FORM OF DIRECTOR
                               STOCK OPTION GRANT
                    UNDER THE PENNSYLVANIA ENTERPRISES, INC.
                              STOCK INCENTIVE PLAN



Option No.:  OptionNo



     THIS  AGREEMENT  dated as of  _______  (the "Date of Grant") is made by and
between   PENNSYLVANIA   ENTERPRISES,   INC.  (the  "Company")  and  FirstName
LastName (the "Optionee").

     WHEREAS, the Company has adopted the Pennsylvania  Enterprises,  Inc. Stock
Incentive Plan (the "Plan"); and

     WHEREAS, the purpose of the Plan is to pay a portion of the compensation of
the Company's  non-employee directors in options to purchase Common Stock of the
Company; and

     WHEREAS, the Company's Board of Directors (the "Board") has determined that
it would be in the best interests of the Company to enter into this Agreement.

     NOW,  THEREFORE,  the Company hereby grants an option (the "Option")  under
the Plan to the Optionee on the following terms and conditions:

     1. AMOUNT OF STOCK SUBJECT TO OPTION:

     The  Company  hereby  grants  to the  Optionee,  subject  to the  terms and
conditions set forth in this Agreement,  the Option to purchase ______ shares of
authorized  and  unissued  common stock of the Company  (without  nominal or par
value,  with a stated  value of $5.00 per  share) or  shares  reacquired  by the
Company and held in treasury (the  "Stock"),  which Stock is to be issued by the
Company upon the exercise of the Option as hereinafter set forth.

     2. PURCHASE PRICE:

     The  purchase  price per share of Stock  subject to the  Option  shall be $
price per share, the fair market value of a share of Stock on the Date of Grant,
as determined by the Board.

     3. TYPE OF OPTION:

     The Option is intended to be a  Non-Qualified  Stock  Option that is not an
Incentive Stock Option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.

     4. EARN-OUT OF OPTION:

     (a) The Option shall be  exercisable  with respect to ______ shares (50% of
the shares subject to the Option) on the first anniversary of the Date of Grant,
but only if (i) PEI  earnings  per share for fiscal  year in which date of grant
occurs is at least $___ per share and (ii)  Optionee  continues  to serve on the
Board until such date.

     (b) In  addition to the  portion of the Option  which shall be  exercisable
pursuant to paragraph 4(a) hereof,  the Option shall be exercisable with respect
to ______  shares  (50% of the  shares  subject  to the  Option)  on the  second
anniversary  of the Date of Grant,  but only if (i) PEI  earnings  per share for
fiscal year after year in which date of grant  occurs is at least $___ per share
and (ii) Optionee continues to serve on the Board until such date.

     (c) For purposes of this  Section 4 the Board  reserves the right to review
and adjust,  as it deems  appropriate,  earnings per share results for one-time,
non-operating  gains or losses, such as those resulting from accounting changes,
asset sales, early  retirement/severance  programs, other extraordinary expenses
or transactions, and also for temperature variations from normal degree days.

     (d) The Board shall determine, in its discretion, the level of earnings per
share which has been attained and the extent to which the Optionee has satisfied
the  conditions  set  forth in  paragraphs  4(a) and 4(b).  Notwithstanding  the
foregoing  provisions  of this  Section  4, the Board  may,  in its  discretion,
declare all or any portion of the Option to be exercisable.

     5. PERIOD OF OPTION:

     The Option is granted as of the Date of Grant.  The Option  shall expire at
the  earliest  to occur of (a) two years  after  termination  of the  Optionee's
service on the Board for any reason; or (b) _______ (ten years after the Date of
Grant). In no event shall the term of the Option be greater than ten years.

     6. EXERCISE OF OPTION:

     (a) To the extent the Option has become exercisable  pursuant to Section 4,
the Option may be exercised in whole or in part with respect to full shares (and
no  fractional  shares  shall be issued)  until it expires  in  accordance  with
Section 5.

