(c) of the
Seller Disclosure Letter, each Material Contract is a valid and binding
agreement of Panhandle or the Panhandle Subsidiaries, as applicable, and, to the
Knowledge of Seller, is in full force and effect.

                           (d) Except as set forth in Section 3.7(d) of the
Seller Disclosure Letter, Seller has no Knowledge of any default under any
Material Contract, other than defaults which have been cured or waived and which
would not have a Material Adverse Effect. Panhandle or a Panhandle Subsidiary,
as the case may be, and, to Seller's Knowledge, the other party(ies) to any
Material Contract, have performed in all respects all obligations required to be
performed by them under any Material Contract, except where such non-performance
would not have a Material Adverse Effect. Seller has made available to Buyer or
its representatives true and complete originals or copies of all the Material
Contracts.

                  Section 3.8  Compliance with Law.
                               -------------------

         Except for Environmental Laws and Tax laws, which are the subject of
Section 3.15 and Section 3.16, respectively, and except as set forth in Section
3.8 of the Seller Disclosure Letter, since December 31, 1999, Seller, Panhandle
and the Panhandle Subsidiaries have complied with all federal, state, local or
foreign laws, statutes, ordinances, rules, regulations, judgments, orders,
writs, injunctions or decrees of any Governmental Authority applicable to their
respective properties, assets and businesses except where such noncompliance
would not have a Material Adverse Effect. None of Seller or Panhandle, and, to
the Knowledge of Seller, no Panhandle Subsidiary, has received written notice of
any material violation of any such law, license, regulation, order or other
legal requirement or, to the Knowledge of Seller, is in material default with
respect to any order, writ, judgment, award, injunction or decree of any
Governmental Authority, applicable to Panhandle or a Panhandle Subsidiary or any
of their respective assets, properties or operations.

                  Section 3.9  Permits.
                               -------

         Except as set forth in Section 3.9 of the Seller Disclosure Letter,
Seller, Panhandle and the Panhandle Subsidiaries have all permits, licenses,
certificates of authority, orders and approvals of, and have made all filings
applications and registrations with Governmental Authorities necessary for the
conduct of the respective business operations of Panhandle and the Panhandle
Subsidiaries as presently conducted (collectively, the "Permits"), except for
                                                        -------
those Permits the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect.

                  Section 3.10  Litigation.
                                ----------

         Except as identified in Section 3.10 of the Seller Disclosure Letter,
there are no lawsuits, actions, proceedings, or, to Seller's Knowledge, any
investigations, pending or, to Seller's Knowledge, threatened, against Seller or
any of its Affiliates or any executive officer or director thereof relating to
the Shares or the transactions contemplated hereby or the respective assets or


                                       25

<PAGE>
businesses of Panhandle or the Panhandle Subsidiaries, except, in the case of
lawsuits, actions, proceedings, investigations relating to the respective assets
or businesses of Panhandle or the Panhandle Subsidiaries, as would not,
individually or in the aggregate, have a Material Adverse Effect. Seller and its
Affiliates are not subject to any outstanding judgment, order, writ, injunction,
decree or award entered in an Action to which Seller or any of its Affiliates
was a named party relating to the Shares or the transactions contemplated hereby
or the respective assets or businesses of Panhandle or the Panhandle
Subsidiaries, except, in the case of lawsuits, actions, proceedings,
investigations relating to the respective assets or businesses of Panhandle or
the Panhandle Subsidiaries, as would not, individually or in the aggregate, have
a Material Adverse Effect.

                  Section 3.11  Title to Properties.
                                -------------------

         Each of Panhandle and the Panhandle Subsidiaries has good and valid
title to all of the tangible assets and properties which it owns and which are
reflected in the Financial Statements (except for assets and properties sold,
consumed or otherwise disposed of in the ordinary course of business since the
date of the Financial Statements), and such tangible assets and properties are
owned free and clear of all Encumbrances, except for (a) Encumbrances listed in
Section 3.11 of the Seller Disclosure Letter, (b) Permitted Encumbrances, and
(c) Encumbrances which will be discharged on or before the Closing Date. To the
Knowledge of Seller, each of Panhandle and the Panhandle Subsidiaries owns valid
and defeasible fee title to, or holds a valid leasehold interest in, or a valid
right-of-way or easement (all such rights-of-way and easements collectively, the
"Rights of Way") through, all real property ("Real Property") used or necessary
 -------------                                -------------
for the conduct of Panhandle's and the Panhandle Subsidiaries' business as
presently conducted, and all such real Property (other than Rights-Of-Way) are
owned or leased free and clear of all Encumbrances, in each case except for (a)
Encumbrances listed in Section 3.11 of the Seller Disclosure Letter, (b)
Permitted Encumbrances, and (c) Encumbrances which will be discharged on or
before the Closing Date.

                  Section 3.12  Employee Matters.
                                ----------------

                           (a) Except as set forth in Section 3.12(a) of the
Seller Disclosure Letter, neither Panhandle nor the Panhandle Subsidiaries
contributes to any "employee benefit plan," as defined in Section 3(3) of ERISA
("ERISA Plans").
  -----------

                           (b) Other than the Separation Plans, neither
Panhandle nor the Panhandle Subsidiaries sponsors or administers any ERISA Plan.

                           (c) Except as set forth in Section 3.12(c) of the
Seller Disclosure Letter, neither Panhandle nor the Panhandle Subsidiaries has
established or maintains any plan, agreement or arrangement providing for
employment terms; severance benefits; insurance coverage (including any
self-insured arrangements); workers' compensation; disability benefits;
supplemental unemployment benefits; vacation benefits; retirement benefits;
deferred compensation, profit-sharing, bonuses, or other forms of incentive
compensation; or post-retirement insurance, compensation or benefits (whether or


                                       26

<PAGE>
not an ERISA Plan) that (i) is entered into, sponsored or maintained, as the
case may be, by Panhandle or the Panhandle Subsidiaries, and (ii) covers any
current or former Panhandle Employee or independent contractor to Panhandle or a
Panhandle Subsidiary. The policies, agreements, plans and arrangements, copies
or descriptions, including the ERISA Plans, that are set forth in Section
3.12(a) and Section 3.12(c) of the Seller Disclosure Letter, of all of which
complete and accurate copies have previously have been made available to Buyer,
are hereinafter referred to collectively as the "Employee Benefit Plans."
                                                 ----------------------

                           (d) Except as set forth in Section 3.12(d) of the
Seller Disclosure Letter, neither Panhandle nor the Panhandle Subsidiaries has
any legal commitment to create, incur liability with respect to or cause to
exist any other employee benefit plan, program or arrangement for the benefit of
any current or former Panhandle Employee or to enter into any contract or
agreement to provide compensation or benefits to any former or current Panhandle
Employee.

                           (e) Except as set forth in Section 3.12(3) of the
Seller Disclosure Letter, with respect to each Employee Benefit Plan:

                               (i)    the applicable reporting, disclosure and
         other requirements of ERISA (and other Applicable Law) have been
         complied with in all material respects;

                               (ii)   there is no act or omission of Panhandle
         or the Panhandle Subsidiaries which would (a) constitute a breach of
         fiduciary duty under Section 404 of ERISA or a transaction (including
         the transactions contemplated by this Agreement) intended to evade
         liability under Section 4069 of ERISA, in either case that would
         subject Panhandle or the Panhandle Subsidiaries to a liability, or (b)
         constitute a prohibited transaction under Section 406 of ERISA or
         Section 4975 of the Code that would subject Panhandle or the Panhandle
         Subsidiaries or any plan fiduciary, directly or indirectly (through
         indemnification obligations or otherwise), to an excise Tax or civil
         penalty under Section 4975 of the Code or Section 502(i) of ERISA in an
         amount that would be material;

                               (iii)  none of the current or former Panhandle
         Employees are entitled to benefits under a multiemployer plan (as
         defined in Section 4001(a)(3) of ERISA) by reason of their employment
         with Panhandle or the Panhandle Subsidiaries;

                               (iv)   all contributions or payments required to
         be made under each Employee Plan or Employee Benefit Plan, by reason of
         Part 3 of Subtitle B of Title I of ERISA, Section 412 of the Code, or
         otherwise prior to the Closing Date have been and will be timely made;


                                       27

<PAGE>
                               (v)    there is no pending or, to Seller's
         Knowledge, threatened litigation with respect to any Employee Benefit
         Plan;

                               (vi)   except to the extent required under
         Section 601 of ERISA, neither Panhandle nor the Panhandle Subsidiaries
         has any present or future obligation to make any payment to or with
         respect to any former or current Panhandle Employee or any dependent of
         any such former or current Panhandle Employee under any retiree medical
         benefit plan, or other retiree welfare benefit plan;

                               (vii)  there is no Employee Benefit Plan covering
         any former or current Panhandle Employee that provides for the payment
         by Panhandle or the Panhandle Subsidiaries of any amount (i) that is
         not deductible as a result of Section 162(a)(1) or 404 of the Code or
         ii) that is an "excess parachute payment" pursuant to Section 280G of
         the Code;

                               (viii) Seller is aware of no fact that would lead
         Buyer or, after the transaction, Panhandle or a Panhandle Subsidiary,
         to incur any liability under Title IV of ERISA;

                               (ix)   Neither the execution of this Agreement
         nor the consummation of the transactions contemplated hereby will (x)
         entitle any Panhandle Employee to severance pay to which such employee
         was not previously entitled, or any increase in severance pay upon a
         termination of employment, (y) accelerate the time of payment or
         vesting of, or trigger any payment of compensation or benefits to, the
         Panhandle Employees under any Employee Benefit Plan or (z) trigger any
         other material obligation pursuant to the Employee Benefit Plans that
         would be a liability of Buyer or Panhandle or the Panhandle
         Subsidiaries after the Closing Date; and

                               (x) each ERISA Plan intended to qualify under
         Section 401(a) of the Code has been determined to be so qualified by
         the Internal Revenue Service and, to the Knowledge of Seller, nothing
         has occurred which has resulted or is likely to result in the
         revocation of such determination or which requires or is reasonable
         likely to require action under the compliance resolution programs of
         the Internal Revenue Service to preserve such qualification.

                  Section 3.13  Labor Relations.
                                ---------------

         Except as set forth in Section 3.13 of the Seller Disclosure Letter,
(i) none of Panhandle or the Panhandle Subsidiaries is a party to any labor or
collective bargaining agreements, and there are no labor or collective
bargaining agreements which pertain to any employees of Panhandle or the
Panhandle Subsidiaries, (ii) within the preceding eighteen (18) months, there
have been no representation or certification proceedings, or petitions seeking a


                                       28

<PAGE>
representation proceeding, pending or, to the Knowledge of Seller, threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority with respect to Panhandle or the
Panhandle Subsidiaries and (iii) within the preceding eighteen (18) months, to
the Knowledge of Seller, there have been no organizing activities involving
Panhandle or the Panhandle Subsidiaries with respect to any group of their
respective employees.

                  Section 3.14  Intellectual Property.
                                ---------------------

         Except as set forth in Section 3.14 of the Seller Disclosure Letter,
Panhandle and the Panhandle Subsidiaries will, on the Closing Date, either in
their own name or by operation of the Intellectual Property Agreement attached
hereto as Exhibit A, own or possess licenses or other legally enforceable rights
to use all patents, copyrights (including any copyrights in proprietary
software), trademarks, service marks, trade names, logos, and other intellectual
property rights, software object and source code as are necessary to conduct
their respective businesses as currently conducted, except those the lack of
which would not, materially and adversely impact the operations, as currently
conducted, of Panhandle and the Panhandle Subsidiaries taken as a whole; and to
Seller's Knowledge, there is no conflict by Seller or any of Panhandle or the
Panhandle Subsidiaries with the rights of others therein which, individually or
in the aggregate, would materially and adversely impact the operations, as
currently conducted, of Panhandle and the Panhandle Subsidiaries taken as a
whole.

                  Section 3.15  Representations with Respect to Environmental
                                ---------------------------------------------
                                Matters.
                                -------

         To Seller's Knowledge, and except as set forth in Section 3.15 of the
Seller Disclosure Letter:

                           (a) Panhandle and the Panhandle Subsidiaries are in
compliance with all applicable Environmental Laws, except for such noncompliance
as would not, individually or in the aggregate, have a Material Adverse Effect;

                           (b) Panhandle and the Panhandle Subsidiaries have all
of the Environmental Permits required in order to conduct their operations or,
where such Environmental Permits have expired, have applied for a renewal of
such Environmental Permits in a timely fashion, except where the failure to have
an Environmental Permit or to have applied for a renewal of an Environmental
Permit would not, individually or in the aggregate, have a Material Adverse
Effect;

                           (c) there is no pending or threatened written Claim,
lawsuit, or administrative proceeding against Panhandle or the Panhandle
Subsidiaries under or pursuant to any Environmental Law that, individually or in
the aggregate, would have a Material Adverse Effect. Neither Panhandle nor the
Panhandle Subsidiaries is a party or subject to any administrative or judicial
order, decree or other agreement with a Governmental Authority under or pursuant
to any applicable Environmental Law that, individually or in the aggregate,
would have a Material Adverse Effect;


                                       29

<PAGE>
                           (d) neither Panhandle nor the Panhandle Subsidiaries
have received written notice from any third party, including any Governmental
Authority, alleging that Panhandle or the Panhandle Subsidiaries has been or is
in violation or potentially in violation of any applicable Environmental Law or
otherwise may be liable under any applicable Environmental Law, which violation
or liability is unresolved and which, individually or in the aggregate, would
have a Material Adverse Effect; and

                           (e) with respect to the real property that is
currently owned or leased by Panhandle or the Panhandle Subsidiaries, there have
been no spills or discharges of Hazardous Substances on or underneath any such
real property that, individually or in the aggregate, would have a Material
Adverse Effect.

The representations and warranties set forth in this Section 3.15 are Seller's
sole and exclusive representations and warranties related to environmental
matters.

                  Section 3.16  Tax Matters.
                                -----------

                           (a) Except as would not have a Material Adverse
Effect, all federal, state, and local Tax Returns required to be filed by or on
behalf of Panhandle or the Panhandle Subsidiaries, and each consolidated,
combined, unitary, affiliated or aggregate group of which any of Panhandle or
the Panhandle Subsidiaries are a member has been timely filed (taking into
account applicable extensions), and all Taxes shown as due on such Tax Returns
have been paid, or adequate reserves therefor have been established.

                           (b) Except as would not have a Material Adverse
Effect, there is no deficiency, proposed adjustment, or matter in controversy
that has been asserted or assessed in writing with respect to any Taxes due and
owing by Panhandle or the Panhandle Subsidiaries that has not been paid or
settled in full.

                           (c) Except as would not have a Material Adverse
Effect, Panhandle and the Panhandle Subsidiaries have timely withheld and timely
paid all Taxes required to be withheld by them in connection with any amounts
paid or owing to any employee, creditor, independent contractor or other third
party.

                           (d) Except as would not have a Material Adverse
Effect, there are no liens for Taxes upon any of the assets of Panhandle or any
Panhandle Subsidiary except for liens for Taxes not yet due and payable.

                           (e) Except as would not have a Material Adverse
Effect, no property of Panhandle or any Panhandle Subsidiary is required to be
treated as "tax-exempt use property" within the meaning of Code Section 168(h),
and no property of Panhandle or any Panhandle Subsidiary is subject to a tax
benefit transfer lease subject to the provisions of former Section 168(f)(8) of
the Code.

                           (f) Except as set forth in Section 3.16(f) of the
Seller Disclosure Letter, each Panhandle Subsidiary and each Related Company
that is treated as a partnership for United States federal income tax purposes


                                       30

<PAGE>
has not made a valid election under Section 754 of the Code that will be in
effect on the Closing Date.

                  Section 3.17  Absence of Certain Changes or Events.
                                ------------------------------------

                           (a) Except as set forth in Section 3.17(a) of the
Seller Disclosure Letter, for the period beginning on March 29, 1999 and until
the date hereof, Panhandle and the Panhandle Subsidiaries have conducted their
respective businesses in the ordinary course of business, consistent with past
practice (as such practice existed during the period of Seller's ownership of
Panhandle and the Panhandle Subsidiaries).

                           (b) Except as set forth in Section 3.17(b) of the
Seller Disclosure Letter, or in the Financial Statements and the notes thereto,
since the date of the Financial Statements, there has not been with respect to
Panhandle and the Panhandle Subsidiaries any event or development or change
which has resulted or would reasonably be expected to result in Material Adverse
Effect.

                  Section 3.18  Absence of Undisclosed Liabilities.
                                ----------------------------------

         Neither Panhandle nor the Panhandle Subsidiaries have any Liabilities
(whether absolute, accrued, contingent or otherwise) that are required by GAAP
to be reflected in the audited financial statements of Panhandle and the
Panhandle Subsidiaries except those Liabilities (a) disclosed and reserved
against in the September 30, 2002 balance sheet for Panhandle and the Panhandle
Subsidiaries, (b) set forth in Section 3.18 of the Seller Disclosure Letter, (c)
incurred in the ordinary course of business since September 30, 2002 and (d)
which have not resulted in a Material Adverse Effect.

