SOUTHERN UNION CO
REVOLVING CREDIT AGREEMENT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>exhibit3.txt
<DESCRIPTION>REVOLVING CREDIT AGREEMENT
<TEXT>
                                                               Exhibit No. 10(b)


                           REVOLVING CREDIT AGREEMENT
                          (SHORT-TERM CREDIT FACILITY)

                            DATED AS OF APRIL 3, 2003

                                  BY AND AMONG

                             SOUTHERN UNION COMPANY

                                 as the Borrower

                                       AND

                             THE BANKS NAMED HEREIN

                                  as the Banks

                                       AND

                               JPMORGAN CHASE BANK

                           as the Administrative Agent
                                       AND

                       BANK ONE, NA (Main Office-Chicago)

                            as the Syndication Agent
                                       AND

                               FLEET NATIONAL BANK

                           as the Documentation Agent
                                       AND
                           J.P. MORGAN SECURITIES INC.
                    as the Sole Book Runner and Lead Arranger


<PAGE>




                           REVOLVING CREDIT AGREEMENT
                          (SHORT-TERM CREDIT FACILITY)

         SOUTHERN UNION COMPANY, a corporation organized under the laws of
Delaware (hereinafter called the "Borrower"), the financial institutions listed
on the signature pages hereof (collectively, the "Banks" and individually, a
"Bank"), and JPMORGAN CHASE BANK, a New York banking corporation formerly known
as The Chase Manhattan Bank ("JPMorgan") in its capacity as administrative agent
(the "Agent") for the Banks hereunder, hereby agree as follows:

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

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

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

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

         "Additional Equity Offering" shall mean (a) a public offering by the
Borrower of additional capital stock in the Borrower resulting in not less than
$100,000,000.00 of net cash equity proceeds being received by the Borrower and
(b) any additional offering or issuance of capital stock, Equity-Preferred
Securities or any other equity interests in Borrower or Southern Union Panhandle
(to the extent permitted under Section 9.5), so long as all net cash proceeds
from any such offering or issuance of equity described in clauses (a) or (b)
above are applied in the following order: (i) first, to payment of the Bridge
Loan until the same is fully paid; (ii) second, for other working capital needs
of the Borrower or any of its Subsidiaries, including without limitation, the
payment of the AIG Loan (but only to the extent not otherwise required to be
applied to the Term Loan Facility, the Obligations under this Agreement and/or
Debt outstanding under the Long-Term Credit Facility in accordance with the
following clauses); (iii) third, 50% of the net cash proceeds, if any, received
by the Borrower in excess of $125,000,000 in the aggregate from all Additional
Equity Offerings shall be applied to the Term Loan Facility; and (iv) fourth,
50% of the net cash proceeds, if any, received by the Borrower in excess of
$125,000,000 in the aggregate from all Additional Equity Offerings shall be
applied to Obligations under this Agreement and/or Debt outstanding under the
Long-Term Credit Facility.

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

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

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

         "AIG Entities" shall mean AIG Highstar Capital, L.P., a Delaware
limited partnership, AIG Highstar Funding Corp., a Delaware corporation, and any
other permitted owner and holder of any shares of stock or other equity
interests in Southern Union Panhandle not owned and held by the Borrower or any
of the Borrower's Subsidiaries.

         "AIG Loan" shall mean a credit facility to be provided to the Borrower
by one or more of the AIG Entities in an aggregate principal amount not to
exceed $150,000,000.00 for purposes of financing a portion of the acquisition
costs for the Panhandle Eastern Acquisition, said loan to be (a) non-recourse to
the Borrower and its Subsidiaries, (b) secured only by 28% of the issued and
outstanding stock and other equity interests in Southern Union Panhandle, and
(c) subject to other terms and conditions acceptable to the Agent in all
respects.

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

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

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

         "Assignment and Acceptance" shall have the meaning set forth in Section
12.13.

         "Available Senior Funded Debt Capacity" for any period shall mean, as
of the first day of that period, the principal amount of additional Senior
Funded Debt that the Borrower would be permitted to issue under the then
existing indentures, note purchase agreements and credit agreements (other than
the Agreement and other revolving credit agreements).

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

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

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

         "Bridge Loan" shall mean an unsecured short-term credit facility to be
obtained by the Borrower in an aggregate principal amount not to exceed
$115,000,000.00, and having a final stated maturity on or before September 1,
2003, for purposes of financing a portion of the acquisition costs for the
Panhandle Eastern Acquisition, so long as such short-term credit facility is
obtained upon terms and conditions substantially similar to the terms and
conditions set forth in the term sheet attached hereto as Exhibit D

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

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

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

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

         "Closing Date" shall mean April 3, 2003.

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

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

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

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

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

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

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

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

         "Default" shall mean any of the events specified in Section 10, whether
or not there has been satisfied any requirement in connection with such event
for the giving of notice, or the lapse of time, or the happening of any further
condition, event or act.

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

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

         "EBDIT" shall mean for any period the sum of (a) consolidated net
earnings for the Borrower and its Subsidiaries (excluding for all purposes
hereof all extraordinary items), plus (b) each of the following to the extent
actually deducted in deriving such net earnings: (i) depreciation and
amortization expense; (ii) interest expense; (iii) federal and state income
taxes; and (iv) dividends charged against income on or with respect to
Structured Securities, in each case before adjustment for extraordinary items,
as shown in the financial statements of Borrower and its Subsidiaries referred
to in Section 6.2 hereof (excluding for all purposes hereof all extraordinary
items), and determined in accordance with GAAP, and (c) plus (or minus, if
applicable) the net amount of non-cash deductions from (or additions to, if
applicable) such net earnings for such period attributable to fluctuations in
the market price(s) of securities which the Borrower is obligated to purchase in
future periods under any of the Rabbi Trusts, but only to the extent that such
deductions (or additions, if applicable) are required to be taken in accordance
with GAAP.

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

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

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

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

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

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

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

         "Eurodollar Rate" shall mean with respect to the applicable Rate Period
in effect for each Eurodollar Rate Loan, the sum of (a) the quotient obtained by
dividing (i) the annual rate of interest determined by the Agent, at or before
11:00 a.m. Houston time (or as soon thereafter as practicable), on the second
Business Day prior to the first day of such Rate Period, to be the annual rate
of interest at which deposits of Dollars are offered to the Agent by prime banks
in whatever Eurodollar interbank market may be selected by the Agent in its sole
discretion, acting in good faith, at the time of determination and in accordance
with then existing practice in such market for delivery on the first day of such
Rate Period in immediately available funds and having a maturity equal to such
Rate Period in an amount substantially equal to the amount of such Eurodollar
Rate Loan by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Rate Period, plus (b) an additional percentage per annum
changing with the rating of the Borrower's unsecured, non-credit enhanced Senior
Funded Debt and determined in accordance with the following grid:

<TABLE>
<CAPTION>

                 ================================================================== ===================
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

                  Equal to or greater  than A3 by Moody's  Investor  Service,  Inc.
                  and equal to or greater  than A- by Standard  and Poor's  Ratings
                  Group                                                                    0.775%
                  ------------------------------------------------------------------ -------------------
                  ------------------------------------------------------------------ -------------------

                  Baa1 by Moody's  Investor  Service,  Inc. or BBB+ by Standard and
                                                            --
                  Poor's Ratings Group                                                     0.875%
                  ------------------------------------------------------------------ -------------------
                  ------------------------------------------------------------------ -------------------

                  Baa2 by Moody's  Investor  Service,  Inc. or BBB by Standard  and
                                                            --
                  Poor's Ratings Group                                                     1.000%
                  ------------------------------------------------------------------ -------------------
                  ------------------------------------------------------------------ -------------------

                  Baa3 by Moody's  Investor  Service,  Inc. or BBB- by Standard and
                                                            --
                  Poor's Ratings Group                                                     1.250%
                  ------------------------------------------------------------------ -------------------
                  ------------------------------------------------------------------ -------------------

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

In the event that Borrower withdraws from having its unsecured, non-credit
enhanced Senior Funded Debt being rated by Moody's Investor Service, Inc. or
Standard and Poor's Ratings Group, so that one or both of such ratings services
fails to rate the Borrower's unsecured, non-credit enhanced Senior Funded Debt,
the component of pricing from the grid set forth above for purposes of
determining the applicable Eurodollar Rate for all Rate Periods commencing
thereafter shall be 1.750% until such time as Borrower subsequently causes its
unsecured, non-credit enhanced Senior Funded Debt to be rated by both of said
ratings services.

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

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

       "Event of Default" shall mean any of the events specified in Section 10,
provided that there has been satisfied any requirement in connection with such
event for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act.

           "Exchange Company" shall mean Southern Union Exchange Company, a
Delaware corporation and/or any other entity created and owned by Chicago
Deferred Exchange Corporation that the Borrower hereafter enters into a
"qualified exchange accommodation agreement" with for purposes of facilitating
the Panhandle Eastern Acquisition.

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

         "Facility Letter(s) of Credit" shall mean, in the singular form, any
Standby Letter of Credit issued for the account of the Borrower under the
Long-Term Credit Facility and, in the plural form, all such Standby Letters of
Credit issued for the account of the Borrower.

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

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

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

         "GAAP" shall mean generally accepted accounting principles, applicable
to the circumstances as of the date of determination, applied consistently with
such principles as applied in the preparation of the Borrowers audited financial
statements referred to in Section 6.2.

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

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

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

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

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

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

         "Indemnified Parties" shall have the meaning set forth in Section
12.16.

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

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

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

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

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

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

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

         "Long-Term Credit Facility" means that certain $225,000,000.00 credit
facility provided to the Borrower by the Banks, as evidenced and governed by the
Long-Term Credit Facility Agreement.

         "Long-Term Credit Facility Agreement" means that certain Second Amended
and Restated Revolving Credit Agreement dated May 29, 2001, executed by and
among the Borrower, certain financial institutions that are parties thereto, and
the Agent in connection with the Long-Term Credit Facility, as amended pursuant
to the terms of that certain First Amendment of Second Amended and Restated
Revolving Credit Agreement dated effective June 10, 2002 and that certain Second
Amendment of Second Amended and Restated Revolving Credit Agreement of even
effective date herewith, and as the same may hereafter may be further amended,
modified, supplemented, or restated from time to time.

         "Long-Term Credit Facility Notes" means the promissory notes of the
Borrower executed and delivered under the Long-Term Credit Facility Agreement.

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

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

         "Maturity Date" shall mean April 1, 2004.

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

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

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

         "Obligations" shall mean all obligations of the Borrower to the Bank
under this Agreement, the Notes and all other Loan Documents to which it is a
party.

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

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

         "Panhandle Eastern Acquisition" shall mean the acquisition by the
Exchange Company of 100% of all issued and outstanding stock and other equity
interests, if any, in Panhandle Eastern in accordance with the Panhandle Eastern
Acquisition Agreement, so long as such acquisition is in substantial compliance
with the following specified terms:

                (a) immediately after the finalization and consummation of such
         acquisition, Panhandle Eastern is a wholly-owned Subsidiary of the
         Exchange Company;

                (b) the aggregate consideration paid for all stock and other
         equity interests in Panhandle Eastern shall not exceed $663,000,000.00
         in cash, with the source of said cash purchase price to be a
         combination of some or all of the following: (i) $406,000,000.00 of
         "like-kind" exchange proceeds previously received from the prior sale
         to ONEOK, Inc. of the "Southern Union Gas Company" Texas division and
         certain other related assets; (ii) the proceeds of the AIG Loan; (iii)
         the proceeds of the Additional Equity Offering, if any; (iv) the
         proceeds of the Bridge Loan, if required; and (v) other cash, if any,
         held by or available to the Borrower;

                (c) the Exchange Company shall make a Section 338(h)(10)
         election under the Code as part of the closing of such acquisition, and
         as soon as reasonably possible after the finalization and consummation
         of such acquisition, the Exchange Company shall cause Panhandle Eastern
         and each of its applicable Subsidiaries to convert from "C
         corporations" to limited liability companies after receipt of all
         requisite approvals and consents from any Governmental Authority,
         including without limitation, the Federal Energy Regulatory Commission;

                (d) immediately after such conversion of Panhandle Eastern and
         each of its applicable Subsidiaries from "C corporations" to limited
         liability companies, the Exchange Company shall distribute to the
         Borrower 100% of all membership and other equity interests in Panhandle
         Eastern, thus causing Panhandle Eastern to be a wholly-owned Subsidiary
         of the Borrower;

                (e) immediately after such distribution to the Borrower of 100%
         of all membership and other equity interests in Panhandle Eastern, the
         existing Debt of Panhandle Eastern and its Subsidiaries may cause
         Consolidated Total Indebtedness to increase by not more than
         $1,170,000,000.00 in the aggregate, provided that neither the Borrower
         nor any of its Subsidiaries existing prior to such distribution shall
         have, incur or assume any liability with respect to such existing Debt
         of Panhandle Eastern and its Subsidiaries;

                (f) one (1) Business Day after such distribution by the Exchange
         Company to the Borrower of all membership and other equity interests in
         Panhandle Eastern, the Borrower shall distribute to Southern Union
         Panhandle 100% of all membership and other equity interests in
         Panhandle Eastern; and

                (g) all requisite approvals and consents from any Governmental
         Authority with respect to the above-described acquisitions and
         distributions shall have been received by the Borrower in a form
         acceptable to the Agent.

         "Panhandle Eastern Acquisition Agreement" shall mean that certain Stock
Purchase Agreement dated December 21, 2002, by and between CMS Gas Transmission
Company, as seller, Southern Union Panhandle, as purchaser, and the Borrower and
the AIG Entities, as sponsors, as the same may hereafter be amended, modified,
supplemented, restated or replaced (the form of any such amendment,
modification, etc. to be approved by the Agent, such approval to not be
unreasonably withheld, conditioned or delayed), it being contemplated that such
Stock Purchase Agreement will be assigned by the Borrower to the Exchange
Company to facilitate the Panhandle Eastern Acquisition.

         "Panhandle Eastern Refinancing Debt" shall mean any Debt of Panhandle
Eastern and/or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, any Debt of Panhandle Eastern and/or any of its Subsidiaries existing
prior to the Exchange Company's acquisition of all stock and other equity
interests in Panhandle Eastern in connection with the Panhandle Eastern
Acquisition, provided, that:

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

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

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

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

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

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

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

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

          "Pro-Rata Percentage" shall mean with respect to any Bank, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Bank's Commitment and the denominator of which shall be the aggregate amount of
all the Commitments of the Banks, as adjusted from time to time in accordance
with Section 3.6.

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

         "Qualifying Assets" shall mean (i) equity interests owned one hundred
percent (100%) by the Borrower in entities engaged primarily in one or more of
the Borrower's lines of business described in Section 6.15 (singly, a "Qualified
Entity," collectively, "Qualified Entities"), or productive assets used in one
or more of such lines of business; provided, however, that as to any related
group of such assets acquired for a purchase price of more than Sixty Million
Dollars ($60,000,000.00) (including the amount of any Debt assumed or deemed
incurred in connection with such acquisition), the Majority Banks shall have
delivered to the Borrower their prior written consent; and (ii) equity interests
of less than one hundred percent (100%) owned by the Borrower in one or more
Qualifying Entities, provided that at any one time the amount of the Borrower's
investment in Qualifying Assets described in clause (ii) (measured by the
aggregate purchase price paid therefor, including the aggregate amount of Debt
assumed or deemed incurred by Borrower in connection with such acquisitions)
does not exceed ten percent (10%) of the Consolidated Net Worth of the Borrower
and its Subsidiaries as of the applicable determination date.

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

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

         "Reimbursement Obligations" shall mean the reimbursement or repayment
obligations of the Borrower with respect to Facility Letters of Credit issued
for the account of the Borrower.

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

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

         "Securities Act" shall have the meaning set forth in Section 12.1.

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

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

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

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

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

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

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

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

         "Term Loan Facility" shall mean that certain term loan facility
provided to the Borrower in an aggregate amount of $311,086,956.00 under the
terms of that certain Amended and Restated Term Loan Credit Agreement dated July
15, 2002 by and among the Borrower, certain financial institutions that are
parties thereto, and the Agent, as amended pursuant to the terms of that certain
First Amendment of Amended and Restated Revolving Credit Agreement of even
effective date herewith, and as the same may hereafter may be further amended,
modified, supplemented, or restated from time to time.

