-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RudQPtsC8r/VKzHyqzSNyvZ5qsTmU/PgVupflbU8lhD87oceFmKRDQ7zr4+ZS1lV PmorTtBmoUHhY2riLYssyQ== 0000203248-95-000012.txt : 19950516 0000203248-95-000012.hdr.sgml : 19950516 ACCESSION NUMBER: 0000203248-95-000012 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN UNION CO CENTRAL INDEX KEY: 0000203248 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 750571592 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-58297 FILM NUMBER: 95538401 BUSINESS ADDRESS: STREET 1: 504 LAVACA ST 8TH FL CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124775852 424B3 1 ================================================================= PROSPECTUS SUPPLEMENT (To Prospectus Dated May 8, 1995) 4,000,000 Preferred Securities Southern Union Financing I 9.48% Trust Originated Preferred Securities(sm) ("TOPrS(sm)") (Liquidation amount $25 per Preferred Security) guaranteed to the extent set forth herein by SOUTHERN UNION COMPANY _______________ The 9.48% Trust Originated Preferred Securities (the "Preferred Securities") offered hereby represent preferred undivided bene- ficial interests in the assets of Southern Union Financing I, a statutory business trust formed under the laws of the State of Delaware ("Southern Union Financing" or the "Trust"). Southern Union Company, a Delaware corporation ("Southern Union" and, together with its subsidiaries, the "Company"), will directly or indirectly own all the common securities (the "Common Securities" and, together with the Preferred Securities, the "Trust Securi- ties") representing undivided beneficial interests in the assets of Southern Union Financing. Southern Union Financing exists for the sole purpose of issuing the Preferred Securities and Common Securi- ties and investing the proceeds thereof in an equivalent amount of 9.48% Subordinated Deferrable Interest Notes due 2025 ("Subordi- nated Debt Securities") of Southern Union. Upon an event of a default under the Declaration (as defined herein), the holders of Preferred Securities will have a preference over the holders of the Common Securities with respect to payments in respect of distribu- tions and payments upon redemption, liquidation and otherwise. ______________________ (continued on next page) See "Investment Considerations" for certain information relevant to an investment in the Preferred Securities, including the period and circumstances during and under which payments of distributions on the Preferred Securities may be deferred and the related United States federal income tax consequences of such deferral. The Preferred Securities have been approved for listing on the New York Stock Exchange, Inc. (the "New York Stock Exchange"). Trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30-day period after the initial delivery of the Preferred Securities. See "Underwriting." ____________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Initial Proceeds to Public Southern Offering Underwriting Union Trust Price (1) Commission (2) (3)(4) Per Preferred Security. . $25.00 (3) $25.00 Total . . . . . . . . . . $100,000,000 (3) $100,000,000 (1) Plus accrued distributions, if any, from May 17, 1995. (2) Southern Union Financing and Southern Union have agreed to indemnify the several Underwriters against certain liabili- ties, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) In view of the fact that the proceeds of the sale of the Preferred Securities will be invested in Subordinated Debt Securities, Southern Union has agreed to pay to the Under- writers as compensation ("Underwriters' Compensation") for their arranging the investment therein of such proceeds $.7875 per Preferred Security (or $3,150,000 in the aggregate); provided that, such compensation for sales of 10,000 or more Preferred Securities to a single purchaser will be $.50 per Preferred Security. Therefore, to the extent of such sales, the actual amount of Underwriters' Com- pensation will be less than the aggregate amount specified in the preceding sentence. See "Underwriting." (4) Expenses of the offering which are payable by Southern Union are estimated to be $355,000. The Preferred Securities offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the Preferred Securities will be made only in book-entry form through the facili- ties of The Depository Trust Company, on or about May 17, 1995. _______________________ Merrill Lynch & Co. Dean Witter Reynolds Inc. A.G. Edwards & Sons, Inc. PaineWebber Incorporated Prudential Securities Incorporated _______________________ The date of this Prospectus Supplement is May 10, 1995. (sm) "Trust Originated Preferred Securities" and "TOPrS" are service marks of Merrill Lynch & Co., Inc. (continued from previous page) Holders of the Preferred Securities are entitled to receive cumu- lative cash distributions at an annual rate of 9.48% of the liqui- dation amount of $25 per Preferred Security, accruing from the date of original issuance and payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 1995 ("distributions"). The payment of distributions out of moneys held by Southern Union Financing and payments on liquida- tion of Southern Union Financing or the redemption of Preferred Securities, as set forth below, are guaranteed by Southern Union (the "Guarantee") to the extent Southern Union Financing has funds available therefor as described under "Description of the Guaran- tees" in the accompanying Prospectus. The obligations of Southern Union under the Guarantee are subordinate and junior in right of payment to all other liabilities of Southern Union and pari passu with the most senior preferred stock issued, from time to time, if any, by Southern Union. The obligations of Southern Union under the Subordinated Debt Securities are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined herein) of Southern Union, which aggregated approximately $475 million at December 31, 1994, and rank pari passu with Southern Union's other general unsecured creditors. The distribution rate and the distribution and other payment dates for the Preferred Securities will correspond to the interest rate and interest and other payment dates on the Subordinated Debt Securities, which will be the sole assets of Southern Union Financing. As a result, if principal or interest is not paid on the Subordinated Debt Securities, no amounts will be paid on the Preferred Securities. If Southern Union does not make principal or interest payments on the Subordinated Debt Securities, Southern Union Financing will not have sufficient funds to make distribu- tions on the Preferred Securities, in which event, the Guarantee will not apply to such distributions until Southern Union Financing has sufficient funds available therefor. Southern Union has the right to defer payments of interest on the Subordinated Debt Securities by extending the interest payment period on the Subordinated Debt Securities at any time for up to 20 consecutive quarters (each an "Extension Period"). If interest payments are so deferred, distributions will also be deferred. During such Extension Period, distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at an annual rate of 9.48% per annum compounded quarterly, and during any Extension Period, holders of Preferred Securities will be required to include deferred interest income in their gross income for United States federal income tax purposes in advance of receipt of the cash distributions with respect to such deferred interest payments. There could be multiple Extension Periods of varying lengths throughout the term of the Subordinated Debt Securities. See "Description of the Subordinated Debt Securities - -- Option to Extend Interest Payment Period." See "Investment Considerations -- Option to Extend Interest Payment Period and Defer Payment of Interest" and "United States Federal Income Taxation -- Original Issue Discount." The Subordinated Debt Securities are redeemable by Southern Union, in whole or in part, from time to time, on or after May 17, 2000, or at any time in certain circumstances upon the occurrence of a Tax Event (as defined herein). If Southern Union redeems Subordinated Debt Securities, Southern Union Financing must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debt Securities so redeemed at $25 per Preferred Security plus accrued and unpaid distributions thereon (the "Redemption Price") to the date fixed for redemption. See "Description of the Preferred Securities -- Mandatory Redemption." The Preferred Securities will be redeemed upon maturity of the Subordinated Debt Securities. The Subordi- nated Debt Securities mature on May 17, 2025, but the maturity date may be extended only once, for up to an additional 19 years at the option of Southern Union, provided certain financial covenants are met. See "Description of the Subordinated Debt Securities -- Option to Extend Maturity Date." In addition, upon the occurrence of a Tax Event arising from a change in law or a change in legal interpretation regarding tax matters, unless the Subordinated Debt Securities are redeemed in the limited circum- stances described herein, Southern Union Financing shall be dissolved, with the result that the Subordinated Debt Securities will be distributed to the holders of the Preferred Securities, on a pro rata basis, in lieu of any cash distribution. See "Descrip- tion of the Preferred Securities -- Tax Event Redemption or Distri- bution." In certain circumstances, Southern Union will have the right to redeem the Subordinated Debt Securities, which would result in the redemption by Southern Union Financing of Trust Securities in the same amount on a pro rata basis. If the Sub- ordinated Debt Securities are distributed to the holders of the Preferred Securities, Southern Union will use its best efforts to have the Subordinated Debt Securities listed on the New York Stock Exchange or on such other exchange as the Preferred Securities are then listed. See "Description of the Preferred Securities -- Tax Event Redemption or Distribution" and "Description of the Subordi- nated Debt Securities." In the event of the involuntary or voluntary dissolution, winding up or termination of Southern Union Financing, the holders of the Preferred Securities will be entitled to receive for each Preferred Security a liquidation amount of $25 plus accrued and unpaid dis- tributions thereon (including interest thereon) to the date of payment, unless, in connection with such dissolution, the Subordi- nated Debt Securities are distributed to the holders of the Pre- ferred Securities. See "Description of the Preferred Securities -- Liquidation Distribution Upon Dissolution." _____________________ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SOUTHERN UNION COMPANY SELECTED HISTORICAL FINANCIAL INFORMATION The following table sets forth selected historical financial information with respect to the Company for the periods indi- cated. This information should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto included in the 1994 Form 10-K and the First, Second and Third Quarter Form 10-Q, which are incorporated by reference into this Prospectus. See "Incorporation of Certain Documents by Reference" in the accompanying Prospectus. The selected historical financial information for the year ended June 30, 1994, and each of the four years in the period ended December 31, 1993, has been derived from financial statements that have been audited by Coopers & Lybrand L.L.P., the Company's independent accountants. See "Experts" in the accompanying Prospectus. The selected historical financial information for the twelve months ended March 31, 1995, has been derived from financial statements that are unaudited, but which, in the opinion of management, include all adjustments necessary for a fair presentation of the financial position and results of opera- tions for such period. Nine Twelve Months Months Year Ended Ended Ended March 31, March 31, June 30, Year ended December 31,(a)(b) ___________________________________ 1995 1995(b) 1994 1993 1992 1991 1990 (a)(b) ________ ________ ________ ________ ________ ________ ________ (Dollars in thousands, except per share amounts) Operating Results: Operating Revenues $395,981 $489,590 $374,516 $209,005 $192,445 $200,261 $199,865 Operating Margin(c) 189,773 236,768 163,389 98,621 89,527 91,023 81,314 Earnings From Continuing Operations 16,542 11,478 8,378 7,733 6,391 4,673 387 Net Earnings (Loss) Available for Common Stock 16,542 11,478 8,378 6,890 1,445 987 (3,668) Earnings (Loss) Per Share 1.44 1.00 .85 .83 .18 .12 (.44) Weighted Average Shares Outstanding (000's) 11,465 11,460 9,866 8,286 8,256 8,326 8,326 Operating Data: Gas Sales (MMcf) 75,734 103,579 72,223 44,859 51,104 43,679 43,295 ======== ======== ======== ======== ======== ======== ======== Gas Transported (MMcf) 34,153 61,188 36,134 22,750 25,438 8,608 5,592 ======== ======== ======== ======== ======== ======== ======== Average Gas Sales Customers Served 958,447 958,444 660,425 421,233 394,199 428,077 407,139 ======== ======== ======== ======== ======== ======== ======== Balance Sheet Data: Property, Plant and Equipment, Net $744,429 $744,429 $723,300 $325,543 $285,505 $278,881 $323,187 Total Assets 965,259 965,259 890,950 416,207 377,167 369,783 411,451 Short-Term Debt and Current Maturities of Long-Term Debt 18,956 18,956 889 40,655 14,360 2,385 10,098 Long-Term Debt - Less Current Maturities 478,062 478,062 479,048 89,019 109,464 110,482 103,783 Preferred Stock -- -- -- -- 24,900 25,000 25,000 Common Stockholders' Equity 226,136 226,136 208,975 201,938 148,003 147,356 146,332 Weather Effect: Degree Days (d) 2,770 3,019 1,829 1,954 2,020 2,439 2,348 Percent of Normal, Based on 30-Year Average (e) 83% 84% 92% 89% 91% 95% 87% ______________________________ (a) During 1994, the Company changed its fiscal year-end from December 31 to June 30. (b) On January 31, 1994 Southern Union acquired the natural gas distribution facilities of Missouri Gas Energy. In 1993, also in fiscal year 1994, Southern Union acquired (i) Rio Grande Valley Gas Company, (ii) the natural gas distribution facili- ties serving Eagle Pass, Texas, and (iii) Berry Gas Company. During 1992, Southern Union acquired the natural gas distribu- tion facilities serving Nixon, Texas. During 1991, Southern Union acquired natural gas distribution and transmission facilities serving (i) an area in south Texas, including the cities of Lockhart, Luling, Cuero, Shiner, Yoakum, and Gonzales, (ii) the west Texas city of Andrews and (iii) the north Texas cities of Mineral Wells, Weatherford, Graham, Breckenridge, Millsap, Jacksboro and surrounding communities. In 1991, Southern Union sold the assets of its Arizona gas utility operations. Because of these acquisitions and divestiture, the results of operations of the Company for certain years are not comparable to other periods. (c) Operating margin consists of operating revenues less gas purchase costs. (d) "Degree days" are a measure of the coldness of the weather experienced. A Degree day is equivalent to each degree that the daily mean temperature for a day falls below 65 degrees Fahrenheit. (e) Information with respect to weather conditions is provided by the National Oceanic and Atmospheric Administration. Per- centages of normal are computed based on the weighted average number of customers. The following information concerning the Company, Southern Union Financing, the Preferred Securities, the Guarantee and the Subordi- nated Debt Securities supplements, and should be read in conjunc- tion with, the information contained in the accompanying Prospectus. Capitalized terms used in this Prospectus Supplement have the same meanings as in the accompanying Prospectus. SOUTHERN UNION COMPANY The Company's principal line of business is the distribution of natural gas as a public utility through Southern Union Gas Company ("Southern Union Gas") and Missouri Gas Energy, each of which is a division of Southern Union. Southern Union Gas serves approxi- mately 497,000 residential, commercial, industrial, agricultural and other customers in Texas (including the cities of Austin, Brownsville, El Paso, Galveston and Port Arthur) and Oklahoma. Missouri Gas Energy, acquired on January 31, 1994, serves approxi- mately 478,000 customers in central and western Missouri (including the cities of Kansas City, St. Joseph, Joplin and Monett). Subsidiaries of Southern Union have been established to support and expand natural gas sales and to capitalize on the Company's gas energy expertise. These subsidiaries market natural gas to end- users, sell natural gas as a vehicular fuel, convert vehicles to operate on natural gas, operate intrastate and interstate natural gas pipeline systems, and sell commercial gas air conditioning and other gas-fired engine-driven applications. By providing "one-stop shopping," the Company can serve its various customers' particular energy needs, which encompass substantially all of the natural gas distribution and sales businesses from natural gas sales to specialized energy consulting services. Certain subsidiaries also own or hold interests in real estate and other assets, which are primarily used in Southern Union's utility business. The Company is a sales and market-driven energy company whose management is committed to achieving profitable growth of its natural gas energy businesses in an increasingly competitive business environment. Management's strategies for achieving these objectives principally consist of (i) promoting new sales oppor- tunities and markets for natural gas, (ii) enhancing financial and operating performance and (iii) expanding the Company through development of existing systems and selectively acquiring new systems. Management develops and continually evaluates these strategies, and the Company's implementation of them, by applying its experience and expertise in analyzing the energy industry, technological advances, market opportunities and general business trends. Each of these strategies, as implemented throughout the Company's businesses, reflects the Company's commitment to its core natural gas utility business. Central to all of the Company's businesses and strategies is the sale and transportation of natural gas. SOUTHERN UNION FINANCING I Southern Union Financing is a statutory business trust formed under Delaware law pursuant to (i) a declaration of trust, dated as of March 28, 1995, executed by Southern Union, as sponsor (the "Sponsor"), and the trustees of Southern Union Financing (the "Southern Union Trustees") and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware on March 28, 1995. Such declaration will be amended and restated in its entirety (as so amended and restated, the "Declaration") sub- stantially in the form filed as an exhibit to the Registration Statement of which this Prospectus Supplement and the accompanying Prospectus form a part. The Declaration will be qualified as an indenture under the Trust Indenture Act of 1939 as amended (the "Trust Indenture Act"). Upon issuance of the Preferred Securities, the purchasers thereof will own all of the Preferred Securities. See "Description of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust Company." Southern Union will directly or indirectly acquire Common Securities in an aggregate liquidation amount equal to 3% of the total capital of Southern Union Financing. Southern Union Financing exists for the exclusive purposes of (i) issuing the Trust Securities repre- senting undivided beneficial interests in the assets of the Trust, (ii) investing the gross proceeds of the Trust Securities in the Subordinated Debt Securities and (iii) engaging in only those other activities necessary or incidental thereto. Pursuant to the Declaration, the number of Southern Union Trustees will initially be three. Two of the Southern Union Trustees (the "Regular Trustees") will be persons who are employees or officers of or who are affiliated with Southern Union. The third trustee will be a financial institution that maintains its principal place of business in the state of Delaware and is unaffiliated with Southern Union, which trustee will serve as property trustee under the Declaration and as indenture trustee for the purposes of the Trust Indenture Act (the "Property Trustee"). Initially, Wilmington Trust Company, a Delaware banking corporation, will be the Property Trustee until removed or replaced by the holder of the Common Securities. Wilmington Trust Company will also act as indenture trustee under the Guarantee (the "Guarantee Trustee"). See "Description of the Guarantees" in the accompanying Prospectus. In certain circumstances, the holders of a majority of the Pre- ferred Securities will be entitled to appoint one Regular Trustee (a "Special Regular Trustee"), who need not be an officer or employee of or otherwise affiliated with Southern Union. See "Description of the Preferred Securities -- Voting Rights." The Property Trustee will hold title to the Subordinated Debt Securities for the benefit of the holders of the Trust Securities and the Property Trustee will have the power to exercise all rights, powers, and privileges under the Indenture (as defined herein) as the holder of the Subordinated Debt Securities. In addition, the Property Trustee will maintain exclusive control of a segregated non-interest bearing bank account (the "Property Account") to hold all payments made in respect of the Subordi- nated Debt Securities for the benefit of the holders of the Trust Securities. The Property Trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. Subject to the right of the holders of the Pre- ferred Securities to appoint a Special Regular Trustee. Southern Union, as the direct or indirect holder of all the Common Securities, will have the right to appoint, remove or replace any Southern Union Trustee and to increase or decrease the number of Southern Union Trustees; provided that, (i) the number of Southern Union Trustees shall be at least three and (ii) a majority shall be Regular Trustees. Southern Union will pay all fees and expenses related to Southern Union Financing and the offering of the Trust Securities. See "Description of the Subordinated Debt Securities -- Miscellaneous." The rights of the holders of the Preferred Securities, including economic rights, rights to information and voting rights, are set forth in the Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the Preferred Securities." INVESTMENT CONSIDERATIONS Prospective purchasers of Preferred Securities should carefully review the information contained elsewhere in this Prospectus Sup- plement and in the accompanying Prospectus and should particularly consider the following matters. Ranking of Subordinate Obligations Under the Guarantee, and Subordinated Debt Securities Southern Union's obligations under the Guarantee are subordinate and junior in right of payment to all liabilities of Southern Union and pari passu with the most senior preferred stock issued, from time to time, if any, by Southern Union. The obligations of Southern Union under the Subordinated Debt Securities are subordi- nate and junior in right of payment to all present and future Senior Indebtedness of Southern Union and pari passu with obliga- tions to or rights of Southern Union's other general unsecured creditors. As of December 31, 1994, Senior Indebtedness aggregated approximately $475 million. There are no terms in the Preferred Securities, the Subordinated Debt Securities or the Guarantee that limit Southern Union's ability to incur additional indebtedness, including indebtedness that ranks senior to the Subordinated Debt Securities and the Guarantee. See "Description of the Guarantees - -- Status of the Guarantees" and "Particular Terms of the Subordi- nated Debt Securities -- Subordination" in the accompanying Prospectus, and "Description of the Subordinated Debt Securities -- Subordination" herein. Rights Under the Guarantee The Guarantee will be qualified as an indenture under the Trust Indenture Act. Wilmington Trust Company will act as indenture trustee under the Guarantee for the purposes of compliance with the Trust Indenture Act (the "Guarantee Trustee"). The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. The Guarantee guarantees to the holders of the Preferred Securities the payment of (i) any accrued and unpaid distributions that are required to be paid on the Preferred Securities, to the extent Southern Union Financing has funds available therefor, (ii) the Redemption Price, including all accrued and unpaid distributions with respect to Preferred Securities called for redemption by Southern Union Financing, to the extent Southern Union Financing has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of Southern Union Financing (other than in connection with the distribution of Subordinated Debt Securities to the holders of Preferred Securities or a redemption of all the Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Preferred Securities to the date of the pay- ment to the extent Southern Union Financing has funds available therefor or (b) the amount of assets of Southern Union Financing remaining available for distribution to holders of the Preferred Securities in liquidation of Southern Union Financing. The holders of a majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities may, after a period of 30 days has elapsed from such holder's written request to the Guarantee Trustee to enforce the Guarantee, institute a legal proceeding directly against Southern Union to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against Southern Union Financing, the Guarantee Trustee or any other person or entity. If Southern Union were to default on its obligation to pay amounts payable on the Subordinated Debt Securities, Southern Union Financing would lack available funds for the payment of distribu- tions or amounts payable on redemption of the Preferred Securities or otherwise, and, in such event, holders of the Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, holders of the Preferred Securities would rely on the enforcement by the Property Trustee of its rights as registered holder of the Subordinated Debt Securities against Southern Union pursuant to the terms of the Subordinated Debt Securities and may also vote to appoint a Special Regular Trustee who shall have the same rights, powers and privileges as the Regular Trustees. See "Description of the Guarantees" and "Particular Terms of the Subordinated Debt Securities" in the accompanying Prospectus. The Declaration provides that each holder of Preferred Securities, by acceptance thereof, agrees to the pro- visions of the Guarantee, including the subordination provisions thereof, and the Subordinated Debt Securities Indenture. Enforcement of Certain Rights by Holders of Preferred Securities If (i) Southern Union fails to pay distributions in full on the Preferred Securities for six consecutive quarterly distribution periods or (ii) a Declaration Event of Default (as defined herein) occurs and is continuing, then the holders of Preferred Securities would rely on the enforcement by the Property Trustee of its rights as a holder of the Subordinated Debt Securities against Southern Union. In addition, the holders of a majority in aggregate liquidation amount of the Preferred Securities will have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee to exercise the remedies available to it as a holder of the Subordinated Debt Securities. If the Property Trustee fails to enforce its rights under the Subordinated Debt Securities, a holder of Preferred Securities may, after a period of 30 days has elapsed from such holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against Southern Union to enforce the Property Trustee's rights under the Subordinated Debt Securities without first instituting any legal proceeding against the Property Trustee or any other person or entity. Upon the occurrence of any of the events described in clauses (i) or (ii) above, the holders of the Preferred Securities also will be entitled, by majority vote, to appoint a Special Regular Trustee, who shall have the same rights, powers and privileges as the other Regular Trustees. Option to Extend Interest Payment Period Southern Union has the right under the Indenture (as such term is defined in "Description of Subordinated Debt Securities" herein, to defer payments of interest on the Subordinated Debt Securities by extending the interest payment period at any time, and from time to time, on the Subordinated Debt Securities. As a consequence of such an extension, quarterly distributions on the Preferred Securi- ties would be deferred (but despite such deferral would continue to accrue with interest thereon compounded quarterly) by Southern Union Financing during any such extended interest payment period. Such right to extend the interest payment period for the Subordi- nated Debt Securities is limited to a period not exceeding 20 consecutive quarters. In the event that Southern Union exercises this right to defer interest payments, then (a) Southern Union shall not and shall cause any subsidiary of Southern Union that is not a wholly-owned subsidiary of Southern Union not to declare or pay dividends on, or make a distribution