-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vdh84An0L+rXbo3g88JBNmAIX4XFR4rGR5FeiCxWXTkJH9ahrPnrv+olzojFsNI/ X+vycPCFuiXqkjOyMhLLTg== /in/edgar/work/20000707/0000912057-00-030976/0000912057-00-030976.txt : 20000920 0000912057-00-030976.hdr.sgml : 20000920 ACCESSION NUMBER: 0000912057-00-030976 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20000707 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN UNION CO CENTRAL INDEX KEY: 0000203248 STANDARD INDUSTRIAL CLASSIFICATION: [4924 ] IRS NUMBER: 750571592 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-40938 FILM NUMBER: 668678 BUSINESS ADDRESS: STREET 1: 504 LAVACA ST 8TH FL CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124775852 S-4 1 s-4.txt S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 2000 REGISTRATION NO. 333-[ ] ------------------------------------------------ ------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ SOUTHERN UNION COMPANY (Exact name of registrant as specified in its charter) DELAWARE 4923 75-0571592 (State or other jurisdiction of (Primary Standard Industrial (IRS Employer incorporation or organization) Classification Code Number) Identification No.)
------------------ 504 Lavaca Street, Eighth Floor Austin, Texas 78701 (512) 477-5852 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------ DENNIS K. MORGAN, ESQ. SENIOR VICE PRESIDENT-- LEGAL AND SECRETARY SOUTHERN UNION COMPANY 504 LAVACA STREET, EIGHTH FLOOR AUSTIN, TEXAS 78701 (512) 477-5852 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ WITH COPIES TO: STEPHEN A. BOUCHARD, ESQ. ERIC J. KRATHWOHL, ESQ. Fleischman and Walsh, L.L.P. Rich, May, Bilodeau & Flaherty, PC 1400 Sixteenth Street, N.W. 176 Federal Street, 6th Floor Washington, D.C. Boston, Massachusetts 20036 02110-2223 (202) 939-7900 (617) 482-1360 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. THE ISSUANCE OF SECURITIES SHALL OCCUR WHEN ALL OTHER CONDITIONS TO THE CONSUMMATION OF THE TRANSACTIONS DESCRIBED IN THE PROXY STATEMENT/PROSPECTUS HAVE BEEN SATISFIED OR WAIVED. -------------------------------- If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933 ("the Securities Act"), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ---------------------------------
CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------ TITLE OF EACH PROPOSED MAXIMUM PROPOSED CLASS OF OFFERING PRICE PER MAXIMUM AMOUNT OF SECURITIES TO BE AMOUNT TO BE SHARE OF COMMON AGGREGATE REGISTRATION REGISTERED REGISTERED (1) STOCK (2) OFFERING PRICE (2) FEE (2)(3) - ------------------------------------------------------------------------------------------------------------------------------ Common stock, $1.00 par value 3,136,710 $22.00 $49,553,438 $13,082.11 - ------------------------------------------------------------------------------------------------------------------------------
(1) The maximum number of shares of Southern Union common stock, $1.00 par value, to be registered is based on the maximum number of shares to be issued in connection with the transactions described herein. (2) Calculated pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended, solely for the purpose of the registration fee based on the average of the high and low prices of Fall River Gas common stock as reported on the American Stock Exchange Composite Transactions on July 5, 2000. (3) Filing fee of $9,577.23 was paid to the Commission on June 5, 2000 in connection with the filing of the preliminary proxy material of Southern Union Company and Fall River Gas Company. The balance of the filing fee for this Registration Statement, $3,504.88, is delivered herewith. - -------------------------------------- THIS REGISTRATION STATEMENT IS HEREBY AMENDED ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT WILL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT WILL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- FALL RIVER GAS COMPANY 155 NORTH MAIN STREET P.O. BOX 911 FALL RIVER, MASSACHUSETTS 02722-0911 July __, 2000 Dear Fellow Stockholder: It is our pleasure to extend to you a cordial invitation to attend a special meeting of Stockholders of Fall River Gas Company. You may have read that your Board of Directors and the Board of Directors of Southern Union Company have agreed on a merger. The enclosed proxy statement asks for your approval of the merger and provides you with detailed information about it. Please read this entire document carefully. You may obtain additional information about Fall River Gas Company and Southern Union Company from documents filed with the Securities and Exchange Commission. YOUR BOARD OF DIRECTORS HAS CONCLUDED THAT THE MERGER IS IN THE BEST INTEREST OF FALL RIVER GAS COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER. Your vote is important. The merger cannot be completed without the approval of at least two-thirds of the outstanding shares of Fall River Gas Company common stock entitled to vote at the meeting. Whether or not you expect to attend the special meeting, please complete, sign and date the enclosed proxy and return it promptly by mail in the enclosed envelope which requires no postage if mailed in the United States. The special meeting will be held at the office of Fall River Gas Company at 155 North Main Street, Fall River, Massachusetts beginning at 10:00 a.m. (Eastern Time), on August 29, 2000. On behalf of your Board of Directors, thank you for your continued support and interest in Fall River Gas Company. Sincerely, Bradford J. Faxon President and Chief Executive Officer FALL RIVER GAS COMPANY 155 NORTH MAIN STREET P.O. BOX 911 FALL RIVER, MASSACHUSETTS 02722-0911 TELEPHONE: (508) 675-7811 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 29, 2000 NOTICE IS HEREBY GIVEN that the special meeting of stockholders of Fall River Gas Company will be held at the office of Fall River Gas Company on August 29, 2000, beginning at 10:00 a.m. (Eastern Time), for the following purposes: (1) To approve and adopt the Agreement of Merger between Southern Union Company and Fall River Gas Company; and (2) To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on July 5, 2000, as the record date for the determination of holders of Fall River Gas Company common stock entitled to notice of and to vote at the meeting. If you plan to attend the meeting and are a stockholder of record, please mark your proxy card in the appropriate space, or if voting by telephone, indicate this intent during the telephone voting process. An admission ticket will be mailed to you prior to the meeting date. However, if your shares are not registered in your own name, please advise the stockholder of record (your bank, broker, etc.) that you wish to attend. That firm will provide you with evidence of your ownership which will enable you to gain admittance to the meeting. Whether you plan to attend the meeting or not, please complete, sign and date the enclosed proxy and return it promptly by mail in the enclosed envelope. No postage is required if mailed in the United States. Should you attend the special meeting in person, you may if you wish, withdraw your proxy and vote in person. By order of the Board of Directors, Robert J. Pollock Clerk Fall River, Massachusetts July __, 2000 IMPORTANT MASSACHUSETTS LAW REQUIRES THAT THE HOLDERS OF A MAJORITY OF FALL RIVER GAS COMPANY'S OUTSTANDING COMMON STOCK BE PRESENT IN PERSON OR BY PROXY AT THE SPECIAL MEETING IN ORDER TO CONSTITUTE A QUORUM. STOCKHOLDERS CAN HELP AVOID THE NECESSITY AND EXPENSE OF FOLLOW-UP LETTERS TO ASSURE THAT A QUORUM IS PRESENT AT THE SPECIAL MEETING BY PROMPTLY RETURNING THE ENCLOSED PROXY OR VOTING BY TELEPHONE. BROKER NON-VOTES, ABSTENTIONS, AND WITHHOLD AUTHORITY VOTES ALL COUNT FOR THE PURPOSE OF DETERMINING A QUORUM. IN THE ABSENCE OF A QUORUM, THE SPECIAL MEETING WILL BE ADJOURNED UNTIL A TIME ANNOUNCED AT SUCH MEETING. AT THE ADJOURNED MEETING, THE STOCKHOLDERS IN ATTENDANCE, ALTHOUGH LESS THAN A QUORUM, WILL NEVERTHELESS CONSTITUTE A QUORUM TO ACT ON ALL THE MATTERS INCLUDED IN THIS PROXY STATEMENT, IF THE ADJOURNMENT HAS BEEN AT LEAST FIFTEEN DAYS.
TABLE OF CONTENTS Page ---- QUESTIONS AND ANSWERS ABOUT THE MERGER....................................................................................1 WHERE YOU CAN FIND MORE INFORMATION.......................................................................................3 SUMMARY...................................................................................................................5 Overview.............................................................................................................5 The Companies........................................................................................................6 The Merger...........................................................................................................6 The Fall River Gas Special Meeting...................................................................................9 Summary of Other Selected Information...............................................................................11 Selected Historical and Pro Forma Financial Information.............................................................14 RISK FACTORS AND OTHER CONSIDERATIONS....................................................................................18 The Amount of Consideration Received in Stock May Vary as a Result of Fluctuations in Southern Union's Stock Price.............................................................................................18 The Amount of Cash Paid to Stockholders Electing Cash May Be Reduced Proportionately................................19 The Combined Company May Not Realize Benefits of Integrating Our Companies, the Company Southern Union Recently Acquired and the Other Companies Southern Union Has Agreed to Acquire......................................................................................................19 Approvals May Not be Obtained or May Contain Unacceptable Restrictions..............................................19 Future Acquisitions May Not Achieve Favorable Financial Results, May Dilute Your Percentage Ownership in Southern Union or Require Substantial Expenditures.................................................20 A Different Set of Factors and Conditions Affect Southern Union Stock and Could Have a Negative Impact on Its Stock Price.......................................................................................20 Southern Union Does Not Pay Cash Dividends on its Common Stock......................................................20 Competition Within the Natural Gas Industry is Intense..............................................................21 The Terms of Merger-Related Financings May Adversely Affect the Combined Company....................................21 FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE..........................................................................22 COMPARATIVE DIVIDENDS AND MARKET PRICES..................................................................................24 Southern Union......................................................................................................24 Fall River Gas .....................................................................................................25 Historical Equivalent Per Share Market Values.......................................................................26 COMPARATIVE PER SHARE DATA...............................................................................................26 RECENT DEVELOPMENTS......................................................................................................28 Southern Union......................................................................................................28 THE FALL RIVER GAS SPECIAL MEETING.......................................................................................29 Purpose, Time and Place ............................................................................................29 Record Date; Voting Power; Vote Required ...........................................................................29 Share Ownership of Management; Management Vote; Voting Agreement ...................................................29 Voting of Proxies...................................................................................................30 Revocability of Proxies.............................................................................................30 Solicitation of Proxies.............................................................................................31 i THE MERGER...............................................................................................................31 Fall River Gas Background of the Merger ............................................................................31 Fall River Gas Reasons for the Merger; Recommendation of Fall River Gas' Board of Directors.........................34 Opinion of Fall River Gas' Financial Advisor........................................................................36 Southern Union Background of the Merger; Reasons for Approval by the Southern Union Board of Directors..............39 Potential Conflicts and Interests of Certain Persons in the Merger..................................................40 Significant U.S. Federal Income Tax Consequences of the Merger .....................................................42 Regulatory Matters..................................................................................................44 Accounting Treatment................................................................................................46 No Appraisal Rights.................................................................................................46 Listing of Southern Union Common Stock..............................................................................46 Federal Securities Law Consequences.................................................................................46 MERGER-RELATED FINANCING ................................................................................................47 THE MERGER AGREEMENT.....................................................................................................48 Structure of the Merger.............................................................................................48 Closing; Effective Time.............................................................................................48 Merger Consideration................................................................................................48 Procedure for Filing Elections and Converting Fall River Gas Common Stock into Merger Consideration.................50 Paying Agent; Lost Certificates.....................................................................................50 Fall River Gas Indenture............................................................................................51 Representations and Warranties .....................................................................................51 Covenants and Other Agreements......................................................................................53 No Solicitation by Fall River Gas...................................................................................57 Conditions to the Completion of the Merger..........................................................................59 Indemnification and Insurance for Fall River Gas Officers and Directors.............................................60 Amendments..........................................................................................................60 Termination of the Merger Agreement.................................................................................61 Termination Fees and Expenses.......................................................................................62 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS..............................................................64 THE COMPANIES............................................................................................................72 Southern Union......................................................................................................72 Fall River Gas......................................................................................................74 DESCRIPTION OF SOUTHERN UNION CAPITAL STOCK..............................................................................75 General.............................................................................................................75 Southern Union Common Stock.........................................................................................75 Southern Union Preferred Stock......................................................................................75 Transfer Agent and Registrar........................................................................................76 COMPARISON OF FALL RIVER GAS AND SOUTHERN UNION STOCKHOLDER RIGHTS.......................................................77 PRINCIPAL STOCKHOLDERS...................................................................................................89 Beneficial Owners of More Than 5% of Southern Union's Outstanding Common Stock......................................89 Southern Union Management Ownership ................................................................................90 Beneficial Owners of More Than 5% of Fall River Gas' Common Stock...................................................91 Fall River Gas Management Ownership.................................................................................92 PROPOSALS OF STOCKHOLDERS................................................................................................93 ii OTHER MATTERS............................................................................................................93 LEGAL MATTERS............................................................................................................93 EXPERTS..................................................................................................................93 OTHER BUSINESS...........................................................................................................94 APPENDIX A -- Agreement of Merger between Southern Union Company and Fall River Gas Company APPENDIX B -- Opinion of Legg Mason Wood Walker, Incorporated APPENDIX C -- Voting Agreement between Southern Union Company and Certain Fall River Gas Stockholders APPENDIX D -- Southern Union Voting Agreement and Proxy for Fall River Gas Company
iii The accompanying proxy, to be mailed to Fall River Gas Company ("Fall River Gas") stockholders together with the Notice of Special Meeting and this proxy statement/prospectus on or about July __, 2000, is solicited by Fall River Gas in connection with the special meeting to be held on August 29, 2000. QUESTIONS AND ANSWERS ABOUT THE MERGER Q: WHAT WILL HAPPEN TO FALL RIVER GAS AS A RESULT OF THE MERGER? A: If the merger is completed, Fall River Gas will merge into Southern Union Company ("Southern Union"), Fall River Gas' utility operations will become a division of Southern Union, and Fall River Gas' non-regulated subsidiary will become a subsidiary of Southern Union. Q: WHAT DO I NEED TO DO NOW? A: After you carefully read and consider the information contained in this document, please indicate on the enclosed proxy card how you want to vote. Sign and mail your proxy and return it in the enclosed envelope as soon as possible so that your shares may be represented at the special meeting. Failing to vote in person or by proxy will have the same effect as a vote against the merger agreement. Q: WHAT IS THE REQUIRED VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT? A: The merger agreement must be approved and adopted by the holders of at least two-thirds of the shares of Fall River Gas common stock entitled to vote at the special meeting. Q. WHAT WILL YOU RECEIVE IF THE MERGER IS COMPLETED? A. You will have the option to elect either cash or Southern Union common stock or a combination of both in exchange for your shares. You may elect to receive either $23.50 in cash for each share you own or a number of shares of Southern Union common stock equal to an exchange ratio. The exchange ratio will be adjusted shortly before the closing of the merger to ensure that the value of the Southern Union common stock you receive, for each share of Fall River Gas common stock you own, will be approximately $23.50. This election is subject to the limitation that no more than 50% of the aggregate consideration paid to all Fall River Gas stockholders may be in cash. Please read the more detailed description of the consideration to be issued in the merger on pages 48 through 50. Q. WILL I ALWAYS RECEIVE THE SPECIFIC AMOUNTS OF CASH AND STOCK THAT I HAVE ELECTED? A: If you elect stock consideration, you will receive the amount of whole shares of Southern Union common stock you elected and you will get cash for any fractional shares that you would otherwise receive. However, if you elect cash, the amount of cash you receive as consideration in the merger may be less than the amount you actually elected if too many other Fall River Gas stockholders elect cash. If the Fall River Gas stockholders as a whole exceed the cash limitation, the amount of cash paid to each stockholder electing cash will be reduced proportionately. Please read the more detailed description of the consideration to be issued in the merger on pages 48 through 50. Q: WHO IS ENTITLED TO VOTE? 1 A: Stockholders as of the close of business on the record date, July 5, 2000 are entitled to vote at the special meeting. Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD? A: Yes. You may change your vote at any time before the vote takes place at the special meeting. To do so, you can attend the special meeting and vote in person. Or, you can complete a new proxy card or send a written notice stating you would like to revoke your proxy. These should be sent to: Fall River Gas Company, 155 North Main Street, P.O. Box 911, Fall River, Massachusetts 02722-0911, Attention: Clerk. This notice must reach the Clerk before the proxy is voted. Q: MY SHARES ARE HELD IN "STREET NAME." WILL MY BROKER VOTE MY SHARES ON THE MERGER? A: A broker will vote your shares on the merger agreement only if you provide your broker with instructions on how to vote. You should follow the directions provided by your broker(s) regarding how to instruct brokers to vote the shares. Q. AM I ENTITLED TO STATUTORY APPRAISAL RIGHTS? A: No, Fall River Gas stockholders are not entitled to appraisal rights under Massachusetts law. Q: SHOULD I SEND IN MY CERTIFICATES NOW? A: No. After the merger is completed, Southern Union will send written instructions to you for exchanging your stock certificates. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY. Q: WHO CAN HELP ANSWER MY QUESTIONS? A: If you have any questions about the merger or if you need additional copies of this document or the enclosed proxy, you should contact Peter H. Thanas, Senior Vice President and Treasurer, Fall River Gas Company, 155 North Main Street, P.O. Box 911, Fall River, Massachusetts 02722. Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED? A: Fall River Gas and Southern Union are working as quickly as possible and hope to complete the merger in September 2000. 2 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Any reports, statements or other information that the companies have filed may be read and copied at the following locations of the SEC. Public Reference Room New York Regional Office Chicago Regional Center Room 1024 Suite 100 Citicorp Center 450 Fifth Street, N.W. 7 World Trade Center Suite 1400 Washington, D.C. 20549 New York, New York 10048 500 West Madison Street Chicago, Illinois 60661-2511 You may also obtain copies of this information by mail from the public reference section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on the public reference rooms. Southern Union's and Fall River Gas' SEC filings should also be available to the public from commercial retrieval services and at the Internet web site maintained by the SEC at http://www.sec.gov. In addition, materials and information concerning Fall River Gas can be inspected at the American Stock Exchange, Inc., The Office of the Secretary, 86 Trinity Place, 12th Floor, New York, New York 10006, where Fall River Gas Common Stock is listed. Materials and information concerning Southern Union can be inspected at the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor, New York, New York 10005, where Southern Union common stock is listed. The SEC allows us to "incorporate by reference" certain information into this proxy statement/prospectus. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this document, except for any additional information that is superseded by information contained directly in this document. We incorporate by reference the documents listed below that were previously filed with the SEC by Southern Union (SEC File No. 1-06407) and Fall River Gas (SEC File No. 1-13517). These documents contain important information (including the financial condition) about our company and Southern Union. SEC FILINGS REGARDING SOUTHERN UNION (FILE NO. 1-06407) - - Southern Union's Annual Report on Form 10-K for the fiscal year ended June 30, 1999. - - Southern Union's Definitive Proxy Statement on Schedule 14A for the 1999 Annual Meeting of Stockholders filed with the SEC on September 17, 1999. - - Southern Union's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. - - Southern Union's Form 8-K, filed with the SEC on October 8, 1999. 3 - - Southern Union's Form 8-K, filed with the SEC on November 18, 1999 (which incorporates by reference financial information for Pennsylvania Enterprises, Inc.). - - Southern Union's Forms 8-K (two), filed with the SEC on November 19, 1999. - - Southern Union's Form 8-K, filed with the SEC on December 6, 1999. - - Southern Union's Form 8-K, filed with the SEC on December 30, 1999. - - Southern Union's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999. - - Southern Union's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. - - Southern Union's Form 8-K, filed with the SEC on June 5, 2000 (which includes certain historical financial information for Pennsylvania Enterprises, Inc., ProvEnergy Corporation and Valley Resources, Inc.). - - Southern Union's Definitive Proxy Statement on Schedule 14A for a Special Meeting of Stockholders to be held on August 29, 2000, filed with the SEC on July __ , 2000. SEC FILINGS REGARDING FALL RIVER GAS (FILE NO. 1-13517) - - Fall River Gas' Annual Report on Form 10-K for the fiscal year ended September 30, 1999. - - Fall River Gas' Form 8-K, filed with the SEC on October 20, 1999. - - Fall River Gas' Quarterly Report on Form 10-Q for the quarter ended December 31, 1999. - - Fall River Gas' Definitive Proxy Statement on Schedule 14A for the 2000 Annual Meeting of Stockholders filed with the SEC on December 21, 1999. - - Fall River Gas' Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. Southern Union and Fall River Gas may be required by the SEC to file other documents pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the time this proxy statement/prospectus is sent and the date the Fall River Gas special meeting is held. These other documents will be considered to be incorporated by reference in this proxy statement/prospectus and to be a part of it from the date they are filed with the SEC. Fall River Gas may have sent you some of the documents regarding Fall River Gas that are incorporated by reference, but you can obtain any of them through Fall River Gas, the SEC or the SEC's Internet web site as previously described. Likewise, you can obtain the documents regarding Southern Union that are incorporated by reference through Southern Union, the SEC or the SEC's Internet web site as previously described. 4 Documents incorporated by reference as exhibits to this proxy statement/prospectus are available from Southern Union and Fall River Gas without charge. You may obtain documents incorporated by reference in this proxy statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses: SOUTHERN UNION COMPANY FALL RIVER GAS COMPANY Attention: George Yankowski Attention: Peter H. Thanas Director-Investor Relations Senior Vice President and Treasurer 504 Lavaca Street, Eighth Floor 155 North Main Street Austin, Texas 78701 P.O. Box 911 (512) 477-5852 Fall River, Massachusetts 02722-0911 (508) 675-7811 If you would like to request documents from Southern Union or Fall River Gas, please do so promptly in order to receive them before Fall River Gas' special meeting. All information contained in or incorporated by reference in this proxy statement/prospectus with respect to Southern Union has been provided by Southern Union. All information contained in or incorporated by reference in this proxy statement/prospectus with respect to Fall River Gas has been provided by Fall River Gas. Neither Southern Union nor Fall River Gas assumes any responsibility for the accuracy or completeness of the information provided by the other party. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER AGREEMENT. NEITHER SOUTHERN UNION NOR FALL RIVER GAS HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED JULY __, 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE COMPLETION OF THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY. SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE MERGER AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY AND THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 3. WE HAVE INCLUDED PAGE REFERENCES IN PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY. ("WE" AND "OUR" AS USED IN THIS DOCUMENT REFER TO SOUTHERN UNION AND FALL RIVER GAS.) OVERVIEW Southern Union and Fall River Gas entered into a merger agreement on October 4, 1999. We are asking you to approve this merger agreement. The merger agreement sets forth the terms and conditions and the details of the transactions through which Southern Union proposes to acquire Fall River Gas. Under the terms of 5 the merger agreement, at the closing, each outstanding share of Fall River Gas common stock will be converted into the right to receive either $23.50 in cash or a number of shares of Southern Union common stock equal to an exchange ratio that will be adjusted shortly before the closing of the merger to ensure that the value of Southern Union common stock received for each share of Fall River Gas common stock will be approximately $23.50, or a combination of both, depending on each Fall River Gas stockholder's election. At least 50% of all outstanding shares of Fall River Gas must be exchanged for shares of Southern Union common stock. Upon completion of the transactions contemplated by the merger agreement, Fall River Gas will be merged into Southern Union and its utility business will be operated as a division of Southern Union. Fall River Gas' non-regulated subsidiary will become a subsidiary of Southern Union. THE COMPANIES SOUTHERN UNION (SEE PAGE 72) Southern Union is a publicly owned international energy company headquartered in Austin, Texas, that primarily engages in the distribution of natural gas and is one of the fifteen largest distributors in the nation by customer count. Southern Union serves more than 1.2 million customers through: its four natural gas divisions in Texas, Missouri, Pennsylvania, and Florida; its propane distribution subsidiaries; and its equity ownership in a natural gas distribution company serving Piedras-Negras, Mexico. Through its subsidiaries, Southern Union also markets natural gas to end users and operates natural gas pipeline systems, generates and markets electricity, and constructs, maintains and rehabilitates natural gas distribution pipelines. Southern Union recently completed a merger with Pennsylvania Enterprises, Inc. ("PEI"), on November 4, 1999. Later on November 14 and 30, 1999, Southern Union entered into merger agreements with Providence Energy Corporation ("ProvEnergy") and Valley Resources, Inc ("Valley Resources"). See "Recent Developments - Southern Union." FALL RIVER GAS (SEE PAGE 74) Fall River Gas is a publicly owned company, headquartered in Fall River, Massachusetts, that is primarily engaged in the distribution of natural gas. Fall River Gas provides natural gas to more than 48,000 customers in southeastern Massachusetts. Through its non-regulated subsidiary, Fall River Gas markets and rents water heaters, conversion burners and central heating and air conditioning systems to customers in Fall River Gas' service area. THE MERGER SUMMARY (SEE PAGE 48) We are asking you to approve and adopt the merger agreement that provides for the merger of Fall River Gas into Southern Union. Fall River Gas' utility operations will become a division of Southern Union, and Fall River Gas' non-regulated subsidiary will become a subsidiary of Southern Union. When we speak about 6 the "merger" and the "merger agreement" in this proxy statement/prospectus, we mean the merger of Fall River Gas into Southern Union and the agreement that sets forth the details of that merger. 7 The merger will become effective following the approval of the merger agreement by the stockholders of Fall River Gas and the satisfaction or waiver of all other conditions to the merger. At this time, these conditions include certain approvals of the state regulatory commissions of Massachusetts, Pennsylvania and Florida. The merger agreement is attached at the back of this proxy statement/prospectus as Appendix A. We encourage you to read the merger agreement since it is the legal document that governs the merger. WHAT HOLDERS OF FALL RIVER GAS COMMON STOCK WILL RECEIVE IN THE MERGER (SEE PAGE 48) When the merger is completed, your shares of Fall River Gas common stock will be cancelled. You will have the option to elect either cash or Southern Union common stock or a combination of both in exchange for your shares of Fall River Gas, subject to certain limitations. Each share of your Fall River Gas common stock that you elect to exchange for cash will be converted into the right to receive $23.50 in cash, unless too many Fall River Gas stockholders elect to receive cash. No more than 50% of the aggregate consideration paid to all Fall River Gas stockholders may consist of cash, including cash paid to Fall River Gas stockholders in lieu of issuing them fractional shares of Southern Union common stock. If the Fall River Gas stockholders' elections to receive cash for their shares exceed this cash limitation, the amount of cash paid to each Fall River Gas stockholder electing cash will be reduced proportionately. Thus, if too many Fall River Gas stockholders elect to receive cash, consequently exceeding the cash limitation, a combination of cash and Southern Union common stock having a deemed value of $23.50 will be delivered to Fall River Gas stockholders in exchange for each share they elected to be exchanged for cash. Each share of your Fall River Gas common stock that you elect to exchange for Southern Union common stock or do not elect to exchange for cash (or cannot exchange for cash because too many Fall River Gas stockholders have elected to exchange for cash as described above), will be converted into the right to receive that number of whole shares of Southern Union common stock having a value of $23.50. Southern Union will not issue any fractional shares of its common stock in the merger. Instead, you will get cash for any fractional shares of Southern Union common stock you would otherwise receive. You will be entitled to receive Southern Union common stock in the merger if: - - you elect to receive Southern Union common stock; - - you elect to receive cash and Fall River Gas stockholders exceed the cash limitation; - - you do not indicate a preference as to the type of consideration you want to receive; or - - you do not properly complete the form of election provided to you by the company Southern Union has selected to be the paying agent in connection with the merger. The exact number of shares of Southern Union common stock you will receive for each share of Fall River Gas common stock that you own will depend on the average price of Southern Union common stock on the New York Stock Exchange for the ten trading-day period beginning on the twelfth trading day and ending 8 on the third trading day before the closing of the merger (counting from and including the trading day immediately before the closing). If the average price of Southern Union's common stock during this ten trading-day period is: - - Above $19.6875, the number of shares of Southern Union common stock will be fixed at 1.19365 for each share of Fall River Gas common stock. - - Between $16.875 and $19.6875, the number of shares of Southern Union common stock will be adjusted so that each share of Fall River Gas' common stock will be exchanged for Southern Union common stock having a value equal to $23.50 divided by the average trading price during the period of time described above. - - Below $16.875, but at least $15.00, the number of shares of Southern Union common stock will be fixed at 1.39259 for each share of Fall River Gas common stock. - - Below $15.00, Fall River Gas has the option to terminate the merger agreement. If Fall River Gas does not terminate the merger agreement, you will receive 1.39259 shares of Southern Union common stock per share of Fall River Gas common stock. PROCEDURE FOR FILING ELECTIONS AND CONVERTING FALL RIVER GAS COMMON STOCK INTO MERGER CONSIDERATION (SEE PAGE 50) A form of election and complete instructions for properly making an election to receive either cash or Southern Union common stock or a combination of cash and Southern Union common stock will be delivered under separate cover to holders of record of shares of Fall River Gas (as of a record date as close as practicable to the date of mailing) at least 15 business days prior to the anticipated closing date of the merger. The closing date of the merger is expected to occur in September 2000. Fall River Gas stockholders will be entitled to choose one of the following consideration options, which will be listed on their form of election: - - to receive cash for each share of Fall River Gas they own; - - to receive Southern Union common stock for each share of Fall River Gas they own; - - to exchange some of their shares of Fall River Gas for cash and some for Southern Union common stock; or - - to indicate no preference as to type of consideration. You will be eligible to receive cash only if the paying agent has received a properly completed form of election at its designated office or offices by 4:00 p.m., Eastern Time, on the third business day prior to the closing date of the merger. You will be eligible to receive as consideration only shares of Southern Union common stock if: 9 - - the form of election you submit indicates a preference to receive only shares of Southern Union common stock; - - the form of election you submit indicates no preference as to form of consideration; or - - you fail to submit a properly completed form of election prior to the deadline for submitting cash elections. You may revoke your election only if Southern Union's paying agent receives written notice of revocation prior to the deadline for submitting cash elections. CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 42) In regard to the Southern Union common stock and cash received in the merger, a Fall River Gas stockholder will generally recognize capital gain for U.S. federal income tax purposes in an amount equal to the lesser of (i) the amount of cash received or (ii) the excess of the amount of cash and the fair market value of Southern Union common stock received in the merger over the tax basis of the Fall River Gas common stock surrendered. The merger will not result in the recognition of gain or loss to Southern Union or Fall River Gas. SINCE THE TAX CONSEQUENCES OF THE MERGER TO YOU MAY VARY DEPENDING UPON YOUR PARTICULAR CIRCUMSTANCES AS A FALL RIVER GAS STOCKHOLDER, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS REGARDING THE FEDERAL (AND ANY STATE, LOCAL OR FOREIGN) TAX CONSEQUENCES OF THE MERGER IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES. RECOMMENDATION TO FALL RIVER GAS COMMON STOCKHOLDERS (SEE PAGE 34) The Fall River Gas board of directors believes that the merger is in the best interest of Fall River Gas stockholders and recommends that holders of Fall River Gas common stock vote "FOR" the approval and adoption of the merger agreement. The reasons for the board's recommendation are set forth on pages 34 to 36. FAIRNESS OPINION OF FALL RIVER GAS' FINANCIAL ADVISOR (SEE PAGE 36) In deciding to approve the merger, the Fall River Gas board of directors considered an opinion from its financial advisor Legg Mason Wood Walker, Incorporated ("Legg Mason") to the effect that, as of the date of the merger agreement, the consideration to be received by Fall River Gas stockholders was fair to the stockholders from a financial point of view. This opinion is attached as Appendix B to this proxy statement/prospectus. We encourage you to read this opinion. THE FALL RIVER GAS SPECIAL MEETING 10 The Fall River Gas special meeting will be held at 10:00 a.m. (Eastern Time) on August 29, 2000, at the office of Fall River Gas, 155 North Main Street, Fall River, Massachusetts 02722. At the meeting, holders of Fall River Gas common stock will be asked to approve and adopt the merger agreement. RECORD DATE; VOTING RIGHTS; VOTING AGREEMENT (SEE PAGE 29) If you owned shares of Fall River Gas common stock as of the close of business on July 5, 2000, you are entitled to vote at the special meeting. On that date, there were 2,252,429 shares of Fall River Gas common stock outstanding. Holders of Fall River Gas common stock will have one vote at the special meeting for each share of Fall River Gas common stock they own on that date. In connection with the merger, Barbara N. Jarabek, as trustee to The Jarabek Family Limited Partnership, Ronald J. Ferris, Bradford J. Faxon, Raymond H. Faxon, Cindy L.J. Audette, Gilbert C. Oliveira, Jr. and Thomas H. Bilodeau each entered into a voting agreement with Southern Union. According to the terms of the voting agreement, these stockholders: 1) agreed to vote or cause to be voted their shares of Fall River Gas common stock in favor of the merger and the adoption and approval of the merger agreement, and 2) granted Southern Union an irrevocable proxy to vote their shares of Fall River Gas common stock for the approval and adoption of the merger agreement and the performance of transactions related to the merger. As of the special meeting record date, the number of shares beneficially owned by the Fall River Gas stockholders who entered into the voting agreement and granted this irrevocable proxy represented approximately 25.6% of the outstanding shares of Fall River Gas common stock entitled to vote on the approval and adoption of the merger agreement and performance of transactions related to the merger agreement. Of the 572,510 shares of Fall River Gas common stock represented by the stockholders who are parties to the voting agreement, as of May 31, 2000, 276,800 shares were beneficially owned by executive officers and directors of Fall River Gas. The voting agreement is attached as Appendix C to this proxy statement/prospectus. See "The Merger Agreement - Covenants and other Agreements - Fall River Gas Voting Agreement." As of the close of business on May 31, 2000, directors and officers of Fall River Gas beneficially owned and were entitled to vote approximately 297,216 shares of Fall River Gas common stock, which represented approximately 13.3% of the shares of Fall River Gas outstanding on that date. Each of them has indicated his or her present intention to vote, or cause to be voted, the Fall River Gas common stock owned by him or her for the proposal to approve and adopt the merger agreement. QUORUM; REQUIRED VOTE (SEE PAGE 29) A majority of the shares of Fall River Gas common stock outstanding and entitled to vote on the record date must be present in person or by proxy at the special meeting or voted by telephone in order for a quorum to be present. 11 Consummation of the merger requires the approval of at least two-thirds of the shares of Fall River Gas outstanding and entitled to vote at the meeting. If you hold your shares of Fall River Gas common stock through a broker or nominee, you must instruct your broker on how you would like to vote or these shares will not be voted, although they may be counted as present if your broker or nominee returns a proxy card without any voting instructions. Similarly, a properly executed proxy marked "ABSTAIN" will be counted as present, but will not be counted as a vote cast. ACCORDINGLY, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE EFFECT OF A VOTE "AGAINST" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. SUMMARY OF OTHER SELECTED INFORMATION POTENTIAL CONFLICTS AND INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 40) Fall River Gas officers and the Fall River Gas board have interests in the merger that may be different from, or in addition to, the interest of Fall River Gas stockholders generally and may represent conflicts of interest. The merger will constitute a "change in control" of Fall River Gas and this will entitle certain Fall River Gas officers, in accordance with the terms of their respective employment agreements, to receive lump sum severance benefits if the officer is terminated without cause or terminates his or her own employment within thirty-six months after the date the merger is completed. On October 4, 1999, these employment agreements were amended. These amendments will become effective as of the date the merger is completed. These amendments provide for payment to Bradford J. Faxon, Peter H. Thanas and John F. Fanning of $1,000,000, $700,000 and $300,000, respectively. If Messrs. Faxon, Thanas and Fanning continue their employment with Fall River Gas, these payments will be made in equal monthly installments over an eighteen-month period beginning on the effective date of the merger. These payments would be offset against any severance payments that may become owed under any of these agreements, in certain circumstances. For six years after the merger, Southern Union has also agreed to indemnify, and use its reasonable best efforts to provide liability insurance for present and former officers and directors of Fall River Gas against acts and omissions occurring before the merger under certain circumstances. The Fall River Gas board was aware of these interests and considered them in approving the merger agreement. REGULATORY APPROVALS (SEE PAGE 44) Certain approvals from the state regulatory commissions of Massachusetts, Missouri and Pennsylvania, as well as the expiration or earlier termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 are required in order to complete the merger. Authorization from the state regulatory commissions of Florida and Pennsylvania for Southern Union to issue debt securities and/or common stock sufficient to complete the merger is also required. As of the date of this proxy statement/prospectus, only the required regulatory approvals from the Missouri and Pennsylvania commissions for the merger have been obtained. 12 Subsequent to the execution of the merger agreement, the issue arose as to whether Southern Union was required under Massachusetts law to obtain the approval of the transaction by holders of two-thirds of the outstanding shares of Southern Union common stock in connection with obtaining the approval of the transaction by the Massachusetts Department of Telecommunications and Energy. In order to eliminate any uncertainty concerning this issue and to facilitate the closing of the transaction, Southern Union has advised Fall River Gas and the Massachusetts Department of Telecommunications and Energy that it intends to seek, and through its proxy is seeking, such stockholder approval at the Southern Union special meeting. Southern Union has advised Fall River Gas that George Lindemann, the Chairman of the Board and Chief Executive Officer of Southern Union, and members of his immediate family have advised Southern Union that they intend to vote all of the shares of Southern Union common stock that they beneficially own and are entitled to vote in favor of the approval of the Fall River Gas merger agreement and the transactions contemplated thereby. As of June 30, 2000, those Lindemann family members beneficially owned and were entitled to vote approximately 27% of the shares of Southern Union common stock then outstanding. Southern Union has advised Fall River Gas that each of Southern Union's directors and executive officers has advised Southern Union that they intend to vote the shares of Southern Union common stock that they beneficially own and are entitled to vote in favor of the approval of the Fall River Gas merger agreement and the transactions contemplated thereby. As of June 30, 2000, those directors and executive officers other than the Lindemanns, discussed above, beneficially owned and were entitled to vote approximately 5% of the shares of Southern Union common stock outstanding. Together with the Lindemanns, this represents a total of approximately 32% of the shares of Southern Union common stock outstanding as of June 30, 2000. CONDITIONS TO THE MERGER (SEE PAGE 59) Completion of the merger depends on the satisfaction of certain conditions, including: - - Approval by Fall River Gas stockholders. - - All required governmental approvals obtained without material adverse conditions. To facilitate obtaining the approval of the transaction by the Massachusetts Department of Telecommunications and Energy, Southern Union is seeking approval of the transaction at the Southern Union special meeting by holders of two-thirds of the outstanding shares of Southern Union common stock. - - No court or administrative order issued to prevent the merger. - - Effectiveness of the registration statement in which this proxy statement/prospectus is included. - - Listing on the NYSE of the Southern Union common stock being issued to Fall River Gas stockholders in connection with the merger. - - The receipt of certain third-party consents and approvals. AMENDMENT OF THE MERGER AGREEMENT (SEE PAGE 60) 13 Southern Union and Fall River Gas may amend in writing the terms of the merger agreement. TERMINATION OF THE MERGER AGREEMENT AND TERMINATION FEES (SEE PAGE 61 AND PAGE 62) Fall River Gas and Southern Union may terminate the merger agreement by mutual written consent without completing the merger. The merger agreement may be terminated by either Fall River Gas or Southern Union in the following instances: - - if less than two-thirds of the Fall River Gas stockholders vote to approve the merger; - - if a court issues a non-appealable order that prohibits the consummation of the merger; - - if the merger is not completed by October 15, 2000 (this date may be extended to February 28, 2001 to obtain certain governmental approvals); or - - if the other party breaches a warranty, covenant, agreement or representation contained in the merger agreement. Fall River Gas may terminate the merger if the average trading price of Southern Union common stock used to determine the number of shares of Southern Union common stock to be received by Fall River Gas stockholders in the merger is lower than $15.00. Also, the merger agreement may be terminated by Fall River Gas if it signs an agreement for a business combination with another party under certain circumstances. Additionally, Southern Union may terminate the merger if: 1) the Fall River Gas board or one of its committees withdraws or modifies its approval or recommendation of approval of the merger agreement to the Fall River Gas stockholders; or 2) if a third party or group acquires a majority of Fall River Gas' shares. In any of these events, Fall River Gas may be required to pay Southern Union a termination fee of $1.5 million. COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGE 77) When the merger is completed, a holder of Fall River Gas common stock, to the extent he has not received cash in exchange for any or all of his shares, will be a stockholder of Southern Union. The rights of these stockholders will be governed by Delaware law and Southern Union's restated certificate of incorporation and bylaws (instead of Massachusetts law and Fall River Gas' articles of organization and bylaws), subject to any continuing application of any Massachusetts law provisions as a result of Southern Union becoming a Massachusetts utility. Certain differences between the rights of holders of Southern Union common stock and those of holders of Fall River Gas common stock are summarized on pages 77 to 88. ACCOUNTING TREATMENT (SEE PAGE 46) The merger will be accounted for using the purchase method of accounting in accordance with generally accepted accounting principles. NO STATUTORY APPRAISAL RIGHTS (SEE PAGE 46) 14 Holders of Fall River Gas common stock who do not vote in favor of the merger will not be entitled to appraisal rights. COMPARATIVE PER SHARE COMMON STOCK MARKET PRICE INFORMATION (SEE PAGE 26) Southern Union common stock is listed on the New York Stock Exchange. Fall River Gas common stock is listed on the American Stock Exchange. On October 4, 1999, the date of the merger agreement, Southern Union common stock closed at $18.69 and Fall River Gas common stock closed at $21.00. On October 1, 1999, the last full trading day prior to the public announcement of the merger, Southern Union common stock closed at $18.75 and Fall River Gas common stock closed at $20.75. These Southern Union common stock prices are actual historical trading prices on the stated dates and are not restated to give effect to any stock dividends distributed. LISTING OF SOUTHERN UNION COMMON STOCK (SEE PAGE 46) Southern Union will list the shares of its common stock to be issued in the merger on the NYSE. SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The summary below sets forth selected historical financial and market data and selected unaudited pro forma combined condensed financial data. The financial data should be read in conjunction with the documents incorporated by reference and the historical financial statements and the related notes of Southern Union, PEI, Fall River Gas, ProvEnergy, and Valley Resources incorporated by reference, and in conjunction with the Unaudited Pro Forma Combined Condensed Financial Statements and the related notes thereto included under "Unaudited Pro Forma Combined Condensed Financial Statements." 15 SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF SOUTHERN UNION The selected historical financial data of Southern Union have been derived from the audited historical consolidated financial statements and related notes of Southern Union for each of the years in the five-year period ended June 30, 1999 and the unaudited consolidated financial statements for the nine months ended March 31, 2000 and 1999. The historical data are only a summary, and you should read them in conjunction with the historical financial statements and related notes contained in the annual and quarterly reports for Southern Union, which have been incorporated by reference in this proxy statement/prospectus. See "Where You Can Find More Information." Operating results for the nine months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 30, 2000.
NINE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, --------------------------------------------------------------- ------------------------ 1999(a)(b) 1998(a)(b) 1997(a) 1996(a) 1995 2000(c) 1999 ----------- ---------- ---------- ---------- ---------- ---------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total operating revenues ............ $ 605,231 $ 669,304 $ 717,031 $ 620,391 $ 479,983 $ 669,170 $ 503,543 Earnings from continuing operations (d) ................... 10,445 12,229 19,032 20,839 16,069 20,547 15,950 Diluted earnings per share (e) ...... 0.31 0.37 0.59 0.65 0.51 0.47 0.47 Total assets ........................ 1,087,348 1,047,764 990,403 964,460 992,597 1,864,971 1,112,825 Common stockholders' equity ......... 301,058 296,834 267,462 245,915 225,664 630,953 312,904 Short-term debt and capital lease obligation ................. 2,066 1,777 687 615 770 2,169 2,033 Long-term debt and capital lease obligation, excluding current portion .......................... 390,931 406,407 386,157 385,394 462,503 734,320 411,460 Company-obligated mandatorily redeemable preferred securities of subsidiary trust .............. 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Average customers served ............ 998,476 979,186 955,838 952,934 947,691 1,101,585 996,052
- -------------------- (a) Certain Texas and Oklahoma Panhandle distribution operations and Western Gas Interstate (a former subsidiary of Southern Union), exclusive of the Del Norte interconnect, were sold on May 1, 1996. (b) On December 31, 1997, Southern Union acquired Atlantic Utilities Corporation and Subsidiaries for 755,650 pre-split and pre-stock dividend shares of common stock valued at $18,041,000 and cash of $4,436,000. (c) PEI was acquired on November 4, 1999 and was accounted for as a purchase. PEI's assets are included in the Company's consolidated balance sheet at March 31, 2000 and its results of operations have been included in the Company's consolidated results of operations since November 4, 1999. For these reasons, the consolidated results of operations of the company for the periods subsequent to the acquisition are not comparable to the same periods in prior years. (d) As of June 30, 1998, Missouri Gas Energy (a division of Southern Union) wrote off $8,163,000 pre-tax in previously recorded regulatory assets as a result of announced rate orders and court rulings. (e) Earnings per share for all periods presented were computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year adjusted for (i) the 5% stock dividends distributed on June 30, 2000, August 6, 1999, December 9, 1998, December 10, 1997, December 10, 1996 and November 27, 1995, and (ii) the 50% stock dividend distributed on July 13, 1998 and the 33 1/3% stock dividend distributed on March 11, 1996. 16 SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF FALL RIVER GAS The selected historical financial data of Fall River Gas have been derived from the audited historical consolidated financial statements and related notes of Fall River Gas for each of the years in the five-year period ended September 30, 1999 and the unaudited consolidated financial statements for the six months ended March 31, 2000 and 1999. The historical data are only a summary, and you should read them in conjunction with the historical financial statements and related notes contained in the annual and quarterly reports for Fall River Gas, which have been incorporated by reference in this proxy statement/prospectus. See "Where You Can Find More Information." Operating results for the six months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2000.
SIX MONTHS ENDED FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31, ------------------------------------------------ ----------------- 1999 1998 1997 1996 1995 2000 1999 -------- ------- ------- ------- ------- ------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Gas operating revenues ............. $42,081 $42,671 $45,261 $48,966 $44,418 $31,005 $30,755 Operating expenses ................. 39,365 39,693 42,400 46,624 42,112 28,793 28,311 Operating income ................... 2,716 2,978 2,861 2,342 2,306 2,212 2,444 Net income ......................... 2,100 2,080 1,625 1,424 1,617 1,732 2,084 COMMON STOCK INFORMATION: Weighted average number of shares outstanding in thousands .. 2,197 2,146 1,785 1,781 1,781 2,214 2,194 Earnings per share of common stock.. 0.96 0.97 0.91 0.80 0.91 0.78 0.95 Cash dividends per share of common stock ..................... 0.96 0.96 0.96 0.96 0.96 0.48 0.48 CAPITALIZATION AT END OF PERIOD: Common shareholders' investment .... 17,584 17,430 12,618 12,637 12,922 19,369 19,076 Long-term debt ..................... 19,500 19,500 13,500 13,500 6,500 19,500 19,500 Total capitalization ............... 37,084 36,930 26,118 26,137 19,422 38,869 38,576 TOTAL ASSETS AT END OF PERIOD: ........ 55,683 55,639 54,935 53,191 50,957 59,172 56,511
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA The following selected unaudited pro forma combined condensed financial data presents the combined financial data of Southern Union, Fall River Gas, PEI, ProvEnergy and Valley Resources including their respective subsidiaries, after giving effect to Southern Union's merger with each of them. The PEI merger, completed on November 4, 1999, was, and the Fall River Gas, ProvEnergy and Valley Resources mergers will be, accounted for as a purchase. The unaudited pro forma combined condensed financial data also give effect to Southern Union's issuance of $300 million of senior notes that was completed on November 3, 1999, in anticipation of the PEI merger, prospective financing for the pending acquisitions by merger of Fall River Gas, ProvEnergy and Valley Resources, and the assumption of certain debt of the acquired companies. All of these transactions are assumed to be effective for the period indicated in the following selected unaudited pro forma combined condensed financial data (see "Recent Developments"). The selected unaudited pro forma combined condensed financial data as of and for the year ended June 30, 1999, and as of and for the nine months ended March 31, 2000, were derived from and should be read in conjunction with the Unaudited Pro Forma Combined Condensed Balance Sheet and the Unaudited Pro Forma Combined Condensed Statement of Operations, including the notes thereto, which are included in 17 this proxy statement on pages 64 to 71, and other filings with the SEC by each of Southern Union, PEI, Fall River Gas, ProvEnergy and Valley Resources. The selected unaudited pro forma combined condensed financial data should also be read in conjunction with the historical financial statements and related notes of Southern Union, PEI, Fall River Gas, ProvEnergy and Valley Resources which are incorporated herein by reference, including by reference to a Southern Union Current Report on Form 8-K (see "Where You Can Find More Information") and are available in the respective reports these companies have filed with the SEC. The selected unaudited pro forma combined condensed financial data is presented for purposes of illustration only in accordance with the assumptions stated in the notes to the financial information set forth below and is not necessarily indicative of the operating results or the financial position that would have occurred if the PEI, Fall River Gas, ProvEnergy and Valley Resources mergers had all been consummated by the beginning of the period presented nor is it necessarily indicative of the future operating results or financial position of the combined enterprise. The selected unaudited pro forma combined condensed financial data does not contain any adjustments to reflect cost savings or other synergies that may be a result of the PEI, Fall River Gas, ProvEnergy and Valley Resources mergers.