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

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

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

                (b) all cash proceeds distributed to the Borrower from such sale
         shall be immediately applied against the Borrower's Debt in the
         following order: (i) first to the Bridge Loan until the same is fully
         paid; (ii) second, 50% of the remaining cash proceeds shall be applied
         to the Term Loan Facility; and (iii) the balance, if any, shall be
         applied to Obligations under this Agreement and/or Debt outstanding
         under the Long-Term Credit Facility; and

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

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


2.       THE LOANS

2.1     The Loans

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

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

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

          (d)  In the case of a proposed borrowing  comprised of Eurodollar Rate
               Loans,   the  Agent  shall  promptly  notify  each  Bank  of  the
               applicable  interest  rate under  Section  2.2.  Each Bank shall,
               before  11:00 am  (Houston  time)  on the  Borrowing  Date,  make
               available for the account of its Applicable Lending Office to the
               Agent at the Agent's  address set forth in Section  12.4, in same
               day funds,  its Pro Rata Percentage of such borrowing.  After the
               Agent's  receipt  of  such  funds  and  upon  fulfillment  of the
               applicable  conditions  set forth in Section 7, on the  Borrowing
               Date,  the  Agent  shall  make  the  borrowing  available  to the
               Borrower  at  its   Applicable   Lending  Office  in  immediately
               available funds.  Each Bank shall post on a schedule  attached to
               its Note(s):  (i) the date and principal amount of each Loan made
               under such Note;  (ii) the rate of  interest  each such Loan will
               bear;  and (iii) each  payment of  principal  thereon;  provided,
               however, that any failure of such Bank so to mark such Note shall
               not affect the Borrower's  obligations  thereunder;  and provided
               further  that such  Bank's  records as to such  matters  shall be
               controlling whether or not such Bank has so marked such Note. Any
               deposit to the Borrower's  demand deposit account by the Agent or
               by  JPMorgan  (of funds  received  from the Agent)  pursuant to a
               request  (whether  written or oral)  believed  by the Agent or by
               JPMorgan to be an  authorized  request by the Borrower for a Loan
               hereunder shall be deemed to be a Loan hereunder for all purposes
               with the same effect as if the Borrower had in fact requested the
               Agent to make such Loan.

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

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

2.2      Interest Rate Determination

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

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

2.3      Additional Interest Rate Provisions

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

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

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

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

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

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

          (g)  In calculating the Eurodollar Rate and the commitment fee payable
               under Section 4.1 hereof, and  notwithstanding the provisions set
               forth in the  definitions  of  Eurodollar  Rate or in the pricing
               grid established for the commitment fee in Section 4.1 hereof, in
               the event that the ratings for Borrower's  unsecured,  non-credit
               enhanced Senior Funded Debt under Standard & Poor's Ratings Group
               and under Moody's  Investor  Service,  Inc. fall within different
               rating  categories  which  are not  functional  equivalents,  the
               Eurodollar  Rate and the commitment fee payable under Section 4.1
               hereof  shall be based on the higher of such  ratings if there is
               only one category  difference between the functional  equivalents
               of  such  ratings,  and if  there  is a two  category  difference
               between the functional equivalents of such ratings, the component
               of  pricing  from the grid set  forth in such  definitions  or in
               Section 4.1 shall be based on the rating  category  which is then
               in the middle of or between the two  category  ratings  which are
               then in effect.

2.4      Increase of Commitments

          (a)  At any time after the Closing Date,  the Agent may arrange for an
               existing Bank or another bank or financial institution,  with the
               consent  of  the  Borrower  as to  any  such  bank  or  financial
               institution  that is not at such time a Bank (which consent shall
               not be  unreasonably  withheld or delayed so long as such bank or
               financial  institution is an Eligible Assignee) to participate in
               a possible  increase  in the  Commitments  pursuant  to the other
               terms and conditions of this Section 2.4;

          (b)  Any such bank or financial institution that so elects to become a
               party to this Agreement and obtain a Commitment  shall execute an
               agreement (a "New Bank  Agreement"),  in the form required by the
               Agent,  with the Borrower and the Agent,  whereupon  such bank or
               financial  institution (a "New Bank") shall become a Bank for all
               purposes  hereunder  to the same extent as if  originally a party
               hereto and shall be bound by and entitled to the benefits of this
               Agreement,  and the signature pages hereof shall be deemed to add
               the  name and  Commitment  of such New  Bank,  provided  that the
               Commitment  of any such New Bank  shall be in an amount  not less
               than $2,500,000;

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

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

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

          (f)  Notwithstanding anything to the contrary in this Section 2.4, (i)
               no Bank shall have any  obligation  to  increase  its  Commitment
               under  this  Section  2.4 unless it agrees in writing to do so in
               its  sole  discretion,  (ii) no Bank  shall  have  any  right  to
               decrease  the  amount  of  its  Commitment  as a  result  of  any
               requested  increase of the  Commitments  pursuant to this Section
               2.4, (iii) the Agent shall have no obligation to arrange, find or
               locate any New Bank to participate in any unsubscribed portion of
               any increase in the Commitments  requested by the Borrower,  (iv)
               each increase in the Commitments  requested by the Borrower shall
               not be less than  $2,500,000,  and (v) after giving effect to any
               increase in the Commitments pursuant to this Section 2.4, the sum
               of the Commitments shall not exceed $150,000,000; and

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


3.       PAYMENTS AND PREPAYMENTS

3.1      Required Prepayments.  The Borrower agrees to make prepayments of the
         Loans as follows:

          (a)  The  Borrower  agrees  that  if  at  any  time  it or  the  Agent
               determines   that  the  aggregate   principal   amount  of  Loans
               outstanding exceeds the Commitments, then the Borrower shall make
               a  prepayment  of  principal  of the  Loans in an amount at least
               equal to such excess.

          (b)  Upon the Borrower's  reduction or termination of the  Commitments
               under Section 3.6, the Borrower  shall make such  prepayments  as
               are required by the terms of Section 3.6.

          (c)  Immediately upon the termination of any period of 180 consecutive
               calendar days in which the aggregate principal amount outstanding
               under the Notes, the Long-Term Credit Facility Notes and the Term
               Loan Facility has exceeded the Borrower's Available Senior Funded
               Debt Capacity  outstanding  under the Senior Notes,  the Borrower
               will prepay the Notes, the Long-Term Credit Facility Notes and/or
               the Term Loan  Facility  by the amount of such  excess,  together
               with all interest  accrued on such prepaid  amount and such other
               amounts  that may be required to be paid in  consequence  of such
               prepayment under Section 2.3(d).

          (d)  All cash proceeds  distributed to the Borrower from the Trunkline
               LNG  Holdings  Sale  shall be  immediately  applied  against  the
               Borrower's Debt in the following  order:  (i) first to the Bridge
               Loan  until  the  same is fully  paid;  (ii)  second,  50% of the
               remaining  cash  proceeds  shall  be  applied  to the  Term  Loan
               Facility;  and (iii) the  balance,  if any,  shall be  applied to
               Obligations  under this Agreement and/or Debt  outstanding  under
               the Long-Term Credit Facility.

          (e)  All  net  cash  proceeds   received  by  the  Borrower  from  any
               Additional  Equity  Offerings  shall be applied in the  following
               order: (i) first, to payment of the Bridge Loan until the same is
               fully paid;  (ii) second,  for other working capital needs of the
               Borrower   or  any  of  its   Subsidiaries,   including   without
               limitation,  the  payment of the AIG Loan (but only to the extent
               not otherwise  required to be applied to the Term Loan  Facility,
               the  Obligations  under this  Agreement  and/or Debt  outstanding
               under  the  Long-Term  Credit  Facility  in  accordance  with the
               following clauses); (iii) third, 50% of the net cash proceeds, if
               any,  received by the Borrower in excess of  $125,000,000  in the
               aggregate from all Additional  Equity  Offerings shall be applied
               to the Term Loan Facility;  and (iv) fourth,  50% of the net cash
               proceeds,   if  any,  received  by  the  Borrower  in  excess  of
               $125,000,000   in  the  aggregate  from  all  Additional   Equity
               Offerings  shall be applied to  Obligations  under this Agreement
               and/or Debt outstanding under the Long-Term Credit Facility.

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

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

     3.4 No Prepayment Premium or Penalty.  Each prepayment  pursuant to Section
3.1 or 3.3  shall  be  without  premium  or  penalty,  subject  in the  case  of
Eurodollar Rate Loans to the provisions of Section 2.3(d).

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

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

4.       COMMITMENT FEE AND OTHER FEES

     4.1 Commitment Fee. The Borrower agrees to pay to the Agent for the account
of each Bank a commitment fee based on a year of 360 days, from the Closing Date
to, but not  including,  the Maturity Date (or such earlier date as of which all
Commitments shall have  terminated),  on the daily average unused amount of each
Bank's Commitment, such commitment fee to be payable quarterly in arrears on (a)
the last day of each March, June,  September,  and December,  commencing on June
30, 2003 and (b) the Maturity Date, at a rate per annum changing with the rating
of the  Borrower's  unsecured,  non-credit  enhanced  Senior  Funded  Debt,  and
determined in accordance with the following grid:



<PAGE>


<TABLE>
<CAPTION>

                  ================================================================== ===================
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

                  Equal to or greater  than A3 by Moody's  Investor  Service,  Inc.
                  and equal to or greater  than A- by Standard  and Poor's  Ratings
                  Group                                                                    0.105%
                  ------------------------------------------------------------------ -------------------
                  ------------------------------------------------------------------ -------------------

                  Baa1 by Moody's  Investor  Service,  Inc. or BBB+ by Standard and
                                                            --
                  Poor's Ratings Group                                                     0.130%
                  ------------------------------------------------------------------ -------------------
                  ------------------------------------------------------------------ -------------------

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

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

                  Equal to or less than Ba1 by Moody's Investor  Service,  Inc. and
                                                                                ---
                  equal to or less than BB+ by Standard and Poor's Ratings Group           0.250%
                  ================================================================== ===================
</TABLE>

In the event that Borrower withdraws from having its unsecured, non-credit
enhanced Senior Funded Debt being rated by Moody's Investor Service, Inc. or
Standard and Poor's Ratings Group, so that one or both of such ratings services
fails to rate the Borrower's unsecured, non-credit enhanced Senior Funded Debt,
the component of pricing from the grid set forth above for purposes of
determining the applicable commitment fee for all applicable periods commencing
thereafter shall be 0.250% until such time as Borrower subsequently causes its
unsecured, non-credit enhanced Senior Funded Debt to be rated by both of said
ratings services.

     4.2 Fees Not Interest;  Nonpayment.  The fees  described in this  Agreement
represent  compensation  for services  rendered and to be rendered  separate and
apart from the lending of money or the provision of credit and do not constitute
compensation for the use, detention, or forbearance of money, and the obligation
of the  Borrower to pay each fee  described  herein shall be in addition to, and
not in lieu of, the  obligation  of the  Borrower  to pay  interest,  other fees
described in this Agreement, and expenses otherwise described in this Agreement.
Fees shall be payable when due in Dollars and in  immediately  available  funds.
The  commitment  fee  referred  to in Section 4.1 shall be  non-refundable,  and
shall, to the fullest extent  permitted by law, bear interest,  if not paid when
due, at a rate per annum equal to the lesser of (a) five  percent (5%) above the
Alternate  Base Rate as in effect  from time to time or (b) the  Highest  Lawful
Rate.

     4.3 Utilization  Fee. The Borrower agrees to pay to Agent,  for the account
of each Bank, a utilization  fee at a rate per annum equal to 0.25%,  based on a
year of 360 days, from the Closing Date to, but not including, the Maturity Date
(or such earlier date as of which the Commitments have been terminated),  on the
daily  average of the aggregate  principal  amount of the Loans  outstanding  on
those days when such aggregate principal amount of the Loans outstanding exceeds
thirty-three  percent (33%) of the  aggregate  amount of the  Commitments,  such
utilization  fee to be payable  quarterly in arrears on (a) the last day of each
March, June, September,  and December,  commencing on June 30, 2003, and (b) the
Maturity Date.


5.       APPLICATION OF PROCEEDS

5.1      Application of Proceeds.  The Borrower agrees that the proceeds of the
         Loans shall be used:

               (a)  to  provide  working  capital  and  for  general   corporate
                    purposes;

               (b)  to finance  the  acquisition  of  Qualifying  Assets,  which
                    Qualifying  Assets may be acquired  on a revolving  basis as
                    long  as at any  one  time  the  amount  of  the  Borrower's
                    investment in Qualifying  Assets does not exceed the amounts
                    set forth in clause (i) and clause (ii) of the definition of
                    Qualifying Assets as applicable; provided, however, that the
                    prior  written  consent  of  the  Majority  Banks  shall  be
                    required for the use of Loan proceeds to finance any portion
                    of any  such  acquisition  described  in  clause  (i) of the
                    definition  of  Qualifying  Assets  requiring the payment of
                    more than $60,000,000;

               (c)  to finance the Borrower's open market acquisition of its own
                    7.60% Senior Notes due 2024;  provided,  however,  that such
                    use,  together  with the use of  proceeds  of the  Long-Term
                    Credit  Facility for such purpose,  if any, shall be limited
                    to an aggregate amount advanced to $40,000,000; and

               (d)  to finance the Borrower's repurchase of its own common stock
                    and preferred equity  securities;  provided,  however,  that
                    such use, together with the use of proceeds of the Long-Term
                    Credit  Facility for such purpose,  if any, shall be limited
                    to an aggregate amount advanced to $50,000,000.

6.       REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants that:

     6.1 Organization and Qualification.  The Borrower and each Subsidiary:  (a)
are corporations duly organized,  validly  existing,  and in good standing under
the laws of their respective states of incorporation;  (b) have the corporate or
organizational  power to own their  respective  properties and to carry on their
respective  businesses as now  conducted;  and (c) are duly qualified as foreign
corporations  (or,  in the  case of any  Southern  Union  Trust,  trusts)  to do
business and are in good standing in every jurisdiction where such qualification
is necessary  except when the failure to so qualify would not or does not have a
Material Adverse Effect. The Borrower is a corporation  organized under the laws
of Delaware and has the Subsidiaries  listed on Schedule 6.1 attached hereto and
hereby made a part hereof for all  purposes,  and no others,  each of which is a
Delaware  corporation unless otherwise noted. None of the Subsidiaries listed on
Schedule 6.1 as "Inactive  Subsidiaries," conducts or will conduct any business,
and  none  of  such  Subsidiaries  has  any  assets  other  than  minimum  legal
capitalization.

     6.2 Financial Statements. The Borrower has furnished the Banks with (a) the
Borrower's annual audit reports containing the Borrower's  consolidated  balance
sheets, statements of income and stockholder's equity and a cash flow statements
as at and for the twelve month period ending June 30, 2001,  accompanied  by the
certificate  of  Price  Waterhouse  Coopers  and  (b) the  Borrower's  unaudited
financial  report as of the fiscal  quarter  ending  December  31,  2001.  These
statements are complete and correct and present fairly in accordance  with GAAP,
consistently applied throughout the periods involved, the consolidated financial
position of the Borrower and the  Subsidiaries  and the results of its and their
operations as at the dates and for the periods indicated subject,  as to interim
statements  only,  to  changes  resulting  from  customary   end-of-year  credit
adjustments  which in the  aggregate  will not be  material.  There  has been no
material  adverse  change  in the  condition,  financial  or  otherwise,  of the
Borrower or any Subsidiary since December 31, 2001.

     6.3 Litigation.  Except as disclosed on Schedule 6.3 or pursuant to Section
6.16, there is no: (a) action or proceeding  pending or, to the knowledge of the
Borrower,  threatened  against the Borrower or any Subsidiary  before any court,
administrative  agency or  arbitrator  which is  reasonably  expected  to have a
Material Adverse Effect; (b) judgment  outstanding  against the Borrower for the
payment of money; or (c) other outstanding  judgment,  order or decree affecting
the Borrower or any Subsidiary  before or by any  administrative or governmental
authority,  compliance  with or satisfaction of which may reasonably be expected
to have a Material Adverse Effect.