with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock or the capital stock of any such subsidiary and (b) Southern Union shall not make any pay- ment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Southern Union that rank pari passu with or junior to the Subordinated Debt Securities; provided, however, that restriction (a) above does not apply to any stock dividends paid by Southern Union, or any of its subsidiaries, where the dividend stock is the same stock as that on which the dividend is being paid. Prior to the termination of any such extension period, Southern Union may further extend the interest payment period; provided that, such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Southern Union may commence a new Extension Period, subject to the above requirements. See "Description of the Preferred Securities -- Distributions" and "Description of the Subordinated Debt Securities -- Option to Extend Interest Payment Period." Should Southern Union exercise its right to defer payments of interest by extending the interest payment period, each holder of Preferred Securities will continue to accrue income (as original issue discount) in respect of the deferred interest allocable to its Preferred Securities for United States federal income tax purposes, which will be allocated but not distributed, to holders of record of Preferred Securities. As a result, each such holder of Preferred Securities will recognize income for United States federal income tax purposes in advance of the receipt of cash and will not receive the cash from Southern Union Financing related to such income if such holder disposes of its Preferred Securities prior to the record date for the date on which distributions of such amounts are made. Southern Union has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debt Securities. How- ever, should Southern Union determine to exercise such right in the future, the market price of the Preferred Securities is likely to be affected. A holder that disposes of its Preferred Securities during an Extension Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. In addition, as a result of the existence of Southern Union's right to defer interest payments, the market price of the Preferred Securities (which represent an undivided bene- ficial interest in the Subordinated Debt Securities) may be more volatile than other securities on which original issue discount accrues that do not have such rights. See "United States Federal Income Taxation -- Original Issue Discount." Tax Event Redemption or Distribution Upon the occurrence of a Tax Event, Southern Union Financing shall be dissolved, except in the limited circumstance described below, with the result that the Subordinated Debt Securities would be dis- tributed to the holders of the Trust Securities in connection with the liquidation of Southern Union Financing. In certain circum- stances, Southern Union shall have the right to redeem the Subordi- nated Debt Securities, in whole or in part in lieu of a distribution of the Subordinated Debt Securities by Southern Union Financing; in which event Southern Union Financing will redeem the Trust Securities on a pro rata basis to the same extent as the Subordinated Debt Securities are redeemed by Southern Union. See "Description of the Preferred Securities -- Tax Event Redemption or Distribution." Under current United States federal income tax law, a distribution of Subordinated Debt Securities upon the dissolution of Southern Union Financing would not be a taxable event to holders of the Pre- ferred Securities. Upon occurrence of a Tax Event, however, a dis- solution of Southern Union Financing in which holders of the Preferred Securities receive cash would be a taxable event to such holders. See "United States Federal Income Taxation -- Receipt of Subordinated Debt Securities or Cash Upon Liquidation of Southern Union Financing." There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debt Securities that may be distri- buted in exchange for Preferred Securities if a dissolution or liquidation of Southern Union Financing were to occur. Accordingly, the Preferred Securities that an investor may pur- chase, whether pursuant to the offer made hereby or in the secondary market, or the Subordinated Debt Securities that a holder of Preferred Securities may receive on dissolution and liquidation of Southern Union Financing, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Sub- ordinated Debt Securities upon the occurrence of a Tax Event, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debt Securities and should carefully review all the information regarding the Sub- ordinated Debt Securities contained herein and in the accompanying Prospectus. See "Description of the Preferred Securities -- Tax Event Redemption or Distribution" and "Description of the Subordi- nated Debt Securities -- General." Limited Voting Rights Holders of Preferred Securities will have limited voting rights and, except for the rights of holders of Preferred Securities to appoint a Special Regular Trustee upon the occurrence of certain events described herein, will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of, Southern Union Trustees, which voting rights are vested exclusively in the holder of the Common Securities. Trading Price The Preferred Securities may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debt Securities. A holder who disposes of his Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Subordinated Debt Securities through the date of disposition in income as ordinary income (i.e., OID), and to add such amount to his adjusted tax basis in his pro rata share of the underlying Subordinated Debt Securities deemed disposed of. To the extent the selling price is less than the holder's adjusted tax basis (which will include, in the form of OID, all accrued but unpaid interest), a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax pur- poses. See "United States Federal Income Taxation -- Original Issue Discount" and "Sales of Preferred Securities." RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of earnings to fixed charges for Southern Union on an historical basis for the year ended June 30, 1994, and each of the four years in the period ended December 31, 1993, and for the nine-month and twelve-month periods ended March 31, 1995. Such ratio is also presented on a pro forma basis for the year ended June 30, 1994. For the purpose of calcu- lating such ratios, "earnings" consist of income from continuing operations before income taxes and "fixed charges" consist of interest expense, amortization of debt discount or premium and an estimate of interest implicit in rentals. Twelve Nine Months Months Year Ended Ended Ended March 31, March 31, June 30, Year Ended December 31, _______________________ 1994 1994 1994(a) 1993 1992 1991 1990 ________ ________ ________ ____ ____ ____ ____ Ratio of Earnings to Fixed Charges. . . . 1.45 1.84 1.49 1.76 1.77 1.82 1.10 ==== ==== ==== ==== ==== ==== ==== Pro Forma - Ratio of Earnings to Fixed Charges(b) . . 1.39 ==== ___________________________________ (a) During 1994, the Company changed its fiscal year-end from December 31 to June 30. (b) This pro forma ratio gives effect to an increase in out- standing debt, as of the beginning of the period presented, primarily as a result of the January 31, 1994 acquisition of Missouri Gas Energy, which was financed through the sale of $475 million of 7.60% Senior Notes. Those debt proceeds, along with proceeds of a $50 million common stock rights offering and working capital from operations, were also used to retire approximately $105 million of long-term debt. This ratio also assumes the acquisition of Missouri Gas Energy occurred as of the beginning of the period presented, as reflected in the pro forma condensed statement of consolidated operations included in the 1994 Form 10-K. CAPITALIZATION OF SOUTHERN UNION AT MARCH 31, 1995 The following table sets forth the unaudited summary capitalization of Southern Union and its consolidated subsidiaries as of March 31, 1995, and as adjusted to reflect the application of the estimated net proceeds from the sale of 4,000,000 Preferred Securities. See "Use of Proceeds" below. The table should be read in conjunction with Southern Union's consolidated financial statements and notes thereto and other financial data incorporated by reference herein. See "Incorporation of Certain Documents by Reference" in the accompanying Prospectus. At March 31, 1995 __________________________________ Actual As Adjusted (1) _________________ _______________ Amount Percent Amount Percent ________ _______ ______ _______ (thousands, except percentages) Short-term debt(2). . . . . . . $ 18,956 $ 18,956 ======== ======== Long-term debt Senior notes . . . . . . . . 475,000 373,000 First mortgage bonds and other. . . . . . . . . 3,062 3,062 ________ ________ 478,062 67.9% 376,062 53.6% Company obligated preferred securities of Trust holding subordinated debentures of Southern Union(3). . . . . . -- -- 100,000 14.2 Common stockholders' equity . . 226,136 32.1 226,136 32.2 ________ ______ ________ _____ Total Capitalization . . . . $704,198 100.0% $702,198 100.0% ======== ====== ======== ===== ________________________________ (1) Adjusted for the sale of 4,000,000 Preferred Securities and the application of the estimated net proceeds to repur- chase senior notes. (2) Includes long-term debt due within one year and notes payable. The outstanding balance on notes payable at April 28, 1995, $6.1 million. (3) As described in this Prospectus Supplement, the sole asset of the Trust will be the Subordinated Debt Securities of Southern Union. ACCOUNTING TREATMENT The financial statements of Southern Union Financing will be reflected in Southern Union's consolidated financial statements with the Preferred Securities shown as Company-obligated preferred securities of Trust holding subordinated debentures of Southern Union. USE OF PROCEEDS All of the proceeds from the sale of the Preferred Securities will be invested by Southern Union Financing in Subordinated Debt Securities of Southern Union issued pursuant to the Indenture therefor described herein and ultimately will be used by Southern Union for general corporate purposes, which may include capital expenditures, repurchases of outstanding long-term debt securities, investments in subsidiaries, working capital, repayment of loans under bank credit agreements and other business opportunities. DESCRIPTION OF THE PREFERRED SECURITIES The Preferred Securities will be issued pursuant to the terms of the Declaration. The Declaration will be qualified as an indenture under the Trust Indenture Act. The Property Trustee, the Wilmington Trust Company, will act as the indenture trustee for purposes of compliance with the provisions of the Trust Indenture Act. The terms of the Preferred Securities will include those stated in the Declaration and those made part of the Declaration by the Trust Indenture Act. The following summary of the principal terms and provisions of the Preferred Securities does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Declaration, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus Supplement is a part, the Trust Act and the Trust Indenture Act. General The Declaration authorizes the Regular Trustees to issue on behalf of Southern Union Financing the Trust Securities, which represent undivided beneficial interests in the assets of Southern Union Financing. All of the Common Securities will be owned, directly or indirectly, by Southern Union. The Common Securities rank pari passu, and payments will be made thereon on a pro rata basis, with the Preferred Securities, except that upon the occurrence of a Declaration Event of Default, the rights of the holders of the Common Securities to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subor- dinated to the rights of the holders of the Preferred Securities. The Declaration does not permit the issuance by Southern Union Financing of any securities other than the Trust Securities or the incurrence of any indebtedness by Southern Union Financing. Pursu- ant to the Declaration, the Property Trustee will own the Subordi- nated Debt Securities purchased by Southern Union Financing for the benefit of the holders of the Trust Securities. The payment of distributions out of money held by Southern Union Financing, and payments upon redemption of the Preferred Securities or liquidation of Southern Union Financing, are guaranteed by Southern Union to the extent described under "Description of the Guarantees" in the accompanying Prospectus. The Guarantee will be held by Wilmington Trust Company, the Guarantee Trustee, for the benefit of the holders of the Preferred Securities. The Guarantee does not cover payment of distributions when Southern Union Financing does not have sufficient available funds to pay such distributions. In such event, the remedy of a holder of Preferred Securities is to vote to appoint a Special Regular Trustee and to direct the Property Trustee to enforce the Property Trustees rights under the Subordi- nated Debt Securities. See "Description of the Preferred Securi- ties -- Voting Rights." Distributions Distributions on the Preferred Securities will be fixed at a rate per annum of 9.48% of the stated liquidation amount of $25 per Preferred Security. Distributions in arrears for more than one quarter will bear interest thereon at the rate per annum of 9.48% thereof compounded quarterly. The term "distribution" as used herein includes any such interest payable unless otherwise stated. The amount of distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Distributions on the Preferred Securities will be cumulative, will accrue from May 17, 1995, and will be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing June 30, 1995, when, as and if available for payment, distributions will be made by the Property Trustee, except as otherwise described below. Southern Union has the right under the Indenture to defer payments of interest on the Subordinated Debt Securities by extending the interest payment period from time to time on the Subordinated Debt Securities, which, if exercised, would defer quarterly distribu- tions on the Preferred Securities (though such distributions would continue to accrue with interest since interest would continue to accrue on the Subordinated Debt Securities) during any such extended interest payment period. Such right to extend the interest payment period for the Subordinated Debt Securities is limited to a period not exceeding 20 consecutive quarters. In the event that Southern Union exercises this right, then (a) Southern Union shall not, and shall cause any subsidiary of Southern Union that is not a wholly-owned subsidiary of Southern Union not to, declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock or capital stock of any such subsidiary and (b) Southern Union shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Southern Union that rank pari passu with or junior to such Subordinated Debt Securities; pro- vided, however, that, the foregoing restriction (a) does not apply to any stock dividends paid by Southern Union, or any of its subsidiaries, where the dividend stock is the same stock as that on which the dividend is being paid. Prior to the termination of any such Extension Period, Southern Union may further extend the interest payment period; provided that, such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Southern Union may select a new Extension Period, subject to the above requirements. See "Description of the Subordinated Debt Securities -- Interest" and "-- Option to Extend Interest Pay- ment Period." If distributions are deferred, the deferred distributions and accrued interest thereon shall be paid to holders of record of the Preferred Securities as they appear on the books and records of Southern Union Financing on the record date next following the termination of such deferral period. Distributions on the Preferred Securities must be paid on the dates payable to the extent that Southern Union Financing has funds available for the payment of such distributions in the Property Account. Southern Union Financing's funds available for distribu- tion to the holders of the Preferred Securities will be limited to payments received from Southern Union on the Subordinated Debt Securities. See "Description of the Subordinated Debt Securities." The payment of distributions out of moneys held by Southern Union Financing is guaranteed by Southern Union to the extent set forth under "Description of the Guarantees" in the accompanying Prospectus. Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the books and records of Southern Union Financing on the relevant record dates, which, as long as the Preferred Securities remain in book-entry only form, will be one Business Day prior to the relevant payment dates. Such distribu- tions will be paid through the Property Trustee who will hold amounts received in respect of the Subordinated Debt Securities in the Property Account for the benefit of the holders of the Trust Securities. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment will be made as described under "Book-Entry Only Issuance -- The Depository Trust Company" below. In the event that the Preferred Securities do not continue to remain in book-entry only form, the Regular Trustees shall have the right to select relevant record dates, which shall be more than one Business Day prior to the relevant payment dates. In the event that any date on which distributions are to be made on the Preferred Securities is not a Business Day, then payment of the distributions payable on such date will be made on the next suc- ceeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such record date. A "Business Day" shall mean any day other than Saturday, Sunday or any other day on which banking institutions in the City of New York (in the state of New York) are permitted or required by any appli- cable law to close. Mandatory Redemption The Subordinated Debt Securities will mature on May 17, 2025, unless the maturity date is extended at the option of Southern Union (provided certain financial covenants are met), and may be redeemed, in whole or in part, at any time on or after May 17, 2000, or at any time in certain circumstances upon the occurrence of a Tax Event. Upon the repayment of the Subordinated Debt Securities, whether at maturity or upon redemp- tion, the proceeds from such repayment or payment shall simul- taneously be applied to redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debt Securities so repaid or redeemed at the Redemp- tion Price; provided that, holders of Trust Securities shall be given not less than 30 nor more than 60 days notice of such redemp- tion. See "Description of the Subordinated Debt Securities -- Optional Redemption." In the event that fewer than all of the outstanding Preferred Securities are to be redeemed, the Preferred Securities will be redeemed pro rata as described under "Book-Entry Only Issuance -- the Depository Trust Company" below. Tax Event Redemption or Distribution "Tax Event" means that the Regular Trustees shall have received an opinion of a nationally recognized independent tax counsel experi- enced in such matters (a "Dissolution Tax Opinion") to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein or (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory deter- mination on or after such date), there is more than an insubstan- tial risk that (i) Southern Union Financing would be subject to United States federal income tax with respect to income accrued or received on the Subordinated Debt Securities, (ii) interest payable to Southern Union Financing on the Subordinated Debt Securities would not be deductible by Southern Union for United States federal income tax purposes or (iii) Southern Union Financing would be subject to more than a de minimis amount of other taxes, duties or other governmental charges, which change or amendment becomes effective on or after the date of this Prospectus Supplement. If, at any time, a Tax Event (as defined above) shall occur and be continuing, Southern Union Financing shall, except in the limited circumstances described below, be dissolved with the result that the Subordinated Debt Securities with an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on, the Trust Securities, would be distributed to the holders of the Trust Securities in liquidation of such holders' interests in Southern Union Financing on a pro rata basis within 90 days fol- lowing the occurrence of such Tax Event; provided that, such dissolution and distribution shall be conditioned on (i) the Regular Trustees receipt of an opinion of nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the holders of the Trust Securities will not recognize any gain or loss for United States federal income tax purposes as a result of such dissolution and distribution of Subordinated Debt Securities, and (ii) Southern Union being unable to avoid such Tax Event within such 90 day period by taking some ministerial action or pursuing some other reasonable measure that will have no adverse effect on Southern Union Financing, Southern Union or the holders of the Trust Securities. Furthermore, if after receipt of a Dissolution Tax Opinion by the Regular Trustees (i) Southern Union has received an opinion (a "Redemption Tax Opinion") of nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that Southern Union would be precluded from deducting the interest on the Subordinated Debt Securities for United States federal income tax purposes, even after the Subordinated Debt Securities were distributed to the holders of Trust Securities in liquidation of such holders' interests in Southern Union Financing as described above, or (ii) the Regular Trustees shall have been informed by such tax counsel that it cannot deliver a No Recognition Opinion to Southern Union Financing, Southern Union shall have the right, upon not less than 30 nor more than 60 days notice, to redeem the Subor- dinated Debt Securities, in whole or in part, for cash within 90 days following the occurrence of such Tax Event, and, following such redemption, Trust Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debt Securities so redeemed shall be redeemed by Southern Union Financing at the Redemption Price on a pro rata basis; provided, however, that, if at the time there is available to Southern Union or Southern Union Financing the opportunity to eliminate, within such 90 day period, the Tax Event by taking some ministerial action, such as filing a form or making an election or pursuing some other similar reasonable measure that has no adverse effect on Southern Union Financing, Southern Union or the holders of the Trust Securities, Southern Union or Southern Union Financing will pursue such measure in lieu of redemption. If the Subordinated Debt Securities are distributed to the holders of the Preferred Securities, Southern Union will use its best efforts to cause the Subordinated Debt Securities to be listed on the New York Stock Exchange or on such other exchange as the Pre- ferred Securities are then listed. After the date for any distribution of Subordinated Debt Securities upon dissolution of Southern Union Financing, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) the Depositary or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or cer- tificates representing the Subordinated Debt Securities to be delivered upon such distribution, and (iii) any certificates repre- senting Preferred Securities not held by the Depositary or its nominee will be deemed to represent Subordinated Debt Securities having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on such Preferred Securities until such certificates are presented to Southern Union or its agent for transfer or reissuance. There can be no assurance as to the market prices for either the Preferred Securities or the Subordinated Debt Securities that may be distributed in exchange for the Preferred Securities if a disso- lution and liquidation of Southern Union Financing were to occur. Accordingly, the Preferred Securities that an investor may pur- chase, whether pursuant to the offer made hereby or in the secondary market, or the Subordinated Debt Securities that an investor may receive if a dissolution and liquidation of Southern Union Financing were to occur, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Redemption Procedures Southern Union Financing may not redeem fewer than all of the out- standing Preferred Securities unless all accrued and unpaid distri- butions have been paid on all Preferred Securities for all quarterly distribution periods terminating on or prior to the date of redemption. If Southern Union Financing gives a notice of redemption in respect of Preferred Securities (which notice will be irrevocable), then, by 12:00 noon, New York City time, on the redemption date, and if Southern Union has paid to the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Debt Securities, then Southern Union Financing will irrevocably deposit with the Depositary funds sufficient to pay the applicable Redemption Price and will give the Depositary irrevocable instructions and authority to pay the Redemption Price to the holders of the Preferred Securities. See "Book-Entry Only Issuance -- The Depository Trust Company." If notice of redemption shall have been given and funds deposited as required, then, imme- diately prior to the close of business on the date of such deposit, distributions will cease to accrue and all rights of holders of such Preferred Securities so called for redemption will cease, except the right of the holders of such Preferred Securities to receive the Redemption Price but without interest on such Redemp- tion Price. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next suc- ceeding day that is a Business Day (without any interest or other payment in respect of any such delay), except that, if such Busi- ness Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that pay- ment of the Redemption Price in respect of Preferred Securities is improperly withheld or refused and not paid either by Southern Union Financing, or by Southern Union pursuant to the Guarantee, distributions on such Preferred Securities will continue to accrue at the then applicable rate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calcu- lating the Redemption Price. In the event that fewer than all of the outstanding Preferred Securities are to be redeemed, the Preferred Securities will be redeemed pro rata as described below under "Book-Entry Only Issuance -- The Depository Trust Company." Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), Southern Union or its subsidiaries may at any time, and from time to time, pur- purchase outstanding Preferred Securities by tender, in the open market or by private agreement. Liquidation Distribution Upon Dissolution In the event of any voluntary or involuntary liquidation, dissolu- tion, winding-up or termination of Southern Union Financing (each a "Liquidation"), the then holders of the Preferred Securities will be entitled to receive out of the assets of Southern Union Financing, after satisfaction of liabilities to creditors, distri- butions in an amount equal to the aggregate of the stated liquida- tion amount of $25 per Preferred Security plus accrued and unpaid distributions thereon to the date of payment (the "Liquidation Distribution"), unless, in connection with such Liquidation, Sub- ordinated Debt Securities in an aggregate stated principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distribu- tions on, the Preferred Securities have been distributed on a pro rata basis to the holders of the Preferred Securities. If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because Southern Union Financing has insufficient assets available to pay in full the aggregate Liquidation Distribu- tion, then the amounts payable directly by Southern Union Financing on the Preferred Securities shall be paid on a pro rata basis. The holders of the Common Securities will be entitled to receive dis tributions upon any such dissolution pro rata with the holders of the Preferred Securities, except that if a Declaration Event of Default has occurred and is continuing, the Preferred Securities shall have a preference over the Common Securities with regard to such distributions. Pursuant to the Declaration, Southern Union Financing shall terminate (i) on May 17, 2050, the expiration of the term of Southern Union Financing, (ii) upon the bankruptcy of Southern Union or the holder of the Common Securities, (iii) upon the filing of a certificate of dissolution or its equivalent with respect to the holder of the Common Securities or Southern Union, the filing of a certificate of cancellation with respect to Southern Union Financing, or the revocation of the charter of the holder of the Common Securities or Southern Union and the expira- tion of 90 days after the date of revocation without a reinstate- ment thereof, (iv) upon the distribution of Subordinated Debt Securities upon the occurrence of a Tax Event, (v) upon the entry of a decree of a judicial dissolution of the holder of the Common Securities, Southern Union or Southern Union Financing, or (vi) upon the redemption of all the Trust Securities. Declaration Events of Default An event of default under the Indenture (an "Indenture Event of Default") constitutes an event of default under the Declaration with respect to the Trust Securities (a "Declaration Event of Default"), provided that, pursuant to the Declaration, the holder of the Common Securities will be deemed to have waived any Decla- ration Event of Default with respect to the Common Securities until all Declaration Events of Default with respect to the Preferred Securities have been cured, waived or otherwise elimi- nated. Until such Declaration Events of Default with respect to the Preferred Securities have been so cured, waived, or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the holders of the Preferred Securities and only the holders of the Preferred Securities will have the right to direct the Property Trustee with respect to certain matters under the Declaration, and therefore the Indenture. Upon the occurrence of a Declaration Event of Default, the Property Trustee as the sole holder of the Subordinated Debt Securities will have the right under the Indenture to declare the principal of and interest on the Subordinated Debt Securities to be immediately due and payable. Southern Union and Southern Union Financing are each required to file annually with the Property Trustee an officer's certificate as to its compliance with all conditions and covenants under the Declaration. Voting Rights Except as described herein, under the Trust Act, the Trust Inden- Indenture Act and under "Description of the Guarantees -- Amendments and Assignment" in the accompanying Prospectus, and as otherwise required by law and the Declaration, the holders of the Preferred Securities will have no voting rights. If (i) Southern Union Financing fails to pay distributions in full on the Preferred Securities for six (6) consecutive quarterly distribution periods or (ii) a Declaration Event of Default occurs and is continuing (each an "Appointment Event"), then the holders of the Preferred Securities, acting as a single class, will be entitled by the majority vote of such holders to appoint a Special Regular Trustee. For purposes of determining whether Southern Union Financing has failed to pay distributions in full for six (6) consecutive quarterly distribution periods, distributions shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative distributions have been or contemporaneously are paid with respect to all quarterly distribu- tion periods terminating on or prior to the date of payment of such cumulative distributions. Any holder of Preferred Securities (other than Southern Union or any of its affiliates) shall be entitled to nominate any person to be appointed as Special Regular Trustee. Not later than 30 days after such right to appoint a Special Regular Trustee arises, the Regular Trustees shall convene a meeting of the holders of Preferred Securities for the purpose of appointing a Special Regular Trustee. If the Regular Trustees fail to convene such meeting within such 30-day period, the holders of not less than 10% of the aggregate stated liquidation amount of the outstanding Preferred Securities will be entitled to convene such meeting. The provisions of the Declaration relating to the con- vening and conduct of the meetings of the holders will apply with respect to any such meeting. Any Special Regular Trustee so appointed shall cease to be a Special Regular Trustee if the Appointment Event pursuant to which the Special Regular Trustee was appointed and all other Appointment Events cease to be continuing. Notwithstanding the appointment of any such Special Regular Trustee, Southern Union shall retain all rights under the Inden- ture, including the right to defer payments of interest by extending the interest payment period as provided under "Des- cription of the Subordinated Debt Securities -- Option to Extend Interest Payment Period". If such an extension occurs, there will be no Indenture Event of Default and, consequently, no Declaration Event of Default for failure to make any scheduled interest payment during the Extension Period on the date originally scheduled. Subject to the requirement of the Property Trustee obtaining a tax opinion in certain circumstances set forth in the last sentence of this paragraph, the holders of a majority in aggregate liquidation amount of the Preferred Securities, have the right to (i) direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration including the right to direct the Property Trustee, as holder of the Subordinated Debt Securities, to (i) exercise the remedies available under the Indenture with respect to the Sub- ordinated Debt Securities, (ii) waive any past Indenture Event of Default that is waivable under Section 513 of the Base Indenture (as defined herein), or (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debt Securities shall be due and payable; provided, however, that, where a consent or action under the Indenture would require the consent or act of more than a majority of the holders (a "Super-Majority") affected thereby, only the holders of at least such Super-Majority of the Preferred Securities may direct the Property Trustee to give such consent or take such action. If the Property Trustee fails to enforce its rights under the Subordinated Debt Securities, a record holder of Preferred Securities may, after a period of 30 days has elapsed from such holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against Southern Union to enforce the Property Trustee's rights under the Subordinated Debt Securities without first instituting any legal proceeding against the Property Trustee or any other person or entity. The Property Trustee shall notify all holders of the Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Subordinated Debt Securities. Such notice shall state that such Indenture Event of Default also con- stitutes a Declaration Event of Default. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Property Trustee shall not take any of the actions described in clauses (i), (ii) or (iii) above unless the Property Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, Southern Union Financing will not fail to be classified as a grantor trust for United States federal income tax purposes. In the event the consent of the Property Trustee, as the holder of the Subordinated Debt Securities, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Subordinated Debt Securities, the Property Trustee shall request the direction of the holders of the Trust Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termi- nation as directed by a majority in liquidation amount of the Trust Securities voting together as a single class; provided, however, _________________ that where a consent under the Indenture would require the consent of a Super Majority, the Property Trustee may only give such con- sent at the direction of the holder of at least the proportion in liquidation amount of the Trust Securities which the relevant Super Majority represents of the aggregate principal amount of the Subor- dinated Debt Securities outstanding. The Property Trustee shall be under no obligation to take any such action in accordance with the directions of the holders of the Trust Securities unless the Property Trustee has obtained an opinion of tax counsel to the affect that for the purposes of United States federal income tax Southern Union Financing will not be classified as other than a grantor trust. A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Declaration Event of Default. Any required approval or direction of holders of Preferred Securi- ties may be given at a separate meeting of holders of Preferred Securities convened for such purpose, at a meeting of all of the holders of Trust Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Preferred Securities. Each such notice will include a statement setting forth the following information: (i) the date of such meeting or the date by which such action is to be taken; (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. No vote or consent of the holders of Pre- ferred Securities will be required for Southern Union Financing to redeem and cancel Preferred Securities or distribute Subordinated Debt Securities in accordance with the Declaration. Notwithstanding that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned at such time by Southern Union or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, Southern Union, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Pre- ferred Securities were not outstanding. The procedures by which holders of Preferred Securities may exer- rcise their voting rights are described below. See "-- Book-Entry Only Issuance -- The Depository Trust Company" below. Except in the limited circumstances described above, in connection with the appointment of a Special Regular Trustee, holders of the Preferred Securities will have no rights to appoint or remove the Southern Union Trustees, who may be appointed, removed or replaced solely by Southern Union as the indirect or direct holder of all of the Common Securities. Modification of the Declaration The Declaration may be modified and amended if approved by a majority of the Regular Trustees (and in certain circumstances the Property Trustee), provided that, if any proposed amendment pro- vides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dis- solution, winding-up or termination of Southern Union Financing other than pursuant to the terms of the Declaration, then the holders of the Trust Securities voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least 66 2/3% in liquidation amount of the Trust Securities affected thereby; provided that, the rights of holders of Preferred Securities to appoint a Special Regular Trustee shall not be amended without the consent of each holder of Preferred Securities; provided further that, if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amend- ment or proposal and such amendment or proposal shall not be effective except with the approval of 66 2/3% in liquidation amount of such class of Securities. Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause Southern Union Financing to be classified for purposes of United States federal income taxation as other than a grantor trust, (ii) reduce or otherwise adversely affect the powers of the Property Trustee or (iii) cause Southern Union Financing to be deemed an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"). Mergers, Consolidations or Amalgamations Southern Union Financing may not consolidate, amalgamate, merge or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety, to any corporation or other body, except as described below. Southern Union Financing may, with the consent of a majority of the Regular Trustees and without the consent of the holders of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided that, (i) such successor entity either (x) expressly assumes all of the obli- gations of Southern Union Financing under the Trust Securities or (y) substitutes for the Preferred Securities other securities having substantially the same terms as the Trust Securities (the "Successor Securities"), so long as the Successor Securities rank the same as the Trust Securities rank with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) Southern Union expressly acknowledges a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Subordinated Debt Securities, (iii) the Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or with another organization on which the Preferred Securities are then listed or quoted, (iv) such merger, consolidation, amalgamation or replace- ment does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (vi) such successor entity has a purpose identical to that of Southern Union Financing, (vii) prior to such merger, consolidation, amalgamation or replacement, Southern Union has received an opinion of a nationally recognized independent counsel to Southern Union Financing experienced in such matters to the effect that, (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), and (B) following such merger, consolidation, amalgamation or replacement, neither Southern Union Financing nor such successor entity will be required to register as an investment company under the 1940 Act and (viii) Southern Union guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee and the Common Securities Guarantee. Notwithstanding the foregoing, Southern Union Financing shall not, except with the consent of holders of 100% in liquida- tion amount of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if such consolidation, amalgamation, merger or replacement would cause Southern Union Financing or the Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. Book-Entry Only Issuance -- The Depository Trust Company The Depository Trust Company ("DTC") will act as securities depositary for the Preferred Securities. The Preferred Securities will be issued only as fully-registered securities registered in the name of Cede & Co. (DTC's nominee). One or more fully- registered global Preferred Securities certificates, representing the total aggregate number of Preferred Securities, will be issued and will be deposited with DTC. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the global Preferred Securities as represented by a global certificate. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facili- tates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corpora- tions and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc. (the "New York Stock Exchange"), the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as securities brokers and dealers, banks and trust companies that clear transactions through or maintain a direct or indirect custodial relationship with a Direct Participant either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Partici- pants are on file with the Securities and Exchange Commission. Purchases of Preferred Securities within the DTC system must be made by or through Direct Participants, which will receive a credit for the Preferred Securities on DTC's records. The ownership interest of each actual purchaser of each Preferred Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Preferred Securities. Transfers of ownership interests in the Preferred Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Pre- ferred Securities, except in the event that use of the book-entry system for the Preferred Securities is discontinued. To facilitate subsequent transfers, all the Preferred Securities deposited by Participants with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of Preferred Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Preferred Securities. DTC's records reflect only the identity of the Direct Participants to whose accounts such Preferred Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements that may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Preferred Securities are being redeemed, DTC will reduce the amount of the interest of each Direct Participant in such Preferred Securities in accordance with its procedures. Although voting with respect to the Preferred Securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to Preferred Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to Southern Union Financing as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. consenting or voting rights to those Direct Participants to whose accounts the Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Southern Union and Southern Union Financing believe that the arrangements among DTC, Direct and Indirect Participants, and Beneficial Owners will enable the Beneficial Owners to exercise rights equivalent in substance to the rights that can be directly exercised by a holder of a bene- beneficial interest in Southern Union Financing. Distribution payments on the Preferred Securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securi- ties held for the account of customers in bearer form or registered in "street name," and such payments will be the responsibility of such Participant and not of DTC, Southern Union Financing or Southern Union, subject to any statutory or regulatory requirements to the contrary that may be in effect from time to time. Payment of distributions to DTC is the responsibility of Southern Union Financing, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Par- ticipants. Except as provided herein, a Beneficial Owner in a global Preferred Security certificate will not be entitled to receive physical delivery of Preferred Securities. Accordingly, each Beneficial Owner must rely on the procedures of DTC to exercise any rights under the Preferred Securities. DTC may discontinue providing its services as securities depositary with respect to the Preferred Securities at any time by giving reasonable notice to Southern Union Financing. Under such circum- stances, in the event that a successor securities depositary is not obtained, Preferred Securities certificates are required to be printed and delivered. Additionally, the Regular Trustees (with the consent of Southern Union) may decide to discontinue use of the system of book-entry transfers through DTC (or any successor depositary) with respect to the Preferred Securities. In that event, certificates for the Preferred Securities will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Southern Union and Southern Union Financing believes to be reliable, but neither Southern Union nor Southern Union Financing takes responsibility for the accuracy thereof. Information Concerning the Property Trustee The Property Trustee, prior to the occurrence of a default with respect to the Trust Securities, undertakes to perform only such duties as are specifically set forth in the Declaration and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provisions, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of Preferred Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The holders of Preferred Securities will not be required to offer such indemnity in the event such holders, by exercising their voting rights, direct the Property Trustee to take any action following a Declaration Event of Default. Paying Agent In the event that the Preferred Securities do not remain in book- entry only form, the following provisions would apply: The Property Trustee will act as paying agent, and may designate an additional or substitute paying agent at any time. Registration of transfers of Preferred Securities will be effected without charge by or on behalf of Southern Union Financing, but upon payment (with the giving of such indemnity as Southern Union Financing or Southern Union may require) in respect of any tax or other government charges that may be imposed in relation to it. Southern Union Financing will not be required to register or cause to be registered the transfer of Preferred Securities after such Preferred Securities have been called for redemption. Governing Law The Declaration and the Preferred Securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware. Miscellaneous The Regular Trustees are authorized and directed to operate Southern Union Financing in such a way so that Southern Union Financing will not be required to register as an "investment company" under the 1940 Act or characterized as other than a grantor trust for United States federal income tax purposes. Southern Union is authorized and directed to conduct its affairs so that the Subordinated Debt Securities will be treated as indebted- ness of Southern Union for United States federal income tax pur- poses. In this connection, Southern Union and the Regular Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of Southern Union Financing or the certificate of incorporation of Southern Union, that each of Southern Union and the Regular Trustees determines in its dis- cretion to be necessary or desirable to achieve such end, as long as such action does not adversely affect the interests of the holders of the Preferred Securities or vary the terms thereof. Holders of the Preferred Securities have no preemptive rights. DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES Set forth below is a description of the specific terms of the Sub- ordinated Debt Securities in which Southern Union Financing will invest the proceeds from the issuance and sale of the Trust Securities. This description supplements the description of the general terms and provisions of the Subordinated Debt Securities set forth in the accompanying Prospectus under the caption "Particular Terms of the Subordinated Debt Securities." The fol- following description does not purport to be complete and is sub- ject to, and is qualified in its entirety by reference to, the description in the accompanying Prospectus and the Subordinated Debt Securities Indenture, dated as of May 10, 1995, (the "Base Indenture") between Southern Union and The Chase Manhattan Bank, N. A., as Trustee (the "Indenture Trustee"), as supplemented by a First Supplemental Indenture, dated as of May 10, 1995 (the Base Indenture, as so supplemented, is hereinafter referred to as the "Indenture"), the forms of which are filed as Exhibits to the Registration Statement of which this Prospectus Supplement and the accompanying Prospectus form a part. Certain capitalized terms used herein are defined in the Indenture. Under certain circumstances involving the dissolution of Southern Union Financing following the occurrence of a Tax Event, Subordi- nated Debt Securities may be distributed to the holders of the Trust Securities in liquidation of Southern Union Financing. See "Description of the Preferred Securities -- Tax Event Redemption or Distribution." If the Subordinated Debt Securities are distributed to the holders of the Preferred Securities, Southern Union will use its best efforts to have the Subordinated Debt Securities listed on the New York Stock Exchange or on such other national securities exchange or similar organization on which the Preferred Securities are then listed or quoted. General The Subordinated Debt Securities will be issued as unsecured debt under the Indenture. The Subordinated Debt Securities will be limited in aggregate principal amount to approximately $103,092,800, such amount being the sum of the aggregate stated liquidation of the Preferred Securities and the capital contributed by Southern Union in exchange for the Common Securities (the "Southern Union Payment"). The Subordinated Debt Securities are not subject to a sinking fund provision. The entire principal amount of the Subordinated Debt Securities will mature and become due and payable, together with any accrued and unpaid interest thereon including Compound Interest (as hereinafter defined) and Additional Interest (as hereinafter defined), if any, on May 17, 2025, subject to the election of Southern Union to extend the scheduled maturity date of the Sub- ordinated Debt Securities to a date not later than May 17, 2044, which election is subject to Southern Union's satisfying certain financial covenants. See " -- Option to Extend Maturity." If Subordinated Debt Securities are distributed to holders of Pre- ferred Securities in liquidation of such holders' interests in Southern Union Financing, such Subordinated Debt Securities will initially be issued as a Global Security (as defined below). As described herein, under certain limited circumstances, Subordinated Debt Securities may be issued in certificated form in exchange for a Global Security (as defined below). See "Book-Entry and Settle- ment" below. In the event that Subordinated Debt Securities are issued in certificated form, such Subordinated Debt Securities will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Pay- ments on Subordinated Debt Securities issued as a Global Security will be made to DTC, a successor depositary or, in the event that no depositary is used, to a Paying Agent for the Subordinated Debt Securities. In the event Subordinated Debt Securities are issued in certificated form, principal and interest will be pay- able, the transfer of the Subordinated Debt Securities will be registrable and Subordinated Debt Securities will be exchangeable for Subordinated Debt Securities of other denominations of a like aggregate principal amount at the corporate trust office of the Trustee in Brooklyn, New York; provided that, payment of interest may be made at the option of Southern Union by check mailed to the address of the persons entitled thereto. Subordination The Indenture provides that the Subordinated Debt Securities are subordinated and junior in right of payment to all Senior Indebted- ness of Southern Union. No payment of principal (including redemp- tion and sinking fund payments), premium, if any, or interest on the Subordinated Debt Securities may be made (i) if any Senior Indebtedness of Southern Union is not paid when due, (ii) any applicable grace period with respect to such default has ended and such default has not been cured or waived or ceased to exist, or (iii) if the maturity of any Senior Indebtedness of Southern Union has been accelerated because of a default. Upon any distribution of assets of Southern Union to creditors upon any dissolution, winding-up, liquidation or reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all principal, premium, if any, and interest due or to become due on all Senior Indebtedness of Southern Union must be paid in full before the holders of Subordinated Debt Securities are entitled to receive or retain any payment. Upon satisfaction of all claims of all Senior Indebtedness, then outstanding the rights of the holders of the Subordinated Debt Securities will be subor- gated to the rights of the holders of Senior Indebtedness of Southern Union to receive payments or distributions applicable to Senior Indebtedness until all amounts owing on the Subordinated Debt Securities are paid in full. The term "Senior Indebtedness" means, with respect to Southern Union, (i) the principal, premium, if any, and interest in respect of (A) indebtedness of such obligor for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor including, without limitation, in the case of Southern Union, all obligations under its 7.60% Senior Notes due 2024, (ii) all capital lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement on any letter of credit, banker's acceptance, security purchase facility or simi- lar credit transaction, (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise, and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Subordinated Debt Securities and (2) any indebtedness between or among such obligor or its affiliates, including all other debt securities and guarantees in respect of those debt securities issued to (a) any other Southern Union Trust or a trustee of such trust and (b) any other trust, or a trustee of such trust, partnership or other entity affiliated with Southern Union that is a financing vehicle of Southern Union (a "financing entity") in connection with the issuance by such financing entity of Preferred Securities or other securities that rank pari passu with, or junior to, the Preferred Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. The Indenture does not limit the aggregate amount of Senior Indebtedness that may be issued by Southern Union. As of December 31, 1994, Senior Indebtedness of Southern Union aggregated approximately $475 million. Optional Redemption Southern Union shall have the right to redeem the Subordinated Debt Securities, in whole or in part, from time to time, on or after May 17, 2000, or at any time in certain circumstances upon the occurrence of a Tax Event as described under "Description of the Preferred Securities -- Tax Event Redemption or Distribu- tion," upon not less than 30 nor more than 60 days notice, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest, including Additional Interest, if any, to the redemption date. If a partial redemption of the Preferred Securities resulting from a partial redemption of the Subordinated Debt Securities would result in the delisting of the Preferred Securities, Southern Union may only redeem the Subor- dinated Debt Securities in whole. Interest Each Subordinated Debt Security shall bear interest at the rate of 9.48% per annum from the original date of issuance, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year (each an "Interest Payment Date"), commencing June 30, 1995, to the person in whose name such Subordi- nated Debt Security is registered, subject to certain exceptions, at the close of business on the Business Day next preceding such Interest Payment Date. In the event the Subordinated Debt Securi- ties shall not continue to remain in book-entry only form, Southern Union shall have the right to select record dates, which shall be more than one Business Day prior to the Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Sub- ordinated Debt Securities is not a Business Day, then payment of the interest payable on such date will be made on the next suc- ceeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. Option to Extend Maturity Date The maturity date of the Subordinated Debt Securities is May 17, 2025 (the "Scheduled Maturity