                  Section 3.19  Brokerage and Finders' Fees.
                                ---------------------------

         Except for Merrill Lynch & Co. and Salomon Smith Barney Inc., whose
fees will be paid by Seller, none of Seller, Panhandle, the Panhandle
Subsidiaries, or any of their Affiliates or their respective stockholders,
partners, directors, officers or employees, has incurred, or will incur any
brokerage, finders' or similar fee in connection with the transactions
contemplated by this Agreement or the Related Agreements.

                  Section 3.20  Affiliated Transactions.
                                -----------------------

         Except as described in Section 3.20 of the Seller Disclosure Letter,
and except for trade payables and receivables arising in the ordinary course of
business for purchases and sales of goods or services consistent with past
practice, neither Panhandle nor the Panhandle Subsidiaries have been a party
over the past twelve (12) months to any material transaction or agreement with
Seller or any Affiliate of Seller (other than Panhandle and the Panhandle
Subsidiaries) and no director or officer of Seller or its Affiliates (other than
Panhandle and the Panhandle Subsidiaries), has, directly or indirectly, any
material interest in any of the assets or properties of Panhandle or the
Panhandle Subsidiaries.


                                       31

<PAGE>
                  Section 3.21  Insurance.
                                ---------

                           (a) Section 3.21 of the Seller Disclosure Letter sets
forth a true and complete list of all current policies of all material property
and casualty insurance, insuring the properties, assets, employees and/or
operations of Panhandle and the Panhandle Subsidiaries (collectively, the
"Insurance Policies"). To the Knowledge of Seller, all premiums payable under
 ------------------
such Policies have been paid in a timely manner and Panhandle and the Panhandle
Subsidiaries have complied in all material respects with the terms and
conditions of all such Policies.

                           (b) As of the date hereof, Seller has not received
any written notification of the failure of any of the Insurance Policies to be
in full force and effect.  To the Knowledge of Seller, neither Panhandle nor the
Panhandle Subsidiaries is in default under any provision of the Insurance
Policies, and except as set forth in Section 3.21 of the Seller Disclosure
Letter, there is no claim by Panhandle or any other Person pending under any of
the Insurance Policies as to which coverage has been denied or disputed by the
underwriters or issuers thereof.

                  Section 3.22  Regulatory Matters.
                                ------------------

         Panhandle is a "Natural Gas Company" as that term is defined in Section
2 of the Natural Gas Act ("NGA"). Panhandle is not a "public utility company,"
                           ---
"holding company" or "subsidiary" or "affiliate" of a holding company as such
terms are defined in the Public Utility Holding Company Act of 1935 (the "1935
                                                                          ----
Act"). Except as would not have a Material Adverse Effect, Panhandle and the
---
Panhandle Subsidiaries are in compliance with all provisions of the NGA and all
rules and regulations promulgated by FERC pursuant thereto. Except as would not
have a Material Adverse Effect, Panhandle and the Panhandle Subsidiaries are in
compliance with all orders issued by FERC that pertain to all terms and
conditions and rates charged for services. Except as set forth in Section 3.22
of the Seller Disclosure Letter, no approval of (i) the Securities and Exchange
Commission under the 1935 Act or (ii) FERC under the NGA or the Federal Power
Act is required in connection with the execution of this Agreement by Seller or
the transaction contemplated hereby with respect to Seller. The Form No. 2
Annual Reports filed by Panhandle with FERC for the years ended December 31,
2001 and December 31, 2000 were true and correct in all material respects as of
the dates thereof and since September 30, 2002 until the date of this Agreement
none of Panhandle or the Panhandle Subsidiaries have become subject to any
proceeding under Section 5 of the NGA or any general rate case proceeding
commenced under Section 4 of the NGA by reason of a filing made with the FERC
after September 30, 2002.

                  Section 3.23  Opinions of Financial Advisors.
                                ------------------------------

         The Board of Directors of Parent has received separate opinions, dated
the date of this Agreement, from each of Merrill Lynch & Co. and Salomon Smith
Barney Inc., addressed to the Board of Directors of Parent, to the effect that,
subject to, and based upon the assumptions, qualifications and limitations
included in such opinions, the consideration to be received by Parent pursuant
to this Agreement is fair from a financial point of view to Parent. Buyer will
be permitted to inspect such opinions solely for informational purposes
following receipt thereof by Parent.


                                       32

<PAGE>
                  Section 3.24  No Other Representations or Warranties.
                                --------------------------------------

         Except for the representations and warranties contained in this Article
III, none of Seller, Panhandle, or the Panhandle Subsidiaries, nor any other
Person makes any other express or implied representation or warranty on behalf
of Seller.


                                   ARTICLE IV

            REPRESENTATIONS AND WARRANTIES OF BUYER AND THE SPONSORS

         Buyer hereby represents and warrants to Seller as follows; provided,
that each of the Sponsors represents and warrants only as to Buyer and as to
such Sponsor and not as to the other Sponsors:

                  Section 4.1  Corporate Organization; Qualification.
                               -------------------------------------

         Buyer and each of the Sponsors is a corporation or other legal entity
duly organized, validly existing and duly qualified or licensed and in good
standing under the laws of the state or jurisdiction of its incorporation and
has all requisite corporate power to own, lease and operate its properties and
to carry on its business as currently conducted. Buyer and each of the Sponsors
is duly qualified or licensed to do business as a foreign corporation or other
legal entity and is, and has been, in good standing in each jurisdiction in
which the nature of the business conducted by it or the property it owns, leases
or operates requires it to so qualify, be licensed or be in good standing,
except for such failures to be qualified, licensed or in good standing that
would not materially affect the consummation of the transactions contemplated by
this Agreement.

                  Section 4.2  Authority Relative to this Agreement.
                               ------------------------------------

         Buyer and each of the Sponsors has full corporate, or other power, and
authority to execute and deliver this Agreement, the Related Agreements and the
other agreements, documents and instruments to be executed and delivered by it
in connection with this Agreement or the Related Agreements, and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement, the Related Agreements and the other agreements,
documents and instruments to be executed and delivered in connection with this
Agreement or the Related Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all the
necessary action on the part of Buyer and each of the Sponsors and no other
corporate, or other proceedings on the part of Buyer or any of the Sponsors are
necessary to authorize this Agreement, the Related Agreements and the other
agreements, documents and instruments to be executed and delivered in connection
with this Agreement or the Related Agreements or to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and the Related
Agreements and the other agreements, documents and instruments to be executed
and delivered in connection with this Agreement or the Related Agreements as of
the Closing Date will be, duly and validly executed and delivered by Buyer or


                                       33

<PAGE>
the Buyer Counterparties and the Sponsors, as applicable, and assuming that this
Agreement, the Related Agreements and the other agreements, documents and
instruments to be executed and delivered in connection with this Agreement or
the Related Agreements constitute legal, valid and binding agreements of Seller
and the Seller Counterparties, as applicable, are (in the case of this
Agreement) or will be as of the Closing Date (in the case of the Related
Agreements and the other agreements, documents and instruments to be executed
and delivered in connection with this Agreement or the Related Agreements),
enforceable against Buyer, the Buyer Counterparties and each of the Sponsors in
accordance with their respective terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally or general
principles of equity.

                  Section 4.3  Consents and Approvals.
                               ----------------------

         Except as set forth in Section 4.4 of the Buyer Disclosure Letter, none
of Buyer or the Sponsors requires any consent, approval or authorization of, or
filing, registration or qualification with, any Governmental Authority, or any
other Person as a condition to the execution and delivery of this Agreement or
the performance of the obligations hereunder, except where the failure to obtain
such consent, approval or authorization of, or filing of, registration or
qualification with, any Governmental Authority, or any other Person would not
materially affect the consummation of the transactions contemplated by this
Agreement.

                  Section 4.4  No Conflict or Violation.
                               ------------------------

         Except as set forth in Section 4.4 of the Buyer Disclosure Letter, the
execution, delivery and performance by Buyer and the Sponsors of this Agreement
does not:

                           (a) violate or conflict with any provision of the
organizational documents or bylaws of Buyer or any of the Sponsors,
respectively;

                           (b) violate any applicable provision of a law,
statute, judgment, order, writ, injunction, decree, award, rule or regulation of
any Governmental Authority, except where such violation would not have a
Material Adverse Effect; or

                           (c) violate, result in a breach of, constitute (with
due notice or lapse of time or both) a default or cause any material obligation,
penalty or premium to arise or accrue under any material contract, lease, loan,
agreement, mortgage, security agreement, trust indenture or other material
agreement or instrument to which Buyer or any of the Sponsors is a party or by
which it is bound or to which any of its properties or assets is subject, except
as would not have materially affect the consummation of the transactions
contemplated by this Agreement.

                  Section 4.5  Litigation.
                               ----------

         Except as set forth in Section 4.5 of the Buyer Disclosure Letter,
there are no lawsuits, actions, proceedings, or, to Buyer's Knowledge, any
investigations, pending or, to Buyer's Knowledge, threatened, against Buyer, the
Sponsors or any of their respective Affiliates or any executive officer or


                                       34

<PAGE>
director thereof which would prohibit or impair Buyer, the Sponsors or their
respective Affiliates from undertaking any of the transactions contemplated by
this Agreement or the Related Agreements, except as would not materially affect
the consummation of the transactions contemplated by this Agreement. Buyer, the
Sponsors and their respective Affiliates are not subject to any outstanding
judgment, order, writ, injunction, decree or award entered in an Action to which
Buyer, the Sponsors or any of their respective Affiliates was a named party
which would prohibit or impair Buyer, the Sponsors or their Affiliates from
undertaking any of the transactions contemplated by this Agreement or the
Related Agreements, except as would not materially affect the consummation of
the transactions contemplated by this Agreement.

                  Section 4.6  Availability of Funds.
                               ---------------------

         Buyer will have on the Closing Date sufficient funds available in
immediately available funds to pay the Purchase Price and to consummate the
transactions contemplated hereby. The ability of Buyer to consummate the
transactions contemplated hereby is not subject to any condition or contingency
with respect to financing.

                  Section 4.7  Brokerage and Finders' Fees.
                               ---------------------------

         Except for Lehman Brothers and Berenson Minella & Company, whose fees
will each be paid by Buyer, neither Buyer, the Sponsors nor any of their
Affiliates, or their respective stockholders, partners, directors, officers or
employees, has incurred, or will incur any brokerage, finders' or similar fee in
connection with the transactions contemplated by this Agreement or the Related
Agreements.

                  Section 4.8  Investment Representations.
                               --------------------------

                           (a) Buyer is acquiring the Shares to be acquired by
it hereunder for its own account, solely for the purpose of investment and not
with a view to, or for sale in connection with, any distribution thereof in
violation of the federal securities laws or any applicable foreign or state
securities law.

                           (b) Buyer is an "accredited investor" as defined in
Rule 501(a) promulgated under the Securities Act of 1933, as amended.

                           (c) Buyer understands that the acquisition of the
Shares to be acquired by it pursuant to the terms of this Agreement involves
substantial risk. Buyer and its officers have experience as an investor in
securities and equity interests of companies such as the ones being transferred
pursuant to this Agreement and acknowledges that it can bear the economic risk
of its investment and has such knowledge and experience in financial or business
matters that Buyer is capable of evaluating the merits and risks of its
investment in the Shares to be acquired by it pursuant to the transactions
contemplated hereby.

                           (d) Buyer understands that the Shares to be acquired
by it hereunder have not been registered under the Securities Act on the basis


                                       35

<PAGE>
that the sale provided for in this Agreement is exempt from the registration
provisions thereof. Buyer acknowledges that such securities may not be
transferred or sold except pursuant to the registration and other provisions of
applicable securities laws or pursuant to an applicable exemption therefrom.

                           (e) Buyer acknowledges that the offer and sale of the
Shares to be acquired by it in the transactions contemplated hereby has not been
accomplished by the publication of any advertisement.

                  Section 4.9  Buyer Capitalization; Other Interests.
                               -------------------------------------

                           (a) As of the date of this Agreement, Southern Union
directly owns all of the issued and outstanding shares of capital stock of
Buyer. Simultaneously with the execution of this Agreement, the Sponsors and the
Buyer have entered into a letter agreement regarding their ownership of the
Buyer, a true and correct copy of which has previously been provided to Seller
(the "Buyer Letter Agreement"). As of the Closing, the Sponsors will own all of
the issued and outstanding shares of capital stock of Buyer in accordance with
the Buyer Letter Agreement.

                           (b) Except as contemplated in the Buyer Letter
Agreement or in Section 4.9 of the Buyer Disclosure Letter, there are no (A)
existing options, warrants, calls, rights of first refusal, preemptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the capital stock of Buyer, obligating Buyer, any of the
Sponsors or any of their respective Affiliates to issue, transfer or sell, or
cause to be issued, transferred or sold, any of the capital stock of Buyer, (B)
outstanding securities of Buyer or its Affiliates that are convertible into or
exchangeable or exercisable for any of the capital stock of Buyer, (C) options,
warrants or other rights to purchase from Buyer, any of the Sponsors or their
respective Affiliates any such convertible or exchangeable securities or (D)
contracts, agreements or arrangements of any kind relating to the issuance of
any of the capital stock of Buyer, or any such options, warrants or rights,
pursuant to which, in any of the foregoing cases, Buyer, the Sponsors or any of
their respective Affiliates are subject or bound.

                           (c) Other than as set forth on Section 4.9(c) of the
Buyer Disclosure Letter, neither Buyer nor any of the Sponsors own any stock or
other equity interest (controlling or otherwise) in any corporation, limited
liability corporation, joint venture or other entity engaged in the energy
business, including without limitation any business engaged in (i) the ownership
or operation of natural gas and condensate pipelines, (ii) interstate
transportation of natural gas, (iii) natural gas storage services, (iv) the
storage and regasification of liquefied natural gas and (v) the separation and
measurement of condensate. Section 4.9(c) of the Buyer Disclosure Letter
indicates whether, and the extent to which, the Sponsors have management
responsibility and/or operational control for the entities set forth in Section
4.9(c) of the Buyer Disclosure Letter which are engaged in the energy business.


                                       36

<PAGE>
                  Section 4.10  No Other Representations or Warranties.
                                --------------------------------------

         Except for the representations and warranties contained in this Article
IV, none of Buyer, the Sponsors or any other Person makes any other express or
implied representation or warranty on behalf of Buyer or the Sponsors.


                                    ARTICLE V

                            COVENANTS OF THE PARTIES

                  Section 5.1  Conduct of Business.
                               -------------------

                           (a) Except as expressly provided in this Agreement or
as set forth in Section 5.1(a) of the Seller Disclosure Letter, from and after
the date of this Agreement and until the Closing Date, Seller shall cause
Panhandle and the Panhandle Subsidiaries to conduct and maintain their
respective businesses in the ordinary course of business, consistent with past
practice.