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

     6.5  Title to  Assets.  The  Borrower  and each  Subsidiary  have  good and
marketable  title to their respective  assets,  subject to no Liens except those
permitted in Section 9.2.

     6.6 Payment of Taxes.  The Borrower and each  Subsidiary have filed all tax
returns  required to be filed and have paid all taxes shown on said  returns and
all assessments which are due and payable (except such as are being contested in
good faith by  appropriate  proceedings  for which  adequate  reserves for their
payment have been provided in a manner consistent with the accounting  practices
followed by the Borrower as of December 31, 2001).  The Borrower is not aware of
any  pending  investigation  by any  taxing  authority  or of any  claims by any
governmental  authority  for any unpaid  taxes,  except as disclosed on Schedule
6.6.

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

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

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

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

     6.11  Regulations G, T, U and X. No Loan shall be a "purpose credit secured
directly or  indirectly  by margin  stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System ("margin  stock");  none of
the proceeds of any Loan will be used to extend credit to others for the purpose
of purchasing or carrying any margin stock, or for any other purpose which would
constitute this  transaction a "purpose credit secured directly or indirectly by
margin  stock"  within the meaning of said  Regulation U, as now in effect or as
the same may  hereafter be in effect.  Neither the  Borrower nor any  Subsidiary
will take or permit any action  which would  involve the Banks in a violation of
Regulation G, Regulation T,  Regulation U, Regulation X or any other  regulation
of the Board of  Governors of the Federal  Reserve  System or a violation of the
Securities  Exchange  Act of 1934,  in each case as now or  hereafter in effect.
After applying  proceeds of the Loans and the Long-Term  Credit Facility used to
acquire the equity interests described in the definition of "Qualifying Assets",
not more than  twenty-five  percent  (25%) of the value  (as  determined  by any
reasonable  method) of the assets  subject to the  negative  pledge set forth in
Section 9.2 of the Credit  Agreement  and the  restrictions  on  disposition  of
assets set forth in Section 9.8 of the Credit Agreement is represented by margin
stock.

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

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

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

     6.15 Lines of Business.  The nature of the Borrower's lines of business are
predominately  the  following:  (a) the  operation  of energy  distribution  and
transportation  services,  including without  limitation,  natural gas sales and
transportation  and distribution,  propane sales and distribution and promotion,
marketing and sale of compressed  natural gas and liquified natural gas; (b) the
development  and marketing of fuel cell and  distributive  energy  options;  (c)
electric marketing/generation; and (d) sales and rentals of appliances utilizing
one or more of the fuel or energy options specified in this Section 6.15.

     6.16  Environmental  Matters.  Except as  disclosed in Schedule  6.16,  all
facilities and property  owned or leased by the Borrower or any Subsidiary  have
been and  continue to be,  owned or leased and operated by the Borrower and each
Subsidiary in material compliance with all Environmental Laws; (i) there has not
been (during the period of the Borrower's, or a Subsidiary's ownership or lease)
any Release of Hazardous  Materials at, on or under any property now (or, to the
Borrower's  knowledge,  previously)  owned  or  leased  by the  Borrower  or any
Subsidiary  (A) in  quantities  that would be required to be reported  under any
Environmental Law, (B) that required,  or may reasonably be expected to require,
the Borrower to expend funds on  remediation or cleanup  activities  pursuant to
any Environmental  Law except for remediation or clean-up  activities that would
not be  reasonably  expected  to have a  Material  Adverse  Effect,  or (C) that
otherwise,  singly or in the  aggregate,  has, or may  reasonably be expected to
have, a Material Adverse Effect; (ii) the Borrower and each Subsidiary have been
issued and are in material compliance with all permits, certificates, approvals,
orders,  licenses and other  authorizations  relating to  environmental  matters
necessary   for  their   respective   businesses;   and   (iii)   there  are  no
polychlorinated  biphenyls (PCB's) or  asbestos-containing  materials or surface
impoundments in any of the facilities now (or, to the knowledge of the Borrower,
previously)  owned or leased  by the  Borrower  or any  Subsidiary,  except  for
asbestos-containing  materials  of the  type  and  in  quantities  that,  to the
knowledge  of  the  borrower,  do  not  currently  require  remediation,  and if
remediation of such asbestos-containing  materials is hereafter required for any
reason,  such remediation  activities would not reasonably be expected to have a
Material Adverse Effect; (iv) Hazardous Materials have not been generated, used,
treated,  recycled,  stored or disposed of in any of the facilities or on any of
the property now (or, to the  knowledge of the  Borrower,  previously)  owned or
leased by the Borrower or any  Subsidiary  during the time of the  Borrower's or
such  Subsidiary's  ownership or leased by the Borrower or any Subsidiary during
the time of the  Borrower's or such  Subsidiary's  ownership  except in material
compliance  with all  applicable  Environmental  Laws;  and (v) all  underground
storage tanks located on the property now (or, to the knowledge of the Borrower,
previously)  owned or leased by the Borrower or any Subsidiary have been (and to
the extent  currently owned or leased are) operated in material  compliance with
all applicable Environmental Laws.

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


7.       CONDITIONS

         The obligation of the Banks to make any Loans is subject to the
         following conditions:

7.1      Representations True and No Defaults

     (a) The representations and warranties contained in Section 6 shall be true
and correct on and as of the particular  Borrowing Date as though made on and as
of such date;

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

     (c) No material  adverse  change  shall have  occurred  with respect to the
business,  assets,  properties  or condition  (financial  or  otherwise)  of the
Borrower reflected in the quarterly  financial  statements of the Borrower dated
December 31, 2001 (copies of such  unaudited  financial  statements  having been
supplied to the Agent and each Bank); and

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

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

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

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

     7.5  Payment of Fees and  Expenses.  The  Borrower  shall have paid (a) all
expenses of the type described in Section 12.3 through the date of such Loan and
(b) all closing, structuring and other invoiced fees owed as of the Closing Date
to the  Agent,  any of the Banks  and/or  J.P.  Morgan  Securities  Inc.  by the
Borrower  under  this  Agreement  or any other  written  agreement  between  the
Borrower and the Agent,  the applicable  Bank(s) or J.P. Morgan  Securities Inc.
The  Borrower  hereby  agrees  to  fully  pay on the  Closing  Date  all of such
expenses,  closing,  structuring  and  other  fees  described  in the  preceding
sentence  that are then owing on the Closing  Date,  to the extent that Borrower
has been presented an invoice for the same on or before the Closing Date.

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

8.       AFFIRMATIVE COVENANTS

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

8.1      Financial Statements and Information.  Deliver to the Banks:

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

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

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

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

All financial statements specified in clauses (a) and (b) above shall be
furnished in consolidated and consolidating form for the Borrower and all
Subsidiaries with comparative consolidated figures for the corresponding period
in the preceding year. Together with each delivery of financial statements
required by clauses (a) and (b) above, the Borrower will deliver to the Banks
(i) such schedules, computations and other information as may be required to
demonstrate that the Borrower is in compliance with its covenants in Section 9.1
or reflecting any noncompliance therewith as at the applicable date and (ii) an
Officer's Certificate stating that there exists no Event of Default or Default,
or, if any such Event of Default or Default exists, stating the nature thereof,
the period of existence thereof and what action the Borrower has taken or
proposes to take with respect thereto. The Banks are authorized to deliver a
copy of any financial statement delivered to it to any regulatory body having
jurisdiction over them, and to disclose same to any prospective assignees or
participant Lenders.

8.2      Lease and Investment Schedules.  Deliver to the Banks:

          (a) from time to time and, in any event,  with each delivery of annual
     financial statements under Section 8.1(a), a current,  complete schedule of
     all agreements to rent or lease any property (personal,  real or mixed, but
     not including  oil and gas leases) to which the Borrower or any  Subsidiary
     is a party lessee and which, considered  independently or collectively with
     other leases with the same lessor, involve an obligation by the Borrower or
     a Subsidiary to make payments of at least $250,000.00 in any year,  showing
     the total amounts  payable under each such  agreement,  the amounts and due
     dates of payments  thereunder and containing a description of the rented or
     leased property,  and all other information the Majority Banks may request;
     and

          (b) with each delivery of annual  financial  statements  under Section
     8.1(a) a current complete  schedule listing all debt exceeding  $200,000.00
     in principal amount outstanding and equity owned or held by the Borrower or
     any  Subsidiary  containing  all  information  required  by,  and in a form
     satisfactory to, the Banks, except for such debt or equity of Subsidiaries.

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

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

     8.5  Maintenance  of  Property.  Cause  its  Significant  Property  and the
Significant Property of each Subsidiary to be maintained,  preserved,  protected
and kept in good  repair,  working  order  and  condition  so that the  business
carried on in connection  therewith may be conducted  properly and  efficiently,
except for normal wear and tear.

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

     8.7 Existence,  Laws,  Obligations.  Maintain, and cause each Subsidiary to
maintain, its corporate existence and franchises, and any license agreements and
tariffs that permit the  recovery of a return that the Borrower  considers to be
fair (and as to licenses, franchises, and tariffs that are subject to regulatory
determinations  of  recovery  of  returns,  the  Borrower  has  presented  or is
presenting favorable defense thereof);  and to comply, and cause each Subsidiary
to comply,  with all statutes and governmental  regulations  noncompliance  with
which might have a Material  Adverse Effect,  and pay, and cause each Subsidiary
to  pay,  all  taxes,  assessments,  governmental  charges,  claims  for  labor,
supplies, rent and other obligations which if unpaid might become a lien against
the  property  of  the  Borrower  or any  Subsidiary  except  liabilities  being
contested  in good  faith.  Notwithstanding  the  foregoing,  the  Borrower  may
dissolve  those  certain   inactive  and  minimally   capitalized   Subsidiaries
designated as such on Schedule 6.1.

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

     8.9 ERISA. At all times:

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

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

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

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

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

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

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

     8.10 Compliance with Environmental Laws. At all times:

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

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

          (c) provide such  information and  certifications  which the Banks may
     reasonably  request  from  time to time to  evidence  compliance  with this
     Section 8.10.

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

     8.12  Additional  Equity  Offering.  On or before  September  1, 2003,  the
Borrower  agrees to (a) cause the Additional  Equity  Offering to be consummated
and  finalized,  and  (b) if the  Bridge  Loan is then  outstanding,  cause  the
proceeds  received by the Borrower from such  Additional  Equity  Offering to be
utilized to fully pay the Bridge Loan.

     8.13 Bridge Loan  Commitments.  On or before  April 4, 2003,  the  Borrower
agrees to cause to be  delivered  to the Agent  valid and binding  written  loan
commitments  for the Bridge  Loan,  accepted by the  Borrower,  from one or more
lenders in an aggregate amount of not less than $100,000,000.00.

9.       NEGATIVE COVENANTS

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

     9.1 Capital Requirements. The Borrower will not:

          (a) permit its Consolidated Net Worth at the end of any fiscal quarter
     to be less than the sum of (i)  $741,887,000,  (ii) 40% of Consolidated Net
     Income  (if  positive)  for the  period  commencing  on January 1, 2002 and
     ending on the date of  determination,  and  treated as a single  accounting
     period;  (iii) the  difference  between (A) 100% of the net proceeds of any
     issuance  of  capital  or  preferred  stock or any  other  Equity-Preferred
     Securities  by the  Borrower  or  any  consolidated  Subsidiary,  including
     without  limitation,  the  Additional  Equity  Offering,  received  by  the
     Borrower or such consolidated Subsidiary at any time after January 1, 2002;
     and (B) the  aggregate  amount of all  redemption  or  repurchase  payments
     hereafter  made,  if  any,  by  the  Borrower  and  any  such  consolidated
     Subsidiary  in connection  with the  repurchase by the Borrower or any such
     consolidated  Subsidiary  of any of their  respective  capital or preferred
     stock; (iv) without duplication, the difference between (A) 100% of the net
     proceeds  heretofore  and  hereafter  received  by  the  Borrower  and  any
     consolidated  Subsidiary in respect of the issuance by the Borrower or such
     consolidated Subsidiary of the Structured Securities, and (B) the aggregate
     amount of all redemption  payments  hereafter made, if any, by the Borrower
     and any such  consolidated  Subsidiary in connection with the redemption of
     any of the  Structured  Securities;  and (v) the minority  interests in the
     Borrower's Subsidiaries; or

          (b) permit the ratio of its  Consolidated  Total  Indebtedness  to its
     Consolidated  Total  Capitalization  to be greater than (i) 0.65 to 1.00 at
     the end of any  fiscal  quarter  ending  prior  to the  Exchange  Company's
     acquisition of all stock and other equity interests in Panhandle Eastern in
     connection with the Panhandle Eastern Acquisition; (ii) 0.75 to 1.00 at the
     end of any  fiscal  quarter  ending  on or  after  the  Exchange  Company's
     acquisition of all stock and other equity interests in Panhandle Eastern in
     connection  with  the  Panhandle  Eastern   Acquisition,   but  before  the
     consummation of either the Additional  Equity Offering or the Trunkline LNG
     Holdings  Sale,  (iii) 0.70 to 1.00 at the end of any fiscal quarter ending
     on or after the  consummation  of either the Additional  Equity Offering or
     the  Trunkline LNG Holdings  Sale,  and (iv) 0.65 to 1.00 at the end of any
     fiscal  quarter  ending  on or  after  the  earlier  to  occur  of (A)  the
     consummation  of both the Additional  Equity Offering and the Trunkline LNG
     Holdings Sale or (B) December 31, 2003; or

          (c) acquire,  or permit any  Subsidiary  to acquire,  any assets other
     than (i)  investments  permitted  under  Section  9.4,  or (ii)  Qualifying
     Assets; or

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

          (e) permit the aggregate  outstanding  principal  amount of the Notes,
     the Long-Term  Credit  Facility  Notes and the Term Loan Facility to exceed
     for a period of 180 consecutive days the Borrower's Available Senior Funded
     Debt Capacity.

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

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

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

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

          (d) Liens on property  existing at the time of acquisition  thereof by
     the  Borrower or any  Subsidiary,  including  without  limitation,  (i) any
     property acquired by the Borrower in consummating and finalizing any of the
     Prior  Acquisitions,  (ii) any Liens  existing on any property of Panhandle
     Eastern or any of its  Subsidiaries  to secure  existing  Debt of Panhandle
     Eastern  or any of  its  Subsidiaries  on the  date  the  Exchange  Company
     acquires  all stock and other  equity  interests  in  Panhandle  Eastern in
     connection  with the  Panhandle  Eastern  Acquisition,  and (iii) any Liens
     against any property of  Panhandle  Eastern or any of its  Subsidiaries  to
     secure Panhandle Eastern  Refinancing Debt (provided such Liens are limited
     to property of Panhandle  Eastern or any of its  Subsidiaries  securing the
     Debt so extended, refinanced,  renewed, replaced, defeased or refunded), or
     purchase  money  Liens  placed  on an item of  real  or  personal  property
     purchased  by the  Borrower  or any  Subsidiary  to secure a portion of the
     purchase price of such property,  including without  limitation,  any Liens
     against up to 28% of the stock and other equity interests in Southern Union
     Panhandle  granted by the Borrower as security  for the AIG Loan;  provided
     that no such Lien may encumber or cover any other property of the
     Borrower or any Subsidiary.