Date"). Southern Union, however, may, before the Scheduled Maturity Date, extend such maturity date no more than one time for up to an additional 19 years from the Scheduled Maturity Date; provided that (a) Southern Union is not in bankruptcy or otherwise insolvent, (b) Southern Union is not in default on any Subordinated Debt Securities issued to a Southern Union Trust or to any trustee of such trust in con- nection with an issuance of Trust Securities by such Southern Union Trust, (c) Southern Union has made timely payments on the Subordi- nated Debt Securities for the immediately preceding 6 quarters without deferrals, (d) Southern Union Financing is not in arrears on payments of distributions on the Preferred Securities, (e) the Subordinated Debt Securities are rated Investment Grade by any one of Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investor Services, Duff & Phelps Credit Rating Company or any other nationally recognized statistical rating organization, and (g) the final maturity of such Subordinated Debt Securities is not later than the 49th anniversary of the issuance of the Preferred Securities. Pursuant to the Declaration, the Regular Trustees are required to give notice of Southern Union's election to extend the Scheduled Maturity Date to the holders of the Preferred Securities. Option to Extend Interest Payment Period Southern Union shall have the right at any time, and from time to time, during the term of the Subordinated Debt Securities to defer payments of interest by extending the interest payment period for a period not exceeding 20 consecutive quarters, at the end of which Extension Period, Southern Union shall pay all interest then accrued and unpaid (including any Additional Interest, as herein defined) together with interest thereon compounded quarterly at the rate specified for the Subordinated Debt Securities to the extent permitted by applicable law ("Compound Interest"); provided that, during any such Extension Period, (a) Southern Union shall not, and shall cause any subsidiary of Southern Union that is not a wholly- owned subsidiary of Southern Union not to, declare or pay any divi- dends on, make any distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to any of its capital stock or the capital stock of any such subsidiary and (b) Southern Union shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Southern Union that rank pari passu with or junior to the Subordinated Debt Securities; provided, however, that, the foregoing restriction (a) does not apply to any stock dividends paid by Southern Union, or any of its subsidiaries, where the dividend stock is the same as that on which the dividend is paid. Prior to the termination of any such Extension Period, Southern Union may further defer payments of interest by extending the interest payment period; provided, however, that, such Extension Period, including all such previous and further extensions, may not exceed 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Southern Union may commence a new Extension Period, subject to the terms set forth in this section. No interest during an Extension Period, except at the end thereof, shall be due and payable. Southern Union has no present intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debt Securities. If the Property Trustee shall be the sole holder of the Subordinated Debt Securities, Southern Union shall give the Regular Trustees and the Property Trustee notice of its selection of such Extension Period one Business Day prior to the earlier of (i) the date dis- tributions on the Preferred Securities are payable or (ii) the date the Regular Trustees are required to give notice to the New York Stock Exchange (or other applicable self-regulatory organi- zation) or to holders of the Preferred Securities of the record date or the date such distribution is payable. The Regular Trustees shall give notice of Southern Union's selection of such Extension Period to the holders of the Preferred Securities. If the Property Trustee shall not be the sole holder of the Subor- dinated Debt Securities, Southern Union shall give the holders of the Subordinated Debt Securities notice of its selection of such Extension Period ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date upon which Southern Union is required to give notice to the New York Stock Exchange (or other applicable self-regulatory organiza- tion) or to holders of the Subordinated Debt Securities of the record or payment date of such related interest payment. Additional Interest If at any time Southern Union Financing shall be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, Southern Union will pay as additional interest ("Additional Interest") such additional amounts as shall be required so that the net amounts received and retained by Southern Union Financing after paying any such taxes, duties, assessments or other governmental charges will be not less than the amounts Southern Union Financing would have received had no such taxes, duties, assessments or other govern- mental charges been imposed. Indenture Events of Default If any Indenture Event of Default shall occur and be continuing, the Property Trustee, as the holder of the Subordinated Debt Securities, will have the right to declare the principal of and the interest on the Subordinated Debt Securities (including any Com- pound Interest and Additional Interest, if any) and any other amounts payable under the Indenture to be forthwith due and payable and to enforce its other rights as a creditor with respect to the Subordinated Debt Securities. See "Particular Terms of the Subor- dinated Debt Securities -- Events of Default" in the accompanying Prospectus for a description of the Events of Default. An Inden- ture Event of Default also constitutes a Declaration Event of Default. The holders of Preferred Securities in certain circum- stances have the right to direct the Property Trustee to exercise its rights as the holder of the Subordinated Debt Securities. See "Description of the Preferred Securities -- Declaration Events of Default" and "Voting Rights." Book-Entry and Settlement If distributed to holders of Preferred Securities in connection with the involuntary or voluntary dissolution, winding-up or liquidation of Southern Union Financing as a result of the occurrence of a Tax Event, the Subordinated Debt Securities will be issued in the form of one or more global certificates (each a "Global Security") registered in the name of the Depositary or its nominee. Except under the limited circumstances described below, Subordinated Debt Securities represented by the Global Security will not be exchangeable for, and will not otherwise be issuable as, Subordinated Debt Securities in definitive form. The Global Securities described above may not be transferred except by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary or another nominee of the depositary or to a successor depositary or its nominee. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in such a Global Security. Except as provided below, owners of beneficial interests in such a Global Security will not be entitled to receive physical delivery of Subordinated Debt Securities in definitive form and will not be considered the holders (as defined in the Indenture) thereof for any purpose under the Indenture, and no Global Security repre- senting Subordinated Debt Securities shall be exchangeable, except for another Global Security of like denomination and tenor to be registered in the name of the Depositary or its nominee or to a successor Depositary or its nominee. Accordingly, each Beneficial Owner must rely on the procedures of the Depositary or if such person is not a Participant, on the procedures of the Participant through which such person owns its interest to exercise any rights of a holder under the Indenture. The Depositary If Subordinated Debt Securities are distributed to holders of Pre- ferred Securities in liquidation of such holders' interests in Southern Union Financing, DTC will act as securities depositary for the Subordinated Debt Securities. For a description of DTC and the specific terms of the depositary arrangements, see "Description of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust Company." As of the date of this Prospectus Sup- pleplement, the description therein of DTC's book-entry system and DTC's practices as they relate to purchases, transfers, notices and payments with respect to the Preferred Securities apply in all material respects to any debt obligations represented by one or more Global Securities held by DTC. Southern Union may appoint a successor to DTC or any successor depositary in the event DTC or such successor depositary is unable or unwilling to continue as a depository for the Global Securities. None of Southern Union, Southern Union Financing, the Indenture Trustee, any paying agent and any other agent of Southern Union or the Indenture Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security for such Subordinated Debt Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Discontinuance of the Depositary's Services A Global Security shall be exchangeable for Subordinated Debt Securities registered in the names of persons other than the depositary or its nominee only if (i) the depositary notifies Southern Union that it is unwilling or unable to continue as a depositary for such Global Security and no successor depositary shall have been appointed, (ii) the depositary, at any time, ceases to be a clearing agency registered under the Exchange Act at which time the depositary is required to be so registered to act as such depositary and no successor depositary shall have been appointed, (iii) Southern Union, in its sole discretion, determines that such Global Security shall be so exchangeable or (iv) there shall have occurred an Event of Default with respect to such Subordinated Debt Securities. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Subordinated Debt Securities registered in such names as the depositary shall direct. It is expected that such instructions will be based upon directions received by the depositary from its Participants with respect to ownership of beneficial interests in such Global Security. Miscellaneous The Indenture will provide that Southern Union will pay all fees and expenses related to (i) the offering of the Trust Securities and the Subordinated Debt Securities, (ii) the organization, maintenance and dissolution of Southern Union Financing and (iii) the retention of the Southern Union Trustees and (iv) the enforcement by the Property Trustee of the rights of the holders of the Preferred Securities. The payment of such fees and expenses will be fully and unconditionally guaranteed by Southern Union. EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBT SECURITIES AND THE GUARANTEE As set forth in the Declaration, the sole purpose of Southern Union Financing is to issue the Trust Securities evidencing undivided beneficial interests in the assets of Southern Union Financing, and to invest the proceeds from such issuance and sale in the Subordi- nated Debt Securities. As long as payments of interest and other payments are made when due on the Subordinated Debt Securities, such payments will be sufficient to cover distributions and payments due on the Trust Securities because of the following factors: (i) the aggregate principal amount of Subordinated Debt Securities will be equal to the sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the interest rate and the interest and other payment dates on the Subordinated Debt Securities will match the distribution rate and distribution and other payment dates for the Preferred Securities; (iii) Southern Union shall pay all, and Southern Union Financing shall not be obligated to pay, directly or indirectly, any, costs and expenses of Southern Union Financing; and (iv) the Declaration further provides that the Southern Union Trustees shall not cause or permit Southern Union Financing to, among other things, engage in any activity that is not consistent with the purposes of Southern Union Financing. Payments of distributions (to the extent funds therefor are avail- able) and other payments due on the Preferred Securities (to the extent funds therefor are available) are guaranteed by Southern Union as and to the extent set forth under "Description of the Guarantees" in the accompanying Prospectus. If Southern Union does not make interest payments on the Subordinated Debt Securities pur- chased by Southern Union Financing, it is expected that Southern Union Financing will not have sufficient funds to pay distributions on the Preferred Securities. The Guarantee is a full and uncondi- tional guarantee from the time of its issuance but does not apply to any payment of distributions unless and until Southern Union Financing has sufficient funds for the payment of such distribu- tions. If Southern Union fails to make interest or other payments on the Subordinated Debt Securities when due (taking account of any Exen- sion Period), the Declaration provides a mechanism whereby the holders of the Preferred Securities, using the procedures described in "Description of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust Company" and "-- Voting Rights," may (i) appoint a Special Regular Trustee and (ii) direct the Property Trustee to enforce its rights under the Subordinated Debt Securities. If the Property Trustee fails to enforce its rights under the Subordinated Debt Securities, a holder of Preferred Securities may, after a period of 30 days has elapsed from such holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding against Southern Union to enforce the Property Trustee's rights under the Subordinated Debt Securities without first instituting any legal proceeding against the Property Trustee or any other person or entity. Southern Union, under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the Preferred Securities. If Southern Union fails to make payments under the Guarantee, the Guarantee provides a mechanism whereby the holders of the Preferred Securities may direct the Guarantee Trustee to enforce its rights thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities may, after a period of 30 days has elapsed from such holder's written request to the Guarantee Trustee to enforce the Guarantee, institute a legal proceeding directly against Southern Union to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against Southern Union Financing, the Guarantee Trustee, or any other person or entity. Southern Union and Southern Union Financing believe that the above mechanisms and obligations, taken together, are substantially equivalent to a full and unconditional guarantee by Southern Union of payments due on the Preferred Securities. See "Description of the Guarantees -- General" in the accompanying Prospectus. UNITED STATES FEDERAL INCOME TAXATION General The following is a summary of certain of the material United States federal income tax consequences of the purchase, ownership and dis- position of Preferred Securities. Unless otherwise stated, this summary deals only with Preferred Securities held as capital assets by holders who purchase the Preferred Securities upon original issuance ("Initial Holders"). It does not deal with special classes of holders such as banks, thrifts, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that will hold the Preferred Securities as a position in a "straddle," as part of a "synthetic security" or "hedge," as part of a "conversion transaction" or other integrated investment, or as other than a capital asset. This summary also does not address the tax consequences to persons that have a functional currency other than the U.S. Dollar or the tax consequences to shareholders, part- ners or beneficiaries of a holder of Preferred Securities. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Preferred Securities. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. Classification of the Subordinated Debt Securities In connection with the issuance of the Subordinated Debt Securi- ties, Skadden, Arps, Slate, Meagher & Flom, special tax counsel to Southern Union and Southern Union Financing, will render its opinion generally to the effect that, although not entirely free from doubt, under then current law and assuming full compliance with the terms of the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Subordinated Debt Securities held by Southern Union Financing will be classified for United States federal income tax purposes as indebtedness of Southern Union. Classification of Southern Union Financing In connection with the issuance of the Preferred Securities, Skadden, Arps, Slate, Meagher & Flom, special tax counsel to Southern Union and Southern Union Financing, will render its opinion generally to the effect that, under then current law and assuming full compliance with the terms of the Declaration and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, Southern Union Financing will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Preferred Securities generally will be considered the owner of an undivided interest in the Subordinated Debt Securi- ties, and each holder will be required to include in its gross income any original issue discount ("OID") accrued with respect to its allocable share of those Subordinated Debt Securities. Original Issue Discount Because Southern Union has the option, under the terms of the Subordinated Debt Securities, to defer payments of interest by extending interest payment periods for up to 20 quarters, all of the stated interest payments on the Subordinated Debt Securities will treated as "original issue discount." Holders of debt instruments issued with OID must include that discount in income on an economic accrual basis before the receipt of cash attributable to the interest, regardless of their method of tax accounting. Generally, all of a holder's taxable interest income with respect to the Subordinated Debt Securities will be accounted for as OID, and actual distributions of stated interest will not be separately reported as taxable income. Actual payments and distributions of stated interest will not, however, be separately reported as tax- able income. The amount of OID that accrues in any month will approximately equal the amount of the interest that accrues on the Subordinated Debt Securities in that month at the stated interest rate. In the event that the interest payment period is extended, holders will continue to accrue OID approximately equal to the amount of the interest payment due at the end of the extended interest payment period on an economic accrual basis over the length of the extended interest period. Because income on the Preferred Securities will constitute OID, corporate holders of Preferred Securities will not be entitled to a dividends - received deduction with respect to any income recognized with respect to the Preferred Securities. Market Discount and Bond Premium Holders of Preferred Securities other than Initial Holders may be considered to have acquired their undivided interests in the Sub- ordinated Debt Securities with market discount or acquisition premium as such phrases are defined for United States federal income tax purposes. Such holders are advised to consult their tax advisors as to the income tax consequences of the acquisition, ownership and disposition of the Preferred Securities. Receipt of Subordinated Debt Securities or Cash Upon Liquidation of Southern Union Financing Under certain circumstances, as described under the caption "Description of the Preferred Securities -- Tax Event Redemp- tion or Distribution," Subordinated Debt Securities may be dis- tributed to holders in exchange for the Preferred Securities and in liquidation of Southern Union Financing. Under current law, such a distribution, for United States federal income tax purposes, would be treated as a non-taxable event to each holder, and each holder would receive an aggregate tax basis in the Subordinated Debt Securities equal to such holder's aggregate tax basis in its Preferred Securities. A holder's holding period in the Subordi- nated Debt Securities so received in liquidation of Southern Union Financing would include the period during which the Preferred Securities were held by such holder. Under certain circumstances described herein (see "Description of the Preferred Securities"), the Subordinated Debt Securities may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Preferred Securities. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed Preferred Securities, and a holder could recognize gain or loss as if it sold such redeemed Preferred Securities for cash. See "United States Federal Income Taxation -- Sales of Preferred Securities." Sales of Preferred Securities A holder that sells Preferred Securities will recognize gain or loss equal to the difference between its adjusted tax basis in the Preferred Securities and the amount realized on the sale of such Preferred Securities. A holder's adjusted tax basis in the Pre- ferred Securities generally will be its initial purchase price increased by OID previously includible in such holder's gross income to the date of disposition and decreased by payments received on the Preferred Securities. Such gain or loss generally will be a capital gain or loss and generally will be a long-term capital gain or loss if the Preferred Securities have been held for more than one year. The Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debt Securities. A holder who disposes of his Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Subordinated Debt Securities through the date of disposition in income as ordinary income, and to add such amount to his adjusted tax basis in his pro rata share of the underlying Subordinated Debt Securities deemed disposed of. To the extent the selling price is less than the holder's adjusted tax basis (which will include, in the form of OID, all accrued but unpaid interest) a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. United States Alien Holders For purposes of this discussion, a "United States Alien Holder" is any corporation, individual, partnership, estate or trust that is, as to the United States, a foreign corporation, a non-resident alien individual, a foreign partnership, or a non-resident fiduciary of a foreign estate or trust. Under present United States federal income tax law: (i) payments by Southern Union Financing or any of its paying agents to any holder of a Preferred Security who or which is a United States Alien Holder will not be subject to United States federal with- holding tax; provided that, (a) the beneficial owner of the Pre- ferred Security does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Southern Union entitled to vote, (b) the beneficial owner of the Preferred Security is not a controlled foreign corporation that is related to Southern Union through stock ownership, and (c) either (A) the beneficial owner of the Preferred Security certifies to Southern Union Financing or its agent, under penalties of perjury, that it is not a United States holder and provides its name and address or (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institu- tion"), and holds the Preferred Security in such capacity, that certifies to Southern Union Financing or its agent, under penalties of perjury, that such statement has been received from the bene- ficial owner by it or by a Financial Institution between it and the beneficial owner and furnishes Southern Union Financing or its agent with a copy thereof; and (ii) a United States Alien Holder of a Preferred Security will not be subject to United States federal withholding tax on any gain realized upon the sale or other dispo- sition of a Preferred Security. Information Reporting to Holders Subject to the qualifications discussed below, income on the Pre- ferred Securities will be reported to holders on Forms 1099, which forms should be mailed to holders of Preferred Securities by January 31 following each calendar year. Southern Union Financing will be obligated to report annually to Cede & Co., as holder of record of the Preferred Securities, the OID related to the Subordinated Debt Securities that accrued during the year. Southern Union Financing currently intends to report such information on Form 1099 prior to January 31 following each calendar year even though Southern Union Financing is not legally required to report to record holders until April 15 following each calendar year. The Underwriters have indicated to Southern Union Financing that, to the extent that they hold Preferred Securities as nominees for beneficial holders, they currently expect to report to such beneficial holders on Forms 1099 by January 31 following each calendar year. Under current law, holders of Preferred Securities who hold as nominees for beneficial holders will not have any obligation to report information regarding the beneficial holders to Southern Union Financing. Southern Union Financing, moreover, will not have any obligation to report to beneficial holders who are not also record holders. Thus, beneficial holders of Preferred Securities who hold their Preferred Securities through the Underwriters will receive Forms 1099 reflecting the income on their Preferred Securities from such nominee holders rather than Southern Union Financing. Backup Withholding Payments made on, and proceeds from the sale of, the Preferred Securities may be subject to a "backup" withholding tax of 31% unless the holder complies with certain identification require- ments. Any withheld amounts will be allowed as a credit against the holder's United States federal income tax, provided the required information is provided to the Service. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement"), Southern Union Financing has agreed to sell to each of the Underwriters named below, and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as representative (the "Representa- tive"), has severally agreed to purchase the number of Preferred Securities set forth opposite its name below. In the Underwriting Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all the Pre- ferred Securities offered hereby if any of the Preferred Securities are purchased. In the event of default by an Underwriter, the Underwriting Agreement provides that, in certain circumstances, the purchase commitments of the nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated. Number of Underwriters Preferred Securities ____________ ____________________ Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . 510,000 Dean Witter Reynolds Inc.. . . . . . . . . . 510.000 A.G. Edwards & Sons, Inc.. . . . . . . . . . 510,000 PaineWebber Incorporated . . . . . . . . . . 510,000 Prudential Securities Incorporated . . . . . 510,000 Robert W. Baird & Co. Incorporated . . . . . 50,000 Bear, Stearns & Co. Inc. . . . . . . . . . . 50,000 Alex, Brown & Sons Incorporated. . . . . . . 50,000 Dillon, Read & Co. Inc.. . . . . . . . . . . 50,000 Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . . 50,000 Kemper Securities, Inc.. . . . . . . . . . . 50,000 Oppenheimer & Co., Inc.. . . . . . . . . . . 50,000 Piper Jaffray Inc. . . . . . . . . . . . . . 50,000 Raymond James & Associates, Inc. . . . . . . 50,000 Wertheim Schroder & Co. Incorporated . . . . 50,000 Advest, Inc. . . . . . . . . . . . . . . . . 25,000 J. C. Bradford & Co. . . . . . . . . . . . . 25,000 JW Charles Securities, Inc.. . . . . . . . . 25,000 Commerzbank Capital Markets Corporation. . . 25,000 Cowen & Company. . . . . . . . . . . . . . . 25,000 Craigie Incorporated . . . . . . . . . . . . 25,000 Crowell, Weedon & Co.. . . . . . . . . . . . 25,000 Dain Bosworth Incorporated . . . . . . . . . 25,000 Davenport & Co. of Virginia, Inc.. . . . . . 25,000 Doft & Co., Inc. . . . . . . . . . . . . . . 25,000 Dougherty, Dawkins, Strand & Bigelow Inc.. . 25,000 Fahnestock & Co. Inc.. . . . . . . . . . . . 25,000 First Albany Corporation . . . . . . . . . . 25,000 First of Michigan Corporation. . . . . . . . 25,000 Furman Selz Incorporated . . . . . . . . . . 25,000 Gruntal & Co., Incorporated. . . . . . . . . 25,000 Interstate/Johnson Lane Corporation. . . . . 25,000 Janney Montgomery Scott Inc. . . . . . . . . 25,000 Josephthal Lyon & Ross Incorporated. . . . . 25,000 Kennedy, Cabot & Co. . . . . . . . . . . . . 25,000 Legg Mason Wood Walker, Incorporated . . . . 25,000 McDonald & Company Securities, Inc.. . . . . 25,000 McGinn, Smith & Co., Inc.. . . . . . . . . . 25,000 Morgan Keegan & Company, Inc.. . . . . . . . 25,000 The Ohio Company . . . . . . . . . . . . . . 25,000 Principal Financial Securities, Inc. . . . . 25,000 Rauscher Pierce Refsnes, Inc.. . . . . . . . 25,000 The Robinson-Humphrey Company, Inc.. . . . . 25,000 Rodman & Renshaw, Inc. . . . . . . . . . . . 25,000 Roney & Co.. . . . . . . . . . . . . . . . . 25,000 Muriel Siebert & Co., Inc. . . . . . . . . . 25,000 Stifel, Nicolaus & Company, Incorporated . . 25,000 Sutro & Co. Incorporated . . . . . . . . . . 25,000 Tucker Anthony Incorporated. . . . . . . . . 25,000 US Clearing Corp.. . . . . . . . . . . . . . 25,000 Utendahl Capital Partners, L.P.. . . . . . . 25,000 Wheat, First Securities, Inc.. . . . . . . . 