ETE MERGER AND HOLDCO TRANSACTION:

Description of Merger

On March 26, 2012, the Company, ETE, and Sigma Acquisition Corporation, a wholly-owned subsidiary of ETE (Merger Sub), completed their previously announced merger transaction. Pursuant to the Second Amended and Restated Agreement and Plan of Merger, dated as of July 19, 2011, as amended by Amendment No. 1 thereto dated as of September 14, 2011 (as amended, the Merger Agreement), among the Company, ETE and Merger Sub, Merger Sub was merged with and into the Company, with the Company continuing as the surviving corporation as an indirect, wholly-owned subsidiary of ETE (the Merger). The Merger became effective on March 26, 2012 at 12:59 p.m., Eastern Time (the Effective Time).

At the Effective Time, each share of the Company’s common stock, par value $1.00 per share issued and outstanding (Southern Union Common Stock), immediately prior to the Effective Time (other than shares of Southern Union Common Stock held by stockholders properly exercising appraisal rights available under Section 262 of the Delaware General Corporation Law (DGCL) or shares of Southern Union Common Stock held directly or indirectly by the Company or any of its wholly-owned subsidiaries immediately prior to the Effective Time) was converted into the right to receive, as consideration for the Merger (the Merger Consideration), at the election of the holder of such share, either (i) $44.25 in cash (the Cash Consideration) or (ii) 1.00x ETE common unit (the Equity Consideration).

Under the terms of the Merger Agreement, Southern Union stockholders made an election to exchange each outstanding share of Southern Union Common Stock for $44.25 of cash or 1.00x ETE common unit, with no more than 60% of the aggregate

Merger Consideration payable in cash and no more than 50% of the aggregate Merger Consideration payable in ETE common units. Based on the final election results, the Merger Consideration was paid as follows:


•	Holders of approximately 54% of outstanding Southern Union Common Stock, or 67,985,929 Southern Union shares, elected and received cash.

•

Holders of approximately 46% of outstanding Southern Union Common Stock, or 56,981,860 Southern Union shares, received ETE common units. This amount is comprised of 38,872,598 Southern Union shares for which holders elected to receive ETE common units and 18,109,262 Southern Union shares for which holders either did not make an election (other than dissenting shares), did not deliver a valid election form prior to the election deadline or did not properly deliver shares of Southern Union Common Stock for which elections were made pursuant to the notice of guaranteed delivery procedure and, therefore, were deemed to have elected to receive ETE common units.

In connection with the consummation of the ETE Merger, on March 27, 2012, the New York Stock Exchange (NYSE) filed a notification of removal from listing with the SEC to delist the Southern Union Common Stock from the NYSE. In addition, the Company filed with the SEC a certification and notice of termination requesting that the Southern Union Common Stock be deregistered under Section 12(b) of the Securities Exchange Act of 1934, as amended.

Pursuant to the Third Amended and Restated Company 2003 Stock and Incentive Plan (the Equity Plan), individual award agreements thereunder and the terms of the Merger Agreement, all awards of stock options and stock appreciation rights outstanding immediately, to the extent not already vested, became vested and exercisable prior to the Effective Time, in accordance with the terms of the Equity Plan. All unexercised options and stock appreciation rights, including those for which vesting was accelerated, outstanding immediately prior to the Effective Time were cancelled and terminated at the Effective Time. In consideration of such cancellation and termination, each stock option and stock appreciation right so cancelled and terminated was converted into the right to receive an amount in cash equal to $44.25 less (i) the applicable exercise price and (ii) any applicable deductions and withholdings required by law.

Additionally, shares of restricted stock for which restrictions have not otherwise lapsed or expired and were outstanding prior to the Effective Time had their associated restrictions automatically and without an action by the holder lapse/expire prior to the Effective Time, and each share of Southern Union Common Stock subject to such restricted stock grant was issued and converted into the right to receive Merger Consideration (in the form of Cash Consideration or Equity Consideration at the election of the holder of such restricted stock grant), less all deductions and withholdings required by law. Each holder of the outstanding restricted stock grant made an election of Equity Consideration and the applicable deduction was made by reducing the number of ETE common units otherwise payable as part of the consideration for such restricted stock (with the ETE common units valued at the closing price of ETE on the day prior to the closing of the Merger for this purpose).

Restrictions on each awards of cash restricted stock units outstanding immediately prior to the Effective Time expired and each restricted stock unit was converted into the right to receive a lump sum cash payment equal to (i) $44.25 multiplied by the total number of shares of Southern Union Common Stock underlying such restricted stock units, less (ii) any applicable deductions and withholdings required by law.

The vesting of the equity-based awards, as described above, occurred as required under the change in control provisions of the Equity Plan. The total remaining unrecognized compensation costs of $24.9 million associated with such vested awards was not recorded in either of the predecessor or successor periods reflected herein. The total of $136.8 million and 178,851 ETE Common Units issued to the holders of the awards in connection with the vesting was accounted for as consideration transferred in the Merger.