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

          (a) Debt evidenced by the Notes,  the Long-Term Credit Facility Notes,
     the Facility  Letter of Credit  Obligations or  outstanding  under the Term
     Loan  Facility,  the AIG Loan,  the  Bridge  Loan and any  Equity-Preferred
     Securities  (to the extent the same  constitutes  Debt) not in default,  as
     well  as  (i)  existing  Debt  of  Panhandle  Eastern  and/or  any  of  its
     Subsidiaries  otherwise  permitted in the definition of "Panhandle  Eastern
     Acquisition," (ii) any Panhandle Eastern  Refinancing Debt, (iii) any loans
     or  advances  of  proceeds  of the AIG Loan,  the  Bridge  Loan  and/or the
     Additional  Equity Offering by the Borrower to Southern Union Panhandle for
     purposes of financing the Panhandle Eastern Acquisition,  (iv) any loans or
     advances by the Borrower to Panhandle  Eastern and/or any of the Borrower's
     other  Subsidiaries  permitted  under  Section  9.4(b) and (v) any  working
     capital  credit  facility or  facilities  provided  directly  to  Panhandle
     Eastern and/or any of Panhandle  Eastern's  Subsidiaries by any party other
     than the Borrower,  so long as the principal amount of all such outstanding
     working capital facilities,  together with the outstanding principal amount
     of any  working  capital  loans or advances  by the  Borrower to  Panhandle
     Eastern  and/or any of Panhandle  Eastern's  Subsidiaries,  does not exceed
     $25,000,000 in the aggregate at any time;

          (b) Debt of any Subsidiary to the Borrower or any other Subsidiary;

          (c) Debt  existing as of December  31, 2002 as  reflected on financial
     statements  delivered under Section 6.2(b) and  refinancings  thereof other
     than Debt that has been refinanced by the proceeds of Loans or the proceeds
     of the Long-Term Credit Facility;

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

          (e) Debt of the Borrower or any Subsidiary representing the portion of
     the purchase price of property  acquired by the Borrower or such Subsidiary
     that is secured by Liens  permitted by the  provisions  of Section  9.2(d);
     provided,  however,  that at no time may the aggregate  principal amount of
     such Debt  outstanding  exceed thirty percent (30%) of the Consolidated Net
     Worth  of  the  Borrower  and  its   Subsidiaries   as  of  the  applicable
     determination date;

          (f) Debt evidenced by Senior Notes; and

          (g) additional  Debt of the Borrower and Structured  Securities of the
     Borrower and the Southern Union Trusts provided that after giving effect to
     the  issuance  thereof,  there  shall exist no Default or Event of Default;
     and: (i) the ratio of Consolidated Total Indebtedness to Consolidated Total
     Capitalization shall be no greater than (A) 0.65 to 1.00 at all times prior
     to the date the  Exchange  Company  acquires  all stock  and  other  equity
     interests in Panhandle  Eastern in connection  with the  Panhandle  Eastern
     Acquisition,  (B)  0.75 to 1.00 at all  times  on and  after  the  date the
     Exchange Company acquires all stock and other equity interests in Panhandle
     Eastern in connection with the Panhandle  Eastern  Acquisition,  but before
     the consummation of either the Additional  Equity Offering or the Trunkline
     LNG  Holdings  Sale,  (C)  0.70  to  1.00  at all  times  on or  after  the
     consummation of either the Additional  Equity Offering or the Trunkline LNG
     Holdings  Sale,  and (D) 0.65 to 1.00 at all times on and after the earlier
     to occur of (x) the consummation of both the Additional Equity Offering and
     the Trunkline LNG Holdings Sale or (y) December 31, 2003; (ii) the ratio of
     EBDIT for the four fiscal  quarters most  recently  ended to pro forma Cash
     Interest  Expense for the following  four fiscal  quarters shall be no less
     than 2.00 to 1.0 at all times;  provided,  however,  that if the additional
     Debt for which the  determinations  required to be made by
     this  subparagraph  (g)  will be used to  finance  in  whole or in part the
     consideration  to be paid by the Borrower for the acquisition of any entity
     otherwise permitted under the terms of this Agreement, the determination of
     EBDIT for  purposes of this ratio  shall  include not only the EBDIT of the
     Borrower and its  Subsidiaries  for the four fiscal  quarters most recently
     ended,  but shall also  include the EBDIT of such entity to be acquired for
     such four fiscal quarters most recently ended;  and (iii) (A) such Debt and
     Structured  Securities shall have a final maturity or mandatory  redemption
     date,  as the case may be,  no  earlier  than the  Maturity  Date and shall
     mature or be subject to mandatory  redemption  or mandatory  defeasance  no
     earlier than the Maturity  Date (as so extended) and shall be subject to no
     mandatory  redemption or "put" to the Borrower or any Southern  Union Trust
     exercisable,  or sinking fund or other similar mandatory  principal payment
     provisions that require payments to be made toward principal, prior to such
     Maturity Date (as so extended);  or (B) (x) such additional Debt shall have
     a final maturity date prior to the Maturity Date, (y) such  additional Debt
     shall not exceed  One  Hundred  Million  Dollars  ($100,000,000.00)  in the
     aggregate plus Twenty Million  Dollars  ($20,000,000.00)  of  reimbursement
     obligations  incurred in  connection  with  Non-Facility  Letters of Credit
     issued by a Bank or Banks or by any other financial institution;  provided,
     however,  that for purposes of determining the aggregate
     amount of such additional Debt for purposes of this subclause (y), the Debt
     of the Borrower under the Term Loan Facility shall not be included and such
     Debt under the Term Loan Facility  shall be deemed to be permitted Debt for
     purposes  of this  subclause  (y),  and (z) such  additional  Debt shall be
     borrowed  from a Bank or Banks as a loan or loans  arising  independent  of
     this Agreement,  the Long-Term  Credit Facility  Agreement or the Term Loan
     Facility or shall be borrowed  from a financial  institution  that is not a
     Bank under this Agreement,  the Long-Term Credit Facility  Agreement or the
     Term Loan Facility.

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

          (a) stock or other equity interests of (i) the  Subsidiaries  named in
     Section 6.1;  (ii) other  entities that are acquired by the Borrower or any
     Subsidiary but that are promptly  merged with and into the Borrower;  (iii)
     Southern  Union  Panhandle,  Panhandle  Eastern  and  any  Subsidiaries  of
     Panhandle   Eastern   acquired  as  a  result  of  the  Panhandle   Eastern
     Acquisition;  and (iv)  the  same  Qualifying  Entities  as the  Qualifying
     Entities under subparagraph (ii) of the definition of "Qualifying  Assets,"
     provided  that at any one time the aggregate  purchase  price paid for such
     stock in such Qualifying  Entities,  including the aggregate amount of Debt
     assumed or deemed  incurred by Borrower in connection  with the purchase of
     such stock,  is not more than ten  percent  (10%) of the  Consolidated  Net
     Worth  of  the  Borrower  and  its   Subsidiaries   as  of  the  applicable
     determination  date,  and further  provided  that  Investments  of the type
     described  in  clauses  (ii)  and  (iv) of this  Section  9.4(a)  shall  be
     permitted  only  after  the  consummation  and  finalization  of  both  the
     Additional  Equity  Offering and the  Trunkline  LNG Holdings  Sale and the
     payment in full of the AIG Loan;

          (b) loans or advances to a Subsidiary, as well as advances of proceeds
     of the AIG Loan, the Bridge Loan and/or the Additional  Equity  Offering by
     the  Borrower to the  Exchange  Company for  purposes of  facilitating  the
     consummation of the Panhandle Eastern Acquisition;  provided, however, that
     the  principal  amount  of such  loans and  advances  for  working  capital
     purposes  at any  time  outstanding  to  Panhandle  Eastern  and/or  any of
     Panhandle Eastern's Subsidiaries, together with the principal amount of any
     outstanding working capital credit facility or facilities provided directly
     to Panhandle Eastern and/or any of Panhandle Eastern's  Subsidiaries by any
     party other than the Borrower, does not exceed $25,000,000 in the aggregate
     at any time;

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

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

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

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

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

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

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

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

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

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

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

          (g) stock or securities of or equity interests in, any Person provided
     that,  after giving effect to the  acquisition and ownership  thereof,  the
     Borrower is in compliance  with the  provisions  of Section  9.1(c) of this
     Agreement; and

          (h)  loans,  advances  or other  Investments  by the  Borrower  or any
     Subsidiary  not  otherwise  permitted  under the other  provisions  of this
     Section 9.4, so long as the sum of the  outstanding  balance of all of such
     loans  and  advances  and the  purchase  price  paid for all of such  other
     Investments  does not exceed in the  aggregate  seven  percent  (7%) of the
     Consolidated  Net  Worth of the  Borrower  and its  Subsidiaries  as of the
     applicable determination date.

     9.5 Stock and Debt of  Subsidiaries.  The  Borrower  will not, and will not
permit any  Subsidiary  to,  sell or  otherwise  dispose of any shares of stock,
other equity  interests or Debt of any  Subsidiary,  or permit any Subsidiary to
issue or dispose of its stock (other than directors' qualifying shares),  except
for the  following:  (i) the sale,  transfer or issuance of stock,  other equity
interests or Debt of any Subsidiary to the Borrower or another Subsidiary of the
Borrower;  (ii) the sale of up to 28% of all stock and  other  equity  interests
owned  by the  Borrower  in  Southern  Union  Panhandle  upon  terms  reasonably
acceptable  to the  Agent,  so long as the  proceeds  of such  equity  sale  are
utilized  to fully pay the AIG Loan;  (iii) the sale of stock in  Trunkline  LNG
Holdings and Debt of Trunkline  LNG  Holdings as a result of the  Trunkline  LNG
Holdings  Sale;  (iv)  the  issuance  by  Southern  Union  Trusts  of  preferred
beneficial  interests in public offerings of Borrower's  Structured  Securities,
and (v) the  issuance  by other  Subsidiaries  of the  Borrower  formed  for the
purpose of issuing Equity-Preferred Securities.

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

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

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

          (c) the Borrower may acquire the assets of any Person,  provided that,
     after giving effect to such acquisition, the Borrower is in compliance with
     the provisions of Sections 9.1(c); and

          (d)  the  Borrower  or any  Subsidiary  may  sell,  lease,  assign  or
     otherwise dispose of assets as otherwise permitted under Section 9.8.

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

     9.8 Sale or Other  Disposition  of Assets.  The Borrower will not, and will
not permit any Subsidiary to, except as permitted  under this Section 9.8, sell,
assign,  lease,  or  otherwise  dispose of (whether in one  transaction  or in a
series of  transactions)  all or any part of its Property  (whether now owned or
hereafter acquired);  provided, however, that (i) the Borrower or any Subsidiary
may in the ordinary  course of business  dispose of (a) Property  consisting  of
Inventory;  and (b) Property  consisting of goods or equipment  that are, in the
opinion of the Borrower or any Subsidiary,  obsolete or unproductive,  but if in
the good faith  judgment of the  Borrower  or any  Subsidiary  such  disposition
without replacement thereof would have a Material Adverse Effect, such goods and
equipment shall be replaced, or their utility and function  substituted,  by new
or existing goods or equipment; (ii) the Borrower may transfer or dispose of any
of its Significant  Property (in any transaction or series of  transactions)  to
any Subsidiary or Subsidiaries  only if such Property so transferred or disposed
of after the Closing Date has an aggregate value as of the date of such transfer
or disposition  (determined  after  depreciation and in accordance with GAAP) of
not more than ten percent (10%) of the aggregate  value of all of the Borrower's
and its  Subsidiaries'  real property and tangible  personal property other than
Inventory  considered on a consolidated  basis and determined after depreciation
and in  accordance  with GAAP,  as of December 31, 2001;  (iii) the Borrower may
dispose  of  its  real  property  in one or  more  sale/leaseback  transactions,
provided  that any Debt incurred in connection  with such  transaction  does not
create a Default as defined  herein;  (iv) a Southern Union Trust may distribute
the  Borrower's  subordinated  debt  securities  constituting  a portion  of the
Structured  Securities,  on the terms and  under the  conditions  set out in the
registration   statement   therefor  filed  with  the  Securities  and  Exchange
Commission  on March 25, 1995 or any similar  registration  statement  hereafter
filed with the Securities and Exchange  Commission in connection  with any other
Structured Securities issued in connection with the Prior Acquisitions;  (v) the
Borrower or any  Subsidiary  may dispose of real  property or tangible  personal
property  other than Inventory (in  consideration  of such amount as in the good
faith   judgment  of  the  Borrower  or  such   Subsidiary   represents  a  fair
consideration  therefor),  provided that the  aggregate  value as of the date of
disposition of such property disposed of (determined  after  depreciation and in
accordance  with GAAP) after the Closing Date does not exceed ten percent  (10%)
of the  aggregate  value of all of the  Borrower's  and its  Subsidiaries'  real
property and tangible  personal  property other than  Inventory  considered on a
consolidated  basis and determined  after  depreciation  and in accordance  with
GAAP,  as of December  31, 2001;  (vi) the  Borrower  may dispose of  Qualifying
Assets of the type  described  in clause (ii) of the  definition  of  Qualifying
Assets, provided that the Borrower make a payment on the Loan in an amount equal
to the lesser of (a) the net sales proceeds from such  disposition,  and (b) the
amount of Loan  proceeds  used to acquire  such clause (ii)  Qualifying  Assets;
(vii) the Borrower may dispose of other  Investments  of the type acquired under
the terms of Section  9.4(h),  provided  that the Borrower make a payment on the
Loan in an amount  equal to the lesser of (a) the net sales  proceeds  from such
disposition,  and (b) the amount of Loan  proceeds  used to  acquire  such other
Investments;  and (viii)  Panhandle  Eastern may sell all stock in Trunkline LNG
Holdings pursuant to the Trunkline LNG Holdings Sale..

     9.9 Discount or Sale of  Receivables.  The Borrower  will not, and will not
permit any Subsidiary, other than Southern Union Total Energy Services, Inc., to
discount  or sell with  recourse,  or sell for less than the face value  thereof
(including any accrued interest) any of its notes receivable,  receivables under
leases or other accounts receivable.

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

     9.11  Restricted  Payment.  The  Borrower  will  not  pay  or  declare  any
Restricted  Payment  unless  immediately  prior to such payment and after giving
effect to such payment,  the Borrower could incur at least $1 of additional Debt
without  violating  the  provisions  of Section  9.3(g) and after giving  effect
thereto no Default or Event of Default exists hereunder.

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

     9.13 Nature of Business;  Management.  The Borrower  will not, and will not
permit any  Subsidiary  to: (a) change its  principal  line of business;  or (b)
enter into any business not within the scope of Section 6.15 and the  definition
of  Qualifying  Assets;  or  (c)  permit  any  material  overall  change  in the
management of the Borrower.

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

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

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

     9.17 Dividends and Other  Distributions  by Southern Union  Panhandle.  The
Borrower  will not  permit  Southern  Union  Panhandle  to make  any  dividends,
payments or other  distributions of any kind to holders of stock or other equity
interests in Southern  Union  Panhandle  (whether  common,  preferred or another
class  of  equity   ownership)   unless  such   dividends,   payments  or  other
distributions  are made  pro-rata to the  Borrower  and each other  equity owner
based on their respective  percentage ownership interests held in Southern Union
Panhandle.