                           (b) Except as contemplated by this Agreement or as
set forth in Section 5.1(b)of the Seller Disclosure Letter, prior to the Closing
Date, without the prior written consent of Buyer (which consent shall not be
unreasonably withheld or delayed), Seller shall cause Panhandle and the
Panhandle Subsidiaries not to:

                               (i)    Amend its Certificate of Incorporation,
         Bylaws or other comparable charter or organizational documents or merge
         with or into or consolidate with any other Person;

                               (ii)   Issue, sell, pledge, dispose of or
         encumber, or authorize or propose the issuance, sale, pledge,
         disposition or encumbrance of, any shares of, or securities convertible
         or exchangeable for, or options, puts, warrants, calls, commitments or
         rights of any kind to acquire, any of its capital stock or other
         membership or ownership interests or subdivide or in any way reclassify
         any shares of its capital stock or other membership or ownership
         interests or change or agree to change in any manner the rights of its
         outstanding capital stock or other membership or ownership interests;

                               (iii)  (A) Declare, set aside or pay any dividend
         or other distribution payable other than in cash or cash equivalents,
         with respect to any shares of any class or series of capital stock of
         Panhandle or the Panhandle Subsidiaries; (B) split, combine or
         reclassify any shares of any class or series of capital stock of
         Panhandle or the Panhandle Subsidiaries; or (C) redeem, purchase or
         otherwise acquire directly or indirectly any shares of any class or
         series of capital stock of Panhandle or the Panhandle Subsidiaries, or
         any instrument or security which consists of or includes a right to
         acquire such shares;


                                       37

<PAGE>
                               (iv)   Except as may be required by agreements or
         arrangements identified in Section 5.1(b)(iv) of the Seller Disclosure
         Letter, grant any severance or termination pay to, or enter into,
         extend or amend any employment, consulting, severance or other
         compensation agreement with, or otherwise increase the compensation or
         benefits provided to any of its officers or other employees whose
         annual salary base is in excess of $100,000 other than in the ordinary
         course of business, consistent with past practice;

                               (v)    Sell, lease, license, mortgage or
         otherwise dispose of any properties or assets material to its business,
         other than (A) sales made in the ordinary course of business consistent
         with past practice or (B) sales of obsolete or other assets not
         presently utilized in its business;

                               (vi)   Make any change in its accounting
         principals, practices, estimates or methods, other than as may be
         required by GAAP, Applicable Law or any Governmental Authority;

                               (vii)  Organize any new Subsidiary or acquire any
         capital stock of, or equity or ownership interest in, any other Person;

                               (viii) Materially modify or amend or terminate
         any Material Contract or waive, release or assign any material rights
         or Claims under a Material Contract, except in the ordinary course of
         business and consistent with past practice;

                               (ix)   Pay, repurchase, discharge or satisfy any
         of its Claims, Liabilities or obligations (absolute, accrued, asserted
         or unasserted, contingent or otherwise), other than in the ordinary
         course of business and consistent with past practice;

                               (x)    Enter into any contract or transaction
         relating to the purchase of assets material to Panhandle or the
         Panhandle Subsidiaries, taken as a whole, other than in the ordinary
         course of business consistent with past practice;

                               (xi)   (A) Incur or assume any long-term debt, or
         except in the ordinary course of business consistent with past
         practice, incur or assume short-term indebtedness (other than
         intercompany indebtedness) exceeding $5,000,000 in the aggregate from
         the date hereof until Closing; (B) modify the terms of any indebtedness
         or other liability, other than modifications of short-term debt in the
         ordinary course of business, consistent with past practice; (C) assume,
         guarantee, endorse or otherwise become liable or responsible (whether
         directly, contingently or otherwise) for the obligations of any other


                                       38

<PAGE>
         Person (other than any Panhandle Subsidiary), except as described in
         Section 5.1(b)(xi)(C) of the Seller Disclosure Letter;

                               (xii)  Adopt a plan of complete or partial
         liquidation, dissolution, restructuring, recapitalization or other
         reorganization;

                               (xiii) Make or change any material election in
         respect of Taxes, adopt or request permission of any Taxing authority
         to change any material accounting method in respect of Taxes, or enter
         into any closing agreement in respect of Taxes that would increase the
         Tax liability of Buyer, without Buyer's written consent which shall not
         be unreasonably withheld; provided, however, that Panhandle and the
         Panhandle Subsidiaries may make elections pursuant to Treas. Reg.
         ss.301.7701-3 or Section 754 of the Code (and any comparable provisions
         of state or local law).

                               (xiv)  Other than routine compliance filings,
         make any filings or submit any documents or information to FERC without
         prior consultation with Buyer; or

                               (xv)   Authorize any of, or commit or agree to
         take any of, the actions referred to in the paragraphs (i) through
         (xiv) above.

                           (c) Seller shall, or shall cause Panhandle and the
Panhandle Subsidiaries, to provide to Buyer copies of any filings made with any
Governmental Entities after the date of this Agreement and prior to the Closing
Date.

                  Section 5.2  Access to Properties and Records.
                               --------------------------------

                           (a) Seller, Panhandle and the Panhandle Subsidiaries
shall afford to Buyer and Buyer's accountants, counsel and representatives full
reasonable access during normal business hours throughout the period prior to
the Closing Date (or the earlier termination of this Agreement pursuant to
Article VII hereof) to all of Seller's, Panhandle's and the Panhandle
Subsidiaries' properties, books, contracts, commitments and records (including
all environmental studies, reports and other environmental records) and, during
such period, shall furnish to Buyer all information concerning the respective
businesses, properties, Liabilities and personnel of Panhandle and the Panhandle
Subsidiaries as Buyer may request, provided that no investigation or receipt of
information pursuant to this Section 5.2 shall affect any representation or
warranty of Seller or the conditions to the obligations of Buyer. To the extent
not located at the offices or properties of Panhandle or the Panhandle
Subsidiaries as of the Closing Date, as promptly as practicable thereafter
Seller shall deliver, or cause its appropriate Affiliates to deliver to Buyer
all of the books of accounts, minute books, record books and other records
(including safety, health, environmental, maintenance and engineering records
and drawings) pertaining to the business operations of Panhandle and the
Panhandle Subsidiaries. Notwithstanding anything to the contrary herein, neither
Buyer, the Sponsors nor any of their respective representatives shall have the


                                       39

<PAGE>
right to conduct any Phase II environmental due diligence, including the
collection and analysis of any samples of environmental media or building
materials.

                           (b) The information contained herein, in the Seller
Disclosure Letter or heretofore or hereafter delivered to Buyer or its
authorized representatives in connection with the transactions contemplated by
this Agreement shall be held in confidence by Buyer and its representatives in
accordance with the Confidentiality Agreement until the Closing Date with
respect to information relating to Panhandle and its Subsidiaries, and for the
term of the Confidentiality Agreement with respect to information relating to
Seller and its Affiliates (other than Panhandle and its Subsidiaries).

                  Section 5.3  Consents and Approvals.
                               ----------------------

                           (a) Upon the terms and subject to the conditions of
this Agreement, each of the parties hereto agrees to use, and will cause its
Affiliates to use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary or advisable under
Applicable Law and regulations to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable including the
preparation and filing of all forms, registrations and notices required to be
filed by such party in order to consummate the transactions contemplated by this
Agreement, the taking of all appropriate action necessary, proper or advisable
to satisfy each of the conditions to Closing that are to be satisfied by that
party or any of its Affiliates and the taking of such actions as are necessary
to obtain any approvals, consents, orders, exemptions or waivers of Governmental
Authorities and any other Person required to be obtained by such party in order
to consummate the transactions contemplated by this Agreement.

                           (b) To the extent required by the HSR Act, each party
shall (i) file or cause to be filed, as promptly as practicable after the
execution and delivery of this Agreement, with the Federal Trade Commission and
the United States Department of Justice, all reports and other documents
required to be filed by such party under the HSR Act concerning the transactions
contemplated hereby and (ii) promptly comply with or cause to be complied with
any requests by the Federal Trade Commission or the United States Department of
Justice for additional information concerning such transactions. Each party
agrees to request and seek, and to cooperate with the other party in requesting
and seeking, early termination of any applicable waiting period under the HSR
Act or other HSR clearance with respect to the transactions contemplated by this
Agreement. The filing fees payable in connection with the filings required by
the HSR Act in connection with the transaction contemplated hereby shall be
borne by Buyer.  Each party shall have a right to review in advance all
characterizations of the information relating to the transactions contemplated
by this Areement which appear in Items 2 and 3 of the Antitrust Improvements Act
Notification and Report Form for certain mergers and acquisitions made in
connection with the transactions contemplated hereby. For the avoidance of
doubt, no party shall be required to provide to any other party a copy of any
documents filed by it pursuant to Item 4(c) the of the Antitrust Improvements


                                       40

<PAGE>
Act Notification and Report Form. Subject to (c) below, each party shall, and
shall cause its Affiliates to, promptly consult with the other with respect to,
provide any necessary information with respect to, and provide copies of all
filings made by such party with any Governmental Authority or any other
information supplied by such party to a Governmental Authority in connection
with this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby. Each party shall, and shall cause their respective
Affiliates to, with respect to a threatened or pending preliminary or permanent
injunction or other order, decree or ruling or statute, rule, regulation or
executive order that would adversely affect the ability of any party to this
Agreement or any Related Agreement to consummate the transactions contemplated
hereby or thereby, use their respective reasonable best efforts to prevent the
entry, enactment or promulgation thereof, as the case may be (including by
pursuing any available appeal process). Each of Buyer and each of the Sponsors
shall use its respective reasonable best efforts to, and shall cause their
respective Affiliates to use their reasonable best efforts to, promptly take or
cause to be taken all actions necessary to comply with any requests made, or
conditions set, by a Governmental Authority to consummate the transactions
contemplated hereby, including, subject to the receipt of all required third
party consents (including those of lenders, shareholders and partners), with
respect to Panhandle (but subject to Section 6.1(b)) and each Section 5.3(b)
Person, the divestiture of assets. Each party agrees to use its reasonable best
efforts to procure any third-party consents required in the preceding sentence.
Notwithstanding the foregoing, none of Highstar, Funding, Southern Star Central,
Southern Union or its Subsidiaries (i) shall be required to divest any asset or
modify any arrangement with respect to any of its respective operations that
would have a material adverse impact on the Section 5.3(b) Person which holds
the asset to be divested or is a party to the arrangement to be modified or on
any other Section 5.3(b) Person or (ii) shall be required to take or refrain
from taking any action if such action or refraining would have a material
adverse impact on the Section 5.3(b) Person so acting or refraining or on any
other Section 5.3(b) Person. Without limiting the foregoing, in no event shall
any of Buyer's Affiliates be required to take any action to obtain the consent
or approval of any Governmental Authority to the transactions contemplated
hereby if such Governmental Authority imposes on such Affiliate as a condition
to obtaining any such consent any limitations or conditions materially adverse
to the businesses and activities engaged in by Southern Union and its
Subsidiaries taken as a whole or by Highstar and Funding, taken as a whole, or
by Southern Star Central (any such condition or limitation described in this
paragraph being referred to herein as a "Burdensome Condition").
                                         --------------------

                           (c) Without limiting the generality of the
undertakings pursuant to this Section 5.3 and subject to appropriate
confidentiality protections and limitations set forth in Section 5.3(b) above,
Seller, Buyer and their respective Affiliates shall each furnish to the parties
to this Agreement such necessary information and reasonable assistance a party
may request in connection with the foregoing and, shall each provide counsel for
the other party with copies of all filings made by such party or such Affiliate,
and all correspondence between such party or such Affiliate (and its advisors)
with any Governmental Authority and any other information supplied by such party
and such party's Affiliates to a Governmental Authority in connection with this
Agreement and the transactions contemplated hereby, provided, however, that
                                                    --------  -------


                                       41

<PAGE>
materials may be redacted (i) to remove references concerning the valuation of
Panhandle or the Panhandle Subsidiaries, (ii) as necessary to comply with
contractual arrangements, and (iii) to remove information that is proprietary.
Subject to Applicable Law and Section 5.3(b) hereof, each party shall, and shall
cause its Affiliates to, permit counsel for the other party to review in
advance, and consider in good faith the views of the other party in connection
with, any proposed written communication to any Governmental Authority. Seller,
Buyer and the Sponsors agree not to participate, or to permit their Affiliates
to participate, in any substantive meeting or discussion, either in person or by
telephone, with any Governmental Authority in connection with this Agreement and
the transactions contemplated hereby unless it consults with the other party in
advance and, to the extent not prohibited by such Governmental Authority, gives
the other party the opportunity to attend and participate. Upon the terms and
subject to the conditions herein provided, in case at any time after the Closing
Date any further action is necessary or desirable to secure the approvals from
any and all Governmental Authority necessary to carry out the purposes of this
Agreement, the proper officers and/or directors of the parties shall use their
reasonable best efforts to take or cause to be taken all such necessary action.

                  Section 5.4  Further Assurances.
                               ------------------

         On and after the Closing Date, Seller and Buyer shall cooperate and use
their respective reasonable best efforts to take or cause to be taken all
appropriate actions and do, or cause to be done, all things necessary or
appropriate to consummate and make effective the transactions contemplated
hereby, including the execution of any additional documents or instruments of
any kind, the obtaining of consents which may be reasonably necessary or
appropriate to carry out any of the provisions hereof and the taking of all such
other actions as such party may reasonably be requested to take by the other
party hereto from time to time, consistent with the terms of this Agreement and
the Related Agreements, in order to effectuate the provisions and purposes of
this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby.

                  Section 5.5  Employee Matters.
                               ----------------

                           (a) Buyer shall take all actions necessary and
appropriate to ensure that Buyer maintains or adopts one or more defined
contribution plans and related trust or trusts (the "Buyer Account Plan")
                                                     ------------------
effective as of, or as soon as reasonably practicable but in no event later than
15 days after, the Closing Date for the benefit of the Affected Employees (as
defined below). Following the Closing and as soon as practicable following
receipt by Seller of (i) a copy of a favorable determination letter issued by
the Internal Revenue Service with respect to the Buyer Account Plan or (ii) an
opinion, satisfactory to Seller's counsel, of Buyer's counsel that the Buyer
Account Plan and its related trust(s) qualify under Section 401(a) and Section
501(a) of the Code, Seller shall provide each Affected Employee who is a
participant in the Savings and Incentive Plan for Employees of Consumers Energy
and Other CMS Energy Companies ("Seller's Savings Plan") with the opportunity to
                                 ---------------------
receive a distribution of his or her account balance and to elect to "roll over"
such account balance to the Buyer Account Plan, subject to and in accordance
with the provisions of Seller's Savings Plan and Applicable Law. The Buyer
Account Plan shall accept the "roll over" of such account balances, including


                                       42

<PAGE>
any outstanding plan loans. Seller shall take all necessary or appropriate
action, to the extent consistent with applicable law, to ensure that any plan
loans of Affected Employees under the Seller's Savings Plan shall not be deemed
distributed prior to the rollover opportunity previously described. Seller shall
provide Buyer with copies of such personnel and other records of Seller
pertaining to the Affected Employees and such records of any agent or
representative of Seller pertaining to the Affected Employees, in each case
pertaining to Seller's Savings Plan and as Buyer may reasonably request in order
to administer and manage the accounts and assets rolled over to the Buyer
Account Plan.

                    (b) Subject to Section 5.5(b)(i) and Section 5.5(h) below,
prior to the Closing Date, Seller shall take all actions necessary to cause the
following events to occur as of the Closing Date, and shall give notice to all
Panhandle Employees that (i) all Affected Employees shall become fully vested
with respect to their account balances under the Seller Savings Plan as of the
Closing Date, (ii) the active participation of the Affected Employees in those
employee benefit plans, programs and arrangements that are not sponsored by
Panhandle or the Panhandle Subsidiaries (such plans, programs and arrangements,
the "Seller Plans") shall terminate on the Closing Date, and (iii) Panhandle and
     ------------
the Panhandle Subsidiaries shall terminate participation of Affected Employees
in the Seller Plans as of the Closing Date. Panhandle and the Panhandle
Subsidiaries shall be solely responsible (except as provided in Section
8.2(a)(iii) for all obligations and Liabilities under each employee benefit
plan listed in Section 3.12(c) of the Seller Disclosure Letter in existence as
of the Closing Date, and each employee benefit plan that they establish,
maintain or contribute to, on or after the Closing Date, and no such obligations
or Liabilities shall be assumed or retained by Seller or its Affiliates. Seller
shall retain all obligations or Liabilities and assets with respect to current
and former Panhandle Employees or otherwise under all Seller Plans, and no such
obligations or Liabilities shall be assumed or retained by Buyer or its
affiliates, including after the transactions contemplated hereby, Panhandle and
the Panhandle Subsidiaries.

                               (i)  Notwithstanding the foregoing, any Affected
         Employee who is unable to report to work with Buyer as of the Closing
         Date due to disability (each, a "Disabled Employee"), shall continue to
                                          -----------------
         be eligible for any applicable long- term disability and life insurance
         coverage pursuant to Seller's plans until such Disabled Employee
         returns to active employment with Buyer, Panhandle or the Panhandle
         Subsidiaries; provided, however, that in order to be eligible for such
         benefits, each such Disabled Employee, pending approval for long-term
         disability benefits or return to active employment, must continue to
         pay all applicable long- term disability and life insurance premiums
         due following the Closing Date for such coverage pursuant to Seller's
         long-term disability plan and life insurance plans. Buyer shall, or
         shall cause Panhandle or the Panhandle Subsidiaries to, (A) pay
         Disabled Employees who are on short-term disability as of the Closing
         Date the short-term disability benefits, if any, that apply under
         Buyer's plans, provided, however, that such benefits need not be
                        --------  -------
         provided to the extent that they would duplicate benefits paid under
         the Seller Plans, and (B) honor any continuing pay or salary
         obligations and return to work obligations that apply to any such


                                       43

<PAGE>
         Disabled Employees. Any Disabled Employees who are on short-term
         disability as of the Closing Date but who subsequently transition to
         long-term disability shall be eligible for, and covered by, Seller's
         long-term disability and life insurance coverage, subject to the
         provisions of this Section 5.5(b)(i).

                           (c) As of the Closing Date, Buyer shall cause
Panhandle and the Panhandle Subsidiaries to continue to employ all of the
Affected Employees as of the Closing Date, other than those Affected Employees
whose employment is covered by a Panhandle Eastern Pipe Line Company collective
bargaining agreement as of the Closing Date, in Comparable Employment for a
period of at least one (1) year from and after the Closing Date, or to pay
severance if due in accordance with the terms of the Separation Allowance Plan
for Employees of Panhandle and the Panhandle Subsidiaries or the Executive
Separation Allowance Plan for Employees of Panhandle and the Panhandle
Subsidiaries, as applicable. Notwithstanding the terms of the preceding
sentence, Buyer shall cause Panhandle and the Panhandle Subsidiaries to employ
all Affected Employees who are officers of Panhandle and the Panhandle
Subsidiaries in Comparable Employment for a period of at least two (2) years
from and after the Closing Date, or to pay severance if due in accordance with
the terms of the Executive Separation Allowance Plan for Designated Officers of
Panhandle and the Panhandle Subsidiaries or the Executive Separation Allowance
Plan for Designated Senior Officers of Panhandle Eastern Pipe Line Company, as
applicable. Employment of, and severance payments, if any, payable to, Affected
Employees whose employment is covered by a Panhandle Eastern Pipe Line Company
collective bargaining agreement as of the Closing Date shall be governed by the
applicable collective bargaining agreement.