YEAR ENDED NINE MONTHS ENDED JUNE 30, 1999 MARCH 31, 2000 ------------- ----------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total operating revenues ...................................... $1,185,700 $1,024,386 Earnings (loss) from continuing operations (a)(b)(c) .......... (9,768) (2,417) Diluted earnings (loss) per share (d)(e) ...................... (0.19) (0.05) Total assets .................................................. 2,682,555 Common stockholders' equity (e) ............................... 656,972 Short-term debt and capital lease obligation (b)(f) ........... 6,315 Long-term debt and capital lease obligation, excluding current portion (b)....................................... 1,304,523 Company-obligated mandatorily redeemable preferred securities of subsidiary trust (b)........................ 100,000
(a) Southern Union incurred pre-tax costs associated with various acquisition efforts unrelated to the Fall River Gas, PEI, ProvEnergy and Valley Resources mergers, and litigation costs associated with an unsuccessful acquisition, of $3,839,000 and $6,664,000 for the year ended June 30, 1999 and the nine-months ended March 31, 2000, respectively. (b) Funding for the Fall River Gas, ProvEnergy and Valley Resources mergers is assumed to be provided by bank borrowings at an estimated annual interest rate of 7.60%. This rate is what Southern Union believes would be obtained based on current market rates. These proceeds are assumed to be utilized: to finance the cash portion of the Fall River Gas, ProvEnergy and Valley Resources mergers and the settlement of any respective stock options; and to pay a total of approximately $9 million of various professional fees and change of control agreements expected to be incurred in connection with the three pending acquisitions. Additionally, long-term debt of $300 million at an annual interest rate of 8.25% was issued on November 3, 1999 in connection with the PEI merger. (c) In anticipation of the pending and completed acquisitions, the outstanding PEI and ProvEnergy preferred stock was repurchased prior to closing of the related merger. (d) Earnings (loss) per share for both periods presented were computed based on the weighted average number of shares of common stock outstanding during the period adjusted for the Southern Union 5% stock dividends distributed on June 30, 2000, August 6, 1999 and December 9, 1998, and the 50% stock dividend distributed on July 13, 1998. (e) The March 31, 2000 information reflects an estimated issuance of Southern Union common stock to Fall River Gas stockholders at an exchange ratio of 1.39259 based on an average trading price of $15.7954 for Southern Union common stock at the average closing price per share for the ten trading day period ending on the third trading day before June 30, 2000, and assuming that half the Fall River Gas shares are not exchanged but paid for in cash. (f) Represents historical short-term debt and capital lease obligation of Southern Union, Fall River Gas, ProvEnergy and ValleyResources. 18 RISK FACTORS AND OTHER CONSIDERATIONS You should consider carefully all the information contained in this proxy statement/prospectus, including the following matters: THE AMOUNT OF CONSIDERATION RECEIVED IN STOCK MAY VARY AS A RESULT OF FLUCTUATIONS IN SOUTHERN UNION'S STOCK PRICE Fall River Gas stockholders may choose whether they want to exchange their Fall River Gas common stock for either cash or Southern Union common stock. Fall River Gas stockholders may also choose to exchange some of their Fall River Gas common stock for cash and some for Southern Union common stock. The opportunity to make this election will occur only shortly before the merger is completed, which will be after the time of the Fall River Gas stockholder vote on the merger. Also, the exchange ratio used to determine the amount of Southern Union common stock to be delivered to Fall River Gas stockholders who are entitled to receive Southern Union common stock will be adjusted. This adjustment will be based on the average of the closing prices of Southern Union common stock on the NYSE for a period of ten consecutive trading days ending on the third trading day before the date that the merger is completed. The adjustments to the exchange ratio are designed to ensure that the aggregate value based on this average price of the Southern Union shares to be exchanged for each share of Fall River Gas common stock you own will be at least $23.50 per share (except as explained in the second paragraph below) unless Fall River Gas decides to complete the merger if the average price is below $15.00 a share. You should be aware of two risks associated with these methods of electing the form of merger consideration you want to receive and adjusting the amount of Southern Union common stock to be delivered to Fall River Gas stockholders upon completion of the merger. - - First, there may be significant time lapses between: 1) when your vote is cast regarding the merger at the special meeting, 2) when you make your election regarding the form of merger consideration you want to receive, and 3) when merger is completed. During this period of time, the market value of Southern Union common stock may fluctuate significantly. At the time your vote is cast regarding approval of the merger and the time at which you make your election regarding the form of merger consideration you want to receive, you will not know the exact number of shares of Southern Union common stock that will be delivered to you when the merger is completed. - - Second, the number of shares of Southern Union common stock you will receive will be based on the closing prices of Southern Union common stock from the twelfth to the third trading days before the date that the merger is completed. The actual market value of the shares when received by you will depend on the market value of a share of Southern Union common stock on that date, which may be less than the value used to determine the number of shares you will receive. You are urged to obtain current market quotations for Southern Union common stock and Fall River Gas common stock. 19 THE AMOUNT OF CASH PAID TO STOCKHOLDERS ELECTING CASH MAY BE REDUCED PROPORTIONATELY No more than 50% of the aggregate consideration paid to all Fall River Gas stockholders may consist of cash. If you elect to receive cash in exchange for some or all of your shares of Fall River Gas common stock, the amount of cash you receive as consideration in the merger may be less than the amount you actually elected because too many other Fall River Gas stockholders elected to receive cash. If the Fall River Gas stockholders exceed their cash limitation, the amount of cash paid to each stockholder electing cash will be reduced proportionately. THE COMBINED COMPANY MAY NOT REALIZE BENEFITS OF INTEGRATING OUR COMPANIES, THE COMPANY SOUTHERN UNION RECENTLY ACQUIRED AND THE OTHER COMPANIES SOUTHERN UNION HAS AGREED TO ACQUIRE Southern Union recently acquired PEI and has agreed to acquire several companies, including Fall River Gas. See "Recent Developments - Southern Union." The combined company will need to combine and integrate the operations of these separate companies into one company. The combined company could encounter difficulties in the integration process, such as the loss of key employees, customers or suppliers. If the combined company cannot integrate the businesses of Southern Union and the other companies, successfully, the combined company may fail to realize the benefits that Southern Union's and Fall River Gas' management expect to realize from the merger. APPROVALS MAY NOT BE OBTAINED OR MAY CONTAIN UNACCEPTABLE RESTRICTIONS The consummation of the merger is conditioned upon receiving approval from various governmental regulatory authorities. It is possible that some required approvals and consents will not be obtained or that such approvals and consents can be obtained only if they contain certain restrictions on the combined company that will not be acceptable or would adversely affect the value of the combined company. See "The Merger - Regulatory Matters." Required approvals that have not yet been received are: - - approval of the merger by the Massachusetts Department of Telecommunications and Energy; - - authorization by the Florida Public Service Commission and the Pennsylvania Public Utility Commission of any securities issued by Southern Union in connection with the merger; and - - expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In addition, other filings with, notifications to and authorizations and approvals of various government agencies and third-party consents with respect to the merger must be made or received before the completion of the merger. As of the date of this proxy statement/prospectus, only the required approval of the Pennsylvania and Missouri commissions for the merger have been obtained. Fall River Gas and Southern Union are seeking to obtain all other required approvals and consents, most of which will not be obtained prior to the Fall River Gas special meeting. 20 FUTURE ACQUISITIONS MAY NOT ACHIEVE FAVORABLE FINANCIAL RESULTS, MAY DILUTE YOUR PERCENTAGE OWNERSHIP IN SOUTHERN UNION OR REQUIRE SUBSTANTIAL EXPENDITURES Southern Union's strategic plan is to increase the scale of its operations and the size of its customer base by pursuing and consummating future business combination transactions. Recently, it has acquired or agreed to acquire four companies, including Fall River Gas. See "Recent Developments - Southern Union." The combined company may not be able to consummate future acquisitions on favorable terms. In addition, future acquisitions may not achieve favorable financial results. Future acquisitions may involve or require the issuance of shares of Southern Union common stock, which could have a dilutive effect on the then-current stockholders of Southern Union. Southern Union may not choose or be able to acquire companies or assets associated with the energy industry using its equity as currency. The combined company's leverage might be increased to finance an acquisition or the operations of the combined company. Furthermore, acquisitions may require substantial financial expenditures that will need to be financed through cash flow from operations or future debt and equity offerings by the combined company. Southern Union may not be able to generate sufficient cash flow from operations or obtain debt or equity financing sufficient to fund future acquisitions or the expenditures required because of the acquisitions. A DIFFERENT SET OF FACTORS AND CONDITIONS AFFECT SOUTHERN UNION STOCK AND COULD HAVE A NEGATIVE IMPACT ON ITS STOCK PRICE Upon completion of the merger, stockholders of Fall River Gas that do not receive cash for any or all of their shares of Fall River Gas stock will become holders of Southern Union common stock. The businesses and markets of Southern Union and the other companies it has acquired and is acquiring are different from those of Fall River Gas. For example, the natural gas business of Fall River Gas depends primarily on weather, economic and regulatory conditions affecting southeastern Massachusetts. Southern Union's gas business depends in part on weather and economic conditions in Texas, Missouri, Pennsylvania, and Florida. In addition, Southern Union, through its subsidiaries, is engaged in the electricity business and the propane distribution business. There is a risk that various factors, conditions and developments which would not affect the price of Fall River Gas' stock could negatively affect the price of Southern Union's stock. See "Forward-Looking Statements May Prove Inaccurate" for a summary of many of the key factors that might affect Southern Union and the price at which Southern Union common stock may trade from time to time. See "Comparative Per Share Data" for certain unaudited historical per share data of Southern Union and Fall River Gas. SOUTHERN UNION DOES NOT PAY CASH DIVIDENDS ON ITS COMMON STOCK Fall River Gas presently pays a $0.24 quarterly cash dividend on its outstanding shares of common stock. Southern Union presently does not pay a cash dividend. Southern Union plans to continue to distribute an annual 5% stock dividend, subject to any required regulatory approvals being obtained. 21 COMPETITION WITHIN THE NATURAL GAS INDUSTRY IS INTENSE As a result of the deregulation of the utility industry, the natural gas distribution business has become highly competitive. In a deregulated environment, formerly regulated utility companies that are not responsive to a competitive energy marketplace suffer erosion in market share, revenues and profits as competitors gain access to their service territories. Although the merger will result in a larger combined company with a more diverse customer base, several of the combined company's competitors will still have substantially larger financial resources, staffs and facilities than the combined company. There is a risk that the intense competition for natural gas customers may in the future reduce the combined company's earnings from retail natural gas service and have an adverse effect on the stability of the combined company's utility earnings generally. THE TERMS OF MERGER-RELATED FINANCINGS MAY ADVERSELY AFFECT THE COMBINED COMPANY Southern Union's management would require financing through external sources of up to approximately $600 million to complete the pending mergers (assuming that Fall River Gas shareholders choose to receive the maximum of 50% of the aggregate merger consideration that may be paid to them in cash and if all $140 million of existing long-term debt of the three companies being acquired must be refinanced rather than amended and assumed as planned) necessary to fund the total cash payable to the stockholders of Fall River Gas, ProvEnergy and Valley Resources, and costs and refinancings related to all of these mergers in connection with completion of these mergers (see "The Companies - Southern Union - - Acquisitions"). In addition to the Fall River Gas, ProvEnergy and Valley Resources transactions, other future acquisitions may require substantial financial expenditures that will also need to be financed through external sources, including future debt and equity offerings by the combined company. Furthermore, Southern Union may refinance a portion of the outstanding debt of Fall River Gas, ProvEnergy, Valley Resources and their respective subsidiaries in connection with or soon after the completion of those transactions. Sources of financing for the three pending and any future acquisitions may include commercial and investment banks, institutional lenders and investors, and the public securities markets. Southern Union presently plans to fund the pending mergers with bank borrowings, but has no commitments at this time. After closing the mergers, Southern Union may need or choose to refinance some or all of any bank financing for the mergers. The terms of any financing or refinancing arrangements may contain covenants that could adversely affect the financial condition and flexibility of the combined company. Southern Union's management believes that Southern Union will have access if, and when, needed to many sources and types of short-term and long-term capital financing on reasonable terms and conditions. 22 FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE We have each made forward-looking statements in this document (and in documents that we have incorporated by reference) that are subject to risks and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of Southern Union, Fall River Gas, ProvEnergy and Valley Resources. Also, when we use words such as "believes," "expects," "anticipates," "intends," or similar expressions, we are making forward-looking statements. You should note that many factors, some of which are discussed elsewhere in this document and in the documents that we incorporate by reference, could affect the future financial results of Southern Union, Fall River Gas, ProvEnergy and Valley Resources and could cause those results to differ materially from those expressed in our forward-looking statements contained or incorporated by reference in this document. The factors that could cause actual results to differ materially from those indicated by such forward-looking statements include the following: - - general economic, financial and business conditions; - - effectiveness of hedging strategies; - - competition in the energy services sector; - - the availability of natural gas and oil; - - development and operating costs; - - the success and costs of advertising and promotional efforts; - - the availability and terms of capital; - - unanticipated environmental liabilities; - - the impacts of unusual items resulting from ongoing evaluations of business strategies and asset valuations; - - changes in business strategy; - - the timing and extent of changes in commodity prices; - - gas sales volumes; - - weather conditions and other natural phenomena in our service territories; - - the purchase and implementation of new technologies for enhancing customer services and/or operating efficiencies; - - impact of relations with labor unions of bargaining-unit employees; 23 - - the receipt of timely and adequate rate relief; - - the outcome of pending and future litigation; - - governmental regulations and proceedings affecting the companies, including the restructuring of the natural gas industry in Massachusetts, Rhode Island, Texas, Missouri, Pennsylvania and Florida; - - the nature and impact of any extraordinary transaction such as any acquisition or divestiture of a business unit or any assets; - - the risk that the businesses of PEI, Fall River Gas, ProvEnergy, Valley Resources and any other businesses or investments that Southern Union has acquired or may acquire may not be successfully integrated with the businesses of Southern Union. This list provides only an example of some of the risks, uncertainties and assumptions that may affect forward-looking statements. If any of these risks or uncertainties materialize or fail to materialize, as applicable, or if the underlying assumptions prove incorrect, actual results may differ materially from those projected in the forward-looking statements. The nature and impact of any extraordinary transactions such as any acquisition or divestiture of a business unit or any assets may also cause actual results to differ materially from estimates or projections contained in forward-looking statements. Southern Union's strategic plan is to increase the scale of its operations and the size of its customer base by pursuing and completing future business combination transactions. Acquisitions may require substantial additional financial expenditures that will need to be financed through cash flow from operations or future debt and equity offerings. The availability and terms of any such financing sources will depend upon various factors and conditions such as Southern Union's cash flow and earnings, its resulting capital structure, credit ratings and conditions in financial capital markets at the time of any such offering. Any future acquisitions and related financing arrangements or debt assumptions would likely increase its aggregate indebtedness, and may increase the portion of its total capitalization represented by debt. Acquisitions and financings will also affect Southern Union's results due to factors such as its ability to realize any anticipated benefits from such transactions, successful integration of new and different operations and businesses, effects of different regional economic and weather conditions, and the extent of any related debt financing. Other factors that could cause actual results to differ materially from estimates and projections contained in forward-looking statements are described in the documents that have been incorporated by reference into this document. You should not place undue reliance on forward-looking statements, which speak only as of the date of this proxy statement/prospectus, or, in the case of documents incorporated by reference, the dates of those documents. 24 COMPARATIVE DIVIDENDS AND MARKET PRICES SOUTHERN UNION Southern Union common stock is listed and principally traded on the NYSE under the symbol "SUG." The table below sets forth the high and low sales prices (adjusted for any stock dividends and stock splits) of Southern Union common stock for the calendar periods indicated as reported in THE WALL STREET JOURNAL as New York Stock Exchange Composite Transactions. The last day of Southern Union's fiscal year is June 30. Southern Union does not pay its stockholders a cash dividend. For the last seven years, Southern Union has distributed an annual 5% stock dividend, and it expects to continue to distribute an annual 5% stock dividend that can be sold through its Dividend Sale Plan.
PRICE RANGE -------------------- HIGH LOW ------ ------ 1997 ---- First quarter $13.36 $11.65 Second quarter 13.85 12.06 Third quarter 13.44 11.93 Fourth quarter 14.87 12.48 1998 ---- First quarter $14.26 $13.18 Second quarter 18.79 13.74 Third quarter 19.33 13.50 Fourth quarter 22.22 16.79 1999 ---- First quarter $22.10 $15.76 Second quarter 20.75 16.78 Third quarter 20.66 17.14 Fourth quarter 20.00 16.61 2000 ---- First quarter $18.15 $12.62 Second quarter 17.26 14.41
25 FALL RIVER GAS Fall River Gas common stock is listed and principally traded on the American Stock Exchange under the symbol "FAL." Prior to October 31, 1997, the Fall River Gas' common stock was traded in the over-the-counter market on the OTC Bulletin Board and quoted under the symbol "FALL." The table below lists the dividends declared and the high and low sales price of Fall River Gas common stock for the calendar period indicated as reported in THE WALL STREET JOURNAL as American Stock Exchange Composite Transactions and prior to October 1997 as reported by The National Quotation Bureau. The last day of Fall River Gas' fiscal year is September 30.
PRICE RANGE -------------------- HIGH LOW CASH DIVIDENDS ------ ------ -------------- 1997 ---- First quarter $17.00 $16.00 $0.24 Second quarter 16.38 12.50 0.24 Third quarter 14.00 12.75 0.24 Fourth quarter 16.63 13.00 0.24 1998 ---- First quarter $17.25 $14.88 $0.24 Second quarter 16.75 14.25 0.24 Third quarter 16.38 14.38 0.24 Fourth quarter 17.50 15.00 0.24 1999 ---- First quarter $18.25 $16.88 $0.24 Second quarter 19.88 17.13 0.24 Third quarter 22.00 18.75 0.24 Fourth quarter 21.94 20.13 0.24 2000 ---- First quarter $21.88 $19.13 $0.24 Second quarter 22.69 20.50 0.24
26 HISTORICAL EQUIVALENT PER SHARE MARKET VALUES The following table lists the market value of Southern Union common stock (on an historical basis) and the market value of Fall River Gas common stock (on an historical and equivalent per share basis): as of July 23, 1999, the day the executive committee of the board of directors of Fall River Gas authorized Fall River Gas' representatives to negotiate a merger agreement with Southern Union based on its indication of interest; as of October 1, 1999, the last business day preceding the day when Southern Union and Fall River Gas entered into the merger agreement; and as of June 30, 2000, the day used to determine the estimated exchange ratio used in the Unaudited Pro Forma Combined Condensed Financial Statements. The equivalent per share values were based on an exchange ratio valuing Southern Union common stock at the average closing price per share for the ten trading day period ending on the third trading day before each respective date.
SOUTHERN UNION FALL RIVER GAS EQUIVALENT -------------------------- -------------------------- PER SHARE DATE HIGH LOW CLOSING HIGH LOW CLOSING VALUE - --------------- ------ ------ ------- ------ ------ ------- ---------- July 23, 1999 $20.50 $20.13 $20.50 $21.00 $20.50 $20.50 $24.15 October 1, 1999 19.00 18.69 18.75 20.86 20.75 20.75 23.32 June 30, 2000 17.13 15.75 15.81 22.25 22.00 22.00 22.02
YOU ARE ENCOURAGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SOUTHERN UNION COMMON STOCK AND FALL RIVER GAS COMMON STOCK. COMPARATIVE PER SHARE DATA The following tables list certain unaudited historical per share data of Southern Union and Fall River Gas and the combined per share data on an unaudited pro forma basis after giving effect to the PEI, Fall River Gas, ProvEnergy and Valley Resources mergers assuming the mergers had been in effect for the period indicated, using the purchase method of accounting for business combinations and assuming an exchange ratio of 1.39259 shares of Southern Union common stock for each share of Fall River Gas common stock based on an average trading price of $15.7954 for Southern Union common stock, which is the average closing price per share for the ten trading day period ending on the third trading day before June 30, 2000. This data should be read in conjunction with the selected financial data and the Unaudited Pro Forma Combined Condensed Financial Statements and notes thereto included elsewhere in this proxy statement/prospectus and the separate historical financial statements of Southern Union, PEI, Fall River Gas, ProvEnergy and Valley Resources incorporated in this proxy statement/prospectus by reference, including by reference to a Southern Union Current Report on Form 8-K. The unaudited pro forma combined financial data is not necessarily indicative of the operating results or financial position that would have occurred if the mergers had been consummated as of the beginning of the periods presented, nor are they necessarily indicative of the future operating results or financial position of the combined company. 27
YEAR ENDED NINE MONTHS ENDED JUNE 30, 1999 MARCH 31, 2000 ------------- ----------------- SOUTHERN UNION -- HISTORICAL Earnings per common share: Basic....................................................... $ 0.32 $ 0.49 Diluted..................................................... 0.31 0.47 Cash dividends declared per share(a) .......................... -- -- Book value per share at period end ............................ 9.36 13.06 FALL RIVER GAS - HISTORICAL Earnings per common share: Basic....................................................... $ 0.93 $ 0.71 Diluted..................................................... 0.93 0.71 Cash dividends declared per share ............................. 0.96 0.72 Book value per share at period end ............................ 8.29 8.74 SOUTHERN UNION - PRO FORMA(b) Earnings (loss) per common share: Basic....................................................... $ (0.19) $ (0.05) Diluted..................................................... (0.19) (0.05) Cash dividends declared per share(a) .......................... -- -- Book value per share at period end ............................ 12.81 11.55 FALL RIVER GAS - EQUIVALENT PRO FORMA Per share data imputed to existing stockholders(c)(d) Earnings (loss) per common share: Basic....................................................... $ (0.27) $ (0.07) Diluted..................................................... (0.27) (0.07) Cash dividends declared per share ............................. -- -- Book value per share at period end ............................ 17.83 16.08
(a) Southern Union distributes an annual 5% stock dividend. (b) See "Selected Unaudited Pro Forma Combined Condensed Financial Data." (c) Equivalent pro forma share data are calculated by multiplying the respective unaudited pro forma combined data by an assumed exchange ratio of 1.39259 shares of Southern Union common stock for each share of Fall River Gas common stock. The assumed exchange ratio is based on an average trading price of $15.7954 for Southern Union common stock, which is the average closing price per share for the ten trading day period ending on the third trading day before June 30, 2000. (d) Pro forma combined cash dividends declared per share represents the historical stock (not cash) dividend policy of Southern Union for all periods presented. 28 RECENT DEVELOPMENTS SOUTHERN UNION In addition to the Fall River Gas merger, Southern Union recently has completed or agreed to the significant acquisitions described below. MERGER WITH PENNSYLVANIA ENTERPRISES, INC. Effective November 4, 1999, Southern Union acquired PEI and its subsidiaries for approximately 17 million shares of Southern Union common stock and approximately $36 million in cash plus the assumption of approximately $150 million in debt. PEI's natural gas utility businesses are being operated as PG Energy and Honesdale Gas, divisions of Southern Union, which provide service to approximately 154,000 natural gas customers in northeastern and central Pennsylvania (including the cities of Wilkes-Barre, Scranton and Williamsport). Through PG Energy Services, Inc., a PEI subsidiary that Southern Union acquired in the PEI merger, Southern Union markets electricity and other products and services under the name PG Energy Power Plus, principally in northeastern and central Pennsylvania. Other subsidiaries that Southern Union acquired in the PEI merger include PEI Power Corporation, Keystone Pipeline Services, Inc. (itself a wholly owned subsidiary of PG Energy Services, Inc.) and Theta Land Corporation. PEI Power Corporation, an exempt wholesale generator (within the meaning of the Public Utility Holding Company Act of 1935), generates and sells electricity. Keystone Pipeline Services, Inc. is engaged primarily in the construction, maintenance and rehabilitation of natural gas distribution pipelines. Theta Land Corporation engages in the sale of property for residential and commercial development and was sold for $12.1 million in January 2000. MERGER WITH PROVIDENCE ENERGY CORPORATION. On November 14, 1999, Southern Union and ProvEnergy (NYSE: "PVY") entered into a definitive merger agreement. The agreement calls for ProvEnergy and its utility subsidiaries to merge into Southern Union in a transaction valued at approximately $400 million, including the assumption of debt. ProvEnergy shareholders will receive $42.50 in cash for each of the approximately 6.1 million shares of ProvEnergy common stock outstanding. ProvEnergy, headquartered in Providence, Rhode Island, is engaged through its subsidiaries principally in natural gas distribution to approximately 168,000 natural gas customers in Providence and Newport, Rhode Island, and 23 other cities and towns in Rhode Island and Massachusetts. ProvEnergy's oil business serves over 4,000 residential customers and a large commercial base. ProvEnergy's utility service territories encompass approximately 760 square miles with a population of approximately 850,000. On May 22, 2000, the shareholders of ProvEnergy approved the terms of the ProvEnergy merger. Southern Union anticipates completing the ProvEnergy merger in September 2000 once all remaining conditions are satisfied, including receipt of all regulatory approvals. MERGER WITH VALLEY RESOURCES, INC. On November 30, 1999, Southern Union, SUG Acquisition Corporation a Rhode Island corporation and wholly-owned subsidiary of Southern Union, and Valley Resources (AMEX: "VR") entered into a definitive merger agreement. The agreement calls for Valley Resources to merge into Southern Union in a transaction valued at approximately $160 million, including the assumption of debt. Valley Resources shareholders will receive $25.00 in cash for each of the approximately 4.98 million shares of Valley Resources common stock outstanding. Valley Resources, headquartered in Cumberland, Rhode Island, provides natural gas utility service to more than 64,000 customers through its subsidiaries, Valley Gas Company and Bristol & Warren Gas Company. Valley Gas Company's service 29 area covers a 92 square mile area in the Blackstone Valley Region located in the northeastern portion of Rhode Island that has a population of approximately 250,000. Bristol & Warren Gas Company's service area covers approximately 15 square miles in the eastern portion of Rhode Island that has a population of approximately 35,000. Other Valley Resources subsidiaries rent and sell gas appliances, sell liquid propane in Rhode Island and nearby Massachusetts, and distribute as a wholesaler franchised lines to plumbing and heating contractors. Valley Resources also has an 90% interest in Alternate Energy Corporation, which sells, installs and designs natural gas conversion systems and facilities, is an authorized representative of the ONSI fuel cell, holds patents for a natural gas/diesel co-firing system and for a device to control the flow of fuel on dual-fuel equipment. Valley Resources shareholders approved the Valley Resources merger at their special meeting on June 13, 2000. Southern Union anticipates completing the Valley Resources merger in September 2000 once all remaining conditions are satisfied, including receipt of all regulatory approvals for the Valley Resources merger. THE FALL RIVER GAS SPECIAL MEETING PURPOSE, TIME AND PLACE The special meeting will be held at the office of Fall River Gas, 155 Main Street, Fall River, Massachusetts 02722 on August 29, 2000, at 10:00 a.m. (Eastern Time), for the following purposes: (1) To approve and adopt the merger agreement; (2) To transact such other business as may properly come before the meeting or any adjournment thereof. RECORD DATE; VOTING POWER; VOTE REQUIRED The Fall River Gas board has fixed the close of business on July 5, 2000 as the record date for the determination of holders of Fall River Gas common stock entitled to notice of and to vote at the special meeting. Fall River Gas common stock, of which there were 2,252,429 shares outstanding and entitled to vote on July 5, 2000, is the only class of securities of Fall River Gas entitled to vote at the special meeting. A majority of the shares of Fall River Gas common stock issued and outstanding and entitled to vote on the record date must be present in person or by proxy at the special meeting or voted by telephone in order for a quorum to be present for purposes of transacting business at the special meeting. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies. Holders of Fall River Gas common stock as of the record date are each entitled to one vote per share on the approval and adoption of the merger agreement at the special meeting. The approval and adoption requires the affirmative vote of at least two-thirds of the shares of Fall River Gas common stock outstanding on the record date. The Fall River Gas board recommends that Fall River Gas stockholders vote "FOR" approval and adoption of the merger agreement. SHARE OWNERSHIP OF MANAGEMENT; MANAGEMENT VOTE; VOTING AGREEMENT As of the close of business on May 31, 2000, directors and officers of Fall River Gas beneficially owned and were entitled to vote approximately 297,216 shares of Fall River Gas common stock, which represented 30 approximately 13.3% of the shares of Fall River Gas outstanding on that date. Each of them has indicated his or her present intention to vote, or cause to be voted, the Fall River Gas common stock owned by him or her "FOR" the proposal to approve and adopt the merger agreement at the special meeting. See "Principal Stockholders - Beneficial Owners of More Than 5% of Fall River Gas' Common Stock" and "Fall River Gas Management Ownership" for additional information. In connection with the merger, Barbara N. Jarabek, as trustee to The Jarabek Family Limited Partnership, Ronald J. Ferris, Bradford J. Faxon, Raymond H. Faxon, Cindy L.J. Audette, Gilbert C. Oliveira, Jr. and Thomas H. Bilodeau entered into a voting agreement with Southern Union. According to the terms of the voting agreement, these stockholders agreed: 1) to vote or cause to be voted their shares of Fall River Gas common stock in favor of the merger and the adoption and approval of the merger agreement, and 2) to grant Southern Union an irrevocable proxy to vote their shares of Fall River Gas common stock for the approval and adoption by the Fall River Gas stockholders of the merger agreement and the performance of transactions related to the merger. As of the special meeting record date, the number of shares beneficially owned by the Fall River Gas stockholders who entered into the voting agreement and granted this irrevocable proxy represent approximately 25.6% of the outstanding shares of Fall River Gas common stock entitled to vote on the approval and adoption of the merger agreement and performance of transactions related to the merger agreement. Of the 572,510 shares of Fall River Gas common stock represented by the stockholders who are parties to the voting agreement, as of May 31, 2000, 276,800 shares were beneficially owned by executive officers and directors of Fall River Gas. The voting agreement is attached as Appendix C to this proxy statement/prospectus. See "The Merger Agreement - Covenants and other Agreements - Fall River Gas Voting Agreement." VOTING OF PROXIES All holders of Fall River Gas common stock who are entitled to vote and are represented at the special meeting by properly executed proxies received prior to or at such meeting and not duly and timely revoked will have their shares voted at the meeting in accordance with the instructions indicated on the proxies. If no instructions are indicated, the proxies will be voted "FOR" approval and adoption of the merger agreement. If any other matters are properly presented at the special meeting for consideration, the persons named in the enclosed form of proxy, and acting thereunder, will have discretion to vote on such matters in accordance with their best judgment (unless authorization to use such discretion is withheld). Fall River Gas is not aware of any matters expected to be presented at the special meeting other than as described in the Notice of Special Meeting. REVOCABILITY OF PROXIES Massachusetts law provides that a proxy, unless coupled with an interest (for example, a vote pooling or similar arrangement among holders of Fall River Gas common stock, or between Fall River Gas and holders of Fall River Gas common stock, or an unrevoked proxy in favor of an existing or potential creditor of a holder of Fall River Gas common stock), is revocable at will by a holder of Fall River Gas common stock, 31 notwithstanding any other agreement or provision in the proxy to the contrary. A holder of Fall River Gas common stock may revoke a proxy by giving written notice of revocation to the clerk of Fall River Gas at Fall River Gas' address set forth on page 5 of this proxy statement/prospectus at any time before the proxy is voted. Such revocation will be effective upon receipt of the written notice by the Clerk of Fall River Gas. SOLICITATION OF PROXIES Fall River Gas and Southern Union will each bear half of the costs of this solicitation of proxies. In addition to solicitation by mail, arrangements may be made with brokerage houses and other custodians, nominees and fiduciaries to send material to their principals, and Fall River Gas may reimburse them for their expenses in so doing. To the extent necessary in order to ensure a sufficient presence of holders of Fall River Gas common stock to constitute a quorum, officers and other employees of Fall River Gas or designated agents may, without additional remuneration, in person or by telephone or telegram, request the return of proxies. In addition, Fall River Gas has retained Corporate Investor Communications, Inc. ("CIC") for assistance in the solicitation of proxies. For its services, CIC will receive a fee estimated at $4,500 plus reimbursement for reasonable and customary out-of-pocket expenses. THE MERGER THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS, AS WELL AS THE NEXT SECTION ENTITLED "THE MERGER AGREEMENT," DESCRIBES CERTAIN ASPECTS OF THE PROPOSED MERGER. THESE SECTIONS HIGHLIGHT KEY INFORMATION ABOUT THE MERGER AND THE MERGER AGREEMENT, BUT THEY MAY NOT INCLUDE ALL THE INFORMATION THAT YOU WOULD LIKE TO KNOW. THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT/PROSPECTUS. WE URGE YOU TO READ THE MERGER AGREEMENT IN ITS ENTIRETY. FALL RIVER GAS BACKGROUND OF THE MERGER As part of its long-term planning, Fall River Gas' board has periodically reviewed and evaluated various strategic options and alternatives available to maximize the economic return of its stockholders. Fall River Gas' board has recognized the difficulties Fall River Gas faced in responding to the demands of a deregulated energy market, in competing with the larger companies being formed in the consolidation of the energy industry and in continuing to increase shareholder value. From time to time, Fall River Gas' board has considered strategic combinations, but found no attractive opportunities to maximize shareholder value. On June 21, 1999, Bradford J. Faxon, Chairman of the Board, Chief Executive Officer and President, Peter H. Thanas, Senior Vice President, and Thomas K. Barry, director of Fall River Gas, met with Thomas F. Karam, President and Chief Executive Officer of PEI, a Pennsylvania based gas utility holding company that was then in the initial stages of its merger with Southern Union, and discussed, in general terms, their respective companies and whether it would be appropriate to initiate further discussions between representatives of Southern Union and Fall River Gas regarding a possible business combination. As a follow-up to this conversation, Mr. Karam sent Mr. Faxon copies of recent Southern Union public reports. On July 19, 1999, following several general conversations between Mr. Faxon and Mr. Karam about the energy industry and the philosophies of their companies, and the possibility of a strategic relationship 32 between Southern Union and Fall River Gas, Mr. Karam conveyed Southern Union's proposal to acquire Fall River Gas, in an all stock transaction, valuing the Fall River Gas stock at $21 per share. Mr. Faxon communicated the proposal to the executive committee of the board of directors at the executive committee's July 23, 1999 meeting (director Ronald J. Ferris was also in attendance). The committee concluded that the proposal was too low and instructed Mr. Faxon to seek a higher proposed price. After Fall River Gas advised Southern Union of this decision, additional discussions occurred between Mr. Faxon, Mr. Thanas and Mr. Karam and Peter H. Kelley, President and Chief Operating Officer of Southern Union. On July 29, 1999 Southern Union made a revised proposal of $23.50 per share and Mr. Faxon undertook to seek approval by the Fall River Gas board of directors. Subsequently, discussions ensued between Messrs. Faxon, Thanas, counsel for the respective companies and Mr. Karam as well as other representatives of Southern Union with respect to other proposed terms for a transaction. At the same time, Mr. Faxon advised the members of the board of Fall River Gas of the developments regarding a possible business combination with Southern Union and called a special meeting of the board of directors. During this time period, Messrs. Faxon and Thanas fielded informal inquiries from other potential combination partners, but no offers were received from anyone other than Southern Union. On the morning of September 8, 1999, the board of Fall River Gas met to consider a merger agreement with Southern Union. At the same time, at Fall River Gas' request, the American Stock Exchange agreed to suspend trading in the stock of Fall River Gas while the board and its advisors discussed the merger. Mr. Faxon updated the board on his discussions with Southern Union and stated his view that a strategic merger with a larger company would, among other things: 1) provide an opportunity for growth; 2) assist Fall River Gas in providing all energy alternatives to its customers; 3) provide geographical diversity; 4) permit more aggressive growth; and 5) better enable the company to take advantage of opportunities in the energy industry. In addition, Mr. Faxon stated a strategic relationship with Southern Union would not require Fall River Gas to significantly reduce employees or other assets in Fall River Gas' service area and should help improve service to its customers. He noted the changing competitive landscape in the energy industry where critical mass and complete energy solutions are necessary, the increasing merger activity and formation of larger companies with which Fall River Gas would be required to compete, and the limitations of Fall River Gas in terms of potential sales growth in its existing service territory and access to capital. Fall River Gas' outside counsel, Rich, May, Bilodeau & Flaherty, P.C., reviewed the board's fiduciary duties and the standards of conduct to be followed in considering a merger proposal. Rich, May, Bilodeau & Flaherty, P.C. also discussed key legal aspects of the proposed merger agreement and the negotiation process with members of Fall River Gas' board. Legg Mason, Fall River Gas' financial advisors, discussed the proposed financial terms of the transaction between Southern Union and Fall River Gas with the board and rendered its written opinion that, as of the date of the meeting and based upon and subject to certain matters stated in its opinion, the consideration to be received by the stockholders of Fall River Gas in the proposed merger was fair to the stockholders from a financial point of view. Mr. Kelley, Ronald J. Endres, Southern Union's Executive Vice President and Chief Financial Officer, and Mr. Karam, made a presentation to the Fall River Gas board of directors describing Southern Union, its 33 operations and recent corporate history, including its 1994 Missouri acquisition and its then pending merger with PEI, as well as its corporate plan of growth through acquisitions. Mr. Endres discussed Southern Union's returns to investors and discussed Southern Union's business vision of enhancing profitability through technological advances. Mr. Karam summarized the benefits of Southern Union's strategies and certain benefits of the proposed merger: 1) geographical diversification and minimum employee disruption; 2) reduction in costs; 3) creation of additional value through increased size; and 4) establishment of a New England presence for Southern Union. After the Southern Union presentation, the Fall River Gas board discussed the terms of the proposed merger agreement, including the stock-for-stock consideration, valued at $23.50 per share of Fall River Gas common stock. The sense of the meeting was that the price was fair, but more information should be gathered regarding Southern Union. Mr. Faxon suggested and the board voted to and established a special committee of the board for the sole purpose of gathering additional information regarding Southern Union. The committee members were Cindy L.J. Audette, Thomas H. Bilodeau and Ronald J. Ferris. Fall River Gas management then issued a press release stating that Fall River Gas had received an offer from an undisclosed party for an all stock transaction at $23.50 per share, and that the board of directors had formed a committee to help it evaluate the offer. During the next several days, additional discussions were held among the representatives of Fall River Gas and Southern Union, while the special committee gathered additional information regarding Southern Union. During this period, the Fall River Gas board members also engaged in discussions with one another concerning the possible merger. On the morning of September 17, 1999, the Fall River Gas board again met to consider the proposed merger. Again, Mr. Faxon stated his support for the transaction, noting: 1) that the price offered was favorable relative to other recent comparable transactions; 2) that Fall River Gas' growth prospects in terms of business and earnings were limited; and 3) that the proposed merger would not require a significant reduction in employees or assets in Fall River Gas' service area. He further noted that although there had been inquiries from third parties, no other offers by other potential merger partners had been received. Fall River Gas' counsel again reviewed the board's responsibilities and key aspects of the merger agreement and the special committee presented its findings. After extensive discussion, the board determined that it lacked sufficient consensus to recommend the merger as structured. Fall River Gas then issued a press release stating that the board had rejected the offer. Following additional conversations between representatives of Southern Union and Fall River Gas, by letter dated September 28, 1999, Mr. Karam conveyed Southern Union's willingness to change the structure for its proposed merger to provide that up to one-half of the consideration could be cash rather than stock of Southern Union. At its regular meeting on September 30, 1999, Fall River Gas' board considered the terms of Southern Union's revised offer. Fall River Gas' counsel discussed various aspects of the proposed merger agreement, conditions to closing, as well as a likely time schedule. Legg Mason, by conference telephone, noted that it considered the change from an all-stock transaction to a cash-and-stock transaction to be favorable to the stockholders and confirmed its view that the consideration to be received by the stockholders of Fall River Gas in the proposed merger was fair to the stockholders from a financial point of view. Legg Mason orally advised that it would change its written opinion delivered to the Fall River Gas 34 board of directors on September 7, 1999 to reflect this change in the merger consideration. Legg Mason delivered their revised written opinion on October 4, 1999. The Fall River Gas board, after further discussion and for the reasons listed under "-Fall River Gas Reasons for the Merger; Recommendation of Fall River Gas' Board of Directors," unanimously approved the merger agreement. Following the meeting, Messrs. Faxon and Thanas called representatives of Southern Union to communicate the board's approval. After the close of business October 4, 1999, the merger agreement was executed and the merger was publicly announced. FALL RIVER GAS REASONS FOR THE MERGER; RECOMMENDATION OF FALL RIVER GAS' BOARD OF DIRECTORS Recognizing the need for Fall River Gas to be larger in order to respond to the demands of a deregulated energy market and to compete with the larger companies being formed in the consolidation of the energy industry, the Fall River Gas board authorized the exploration of a strategic stock-for-stock merger. The Fall River Gas board believes that the merger with Southern Union, among other things, should help Fall River Gas: 1) to provide all energy alternatives to the consumer; 2) to diversify geographically; 3) to grow aggressively where advisable; and 4) to be better able to take advantage of opportunities in the energy industry. In addition, this strategic relationship should not require Fall River Gas to significantly reduce employees or other assets in Massachusetts and should help improve service to its customers. In reaching its decision to approve the merger and the merger agreement and to recommend that Fall River Gas stockholders adopt the merger agreement, the Fall River Gas board consulted with its management, financial and legal advisors and considered a number of factors, including, among others, the following material factors: - - the belief that the merger with Southern Union will result in a combined entity with sufficient size and scope to compete effectively in the deregulated energy market; - - the merger consideration negotiated with Southern Union, including the collar provision designed to protect Fall River Gas stockholders with respect to the value of the stock consideration to be received by them in the merger, and the implied premium that the merger consideration represented over then recent market prices of Fall River Gas common stock; - - the written opinion of Legg Mason, a copy of which is attached as Appendix B to this proxy statement/prospectus, that subject to the assumptions and limitations contained in that opinion, the consideration to be received in the merger by the stockholders of Fall River Gas is fair, from a financial point of view, to the stockholders; - - the financial presentation made by Legg Mason to the Fall River Gas board in connection with delivering its written opinion; - - the benefits to Fall River Gas' employees and the communities served by Fall River Gas, including the retention of local operations and provisions of Southern Union's benefit plans; - - the terms and conditions of the merger agreement, including: 35 - the representations and warranties Fall River Gas has made to Southern Union; - the representations and warranties Southern Union has made to Fall River Gas; - the closing conditions; - the ability of Fall River Gas, under certain circumstances, to provide information to, and enter into negotiations with, third parties with respect to certain unsolicited offers to acquire Fall River Gas; - the ability to terminate the merger agreement in order to enter into an agreement with a person making an unsolicited offer, which is more favorable to Fall River Gas stockholders from a financial point of view than the merger after paying a termination fee to Southern Union and giving Southern Union the opportunity to match any offer made by such a third party; and - the ability of Fall River Gas to terminate the merger agreement if the average trading price of Southern Union common stock for the valuation period ending shortly before the closing falls below $15.00 (see "The Merger Agreement -- Merger Consideration"); - - the structure of the transaction, which is intended to qualify as a "reorganization" for United States federal income tax purposes, so that the stockholders of Fall River Gas, as such, will recognize gain only to the extent they receive cash in exchange for their shares of Fall River Gas common stock; - - information concerning the business, financial condition, results of operations and prospects, including, but not limited to, the potential for growth, development and profitability of Southern Union; - - the projected pro forma ownership of Southern Union by the stockholders of Fall River Gas implied by the exchange ratio; - - the historical market prices and trading information with respect to Fall River Gas common stock and Southern Union common stock; and - - the likelihood that the merger would be consummated. During its deliberations regarding the proposed merger and merger agreement, the Fall River Gas board also analyzed certain risks associated with the merger, including the integration of the two companies and the risk of obtaining the necessary regulatory approvals for the merger in acceptable form. After reviewing these matters, the Fall River Gas board determined that the benefits of the merger outweighed any risks entailed in these matters. At its meeting on September 30, 1999, the Fall River Gas board unanimously approved the terms of the merger agreement and the related transactions, determined that the terms of the merger are in the best interests of Fall River Gas and Fall River Gas' stockholders, and recommended approval and adoption of the merger agreement by Fall River Gas' stockholders. 36 This discussion of the information and factors considered by the Fall River Gas board in making their decision is not intended to be exhaustive but is believed to include all material factors considered in connection with the Fall River Gas board's evaluation of the merger. The Fall River Gas board did not find it practicable to, and did not, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, individual members of the Fall River Gas board may have given different weight to different factors. Based on the total mix of information available to them, all of the directors decided to approve and recommend the merger to Fall River Gas stockholders. In considering the recommendation of the Fall River Gas board with respect to the merger agreement, Fall River Gas stockholders should be aware that certain members of the Fall River Gas board and Fall River Gas employees have interests in the merger that are different from, or in addition to, the interests of stockholders of Fall River Gas generally. The Fall River Gas board was aware of these interests and considered them, among other matters, in approving the merger agreement. See "The Merger - Potential Conflicts and Interests of Certain Persons in the Merger." OPINION OF FALL RIVER GAS' FINANCIAL ADVISOR Legg Mason rendered its oral and written opinion to the Fall River Gas board at their meeting on September 30, 1999, that, as of that date, and subject to certain assumptions, factors and limitations set forth in such opinion as described below, the merger consideration to be received by Fall River Gas stockholders pursuant to the merger agreement was fair to stockholders from a financial point of view. The full text of the written opinion of Legg Mason dated October 4, 1999, which sets forth the assumptions made, matters considered, scope and limitations on the review undertaken, and procedures followed by Legg Mason in connection with the opinion, is attached as Appendix B to this proxy statement/prospectus. Stockholders are urged to read this opinion in its entirety. Legg Mason's opinion is directed only to the consideration to be received by stockholders pursuant to the merger agreement and does not constitute a recommendation to any stockholder as to how such stockholder should vote at the special meeting. Legg Mason's opinion will not be updated prior to or at the closing of the merger. The summary of the opinion of Legg Mason set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. In connection with this engagement, Fall River Gas did not request Legg Mason, and Legg Mason did not assist Fall River Gas, to determine the exchange ratio provided for in the merger agreement. The exchange ratio was determined through arm's-length negotiations between Fall River Gas and Southern Union. In connection with its opinion, Legg Mason reviewed, among other things, (a) the merger agreement and certain related documents, (b) the audited consolidated financial statements of Fall River Gas as of and for the years ended September 30, 1998, 1997, 1996 and 1995, (c) the unaudited financial statements of Fall River Gas as of and for the nine-month period ended June 30, 1999, (d) the audited consolidated financial statements of Southern Union as of and for the years ended June 30, 1999, 1998, 1997, 1996 and 1995. Legg Mason also had discussions with members of the senior management of Fall River Gas and Southern Union regarding the past and current business operations, financial condition and future prospects of their respective companies. In addition, Legg Mason reviewed the reported price and trading activity for the shares of Fall River Gas common stock and the shares of Southern Union common stock, compared certain financial and stock market data for Fall River Gas and Southern Union with similar information for certain 37 other publicly-traded companies, analyzed publicly available information concerning the terms of certain selected business combinations in the gas distribution utility industry, and performed such other studies and analyses as Legg Mason considered necessary or appropriate. Legg Mason relied without independent verification upon the accuracy and completeness of all of the financial and other information reviewed by them for purposes of their opinion. Legg Mason did not make an independent evaluation or appraisal of the assets and liabilities of Fall River Gas or Southern Union or any of their subsidiaries and they were not furnished with any such evaluation or appraisal. The following is a summary of the financial analyses Legg Mason utilized in connection with providing its written opinion to the Fall River Gas board. STOCK TRADING HISTORY. Legg Mason examined the history of the trading price and volume for the shares of Fall River Gas common stock. This examination showed that during the period from October 2, 1998 to October 1, 1999, the trading price of Fall River Gas common stock ranged from $15 3/8 per share to $21 7/8 per share. This examination also showed that over the period from October 4, 1994 to October 1, 1999, the trading price of Fall River Gas common stock ranged from $12.75 per share to $27.00 per share. This range may be compared to the merger consideration. Legg Mason also examined the history of the trading price and volume for the shares of Southern Union common stock (not adjusted for the 5% Southern Union stock dividends distributed on June 30, 2000 and August 6, 1999). This examination showed that during the four-month period from June 1, 1999 to October 1, 1999, the trading price of Southern Union common stock ranged from $18.00 per share to $21 23/32 per share. The closing price of Southern Union common stock on October 1, 1999 was $18.75 per share, which was used as the basis for the exchange rate in the merger agreement. In addition, this examination showed that over the period from October 3, 1997 to October 1, 1999, the trading price of Southern Union common stock ranged from $13.25 per share to $23 7/32 per share. COMPARISON OF SELECTED PEER COMPANIES. Legg Mason compared selected historical stock market and balance sheet data and financial ratios for Fall River Gas to the corresponding data and ratios of the following companies: Berkshire Energy Resources, Cascade Natural Gas Corporation, Delta Natural Gas Company, Inc., Energy North, Inc., Energy South, Inc., Energy West Incorporated, ProvEnergy, RGC Resources, Inc. and Valley Resources. The multiples of Fall River Gas were calculated using a price of $20.75 per share for Fall River Gas common stock, the closing price as of October 1, 1999. Such data and ratios included, among other things, equity value as a multiple of latest twelve months ("LTM") earnings per share ("EPS"), projected 1999 earnings per share, projected 2000 earnings per share and stockholders' equity; total market capitalization as a multiple of LTM revenues, of LTM earnings before interest, taxes, depreciation and amortization ("EBITDA") and of LTM earnings before interest and taxes ("EBIT"). Projected earnings per share data was provided by First Call Analysts' Research and FactSet Data Systems. EBITDA (which is not a measure of financial performance under generally accepted accounting principles) is used by investment banking firms as one measure of a company's financial performance. EBITDA should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles), as an indicator of a company's performance or cash flows from operating activities (as determined in accordance with generally accepted accounting principles) or as a measure of liquidity. An analysis of equity value as a multiple of LTM earnings per share for the selected peer companies yielded a range of 10.2x to 24.1x with a median of 15.5x as compared to 22.4x for Fall River Gas. An analysis of 38 equity value as a multiple of projected 1999 EPS yielded a range of 13.4x to 23.6x with a median of 15.9x as compared to 21.2x for Fall River Gas. An analysis of equity value as a multiple of projected 2000 EPS yielded a range of 11.8x to 20.3x with a median of 14.5x as compared with 16.2x for Fall River Gas. An analysis of total market capitalization as a multiple of LTM EBITDA yielded a range of 6.3x to 9.7x with a median of 7.4x as compared to 11.9x for Fall River Gas. An analysis of total market capitalization as a multiple of LTM EBIT yielded a range of 9.1x to 15.9x with a median of 10.9x as compared to 19.3x for Fall River Gas. SELECTED TRANSACTIONS ANALYSIS. Using publicly available information, Legg Mason analyzed the purchase price and implied transaction value multiples paid or announced to be paid in the following selected merger and acquisition transactions in the gas distribution utility industry: Northeast Utilities/Yankee Energy; Eastern/Colonial Gas; Carolina Power/North Carolina Natural Gas; EnergyEast/Connecticut Energy; Southern Union/PEI; SCANA Corp./Public Service Co. of North Carolina; Eastern Enterprises/Colonial Gas Co.; Energy East Corp./Connecticut Energy Corp.; Carolina Power and Light/North Carolina Natural Gas; Dominion Resources, Inc./Consolidated Natural Gas; NiSource Inc./Bay State Gas; Eastern Enterprises/Essex County Gas Co.; and Atmos Energy Corp./United Cities Gas Co. (the "Selected Transactions"). Such analysis indicated that for the Selected Transactions, (i) total transaction value as a multiple of LTM revenue ranged from 1.6x to 3.2x with a mean of 2.3x compared to 1.7x for the contemplated transaction, (ii) total transaction value as a multiple of LTM EBITDA ranged from 7.5x to 13.9x with a mean of 10.6x, as compared to 13.1x for the contemplated transaction, (iii) equity value as a multiple of LTM net income ranged from 20.0x to 31.8x (exclusive of a transaction at 83.3x and 47.4 which was not included in the mean) with a mean of 24.3x, as compared to 25.6x for the contemplated transaction, and (iv) equity value as a multiple of stockholders' equity ranged from 1.9x to 3.0x with a median of 2.5x as compared to 2.9x for the contemplated transaction. No company, transaction, or business used in the comparison with comparable companies or selected transactions analysis as a comparison is identical to Fall River Gas or the merger. Accordingly, an analysis of the results of the foregoing is not entirely mathematical. Instead, it involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the comparable companies, selected transactions or the company or transaction to which they are being compared. DISCOUNTED CASH FLOW ANALYSIS. Legg Mason performed a discounted cash flow analysis of Fall River Gas. Legg Mason calculated a net present value of estimated free cash flows for the years 1999 through 2003 using discount rates ranging from 5.9% to 7.5%. Legg Mason calculated Fall River Gas' terminal values in the year 2003 based on multiples ranging from 10.4x EBIT to 12.8x EBIT. These terminal values were then discounted to present value using discount rates from 7.2% to 9.2%. Using the foregoing terminal values and discounted cash flows for Fall River Gas, the equity value ranged from $7.30 to $14.90, as compared to the equity value implied by the exchange ratio of $23.50 per share. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to practical analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Legg Mason's opinion. In arriving at its fairness determination, Legg Mason considered the results of all such analyses. The analyses were prepared solely for purposes of Legg Mason providing its opinion to the 39 Fall River Gas board as to the fairness of the merger consideration pursuant to the merger agreement to the holders of shares of Fall River Gas common stock and do not purport to be appraisals that necessarily reflect the prices at which assets, businesses or securities actually may be sold. Analyses based on forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties, none of Fall River Gas, Southern Union, Legg Mason or any other person assumes responsibility if future results are materially different from those forecast. As described above, Legg Mason's opinion to the Fall River Gas board was one of the many factors taken into consideration by the Fall River Gas board in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Legg Mason and is qualified by reference to the written opinion of Legg Mason set forth in Appendix B hereto. Legg Mason, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Fall River Gas selected Legg Mason as its financial adviser because Legg Mason is a nationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Legg Mason provides a full range of financial, advisory and brokerage services and in the course of its normal trading activities may from time to time effect transactions and hold positions in the securities or options on securities of Fall River Gas and/or Southern Union for its own account and for the accounts of customers. Pursuant to an engagement letter dated August 24, 1999, Fall River Gas engaged Legg Mason to act as its financial advisor in connection with the possible merger of Fall River Gas and Southern Union. Pursuant to the terms of the engagement letter, Fall River Gas agreed to pay Legg Mason $100,000 upon delivery of a written fairness opinion to the board. Fall River Gas has agreed to reimburse Legg Mason for its reasonable out-of-pocket expenses, including attorney's fees, and to indemnify Legg Mason against certain liabilities, including certain liabilities under federal securities laws. SOUTHERN UNION BACKGROUND OF THE MERGER; REASONS FOR APPROVAL BY THE SOUTHERN UNION BOARD OF DIRECTORS For the past several years, Southern Union has pursued acquisition and business combination opportunities. After the announcement of its merger agreement with PEI, Southern Union management sought additional opportunities in the northeastern United States that could expand its presence in that region. On August 24, 1999, the Southern Union board unanimously approved an all stock merger agreement with Fall River Gas. In reaching its determination that a merger with Fall River Gas is in the best interest of Southern Union and its stockholders, the Southern Union board consulted with and relied upon information and reports prepared or presented by Southern Union's management and Southern Union's legal advisors. The following are the material factors considered by the Southern Union board, including its Executive 40 Committee, in pursuing acquisition opportunities, generally, which are relevant to their approval of the merger agreement with Fall River Gas, some of which contained both positive and negative elements: - - the terms of a proposed form merger agreement consistent with those terms described under "The Merger Agreement" except that the consideration was all stock; - - the likelihood of receipt of timely and satisfactory regulatory approvals for the merger; - - the risk that the merger would not be consummated; - - other recent and potential mergers involving utilities in the northeastern region of the country, particularly PEI, ProvEnergy and Valley Resources; - - the substantial management time and effort that will be required to consummate all aspects of the recent and potential mergers, including to integrate the operations of those companies, and the risks inherent in such integration; - - other matters described under "Risk Factors and Other Considerations" and "Forward-Looking Statements May Prove Inaccurate"; and - - the results of Southern Union's business investigation of Fall River Gas and its subsidiary. On September 27, 1999, the Executive Committee of Southern Union's board approved a revised offer in order to permit the substitution of cash for some portion of the consideration Fall River Gas stockholders would receive in connection with the merger. Subsequent to the execution of the merger agreement, the issue arose as to whether Southern Union was required under Massachusetts law to obtain the approval of the Fall River Gas transaction by holders of two-thirds of the outstanding shares of Southern Union common stock in connection with obtaining the approval by the Massachusetts Department of Telecommunications and Energy of the transaction. In order to eliminate any uncertainty concerning this issue and to facilitate the closing of the transaction, Southern Union advised Fall River Gas and the Massachusetts Department of Telecommunications and Energy that it intended to seek such stockholder approval. On May 31, 2000 the Southern Union Board of Directors approved a resolution recommending that the stockholders of Southern Union approve the Fall River Gas merger at a special meeting of stockholders, due to the merger being in the best interests of Southern Union, its stockholders, employees and customers. The foregoing discussion of the information and factors considered by the Southern Union board, including its Executive Committee, is not intended to be all-inclusive. In view of the wide variety of factors considered in connection with its evaluation of acquisition opportunities, including this proposed merger, the Southern Union board, including its Executive Committee did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the foregoing factors. Rather, the Southern Union board, including its Executive Committee based its decision on the totality of the information presented to and considered by it. 41 POTENTIAL CONFLICTS AND INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the recommendation of the Fall River Gas board with respect to approving the merger, Fall River Gas stockholders should be aware that members of Fall River Gas' management and the Fall River Gas board have the following interests in the merger that may be different from, or in addition to, the interests of Fall River Gas stockholders generally and represent conflicts of interest. The Fall River Gas board was aware of these interests and considered them in approving the merger agreement. EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS. Effective September 30, 1991, Fall River Gas entered into employment agreements with its President and Chief Executive Officer, Bradford J. Faxon and with its Senior Vice President, Treasurer and Chief Financial Officer, Peter H. Thanas. Under the terms of these employment agreements, Mr. Faxon is compensated for his duties as an officer and director, and Mr. Thanas is compensated for his duties as an officer. The amounts of their respective salaries are determined from time to time by the board of directors. The term of each employment agreement was initially five years, subject to earlier termination by an act of Fall River Gas or the respective officer. Beginning in September 1993 and annually thereafter, the remaining term of each employment agreement is automatically extended for an additional one-year period. On November 30, 1998, Fall River Gas entered into a similar employment agreement with John F. Fanning, a Fall River Gas officer. These employment agreements provide that if the respective officer is terminated without cause or terminates his employment as a result of certain adverse actions by Southern Union, during a period of thirty-six months following a "change in control" of Fall River Gas, the officer shall receive a lump sum severance amount and continuation of certain welfare plan benefits. A "change of control" will be considered to have occurred on the date the merger is completed. The lump sum severance payment is an amount equal to three times the annual (or annualized) compensation paid to the respective officer during the period as of the date of termination. The maximum value of the severance payments which may become payable to these three officers in the aggregate under the terms of their agreements is approximately $1,692,000. On October 4, 1999, these employment agreements were amended. These amendments will become effective as of the date the merger is completed. These amendments provide for payment to Messrs. Faxon, Thanas and Fanning of $1,000,000; $700,000 and $300,000, respectively. If Messrs. Faxon, Thanas and Fanning continue their employment with Fall River Gas, these payments will be made in equal monthly installments over an eighteen month period beginning on the effective date of the merger. These payments would be offset against any severance payments that may become owed under any of the agreements in certain circumstances. DEFENSE, INDEMNIFICATION AND INSURANCE FOR FALL RIVER GAS OFFICERS AND DIRECTORS. For a period of six years after the completion of the merger, Southern Union has agreed to indemnify and hold harmless the present and former officers and directors of Fall River Gas and its subsidiary in respect of acts or omissions occurring prior to the completion of the merger to the extent provided under Fall River Gas' restated articles of incorporation and bylaws in effect on the date hereof; PROVIDED, HOWEVER, that if any claim or claims are 42 asserted or made within such six-year period, all rights to indemnification in respect of such claims shall continue until the final disposition of any and all such claims. For six years after the completion of the merger, Southern Union will use its reasonable best efforts to provide officers' and directors' liability insurance in respect of acts or omissions occurring prior to the completion of the merger covering each such person currently covered by Fall River Gas' officers' and directors' liability insurance policy on terms with respect to coverage and amount no less favorable than those of such policy in effect on the date hereof; PROVIDED THAT, in satisfying this obligation, if the annual premiums of such insurance coverage exceed 200% of the previous year's premiums, Southern Union will be obligated to obtain a policy with the best coverage available, in the reasonable judgment of Southern Union's board, for a cost not exceeding such amount. See "The Merger Agreement - Indemnification and Insurance for Fall River Gas Officers and Directors." 43 SIGNIFICANT U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER The following discussion is intended only as a summary of the material U.S. federal income tax consequences of the merger to Southern Union, Fall River Gas and Fall River Gas stockholders and does not purport to be a complete analysis or description of all potential tax effects of the merger. The discussion assumes that holders of Fall River Gas common stock hold such stock as "capital assets" within the meaning of Section 1221 of the Internal Revenue Code. In addition, the discussion does not address all of the tax consequences that may be relevant to particular taxpayers in light of their personal circumstances or to taxpayers subject to special tax rules (for example, insurance companies, financial institutions, dealers in securities, tax-exempt organizations, banks, foreign taxpayers and taxpayers holding common stock as parts of straddles). No information is provided with respect to the tax consequences, if any, of the merger under applicable foreign, state, local or other tax laws. The discussion is based upon the provisions of the Internal Revenue Code, applicable Treasury regulations thereunder, IRS rulings and judicial decisions, as in effect as of the date of this proxy statement/prospectus. There can be no assurance that future legislative, administrative or judicial changes or interpretations will not affect the accuracy of the statements or conclusions included in this proxy statement/prospectus. Any such change could apply retroactively and could affect the accuracy of such discussion. Each stockholder of Fall River Gas is urged to consult such stockholder's own tax advisor as to the specific tax consequences to such stockholder of the merger under U.S. federal, state, local or any other applicable tax laws. THIS SUMMARY DOES NOT PURPORT TO BE A COMPREHENSIVE DESCRIPTION OF ALL OF THE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO A DECISION WHETHER TO APPROVE THE MERGER. THIS SUMMARY IS PROVIDED FOR GENERAL INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. TAX OPINIONS. The obligation of Southern Union to consummate the merger is conditioned on its receipt on the closing date of an opinion from Hughes Hubbard & Reed LLP, tax counsel to Southern Union, that the merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code (the "Southern Union Tax Opinion"). The obligation of Fall River Gas to consummate the merger is conditioned on its receipt on the closing date of an opinion from Rich, May, Bilodeau & Flaherty, P.C., Fall River Gas' counsel, that the merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code (the "Fall River Gas Tax Opinion"). Each of the Southern Union Tax Opinion and the Fall River Gas Tax Opinion will be based on certain representations contained in letters from Southern Union, Fall River Gas and others delivered for the purpose of the opinions and will be subject to certain limitations and qualifications similar to those set forth in this discussion of significant U.S. federal income tax consequences of the merger. Each of the Southern Union Tax Opinion and the Fall River Gas Tax Opinion will be based on certain assumptions, including that the merger will be consummated exactly as described in this proxy statement/prospectus and in the merger agreement. An opinion of counsel represents only counsel's best judgment and has no binding effect or official status of any kind; and no assurance can be given that contrary positions will not be taken by the IRS or by a court 44 considering the issues. Neither Southern Union nor Fall River Gas has requested or intends to request a ruling from the IRS with regard to any of the federal income tax consequences of the merger. The discussions below of "CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS" and "CONSEQUENCES TO SOUTHERN UNION AND FALL RIVER GAS" assume that the merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code. CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS RECEIVING SOLELY SOUTHERN UNION COMMON STOCK. A Fall River Gas stockholder will generally recognize neither gain nor loss for U.S. federal income tax purposes with respect to the receipt solely of Southern Union common stock in exchange for Fall River Gas common stock pursuant to the merger. The aggregate tax basis of the Southern Union common stock received by a Fall River Gas stockholder will be the same as the aggregate tax basis of the Fall River Gas common stock surrendered in exchange therefor pursuant to the merger. The holding period of the Southern Union common stock will include the holding period of the Fall River Gas common stock surrendered in exchange therefor. CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS RECEIVING SOLELY CASH. A Fall River Gas stockholder will generally recognize gain or loss for U.S. federal income tax purposes with respect to the receipt solely of cash in exchange for Fall River Gas common stock pursuant to the merger. Any gain or loss recognized by a Fall River Gas stockholder will be capital gain or loss, and will be long-term capital gain or loss if the holding period for the Fall River Gas common stock surrendered is more than one year. The amount of gain or loss will be equal to the difference between the amount of cash received and the tax basis of the Fall River Gas common stock surrendered. CONSEQUENCES TO FALL RIVER GAS STOCKHOLDERS RECEIVING CASH AND SOUTHERN UNION COMMON STOCK. A Fall River Gas stockholder will generally recognize gain, but not loss, for U.S. federal income tax purposes with respect to the receipt of Southern Union common stock and cash in exchange for Fall River Gas common stock pursuant to the merger. The amount of gain, if any, recognized by a Fall River Gas stockholder will be equal to the lesser of (i) the amount of gain realized (i.e., the excess of the amount of cash, including cash received in lieu of fractional shares, and the fair market value of Southern Union common stock received in the merger over the tax basis of the Fall River Gas common stock surrendered) or (ii) the amount of cash, including cash received in lieu of fractional shares, received in the merger. In the case of a Fall River Gas stockholder that owns more than one "block" of Fall River Gas common stock, the amount of gain recognized should be calculated separately with respect to each "block" surrendered in the merger. For purposes of such calculation, the aggregate amount of cash and Southern Union common stock received by the Fall River Gas stockholder will be allocated proportionally among the "blocks" of Fall River Gas common stock surrendered in exchange therefor pursuant to the merger. The aggregate tax basis of the Southern Union common stock received by a Fall River Gas stockholder will be the same as the aggregate tax basis of the Fall River Gas common stock surrendered in exchange therefor pursuant to the merger, decreased by the total amount of cash received and increased by the amount of gain recognized. The holding period of the Southern Union common stock will include the holding period of the Fall River Gas common stock surrendered in exchange therefor. Any gain recognized by a Fall River Gas stockholder receiving both Southern Union common stock and cash will be capital gain, and will be long-term capital gain if the holding period for the Fall River Gas 45 common stock surrendered is more than one year, unless the receipt of cash has "the effect of the distribution of a dividend" within the meaning of Section 356 of the Internal Revenue Code. If the receipt of cash has such an effect, the recognized gain will be taxed as ordinary income to the extent of the Fall River Gas stockholder's ratable share of Fall River Gas', and arguably Southern Union's, undistributed earnings and profits, and any remaining gain will be taxed as capital gain. In determining whether cash received by a stockholder who also receives stock in a reorganization has the effect of a dividend distribution, principles similar to those governing redemptions under Section 302 of the Internal Revenue Code apply. In applying those principles, Fall River Gas stockholders will be treated as if they had received solely Southern Union common stock in the merger (instead of the combination of shares of Southern Union common stock and cash actually received) and Southern Union had then redeemed for cash a portion of the Southern Union common stock the Fall River Gas stockholders would be treated as having received. Generally, under Section 302 of the Internal Revenue Code, amounts distributed in redemption of a stockholder's stock will not be taxed as a dividend if (a) the distribution is "substantially disproportionate" with respect to the stockholder, or (b) the distribution is "not essentially equivalent to a dividend" with respect to the stockholder. A distribution in redemption is "substantially disproportionate" with respect to a stockholder if the percentage of outstanding voting shares of the issuing corporation owned by such stockholder immediately after the redemption is less than 50% of the total outstanding and less than 80% of the percentage of voting shares owned by such stockholder immediately prior to the redemption. Whether a distribution in redemption is "not essentially equivalent to a dividend" depends on whether, under the particular stockholder's facts and circumstances, the redemption results in a "meaningful reduction" of the stockholder's proportionate interest in the issuer. The IRS has indicated in published rulings that even a small reduction in the proportionate interest of a stockholder in a publicly held corporation whose relative stock interest is minimal and who exercises no control or management power over the affairs of the corporation may constitute such a "meaningful reduction." In applying these tests, a stockholder is treated as owning shares owned by certain related persons, and sales or acquisitions of Fall River Gas common stock or Southern Union common stock which occur contemporaneously with the merger may be taken into account. Because of the complexity of the tests under Section 302 of the Internal Revenue Code, Fall River Gas stockholders are urged to consult their own tax advisors regarding the proper treatment of the gain recognized by such stockholder in the merger. BACKUP WITHHOLDING TAX. Unless an exemption applies, the paying agent will be required to withhold 31% of any cash payments to which a Fall River Gas stockholder or other payee is entitled pursuant to the merger, unless the stockholder or other payee provides his or her tax identification number (social security number or employer identification number) and certifies that such number is correct. Each Fall River Gas stockholder and, if applicable, each other payee is required to complete and sign the Form W-9 that will be included as part of the transmittal letter sent to Fall River Gas stockholders by Southern Union to avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to Southern Union and the paying agent. CONSEQUENCES TO SOUTHERN UNION AND FALL RIVER GAS. No gain or loss will be recognized by Southern Union or Fall River Gas by reason of the merger. REGULATORY MATTERS 46 The following is a summary of the material regulatory requirements affecting the merger. There can be no guarantee if and when any of the consents or approvals required for the merger will be obtained or as to the conditions that they may contain. Southern Union and Fall River Gas have filed for the required approvals from all of the agencies discussed. The managements of Southern Union and Fall River Gas believe that the necessary approvals can be obtained in 2000, and presently expect that they all will be received by September, 2000. See "Risk Factors and Other Considerations - Approvals May Not Be Obtained or May Contain Unacceptable Restrictions." STATE APPROVALS AND RELATED MATTERS. The utility operations of Southern Union are subject to the regulatory jurisdiction of the Missouri Public Service Commission ("MPSC"), the Pennsylvania Public Utility Commission ("PPUC"), the Railroad Commission of Texas ("RRC") and various municipalities in Texas where Southern Union conducts business, and the Florida Public Service Commission ("FPSC"). On May 11, 2000, the PPUC approved the Fall River Gas merger. The MPSC approved the Fall River Gas merger on June 28, 2000. The approvals of the PPUC and the FPSC for the securities issuance and debt assumption in connection with the merger are still required. None of the other required state approvals had been received as of the date of this proxy statement. No RRC or Texas municipality approvals are required in connection with the merger. The utility operations of Fall River Gas are subject to the regulatory jurisdiction of the Massachusetts Department of Telecommunications and Energy ("MDTE") and subsequent to the merger, those operations, conducted as a division of Southern Union, will remain subject to MDTE jurisdiction. Among the key provisions are those addressing rates and charges, standards of service, and accounting and approval of certain financing transactions. Subsequent to the execution of the merger agreement, the issue arose as to whether Southern Union was required under Massachusetts law to obtain the approval of the transaction by holders of two-thirds of the outstanding shares of Southern Union common stock in connection with obtaining the approval of the transaction by the MDTE. In order to eliminate any uncertainty concerning this issue and to facilitate the closing of the transaction, Southern Union has advised Fall River Gas and the MDTE that it intends to seek, and through its proxy statement, is seeking such stockholder approval at the Southern Union special meeting. Assuming the requisite regulatory approvals are obtained, the combined company and its utility operations will remain subject to the regulatory jurisdiction of the MDTE, MPSC, PPUC, RRC and various municipalities in Texas, and the FPSC. Upon completion of the Valley Resources and ProvEnergy mergers, the combined company and its utility operations will also be subject to the regulatory jurisdiction of the Rhode Island Public Utilities Commission and the Rhode Island Division of Public Utilities and Carriers. ANTI-TRUST CONSIDERATIONS. Under the HSR Act, Southern Union and Fall River Gas cannot complete the Fall River Gas merger until we give notification and furnish information to the Federal Trade Commission ("FTC") and the Antitrust Division of the Department of Justice, and the specified waiting period requirements have been satisfied. Southern Union and Fall River Gas filed the required notification and report forms with the FTC and the Antitrust Division on March 1, 2000. A request for additional information from the FTC was received on March 31, 2000, to which Southern Union and Fall River Gas have responded. At any time before or after the effective time of the mergers, and notwithstanding that the 47 waiting period has terminated or the mergers may have been consummated, the Federal Trade Commission, the Antitrust Division or any state could take any action under the applicable antitrust or competition laws as it deems necessary or desirable. This action could include seeking to enjoin the completion of the Fall River Gas merger. Private parties may also institute legal actions under the antitrust laws under some circumstances. If the merger is not consummated within twelve months after the expiration or earlier termination of the HSR Act waiting period, Southern Union and Fall River Gas would be required to submit new filings to the Department of Justice and the FTC, and a new HSR Act waiting period would have to expire or be earlier terminated before the merger could be consummated. GENERAL. Fall River Gas possesses rights and franchises, and environmental permits and licenses. Some of these may need to be transferred, renewed or replaced as a result of the merger. The companies do not anticipate any difficulties at the present time in making or obtaining such transfers, renewals or replacements. Under the merger agreement, Southern Union and Fall River Gas have agreed to use their reasonable best efforts to obtain all necessary material permits, licenses, franchises and other governmental authorizations needed to consummate or effect the transactions contemplated by the merger agreement. Various parties may seek intervention in the proceedings associated with the regulatory approval process in an attempt to oppose the merger or to have conditions imposed upon the receipt of the necessary approvals. Although Southern Union and Fall River Gas believe that they will receive the requisite regulatory approvals for the merger, the timing of their receipt cannot be determined. It is a condition to the consummation of the merger (subject to waiver by Southern Union and Fall River Gas) that final non-appealable orders approving the merger be obtained from the various federal and state commissions described above. See "The Merger Agreement - Conditions to the Completion of the Merger." ACCOUNTING TREATMENT The Unaudited Pro Forma Combined Condensed Financial Statements appearing elsewhere in this proxy statement/prospectus are based upon certain assumptions, as described in the pro forma combined condensed financial statements, and are included for informational purposes only. The merger will be accounted for under the purchase method of accounting, in accordance with generally accepted accounting principles. Under the purchase method of accounting, Southern Union's historical results for periods before the merger will remain unchanged. On the closing date, the combined company will record Fall River Gas' assets and liabilities of regulated entities at their historical cost basis, and Fall River Gas' assets and liabilities of non-regulated entities will be recorded at fair value, with any excess recorded as additional purchase cost assigned to utility plant. See "Unaudited Pro Forma Combined Condensed Financial Statements." NO APPRAISAL RIGHTS Under Massachusetts law, stockholders of Fall River Gas who object to approval of the merger agreement are not entitled to demand separate payment or an appraisal of their shares in connection with the merger. LISTING OF SOUTHERN UNION COMMON STOCK 48 It is a condition to the completion of the merger that the shares of Southern Union common stock to be issued in connection with the merger be approved for listing on the NYSE at or before the time the merger is completed. See "The Merger Agreement - Conditions to the Completion of the Merger." FEDERAL SECURITIES LAW CONSEQUENCES All shares of Southern Union common stock received by Fall River Gas stockholders in connection with the merger will be freely transferable, except that shares of Southern Union common stock received by individuals and entities who are deemed to be "affiliates" (as such term is defined under the Securities Act) of Fall River Gas before the merger may be resold by them only in transactions permitted by the resale provisions of Rule 145 under the Securities Act (or Rule 144 under the Securities Act, in the case of individuals and entities who become affiliates of Southern Union) or as otherwise permitted under the Securities Act. Persons who may be deemed to be affiliates of Southern Union or Fall River Gas generally include individuals or entities that control, are controlled by, or are under common control with, Southern Union or Fall River Gas and may include certain officers and directors of Southern Union or Fall River Gas as well as principal stockholders of Southern Union or Fall River Gas. The merger agreement requires Fall River Gas to use commercially reasonable efforts to cause each of its affiliates to execute and deliver to Southern Union a letter to the effect that such affiliate will not offer or sell or otherwise dispose of Southern Union common stock issued to such affiliate in or pursuant to the merger in violation of the Securities Act or the rules and regulations adopted by the SEC thereunder. See "The Merger Agreement - Covenants and Other Agreements - Certain Other Covenants and Agreements." The delivery of such agreements is also a condition to Southern Union's obligation to complete the merger. See "The Merger Agreement - Conditions to the Completion of the Merger - - Additional Closing Conditions for Southern Union's Benefit." This proxy statement/prospectus does not cover resales of Southern Union common stock received by any person who may be deemed to be an affiliate of Fall River Gas. MERGER-RELATED FINANCING Southern Union's management is evaluating various sources and methods of financing the amount necessary to fund the cash portion of the consideration to be paid to Fall River Gas stockholders under the merger agreement, the all cash consideration to be paid to the ProvEnergy and Valley Resources stockholders, and all related costs and refinancings anticipated in connection with these mergers. See "The Merger Agreement - Merger Consideration." Southern Union's management currently anticipates that substantially all of these costs will be financed through external sources. The financings may include the refinancing by Southern Union of some or all of the approximately $19.5 million of outstanding debt of Fall River Gas in connection with or soon after the consummation of the merger. Southern Union anticipates soliciting consents from the holders of Fall River Gas' mortgage bonds to revise or eliminate certain of their indenture terms, primarily to conform to certain terms in the indenture for Southern Union's outstanding senior notes. Southern Union's pending acquisitions of Fall River Gas, ProvEnergy and Valley Resources would require up to approximately $600 million of new financing if Fall River Gas shareholders choose to receive the maximum of 50% of the aggregate merger consideration that may be paid to them in cash and if all of the 49 approximately $140 million of existing long-term debt of the three companies being acquired must be refinanced rather than amended and assumed as planned. Presently, Southern Union expects to be able to amend the terms of outstanding long-term debt of the three companies being acquired in order to assume such debt. Southern Union presently plans to fund all other costs for the three acquisitions with bank borrowings, although it has not yet received commitments. After closing the mergers, Southern Union may choose or need to refinance some portion or all of the bank borrowings that it plans for funding the pending acquisitions. Sources of future or alternative financing that Southern Union may consider include commercial and investment banks, institutional lenders, institutional investors and public securities markets. The methods of financing that Southern Union may consider include bank lines of credit, debt and preferred securities of various maturities and terms, and common stock. Southern Union's management believes that Southern Union will have access if and when needed to many sources and types of short-term and long-term capital sources at reasonable rates. All of these considerations and assumptions relate to the financing required for mergers and acquisitions that Southern Union has agreed to consummate but not completed. See "Risk Factors and Other Considerations The Terms of Merger-Related Financings May Adversely Affect the Combined Company." As a result of its planned financing and as shown in the Pro Forma Combined Condensed Financial Statements, the consolidated capitalization of Southern Union after completion of Southern Union's three pending mergers is expected to consist of at least 32% common equity, approximately 5% preferred equity and approximately 63% long-term debt. THE MERGER AGREEMENT This section is a summary of the material terms of the merger agreement, a copy of which is attached as Appendix A to this document. The following description does not purport to be complete and is qualified in its entirety by reference to the merger agreement. You should refer to the full text of the merger agreement for details of the merger and the terms and conditions of the merger agreement. STRUCTURE OF THE MERGER Under the merger agreement, Fall River Gas will be merged with and into Southern Union. After the merger, Southern Union will continue as the surviving corporation. Southern Union's existing certificate of incorporation and bylaws will remain in effect after the merger, and Southern Union's management and Board of Directors will remain the same as a result of the merger, except as specifically discussed in this proxy statement/prospectus. See "Comparison of Fall River Gas and Southern Union Stockholder Rights." As a result of the merger, Fall River Gas will be a division of Southern Union. Fall River Gas' non-regulated subsidiary will become a subsidiary of Southern Union. CLOSING; EFFECTIVE TIME On the closing date, we will file articles of merger and a certificate of merger with the Secretary of State of the Commonwealth of Massachusetts in accordance with the Massachusetts General Laws ("MGL") and a certificate of merger with the Secretary of State of the State of Delaware in accordance with the Delaware 50 General Corporation Law ("DGCL"). The merger will become effective upon filing of these documents. This moment is referred to as the "effective time." MERGER CONSIDERATION You will have the option to elect either cash or Southern Union common stock or a combination of both in exchange for your shares of Fall River Gas, subject to certain limitations. Each share of your Fall River Gas common stock that you elect to exchange for cash will be converted into the right to receive $23.50 in cash, unless too many Fall River Gas stockholders elect to receive cash. No more than 50% of the aggregate consideration paid to all Fall River Gas stockholders may consist of cash, including cash paid to Fall River Gas stockholders in lieu of issuing them fractional shares of Southern Union common stock. If the Fall River Gas stockholders exceed this cash limitation, the amount of cash paid to each Fall River Gas stockholder electing cash will be reduced proportionately. Thus, if too many Fall River Gas stockholders elect to receive cash, consequently exceeding the cash limitation, a combination of cash and Southern Union common stock having a deemed value of $23.50 will be delivered to Fall River Gas stockholders in exchange for each share they selected to be exchanged for cash. Each share of your Fall River Gas common stock that you elect to exchange for Southern Union common stock will be converted into the right to receive that number of whole shares of Southern Union common stock having a value of $23.50, except as described below. Southern Union will not issue any fractional shares of its common stock in connection with the merger. Instead, you will be given cash for any fractional shares of Southern Union common stock you would otherwise receive. You will be entitled to receive Southern Union common stock in the merger if: - - you elect to receive Southern Union common stock; - - you elect to receive cash and Fall River Gas stockholders exceed the cash limitation; - - you do not indicate a preference as to the type of consideration you want to receive; or - - you do not properly complete the form of election provided to you by the company Southern Union has selected to be the paying agent in connection with the merger. The exact number of shares of Southern Union common stock you will receive for each share of your Fall River Gas common stock will depend on the average trading price of Southern Union common stock on the New York Stock Exchange for the ten trading day period beginning on the twelfth trading day and ending on the third trading day before the closing of the merger (counting from and including the trading day immediately preceding the closing). If the average price of Southern Union's common stock during this ten trading-day period is: - - Above $19.6875, the number of shares of Southern Union common stock will be fixed at 1.19365 for each share of Fall River Gas common stock. 51 - - Between $16.875 and $19.6875, the number of shares of Southern Union common stock will be adjusted so that each share of Fall River Gas' common stock will be exchanged for Southern Union common stock having a value equal to $23.50 divided by the average trading price during the period of time described above. - - Below $16.875, but at least $15.00, the number of shares of Southern Union common stock will be fixed at 1.39259 for each share of Fall River Gas common stock. - - Below $15.00, Fall River Gas has the option to terminate the merger agreement. If Fall River Gas does not terminate the merger agreement, you will receive 1.39259 shares of Southern Union common stock per share of Fall River Gas common stock. PROCEDURE FOR FILING ELECTIONS AND CONVERTING FALL RIVER GAS COMMON STOCK INTO MERGER CONSIDERATION A form of election and complete instructions for properly making an election to receive either cash or Southern Union common stock or a combination of cash and Southern Union common stock will be delivered under separate cover to stockholders of record of Fall River Gas (determined as of a record date as close as practicable to the date of mailing) at least 15 business days prior to the anticipated closing date of the merger, which is expected to occur in September 2000. Fall River Gas stockholders will be entitled to choose one of the following consideration options, which will be listed on their form of election: - - to receive cash for each share of Fall River Gas they own; - - to receive Southern Union common stock for each share of Fall River Gas they own; - - to exchange some of their shares of Fall River Gas for cash and some for Southern Union common stock; or - - to indicate no preference as to type of consideration. You will be eligible to receive cash only if the paying agent has received a properly completed form of election at its designated office or offices by 4:00 p.m., Eastern Time, on the third business day prior to the closing date of the merger. You will be eligible to receive as consideration only shares of Southern Union common stock if: - - the form of election you submit indicates a preference to receive only shares of Southern Union common stock; - - the form of election you submit indicates no preference as to form of consideration; or 52 - - you fail to submit a properly completed form of election prior to the deadline for submitting cash elections. An election may be revoked only if Southern Union's paying agent receives written notice of revocation prior to the deadline for submitting cash elections. PAYING AGENT; LOST CERTIFICATES BankBoston, N.A. c/o EquiServe, L.P. will act as paying agent for you in connection with the merger. Promptly following the effective time, the exchange agent will mail to you a letter of transmittal and instructions regarding the surrender of your Fall River Gas common stock certificates for cancellation. Promptly after receiving your certificates together with the letter of transmittal, duly executed, the exchange agent will send you the Southern Union common stock and/or the cash you will be entitled to receive. No fractional shares of Southern Union common stock will be issued in the merger. Instead of fractional shares, you will receive cash in an amount equal to the value of the fractional shares to which you would otherwise have been entitled based on the closing price of a share of Southern Union common stock on the NYSE on the trading day immediately prior to the closing date. If the merger consideration is to be paid to a person other than the person in whose name the surrendered certificate is registered, the surrendered certificate must be properly endorsed and the person requesting payment must have paid any transfer and other taxes required in connection with payment of the merger consideration to a person other than the registered holder of the surrendered certificate or must establish to the satisfaction of Southern Union that taxes do not apply. If your certificates have been lost, stolen or destroyed, you must provide the exchange agent with an affidavit to that effect. In addition, you will be required to give the paying agent a bond in an amount as it may ordinarily require and you must indemnify Southern Union against any claim that may be made against Southern Union with respect to the certificate claimed to have been lost, stolen or destroyed. Southern Union will not be liable to you for merger consideration delivered to a public official pursuant to applicable law. Seven years after the effective time, any portion of the merger consideration that remains unclaimed by Fall River Gas' stockholders will, to the extent permitted by applicable law, become the property of Southern Union. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE A TRANSMITTAL LETTER. FALL RIVER GAS INDENTURE Fall River Gas will use its reasonable best efforts to obtain, prior to the effective time of the merger, consents from all holders of First Mortgage Bonds outstanding under the Indenture of First Mortgage, dated as of December 1, 1952, between Fall River Gas and State Street Bank and Trust Company (the "Fall River Gas Indenture"), to amendments to the Fall River Gas Indenture requested by Southern Union pursuant to 53 Section 6.1(n) of agreement. Fall River Gas and its subsidiaries, however, will not be required to make any payment to any bondholder prior to the effective time of the merger. REPRESENTATIONS AND WARRANTIES The merger agreement contains certain substantially mutual representations and warranties made by Southern Union and Fall River Gas to each other, relating to, among other things: - - corporate organization, existence, qualification, standing and power; - - capitalization; - - subsidiaries and investments; - - authorization, execution, delivery, performance and enforceability of the merger agreement, and absence of violations, breaches or defaults under organizational documents, certain agreements and government orders as a result of execution, delivery and performance of the merger agreement; - - governmental approvals and authorizations necessary to complete the merger; - - public utility holding company status and regulation as a public utility; - - absence of violations of applicable legal requirements and material compliance with governmental authorizations; - - legal proceedings; - - documents filed by each of Southern Union and Fall River Gas with the SEC; - - tax matters; - - intellectual property matters; - - disclosure of indebtedness; - - absence of defaults under material contracts; - - employee benefit matters; - - environmental matters; - - absence of material adverse changes since specified balance sheet dates; - - broker's or finder's fees; 54 - - information provided for inclusion in this proxy statement/prospectus, Southern Union's proxy statement and the registration statement; and - - required stockholder votes in connection with the merger. In addition, Fall River Gas has made representations and warranties to Southern Union relating to: - - title to assets; - - machinery and equipment; - - insurance policies; - - labor and employment matters; - - regulatory proceedings; and - - delivery of a fairness opinion of Legg Mason Wood Walker, Incorporated. COVENANTS AND OTHER AGREEMENTS Each of Southern Union and Fall River Gas has undertaken certain covenants and other agreements in the merger agreement. The following summarizes the more significant of these covenants: INTERIM OPERATIONS. In the merger agreement, Southern Union and Fall River Gas have agreed that, except as provided by the merger agreement or as consented to by the other party, during the period from the date of the merger agreement until the effective time, each of Southern Union and Fall River Gas and its subsidiary will: - - not make or permit any material change in the general nature of its business; - - maintain its ordinary course of business (for Southern Union, only with respect to its present operations) in accordance with prudent business judgment and consistent with past practice and policy, and maintain its assets in good repair, order and condition, reasonable wear and tear excepted, subject to retirements in the ordinary course of business; - - preserve its ongoing business and use reasonable efforts to maintain its goodwill; and - - preserve its franchises, tariffs, certificates of public convenience and necessity, licenses, authorizations and other governmental rights and permits. In addition, except as provided by the merger agreement or as consented to by Southern Union, during the period from the date of the merger agreement until the effective time, Fall River Gas and its subsidiary will: - - not enter into any material transaction or contract other than in the ordinary course of business; 55 - - not purchase, sell, lease, dispose of or otherwise transfer or subject to lien, any of its assets other than in the ordinary course of business; - - not hire any new employee unless the employee is a bona fide replacement for a presently-filled position; - - not file any material applications, petitions, motions, orders, briefs, settlements or agreements in any material proceeding or related appeal before a government body; - - not engage in any new or modify any existing material intercompany transactions, except in the ordinary course of business, involving any subsidiary of Fall River Gas; - - not voluntarily change in any material respect or terminate any of Fall River Gas' insurance policies unless equivalent coverage is obtained; - - not make any capital expenditure or capital expenditure commitment; - - not make any changes in financial policies or practices, or strategic or operating policies or practices, subject to adjustments in the ordinary course of business and other deviations (which in the aggregate will not exceed 5% on an annualized basis during the period from the date the merger agreement was signed until the completion of the merger); - - comply in all material respects with all applicable legal requirements and permits; - - not adopt, amend or assume an obligation to contribute to any of Fall River Gas' employee benefit plans or collective bargaining agreements or enter into any employment, severance or similar contract or amend any such existing contracts; - - not grant any increase or change in total compensation, benefits or pay any bonus to any employees, directors or consultants, except in the ordinary course of business or in accordance with the terms of any existing contract, employee benefit plan of Fall River Gas or collective bargaining agreement; - - not grant or enter into or extend the term of any contract, written or oral, with respect to continued employment for any employee, officer, director or consultant; - - not make any loan or advance to any officer, director, stockholder, employee, individual or entity other than in the ordinary course of business; - - not terminate any existing, or enter into any new, gas purchase, exchange, storage, supply or transportation contract or renew, extend or negotiate any existing gas purchase, exchange, storage, supply or transportation contract that is not terminable within sixty days without penalty; - - not amend its organizational documents; and 56 - - not issue or assume any note, debenture or other evidence of indebtedness which by its terms does not mature within one year. FALL RIVER GAS SPECIAL MEETING; SOLICITATION OF PROXIES. Fall River Gas has agreed: - - to use its reasonable best efforts to solicit from its stockholders proxies in favor of the merger; - - to take all steps necessary to duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of securing the approval and adoption of the merger agreement and the consummation of transactions related to the merger agreement by its stockholders; - - to distribute proxy statements to its stockholders in accordance with applicable federal and state law and its organizational documents; and - - to recommend to its stockholders the approval of the merger agreement, subject to the fiduciary duties of its board of directors. FALL RIVER GAS VOTING AGREEMENT. In connection with the merger, Barbara N. Jarabek, as trustee of The Jarabek Family Limited Partnership, Ronald J. Ferris, Bradford J. Faxon, Raymond H. Faxon, Cindy L.J. Audette, Gilbert C. Oliveira, Jr. and Thomas H. Bilodeau entered into a voting agreement with Southern Union. According to the terms of the voting agreement, these stockholders agreed: 1) to vote or cause to be voted their shares of Fall River Gas common stock in favor of the merger and the adoption and approval of the merger agreement, and 2) to grant Southern Union an irrevocable proxy to vote their shares of Fall River Gas common stock for the approval and adoption by the Fall River Gas stockholders of the merger agreement and the performance of transactions related to the merger. As of the special meeting record date, the number of shares beneficially owned by the Fall River Gas stockholders who entered the voting agreement and granted this irrevocable proxy represent approximately 25.6% of the outstanding shares of Fall River Gas common stock entitled to vote on the approval and adoption of the merger agreement and performance of transactions related to the merger agreement. Of the 572,510 shares of Fall River Gas common stock represented by the stockholders who are parties to the voting agreement, as of May 31, 2000, 276,800 shares were beneficially owned by executive officers and directors of Fall River Gas. The voting agreement is attached as Appendix C to this proxy statement/prospectus. EMPLOYEES; BENEFITS. For employees (excluding unionized employees) of Fall River Gas and its subsidiary, Southern Union has agreed: - - to provide such employees who continue their service with Southern Union with benefits no less favorable in the aggregate than the benefits provided under Fall River Gas' benefit plans during the 12 months immediately following the closing date; - - to recognize, for purposes of eligibility, vesting and benefit accrual under all benefit plans provided to such employees after the closing date, the tenure of employment, as recognized by Fall River Gas or of its subsidiary as of the closing date; 57 - - that all vacation time earned by such employees prior to the closing date must be taken by the end of the calendar year of the closing date, except where Fall River Gas or Southern Union requests that an employee forgo his or her vacation for business-related reasons; and - - to recognize, for purposes of awarding vacation time at the beginning of each calendar year following the closing date, the tenure of employment, as recognized by Fall River Gas or of its subsidiary as of the closing date. Southern Union has also agreed to assume, at the effective time, all collective bargaining agreements covering employees of Fall River Gas and its subsidiary, and to discharge when due any and all liabilities of Fall River Gas and its subsidiary under the collective bargaining agreements relating to periods after the effective time. CERTAIN OTHER COVENANTS AND AGREEMENTS. The merger agreement contains certain mutual covenants and other agreements of the parties, including covenants and other agreements relating to: filings with the SEC; access to offices, properties, financial statements and other records; use of reasonable efforts to obtain all necessary consents; approvals and waivers from governmental bodies and other third parties; and further assurances. The merger agreement also contains additional covenants by Fall River Gas to, except as provided in the merger agreement: - - permit Southern Union to insert preprinted single-page customer education materials into billing documentation to be delivered to customers affected by the merger agreement; - - not declare or pay or permit its subsidiary to declare or pay any dividends, or make other distributions in respect of Fall River Gas' or its subsidiary's capital stock, except for regular dividends on Fall River Gas common stock; - - not redeem or repurchase or otherwise acquire any shares of its capital stock or the capital stock of its subsidiary other than in connection with the administration of employee benefit and dividend reinvestment and customer stock purchase plans that were in effect on October 4, 1999; - - not split, combine, reclassify, issue or encumber or permit its subsidiary to split, combine, reclassify, issue or encumber any shares of its capital stock or securities convertible into any such shares; - - not make any changes or permit its subsidiary to make changes in its accounting methods, principles