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


10.      EVENTS OF DEFAULT; REMEDIES

         If any of the following events shall occur, then the Agent shall at the
request, or may with the consent, of the Majority Banks, (a) by notice to the
Borrower, declare the Commitment of each Bank and the several obligation of each
Bank to make Loans hereunder to be terminated, whereupon the same shall
forthwith terminate, and (b) declare the Notes and all interest accrued and
unpaid thereon, and all other amounts payable under the Notes, this Agreement
and the other Loan Documents, to be forthwith due and payable, whereupon the
Notes, all such interest and all such other amounts, shall become and be
forthwith due and payable without presentment, demand, protest, or further
notice of any kind (including, without limitation, notice of default, notice of
intent to accelerate and notice of acceleration), all of which are hereby
expressly waived by the Borrower; provided, however, that with respect to any
Event of Default described in Sections 10.7 or 10.8 hereof, (i) the Commitment
of each Bank and the obligation of the Banks to make Loans shall automatically
be terminated and (ii) the entire unpaid principal amount of the Notes, all
interest accrued and unpaid thereon, and all such other amounts payable under
the Notes, this Agreement and the other Loan Documents, shall automatically
become immediately due and payable, without presentment demand, protest, or any
notice of any kind (including, without limitation, notice of default, notice of
intent to accelerate and notice of acceleration), all of which are hereby
expressly waived by the Borrower:

     10.1 Failure to Pay Principal or Interest. The Borrower does not pay, repay
or prepay any  principal  of or  interest  on any Note or any  Long-Term  Credit
Facility Note when due; or

     10.2 Failure to Pay Commitment Fee or Other Amounts.  The Borrower does not
pay any  commitment  fee or any other  obligation  or amount  payable under this
Agreement,  the Long-Term  Credit Facility  Agreement,  the Notes, the Long-Term
Credit Facility Notes, or any  Reimbursement  Obligation within two (2) calendar
days after the same shall have become due; or

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

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

     10.5 Violation of Negative  Covenants.  The Borrower violates any covenant,
agreement or condition  contained in Sections 9.2,  9.3,  9.5,  9.6, 9.9,  9.10,
9.11, or 9.15; or

     10.6  Violation of Other  Covenants,  Etc. The Borrower  violates any other
covenant,  agreement or condition  contained  herein (other than the  covenants,
agreements and conditions set forth or described in Sections 10.1,  10.2,  10.3,
10.4, and 10.5 above) or in any other Loan Document and such violation shall not
have been remedied  within (30) days after  written  notice has been received by
the Borrower from the Agent or the holder of any Note; or

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

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

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

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

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

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

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

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

     10.11  Other  Remedies.  In  addition  to and  cumulative  of any rights or
remedies expressly provided for in this Section 10, if any one or more Events of
Default shall have  occurred,  the Agent shall at the request,  and may with the
consent,  of the Majority Banks proceed to protect and enforce the rights of the
Banks hereunder by any appropriate proceedings.  The Agent shall at the request,
and may with the  consent,  of the  Majority  Banks also  proceed  either by the
specific performance of any covenant or agreement contained in this Agreement or
by  enforcing  the  payment  of the Notes or by  enforcing  any  other  legal or
equitable right provided under this Agreement or the Notes or otherwise existing
under any law in favor of the holder of the Notes.

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

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

11.      THE AGENT

     11.1  Authorization  and Action.  Each Bank hereby appoints JPMorgan as its
Agent under and  irrevocably  authorizes the Agent (subject to Sections 11.1 and
11.7) to take such action as the Agent on its behalf and to exercise such powers
under this  Agreement  and the Notes as are  delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental thereto. Without
limitation  of the  foregoing,  each  Bank  expressly  authorizes  the  Agent to
execute,  deliver,  and perform its  obligations  under this  Agreement,  and to
exercise all rights, powers, and remedies that the Agent may have hereunder.  As
to any matters not expressly provided for by this Agreement (including,  without
limitation,  enforcement  or  collection  of the Notes),  the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act, or to refrain  from acting  (and shall be fully  protected  in so acting or
refraining from acting),  upon the  instructions of the Majority Banks, and such
instructions  shall be binding  upon all the Banks and all  holders of any Note;
provided, however, that the Agent shall not be required to take any action which
exposes the Agent to personal  liability or which is contrary to this  Agreement
or  applicable  law. The Agent agrees to give to each Bank prompt notice of each
notice given to it by the Borrower pursuant to the terms of this Agreement.

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

     11.3  Defaults.  The Agent  shall not be  deemed to have  knowledge  of the
occurrence of a Default  (other than the  nonpayment of principal of or interest
hereunder or of any fees)  unless the Agent has  received  notice from a Bank or
the Borrower specifying such Default and stating that such notice is a Notice of
Default. In the event that the Agent receives such a notice of the occurrence of
a Default,  the Agent shall give prompt  notice  thereof to the Banks (and shall
give each Bank prompt notice of each such nonpayment).  The Agent shall (subject
to Section 11.7) take such action with respect to such Default;  provided  that,
unless and until the Agent shall have  received  the  directions  referred to in
Sections  11.1 or 11.7,  the Agent may (but shall not be obligated to) take such
action,  or refrain from taking such action,  with respect to such Default as it
shall deem advisable and in the best interest of the Banks.

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

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

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

     11.7 Successor  Agent. The Agent may resign at any time as Agent under this
Agreement by giving written notice thereof to the Banks and the Borrower and may
be removed at any time with or without  cause by the  Majority  Banks.  Upon any
such resignation or removal,  the Majority Banks shall have the right to appoint
a successor  Agent.  If no  successor  Agent shall have been so appointed by the
Majority Banks or shall have accepted such  appointment  within thirty (30) days
after the  retiring  Agent's  giving of notice of  resignation  or the  Majority
Banks' removal of the retiring Agent,  then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the  United  States of  America  or of any State  thereof  and
having a combined  capital  and  surplus of at least  $500,000,000.00.  Upon the
acceptance of any  appointment  as Agent  hereunder by a successor  Agent,  such
successor  Agent  shall  thereupon  succeed  to and become  vested  with all the
rights,  powers,  privileges and duties of the retiring Agent,  and the retiring
Agent shall be discharged from its duties and obligations  under this Agreement.
After any  retiring  Agent's  resignation  or removal  hereunder  as Agent,  the
provisions of this Section 11 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.

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

12.      MISCELLANEOUS

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

     12.2 Amendments,  Waivers,  Etc. No amendment or waiver of any provision of
any Loan Document, nor consent to any departure by the Borrower therefrom, shall
in any event be effective  unless the same shall be in writing and signed by the
Borrower  and the  Majority  Banks,  and then such  waiver or  consent  shall be
effective only in the specific  instance and for the specific  purpose for which
given; provided, however, that no amendment, waiver, or consent shall, unless in
writing and signed by each Bank, do any of the  following:  (a) waive any of the
conditions  specified in Section 7; (b) increase the  Commitment  of any Bank or
alter the term  thereof,  or  subject  any Bank to any  additional  or  extended
obligations;  (c) change the  principal of, or rate of interest on, any Note, or
any fees or other amounts payable hereunder; (d) postpone any date fixed for any
payment of  principal  of, or  interest  on, any Note,  or any fees  (including,
without limitation,  any fee) or other amounts payable hereunder; (e) change the
percentage of the Commitments or of the aggregate unpaid principal amount of any
Note, or the number of Banks which shall be required for Banks,  or any of them,
to take any action  hereunder;  or (f) amend this Section  12.2;  and  provided,
further,  that no amendment,  waiver,  or consent  shall,  unless in writing and
signed by the Agent in addition to each Bank, affect the rights or duties of the
Agent  under any Loan  Document.  No failure or delay on the part of any Bank or
the Agent in exercising any power or right  hereunder  shall operate as a waiver
thereof nor shall any single or partial  exercise of any such right or power, or
any  abandonment  or  discontinuance  of steps to enforce such a right or power,
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or power.  No course of dealing  between the  Borrower and any Bank or the
Agent  shall  operate  as a waiver  of any  right of any Bank or the  Agent.  No
modification  or  waiver  of any  provision  of this  Agreement  or the Note nor
consent  to any  departure  by the  Borrower  therefrom  shall  in any  event be
effective  unless the same shall be in writing,  and then such waiver or consent
shall be effective  only in the specific  instance and for the purpose for which
given.  No notice to or demand on the  Borrower  in any case shall  entitle  the
Borrower  to any  other  or  further  notice  or  demand  in  similar  or  other
circumstances.

     12.3  Reimbursement  of Expenses.  The Borrower agrees to reimburse (a) the
Agent for its  reasonable  out-of-pocket  expenses  (including (i) due diligence
expenses, syndication expenses and travel expenses incurred prior to the Closing
date not to exceed  $15,000 in the  aggregate and (ii) the  reasonable  fees and
expenses  of  counsel  to  the  Agent)  in  connection  with  the   transactions
contemplated by this Agreement,  whether or not such  contemplated  transactions
shall be  consummated,  or any of them,  or  otherwise in  connection  with this
Agreement, including its negotiation, preparation, execution, administration and
modification and (b) the Agent and each Bank for all reasonable fees incurred by
the Agent or any Bank in connection with the enforcement of this Agreement after
the occurrence of any Event of Default which is then  continuing,  including the
reasonable  fees and  expenses  of  counsel  to the Agent and each Bank  related
thereto,  (c) the Agent for costs and  expenses  of the Agent for  environmental
consultants  related  to the  transactions  contemplated  and  governed  by this
Agreement,  and (d) the Agent and each Bank for costs and  expenses of the Agent
and each Bank in connection  with due diligence,  transportation,  computer time
and research and  duplication.  The Borrower agrees to pay any and all stamp and
other taxes which may be payable or determined to be payable in connection  with
the  execution  and  delivery of this  Agreement  or the Notes,  and to save any
holder of any Note  harmless  from any and all  liabilities  with  respect to or
resulting from any delay or omission to pay any such taxes.  The  obligations of
the  Borrower  under this  Section 12.3 shall  survive the  termination  of this
Agreement and/or the payment of the Notes.

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

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


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


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

                      with a copy to:    JPMorgan Chase Bank
                                         Loan and Agency Services
                                         One Chase Manhattan Plaza, 8th Floor
                                         New York, New York 10081
                                         Attention: Mr. Muniram Appanna
                                         Fax:  (212) 552-2261

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

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

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

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

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

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

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

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

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

     12.13 Sale or Assignment

          (a) Each Bank may  assign to one or more  Banks,  Bank  Affiliates  or
     other  Eligible  Assignees  all or a portion of its  interests,  rights and
     obligations under this Agreement (including,  without limitation,  all or a
     portion of its  Commitments  and the Note held by it);  provided,  however,
     that (i) with respect to any  assignment  to any Eligible  Assignee  (other
     than another Bank or a Bank  Affiliate),  the Agent and Borrower  must give
     their respective prior written consent, such consent not to be unreasonably
     withheld;  (ii)  each such  assignment  shall be of a  constant,  and not a
     varying,  percentage of all of the assigning  Banks rights and  obligations
     under this Agreement; (iii) the amount of the Commitments so assigned shall
     equal or exceed  $5,000,000.00;  (iv) the  Commitment of each Bank shall be
     not  less  than  $5,000,000.00  (subject  only to  reductions  pursuant  to
     Sections 3.6 and 10 hereof);  (v) the parties to each such assignment shall
     execute and deliver to the Agent,  for its  acceptance and recording in the
     Register (as hereinafter defined), an Assignment and Acceptance in the form
     of Exhibit C attached  hereto and made a part hereof (the  "Assignment  and
     Acceptance"),  together  with any Note  subject  to such  assignment  and a
     processing and recordation fee of $3,500.00;  (vi) any such assignment from
     one Bank to another  Bank shall not require the consent of the Agent or the
     Borrower if such  assignment  does not result in any Bank holding more than
     60% of the aggregate outstanding Commitments; and (vii) any such assignment
     shall not  require  the  consent of the  Borrower  if a Default or Event of
     Default shall have occurred and is then  continuing.  Upon such  execution,
     delivery,  acceptance,  and  recording,  from and after the effective  date
     specified in each Assignment and Acceptance,  which effective date shall be
     the date on which such  Assignment and Acceptance is accepted by the Agent,
     (A) the Eligible  Assignee  thereunder  shall be a party hereto and, to the
     extent  that  rights and  obligations  hereunder  have been  assigned to it
     pursuant to such Assignment and Acceptance, have the rights and obligations
     of a Bank under the Loan  Documents,  and (B) the Bank assignor  thereunder
     shall,  to the extent  that  rights  and  obligations  hereunder  have been
     assigned by it pursuant to such Assignment and  Acceptance,  relinquish its
     rights and be released from its obligations  under the Loan Documents (and,
     in the case of an Assignment and  Acceptance  covering all or the remaining
     portion  of an  assigning  Bank's  rights  and  obligations  under the Loan
     Documents, such Bank shall cease to be a party thereto).

          (b) By executing and delivering an Assignment and Acceptance, the Bank
     assignor  thereunder and the Eligible  Assignee  thereunder  confirm to and
     agree with each other and the other  parties  hereto as follows:  (i) other
     than as provided in such  Assignment  and  Acceptance,  such assigning Bank
     makes no  representation  or warranty  and assumes no  responsibility  with
     respect to any statements,  warranties,  or  representations  made in or in
     connection  with any Loan Document or the  execution,  legality,  validity,
     enforceability,  genuineness, sufficiency, or value of any Loan Document or
     any other  instrument or document  furnished  pursuant  thereto;  (ii) such
     assigning  Bank  makes  no   representation  or  warranty  and  assumes  no
     responsibility  with respect to the financial  condition of the Borrower or
     any  Subsidiary or the  performance or observance by the Borrower of any of
     its obligations under any Loan Document or any other instrument or document
     furnished  pursuant thereto;  (iii) such Eligible Assignee confirms that it
     has  received a copy of the Loan  Documents,  together  with  copies of the
     financial  statements  referred to in Section 6.2 and such other  documents
     and  information  as it has  deemed  appropriate  to make  its  own  credit
     analysis and decision to enter into such  Assignment and  Acceptance;  (iv)
     such Eligible Assignee,  independently and without reliance upon the Agent,
     such  assigning  Bank,  or  any  Bank  and  based  on  such  documents  and
     information as it shall deem appropriate at the time, will continue to make
     its own  credit  decisions  in  taking  or not  taking  action  under  this
     Agreement;  (v) such Eligible Assignee appoints and authorizes the Agent to
     take such action as agent on its behalf and to exercise  such powers  under
     any Loan  Document  as are  delegated  to the Agent by the  terms  thereof,
     together with such powers as are reasonably  incidental  thereto;  and (vi)
     such Eligible Assignee agrees that it will perform in accordance with their
     terms all of the  obligations  which by the terms of any Loan  Document are
     required to be performed by it as a Bank.

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

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

          (e) Each Bank may sell  participations  to one or more  banks or other
     entities in or to all or a portion of its rights and/or  obligations  under
     this  Agreement  (including,  without  limitation,  all or a portion of its
     Commitment  and the  Note  held by it);  provided,  however,  that (i) each
     Bank's obligations under this Agreement (including, without limitation, its
     Commitment to the Borrower  hereunder)  shall remain  unchanged;  (ii) such
     Bank shall remain solely  responsible  to the other parties  hereto for the
     performance of such obligations;  (iii) except as provided below, such Bank
     shall  remain  the  holder  of any  such  Note  for  all  purposes  of this
     Agreement;  and (iv) the  participating  banks or other  entities  shall be
     entitled to the benefits of Sections 2.3 and 3.6 to recover  costs,  losses
     and expenses in the  circumstances,  and to the extent  provided in Section
     2.3, as though such participant were a Bank; provided, however, the amounts
     to which a participant shall be entitled to obtain pursuant to Sections 2.3
     and 3.6 shall be determined by reference to such participant's selling Bank
     and  shall  be  recoverable  solely  from  such  selling  Bank  and (v) the
     Borrower,  the Agent and the other Banks shall  continue to deal solely and
     directly  with the selling Bank in  connection  with such Bank's rights and
     obligations  under this Agreement and the other Loan  Documents;  provided,
     however,  the selling Bank may grant a  participant  rights with respect to
     amendments,  modification  or  waivers  with  respect  to any fees  payable
     hereunder  to such Bank  (including  the amount and the dates fixed for the
     payment  of any  such  fees)  or the  amount  of  principal  or the rate of
     interest  payable  on,  the dates  fixed for any  payment of  principal  or
     interest on, the Loans,  or the release of any  obligations of the Borrower
     hereunder  and  under the  other  Loan  Documents,  or the  release  of any
     security  for  any  of  the  Obligations.   Except  with  respect  to  cost
     protections  contained in Sections 2.3 and 3.6, no  participant  shall be a
     third  party  beneficiary  of this  Agreement  and shall not be entitled to
     enforce any rights  provided to its selling Bank against the Company  under
     this Agreement.

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

          (g) For purposes of this Section 12.13,  "Bank  Affiliate"  shall mean
     (a) with  respect to any Bank,  (i) an  Affiliate  of such Bank or (ii) any
     entity  (whether a corporation,  partnership,  trust or otherwise)  that is
     engaged in making, purchasing, holding or otherwise investing in bank loans
     and similar extensions of credit in the ordinary course of its business and
     is  administered  or managed by a Bank or an Affiliate of such Bank and (b)
     with  respect  to any Bank that is a fund  which  invests in bank loans and
     similar extensions of credit, any other fund that invests in bank loans and
     similar  extensions of credit and is managed by the same investment advisor
     as such  Bank or by an  Affiliate  of such  investment  advisor.  Each Bank
     Affiliate shall be deemed for purposes hereof to be an "Eligible Assignee."

