W6-NY960780.213
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                      EMPLOYMENT AGREEMENT
                                
                                
          
          THIS EMPLOYMENT AGREEMENT is dated as of the 28th day
of August, 1996, by and among PENNSYLVANIA ENTERPRISES, INC.
("PEI"), PG ENERGY, INC. ("PGE") and Thomas F. Karam (the
"Executive"), an individual residing at 331 Glenburn Road, Clarks
Summit, Pennsylvania  18411.
                                
                      W I T N E S S E T H:
          
          WHEREAS, PEI and PGE each desires to employ Executive
in the capacity of its President and Chief Executive Officer in
connection with the conduct of its business; and
          
          WHEREAS, PEI and PGE are offering Executive this
Employment Agreement as an inducement to remain in their employ;
and
          
          WHEREAS, Executive desires to accept such employment on
the terms and conditions herein set forth.
          
          NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants contained herein, the parties hereto agree
as follows:
          
          1.   Employment.
               
               PEI and PGE each hereby employs Executive as its
President and Chief Executive Officer, and Executive hereby
accepts such employment, upon the terms and conditions
hereinafter set forth.
          
          2.   Term.
               
               The term of employment of Executive under this
Agreement (the "Term") shall commence on September 1, 1996 and
shall end on the date which is the fifth anniversary thereof
unless terminated in accordance with Section 6 or 7 hereof.
          
          3.   Office and Duties.
               
               During the Term, Executive shall serve as the
President and Chief Executive Officer of  PEI and PGE and shall
report to the Boards of Directors of PEI (the "PEI Board") and
PGE (the "PGE Board").  Executive shall perform such duties as
are customary for the President and Chief Executive Officer of a
company engaged in natural gas distribution and energy-related
services in the United States and consistent with such position
and status, and such other executive and administrative duties
consistent therewith as may from time to time be assigned to him
by the PEI Board and the PGE Board.  During the Term, Executive
shall devote his full business time and best efforts to the
business of PEI and PGE; provided, however, that Executive may
engage in other activities to the extent that such other
activities do not inhibit or prohibit the performance of
Executive's duties under this Agreement, or conflict in any
material way with the business of PEI, PGE or any of their
respective affiliates.
          
          4.   Compensation.
               
               As compensation for the services to be rendered
hereunder by Executive, PEI and PGE collectively agree to pay to
Executive,
               
               (a)  an aggregate salary payable in cash in
accordance with PGE's usual payroll practices of $212,880 for the
first year of the Term and, $225,000 for the second year of the
Term.  Thereafter the Compensation Committee of the PEI Board
shall conduct periodic salary and performance reviews for
Executive in accordance with PEI's usual practices and, based
upon such reviews, Executive's annual salary may be increased
above but may not be decreased below the amount paid to Executive
for the second year of the Term.
               
               (b)  a grant of options under PEI's 1992 Stock
Option Plan (the "Option Plan") to purchase 75,000 shares of
PEI's common stock, no par value, stated value $10.00 per share
("Common Stock") to be made on September 1, 1996.  Such options
shall become exercisable, subject to acceleration in the event of
a "Change of Control" of PEI (as defined in the Option Plan)
pursuant to the terms of the Option Plan, as follows:  options to
purchase 15,000 shares shall become exercisable on
September 1, 1997, options to purchase an additional 15,000 shares
shall become exercisable on September 1, 1998, options to
purchase an additional 15,000 shares shall become exercisable on
September 1, 1999, options to purchase an additional 15,000
shares shall become exercisable on September 1, 2000 and options
to purchase an additional 15,000 shares shall become exercisable
on September 1, 2001.  Such options shall be exercisable for the
three years following the termination of Executive's employment
for any reason except for termination by PEI pursuant to Section
7(a) hereof for "Cause" (as defined in Section 7(a) hereof) or
termination by Executive pursuant to Section 7(d) hereof without
"Good Reason" (as defined in Section 7(c) hereof).
          
          5.   Benefits.
               
               (a)  Executive shall be entitled during the Term
to participate in (i) all employee benefit plans and programs as
are currently available and as shall become available from time
to time to other employees of PEI and/or PGE, including, without
limitation, any health, accident, disability or hospitalization
insurance and (ii) all executive plans and programs in each case,
to the extent that his position, tenure, compensation, age,
health and other qualifications make him eligible to participate,
and to continue to receive all perquisites as are currently
available to Executive.  In addition, Executive shall be eligible
for 4 weeks paid vacation during each calendar year of the Term.
               