In connection with, and immediately prior to the Effective Time of the Merger, CrossCountry Energy, LLC, an indirect wholly-owned subsidiary of the Company (CrossCountry Energy), ETP, Citrus ETP Acquisition, L.L.C. (ETP Merger Sub), Citrus ETP Finance LLC, ETE, PEPL Holdings, LLC, a newly created indirect wholly-owned subsidiary of the Company (PEPL Holdings), and the Company consummated the transactions contemplated by that certain Amended and Restated Agreement and Plan of Merger, dated as of July 19, 2011, as amended by Amendment No. 1 thereto dated as of September 14, 2011 and Amendment No. 2 thereto dated as of March 23, 2012 (as amended, the Citrus Merger Agreement) by and among ETP, ETP Merger Sub and Citrus ETP Finance LLC, on the one hand, and ETE, CrossCountry Energy, PEPL Holdings and the Company, on the other hand.

Immediately prior to the Effective Time, the Company, CrossCountry Energy and PEPL Holdings became parties to the Citrus Merger Agreement by joinder to, and the Company assumed the obligations and rights of ETE thereunder. The Company made certain customary representations, warranties, covenants and indemnities in the Citrus Merger Agreement. Pursuant to the Citrus Merger Agreement, ETP Merger Sub was merged with and into CrossCountry Energy (the Citrus Merger), with CrossCountry Energy continuing as the surviving entity in the Citrus Merger as a wholly-owned subsidiary of ETP and, as a result thereof, ETP, through its subsidiaries, indirectly owns 50% of the outstanding capital stock of Citrus. As consideration for the Citrus Merger, Southern Union received from ETP $2.0 billion, consisting of approximately $1.9 billion in cash and $105 million of common units representing limited partner interests in ETP.

Immediately prior to the Effective Time, $1.45 billion of the total cash consideration received in respect of the Citrus Merger was contributed to Merger Sub in exchange for an equity interest in Merger Sub. In connection with the Merger, at the Effective Time, such equity interest in Merger Sub held by CCE Holdings was cancelled and retired.

Pursuant to the Citrus Merger Agreement, immediately prior to the Effective Time, (i) the Company contributed its ownership interests in Panhandle Eastern Pipe Line Company, LP and Southern Union Panhandle, LLC (collectively, the Panhandle Interests) to PEPL Holdings (the Panhandle Contribution); and (ii) following the Panhandle Contribution, the Company entered into a contingent residual support agreement (the Support Agreement) with ETP and Citrus ETP Finance LLC, pursuant to which the Company agreed to provide contingent, residual support to Citrus ETP Finance LLC (on a non-recourse basis to the Company) with respect to Citrus ETP Finance LLC’s obligations to ETP to support the payment of $2.0 billion in principal amount of senior notes issued by ETP on January 17, 2012.

Expenses Related to the Merger

Merger-related expenses were $72.1 million and $18.7 million in the successor and predecessor periods in 2012, respectively. Such expenses include legal and other outside service costs, charges resulting from employment agreements with certain executives that provided for compensation when their employment was terminated and severance costs associated with administrative headcount reductions. These expenses were included in Operating, maintenance, and general expenses in the unaudited condensed consolidated statement of operations.

Allocation of Consideration Transferred

The Merger was accounted for using business combination accounting under applicable accounting principles. Business combination accounting requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date.

The table below represents the allocation of the total consideration to Southern Union’s tangible and intangible assets and liabilities as of March 26, 2012 based upon management’s estimate of their respective fair values. Certain amounts included in the preliminary purchase price allocation as of September 30, 2012 have been changed from amounts previously reflected based on management's review of the valuation. Management is continuing to validate certain assumptions made in connection with the purchase price allocation.



Cash and cash equivalents	$	36,792
Other current assets	524,246
Property and equipment	6,958,768
Goodwill	2,030,271
Identified intangibles ⁽¹⁾	55,000
Other noncurrent assets	290,360
Long-term debt, including current portion	(3,333,706		)
Deferred income taxes	(1,698,352		)
Other liabilities	(950,513		)
Total purchase price	$	3,912,866


⁽¹⁾	Identified intangibles will be amortized over an estimated life of approximately 17.5 years and are included in deferred charges in the unaudited condensed consolidated balance sheet.

The goodwill resulting from the Merger was primarily due to expected commercial and operational synergies and is not deductible for tax purposes. Goodwill was allocated by reportable business segment as $1.17 billion to the Transportation and Storage segment; $598.3 million to the Gathering and Processing segment; $251.8 million to the Distribution segment; and $10.8 million to Corporate and Other.

Holdco Transaction

On October 5, 2012, ETE and ETP completed the Holdco Transaction, immediately following the closing of ETP's acquisition of Sunoco whereby, (i) ETE contributed its interest in Southern Union into an ETP-controlled entity, in exchange for a 60% equity interest in the new entity, Holdco, and (ii) ETP contributed its interest in Sunoco to Holdco and retained a 40% equity interest in Holdco. Pursuant to a stockholders agreement between ETE and ETP, ETP will control Holdco. This transaction did not result in a new basis of accounting for Southern Union.