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

     12.15 Interest. All agreements between the Borrower, the Agent or any Bank,
whether now  existing or  hereafter  arising  and whether  written or oral,  are
hereby expressly limited so that in no contingency or event whatsoever,  whether
by reason of demand being made on any Note or otherwise,  shall the amount paid,
or agreed  to be paid,  to the  Agent or any Bank for the use,  forbearance,  or
detention of the money to be loaned under this Agreement or otherwise or for the
payment or performance of any covenant or obligation  contained herein or in any
document  related  hereto exceed the amount  permissible  at the Highest  Lawful
Rate.  If,  as a result  of any  circumstances  whatsoever,  fulfillment  of any
provision  hereof or of any of such documents,  at the time  performance of such
provision  shall be due,  shall  involve  transcending  the  limit  of  validity
prescribed by  applicable  usury law,  then,  ipso facto,  the  obligation to be
filled  shall be reduced to the limit of such  validity,  and if,  from any such
circumstance,  the Agent or any Bank shall ever  receive  interest  or  anything
which might be deemed  interest  under  applicable  law which  would  exceed the
amount  permissible  at the Highest  Lawful  Rate,  such  amount  which would be
excessive  interest  shall be applied to the reduction of the  principal  amount
owing on account of the Notes or the amounts owing on other  obligations  of the
Borrower to the Agent or any Bank under this  Agreement or any document  related
hereto and not to the payment of interest, or if such excessive interest exceeds
the  unpaid  principal  balance  of the  Notes  and the  amounts  owing on other
obligations of the Borrower to the Agent or any Bank under this Agreement or any
document  related  hereto,  as the case may be, such excess shall be refunded to
the  Borrower.  All sums  paid or agreed to be paid to the Agent or any Bank for
the use,  forbearance,  or detention of the  indebtedness of the Borrower to the
Agent  or any  Bank  shall,  to the  extent  permitted  by  applicable  law,  be
amortized,  prorated,  allocated,  and spread  throughout  the full term of such
indebtedness  until  payment in full of the  principal  thereof  (Including  the
period of any renewal or  extension  thereof) so that the interest on account of
such  indebtedness  shall not  exceed the  Highest  Lawful  Rate.  The terms and
provisions  of this  Section  12.15  shall  control  and  supersede  every other
provision of all agreements between the Borrower and the Banks.

     12.16 Indemnification.  THE BORROWER AGREES TO INDEMNIFY,  DEFEND, AND SAVE
HARMLESS  THE  AGENT,  EACH  BANK  AND  THEIR  RESPECTIVE  OFFICERS,  DIRECTORS,
EMPLOYEES,  AGENTS, AND ATTORNEYS, AND EACH OF THEM (THE "INDEMNIFIED PARTIES"),
FROM AND AGAINST  ALL  CLAIMS,  ACTIONS,  SUITS,  AND OTHER  LEGAL  PROCEEDINGS,
DAMAGES,  COSTS, INTEREST,  CHARGES, TAXES, COUNSEL FEES, AND OTHER EXPENSES AND
PENALTIES  (INCLUDING WITHOUT LIMITATION ALL ATTORNEY FEES AND COSTS OR EXPENSES
OF  SETTLEMENT)  WHICH ANY OF THE  INDEMNIFIED  PARTIES  MAY SUSTAIN OR INCUR BY
REASON OF OR ARISING OUT OF (a) THE MAKING OF ANY LOAN HEREUNDER,  THE EXECUTION
AND  DELIVERY  OF THIS  AGREEMENT  AND THE  NOTES  AND THE  CONSUMMATION  OF THE
TRANSACTIONS  CONTEMPLATED  THEREBY AND THE EXERCISE OF ANY OF THE BANKS' RIGHTS
UNDER THIS AGREEMENT AND THE NOTES OR OTHERWISE,  INCLUDING, WITHOUT LIMITATION,
DAMAGES,  COSTS,  AND  EXPENSES  INCURRED BY ANY OF THE  INDEMNIFIED  PARTIES IN
INVESTIGATING,   PREPARING  FOR,  DEFENDING  AGAINST,   OR  PROVIDING  EVIDENCE,
PRODUCING  DOCUMENTS,  OR TAKING ANY OTHER ACTION IN RESPECT OF ANY COMMENCED OR
THREATENED LITIGATION UNDER ANY FEDERAL SECURITIES LAW OR ANY SIMILAR LAW OF ANY
JURISDICTION OR AT COMMON LAW OR (b) ANY AND ALL CLAIMS OR PROCEEDINGS  (WHETHER
BROUGHT BY A PRIVATE  PARTY,  GOVERNMENTAL  AUTHORITY OR  OTHERWISE)  FOR BODILY
INJURY,  PROPERTY  DAMAGE,  ABATEMENT,  REMEDIATION,  ENVIRONMENTAL  DAMAGE,  OR
IMPAIRMENT  OR ANY OTHER  INJURY OR DAMAGE  RESULTING  FROM OR  RELATING  TO THE
RELEASE OF ANY  HAZARDOUS  MATERIALS  LOCATED  UPON,  MIGRATING  INTO,  FROM, OR
THROUGH OR OTHERWISE RELATING TO ANY PROPERTY OWNED OR LEASED BY THE BORROWER OR
ANY  SUBSIDIARY  (WHETHER OR NOT THE  RELEASE OF SUCH  HAZARDOUS  MATERIALS  WAS
CAUSED BY THE BORROWER,  ANY SUBSIDIARY,  A TENANT, OR SUBTENANT OF THE BORROWER
OR ANY SUBSIDIARY,  A PRIOR OWNER, A TENANT,  OR SUBTENANT OF ANY PRIOR OWNER OR
ANY OTHER PARTY AND WHETHER OR NOT THE ALLEGED  LIABILITY IS ATTRIBUTABLE TO THE
HANDLING,  STORAGE,  GENERATION,  TRANSPORTATION,  OR DISPOSAL OF ANY  HAZARDOUS
MATERIALS OR THE MERE  PRESENCE OF ANY  HAZARDOUS  MATERIALS  ON SUCH  PROPERTY;
PROVIDED THAT THE BORROWER SHALL NOT BE LIABLE TO THE INDEMNIFIED  PARTIES WHERE
THE RELEASE OF SUCH HAZARDOUS MATERIALS OCCURS AT ANY TIME AT WHICH THE BORROWER
OR ANY SUBSIDIARY  CEASES TO OWN OR LEASE SUCH PROPERTY);  AND PROVIDED  FURTHER
THAT NO  INDEMNIFIED  PARTY SHALL BE ENTITLED  TO THE  BENEFITS OF THIS  SECTION
12.16 TO THE EXTENT ITS OWN GROSS NEGLIGENCE OR WILLFUL  MISCONDUCT  CONTRIBUTED
TO ITS LOSS;  AND PROVIDED  FURTHER THAT IT IS THE  INTENTION OF THE BORROWER TO
INDEMNIFY  THE  INDEMNIFIED  PARTIES  AGAINST  THE  CONSEQUENCES  OF  THEIR  OWN
NEGLIGENCE.  THIS AGREEMENT IS INTENDED TO PROTECT AND INDEMNIFY THE INDEMNIFIED
PARTIES  AGAINST ALL RISKS HEREBY  ASSUMED BY THE BORROWER.  FOR PURPOSES OF THE
FOREGOING   SECTION  12.16,   THE  PHRASE   "CONSUMMATION  OF  THE  TRANSACTIONS
CONTEMPLATED THEREBY" SET FORTH IN SUBPARAGRAPH (a) ABOVE SHALL INCLUDE, BUT NOT
BE LIMITED TO, THE FINANCING OF ANY CORPORATE TAKEOVER  PERMITTED  HEREUNDER AND
THE  BORROWER'S USE OF THE LOAN PROCEEDS FOR THE PURPOSE OF ACQUIRING ANY EQUITY
INTERESTS  DESCRIBED  IN  SUBPARAGRAPH  (ii) OF THE  DEFINITION  OF  "QUALIFYING
ASSETS"  SET  FORTH IN THIS  AGREEMENT  (AS  AMENDED).  THE  OBLIGATIONS  OF THE
BORROWER  UNDER  THIS  SECTION  12.16  SHALL  SURVIVE  ANY  TERMINATION  OF THIS
AGREEMENT AND THE REPAYMENT OF THE NOTES.

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

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

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

     12.20 Pro Rata  Treatment.  All Loans  under,  and all  payments  and other
amounts  received  in  connection  with  this  Agreement   (including,   without
limitation,  amounts  received  as a result of the  exercise  by any Bank of any
right of set off) shall be effectively shared by the Banks ratably in accordance
with the respective Pro Rata  Percentages of the Banks. If any Bank shall obtain
any payment (whether voluntary,  involuntary,  through the exercise of any right
of set off, or  otherwise)  on account of the  principal  of, or interest on, or
fees in respect of, any Note held by it (other than pursuant to Section  2.3(d))
in excess of its Pro Rata  Percentage  of payments  on account of similar  Notes
obtained by all the Banks,  such Bank shall  forthwith  purchase  from the other
Banks  such  participations  in the  Notes  or  Loans  made by them as  shall be
necessary to cause such purchasing Bank to share the excess payment ratably with
each of them;  provided,  however,  that if all or any  portion  of such  excess
payment is thereafter  recovered from such  purchasing  Bank, such purchase from
each Bank shall be rescinded  and such Bank shall repay to the  purchasing  Bank
the purchase price to the extent of such recovery  together with an amount equal
to such Bank's  ratable share  (according to the proportion of (a) the amount of
such Bank's  required  repayment to (b) the total  amount so recovered  from the
purchasing  Bank)  of any  interest  or  other  amount  paid or  payable  by the
purchasing  Bank in respect of the total amount so  recovered.  Disproportionate
payments of interest shall be shared by the purchase of separate  participations
in unpaid  interest  obligations,  disproportionate  payments  of fees  shall be
shared by the purchase of separate participations in unpaid fee obligations, and
disproportionate  payments  of  principal  shall be  shared by the  purchase  of
separate  participations  in unpaid principal  obligations.  The Borrower agrees
that any Bank so purchasing a  participation  from another Bank pursuant to this
Section  12.20 may, to the fullest  extent  permitted  by law,  exercise all its
rights  of  payment  (including  the  right of  set-off)  with  respect  to such
participation  as fully as if such Bank were the direct creditor of the Borrower
in the amount of such participation.  Notwithstanding the foregoing,  a Bank may
receive and retain an amount in excess of its Pro Rata  Percentage to the extent
but only to the extent, that such excess results from such Bank's Highest Lawful
Rate exceeding another Bank's Highest Lawful Rate.

     12.21 Replacement of Existing Credit Agreement. Reference is hereby made to
that certain  Revolving  Credit  Agreement dated effective June 10, 2002, by and
among the Borrower, the Agent and the Banks. The indebtedness and obligations of
the Borrower  governed by said existing  Revolving  Credit  Agreement  have been
refinanced  and  replaced by the Loans.  Accordingly,  said  existing  Revolving
Credit  Agreement is hereby  replaced in its entirety by this Agreement and said
existing Revolving Credit Agreement shall no longer have any force or effect

     12.22  No  Rights,   Duties  or  Obligations   of   Syndication   Agent  or
Documentation Agent. The Borrower, the Agent and each Bank acknowledge and agree
that except for the  rights,  powers,  obligations  and  liabilities  under this
Agreement  and  the  other  Loan  Documents  as  a  Bank,  Bank  One,  NA  (Main
Office-Chicago), as Syndication Agent, and Fleet National Bank, as Documentation
Agent, shall have no additional rights, powers, obligations or liabilities under
this  agreement or any other Loan  Documents in their  capacities as Syndication
Agent or Documentation Agent, respectively.

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

     12.24 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT  PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING  DIRECTLY OR INDIRECTLY  ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE  TRANSACTIONS  CONTEMPLATED  HEREBY (WHETHER BASED ON CONTRACT,
TORT  OR  ANY  OTHER   THEORY).   EACH  PARTY  HERETO  (A)  CERTIFIES   THAT  NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS



<PAGE>


REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.

         IN WITNESS WHEREOF, the parties hereto, by their respective officers
thereunto duly authorized, have executed this Agreement on the dates set forth
below to be effective as of April 3, 2003.


                             SOUTHERN UNION COMPANY


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






Commitment:                  JPMORGAN Chase Bank,
$20,000,000                  for itself and as Agent for the Banks

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


<PAGE>


Commitment:                   BANK ONE, NA
$15,000,000                   (Main Office-Chicago)

                              By:    s/ Sharon K. Webb
                                     -------------------------------------------
                              Name:  Sharon K. Webb
                                     -------------------------------------------
                              Title: Associate Director
                                     -------------------------------------------


                              Address for Notices:

                              Bank One, NA
                              1 Bank One Plaza, Suite IL1-0363
                              Chicago, Illinois 60670
                              Attention: Ms. Sharon K. Webb
                              Fax No.:  (312) 732-5435

                              Separate Domestic and Eurodollar Lending Office:

                              Bank One, NA
                              1 Bank One Plaza, Suite IL1-0634
                              Chicago, Illinois 60670




Commitment:                   CREDIT LYONNAIS NEW YORK BANK
$15,000,000
                              By:    s/ Olivier Audemard
                                     -------------------------------------------
                              Name:  Olivier Audemard
                                     -------------------------------------------
                              Title: Senior Vice President
                                     -------------------------------------------


                              Address for Notices:

                              Credit Lyonnais New York Branch
                              1301 Travis, Suite 2100
                              Houston, Texas 77002
                              Attention:  Mr. Darrell Stanley
                              Fax No.:  (713) 890-8602





Commitment:                   FLEET NATIONAL BANK
$15,000,000
                              By:    s/ Charu Mani
                                     -------------------------------------------
                              Name:  Charu Mani
                                     -------------------------------------------
                              Title: Vice President
                                     -------------------------------------------


                              Address for Notices:

                              Fleet National Bank
                              Global Energy
                              100 Federal Street, MA DE 10008A
                              Boston, Massachusetts 02110
                              Attention:  Mr. Stephen Hoffman
                              Fax No.:  (617) 434-3652



Commitment:                   WELLS FARGO BANK TEXAS, NA
$15,000,000
                              By:    s/ Andrew J. Watson
                                     -------------------------------------------
                              Name:  Andrew J. Watson
                                     -------------------------------------------
                              Title: Vice President
                                     -------------------------------------------


                              Address for Notices:

                              Wells Fargo Bank Texas, NA
                              1000 Louisiana, 3rd Floor
                              Houston, Texas 77002
                              Attention:  Mr. Andrew J. Watson
                              Fax No.:  (713) 739-1087

                              Separate Domestic and Eurodollar Lending Office:

                              Wells Fargo Bank Texas, NA
                              201 Third Street
                              San Francisco, California 94103


Commitment:                   MERRILL LYNCH BUSINESS FINANCIAL
$11,950,000                   SERVICES INC.