                           (d) For no less than one-year following the Closing
Date, Buyer shall, and shall cause Panhandle and the Panhandle Subsidiaries, to
provide the Affected Employees with employee benefits that are substantially
similar in the aggregate to those provided under the Seller Plans as such plans
are to be in effect for 2003; provided, however, that Buyer shall not be
obligated to replace any equity based plans in which Affected Employees could
participate prior to Closing. With respect to those employee benefit plans of
Panhandle and the Panhandle Subsidiaries or other Affiliates of Buyer ("Buyer
                                                                        -----
Plans") in which Affected Employees may participate on or after the Closing
-----
Date, Buyer shall, and shall cause Panhandle and the Panhandle Subsidiaries to,
credit prior service of the Affected Employees with Panhandle and the Panhandle
Subsidiaries for purposes of eligibility and vesting under Buyer Plans and for
all purposes with respect to vacation, sick days, severance and post-employment
benefits other than pensions ("PBOPs") under such Buyer Plans to the extent that
                               -----
such service was recognized under the analogous Employee Benefit Plans, provided
however that such service need not be credited to the extent it would result in
a duplication of benefits. Following the Closing Date, Buyer shall, or shall
cause Panhandle and the Panhandle Subsidiaries to, honor the accrued vacation
and sick days of the Affected Employees which remain unused as of the Closing
Date to the extent such accruals are shown on the Closing Balance Sheet.
Affected Employees shall also be given pro rata credit for any deductible or
co-insurance payment amounts payable in respect of the Buyer Plan year in which
the Closing Date occurs, to the extent that, following the Closing Date, they


                                       44

<PAGE>
participate in any Buyer Plan during such plan year for which deductibles or
co-payments are required. Any preexisting condition restrictions and waiting
period limitations which were deemed satisfied with respect to a particular
person under any Employee Benefit Plan immediately prior to the Closing Date
shall be deemed satisfied by Buyer and its Affiliates under Buyer Plans with
respect to such person on and after the Closing Date. Promptly after the date
hereof, Seller shall provide Buyer a list of Affected Employees and the status
of such Affected Employees as of the Closing Date under Seller Plans providing
for PBOPs, for the purpose of avoiding duplication of benefits.

                           (e) Subject to the final sentence of this Section
5.5(e), Buyer agrees that, at the request of Seller, it shall cause Panhandle
and the Panhandle Subsidiaries to make bonus payments to the bonus-eligible
Affected Employees (as determined by Seller) for performance in the 2002
calendar year from funds made available by Seller for such purposes, which bonus
payments shall be available as a tax deduction to Seller and Panhandle
attributable to the pre-Closing Tax period. Buyer shall cause such payments to
be made by Panhandle and the Panhandle Subsidiaries as soon as practicable after
Buyer is informed by Seller of the bonus amounts to be paid to each
bonus-eligible Affected Employee by name, as authorized by the Board of
Directors of Parent. Seller and Buyer agree that the calculation of Net Working
Capital Amount shall not reflect the bonus amounts accrued for the Affected
Employees for accounting purposes (the "Bonus Accrual") and that the Bonus
                                        -------------
Accrual shall be transferred to the books of Seller as of the Closing Date. To
the extent not funded in advance, Seller shall promptly reimburse Buyer for the
bonus amounts so paid (and the employer's share of any payroll taxes associated
therewith), which reimbursement shall be treated as an adjustment to the
Purchase Price. Seller and Buyer shall cooperate with respect to the development
and distribution of any employee communications to be made to the Affected
Employees after the Closing Date relating to 2002 bonuses.

                           (f) Buyer, Panhandle and the Panhandle Subsidiaries
shall be responsible for all Liabilities and obligations under the Worker
Adjustment and Retraining Notification Act and similar foreign, state and local
rules, statutes and ordinances resulting from the actions of Buyer, Panhandle or
the Panhandle Subsidiaries after the Closing Date. Buyer agrees to hold Seller
harmless in accordance with Article VIII for any breach of such responsibility
and Buyer's indemnification of Seller in this regard specifically includes any
Claim by the Affected Employees for back pay, front pay, benefits or
compensatory or punitive damages, any Claim by any Governmental Authority for
penalties regarding any issue of prior notification (or lack thereof) of any
plant closing or mass layoff occurring after the Closing Date and Seller's
costs, including reasonable attorney's fees, in defending any such Claims.

                           (g) Notwithstanding the foregoing provisions of this
Section 5.5, Buyer shall cause all obligations of Panhandle Eastern Pipe Line
Company pursuant to existing collective bargaining agreements (which agreements
are listed in Section 3.13 of the Seller Disclosure Letter) to be honored
following the Closing.

                           (h) Parent or its Affiliates shall retain all assets
that are accumulated through the Closing Date under Financial Accounting


                                       45

<PAGE>
Standards Board Statement 106 (and deposited in various VEBA accounts and 401(h)
accounts of Parent or its Affiliates). Further, Parent or its Affiliates shall
retain the liability for PBOP for the benefit of former Panhandle Employees who
are retirees of Panhandle and/or the Panhandle Subsidiaries as of the Closing
Date, and Affected Employees who are eligible to retire and qualified for
benefits under PBOP as of the Closing Date, and Parent or its Affiliates shall
retain the responsibility for providing post-retirement benefits (other than
pension) to such employees pursuant to the eligibility requirements of the
Seller Plans. Seller shall provide a list of retirees and Affected Employees who
are eligible to retire as of the Closing Date.

                  Section 5.6  Tax Covenants.
                               -------------

                           (a) Section 338(h)(10) Election.
                               ---------------------------

                               (i)    Seller and Buyer shall jointly make an
         election under Section 338(h)(10) of the Code (and any comparable
         provision of applicable state or local income tax law) with respect to
         the purchase of the Shares by Buyer (and with respect to the Panhandle
         Subsidiaries for which such an election may be made) and shall
         cooperate with each other to take all actions necessary and appropriate
         (including filing such additional forms, returns, elections schedules
         and other documents as may be required) to effect and preserve a timely
         election, in accordance with the provisions of Treasury Regulation
         Section 1.338(h)(10)-1 (or any comparable provisions of state or local
         tax law) (the "Election").
                        --------

                               (ii)   In connection with the Election, Buyer and
         Seller shall mutually prepare a Form 8023 (or successor form) with any
         attachments. Buyer shall prepare a draft Form 8023 and provide such
         draft Form 8023 to Seller no later than ninety (90) days prior to the
         due date of such Form 8023. If, within thirty (30) days of the receipt
         of the draft Form 8023, Seller notifies Buyer that it disagrees with
         the draft Form 8023 and provides Buyer with its proposed Form 8023 and
         a written or oral explanation of the reasons for its adjustment, then
         Seller and Buyer shall attempt to resolve their disagreement within the
         twenty (20) days following Seller's notification of Buyer of such
         disagreement, otherwise, the draft Form 8023 shall become the final
         Form 8023 (the "Final Form 8023"). If Seller and Buyer are unable to
         resolve their disagreement, the dispute shall be submitted to a
         mutually agreed upon nationally recognized independent accounting firm,
         whose expense shall be borne equally by Seller and Buyer, for
         resolution within twenty (20) days of such submission. The Form 8023
         delivered by such accounting firm shall be the Final Form 8023. The
         Final Form 8023 shall be binding on Buyer, Seller, and their respective
         Affiliates. Buyer and Seller shall take no position, and cause their
         respective Affiliates to take no position, inconsistent with the Final
         Form 8023.


                                       46

<PAGE>
                               (iii)  Buyer and Seller shall mutually prepare
         any forms or schedules similar to Form 8023 that are required for
         provisions of state or local law that are comparable to Treasury
         Regulation Section 1.338(h)(10)-1 in a manner similar to the above
         procedure. In the event that the Final Form 8023 (or similar forms or
         schedules required for provisions of state or local law) is disputed by
         any Taxing authority, the party receiving written notice of the dispute
         shall promptly notify the other party hereto concerning such dispute.

                           (b) Tax Return Filings, Refunds, and Credits.
                               ----------------------------------------

                               (i)    Seller shall timely prepare and file (or
         cause such preparation and filing) with the appropriate Tax authorities
         all Tax Returns (including any Consolidated Income Tax Returns) with
         respect to Panhandle and the Panhandle Subsidiaries (and make all
         elections with respect to such Tax Returns) for Tax periods that end on
         or before the Closing Date (the "Seller Returns"), and will pay (or
         cause to be paid) all Taxes due with respect to the Seller Returns.

                               (ii)   Buyer shall timely prepare and file (or
         cause such preparation and filing) with the appropriate Tax authorities
         all Tax Returns (the "Straddle Period Returns") with respect to
                               -----------------------
         Panhandle and the Panhandle Subsidiaries (and make all elections with
         respect to such Tax Returns) for all Tax periods ending after the
         Closing Date that include the Closing Date (the "Straddle Period"). All
                                                          ---------------
         Straddle Period Returns shall be prepared in accordance with past
         practice to the extent consistent with applicable law and Panhandle's
         and the Panhandle Subsidiaries' operations. Buyer shall provide Seller
         with copies of any Straddle Period Returns at least forty-five (45)
         days prior to the due date thereof (giving effect to any extensions
         thereto), accompanied by a statement (the "Straddle Statement") setting
                                                    ------------------
         forth and calculating in reasonable detail the Pre-Closing Taxes as
         defined below. If Seller agrees with the Straddle Period Return and
         Straddle Statement, Seller shall pay to Buyer (or Buyer shall pay to
         Seller, if appropriate) an amount equal to the Pre-Closing Taxes as
         shown on the Straddle Statement not later than two (2) Business Days
         before the due date (including any extensions thereof) for payment of
         Taxes with respect to such Straddle Period Return. If, within fifteen
         (15) days of the receipt of the Straddle Period Return and Straddle
         Statement, Seller notifies Buyer that it disputes the manner of
         preparation of the Straddle Period Return or the amount calculated in
         the Straddle Statement, and provides Buyer its proposed form of
         Straddle Period Return, a statement setting forth and calculating in
         reasonable detail the Pre-Closing taxes, and a written or oral
         explanation of the reasons for its adjustment, then Buyer and Seller
         shall attempt to resolve their disagreement within the five (5) days
         following Seller's notification or Buyer of such disagreement. If Buyer
         and Seller are unable to resolve their disagreement, the dispute shall
         be submitted to a mutually agreed upon nationally recognized


                                       47

<PAGE>
         independent accounting firm, whose expense shall be borne equally by
         Buyer and Seller, for resolution within twenty (20) days of such
         submission. The decision of such accounting firm with respect to such
         dispute shall be binding upon Buyer and Seller, and Seller shall pay to
         Buyer (or Buyer shall pay to Seller, if appropriate) an amount equal to
         the Pre-Closing Taxes as decided by such accounting firm not later than
         two (2) Business Days before the due date (including any extensions
         thereof) for payment of Taxes with respect to such Straddle Period
         Return. If for any reason the parties' dispute is not resolved as
         provided in this paragraph prior to the date that is two (2) Business
         Days before the due date (including any extensions thereof) for payment
         of Taxes with respect to such Straddle Period Return, Seller shall pay
         to Buyer (or Buyer shall pay to Seller, if appropriate) an amount equal
         to the amount of Pre-Closing Taxes not in dispute not later than two
         (2) Business Days before the due date (including any extensions
         thereof) for payment of Taxes with respect to such Straddle Period
         Return.

                               (iii)  From and after the Closing Date, Buyer and
         its Affiliates (including Panhandle and the Panhandle Subsidiaries)
         will not file any amended Tax Return, carryback claim, or other
         adjustment request with respect to Panhandle or the Panhandle
         Subsidiaries for any Tax period that includes or ends on or before the
         Closing Date unless Seller consents in writing; provided, however, that
                                                         --------  -------
         Buyer and its affiliates may carryback for its own account (without
         paying any resulting refund or credit to Seller) any loss attributable
         to a tax period ending after the Closing Date to a tax period ending on
         or before the Closing Date provided that Buyer and its Affiliates shall
         indemnify and make Seller whole for any detriment or cost incurred (or
         to be incurred) by Seller as a result of such carryback.

                               (iv)   For purposes of this Agreement, in the
         case of any Taxes of Panhandle or the Panhandle Subsidiaries that are
         payable with respect to any Straddle Period, the portion of any such
         Taxes that constitutes "Pre-Closing Taxes" shall be the excess of (A)
                                 -----------------
         (i) in the case of Taxes that are either (x) based upon or related to
         income or receipts or (y) imposed in connection with any sale, transfer
         or assignment or any deemed sale, transfer or assignment of property
         (real or personal, tangible or intangible) be deemed equal to the
         amount that would be payable if the Tax period ended at the close of
         business on the Closing Date (including without limitation all Taxes
         attributable to any Election) and (ii) in the case of Taxes (other than
         those described in clause (i)) imposed on a periodic basis with respect
         to the business or assets of Panhandle or the Panhandle Subsidiaries,
         be deemed to be the amount of such Taxes for the entire Straddle Period
         (or, in the case of such Taxes determined on an arrears basis, the
         amount of such Taxes for the immediately preceding Tax period)
         multiplied by a fraction the numerator of which is the number of
         calendar days in the portion of the Straddle Period ending on and


                                       48

<PAGE>
         including the Closing Date and the denominator of which is the number
         of calendar days in the entire Straddle Period over (B) any prepayment
         or advances of Taxes or any payments of estimated Taxes with respect to
         the Straddle Period. For purposes of clause (i) of the preceding
         sentence, any exemption, deduction, credit or other item that is
         calculated on an annual basis shall be allocated to the portion of the
         Straddle Period ending on the Closing Date on a pro rata basis
         determined by multiplying the total amount of such item allocated to
         the Straddle Period by a fraction, the numerator of which is the number
         of calendar days in the portion of the Straddle Period ending on the
         Closing Date and the denominator of which is the number of calendar
         days in the entire Straddle Period. Pre-Closing Taxes include any Taxes
         attributable to a Person that is treated as a partnership for federal
         income tax purposes as if such Person allocated Tax items to its
         partners in a manner consistent with this Section 5.6(b)(iv).  In the
         case of any Tax based upon or measured by capital (including net worth
         or long-term debt) or intangibles, any amount thereof required to be
         allocated under this Section 5.6(b)(iv) shall be computed by reference
         to the level of such items at the close of business on the Closing
         Date. The parties hereto will, to the extent permitted by Applicable
         Law, elect with the relevant Tax authority to treat a portion of any
         Straddle Period as a short taxable period ending as of the close of
         business on the Closing Date. For purposes of this Agreement,
         "Post-Closing Taxes" shall include any Taxes of Panhandle or the
          ------------------
         Panhandle Subsidiaries that are payable with respect to a Straddle
         Period, except for the portion of any such Taxes that constitutes
         Pre-Closing Taxes. For purposes of this Agreement, the Texas corporate
         franchise tax determined based on the income or capital of any entity
         for the year during which the Closing Date occurs shall be considered
         to be a Tax due with respect to the Straddle Period.

                               (v)    Seller and Buyer shall reasonably
         cooperate in preparing and filing all Tax Returns with respect to
         Panhandle or the Panhandle Subsidiaries, including maintaining and
         making available to each other all records reasonably necessary in
         connection with Taxes of Panhandle or the Panhandle Subsidiaries and in
         resolving all disputes and audits with respect to all Tax periods
         relating to Taxes of Panhandle or the Panhandle Subsidiaries.

                               (vi)   For a period of six (6) years after the
         Closing Date, Seller and its representatives shall have reasonable
         access to the books and records (including the right to make extracts
         thereof) of Panhandle or the Panhandle Subsidiaries to the extent that
         such books and records relate to Taxes and to the extent that such
         access may reasonably be required by Seller in connection with matters
         relating to or affected by the operation of Panhandle or the Panhandle
         Subsidiaries prior to the Closing Date. Such access shall be afforded
         by Buyer upon receipt of reasonable advance notice and during normal
         business hours. If Buyer shall desire to dispose of any of such books


                                       49

<PAGE>
         and records prior to the expiration of such six-year period, Buyer
         shall, prior to such disposition, give Seller a reasonable opportunity,
         at Seller's expense, to segregate and remove such books and records as
         Seller may select.

                               (vii)  If a Tax Indemnified Party receives a
         refund or credit or other reimbursement with respect to Taxes for which
         it would be indemnified under this Agreement, the Tax Indemnified Party
         shall pay over such refund or credit or other reimbursement to the Tax
         Indemnifying Party.