               (b)  PEI and/or PGE shall pay for any further
education or annual training or licensing requirements of
Executive and training or educational seminars as may be required
by PEI and/or PGE.
               
               (c)  PEI and PGE shall each promptly reimburse
Executive for all business expenses and disbursements incurred by
Executive in the performance of Executive's duties during the
Term in accordance with its then current reimbursement policies.
          
          6.   Termination for Death or Disability.
               
               At the election of PEI and/or PGE, the employment
of Executive shall terminate in the event that Executive shall
fail to render and perform the services required of him under
this Agreement on a full-time basis because of any physical or
mental incapacity or disability as determined by a physician or
physicians acceptable to Executive and PEI and/or PGE for a total
of 180 days or more during any consecutive 12 month period
("Disability").  In the event Executive dies during the Term or
in the event PEI and/or PGE elects to terminate the employment of
Executive for Disability, all obligations of PEI and/or PGE under
this Agreement will cease as of the date of death or termination,
except that PEI and/or PGE collectively shall pay, and Executive
or his personal representative, as the case may be, shall be
entitled to receive (i) the unpaid portion of his salary accrued
through the end of the month in which such Disability is finally
determined, to be paid in accordance with Section 4(a) hereof and
(ii) vested, nonforfeitable amounts owing or accrued under any
benefit plans or programs set forth or referred to in
Section 5(a) hereof in which Executive participated as of his
termination under the terms and conditions of the plan or program
pursuant to which such benefits were granted.
          
          7.   Termination of Employment Other Than for Death or
Disability.
               
               (a)  Cause.  PEI and/or PGE may terminate the
employment of Executive for "Cause" at any time in accordance
with the provisions of this Section 7.  Termination for "Cause"
shall mean discharge by PEI and/or PGE on the grounds of
(i) Executive's willful misconduct or gross negligence in the
performance of his obligations under this Agreement, (ii) the
habitual intoxication of Executive, (iii) inexcusable repeated or
prolonged absence from work by Executive (other than pursuant to
the Disability of Executive), (iv) the commission by Executive of
an act of fraud or embezzlement, (v) any intentional or grossly
negligent unauthorized disclosure of Confidential Information (as
defined in Section 8(b) hereof) of  PEI, PGE or any of their
respective affiliates, (vi) a conviction of Executive (including
entry of a guilty or nolo contendere plea) involving dishonesty
or moral turpitude or (vii) the willful failure of Executive to
perform faithfully the lawful duties which are assigned to him
which are within the scope of  PEI's and/or PGE's respective
businesses and such failure is not cured by Executive within 14
days after written notice thereof from PEI and/or PGE to
Executive.  Upon a termination for Cause, all obligations of PEI
and/or PGE under this Agreement will cease as of the date of
termination, except that PEI and/or PGE collectively shall pay
Executive, and Executive shall be entitled to receive, (x) the
unpaid portion of his salary pro rated through the date of
termination, to be paid in accordance with Section 4(a) hereof
and (y) vested, nonforfeitable amounts owing or accrued under any
benefit plans or programs set forth or referred to in Section
5(a) hereof in which Executive participated as of his termination
under the terms and conditions of the plan or program pursuant to
which such benefits were granted.
               