                              By:    s/ Jason Deegan
                                     -------------------------------------------
                              Name:  Jason Deegan
                                     -------------------------------------------
                              Title: Assistant Vice President
                                     -------------------------------------------


                              Address for Notices:

                              Merrill Lynch Business Financial Services Inc.
                              15 Exchange Place
                              Jersey City, New Jersey 07302-3914
                              Attention:  Mr. Mark Robinson
                              Fax No.:  (201) 593-7870

                              Separate Domestic and Eurodollar Lending Office:

                              Merrill Lynch Business Financial Services Inc.
                              222 N. LaSalle Street, 17th Floor
                              Chicago, Illinois 60601


Commitment:                   UMB BANK, N.A.
$8,000,000
                              By:    s/ David A. Proffitt
                                     -------------------------------------------
                              Name:  David A. Proffitt
                                     -------------------------------------------
                              Title: Senior Vice President
                                     -------------------------------------------


                              Address for Notices:

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





<PAGE>


Commitment:                   CITIZENS BANK OF RHODE ISLAND
$7,600,000
                              By:    s/ Marian L. Barrette
                                     -------------------------------------------
                              Name:  Marian L. Barrette
                                     -------------------------------------------
                              Title: Vice President
                                     -------------------------------------------


                              Address for Notices:

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

Commitment:                   MANUFACTURERS AND TRADERS TRUST
$6,450,000                    COMPANY

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


                              Address for Notices:

                              Manufacturers & Traders Trust Co.
                              1 Fountain Plaza
                              Buffalo, New York 14203
                              Attention:  Clayton Salzman
                              Fax No.:  (716) 848-7881




Commitment:                   KBC BANK, N.V.
$6,000,000
                              By:    s/ Robert Snauffer
                                     -------------------------------------------
                              Name:  Robert Snauffer
                                     -------------------------------------------
                              Title: First Vice President
                                     -------------------------------------------


                              Address for Notices:

                              KBC Bank N.V.
                              New York Branch
                              Atlanta Representative Office
                              245 Peachtree Center Avenue, Suite 2550
                              Atlanta, Georgia 30303
                              Attention:  Mr. Filip Fefrante
                              Fax No.:  (212) 584-5465

                              Separate Domestic and Eurodollar Lending Office:

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

<PAGE>




Commitment:                    WACHOVIA BANK, NATIONAL ASSOCIATION
$20,000,000
                               By:    s/ Yann Pirio
                                      ------------------------------------------
                               Name:  Yann Pirio
                                      ------------------------------------------
                               Title: Vice President
                                      ------------------------------------------


                               Address for Notices:

                               Wachovia Bank, National Association
                               191 Peachtree St. NE, 28th Floor
                               Atlanta, Georgia 30303
                               Attention:  Mr. Reid Harden
                               Fax No.:  (404) 332-3580

                               Separate Domestic and Eurodollar Lending Office:

                               Wachovia Bank, National Association
                               125 South College St.
                               Charlotte, North Carolina 28288

<PAGE>



                                    EXHIBIT A

                                 REVOLVING NOTE
                          (Short-Term Credit Facility)

$___________                                            ____________, 200__

     FOR VALUE RECEIVED, the undersigned,  SOUTHERN UNION COMPANY, a corporation
organized under the laws of Delaware (the "Borrower"), HEREBY PROMISES TO PAY to
the order of ___________________________________  (the "Bank"), on or before the
Maturity  Date (as  defined  in the  Credit  Agreement),  the  principal  sum of
________________  Million and No/ 100ths Dollars  ($_,000,000.00)  in accordance
with the  terms  and  provisions  of that  certain  Revolving  Credit  Agreement
(Short-Term Credit Facility) dated April 3, 2003, by and among the Borrower, the
Bank, the other banks named on the signature  pages thereof,  and JPMORGAN Chase
Bank, as Agent (the "Credit  Agreement").  Capitalized terms used herein and not
otherwise  defined shall have the meanings  ascribed to such terms in the Credit
Agreement.

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

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

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

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

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

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

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

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

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

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

                                SOUTHERN UNION COMPANY


                                By:_________________________________
                                Name:_______________________________
                                Title:________________________________


<PAGE>





                                    EXHIBIT B

                               NOTICE OF BORROWING
                          (Short-Term Credit Facility)

     The undersigned  hereby certifies that s/he is an officer of SOUTHERN UNION
COMPANY,  a corporation  organized under the laws of Delaware (the  "Borrower"),
authorized to execute this Notice of Borrowing on behalf of the  Borrower.  With
reference  to  that  certain  Revolving  Credit  Agreement   (Short-Term  Credit
Facility)  dated  April 3, 2003 (as same may be  amended,  modified,  increased,
supplemented  and/or restated from time to time, the "Credit Agreement") entered
into by and between the Borrower,  JPMORGAN Chase Bank, as Agent,  and the Banks
identified therein,  the undersigned further certifies,  represents and warrants
to Banks on behalf of the Borrower  that to his best  knowledge and belief after
reasonable and due investigation and review, all of the following statements are
true and correct  (each  capitalized  term used herein  having the same  meaning
given to it in the Credit Agreement unless otherwise specified):

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

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

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

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

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

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

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

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

         Account No. 09916100522, styled Southern Union Company.

         (c) Of the aggregate sum to be advanced, $_____________ will be
advanced to provide working capital pursuant to Section 5.1(a) of the Credit
Agreement and $__________will be advanced for the purposes set forth in Section
5.1(b) of the Credit Agreement; and $__________ will be advanced for the
purposes set forth in Section 5.1(c) of the Credit Agreement; and $___________
will be advanced for the purposes of replacing Loans currently outstanding under
the Credit Agreement.

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

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

         (f) The representations and warranties contained in Section 6 of the
Credit Agreement are true and correct in all material respects as of the date
hereof and shall be true and correct upon the making of the requested Loan, with
the same force and effect as though made on and as of the date hereof and
thereof.

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

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


                                SOUTHERN UNION COMPANY


                                By:_________________________
                                Name:_______________________
                                Title:________________________



<PAGE>






                                    EXHIBIT C

                            ASSIGNMENT AND ACCEPTANCE


                              [NAME AND ADDRESS OF
                                 ASSIGNING BANK]



                                                        _______________, 200__

________________
________________
________________
________________


     Re: Southern Union Company Revolving Credit Agreement (Short-Term  Credit
Facility)

Ladies and Gentlemen:

     We have  entered  into a  Revolving  Credit  Agreement  (Short-Term  Credit
Facility)  dated as of April 3, 2003 (the  "Credit  Agreement"),  among  certain
banks  (including  us),  JPMorgan Chase Bank,  which has been succeeded  through
merger by The Chase Manhattan Bank (the "Agent") and Southern Union Company (the
"Company").  Capitalized  terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Credit Agreement.

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

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

     a. our Note;

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

     c. commitment fees payable pursuant to Section 4 of the Credit  Agreement[,
except that your assigned share in such fees shall be at an annual rate equal to
the rate provided in the Credit Agreement minus ____%].

2.       MATERIALS PROVIDED ASSIGNEE

     a. We will  promptly  request that the Company issue new Notes to us and to
you in  substitution  for our Note to reflect the  assignment  set forth herein.
Upon  issuance of such  substitute  Notes,  (i) you will become a Bank under the
Credit  Agreement,  (ii)  you will  assume  our  obligations  under  the  Credit
Agreement  to the extent of your  assigned  share,  and (iii) the  Company  will
release us from our obligations  under the Credit  Agreement to the extent,  but
only to the extent, of your assigned share. The Company consents to such release
by signing this Agreement where indicated below. As a Bank, you will be entitled
to the benefits and subject to the obligations of a "Bank",  as set forth in the
Credit  Agreement,  and your rights and  liabilities  with  respect to the other
Banks and the Agent will be governed by the Credit Agreement,  including without
limitation Section 11 thereof.

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

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

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

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

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

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

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

                                        Very truly yours,


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



                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________

                                        [Street Address]  ______________________
                                        [City, State, Zip Code]_________________
                                        Telephone: _____________________________
                                        Telecopy:_______________________________


AGREED AND ACCEPTED:


__________________________________

By:      _________________________
Name:    _________________________
Title:   _________________________
         _________________________

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


     ASSIGNMENT  APPROVED  PURSUANT TO SECTION 12.13 OF THE CREDIT AGREEMENT AND
RELEASE APPROVED IN SECTION 2 OF THIS AGREEMENT:

SOUTHERN UNION COMPANY                JPMORGAN CHASE BANK, AGENT

By:      _______________________      By:            _______________________
Name:    _______________________      Name:          _______________________
Title:   _______________________      Title:         _______________________


<PAGE>


                                    EXHIBIT D



                         SUMMARY OF TERMS AND CONDITIONS

                                 BRIDGE FACILITY


Borrower:                             Southern Union Company (the "Borrower").

Guarantors:                           Southern Union Panhandle and other direct
                                      subsidiaries of the Borrower [other than
                                      Panhandle Eastern (as defined below) and
                                      its subsidiaries], referred to herein as
                                      the "Guarantors", and the Guarantors,
                                      together with the Borrower, are sometimes
                                      referred to herein as the "Obligors".

Facility                              Description: Up to $115,000,000 (but not
                                      less than $100,000,000) term loan (the
                                      "Facility") with a maturity of six months
                                      from the date of closing of the Panhandle
                                      Eastern Acquisition (the "Closing Date"),
                                      but in no event later than September 1,
                                      2003 (the "Maturity Date"). The Facility
                                      will be available for drawdown until the
                                      Closing Date, but in no event later than
                                      May 1, 2003.

Security:                             The Facility will be unsecured.

Purpose:                              The Facility will be used (i) to finance a
                                      portion of the Panhandle Eastern
                                      Acquisition of Panhandle Eastern (each as
                                      defined on Schedule 1 hereto) and (ii) to
                                      pay fees and expenses incurred in
                                      connection with the Panhandle Eastern
                                      Acquisition.

Joint Lead Arrangers and              J.P. Morgan Securities Inc. and [Merrill
Bookrunners:                          Lynch Capital Markets] (together,
                                      the "Lead Arrangers").

Administrative Agent:                 JPMorgan Chase Bank ("JPMC" or the
                                      "Administrative Agent").

Syndication Agent:                    Merrill Lynch Capital Markets.

Borrowing Options:                    LIBOR and Base Rate.

                                      Base Rate means the higher of the
                                      Administrative Agent's prime rate and the
                                      federal funds rate + 0.50%.

                                      LIBOR adjustments for Regulation D will be
charged by Lenders individually.

Pricing:                              Pricing on the commitments and loans will
                                      be at the rates per annum set forth
                                      in the attached Pricing Schedule,
                                      expressed in basis points per annum.

Interest Payments:                    At the end of each applicable Interest
                                      Period.

Interest Periods:                     1, 2 or 3 months.

Drawdown:                             A single drawdown with same day notice if
                                      Base Rate Loans and three business
                                      days' notice if LIBOR Loans.

Optional Prepayments:                 Base Rate Loans may be prepaid at any time
                                      on one business day's notice. LIBOR Loans
                                      may be prepaid upon at least three
                                      business days' notice subject to funding
                                      losses.  Amounts prepaid may not be
                                      reborrowed.

Mandatory Commitment                  100% of the net cash proceeds from the
Reductions and                        issuance or incurrence after the Closing
Prepayments:                          Date of equity or debt by
                                      the Borrower shall be applied to reduce
                                      the commitments under the Facility (if
                                      still in existence) or to prepay the
                                      Facility. 100% of the amount of proceeds
                                      received by the Borrower or SUPH from
                                      distributions or loans from Panhandle
                                      Eastern, including distributions received
                                      from Panhandle Eastern upon the Trunkline
                                      LNG Holdings Sale (as defined below).
                                      The Borrower will cause Panhandle Eastern
                                      and SUPH to distribute to the Borrower its
                                      share of any and all net cash proceeds
                                      received by Panhandle Eastern upon such
                                      sale or any other asset sale. Amounts
                                      prepaid may not be reborrowed.

Representations                       Customary for credit agreements of this
and Warranties:                       nature, with respect to the Obligors and
                                      their subsidiaries (including Panhandle
                                      Eastern and its subsidiaries), including
                                      but not limited to:

                                      1.  Existence and qualification; power;
                                          compliance with laws.
                                      2.  Authority; no conflict.
                                      3.  No governmental approvals required.
                                      4.  Enforceability.
                                      5.  Litigation.
                                      6.  No default.
                                      7.  ERISA compliance.
                                      8.  Use of proceeds; margin regulations.
                                      9.  Tax liability.
                                      10. Financial statements; no material
                                          adverse change.
                                      11. Environmental compliance.
                                      12. Public Utility Holding Company Act;
                                          Investment Company Act.
                                      13. Disclosure.
                                      14. Collateral matters.
                                      15. Panhandle Eastern Acquisition matters.

Conditions:                           Customary in credit agreements of this
                                      nature, including but not limited to:

                                      1.  Absence of default.
                                      2.  Accuracy of representations and
                                          warranties.
                                      3.  Negotiation and execution of
                                          satisfactory credit agreement and
                                          customary closing documentation
                                          (including legal opinions).
                                      4.  Payment of fees.
                                      5.  Consummation of the Panhandle Eastern
                                          Acquisition on terms satisfactory to
                                          the Lenders.
                                      6.  Completion of and satisfaction
                                          with the results of due diligence
                                          with respect to the Borrower and
                                          its subsidiaries and Panhandle
                                          Eastern and its subsidiaries.
                                      7.  Absence of material adverse
                                          condition or material adverse
                                          change in or affecting the
                                          business, operations, property,
                                          condition (financial or
                                          otherwise) or prospects of the
                                          Borrower and its subsidiaries, or
                                          Panhandle Eastern and its
                                          subsidiaries, in each case taken
                                          as a whole.
                                      8.  The fact that the Panhandle
                                          Eastern Acquisition and all other
                                          elements of the Transactions
                                          shall close simultaneously with
                                          the closing of the Facility, on
                                          terms and conditions
                                          substantially as described to
                                          Lenders prior to the date of the
                                          Commitment Letter, with such
                                          changes thereto as the Lenders
                                          may approve in their sole
                                          discretion. .
                                      9.  The fact that the Borrower shall
                                          have received all amendments or
                                          consents under its other existing
                                          financing arrangements that are
                                          necessary or reasonably desirable
                                          to permit the consummation of the
                                          Panhandle Eastern Acquisition on
                                          the terms contemplated thereby,
                                          all of which shall be in form and
                                          substance satisfactory to the
                                          Lenders.
                                      10. The fact that the AIG Loan (as
                                          defined in Schedule 1) shall be
                                          funded prior to or simultaneously
                                          with the closing of the Facility,
                                          all on terms and conditions
                                          satisfactory to the Lenders in
                                          their sole discretion
                                      11. Absence of any disruption of or
                                          adverse change (or development that
                                          could reasonably be expected to result
                                          in a material adverse change) in or
                                          affecting U.S. or international loan
                                          syndication, banking, financial or
                                          capital market conditions from those
                                          in effect on the date hereof that,
                                          individually or in the aggregate, in
                                          our good faith judgment has or could
                                          have a material adverse affect on our
                                          ability to fund or syndicate the
                                          Facility, or on the Borrower's
                                          ability to consummate a refinancing
                                          transaction to refinance the
                                          Facility in whole promptly after the
                                          Closing Date.

Covenants of each Obligor:            Customary in credit agreements of this
                                      nature, and applicable to the Obligors and
                                      their subsidiaries (including Panhandle
                                      Eastern and its subsidiaries) including
                                      but not limited to:

                                      1.  Financial statements.
                                      2.  Certificates, notice and other
                                          information.
                                      3.  Preservation of existence; maintenance
                                          of corporate separateness.
                                      4.  Merger, consolidation, etc.
                                      5.  Sale of assets.
                                      6.  Maintenance of insurance.
                                      7.  Payment of taxes and other potential
                                          liens.
                                      8.  Compliance with laws.
                                      9.  Environmental laws.
                                      10. Compliance with ERISA.
                                      11. Negative pledge
                                      12. Accounting changes.
                                      13. Limitation on debt of the Borrower.
                                      14. Prohibition on dividends and other
                                          restricted payments (including
                                          intercompany loans) by the Borrower
                                          while a default exists.
                                      15. Financial covenants consistent with
                                          the amended revolving and term loan
                                          credit facilities including, but not
                                          limited to, the following (with
                                          covenants as defined in the
                                          Amended and Restated Term Loan
                                          Credit Agreement dated as of July
                                          15, 2002, as amended to the
                                          Closing Date, among the Borrower,
                                          the Lenders party thereto, and
                                          JPMC, as agent): (a) Consolidated
                                          Total Indebtedness to
                                          Consolidated Total Capitalization
                                          of the Borrower (each determined
                                          without inclusion of [either (x)]
                                          the AIG Loan [or (y) to the
                                          extent included in Debt of the
                                          Borrower and its subsidiaries,
                                          Equity-Preferred Securities (as
                                          defined in Schedule 1) not to
                                          exceed 10% of Consolidated Total
                                          Capitalization (calculated for
                                          purposes of this clause (y)
                                          without reference to any
                                          Equity-Preferred Securities))]
                                          not to exceed (i) 75% at the end
                                          of any fiscal quarter ending on
                                          or after the Exchange Company's
                                          acquisition of all stock and
                                          other equity interests in
                                          Panhandle Eastern in connection
                                          with the Panhandle Eastern
                                          Acquisition, but before the
                                          consummation of either the
                                          Additional Equity Offering or the
                                          Trunkline LNG Holdings Sale (as
                                          defined in Schedule 1 hereto),
                                          (ii) 0.70 to 1.00 at the end of
                                          any fiscal quarter ending on or
                                          after the consummation of either
                                          the Additional Equity Offering or
                                          the Trunkline LNG Holdings Sale,
                                          and (iv) 0.65 to 1.00 at the end
                                          of any fiscal quarter ending on
                                          or after the consummation of both
                                          the Additional Equity Offering
                                          and the Trunkline LNG Holdings
                                          Sale; (b) minimum EBDIT to
                                          interest expense of 2.00 to 1.00,
                                          and (c) minimum Consolidated Net
                                          Worth of not less than the sum of
                                          (i) $751,887,000, (ii) 40% of
                                          Consolidated Net Income (if
                                          positive) for the fiscal quarters
                                          after the Closing Date, treated
                                          as a single period and (iii)
                                          certain adjustments made with
                                          respect to equity additions and
                                          payments with respect to equity.
                                      16. Satisfactory SEC disclosure regarding
                                          the loan.
                                      17. Restriction on agreements that limit,
                                          directly or indirectly, the Borrower
                                          from granting a lien on the stock or
                                          other equity interests in Southern
                                          Union Panhandle as security for
                                          obligations under the Facility,
                                          with exceptions for negative
                                          pledges under existing credit
                                          agreements of the Borrower to be
                                          specified.