or practices except as required by law, rule, regulation or generally accepted accounting principles; - - identify persons who are "affiliates" of Fall River Gas within the meaning of Rule 145 under the Securities Act and to use its reasonable efforts to provide to Southern Union letters from such persons to the effect that they will not dispose of their shares of Southern Union common stock received in the merger except in accordance with the applicable provisions of Rule 145 or in a transaction exempt from registration under the Securities Act ("Rule 145 Letters"); 58 - - cooperate and cause its subsidiaries to cooperate with Southern Union's requests with respect to the refinancing, repurchase, redemption or repayment of Fall River Gas or its subsidiary's indebtedness that may be required or that Southern Union may request prior to the merger; - - except in certain instances, not initiate or encourage any inquiry or proposal about mergers with other parties, sales of substantial assets, sales of shares representing a majority or greater interest in Fall River Gas or its subsidiary or other business combinations or, except in certain instances, negotiate, discuss, approve or recommend any such alternative acquisition proposal (see "-No Solicitation by Fall River Gas"); and - - obtain consents for the merger from all holders of each series of First Mortgage Bonds issued and outstanding under the Fall River Gas Indenture. The merger agreement also contains certain additional covenants of Southern Union to, except as provided in the merger agreement: - - use its reasonable best efforts to obtain, prior to the effective date of the merger agreement, all necessary state securities laws or "blue sky" permits and approvals and pay all related expenses; and - - cause the shares of Southern Union's common stock required to be reserved for issuance in connection with the merger to be listed on the NYSE. NO SOLICITATION BY FALL RIVER GAS The merger agreement provides that Fall River Gas must terminate all existing discussions or negotiations with third parties, if any, with respect to a "Business Combination," which we define below, and that Fall River Gas may not, and may not authorize or permit its or its subsidiary's officers, directors, agents, financial advisors, attorneys, accountants or other representatives to, directly or indirectly: - - solicit, initiate or encourage submission of proposals or offers relating to, or that could reasonably be expected to lead to, a Business Combination; or - - participate in any negotiations or discussions regarding, furnish to any person any information with respect to, or otherwise cooperate, assist, participate in, facilitate or encourage any effort or attempt by any other person to do or seek, a Business Combination. A "Business Combination" is, except as provided in the merger agreement: - - a merger, consolidation or other business combination, share exchange, sale of shares of capital stock, tender offer or exchange offer or similar transaction involving Fall River Gas or its subsidiary; - - the acquisition in any manner, directly or indirectly, of a material interest in any capital stock of, or a material equity interest in a substantial portion of the assets of, Fall River Gas or of its subsidiary, including any single or multi-step transaction or series of related transactions that is structured to permit 59 a third party to acquire beneficial ownership of a majority or greater equity interest in Fall River Gas or its subsidiary; or - - the acquisition in any manner, directly or indirectly, of any material portion of the business or assets (other than immaterial or insubstantial assets or inventory in the ordinary course of business or assets held for sale) of Fall River Gas or its subsidiary. Prior to receiving the approval of the merger by Fall River Gas stockholders, if the Fall River Gas board of directors receives an unsolicited written proposal from a third party with respect to a Business Combination that the Fall River Gas board of directors determines, in its good faith judgment, after consulting with its financial advisor and outside counsel, with customary qualifications, is a "Superior Proposal," which we define below, Fall River Gas may: - - furnish information to, and negotiate, explore or otherwise engage in substantive discussions with the third party that submitted the unsolicited Superior Proposal if the Fall River Gas board determines that it is reasonably necessary to engage in such discussions in order to comply with its fiduciary duties under applicable law; and - - take and disclose to Fall River Gas' stockholders a position with respect to another Business Combination proposal, or amend or withdraw such position, pursuant to Rule 14d-9 and 14e-2 under the Exchange Act, or make such disclosure to Fall River Gas' stockholders which in the good faith judgment of the Fall River Gas board of directors is required by applicable law, based on the advice of its outside counsel. A proposed Business Combination is a "Superior Proposal" if it involves at least 50% of the shares of capital stock or a material portion of the assets of Fall River Gas and the Fall River Gas board determines, after consulting with Fall River Gas' financial advisor and outside counsel, that: - - the proposal is financially superior to the merger; and - - it appears that the party making the proposal is reasonably likely to have the funds necessary to consummate the Business Combination. The merger agreement also prohibits the Fall River Gas board from withdrawing or modifying, or proposing publicly to withdraw or modify, in a manner adverse to Southern Union, its approval or recommendation of the merger agreement or the merger, approving or recommending, or proposing publicly to approve or recommend, a Business Combination, or causing Fall River Gas to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Business Combination unless the following conditions are satisfied: - - the Fall River Gas board determines, in its good faith judgment, after consulting with its financial advisor and outside counsel, that an unsolicited proposal regarding a Business Combination is a Superior Proposal; and 60 - - the Fall River Gas board determines, in its good faith judgment, after consulting with its financial advisor and outside counsel, that the failure to either withdraw or modify its approval or recommendation of the merger agreement or the merger, approve or recommend a Business Combination, or cause Fall River Gas to enter into any agreement related to any Business Combination would create a reasonable possibility of a breach of the fiduciary duties of the Fall River Gas board under applicable law. Fall River Gas must promptly notify Southern Union of the receipt of any alternative acquisition proposal regarding a Business Combination, the material terms and conditions of any such proposal, the identity of the person or entity making the proposal and the status and details of any such request or proposal within one business day of Fall River Gas' receipt of any such proposal. Fall River Gas is required to use all reasonable efforts to keep Southern Union informed of the status and details of any such inquiry, offer or proposal and provide notice, consisting of two days, to Southern Union prior to the first delivery of non-public information to any such person or entity. If any such inquiry, offer or proposal is in writing, Fall River Gas has agreed to promptly deliver to Southern Union a copy of such inquiry, offer or proposal. If Fall River Gas decides to accept such a Business Combination proposal and enter into a definitive agreement with respect to such proposal, Fall River Gas must give Southern Union notice, consisting of five business days, of its intent to enter into a definitive agreement. In addition, during this five-day period, Fall River Gas must give Southern Union an opportunity to adjust the terms of the merger agreement so that the parties can proceed with the merger and negotiate in good faith with Southern Union with respect to any such adjustments. Concurrently with the termination of the merger agreement in connection with a Business Combination, Fall River Gas must also pay the required termination fee (see "-Termination of the Merger Agreement" and "-Termination Fees and Expenses - Fall River Gas Termination Fee"). Prior to furnishing any non-public information to, entering into negotiations with or accepting a Superior Proposal from a third party, Fall River Gas will provide written notice to Southern Union to the effect that it is furnishing information to or entering into discussions or negotiations with such third party and receive from such third party an executed confidentiality agreement containing substantially the same terms and conditions as the confidentiality agreement between Fall River Gas and Southern Union. CONDITIONS TO THE COMPLETION OF THE MERGER MUTUAL CLOSING CONDITIONS. The obligations of Southern Union and Fall River Gas to complete the merger are subject to the satisfaction or, to the extent legally permissible and permitted by the merger agreement, waiver of the following conditions: - - Accuracy as of the closing date of the representations and warranties made by the other party to the extent specified in the merger agreement. - - Performance in all material respects by the other party of the obligations required to be performed by it at or before the closing date. - - All governmental approvals required in order to complete the merger having been obtained without conditions that would be reasonably likely to be materially adverse to Fall River Gas' or Southern Union's businesses, operations, properties, financial condition, or results of operations. To facilitate 61 obtaining the approval of the transaction by the Massachusetts Department of Telecommunications and Energy, Southern Union is seeking approval of the transaction by holders of two-thirds of the outstanding shares of Southern Union common stock. - - No court, administrative agency, governmental body or arbitrator having issued an order to restrain, enjoin or otherwise prevent the consummation of the merger agreement or the merger. - - Southern Union's registration statement on Form S-4, which includes portions of this proxy statement/prospectus, being effective and not subject to any stop order by the SEC. - - Authorization for listing on the NYSE of the shares of Southern Union common stock to be issued in the merger. ADDITIONAL CLOSING CONDITIONS FOR SOUTHERN UNION'S BENEFIT. Southern Union's obligation to complete the merger is subject to the following additional conditions: - - Receipt of third party consents required to consummate the merger, other than any consents which, if not obtained, are not, individually or in the aggregate, reasonably likely to result in a material adverse effect on the business, operations, properties, financial condition or results of operations of Fall River Gas and its subsidiary after the closing. - - Receipt of all consents and approvals required, under the terms of any note, bond or indenture to which Fall River Gas or its subsidiary is a party. - - The resignation of each director of Fall River Gas or its subsidiary of his or her position as a director of Fall River Gas or its subsidiary effective as of the closing date. - - The receipt by Southern Union on the closing date of an opinion of its counsel to the effect that the merger will constitute a "reorganization" within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code, and that no gain or loss will be recognized by Southern Union or Fall River Gas with respect to the merger. - - Each of the individuals and entities who are "affiliates" of Fall River Gas within the meaning of Rule 145 have delivered to Southern Union a Rule 145 Letter. - - Receipt of all consents required and necessary to approve any amendments requested by Southern Union to the Fall River Gas Indenture from the holders of each series of First Mortgage Bonds issued and outstanding under the Indenture. ADDITIONAL CLOSING CONDITION FOR FALL RIVER GAS' BENEFIT. Fall River Gas' obligation to complete the merger is subject to the additional condition that on the closing date, Fall River Gas shall have received an opinion of its counsel to the effect that the merger will be treated for federal income tax purposes as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code, and that no gain or loss will be recognized for federal income tax purposes by the stockholders of Fall River Gas upon their 62 receipt of the merger consideration, except that any realized gain will be recognized to the extent of the amount of cash received. INDEMNIFICATION AND INSURANCE FOR FALL RIVER GAS OFFICERS AND DIRECTORS For six years after the completion of the merger, Southern Union will indemnify and hold harmless the present and former officers and directors of Fall River Gas and its subsidiary in respect of acts or omissions which occurred prior to the effective time. In addition, for six years after the effective time, Southern Union will use its reasonable best efforts to provide officers' and directors' liability insurance regarding acts or omissions occurring prior to the effective time covering each such person covered by Fall River Gas' officers' and directors' liability insurance policy on the date of the merger agreement on terms with respect to coverage and amount no less favorable than those of such policy in effect on the date of the merger agreement. However, if the annual premiums of such insurance coverage exceed 200% of the previous year's premiums, Southern Union will be obligated to obtain a policy with the best coverage available for a cost not exceeding such amount. See "The Merger - Potential Conflicts and Interests of Certain Persons in the Merger." AMENDMENTS Fall River Gas and Southern Union may amend in writing the terms of the merger agreement before the closing. 63 TERMINATION OF THE MERGER AGREEMENT The merger agreement may be terminated at any time before the closing: - - by mutual written consent of Southern Union and Fall River Gas; - - by either Fall River Gas or Southern Union: - if a court issues a non-appealable order that prohibits the consummation of the merger; or - at any time after 5:00 p.m., Eastern Time on October 15, 2000, if the closing of the merger has not occurred and the party asserting its right to terminate is not in material breach of its representations, warranties, covenants or agreements contained in the merger agreement; however, this date will be extended to February 28, 2001, even though all other conditions to the closing of the merger have been fulfilled or are capable of being fulfilled if: (i) all approvals, consents, opinions, rulings or authorizations of any federal state and local governmental agencies required in order to consummate the merger have not been obtained or become a final order or (ii) the applicable waiting period under the Hart-Scott-Rodino Act relating to the merger has not expired or been terminated; - - by Southern Union if: - there is a breach of any representation, warranty, covenant or agreement of Fall River Gas, where the breach cannot be cured and would make Fall River Gas' representations and warranties substantially inaccurate; - less than two-thirds of the holders of Fall River Gas' outstanding common stock vote to approve the merger and there has not been a material misrepresentation or a material breach by Southern Union of any of its covenants, warranties or agreements contained in the merger agreement; - the Fall River Gas board or any committee thereof: (i) withdraws or modifies, or proposes publicly to withdraw or modify, in a manner adverse to Southern Union, its approval or recommendation of the merger agreement or the merger, (ii) approves or recommends, or proposes publicly to approve or recommend, a Business Combination, (iii) causes Fall River Gas to enter into a definitive agreement related to any Business Combination or (iv) resolves to take any of the foregoing actions; or - a third party, including a group (as defined under the Exchange Act), acquires securities representing greater than 50% of the voting power of the outstanding voting securities of Fall River Gas; and - - by Fall River Gas if: - there is a breach of any representation, warranty, covenant or agreement of Southern Union, where the breach cannot be cured and would make Southern Union's representations and warranties materially inaccurate; 64 - (i) Fall River Gas gives Southern Union at least five business days' notice of its intent to enter into a definitive agreement with respect to a Business Combination proposal, and during this five-day period gives Southern Union an opportunity to adjust the terms of the merger agreement so that the parties can proceed with the merger and negotiate in good faith with Southern Union with respect to any such adjustments, (ii) Fall River Gas has paid the required termination fees and (iii) Fall River Gas has entered into a definitive agreement with respect to a Business Combination proposal; - less than two-thirds of the holders of Fall River Gas' outstanding common stock approve the merger agreement and there has not been a material misrepresentation or a material breach by Fall River Gas of any of its covenants, warranties or agreements contained in the merger agreement; or - the average trading price of Southern Union common stock as of the closing date is lower than $15.00. For this purpose, "average trading price" means the average of the reported closing prices of Southern Union common stock on the NYSE for the ten consecutive trading days ending on the third trading day before the closing date (counting from and including the trading day immediately before the closing date). The closing price for each day in question will be the last sale price, regular way, or, if no sale takes place on that day, the average of the closing bid and asked prices, regular way. If the merger agreement is validly terminated, no provision of the merger agreement will survive (except for the provisions relating to expenses, termination fees and miscellaneous provisions of general application) and termination shall be without any liability on the part of any party, unless such party is negligent or in willful breach of any provision of the merger agreement. TERMINATION FEES AND EXPENSES PAYMENT OF THE MERGER EXPENSES GENERALLY. Each of Fall River Gas and Southern Union will pay all costs and expenses of its performance of and compliance with the merger agreement except as expressly provided in the merger agreement and as follows: - - Fall River Gas will pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken by Southern Union to collect the termination fee payable to Southern Union under the merger agreement, together with interest on the amount of any portion of the unpaid termination fee. This interest will be calculated using an annual percentage rate of interest equal to the prime rate published in THE WALL STREET JOURNAL on the date (or preceding business day if this date is not a business day) the fee was required to be paid, compounded on a daily basis using a 360-day year; - - Fall River Gas will pay all fees and expenses of counsel for Fall River Gas; - - Southern Union will pay all real estate transfer taxes and real estate recording fees, if any, including expenses of counsel associated with real estate title, transfer and recording issues in connection with the merger, and all filing and application fees paid to federal, state or local government agencies in connection with the merger; and 65 - - Southern Union and Fall River Gas will each pay half of the combined costs of printing and mailing to Fall River Gas' stockholders this proxy statement/prospectus. FALL RIVER GAS TERMINATION FEE. Fall River Gas has agreed to pay Southern Union $1.5 million in cash if: - - Fall River Gas provides Southern Union at least five business days' notice of its intent to terminate the merger agreement and has entered into a definitive agreement with respect to a Business Combination proposal; - - Southern Union terminates the merger agreement because the Fall River Gas board or any committee thereof has (i) withdrawn or modified, or proposed publicly to withdraw or modify, in a manner adverse to Southern Union, its approval or recommendation of the merger agreement; (ii) approved or recommended, or proposed publicly to approve or recommend, a Business Combination; (iii) caused Fall River Gas to enter into a definitive agreement related to any Business Combination; or - - Southern Union terminates the merger agreement because a third party, including a group (as defined under the Exchange Act), has acquired securities representing greater than 50% of the voting power of the outstanding voting securities of Fall River Gas. 66 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following Unaudited Pro Forma Combined Condensed Financial Statements present the combined financial data of Southern Union, PEI, Fall River Gas, ProvEnergy and Valley Resources, including their respective subsidiaries, after giving effect to Southern Union's merger with each of them. The PEI merger, completed on November 4, 1999, was, and the Fall River Gas, ProvEnergy and Valley Resources mergers will be, accounted for as a purchase. The Unaudited Pro Forma Combined Condensed Financial Statements also give effect to Southern Union's issuance of $300 million of senior notes that was completed on November 3, 1999, in anticipation of the PEI merger, prospective financing for the pending acquisitions by merger of Fall River Gas, ProvEnergy and Valley Resources, and the assumption of certain debt of the acquired companies. The Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2000, gives effect to the previously identified acquisitions and financing transactions as if they had occurred on that date. The Unaudited Pro Forma Combined Condensed Statements of Operations for the year ended June 30, 1999, and the nine months ended March 31, 2000, give effect to the previously identified acquisitions and financing transactions as if they had occurred on July 1, 1998, and July 1, 1999, respectively, which are the beginning dates for such periods. The fiscal year of Southern Union ends on June 30. The fiscal year of PEI ended on December 31. The fiscal years of Fall River Gas and ProvEnergy end on September 30. The fiscal year of Valley Resources ends on August 31. Accordingly, the Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2000, is derived from the March 31, 2000, balance sheets for each of Southern Union, Fall River Gas and ProvEnergy, and the February 29, 2000, balance sheet of Valley Resources. Also, the Unaudited Pro Forma Combined Condensed Statements of Operations for the year ended June 30, 1999, and the nine months ended March 31, 2000, have been prepared using comparable financial statement periods of PEI, Fall River Gas and ProvEnergy, and the results of operations for the twelve-month period ended May 31, 1999 and the nine-month period ended February 29, 2000 of Valley Resources. The foregoing financial statements have all been incorporated by reference to previous filings with the SEC made by Southern Union or such other company. The following Unaudited Pro Forma Combined Condensed Financial Statements have been prepared from, and should be read in conjunction with, those historical financial statements and related notes thereto of Southern Union, PEI, Fall River Gas, ProvEnergy and Valley Resources. See "Where You Can Find More Information." The historical financial statements of the acquired companies that appear in or were used for the Unaudited Pro Forma Combined Condensed Financial Statements include or required certain reclassifications to conform to Southern Union's presentation. These reclassifications have no impact on net income or total stockholders' equity. The pro forma adjustments reflect an estimated additional purchase cost assigned to utility plant based on the historical cost of the regulated assets and liabilities of the acquired companies and an estimate of the fair value of the non-regulated assets and liabilities of the acquired companies, plus estimated acquisition costs for the pending transactions. The estimate of the fair value of the non-regulated assets are preliminary and may be revised, including to reflect independent appraisals, which have not been completed. 67 The Unaudited Pro Forma Combined Condensed Financial Statements are based on the assumption that upon completion of the Fall River Gas merger each Fall River Gas stockholder will receive, in exchange for each share of Fall River Gas common stock he or she owns, a combination of Southern Union common stock and/or cash worth in the aggregate $23.50; the cash consideration is limited to 50% of the aggregate consideration paid to all Fall River Gas stockholders. The following pro forma adjustments reflect a payment of 50% cash and 50% Southern Union common stock for each share of Fall River Gas common stock. The following Unaudited Pro Forma Combined Condensed Financial Statements are presented in accordance with the assumptions set forth below for purposes of illustration only and are not necessarily indicative of the financial position or operating results that would have occurred if the previously identified acquisitions and financing transactions had been consummated on the date as of which, or at the beginning of the periods for which, they are being given effect nor are they necessarily indicative of the future operating results or financial position of the combined enterprise. The Unaudited Pro Forma Combined Condensed Financial Statements do not contain any adjustments to reflect cost savings or other synergies anticipated as a result of the mergers. The weighted average shares of common stock and common stock equivalents outstanding have been adjusted for the 5% stock dividend distributed on June 30, 2000. Operating results for the nine months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 30, 2000. 68
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET MARCH 31, 2000 ASSETS HISTORICAL -------------------------------------------------- SOUTHERN FALL RIVER PROVIDENCE VALLEY PRO FORMA UNION GAS ENERGY RESOURCES --------------------------- COMPANY (1) COMPANY CORPORATION INC. (2) ADJUSTMENTS COMBINED ------------ ----------- ------------ ----------- ------------ ------------ (THOUSANDS OF DOLLARS) Property, plant and equipment .................... $ 1,582,405 $ 63,101 $ 347,969 $ 88,317 $ -- $ 2,081,792 Less accumulated depreciation and amortization ... (497,227) (23,934) (128,546) (35,543) -- (685,250) ----------- --------- ---------- ---------- ---------- ----------- 1,085,178 39,167 219,423 52,774 -- 1,396,542 Additional purchase cost assigned to utility plant, net .................................... 378,085 -- -- -- 293,040 (A) 671,125 ----------- --------- ---------- ---------- ---------- ----------- Net property, plant and equpment .............. 1,463,263 39,167 219,423 52,774 293,040 2,067,667 Current assets ................................... 216,529 13,395 75,911 25,305 2,503 (B) 333,643 Deferred charges ................................. 160,154 370 42,140 23,674 1,279 (C) 227,617 Investment securities ............................ 15,587 -- 13,568 1,701 -- 30,856 Real estate and other ............................ 9,438 4,240 3,669 5,425 -- 22,772 ----------- --------- ---------- ---------- ---------- ----------- Total ......................................... $ 1,864,971 $ 57,172 $ 354,711 $ 108,879 $ 296,822 $ 2,682,555 =========== ========= ========== ========== ========== =========== STOCKHOLDERS' EQUITY AND LIABILITIES Common stockholders' equity ...................... $ 630,953 $ 19,369 $ 103,238 $ 36,590 $ (159,197)(D) $ 656,972 26,019 (E) Company-obligated mandatorily redeemable preferred securities of subsidiary trust ...... 100,000 -- -- -- -- 100,000 Long-term debt and capital lease obligation ...... 734,320 19,500 88,452 32,251 430,000 (F) 321,046 ----------- --------- ---------- ---------- ---------- ----------- Total capitalization .......................... 1,465,273 38,869 191,690 68,841 296,822 2,061,495 Current liabilities .............................. 160,956 10,200 127,955 21,935 -- 1,304,523 Deferred credits and other ....................... 112,581 3,570 10,626 4,494 -- 131,271 Accumulated deferred income taxes ................ 126,161 4,533 24,440 13,609 -- 168,743 Commitments and contingencies .................... ----------- --------- ---------- ---------- ---------- ----------- Total ......................................... $ 1,864,971 $ 57,172 $ 354,711 $ 108,879 $ 296,822 $ 2,682,555 =========== ========= ========== ========== ========== ===========
- ------------------ (1) Amounts include Pennsylvania Enterprises, Inc. (2) Amounts presented are as of February 29, 2000. 69 See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements. 70
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 HISTORICAL ---------------------------------------------------------------- SOUTHERN PENNSYLVANIA FALL RIVER PROVIDENCE VALLEY PRO FORMA UNION ENTERPRISES GAS ENERGY RESOURCES -------------------------- COMPANY INC. COMPANY CORPORATION INC. (1) ADJUSTMENTS COMBINED ------------ ------------ ----------- ------------ ----------- ------------ ------------ (THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS) Operating revenues .................... $ 605,231 $ 233,605 $ 42,967 $ 223,095 $ 80,802 $ -- $ 1,185,700 Cost of gas and other energy ........... 342,301 145,319 23,291 118,746 45,528 -- 675,185 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Operating margin .................... 262,930 88,286 19,676 104,349 35,274 -- 510,515 Operating expenses: Operating, maintenance and general .. 109,693 36,696 12,659 53,233 19,168 -- 231,449 Depreciation and amortization ....... 41,855 10,291 2,118 16,451 3,361 13,628 (G) 87,704 Taxes, other than on income ......... 46,535 12,415 1,528 14,210 4,124 -- 78,812 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Total operating expenses .......... 198,083 59,402 16,305 83,894 26,653 13,628 397,965 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Net operating revenues ............ 64,847 28,884 3,371 20,455 8,621 (13,628) 112,550 Other income (expenses): Interest ............................ (35,999) (11,395) (1,647) (8,350) (3,027) (58,939)(H) (111,451) 7,906 (I) Dividends on preferred securities ... (9,480) -- -- -- -- -- (9,480) Other, net .......................... (1,814) 1,173 1,561 1,036 324 -- 2,280 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Total other expenses, net ......... (47,293) (10,222) (86) (7,314) (2,703) (51,033) (118,651) ----------- ----------- ---------- ----------- ---------- ----------- ----------- Earnings (loss) before income taxes (benefit) ........................... 17,554 18,662 3,285 13,141 5,918 (64,661) (6,101) Federal and state income taxes (benefit) ........................... 7,109 7,090 1,247 4,448 1,635 (17,862)(J) 3,667 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Net earnings (loss) before preferred stock dividend requirements ......... 10,445 11,572 2,038 8,693 4,283 (46,799) (9,768) Preferred stock dividend requirements .. -- (653) -- (382) -- 1,035 (K) -- ----------- ----------- ---------- ----------- ---------- ----------- ----------- Net earnings (loss) available for common stock ...................... $ 10,445 $ 10,919 $ 2,038 $ 8,311 $ 4,283 $ (45,764) $ (9,768) =========== =========== ========== =========== ========== =========== =========== Net earnings (loss) per share: Basic ............................... $ 0.32 $ (0.19) =========== =========== Diluted ............................. $ 0.31 $ (0.19) =========== =========== Weighted average shares outstanding: Basic ............................... 32,437,516 18,095,204 (L) 50,532,720 =========== =========== =========== Diluted ............................. 34,217,262 16,315,458 (L) 50,532,720 =========== =========== ===========
- ------------------ (1) Amounts presented are for twelve months ended May 31, 1999. 71 See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements. 72
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2000 HISTORICAL ---------------------------------------------------------------- SOUTHERN PENNSYLVANIA FALL RIVER PROVIDENCE VALLEY PRO FORMA UNION ENTERPRISES GAS ENERGY RESOURCES --------------------------- COMPANY INC. (1) COMPANY CORPORATION INC. (2) ADJUSTMENTS COMBINED ------------ ------------ ----------- ------------ ----------- ------------ ------------ (THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS) Operating revenues ..................... $ 669,170 $ 48,486 $ 34,422 $ 209,407 $ 62,901 $ -- $ 1,024,386 Cost of gas and other energy ........... 402,182 30,342 18,998 121,734 37,384 -- 610,640 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Operating margin .................... 266,988 18,144 15,424 87,673 25,517 -- 413,746 Operating expenses: Operating, maintenance and general .. 98,647 14,116 9,750 41,753 14,595 -- 178,861 Depreciation and amortization ....... 39,539 3,549 1,719 14,134 2,661 7,595 (G) 69,197 Taxes, other than on income ......... 43,195 2,629 1,196 11,796 3,098 -- 61,914 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Total opeating expenses ........... 181,381 20,294 12,665 67,683 20,354 7,595 309,972 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Net operating revenues ............ 85,607 (2,150) 2,759 19,990 5,163 (7,595) 103,774 Other income (expenses): Interest ............................ (36,603) (3,935) (1,240) (7,708) (2,339) (33,796)(M) (82,985) 2,636 (I) Dividends on preferred securities ... (7,110) -- -- -- -- -- (7,110) Other, net .......................... (5,527) (2,351) 1,104 (1,270) (171) -- (8,215) ----------- ----------- ---------- ----------- ---------- ----------- ----------- Total other expenses, net ......... (49,240) (6,286) (136) (8,978) (2,510) (31,160) (98,310) ----------- ----------- ---------- ----------- ---------- ----------- ----------- Earnings (loss) before income taxes (benefit) ........................... 36,367 (8,436) 2,623 11,012 2,653 (38,755) 5,464 Federal and state income taxes (benefit) ........................... 15,820 (3,206) 1,058 4,214 901 (10,906)(J) 7,881 ----------- ----------- ---------- ----------- ---------- ----------- ----------- Net earnings (loss) before preferred stock dividend requirements ......... 20,547 (5,230) 1,565 6,798 1,752 (27,849) (2,417) Preferred stock dividend requirements .. -- (68) -- (215) -- 283 (K) -- ----------- ----------- ---------- ----------- ---------- ----------- ----------- Net earnings (loss) available for common stock ........................ $ 20,547 $ (5,298) $ 1,565 $ 6,583 $ 1,752 $ (27,566) $ (2,417) =========== =========== ========== =========== ========== =========== =========== Net earnings (loss) per share: Basic .............................. $ 0.49 $ (0.05) =========== =========== Diluted ............................ $ 0.47 $ (0.05) =========== =========== Weighted average shares outstanding: Basic .............................. 41,688,408 8,714,151 (N) 50,402,559 =========== =========== =========== Diluted ............................ 43,733,332 6,669,227 (N) 50,402,559 =========== =========== ===========
- ------------------ (1) Amounts presented are for four months ended October 31, 1999 (five months ended March 31, 2000 are included in Southern Union's amounts). (2) Amounts presented are for nine months ended February 29, 2000. 73 See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements. 74 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS ADJUSTMENTS TO THE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (A) Reflects the estimated excess of the purchase price and other transaction costs over the historical cost of the regulated net assets and the estimated fair value of the non-regulated net assets of Fall River Gas, ProvEnergy, and Valley Resources, collectively "the pending acquisitions." (B) Reflects excess cash after application of the net proceeds from the merger financing of the pending acquisitions. See Note (F). (C) Reflects the capitalization of estimated costs associated with the bank borrowings as more specifically described in Note (G) to be incurred in connection with the pending acquisitions. These financing costs are amortized on a straight-line basis over the life of the bank borrowings. (D) Reflects the elimination of common stockholders' equity of Fall River Gas, ProvEnergy, and Valley Resources. (E) Reflects the issuance of Southern Union common stock to Fall River Gas stockholders. See Notes (L) and (N). (F) Reflects bank borrowings at an estimated annual interest rate of 7.60%, which Southern Union believes would be obtained based on current market rates. The bank borrowings are assumed to be utilized: to finance the cash portion of the purchase of Fall River Gas, ProvEnergy, and Valley Resources and the settlement of any respective stock options; and to pay various professional fees and change of control agreements expected to be incurred in connection with the pending acquisitions estimated to total $9 million. See Notes (H) and (M). ADJUSTMENTS TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (G) Reflects amortization of the estimated excess purchase price over the historical cost of the regulated net assets and the estimated fair value of the non-regulated net assets of PEI, Fall River Gas, ProvEnergy, and Valley Resources on a straight-line basis over a 40-year period based on the estimated useful lives of these assets. The pro forma adjustment for the nine-month period ended March 31, 2000 reflects only four months of amortization of additional purchase cost related to the acquisition of PEI, as five months of actual are included in Southern Union's historical balances due to the closing of this merger on November 4, 1999. (H) Reflects interest expense on bank borrowings for the pending acquisitions at an estimated annual interest rate of 7.60%, which Southern Union believes would be obtained based on current market rates, and interest expense on the $300 million of long-term debt at 8.25% issued on November 3, 1999 in connection with the PEI merger. The bank borrowings and long-term debt are assumed to be utilized: 75 to finance the cash portion of the purchase of PEI, Fall River Gas, ProvEnergy and Valley Resources and the settlement of any respective stock options; to refinance certain debt of PEI, and Southern Union; to fund PEI's Director Retirement Plan, Director Deferred Compensation Plan and supplemental retirement benefits and the payments for severance benefits for certain PEI executives; and to pay various professional fees and change of control agreements expected to be incurred in connection with all mergers estimated to total $12 million. For every 1/8 percent change in the interest rate assumed for the bank borrowings, expense for the 12-month period would change by approximately $550,000. The rate on the $300 million issued for PEI is fixed at 8.25%, so no variation in the rate for this long-term debt was calculated. (I) Reflects the elimination of historical interest expense of PEI as a result of refinancing certain debt in connection with the PEI merger. See Notes (H) and (M). (J) Reflects the income tax consequences at the federal statutory rate of the pro forma adjustments after excluding nondeductible goodwill amortization. (K) Reflects the elimination of preferred stock dividend requirement due to the repurchase of all outstanding PEI and ProvEnergy preferred stock prior to the closing of the mergers for PEI and ProvEnergy. (L) Reflects the issuance of 16,713,735 pre-stock dividend shares of Southern Union stock for the purchase of PEI. Also reflects the estimated issuance of 1,541,867 shares of Southern Union stock for the purchase of Fall River Gas, based on an average trading price of $15.7954 for the ten trading-day period ending on the third trading day before June 30, 2000 and an exchange ratio of 1.39259. The actual exchange ratio for the Fall River Gas merger will be based upon the average closing price per share for Southern Union common stock for the ten trading day period ending on the third full trading day the day the merger is completed. The exchange ratio will not be lower than 1.19365 nor greater than 1.39259. Due to the loss position resulting from the pro forma adjustments, the diluted shares outstanding were adjusted for 1,779,747 shares of common stock equivalents that had been included in Southern Union's historical amounts. (M) Reflects interest expense on bank borrowings for the pending acquisitions at an estimated annual interest rate of 7.60%, which Southern Union believes would be obtained based on current market rates, and interest expense on the $300 million of long-term debt at 8.25% issued on November 3, 1999 in connection with the PEI merger. The non-PEI merger-related long-term debt is assumed to be utilized: to finance the cash portion of the purchase of Fall River Gas, ProvEnergy, and Valley Resources; and the settlement of any respective stock options; and to pay various professional fees and change of control agreements incurred in connection with the three pending mergers estimated to total $9 million. The pro forma adjustment for the nine-month period ended March 31, 2000 reflects only four months of interest expense related to the $300 million of long-term debt issued for the acquisition of PEI, as five months of actual are included in Southern Union's historical balances due to the closing of this merger on November 4, 1999. For every 1/8 percent change in the interest rate assumed for the bank borrowings, expense for the nine-month period would change by approximately $400,000. The rate on the $300 million issued for PEI is fixed at 8.25%, so no variation in the rate for this portion of debt was calculated. 76 (N) Reflects the issuance of 16,713,735 pre-stock dividend shares of Southern Union stock for the purchase of PEI. Also reflects the estimated issuance of 1,541,867 shares of Southern Union stock for the purchase of Fall River Gas, based on an average trading price of $15.7954 for the ten trading-day period ending on the third trading day before June 30, 2000 and an exchange ratio of 1.39259. The actual exchange ratio for the Fall River Gas merger will be based upon the average closing price per share for Southern Union common stock for the ten trading day period ending on the third full trading day prior to the day the merger is completed. The exchange ratio will not be lower than 1.19365 nor greater than 1.39259. Due to the loss position resulting from the pro forma adjustments, the diluted shares outstanding were adjusted for 2,044,899 shares of common stock equivalents that had been included in Southern Union's historical amounts. 77 THE COMPANIES SOUTHERN UNION GENERAL Southern Union was incorporated under the laws of the State of Delaware in 1932 and is one of the fifteen largest gas utility companies in the United States, as measured by number of customers. Southern Union's principal line of business is the distribution of natural gas as a public utility through Southern Union Gas, Missouri Gas Energy ("MGE"), PG Energy, and Atlantic Utilities, doing business as South Florida Natural Gas ("SFNG"), each of which is a division of Southern Union. Southern Union Gas, headquartered in Austin, Texas, serves 523,000 customers in Texas (including the cities of Austin, El Paso, Brownsville, Galveston, Harlingen, McAllen and Port Arthur). MGE, headquartered in Kansas City, Missouri, serves 491,000 customers in central and western Missouri (including the cities of Kansas City, St. Joseph, Joplin and Monett). PG Energy, headquartered in Wilkes-Barre, Pennsylvania, serves 154,000 customers in northeastern and central Pennsylvania (including the cities of Wilkes-Barre, Scranton and Williamsport). SFNG, headquartered in New Smyrna Beach, Florida, serves 5,000 customers in central Florida (including the cities of New Smyrna Beach, Edgewater and areas of Volusia County, Florida). The diverse geographic area of Southern Union's natural gas distribution systems reduces the sensitivity of Southern Union's operations to weather risk and local economic conditions. Subsidiaries of Southern Union have been established to support and expand natural gas and other energy sales and to capitalize on Southern Union's energy expertise. These subsidiaries market natural gas and electricity to end-users, operate natural gas pipeline systems, generate electricity, distribute propane, and sell commercial gas air conditioning and other gas-fired engine-driven applications. By providing "one-stop shopping," Southern Union can serve its various customers' specific energy needs, which encompass substantially all of the natural gas distribution and sales businesses from natural gas sales to specialized energy consulting services. Southern Union distributes propane to 11,000, 1,800 and 1,100 customers in Texas, Pennsylvania and Florida, respectively. Through PG Energy Services, Southern Union markets electricity and other products and services under the name PG Energy Power Plus, principally in northeastern and central Pennsylvania. Through PEI Power Corporation, an exempt wholesale generator (within the meaning of the Public Utility Holding Company Act of 1935), Southern Union generates and sells electricity in northeastern and central Pennsylvania. Through Keystone Pipeline Services, Inc. (a wholly owned subsidiary of PG Energy Services, Inc.) Southern Union is engaged primarily in the construction, maintenance and rehabilitation of natural gas distribution pipelines. Additionally, certain subsidiaries own or hold interests in real estate and other assets. Central to all of Southern Union's present businesses and strategies are the sale and transportation of natural gas and related energy services. Southern Union is a sales and market-driven energy company whose management is committed to achieving profitable growth of its utility businesses in an increasingly competitive business environment. Southern Union's strategies for achieving these objectives principally consist of: (i) promoting new sales opportunities and markets for natural gas and propane; (ii) enhancing financial and operating performance; and (iii) expanding Southern Union through development of existing utility businesses and selective acquisition of new utility businesses. Southern Union's management develops and continually evaluates these strategies 78 and their implementation by applying their experience and expertise in analyzing the energy industry, technological advances, market opportunities and general business trends. Each of these strategies, as implemented throughout Southern Union's existing businesses, reflects Southern Union's commitment to its core gas utility business. Southern Union has a goal of selected growth and expansion, primarily in the utilities industry. To that extent, Southern Union intends to consider, when appropriate, and if financially practicable to pursue, the acquisition of other utility distribution or transmission businesses. The nature and location of any such properties, the structure of any such acquisitions and the method of financing any such expansion or growth will be determined by Southern Union's management and the Southern Union board. See "Forward-Looking Statements May Prove Inaccurate." ACQUISITIONS ACQUISITION OF PEI. Effective November 4, 1999, Southern Union acquired PEI and its subsidiaries for approximately 17 million shares of Southern Union common stock and approximately $36 million in cash plus the assumption of approximately $150 million of debt. PEI's natural gas utility businesses are being operated as PG Energy, a division of Southern Union, which provides service to approximately 154,000 natural gas customers in northeastern and central Pennsylvania (including the cities of Wilkes-Barre, Scranton and Williamsport). Through the acquisition of PEI, Southern Union acquired and now operates a subsidiary that markets electricity and other products and services under the name PG Energy Power Plus, principally in northeastern and central Pennsylvania. Other subsidiaries that Southern Union acquired in the PEI merger engage in nonregulated activities, including the construction, maintenance and rehabilitation of natural gas distribution pipelines. MERGER WITH PROVENERGY. On November 14, 1999, Southern Union and ProvEnergy (NYSE: "PVY") entered into a definitive merger agreement. The agreement calls for ProvEnergy to merge into Southern Union in a transaction valued at approximately $400 million, including the assumption of debt. ProvEnergy's utility subsidiaries will also be merged into Southern Union. ProvEnergy shareholders will receive $42.50 in cash for each of the approximately 6.1 million shares of ProvEnergy common stock outstanding. ProvEnergy, headquartered in Providence, Rhode Island, is the parent of two natural gas subsidiaries. Providence Gas, founded in 1847, is Rhode Island's largest gas distributor and serves approximately 168,000 natural gas customers in Providence and Newport and 23 other cities and towns in Rhode Island. North Attleboro Gas serves approximately 6,000 customers in North Attleboro and Plainville, Massachusetts. ProvEnergy's oil business serves over 14,000 residential and commercial customers. ProvEnergy's utility service territories encompass approximately 760 square miles with a population of approximately 850,000. Southern Union anticipates completing the ProvEnergy merger in September 2000 once all remaining conditions are satisfied, including receipt of all regulatory approvals. On May 22, 2000, the stockholders of ProvEnergy approved the terms of the ProvEnergy merger. MERGER WITH VALLEY RESOURCES. On November 30, 1999, Southern Union, SUG Acquisition Corporation, a Rhode Island corporation and wholly-owned subsidiary of Southern Union and Valley Resources (AMEX: "VR") entered into a definitive merger agreement. The agreement calls for Valley Resources to merge into Southern Union in a transaction valued at approximately $160 million, including the assumption of debt. Valley Resources shareholders will receive $25.00 in cash for each of the approximately 4.98 million shares 79 of Valley Resources common stock outstanding. Valley Resources, headquartered in Cumberland, Rhode Island, provides natural gas utility service to more than 64,000 customers through its subsidiaries, Valley Gas Company and Bristol & Warren Gas Company, each of which will also be merged into Southern Union. Valley Gas Company's service area covers a 92 square mile area in the Blackstone Valley Region located in the northeastern portion of Rhode Island that has a population of approximately 250,000. Bristol & Warren Gas Company's service area covers approximately 15 square miles in the eastern portion of Rhode Island that has a population of approximately 35,000. Other Valley Resources subsidiaries rent and sell gas appliances primarily for residential use in its service area, sell liquid propane in Rhode Island and nearby Massachusetts, and distribute as a wholesaler franchised lines to plumbing and heating contractors. Valley Resources also has an 80% interest in Alternate Energy Corporation, which sells, installs and designs natural gas conversion systems and facilities, is an authorized representative of the ONSI fuel cell, holds a patent for a natural gas/diesel co-firing system and has a patent pending for a device to control the flow of fuel on dual-fuel equipment. Southern Union anticipates completing the Valley Resources merger in September 2000 once all remaining conditions are satisfied, including receipt of all regulatory approvals for the Valley Resources merger. Valley Resources shareholders approved the Valley Resources merger at their special meeting on June 13, 2000. FALL RIVER GAS Fall River Gas was organized as a Massachusetts corporation on September 25, 1880 and is an investor-owned public utility company that sells, distributes and transports natural gas (mixed with propane and liquefied natural gas during winter months) at retail through a pipeline distribution system throughout its 50 square mile service territory in the City of Fall River and the towns of Somerset, Swansea and Westport, all located within the southeastern portion of the Commonwealth of Massachusetts. This area has a population of approximately 140,000. The principal markets served by Fall River Gas are (1) residential customers using gas for heating, cooking and water heating, (2) industrial customers using gas for processing items such as textile and metal goods, (3) commercial customers using gas for cooking and heating, and (4) federal and state housing projects using gas for heating, cooking and water heating. Fall River Gas is engaged in only one line of business as described above, and in activities incidental to this business. Fall River Gas has one wholly-owned subsidiary, Fall River Gas Appliance Company, Ltd. (the "Appliance Company"), a Massachusetts corporation, which rents water heaters and conversion burners (primarily for residential use) in Fall River Gas' gas service area. Earnings from the Appliance Company are primarily the result of revenues from the rental of water heaters and conversion burners. The Appliance Company also derives revenues from the sale of central heating and air-conditioning systems and water heaters. As of May 1, 2000, Fall River Gas provided service to approximately 48,000 natural gas customers. Fall River Gas and its subsidiary employed approximately 175 persons as of May 1, 2000. 80 DESCRIPTION OF SOUTHERN UNION CAPITAL STOCK GENERAL Under the provisions of the Delaware General Corporation Law ("DGCL"), a corporation may not issue a greater number of shares than have been authorized by its certificate of incorporation. Southern Union's restated certificate of incorporation provides that the authorized capital stock of Southern Union consists of (i) 200,000,000 shares of common stock, par value $1.00 per share, and (ii) 6,000,000 shares of preferred stock, no par value. At the close of business on July 3, 2000, 49,509,738 shares of Southern Union common stock were issued and outstanding and no shares of Southern Union preferred stock were issued and outstanding. SOUTHERN UNION COMMON STOCK VOTING RIGHTS. Except with respect to the election of directors, the holders of Southern Union common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. At all elections of directors of Southern Union, the holders of Southern Union common stock have cumulative voting rights. Accordingly, each holder of Southern Union common stock is entitled to that number of votes which equals the number of shares held by such stockholder multiplied by the number of directors to be elected, and such stockholder may cast all of such votes for a single nominee or distribute them among the nominees as such stockholder deems appropriate. DIVIDENDS. The holders of Southern Union common stock are entitled to receive dividends as and when declared by the Southern Union board out of funds legally available therefor, subject to any preferential dividend rights of outstanding shares of Southern Union preferred stock. LIQUIDATION RIGHTS. Subject to the rights of holders of Southern Union cumulative preferred stock, upon liquidation, dissolution or winding up of Southern Union, the holders of Southern Union common stock are entitled to receive ratably the net assets of Southern Union available after the payment of all debts and other liabilities. NO OTHER RIGHTS. Holders of Southern Union common stock have no preemptive, subscription, redemption or conversion rights. EFFECT OF THE MERGER. Upon completion of the merger, Fall River Gas' stockholders will receive shares of Southern Union common stock. Accordingly, the total number of outstanding shares of Southern Union common stock will change. SOUTHERN UNION PREFERRED STOCK GENERAL. Southern Union, by resolution of the Southern Union board and without any further vote or action by the holders of Southern Union common stock, has the authority, subject to certain limitations, to issue up to an aggregate of 6,000,000 shares of Southern Union preferred stock in one or more classes or series, and to determine the designation and the number of shares of any class or series and to fix the designation, powers, preferences and rights of each such series and the qualifications, limitations or restrictions thereof. 81 As of July 3, 2000, there were no shares of Southern Union preferred stock outstanding and Southern Union presently has no plans to issue any shares of Southern Union preferred stock. TRANSFER AGENT AND REGISTRAR BankBoston, N.A. c/o EquiServe, L.P. acts as transfer agent and registrar for the Southern Union common stock. 82 COMPARISON OF FALL RIVER GAS AND SOUTHERN UNION STOCKHOLDER RIGHTS Southern Union is a Delaware corporation. The rights of a holder of Southern Union common stock are presently governed by Southern Union's restated certificate of incorporation and bylaws and the Delaware General Corporation Law ("DGCL"). Fall River Gas is a Massachusetts corporation. The rights of a holder of Fall River Gas common stock are governed by Fall River Gas' restated articles of organization and bylaws. In addition, Chapter 164 of the Massachusetts General Laws ("MGL, Chapter 164") provides that the rights of stockholders of Massachusetts gas companies, such as Fall River Gas, are also governed by certain provisions of MGL, Chapter 164, as well as certain provisions of MGL, Chapter 156B (Massachusetts' general business corporation statute). Even though Southern Union will continue to exist as a Delaware corporation following its merger with Fall River Gas and Southern Union's restated certificate of incorporation and bylaws will survive rather than those of Fall River Gas, there are certain areas where the provisions of MGL, Chapter 164 differ from those of the DGCL with respect to certain corporate governance matters, including, more specifically, with regard to requirements for shareholder approval in certain instances. While Southern Union believes that following the merger, the provisions of the DGCL should take precedence with regard to these areas where differences exist, it is uncertain whether in any or all of these instances, the corporate affairs, including the rights of stockholders to vote on certain matters, of the combined company may be subject to some or all of the corporate governance provisions of Chapter 164 which are applicable to Massachusetts gas companies subject to that Chapter. Neither the Massachusetts Department of Telecommunications and Energy ("MDTE"), which regulates Massachusetts gas distribution companies, nor the Courts of the Commonwealth of Massachusetts, have determined whether under MGL, Chapter 164, a utility that distributes gas to customers within Massachusetts but is not incorporated under Massachusetts law is subject to all or any portions of MGL, Chapter 164's corporate governance provisions that would otherwise pertain to a gas distribution company incorporated domestically in Massachusetts. There are also differences between the restated certificate of incorporation and bylaws of Southern Union and the articles of organization and bylaws of Fall River Gas. As a result, the rights of a holder of Southern Union common stock differ from the rights of a holder of Fall River Gas common stock. In addition, a company operating as a utility in either Massachusetts or Rhode Island cannot issue a stock dividend without approval from the MDTE or the RIDPUC, whichever is applicable. Because we have a policy of declaring and distributing an annual 5% stock dividend, we intend to seek approval for our dividend policy from both agencies after the mergers are completed. We will seek such approvals before we declare and distribute the first such anticipated dividend after the anticipated closing of the pending mergers, which would be the 2001 stock dividend. The following information is a summary of some of the important differences between the DGCL and the restated certificate of incorporation and bylaws of Southern Union, on one hand, and the MGL, Chapter 164 and the articles of organization and bylaws of Fall River Gas, on the other. The provisions of the MGL, Chapter 164, that could be applicable to Southern Union after the merger are highlighted in the right hand columns of this summary. This summary does not purport to be a complete discussion of, and is qualified in its entirety by reference to, the DGCL and MGL, Chapter 164, as well as the restated certificate of 83 incorporation and bylaws of Southern Union and the articles of organization and bylaws of Fall River Gas, copies of which are on file with the SEC.