               (b)   Without Cause.  In the event the Executive's
employment is terminated by PEI and/or PGE without Cause, other
than by reason of the death or Disability of Executive, all
obligations of PEI and/or PGE under this Agreement will cease as
of the date of termination, except that PEI and/or PGE
collectively shall pay Executive, and Executive shall be entitled
to receive either (i) in the event such termination does not
occur within three years following the date on which a "Change in
Control" (as defined below) of PEI occurs (A) the unpaid portion
of his salary to the end of the Term, to be paid in accordance
with Section 4(a) hereof, and (B) vested, nonforfeitable amounts
owing or accrued under any benefit plans or programs set forth or
referred to in Section 5(a) hereof in which Executive
participated as of his termination under the terms and conditions
of the plan or program pursuant to which such benefits were
granted or (ii) in the event such termination occurs within three
years following the date on which a Change in Control of PEI
occurs (A) a Severance Payment equal to two times (2x)
Executive's annual salary for the year in which such termination
occurs to be paid in a lump sum within 10 days of such
termination, (B) the unpaid portion of Executive's salary with
respect to any additional years (other than the year in which
such termination occurs) remaining in the Term to be paid in
accordance with Section 4(a) hereof, (C) a continuation for a
period of three years following the date on which a Change in
Control of PEI occurs or until such time as Executive has
obtained new employment and is covered by equivalent benefits,
whichever is sooner, of Executive's coverage at the expense of
PEI and/or PGE under life insurance, hospitalization and medical
plans providing benefits which are substantially comparable to
benefits provided to Executive under benefit plans of PEI, PGE
and their respective subsidiaries in effect immediately prior to
the Change in Control of PEI and (D) vested nonforfeitable
amounts owing or accrued under any other benefit plans or
programs set forth or referred to in Section 5(a) hereof in which
Executive participated as of his termination under the terms and
conditions of the plan or program pursuant to which such benefits
were granted.
          
          For purposes of this Agreement, a "Change in Control"
of PEI shall be deemed to have occurred if and when:
               
               (w)  there shall be consummated either (i) any
consolidation or merger  of PEI in which PEI is not the
continuing or surviving corporation or pursuant to which shares
of PEI's Common Stock are converted into cash, securities or
other property, other than a consolidation or merger of PEI in
which each holder of PEI's Common Stock immediately prior to the
merger has upon consummation of the merger the same proportionate
ownership of common stock of the surviving corporation as such
holder had of PEI's Common Stock immediately prior to the merger,
or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged
by any party as a single plan) of all or substantially all of the
assets of PEI;
               
               (x)  the shareholders of PEI shall approve any
plan or proposal for the liquidation or dissolution of PEI;
               
               (y)  any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than any trustee under any
employee benefit plan of PEI or any of its subsidiaries, and
persons (as such term is so used) who are then affiliates (as
defined on August 28, 1996 in Rule 12b-2 under the Exchange Act)
of such person, or any one of them, shall after the date hereof
become the beneficial owner or owners (as defined on August 28,
1996 in Rules 13d-3 and 13d-5 under the Exchange Act), directly
or indirectly, of securities of PEI representing in the aggregate
20% or more of the voting power of all then outstanding
securities of PEI having the right under ordinary circumstances
to vote in an election of the PEI Board (without limitation, any
securities of PEI having such voting power that any such person
has the right to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise,
shall be deemed beneficially owned by such person); or
               
               (z)  during any period of 13 consecutive months,
individuals who at the beginning of such period constitute the
entire PEI Board and any new directors whose election by the PEI
Board, or whose nomination for election by PEI's shareholders,
shall have been approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination
for election shall previously have been so approved shall cease
for any reason to constitute a majority of the members of the PEI
Board.
               