     (b) In order to exercise the Option or any part thereof, the Optionee shall
give  notice in writing to the  Company at its  headquarters  address (on a form
acceptable to the Company) of the  Optionee's  intention to purchase all or part
of the shares  subject to the Option,  and in said notice the Optionee shall set
forth the  number  of shares as to which  he/she  desires  to  exercise  his/her
Option.  The notice must be accompanied by payment in full of the exercise price
for such shares.  Such payment may be made in cash,  through the delivery to the
Company of full  shares of Stock  which have been owned by the  Optionee  for at
least six months having a value equal to the total exercise price of the portion
of the Option so  exercised,  through a  combination  of cash and such shares of
Stock,  or in such other manner as may be permitted by the Board.  Any shares of
Stock so  delivered  shall be valued at the  average of the high and low trading
prices  for the day prior to the date on which  the  Option  is  exercised.  The
Option  will be  deemed  exercised  on the  date a  proper  notice  of  exercise
(accompanied as described above) is hand delivered, or, if mailed, postmarked.

     (c) The Optionee  shall,  no later than the date of exercise of the Option,
make payment to the Company in cash or its  equivalent  of any  federal,  state,
local or other taxes of any kind  required by law to be withheld with respect to
the Option.  The obligations of the Company under the Plan and this Option shall
be conditional on such payment,  and the Company shall, to the extent  permitted
by law,  have the right to deduct any such  taxes  from any  payment of any kind
otherwise due to the Optionee.

     7. NON-TRANSFERABILITY OF OPTION:

     The  Option is not  transferable  otherwise  than by will or by the laws of
descent and distribution. To the extent the Option is exercisable at the time of
the Optionee's  death, it may be exercised by the executor or  administrator  of
the  Optionee's  estate or by the person  designated  by will or entitled by the
laws of descent and  distribution,  upon such  death,  to any  remaining  rights
arising out of the Option.

     8. CHANGE OF CONTROL:

     Notwithstanding  the provisions of Section 4, the Option shall become fully
exercisable upon the occurrence of a Change of Control (as defined in the Plan).

     9. CHANGE IN CAPITAL:

     If prior to the expiration of the Option, there shall be any changes in the
Stock structure of the Company by reason of the declaration of stock  dividends,
recapitalization  resulting in stock  split-ups or  combinations or exchanges of
shares by reason  of  merger,  consolidation,  or by any other  means,  then the
number of shares subject to the Option and the exercise price per share of Stock
shall  be  equitably  and  appropriately  adjusted  as the  Board  in  its  sole
discretion  shall  deem just and  reasonable  in light of all the  circumstances
pertaining thereto.

     10. RIGHT TO TERMINATE EMPLOYMENT:

     The  Option  shall not  confer  upon the  Optionee  any right to  continued
service as a Director of the Company.

     11. REGISTRATION AND OTHER REQUIREMENTS:

     The  Option is subject to the  requirement  that,  if at any time the Board
shall determine that (a) the listing, registration or qualification of the Stock
subject or related to the Option upon any securities exchange or under any state
or federal law, (b) the consent or approval of any governmental  regulatory body
or (c) an agreement by the Optionee with respect to the  disposition of Stock is
necessary or desirable (in connection with any requirement or  interpretation of
any federal or state  securities  law, rule or regulation) as a condition of, or
in  connection  with,  the  issuance,  purchase  or  delivery of Stock under the
Option,  the Option  shall not be  exercised,  in whole or in part,  unless such
listing, registration,  qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the Board.

     12. SUBJECT TO THE PLAN:

     The Option  evidenced by the Agreement and the exercise thereof are subject
to the  terms and  conditions  of the Plan,  which  are  incorporated  herein by
reference  and made a part  hereof.  In  addition,  the Option is subject to any
rules and regulations promulgated by the Board.

     IN WITNESS  WHEREOF,  this Agreement has been executed and delivered by the
parties hereto:

                                           PENNSYLVANIA ENTERPRISES, INC.



                                        By:      ______________________________
                                        Name:    By Name
                                        Title:   By Title


Accepted and agreed to as of the Date of Grant:



________________________________
Optionee