                               (viii) Buyer shall not, and shall cause Panhandle
         or the Panhandle Subsidiaries to not, make, amend or revoke any Tax
         election if such action would adversely affect any of Seller or its
         Affiliates with respect to any Tax period ending on or before the
         Closing Date or for the Pre-Closing Period or any Tax refund with
         respect thereto unless Buyer and its Affiliates indemnify and make
         Seller whole for any detriment or cost incurred (or to be incurred) by
         Seller as a result of such action.

                               (ix)   For purposes of this Agreement a
         "Consolidated Income Tax Return" is any income Tax Return filed with
          ------------------------------
         respect to any consolidated, combined, affiliated or unified group
         provided for under Section 1501 of the Code and the Treasury
         regulations under Section 1502 of the Code, or any comparable
         provisions of state or local law, other than any income Tax Return that
         includes only Panhandle or the Panhandle Subsidiaries.

                           (c) Indemnity for Taxes.
                               -------------------

                               (i)   Seller hereby agrees to indemnify Buyer and
         its affiliates against and hold them harmless from and against all
         liability for (i) all Taxes imposed on Panhandle or the Panhandle
         Subsidiaries with respect to Tax periods ending on or before the
         Closing Date, including without limitation all Taxes incurred by reason
         of any Election, (ii) Pre-Closing Taxes with respect to any Straddle
         Period, and (iii) all Taxes that are attributable to Seller or any
         member of an affiliated, consolidated, combined or unitary Tax group of
         which at least one of Panhandle or the Panhandle Subsidiaries (or any
         direct or indirect predecessor(s) of any of them) was a member at any
         time on or prior to the Closing Date and not after the Closing Date
         that is imposed under Treasury Regulation Section 1.1502-6 (or any
         similar provision of state, local or foreign Tax law), (iv) any Taxes
         of Panhandle or any Panhandle Subsidiary incurred as a transferee or a
         successor relating to any full or partial Tax period ending on or
         before the Closing Date, (v) Seller's portion of Transfer Taxes
         pursuant to Section 5.6(g), and (vi) any Damages arising out of,
         resulting from, or incurred in connection with any breach or inaccuracy


                                       50

<PAGE>
         of any representation or warranty set forth in Section 3.16; provided
         that the determination of whether such a breach or inaccuracy of
         Section 3.16(c)(d), or (e) occurred will be made without the Material
         Adverse Effect qualifications contained therein.

                               (ii)  Buyer hereby agrees to indemnify Seller and
         its Affiliates against and hold them harmless from all liability for
         (A) all Taxes of Panhandle or the Panhandle Subsidiaries with respect
         to all Tax periods beginning after the Closing Date, (B) Post-Closing
         Taxes with respect to any Straddle Period, and (C) Buyer's portion of
         Transfer Taxes pursuant to section 5.6(g).

                               (iii) The obligation of Seller to indemnify and
         hold harmless Buyer, on the one hand, and the obligations of Buyer to
         indemnify and hold harmless Seller, on the other hand, pursuant to this
         Section 5.6, shall terminate upon the expiration of the applicable
         statutes of limitations with respect to the Tax Liabilities in question
         (giving effect to any waiver, mitigation or extension thereof) or if a
         Claim is brought with respect thereto, until such time as such Claim is
         resolved.

                           (d) Certain Payments. Buyer and Seller agree to treat
                               ----------------
(and cause their Affiliates to treat) any payment by Seller under Section
5.6(b)(ii) or Section 5.6(c) as an adjustment to the Purchase Price for all
Tax purposes.

                           (e) Contests.
                               --------

                               (i)   After the Closing Date, Seller and Buyer
         each shall notify the other party in writing within ten (10) days of
         the commencement of any Tax audit or administrative or judicial
         proceeding affecting the Taxes of any of Panhandle or the Panhandle
         Subsidiaries that, if determined adversely to the taxpayer (the "Tax
                                                                          ---
         Indemnified Party") or after the lapse of time would be grounds for
         -----------------
         indemnification under this Section 5.6 by the other party (the "Tax
                                                                         ---
         Indemnifying Party" and a "Tax Claim"). Such notice shall contain
         ------------------         ---------
         factual information describing any asserted Tax liability in reasonable
         detail and shall include copies of any notice or other document
         received from any Tax authority in respect of any such asserted Tax
         liability. Failure to give such notification shall not affect the
         indemnification provided in this Section 5.6 except to the extent the
         Tax Indemnifying Party shall have been prejudiced as a result of such
         failure (except that the Tax Indemnifying Party shall not be liable for
         any expenses incurred during the period in which the Tax Indemnified
         Party failed to give such notice). Thereafter, the Tax Indemnified
         Party shall deliver to the Tax Indemnifying Party, as promptly as
         possible but in no event later than ten (10) days after the Tax
         Indemnified Party's receipt thereof, copies of all relevant notices and
         documents (including court papers) received by the Tax Indemnified
         Party.


                                       51

<PAGE>
                               (ii)  In the case of an audit or administrative
         or judicial proceeding involving any asserted liability for Taxes
         relating to any Taxable years or periods ending on or before the
         Closing Date, Seller shall have the right, at its expense, to control
         the conduct of such audit or proceeding; provided, however, that if
         Seller does not timely take control of such audit or proceeding, Buyer
         may, at its expense, control the conduct of the audit or proceeding. In
         the case of an audit or administrative or judicial proceeding involving
         any asserted liability for Taxes relating to any Straddle Period, Buyer
         shall have the right, at its expense, to control the conduct of such
         audit or proceeding; provided, however, that (A) Buyer shall keep
                              --------  -------
         Seller reasonably informed with respect to the status of such audit or
         proceeding and provide Seller with copies of all written correspondence
         with respect to such audit or proceeding in a timely manner and (B) if
         such audit or proceeding would be reasonably expected to result in a
         material increase in Tax liability of Panhandle or the Panhandle
         Subsidiaries for which Seller would be liable under this Section 5.6,
         Seller may participate in the conduct of such audit or proceeding at
         its own expense.

                               (iii) In the case of an audit or administrative
         or judicial proceeding involving any asserted liability for Taxes
         relating to any Taxable years or periods beginning after the Closing
         Date, Buyer shall have the right, at its expense, to control the
         conduct of such audit or proceeding.

                               (iv)  Buyer and Seller shall reasonably cooperate
         in connection with any Tax Claim, and such cooperation shall include
         the provision to the Tax Indemnifying Party of records and information
         which are reasonably relevant to such Tax Claim and making employees
         available on a mutually convenient basis to provide additional
         information and explanation of any material provided hereunder.

                           (f) Section 743 Determination.
                               -------------------------

                               (i)   Buyer and Seller shall reasonably cooperate
         with each other with respect to making any election under Section 754
         of the Code for any Panhandle Subsidiary or any Related Company. Prior
         to making any adjustments pursuant to Section 743 of the Code as a
         result of the transactions contemplated by this Agreement Buyer shall
         prepare a schedule indicating such adjustments that Buyer proposes to
         make (the "743 Schedule") and provide such schedule to Seller. If,
                    ------------
         within ten (10) days of the receipt of the 743 Schedule, Seller
         notifies Buyer that it disagrees with the 743 Schedule and provides
         Buyer with its proposed 743 Schedule and a written or oral explanation
         of the reasons for the adjustment, then Seller and Buyer shall attempt
         to resolve their disagreement within the twenty (20) days following
         Buyer's notification of Seller of such disagreement, otherwise, the 743


                                       52

<PAGE>
         Schedule shall be deemed the final 743 Schedule (the "Final 743
                                                               ---------
         Schedule"). If Seller and Buyer are unable to resolve their
         --------
         disagreement, the dispute shall be submitted to a mutually agreed upon
         nationally recognized independent accounting firm, whose expense shall
         be borne equally by Seller and Buyer, for resolution within twenty (20)
         days of such submission. The 743 Schedule delivered by such accounting
         firm shall be the Final 743 Schedule. The Final 743 Schedule shall be
         binding on Buyer, Seller, and their respective Affiliates. Buyer and
         Seller shall take no position, and cause their respective Affiliates to
         take no position, inconsistent with the Final 743 Schedule.

                               (ii)  Buyer and Seller shall mutually prepare any
         forms or schedules necessary to give effect to the preceding paragraph.
         In the event that any Tax position taken in reliance upon the Final 743
         Schedule is disputed by any Taxing authority, the party receiving
         written notice of the dispute shall promptly notify the other party
         hereto concerning such dispute.

                           (g) Transfer and Similar Taxes. Notwithstanding any
                               --------------------------
other provisions of this Agreement to the contrary, all sales, use, transfer,
gains, stamp, duties, recording and similar Taxes (collectively, "Transfer
                                                                  --------
Taxes") incurred in connection with the transactions contemplated by this
-----
Agreement shall be borne equally by Buyer and Seller, and Seller shall
accurately file all necessary Tax Returns and other documentation with respect
to Transfer Taxes and timely pay all such Transfer Taxes. If required by
Applicable Law, Buyer will join in the execution of any such Return. Seller
shall provide copies of any Tax Returns with respect to Transfer Taxes to Buyer
no later than five (5) days after the due dates of such Tax Returns.

                           (h) Termination of Tax Sharing Agreements. On or
                               -------------------------------------
prior to the Closing Date, Seller shall cause all Tax sharing agreements between
Seller or any of its Affiliates (as determined immediately after the Closing
Date) on the one hand, and Panhandle or the Panhandle Subsidiaries on the other
hand, to be terminated, and all obligations thereunder shall be settled, and no
additional payments shall be made under any provisions thereof after the Closing
Date."

                  Section 5.7  Intercompany Accounts.
                               ---------------------

         Except as set forth on _Ref22730665 ~ of the Seller Disclosure Letter
or as contemplated by the Assumption Agreement, prior to the Closing Date,
Seller shall, and shall cause its Affiliates (other than Panhandle and the
Panhandle Subsidiaries) to, settle intercompany accounts payable (including any
debt payable) to Panhandle or the Panhandle Subsidiaries and accounts receivable
(including any debt receivable) from Panhandle or the Panhandle Subsidiaries.
Seller shall determine the method by which such intercompany accounts are
eliminated including, but not limited to, by means of setoff, settlement,
capital contribution or reduction in capital.


                                       53

<PAGE>
                  Section 5.8  Related Agreements.
                               ------------------

         At the Closing or as otherwise provided herein, (i) Buyer and the Buyer
Counterparties shall execute and deliver to Seller duly executed copies of the
Related Agreements to which they are a party and (ii) Seller shall, and shall
cause the Seller Counterparties to, execute and deliver to Buyer duly executed
copies of the Related Agreements to which they are a party.

                  Section 5.9  Preliminary Transfer.
                               --------------------

                           (a) In each case, prior to the Closing and in the
form described in Section 5.9 of the Seller Disclosure Letter, Seller shall (i)
cause the transfer of a newly formed holding company whose sole asset will be
100 percent of the ownership interests in CMS Gulf Coast Field Services, LLC
("CMSGCFS") to Panhandle or a Panhandle Subsidiary, and (ii) use its reasonable
  -------
best efforts to cause the transfer of all of the ownership interests held by CMS
Panhandle Holdings, LLC in each of Centennial Pipeline, L.L.C., a Delaware
limited liability company ("Centennial"), and Guardian Pipeline, L.L.C., a
                            ----------
Delaware limited liability company ("Guardian"), and the contracts relating to
                                     --------
such ownership interests to Seller or a Subsidiary of Seller (other than
Panhandle or any of the Panhandle Subsidiaries). At the Closing, Seller shall
update the Seller Disclosure Letter, where appropriate, to reflect the inclusion
of such holding company, which owns the interests in CMSGCFS, as a Panhandle
Subsidiary, and, assuming the transfer of the ownership interests in Centennial
and/or Guardian and the contracts relating to such ownership interests have
occurred prior to the Closing, the deletion of Centennial and/or Guardian as
Related Companies.

                           (b) If despite using its reasonable best efforts,
Seller is unable to cause the transfer of the ownership interests in either
Centennial or Guardian and the contracts relating to such ownership interests
prior to the Closing, from and after the Closing Seller shall continue to use
its reasonable best efforts to effect such transfer(s) as promptly as reasonably
practical following the Closing. Until such time (after the Closing), as such
ownership interests and contract rights have been transferred in accordance
herewith, the ownership interests and contracts interests shall be held on
behalf of Seller, such that all of the benefits and burdens appurtenant to such
ownership interests and contracts shall remain with Seller and its Affiliates.
All decisions relating to the operation and management of such ownership
interests and contracts shall be made by Seller and implemented by Buyer in
accordance with Seller's instructions, subject to applicable law. Seller shall
indemnify Buyer, Panhandle and the Panhandle Subsidiaries in accordance with
Article VIII for any Damages and Liabilities arising out of or relating to such
ownership interests and contracts relating to such ownership interests after the
Closing and until the transfer(s) have been completed in accordance with this
Section 5.9.

                  Section 5.10  Maintenance of Insurance Policies.
                                ---------------------------------

                            (a) Seller and Buyer agree that Casualty Insurance
claims relating to the businesses of Panhandle and the Panhandle Subsidiaries
(including reported claims and including incurred but not reported claims) will
remain with Panhandle and the Panhandle Subsidiaries immediately following the


                                       54


<PAGE>
Closing. For purposes hereof, "Casualty Insurance Claims" shall mean workers'
                               -------------------------
compensation, auto liability, general liability and products liability claims
and claims for damages caused to the facilities of Panhandle or the Panhandle
Subsidiaries generally insured under all risk, real property, boiler and
mechanical breakdown insurance coverage. The Casualty Insurance Claims are
subject to the provisions of the Insurance Policies with insurance carriers and
contractual arrangements with insurance adjusters maintained by Seller or its
Affiliates prior to the Closing. With respect to the Casualty Insurance Claims,
the following procedures shall apply: (i) Seller or its Affiliates shall
continue to administer, adjust, settle and pay, on behalf of Panhandle and the
Panhandle Subsidiaries, all Casualty Insurance Claims with dates of occurrence
prior to the date of Closing; provided, that Seller will obtain the consent of
                              --------
Buyer prior to adjusting, settling or paying any Casualty Insurance Claim of an
amount greater than $100,000 and provided, further, that Seller shall permit
                                 --------  -------
Buyer to join Seller in any settlement negotiations with claimants, insurers, or
insurance adjusters; and (ii) Seller shall invoice Panhandle and the Panhandle
Subsidiaries at the end of each month for Casualty Insurance Claims paid on
behalf of Panhandle and the Panhandle Subsidiaries by Seller. Buyer shall cause
Panhandle and the Panhandle Subsidiaries to pay the invoice within thirty (30)
days of its date. In the event that Panhandle and the Panhandle Subsidiaries do
not pay Seller within thirty (30) days of such invoice, interest at the rate of
ten percent (10%) per annum shall accrue on the amount of such invoice. Casualty
Insurance Claims to be paid by Seller hereunder shall include all costs
necessary to settle claims including compensatory, medical, legal and other
allocated expenses, net of insurance proceeds. In the event that any Casualty
Insurance Claims exceeds a deductible or self-insured retention under the
Insurance Policies, Seller shall be entitled to the benefit of any insurance
proceeds that may be available to discharge any portion of such Casualty
Insurance Claim.

                            (b) Other than as set forth in Section 3.21 hereof,
Seller makes no representation or warranty with respect to the applicability,
validity or adequacy of any Insurance Policies, and Seller shall not be
responsible to Buyer or any of its Affiliates for the failure of any insurer to
pay under any such Insurance Policy.

                            (c) Nothing in this Agreement is intended to provide
or shall be construed as providing a benefit or release to any insurer or claims
service organization of any obligation under any Insurance Policies. Seller and
Buyer confirm that the sole intention of this Section 5.10 is to divide and
allocate the benefits and obligations under the Insurance Policies between them
as of the Closing Date and not to effect, enhance or diminish the rights and
obligations of any insurer or claims service organization thereunder. Nothing
herein shall be construed as creating or permitting any insurer or claims
service organization the right of subrogation against Seller or Buyer or any of
their Affiliates in respect of payments made by one to the other under any
Insurance Policy.

                            (d) If Buyer requests a copy of an Insurance Policy
relating to a pending or threatened Casualty Insurance Claim, Seller shall
provide a copy of all relevant insurance policies which insure such Casualty
Insurance Claims within five (5) Business Days, provided, that if Seller cannot
provide such policy within five (5) days after exercising reasonable best


                                       55

<PAGE>
efforts to locate such policy, Seller shall continue to exercise its reasonable
best efforts to provide such policy to Buyer as soon as possible thereafter.

                  Section 5.11  Preservation of Records.
                                -----------------------

         Buyer agrees that it shall, at its own expense, preserve and keep the
records held by it relating to the respective businesses of Panhandle and the
Panhandle Subsidiaries that could reasonably be required after the Closing by
Seller for as long as may be required for such categories of records for the
greater of the time periods required pursuant to the Access and Support
Agreement and the time periods required pursuant to the applicable document
retention program in effect on the Closing Date (a copy of which has been
provided to Buyer). In addition, Buyer shall make such records available to
Seller as may reasonably be required by Seller in connection with, among other
things, any insurance claim, legal proceeding or governmental investigation
relating to the respective businesses of Seller and its Affiliates, including
Panhandle and the Panhandle Subsidiaries.