               (c)  For Good Reason.  Executive may terminate his
employment for "Good Reason" upon 90 days' written notice to PEI
and/or PGE.  For purposes of this Agreement "Good Reason" shall
mean (i) an adverse change in Executive's title, (ii) an
assignment of duties to Executive which are inconsistent with his
status as President and Chief Executive Officer of PEI and/or
PGE, (iii) a substantial adverse alteration in Executive's
status, nature of responsibilities or authority within PEI and/or
PGE, (iv) following a Change in Control of PEI, a failure by PEI,
PGE or any of their respective subsidiaries either to continue in
effect any incentive or compensation plan or arrangement in which
Executive shall be participating at the time of the Change in
Control of PEI or to provide other plans or arrangements
providing Executive with substantially comparable benefits or the
taking by PEI, PGE or any of their respective subsidiaries of any
action which would directly or indirectly materially adversely
affect Executive's participation in or materially reduce
Executive's benefits under any such plan or arrangement, (v) any
relocation of Executive's base of employment more than 25 miles
from Wilkes-Barre, Pennsylvania without Executive's written
consent, (vi) following a Change in Control of PEI, any failure
by PEI and/or PGE to provide Executive with the number of paid
vacation days per year to which Executive was entitled
immediately prior to the Change in Control of PEI, (vii) any
breach by PEI and/or PGE of any material provision of this
Agreement or (viii) following a Change in Control of PEI, any
failure by PEI and/or PGE to obtain from any successor to PEI a
satisfactory agreement to assume and perform this Agreement.  In
the event that Executive terminates his employment for Good
Reason, all obligations of PEI and/or PGE under this Agreement
will cease as of the date of termination, except that PEI and/or
PGE collectively shall pay Executive and Executive shall be
entitled to receive either (x) in the event such termination does
not occur within three years following the date on which a Change
in Control of PEI occurs (A) the unpaid portion of his salary to
the end of the Term, to be paid in accordance with Section 4(a)
hereof, and (B) vested, nonforfeitable amounts owing or accrued
under any benefit plans or programs set forth or referred to in
Section 5(a) hereof in which Executive participated as of his
termination under the terms and conditions of the plan or program
pursuant to which such benefits were granted or (y) in the event
such termination occurs within three years following the date on
which a Change in Control of PEI occurs (A) a Severance Payment
equal to two times (2x) Executive's annual salary for the year in
which such termination occurs to be paid in a lump sum within 10
days of such termination, (B) the unpaid portion of Executive's
salary with respect to any additional years (other than the year
in which such termination occurs) remaining in the Term to be
paid in accordance with Section 4(a) hereof, (C) a continuation
for a period of three years following the date on which a Change
in Control of PEI occurs or until such time as Executive has
obtained new employment and is covered by equivalent benefits,
whichever is sooner, of Executive's coverage at the expense of
PEI and/or PGE under life insurance, hospitalization and medical
plans providing benefits which are substantially comparable to
benefits provided to Executive under benefit plans of PEI, PGE or
any of their respective subsidiaries in effect immediately prior
to the Change in Control of PEI and (D) vested nonforfeitable
amounts owing or accrued under any other benefit plans or
programs set forth or referred to in Section 5(a) hereof in which
Executive participated as of his termination under the terms and
conditions of the plan or program pursuant to which such benefits
were granted.
               
               (d)  Without Good Reason.  Executive may terminate
his employment without Good Reason by giving PEI and/or PGE 90
days' written notice.  Upon termination by Executive without Good
Reason, all obligations of PEI and/or PGE under this Agreement
will cease as of the date of termination except that PEI and/or
PGE collectively shall pay Executive and Executive shall be
entitled to receive (i) the unpaid portion of his salary pro
rated through the date of termination to be paid in accordance
with Section 4(a) hereof  and (ii) vested,, nonforfeitable
amounts owing or accrued under any benefit plans or programs set
forth or referred to in Section 5(a) hereof in which Executive
participated as of his termination under the terms and conditions
of the plan or program pursuant to which such benefits were
granted.
          
          8.   Covenant Not to Compete; Confidentiality;
Litigation Support.
          
          In consideration for PEI's and PGE's execution and
delivery of this Agreement:
               
               (a)  Executive hereby agrees that during the
period from the date of this Agreement through the end of the
first year after the termination of Executive's employment with
PEI and/or PGE for any reason other (x) than termination by PEI
and/or PGE without Cause or (y) termination by Executive for Good
Reason, Executive will not:
                    
                    (i)  carry on or engage in any business that
competes, directly or indirectly with the business of
distributing natural gas, or any other business being conducted
by PEI and/or PGE at the date of Executive's termination
(collectively, a "Competing Business") anywhere in the United
States;
                    
                    (ii) become a stockholder of a corporation or
a member of a partnership or act as a consultant to or provide
any assistance to any enterprise which carries on or engages in a
Competing Business or which otherwise competes with PEI and/or
PGE anywhere in the United States; provided, however, that
Executive may own shares of stock of a corporation that is
engaged in a Competing Business provided, that (A) Executive does
not own more than one-half of one percent of the outstanding
shares of stock of such corporation, (B) such shares are publicly
traded on a United States natural securities exchange, NASDAQ or
any over-the-counter public securities market and (C) Executive
does not directly or indirectly acquire or assume any management
responsibilities in such corporation;
                    
                    (iii)     solicit, raid, entice or induce any
person, firm or corporation that presently is or at any time
during the Term shall be a client or customer of PEI, PGE or any
of their respective affiliates to become a client or customer of
any other person, firm or corporation engaged in a Competing
Business anywhere in the United States; or
                    
                    (iv) solicit, raid, entice or induce any
person who presently is or at any time during the Term shall be
an employee of PEI, PGE or any of their respective affiliates to
become employed by any other person, firm or corporation engaged
in a Competing Business anywhere in the United States.
               