SOUTHERN UNION FALL RIVER GAS -------------- -------------- CORPORATE GOVERNANCE GENERALLY Currently governed by Delaware law and the Currently governed by Massachusetts law, specif- restated certificate of incorporation and bylaws of ically including MGL, Chapter 164, relating to gas Southern Union. companies subject to that chapter, and to certain provisions of MGL, Chapter 156B, which are spe- cifically enumerated in MGL, Chapter 164, Section 4; also governed by the articles of organization and bylaws of Fall River Gas. Upon completion of the merger, the rights of stock- Upon completion of the merger, the rights of holders of the combined company will be governed stockholders of the combined company will be by Delaware law and the restated certificate of governed by Delaware law and the restated certifi- incorporation and bylaws of Southern Union, cate of incorporation and bylaws of Southern subject to the discussion set forth immediately Union, subject to the discussion set forth immedi- above regarding certain areas involving shareholder ately above regarding certain areas involving voting requirements where differences exist with shareholder voting requirements where differences respect to MGL, Chapters 164 and 156B. exist with respect to MGL, Chapters 164 or 156B. AUTHORIZED CAPITAL STOCK 200,000,000 shares of common stock, par value $1 2,951,334 shares of common stock, $.83 1/3 par per share. 6,000,000 shares of preferred stock, no value per share. par value per share. SIZE OF THE BOARD OF DIRECTORS Not less than five nor more than fifteen. The Not less than three nor more than nine. The Fall Southern Union board may increase or decrease the River Gas board may increase or decrease the number of directors within these limits without a number of directors within these limits without a stockholder vote. Holders of cumulative preferred stockholder vote. The Fall River Gas board stock may elect additional directors if dividends are currently consists of nine directors. in arrears. The Southern Union board currently is comprised of twelve members. ELECTION AND CLASSIFICATION OF BOARD OF DIRECTORS The Southern Union board is divided into three The Fall River Gas board is divided into three classes, with the term of office of one class classes, with the term of office of one class expiring expiring each year. In the case of any increase in each year. In the case of any increase in the the number of directors, the number of directors in number of directors, the number of directors in each class shall be as nearly equal as possible. each class shall be as nearly equal as possible. 84 SOUTHERN UNION FALL RIVER GAS -------------- -------------- Each director elected for a three-year term. Each director elected for a three-year term. VOTING RIGHTS The stockholders have cumulative voting rights at Each stockholder is entitled to one vote for every all elections of directors. Any stockholder who share held. Stockholders do not have cumulative intends to cumulate votes must give written notice voting rights. to the secretary no later than ten days after the notice of meeting was first sent to the stockholders. REMOVAL OF DIRECTORS; FILLING VACANCIES Any and all of the directors may be removed with Any one or more of the directors may be removed cause by a vote of the holders of a majority of with or without cause, at any time, by a majority shares entitled to vote at an election of directors. vote of the stockholders entitled to vote at any New directorships resulting from an increase in the regular or annual meeting (or by a majority of the authorized number of directors or any vacancy on directors then in office). The successor to any the Southern Union board may be filled by a director so removed shall be elected by the majority vote of the directors then in office, though remaining directors. less than a quorum. INTERESTED DIRECTOR TRANSACTIONS Under the DGCL, certain contracts or transactions Pursuant to Section 62 of Chapter 156B of the in which one or more of a corporation's directors MGL, which is made applicable to gas companies has an interest are not void or voidable because of and other corporations subject to MGL, Chapter such interest, provided that either: 164, by application of Chapter 164, Section 4, directors who vote for and officers who knowingly - - the stockholders or the disinterested directors participate in any loan of any assets of Fall River must approve any such contract or transaction Gas to any of its officers or directors are jointly and after full disclosure of material facts, or severally liable for any portion of the loan which is not repaid. This provision does not apply if the - - the contract or transaction must have been fair loan is approved or ratified as a loan which is as to the corporation at the time it was reasonably expected to benefit Fall River Gas, by approved. If board approval is sought, the either a majority of the directors who are not direct contract or transactions must be approved by or indirect recipients of the loan, or by shareholders a majority of the disinterested directors (even who are not direct or indirect recipients of the loan though less than a quorum). and hold a majority of the shares entitled to vote for directors. Southern Union's bylaws provide that no contract, transaction or act of Southern Union shall be affected by the fact that a director is in any way interested in, or connected with, any party to such contract, transaction or act, if the interested director, at least five days prior to the date of any 85 SOUTHERN UNION FALL RIVER GAS -------------- -------------- regular or special meeting of the Southern Union board at which such contract, transaction or act is to be considered, gives notice in writing to each of the remaining directors of his interest in or in connection with the proposed contract, transaction or act. If this condition is complied with, the interested director may be counted in determining a quorum at any meeting of the Southern Union board at which the contract, transaction or act will be authorized, but may not vote on the resolution pertaining to the interested director transaction. INDEMNIFICATION OF DIRECTORS AND OFFICERS Southern Union's bylaws provide that Southern Fall River Gas' bylaws provide that, except as Union shall indemnify each of its directors and prohibited by law, Fall River Gas shall indemnify officers to the fullest extent permitted by law in every director, officer or employee of Fall River connection with any actual or threatened action or Gas against expenses reasonably incurred by him in proceeding (including civil, criminal, administra- connection with any action, suit or proceeding to tive or investigative proceedings) arising out of which he may be made a party, by reason of such their service to Southern Union or to any other person being or having been a director, officer or organization at Southern Union's request. employee of Fall River Gas or by reason of the fact Employees and agents of Southern Union who are not that such person is or was serving at the request of directors and officers may be similarly indem- Fall River Gas as a director, officer or employee, of nified in respect of such service to the extent autho- another corporation, except in relation to matters as rized at any time by the Southern Union board. to which he shall be finally adjudged in such action, suit or proceeding to be liable for Under the DGCL, other than an action brought by negligence or misconduct. or in the right of the corporation, such indemni- fication is available if it is determined that the proposed indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or pro- ceedings, had no reasonable cause to believe his or her conduct was unlawful. In actions brought by or in the right of the corporation, such indemnification is limited to expenses actually and reasonably incurred and permitted only if the indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person is adjudged to be 86 SOUTHERN UNION FALL RIVER GAS -------------- -------------- liable to the corporation, unless and only to the extent that the court in which the action was brought determines that, despite the adjudication of liability, but in view of all of the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court deems proper. To the extent that the proposed indemnitee has been successful in defense of any action, suit or proceeding, he must be indemnified against expenses actually and reasonably incurred by him in connection with the action. LIMITATION OF DIRECTOR LIABILITY Section 102(b)(7) of the DGCL provides that the Pursuant to Section 65 of Chapter 156B of the certificate of incorporation of a Delaware corpora- MGL, which is made applicable to gas companies tion may contain a provision eliminating or limiting and other corporations subject to MGL, Chapter the personal liability of a director to the corporation 164, by application of Chapter 164 Section 4, the or its stockholders for monetary damages for a fact that a director performed his or her duties shall breach of fiduciary duty as a director. This provi- be a complete defense to any claim asserted against sion can not eliminate or limit the director's him or her, except as expressly provided by statute, liability for: by reason of his or her being or having been a director of a corporation. - - any breach of the director's duty of loyalty to the corporation or its shareholders, Fall River Gas' articles of organization further provide that to the fullest extent permitted by the - - any acts or omissions not in good faith or MGL, no director shall be personally liable to the which involve intentional misconduct or a corporation or its stockholders for monetary knowing violation of the law, damages for any breach of fiduciary duty by such director as a director notwithstanding any provision - - under section 174 of the DGCL, which of law imposing such liability. This provision shall governs liability of directors for unlawful not eliminate or limit the liability of a director for payment of dividends or unlawful stock any act or omission occurring prior to the date upon repurchases, or which this provision became effective, and no amendment or repeal of this provision shall deprive - - any transaction from which the director a director of the benefits hereof with respect to any derived an improper personal benefit. Article act or omission occurring prior to such amendment TWELFTH of the Restated Certificate of or repeal. Incorporation of Southern Union eliminates personal liability of directors to the fullest extent permitted by Delaware law. AMENDMENTS TO THE CERTIFICATE OF INCORPORATION OR ARTICLES OF ORGANIZATION 87 SOUTHERN UNION FALL RIVER GAS -------------- -------------- The restated certificate of incorporation may be THE ARTICLES OF ORGANIZATION CAN BE AMENDED BY THE amended by the affirmative vote of the Southern AFFIRMATIVE VOTE OF THE FALL RIVER GAS BOARD, Union board followed by the affirmative vote of the FOLLOWED BY THE AFFIRMATIVE VOTE OF TWO-THIRDS OF holders of a majority of the outstanding stock EACH CLASS OF STOCK OUTSTANDING, except that the entitled to vote thereon and the majority of the following actions require the vote only of a outstanding stock entitled to vote thereon as a class. majority of the shares of each class outstanding and entitled to vote: (i) changes in par value of its capital stock; (ii) amount of capital stock authorized; and (iii) change in corporate name (MGL, Chapter 164, Section 8). However, Fall River Gas' articles of organization also provide that any amendment relating to business combinations and the staggered election of directors requires the affirmative vote of the holders of not less than 75% of the shares entitled to vote. AMENDMENT OF BYLAWS The stockholders may amend, alter or repeal the Only the stockholders, by the affirmative vote of bylaws by the affirmative vote of the holders of a the holders of a majority of the stock issued and majority of the voting power of the then outstanding of the class or classes entitled to vote, outstanding shares of stock entitled to vote may at any meeting, provided the substance of the generally in the election of directors, voting proposed amendment shall have been stated in the together as a single class. In addition, the Southern notice of the meeting, amend, alter or repeal the Union board, by the affirmative vote of a majority bylaws; provided, however, that pursuant to Fall of the directors, may at any meeting, if the River's articles of organization, any amendment substance of the proposed amendment shall have relating to business combinations or the staggered been stated in the notice of meeting, amend, alter or election of directors requires the affirmative vote of repeal the bylaws. the holders of not less than 75% of the shares entitled to vote. Chapter 156B, Section 17, which is made applicable to gas companies and other corporations subject to MGL, Chapter 164, by application of Chapter 164, Section 4, provides that directors alone may amend the bylaws if a com- pany's articles of organization specifically provide for this power. Fall River Gas' articles of organiza- tion do not currently contain such a provision. POWER TO CALL SPECIAL STOCKHOLDERS MEETING Special meetings of stockholders may be called A stockholders meeting for any purpose may be only by the Southern Union board pursuant to a called at any time by: the chairman, president or a resolution adopted by a majority of the total majority of the board of directors and shall be number of authorized directors (whether or not called by the chairman, the president or the clerk 88 SOUTHERN UNION FALL RIVER GAS -------------- -------------- there exist any vacancies in previously authorized upon the request of stockholders of record owning directorships at the time any such resolution is at least 33 1/3% of the issued and outstanding presented to the Southern Union board for voting stock. The MGL provides that stockholders adoption) or by the holders of not less than a owning 10% of the voting stock can call such a majority of the voting power of all of the then- meeting, unless the company's articles of outstanding shares of any class or series of capital incorporation require a higher percentage of not stock entitled to vote generally in the election of more than 50%. directors. ACTION BY WRITTEN CONSENT Any action required or permitted to be taken by the Any action required or permitted to be taken at a stockholders must be effected at a duly called stockholders meeting may be taken without a annual or special meeting of the stockholders, and meeting but only if, before or after the action, may not be effected by the written consent of the consents thereto by all the stockholders who would stockholders. be entitled to vote at a meeting for such purpose are filed with the secretary. INSPECTION OF STOCKHOLDERS LIST The officer who has charge of the stock ledger must Stockholders of Fall River Gas have no specific prepare and make, at least 10 days before every statutory right to inspect the stock record books of stockholders meeting, a complete list of the the company, for any purpose other than as a stockholders entitled to vote at the meeting, stockholder relative to the affairs of the arranged in alphabetical order, and showing the corporation. The original, or attested copies, of the address of each stockholder and the number of Articles of Organization, Bylaws, and records of all shares registered in the name of each stockholder. meetings of incorporators and stockholders, and the The list must be open to the examination of any stock and transfer records, containing the names of stockholder, for any purpose germane to the all stockholders and the record address and the meeting, during ordinary business hours, for a amount of stock held by each, must be kept by Fall period of at least 10 days before the meeting. The River Gas for inspection by its stockholders at its list must also be produced and kept at the time and principal office or an office of its transfer agent or place of the meeting during the whole time thereof, of its clerk or of its resident agent. The copies and and may be inspected by any stockholder present. records need not all be kept in the same office. 89 SOUTHERN UNION FALL RIVER GAS -------------- -------------- DIVIDENDS AND REPURCHASES OF SHARES Dividends on the stock of Southern Union of any The directors, in their discretion, may from time to class are payable only out of assets, profits or funds time declare dividends payable at any fixed date out of the corporation at the time legally available of the earned surplus of Fall River Gas. therefor, and only when and as declared by the Southern Union board. Dividends may be paid upon common stock as and when declared by the Southern Union board, subject to all of the rights of the preferred stockholders. See "Description of Southern Union Capital Stock - Southern Union Preferred Stock." In addition, the DGCL generally provides that a corporation may redeem or repurchase its shares only if such redemption or repurchase would not impair the capital of the corporation. The ability of a Delaware corporation to pay dividends on, or to make repurchases or redemptions of, its shares is dependent on the financial status of the corporation standing alone and not on a consolidated basis. In determining the amount of surplus of a Delaware corporation, the assets of the corporation, including stock of subsidiaries owned by the corporation, must be valued at their fair market value as deter- mined by the Southern Union board, regardless of their historical book value. MERGERS AND MAJOR TRANSACTIONS Under the DGCL, whenever the approval of the Under Section 96 of MGL, Chapter 164, a merger stockholders of a corporation is required for an or consolidation of, or sale or purchase of all or agreement of merger or consolidation, or for a sale, substantially all corporate properties involving lease or exchange of all or substantially all of its companies both or all of which are subject to MGL, assets, such agreement, sale, lease or exchange Chapter 164 by virtue of conducting utility must be approved by the affirmative vote of the operations in the Commonwealth of Massachusetts, holders of a majority of outstanding shares entitled must be approved by each such company by at least to vote thereon. Notwithstanding the foregoing, two-thirds of the shares entitled to vote thereon. unless required by its certificate of incorporation, no vote of the stockholders of a constituent cor- poration surviving a merger is necessary to authorize such merger if: 90 SOUTHERN UNION FALL RIVER GAS -------------- -------------- - - the agreement of merger does not amend the certificate of incorporation of such constituent corporation; - - each share of stock of such constituent cor- poration outstanding prior to such merger is to be an identical outstanding or treasury share of the surviving corporation after the merger; - - either no shares of common stock of the surviving corporation and no shares, securities or obligations convertible into such common stock are to be issued under such agreement of merger, or the number of shares of common stock issued or so issuable does not exceed 20% of the number thereof outstanding immediately prior to such merger. In addition, the DGCL provides that a parent corporation that is the record holder of at least 90% of the outstanding shares of each class of stock of a subsidiary may merge such subsidiary into such parent corporation without the approval of such subsidiary's stockholders or board and without the approval of the parent's stockholders. APPRAISAL RIGHTS/DISSENTERS RIGHTS Under the DGCL, unless the certificate of incor- The stockholders of Fall River Gas have no poration of a corporation provides otherwise, there appraisal rights. are no appraisal rights provided in the case of cer- tain mergers, a sale or transfer of all or substantially all of the corporation's assets or an amendment to the corporation's certificate of incorporation. Moreover, the DGCL does not provide appraisal rights in connection with a merger or consolidation, unless the certificate of incorporation provides otherwise, to stockholders of a constituent corporation that: - - has its common stock listed on a national securities exchange or designated as a national market system security by the National 91 SOUTHERN UNION FALL RIVER GAS -------------- -------------- Association of Securities Dealers or - - held of record by more than 2,000 stock- holders, unless the applicable agreement of merger or consolidation requires that such stockholders will be entitled to receive, in exchange for their shares of such constituent corporation, anything except: - - shares of stock of the resulting or surviving corporation; - - shares of stock of any other corporation listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, or held of record by more than 2,000 holders; - - cash in lieu of fractional shares; or - - any combination of the prior three bullets. The DGCL denies appraisal rights to the stock- holders of the surviving corporation if such merger did not require for its approval the vote of the stockholders of such surviving corporation. ANTI-TAKEOVER PROVISIONS Southern Union is subject to DGCL Section 203, Chapter 110F of the MGL prohibits any business which generally prohibits a Delaware corporation combination with an "interested stockholder" from engaging in a "business combination" (defined generally as a person owning 5% or more (defined as a variety of transactions, including of a corporation's outstanding voting stock) for mergers, asset sales, issuance of stock and other three years after that person becomes an interested transactions resulting in a financial benefit to the stockholder unless: (i) the board gives prior interested stockholder) with an "interested stock- approval to the 5% purchase of the interested holder" (defined generally as a person that is the stockholder; (ii) upon consummation of the trans- beneficial owner of 15% or more of a corporation's action that resulted in the person becoming an outstanding voting stock) for a period of three years interested stockholder, the interested stockholder following the date that such person became an owns at least 90% of the voting stock of the interested stockholder unless certain conditions are corporation, excluding certain shares; or (iii) con- met. currently with or subsequent to the acquirer becoming an interested stockholder, the board of 92 SOUTHERN UNION FALL RIVER GAS -------------- -------------- directors and two-thirds of the noninterested shares approve the business combination. Fall River Gas has not opted out of Chapter 110F of the MGL and the provisions of Chapter 110F of the MGL apply to an acquisition of Fall River Gas. The Fall River Gas board has given its approval to the proposed merger. In addition, the Articles of Organization of Fall River Gas require the affirmative vote of 75% of the outstanding voting shares for adoption or authorization of any business combination with another entity unless the business combination has been authorized by a two-thirds vote of the directors. The directors of Fall River Gas have unanimously authorized the merger. DISSOLUTION Under the DGCL, if the Southern Union board Under MGL 156B, the dissolution of Fall River deems it advisable that the corporation should be Gas may be authorized by a vote of two-thirds of dissolved and a majority of the outstanding stock of each class of its stock outstanding and entitled to the corporation entitled to vote thereon votes in vote. favor of the proposed dissolution, the corporation shall be dissolved upon the filing of a certificate of Within thirty days of the date of the authorization dissolution with the Secretary of State of the State of dissolution, notice of that section must be mailed of Delaware. The corporation shall continue after by the corporation to the Commission of Revenue. dissolution for the purposes of defending suits and Then articles of dissolution must be submitted to settling its affairs for a three-year period. The the State Secretary. The dissolution will be DGCL sets forth certain payment and distribution effective either at the time of the filing of the procedures a dissolving corporation must follow in articles of dissolution or at a later date specified in the connection with winding down notification require- articles. The corporation will continue for a ments, and, under certain circumstances, obtaining three-year period after dissolution for the purpose the approval of the Delaware Court of Chancery. of prosecuting and defending lawsuits, settling its Directors of a dissolved corporation that comply affairs, disposing of its assets and making with the DGCL's payment and distribution pro- distributions to its stockholders of any assets cedures shall not be personally liable to the remaining after payment of its debts and claimants of the dissolved corporation. obligations. For purpose of any suit brought by or against the corporation prior to or during the three- year period, the existence of the corporation may continue beyond the three-year period for an additional ninety days after the final judgment in the suit. The MGL provides procedures for distribution of assets upon petition to the supreme 93 SOUTHERN UNION FALL RIVER GAS -------------- -------------- judicial or superior court, and for the appointment of receivers. 94 MORTGAGE AND CERTAIN OTHER FINANCINGS Under the DGCL, Southern Union may enter into A GAS COMPANY OR OTHER CORPORATION SUBJECT TO THE a mortgage of, or issue a bond in which a lien may MGL, CHAPTER 164, MAY ENTER INTO A MORTGAGE OF, be placed on, all or substantially all of the assets of OR ISSUE A BOND IN WHICH A LIEN IS PLACED ON, ALL OR the company without submitting this action for SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY shareholder approval. ESSENTIALLY ONLY WITH THE APPROVAL BY A VOTE OF A MAJORITY OF ITS SHAREHOLDERS ENTITLED TO VOTE THEREON. Fall River Gas obtained on April 16, 1981 shareholder authorization to allow the Board of Directors to take such action without further shareholder approval.
95 PRINCIPAL STOCKHOLDERS BENEFICIAL OWNERS OF MORE THAN 5% OF SOUTHERN UNION'S OUTSTANDING COMMON STOCK The following table shows, as of June 30, 2000, any person who is known by Southern Union to be the beneficial owner individually or collectively of more than five percent of the outstanding Southern Union common stock.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT NUMBER OF SHARES OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) CLASS - ------------------------------------ ---------------------- ------- George L. and Frayada B. Lindemann 5,320,998 (2)(3) 10.63% 767 Fifth Avenue, 50th Floor New York, New York 10153 Adam M. Lindemann 2,893,420 (3)(4) 5.84% 767 Fifth Avenue, 50th Floor New York, New York 10153 George Lindemann, Jr. 2,897,599 (3)(5) 5.85% 11950 Maidstone Drive Wellington, Florida 33414 Sloan N. Lindemann 2,896,544 (3) 5.85% 767 Fifth Avenue, 50th Floor New York, New York 10153 Bass Reporting Persons 3,145,661 (6) 6.35% 201 Main Street Fort Worth, Texas 76102 Baron Capital Group, 4,897,244 (7) 9.89% 767 Fifth Avenue, 49th Floor New York, New York 10153 - ----------------
(1) Includes options to acquire shares of Southern Union common stock that are exercisable within 60 days of June 30, 2000. (2) Includes: 2,180,560 shares owned by SUG 1 L.P. in which Mr. Lindemann is the sole general partner; 2,578,242 shares owned by SUG 2 L.P. in which Mr. Lindemann's wife, Dr. F.B. Lindemann, is the sole general partner; 14,441 vested shares held through the Southern Union Supplemental Deferred Compensation Plan (the "Supplemental Plan") for Mr. Lindemann; 9,653 vested shares held by the 401(k) Southern Union Savings Plan (the "401(k) Plan") for Mr. Lindemann; and 538,102 shares of Southern Union common stock Mr. Lindemann is entitled to purchase upon the exercise of stock options exerciseable presently or within 60 days of June 30, 2000 pursuant to the Southern Union 1992 Long-Term Incentive Plan (the "1992 Plan"). Substantially all shares beneficially held by Mr. and Dr. Lindemann and their three children (Adam M., George, Jr., and Sloan N.) (together, the "Lindemann Family") have been pledged to Activated Communications Limited Partnership ("Activated"). Activated, which is owned and managed by or for the benefit of the Lindemann Family, provided the funds used to purchase certain of such shares. Mr. Lindemann is the Chairman of the Board and President, and, Dr. Lindemann and Adam Lindemann are each a director of the sole general partner of Activated. (3) This information regarding direct share ownership by members of the Lindemann Family generally was obtained from and is reported herein in reliance upon a Schedule 13D (as amended through April 19, 2000) as adjusted for any stock dividends and splits since the date of such report filed by George L. Lindemann, Adam M. Lindemann, Sloan N. Lindemann, SUG 1 L.P., SUG 2 L.P., and SUG 3 L.P. In addition, information regarding share ownership by George L. Lindemann (including shares beneficially owned by his wife, Dr. F.B. Lindemann) and Adam M. Lindemann reflects information derived from their respective reports on Form 4 and Form 5 under the Exchange Act filed to date. Each member of the Lindemann Family disclaims beneficial ownership of any shares owned by any other member of the Lindemann Family. Accordingly, with respect to each member of the Lindemann Family, the above table reflects only individual share ownership except that the shares beneficially held by Dr. F. B. Lindemann are reflected as owned by George L. Lindemann, as explained in Note (2). (4) Includes 4,431 vested shares pursuant to the Southern Union Directors' Deferred Compensation Plan (the "Directors' Plan"). (5) These shares are owned by SUG 3 L.P. in which George Lindemann Jr. is the sole general partner. (6) The information set forth in the table above with respect to the Bass reporting persons and the information in this note were obtained from and are reported herein in reliance upon a Schedule 13G filed by: Sid R. Bass Management Trust, 820 Management Trust, Bass Enterprises Production Company, the Bass Foundation, and the Lee and Ramona Bass Foundation (collectively, the "Bass Reporting Persons"), on November 3, 1999 (as adjusted for any stock dividends since the date of such report). Because of their relationships with certain of these persons, Sid R. Bass, Perry M. Bass and Lee M. Bass may be considered controlling persons with respect to certain of the Bass Reporting Persons, all as described in said Schedule 13G. (7) This information regarding share ownership by Baron Capital Group, ("BCG") was obtained from and is reported herein in reliance upon a Schedule 13G, as amended through December 31, 1999 (as adjusted for any stock dividends since the date of such report) (the "Baron Filing") filed by BCG, BAMCO, ("BAMCO"), Baron Capital Management, ("BCM"), Baron Asset Fund ("BAF") and Ronald Baron (collectively, the "Baron Filing Group"). Pursuant to the Baron Filing, the members of the Baron Filing Group own beneficially and have shared power to vote or direct the vote of and to dispose or direct the disposition of the following number of shares of Southern Union common stock: BCG--4,765,994 shares; BAMCO--3,832,500 shares; BCM--933,494 96 shares; BAF--2,572,500 shares; and Mr. Baron--4,765,994 shares. The members of the Baron Filing Group disclaim beneficial ownership in each other's shares. 97 SOUTHERN UNION MANAGEMENT OWNERSHIP The following table shows the number of shares of Southern Union common stock, beneficially owned, directly or indirectly, as of June 30, 2000, by individual directors and named executive officers, and all directors and named executive officers as a group, who held such positions as of the Southern Union record date. Unless otherwise specified, shares are beneficially owned directly by the director or officer.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT NUMBER OF SHARES OF NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) CLASS - ------------------------ ---------------------- ------- George L. Lindemann 5,320,998 (2)(3) 10.63% Adam M. Lindemann 2,893,420 (3)(4) 5.84% John E. Brennan 692,375 (5) 1.39% Frank W. Denius 67,480 (6) * Aaron I. Fleischman 564,302 (7) 1.14% Kurt A. Gitter, M.D 194,229 (8) * Thomas F. Karam 660,759 (9) 1.32% Peter H. Kelley 554,825 (10) 1.11% Roger J. Pearson 42,446 (11) * George Rountree, III 63,502 (12) * Ronald W. Simms 630,346 (13) 1.27% Dan K. Wassong 59,471 (14) * Steve W. Cattron 12,758 (15) * Ronald J. Endres 379,070 (16) * David J. Kvapil 59,001 (17) * Dennis K. Morgan 80,805 (18) * David W. Stevens 89,791 (19) * All directors and officers as a group (17 persons) 12,971,583 (20) 26.20%
---------------- * Less than one percent. (1) Includes options to acquire shares of Southern Union common stock that are exercisable presently or within 60 days of June 30, 2000. (2) For a description of the shares of Southern Union common stock beneficially owned by Mr. George L. Lindemann and included in the above table, see note (2) to the table set forth in "--Beneficial Owners of More Than 5% of Southern Union's Outstanding Securities." (3) For information regarding beneficial share ownership by members of the Lindemann Family, see note (3) to the table set forth in "--Beneficial Owners of More Than 5% of Southern Union's Outstanding Securities." (4) For a description of the shares of Southern Union common stock beneficially owned by Mr. Adam M. Lindemann and included in the above table, see note (4) to the table set forth in "--Beneficial Owners of More Than 5% of Southern Union's Outstanding Securities." (5) Of these shares, 5,079 vested shares are held by the 401(k) Plan; 6,284 vested shares are held through the Supplemental Plan; 4,993 shares are owned by his wife; 211,806 are held in two separate trusts for the benefit of members of his family; 56,010 are held in an irrevocable trust under the Southern Union Executive Deferred Stock Plan (the "Stock Plan"); and 247,506 represent shares that Mr. Brennan is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000 pursuant to the 1992 Plan. (6) Includes: 955 shares owned by his wife; 44,017 shares that The Effie and Wofford Cain Foundation (the "Foundation"), in which Mr. Denius is a director, owns; and 8,360 vested shares pursuant to the Directors' Plan. Mr. Denius disclaims beneficial ownership of those shares held by the Foundation since he does not have a pecuniary interest in or control of the Foundation's assets. (7) Includes: 105,531 shares that Fleischman and Walsh, L.L.P., in which Mr. Fleischman is Senior Partner, is entitled to purchase upon exercise of a Warrant exercisable presently or within 60 days of June 30, 2000; 13,737 vested shares pursuant to the Directors' Plan; 112,215 shares owned by the Fleischman and Walsh 401(k) Profit Sharing Plan for which Mr. Fleischman is a trustee and a beneficiary; and 22,204 shares owned by the Aaron I. Fleischman Foundation for which Mr. Fleischman is the sole trustee. Mr. Fleischman disclaims beneficial ownership of those shares held by the Fleischman and Walsh 401(k) Profit Sharing Plan, to the extent that he does not have a pecuniary interest, and those shares held by the Aaron I. Fleischman Foundation. (8) Includes 6,829 vested shares pursuant to the Directors' Plan. (9) Includes: 89,983 shares held by various entities through which Mr. Karam has voting power; 21,703 shares held in the name of Lakeside Drive Association, in which Mr. Karam's wife has an interest; 2,619 vested shares held by the Southern Union Pennsylvania Division Employees' Savings Plan for Mr. Karam; 1,160 vested shares held through the Supplemental Plan; and 474,784 shares of Southern Union common stock Mr. Karam is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000. (10) Includes 309,913 shares that Mr. Kelley is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000 pursuant to the 1992 Plan. Such number also includes: 35,306 shares held in the Stock Plan; 22,818 vested shares held by the 401(k) Plan; 3,708 shares held through the Southern Union Company Direct Stock Purchase Plan; and 38,332 vested shares held through the Supplemental Plan. (11) Includes 3,082 shares held by Mr. Pearson as Custodian (pursuant to the Uniform Gifts to Minors Act) for his children; and 4,998 vested shares pursuant to the Directors' Plan. (12) Includes 1,444 shares owned by his wife and 16,032 vested shares allocated to Mr. Rountree pursuant to the Directors' Plan. Also includes 3,150 shares owned by the Rountree & Seagle Profit Sharing Plan & Trust for which Mr. Rountree is a co-trustee and co-administrator. Mr. Rountree disclaims beneficial ownership of shares held by such plan to the extent that he has no pecuniary interest. (13) Includes: 149,364 shares owned by Mr. Simms's wife; 178,796 shares for which Mr. Simms has voting power; and 59,348 shares of Southern Union common stock Mr. Simms is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000. 98 (14) Includes 6,362 vested shares pursuant to the Directors' Plan. (15) Includes 2,187 vested shares held through the Supplemental Plan, 153 vested shares held by the 401(k) Plan and 10,418 shares Mr. Cattron is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000 pursuant to the 1992 Plan. (16) Includes 253,526 shares Mr. Endres is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000 pursuant to the 1992 Plan. Such number also includes: 12,776 vested shares held through the 401(k) Plan; 23,228 vested shares held through the Supplemental Plan; and 315 shares owned by Mr. Endres's children. (17) Includes 34,779 shares that Mr. Kvapil is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000 pursuant to the1992 Plan. Such number also includes 11,571 vested shares held through the Supplemental Plan; 4,248 vested shares held by the 401(k) Plan; and 3,804 shares held through the Southern Union Company Direct Stock Purchase Plan. (18) Includes 60,182 shares Mr. Morgan is entitled to purchase upon the exercise of stock options presently or within 60 days of June 30, 2000 pursuant to the 1992 Plan. Such number also includes 4,664 vested shares held through the 401(k) Plan and 12,678 vested shares held through the Supplemental Plan. (19) Includes 58,430 shares that Mr. Stevens is entitled to purchase upon the exercise of stock options exercisable presently or within 60 days of June 30, 2000 pursuant to the 1992 Plan. Such number also includes: 12,722 vested shares held by the 401(k) Plan; 1,825 vested shares held through the Southern Union Company Direct Stock Purchase Plan and 14,061 vested shares held through the Supplemental Plan. (20) Excludes options granted pursuant to the 1992 Plan to acquire shares of Southern Union common stock that are not presently exercisable or do not become exercisable within 60 days of June 30, 2000. Includes vested shares held through certain Southern Union benefit and deferred savings plans for which certain executive officers and directors may be deemed beneficial owners, but excludes shares which have not vested under the terms of such plans. Also, includes 606,005 shares held by a "Rabbi Trust" known as the Trust for Miscellaneous Southern Union Company Deferred Compensation Arrangements ("Rabbi Trust"). The shares are held as a part of Southern Union's efforts to provide funding for a portion of the future liability under the Southern Union Supplemental Executive Retirement Plan ("SERP"). Any assets held for the benefit of the SERP are held in the Rabbi Trust. Southern Union management directly or indirectly controls the investment of any assets, and the voting of any securities, held for the SERP. BENEFICIAL OWNERS OF MORE THAN 5% OF FALL RIVER GAS' COMMON STOCK At the close of business on May 31, 2000, directors and officers of Fall River Gas beneficially owned and were entitled to vote approximately 297,216 shares of Fall River Gas common stock, which represented approximately 13.3% of the shares of Fall River Gas common stock outstanding on that date. Each of them has indicated his or her present intention to vote, or cause to be voted, the Fall River Gas common stock owned by him or her for the proposal to approve and adopt the merger agreement. Ronald J. Ferris and Barabara N. Jarabek, as trustee to The Jarabek Family Limited Partnership, entered into a voting agreement with Southern Union along with certain other stockholders of Fall River Gas, each of whom own less than 5% of the common stock of Fall River Gas. Under the terms of the voting agreement, they have agreed to vote or cause to be voted the Fall River Gas common stock owned by them for the approval and adoption of the merger agreement and they have granted Southern Union an irrevocable proxy to vote the shares of Fall River Gas common stock owned by them (see "The Fall River Gas Merger Agreement--Covenants and Other Agreements-Fall River Gas Voting Agreement"). No person or group owns of record or is known by Fall River Gas to own beneficially more than 5% of Fall River Gas's outstanding common stock, other than as set forth in the following table. SHARES OF COMMON STOCK BENEFICIALLY PERCENT NAME AND ADDRESS OF OWNED AS OF OF BENEFICIAL OWNER MAY 31, 2000 CLASS ------------------- ------------------ ------- Ronald J. Ferris 145,059 Shares (1) 6.6% 75 GAR Highway Swansea, Massachusetts Barbara N. Jarabek 295,710 Shares (2) 13.2% 103 South Washington Drive Sarasota, Florida 99 - ----------------------- (1) Includes 5,852 shares owned jointly with Dale Ferris; 4,000 shares owned jointly with children of Mr. Ferris; 36,990 shares owned by Lee's River Realty, Inc., 3,926 shares held in trusts for the children of Mr. Ferris; and 53,594 shares owned by the Swansea Lounge, Inc. Pension Trust for which Mr. Ferris is a co-trustee. Mr. Ferris has shared voting and investment power with respect to all shares beneficially owned by him except for 40,697 shares owned directly and of record by him, with respect to which he has sole voting and investment power. Mr. Ferris disclaims beneficial ownership with respect to the 3,926 shares held in trust for his children and the 53,594 shares owned by the Swansea Lounge, Inc. Pension Trust. (2) Consists of shares held in two trusts for which Barbara N. Jarabek is trustee, and with respect to which Mrs. Jarabek possesses sole power to vote and sole investment power. 100 FALL RIVER GAS MANAGEMENT OWNERSHIP The following table shows the number of shares of Fall River Gas common stock, beneficially owned, directly or indirectly, as of May 31, 2000, by individual directors and officers, and all directors and officers as a group, who held such positions as of May 31, 2000. Unless otherwise specified, shares are beneficially owned directly by the director or officer. Bradford J. Faxon, Raymond H. Faxon, Ronald J. Ferris, Cindy L.J. Audette, Thomas H. Bilodeau and Gilbert C. Oliveira, Jr., each has entered a voting agreement with Southern Union. Under the terms of the voting agreement, each has agreed to vote or cause to be voted the Fall River Gas common stock owned by him or her for the approval and adoption of the merger agreement and each has granted Southern Union an irrevocable proxy to vote the shares of Fall River Gas common stock owned by them (see "The Merger Agreement - Covenants and Other Agreements -- Fall River Gas Voting Agreement").
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT NUMBER OF SHARES OF NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS ------------------------ -------------------- ------- Bradford J. Faxon 40,306(1) 1.7 Raymond H. Faxon 57,370(2) 2.6 Ronald J. Ferris 145,059(3) 6.5 Cindy L.J. Audette 13,190(4) * Jack R. McCormick 4,901 * Donald R. Patnode 1,750 * Thomas K. Barry 2,200 * Thomas H. Bilodeau. 9,006(5) * Gilbert C. Oliveira, Jr. 12,530(6) * Peter H. Thanas 6,125(7) * Robert J. Pollock 5,140 * All directors and officers as a group (13 persons) 297,216 13.3 * Less than one percent.
- ------------------------- (1) Includes 4,952 shares held as custodian for Bradford J. Faxon's children. (2) Comprised of 57,370 shares held in trust, for which Raymond H. Faxon is a trustee. (3) Includes 5,852 shares owned jointly with Dale Ferris, 4,000 shares owned jointly with children of Mr. Ferris, 36,990 shares owned by Lee's River Realty, Inc., 3,926 shares held in trusts for the children of Mr. Ferris, and 53,594 shares owned by the Swansea Lounge, Inc. Pension Trust for which Mr. Ferris is a co-trustee. Mr. Ferris has shared voting and investment power with respect to all shares beneficially owned by him except for 40,697 shares owned directly and of record by him, with respect to which he has sole voting and investment power. Mr. Ferris disclaims beneficial ownership with respect to the 3,926 shares held in trust for his children and the 53,594 shares owned by the Swansea Lounge, Inc. Pension Trust. (4) Includes 660 shares held jointly with spouse (with shared voting and investment power). (5) Includes 7,746 shares held in trust for Thomas H. Bilodeau's children. (6) Comprised of 9,529 shares held by Mr. Oliveira's spouse as custodian for a minor child of Mr. Oliveira. (7) Includes 2,528 shares held jointly with spouse (with shared voting and investment power), 671 shares held as custodian for Mr. Thanas's minor son and 671 shares held as custodian for Mr. Thanas' minor daughter (with sole voting and investment power). 101 PROPOSALS OF STOCKHOLDERS We expect the merger to be completed before Fall River Gas would have its next annual meeting of stockholders in 2001. If the merger is not completed by then, and if a stockholder intends to present a proposal at the Fall River Gas' 2000 annual meeting of stockholders and wants that proposal to be included in the Fall River Gas' proxy statement and form of proxy for that meeting, the proposal must be received by the Office of the Clerk, Fall River Gas, 155 North Main Street, P.O. Box 911, Fall River, Massachusetts 02722-0911 by August 18, 2000. The proxies named in management's proxy for that meeting will be entitled to exercise their discretionary authority on any proposal, which a stockholder intends to present to stockholders, that was not included in the Fall River Gas' proxy statement for the 2001 annual meeting, unless Fall River Gas receives notice of the matter to be proposed before November 1, 2000. Even if proper notice is received on or prior to November 1, 2000, the proxies named in management's proxy for that meeting may nevertheless exercise their discretionary authority with respect to such matter by advising stockholders of such proposals and how they intend to exercise their discretion to vote on such matter, unless the stockholder making the proposal solicits proxies with respect to the proposal as detailed in Rule 14a-4(c)(2) of the Securities Exchange Act of 1934. OTHER MATTERS Except for the matters set forth above, the board of directors knows of no other matters which may be presented to the special meeting of stockholders, but if any other matters properly come before such meeting, it is the intention of the persons named in the accompanying form of proxy to vote such proxies in accordance with their judgment. LEGAL MATTERS The validity of the Southern Union common stock issued pursuant to this prospectus will be passed upon for Southern Union by Fleischman and Walsh L.L.P. Certain tax matters in connection with the merger will be passed upon for Southern Union by Hughes Hubbard & Reed, LLP and for Fall River Gas by Rich, May, Bilodeau & Flaherty, P.C. EXPERTS The consolidated financial statements of Southern Union for the years ended June 30, 1999, 1998 and 1997, included in its Annual Report on Form 10-K for the year ended June 30, 1999, and incorporated in this proxy statement/prospectus by reference, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The consolidated financial statements of PEI for the years ended December 31, 1998 and 1997 included in PEI's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated in this proxy statement/prospectus by reference, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 102 The consolidated financial statements and schedules of PEI for the year ended December 31, 1996 included in PEI's Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated in this proxy statement/prospectus by reference, were audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in giving said report. The consolidated financial statements and schedules of Fall River Gas incorporated by reference in this proxy statement/prospectus have been audited by Arthur Andersen LLP, independent accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The consolidated financial statements and schedules of ProvEnergy incorporated by reference in this proxy statement/prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are incorporated herein by reference to a Southern Union Current Report on Form 8-K in reliance upon the authority of said firm as experts in giving said report. The consolidated financial statements of Valley Resources for the years ended August 31, 1999, 1998 and 1997 included in Southern Union's Form 8-K filed on June 5, 2000, have been incorporated in this proxy statement/prospectus by reference to Southern Union's Current Report on Form 8-K in reliance on the report of Grant Thornton LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. OTHER BUSINESS The Fall River Gas board does not intend to bring any other business before the Fall River Gas special meeting, and, so far as is known to the Fall River Gas board, no other business is to be brought before the meeting. It is intended that proxies, in the form enclosed, will be voted in regards to any business that may properly come before the meeting in accordance with the judgment of the persons voting such proxies. All holders of common stock of Fall River Gas may obtain, without charge, a copy of Fall River Gas' Annual Report on Form 10-K for the fiscal year ended September 30, 1999, including the financial statements and schedules thereto, required to be filed with the Securities and Exchange Commission. The report will be furnished upon request made in writing to: Bradford J. Faxon, President Fall River Gas 155 North Main Street Post Office Box 911 Fall River, Massachusetts 02722-0911 PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY. By Order of the Board of Directors, 103 Robert J. Pollock, Clerk 104 APPENDIX A AGREEMENT OF MERGER BETWEEN SOUTHERN UNION COMPANY AND FALL RIVER GAS COMPANY DATED AS OF OCTOBER 4, 1999
TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . 1 Section 1.2 Other Defined Terms . . . . . . . . . . . . . . . . . . . 7 ARTICLE II THE MERGER; OTHER TRANSACTIONS. . . . . . . . . . . . . . 9 Section 2.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.2 Effective Time of the Merger. . . . . . . . . . . . . . . 9 Section 2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.4 Certificate of Incorporation; Bylaws. . . . . . . . . . . 10 Section 2.5 Directors and Officers. . . . . . . . . . . . . . . . . . 10 ARTICLE III CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . 10 Section 3.1 Effect of the Merger. . . . . . . . . . . . . . . . . . . 10 Section 3.2 Exchange of FAL Common Stock Certificates . . . . . . . . 12 Section 3.3 Dissenting Shares . . . . . . . . . . . . . . . . . . . . 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SUG . . . . . . . . . . 14 Section 4.1 Organization, Existence and Qualification . . . . . . . . 14 Section 4.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . 14 Section 4.3 Subsidiaries; Investments . . . . . . . . . . . . . . . . 15 Section 4.4 Authority Relative to this Agreement and Binding Effect . 15 Section 4.5 Governmental Approvals. . . . . . . . . . . . . . . . . . 15 Section 4.6 Public Utility Holding Company Status; Regulation as a Public Utility. . . . . . . . . . . . . . . . . . . . . . 16 Section 4.7 Compliance with Legal Requirements; Governmental Authorizations. . . . . . . . . . . . . . . . . . . . . . 16 Section 4.8 Legal Proceedings; Orders . . . . . . . . . . . . . . . . 16 Section 4.9 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.11 Intellectual Property . . . . . . . . . . . . . . . . . . 18 Section 4.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.13 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . 18 Section 4.15 Environmental Matters . . . . . . . . . . . . . . . . . . 20 Section 4.16 No Material Adverse Change. . . . . . . . . . . . . . . . 21 Section 4.17 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.18 Proxy Statement; Registration Statement . . . . . . . . . 21 A-i Section 4.19 No Vote Required. . . . . . . . . . . . . . . . . . . . . 21 Section 4.20 Disclaimer of Representations and Warranties. . . . . . . 21 ARTICLE V REPRESENTATIONS AND WARRANTIES OF FAL . . . . . . . . . . 22 Section 5.1 Organization, Existence and Qualification . . . . . . . . 22 Section 5.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . 22 Section 5.3 Subsidiaries; Investments . . . . . . . . . . . . . . . . 23 Section 5.4 Authority Relative to this Agreement and Binding Effect . 23 Section 5.5 Governmental Approvals. . . . . . . . . . . . . . . . . . 23 Section 5.6 Public Utility Holding Company Status; Regulation as a Public Utility. . . . . . . . . . . . . . . . . . . . . . 23 Section 5.7 Compliance with Legal Requirements; Governmental Authorizations. . . . . . . . . . . . . . . . . . . . . . 24 Section 5.8 Legal Proceedings; Orders . . . . . . . . . . . . . . . . 24 Section 5.9 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 24 Section 5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 5.11 Intellectual Property . . . . . . . . . . . . . . . . . . 25 Section 5.12 Title to Assets . . . . . . . . . . . . . . . . . . . . . 25 Section 5.13 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.14 Machinery and Equipment . . . . . . . . . . . . . . . . . 26 Section 5.15 Applicable Contracts. . . . . . . . . . . . . . . . . . . 26 Section 5.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5.17 Employees . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 5.18 Employee Benefit Plans. . . . . . . . . . . . . . . . . . 27 Section 5.19 Environmental Matters . . . . . . . . . . . . . . . . . . 30 Section 5.20 No Material Adverse Change. . . . . . . . . . . . . . . . 30 Section 5.21 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 5.22 Regulatory Proceedings. . . . . . . . . . . . . . . . . . 31 Section 5.23 Proxy Statement; Registration Statement . . . . . . . . . 31 Section 5.24 Vote Required . . . . . . . . . . . . . . . . . . . . . . 31 Section 5.25 Opinion of Financial Advisor. . . . . . . . . . . . . . . 31 Section 5.26 Disclaimer of Representations and Warranties. . . . . . . 31 ARTICLE VI COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 6.1 Covenants of FAL. . . . . . . . . . . . . . . . . . . . . 32 (a) Conduct of the Business Prior to the Closing Date . . . . 32 (b) Customer Notifications. . . . . . . . . . . . . . . . . . 34 (c) Access to the Acquired Companies' Offices, Properties and Records; Updating Information . . . . . . . . . . . . 34 (d) Governmental Approvals; Third Party Consents. . . . . . . 35 (e) Dividends . . . . . . . . . . . . . . . . . . . . . . . . 35 (f) Issuance of Securities. . . . . . . . . . . . . . . . . . 36 (h) No Shopping . . . . . . . . . . . . . . . . . . . . . . . 36 (i) Solicitation of Proxies; FAL Proxy Statement. . . . . . . 38 (j) FAL Stockholders' Approval. . . . . . . . . . . . . . . . 38 (k) Rule 145 Letters. . . . . . . . . . . . . . . . . . . . . 39 (l) Financing Activities. . . . . . . . . . . . . . . . . . . 39 A-ii (m) FAL Disclosure Schedule . . . . . . . . . . . . . . . . . 39 (n) FAL Bondholders' Consent. . . . . . . . . . . . . . . . . 39 Section 6.2 Covenants of SUG. . . . . . . . . . . . . . . . . . . . . 40 (a) Governmental Approvals; Third Party Consents. . . . . . . 40 (b) Employees; Benefits . . . . . . . . . . . . . . . . . . . 40 (c) Blue Sky Permits. . . . . . . . . . . . . . . . . . . . . 40 (d) Listing Application . . . . . . . . . . . . . . . . . . . 40 (e) Collective Bargaining Agreements. . . . . . . . . . . . . 41 (f) SUG Disclosure Schedule . . . . . . . . . . . . . . . . . 41 (g) Conduct of the Business Prior to the Closing Date . . . . 41 (h) Access to SUG's Offices, Properties and Records; Updating Information . . . . . . . . . . . . . . . . . . . . . . . 41 Section 6.3 Additional Agreements . . . . . . . . . . . . . . . . . . 42 (a) The Registration Statement and the FAL Proxy Statement. . 42 (b) Further Assurances. . . . . . . . . . . . . . . . . . . . 43 (c) Financial Statements to be Provided . . . . . . . . . . . 43 ARTICLE VII CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . 43 Section 7.1 Conditions to SUG's Obligation to Effect the Merger . . . 43 (a) Representations and Warranties True as of the Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 (b) Compliance with Agreements. . . . . . . . . . . . . . . . 43 (c) Certificate . . . . . . . . . . . . . . . . . . . . . . . 44 (d) Governmental Approvals. . . . . . . . . . . . . . . . . . 44 (e) Third Party Consents. . . . . . . . . . . . . . . . . . . 44 (f) Injunctions . . . . . . . . . . . . . . . . . . . . . . . 44 (g) Resignations. . . . . . . . . . . . . . . . . . . . . . . 44 (h) Opinion of Tax Counsel. . . . . . . . . . . . . . . . . . 44 (i) FAL Stockholders' Approval. . . . . . . . . . . . . . . . 44 (j) Appraisal Rights. . . . . . . . . . . . . . . . . . . . . 45 (k) Rule 145 Letters. . . . . . . . . . . . . . . . . . . . . 45 (l) Registration Statement. . . . . . . . . . . . . . . . . . 45 (m) Listing of SUG Common Stock . . . . . . . . . . . . . . . 45 (n) FAL Bondholders' Consent. . . . . . . . . . . . . . . . . 45 Section 7.2 Conditions to FAL's Obligations to Effect the Merger. . . 45 (a) Representations and Warranties True as of the Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 45 (b) Compliance with Agreements. . . . . . . . . . . . . . . . 45 (c) Certificate . . . . . . . . . . . . . . . . . . . . . . . 45 (d) Governmental Approvals. . . . . . . . . . . . . . . . . . 45 (e) Injunctions . . . . . . . . . . . . . . . . . . . . . . . 46 (f) Opinion of Counsel. . . . . . . . . . . . . . . . . . . . 46 (g) FAL Stockholders' Approval. . . . . . . . . . . . . . . . 46 (h) Registration Statement. . . . . . . . . . . . . . . . . . 46 (i) Listing of SUG Common Stock . . . . . . . . . . . . . . . 46 ARTICLE VIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 46 A-iii Section 8.1 Termination Rights. . . . . . . . . . . . . . . . . . . . 46 Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . 47 Section 8.3 Termination Fee; Expenses . . . . . . . . . . . . . . . . 48 (a) Termination Fee . . . . . . . . . . . . . . . . . . . . . 48 (b) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE IX INDEMNIFICATION; REMEDIES . . . . . . . . . . . . . . . . 48 Section 9.1 Directors' and Officers' Indemnification. . . . . . . . . 48 (a) Indemnification and Insurance . . . . . . . . . . . . . . 48 (b) Successors. . . . . . . . . . . . . . . . . . . . . . . . 49 (c) Survival of Indemnification . . . . . . . . . . . . . . . 49 Section 9.2 Representations and Warranties. . . . . . . . . . . . . . 49 ARTICLE X GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 49 Section 10.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 10.3 Assignment. . . . . . . . . . . . . . . . . . . . . . . . 51 Section 10.4 Successor Bound . . . . . . . . . . . . . . . . . . . . . 51 Section 10.5 Governing Law; Forum; Consent to Jurisdiction . . . . . . 51 Section 10.6 Waiver of Trial By Jury . . . . . . . . . . . . . . . . . 51 Section 10.7 Cooperation; Further Documents. . . . . . . . . . . . . . 52 Section 10.8 Construction of Agreement . . . . . . . . . . . . . . . . 52 Section 10.9 Publicity; Organizational and Operational Announcements . 52 Section 10.10 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 10.11 Parties in Interest . . . . . . . . . . . . . . . . . . . 53 Section 10.12 Specific Performance. . . . . . . . . . . . . . . . . . . 53 Section 10.13 Section and Paragraph Headings. . . . . . . . . . . . . . 53 Section 10.14 Amendment . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 10.15 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 53 Section 10.16 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 53