                  Section 5.12  Public Statements.
                                -----------------

         On or prior to the Closing Date, neither party shall, nor shall permit
its Affiliates to, issue or cause the publication of any press release or other
announcement with respect to this Agreement or the transactions contemplated
hereby without the consent of the other party hereto. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law, court process or stock exchange rule to be made by the party proposing to
issue the same, such party shall use its reasonable best efforts to consult in
good faith with the other party prior to the issuance of any such press release
or announcement.

                  Section 5.13  Certain Transactions.
                                --------------------

         Buyer, Southern Union and Funding shall not, and shall not permit any
of their respective Subsidiaries to, and Highstar shall not, and shall not
permit Southern Star Central to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets if the entering into of a definitive
agreement relating to, or the consummation of such acquisition, merger or
consolidation would reasonably be expected to (i) impose any material delay in
the obtaining of, or significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals of any Governmental
Authority necessary to consummate the transactions contemplated by this
Agreement or the expiration or termination of any applicable waiting period,
(ii) significantly increase the risk of any Governmental Authority entering an
order prohibiting the consummation of the transactions contemplated by this
Agreement, (iii) significantly increase the risk of not being able to remove any
such order on appeal or otherwise or (iv) materially delay or prevent the
consummation of the transactions contemplated by this Agreement. Prior to


                                       56

<PAGE>
Closing, Southern Union shall not, and the Subsidiaries of Southern Union shall
not, acquire or agree to acquire any ownership interest in Southern Star Central
or any material asset of Southern Star Central.

                  Section 5.14  CMS Panhandle Holdings, LLC.
                                ---------------------------

         Buyer covenants to maintain CMS Panhandle Holdings, LLC as a
partnership for all Tax purposes through December 31, 2003.

                  Section 5.15  Change of Corporate Name.
                                ------------------------

         As soon as reasonably practicable following the Closing Date, but in no
event later than ninety (90) days following the Closing Date (the "Corporate
                                                                   ---------
Name Change Transition Period"), Buyer shall cause each of Panhandle and the
-----------------------------
Panhandle Subsidiaries, as applicable, to change its corporate name to a name
that does not include "CMS" and to make any necessary legal filings with the
appropriate Governmental Authorities to effectuate such changes. Buyer shall
hold harmless and indemnify Seller Indemnified Parties (as defined herein)
against all costs, expenses and Damages to the extent incurred by Seller
Indemnified Parties resulting from or arising in connection with Buyer's,
Panhandle's or any Panhandle Subsidiary's use of the "CMS" name during the
Corporate Name Change Transition Period.

                  Section 5.16  Transitional Use of Seller's Trademarks.
                                ---------------------------------------

                            (a) Seller hereby grants to Panhandle and the
Panhandle Subsidiaries, effective upon the Closing Date, a limited
non-transferable, non-exclusive, royalty-free transitional right and license to
use the trademarks, service marks, and trade names listed on Section 5.16 of the
Seller Disclosure Letter, together with all slogans, logotypes, designs and
trade dress associated therewith which are, in each case, in existence at
Closing Date and currently being used in the conduct of the businesses of
Panhandle and the Panhandle Subsidiaries (collectively, the "Seller's Marks")
                                                             --------------
solely on and in connection with the goods and services of the businesses of
Panhandle and the Panhandle Subsidiaries and which are embodied in or on any
stationery, business cards, advertising and promotional materials, packaging and
labels, equipment, manuals and other documentation, statements of work, trucks,
hard hats, e-mail addresses, caller ID, printed facsimile headers and footers,
web page content and URLs for web sites, Messenger screens, signs on facilities
owned or leased by Panhandle and the Panhandle Subsidiaries, and inventory
("Business Materials"), and for any administrative, corporate and legal use in
connection with the transition away from using the Seller's Marks (the
"Transitional License").
 --------------------

                            (b) Panhandle's and the Panhandle Subsidiaries'
right to use the Seller's Marks shall automatically cease as soon as reasonably
practicable following the Closing Date, but in no event later than six (6)
months following the Closing Date. Upon the termination of Panhandle's and the
Panhandle Subsidiaries' right to use Seller's Marks, Panhandle and each
Panhandle Subsidiary shall immediately cease all use of Seller's Marks and all
materials bearing Seller's Marks (such materials to be returned to Seller or
destroyed).


                                       57

<PAGE>
                            (c) All rights and goodwill arising from the use of
Seller's Marks and/or any similar names or marks (including logos) shall inure
solely to Seller's benefit. Panhandle and the Panhandle Subsidiaries agree that
neither Buyer, Panhandle nor any Panhandle Subsidiary shall use, directly or
indirectly, the word "CMS" or any marks similar thereto, as part of Buyer's,
Panhandle's or any Panhandle Subsidiary's own trade names, or in any other way
that suggests that there is any relation or affiliation between Seller and
Buyer, or Seller and Panhandle and the Panhandle Subsidiaries, other than that
created by this Agreement, or as a trademark, service mark or trade name for any
other business, product or service. Panhandle and Panhandle Subsidiaries shall
have no interest in Seller's Marks except as expressly provided in this
Agreement and shall not claim any other rights therein. Nothing in this
Agreement or in the performance thereof, or that might otherwise be implied by
law, shall operate to grant Panhandle and the Panhandle Subsidiaries any right,
title, or interest in or to Seller's Marks other than as specified in the
limited license grant in this Agreement. All rights not expressly granted in
this Agreement or herein are reserved to Seller.

                            (d) Panhandle and the Panhandle Subsidiaries agree
to assign to Seller and do hereby assign to Seller all rights they may acquire,
if any, by operation of law or otherwise in Seller's Marks, including all
applications or registrations therefore, along with the goodwill associated
therewith. Panhandle and the Panhandle Subsidiaries shall assist Seller in
protecting and maintaining Seller's rights in Seller's Marks in connection with
Panhandle's and the Panhandle Subsidiaries' licensed use hereunder, including
preparation and execution of documents necessary or appropriate in the ordinary
course to register Seller's Marks and/or record this Agreement. As between the
parties, Seller shall have the sole right to, and in its sole discretion may,
commence, prosecute or defend, and control any action concerning Seller's Marks.

                            (e) During the term of the Transitional License,
Buyer, Panhandle and the Panhandle Subsidiaries shall not take, or agree or
commit to take, any action that would or would be reasonably likely have an
adverse impact on any of the Seller's Marks.

                            (f) Neither Buyer, Panhandle, nor any Panhandle
Subsidiary shall directly or indirectly, contest the validity of, by act or
omission jeopardize, or take any action inconsistent with, Seller's rights in
Seller's Marks (including attempting to register Seller's Marks or a mark
incorporating either Seller's Marks or the word "CMS" or any mark similar
thereto). Panhandle's and the Panhandle Subsidiaries' rights under the license
granted herein are personal and may not be sublicensed, assigned or otherwise
transferred.

                  Section 5.17  Reasonable Best Efforts.
                                -----------------------

         Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto will use all reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable consistent with applicable law to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.


                                       58

<PAGE>
                  Section 5.18  No Shopping.
                                -----------

         From and after the date hereof, none of Seller, Panhandle, the
Panhandle Subsidiaries nor their officers, directors, employees, affiliates,
stockholders, representatives, agents, nor anyone acting on behalf of them
shall, directly or indirectly, encourage, solicit, engage in discussions or
negotiations with, or provide any non-public information to, any Person (other
than Buyer, the Sponsors or their respective representatives) concerning any
merger, sale of assets, purchase or sale of Shares or similar transaction
involving Panhandle or the Panhandle Subsidiaries (collectively, "Prohibited
Transactions") unless this Agreement is terminated pursuant to and in accordance
with Article VII hereof; provided however, that nothing herein shall prohibit a
transaction resulting in a change of control of any direct or indirect parent of
Panhandle.

                  Section 5.19  Sponsor Covenants.
                                -----------------

                            (a) The Sponsors, severally, shall cause Buyer to
perform all of its obligations under this Agreement which are required to be
performed on and prior to the Closing Date, including, without limitation,
Buyer's requirement to consummate the transaction in accordance with and subject
to the terms of Section 2.2 hereof and to pay the Purchase Price in accordance
with Article II. The Sponsors obligations shall be several, and not joint or
joint and several; provided, however, that if a Sponsor's action or inaction has
                   --------  -------
resulted in a breach by such Sponsor, or in any way caused a breach by Buyer of
any of its pre-Closing or Closing obligations under the Agreement, such Sponsor
(and only such Sponsor) shall be solely liable for all Damages arising out of,
resulting from or incurred in connection with such breach, and Seller shall have
no claim against, and hereby releases, the non-breaching Sponsors, from any
Liability with respect to such breach. Each of the Sponsors, Buyer and Seller
acknowledges and agrees that no action shall be taken by Buyer hereunder without
the consent of all Sponsors. Southern Union hereby irrevocably and
unconditionally guaranties the performance by Funding of all of its obligations
for the benefit of Seller under this Agreement.

                            (b) Subject to the last sentence in Section 5.19(a)
hereof, with respect to any payment obligations of Buyer under this Agreement,
Southern Union's, Funding's and Highstar's obligations shall be several, and not
joint or joint and several, and the funding of such payment obligations shall be
borne 77.9% by Southern Union, 18.4% by Funding and 3.7% by Highstar. If a
Sponsor does not fund its percentage of the Estimated Purchase Price at the
intended Closing Date, notwithstanding that all of the condition's to Buyer's
obligation to consummate the Closing have either been fulfilled or are capable
of fulfillment on the Closing Date, each Sponsor who shall have funded or is
prepared to fund shall be required to deposit their respective percentage of the
Estimated Purchase Price into an escrow account designated by Seller pending the
payment of each other Sponsor's share of the Estimated Purchase Price, at which
time said funds shall be released to Seller. Seller and each Sponsor who shall
have funded or been prepared to fund its percentage of the Estimated Purchase
Price shall mutually agree in good faith upon an escrow agent to hold such
funds, and together with the escrow agent, shall in good faith enter into an
escrow agreement that will govern the holding of such funds. The escrow
agreement shall provide that the escrow funds shall be released to each such


                                       59

<PAGE>
Sponsor in the event that the Closing has not been consummated within 30 days of
the date on which such funds were deposited.

                  Section 5.20  Closing Delay.  If the Closing has not occurred
                                ------------
on or prior to March 31, 2003, a delay penalty (the "Delay Penalty") shall begin
accruing on a daily basis on April 1, 2003 and shall continue until the earlier
of the Closing Date or the termination of this Agreement in accordance with
Article VII hereof, provided, as of such date, each of the conditions to
Seller's obligation have been fulfilled or are reasonably capable of being
fulfilled within a reasonable time. Southern Union shall pay the Delay Penalty
to Seller in accordance with this Section 5.20, and the Delay Penalty shall be
calculated as follows:

         (i)   $100,000 per day in April, 2003;

         (ii)  $200,000 per day in May 2003; and

         (iii) $300,000 per day on and after June 1, 2003;

Southern Union shall pay the Delay Penalty on the last day of each calendar
month or, with respect to such month in which the Closing occurs or in which
this Agreement is terminated in accordance with its terms, on the Closing Date
or the termination date, as the case may be. For the avoidance of doubt, the
Delay Penalty shall be retained by Seller whether or not the Closing occurs;
provided, however, 25% of the Delay Penalty shall be credited towards Buyer's
payment of the Estimated Purchase Price. Any Delay Penalty payable hereunder
shall be paid exclusively by Southern Union and Seller shall have no claim
against, and hereby releases, Buyer, Highstar and Funding and their respective
affiliates (other than Southern Union) from any claim or Liability with respect
to any such Delay Penalty.


                                       60

<PAGE>
                  Section 5.21  Restated Financials.
                                -------------------

         Seller shall use its reasonable best efforts to deliver the Restated
Financials to Buyer as soon as reasonably practicable after the date of this
Agreement. Seller shall instruct Ernst & Young LLP to conduct an audit of the
financial statements of Panhandle and the Panhandle Subsidiaries for the fiscal
year ended December 31, 2002 as soon as reasonably practicable after Panhandle
management completes such financial statements, Seller shall cooperate with such
audit, and shall deliver to Buyer a copy of the audited financial statements of
Panhandle and the Panhandle Subsidiaries for the fiscal year ended December 31,
2002 and Ernst & Young LLP's audit opinion thereon upon receipt of same. To the
extent Buyer reasonably requires audited or reviewed financial statements with
respect to Panhandle and the Panhandle Subsidiaries in order to comply with the
reporting requirements of the Securities and Exchange Commission set forth in
Regulations S-K and S-X, Seller will reasonably cooperate with Buyer (at Buyer's
cost), including any reasonable request that Seller instruct Ernst & Young LLP
to prepare and deliver to Buyer a comfort letter, customary in scope and
substance for comfort letters delivered in similar circumstances.


                                   ARTICLE VI
                                   CONDITIONS

                  Section 6.1  Mutual Conditions to the Closing.
                               --------------------------------

         The respective obligations of each party to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction or waiver of
each of the following conditions at or prior to the Closing Date:

                           (a) Any waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated by this
Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), shall have expired or have been terminated;

                           (b) All waiting periods applicable to the
transactions contemplated by this Agreement or any Related Agreement under any
applicable other law shall have expired or been terminated, and all filings
required by law to be made prior to Closing by Seller, a Sponsor or Buyer with,
and all consents, approvals and authorizations required by law to be obtained
prior to Closing by Seller, Sponsor or by Buyer from, any Governmental Authority
under any law in order to consummate the transactions contemplated by this
Agreement shall have been made or obtained (as the case may be), except where
the failure for such waiting periods to expire or to be terminated, to make such
filings, or to obtain any such authorizations, individually or in the aggregate,
would not have a Material Adverse Effect; provided, however, if any consent,
approval or authorization from any Governmental Authority the absence of which
would not have a Material Adverse Effect is not obtained prior to or at the
Closing and, as a result, the transfer of one or more assets, rights or
interests is prevented at the Closing, from and after the Closing, Seller, the
affected Sponsor and Buyer shall continue to use their reasonable best efforts


                                       61

<PAGE>
to obtain such requisite consent, approval or authorization. If the parties are
unable to obtain the necessary approvals and, as a result, such assets, rights
or interests may not be transferred to Buyer within 90 days after the Closing,
the parties shall mutually agree on an acceptable adjustment to the purchase
price to reflect the fair market value of such assets, rights or interests as of
the Closing Date; and

                           (c) No court of competent jurisdiction or other
competent Governmental Authority shall have issued a statute, rule, regulation,
order, decree or injunction or taken any other action that has the effect of
restraining, enjoining, imposing a Burdensome Condition or otherwise prohibiting
in any material respect the ownership by Buyer of the Shares or the ownership or
operation by Buyer of a material portion of the business or assets of Panhandle
and the Panhandle Subsidiaries, taken as a whole.

                  Section 6.2  Buyer's Conditions to the Closing.
                               ---------------------------------

         The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction or waiver of each of the
following conditions at or prior to the Closing Date:

                           (a) The representations and warranties of Seller
contained in this Agreement (A) if subject to any limitations as to
"materiality" or "Material Adverse Effect," shall be true and correct at and as
of the Closing Date as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such earlier date),
and (B) if not subject to any limitations as to "materiality" or "Material
Adverse Effect," shall be true and correct at and as of the Closing Date as if
made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such earlier date) except where the failure of
such representations and warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect;

                           (b) Seller and its Affiliates shall have made all
deliveries required under Section 2.6;

                           (c) Seller shall have performed in all material
respects all of its obligations required to be performed by it under this
Agreement at or prior to the Closing Date;

                           (d) Seller shall have, or shall have caused the
appropriate Seller Counterparty to have, executed and delivered as of the
Closing each of the Related Agreements to be executed by Seller or a Seller
Counterparty;

                           (e) Buyer shall have received a properly executed
statement of Seller dated as of the Closing Date and conforming to the
requirements of Treasury Regulation Section 1.1445-2(b)(2);

                           (f) Seller shall have delivered to Buyer an opinion,
dated as of the Closing Date, from a nationally recognized appraisal firm
addressed to Seller, that Seller and its Subsidiaries on a consolidated basis


                                       62

<PAGE>
are solvent, both immediately before and after giving effect to the consummation
of the transactions contemplated by this Agreement;

                           (g) Seller shall have obtained all approvals,
consents, releases and documents which are listed in Section 6.2(g) of the
Seller Disclosure Letter;

                           (h) Buyer shall have received a legal opinion, dated
as of the Closing Date, from counsel to Seller, substantially in the form of
Exhibit D hereto;

                           (i) Seller shall have delivered to Buyer (and shall
have filed with the Securities and Exchange Commission) the restated audited
financial statements of Panhandle for each of the fiscal years ended
December 31, 2000 and December 31, 2001 (including the opinion of Ernst & Young
LLP with respect thereto) (the "Annual Financial Statements") and the restated
                                ---------------------------
unaudited financial statements of Panhandle for the quarters ended March 31,
2002, June 30, 2002 and September 30, 2002 (which quarterly financial statements
shall have been reviewed by Ernst & Young LLP in accordance with the applicable
rules and regulations of the SEC) (collectively with the Annual Financials
Statements, the "Restated Financials"), and except as set forth in Section
                 -------------------
6.2(i) of the Seller Disclosure Letter, the Restated Financials (including the
notes thereto) shall correspond in all material respects to the draft Restated
Financials (and draft notes thereto) delivered to Buyer prior to the date of
this Agreement, and any footnotes with respect to any restated quarterly
financial statements shall be the same in all material respects as such
footnotes in the Interim Financial Statements, except for corresponding changes
reflected in the Annual Financial Statements; and

                           (j) Seller shall have caused Panhandle to cure any
defaults (currently under waiver by the lenders) under the credit facility
described as Item 44 in Section 3.7(a) of the Seller Disclosure Letter relating
to a failure to furnish such lenders with certified financial statements.