               (b)  Executive acknowledges that during the Term
he will have access to confidential information of PEI, PGE and
their respective affiliates, including plans for future
developments and information about costs, customers, profits,
markets, key personnel, pricing policies, operational methods,
and other business affairs and methods and other information not
available to the public or in the public domain (hereinafter
referred to as "Confidential Information").  In recognition of
the foregoing, Executive covenants and agrees that, except as
required by his duties to PEI and/or PGE, or as required by law
or pursuant to legal process, Executive will keep secret all
Confidential Information of PEI, PGE and their respective
affiliates and will not, directly or indirectly, either during
the Term of his employment hereunder or at any time thereafter,
disclose or disseminate to anyone or make use of, for any purpose
whatsoever, any Confidential Information, and upon termination of
his employment, Executive will promptly deliver to PEI and/or PGE
all tangible Confidential Information (including all copies
thereof, whether prepared by Executive or others) which he may
possess or control.
               
               (c)  Executive acknowledges that the restrictions
contained in this Section 8 are a reasonable and necessary
protection of the immediate interests of PEI and PGE, that any
violation of these restrictions would cause substantial injury to
PEI and PGE and that PEI and PGE would not have entered into this
Agreement without receiving the additional consideration offered
by Executive by binding himself to these restrictions.  In the
event of a breach or threatened breach by Executive of any of
these restrictions, PEI and/or PGE shall be entitled to apply to
any court of competent jurisdiction for an injunction restraining
Executive from such breach or threatened breach; provided,
however, that the right to apply for an injunction shall not be
construed as prohibiting PEI and/or PGE from pursuing any other
available remedies for such breach or threatened breach.  In the
event that, notwithstanding the foregoing, a covenant included in
this Section 8 shall be deemed by any court to be unreasonably
broad in any respect, it shall be modified in order to make it
reasonable and shall be enforced accordingly.  Without limitation
of, and notwithstanding, the foregoing, in the event that, in any
judicial proceeding, a court shall refuse to enforce any of the
covenants contained in this Section 8, then the unenforceable
covenant shall be deemed eliminated from the provisions of this
Section 8 for the purpose of those proceedings to the extent
necessary to permit the remaining covenants to be enforced.  If
any one or more of the provisions of this Section 8 shall be held
to be invalid, illegal or unenforceable, the validity, legality
or enforceability of the remaining provisions of this Section
shall not be effected thereby.  To the extent permitted by
applicable law, each party hereto waives any provision of law
which renders any provision of this Section 8 invalid, illegal or
unenforceable in any respect.
               
               (d)  Executive agrees that during the Term and
thereafter Executive shall be available to PEI and PGE and shall
assist PEI and PGE in connection with any litigation brought by
or against PEI and/or PGE relating to the period during which
Executive was employed by PEI and/or PGE; provided, however, that
all costs and expenses in connection with the foregoing shall be
borne by PEI and/or PGE .
               
               (e)  The provisions of this Section 8 shall
survive the termination or expiration of this Agreement in
accordance with the terms hereof.
          
          9.   Governing Law.
               
               This Agreement is governed by and is to be
construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania without regard to conflicts of law
principles.  If under such law, any portion of this Agreement is
at any time deemed to be in conflict with any applicable statute,
rule, regulation or ordinance, such portion shall be deemed to be
modified or altered to conform thereto or, if that is not
possible, to be omitted from this Agreement.  The invalidity of
any such portion shall not affect the force, effect and validity
of the remaining portion hereof.
          
          10.  Arbitration.
               
               If a dispute arises between the parties respecting
the terms of this Agreement or Executive's  employment by PEI
and/or PGE , such dispute shall be settled by binding arbitration
in Wilkes-Barre, Pennsylvania, in accordance with the rules of
the American Arbitration Association.  Each party shall bear its
own expense of any such arbitration; provided, however, that
Executive shall be entitled to receive reimbursement of his
reasonable legal fees and out-of-pocket expenses from PEI and/or
PGE with respect to any claim or dispute relating to the
interpretation or enforcement of this Agreement promptly after
invoices for such fees and expenses are rendered unless the
position taken by Executive is determined by a court of competent
jurisdiction to be frivolous.
          