25,000 Yamaichi International (America), Inc. . . . 25,000 _________ Total. . . . . . . . . . . . . . . . . . . . 4,000,000 ========= The Underwriters propose to offer the Preferred Securities, in part, directly to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement, and, in part, to certain securities dealers at such price less a concession of $.50 per Preferred Security. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $.25 per Preferred Security to certain brokers and dealers. After the Preferred Securities are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Representative. In view of the fact that the proceeds of the sale of the Preferred Securities will ultimately be used to purchase the Subordinated Debt Securities of Southern Union, the Underwriting Agreement pro- vides that Southern Union will pay as compensation ("Underwriters' Compensation") to the Underwriters' arranging the investment therein of such proceeds, an amount in New York Clearing House (next day) funds of $.7875 per Preferred Security (or $3,150,000 in the aggregate) for the accounts of the several Underwriters; provided that, such compensation for sales of 10,000 or more Preferred Securities to any single purchaser will be $.50 per Preferred Security. Therefore, to the extent of such sales, the actual amount of Underwriters Compensation will be less than the aggregate amount specified in the preceding sentence. During a period of 30 days from the date of the Prospectus Sup- plement, neither Southern Union Financing nor Southern Union will, without the prior written consent of the Underwriters, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Preferred Securities, any security convertible into or exchangeable into or exercisable for Preferred Securities or Subordinated Debt Securities or any debt securities substantially similar to the Subordinated Debt Securities or equity securities substantially similar to the Preferred Securities (except for the Subordinated Debt Securities and the Preferred Securities offered hereby). The Preferred Securities have been approved on the New York Stock Exchange. Trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30 day period after the initial delivery of the Preferred Securities. The Representative has advised Southern Union Financing that it intends to make a market in the Preferred Securities prior to the commencement of trading on the New York Stock Exchange. The Representative will have no obligation to make a market in the Preferred Securities, however, and may cease market making activities, if commenced, at any time. Prior to this offering there has been no public market for the Preferred Securities. In order to meet one of the requirements for listing the Preferred Securities on the New York Stock Exchange, the Underwriters will undertake to sell lots of 100 or more Pre- ferred Securities to a minimum of 400 beneficial holders. Southern Union Financing and Southern Union have agreed to indem- nify the Underwriters against, or contribute to payments that the Underwriters may be required to make in respect of, certain liabilities, including liabilities under the Securities Act of 1933, as amended. Certain of the Underwriters engage in transactions with, and, from time to time, have performed services for, Southern Union and its subsidiaries in the ordinary course of business. LEGAL MATTERS The validity of the Preferred Securities, the Subordinated Debt Securities, the Guarantee and certain matters relating thereto will be passed upon for Southern Union and Southern Union Financing by Fleischman and Walsh, L.L.P., Washington, D. C., and on behalf of the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York. Aaron I. Fleischman, Senior Partner of Fleischman and Walsh, L.L.P., is a director of Southern Union. Mr. Fleischman, Fleischman and Walsh, L.L.P., and other attorneys in the firm beneficially own shares of Southern Union common stock that, in the aggregate, represent less than two percent (2%) of the shares of Southern Union common stock outstanding. Certain United States federal income taxation matters will be passed upon for Southern Union and Southern Union Financing by Skadden, Arps, Slate, Meagher & Flom, New York, New York. PROSPECTUS $300,000,000 SOUTHERN UNION COMPANY Senior Debt Securities and Subordinated Debt Securities Southern Union Financing I Southern Union Financing II Southern Union Financing III Preferred Securities guaranteed to the extent set forth herein by Southern Union Company Southern Union Company ("Southern Union" and, together with its subsidiaries, the "Company"), a Delaware corporation, may offer, from time to time, (i) unsecured senior debt securities (the "Senior Debt Securities") consisting of debentures, notes or other evidence of indebtedness, and (ii) unsecured subordinated debt securities (the "Subordinated Debt Securities") consisting of debentures, notes or other evidence of indebtedness (item (i) or (ii) above being referred to herein as the "Debt Securities") or any combination of the foregoing, in each case in one or more series and in amounts, at prices and on terms to be determined at or prior to the time of any such offering. The Subordinated Debt Securities when issued will be unsecured obligations of Southern Union. Southern Union's obligations under the Subordinated Debt Securities will be subordinate and junior in right of payment to certain other indebtedness of Southern Union as may be described in an accompanying Prospectus Supplement (the "Prospectus Sup- plement"). Southern Union Financing I, Southern Union Financing II and Southern Union Financing III (each, a "Southern Union Trust"), each a statutory business trust formed under the laws of the State of Delaware, may offer, from time to time, preferred securities, representing undivided beneficial interests in the assets of the respective Southern Union Trust ("Preferred Securi- ties"). The payment of periodic cash distributions ("distribu- tions") with respect to Preferred Securities of each of the Southern Union Trusts out of moneys held by each of the Southern Union Trusts, and payments on liquidation, redemption or otherwise with respect to such Preferred Securities, will be guaranteed by Southern Union to the extent described herein (each a "Guarantee"). See "Description of the Guarantees" below. Southern Union's obligations under the Guarantees are subordinate and junior in right of payment to all other liabilities of Southern Union and rank pari passu with the most senior preferred stock, if any, issued from time to time by Southern Union. Subordinated Debt Securities may be issued and sold from time to time in one or more series by Southern Union to a Southern Union Trust, or a trustee of such trust, in connection with the investment of the proceeds from the offering of Preferred Securities and Common Securities (as defined herein) of such Southern Union Trust. The Subordinated Debt Securities purchased by a Southern Union Trust may be subse- quently distributed pro rata to holders of Preferred Securities and Common Securities in connection with the dissolution of such Southern Union Trust, upon the occurrence of certain events as may be described in an accompanying Prospectus Supplement. Specific terms of the Debt Securities of any series or the Pre- ferred Securities of any Southern Union Trust in respect of which this Prospectus is being delivered (the "Offered Securities") will be set forth in a Prospectus Supplement with respect to such Offered Securities, which will describe, without limitation and where applicable, the following: (i) in the case of Debt Securi- ties, the specific designation, aggregate principal amount, denomination, maturity, premium, if any, any exchange, con- version, redemption or sinking fund provisions, if any, interest rate (which may be fixed or variable), if any, the time and method of calculating interest payments, if any, dates on which premium, if any, and interest, if any, will be payable, the right of Southern Union, if any, to defer payment of interest on the Debt Securities and the maximum length of such deferral period, the initial public offering price, subordination terms, and any listing on a securities exchange and other specific terms of the offering; and (ii) in the case of Preferred Securities, the designation, number of securities, liquidation preference per security, initial public offering price, any listing on a securi- ties exchange, distribution rate (or method of calculation thereof), dates on which distributions shall be payable and dates from which distributions shall accrue, any voting rights, terms for any conversion or exchange into other securities, any redemp- tion, exchange or sinking fund provisions, any other rights, preferences, privileges, limitations or restrictions relating to the Preferred Securities and the terms upon which the proceeds of the sale of the Preferred Securities shall be used to purchase a specific series of Subordinated Debt Securities of Southern Union. The Offered Securities may be offered in amounts, at prices and on terms to be determined at the time of offering; provided, how- ever, that, the aggregate initial public offering price of all Offered Securities shall not exceed $300,000,000. Any Prospectus Supplement relating to any series of Offered Securities will con- tain information concerning certain United States federal income tax considerations, if applicable, to the Offered Securities. Southern Union and/or each of the Southern Union Trusts may sell the Offered Securities directly, through agents designated from time to time or through underwriters or dealers. See "Plan of Distribution" below. If any agents of Southern Union and/or any Southern Union Trust or any underwriters or dealers are involved in the sale of the Offered Securities, the names of such agents, underwriters or dealers and any applicable commissions and dis- counts will be set forth in any related Prospectus Supplement. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM- MISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT. The date of this Prospectus is May 8, 1995. No dealer, salesperson or any other individual has been authorized by Southern Union or any of the Southern Union Trusts to give any information or to make any representation other than those contained or incorporated by reference in this Prospectus or any accompanying Prospectus Supplement and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of Southern Union or any of the Southern Union Trusts since the date hereof. AVAILABLE INFORMATION This Prospectus constitutes a part of a Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") filed by Southern Union and the Southern Union Trusts with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Offered Securities. This Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to the Company, the Southern Union Trusts and the Offered Securi- ties. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the SEC or incorporated by reference herein are not necessarily complete, and, in each instance, reference is made to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. Southern Union is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy state- ments and other information with the SEC. Reports, proxy state- ments and other information concerning Southern Union can be inspected and copied at prescribed rates at the SEC's Public Reference Room, Judiciary Plaza, 450 Fifth Street, Northwest, Washington, D.C. 20549, as well as the following Regional Offices of the SEC: 7 World Trade Center, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Such reports, proxy statements and other information may also be inspected at the offices of the New York Stock Exchange ("NYSE"), on which Southern Union common stock is traded, at 20 Broad Street, New York, New York 10005. No separate financial statements of any of the Southern Union Trusts have been included herein. Southern Union does not con- sider that such financial statements would be material to holders of the Preferred Securities because (i) all of the voting securi- ties of each of the Southern Union Trusts will be owned, directly or indirectly, by Southern Union, a reporting company under the Exchange Act, (ii) each of the Southern Union Trusts has no inde- pendent operations but exists for the sole purpose of issuing securities representing undivided beneficial interests in the assets of such Southern Union Trust and investing the proceeds thereof in Subordinated Debt Securities issued by Southern Union, and (iii) the obligations of each of the Southern Union Trusts under the Trust Securities (as defined herein) are fully and uncon- ditionally guaranteed by Southern Union to the extent that such Southern Union Trust has funds available to meet such obligations. See "Particular Terms of the Subordinated Debt Securities" and "Description of the Guarantees." INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by Southern Union (File No. 1-6407) with the SEC pursuant to the Exchange Act are incorporated by reference herein and made a part hereof: 1. Transition Report on Form 10-K for the year ended June 30, 1994 (the "1994 Form 10-K"). 2. Quarterly Reports on Form 10-Q for the quarters ended September 30, 1994 (the "First Quarter Form 10-Q"), December 31, 1994 (the "Second Quarter Form 10-Q") and March 31, 1995 (the "Third Quarter Form 10-Q".)(1) _____________________________ (1) The First Quarter Form 10-Q's Statement of Consolidated Operations includes certain non-operating revenues of a subsidiary of Southern Union, in the amount of $1,329,000 for the three months ended September 30, 1993 and the twelve months ended September 30, 1994 and $1,685,000 for the twelve months ended September 30, 1993, which if reclassified to be consistent with current reporting periods would have been reclassified between Operating revenues and Other income in the Statement of Consolidated Operations. If such reclassifications have been made in the First Quarter Form 10-Q, the following amounts would have been reported on the following statements. On the Statement of Consolidated Operations for the three months ended September 30, 1993: Operating revenues -- $31,087,000 (a decrease of $1,329,000); Operating margin -- $16,751,000 (a decrease of $1,329,000); Net operating revenues (loss) -- $(625,000) (a decrease of $1,329,000); Other, net -- $2,140,000 (an increase of $1,329,000); and Total other expenses, net -- $(1,284,000) (a decrease of $1,329,000). On the Statement of Consolidated Operations for the twelve months ended September 30, 1994: Operating revenues -- $412,542,000 (an increase of $1,329,000); Operating margin -- $186,928,000 (an increase of $1,329,000); Net operating revenues -- $31,702,000 (an increase of $1,329,000); Other, net -- $6,388,000 (a decrease of $1,329,000); and Total other expenses, net -- $(25,555,000) (an increase of $1,329,000). On the Statement of Consolidated Operations for the twelve months ended September 30, 1993: Operating revenues -- $199,723,000 (a decrease of $1,685,000); Operating margin -- $91,780,000 (a decrease of $1,685,000); Net operating revenues -- $18,110,000 (a decrease of $1,685,000); Other, net -- $5,743,000 (an increase of $1,685,000); and Total other expenses, net -- $(7,394,000) (a decrease of $1,685,000). Such reclassifications would have had no impact on Earnings from continuing operations, Earnings before preferred dividends, or Net earnings (loss) available for (attributable to) common stock for any such periods. In addition, due to a computer system conversion in one of the Company's divisions, estimates, rather than actual amounts, of certain working capital items were reported in the First Quarter Form 10-Q. The Company subsequently determined the actual amounts and the difference between such amounts and the estimates reported had no impact on net working capital. The actual amounts were subsequently reflected in the Con- solidated Financial Statements in the Second Quarter Form 10-Q. Had these actual amounts been reported in the First Quarter Form 10-Q, the following amounts would have been reported on the following statements. On the Consolidated Balance Sheet as of September 30, 1994: Cash and cash equivalents -- $2,865,000 (an increase of $939,000); Prepayments and other -- $3,714,000 (an increase of $588,000); Total current assets -- $82,613,000 (an increase of $1,527,000); Total Assets -- $902,774,000 (an increase of $1,527,000); Accounts payable -- $41,481,000 (an increase of $1,066,000); Federal, state and local taxes -- $5,242,000 (an increase of $461,000); Total current liabilities -- $121,884,000 (an increase of $1,527,000); and Total Stockholders' equity and liabilities -- $902,774,000 (an increase of $1,527,000). On the Statements of Consolidated Cash Flows for the three months ended September 30, 1994: Net cash flows used in operating activities -- $(27,405,000) (a decrease of $939,000); Decrease in cash and cash equivalents -- $(3,016,000) (a decrease of $939,000); and Cash and cash equivalents at end of period -- $2,865,000 (an increase of $939,000). On the Statement of Consolidated Cash Flows for the twelve months ended Septebmer 30, 1994: Net cash flow from operating activities -- $76,185,000 (an increase of $939,000); Decrease in cash and cash equivalents -- $(6,854,000) (a decrease of $939,000); and Cash and cash equivalents at end of period -- $2,865,000 (an increase of $939,000). All documents filed by Southern Union pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the termination of the offering of the Offered Securities pursuant hereto shall be deemed to be incorpo- incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein or in any Prospectus Supplement shall be deemed to be modified or super- seded for purposes of this Prospectus, or in any Prospectus Sup- plement, to the extent that a statement contained herein or therein (or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein or therein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or super- seded, to constitute a part of this Prospectus or any Prospectus Supplement. Southern Union undertakes to provide without charge to each per- person to whom a copy of this Prospectus has been delivered, upon the written or oral request of any such person, a copy of any or all of the foregoing documents incorporated herein by reference, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents. Such requests should be directed to Dennis K. Morgan, Vice President - - Legal and Secretary, Southern Union Company, at 504 Lavaca Street, Suite 800, Austin, Texas 78701, telephone (512) 477-5852. SOUTHERN UNION COMPANY The Company's principal line of business is the distribution of natural gas as a public utility through Southern Union Gas Com- pany ("Southern Union Gas") and Missouri Gas Energy, each of which is a division of Southern Union. Southern Union Gas serves approximately 497,000 residential, commercial, industrial, agri- cultural and other customers in Texas (including the cities of Austin, Brownsville, El Paso, Galveston and Port Arthur) and Oklahoma. Missouri Gas Energy, acquired on January 31, 1994, serves approximately 478,000 customers in central and western Missouri (including the cities of Kansas City, St. Joseph, Joplin and Monett). Subsidiaries of Southern Union have been established to support and expand natural gas sales and to capitalize on the Company's gas energy expertise. These subsidiaries market natural gas to end-users, sell natural gas as a vehicular fuel, convert vehicles to operate on natural gas, operate intrastate and interstate natural gas pipeline systems, and sell commercial gas air condi- tioning and other gas-fired engine-driven applications. By pro- viding "one-stop shopping," the Company can serve its various customers' particular energy needs, which encompass substantially all of the natural gas distribution and sales businesses from natural gas sales to specialized energy consulting services. Certain subsidiaries also hold investments in real estate and other assets, which are primarily used in Southern Union's utility business. The Company is a sales and market-driven energy company whose management is committed to achieving profitable growth of its natural gas energy businesses in an increasingly competitive business environment. Management's strategies for achieving these objectives principally consist of (i) promoting new sales opportunities and markets for natural gas, (ii) enhancing finan- cial and operating performance, and (iii) expanding the Company through development of existing systems and selectively acquiring new systems. Management develops and continually evaluates these strategies, and the Company's implementation of them, by applying its experience and expertise in analyzing the energy industry, technological advances, market opportunities and general business trends. Each of these strategies, as implemented throughout the Company's businesses, reflects the Company's commitment to its core natural gas utility business. Central to all of the Com- pany's businesses and strategies is the sale and transportation of natural gas. Consistent with this strategy, the Company has actively pursued selected acquisitions in the natural gas distribution, transpor- tation and sales industries where management believes there are opportunities to promote new sales of and markets for natural gas and/or synergies that permit enhanced financial and operating performance. Since 1990, Southern Union has acquired seven gas distribution systems in Texas and one in Missouri. Collectively, these systems have added nearly 593,000 of the Company's present customers, representing approximately $319,785,000 of annual sales revenue to Southern Union. See "Acquisitions and Divesti- ture" in the Notes to Southern Union's Consolidated Financial Statements included in the 1994 Form 10-K. Southern Union's most recent acquisition was consummated on January 31, 1994, when it acquired Missouri Gas Energy. Southern Union was incorporated under the laws of the State of Delaware in 1932. The Company's corporate headquarters are located at 504 Lavaca Street, Suite 800, Austin, Texas 78701, and its telephone number is (512) 477-5852. THE SOUTHERN UNION FINANCING TRUSTS Each of Southern Union Financing I, Southern Union Financing II and Southern Union Financing III is a statutory business trust formed under Delaware law pursuant to (i) a separate declaration of trust (each, a "Declaration") executed by Southern Union, as sponsor for such trust (the "Sponsor"), and the Southern Union Trustees (as defined herein) of such trust and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware on March 28, 1995. Each Southern Union Trust exists for the exclusive purposes of (i) issuing the Preferred Securities and common securities representing undivided bene- ficial interests in the assets of the Trust (the "Common Securi- ties" and, together with the Preferred Securities, the "Trust Securities"), (ii) investing the gross proceeds from the sale of the Trust Securities in the Subordinated Debt Securities and (iii) engaging in only those other activities necessary or inci- dental thereto. All of the Common Securities will be directly or indirectly owned by Southern Union. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Preferred Securities, except that, upon an event of default under the Declaration, the rights of the holders of the Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the Preferred Securities. Southern Union will directly or indirectly acquire Common Securities in an aggre- gate liquidation amount equal to 3% of the total capital of each Southern Union Trust. Each Southern Union Trust has a term of approximately 55 years but may terminate earlier, as provided in each Declaration. Each Southern Union Trust's business and affairs will be conducted by the trustees (the "Southern Union Trustees") appointed by Southern Union as the direct or indirect holder of all the Common Securities. The holder of the Common Securities will be entitled to appoint, remove or replace any of, or increase or reduce the number of, the Southern Union Trustees of a Southern Union Trust. The duties and obligations of the Southern Union Trustees shall be governed by the Declaration of such Southern Union Trust. A majority of the Southern Union Trustees of each Southern Union Trust will be persons who are employees or officers of or who are affiliated with Southern Union (the "Regular Trustees"). In certain limited circumstances set forth in a Prospectus Supplement, the holders of a majority of the Preferred Securities will be entitled to appoint one additional Regular Trustee who need not be an employee or officer of or otherwise affiliated with Southern Union. One Southern Union Trustee of each Southern Union Trust will be a financial institution that is not affiliated with Southern Union and has a specified minimum amount of aggregate capital, surplus, and undivided profits of not less than $50,000,000, which shall act as property trustee and as indenture trustee for the purposes of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), pursuant to the terms set forth in a Prospectus Supplement (the "Property Trustee"). In addition, unless the Property Trustee main- tains a principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, one Southern Union Trustee of each Southern Union Trust will have a princi- pal place of business or reside in the State of Delaware (the "Delaware Trustee"). Southern Union will pay all fees and expenses related to the Southern Union Trusts and the offering of the Trust Securities, the payment of which will be guaranteed by Southern Union. The office of the Delaware Trustee for each Southern Union Trust is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890. The address for each Southern Union Trust is c/o Southern Union Company, the Sponsor of each Trust, at the Company's corporate headquarters located at 504 Lavaca Street, Suite 800, Austin, Texas 78701, telephone (512) 477-5852. USE OF PROCEEDS Each Southern Union Trust will use all proceeds received from the sale of its Preferred Securities to purchase Subordinated Debt Securities from Southern Union. The Company intends to add the net proceeds from the sale of the Debt Securities to Southern Union's general funds, to be used for general corporate purposes, including repurchases of outstanding long-term debt securities, capital expenditures, investments in subsidiaries, working capi- tal, repayment of borrowings under bank credit agreements and other business opportunities or as otherwise disclosed in any Prospectus Supplement. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of earnings to fixed charges for Southern Union on an historical basis for the year ended June 30, 1994, and each of the four years in the period ended December 31, 1993, and for the nine-month and twelve-month periods ended March 31, 1995. Such ratios are also presented on a pro forma basis for the year ended June 30, 1994 and the twelve-month periods ended December 31, 1994. For the purpose of calculating such ratios, "earnings" consist of income from con- tinuing operations before income taxes and "fixed charges" con- sist of interest expense, amortization of debt discount or premium and an estimate of interest implicit in rentals. Twelve Nine Months Months Year Ended Ended Ended March 31, March 31, June 30, Year Ended December 31, _______________________ 1995 1995 1994(a) 1993 1992 1991 1990 ________ ________ _______ ____ ____ ____ ____ Ratio of Earnings to Fixed Charges. . . . 1.45 1.84 1.49 1.76 1.77 1.82 1.10 ==== ==== ==== ==== ==== ==== ==== Pro Forma - Ratio of Earnings to Fixed Charges(b) . . 