A-iv TABLE OF CONTENTS (Continued) DISCLOSURE SCHEDULES: FAL Disclosure Schedule SUG Disclosure Schedule A-v AGREEMENT OF MERGER This AGREEMENT OF MERGER (this "Agreement") is made as of the 4th day of October, 1999, by and between SOUTHERN UNION COMPANY, a Delaware corporation ("SUG"), and FALL RIVER GAS COMPANY, a Massachusetts corporation ("FAL"). RECITALS WHEREAS, the Board of Directors of each of SUG and FAL has approved and deems it advisable and in the best interests of their respective stockholders to consummate the merger of FAL with and into SUG upon the terms and subject to the conditions set forth herein; and WHEREAS, in furtherance thereof, the Board of Directors of each of SUG and FAL has approved this Agreement and the merger of FAL with and into SUG, with SUG being the surviving corporation (the "Merger"); NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, SUG and FAL hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 CERTAIN DEFINED TERMS. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Article I (such definitions to be equally applicable to both the singular and plural forms of the terms defined): "ACQUIRED COMPANIES"--FAL and its Subsidiaries, collectively, and each, an "Acquired Company." "AFFILIATE"--with respect to any Person, any other Person that directly, or through one or more intermediaries, controls or is controlled by or is under common control with such first Person. As used in this definition, "control" (including with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). "APPLICABLE CONTRACT"--any Contract (a) under which any Acquired Company has any rights, (b) under which any Acquired Company has any obligation or liability, or (c) by which any Acquired Company or any of the assets owned or used by it is bound. "AVERAGE TRADING PRICE"--of SUG Common Stock, as of any date, will equal the average of the reported closing market prices of such stock for the ten consecutive trading days ending on the third trading day prior to such date (counting from and including the trading day immediately preceding such date). The closing market price for each day in question will be the last sale price, regular way or, if no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system of the principal national securities exchange on which SUG Common Stock is listed or admitted to trading. A-1 "CERCLA"--the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CLOSING DATE"--the date on which the Closing actually takes place. "CONTRACT"--any agreement, contract, document, instrument, obligation, promise or undertaking (whether written or oral) that is legally binding. "DGCL"--the Delaware General Corporation Law. "ENCUMBRANCE"--any charge, adverse claim, lien, mortgage, pledge, security interest or other encumbrance. "ENVIRONMENT"--soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to: (a) advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment; (b) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; (c) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; (d) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful; or (e) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets or for damages to natural resources. "ERISA"--the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and regulations and rules issued pursuant to that act or any successor law. "EXCHANGE ACT"--the Securities Exchange Act of 1934, as amended, or any successor law, and regulations and rules issued by the SEC pursuant to that act or any successor law. A-2 "FACILITIES"--any real property, leaseholds, or other interests currently or formerly owned or operated by any Acquired Company and any buildings, plants, structures, or equipment (including motor vehicles, tank cars, and rolling stock) currently or formerly owned or operated by any Acquired Company. "FAL BALANCE SHEET"--the audited consolidated balance sheet of the Acquired Companies at September 30, 1998 (including the notes thereto), provided by FAL to SUG as part of the FAL Financial Statements. "FAL COMMON STOCK"--the common stock, par value $.831/3 per share, of FAL. "FAL DISCLOSURE SCHEDULE"--the disclosure schedule delivered by FAL to SUG concurrently with the execution and delivery of this Agreement. "FAL MATERIAL ADVERSE EFFECT"--a material adverse effect (i) on the business, operations, financial condition or results of operations of FAL and its Subsidiaries, taken as a whole, or (ii) on the ability of FAL and its Subsidiaries to consummate the Merger in accordance with this Agreement. "FAL PERMITTED LIENS"--Encumbrances securing Taxes, assessments, governmental charges or levies, or the claims of materialmen, mechanics, carriers and like persons, all of which are not yet due and payable or which are being contested in good faith; Encumbrances (other than any Encumbrance imposed by ERISA) incurred on deposits made in the Ordinary Course of Business in connection with worker's compensation, unemployment insurance or other types of social security; the Encumbrances created by the Indenture of First Mortgage, dated as of December 1, 1952, between FAL and State Street Bank and Trust Company, successor in interest to the First National Bank of Boston, successor by merger to Old Colony Trust Company, as Trustee, as amended or supplemented from time to time; in the case of leased real property, Encumbrances (not attributable to an Acquired Company as lessee) affecting the landlord's (and any underlying landlord's) interest in any leased real property; and such other Encumbrances which are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. "FINAL ORDER"--an action by a Governmental Body as to which: (a) no request for stay of the action is pending, no such stay is in effect and if any time period is permitted by statute or regulation for filing any request for such stay, such time period has passed; (b) no petition for rehearing, reconsideration or application for review of the action is pending and the time for filing any such petition or application has passed; (c) such Governmental Body does not have the action under reconsideration on its own motion and the time in which such reconsideration is permitted has passed; and (d) no appeal to a court, or a request for stay by a court of the Governmental Body's action is pending or in effect and the deadline for filing any such appeal or request has passed. "GAAP"--generally accepted United States accounting principles, applied on a consistent basis. "GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, franchise, certificate of public convenience and necessity, permit, waiver or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "GOVERNMENTAL BODY"--any: A-3 (a) nation, state, county, city, town, village, district or other jurisdiction of any nature; (b) federal, state, county, local, municipal or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal); or (d) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. "HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities or any part thereof into the Environment, any other act, business, operation, or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property on or off the Facilities, or that may affect the value of the Facilities or the Acquired Companies. "HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials. "HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any successor law, and regulations and rules issued by the U.S. Department of Justice or the Federal Trade Commission pursuant to that act or any successor law. "IRC"--the Internal Revenue Code of 1986, as amended. "IRS"--the Internal Revenue Service or any successor agency. "KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular fact or other matter if such individual is actually aware of such fact or other matter. A Person (other than an individual) will be deemed to have "Knowledge" of a particular fact or other matter if any individual who is serving as a director or officer of such Person or any material Subsidiary of it or other management employee with direct responsibility for such particular fact or other matter of such Person or any material Subsidiary of it (or in any similar capacity) has actual knowledge of such fact or other matter. "LEGAL REQUIREMENT"--any federal, state, county, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, rule, tariff, franchise agreement, statute or treaty. "MATERIAL CONTRACT"--a Contract involving a total commitment by or to any party thereto of at least $65,000 on an annual basis or at least $250,000 on its remaining term which cannot be terminated on no more than sixty (60) days' notice without penalty or additional cost to the Acquired Company as the terminating party. A-4 "MBCL"--the Massachusetts Business Corporation Law. "ORDER"--any award, decision, decree, injunction, judgment, order, writ, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (a) such action and authorization therefor is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; and (b) such action is not required by law to be authorized by the board of directors (or similar authority) of such Person or of such Person's parent company (if any). "ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation or organization and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the certificate of formation and the members, operating or similar agreement of a limited liability company; (e) any charter or similar document adopted or filed in connection with the creation, formation or organization of a Person; and (f) any amendment to any of the foregoing. "PERSON"--any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, organized group of persons, entity of any other type, or Governmental Body. "PROCEEDING"--any action, arbitration, hearing, litigation or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PUHCA"--the Public Utility Holding Company Act of 1935, as amended, or any successor law, and regulations and rules issued by the SEC pursuant to that act or any successor law. "RELATED DOCUMENTS"--any Contract provided for in this Agreement to be entered into by one or more of the parties hereto or their respective Subsidiaries in connection with the Merger. "RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional. "REPRESENTATIVE"--with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "SEC"--the United States Securities and Exchange Commission or any successor agency. A-5 "SECURITIES ACT"--the Securities Act of 1933, as amended, or any successor law, and regulations and rules issued by the SEC pursuant to that act or any successor law. "SUBSIDIARY"--with respect to any Person (the "Owner"), any Person of which securities or other interests having the power to elect a majority of that other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries; when used without reference to a particular Person, "Subsidiary" means a Subsidiary of FAL. "SUG BALANCE SHEET"--the audited consolidated balance sheet of SUG at June 30, 1999 (including the notes thereto), provided by SUG to FAL as part of the SUG Financial Statements. "SUG COMMON STOCK"--the common stock, par value $1.00 per share, of SUG. "SUG DISCLOSURE SCHEDULE"--the disclosure schedule delivered by SUG to FAL concurrently with the execution and delivery of this Agreement. "SUG MATERIAL ADVERSE EFFECT"--a material adverse effect (i) on the business, operations, financial condition or results of operations of SUG and its Subsidiaries, taken as a whole, or (ii) on the ability of SUG to consummate the Merger in accordance with this Agreement. "TAX"--any tax (including any income tax, capital gains tax, value-added tax, sales and use tax, franchise tax, payroll tax, withholding tax or property tax), levy, assessment, tariff, duty (including any customs duty), deficiency, franchise fee or payment, payroll tax, utility tax, gross receipts tax or other fee or payment, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the authority of any Governmental Body or payable pursuant to any tax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency or fee. "TAX RETURN"--any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "THREATENED"--a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if any other event has occurred or any other circumstance exists, that would lead a director, officer or management employee of a comparable gas distribution company to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken or otherwise pursued in the future. SECTION 1.2 OTHER DEFINED TERMS. In addition to the terms defined in Section 1.1, certain other terms are defined elsewhere in this Agreement as indicated below and, whenever such terms are used in this Agreement, they shall have their respective defined meanings. A-6
TERM SECTION ---- ------- Agreement Introductory Paragraph Business Combination 6.1(h)(4) Cash Consideration 3.1(a) Cash Election 3.1(b) Cash Election Number 3.1(b) Cash Election Shares 3.1(c) Cash Fraction 3.1(c) Certificates 3.2(c) Closing 2.3 Confidentiality Agreement 6.1(c)(1) Dissenting Shares 3.3 Effective Time 2.2 Election Deadline 3.2(b) Employees 6.2(b) Exchange Ratio 3.1(a) FAL Introductory Paragraph FAL Benefit Plans 5.18(a) FAL Commonly Controlled Entity 5.18(e) FAL Financial Statements 5.9 FAL Meeting 6.1(j)(1) FAL Proxy Statement 4.18 FAL SEC Documents 5.9 FAL Stockholders' Approval 5.24 Form of Election 3.2(b) Indemnified Parties 9.1(a) Initial Termination Date 8.1(k) Maximum Value 3.1(a) A-7 Merger Recitals Merger Consideration 3.1(a) Minimum Value 3.1(a) NYSE 3.1(e) Paying Agent 3.2(a) PBGC 4.14(b) PEI 4.2 PEI Merger Agreement 4.2 Registration Statement 4.18 Rule 145 Affiliates 6.1(k) Rule 145 Letters 6.1(k) Stock Consideration 3.1(a) SUG Introductory Paragraph SUG Benefit Plans 4.14(a) SUG Commonly Controlled Entity 4.14(d) SUG Financial Statements 4.9 SUG SEC Documents 4.9 Superior Proposal 6.1(h)(4) Surviving Corporation 2.1 Third Party Beneficiary 10.11 Total Consideration 3.1(e)
ARTICLE II THE MERGER; OTHER TRANSACTIONS SECTION 2.1 THE MERGER. Upon the terms and subject to the conditions of this Agreement, at the Effective Time, FAL will be merged with and into SUG in accordance with the laws of the State of Delaware and the Commonwealth of Massachusetts. SUG will be the surviving corporation in the Merger (the "Surviving Corporation") and will continue its corporate existence under the laws of the State of Delaware. The Merger will have the effect as provided in the applicable provisions of the DGCL and the MBCL. Without limiting the generality of the foregoing, upon the Merger, all the rights, privileges, immunities, powers and franchises of FAL and SUG will vest in the Surviving Corporation and all A-8 obligations, duties, debts and liabilities of FAL and SUG will be the obligations, duties, debts and liabilities of the Surviving Corporation. SECTION 2.2 EFFECTIVE TIME OF THE MERGER. On the Closing Date, with respect to the Merger, (i) a duly executed certificate of merger complying with the requirements of the DGCL will be executed and filed with the Secretary of State of the State of Delaware and (ii) duly executed articles of merger complying with the requirements of the MBCL will be filed with the Secretary of State of the Commonwealth of Massachusetts. The Merger will become effective upon filing the certificate of merger with the Secretary of State of the State of Delaware and the articles of merger with the Secretary of State of the Commonwealth of Massachusetts (the "Effective Time"). SECTION 2.3 CLOSING. Unless this Agreement has been terminated and the transactions contemplated herein have been abandoned pursuant to Article VIII hereof, the closing of the transactions contemplated by this Agreement (the "Closing") will take place at 10:00 a.m., Eastern Time, on the Closing Date to be specified by the parties, which shall be no later than the tenth business day after satisfaction or waiver of all of the conditions set forth in Article VII hereof (other than Sections 7.1(a), 7.1(b), 7.1(c), 7.1(f), 7.1(g), 7.1(h), 7.1(k), 7.1(l), 7.2(a), 7.2(b), 7.2(c), 7.2(e), 7.2(f) and 7.2(h), which shall be satisfied or waived on the Closing Date) at the offices of Hughes Hubbard & Reed LLP, New York, counsel to SUG, unless another date or place is agreed to in writing by the parties hereto. SECTION 2.4 CERTIFICATE OF INCORPORATION; BYLAWS. Pursuant to the Merger, the Restated Certificate of Incorporation of SUG, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and (ii) the bylaws of SUG as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended as provided by law. SECTION 2.5 DIRECTORS AND OFFICERS. The directors and officers of SUG immediately prior to the Effective Time will be the directors and officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and bylaws of the Surviving Corporation. ARTICLE III CONVERSION OF SHARES SECTION 3.1 EFFECT OF THE MERGER. As of the Effective Time, by virtue of the Merger and without any action on the part of the holders of any shares of FAL Common Stock: (a) Each issued and outstanding share of FAL Common Stock (other than Dissenting Shares) will be converted into the right of each holder thereof to receive (i) that number of fully paid and nonassessable shares of SUG Common Stock (the "Stock Consideration") equal to $23.50 divided by the Exchange Ratio rounded to the nearest hundred-thousandth or (ii) upon a valid Cash Election as provided in Section 3.1(b), $23.50 in cash (the "Cash Consideration"), subject to the limitations set forth in Section 3.1(b), 3.1(c), and 3.1(e). In the case of the consideration to be received by the holders of FAL Common Stock in the aggregate, "Merger Consideration" shall mean the Cash Consideration together with the Stock Consideration. In the case of the consideration to be received by an individual holder of FAL Common Stock, "Merger Consideration" shall mean the Cash Consideration and/or the Stock Consideration to be received by such holder, as the case may be. A-9 "Exchange Ratio" shall mean the Average Trading Price of SUG Common Stock as of the Closing Date. Notwithstanding the foregoing, if the Exchange Ratio as calculated pursuant to the preceding sentence and without regard to this sentence (i) is less than the Minimum Value, then the Exchange Ratio will be equal to the "Minimum Value," or (ii) is greater than the "Maximum Value," then the Exchange Ratio will be equal to the "Maximum Value." "Minimum Value" will be $16.875 and "Maximum Value" will be $19.6875. (b) Subject to the immediately following sentence and to Section 3.1(c) and 3.1(e), each record holder of shares of FAL Common Stock immediately prior to the Effective Time shall be entitled to elect to receive cash for all or any part of such shares of FAL Common Stock (a "Cash Election"). Notwithstanding the foregoing, the aggregate number of shares of FAL Common Stock that may be converted into the right to receive cash consideration shall not exceed the Cash Election Number. To the extent not covered by a properly given Cash Election, all shares of FAL Common Stock issued and outstanding immediately prior to the Effective Time shall, except as provided in Section 3.1(g), be converted solely into shares of SUG Common Stock. "Cash Election Number" shall equal, subject to reduction pursuant to Section 3.1(e), the amount by which (i) 50% of the number of shares of FAL Common Stock outstanding immediately prior to the Effective Time, exceeds (ii) the sum of (a) the number of shares of FAL Common Stock to be exchanged for cash in lieu of fractional shares pursuant to Section 3.1(g), and (b) the number of Dissenting Shares. (c) If the aggregate number of shares of FAL Common Stock covered by Cash Elections (the "Cash Election Shares") exceeds the Cash Election Number, each Cash Election Share shall be converted into (i) the right to receive an amount in cash, without interest, equal to the product of (a) $23.50 and (b) a fraction (the "Cash Fraction"), the numerator of which shall be the Cash Election Number and the denominator of which shall be the total number of Cash Election Shares, and (ii) a number of shares of SUG Common Stock equal to the product of (a) $23.50 divided by the Exchange Ratio and (b) a fraction equal to one minus the Cash Fraction. (d) SUG will make all computations to give effect to this Section 3.1. (e) If, after having made the calculation under Section 3.1(b), the value of the SUG Common Stock (excluding fractional shares to be paid in cash) to be issued in the Merger, valued at the lesser of the Average Trading Price as of the Closing Date and the closing price of SUG Common Stock on the last trading day before the Closing Date (or, if determined to be more appropriate to ensure the status of the Merger as a reorganization under Section 368(a)(1)(A) of the IRC, the trading price as of the time of the Closing), as reported on the New York Stock Exchange ("NYSE"), is less than 50% of the total consideration to be paid in exchange for the shares of FAL Common Stock (including, without limitation, the amount of cash to be paid in lieu of fractional shares and treating any Dissenting Shares as having been exchanged for the Cash Consideration) (the "Total Consideration"), then the Cash Election Number shall be reduced to the extent necessary so that the value of the SUG Common Stock to be issued in the Merger (as determined above) is 50% of the Total Consideration. A-10 (f) Each holder of FAL Common Stock shall surrender all such holder's certificates formerly representing ownership of FAL Common Stock in the manner provided in Section 3.2. All such shares of FAL Common Stock, when so converted, shall no longer be outstanding and shall be canceled and automatically converted into the right to receive the Merger Consideration (and cash in lieu of fractional shares) therefor upon the surrender of such certificate in accordance with Section 3.2. Any payment made pursuant to this Section 3.1 shall be made net of applicable withholding taxes to the extent such withholding is required by law. (g) No fractional share of SUG Common Stock shall be issued in connection with the Merger. Each holder of shares of FAL Common Stock shall be entitled to receive in lieu of any fractional share of SUG Common Stock to which such holder otherwise would have been entitled pursuant to this Section 3.1 (after taking into account all shares of FAL Common Stock then held of record by such holder) a cash payment in an amount equal to the product of (i) the fractional interest of a share of SUG Common Stock to which such holder otherwise would have been entitled and (ii) the closing price of a share of SUG Common Stock on the NYSE on the trading day immediately prior to the Effective Time. Payment of such amounts shall be made by SUG. SECTION 3.2 EXCHANGE OF FAL COMMON STOCK CERTIFICATES. (a) SUG's registrar and transfer agent, or such other bank or trust company as may be selected by SUG and be reasonably acceptable to FAL, will act as paying agent ("Paying Agent") for the holders of FAL Common Stock in connection with the Merger, pursuant to an agreement providing for the matters set forth in this Section 3.2 and such other matters as may be appropriate and the terms of which shall be reasonably satisfactory to SUG and FAL. (b) (i) Not fewer than 15 business days prior to the Closing Date, SUG will cause the Paying Agent to mail a form of election (the "Form of Election") to holders of record of shares of FAL Common Stock (as of a record date as close as practicable to the date of mailing). In addition, the Paying Agent will use its reasonable efforts to make the Form of Election available to the Persons who become stockholders of FAL during the period between such record date and the Election Deadline. Any election to receive Cash Consideration contemplated by Section 3.1(b) will have been properly made only if the Paying Agent shall have received at its designated office or offices, by 4:00 p.m., Eastern Time, on the third business day prior to the Closing Date (the "Election Deadline"), a Form of Election properly completed, as set forth in such Form of Election. An election may be revoked only by written notice received by the Paying Agent prior to the Election Deadline. In addition, all elections shall automatically be revoked if the Paying Agent is notified by SUG and FAL that the Merger has been abandoned. SUG shall have the discretion, which it may delegate in whole or in part to the Paying Agent, to determine whether Forms of Election have been properly completed, signed and submitted or revoked pursuant to this Section 3.2(b), and to disregard immaterial defects in Forms of Election. The decision of SUG (or the Paying Agent, as the case may be) in such matters shall be conclusive and binding. (c) At the Effective Time of the Merger, SUG will instruct the Paying Agent to promptly, and in any event not later than three (3) business days following the Effective Time, mail (and to make available for collection by hand) to each holder of record of a certificate or certificates, which immediately prior to the Effective Time represented outstanding shares of FAL Common Stock (the A-11 "Certificates"), whose shares of FAL Common Stock were converted pursuant to Section 3.1(a) into the right to receive the Merger Consideration (and cash in lieu of fractional shares) (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in such form and have such other provisions as SUG may reasonably specify) and (ii) instructions (which shall provide that at the election of the surrendering holder Certificates may be surrendered, and payment therefor collected, by hand delivery) for use in effecting the surrender of the Certificates in exchange for payment of the Merger Consideration (and cash in lieu of fractional shares). Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by SUG, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each share of FAL Common Stock formerly represented by such Certificate (and cash in lieu of fractional shares), to be mailed (or made available for collection by hand if so elected by the surrendering holder) within three (3) business days of receipt thereof, and the Certificate so surrendered shall forthwith be canceled. If payment of the Merger Consideration (and cash in lieu of fractional shares) is to be made to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the Person requesting such payment shall have paid any transfer and other Taxes required by reason of the payment of the Merger Consideration (and cash in lieu of fractional shares) to a Person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction f the Surviving Corporation that such Tax either has been paid or is not applicable. Until surrendered as contemplated by this Section 3.2, each Certificate (other than Certificates representing FAL Common Stock held by SUG or Dissenting Shares) shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration (and cash in lieu of fractional shares) as contemplated by this Section 3.2. (d) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration (and cash in lieu of fractional shares) deliverable in respect thereof as determined in accordance with this Article III, PROVIDED THAT the Person to whom the Merger Consideration (and cash in lieu of fractional shares) is paid shall, as a condition precedent to the payment thereof, give the Paying Agent a bond in such sum as it may ordinarily require and indemnify the Surviving Corporation in a manner satisfactory to it against any claim that may be made against the Surviving Corporation with respect to the Certificate claimed to have been lost, stolen or destroyed. (e) After the Effective Time, the stock transfer books of FAL shall be closed and there shall be no transfers on the stock transfer books of the Surviving Corporation of shares of FAL Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration (and cash in lieu of fractional shares) as provided in this Article III. (f) The Surviving Corporation shall not be liable to any holder of FAL Common Stock for Merger Consideration (and cash in lieu of fractional shares) delivered to a public official pursuant to any applicable abandonment, escheat or similar law. Any amounts remaining unclaimed by holders of any such shares of FAL Common Stock seven years after the Effective Time (or such earlier date immediately prior A-12 to the time at which such amounts would otherwise escheat to or become property of any Governmental Body) shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of any claims or interest of any such holders or their successors, assigns or personal representatives previously entitled thereto. SECTION 3.3 DISSENTING SHARES. Notwithstanding any provision of this Agreement to the contrary, the shares of any holder of FAL Common Stock who has demanded and perfected appraisal rights for such shares in accordance with the MBCL and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be converted into or represent a right to receive the Merger Consideration (and cash in lieu of fractional shares) pursuant to Section 3.1, but the holder thereof shall only be entitled to such rights as are granted by the MBCL. Notwithstanding the foregoing, if any holder of shares of FAL Common Stock who demands appraisal of such shares under the MBCL shall effectively withdraw the request for appraisal or lose the right to appraisal, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive the Merger Consideration and cash in lieu of fractional shares, without interest thereon, upon surrender of the certificate representing such shares. FAL shall give SUG prompt notice of any demands received by FAL for appraisal of FAL Common Stock, and, prior to the Effective Time, SUG shall have the right to participate in all negotiations and proceedings with respect to such demands. Prior to the Effective Time, FAL shall not, except with the prior written consent of SUG, make any payment with respect to or offer to settle, any such demands. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SUG SUG, as to SUG and its Subsidiaries, represents and warrants to FAL that: SECTION 4.1 ORGANIZATION, EXISTENCE AND QUALIFICATION. SUG is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, to perform its obligations under all Contracts to which it is a party, and to execute and deliver this Agreement. SUG is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the business conducted by it, requires such qualification as a foreign corporation except for such failures to be so qualified or in good standing as are not, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. SECTION 4.2 CAPITALIZATION. As of the date of this Agreement, the authorized capital stock of SUG consists of (i) 50,000,000 shares of SUG Common Stock, of which 31,288,321 shares were issued and 31,236,696 were outstanding on September 30, 1999, and (ii) 1,500,000 shares of Cumulative Preferred Stock, no par value, none of which are issued or outstanding. The issued and outstanding shares of SUG Common Stock have been validly issued and are fully paid and nonassessable. The shares of SUG Common Stock to be issued as the Merger Consideration have been duly authorized and when issued and delivered in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable and the issuance thereof is not subject to any preemptive or other similar right. Except as specifically described in the SUG SEC Documents delivered to FAL prior to the date of this Agreement, as of the date of this Agreement, no shares of SUG Common Stock are held, in treasury or otherwise, by SUG A-13 or any of its Subsidiaries and except as set forth in Section 4.2 of the SUG Disclosure Schedule, as of the date of this Agreement, there are no outstanding (i) securities convertible into SUG Common Stock or other capital stock of SUG or any of its material Subsidiaries, (ii) warrants or options to purchase SUG Common Stock or other securities of SUG or any of its material Subsidiaries or (iii) commitments to issue shares of SUG Common Stock (other than pursuant to the Merger and other than pursuant to the Agreement of Merger, dated as of June 7, 1999 (the "PEI Merger Agreement"), by and between SUG and Pennsylvania Enterprises, Inc. ("PEI")) or other securities of SUG or any of its material Subsidiaries. SECTION 4.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in Section 4.3 of the SUG Disclosure Schedule, as of the date of this Agreement, SUG has no Subsidiaries or investments in any Person except for marketable securities reflected in the SUG SEC Documents delivered to FAL prior to the date of this Agreement, and SUG is the registered owner and holder of all of the issued and outstanding shares of capital stock of its Subsidiaries and has good title to such shares. The outstanding capital stock of each material Subsidiary of SUG has been validly issued and is fully paid and nonassessable. SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT AND BINDING EFFECT. The execution, delivery and performance of this Agreement and the Related Documents by SUG have been duly authorized by all requisite corporate action. The execution, delivery and performance of this Agreement and the Related Documents by SUG will not result in a violation or breach of any term or provision of, constitute a default, or require a consent, approval or notification, or accelerate the performance required under, the Organizational Documents of SUG, any indenture, mortgage, deed of trust, security agreement, loan agreement, or other Contract to which SUG is a party or by which its assets are bound, or violate any Order, with such exceptions as are not, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. This Agreement constitutes and the Related Documents to be executed by SUG when executed and delivered will constitute valid and binding obligations of SUG, enforceable against SUG in accordance with their terms, except as enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. SECTION 4.5 GOVERNMENTAL APPROVALS. Except as set forth in Section 4.5 of the SUG Disclosure Schedule and as required by the HSR Act, no approval or authorization of any Governmental Body with respect to performance under this Agreement or the Related Documents by SUG is required to be obtained by SUG in connection with the execution and delivery by SUG of this Agreement or the Related Documents or the consummation by SUG of the transactions contemplated hereby or thereby, the failure to obtain which are, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. SECTION 4.6 PUBLIC UTILITY HOLDING COMPANY STATUS; REGULATION AS A PUBLIC UTILITY. SUG is a "gas utility company" (as such term is defined in PUHCA). SUG indirectly owns a minority interest in a "foreign utility company" (as such term is defined in PUHCA) that is exempt from, and is deemed not to be a public utility company for purposes of, PUHCA pursuant to Section 33 thereof with respect to which SUG has filed with the SEC a Form U-57 notification of foreign utility company status. Except as stated above in this Section 4.6, neither SUG nor any of its Subsidiaries is a "holding company," a "subsidiary company," a "public utility company" or an "affiliate" of a "public utility company," or a "holding company" within the meaning of such terms in PUHCA. SECTION 4.7 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. A-14 (a) Except as set forth in Section 4.7 of the SUG Disclosure Schedule or specifically described in the SUG SEC Documents delivered to FAL prior to the date of this Agreement, and subject to Section 4.15 of this Agreement, to the Knowledge of SUG, SUG is not in violation of any Legal Requirement that is applicable to it, to the conduct or operation of its business, or to the ownership or use of any of its assets, other than such violations, if any, which are not, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. (b) The SUG SEC Documents delivered to FAL prior to the date of this Agreement accurately describe all material regulation of SUG that relates to the utility business of SUG as of the date of this Agreement. Except as set forth in Section 4.7 of the SUG Disclosure Schedule, SUG has, and is in material compliance with, all material Governmental Authorizations necessary to conduct its business and to own, operate and use all of its assets as currently conducted. SECTION 4.8 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Section 4.8 of the SUG Disclosure Schedule or as specifically described in the SUG SEC Documents delivered to FAL prior to the date of this Agreement, there is no pending Proceeding: (1) that has been commenced by or against, or that otherwise relates to, SUG or, if the merger with PEI is consummated, PEI, that is reasonably likely to have a SUG Material Adverse Effect; or (2) as of the date of this Agreement, that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, the Merger or any of the transactions contemplated hereby. To the Knowledge of SUG, no such Proceedings, audits or investigations have been Threatened that are, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. As of the date of this Agreement, SUG is not subject to any Orders that are, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. SECTION 4.9 SEC DOCUMENTS. SUG has made (and, with respect to such documents filed after the date hereof through the Closing Date, will make) available to FAL a true and complete copy of each report, schedule, registration statement (other than on Form S-8), and definitive proxy statement filed by SUG with the SEC since September 16, 1999 and through the Closing Date in substantially the form filed with the SEC (the "SUG SEC Documents"). As of their respective dates, the SUG SEC Documents, including without limitation any financial statements or schedules included therein, complied (or will comply), in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such SUG SEC Documents, and did not (or will not) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of SUG included in the SUG SEC Documents (collectively, the "SUG Financial Statements") were (or will be) prepared in accordance with GAAP applied on a consistent basis (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q) and fairly present (or will fairly present) in all material respects the financial position of A-15 SUG as of the respective dates thereof or the results of operations and cash flows for the respective periods then ended, as the case may be, subject, in the case of unaudited interim financial statements, to normal, recurring adjustments which are not material in the aggregate. SECTION 4.10 TAXES. Except as set forth in Section 4.10 of the SUG Disclosure Schedule: (a) SUG and its Subsidiaries have timely filed all United States federal, state and local income Tax Returns required to be filed by or with respect to them or requests for extensions to file such Tax Returns have been timely filed, granted and have not expired, and SUG and its Subsidiaries have timely paid and discharged all Taxes due in connection with or with respect to the periods or transactions covered by such Tax Returns and have paid all other Taxes as are due or made adequate provision therefor in accordance with GAAP except where the failures to so file, pay or discharge are not, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. As of the date of this Agreement, there are no pending audits or other examinations relating to any Tax matters. There are no Tax liens on any assets of SUG or its Subsidiaries. As of the date of this Agreement, SUG and its Subsidiaries have not granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax. The accruals and reserves (including deferred taxes) reflected in the SUG Balance Sheet are in all material respects adequate to cover all material Taxes accruable through the date thereof (including interest and penalties, if any, thereon and Taxes being contested) in accordance with GAAP. (b) Neither SUG nor any of its Subsidiaries is obligated under any Contract with respect to industrial development bonds or other obligations with respect to which the excludability from gross income of the holder for federal or state income tax purposes could be affected by the Merger or any of the transactions contemplated by this Agreement. (c) SUG has no present plan or intention after the Merger to (i) sell or otherwise dispose of any of the assets of the Surviving Corporation, including the assets of FAL acquired pursuant to the Merger, except for dispositions made in the ordinary course of business or to a corporation controlled by the Surviving Corporation within the meaning of Section 368(a)(2)(C) of the IRC, or (ii) reacquire any of the SUG Common Stock included in the Merger Consideration, other than repurchases in the open market pursuant to stock repurchase plans undertaken for reasons unrelated to the transactions contemplated by this Agreement. SECTION 4.11 INTELLECTUAL PROPERTY. SUG has no Knowledge of (i) any infringement or claimed infringement by it of any patent rights or copyrights of others or (ii) any infringement of the patent or patent license rights, trademarks or copyrights owned by or under license to it, except for any such infringements of the type described in clause (i) or (ii) that are not, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect. SECTION 4.12 CONTRACTS. Except as described in Section 4.12 of the SUG Disclosure Schedule or as specifically described in the SUG SEC Documents delivered to FAL prior to the date of this Agreement, and with such exceptions as are not, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect, all of SUG's Contracts are in full force and effect and neither SUG nor, to the Knowledge of SUG, any other party thereto is in default thereunder nor has any event occurred or is any event occurring that, with notice or the passage of time or otherwise, is reasonably likely to give rise to an event of default thereunder by any party thereto. A-16 SECTION 4.13 INDEBTEDNESS. All outstanding principal amounts of indebtedness for borrowed money of SUG as of October 1, 1999 are set forth in Section 4.13 of the SUG Disclosure Schedule. SECTION 4.14 EMPLOYEE BENEFIT PLANS. (a) Except as set forth in Section 4.14 of the SUG Disclosure Schedule, each of the SUG Benefit Plans has been operated and administered in all material respects in accordance with its governing documents and applicable federal and state laws (including, but not limited to, ERISA and the IRC). For purposes of this Agreement, "SUG Benefit Plans" shall mean all employee retirement, welfare, stock option, stock ownership, deferred compensation, bonus or other benefit plans, agreements, practices, policies, programs, or arrangements that are applicable to any employee, director or consultant of SUG or its Subsidiaries or maintained by or contributed to by SUG or its Subsidiaries. (b) Except as set forth in Section 4.14 of the SUG Disclosure Schedule, as to any SUG Benefit Plan subject to Title IV of ERISA, there is no event or condition which presents the material risk of plan termination, no accumulated funding deficiency, whether or not waived, within the meaning of Section 302 of ERISA or Section 412 of the IRC has been incurred for which any liability is outstanding, no reportable event within the meaning of Section 4043 of ERISA (for which the notice requirements of Regulation Section 4043 promulgated by the Pension Benefit Guaranty Corporation ("PBGC") have not been waived) has occurred within the last six years, no notice of intent to terminate the SUG Benefit Plan has been given under Section 4041 of ERISA, no proceeding has been instituted under Section 4042 of ERISA to terminate the SUG Benefit Plan, there has been no termination or partial termination of the SUG Benefit Plan within the meaning of Section 411(d)(3) of the IRC within the last six years, except with respect to the conversion of the retirement income plan to a cash balance plan for which full vesting was granted with respect to affected employees, no event described in Sections 4062 or 4063 of ERISA has occurred, all PBGC premiums have been timely paid and no liability to the PBGC has been incurred, except for PBGC premiums not yet due. (c) Except as set forth in Section 4.14 of the SUG Disclosure Schedule, each trust funding a SUG Benefit Plan, which trust is intended to be exempt from federal income taxation pursuant to Section 501(c)(9) of the IRC, satisfies the requirements of such section and has, whenever required by law, received a favorable determination letter from the IRS regarding such exempt status, and to the Knowledge of SUG has not, since receipt of the most recent favorable determination letter, been amended or operated in any way which would adversely affect such exempt status. (d) Except as set forth in Section 4.14 of the SUG Disclosure Schedule, with respect to any SUG Benefit Plan or any other "employee benefit plan" as defined in Section 3(3) of ERISA which is established, sponsored, maintained or contributed to, or has been established, sponsored, maintained or contributed to or, to the Knowledge of SUG, with respect to any such plan which has been established, sponsored, maintained or contributed to within six years prior to the Closing Date, by SUG or its Subsidiaries or any corporation, trade, business or entity under common control or being a part of an affiliated service group with SUG, within the meaning of Section 414(b), (c) or (m) of the IRC or Section 4001 of ERISA ("SUG Commonly Controlled Entity"), (i) no withdrawal liability, within the meaning of Section 4201 of ERISA, has been incurred, which withdrawal liability has not been satisfied and no such withdrawal liability is reasonably expected to be incurred, (ii) no liability under Title IV of ERISA A-17 (including, but not limited to, liability to the PBGC) has been incurred by SUG or any SUG Commonly Controlled Entity, which liability has not been satisfied (other than for PBGC premiums not yet due), (iii) no accumulated funding deficiency, whether or not waived, within the meaning of Section 302 of ERISA or Section 412 of the IRC has been incurred for which any liability is outstanding, (iv) there has been no failure to make any contribution (including installments) to such plan required by Section 302 of ERISA and Section 412 of the IRC which has resulted in a lien under Section 302 of ERISA or Section 412 of the IRC and for which any liability is currently outstanding, (v) to the Knowledge of SUG, no action, omission or transaction has occurred with respect to any such plan or any other SUG Benefit Plan which could subject SUG or the plan or trust forming a part thereof to a material civil liability or penalty under ERISA or other applicable laws, or a material Tax under the IRC, (vi) any such plan which is a Group Health Plan has complied in all material respects with the provisions of Sections 601-608 of ERISA and Section 4980B of the IRC, (vii) there are no pending or, to the Knowledge of SUG, Threatened claims by or on behalf of any such plan or any other SUG Benefit Plan, by any employees, former employees or plan beneficiaries covered by such plan or otherwise by or on behalf of any person involving any such plan (other than routine non-contested claims for benefits) which could result in a material liability to SUG and its Subsidiaries, taken as a whole, and (viii) neither SUG nor any SUG Commonly Controlled Entity has engaged in, or is a successor or parent corporation to any entity or person that has engaged in, a transaction described in Section 4069 of ERISA. (e) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) increase the amount of benefits otherwise payable under any SUG Benefit Plan, (ii) result in the acceleration of the time of eligibility to participate in any SUG Benefit Plan, or of any payment, exercisability, funding or vesting of any benefit under any SUG Benefit Plan, (iii) result in payment becoming due or with respect to any current or former employee, director or consultant, or (iv) result in any payment becoming due in the event of a termination of employment or service of any employee, director or consultant. (f) SUG is not a party to any Contract nor has it established any policy or practice, which would require SUG to make a payment or provide any other form of compensation or benefit to any Person performing (or who within the past twelve months performed) services for SUG during or upon termination of such services which would not be payable or provided in the absence of the consummation of the transactions contemplated by this Agreement. (g) Except as would affect unionized employees and/or retirees who are covered by bargaining agreements, if any, and as otherwise set forth in Section 4.14 of the SUG Disclosure Schedule, each SUG Benefit Plan which is an "employee welfare benefit plan," as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without any liability being incurred by SUG or any Affiliate of SUG, except as to benefits accrued thereunder prior to such amendment or termination. (h) As of the date of this Agreement, SUG has not contributed nor been obligated to contribute to any "multi-employer plan" within the meaning of Section 3(37) of ERISA within the last six years and has no outstanding liability with respect to any such plan. SECTION 4.15 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.15 of the SUG Disclosure Schedule or as specifically described in the SUG SEC Documents delivered to FAL prior to the date of this A-18 Agreement, and with such other exceptions as are not, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect: (a) To the Knowledge of SUG, SUG and any Person for whose conduct SUG is reasonably likely to be held responsible, is currently and at all times has been, in material compliance with any Environmental Law. SUG has not received any Order, notice, or other communication from (i) any Governmental Body or private citizen acting in the public interest, or (ii) the current or prior owner or operator of any Facilities, of any violation or failure to comply with any Environmental Law, or of any obligation to undertake or bear the cost of any environmental cleanup, or with respect to any property or Facility at which Hazardous Materials generated by SUG or any other Person for whose conduct SUG may be held responsible were transported for disposal; and (b) There are no pending or, to the Knowledge of SUG, Threatened claims or Encumbrances arising under or pursuant to any Environmental Law with respect to or affecting any of the Facilities or any other properties and assets (whether real, personal, or mixed) in which SUG has or had a direct or indirect interest (including by ownership or use). SECTION 4.16 NO MATERIAL ADVERSE CHANGE. Except as described in the SUG SEC Documents that have been provided to FAL prior to the date of this Agreement, since the date of the SUG Balance Sheet, there has not been any SUG Material Adverse Effect, and no events have occurred or circumstances exist that are, individually or in the aggregate, reasonably likely to have a SUG Material Adverse Effect, except that any SUG Material Adverse Effect that results from or relates to (a) general business or economic conditions, (b) conditions generally affecting the industries in which SUG competes or (c) the announcement of the transactions contemplated by this Agreement shall be disregarded. SECTION 4.17 BROKERS. SUG is not a party to, or in any way obligated under any Contract, and there are no outstanding claims against SUG, for the payment of any broker's or finder's fees in connection with the origin, negotiation, execution or performance of this Agreement. SECTION 4.18 PROXY STATEMENT; REGISTRATION STATEMENT. None of the information supplied or to be supplied to FAL by or on behalf of SUG for inclusion in the proxy statement, in definitive form, relating to the FAL Meeting to be held in connection with the Merger (the "FAL Proxy Statement"), or supplied by or on behalf of SUG in the Registration Statement on Form S-4 (and any amendments thereto) to be filed by SUG with the SEC pursuant to the Securities Act to register the shares of SUG Common Stock constituting the Stock Consideration (the "Registration Statement") will, in the case of the Registration Statement, at the effective time of the Registration Statement, at any time the Registration Statement is amended or supplemented, at the date the FAL Proxy Statement is first mailed to FAL's stockholders, at any time the FAL Proxy Statement is amended or supplemented, at the time of the FAL Meeting and at the Effective Time, and in the case of the FAL Proxy Statement, at the date the FAL Proxy Statement is first mailed to FAL's stockholders, at any time the FAL Proxy Statement is amended or supplemented and at the time of the FAL Meeting (giving effect to any documents incorporated by reference therein), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Registration Statement will comply as to form and in substance in all material respects with the applicable provisions of the Securities Act and the rules and regulations thereunder. A-19 SECTION 4.19 NO VOTE REQUIRED. No vote of the holders of any class or series of the capital stock of SUG is required to approve this Agreement and the Merger. SECTION 4.20 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE IV, SUG MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND SUG HEREBY DISCLAIMS ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER BY SUG, ANY SUBSIDIARY OF SUG, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO FAL OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, OF ANY DOCUMENTATION OR OTHER INFORMATION BY SUG, ANY SUBSIDIARY OF SUG, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO ANY OF THE FOREGOING. ARTICLE V REPRESENTATIONS AND WARRANTIES OF FAL FAL, as to the Acquired Companies, represents and warrants to SUG as follows: SECTION 5.1 ORGANIZATION, EXISTENCE AND QUALIFICATION. (a) Each Acquired Company is a corporation duly incorporated, validly existing, and in good standing under the laws of its state of incorporation or organization, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under all Applicable Contracts. Section 5.1(a) of the FAL Disclosure Schedule sets forth the name of each Acquired Company, the state or jurisdiction of its incorporation or organization, and each state or jurisdiction where such Acquired Company is duly qualified as a foreign corporation. Each Acquired Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the business conducted by it, requires such qualification as a foreign corporation except for such failures to be so qualified or in good standing as are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. (b) FAL has delivered to SUG copies of the Organizational Documents, as currently in effect, of each Acquired Company. SECTION 5.2 CAPITALIZATION. The capital stock of FAL consists of 2,951,334 shares of FAL Common Stock, of which 2,220,086 shares are issued and outstanding. The issued and outstanding shares of FAL Common Stock have been validly issued and are fully paid and nonassessable. Except as specifically described in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, no shares of FAL Common Stock are held, in treasury or otherwise, by FAL or any of its Subsidiaries and there are no outstanding (i) securities convertible into FAL Common Stock or other capital stock of FAL or any of its Subsidiaries, (ii) warrants or options to purchase FAL Common Stock or other securities of FAL or A-20 any of its Subsidiaries or (iii) other commitments to issue shares of FAL Common Stock or other securities of FAL or any of its Subsidiaries. SECTION 5.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in Section 5.3 of the FAL Disclosure Schedule, FAL has no Subsidiaries or investments in any Person (except for marketable securities disclosed to SUG prior to the date of this Agreement) and FAL is the registered owner and holder of all of the issued and outstanding shares of capital stock of its Subsidiaries and has good title to such shares. The outstanding capital stock of each Subsidiary has been validly issued and is fully paid and nonassessable. All such capital stock owned by any Acquired Company is free and clear of any Encumbrance (except for any Encumbrance disclosed in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, or created or incurred by this Agreement in favor of SUG, or imposed by federal or state securities laws). SECTION 5.4 AUTHORITY RELATIVE TO THIS AGREEMENT AND BINDING EFFECT. The execution, delivery and performance of this Agreement and the Related Documents by FAL have been duly authorized by all requisite corporate action, except, as of the date of this Agreement, for the FAL Stockholders' Approval. Except as set forth in Section 5.4 of the FAL Disclosure Schedule, the execution, delivery and performance of this Agreement and the Related Documents by FAL will not result in a violation or breach of any term or provision of, or constitute a default, require a consent, approval or notification, or accelerate the performance required under, the Organizational Documents of any of the Acquired Companies, any indenture, mortgage, deed of trust, security agreement, loan agreement, or other Applicable Contract to which any of the Acquired Companies is a party or by which its assets are bound, or violate any Order, with such exceptions as are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. This Agreement constitutes and the Related Documents to be executed by any of the Acquired Companies when executed and delivered will constitute valid and binding obligations of such Acquired Company, enforceable against such Acquired Company in accordance with their terms, except as enforceability may be limited by (i) bankruptcy or similar laws from time to time in effect affecting the enforcement of creditors' rights generally or (ii) the availability of equitable remedies generally. SECTION 5.5 GOVERNMENTAL APPROVALS. Except as set forth in Section 5.5 of the FAL Disclosure Schedule and as required by the HSR Act, no approval or authorization of any Governmental Body with respect to performance under this Agreement or the Related Documents by any Acquired Company is required to be obtained by FAL in connection with the execution and delivery by FAL of this Agreement or the Related Documents or the consummation by the Acquired Companies of the transactions contemplated hereby or thereby, the failure to obtain which are, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. SECTION 5.6 PUBLIC UTILITY HOLDING COMPANY STATUS; REGULATION AS A PUBLIC UTILITY. None of the Acquired Companies is a "holding company," a "subsidiary company," a "public utility company," or an "affiliate" of a "public utility company" or a "holding company" within the meaning of such terms in PUHCA. SECTION 5.7 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. (a) Except as set forth in Section 5.7(a) of the FAL Disclosure Schedule or as specifically described in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, and subject to Section 5.19 of this Agreement, to the Knowledge of any Acquired Company, no Acquired A-21 Company is in violation of any Legal Requirement that is applicable to it, to the conduct or operation of its business, or to the ownership or use of any of its assets, other than such violations, if any, which are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. (b) The FAL SEC Documents delivered to SUG prior to the date of this Agreement accurately describe all material regulation of each Acquired Company that relates to the utility business of any Acquired Company. Except as set forth on Section 5.7(a) of the FAL Disclosure Schedule, each Acquired Company has, and is in material compliance with, all material Governmental Authorizations necessary to conduct its business and to own, operate and use all of its assets as currently conducted. SECTION 5.8 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Section 5.8 of the FAL Disclosure Schedule or as specifically described in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, there is no pending Proceeding: (1) that has been commenced by or against, or that otherwise relates to, any Acquired Company that is reasonably likely to have a FAL Material Adverse Effect; or (2) as of the date of this Agreement, that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, the Merger or any of the transactions contemplated hereby. To the Knowledge of FAL, except as set forth in Section 5.8 of the FAL Disclosure Schedule, as of the date of this Agreement, no such Proceedings, audits or investigations have been Threatened that are, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. As of the date of this Agreement, none of the Acquired Companies is subject to any Orders that are, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. SECTION 5.9 SEC DOCUMENTS. FAL has made (and, with respect to such documents filed after the date hereof through the Closing Date, will make) available to SUG a true and complete copy of each report, schedule, registration statement (other than on Form S-8), and definitive proxy statement filed by FAL with the SEC since September 30, 1998 through the Closing Date in substantially the form filed with the SEC (the "FAL SEC Documents"). As of their respective dates, the FAL SEC Documents, including without limitation any financial statements or schedules included therein, complied (or will comply), in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such FAL SEC Documents, and did not (or will not) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of FAL included in the FAL SEC Documents (collectively, the "FAL Financial Statements") were (or will be) prepared in accordance with GAAP (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q) and fairly present (or will fairly present) in all material respects the financial position of FAL and its Subsidiaries, as of the respective dates thereof or the results of operations and cash flows for the respective periods then ended, as the case may be, subject, in the case of unaudited interim financial statements, to normal, recurring adjustments which are not material in the aggregate. A-22 SECTION 5.10 TAXES. Except as set forth in Section 5.10 of the FAL Disclosure Schedule: (a) The Acquired Companies have timely filed all United States federal, state and local income Tax Returns required to be filed by or with respect to them or requests for extensions to file such Tax Returns have been timely filed, granted and have not expired, and the Acquired Companies have timely paid and discharged all Taxes due in connection with or with respect to the periods or transactions covered by such Tax Returns and have paid all other Taxes as are due or made adequate provision therefor in accordance with GAAP except where failures to so file, pay or discharge are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. There are no pending audits or other examinations relating to any Tax matters. There are no Tax liens on any assets of the Acquired Companies. As of the date of this Agreement, none of the Acquired Companies has granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax. The accruals and reserves (including deferred taxes) reflected in the FAL Balance Sheet are in all material respects adequate to cover all material Taxes accruable through the date thereof (including interest and penalties, if any, thereon and Taxes being contested) in accordance with GAAP. (b) None of the Acquired Companies is obligated under any Applicable Contract with respect to industrial development bonds or other obligations with respect to which the excludability from gross income of the holder for federal or state income tax purposes could be affected by the Merger or any of the transactions contemplated by this Agreement. SECTION 5.11 INTELLECTUAL PROPERTY. No Acquired Company has any Knowledge of (i) any infringement or claimed infringement by any Acquired Company of any patent rights or copyrights of others or (ii) any infringement of the patent or patent license rights, trademarks or copyrights owned by or under license to any Acquired Company, except for any such infringements of the type described in clause (i) or (ii) that are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. SECTION 5.12 TITLE TO ASSETS. Except (i) as set forth in Section 5.12 of the FAL Disclosure Schedule, (ii) as specifically described in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, (iii) as set forth in Section 5.19 of this Agreement or (iv) as set forth in Section 5.19 of the FAL Disclosure Schedule, none of the Acquired Companies' assets are subject to any Encumbrance other than FAL Permitted Liens. SECTION 5.13 INDEBTEDNESS. All outstanding principal amounts of indebtedness for borrowed money of the Acquired Companies as of October 4, 1999 are set forth in Section 5.13 of the FAL Disclosure Schedule. SECTION 5.14 MACHINERY AND EQUIPMENT. Except for normal wear and tear, and with such exceptions as are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect, the machinery and equipment of the Acquired Companies necessary for the conduct by the Acquired Companies of their respective businesses as presently conducted are in good operating condition and in a state of reasonable maintenance and repair. SECTION 5.15 APPLICABLE CONTRACTS. Set forth in Section 5.15(a) of the FAL Disclosure Schedule is a list as the date hereof of all Applicable Contracts to which any Acquired Company is a party A-23 involving a total commitment by or to any party thereto of more than $65,000 on an annual basis or more than $250,000 on its remaining term which cannot be terminated on no more than sixty (60) days' notice without penalty or additional cost to the Acquired Company as the terminating party. Except as specifically described in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, and with such exceptions as