          11.  Additional Payments.
               
               (a)  In the event that any payment or benefit
(within the meaning of Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Code")), to Executive or for his
benefit paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise in connection with,
or arising out of, his employment with PEI and/or PGE (a
"Payment" or "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
are incurred by Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then
Executive will be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties,
other than interest and penalties imposed by reason of
Executive's failure to file timely a tax return or pay taxes
shown due on his return), imposed with respect to such Gross-Up
Payment and the Excise Tax, including any Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
               
               (b)  An initial determination as to whether a
Gross-Up Payment is required pursuant to this Agreement and the
amount of such Gross-Up Payment shall be made at PEI's and/or
PGE's expense by an accounting firm selected by PEI and PGE and
reasonably acceptable to Executive which is designated as one of
the five largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation, to PEI and/or PGE and
Executive within five days of the date on which Executive's
employment with PEI and/or PGE is terminated if applicable, or
such other time as requested by PEI and/or PGE or by Executive
(provided Executive reasonably believes that any of the Payments
may be subject to the Excise Tax) and if the Accounting Firm
determines that no Excise Tax is payable by Executive with
respect to a Payment or Payments, it shall furnish Executive with
an opinion reasonably acceptable to Executive that no Excise Tax
will be imposed with respect to any such Payment or Payments.
Within ten days of the delivery of the Determination to
Executive, Executive shall have the right to dispute the
Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Section 11(b) shall be paid by PEI
and/or PGE collectively to Executive within five days of the
receipt of the Determination. The existence of the Dispute shall
not in any way affect Executive's right to receive the Gross-Up
Payment in accordance with the Determination. If there is no
Dispute, the Determination shall be binding, final and conclusive
upon PEI and/or PGE and Executive subject to the application of
Section 11(c) below.
               
               (c)  As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible
that a Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall be
deemed to have occurred (i) upon notice (formal or informal) to
Executive from any governmental taxing authority that Executive's
tax liability (whether in respect of Executive's current taxable
year or in respect of any prior taxable year) may be increased by
reason of the imposition of the Excise Tax on a Payment or
Payments with respect to which PEI and/or PGE has failed to make
a sufficient Gross-Up Payment, (ii) upon a determination by a
court, (iii) by reason of determination by PEI and/or PGE (which
shall include the position taken by PEI and/or PGE, together with
its consolidated group, on its federal income tax return) or (iv)
upon the resolution of the Dispute to Executive's satisfaction.
If an Underpayment occurs, Executive shall promptly notify PEI
and/or PGE and PEI and/or PGE shall promptly, but in any event,
at least five days prior to the date on which the applicable
government taxing authority has requested payment, pay to
Executive an additional Gross-Up Payment equal to the amount of
the Underpayment plus any interest and penalties (other than
interest and penalties imposed by reason of Executive's failure
to file timely a tax return or pay taxes shown due on Executive's
return) imposed on the Underpayment. An Excess Payment shall be
deemed to have occurred upon a Final Determination (as
hereinafter defined) that the Excise Tax shall not be imposed
upon a Payment or Payments (or portion thereof) with respect to
which Executive had previously received a Gross-Up Payment.  A
"Final Determination" shall be deemed to have occurred when
Executive has received from the applicable government taxing
authority a refund of taxes or other reduction in Executive's tax
liability by reason of the Excise Payment and upon either (x) the
date a determination is made by, or an agreement is entered into
with, the applicable governmental taxing authority which finally
and conclusively binds Executive and such taxing authority, or in
the event that a claim is brought before a court of competent
jurisdiction, the date upon which a final determination has been
made by such court and either all appeals have been taken and
finally resolved or the time for all appeals has expired or (y)
the statute of limitations with respect to Executive's applicable
tax return has expired. If an Excess Payment is determined to
have been made, the amount of the Excess Payment shall be treated
as a loan by PEI and/or PGE to Executive and Executive shall pay
to PEI and/or PGE on demand (but not less than 10 days after the
determination of such Excess Payment and written notice has been
delivered to Executive) the amount of the Excess Payment plus
interest at an annual rate equal to the Applicable Federal Rate
provided for in Section 1274(d) of the Code from the date the
Gross-Up Payment (to which the Excess Payment relates) was paid
to Executive until the date of repayment to PEI and/or PGE.
               