                  Section 6.3  Seller's Conditions to the Closing.
                               ----------------------------------

         The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction or waiver of each of the
following conditions at or prior to the Closing Date:

                           (a) The representations and warranties of Buyer and
the Sponsors contained in this Agreement (A) if subject to any limitations as to
"materiality" or "Material Adverse Effect," shall be true and correct at and as
of the Closing Date as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such earlier date),
and (B) if not subject to any limitations as to "materiality" or "Material
Adverse Effect," shall be true and correct at and as of the Closing Date as if
made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such earlier date) except where the failure of
such representations and warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a material


                                       63

<PAGE>
adverse effect on the ability of Buyer and the Sponsors to consummate the
transactions contemplated by this Agreement;

                           (b) Buyer and the Sponsors shall have made all
deliveries required under Section 2.7;

                           (c) Each of Buyer, Southern Union, Highstar and
Funding shall have performed in all material respects all of its obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and Seller shall have received a certificate from each of Buyer, Southern
Union, Highstar and Funding to that effect dated the Closing Date;

                           (d) Buyer shall have, or shall have caused the
appropriate Buyer Counterparty to have, executed and delivered as of the Closing
each of the Related Agreements to be executed by Buyer or a Buyer Counterparty;

                           (e) Buyer and the Sponsors shall have obtained all
approvals, consents and releases which are listed in Section 6.3(e) of the Buyer
Disclosure Letter; and

                           (f) Seller shall have received a legal opinion, dated
as of the Closing Date, from counsel to each of Buyer, Southern Union, Highstar
and Funding, substantially in the form of Exhibit E hereto.

                                  ARTICLE VII

                           TERMINATION AND ABANDONMENT

                  Section 7.1  Termination.
                               -----------

         This Agreement may be terminated at any time prior to the Closing Date
by:
                           (a) mutual written consent of the parties;

                           (b) by either Buyer or Seller, upon written notice to
the other parties, if the Closing shall not have occurred on or before June 30,
2003 (the "Initial Termination Date"); provided, however, that if on the Initial
           ------------------------    --------  -------
Termination Date the conditions to closing set forth in Sections 6.1(a), 6.1(b)
and 6.1(c) shall have been fulfilled and certain other conditions set forth in
Sections 6.1, 6.2 or 6.3 shall not have been fulfilled but are reasonably
capable of being fulfilled no later than ten business days after the Initial
Termination Date, then, if a written notice requesting an extension of the
termination date has been delivered by either Buyer to Seller, or by Seller to
Buyer, at any time during the ten business day period ending on the Initial
Termination Date, the termination date shall be extended to July 15, 2003.

                           (c) by either Buyer or Seller upon written notice to
the other party, if any of the mutual conditions to the Closing set forth in


                                       64

<PAGE>
Section 6.1 shall have become incapable of fulfillment by June 30, 2003 or
July 15, 2003, as the case may be, and shall not have been waived in writing by
the other party;

                           (d) by Buyer, so long as Buyer is not then in breach
of its obligations under this Agreement, upon a breach of any covenant or
agreement on the part of Seller set forth in this Agreement, or if any
representation or warranty of Seller shall have been or become untrue, in each
case such that the conditions set forth in Section 6.2 would not be satisfied;
provided, however, that Buyer may not terminate this Agreement if such breach or
untruth is capable of being cured by Seller by not later than June 30, 2003 or
July 15, 2003, as the case may be, through the exercise of its reasonable best
efforts, so long as Seller continues to exercise such reasonable best efforts
(until not later than June 30, 2003 or July 15, 2003, as the case may be);

                           (e) by Seller, so long as Seller is not then in
breach of its obligations under this Agreement, upon a breach of any covenant or
agreement on the part of Buyer or the Sponsors set forth in this Agreement, or
if any representation or warranty of Buyer and the Sponsors shall have been or
become untrue, in each case such that the conditions set forth in Section 6.3
would not be satisfied; provided, however, that Seller may not terminate this
                        --------  -------
Agreement if such breach or untruth is capable of being cured by Buyer and the
Sponsors by not later than July 15, 2003, through the exercise of their
reasonable best efforts, so long as Buyer and the Sponsors continue to exercise
such reasonable best efforts (until not later than June 30, 2003 or July 15,
2003, as the case may be); and

                           (f) by either Seller or Buyer if any Governmental
Authority shall have issued an order, decree or ruling or taken any other
action, which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by this Agreement and which order, decree, ruling or
other action is not subject to appeal; unless failure to consummate closing
because of such action by the Governmental Authority is due to the failure of
the party seeking to terminate to have fulfilled its obligations under Section
5.3 and Section 5.4.

                  Section 7.2  Procedure and Effect of Termination.
                               -----------------------------------

         In the event of the termination of this Agreement pursuant to Section
7.1, (i) this Agreement, except for the provisions of Section 5.2(b), all of
Article IX and this Section 7.2, shall become void and have no effect, without
any Liability on the part of any party hereto or its directors, officers,
stockholders or partners; provided, however, that nothing in this Section 7.2
                          --------  -------
shall relieve any party for liability for any breach of this Agreement as set
forth in the next succeeding sentence of this Section 7.2, and (ii) all filings,
applications and other submissions made pursuant to this Agreement, to the
extent practicable, shall be withdrawn from the agency or other Person to which
they were made or appropriately amended to reflect the termination of the
transactions contemplated hereby. Notwithstanding the foregoing, (a) nothing in
this Section 7.2 shall relieve any party hereto of liability for Damages
resulting from any breach of any of its obligations under this Agreement;
provided, however, that for purposes of this clause (a), Damages shall be deemed
not to include Third Party Claims, and (b) if it shall be judicially determined


                                       65

<PAGE>
that termination of this Agreement was caused by an intentional breach of this
Agreement, then, in addition to other remedies at law or equity for breach of
this Agreement, but subject to the limitation in clause (a) above, the party so
found to have intentionally breached this Agreement shall indemnify and hold
harmless the other party hereto for its respective out-of-pocket costs,
including the fees and expenses of their counsel, accountants, financial
advisors and other experts and advisors, as well as fees and expenses incident
to the negotiation, preparation and execution of this Agreement and related
documentation.

                                  ARTICLE VIII

                            SURVIVAL; INDEMNIFICATION

                  Section 8.1  Survival.
                               --------

                           (a) The representations and warranties provided for
in this Agreement shall survive the Closing and remain in full force and effect
until the twelve-month (12) anniversary of this Agreement; provided however,
                                                           -------- -------
that the representations and warranties set forth in Section 3.2 (Authority
Relative to this Agreement), Section 3.3 (Shares), Section 3.19 (Brokerage and
Finders' Fees), 4.2 (Authority Relative to this Agreement) and 4.7 (Brokerage
and Finders' Fees) shall survive indefinitely, the representations and
warranties set forth in Section 3.16 (Taxes) shall survive for a period equal to
the applicable statute of limitations for each Tax and taxable year, and the
representations and warranties set forth in Section 3.15 (Environmental; Health
and Safety Matters) shall survive until the second (2nd) anniversary of the
Closing Date.

                           (b) No Claim for damages or other relief of any kind
(including a Claim for indemnification under Section 8.2 hereof) arising against
an Indemnified Party out of or relating to this Agreement or the transactions
contemplated hereby, whether sounding in contract, tort, breach of warranty,
securities law, other statutory cause of action, deceptive trade practice,
strict liability, product liability or other cause of action or theory of
liability (except, in all cases Claims alleging fraud, intentional
misrepresentation or intentional misconduct), may be brought unless suit thereon
is filed, or a written notice describing the nature of that Claim, the theory of
liability, the nature of the relief sought and the material factual assertions
upon which the Claim is based is given to the other party, before the
termination of the Survival Period.

                           (c) The survival period of each representation or
warranty as provided in this Section 8.1 is referred to herein as the "Survival
                                                                       --------
Period." Notwithstanding the foregoing, any representation or warranty that
------
would otherwise terminate shall survive with respect to Damages which respect to
which suit thereon is filed or of which notice describing the nature of that
Claim, the theory of liability, the nature of the relief sought and the material
factual assertions upon which the Claim is based is given pursuant to this
Agreement prior to the end of the Survival Period, until the matter is finally
resolved and any related Damages are paid.


                                       66

<PAGE>
                  Section 8.2  Indemnification.
                               ---------------

                           (a) Subject to the limitations set forth in this
Article VIII, subsequent to the Closing, Seller shall indemnify, defend, save
and hold harmless, Buyer, the Sponsors, Panhandle and the Panhandle
Subsidiaries, their respective successors and permitted assigns, and their
shareholders, members, partners (general and limited), officers, directors,
managers, trustees, incorporators, employees, agents, attorneys, consultants and
representatives, and each of their heirs, executors, successors and assigns
(collectively, the "Buyer Indemnified Parties"), against and in respect of any
                    -------------------------
and all Damages to the extent incurred by the Buyer Indemnified Party arising
out of, resulting from or incurred in connection with:

                               (i)   any breach or inaccuracy of any
         representation or warranty of Seller contained in this Agreement;

                               (ii)  any breach by Seller of any covenant or
         agreement contained in this Agreement; and

                               (iii) the matters set forth on Section
         8.2(a)(iii) of the Seller Disclosure Letter.

                           (b) Subject to the limitations set forth in this
Article VIII, subsequent to the Closing, Buyer shall indemnify, defend, save and
hold harmless, Seller and its Affiliates, their respective successors and
permitted assigns, and their shareholders, members, partners (general and
limited), officers, directors, managers, trustees, incorporators, employees,
agents, attorneys, consultants and representatives, and each of their heirs,
executors, successors and assigns (collectively, the "Seller Indemnified
                                                      ------------------
Parties") against and in respect of any and all Damages to the extent incurred
-------
by the Seller Indemnified Party arising out of, resulting from or incurred in
connection with:

                               (i)   any breach or inaccuracy of any
         representation or warranty of Buyer or the Sponsors contained in this
         Agreement; and

                               (ii)  any breach by Buyer or the Sponsors of any
         covenant or agreement contained in this Agreement.

                           (c) Any Person providing indemnification pursuant to
the provisions of this Section 8.2 is referred to herein as an "Indemnifying
                                                                ------------
Party," and any Person entitled to be indemnified pursuant to the provisions of
-----
this Section 8.2 is referred to herein as an "Indemnified Party."
                                              -----------------

                           (d) Seller's indemnification obligations contained in
Section 8.2(a)(i) shall not apply to any Claim for Damages until the aggregate
of all such Damages total $40,000,000 (the "Threshold Amount"), in which event
                                            ----------------
Seller's indemnity obligation contained in Section 8.2(a)(i) shall apply to all
Claims for Damages in excess of the Threshold Amount, subject to a maximum


                                       67

<PAGE>
liability to all Indemnified Parties, in the aggregate, of $200,000,000 (the
"Cap Amount") for all Claims under Section 8.2(a)(i) in the aggregate. Damages
 ----------
relating to any single breach or series of related breaches of Seller's
representations and warranties shall not constitute Damages, and therefore shall
not be applied towards the Threshold Amount or be indemnifiable hereunder,
unless such Damages relating to any single breach or series of related breaches
exceed $1,000,000 (the "Minimum Claim Amount").
                        --------------------

                           (e) Buyer's indemnification obligations contained in
Section 8.2(b)(i) shall not apply to any Claim for Damages until the aggregate
of all such Damages equals the Threshold Amount, in which event Buyer's
indemnification obligation contained in Section 8.2(b)(i) shall apply to all
Claims for Damages in excess of the Threshold Amount, subject to a maximum
liability to all Indemnified Parties, in the aggregate, of the Cap Amount for
all Claims under Section 8.2(b)(i) in the aggregate.  Damages relating to any
single breach or series of related breaches of Buyer's and the Sponsors'
representations and warranties shall not constitute Damages, and therefore shall
not be applied towards the Threshold Amount or be indemnifiable hereunder,
unless such Damages relating to any single breach or series of related breaches
exceed the Minimum Claim Amount.

                           (f) The indemnification obligations of each party
hereto under this Section 8.2 shall inure to the benefit of the Buyer
Indemnified Parties and Seller Indemnified Parties, and such Buyer Indemnified
Parties and Seller Indemnified Parties will be obligated to keep and perform the
obligations imposed on an Indemnified Party by this Section 8.2, on the same
terms as are applicable to such other party.

                           (g) In all cases in which a Person is entitled to be
indemnified in accordance with this Agreement, such Indemnified Party shall be
under a duty to take all commercially reasonable measures to mitigate all
losses. Without limiting the foregoing, each Indemnified Party shall use its
reasonable best efforts to collect any amount available under insurance
coverage, or from any other Person alleged to be responsible, for any Damages
for which an indemnity claim is being made; provided, that the reasonable costs
incurred by the Indemnified Party in taking such measures shall be included in
the amount of any Claim.

                           (h) An Indemnified Party shall not be entitled under
this Agreement to multiple recovery for the same losses. If an Indemnified Party
receives any amount under applicable insurance policies, or from any other
Person alleged to be responsible for any Damages, subsequent to an
indemnification payment by the Indemnifying Party, then such Indemnified Party
shall promptly reimburse the Indemnifying Party for any payment made or expense
incurred by such Indemnifying Party in connection with providing such
indemnification payment up to the amount received by the Indemnified Party, net
of any expenses incurred by such Indemnified Party in collecting such amount.

                           (i) All amounts paid by Seller or Buyer, as the case
may be, under this Article VIII shall be treated as adjustments to the Purchase
Price for all Tax purposes.


                                       68

<PAGE>
                           (j) Notwithstanding any other provision in the
Agreement to the contrary, this Section 8.2 shall not apply to any Claim of
indemnification with respect to Tax matters. Claims for indemnification with
respect to Tax matters shall be governed by Section 5.6.

                           (k) For purposes of this Article VIII only, the
existence of a breach of a representation or warranty in this Agreement and the
calculation of Damages arising out of a breach of any representation or warranty
in this Agreement shall be determined without giving effect to any exception or
qualification of such representation or warranty as to the materiality of the
breach thereof or the Material Adverse Effect on any Person of such breach.

Except as provided in Section 5.6 hereof, the provisions of this Article VIII
shall constitute the sole and exclusive remedy of any Indemnified Party for
Damages arising out of, resulting from or incurred in connection with any
inaccuracy in any representation or the breach of any warranty made by Buyer or
the Sponsors, on the one hand, or Seller, on the other hand, in this Agreement;
provided, however, that this exclusive remedy for Damages does not preclude a
--------  -------
party from bringing an Action for specific performance or other equitable remedy
to require a party to perform its obligations under this Agreement or any
Related Agreement; provided, further, that this exclusive remedy for Damages
                   --------  -------
does not preclude a party from bringing an Action alleging fraud, intentional
misrepresentation or intentional misconduct without reference to the provisions
of this Article VIII.

                  Section 8.3  Calculation of Damages.
                               ----------------------

         The Damages suffered by any Party hereto shall be calculated after
giving effect to the actual receipt of any available insurance proceeds paid
directly to the Indemnified Party. In computing the amount of any insurance
proceeds, such insurance proceeds shall be reduced by a reasonable estimate of
the present value of future premium increases attributable to the payment of
such Claim.