are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect, all Applicable Contracts of the Acquired Companies are in full force and effect and no Acquired Company nor, to the Knowledge of FAL, any other party thereto is in default thereunder nor has any event occurred or is any event occurring that with notice or the passage of time or otherwise, is reasonably likely to give rise to an event of default thereunder by any party thereto. SECTION 5.16 INSURANCE. Section 5.16(a) of the FAL Disclosure Schedule sets forth a list of all policies of insurance held by the Acquired Companies as of the date of this Agreement. Since June 30, 1994, the assets and the business of the Acquired Companies have been continuously insured with what FAL believes are reputable insurers against all risks and in such amounts normally insured against by companies of the same type and in the same line of business as any of the Acquired Companies. As of the date of this Agreement, no notice of cancellation, non-renewal or material increase in premiums has been received by any of the Acquired Companies with respect to such policies, and no Acquired Company has Knowledge of any fact or circumstance that could reasonably be expected to form the basis for any cancellation, non-renewal or material increase in premiums, except for such cancellations, non-renewals and increases which are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. None of the Acquired Companies is in default with respect to any provision contained in any such policy or binder nor has there been any failure to give notice or to present any claim relating to the business or the assets of the Acquired Companies under any such policy or binder in a timely fashion or in the manner or detail required by the policy or binder, except for such defaults or failures which are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. As of the date of this Agreement, there are no outstanding unpaid premiums (except premiums not yet due and payable), and no notice of cancellation or renewal with respect to, or disallowance of any claim under, any such policy or binder has been received by the Acquired Companies as of the date hereof, except for such non-payments of premiums, cancellations, renewals or disallowances which are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. SECTION 5.17 EMPLOYEES. Section 5.17(a) of the FAL Disclosure Schedule sets forth a list as of no more than thirty (30) days prior to the date of this Agreement of all the present officers and employees of the Acquired Companies, indicating each employee's base salary or wage rate and identifying those who are union employees and those who are part-time employees. Except as set forth in Section 5.17(b) of the FAL Disclosure Schedule, as of the date of this Agreement, no labor union or other collective bargaining unit has been certified or recognized by any of the Acquired Companies, and, to the Knowledge of the Acquired Companies, as of the date of this Agreement, there are no elections, organizing drives or material controversies pending or Threatened between any of the Acquired Companies and any labor union or other collective bargaining unit representing any of the Acquired Companies' employees. There is no pending or, to the Knowledge of FAL, Threatened labor practice complaint, arbitration, labor strike or other material labor dispute (excluding grievances) involving any of the Acquired Companies which are, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect. Except for collective bargaining agreements or as set forth in Section 5.17(c) of the FAL Disclosure Schedule, none A-24 of the Acquired Companies is a party to any employment agreement with any employee pertaining to any of the Acquired Companies. SECTION 5.18 EMPLOYEE BENEFIT PLANS. (a) Each of the FAL Benefit Plans has been operated and administered in all material respects in accordance with its governing documents and applicable federal and state laws (including, but not limited to, ERISA and the IRC). For purposes of this Agreement, "FAL Benefit Plans" shall mean all employee retirement, welfare, stock option, stock ownership, deferred compensation, bonus or other benefit plans, agreements, practices, policies, programs, or arrangements, that are applicable to any employee, director or consultant of the Acquired Companies or maintained by or contributed to by any of the Acquired Companies. (b) As to any FAL Benefit Plan subject to Title IV of ERISA, there is no event or condition which presents the material risk of plan termination, no accumulated funding deficiency, whether or not waived, within the meaning of Section 302 of ERISA or Section 412 of the IRC has been incurred for which any liability is outstanding, no reportable event within the meaning of Section 4043 of ERISA (for which the notice requirements of Regulation Section 4043 promulgated by the PBGC have not been waived) has occurred within the last six years, no notice of intent to terminate the FAL Benefit Plan has been given under Section 4041 of ERISA, no proceeding has been instituted under Section 4042 of ERISA to terminate the FAL Benefit Plan, there has been no termination or partial termination of the FAL Benefit Plan within the meaning of Section 411(d)(3) of the IRC within the last six years, no event described in Sections 4062 or 4063 of ERISA has occurred, all PBGC premiums have been timely paid and no liability to the PBGC has been incurred, except for PBGC premiums not yet due. (c) There is no matter pending (other than qualification determination applications and filings and other required periodic filings) with respect to any of the FAL Benefit Plans before the IRS, the Department of Labor, the PBGC or in or before any other governmental authority. (d) Each trust funding a FAL Benefit Plan, which trust is intended to be exempt from federal income taxation pursuant to Section 501(c)(9) of the IRC, satisfies the requirements of such section and has received a favorable determination letter from the IRS regarding such exempt status and to the Knowledge of any Acquired Company has not, since receipt of the most recent favorable determination letter, been amended or operated in any way which would adversely affect such exempt status. (e) With respect to any FAL Benefit Plan or any other "employee benefit plan" as defined in Section 3(3) of ERISA which is established, sponsored, maintained or contributed to, or to the Knowledge of the Acquired Companies, with respect to any such plan which has been established, sponsored, maintained or contributed to within six years prior to the Closing Date, by the Acquired Companies or any corporation, trade, business or entity under common control or being a part of an affiliated service group with any of the Acquired Companies, within the meaning of Section 414(b), (c) or (m) of the IRC or Section 4001 of ERISA ("FAL Commonly Controlled Entity"), (i) no withdrawal liability, within the meaning of Section 4201 of ERISA, has been incurred, which withdrawal liability has not been satisfied and no such withdrawal liability is reasonably expected to be incurred, (ii) no liability under Title IV of ERISA (including, but not limited to, liability to the PBGC) has been incurred by the Acquired Companies or any FAL Commonly Controlled Entity, which liability has not been satisfied (other than for PBGC A-25 premiums not yet due), (iii) no accumulated funding deficiency, whether or not waived, within the meaning of Section 302 of ERISA or Section 412 of the IRC has been incurred for which any liability is outstanding, (iv) there has been no failure to make any contribution (including installments) to such plan required by Section 302 of ERISA and Section 412 of the IRC which has resulted in a lien under Section 302 of ERISA or Section 412 of the IRC and for which any liability is currently outstanding, (v) to the Knowledge of any Acquired Company, no action, omission or transaction has occurred with respect to any such plan or any other FAL Benefit Plan which could subject any of the Acquired Companies, the plan or trust forming a part thereof, or SUG to a material civil liability or penalty under ERISA or other applicable laws, or a material Tax under the IRC, (vi) any such plan which is a Group Health Plan has complied in all material respects with the provisions of Sections 601-608 of ERISA and Section 4980B of the IRC, (vii) there are no pending or, to the Knowledge of any Acquired Company, Threatened claims by or on behalf of any such plan or any other FAL Benefit Plan, by any employees, former employees or plan beneficiaries covered by such plan or otherwise by or on behalf of any person involving any such plan (other than routine non-contested claims for benefits) which could result in a material liability to the Acquired Companies taken as a whole, and (viii) neither the Acquired Companies nor any FAL Commonly Controlled Entity has engaged in, or is a successor or parent corporation to any entity or person that has engaged in, a transaction described in Section 4069 of ERISA. (f) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) increase the amount of benefits otherwise payable under any FAL Benefit Plan, (ii) result in the acceleration of the time of eligibility to participate in any FAL Benefit Plan, or any payment, exercisability, funding or vesting of any benefit under any FAL Benefit Plan, (iii) result in any payment becoming due to or with respect to any current or former employee, director or consultant, or (iv) result in any payment becoming due in the event of a termination of employment or service of any employee, director or consultant. (g) None of the Acquired Companies is a party to any Applicable Contract nor has it established any policy or practice, which would require it or SUG to make a payment or provide any other form of compensation or benefit to any Person performing (or who within the past twelve months performed) services for any of the Acquired Companies during or upon termination of such services which would not be payable or provided in the absence of the consummation of the transactions contemplated by this Agreement. (h) Except as would affect unionized employees and/or retirees who had been unionized employees, each FAL Benefit Plan which is an "employee welfare benefit plan," as such term is defined in Section 3(1) of ERISA, may be unilaterally amended or terminated in its entirety without any liability being incurred by any of the Acquired Companies, SUG or any Affiliate of SUG, except as to benefits accrued thereunder prior to such amendment or termination. (i) None of the Acquired Companies has contributed nor been obligated to contribute to any "multi-employer plan" within the meaning of Section 3(37) of ERISA within the last six years, and none of the Acquired Companies has any outstanding liability with respect to any such plan. (j) Section 5.18(j) of the FAL Disclosure Schedule contains a true and complete list of each FAL Benefit Plan, and any management, employment, deferred compensation, severance (including any payment, right or benefit resulting from a change in control), bonus, or other contract for A-26 personal services with any current or former officer, director or employee, any consulting contract with any person who prior to entering this such contract was a director or officer or owner of 5% or more of the stock of any Acquired Company or family member of any such director, officer or stockholder, or any plan, agreement, arrangement or understanding similar to any of the foregoing. There are no outstanding options to purchase FAL capital stock or other securities. FAL has provided to SUG a complete and correct copy of each FAL Benefit Plan (or written summary of any unwritten FAL Benefit Plan), and with respect to each FAL Benefit Plan, the current summary plan description, related trust agreements, related insurance contracts, the latest IRS determination letter, the last three annual reports on Form 5500 series (including all required schedules), and the most recent actuarial report and annual financial statements. SECTION 5.19 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.19 of the FAL Disclosure Schedule or as specifically described in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, and with such other exceptions as are not, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect: (a) To the Knowledge of any Acquired Company, no Facility owned or operated by any Acquired Company is currently, or was at any time, listed on the National Priorities List promulgated under CERCLA, or on any comparable state list, and no Acquired Company has received any written notification of potential or actual liability or a written request for information from any Person under or relating to CERCLA or any comparable Legal Requirement with respect to any Acquired Company or the Facilities; (b) To the Knowledge of any Acquired Company, each Acquired Company and any Person for whose conduct any Acquired Company is reasonably likely to be held responsible, is currently and at all times has been, in material compliance with any Environmental Law. No Acquired Company has received any Order, notice, or other communication from (i) any Governmental Body or private citizen acting in the public interest, or (ii) the current or prior owner or operator of any Facilities, of any violation or failure to comply with any Environmental Law, or of any obligation to undertake or bear the cost of any environmental cleanup, or with respect to any property or Facility at which Hazardous Materials generated by any Acquired Company were transported for disposal; (c) There are no pending or, to the Knowledge of any Acquired Company, Threatened claims arising under or pursuant to any Environmental Law with respect to or affecting any of the Facilities or any other properties and assets (whether real, personal, or mixed) in which any Acquired Company has or had a direct or indirect interest (including by ownership or use); and (d) FAL has delivered or made available to SUG true and complete copies and results of any environmental site assessments, studies, analyses, tests or monitoring possessed by any Acquired Company of which any Acquired Company has Knowledge pertaining to Hazardous Materials or Hazardous Activities in, on or under the Facilities, or concerning compliance by any Acquired Company or any other Person for whose conduct any Acquired Company is reasonably likely to be held responsible, with Environmental Laws. SECTION 5.20 NO MATERIAL ADVERSE CHANGE. Since the date of the FAL Balance Sheet, except as specifically described in the FAL SEC Documents delivered to SUG prior to the date of this Agreement, there has not been any FAL Material Adverse Effect, and no events have occurred or A-27 circumstances exist that are, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect, except that any FAL Material Adverse Effect that results from or relates to (a) general business or economic conditions, (b) conditions generally affecting the industries in which the Acquired Companies compete or (c) the announcement of the transactions contemplated by this Agreement shall be disregarded. SECTION 5.21 BROKERS. No Acquired Company is a party to, or in any way obligated under any Applicable Contract, and there are no outstanding claims against any Acquired Company, for the payment of any broker's or finder's fees in connection with the origin, negotiation, execution or performance of this Agreement. SECTION 5.22 REGULATORY PROCEEDINGS. Except as set forth in Section 5.22 of the FAL Disclosure Schedule, other than purchase gas adjustment provisions, none of FAL or its Subsidiaries all or part of whose rates or services are regulated by a Governmental Body (a) has rates that have been or are being collected subject to refund, pending final resolution of any rate proceeding pending before a Governmental Body or on appeal to the courts, or (b) is a party to any rate proceeding before a Governmental Body that are, individually or in the aggregate, reasonably likely to result in any Orders having a FAL Material Adverse Effect. SECTION 5.23 PROXY STATEMENT; REGISTRATION STATEMENT. None of the information supplied or to be supplied by or on behalf of the Acquired Companies in either the FAL Proxy Statement or supplied or to be supplied by the Acquired Companies to SUG for inclusion in the Registration Statement, will, in the case of the Registration Statement, at the effective time of the Registration Statement, at any time the Registration Statement is amended or supplemented, at the date the FAL Proxy Statement is first mailed to FAL's stockholders, at any time the FAL Proxy Statement is amended or supplemented, at the time of the FAL Meeting and at the Effective Time, and in the case of the FAL Proxy Statement, at the date the FAL Proxy Statement is first mailed to FAL's stockholders, at any time the FAL Proxy Statement is amended or supplemented and at the time of the FAL Meeting (giving effect to any documents incorporated by reference therein), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The FAL Proxy Statement will comply as to form and in substance in all material respects with the applicable provisions of the Exchange Act and the rules and regulations thereunder. SECTION 5.24 VOTE REQUIRED. Other than the approval of the Merger by the holders of two thirds of the outstanding shares of FAL Common Stock entitled to vote on the question (the "FAL Stockholders' Approval"), no vote of the holders of any class or series of the capital stock of any Acquired Company is required to approve this Agreement and the Merger. SECTION 5.25 OPINION OF FINANCIAL ADVISOR. FAL has provided SUG a copy of the opinion of Legg Mason Wood Walker, Incorporated, dated as of the date hereof, with respect to the Merger Consideration to be received by the holders of FAL Common Stock pursuant to the transactions contemplated by this Agreement. SECTION 5.26 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE V, FAL MAKES NO A-28 OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND FAL HEREBY DISCLAIMS ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES, WHETHER BY FAL, ANY SUBSIDIARY OF FAL, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO SUG OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, OF ANY DOCUMENTATION OR OTHER INFORMATION BY FAL, ANY SUBSIDIARY OF FAL, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON, WITH RESPECT TO ANY OF THE FOREGOING. ARTICLE VI COVENANTS SECTION 6.1 COVENANTS OF FAL. FAL agrees to observe and perform the following covenants and agreements: (a) CONDUCT OF THE BUSINESS PRIOR TO THE CLOSING DATE. With respect to the Acquired Companies, except (i) as contemplated in this Agreement, (ii) as required by law or regulation, or (iii) as otherwise expressly consented to in writing by SUG which consent shall not be unreasonably withheld or delayed, prior to the Closing, FAL will cause each Acquired Company to: (1) Not make or permit any material change in the general nature of its business; (2) Maintain its Ordinary Course of Business in accordance with prudent business judgment and consistent with past practice and policy, and maintain its assets in good operating repair, order and condition, reasonable wear and tear excepted, subject to retirements in the Ordinary Course of Business; (3) Preserve the Acquired Company as an ongoing business and use reasonable efforts to maintain the goodwill associated with the Acquired Company; (4) Preserve all of the Acquired Companies' franchises, tariffs, certificates of public convenience and necessity, licenses, authorizations and other governmental rights and permits; (5) Not enter into any material transaction or Material Contract; (6) Not purchase, sell, lease, dispose of or otherwise transfer or make any contract for the purchase, sale, lease, disposition or transfer of, or subject to lien, any of the assets of the Acquired Company other than in the Ordinary Course of Business; (7) Not hire any new employee unless such employee is a bona fide replacement for a presently-filled position with the Acquired Company as of the date hereof; A-29 (8) Not file any material applications, petitions, motions, orders, briefs, settlement or agreements in any material Proceeding before any Governmental Body which involves any Acquired Company, and appeals related thereto; (9) Not engage in or modify, except in the Ordinary Course of Business, any material intercompany transactions involving any other Acquired Company; (10) Not voluntarily change in any material respect or terminate any insurance policies disclosed on Section 5.16(a) of the FAL Disclosure Schedule that presently are in effect unless equivalent coverage is obtained; (11) Except as disclosed or specifically contemplated in this Agreement or in Section 6.1(a)(11) of the FAL Disclosure Schedule, and with respect to budgeted expenditures known and specifically disclosed in writing to SUG, subject to adjustments in the Ordinary Course of Business and other deviations (which in the aggregate shall not exceed 5% on an annualized basis during the period from the date of this Agreement until the Closing Date), not make any capital expenditure or capital expenditure commitment; (12) Not make any changes in financial policies or practices, or strategic or operating policies or practices, in each case which involve any Acquired Company; (13) Comply in all material respects with all applicable material Legal Requirements and permits, including without limitation those relating to the filing of reports and the payment of Taxes due to be paid prior to the Closing, other than those contested in good faith; (14) Not adopt, amend (other than amendments that reduce the amounts payable by SUG or any of its Subsidiaries or amendments required by law) or assume an obligation to contribute to any FAL Benefit Plan or collective bargaining agreement or enter into any employment, consulting, severance or similar Contract with any Person (including without limitation, contracts with management of any Acquired Company or any of its Affiliates that might require payments be made upon consummation of the transactions contemplated hereby) or amend any such existing contracts; (15) Except in the Ordinary Course of Business or as required by the terms of any existing Contract, FAL Benefit Plan or collective bargaining agreement, not grant any increase or change in total compensation, benefits or pay any bonus to any employee, director or consultant; (16) Not grant or enter into or extend the term of any Contract with respect to continued employment or service for any employee, officer, director or consultant; (17) Not make any loan or advance to any Person other than to any officer, director, stockholder or employee in the Ordinary Course of Business; A-30 (18) Not terminate any existing gas purchase, exchange or transportation contract necessary to supply firm gas at all city gate delivery points or enter into any new contract for the supply, transportation, storage or exchange of gas with respect to the Acquired Companies' regulated gas distribution operations or renew or extend or negotiate any existing contract providing for the same where such contract is not terminable within sixty (60) days without penalty; (19) Not amend any of its Organizational Documents; and (20) Subject to Section 6.1(l), not issue or assume any note, debenture or other evidence of indebtedness which by its terms does not mature within one year from the date of execution or issuance thereof, unless otherwise redeemable or subject to prepayment at any time at the option of the Acquired Company on not more than thirty (30) days notice without penalty for such redemption or prepayment. (b) CUSTOMER NOTIFICATIONS. At any time and from time to time reasonably requested by SUG prior to the Closing Date, each Acquired Company will permit SUG at FAL's expense to insert preprinted single-page customer education materials into billing documentation to be delivered to customers affected by this Agreement; PROVIDED, HOWEVER, that FAL has reviewed in advance and consented to the content of such materials, which consent shall not be unreasonably withheld or delayed. Other means of notifying customers may be employed by either party, at the expense of the initiating party, but in no event shall any notification be initiated without the prior consent of the other party (which consent shall not be unreasonably withheld or delayed). (c) ACCESS TO THE ACQUIRED COMPANIES' OFFICES, PROPERTIES AND RECORDS; UPDATING INFORMATION. (1) From and after the date hereof and until the Closing Date, the Acquired Companies shall permit SUG and its Representatives to have, on reasonable notice and at reasonable times, reasonable access to such of the offices, properties and employees of the Acquired Companies, and shall disclose, and make available to SUG and its Representatives all books, papers and records to the extent that they relate to the ownership, operation, obligations and liabilities of or pertaining to the Acquired Companies, their businesses, assets and liabilities. Without limiting the application of the Confidentiality Agreement dated October 4, 1999 between FAL and SUG (the "Confidentiality Agreement"), all documents or information furnished by the Acquired Companies hereunder shall be subject to the Confidentiality Agreement. (2) FAL will notify SUG as promptly as practicable of any significant change in the Ordinary Course of Business or operation of any of the Acquired Companies and of any material complaints, investigations or hearings (or communications indicating that the same may be contemplated) by any Governmental Body, or the institution or overt threat or settlement of any material Proceeding involving or affecting any of the Acquired Companies or the transactions contemplated by this Agreement, and shall use reasonable efforts to keep SUG fully informed of such events and permit SUG's Representatives access to all materials A-31 prepared in connection therewith, consistent with any applicable Legal Requirement or Contract. (3) As promptly as practicable after SUG's request, FAL will furnish such financial and operating data and other information pertaining to the Acquired Companies and their businesses and assets as SUG may reasonably request; PROVIDED, HOWEVER, that nothing herein will obligate any of the Acquired Companies to take actions that would unreasonably disrupt its Ordinary Course of Business or violate the terms of any Legal Requirement or Contract to which the Acquired Company is a party or to which any of its assets is subject in providing such information, or to incur any costs with respect to SUG's external auditors (or the Acquired Companies' external auditors in the event a report by such auditors is requested by SUG) providing accounting services with respect to issuing an auditor's report required by or for SUG. (d) GOVERNMENTAL APPROVALS; THIRD PARTY CONSENTS. FAL will use its reasonable best efforts to obtain all necessary consents, approvals and waivers from any Person required in connection with the transactions contemplated hereby under any license, lease, permit or Contract applicable to the Acquired Companies, including, without limitation, the approvals of those Governmental Bodies and the consents of those third parties listed in Section 5.4 and Section 5.5 of the FAL Disclosure Schedule and as required by the HSR Act. (e) DIVIDENDS. FAL shall not, nor shall it permit any of its Subsidiaries to: (i) declare or pay any dividends on or make other distributions in respect of any of its or their capital stock other than (A) dividends by a wholly-owned Subsidiary to FAL or another wholly-owned Subsidiary, or (B) regular quarterly dividends on FAL Common Stock with usual record and payment dates that do not exceed the current rate of $0.96 per fiscal year; (ii) split, combine or reclassify any of its capital stock or the capital stock of any Subsidiary or issue or authorize or propose the issuance of any other securities in respect of, or in substitution for, shares of its capital stock or the capital stock of any Subsidiary; or (iii) redeem, repurchase or otherwise acquire any shares of its capital stock or the capital stock of any Subsidiary other than redemptions, repurchases and other acquisitions of shares of capital stock in connection with the administration of employee benefit and dividend reinvestment and customer stock purchase plans as in effect on the date hereof in the ordinary course of the operation of such plans consistent with past practice. (f) ISSUANCE OF SECURITIES. FAL shall not, nor shall it permit any of its Subsidiaries to, issue, agree to issue, deliver, sell, award, pledge, dispose of or otherwise encumber or authorize or propose the issuance, delivery, sale, award, pledge, disposal or other encumbrance of, any shares of its or their capital stock of any class or any securities convertible into or exchangeable for, or any rights, warrants or options to acquire, any such shares or convertible or exchangeable securities, other than as provided for in the FAL Benefit Plans, and its dividend reinvestment plan in effect as of the date hereof. (g) ACCOUNTING. FAL shall not, nor shall it permit any of its Subsidiaries to, make any changes in their accounting methods, principles or practices except as required by law, rule, regulation or GAAP. (h) NO SHOPPING. A-32 (1) FAL shall not, and shall not authorize or permit any of its (or any of its Subsidiaries') officers, directors, agents, financial advisors, attorneys, accountants or other Representatives to, directly or indirectly, solicit, initiate or encourage submission of proposals or offers from any Person relating to, or that could reasonably be expected to lead to, a Business Combination or participate in any negotiations or discussions regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek a Business Combination; PROVIDED, HOWEVER, that, prior to the FAL Stockholders' Approval, FAL may, in response to an unsolicited written proposal from a third party with respect to a Business Combination that FAL's Board of Directors determines, in its good faith judgment, after consultation with and the receipt of the advice of its financial advisor and outside counsel with customary qualifications, is a Superior Proposal, (i) furnish information to, and negotiate, explore or otherwise engage in substantive discussions with such third party, only if FAL's Board of Directors determines, in its good faith judgment after consultation with its financial advisors and outside legal counsel, that it is reasonably necessary in order to comply with its fiduciary duties under applicable law and (ii) take and disclose to FAL's stockholders a position with respect to another Business Combination proposal, or amend or withdraw such position, pursuant to Rule 14d-9 and 14e-2 under the Exchange Act, or make such disclosure to FAL's stockholders which in the good faith judgment of FAL's Board of Directors is required by applicable law, based on the advice of its outside counsel. Prior to furnishing any non-public information to, entering into negotiations with or accepting a Superior Proposal from such third party, FAL will (i) provide written notice to SUG to the effect that it is furnishing information to or entering into discussions or negotiations with such third party and (ii) receive from such third party an executed confidentiality agreement containing substantially the same terms and conditions as the Confidentiality Agreement. FAL will immediately cease and cause to be terminated any existing solicitation, initiation, encouragement, activity, discussion or negotiations with any parties conducted heretofore by FAL or any of its representatives with respect to any Business Combination. (2) Except as expressly permitted by this Section 6.1(h), neither the FAL Board of Directors nor any committee thereof may, (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to SUG, the approval or recommendation by such Board of Directors or such committee of the Merger or this Agreement, (ii) approve or recommend, or propose publicly to approve or recommend, a Business Combination or (iii) cause FAL to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Business Combination. Notwithstanding the foregoing, prior to the time at which the FAL Stockholders' Approval has been obtained, in response to an unsolicited Business Combination proposal from a third party, if FAL's Board of Directors determines, in its good faith judgment, after consultation with and the receipt of the advice of its financial advisor and outside counsel with customary qualifications, that such proposal is a Superior Proposal and that failure to do any of the actions set forth in clauses (i), (ii) or (iii) above would create a reasonable possibility of a breach of the fiduciary duties of FAL's Board of Directors under applicable law, FAL's Board of Directors may A-33 (i) withdraw or modify its approval or recommendation of the Merger or this Agreement, approve or recommend a Business Combination or cause FAL to enter into a Business Combination and (ii) negotiate with a third party with respect to such Business Combination proposal and, subject to FAL having paid to SUG the fees described in Section 8.3(a) hereof and having entered into a definitive agreement with respect to such Business Combination proposal, terminate this Agreement; PROVIDED, HOWEVER, that prior to entering into a definitive agreement with respect to a Business Combination proposal, FAL shall give SUG at least five (5) day's notice thereof, and shall cause its Representatives to, negotiate with SUG to make such adjustments in the terms and conditions of this Agreement as would enable FAL to proceed with the transactions contemplated herein on such adjusted terms; PROVIDED, FURTHER, that if FAL and SUG are unable to reach an agreement on such adjustments within five (5) days after such notice from FAL, FAL may enter into such definitive agreement, subject to the provisions of Article VIII. (3) FAL shall notify SUG orally and in writing of any such inquiries, offers or proposals (including, without limitation, the material terms and conditions of any such offer or proposal and the identity of the Person making it), within one business day of the receipt thereof, shall use all reasonable efforts to keep SUG informed of the status and details of any such inquiry, offer or proposal and shall give SUG two (2) days advance notice of the first delivery of non-public information to such Person. If any such inquiry, offer or proposal is in writing, FAL shall promptly deliver to SUG a copy of such inquiry, offer or proposal. (4) For purposes of this Agreement, (i) "Business Combination" means (other than the transactions contemplated or permitted by this Agreement) (A) a merger, consolidation or other business combination, share exchange, sale of shares of capital stock, tender offer or exchange offer or similar transaction involving FAL or any of its Subsidiaries, (B) acquisition in any manner, directly or indirectly, of a material interest in any capital stock of, or a material equity interest in a substantial portion of the assets of, FAL or any of its Subsidiaries, including any single or multi-step transaction or series of related transactions that is structured to permit a third party to acquire beneficial ownership of a majority or greater equity interest in FAL or any of its Subsidiaries, or (C) the acquisition in any manner, directly or indirectly, of any material portion of the business or assets (other than immaterial or insubstantial assets or inventory in the Ordinary Course of Business) of FAL or any of its Subsidiaries and (ii) "Superior Proposal" means a proposed Business Combination involving at least 50% of the shares of capital stock or a material portion of the assets of FAL that FAL's Board of Directors determines, after consulting with FAL's financial advisors and outside counsel, is financially superior to the transactions contemplated hereby and it appears that the party making the proposal is reasonably likely to have the funds necessary to consummate the Business Combination. (i) SOLICITATION OF PROXIES; FAL PROXY STATEMENT. Subject to Section 6.1(h), FAL shall use its reasonable best efforts to solicit from its stockholders proxies in favor of the Merger and shall take all other action necessary or, in the reasonable opinion of SUG, advisable to secure the FAL Stockholders' Approval. (j) FAL STOCKHOLDERS' APPROVAL. A-34 (1) Subject to the provisions of Section 6.1(h) and Section 6.1(j)(2), FAL shall, as soon as reasonably practicable after the date hereof (i) take all steps necessary to duly call, give notice of, convene and hold a meeting of its stockholders (including all adjournments thereof, the "FAL Meeting") for the purpose of securing the FAL Stockholders' Approval, (ii) distribute to its stockholders the FAL Proxy Statement in accordance with applicable federal and state law and with its Organizational Documents, (iii) subject to the fiduciary duties of its Board of Directors, recommend to its stockholders the approval and adoption of this Agreement and the transactions contemplated hereby and (iv) cooperate and consult with SUG with respect to each of the foregoing matters. (2) The FAL Meeting for the purpose of securing the FAL Stockholders' Approval, including any adjournments thereof, will be held on such date or dates as FAL and SUG mutually determine. (k) RULE 145 LETTERS. FAL shall promptly identify to SUG all officers and directors of any Acquired Company and any other persons who are "affiliates" within the meaning of such term as used in Rule 145 under the Securities Act ("Rule 145 Affiliates"), and FAL shall use its reasonable efforts to provide to SUG undertakings from such persons ("Rule 145 Letters") to the effect that no disposition of shares of SUG Common Stock received in the Merger will be made by such persons except within the limits and in accordance with the applicable provisions of said Rule 145, as amended from time to time, or except in a transaction which, in the opinion of legal counsel satisfactory to SUG, is exempt from registration under the Securities Act. (l) FINANCING ACTIVITIES. FAL shall, and shall cause its Subsidiaries to, cooperate, to the fullest extent commercially reasonable and practicable, with SUG's requests with respect to refinancing by the Acquired Companies of the current maturities of any of their indebtedness, and any repurchase, redemption or prepayment by any of the Acquired Companies of any of its indebtedness that may be required prior to or because of the Merger or that SUG may request that the Acquired Companies effect prior to the Merger, so as to permit SUG to have the maximum opportunity to refinance, on or promptly after the Closing Date without any penalty except as may be due pursuant to the terms of the Acquired Companies' indebtedness as in effect on the date of this Agreement, any of the Acquired Companies' indebtedness outstanding on the Closing Date; PROVIDED, HOWEVER, that no Acquired Company shall be required to consummate prior to the Effective Time any such refinancing, repurchase, redemption or repayment requested by SUG. (m) FAL DISCLOSURE SCHEDULE. On the date hereof, FAL has delivered to SUG the FAL Disclosure Schedule, accompanied by a certificate signed by an executive officer of FAL stating the FAL Disclosure Schedule is being delivered pursuant to this Section 6.1(m). The FAL Disclosure Schedule constitutes an integral part of this Agreement and modifies the representations, warranties, covenants or agreements of FAL contained herein to the extent that such representations, warranties, covenants or agreements expressly refer to the FAL Disclosure Schedule. (n) FAL BONDHOLDERS' CONSENT. FAL shall use its reasonable best efforts to obtain consents from all holders of each series of First Mortgage Bonds issued and outstanding under the Indenture of First Mortgage, dated as of December 1, 1952, between FAL and State Street Bank and Trust Company, A-35 successor in interest to the First National Bank of Boston, successor by merger to Old Colony Trust Company, as Trustee, as amended or supplemented from time to time, to such amendments to such Indenture as requested by SUG. SECTION 6.2 COVENANTS OF SUG. SUG agrees to observe and perform the following covenants and agreements: (a) GOVERNMENTAL APPROVALS; THIRD PARTY CONSENTS. SUG will use its reasonable best efforts at SUG's sole expense to obtain all necessary consents, approvals and waivers from any Person required in connection with the transactions contemplated hereby under any license, lease, permit, Contract or agreement applicable to SUG, including, without limitation, the approvals of those Governmental Bodies and the consents of those third parties listed in Section 4.5 of the SUG Disclosure Schedule and as required by the HSR Act. (b) EMPLOYEES; BENEFITS. With respect to the employees (excluding unionized employees) listed in Section 5.17(a) of the FAL Disclosure Schedule (or their successors employed pursuant to Section 6.1(a)(7) above) (the "Employees"), except as otherwise specified herein, SUG agrees as follows: (1) During the 12 months immediately following the Closing Date, to make available to the Employees who continue their service with the Surviving Corporation or any Subsidiary of the Surviving Corporation employee benefit plans or arrangements that are no less favorable, in the aggregate, than the FAL Benefit Plans listed in Section 5.18(j) of the FAL Disclosure Schedule offered to the Employees immediately prior to the date of this Agreement. (2) For purposes of eligibility, vesting and benefit accrual under all benefit plans provided to the Employees after the Closing Date, SUG will recognize the tenure of employment, as recognized by the Acquired Companies as of the Closing Date. (3) All vacation time earned by the Employees prior to the Closing Date must be taken by the end of the calendar year in which the Closing Date occurs, except where the Employee is requested by FAL or SUG to forego their vacation for business-related reasons. For purposes of awarding vacation time at the beginning of each calendar year following the Closing Date, SUG will recognize the tenure of employment, as recognized by the Acquired Company as of the Closing Date. (c) BLUE SKY PERMITS. SUG shall use its reasonable best efforts to obtain, prior to the effective date of the Registration Statement, all necessary state securities laws or "blue sky" permits and approvals required to carry out the transactions contemplated by the Agreement, and will pay all expenses incident thereto. (d) LISTING APPLICATION. Prior to the Closing, SUG shall cause the shares of SUG Common Stock constituting the Stock Consideration to be listed on the NYSE, subject to official notice of issuance thereof. A-36 (e) COLLECTIVE BARGAINING AGREEMENTS. At the Effective Time, SUG agrees to assume all collective bargaining agreements covering employees of any Acquired Company, and shall discharge when due any and all liabilities of any Acquired Company under such collective bargaining agreements relating to periods after the Effective Time. (f) SUG DISCLOSURE SCHEDULE. On the date hereof, SUG has delivered to FAL the SUG Disclosure Schedule, accompanied by a certificate signed by an executive officer of SUG stating that the SUG Disclosure Schedule is being delivered pursuant to this Section 6.2(f). The SUG Disclosure Schedule constitutes an integral part of this Agreement and modifies the representations, warranties, covenants or agreements of SUG contained herein to the extent that such representations, warranties, covenants or agreements expressly refer to the SUG Disclosure Schedule. (g) CONDUCT OF THE BUSINESS PRIOR TO THE CLOSING DATE. Except (i) as contemplated in this Agreement, (ii) in connection with the transactions contemplated by the PEI Merger Agreement, (iii) as required by law or regulation or (iv) as otherwise expressly consented to in writing by FAL which consent will not be unreasonably withheld or delayed, prior to the Closing, SUG will: (1) Not make or permit any material change in the general nature of its business; (2) Maintain its present operations in the Ordinary Course of Business in accordance with prudent business judgment and consistent with past practice and policy, and maintain its assets in good repair, order and condition, reasonable wear and tear excepted, subject to retirements in the Ordinary Course of Business; (3) Preserve SUG as an ongoing business and use reasonable efforts to maintain the goodwill associated with SUG; and (4) Preserve all of SUG's franchises, tariffs, certificates of public convenience and necessity, licenses, authorizations and other governmental rights and permits. (h) ACCESS TO SUG'S OFFICES, PROPERTIES AND RECORDS; UPDATING INFORMATION. (1) From and after the date hereof and until the Closing Date, SUG and its Subsidiaries shall permit FAL and its Representatives to have, on reasonable notice and at reasonable times, reasonable access to such of the offices, properties and employees of SUG and its Subsidiaries, and shall disclose, and make available to FAL and its Representatives all books, papers and records to the extent that they relate to the ownership, operation, obligations and liabilities of or pertaining to SUG, its Subsidiaries and their respective businesses and assets. Without limiting the application of the Confidentiality Agreement, all documents or information furnished by SUG and its Subsidiaries hereunder shall be subject to the Confidentiality Agreement. (2) SUG will notify FAL as promptly as practicable of any significant change in the Ordinary Course of Business or operation of SUG or any of its Subsidiaries and of any material complaints, investigations or hearings (or communications indicating that the same may be contemplated) by any Governmental Body, or the institution or overt threat or A-37 settlement of any material Proceeding involving or affecting SUG or any of its Subsidiaries or the transactions contemplated by this Agreement, and shall use reasonable efforts to keep FAL fully informed of such events and permit FAL's Representatives access to all materials prepared in connection therewith consistent with any applicable Legal Requirement or Contract. SECTION 6.3 ADDITIONAL AGREEMENTS. (a) THE REGISTRATION STATEMENT AND THE FAL PROXY STATEMENT. As soon as practicable after the date hereof, FAL and SUG shall take such reasonable steps as are necessary for the prompt preparation and filing with the SEC of (i) the FAL Proxy Statement by FAL and (ii) the Registration Statement, which will include certain information contained in the FAL Proxy Statement, by SUG. The foregoing shall include without limitation: (i) obtaining and furnishing the information required to be included therein, (ii) after consultation between FAL and SUG, responding promptly to any comments made by the SEC with respect to the FAL Proxy Statement and the Registration Statement and any amendments and preliminary version thereof and (iii) causing the Registration Statement to become effective, and the FAL Proxy Statement to be mailed to FAL's stockholders at the earliest practicable date. FAL agrees, as to information with respect to FAL, its officers, directors, stockholders and Subsidiaries contained in the Registration Statement and the FAL Proxy Statement, and SUG agrees, as to information with respect to SUG, its officers, directors, stockholders and Subsidiaries contained in the Registration Statement and the FAL Proxy Statement, that such information, in the case of the FAL Proxy Statement at the time of the mailing of the FAL Proxy Statement and (as then amended or supplemented) at the time of the FAL Meeting, or in the case of the Registration Statement at the time of the mailing of the FAL Proxy Statement (as then amended or supplemented), at the time of the FAL Meeting and at the effective time of the Registration Statement, will not contain any untrue statement of material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. No representation, warranty, covenant or agreement is made by or on behalf of FAL with respect to information supplied by any other Person for inclusion in the FAL Proxy Statement or the Registration Statement. No representation, warranty, covenant or agreement is made by or on behalf of SUG with respect to information supplied by any other Person for inclusion in the FAL Proxy Statement or the Registration Statement. No filing of, or amendment or supplement to, the FAL Proxy Statement or the Registration Statement shall be made by any party hereto without providing the other party with the opportunity to review and comment thereon (except for any ongoing SEC reporting required of SUG or FAL that will be incorporated by reference). If at any time prior to the Effective Time any information relating to any party hereto or any of their respective officers, directors, stockholders or Subsidiaries, should be discovered by any party hereto which should be set forth in an amendment or supplement to the FAL Proxy tatement or the Registration Statement so that the FAL Proxy Statement or the Registration Statement would not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other party hereto and an appropriate amendment or supplement describing such information shall be promptly prepared, filed with the SEC and, to the extent required by law, disseminated to the stockholders of FAL, as may be necessary. (b) FURTHER ASSURANCES. Each of SUG and FAL agrees, and FAL agrees to cause its Subsidiaries, to take all such reasonable and lawful action as may be necessary or appropriate in order to A-38 effectuate the Merger in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purpose of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Acquired Companies, the officers and directors of the Surviving Corporation will be fully authorized to take, and will take, all such lawful and necessary action. (c) FINANCIAL STATEMENTS TO BE PROVIDED. Upon SUG's request, FAL shall (i) provide to SUG audited and unaudited financial statements required to be included in the proxy statements and the registration statement contemplated by the PEI Merger Agreement and (ii) cause its independent accountants to deliver to SUG and PEI the required consents in connection therewith. ARTICLE VII CONDITIONS SECTION 7.1 CONDITIONS TO SUG'S OBLIGATION TO EFFECT THE MERGER. The obligation of SUG to effect the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING DATE. FAL's representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the Closing Date as if made on the Closing Date; PROVIDED, HOWEVER, that any such representation or warranty that is qualified by any standard of materiality (including, but not limited to, FAL Material Adverse Effect) shall have then been, and shall then be, accurate in all respects. (b) COMPLIANCE WITH AGREEMENTS. The covenants, agreements and conditions required by this Agreement to be performed and complied with by any of the Acquired Companies shall have been performed and complied with in all material respects prior to or at the Closing Date. (c) CERTIFICATE. FAL shall execute and deliver to SUG a certificate of an authorized officer of FAL, dated the Closing Date, stating that the conditions specified in Sections 7.1(a) and 7.1(b) of this Agreement applicable to the Acquired Companies have been satisfied. (d) GOVERNMENTAL APPROVALS. All approvals, consents, opinions or rulings of all Governmental Bodies required in order to consummate the transactions contemplated hereby shall have been obtained by Final Order in such form as is, and with no conditions that are, individually or in the aggregate, reasonably likely to have a FAL Material Adverse Effect or a material adverse effect on the business, operations, properties, financial condition or results of operations of the Surviving Corporation, or which would otherwise, in the reasonable determination of SUG, be unduly burdensome to the Surviving Corporation or any of its Affiliates. In addition, and without limitation of the condition set forth in the immediately preceding sentence, the Massachusetts Department of Telecommunications and Energy shall have resolved, by means of a Final Order, the manner in which the Surviving Corporation as a whole and its operating division in Massachusetts will be regulated under Chapter 164 of the Massachusetts General Laws, and such resolution shall be acceptable to SUG in its sole discretion. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated. A-39 (e) THIRD PARTY CONSENTS. Each of the consents required under Section 5.4 of this Agreement shall have been obtained to the reasonable satisfaction of SUG, other than any such consents which, if not obtained, are not, individually or in the aggregate, reasonably likely to result in a FAL Material Adverse Effect after the Closing. In addition, all consents and approvals required, under the terms of any note, bond or indenture listed in Section 5.4 of the FAL Disclosure Schedule to which any of the Acquired Companies is a party, shall have been obtained. (f) INJUNCTIONS. On the Closing Date, there shall be no Orders which operate to restrain, enjoin or otherwise prevent the consummation of this Agreement or the Merger. (g) RESIGNATIONS. Each director of each Acquired Company shall resign any position as a director of an Acquired Company effective as of the Closing Date in accordance with such Acquired Company's Organizational Documents and applicable provisions of the MBCL; PROVIDED, HOWEVER, that such resignations shall not cause the termination of any such Person's employment as an employee of an Acquired Company or reduce any such employee's then current level of compensation. (h) OPINION OF TAX COUNSEL. On the Closing Date, SUG shall have received from Hughes Hubbard & Reed LLP, counsel to SUG, an opinion to the effect that the Merger will constitute a "reorganization" within the meaning of IRC Section 368(a)(1)(A), and that no gain or loss will be recognized by SUG or FAL with respect to the Merger. (i) FAL STOCKHOLDERS' APPROVAL. The FAL Stockholders' Approval shall have been obtained. (j) APPRAISAL RIGHTS. Demand for payment for shares and appraisal thereof by stockholders of FAL in accordance with the MBCL with respect to the Merger shall not equal or exceed 5 percent of the shares of FAL Common Stock entitled to vote on the Merger. (k) RULE 145 LETTERS. Each Rule 145 Affiliate shall have executed and delivered to SUG a Rule 145 Letter, in form and substance reasonably satisfactory to SUG and its counsel. (l) REGISTRATION STATEMENT. The Registration Statement shall have become effective, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. (m) LISTING OF SUG COMMON STOCK. The shares of SUG Common Stock constituting the Stock Consideration shall have been authorized for listing, upon official notice of issuance, on the NYSE. (n) FAL BONDHOLDERS' CONSENT. All holders of each series of First Mortgage Bonds issued and outstanding under the Indenture of First Mortgage, dated as of December 1, 1952, between FAL and State Street Bank and Trust Company, successor in interest to the First National Bank of Boston, successor by merger to Old Colony Trust Company, as Trustee, as amended or supplemented from time to time, shall have consented to such amendments to such Indenture as requested by SUG. A-40 SECTION 7.2 CONDITIONS TO FAL'S OBLIGATIONS TO EFFECT THE MERGER. The obligation of FAL to effect the transactions contemplated by this Agreement shall be subject to fulfillment at or prior to the Closing of the following conditions: (a) REPRESENTATIONS AND WARRANTIES TRUE AS OF THE CLOSING DATE. SUG's representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the Closing Date as if made on the Closing Date; PROVIDED, HOWEVER, that any such representation or warranty that is qualified by any standard of materiality (including, but not limited to, SUG Material Adverse Effect) shall have then been, and shall then be, accurate in all respects. (b) COMPLIANCE WITH AGREEMENTS. The covenants, agreements and conditions required by this Agreement to be performed and complied with by SUG shall have been performed and complied with in all material respects prior to or at the Closing Date. (c) CERTIFICATE. SUG shall execute and deliver to FAL a certificate of an authorized officer of SUG, dated the Closing Date, stating that the conditions specified in Sections 7.2(a) and 7.2(b) of this Agreement applicable to SUG have been satisfied. (d) GOVERNMENTAL APPROVALS. All approvals, consents, opinions or rulings of all Governmental Bodies required in order to consummate the transactions contemplated hereby shall have been obtained by Final Order in such form as is, and with no conditions that are, individually or in the aggregate, reasonably likely to have a material adverse effect on the business, operations, properties, financial condition or results of operations of the Surviving Corporation. The applicable waiting period under the HSR Act with respect to the transactions contemplated hereby shall have expired or have been terminated. (e) INJUNCTIONS. On the Closing Date, there shall be no Orders which operate to restrain, enjoin or otherwise prevent the consummation of this Agreement or the Merger. (f) OPINION OF COUNSEL. On the Closing Date, FAL shall have received from Rich, May, Bilodeau & Flaherty, P.C., counsel to FAL, an opinion to the effect that the Merger will be treated for federal income tax purposes as a "reorganization" within the meaning of IRC Section 368(a), and that no gain or loss will be recognized for federal income tax purposes by the stockholders of FAL who receive SUG Common Stock in the Merger upon their receipt of the Merger Consideration, except that any realized gain will be recognized to the extent of the amount of cash received (including cash in lieu of the fractional shares). (g) FAL STOCKHOLDERS' APPROVAL. The FAL Stockholders' Approval shall have been obtained. (h) REGISTRATION STATEMENT. The Registration Statement shall have become effective, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC. (i) LISTING OF SUG COMMON STOCK. The shares of SUG Common Stock constituting the Stock Consideration shall have been authorized for listing, upon official notice of issuance, on the NYSE. A-41 ARTICLE VIII TERMINATION SECTION 8.1 TERMINATION RIGHTS. This Agreement may be terminated in its entirety at any time prior to the Closing: (a) By the mutual written consent of SUG and FAL; (b) By FAL, on the one hand, or SUG, on the other hand, in writing if there shall be in effect a non-appealable order of a court of competent jurisdiction prohibiting the consummation of the Merger in accordance with this Agreement; (c) By FAL, by written notice to SUG, if there is a breach of any representation, warranty, covenant or agreement of SUG, which breach cannot be cured and would cause the conditions set forth in Section 7.2(a) or (b) to be incapable of being satisfied; (d) By SUG, by written notice to FAL, if there is a breach of any representation, warranty, covenant or agreement of FAL, which breach cannot be cured and would cause the conditions set forth in Section 7.1(a) or (b) to be incapable of being satisfied; (e) By FAL, by written notice to SUG in accordance with Section 6.1(h)(2); PROVIDED, HOWEVER, that the termination described in this clause (e) shall not be effective unless and until FAL shall have paid SUG the fee described in Section 8.3(a) and FAL has substantially contemporaneously entered into a definitive agreement with respect to the proposed Business Combination; (f) By FAL, by written notice to SUG, if the FAL Stockholders' Approval is not obtained at the FAL Meeting or by SUG, by written notice to FAL, if the FAL Stockholders' Approval is not obtained at the FAL Meeting; PROVIDED, HOWEVER, that there has not been a material misrepresentation or a material breach of covenant, warranty or agreement contained herein on the part of the party asserting its right to terminate pursuant to this Section 8.1(f); (g) By SUG, by written notice to FAL, if the Board of Directors of FAL or any committee thereof (i) withdraws or modifies, or proposes publicly to withdraw or modify, in a manner adverse to SUG, the approval or recommendation by the Board of Directors or such committee of the Merger or this Agreement, (ii) approves or recommends, or proposes publicly to approve or recommend, a Business Combination, (iii) causes FAL to enter into a definitive agreement related to any Business Combination or (iv) resolves to take any of the actions specified in clause (i), (ii) and (iii) above; (h) By SUG, by written notice to FAL, if a third party, including a group (as defined under the Exchange Act) acquires securities representing greater than 50% of the voting power of the outstanding voting securities of FAL; or (i) By FAL, by written notice to SUG, if the Average Trading Price of the SUG Common Stock as of the Closing is lower than $15.00. A-42 (j) By either party in writing at any time after 5:00 p.m., Eastern Time, on October 15, 2000 (the "Initial Termination Date"), if the Closing has not occurred prior thereto; PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section 8.1(j) will not be available to any party that is in material breach of its representations, warranties, covenants or agreements contained herein; and PROVIDED, FURTHER, that if on the Initial Termination Date (i) the conditions to closing set forth in Sections 7.1(d) and 7.2(d) shall not have been fulfilled or (ii) any approval or authorization of any Governmental Body required in connection with the consummation of the Merger shall have not been obtained and such approval or authorizations shall not have become a Final Order, but all other conditions to Closing shall be fulfilled or shall be capable of being fulfilled, then the Initial Termination Date will be extended to February 28, 2001. SECTION 8.