               (d)  Notwithstanding anything contained in this
Agreement to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any Payment or
Payments, PEI and/or PGE collectively shall pay to the applicable
government taxing authorities as Excise Tax withholding, the
amount of the Excise Tax that PEI and/or PGE has actually
withheld from the Payment or Payments.
          
          12.  Allocation of  Responsibility to Make Certain
Payments.
               
               Responsibility for payment of the amounts payable
pursuant to Sections 4(a), 5(b), 6, 7, 8(d), 10 and 11 of this
Agreement shall be allocated between PEI and PGE as agreed upon
from time to time by PEI and PGE.
          
          13.  Miscellaneous.
               
               (a)  This Agreement cancels and supersedes any and
all prior agreements and understandings between or among any or
all of the parties hereto with respect to the employment of
Executive by PEI and PGE.  This Agreement constitutes the entire
agreement among the parties with respect to the matters herein
provided, and no modification or waiver of any provision hereof
shall be effective unless in writing and signed by the parties
hereto.
               
               (b)  Neither this Agreement nor the rights or
obligations hereunder of any party hereto shall be assignable
without the written consent of (i) PEI and PGE, with respect to
an assignment or attempted assignment by Executive and
(ii) Executive, with respect to an assignment or attempted
assignment by PEI and/or PGE; provided, however, that no consent
of Executive shall be required for any assignment by PEI and/or
PGE whereby the assignee, by operation of law or otherwise,
continues to carry on substantially the business of PEI and/or
PGE, as the case may be, prior to the assignment.  This Agreement
shall be binding upon and inure to the benefit of the successors
and permitted assigns of PEI and PGE.
               
               (c)  Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed
by the party or parties giving or making the same, and shall be
served on the person or persons for whom it is intended or who
should be advised or notified, by Federal Express or other
similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such
party at the address set forth below or at such other address as
may be designated by such party by like notice:
          
          
          If to PEI:
               
               Pennsylvania Enterprises, Inc.
               Wilkes-Barre Center
               39 Public Square
               Wilkes-Barre, Pennsylvania  18711-0601
               
               Attention:  Secretary
          
          
          If to PGE:
               
               PG Energy, Inc.
               Wilkes-Barre Center
               39 Public Square
               Wilkes-Barre, Pennsylvania  18711-0601
               
               Attention:  Secretary
          
          
          If to Executive:
               
               Thomas F. Karam
               331 Glenburn Road
               Clarks Summit, Pennsylvania  18411

In the case of Federal Express or other similar overnight
service, such notice or advice shall be effective when sent, and,
in the cases of certified or registered mail, shall be effective
2 days after delivery to the U.S. Post Office.
               
               (d)  The invalidity of any portion of this
Agreement shall not be deemed to render the remainder of this
Agreement invalid.
               
               (e)  The headings of this Agreement are for
convenience of reference only and do not constitute a part
hereof.
               
               (f)  The failure of any party at any time to
require performance by any other party of any provision hereof or
to resort to any remedy provided herein or at law or in equity
shall in no way affect the right of such party to require such
performance or to resort to such remedy at any time thereafter,
nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent
breach of such provisions.  No such waiver shall be effective
unless in writing and signed by the party against whom such
waiver is sought to be enforced.
               
               (g)  The amounts required to be paid by PEI and/or
PGE to Executive pursuant to this Agreement shall not be subject
to offset.
               
               (h)  In the event that Executive's employment with
PEI and/or PGE is terminated for any reason, Executive shall not
be required to seek other employment or otherwise to mitigate
Executive's damages under this Agreement.
          
          IN WITNESS WHEREOF, Executive has hereunto set his hand
and PEI and PGE have caused this instrument to be duly executed
as of the day and year first above written.
                              
                              
                              PENNSYLVANIA ENTERPRISES, INC.
                              
                              
                              By:
                              Name:   Kenneth L. Pollock
                              Title:  Chairman of the Board of Directors
                              
                              
                              PG ENERGY, INC.
                              
                              
                              By:
                              Name:   Kenneth L. Pollock
                              Title:  Chairman of the Board of Directors
                              
                              
                              Executive
                              
                              
                              
                              Thomas F. Karam


APPROVED:

COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS OF
PENNSYLVANIA ENTERPRISES,
INC.


By:
  Name:   John D. McCarthy
  Title:  Chairman