1.39 ==== _____________________________ (a) During 1994, the Company changed its fiscal year-end from December 31 to June 30. (b) This pro forma ratio gives effect to an increase in out- standing debt, as of the beginning of the period presented, primarily as a result of the January 31, 1994 acquisition of Missouri Gas Energy, which was financed through the sale of $475 million of 7.60% Senior Notes. Those debt proceeds, along with proceeds of a $50 million common stock rights offering and working capital from operations, were also used to retire approximately $105 million of long-term debt. This ratio also assumes the acquisition of Missouri Gas Energy occurred as of the beginning of the period presented, as reflected in the pro forma condensed statement of consolidated operations included in the 1994 Form 10-K. DESCRIPTION OF SOUTHERN UNION DEBT SECURITIES The following description sets forth certain general terms and provisions of the Debt Securities to which any Prospectus Supple- ment may relate. The particular terms of the Debt Securities offered by any Prospectus Supplement and the extent, if any, to which such general provisions may apply to the Debt Securities so offered will be described in the Prospectus Supplement relating to such Debt Securities. The Debt Securities may be issued, from time to time, in one or more series, and will constitute either Senior Debt Securities or Subordinated Debt Securities. Senior Debt Securities may be issued under an Indenture dated as of January 31, 1994 (the "Senior Debt Securities Indenture"), between the Company and The Chase Manhattan Bank, N. A., as trustee (the "Senior Debt Securities Trustee"). The Subordinated Debt Securities may be issued from time to time under an Indenture dated as of May 10, 1995 (the "Sub- ordinated Debt Securities Indenture"), between the Company and The Chase Manhattan Bank, N.A. as trustee (the "Subordinated Debt Securities Trustee"). The Senior Debt Securities Indenture and the Subordinated Debt Securities Indenture are referred to herein individually as an "Indenture" and, collectively, as the "Indentures," and the Senior Debt Securities Trustee and the Subordinated Debt Securities Trustee are each referred to herein as the "Trustee." Copies of the Indentures are filed as an exhibit to the Registration State- ment. Capitalized terms used in this section which are not other- wise defined in this Prospectus shall have the meanings set forth in the Indentures to which they relate. The following summaries of certain provisions of the Debt Securities and the Indentures do not purport to be complete and are subject to, and are qualified in their entirety by express reference to all the provisions of the Indentures, including the definitions therein of certain terms. General The Debt Securities will be direct, unsecured obligations of Southern Union. The Indentures do not limit the aggregate principal amount of Debt Securities that may be issued thereunder and provide that Debt Securities may be issued thereunder from time to time in one or more series. Unless otherwise indicated in the Prospectus Supplement relating thereto, the principal of, and any premium or interest on, the Debt Securities will be payable, and the Debt Securities will be exchangeable and transfers thereof will be registrable, at the Place of Payment; provided that, at the option of Southern Union, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the Security Register. The Indentures do not contain any provisions that may afford the Holders of Debt Securities protection in the event of a highly leveraged transaction or other transaction involving Southern Union that may occur in connection with a takeover attempt resulting in a decline in the credit rating of the Debt Securities. Any provi- sion that does provide such protection, if applicable to the Debt Securities, will be described in any Prospectus Supplement relating thereto. The Debt Securities may be issued under the Indentures as Original Issue Discount Securities to be offered and sold at a substantial discount below their principal amount. Special United States federal income tax, accounting and other considerations applicable to any such Original Issue Discount Securities will be described in any Prospectus Supplement relating thereto. "Original Issue Dis- count Security" means any security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof as a result of the occurrence of an Event of Default and the continuation thereof. In addition, the Subordinated Debt Securities may, for United States federal income tax purposes, be deemed to have been issued with "original issue discount" ("OID") even if such securities are offered and sold at an amount equal to their stated principal amount. The United States federal income tax consequences of Sub- ordinated Debt Securities deemed to be issued with OID will be described in any Prospectus Supplement relating thereto. The Indenture does not contain any provisions that would limit the ability of Southern Union to incur indebtedness. Reference is made to any Prospectus Supplement relating to the Debt Securities offered thereby for information with respect to any deletions from, modifications of or additions to the Events of Default or covenants of Southern Union applicable to such Debt Securities that are described herein. Under the Indentures, Southern Union will have the ability to issue Debt Securities with terms different from those of Debt Securities previously issued, without the consent of the Holders of previously issued series of Debt Securities, in an aggregate principal amount determined by Southern Union. Registration and Transfer The Debt Securities may be issued as Registered Securities or Bearer Securities. Registered Securities will be exchangeable for other Registered Securities of the same series and of a like aggre- gate principal amount and tenor of different authorized denomina- tions. If (but only if) provided for in any Prospectus Supplement, Bearer Securities (with all unmatured coupons, except as provided below, and all matured coupons in default) of any series may be exchanged for Registered Securities of the same series of any authorized denominations and of a like aggregate principal amount and tenor. In such event, Bearer Securities surrendered in a per- mitted exchange for Registered Securities between a Regular Record Date or a Special Record Date and the relevant date for payment of interest shall be surrendered without the coupon relating to such date for payment of interest, and interest will not be payable on such date for payment of interest in respect of the Registered Security issued in exchange for such Bearer Security but will be payable only to the holder of such coupon when due, in accordance with the terms of the Indenture. Unless otherwise specified in any Prospectus Supplement, Bearer Securities will not be issued in exchange for Registered Securities. The Debt Securities may be presented for exchange as described above, and Registered Securities may be presented for registration of transfer (duly endorsed or accompanied by a written instrument of transfer), at the corporate trust office of the Trustee in New York, New York, or at the office of any transfer agent designated by Southern Union for such purpose with respect to any series of Debt Securities and referred to in any Prospectus Supplement. No service charge will be made for any transfer or exchange of Debt Securities, but Southern Union may require payment of a sum suffi- cient to cover any tax or other governmental charge payable in con- nection therewith. If any Prospectus Supplement refers to any transfer agent (in addition to the Trustee) initially designated by Southern Union with respect to any series of Debt Securities, Southern Union may at any time rescind the designation of any such transfer agent or approve a change in the location at which any such transfer agent acts, except that, if Debt Securities of a series are issuable solely as Registered Securities, Southern Union will be required to maintain a transfer agent in each Place of Pay- ment for such series and, if Debt Securities of a series may be issuable both as Registered Securities and as Bearer Securities, Southern Union will be required to maintain (in addition to the Trustee) a transfer agent in a Place of Payment for such series located outside the United States. Southern Union may at any time designate additional transfer agents with respect to any series of Debt Securities. In the event of any redemption of Debt Securities, Southern Union shall not be required to: (i) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before any selection of Debt Securities of that series to be redeemed and ending at the close of business on (A) if Debt Securities of the series are issuable only as Registered Securities, the day of mailing of the relevant notice of redemption and (B) if Debt Securities of the series are issuable as Bearer Securities, the day of the first publication of the rele- vant notice of redemption or, if Debt Securities of the series are also issuable as Registered Securities and there is no publication, the day of mailing of the relevant notice of redemption; (ii) register the transfer of or exchange any Registered Security, or portion thereof, called for redemption, except the unredeemed por- tion of any Registered Security being redeemed in part; (iii) exchange any Bearer Security selected for redemption, except to exchange such Bearer Security for a Registered Security of that series and like tenor that is simultaneously surrendered for redemption; or (iv) issue, register the transfer of or exchange any Debt Securities that has been surrendered for repayment at the option of the Holder, except the portion if any, thereof not to be so repaid. Global Securities The Debt Securities of a series may be issued in whole or in part in the form of one or more Global Securities (as such term is defined below), which will be deposited with, or on behalf of, a depositary ("Depositary") or its nominee identified in the appli- cable Prospectus Supplement. In such case, one or more Global Securities will be issued in a denomination or aggregate denomina- tion equal to the portion of the aggregate principal amount of outstanding Debt Securities of the series to be represented by such Global Security or Global Securities. Unless and until it is exchanged in whole or in part for Debt Securities in registered form, a Global Security may not be registered for transfer or exchange except as (i) a whole by the Depositary for such Global Security to a nominee of such Depositary, by a nominee of such Depositary to such Depositary or another nominee to such Depositary or by such Depositary, or by any nominee to a successor Depositary or a nominee of such successor Depositary, and (ii) in the circum- stances described in the applicable Prospectus Supplement. The term "Global Security," when used with respect to any series of Debt Securities, means a Debt Security that is executed by Southern Union and authenticated and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, which shall be registered in the name of the Depositary or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the Outstanding Debt Securities of such series or any portion thereof, in either case having the same terms, including, without limitation, the same original issue date, date or dates on which principal is due, and interest rate or method of determining interest. The specific terms of the depositary arrangement with respect to any portion of a series of Debt Securities to be represented by a Global Security will be described in the applicable Prospectus Supplement. Southern Union expects that the following provisions will apply to depositary arrangements. Unless otherwise specified in the applicable Prospectus Supplement, Debt Securities that are to be represented by a Global Security to be deposited with or on behalf of a Depositary will be represented by a Global Security registered in the name of such Depositary or its nominee. Upon the issuance of such Global Security, and the deposit of such Global Security with or on behalf of the Depositary for such Global Security, the Depositary will credit on its book- entry registration and transfer system the respective principal amounts of the Debt Securities represented by such Global Security to the accounts of institutions that have accounts with such Depositary or its nominee ("participants"). The accounts to be credited will be designated by the underwriters or agents of such Debt Securities or, if such Debt Securities are offered and sold directly by Southern Union, by Southern Union. Ownership of bene- ficial interests in such Global Security will be limited to par- ticipants or Persons that may hold interests through participants. Ownership of beneficial interests by participants in such Global Security will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by the Depositary or its nominee for such Global Security. Ownership of beneficial interests in such Global Security by Persons that hold through participants will be shown on, and the transfer of that ownership interest within such participant will be effected only through, records maintained by such participant. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in certificated form. The foregoing limitations and such laws may impair the ability to transfer beneficial interests in such Global Securities. So long as the Depositary for a Global Security, or its nominee, is the registered owner of such Global Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or Holder of the Debt Securities represented by such Global Security for all purposes under the Indenture. Unless otherwise specified in the applicable Prospectus Supplement, owners of bene- ficial interests in such Global Security will not be entitled to have Debt Securities of the series represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of Debt Securities of such series in certificated form and will not be considered the Holders thereof for any purposes under the Indenture. Accordingly, each Person owning a beneficial interest in such Global Security must rely on the procedures of the Depositary and, if such Person is not a participant, on the procedures of the participant through which such Person owns its interest to exercise any rights of a Holder under the Indenture. Southern Union understands that under existing industry practices, if Southern Union requests any action of Holders or an owner of a beneficial interest in such Global Security desires to give any notice or take any action a Holder is entitled to give or take under the Indenture, then the Depositary would authorize the participants to give such notice or take such action, and participants would authorize beneficial owners owning through such participants to give such notice or take such action or would otherwise act upon the instructions of beneficial owners owning through them. Principal of and any premium and interest on a Global Security will be payable in the manner described in the applicable Prospectus Supplement. Restrictions The Debt Securities Indentures provide that Southern Union shall not consolidate with or merge with or into any other corporation, or convey, transfer or lease, or permit one or more of its Sub- sidiaries to convey, transfer or lease, all or substantially all of the properties and assets of the Company on a consolidated basis to any Person, unless either Southern Union is the continuing corpora- tion or such corporation or Person assumes by supplemental inden- ture all the obligations of Southern Union under the Indentures and the Debt Securities, no default or Event of Default shall exist immediately after the transaction, and the surviving corporation or such Person is a corporation, partnership or trust organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia. Pursuant to the Indentures, Southern Union will not, nor will it permit any Subsidiary to, create, incur, issue or assume any Debt secured by any Lien on any property or assets owned by Southern Union or any Subsidiary, and Southern Union will not, nor will it permit any Subsidiary to, create, incur, issue or assume any Debt secured by any Lien on any shares of stock or Debt of any Sub- sidiary (such shares of stock or Debt of any Subsidiary being called "Restricted Securities"), unless (i) in the case of Debt which is expressly by its terms subordinate or junior in right of payment to the applicable series of Debt Securities, such Debt Securities are secured by a Lien on such property or assets that is senior to such other Lien with the same relative priority as such subordinated Debt has with respect to the applicable series of Debt Securities or (ii) in the case of Liens securing Debt that is ranked pari passu with the applicable series of Debt Securities, such Debt Securities are secured by a Lien on such property or assets that is equal and ratable with such other Lien, except that any Lien securing such Debt Securities may be junior to any Lien on Southern Union's accounts receivable, inventory and related con- tract rights securing Debt under Southern Union's revolving credit facility, entered into on September 30, 1993, with Texas Commerce Bank, N. A., as amended on November 15, 1993, July 1, 1994, and April 28, 1995; provided, however, that, nothing contained in Section 1009 of the Indenture shall prevent, restrict or apply to, and there shall be excluded from secured Debt in any computation under that Section, Debt secured by: (a) Liens on any property or assets or Restricted Securities of Southern Union or any Subsidiary existing as of the date of the first issuance by Southern Union of the applicable Debt Securities issued pursuant to an Indenture or such other date as may be specified in a Prospectus Supplement for an appli- cable series of Debt Securities issued pursuant to an Inden- ture, subject to the provisions of subsection (h) below; (b) Liens on any property or assets or Restricted Securities of any corporation existing at the time such corporation becomes a Subsidiary, or arising thereafter (i) otherwise than in con- nection with the borrowing of money arranged thereafter and (ii) pursuant to contractual commitments entered into prior to and not in contemplation of such corporation's becoming a Sub- sidiary; (c) Liens on any property or assets or Restricted Securities of Southern Union or any Subsidiary existing at the time of acquisition thereof, or securing the payment of all or any part of the purchase price or construction cost thereof, or securing any Debt incurred prior to, at the time of or within 120 days after, the acquisition of such property or assets or Restricted Securities or the completion of any such construc- tion, whichever, is later, for the purpose of financing all or any part of the purchase price or construction cost thereof; (d) Liens on any property or assets to secure all or any part of the cost of development, operation, construction, alteration, repair or improvement of all or any part of such property or assets or to secure Debt incurred by Southern Union or any Subsidiary prior to, at the time of or within 120 days after, the completion of such development, operation, construction, alteration, repair or improvement, whichever is later, for the purpose of financing all or any part of such cost; (e) Liens in favor of the Trustee for the benefit of the Holders and subsequent holders of the Debt Securities securing the Debt Securities; (f) Liens secured by property or assets of Southern Union or any Subsidiary that comprise no more than 20% of Consolidated Net Tangible Assets (as defined below); (g) Liens which secure Senior Indebtedness owing by a Subsidiary to Southern Union or to another Subsidiary; and (h) Any extension, renewal, substitution or replacement (or suc- cessive extensions, renewals, substitutions or replacements), in whole or in part, of any of the Liens referred to in para- graphs (a) through (g) above or the Debt secured thereby; provided that, (1) such extension, renewal, substitution or replacement Lien shall be limited to all or any part of the same property or assets or Restricted Securities that secured the Lien extended, renewed, substituted or replaced (plus improvements on such property and plus any other property or assets not then owned by Southern Union or a Subsidiary or constituting Restricted Securities) and (2) in the case of paragraphs (a) through (c) above, the Debt secured by such Lien at such time is not increased. For the purposes of Section 1009, the giving of a guarantee that is secured by a Lien on any property or assets or Restricted Securi- ties, and the creation of a Lien on any property or assets or Restricted Securities to secure Debt that existed prior to the creation of such Lien, shall be deemed to involve the creation of Debt in an amount equal to the principal amount guaranteed or secured by such Lien; but the amount of Debt secured by Liens on property or assets and Restricted Securities shall be computed without cumulating the underlying indebtedness with any guarantee thereof or Lien securing the same. Limitation on Sale and Leaseback Transactions Except in respect of Subordinated Debt Securities issued to a Southern Union Trust or a trustee of such trust, Southern Union will not, and will not permit any Subsidiary to, enter into any arrangement after the date of the original issuance by Southern Union of the applicable series of Debt Securities issued pursuant to an Indenture, or such other date as may be specified in any Prospectus Supplement for an applicable series of Debt Securities issued pursuant to an Indenture, with any Person (other than Southern Union or another Subsidiary) providing for the leasing by Southern Union or any such Subsidiary of any property (except a lease for a temporary period not to exceed three years by the end of which it is intended that the use of such property by the lessee will be discontinued) that was or is owned or leased by Southern Union or a Subsidiary and that has been or is to be sold or trans- ferred by Southern Union or such Subsidiary to such Person (herein referred to as a "sale and leaseback transaction") unless either -- (a) after giving pro forma effect to such transaction, the Attributable Debt (as defined below) of Southern Union and its Subsidiaries in respect of such sale and leaseback transaction and all other sale and leaseback transactions entered into after the date of the first issuance by Southern Union of Debt Securities issued pursuant to the Indenture (other than such sale and leaseback transactions as are permitted by paragraph (b) below) would not exceed 20% of Consolidated Net Tangible Assets, or (b) Southern Union, within 180 days after the sale and leaseback transaction, applies or causes a Subsidiary to apply an amount equal to the greater of the net proceeds from the sale of the property subject to the sale and leaseback transaction or the fair market value of the property so sold and leased back at the time of the sale and leaseback transaction to the retire- ment of Debt Securities of any series or any other Debt of Southern Union (other than Debt subordinated to the Debt Securities) or Debt of a Subsidiary having a stated maturity more than 12 months from the date of such application or which is extendible at the option of the obligor thereon to a date more than 12 months from the date of such application (and, unless otherwise expressly provided with respect to any one or more series of Debt Securities, any redemption of Debt Securi- ties pursuant to this provision shall not be deemed to consti- tute a refunding operation or anticipated refunding operation for the purposes of any provision limiting Southern Union's right to redeem Debt Securities of any one or more such series when such redemption involves a refunding operation or antici- pated refunding operation); provided that, the amount to be so applied shall be reduced by (i) the principal amount of Debt Securities delivered within 180 days after such sale or trans- fer to the Trustee for retirement and cancellation and (ii) the principal amount of any such Debt of Southern Union or a Subsidiary, other than Debt Securities, is voluntarily retired by Southern Union or a Subsidiary within 180 days after such sale or transfer. Notwithstanding the foregoing, no retire- ment referred to in this paragraph (b) may be effected by pay- ment at maturity or pursuant to any mandatory sinking fund payment or any mandatory prepayment provision. Notwithstanding the foregoing, where Southern Union or any Sub- sidiary is the lessee in any sale and leaseback transaction, Attributable Debt shall not include any Debt resulting from the guarantee by Southern Union or any other Subsidiary of the lessee's obligation thereunder. Events of Default Each Indenture provides, with respect to any series of Debt Securities outstanding thereunder, that any one or more of the fol- lowing events that has occurred and is continuing shall constitute an Event of Default: (i) default in the payment of any interest upon or any Additional Amounts payable in respect of any Debt Security of that series, or of any coupon appertaining thereto, when the same becomes due and payable and continues for 30 days; provided, however, that, a valid extension of the interest payment period by Southern Union for the Subordinated Debt Securities shall not constitute a default in the payment of interest for this pur- pose, and provided further that, if Subordinated Debt Securities are issued to a Southern Union Trust or a trustee of such trust in con- nection with the issuance of Trust Securities by such Southern Union Trust, such 30-day period will be replaced by a ten-day period, (ii) default in the payment of the principal of or any pre- mium on any Debt Security of that series when due, whether at maturity, upon redemption by declaration or otherwise; provided, however, that, a valid extension of the maturity of the Subordi- nated Debt Securities shall not constitute a default for this pur- pose; (iii) default in the deposit of any sinking fund payment, when and as due by the terms of any Debt Securities of that series; (iv) default in the performance or breach of any covenant or agree0 ment of Southern Union in the Indenture with respect to any Debt Security of that series, continued for 60 days after written notice to Southern Union from the Trustee or from the holders of at least 25% of the outstanding Debt Securities of that series; (v) cross- acceleration of other Debt of Southern Union in excess of 10% of Consolidated Net Worth; (vi) certain events in bankruptcy, insol- vency or reorganization of Southern Union; (vii) the voluntary or involuntary dissolution, winding-up or termination of a Southern Union Trust to which (or to a trustee of such trust to which) Sub- ordinated Debt Securities were issued in connection with the issuance of Trust Securities by such Southern Union Trust, except in connection with the distribution of Subordinated Debt Securities to the holders of Trust Securities in liquidation of such Southern Union Trust, the redemption of all of the Trust Securities of such Southern Union Trust, or certain mergers, consolidations or amal- gamations, each as permitted by the Declaration of such Southern Union Trust; and (viii) any other Event of Default provided with respect to Debt Securities of that series. Southern Union is required to file annually with the Trustee an officer's certificate as to Southern Union's compliance with all conditions and covenants under each Indenture. Each Indenture provides that the Trustee may withhold notice to the Holders of Debt Securities of any default, except in the case of a default on the payment of the principal of (or premium), if any, or interest on any Debt Securities or the payment of any sinking fund installment with respect to such Securities if it considers it in the interest of the Holders of Debt Securities to do so. If an Event of Default, other than certain events with respect to bankruptcy, insolvency and reorganization of Southern Union or any significant Subsidiary, occurs and is continuing with respect to Debt Securities of a particular series, the Trustee or the Holders of not less than 25% in principal amount of Outstanding Debt Securities of that series may declare the Outstanding Debt Securi- ties of that series due and payable immediately. If an Event of Default with respect to certain events of bankruptcy, insolvency or reorganization of Southern Union or any Significant Subsidiary with respect to Debt Securities of a particular series shall occur and be continuing, then the principal of all the Outstanding Debt Securities of that series, and accrued and unpaid interest thereon, shall automatically be due and payable without any act on the part of the Trustee or any Holder. Subject to the provisions relating to the duties of the Trustee, if an Event of Default with respect to Debt Securities of a particular series occurs and is continuing, the Trustee shall be under no obligation to exercise any of its rights or powers under the applicable Indenture at the request or direction of any of the Holders of Debt Securities of such series, unless such Holders shall have offered to the Trustee reasonable indemnity and security against the costs, expenses and liabilities that might be incurred by it in compliance with such request. Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in principal amount of the Outstanding Debt Securities of such series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee under the applicable Indenture, or exercising any trust or power conferred on the Trustee with respect to the Debt Securities of that series. The Trustee may refuse to follow directions in con- flict with law or the Indenture that may involve Trustee in per- sonal liability or may be unduly prejudicial to Holders not joining therein. The Holders of not less than a majority in principal amount of the Outstanding Debt Securities of any series may, on behalf of the Holders of all the Debt Securities of such series and any related coupons, waive any past default under the applicable Indenture with respect to such series and its consequences, except a default (i) in the payment of the principal of (or premium, if any) or interest on or Additional Amounts payable in respect of any Debt Security of such series unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration and any applicable premium has been deposited with the Trustee or (ii) in respect of a covenant or provision that cannot be modified or amended without the consent of the Holder of each Outstanding Debt Security of such series affected thereby. Modification or Waiver Modification and amendment of each of the Indentures may be made by Southern Union and the applicable Trustee with the consent of the Holders of not less than a majority in principal amount of all Outstanding Indenture Securities or any series that are affected by such modification or amendment; provided that, no such modification or amendment may, without the consent of the Holder of each Out- standing Debt Security of such series, among other things, (i) change the Stated Maturity of the principal of (or premium, if any, on) or any installment of principal of or interest on any Debt Security of such series, (ii) reduce the principal amount or the rate of interest on or any Additional Amounts payable in respect of, or any premium payable upon the redemption of, any Debt Security of such series, (iii) change any obligation of Southern Union to pay Additional Amounts in respect of any Debt Security of such series, (iv) reduce the amount of principal of a Debt Security of such series that is an Original Issue Discount Security and would be due and payable upon a declaration of acceleration of the Maturity thereof, (v) adversely affect any right of repayment at the option of the Holder of any Debt Security of such series, (vi) change the place or currency of payment of principal of, or any premium or interest on, any Debt Security of such series, (vii) impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof or any Redemption Date or Repayment Date therefor, (viii) reduce the above-stated percentage of Holders of Outstanding Debt Securities of such series necessary to modify or amend the Indenture or to consent to any waiver thereunder or reduce the requirements for voting or quorum described below, (ix) modify the change of control provisions, if any, or (x) modify the foregoing requirements or reduce the percentage of Outstanding Debt Securities of such series necessary to waive any past default. Modification and amendment of the Indenture may be made by Southern Union and the applicable Trustee without the consent of any Holder, for any of the following purposes: (i) to evidence the succession of another Person to Southern Union as obligor under an Indenture; (ii) to add to the covenants of Southern Union for the benefit of the Holders of all or any series of Debt Securities; (iii) to add Events of Default for the benefit of the Holders of all or any series of Debt Securities; (iv) to add or change any provisions of the applicable Indenture to facilitate the issuance of Bearer Securities; (v) to change or eliminate any provisions of the applicable Indenture, provided that any such change or elimination shall become effective only when there are no Outstanding Debt Securities of any series created prior thereto that is entitled to the benefit of such provision; (vi) to establish the form or terms of Debt Securities of any series and any related coupons; (vii) to secure the Debt Securities; (viii) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trusts under the applicable Indenture by more than one Trustee; and (ix) to close the applicable Indenture with respect to the authentication and delivery of additional series of Debt Securities, in order to cure any ambiguity, defect or inconsistency in the applicable Indenture, provided such action does not adversely affect the interest of Holders of Debt Securities of any series in any material respect. Each Indenture contains provisions for convening meetings of the Holders of Debt Securities of a series if Debt Securities of that series are issuable as Bearer Securities. A meeting may be called at any time by the applicable Trustee and also by such Trustee pur- suant to a request made to such Trustee by Southern Union or the Holders of at least 10% in principal amount of the Debt Securities of such series Outstanding, but in any case, notice shall be given as provided in the applicable Indenture. Except for any consent that must be given by the Holder of each Debt Security affected thereby, as described above, any resolution presented at a meeting or adjourned meeting duly reconvened at which a quorum is present may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Debt Securities of that series Out- standing; provided, however, that, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that may be made, given or taken by the Holders of a specified percentage that is less than a majority in principal amount of Debt Securities of a series Outstanding may be adopted at a meeting or adjourned meeting, duly reconvened and at which a quorum is present, by the affirmative vote of the Holders of such specified percentage in principal amount of the Debt Securities of that series Outstanding. Any resolution passed or decision taken at any meeting of Holders of Debt Securities of any series duly held in accordance with the applicable Indenture will be binding on all Holders of Debt Securities of that series and the related coupons. The quorum at any meeting called to adopt a resolution, and at any reconvened meeting, will consist of persons entitled to vote a majority in principal amount of the Debt Securi- ties of a series Outstanding; provided, however, that, if any action is to be taken at such meeting with respect to a consent or waiver that may be given by the Holders of not less than a speci- fied percentage in principal amount of the Debt Securities of a series Outstanding, the Persons entitled to vote such specified percentage in principal amount of the Debt Securities of such series Outstanding will constitute a quorum. Notwithstanding the foregoing provisions, if any action is to be taken at a meeting of Holders of Debt Securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that the applicable Indenture expressly provides may be made, given or taken by the Holders of a specified per- centage in principal amount of all Outstanding Debt Securities affected thereby, or of the Holders of such series and one or more additional series, then (i) there shall be no minimum quorum requirement for such meeting, and (ii) the principal amount of the Outstanding Debt Securities of such series that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under the applicable Indenture. Financial Information So long as any of the Debt Securities are outstanding, Southern Union will file with the Commission, to the extent permitted under the Exchange Act, the annual reports, quarterly reports and other documents otherwise required to be filed with the Commission pursu- ant to Section 13(a) or 15(d) of the Exchange Act as if Southern Union were subject to such Sections, and Southern Union will also provide to all Holders and file with the Trustees copies of such reports and documents within 15 days after it files them with the Commission or, if filing such reports and documents by Southern Union with the Commission is not permitted under the Exchange Act, within 15 days after it would otherwise have been required to file such reports and documents if permitted, in each case at Southern Union's cost. Certain Definitions "Attributable Debt" means, as to any specified lease under which any Person is at the time liable for a term of more than 12 months, at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof (excluding any subse- quent renewal or other extension options held by the lessee), dis- counted from the respective due dates thereof to such date at a rate equal to the weighted average of the interest rates borne by the Outstanding Debt Securities, compounded monthly. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of the rent payable by the lessee with respect to such period after excluding any amounts required to be paid on account of maintenance and repairs, ser- vices, insurance, taxes, assessments, water rates and similar charges and contingent rents (such as those based on sales). In the case of any lease that is terminable by the lessee upon the payment of a penalty, such net amount of rent shall include the lesser of (i) the total discounted net amount of rent required to be paid from the later of the first date upon which such lease may be so terminated or the date of the determination of such net amount of rent, as the case may be, and (ii) the amount of such penalty (in which event no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated). "Consolidated Net Tangible Assets" means the total amount of assets (less applicable reserves and other properly deductible items) of Southern Union and its consolidated Subsidiaries after deducting therefrom (i) all current liabilities (excluding any current lia- bilities that are by their terms extendible or renewable at the option of the obligor thereon to a time more than 12 months after the time as of which the amount thereof is being computed) and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recent balance sheet of Southern Union and its con- solidated subsidiaries and computed in accordance with generally accepted accounting principles. PARTICULAR TERMS OF THE SENIOR DEBT SECURITIES The following description of the Senior Debt Securities sets forth certain general terms and provisions of the Senior Debt Securities to which any Prospectus Supplement may relate. The particular terms of the Senior Debt Securities offered by any Prospectus Sup- plement, and the extent, if any, to which such general provisions may apply to the Senior Debt Securities so offered, will be described in the Prospectus Supplement relating to such Senior Debt Securities. General The Senior Debt Securities Indenture provides for the issuance of Senior Debt Securities from time to time in one or more series. Reference is made to the Prospectus Supplement relating to a par- ticular issuance of a series of Senior Debt Securities being offered (the "Senior Debt Securities") for, among other things, the following terms thereof: (1) the title of the Senior Debt Securi- ties; (2) any limit on the aggregate principal amount of such Senior Debt Securities; (3) the percentage of the principal amount at which such Senior Debt Securities will be issued and, if other than the principal amount thereof, the portion of the principal amount payable upon declaration of acceleration of the maturity thereof, or the method by which such portion shall be determined; (4) the date or dates on which the principal of such Senior Debt Securities will be payable; (5) the rate or rates at which such Senior Debt Securities will bear interest, or the method by which such rate or rates shall be determined, and the date such interest shall accrue, or the method by which such date or dates shall be determined; (6) the dates on which such interest will be payable and the Regular Record Dates for any Interest Payment Dates and the basis on which interest shall be calculated; (7) the dates, if any, on which, and the price or prices at which, the Senior Debt Securi- ties may, pursuant to any mandatory or optional sinking fund provi- sions, be redeemed by Southern Union and other detailed terms and provisions of such sinking funds; (8) the date, if any, after which, and the price or prices at which, the Senior Debt Securities may, pursuant to any optional redemption provisions, be redeemed at the option of Southern Union or of the Holder thereof and other detailed terms and provisions of such optional redemption; (9) the applicability, if at all, to such Senior Debt Securities of the provisions of Article Fourteen of the Senior Debt Securities Indenture described under "Defeasance and Covenant Defeasance" and any provisions in modification of, in addition to or in lieu of any of the provisions of such Article; (10) whether and under what cir- cumstances Southern Union will pay Additional Amounts, as contem- plated by Section 1005 of the Senior Debt Securities Indenture, on such Senior Debt Securities to any Holder who is not a United States person (including any modification to the definition of such term as contained in the Senior Debt Securities Indenture as originally executed) in respect to any tax, assessment or govern- mental charge and, if so, whether Southern Union will have the option to redeem such Senior Debt Securities rather than pay such Additional Amounts (and the terms of any such option); (11) any deletions from, modifications of or additions to the Events of Default or covenants of Southern Union with respect to such Senior Debt Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; and (12) any other terms of such Senior Debt Securities. For a description of the terms of any series of Senior Debt Securities, reference must be made to both the Prospectus Supple- ment relating thereto and the description of Debt Securities set forth herein. Unless otherwise indicated in the Prospectus Supplement relating thereto, the Senior Debt Securities will be issued in United States dollars in fully registered form, without coupons, in denominations of $1,000, or any integral multiple thereof. No service charge will be made for any transfer or exchange of the Senior Debt Securities, but Southern Union may require payment of a sum suffi- cient to cover any tax or other governmental charge payable in con- nection therewith. Denominations Senior Debt Securities may be issuable as Registered Securities solely, as Bearer Securities solely, or as both. Registered Securities will be issuable in denominations of $1,000 and integral multiples of $1,000, and Bearer Securities will be issuable in the denomination of $5,000 or, in each case, in such other denomina- tions as may be in the terms of the Senior Debt Securities. The Senior Debt Securities Indenture also provides that Senior Debt Securities may be issuable in global form. Unless otherwise indi- cated in any Prospectus Supplement, Bearer Securities will have interest coupons attached. Defeasance The Senior Debt Securities Indenture provides that, if the provi- sions of Article Fourteen are made applicable to the Senior Debt Securities of or within any series and any related coupons pursuant to Section 1401 of the Senior Debt Securities Indenture, Southern Union may elect either (a) to defease and be discharged from any and all obligations with respect to such Senior Debt Securities and any related coupons (except for the obligation to pay Additional Amounts, if any, upon the occurrence of certain events of tax, assessment or governmental charge with respect to payments on such Senior Debt Securities and the obligations to register the transfer or exchange of such Senior Debt Securities and any related coupons, to replace temporary or mutilated, destroyed, lost or stolen Senior Debt Securities and any related coupons, to maintain an office or agency in respect of such Senior Debt Securities and any related coupons and to hold moneys for payment in trust) ("defeasance") or (b) to be released from its obligations with respect to such Senior Debt Securities and any related coupons under Section 1402 (being the restriction described under "Limitation on Liens") or, if provided pursuant to Section 1403 of the Senior Debt Securities Indenture, its obligations with respect to any other covenant, and any omission to comply with such obligations shall not constitute a default or an Event of Default with respect to such Senior Debt Securities and any related coupons ("covenant defeasance"), in either case upon the irrevocable deposit by Southern Union with the Senior Debt Securities Trustee (or other qualifying trustee), in trust, of an amount, in such Currency in which such Senior Debt Securities and any related coupons are then specified as payable at Stated Maturity, or Government Obligations (as defined below), or both, applicable to such Senior Debt Securities and any related coupons (with such applicability being determined on the basis of the currency, currency unit or composite currency in which such Senior Debt Securities are then specified as payable at Stated Maturity), which through the scheduled payment of principal and interest in accordance with their terms, will provide money in an amount sufficient to pay the principal of (and premium, if any) and interest, if any, on such Senior Debt Securities and any related coupons, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor. Such a trust may only be established if, among other things, Southern Union has delivered to the Senior Debt Securities Trustee an Opinion of Counsel (as specified in the Senior Debt Securities Indenture) to the effect that the Holders of such Senior Debt Securities and any related coupons will not recognize income gain or loss for United States federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred; provided that, such Opinion of Counsel, in the case of defeasance under clause (a) above, must refer to and be based upon a revenue ruling of the Internal Revenue Service or a change in applicable United States federal income tax law occurring after the date of the Senior Debt Securities Indenture. "Government Obligations" means securities that are (i) direct obligations of the government that issued the Currency in which the Senior Debt Securities of a particular series are payable, for the payment of which its full faith and credit is pledged, or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the government that issued the Currency in which the Senior Debt Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law), such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest in or principal of the Government Obligation evidenced by such depository receipt. Unless otherwise provided in the Prospectus Supplement, if, after Southern Union has deposited funds and/or Government Obligations to effect defeasance or covenant defeasance relating thereto with respect to Senior Debt Securities of any series, (a) the Holder of Senior a Debt Security of such series is entitled to and does elect, pursuant to the terms of such Senior Debt Security, to receive payment in a currency other than that in which such deposit has been made in respect of such Senior Debt Security or (b) the currency in which such deposit has been made in respect of any Senior Debt Security of such series ceases to be used by its government of issuance, then the indebtedness represented by such Senior Debt Security shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any) and interest, if any, on such Senior Debt Security as they become due out of the proceeds yielded by con- verting the amount so deposited in respect of such Senior Debt Security into the Currency in which such Senior Debt Security becomes payable as a result of such election or such cessation of usage based on the applicable Market Exchange Rate. Unless otherwise provided in the Prospectus Supplement, all payments of principal of (and premium, if any) and interest, if any, and Additional Amounts, if any, on any Senior Debt Security that is payable in a Foreign Currency that ceases to be used by its government of issuance shall be made in U. S. Dollars. In the event Southern Union effects covenant defeasance with respect to (i) any Senior Debt Securities and any related coupons and (ii) such Senior Debt Securities and any related coupons are declared due and payable because of the occurrence of any Event of Default, other than the Event of Default described in clause (iii) or (vi) under "Events of Default," with respect to any covenant for which there has been defeasance, the Currency and/or Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on such Senior Debt Securities and any related coupons at the time of their Stated Maturity but may not be sufficient to pay amounts due on such Senior Debt Securities and any related coupons at the time of the acceleration resulting from such Event of Default. However, Southern Union would remain liable to make payment of such amounts due at the time of acceleration. The Prospectus Supplement may further describe the provisions, if any, permitting such defeasance or covenant defeasance, including any modifications to the provisions described above, with respect to the Senior Debt Securities of or within a particular series and any related coupons. Ranking of Senior Debt Securities The Senior Debt Securities will rank pari passu with all other unsecured indebtedness of the Company, except that the Senior Debt Securities will be senior in right of payment to any subordinated indebtedness which, by its terms, is subordinate to the Senior Debt Securities. Information Concerning the Senior Debt Securities Trustee The Senior Debt Securities Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Senior Debt Securities Indenture and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Senior Debt Securities Trustee is under no obligation to exer- cise any of the powers vested in it by the Senior Debt Securities Indenture at the request of any Holder of Senior Debt Securities, unless offered reasonable indemnity by such Holder against the costs, expenses and liabilities which might be incurred thereby. (Section 602). The Senior Debt Securities Trustee is not required to expand or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Senior Debt Securities Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. (Section 602). PARTICULAR TERMS OF THE SUBORDINATED DEBT SECURITIES The following description of the Subordinated Debt Securities sets forth the general terms and provisions of the Subordinated Debt Securities to which any Prospectus Supplement may relate. The particular terms of the Subordinated Debt Securities offered by any Prospectus Supplement and the extent, if any, to which such general provisions may apply will be described in the Prospectus Supplement relating to such Subordinated Debt Securities. General The Subordinated Debt Securities will be unsecured, subordinated obligations of Southern Union. In the event Subordinated Debt Securities are issued to a Southern Union Trust (or a trustee of such trust) in connection with the issuance of Trust Securities by any such Southern Union Trust, such Subordinated Debt Securities subsequently may be dis- tributed pro rata to the holders of such Trust Securities in con- nection with the dissolution of such Southern Union Trust upon the occurrence of certain events described in the Prospectus Supplement relating to such Trust Securities. Only one series of Subordinated Debt Securities will be issued to a Southern Union Trust, or a trustee of such trust, in connection with the issuance of Trust Securities by such Southern Union Trust. The Subordinated Debt Securities are issuable in one or more series pursuant to an indenture supplement to the Subordinated Debt Securities Indenture or a resolution of Southern Union's Board of Directors or a special committee thereof (each a "Supplemental Indenture"). Reference is made to the Prospectus Supplement relating to any Sub- ordinated Debt Securities being offered for, among other things, the following terms thereof: (1) the title of the Subordinated Debt Securities; (2) any limit on the aggregate principal amount of such Subordinated Debt Securities; (3) the percentage of the prin- cipal amount at which such Subordinated Debt Securities will be issued and, if other than the principal amount thereof, the portion of the principal amount thereof payable upon acceleration of the maturity thereof, or the method by which such portion shall be determined; (4) the date or dates, on which the principal of such Subordinated Debt Securities will be payable; (5) the rights, if any, to defer payments of interest on the Subordinated Debt Securi- ties by extending the interest payment period, and the duration of such extensions; (6) the subordination terms of the Subordinated Debt Securities of such series; (7) the rate or rates at which such Subordinated Debt Securities will bear interest, or the method by which such rate or rates shall be determined, and the date such interest shall accrue, or the method by which such date or dates shall be determined; (8) the dates on which such interest will be payable and the Regular Record Dates for any Interest Payment Dates and the basis on which interest shall be calculated; (9) the dates, if any, on which, the price or prices at which the Subordinated Debt Securities may, pursuant to any mandatory or optional sinking fund provisions, be redeemed by Southern Union and other detailed terms and provisions of such sinking funds; (10) the date, if any, after which, and the price or prices at which, the Subordinated Debt Securities may, pursuant to any optional redemption provi- sions, be redeemed at the option of Southern Union or of the Holder thereof, and other detailed terms and provisions of such optional redemption; (11) whether and under what circumstances Southern Union will pay Additional Amounts as contemplated by Section 1005 of the Indenture on such Subordinated Debt Securities to any Holder who is not a United States person (including any modification to the definition of such term as contained in the Subordinated Debt Securities Indenture as originally executed) in respect to any tax, assessment or governmental charge and, if so, whether Southern Union will have the option to redeem such Subordinated Debt Securi- ties rather than pay such Additional Amounts (and the terms of any such option); (12) any deletions from, modifications of or addi- tions to the Events of Default or covenants of Southern Union with respect to such Subordinated Debt Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; and (13) any other terms of such Subordinated Debt Securities. For a description of the terms of any series of the Subordinated Debt Securities, reference must be made to both the Prospectus Supplement relating thereto and to the description of Subordinated Debt Securities set forth herein. Unless otherwise indicated in the Prospectus Supplement relating thereto, the Subordinated Debt Securities will be issued in United States dollars in fully registered form, without coupons, in denominations of $25 or any integral multiple thereof. No service charge will be made for any transfer or exchange of the Subordi- nated Debt Securities, but Southern Union may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Certain Covenants If Subordinated Debt Securities are issued to a Southern Union Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Southern Union Trust and (i) there shall have occurred any event that would constitute an Event of Default or (ii) Southern Union shall be in default with respect to its payment of any obligations under the related Guarantee or Common Securities Guarantee, then (a) Southern Union shall not, and shall cause any subsidiary of Southern Union that is not a wholly-owned subsidiary of Southern Union not to, declare or pay dividends on, or make a distribution with respect to or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock or the capital stock of any such subsidiary, and (b) Southern Union shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Southern Union that rank pari passu with or junior to such Subordinated Debt Securities; provided, however, that, restriction (a) above does not apply to any stock dividends paid by Southern Union, or any or its subsidiaries where the dividend stock is the same stock as that on which the dividend is being paid. If Subordinated Debt Securities are issued to a Southern Union Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Southern Union Trust and Southern Union shall have given notice of its election to defer payments or interest on such Subordinated Debt Securities by extending the interest payment period as provided in the Indenture and such period, or any extension thereof, shall be continuing then (a) Southern Union shall not, and shall cause any subsidiary of Southern Union that is not a wholly-owned subsidiary of Southern Union not to, declare or pay dividends on, or make a distribution with respect to or redeem, purchase or acquire, or make a liquida- tion payment with respect to, any of its capital stock or the capital stock of any such subsidiary, and (b) Southern Union shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Southern Union that rank pari passu with or junior to such Subordinated Debt Securities; provided, however, that, the restriction (a) above does not apply to any stock dividends paid by Southern Union, or any of its subsidiaries, where the dividend stock is the same as that on which the dividend is being paid. (Section 1012). In the event Subordinated Debt Securities are issued to a Southern Union Trust or a trustee of such trust in connection with the issuance of Trust Securities of such Southern Union Trust, for so long as such Trust Securities remain outstanding, Southern Union will covenant (i) to directly or indirectly maintain 100% ownership of the Common Securities of such Southern Union Trust; provided, however, that any permitted successor of Southern Union under the Indenture may succeed to Southern Union's ownership of such Common Securities and (ii) to use its reasonable efforts to cause such Southern Union Trust (a) to remain a statutory business trust, except in connection with the distribution of Subordinated Debt Securities to the holders of Trust Securities in liquidation of such Southern Union Trust, the redemption of all of the Trust Securities of such Southern