Events of Default:       Customary in credit agreements of this nature,
                         including but not limited to the following:

                                      1.  Failure to pay any principal when due.
                                      2.  Failure to pay interest and fees
                                          within five business days of the due
                                          date.
                                      3.  Failure to meet covenants (with grace
                                          periods, where appropriate).
                                      4.  Representations or warranties false in
                                          any material respect when made.
                                      5.  Cross default to Material Debt of the
                                          Borrower or any of its subsidiaries
                                          (to be defined as debt in a principal
                                          amount of at least $10 million).
                                      6.  Change of ownership or control of the
                                          Borrower.
                                      7.  Failure of (i) the Borrower to own at
                                          least 78% of the capital stock of
                                          Southern Union Panhandle (as defined
                                          in Schedule 1) or (ii) Southern Union
                                          Panhandle to own 100% of the capital
                                          stock of Panhandle Eastern.
                                      8.  Credit Agreement or any guarantee
                                          shall be unenforceable or invalid.
                                      9.  Other usual defaults with respect to
                                          the Obligors, including but not
                                          limited to insolvency, bankruptcy,
                                          ERISA and judgment defaults.

Increased Costs/Change of             The credit agreement will contain
Circumstances:                        customary provisions protecting the
                                      Lenders in the event of unavailability of
                                      funding, illegality, increased costs and
                                      funding losses.

Indemnification:                      The Obligors will indemnify the Lenders
                                      against all losses, liabilities, claims,
                                      damages, or expenses relating to their
                                      loans, the Borrower's use of loan proceeds
                                      or the commitments, including but not
                                      limited to reasonable attorneys' fees and
                                      settlement costs (except such as result
                                      from the indemnitee's gross negligence or
                                      willful misconduct).

Transfers and Participations:         Lenders will have the right to transfer or
                                      sell participations in their loans or
                                      commitments with the transferability of
                                      voting rights in the case of
                                      participations limited to changes in
                                      principal, rate, fees and term.
                                      Assignments, which must be in amounts of
                                      at least $5 million, will be allowed with
                                      the consent of the Administrative Agent
                                      and (so long as no Event of Default as to
                                      it has occurred and is continuing) the
                                      Borrower (such consent not to be
                                      unreasonably withheld); provided that
                                      assignments will be allowed within the
                                      Lender group and to a Lender's affiliates
                                      without any consent requirement.  In
                                      connection with each assignment, the
                                      assignor Lender will pay the
                                      Administrative Agent a $3,500 processing
                                      fee.

Required Lenders:                     Majority of the aggregate amount of the
                                      commitments.

Expenses:                             The Obligors will pay all legal and other
                                      reasonable out-of-pocket expenses of the
                                      Initial Lenders, Lead Arrangers and the
                                      Administrative Agent to this transaction
                                      and any subsequent amendments or waivers,
                                      including the expenses and reasonable fees
                                      of Davis Polk & Wardwell, special counsel
                                      to the Administrative Agent.

Governing Law:                        New York.


<PAGE>


                   PRICING SCHEDULE TO BRIDGE LOAN TERM SHEET


Commitment Fee and Applicable Margins: A commitment fee, at a rate determined in
accordance with the following table, per annum will be charged on the unused
commitments. The "Eurodollar Margin" applicable to outstanding LIBOR Loans shall
be determined in accordance with the following grid, provided, however that for
all periods subsequent to the date 90 days following the Closing Date, the
Eurodollar Margin shall be the Additional Percentage Per Annum determined in
accordance with the following grid plus 1.00%. The "Base Rate Margin" applicable
to outstanding Base Rate Loans shall be the Eurodollar Margin reduced by 1.00%.

<TABLE>
<CAPTION>

======================================================== ===================== =========================
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                              Additional            Commitment Fee
    Rating of the Borrower's unsecured, non-credit           Percentage Per       Percentage Per Annum
               enhanced Senior Funded Debt                        Annum
-------------------------------------------------------- --------------------- -------------------------
-------------------------------------------------------- --------------------- -------------------------

Equal to or  greater  than Baa2 by  Moody's or equal to
or greater than BBB by S&P                                      1.25%                   0.150%
-------------------------------------------------------- --------------------- -------------------------
-------------------------------------------------------- --------------------- -------------------------

Baa3 by Moody's or BBB- by S&P                                  1.50%                   0.175%
-------------------------------------------------------- --------------------- -------------------------
-------------------------------------------------------- --------------------- -------------------------

Equal to or less  than Ba1 by  Moody's  and equal to or
less than BB+ by S&P                                            2.00%                   0.250%
======================================================== ===================== =========================
</TABLE>

In the event that the ratings for Borrower's unsecured, non-credit enhanced
Senior Funded Debt specified by Standard & Poor's Ratings Group and Moody's
Investor Service, Inc. fall within different rating categories which are not
functional equivalents, the Eurodollar Margin shall be based on the higher of
such ratings if there is only one category difference between the functional
equivalents of such ratings, and if there is a two category difference between
the functional equivalents of such ratings, the Eurodollar Margin shall be based
on the rating category which is equivalent to one rating higher than the lower
of the two ratings then in effect.

In the event that Borrower withdraws from having its unsecured, non-credit
enhanced Senior Funded Debt being rated by Moody's Investor Service, Inc. or
Standard and Poor's Ratings Group, so that one or both of such ratings services
fails to rate the Borrower's unsecured, non-credit enhanced Senior Funded Debt,
the component of pricing from the grid set forth above for purposes of
determining the applicable Eurodollar Rate for all Rate Periods commencing
thereafter shall be 2.00% until such time as Borrower subsequently causes its
unsecured, non-credit enhanced Senior Funded Debt to be rated by both of said
ratings services.

The Applicable Margin shall be payable monthly in arrears on each determination
date based on outstanding loans during the period then ended.

Funding Fee: The Borrower shall pay to the Administrative Agent on the Closing
Date, for the account of the Lenders pro rata in accordance with each Lender's
funded Loan amount, a fee equal to [0.25]% of the amount of Loans borrowed on
the Closing Date.

Duration Fee: On the 30th day after the Closing Date, the Borrower shall pay to
the Administrative Agent, for the account of the Lenders pro rata in accordance
with each Lender's outstanding Loan on such day, a fee equal to [0.25]% of the
aggregate principal amount of all Loans outstanding on such day.


<PAGE>




                      SCHEDULE 1 TO BRIDGE LOAN TERM SHEET
        THE PANHANDLE EASTERN ACQUISITION AND CERTAIN RELATED DEFINITIONS



Additional Equity Offering:     Shall mean (a) a public offering by the Borrower
                                of  additional  capital  stock in the Borrower
                                resulting in not less than  $100,000,000.00 of
                                net equity proceeds being received by the
                                Borrower and (b) any additional offering or
                                issuance of capital stock, Equity-Preferred
                                Securities or any other equity interests in
                                Borrower or Southern Union Panhandle (to
                                the extent permitted under the applicable
                                negative covenants  restricting  issuance of
                                stock in any Subsidiary of Borrower), so long
                                as all net cash proceeds from any such offering
                                or issuance of equity described in clauses
                                (a) or (b) above are  applied in the following
                                order: (i) first, to payment of the Bridge Loan;
                                and (ii) the balance, if any, for other working
                                capital needs of the Borrower or any of its
                                subsidiaries, including without limitation,
                                the payment of the AIG Loan

AIG Entities:                   Shall mean AIG Highstar Capital, L.P., a
                                Delaware limited  partnership,  AIG Highstar
                                Funding Corp., a Delaware corporation, and any
                                other permitted owner and holder of any shares
                                of stock or other equity  interests in Southern
                                Union Panhandle not owned and held by the
                                Borrower or any of the Borrower's subsidiaries

AIG  Loan:                      Shall mean a credit facility to be provided to
                                the Borrower by one or more of the AIG Entities
                                in an aggregate principal amount not to exceed
                                $150,000,000.00  for purposes of financing a
                                portion of the  acquisition costs for the
                                Panhandle Eastern Acquisition, said loan to be
                                (a) non-recourse to the Borrower, (b) secured
                                only by 28% of the  issued and outstanding
                                stock and other equity interests in Southern
                                Union Panhandle and (c) subject to other terms
                                and conditions acceptable to the Administrative
                                Agent in all respects

Equity-Preferred Securities:    Shall mean (i) Debt, preferred equity or any
                                other securities that are mandatorily
                                convertible by the issuer thereof a date
                                certain, without cash payment by the issuer,
                                into common shares of stock of the Borrower or
                                (ii) any other securities (A) that are issued by
                                the Borrower or any  Subsidiary, (B) that are
                                not subject to mandatory redemption at any
                                time, directly or indirectly, (C) that are
                                perpetual or mature  not  less  than  30  years
                                from  any  date  of issuance,  (D) the Debt
                                component,  if any,  issued in connection
                                therewith, including any guaranty, is
                                subordinate in right of payment to all other
                                unsecured and unsubordinated Debt of the issuer
                                of such Debt component (including any such
                                guaranty, if applicable), and (E) the terms of
                                which permit the issuer thereof to defer at any
                                time,  without any  additional  payment or
                                premium,  the  payment of any and all  interest
                                and/or distributions thereon, as applicable, to
                                a date occurring after [the date that is 364
                                days after effectiveness of the First Amendment
                                to the existing Revolving Credit Agreement]

Exchange                        Company: Shall mean Southern Union
                                Exchange Company, a Delaware corporation
                                and/or any other entity created and owned
                                by Chicago Deferred Exchange Corporation
                                that the Borrower hereafter enters into a
                                "qualified exchange accommodation
                                agreement" with for purposes of
                                facilitating the Panhandle Eastern
                                Acquisition

Panhandle Eastern:              Shall mean Panhandle Eastern Pipeline Company,
                                a Delaware corporation

Panhandle                       Eastern Acquisition: Shall mean the
                                acquisition by the Exchange Company of
                                100% of all issued and outstanding stock
                                and other equity interests, if any, in
                                Panhandle Eastern in accordance with the
                                Panhandle Eastern Acquisition Agreement,
                                so long as such acquisition is in
                                substantial compliance with the following
                                specified terms:

                    (a)  immediately  after the finalization and consummation of
                         such  acquisition,  Panhandle Eastern is a wholly-owned
                         Subsidiary of the Exchange Company;

                    (b)  the  aggregate  consideration  paid for all  stock  and
                         other equity  interests in Panhandle  Eastern shall not
                         exceed $663,000,000.00 in cash, with the source of said
                         cash purchase  price to be a combination of some or all
                         of the following:  (i)  $406,000,000.00  of "like-kind"
                         exchange  proceeds  previously  received from the prior
                         sale to ONEOK, Inc. of the "Southern Union Gas Company"
                         Texas division and certain other related  assets;  (ii)
                         the proceeds of the AIG Loan; (iii) the proceeds of the
                         Additional  Equity Offering,  if any; (iv) the proceeds
                         of the Bridge Loan, if required; and (v) other cash, if
                         any, held by or available to the Borrower;

                    (c)  the Exchange  Company  shall make a Section  338(h)(10)
                         election under the Internal Revenue Code as part of the
                         closing of such acquisition,  and as soon as reasonably
                         possible after the  finalization  and  consummation  of
                         such  acquisition,  the  Exchange  Company  shall cause
                         Panhandle   Eastern   and   each   of  its   applicable
                         subsidiaries  to  convert  from  "C   corporations"  to
                         limited  liability   companies  after  receipt  of  all
                         requisite  approvals and consents from any Governmental
                         Authority,  including without  limitation,  the Federal
                         Energy Regulatory Commission;

                    (d)  immediately  after such conversion of Panhandle Eastern
                         and  each  of  its  applicable   subsidiaries  from  "C
                         corporations"  to  limited  liability  companies,   the
                         Exchange  Company shall distribute to the Borrower 100%
                         of  all  membership  and  other  equity   interests  in
                         Panhandle Eastern, thus causing Panhandle Eastern to be
                         a wholly-owned Subsidiary of the Borrower;

                    (e)  immediately  after such distribution to the Borrower of
                         100% of all  membership  and other equity  interests in
                         Panhandle  Eastern,  the  existing  Debt  of  Panhandle
                         Eastern  and its  subsidiaries  may cause  Consolidated
                         Total   Indebtedness  to  increase  by  not  more  than
                         $1,170,000,000.00  in  the  aggregate,   provided  that
                         neither  the  Borrower  nor  any  of  its  subsidiaries
                         existing prior to such  distribution  shall have, incur
                         or assume any  liability  with respect to such existing
                         Debt of Panhandle Eastern and its subsidiaries;

                    (f)  one (1)  Business  Day after such  distribution  by the
                         Exchange  Company to the Borrower of all membership and
                         other  equity  interests  in  Panhandle  Eastern,   the
                         Borrower shall  distribute to Southern Union  Panhandle
                         100% of all  membership  and other equity  interests in
                         Panhandle Eastern; and

                    (g)  all   requisite   approvals   and  consents   from  any
                         Governmental    Authority    with    respect   to   the
                         above-described  acquisitions and  distributions  shall
                         have been received by the Borrower in a form acceptable
                         to the Administrative Agent

Panhandle Eastern        Shall mean that certain Stock Purchase Agreement
Acquisition Agreement:   dated December 21, 2002, by and between CMS Gas
                         Transmission Company, as seller, Southern Union
                         Panhandle, as purchaser, and the Borrower and the
                         AIG Entities, as sponsors, as the same
                         may hereafter be amended, modified, supplemented,
                         restated or replaced (the form of any such amendment,
                         modification, etc. to be approved by the Administrative
                         Agent, such approval to not be unreasonably  withheld,
                         conditioned  or delayed), it being contemplated that
                         such Stock  Purchase  Agreement will be assigned by the
                         Borrower  to the  Exchange  Company to  facilitate  the
                         Panhandle Eastern Acquisition

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

Trunkline LNG Holdings:  Shall mean CMS Trunkline LNG Holdings, LLC, a Delaware
                         limited liability company

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

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

                                           (b) all cash proceeds distributed to
                                               the Borrower from such sale shall
                                               be immediately applied against
                                               the Borrower's Debt in the
                                               following order: (i) first to the
                                               Bridge Loan until the same is
                                               fully paid; (ii) second, 50% of
                                               the remaining cash proceeds shall
                                               be applied to the Term Loan
                                               Facility; and (iii) the balance,
                                               if any, shall be applied to Debt
                                               under the Short-Term Revolving
                                               Credit Facility and/or Debt
                                               outstanding under the Long-Term
                                               Revolving Credit Facility; and

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




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