                  Section 8.4  Proedures for Third-Party Claims.
                               ---------------------------------

                           (a) In the case of any Claim for indemnification
arising from a Claim of a third party against an Indemnified Party arising under
paragraph 8.2(a) or 8.2(b) as the case may be (a "Third-Party Claim"), an
                                                  -----------------
Indemnified Party shall give prompt written notice to the Indemnifying Party of
any Claim or demand of which such Indemnified Party has knowledge, and as to
which it may request indemnification hereunder, specifying (to the extent known)
the amount of such Claim and any relevant facts and circumstances relating
thereto; provided, however, that any failure to give such prompt notice or to
         --------  -------
provide any such facts and circumstances will not waive any rights of the
Indemnified Party, except to the extent that the rights of the Indemnifying
Party are actually materially prejudiced thereby. The Indemnifying Party shall
have the right (and, if it elects to exercise such right, to do so by written
notice within thirty (30) days after receiving notice from the Indemnified
Party) to defend and to direct the defense against any such Third-Party Claim,
in its name or in the name of the Indemnified Party, as the case may be, at the
expense of the Indemnifying Party, and with counsel selected by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party, unless (i) the


                                       69

<PAGE>
Indemnifying Party shall not have taken any action to defend such Third-Party
Claim within such thirty (30) day period, or (ii) the Indemnified Party shall
have reasonably concluded that there is a conflict of interest between the
Indemnified Party and the Indemnifying Party in the conduct of the defense of
such Third-Party Claim. Notwithstanding anything in this Agreement to the
contrary (other than the last sentence of this Section 8.4(a)), the Indemnified
Party, at the expense of the Indemnifying Party (which shall include only
reasonable out-of-pocket expenses actually incurred), shall cooperate with the
Indemnifying Party and keep the Indemnifying Party fully informed in the defense
of such Third-Party Claim. The Indemnified Party shall have the right to
participate in the defense of any Third-Party Claim with counsel employed at its
own expense; provided, however, that in the case of any Third-Party Claim (A)
described in clause (ii) above, or (B) as to which the Indemnifying Party shall
not in fact have employed counsel to assume the defense of such Third-Party
Claim within such thirty-day (30-day) period, or (C) that involves assertion of
criminal liability on the Indemnified Party, or (D) seeks to force the
Indemnified Party to take (or prevent the Indemnified Party from taking) any
action, then in each such case the Indemnified Party shall have the right, but
not the obligation, to conduct and control the defense thereof for the account
of, and at the risk of, the Indemnifying Party, and the reasonable fees and
disbursements of such Indemnified Party's counsel shall be at the expense of the
Indemnifying Party. Except as provided in the last sentence of Section 8.4(b),
the Indemnifying Party shall have no indemnification obligations with respect to
any Third-Party Claim which shall be settled by the Indemnified Party without
the prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, delayed or conditioned.

                           (b) The Indemnifying Party, if it has assumed the
defense of any Third Party Claim as provided in this Agreement, shall not
consent to a settlement of, or the entry of any judgment arising from, any such
Third-Party Claim without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld, delayed or conditioned) unless (i)
such settlement or judgment relates solely to monetary damages, and (ii) prior
to consenting to such settlement or such entry of judgment, the Indemnifying
Party delivers to the Indemnified Party a writing (in form reasonably acceptable
to the Indemnified Party) which unconditionally provides that, subject to the
provisions of Section 8.2(d) or Section 8.2(e), as appropriate, relating to the
Minimum Claim Amount, the Threshold Amount and the Cap Amount, the Damages
represented thereby are the responsibility of the Indemnifying Party pursuant to
the terms of this Agreement and that, subject to the provisions of the Threshold
Amount, the Indemnifying Party shall pay all Damages associated therewith in
accordance with the terms of this Agreement. The Indemnifying Party shall not,
without the Indemnified Party's prior written consent, enter into any compromise
or settlement that (x) commits the Indemnified Party to take, or to forbear to
take, any action or (y) involves a reasonable likelihood of an imposition of
criminal liability on the Indemnified Party, or (z) does not provide for a
complete release by such third party of the Indemnified Party. With the written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld, conditioned or delayed, the Indemnified Party shall have the sole and
exclusive right to settle any Third-Party Claim, on such terms and conditions as


                                       70

<PAGE>
it deems reasonably appropriate, to the extent such Third-Party Claim involves
equitable or other nonmonetary relief against the Indemnified Party or involves
a reasonable likelihood of an imposition of criminal liability on the
Indemnified Party, and shall have the right to settle any Third-Party Claim
involving money damages for which the Indemnifying Party has not assumed the
defense pursuant to this Section 8.4.

                  Section 8.5  Procedures for Inter-Party Claims.
                               ---------------------------------

         In the event that an Indemnified Party determines that it has a Claim
for Damages against an Indemnifying Party hereunder (other than as a result of a
Third-Party Claim), the Indemnified Party shall give prompt written notice
thereof to the Indemnifying Party, specifying the amount of such Claim and any
relevant facts and circumstances relating thereto, and such notice shall be
promptly given even if the nature or extent of the Damages is not then known.
The notification shall be subsequently supplemented within a reasonable time as
additional information regarding the Claim or the nature or extent of Damages
resulting therefrom becomes available to the Indemnified Party. Any failure to
give such prompt notice or supplement thereto or to provide any such facts and
circumstances will not waive any rights of the Indemnified Party, except to the
extent that the rights of the Indemnifying Party are actually materially
prejudiced thereby. The Indemnified Party and the Indemnifying Party shall
negotiate in good faith for a thirty-day (30-day) period regarding the
resolution of any disputed Claims for Damages. Promptly following the final
determination of the amount of any Damages claimed by the Indemnified Party, the
Indemnifying Party, subject to the limitations of the Minimum Claim Amount,
Threshold Amount and the Cap Amount, shall pay such Damages to the Indemnified
Party by wire transfer or check made payable to the order of the Indemnified
Party.


                                   ARTICLE IX

                            MISCELLANEOUS PROVISIONS

                  Section 9.1  Interpretation.
                               --------------

         Unless the context of this Agreement otherwise requires, (a) words of
any gender include the other gender; (b) words using the singular or plural
number also include the plural or singular number, respectively; (c) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement; (d) the terms "Article," "Section" and "Exhibit" refer to the
specified Article, Section and Exhibit of this Agreement, respectively; and (e)
"including," shall mean "including, but not limited to." Unless otherwise
expressly provided, any agreement, instrument, law or regulation defined or
referred to herein means such agreement, instrument, law or regulation as from
time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of a law or
regulation) by succession of comparable successor law and includes (in the case
of agreements or instruments) references to all attachments thereto and
instruments incorporated therein.


                                       71

<PAGE>
                  Section 9.2  Disclosure Letters.
                               ------------------

         The Seller Disclosure Letter and the Buyer Disclosure Letter are
incorporated into this Agreement by reference and made a part hereof.

                  Section 9.3  Payments.
                               --------

         All payments set forth in this Agreement and Exhibits are in United
States Dollars. Such payments shall be made by wire transfer of immediately
available funds or by such other means as the parties to such payment shall
designate.

                  Section 9.4  Expenses.
                               --------

         Except as expressly set forth herein, or as agreed upon in writing by
the parties, whether or not the transactions contemplated hereby are
consummated, each party shall bear its own costs, fees and expenses, including
the expenses of its Representatives, incurred by such party in connection with
this Agreement and the Related Agreements and the transaction contemplated
hereby and thereby; provided, however, that Seller shall be solely responsible
                    --------  -------
for all legal, accounting and other fees, costs and expenses incurred by Seller,
Panhandle and the Panhandle Subsidiaries in connection with the negotiation,
execution and Closing of this Agreement.

                  Section 9.5  Choice of Law.
                               -------------

         This Agreement shall be governed by and construed in accordance with
the law of the State of New York (regardless of the laws that might otherwise
govern under applicable New York principles of conflicts of law).

                  Section 9.6  Assignment.
                               ----------

         This Agreement may not be assigned by either party without the prior
written consent of the other party; provided, however, that without the prior
                                    --------  -------
written consent of the other party, each party shall have the right to assign
its rights and obligations under this Agreement to any third party successor to
all or substantially all of its entire business. This Agreement shall be binding
upon and, subject to the terms of the foregoing sentence, inure to the benefit
of the parties hereto and their successors, legal representatives and assigns.

                  Section 9.7  Notices.
                               -------

         All demands, notices, consents, approvals, reports, requests and other
communications hereunder must be in writing, will be deemed to have been duly
given only if delivered personally or by facsimile transmission (with
confirmation of receipt) or by an internationally-recognized express courier
service or by mail (first class, postage prepaid) to the parties at the
following addresses or telephone or facsimile numbers and will be deemed
effective upon delivery; provided, however, that any communication by facsimile


                                       72

<PAGE>
shall be confirmed by an internationally-recognized express courier service or
regular mail.

                     (i) If to Seller:

                     CMS Gas Transmission Company
                     CMS Energy Corporation
                     300 Town Center Drive, Suite 1100
                     Dearborn, Michigan 48126
                     Attention:        General Counsel
                     Telephone:        (313) 436-9214
                     Facsimile:        (313) 436-9258

                     With a required copy to:

                     Skadden, Arps, Slate, Meagher & Flom LLP
                     Four Times Square
                     New York, NY 10036
                     Attention:        Sheldon S. Adler, Esq.
                     Telephone:        (212) 735-3000
                     Facsimile:        (212) 735-2000


                                       73

<PAGE>
                     (ii) If to Buyer, Southern Union, Highstar or Funding:

                     AIG Highstar Capital, L.P.
                     175 Water Street - 26th Floor
                     New York, New York   10038
                     Attention:  Christopher Lee, Managing Partner
                     Telephone:  (212) 458-2338
                     Facsimile:  (212) 458-2222

                     And to:

                     Southern Union Company
                     One PEI Center
                     Wilkes Barre, Pennsylvania  18711-0601
                     Attention:  Thomas F. Karam, President & COO
                     Telephone:  (570) 829-8888
                     Facsimile:  (570) 829-8900

                     with a copy (which shall not constitute notice) to:

                     Bingham McCutchen LLP
                     150 Federal Street
                     Boston, MA 02110
                     Attention:  Victor J. Paci, Esq.
                     Telephone:  (617) 951-8924
                     Facsimile:  (617) 951-8736

                     and

                     Fleischman and Walsh, L.L.P.
                     1400 Sixteenth Street, N.W., Suite 600
                     Washington, D.C.  20036
                     Attention:  Stephen A. Bouchard
                     Telephone:  (202) 939-7911
                     Facsimile:  (202) 265-5706

or to such other address as the addressee shall have last furnished in writing
in accord with this provision to the addressor.

                  Section 9.8  Consent to Jurisdiction.
                               -----------------------

         Each party shall maintain at all times a duly appointed agent in the
State of New York, which may be changed upon ten (10) Business Days' notice to
the other party, for the service of any process or summons in connection with
any issue, litigation, action or proceeding brought in any such court. Any such
process or summons may also be served on it by mailing a copy of such process or
summons to it at its address set forth, and in the manner provided, in Section


                                       74

<PAGE>
9.7. Each party hereby irrevocably consents to the exclusive personal
jurisdiction and venue of any New York State or United States Federal court of
competent jurisdiction sitting in New York County, New York, in any action,
Claim or proceeding arising out of or in connection with this Agreement and
agrees not to commence or prosecute any action, Claim or proceeding in any other
court. Each of the parties hereby expressly and irrevocably waives and agrees
not to assert the defense of lack of personal jurisdiction, forum non conveniens
or any similar defense with respect to the maintenance of any such action or
proceeding in New York County, New York.

                  Section 9.9  Resolution of Disputes.
                               ----------------------

         Except for the resolution of matters which shall be resolved in
accordance with the procedures set forth in specific sections, all other
disputes arising out of or relating to this Agreement or any Related Agreement
or the breach, termination or validity thereof or the parties' performance
hereunder or thereunder ("Dispute") shall be resolved as provided by this
                          -------
Section 9.9.

                           (a) Mediation.
                               ---------

                               (i)  If the Dispute has not been resolved by
         executive officer negotiation within thirty (30) days of the disputing
         party's notice requesting negotiation, or if the parties fail to meet
         within twenty (20) days from delivery of said notice, such Dispute
         shall be submitted to non-binding mediation in accordance with the
         then-current Model Procedure for Mediation of Business Disputes of the
         CPR Institute for Dispute Resolution.  The mediation shall be completed
         within thirty (30) days of the time the mediator is selected.  Unless
         otherwise agreed, the parties will select a mediator from the CPR
         Panels of Distinguished Neutrals; provided, however, that if no
                                           --------  -------
         mediator from that list can be mutually agreed upon, each party will
         submit to the CPR its own list of acceptable mediators from the CPR
         Panels of Distinguished Neutrals and the CPR shall appoint one of those
         listed as the mediator for the parties.  The costs of the mediation,
         including the mediator's fees, shall be borne equally by the parties to
         the Dispute.

                               (ii) By agreeing to mediation, the parties do not
         intend to deprive any court of its jurisdiction to issue an injunction,
         attachment or other order in aid of mediation proceedings. The parties
         agree to participate in good faith in the mediation to its conclusion.
         If the Dispute has not been resolved by mediation within ninety (90)
         days of the disputing party's notice requesting negotiation pursuant to
         Section 9.9(a)(i), then either party may pursue other available
         remedies.


                                       75

<PAGE>
                  Section 9.10  Waiver of Jury Trial.
                                --------------------

         SELLER AND BUYER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER DOCUMENT DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SELLER OR
BUYER. EACH OF SELLER AND BUYER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION
OF EACH OTHER DOCUMENT DELIVERED IN CONNECTION HEREWITH TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR SUCH PARTY ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER DOCUMENT.

                  Section 9.11  No Right of Setoff.
                                ------------------

         Neither party hereto nor any Affiliate thereof may deduct from, set
off, holdback or otherwise reduce in any manner whatsoever against any amounts
such Persons may owe to the other party hereto or any of its Affiliates any
amounts owed by such Persons to the other party or its Affiliates.

                  Section 9.12  Time is of the Essence.
                                ----------------------

         Time is of the essence in the performance of the provisions of this
Agreement.

                  Section 9.13  Specific Performance.
                                --------------------

         The parties hereto agree that irreparable damage would occur in the
event that any provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to specific performance
of the terms hereof, in addition to any other remedy at law or equity, subject
to the limitations set forth in Section 7.2 of this Agreement.

                  Section 9.14  Entire Agreement.
                                ----------------

         This Agreement, together with the Seller Disclosure Letter, Buyer
Disclosure Letter, Exhibits hereto, Related Agreements and the Confidentiality
Agreement constitute the entire agreement between the parties hereto with
respect to the subject matter herein and supersede all previous agreements,
whether written or oral, relating to the subject matter of this Agreement and
all prior drafts of this Agreement, all of which are merged into this Agreement.
No prior drafts of this Agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any action or suit involving this
Agreement. In the case of any material conflict between any provision of this
Agreement and any other Related Agreement, this Agreement shall take precedence.


                                       76

<PAGE>
                  Section 9.15  Third Party Beneficiaries.
                                -------------------------

         Except as expressly provided in Article VIII hereof, none of the
provisions of this Agreement shall be for the benefit of or enforceable by any
third party, including any creditor of any party or any of their affiliates.
Except as expressly provided in Article VIII hereof, no such third party shall
obtain any right under any provision of this Agreement or shall by reasons of
any such provision make any Claim in respect of any Liability (or otherwise)
against either party hereto.

                  Section 9.16  Counterparts.
                                ------------

         This Agreement may be executed in two (2) counterparts, both of which,
when executed, shall be deemed to be an original and both of which together
shall constitute one and the same document.

                  Section 9.17  Severability.
                                ------------

         If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any applicable present or future law, and if the rights or
obligations of either party under this Agreement will not be materially and
adversely affected thereby, (i) such provision shall be fully severable, (ii)
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom and (iv) in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement, a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.

                  Section 9.18  Headings.
                                --------

         The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.

                  Section 9.19  Waiver.
                                ------

         Any term or condition of this Agreement may be waived at any time by
the party that is entitled to the benefit thereof, but no such waiver shall be
effective unless set forth in a written instrument duly executed by or on behalf
of the party or parties waiving such term or condition. No waiver by any party
of any term or condition of this Agreement, in any one or more instances, shall
be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.


                                       77

<PAGE>
                  Section 9.20  Amendment.
                                ---------

         This Agreement may be altered, amended or changed only by a writing
making specific reference to this Agreement and signed by duly authorized
representatives of each party.


                                       78

<PAGE>
         IN WITNESS WHEREOF, Seller, Buyer and the Sponsors, by their duly
authorized officers, have executed this Agreement as of the date first written
above.

                                            CMS GAS TRANSMISSION COMPANY



                                            By: WILLIAM J. HAENER
                                               ------------------------------
                                               Name:  William J. Haener
                                               Title: President and CEO



                                            SOUTHERN UNION PANHANDLE CORP.


                                            By: THOMAS F. KARAM
                                               ------------------------------
                                               Name:  Thomas F. Karam
                                               Title: Chairman



                                            SOUTHERN UNION COMPANY


                                            By:  THOMAS F. KARAM
                                               ------------------------------
                                               Name:  Thomas F. Karam
                                               Title: President and Chief
                                                        Operating Officer



                                            AIG HIGHSTAR CAPITAL, L.P.


                                            By:  CHRISTOPHER H. LEE
                                               ------------------------------
                                               Name:  Christopher H. Lee
                                               Title: Managing Partner



                                            AIG HIGHSTAR II FUNDING CORP.


                                            By:  MICHAEL WALSH
                                               ------------------------------
                                               Name:  Michael Walsh
                                               Title: Treasurer


                                       79

<PAGE>