Union Trust, or certain mergers, con- solidations or amalgamations, each as permitted by the Declaration of such Southern Union Trust, and (b) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes. Denomination Subordinated Debt Securities may be issuable as Registered Securi- ties solely, as Bearer Securities solely, or as both. Registered Securities will be issuable in denominations of $25 and integral multiples of $25 and Bearer Securities will be issuable in the denomination of $5,000 or, in each case, in such other denomina- tions as may be in the terms of the Subordinated Debt Securities. The Subordinated Debt Securities Indenture also provides that Sub- ordinated Debt Securities may be issued in global form. Unless otherwise indicated in any Prospectus Supplement, Bearer Securities will have interest coupons attached. Subordination The Subordinated Debt Securities will be subordinated and junior in right of payment to certain other indebtedness of Southern Union to the extent set forth in the Prospectus Supplement that will accom- pany this Prospectus. Governing Law The Subordinated Debt Securities Indenture and the Subordinated Debt Securities will be governed by, and construed in accordance with, the internal laws of the State of New York. (Section 111). Information Concerning the Subordinated Debt Securities Trustee The Subordinated Debt Securities Trustee, prior to default, under- takes to perform only such duties as are specifically set forth in the Subordinated Debt Securities Indenture and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Subordinated Debt Securities Trustee is under no obligation to exercise any of the powers vested in it by the Subordinated Debt Securities Indenture at the request of any holder of Subordinated Debt Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabili- ties that might be incurred thereby. (Section 602). The Subordi- nated Debt Securities Trustee is not required to expand or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Subordinated Debt Securities Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. (Section 602). Defeasance The Subordinated Debt Securities Indenture provides that, except as may be provided in respect of any series of Securities, the provisions of Article Fourteen are made applicable to the Subordi- nated Debt Securities of or within any series and any related coupons pursuant to Section 1401 of the Subordinated Debt Securi- ties Indenture, Southern Union may elect either to (a) except in respect of any Securities of which a Southern Union Trust or a Trustee of such trust is the holder, defease and be discharged from any and all obligations with respect to such Subordinated Debt Securities and any related coupons (except for the obliga- tion to pay Additional Amounts, if any, upon the occurrence of certain events of tax, assessment or governmental charge with respect to payments on such Subordinated Debt Securities and the obligations to register the transfer or exchange of such Subordinated Debt Securities and any related coupons, to replace temporary or mutilated, destroyed, lost or stolen Subordinated Debt Securities and any related coupons, to maintain an office or agency in respect of such Subordinated Debt Securities and any related coupons and to hold moneys for payment in trust) ("defeasance") or (b) be released from its obligations with respect to such Subordinated Debt Securities and any related coupons under Section 1402 (being the restriction described under "Limitation on Liens") or, if provided pursuant to Section 1403 of the Subordinated Debt Securities Indenture, its obligations with respect to any other covenant, and any omission to comply with such obligations shall not constitute a default or an Event of Default with respect to such Subordinated Debt Securities and any related coupons ("covenant defeasance"), in either case, upon the irrevo- cable deposit by Southern Union with the Subordinated Debt Securi- ties Trustee (or other qualifying trustee), in trust, of an amount, in such Currency in which such Senior Debt Securities and any related coupons are then specified as payable at Stated Maturity, or Government Obligations (as defined below), or both, applicable to such Subordinated Debt Securities and any related coupons (with such applicability being determined on the basis of the currency, currency unit or composite currency in which such Subordinated Debt Securities are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in accor- dance with their terms will provide money in an amount sufficient to pay the principal of (and premium, if any) and interest, if any, on such Subordinated Debt Securities and any related coupons, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor. Such a trust may only be established if, among other things, Southern Union has delivered to the Subordinated Debt Securities Trustee an Opinion of Counsel (as specified in the Subordinated Debt Securities Indenture) to the effect that the Holders of such Subordinated Debt Securities and any related coupons will not recognize income gain or loss for United States federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred; provided that, such Opinion of Counsel, in the case of defeasance under clause (a) above, must refer to and be based upon a revenue ruling of the Internal Revenue Service or a change in applicable United States federal income tax law occurring after the date of the Subordinated Debt Securities Indenture. "Government Obligations" means securities that are (i) direct obligations of the government that issued the Currency in which the Subordinated Debt Securities of a particular series are payable, for the payment of which its full faith and credit is pledged, or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the government that issued the Currency in which the Subordinated Debt Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest in or principal of the Government Obligation evidenced by such depository receipt. Unless otherwise provided in the Prospectus Supplement, if, after Southern Union has deposited funds and/or Government Obligations to effect defeasance or covenant defeasance relating thereto with respect to Subordinated Debt Securities of any series, (a) the Holder of a Subordinated Debt Security of such series is entitled to and does elect, pursuant to the terms of such Subordinated Debt Security, to receive payment in a currency other than that in which such deposit has been made in respect of such Subordinated Debt Security or (b) the currency in which such deposit has been made in respect of any Subordinated Debt Security of such series ceases to be used by its government of issuance, then the indebtedness represented by such Subordinated Debt Security shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any) and interest, if any, on such Subordinated Debt Security as they become due out of the proceeds yielded by converting the amount so deposited in respect of such Subordinated Debt Security into the Currency in which such Subordinated Debt Security becomes payable as a result of such election or such cessation of usage based on the applicable Market Exchange Rate. Unless otherwise provided in the Prospectus Supplement, all payments of principal of (and premium, if any) and interest, if any, and Additional Amounts, if any, on any Subordi- nated Debt Security that is payable in a Foreign Currency that ceases to be used by its government of issuance shall be made in U. S. Dollars. In the event Southern Union effects covenant defeasance with respect to (i) any Subordinated Debt Securities and any related coupons and (ii) such Subordinated Debt Securities and any related coupons are declared due and payable because of the occurrence of any Event of Default, other than the Event of Default described in clause (iii) or (vi) under "Events of Default," with respect to any covenant for which there has been defeasance, the Currency and/or Government Obligations on deposit with the Trustee will be suffi- cient to pay amounts due on such Subordinated Debt Securities and any related coupons at the time of their Stated Maturity but may not be sufficient to pay amounts due on such Subordinated Debt Securities and any related coupons at the time of the acceleration resulting from such Event of Default. However, Southern Union would remain liable to make payment of such amounts due at the time of acceleration. The Prospectus Supplement may further describe the provisions, if any, permitting such defeasance or covenant defeasance, including any modifications to the provisions described above, with respect to the Subordinated Debt Securities of or within a particular series and any related coupons. Miscellaneous Southern Union will have the right at all times to assign any of its respective rights or obligations under the Subordinated Debt Securities Indenture to a direct or indirect wholly-owned sub- sidiary of Southern Union; provided, that, in the event of any such assignment, Southern Union will remain liable for all of their respective obligations. Subject to the foregoing, the Subordinated Debt Securities Indenture will be binding upon and inure to the benefit of the parties thereto and their respective successors and assigns. The Subordinated Debt Securities Indenture provides that it may not otherwise be assigned by the parties thereto. (Section 803).] DESCRIPTION OF THE SOUTHERN UNION TRUSTS' PREFERRED SECURITIES Each Southern Union Trust may issue, from time to time, only one series of Preferred Securities having terms described in the Prospectus Supplement relating thereto. The Declaration of each Southern Union Trust authorizes the Regular Trustees of such Southern Union Trust to issue on behalf of such Southern Union Trust one series of Preferred Securities. The Declaration will be qualified as an indenture under the Trust Indenture Act. The Pre- ferred Securities will have such terms, including distributions, redemption, voting, liquidation rights and such other preferred, deferred or other special rights or such restrictions as shall be set forth in the Declaration or made part of the Declaration by the Trust Indenture Act. Reference is made to any Prospectus Supple- ment relating to the Preferred Securities of a Southern Union Trust for specific terms, including (i) the distinctive designation of such Preferred Securities, (ii) the number of Preferred Securities issued by such Southern Union Trust, (iii) the annual distribution rate (or method of determining such rate) for Preferred Securities issued by such Southern Union Trust and the date or dates upon which such distributions shall be payable (provided, however, that, distributions on such Preferred Securities shall be payable on a quarterly basis to holders of such Preferred Securities as of a record date in each quarter during which such Preferred Securities are outstanding) (iv) whether distributions on Preferred Securities issued by such Southern Union Trust shall be cumulative, and, in the case of Preferred Securities having such cumulative distribu- tion rights, the date or dates or method of determining the date or dates from which distributions on Preferred Securities issued by such Southern Union Trust shall be cumulative, (v) the amount or amounts which shall be paid out of the assets of such Southern Union Trust to the holders of Preferred Securities of such Southern Union Trust upon voluntary or involuntary dissolution, winding-up or termination of such Southern Union Trust, (vi) the obligation, if any, of such Southern Union Trust to purchase or redeem Pre- ferred Securities issued by such Southern Union Trust and the price or prices at which, the period or periods within which and the terms and conditions upon which Preferred Securities issued by such Southern Union Trust shall be purchased or redeemed, in whole or in part, pursuant to such obligation, (vii) the voting rights, if any, of Preferred Securities issued by such Southern Union Trust in addition to those required by law, including the number of votes per Preferred Security and any requirement for the approval by the holders of Preferred Securities, or of Preferred Securities issued by one or more Southern Union Trusts, or of both, as a condition to specified action or amendments to the Declaration of such Southern Union Trust, and (viii) any other relevant rights, preferences, privileges, limitations or restrictions of Preferred Securities issued by such Southern Union Trust consistent with the Declaration of such Southern Union Trust or with applicable law. All Preferred Securities offered hereby will be guaranteed by Southern Union to the extent set forth below under "Description of the Guarantees." Certain United States federal income tax considerations applicable to any offering of Preferred Securities will be described in the Prospectus Supplement relating thereto. In connection with the issuance of Preferred Securities, each Southern Union Trust will issue one series of Common Securities. The Declaration of each Southern Union Trust authorizes the Regular Trustees of such trust to issue on behalf of such Southern Union Trust one series of Common Securities having such terms including distributions, redemption, voting, liquidation rights or such restrictions as shall be set forth therein. The terms of the Common Securities issued by a Southern Union Trust will be sub- stantially identical to the terms of the Preferred Securities issued by such trust and the Common Securities will rank pari passu, and payments will be made thereon pro rata with the Preferred Securities except that, upon an event of default under the Declaration, the rights of the holders of the Common Securities to payment in respect of distributions and payments upon liquida- tion, redemption and otherwise will be subordinated to the rights of the holders of the Preferred Securities. Except in certain limited circumstances, the Common Securities will also carry the right to vote and to appoint, remove or replace any of the Southern Union Trustees of a Southern Union Trust. All of the Common Securities of a Southern Union Trust will be directly or indirectly owned by Southern Union. DESCRIPTION OF THE GUARANTEES Set forth below is a summary of information concerning the Guaran- tees that will be executed and delivered by Southern Union for the benefit of the holders, from time to time, of Preferred Securities. Each Guarantee will be qualified as an indenture under the Trust Indenture Act. Wilmington Trust Company will act as indenture trustee under each Guarantee (the "Guarantee Trustee"). The terms of each Guarantee will be those set forth in such Guarantee and those made part of such Guarantee by the Trust Indenture Act. The summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the form of Guarantee, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, and the Trust Indenture Act. Each Guarantee will be held by the Guarantee Trustee for the benefit of the holders of the Preferred Securities of the applicable Southern Union Trust. General Pursuant to each Guarantee, Southern Union will irrevocably and unconditionally agree, to the extent set forth herein, to pay in full to the holders of the Preferred Securities issued by a Southern Union Trust, the Guarantee Payments (as defined herein) (except to the extent paid by such Southern Union Trust), as and when due, regardless of any defense, right of set-off or counter- claim which such Southern Union Trust may have or assert. The fol- lowing payments with respect to Preferred Securities issued by a Southern Union Trust (the "Guarantee Payments"), to the extent not paid by such Southern Union Trust will be subject to the Guarantee (without duplication): (i) any accrued and unpaid distributions that are required to be paid on such Preferred Securities, to the extent such Southern Union Trust shall have funds available there- for, (ii) the redemption price, including all accrued and unpaid distributions (the "Redemption Price"), to the extent such Southern Union Trust has funds available therefor with respect to any Pre- ferred Securities called for redemption by such Southern Union Trust and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of such Southern Union Trust (other than in connection with the distribution of Subordinated Debt Securities to the holders of Preferred Securities or the redemption of all of the Preferred Securities) the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on such Preferred Securities to the date of payment to the extent such Southern Union Trust has funds available therefor or (b) the amount of assets of such Southern Union Trust remaining available for dis- tribution to holders of such Preferred Securities in liquidation of such Southern Union Trust. Southern Union's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Southern Union to the holders of Preferred Securities or by causing the applicable Southern Union Trust to pay such amounts to such holders. Each Guarantee will be a full and unconditional guarantee with respect to the Preferred Securities issued by the applicable Southern Union Trust from the time of issuance of such Preferred Securities but will not apply to any payment of distributions except to the extent such Southern Union Trust shall have funds available therefor. If Southern Union does not make interest payments on the Subordinated Debt Securities purchased by a Southern Union Trust, such Southern Union Trust will not pay dis- tributions on the Preferred Securities issued by such Southern Union Trust and will not have funds available therefor. See "Particular Terms of the Subordinated Debt Securities." Southern Union has also agreed to irrevocably and unconditionally guarantee the obligations of the Southern Union Trusts with respect to the Common Securities (the "Common Securities Guarantees") to the same extent as the Guarantees, except that, upon an event of default under the Indenture, holders of Preferred Securities under the Guarantees shall have priority over holders of Common Securities under the Common Securities Guarantee with respect to distributions and payments on liquidation, redemption or otherwise. Certain Covenants of Southern Union In each Guarantee, Southern Union will covenant that, so long as any Preferred Securities issued by the applicable Southern Union Trust remain outstanding, if there shall have occurred any event that would constitute an event of default under such Guarantee or the Declaration of such Southern Union Trust, then (a) Southern Union shall not, and shall cause any subsidiary of Southern Union which is not a wholly-owned subsidiary of Southern Union not to, declare or pay any dividend on, or make any distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or the capital stock of any such subsidiary and (b) Southern Union shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Southern Union which rank pari passu with or junior to such Subordinated Debt Securities. However, each Guarantee will except from the foregoing any stock dividends paid by Southern Union, or any of its subsidiaries, where the dividend stock is of the same as that on which the dividend is being paid. Modification of the Guarantees; Assignment Except with respect to any changes that do not adversely affect the rights of holders of Preferred Securities (in which case no vote will be required), each Guarantee may be amended only with the prior approval of the holders of not less than 66 2/3% in liquidation amount of the outstanding Preferred Securities issued by the applicable Southern Union Trust. The manner of obtaining any such approval of holders of such Preferred Securities will be set forth in an accompanying Prospectus Supplement. All guaran- tees and agreements contained in a Guarantee shall bind the successors, assignees, receivers, trustees and representatives of Southern Union and shall inure to the benefit of the holders of the Preferred Securities of the applicable Southern Union Trust then outstanding. Events of Default An Event of Default under the Guarantee will occur upon the failure of Southern Union to perform any of its payments or other obliga- tions thereunder. The holders of a majority in liquidation amount of the Preferred Securities to which a Guarantee relates have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce such Guarantee, any holder of Preferred Securities relating to such Guarantee may, after a period of 30 days has elapsed from such holders written request to the Guarantee Trustee to enforce the Guarantee, institute a legal proceeding directly against Southern Union to enforce the Guarantee Trustee's rights under such Guarantee without first instituting a legal proceeding against the relevant Southern Union Trust, the Guarantee Trustee or any other person or entity. Southern Union will be required to provide annually to the Guaran- tee Trustee a statement as to the performance by Southern Union of certain of its obligations under each of the Guarantees and as to any default in such performance. Southern Union is required to file annually with the Guarantee Trustee an officer's certificate as to Southern Union's compli- ance with all conditions under each of the Guarantees. Information Concerning the Guarantee Trustee The Guarantee Trustee, prior to the occurrence of a default, undertakes to perform only such duties as are specifically set forth in the Guarantee and, after default with respect to a Guarantee, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by a Guarantee Agreement at the request of any holder of Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. Termination of the Guarantees Each Guarantee will terminate as to the Preferred Securities issued by the applicable Southern Union Trust upon full payment of the Redemption Price of all Preferred Securities of such Southern Union Trust, upon distribution of the Subordinated Debt Securities held by such Southern Union Trust to the holders of the Preferred Securities of such Southern Union Trust or upon full payment of the amounts payable in accordance with the Declaration of such Southern Union Trust upon liquidation of such Southern Union Trust. Each Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Preferred Securities issued by the applicable Southern Union Trust must restore payment of any sums paid under such Preferred Securities or such Guarantee. Status of the Guarantees Each Guarantee will constitute an unsecured obligation of Southern Union and will rank (i) subordinate and junior in right of payment to all other liabilities of Southern Union, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by Southern Union and with any guarantee now or hereafter entered into by Southern Union in respect of any preferred or preference stock of any affiliate of Southern Union and (iii) senior to Southern Union's common stock. The terms of the Preferred Securities provide that each holder of Preferred Securities issued by such Southern Union Trust by acceptance thereof agrees to the subordination provisions and other terms of the applicable Guarantee. Each Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against the guarantor to enforce its rights under a Guarantee without instituting a legal proceeding against any other person or entity). Governing Law The Guarantees will be governed by and construed in accordance with the internal laws of the State of New York. PLAN OF DISTRIBUTION Southern Union may sell any series of the Debt Securities and the Southern Union Trusts may sell the Preferred Securities in one or more of the following ways from time to time (i) to or through underwriters or dealers, (ii) directly to purchasers, or (iii) through agents. The Prospectus Supplement with respect to any Offered Securities will set forth (i) the terms of the offering of the Offered Securities, including the name or names of any under- writers, dealers or agents, (ii) the purchase price of the Offered Securities and the proceeds to Southern Union or the applicable Southern Union Trust as the case may be from such sale, (iii) any underwriting discounts and commissions or agency fees and other items constituting underwriters' or agents' compensation, (iv) any initial public offering prices, (v) any discounts or concessions allowed or reallowed or paid to dealers, and (vi) any securities exchange on which such Offered Securities may be listed. Any initial public offering price, discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. If underwriters are used in the sale, the Offered Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The Offered Securities may be offered to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters. The under- writer or underwriters with respect to a particular underwritten offering of Offered Securities will be named in the Prospectus Supplement relating to such offering and, if an underwriting syndicate is used, the managing underwriter or underwriters will be set forth on the cover of such Prospectus Supplement. Unless otherwise set forth in the Prospectus Supplement relating thereto, the obligations of the underwriters to purchase the Offered Securi- ties will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all the Offered Securi- ties if any are purchased. If dealers are utilized in the sale of Offered Securities, Southern Union and/or the applicable Southern Union Trust will sell such Offered Securities to the dealers as principals. The dealers may then resell such Offered Securities to the public at varying prices to be determined by such dealers at the time of resale. The names of the dealers and the terms of the transaction will be set forth in the Prospectus Supplement relating thereto. Any series of Debt Securities may be sold from time to time either directly by Southern Union or through agents designated by Southern Union. Any series of Preferred Securities may be sold from time to time either directly by the applicable Southern Union Trust or by agents designated by such trust. Any agent involved in the offer or sale of the Offered Securities in respect to which this Prospectus is delivered will be named, and any commissions payable to Southern Union and/or the applicable Southern Union Trust to such agent will be set forth, in the Prospectus Supplement relating thereto. Unless otherwise indicated in the Prospectus Supplement, any such agent will be acting on a best efforts basis for the period of its appointment. The Debt Securities may be sold directly by Southern Union and the Preferred Securities may be sold directly by the applicable Southern Union Trust to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any resale thereof. The terms of any such sales will be described in the Prospectus Supplement relating thereto. If so indicated in the Prospectus Supplement, Southern Union and/or the applicable Southern Union Trust will authorize agents, under- writers or dealers to solicit offers from certain types of institu- tions to purchase Offered Securities from Southern Union and/or the applicable Southern Union Trust at the public offering price set forth in the Prospectus Supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject only to those condi- tions set forth in the Prospectus Supplement, and the Prospectus Supplement will set forth the commission payable for solicitation of such contracts. Agents, dealers and underwriters may be entitled under agreements with Southern Union and/or the applicable Southern Union Trust to indemnification by Southern Union and/or such Southern Union Trust against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments that such agents, dealers or underwriters may be required to make in respect thereof. Agents, dealers and underwriters may be customers of, engage in transactions with, or perform services for Southern Union and/or the applicable Southern Union Trust in the ordinary course of business. Each series of Offered Securities will be a new issue of securities and will have no established trading market. Any underwriters to whom Offered Securities are sold for public offering and sale may make a market in such Offered Securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. The Offered Securities may or may not be listed on a national securities exchange. No assurance can be given that there will be a market for the Offered Securi- ties. VALIDITY OF SECURITIES The validity of the Offered Securities offered hereby will be passed upon for Southern Union by Fleischman and Walsh, L.L.P., Washington, D. C. Aaron I. Fleischman, Senior Partner of Fleischman and Walsh, L.L.P., is a director of Southern Union. Mr. Fleischman, Fleischman and Walsh, L.L.P., and other attorneys in that firm beneficially own shares of common stock that, in the aggregate, represent less than two percent (2%) of the shares of common stock outstanding. EXPERTS The consolidated financial statements and related financial state- ment schedules included in Southern Union Company's Transition Report on Form 10-K for the year ended June 30, 1994, are incorpo- rated by reference in this Prospectus in reliance upon the reports of Coopers & Lybrand L.L.P., given on the authority of that firm as experts in accounting and auditing. -----END PRIVACY-ENHANCED MESSAGE-----