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to Section 8.1, this Agreement shall be of no further force and effect and there shall be no further liability hereunder on the part of any party or its Affiliates, directors, officers, stockholders, agents or other Representatives; PROVIDED, HOWEVER, that (i) any fee payable under Section 8.3(a) is paid to SUG and (ii) no such termination shall relieve any party of liability for any claims, damages or losses suffered by the other party as a result of the negligent or willful failure of a party to perform any obligations required to be performed by it hereunder on or prior to the date of termination. Notwithstanding anything to the contrary contained herein, the provisions of Section 8.2, Sections 10.1 through 10.6 and Sections 10.8 through 10.11 of this Agreement shall survive any termination of this Agreement. SECTION 8.3 TERMINATION FEE; EXPENSES. (a) TERMINATION FEE. If this Agreement is terminated pursuant to Section 8.1(e), 8.1(g) or 8.1(h), then FAL shall pay to SUG promptly (but not later than five business days after notice is received from FAL) an amount equal to $1.5 million in cash. (b) EXPENSES. The parties agree that the agreements contained in this Section 8.3 are an integral part of the transactions contemplated by this Agreement and constitute liquidated damages and not a penalty. Notwithstanding anything to the contrary contained in this Section 8.3, if FAL fails to pay promptly to SUG the fee due under Section 8.3(a), in addition to any amounts paid or payable pursuant to Section 8.3(a), FAL shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee calculated using an annual percentage rate of interest equal to the prime rate published in the WALL STREET JOURNAL on the date (or preceding business day if such date is not a business day) such fee was required to be paid, compounded on a daily basis using a 360-day year. ARTICLE IX INDEMNIFICATION; REMEDIES SECTION 9.1 DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a) INDEMNIFICATION AND INSURANCE. For a period of six years after the Effective Time, the Surviving Corporation will indemnify and hold harmless the present and former officers and directors of FAL and its Subsidiaries (the "Indemnified Parties") in respect of acts or omissions occurring prior to the Effective Time to the extent provided under FAL's articles of organization and bylaws in effect on the date A-43 hereof; PROVIDED, HOWEVER, that if any claim or claims are asserted or made within such six-year period, all rights to indemnification in respect of such claims shall continue until the final disposition of any and all such claims. For six years after the Effective Time, the Surviving Corporation will use its reasonable best efforts to provide officers' and directors' liability insurance in respect of acts or omissions occurring prior to the Effective Time covering each such person currently covered by FAL's officers' and directors' liability insurance policy on terms with respect to coverage and amount no less favorable than those of such policy in effect on the date hereof; PROVIDED, HOWEVER, that in satisfying its obligation under this Section, if the annual premiums of such insurance coverage exceed 200% of the previous year's premiums, the Surviving Corporation will be obligated to obtain a policy with the best coverage available, in the reasonable judgment of the Board of Directors of the Surviving Corporation for a cost not exceeding such amount. (b) SUCCESSORS. In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then and in either such case, proper provisions must be made so that the successors and assigns of the Surviving Corporation will assume the obligations set forth in this Section 9.1. (c) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law, from and after the Effective Time, all rights to indemnification as of the date hereof in favor of the employees, agents, directors and officers of any Acquired Company with respect to their activities as such prior to the Effective Time, as provided in their respective Organizational Documents in effect on the date hereof, or otherwise in effect on the date hereof, will survive the Merger and will continue in full force and effect except for amendments to make changes permitted by law that would enhance the rights of past or present officers and directors to indemnification or advancement of expenses in respect of acts or omissions occurring prior to the Effective Time for a period of not less than six years from the Effective Time (or, in the case of matters occurring prior to the Effective Time which have not been resolved prior to the sixth anniversary of the Effective Time, until such matters are finally resolved). SECTION 9.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and warranty of either party shall expire at, and be terminated and extinguished with, the Effective Time. ARTICLE X GENERAL PROVISIONS SECTION 10.1 EXPENSES. Each of the parties will pay all costs and expenses of its performance of and compliance with this Agreement, except (i) as provided in Section 8.3 and as expressly provided otherwise herein, (ii) FAL shall pay all fees and expenses of counsel for FAL, (iii) SUG will pay all real estate transfer taxes and real estate recording fees, if any, including expenses of counsel associated with real estate title, transfer and recording issues in connection with the Merger, and all filing and application fees paid to Governmental Bodies in connection with the Merger and (iv) SUG and FAL will each pay half of the combined costs of printing and mailing to the FAL stockholders the prospectus that is a part of the Registration Statement and the FAL Proxy Statement. SECTION 10.2 NOTICES. All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been given upon receipt if either (a) personally delivered, (b) sent by A-44 prepaid first class mail, and registered or certified and a return receipt requested or (c) by facsimile telecopier with completed transmission acknowledged: if to SUG, to: Southern Union Company 504 Lavaca Street, Suite 800 Austin, Texas 78701 Attention: Peter H. Kelley President and Chief Operating Officer Telecopier: (512) 477-3879 with a copy to: Pennsylvania Enterprises, Inc. One PEI Center Wilkes-Barre, Pennsylvania 18711-0601 Attention: Thomas F. Karam President and Chief Executive Officer Telecopier: (570) 829-8900 and Hughes Hubbard & Reed LLP One Battery Park Plaza New York, New York 10004 Attention: Garett J. Albert Telecopier: (212) 422-4726 if to FAL, to: Fall River Gas Company 155 North Main Street Fall River, Massachusetts 02722 Attention: Bradford J. Faxon President and Chief Executive Officer Telecopier: (508) 675-7811 with a copy to: Rich, May, Bilodeau & Flaherty, P.C. 176 Federal Street Boston, Massachusetts 02110 Attention: Eric J. Krathwohl Telecopier: (617) 556-3889 or at such other address or number as shall be given in writing by a party to the other parties. SECTION 10.3 ASSIGNMENT. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties hereto. Any assignment in violation of the terms of this Agreement shall be null and void AB INITIO. SECTION 10.4 SUCCESSOR BOUND. Subject to the provisions of Section 10.3, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. SECTION 10.5 GOVERNING LAW; FORUM; CONSENT TO JURISDICTION. This Agreement shall be construed in accordance with and governed by the laws of the State of New York except to the extent that the terms and consummation of the Merger are subject to the DGCL or the MBCL in which case such laws shall govern. Each party to this Agreement hereby irrevocably and unconditionally (i) consents to submit to the exclusive jurisdiction of the federal courts of the Southern District of New York in the county of New York and the borough of Manhattan and the jurisdiction of the federal courts of the District of Massachusetts in the county of Suffolk and the city of Boston for any proceeding arising in connection with this Agreement (and each such party agrees not to commence any such proceeding, except in such courts), (ii) to the extent such party is not a resident of the State of New York or the Commonwealth of Massachusetts, agrees to appoint agents in the State of New York and the Commonwealth of Massachusetts as such party's agents for acceptance of legal process in any such proceeding against such party with the same legal force and validity as if served upon such party personally within the State of New York or the Commonwealth of Massachusetts, respectively, and to notify promptly each other party hereto of the name and address of each such agent, (iii) waives any objection to the laying of venue of any such proceeding in the federal courts of A-45 the Southern District of New York in the county of New York and the borough of Manhattan or the federal courts of the District of Massachusetts in the county of Suffolk and the city of Boston, and (iv) waives, and agrees not to plead or to make, any claim that any such proceeding brought in any federal court of the Southern District of New York or the District of Massachusetts has been brought in an improper or otherwise inconvenient forum. SECTION 10.6 WAIVER OF TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH ANY SUCH PARTY MAY BE A PARTY ARISING OUT OF OR IN ANY WAY PERTAINING TO (i) THIS AGREEMENT, (ii) THE MERGER, (iii) THE CONFIDENTIALITY AGREEMENT OR (iv) ANY RELATED DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES WHO ARE PARTIES TO THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH PARTY HERETO, AND EACH SUCH PARTY HEREBY REPRESENTS AND WARRANTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON TO INDUCE THIS WAIVER OR TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH PARTY TO THIS AGREEMENT FURTHER REPRESENTS AND WARRANTS THAT EACH SUCH PARTY HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF EACH SUCH PARTY'S OWN FREE WILL, AND THAT EACH SUCH PARTY HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. SECTION 10.7 COOPERATION; FURTHER DOCUMENTS. (a) Each of the parties hereto agrees to use its reasonable best efforts to take or cause to be taken all action, and to do or cause to be done all things necessary, proper or advisable under applicable laws, regulations or otherwise, to consummate and to make effective the transactions contemplated by this Agreement, including, without limitation, the timely performance of all actions and things contemplated by this Agreement to be taken or done by each of the parties hereto. (b) Each party shall cooperate with the other party in such other party's discharge of the obligations hereunder, which shall include making reasonably available to the other party such of its personnel as have relevant information, with respect thereto. SECTION 10.8 CONSTRUCTION OF AGREEMENT. The terms and provisions of this Agreement represent the results of negotiations between the parties hereto and their Representatives, each of which has been represented by counsel of its own choosing, and neither of which has acted under duress or compulsion, whether legal, economic or otherwise. Accordingly, the terms and provisions of this Agreement shall be interpreted and construed in accordance with their usual and customary meanings, and FAL and SUG hereby waive the application in connection with the interpretation and construction of this Agreement of any rule of law to the effect that ambiguous or conflicting terms or provisions contained in this Agreement shall be interpreted or construed against the party whose attorney prepared the executed draft or any earlier draft of this Agreement. A-46 SECTION 10.9 PUBLICITY; ORGANIZATIONAL AND OPERATIONAL ANNOUNCEMENTS. No party hereto shall issue, make or cause the publication of any press release or other announcement with respect to this Agreement or the transactions contemplated hereby, or otherwise make any disclosures relating thereto, without the consent of the other party, such consent not to be unreasonably withheld or delayed; PROVIDED, HOWEVER, that such consent shall not be required where such release or announcement is required by applicable law or the rules or regulations of a securities exchange, in which event the party so required to issue such release or announcement shall endeavor, wherever possible, to furnish an advance copy of the proposed release to the other party. SECTION 10.10 WAIVER. Except as otherwise expressly provided in this Agreement, neither the failure nor any delay on the part of any party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or waiver of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege available to each party at law or in equity. SECTION 10.11 PARTIES IN INTEREST. This Agreement (including the documents and instruments referred to herein) is not intended to confer upon any Person, other than the parties hereto and their successors and permitted assigns, any rights or remedies hereunder, except that the parties hereto agree and acknowledge that the agreements and covenants contained in Section 9.1 are intended for the direct and irrevocable benefit of the Indemnified Parties described therein and their respective heirs or legal representatives (each such director or Indemnified Party, a "Third Party Beneficiary"), and that each such Third Party Beneficiary, although not a party to this Agreement, shall be and is a direct and irrevocable third party beneficiary of such agreements and covenants and shall have the right to enforce such agreements and covenants against the Surviving Corporation in all respects fully and to the same extent as if such Third Party Beneficiary were a party hereto. SECTION 10.12 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur to a party in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that any party shall be entitled to an injunction or injunctions to prevent breaches of this agreement by any other party and to enforce specifically, to the fullest extent available, the terms and provisions hereof, including each party's obligation to close, in any court of the United States or any state having jurisdiction, this being in addition to any other right or remedy to which any party is entitled at law or in equity. SECTION 10.13 SECTION AND PARAGRAPH HEADINGS. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 10.14 AMENDMENT. This Agreement may be amended only by an instrument in writing executed by the parties hereto. SECTION 10.15 ENTIRE AGREEMENT. This Agreement, the exhibits, annexes and schedules hereto and the documents specifically referred to herein and the Confidentiality Agreement constitute the entire agreement, understanding, representations and warranties of the parties hereto with respect to the subject matter hereof. A-47 SECTION 10.16 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURES APPEAR ON FOLLOWING PAGE] A-48 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. SOUTHERN UNION COMPANY By: /s/ RONALD J. ENDRES ------------------------------------------- Name: Ronald J. Endres Title: Executive Vice President FALL RIVER GAS COMPANY By: /s/ BRADFORD J. FAXON ------------------------------------------- Name: Bradford J. Faxon Title: President and Chief Executive Officer By: /s/ PETER H. THANAS ------------------------------------------- Name: Peter H. Thanas Title: Senior Vice President and Treasurer [SEAL] A-49 APPENDIX B [LEGG MASON WOOD WALKER, INCORPORATED LETTERHEAD] October 4, 1999 The Board of Directors Fall River Gas Company 155 North Main Street Fall River, Massachusetts 02720 Attention: Bradford J. Faxon Members of the Board of Directors: We are advised that Fall River Gas Company (collectively, "Fall River" or the "Company") has entered into an Agreement of Merger (the "Agreement") with Southern Union Company ("Southern Union"), pursuant to which Fall River will merge into Southern Union and each outstanding share of Fall River common stock will be converted into the right to receive $23.50 in cash or in value of common stock of Southern Union on terms and conditions as more fully set forth in the Agreement (the transaction is referred to herein as the "Transaction"). You have requested our opinion, as investment bankers, as to the fairness to the shareholders of the Company, from a financial point of view, of the consideration to be received by the shareholders of the Company in the Transaction. For purposes of rendering this opinion, we have, among other things: (i) reviewed the form of the definitive Agreement and certain related documents; (ii) reviewed the audited consolidated financial statements of Fall River for the twelve month periods ended September 30, 1998, 1997, 1996 and 1995; (iii) reviewed the unaudited financial statements of Fall River for the nine month period ended June 30, 1999; (iv) reviewed the audited consolidated financial statements of Southern Union for the twelve month periods ended June 30, 1999, 1998, 1997, 1996 and 1995; (v) reviewed certain publicly available information concerning Fall River and Southern Union; B-1 (vi) reviewed forecast financial statements of Fall River furnished to us by the senior management of Fall River; (vii) reviewed and analyzed certain publicly available financial and stock market data with respect to operating statistics relating to selected public companies that we deemed relevant to our inquiry; (viii) reviewed the reported prices and trading activity of the publicly-traded securities of Fall River and Southern Union; (ix) analyzed certain publicly available information concerning the terms of selected merger and acquisition transactions that we considered relevant to our inquiry; (x) held meetings and discussions with certain officers and employees of Fall River and Southern Union concerning the operations, financial condition and future prospects of Fall River and Southern Union; and (xi) conducted such other financial studies, analyses and investigations and considered such other information as we deemed necessary or appropriate for purposes of our opinion. In connection with our review, we have assumed and relied upon the accuracy and completeness of all financial and other information supplied to us by Southern Union and Fall River or publicly available, and we have not independently verified such information. We have further relied upon the assurances of management of Southern Union and Fall River that they are unaware of any facts that would make such information incomplete or misleading. We also have relied upon the managements of Southern Union and Fall River, as to the reasonableness and achievability of the financial projections (and the assumptions and bases therein) provided to us or prepared for Fall River and Southern Union, and we have assumed that such projections have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management as to the future operating performance of Fall River and Southern Union, including without limitation the tax benefits, cost savings and operating synergy to be enjoyed by Southern Union after the Transaction. Neither Southern Union nor Fall River publicly discloses internal management projections of the type provided to Legg Mason in connection with Legg Mason's review of the Transaction. Such projections were not prepared with the expectation of public disclosure. The projections were based on numerous variables and assumptions that are inherently uncertain, including without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projections. We have not been requested to make, and have not made, an independent appraisal or evaluation of the assets, properties or liabilities of Fall River and we have not been furnished with any such appraisal or evaluation. We have not reviewed any of the books and records of Fall River or assumed any responsibility for conducting a physical inspection of the properties or facilities of Fall River. Further, this opinion is based upon prevailing market conditions and other circumstances and conditions existing on the date hereof. We have assumed that the B-2 Transaction will be consummated on the terms and conditions described in the form of the Agreement reviewed by us. It is understood that subsequent developments may affect the conclusions reached in this opinion and that we do not have any obligation to update, revise or reaffirm this opinion. It is understood that this letter is directed to the Company's Board of Directors. The opinion expressed herein is provided for the use of the Company's Board of Directors in its evaluation of the proposed Transaction and does not constitute a recommendation to any shareholder of the Company either of the Transaction or as to how such shareholder should vote on or otherwise respond to the Transaction. In addition, this letter does not constitute a recommendation of the Transaction over any other alternative transaction which may be available to the Company and does not address the underlying business decision of the Board of Directors of the Company to proceed with or effect the Transaction. This letter is not to be quoted or referred to, in whole or in part, in any registration statement, prospectus or proxy statement, or in any other document used in connection with the offering or sale of securities, nor shall this letter be used for any other purposes, without the prior written consent of Legg Mason Wood Walker, Incorporated; provided that this Opinion may be included in its entirety in any filing made by the Company with the Securities and Exchange Commission with respect to the Transaction. Legg Mason will receive a fee for providing this Opinion to the Board of Directors of Fall River. Legg Mason has previously provided a fairness opinion to a company that has agreed to be acquired by Southern Union. Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the consideration to be received by the shareholders of Fall River in the Transaction is fair to such shareholders from a financial point of view. Very truly yours, LEGG MASON WOOD WALKER, INCORPORATED By: /s/ ALEXSANDER M. STEWART ---------------------------------------- Alexsander M. Stewart Managing Director B-3 APPENDIX C VOTING AGREEMENT VOTING AGREEMENT, dated this 4th day of October, 1999, by and between SOUTHERN UNION COMPANY, a Delaware corporation ("SUG"), and The Jarabek Family Limited Partnership, Ronald J. Ferris, Bradford J. Faxon, Raymond H. Faxon, Cindy L.J. Audette, Gilbert C. Oliveira, Jr. and Thomas H. Bilodeau (each a "Stockholder" and collectively the "Stockholders"). RECITALS: WHEREAS, the Stockholders currently beneficially own (as such term is used under the Securities Exchange Act of 1934, as amended, and the rules and regulations issued thereunder) the shares of common stock, par value $.83 per share ("Shares"), of Fall River Gas Company, a Massachusetts corporation ("FAL") shown on Schedule A. WHEREAS, as a condition of entering into the Agreement of Merger, made as of the date hereof, by and between SUG and FAL (the "Merger Agreement"), SUG has requested that the Stockholders agree, and the Stockholders have agreed (i) to enter into a voting agreement and (ii) to give SUG an irrevocable proxy, coupled with an interest, to vote the Shares held by the Stockholders, in each case as more fully set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties hereby agree as follows: 1. AGREEMENT TO VOTE SHARES. Each Stockholder agrees during the term of this Agreement to vote, or cause to be voted, the Shares shown opposite the Stockholder's name on Schedule A hereto and any other Shares acquired after the date hereof, in person or by proxy, in favor of the Merger, the adoption and approval of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement at every meeting of the stockholders of FAL at which such matters are considered and at every adjournment thereof. 2. GRANT OF IRREVOCABLE PROXY. Each Stockholder hereby grants to SUG an irrevocable proxy, which proxy is coupled with an interest because of the consideration recited herein, to exercise, at any time and from time to time, all rights and powers of the Stockholder with respect to the Shares shown opposite the Stockholder's name on Schedule A hereto to vote, give approvals, and receive and waive notices of meetings for the purpose of securing the approval and adoption by the stockholders of FAL of the Merger Agreement and the consummation of the transactions contemplated thereby and to prevent any action that would prevent or hinder in any material respect such approval or consummation. By giving this proxy each Stockholder hereby revokes any other proxy granted by the Stockholder to vote any of the Shares in a manner inconsistent with the foregoing grant. The power and authority hereby conferred shall not be terminated by any act of the Stockholder or by operation of law, by the dissolution of, by lack of appropriate power or authority, or by the occurrence of any other event or events and shall be binding upon all its successors and assigns. If after the execution of this C-1 Agreement the Stockholder shall dissolve, cease to have appropriate power or authority, or if any other such event or events shall occur, SUG is nevertheless authorized and directed to vote the Shares in accordance with the terms of this Agreement as if such dissolution, lack of appropriate power or authority or other event or events had not occurred and regardless of notice thereof. 3. NO OTHER GRANT OF PROXY. Each Stockholder will not, directly or indirectly, grant any proxies or powers of attorney with respect to the Shares shown opposite the Stockholder's name on Schedule A hereto or acquired after the date hereof to any person in connection with its vote, consent or other approval sought, in favor of the Merger (as defined in the Merger Agreement), the adoption and approval of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement, other than as set forth in Sections 1 and 2 hereof. 4. TRANSFERS. Each Stockholder will not, nor will such Stockholder permit any entity under such Stockholder's control to, sell, transfer, pledge, assign or otherwise dispose of (including by gift) (collectively, "Transfer"), or consent to any Transfer of, any Shares or any interest therein or enter into any contract, option or other agreement or arrangement (including any profit sharing or other derivative arrangement) with respect to the Transfer of, any Shares or any interest therein to any person, unless prior to any such Transfer the transferee of such Shares agrees to be subject to the provisions of this Agreement. 5. NO SOLICITATION. Until the Merger is consummated or the Merger Agreement is terminated in accordance with its terms, each Stockholder shall not, nor shall it permit any investment banker, attorney or other advisor or representative of such Stockholder to, directly or indirectly through another person, solicit, initiate, encourage or otherwise facilitate any takeover proposal. 6. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder as to such Stockholder hereby represents and warrants to, and covenants with, SUG as follows: (a) The Stockholder beneficially owns with power to vote the number of Shares shown opposite the Stockholder's name on Schedule A free and clear of any and all claims, liens, charges, encumbrances, covenants, conditions, restrictions, voting trust arrangements, options and adverse claims or rights whatsoever, except as granted hereby or as would have no adverse effect on this Agreement and/or the proxy granted hereby. The Stockholder does not own of record or beneficially any shares of capital stock of FAL or other securities representing or convertible into shares of capital stock of FAL except as set forth in the preceding sentence, Shares purchased after the date hereof which shall become subject to this Agreement and the proxy granted hereby, and Shares which any of them may have the right to purchase upon exercise of options or warrants; (b) The Stockholder has the full right, power and authority to enter into this Agreement and to grant an irrevocable proxy to SUG with respect to the Shares; there are no options, warrants, calls, commitments or agreements of any nature whatsoever pursuant to which any person will have the right to purchase or otherwise acquire the Shares owned by the Stockholder except as would, if exercised, require such purchaser or acquiror to abide by this C-2 Agreement and the proxy granted hereby with respect thereto; except as provided in this Agreement, the Stockholder has not granted or agreed to grant any proxy or entered into any voting trust, vote pooling or other agreement with respect to the right to vote or give consents or approval of any kind as to the Shares which proxy, trust, pooling or other agreement remains in effect as of the date hereof and is in conflict with this Agreement or the proxy granted hereby; (c) The Stockholder is not a party to, subject to or bound by any agreement or judgment, order, writ, prohibition, injunction or decree of any court or other governmental body that would prevent the execution, delivery or performance of this Agreement by the Stockholder or the exercise of proxy rights by SUG with respect to the Shares; (d) This Agreement has been duly and validly executed and delivered by the Stockholder and constitutes a legal, valid and binding obligation of the Stockholder, enforceable in accordance with its terms, subject only to (i) the effect of bankruptcy, insolvency, reorganization or moratorium laws or other laws generally affecting the enforceability of creditors' rights and (ii) general equitable principles which may limit the right to obtain specific performance or other equitable remedies; and (e) The Stockholder will take all commercially reasonable action necessary in order that its representations and warranties set forth in this Agreement shall remain true and correct. 7. STOCKHOLDERS' COVENANTS. Each Stockholder shall not enter into any voting trust agreement, give any proxy or other right to vote the Shares or take any action that would limit the rights of any holder of the Shares to exercise fully the right to vote such Shares that would be in conflict with this Agreement or the proxy granted hereby. 8. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 9. ASSIGNMENT. This Agreement shall not be assigned or delegated by any party hereto, except that SUG may transfer its rights hereunder to any wholly-owned subsidiary of SUG, and except that any assignment of any of the Shares by any Stockholder shall require that such Shares remain subject to this Agreement and the proxy granted hereby. This Agreement shall be binding upon and inure to the benefit of SUG and its successors and assigns and shall be binding upon and inure to the benefit of the Stockholders and their permitted successors and any permitted assigns. 10. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages would be an inadequate remedy for a breach of this Agreement and that the obligations of the parties hereto shall be specifically enforceable. In addition to any other legal or equitable remedies to which SUG would be entitled, in the event of a breach or a threatened breach of this Agreement by any Stockholder, SUG shall have the right to obtain equitable relief, including C-3 (but not limited to) an injunction or order of specific performance of the terms hereof from a court of competent jurisdiction. 11. AMENDMENTS. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by all of the parties hereto. 12. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by cable, telegram or telex, or mailed by a party hereto by registered or certified mail (return receipt requested) or by a nationally recognized overnight mail deliver service, to the other party at the following addresses (or such other address for a party as shall be specified by like notice): if to SUG: Southern Union Company 504 Lavaca Street, Suite 800 Austin, Texas 78701 Attention: Peter H. Kelley President and Chief Operating Officer Fax Number: (512) 477-3879 with a copy to: Pennsylvania Enterprises, Inc. One PEI Center Wilkes-Barre, Pennsylvania 18711-0601 Attn: Thomas F. Karam President and Chief Executive Officer Fax Number: (570) 829-8900 and: Hughes Hubbard & Reed LLP One Battery Park Plaza New York, New York 10004 Attn: Garett J. Albert, Esq. Fax Number: (212) 422-4726 if to any Stockholder, to such Stockholder: c/o Fall River Gas Company 155 North Main Street Fall River, Massachusetts 02722 Fax Number: (508) 675-7811 with a copy to: Rich, May, Bilodeau & Flaherty, P.C. 176 Federal Street Boston, Massachusetts 02110 C-4 Attn: Eric J. Krathwohl, Esq. Fax Number: (617) 556-3889 Any party may change its address for notice by notice so given. 13. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts regardless of the laws that might otherwise govern under applicable principles of conflicts of laws. 14. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 15. TERM. This Agreement shall terminate, and the proxy granted herein shall cease to be irrevocable, upon the consummation of the Merger in accordance with and as defined in the Merger Agreement or such other expiration or termination of the Merger Agreement in accordance with its terms, and thereafter this Agreement shall be of no further force or effect and there shall be no liability on the part of any party with respect thereto except nothing herein will relieve any party from liability for any prior breach hereof. C-5 IN WITNESS WHEREOF, SUG has caused this Agreement to be duly executed, and each Stockholder has duly executed this Agreement, on the day and year first above written. SOUTHERN UNION COMPANY By: /s/ RONALD J. ENDRES ------------------------------------- Name: Ronald J. Endres Title: Executive Vice President THE JARABEK FAMILY LIMITED PARTNERSHIP /s/ BARBARA N. JARABEK ---------------------------------------- Barbara N. Jarabek, General Partner /s/ RONALD J. FERRIS ---------------------------------------- Ronald J. Ferris /s/ BRADFORD J. FAXON ---------------------------------------- Bradford J. Faxon /s/ RAYMOND H. FAXON ---------------------------------------- Raymond H. Faxon /s/ CINDY L.J. AUDETTE ---------------------------------------- Cindy L.J. Audette /s/ GILBERT C. OLIVEIRA, JR. ---------------------------------------- Gilbert C. Oliveira, Jr. /s/ THOMAS H. BILODEAU ---------------------------------------- Thomas H. Bilodeau C-6 SCHEDULE A
Stockholder Number of Shares - ----------- ---------------- The Jarabek Family Limited Partnership 295,710 Ronald J. Ferris 145,059 Bradford J. Faxon 40,306 Raymond H. Faxon 57,370 Cindy L.J. Audette 13,190 Gilbert C. Oliveira, Jr. 12,539 Thomas H. Bilodeau 9,006
C-7 APPENDIX D FORM OF VOTING AGREEMENT AND IRREVOCABLE PROXY Ladies and Gentlemen: Reference is made to the Agreement and Plan of Merger among Southern Union Company ("Southern Union"), and Fall River Gas Company ("Fall River"), dated as of October 4,1999 (as amended, supplemented or otherwise modified from time to time, the "Merger Agreement"). In connection therewith, the undersigned agrees, upon each and every oral or written request or direction by Fall River, and in accordance with such request or direction, (a) to vote each of the shares of common stock (par value $.83 1/3 per share) of Fall River beneficially owned by the undersigned (the "Shares") entitled to vote as of the record date for the Special Meeting of Shareholders of Fall River called for the purpose of voting on the Merger Agreement, either in person or by proxy, in favor of the approval of the Merger Agreement and the transactions contemplated thereby and (b) to vote the Shares, either in person or by proxy, on any other matter that is not inconsistent with the Merger Agreement and the transactions contemplated thereby submitted to Fall River's shareholders for approval in the same proportion as the votes cast by the shareholders of Fall River other than Southern Union. The undersigned irrevocably appoints each of Bradford J. Faxon and Peter H. Thanas attorney-in-fact and proxy of the undersigned, with full power of substitution, to vote the Shares on its behalf pursuant to the preceding sentence. This appointment is effective upon execution of this proxy and shall be valid until (A) in the case of clause (a) of the second preceding sentence, the earlier to occur of (i) the termination of the Merger Agreement in accordance with its terms or (ii) the D-1 consummation of the transactions contemplated by the Merger Agreement and (B) in the case of clause (b) of the second preceding sentence, the earliest to occur of (i) February 28, 2001, (ii) the sale of the Shares to one or more parties unaffiliated with Southern Union in open market transactions or (iii) the consummation of the transactions contemplated by the Merger Agreement. This proxy is irrevocable and shall be deemed to be coupled with an interest. The execution of this proxy shall revoke all prior proxies or written consents given by the undersigned at any time with respect to the Shares and no subsequent proxies or written consents may be given (and if given will be deemed not to be effective) by the undersigned with respect to the Shares. The undersigned hereby represents and warrants that the undersigned has full power and authority to execute this proxy, and has, or will have, good and unencumbered title to the Shares, free and clear of all liens, restrictions, charges and encumbrances, and not subject to any adverse claim, in any such case that would preclude the effectiveness of this proxy. The undersigned will, upon request, execute and deliver any additional documents and take such further actions necessary or desirable to carry out the purposes of the proxy. All authority conferred or agreed to be conferred in this proxy shall be binding upon the successors, assigns, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned. SOUTHERN UNION COMPANY By: /s/ PETER H. KELLEY -------------------------------------- Peter H. Kelley President and Chief Operating Officer DATED: April 25, 2000 D-2 PART II ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article TWELFTH of the Restated Certificate of Incorporation of Southern Union eliminates personal liability of directors to the fullest extent permitted by Delaware law. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any person against expenses, fines and settlements actually and reasonably incurred by any such person in connection with a threatened, pending or completed action, suit or proceeding in which he is involved by reason of the fact that he is or was a director, officer, employee or agent of such corporation, provided that (i) he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and (ii) with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. If the action or suit is by or in the name of the corporation, the corporation may indemnify any such person against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which the action or suit is brought determines upon application that, despite the adjudication of liability but in the light of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expense as the court deems proper. The directors and officers of Southern Union are covered by insurance policies indemnifying against certain liabilities, including certain liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), which might be incurred by them in such capacities and against which they cannot be indemnified by Southern Union. Southern Union has entered into an Indemnification Agreement with each member of its Board of Directors. The Indemnification Agreement provides the Directors with the contractual right to indemnification for any acts taken in their capacity as a director of Southern Union to the fullest extent permitted under Delaware law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. EXHIBIT NUMBER DESCRIPTION ------- ----------- (2) PLAN OF ACQUISITION 2.1 - Agreement of Merger between Southern Union Company and Fall River Gas Company dated as of October 4, 1999. (Filed as Exhibit 2 to Southern Union's Current Report on Form 8-K filed on October 4, 1999 and incorporated herein by reference; also included in the Proxy Statement/Prospectus as Appendix A). 2.2 - Agreement and Plan of Merger among Southern Union Company, GUS Acquisition Corporation and Providence Energy Corporation dated November 15, 1999. (Filed as Exhibit 2 to Southern Union's Current Report on Form 8-K filed on November 19, 1999 and incorporated herein by reference.) 2.3 - Agreement and Plan of Merger among Southern Union Company, SUG Acquisition Corporation and Valley Resources, Inc. dated November 30, 1999. (Filed as Exhibit 2 to II-1 Southern Union's Current Report on Form 8-K filed on December 6, 1999 and incorporated herein by reference.) (3)(i) ARTICLES OF INCORPORATION 3.1 - Restated Certificate of Incorporation of Southern Union Company. (Filed as Exhibit 3(a) to Southern Union's Transition Report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference.) 3.2 - Amendment to Restated Certificate of Incorporation of Southern Union Company which was filed with the Secretary of State of Delaware and became effective on October 26, 1999. (Filed as Exhibit 3(a) to Southern Union's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and incorporated herein by reference.) (3)(ii) BY-LAWS 3.3 - Southern Union Company Bylaws, as amended. (Filed as Exhibit 3(a) to Southern Union's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and incorporated herein by reference.) (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1 - Specimen Common Stock Certificate. (Filed as Exhibit 4(a) to Southern Union's Annual Report on Form 10-K for the year ended December 31, 1989 and incorporated herein by reference.) 4.2 - Indenture between Chase Manhattan Bank, N.A., as trustee, and Southern Union Company dated January 31, 1994. (Filed as Exhibit 4.1 to Southern Union's Current Report on Form 8-K dated February 15, 1994 and incorporated herein by reference.) 4.3 - Officers' Certificate dated January 31, 1994 setting forth the terms of the 7.60% Senior Debt Securities due 2024. (Filed as Exhibit 4.2 to Southern Union's Current Report on Form 8-K dated February 15, 1994 and incorporated herein by reference.) 4.4 - Officer's Certificate of Southern Union Company dated November 3, 1999 with respect to 8.25% Senior Notes due 2029. (Filed as Exhibit 99.1 to Southern Union's Current Report on Form 8-K filed on November 19, 1999 and incorporated herein by reference.) 4.5 - Certificate of Trust of Southern Union Financing I. (Filed as Exhibit 4-A to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) 4.6 - Certificate of Trust of Southern Union Financing II. (Filed as Exhibit 4-B to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) 4.7 - Certificate of Trust of Southern Union Financing III. (Filed as Exhibit 4-C to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) 4.8 - Form of Amended and Restated Declaration of Trust of Southern Union Financing I. (Filed as Exhibit 4-D to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) 4.9 - Form of Subordinated Debt Securities Indenture among Southern Union Company and Chase Manhattan Bank, N.A., as Trustee. (Filed as Exhibit 4-G to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) 4.10 - Form of Supplemental Indenture to Subordinated Debt Securities Indenture with respect to the Subordinated Debt Securities issued in connection with the Southern Union Financing Preferred Securities. (Filed as Exhibit 4-H to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) II-2 4.11 - Form of Southern Union Financing I Preferred Security (included in 4.7 above). (Filed as Exhibit 4-I to Southern Union's Registration Statement on Form S-3 (Filed as Exhibit 3(a) to Southern Union's Transition Report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference.) 4.12 - Form of Subordinated Debt Security (included in 4.9 above.) (Filed as Exhibit 4-J to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) 4.13 - Form of Guarantee with respect to Southern Union Financing I Preferred Securities. (Filed as Exhibit 4-K to Southern Union's Registration Statement on Form S-3 (No. 33-58297) and incorporated herein by reference.) 4.14 - First Mortgage Bonds Indenture of Mortgage and Deed of Trust dated as of March 15, 1946 by Southern Union Company (as successor to PG Energy, Inc. formerly, Pennsylvania Gas and Water Company, and originally, Scranton-Spring Brook Water Service Company) to Guaranty Trust Company of New York. (Filed as Exhibit 4.1 to Southern Union's Current Report on Form 8-K filed on December 30, 1999 and incorporated herein by reference.) 4.15 - Twenty-Third Supplemental Indenture dated as of August 15, 1989 (Supplemental to Indenture dated as of March 15, 1946) between Southern Union Company and Morgan Guaranty Trust Company of New York (formerly Guaranty Trust Company of New York). (Filed as Exhibit 4.2 to Southern Union's Current Report on Form 8-K filed on December 30, 1999 and incorporated herein by reference.) 4.16 - Twenty-Sixth Supplemental Indenture dated as of December 1, 1992 (Supplemental to Indenture dated as of March 15, 1946) between Southern Union Company and Morgan Guaranty Trust Company of New York. (Filed as Exhibit 4.3 to Southern Union's Current Report on Form 8-K filed on December 30, 1999 and incorporated herein by reference.) 4.17 - Thirtieth Supplemental Indenture dated as of December 1, 1995 (Supplemental to Indenture dated as of March 15, 1946) between Southern Union Company and First Trust of New York, National Association (as successor trustee to Morgan Guaranty Trust Company of New York). (Filed as Exhibit 4.4 to Southern Union's Current Report on Form 8-K filed on December 30, 1999 and incorporated herein by reference.) 4.18 - Thirty-First Supplemental Indenture dated as of November 4, 1999 (Supplemental to Indenture dated as of March 15, 1946) between Southern Union Company and U. S. Bank Trust, National Association (formerly, First Trust of New York, National Association). (Filed as Exhibit 4.5 to Southern Union's Current Report on Form 8-K filed on December 30, 1999 and incorporated herein by reference.) 4.19 - Pennsylvania Gas and Water Company Bond Purchase Agreement dated September 1, 1989. (Filed as Exhibit 4.6 to Southern Union's Current Report on Form 8-K filed on December 30, 1999 and incorporated herein by reference.) 4.20 - Southern Union is a party to other debt instruments, none of which authorizes the issuance of debt securities in an amount which exceeds 10% of the total assets of Southern Union. Southern Union hereby agrees to furnish a copy of any of these instruments to the Commission upon request. (5) OPINION RE LEGALITY 5.1 - Opinion of Fleischman and Walsh, L.L.P. including the consent of such firm. (8) OPINIONS RE TAX MATTERS 8.1 - Opinion of Rich, May, Bilodeau & Flaherty, P.C. including the consent of such firm. 8.2 - Opinion of Hughes Hubbard & Reed LLP including the consent of such firm. II-3 (10) MATERIAL CONTRACTS 10.1 - Amended and Restated Revolving Credit Agreement (Long-Term Credit Facility) between Southern Union Company and the Banks named therein dated May 31, 2000. 10.2 - Amended and Restated Revolving Credit Agreement (Short-Term Credit Facility) between Southern Union Company and the Banks named therein dated May 31, 2000. 10.3 - Southern Union Company 1982 Incentive Stock Option Plan and form of related Stock Option Agreement. (Filed as Exhibits 4.1 and 4.2 to Form S-8, File No. 2-79612 and incorporated herein by reference.) 10.4 - Form of Indemnification Agreement between Southern Union Company and each of the Directors of Southern Union Company. (Filed as Exhibit 10(I) to Southern Union's Annual Report on Form 10-K for the year ended December 31, 1986 and incorporated herein by reference.) 10.5 - Southern Union Company 1992 Long-Term Stock Incentive Plan, as Amended. (Filed as Exhibit 10(l) to Southern Union's Annual Report on Form 10-K for the year ended June 30, 1998 and incorporated herein by reference.)* 10.6 - Southern Union Company Director's Deferred Compensation Plan. (Filed as Exhibit 10(g) to Southern Union's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.)* 10.7 - Southern Union Company Amended Supplemental Deferred Compensation Plan with Amendments. (Filed as Exhibit 4 to Southern Union's Form S-8 filed March 27, 1999 and incorporated herein by reference.)* 10.8 - Form of Warrant granted to Fleischman and Walsh, L.L.P. (Filed as Exhibit 10(j) to Southern Union's Transition Report on Form 10-K for the year ended June 30, 1994 and incorporated herein by reference.) 10.9 - Renewal of Promissory Note Agreement between Peter H. Kelley and Southern Union Company dated May 31, 1995. (Filed as Exhibit 10(i) to Southern Union's Annual Report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference.) 10.10 - Employment agreement between Thomas F. Karam and Southern Union Company dated December 28, 1999. (Filed as Exhibit 10(a) to Southern Union's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and incorporated herein by reference.) 10.11 - Secured Promissory Note and Security Agreements between Thomas F. Karam and Southern Union Company dated December 20, 1999. (Filed as Exhibit 10(b) to Southern Union's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and incorporated herein by reference.) 10.12 - Southern Union Company Pennsylvania Division Stock Incentive Plan. (Filed as Exhibit 4 to Form S-8, SEC File No. 333-36146, filed on May 3, 2000 and incorporated herein by reference.)* 10.13 - Southern Union Company Pennsylvania Division 1992 Stock Option Plan. (Filed as Exhibit 4 to Form S-8, SEC File No. 333-36150, filed on May 3, 2000 and incorporated herein by reference.)* - ---------------- * Indicates Management Compensation Plan II-4 (21) SUBSIDIARIES OF THE COMPANY 21 - Subsidiaries of the Company. (23) CONSENT OF EXPERTS 23.1 - Consent of Independent Accountants, PricewaterhouseCoopers LLP 23.2 - Consent of Independent Accountants, PricewaterhouseCoopers LLP 23.3 - Consent of Independent Accountants, Arthur Andersen LLP 23.4 - Consent of Independent Public Accountants, Arthur Andersen LLP 23.5 - Consent of Independent Public Accountants, Arthur Andersen LLP 23.6 - Consent of Independent Certified Public Accountants, Grant Thornton LLP 23.7 - Consent of Fleischman and Walsh, L.L.P. is included in the opinion of counsel filed as Exhibit 5.1. 23.8 - Consent of Rich, May, Bilodeau & Flaherty, P.C. is included in the opinion of counsel filed as Exhibit 8.1. 23.9 - Consent of Hughes Hubbard & Reed LLP is included in the opinion of counsel filed as Exhibit 8.2. 23.10 - Consent of Legg Mason Wood Walker, Incorporated. (24) POWER OF ATTORNEY 24 - Power of Attorney of Directors of Registrant (99) ADDITIONAL EXHIBITS 99 - Form of Proxy of Fall River All supporting schedules have been omitted because they are not required or the information required to be set forth therein is included in the consolidated financial statements or in the notes thereto. ITEM 22. UNDERTAKINGS. (A) The undersigned Registrant hereby undertakes, that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (B) The undersigned Registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (C) The undersigned Registrant hereby undertakes as follows: II-5 (1) that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (2) that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (D) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (E) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (F) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas, on July 6, 2000. SOUTHERN UNION COMPANY /s/ RONALD J. ENDRES ----------------------------------- Ronald J. Endres Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated as of July 6, 2000. SIGNATURE CAPACITY --------- -------- George L. Lindemann* Director and Chief Executive Officer /s/PETER H. KELLEY Director and Chief Operating Officer ------------------ Peter H. Kelley John E. Brennan* Director Frank W. Denius* Director Aaron I. Fleischman* Director Kurt A. Gitter, M.D.* Director Adam M. Lindemann* Director Roger J. Pearson* Director George Rountree, III* Director Dan K. Wassong* Director Thomas F. Karam* Director Ronald W. Simms* Director /s/RONALD J. ENDRES Executive Vice President and Chief Financial ------------------- Officer Ronald J. Endres /s/DAVID J. KVAPIL Senior Vice President and Controller ------------------ (Principal Accounting Officer) David J. Kvapil *By: /s/ RONALD J. ENDRES ---------------- Ronald J. Endres Attorney-in-Fact II-7 EX-5.1 2 ex-5_1.txt EX 5.1 Exhibit 5.1 FLEISCHMAN AND WALSH, L.L.P. 1400 Sixteenth Street, N.W. Washington, D.C. 20036 (202) 939-7900 July 6, 2000 Southern Union Company 504 Lavaca Street Suite 800 Austin, Texas 78701 Dear Sir or Madam: Southern Union Company, a Delaware corporation ("Southern Union"), is filing a Registration Statement on Form S-4 ("Registration Statement"), under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration of shares of common stock of Southern Union, par value $1.00 per share ("Common Stock"), to be issued in connection with the transaction contemplated in the Agreement of Merger ("Merger Agreement"), dated as of October 4, 1999, by and between Southern Union and Fall River Gas Company, a Massachusetts corporation ("Fall River"). Pursuant to the Merger Agreement, Fall River will merge with and into Southern Union, with Southern Union being the surviving corporation. As counsel to Southern Union, we have examined the following documents, corporate records and matters of law: (i) Southern Union's Restated Certificate of Incorporation as amended to date; (ii) Southern Union's Bylaws as amended to date; (iii) Relevant resolutions adopted by Southern Union's Board of Directors and its Executive Committee; (v) The Registration Statement and exhibits thereto; and (vi) Such other documents, corporate records and matters of law as we have considered necessary for the purpose of rendering this opinion. In our examinations, we have assumed the genuineness of all signatures, the authenticity of all original or certified copies and the conformity to original or certified copies of all copies submitted to us as conformed or reproduction copies. We also have assumed, with respect to all parties to agreements or instruments relevant to the transactions contemplated by the Merger Agreement other than Southern Union, that such parties had the requisite power and authority (corporate or otherwise) to execute, deliver and perform such agreements or instruments, that such agreements or instruments have been duly authorized by all requisite action (corporate or otherwise), executed and delivered by such parties and that such agreements or instruments are the valid, binding and enforceable obligations of such parties. As to various questions of fact relevant to the opinion expressed herein, we have relied upon, and have assumed the accuracy of, certificates and oral or written statements and other information of or from public officials, officers or representatives of Southern Union, and others. Based on the foregoing and subject to the limitations set forth herein, we are of the opinion that the shares of Common Stock to be registered under the Registration Statement, or any portion thereof, when issued in accordance with the Merger Agreement, including any amendments thereto, and as described in the Registration Statement, will be validly issued, fully paid and nonassessable and will not be subject to preemptive or other rights to subscribe for or purchase Common Stock. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and as a part thereof. We also consent to the reference to our firm under the caption "Legal Matters" in the proxy statement/prospectus that forms a part of the Registration Statement. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. Please be advised that Aaron I. Fleischman, Senior Partner of Fleischman and Walsh, L.L.P., is a director of Southern Union, and that he, certain other attorneys with this firm, and this firm have beneficial interests in shares of Common Stock. Questions with respect to this opinion should be directed to Stephen A. Bouchard, a partner with this firm. Sincerely, /s/ FLEISCHMAN AND WALSH, L.L.P. EX-8.1 3 ex-8_1.txt EX 8.1 EXHIBIT 8.1 [Rich, May, Bilodeau & Flaherty, P.C. Letterhead] July 6, 2000 Fall River Gas Company 155 North Main Street P.O. Box 911 Fall River, Massachusetts 02722-0911 Gentlemen: Reference is made to the Registration Statement of Southern Union Company, a Delaware corporation ("SUG"), on Form S-4 (the "Registration Statement"), as amended or supplemented through the date hereof, and the proxy statement/prospectus included therein (the "Proxy Statement/Prospectus"), relating to the merger (the "Merger") of Fall River Gas Company, a Massachusetts corporation, with and into SUG. We have participated in the preparation of the description set forth in the section of the Prospectus entitled "Significant U.S. Federal Income Tax Consequences of the Mergers." In our opinion, such description insofar as it relates to the federal income tax consequences of the Merger, is accurate in all material respects. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. Very truly yours, /s/ Rich, May, Bilodeau & Flaherty, P.C. EX-8.2 4 ex-8_2.txt EX 8.2 Exhibit 8.2 [HUGHES HUBBARD & REED LLP LETTERHEAD] July 6, 2000 Southern Union Company 504 Lavaca Street Suite 800 Austin, Texas 78701 Ladies and Gentlemen: Reference is made to the Registration Statement of Southern Union Company, a Delaware corporation ("SUG"), on Form S-4 (the "Registration Statement"), as amended or supplemented through the date hereof, and the proxy statement/prospectus included therein to be sent to stockholders of Fall River Gas Company, a Massachusetts corporation ("Fall River") (the "Fall River Proxy Statement/Prospectus"), relating to the merger (the "Fall River Merger") of Fall River with and into SUG. We have participated in the preparation of the discussions set forth in the section of the Fall River Proxy Statement/Prospectus entitled "The Merger - -- Significant U.S. Federal Income Tax Consequences of the Merger." In our opinion, such discussion, insofar as it relates to the federal income tax consequences of the Fall River Merger, is accurate in all material respects. We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement and to the references to us contained in the Registration Statement. In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. Very truly yours, /s/ HUGHES HUBBARD & REED LLP EX-10.1 5 ex-10_1.txt EX 10.1 EXHIBIT 10.1 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (LONG-TERM CREDIT FACILITY) DATED AS OF MAY 31, 2000 BY AND AMONG SOUTHERN UNION COMPANY AS THE BORROWER --------------- AND THE BANKS NAMED HEREIN AS THE BANKS ------------ AND CHASE BANK OF TEXAS, NATIONAL ASSOCIATION AS THE ADMINISTRATIVE AGENT --------------------------- AND BANK ONE, NA AS THE SYNDICATION AGENT ------------------------ AND FIRST UNION NATIONAL BANK AS THE DOCUMENTATION AGENT -------------------------- AND CHASE SECURITIES INC. AS THE SOLE BOOK MANAGER AND LEAD ARRANGER ------------------------------------------ 1 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (LONG-TERM CREDIT FACILITY) Reference is hereby made to that certain Revolving Credit Agreement (Long-Term Credit Facility) dated as of November 10, 1998, executed by and between SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (the "Borrower"), the financial institutions listed on the signature pages of said Revolving Credit Agreement (each of said financial institutions now or hereafter a party to said Revolving Credit Agreement being hereinafter referred to collectively as "Banks" and individually as a "Bank"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association ("Chase"), in its capacity as agent (the "Agent") for the Banks. The Borrower, the Banks and the Agent have previously amended said Revolving Credit Agreement pursuant to the terms of a First Amendment to Revolving Credit Agreement (Long-Term Facility) dated as of February 25, 1999 (the "First Amendment") and a Second Amendment to Revolving Credit Agreement (Long-Term Facility) dated as of July 14, 1999 (the "Second Amendment"). Said Revolving Credit Agreement, as previously amended by the First Amendment and the Second Amendment, is referred to herein as the "Original Agreement." As a result of certain discussions between the Borrower, the Agent and the Banks, the parties to the Original Agreement now desire to amend and restate the Original Agreement in its entirety. Accordingly, the Original Agreement is hereby amended and restated in its entirety to hereafter be and read as follows: SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (hereinafter called the "Borrower"), the financial institutions listed on the signature pages hereof (collectively, the "Banks" and individually, a "Bank"), CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association ("Chase") in its capacity as administrative agent (the "Agent") for the Banks hereunder, BANK ONE, NA, a national banking association, in its capacity as syndication agent (the "Syndication Agent") for the Banks hereunder, and FIRST UNION NATIONAL BANK, a national banking association, in its capacity as documentation agent (the "Documentation Agent") for the Banks hereunder, hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "ADDITIONAL COSTS" shall mean, with respect to any Rate Period in the case of any Eurodollar Rate Loan, all costs, losses or payments, as determined by any Bank in its sole and absolute discretion (which determination shall be conclusive in the absence of manifest error) that such Bank or its Domestic Lending Office or its Eurodollar Lending Office does, or would, if such Eurodollar Rate Loan were funded during such Rate Period by the Domestic Lending Office or the Eurodollar Lending Office of such Bank, incur, suffer or make by reason of: (a) any and all present or future taxes (including, without limitation, any interest equalization tax or any similar tax on the acquisition of debt obligations, or any stamp or registration tax or duty or official or sealed papers tax), levies, imposts or any other charge of any nature whatsoever imposed by any taxing authority on or with regard to any aspect of the 2 transactions contemplated by this Agreement, except such taxes as may be measured by the overall net income of such Bank or its Domestic Lending Office or its Eurodollar Lending Office and imposed by the jurisdiction, or any political subdivision or taxing authority thereof, in which such Bank's Domestic Lending Office or its Eurodollar Lending Office is located; and (b) any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Eurodollar Rate Loan because of or arising from (i) the introduction of, or any change (other than any change by way of imposition or increase of reserve requirements, in the case of any Eurodollar Rate Loan, included in the Eurodollar Rate Reserve Percentage) in or in the interpretation or administration of, any law or regulation or (ii) the compliance with any request from any central bank or other governmental authority (whether or not having the force of law). "AFFILIATE" shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. If any Person shall own, directly or indirectly, beneficially or of record, twenty percent (20%) or more of the voting equity (whether outstanding capital stock, partnership interests or otherwise) of another Person, such Person shall be deemed to be an Affiliate. "AGENT" shall have the meaning set forth in the preamble hereto. "AGREEMENT" shall mean this Revolving Credit Agreement, as the same may be amended, modified, supplemented or restated from time to time. "ALTERNATE BASE RATE" shall mean, for any day, a rate, per annum (rounds upward to the nearest 1/16 of 1%) equal to: (a) the greatest of (i) the Prime Rate (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) in effect on such day; or (ii) the Federal Funds Rate in effect for such day PLUS one-half of one percent (1/2%) (computed on the basis of the actual number of days elapsed over a year of 360 days). "ALTERNATE BASE RATE LOAN" shall mean any Loan which bears interest at the Alternate Base Rate. "APPLICABLE LENDING OFFICE" shall mean, with respect to each Bank, such Bank's (a) Domestic Lending Office in the case of an Alternate Base Rate Loan; and (b) Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "ASSIGNMENT AND ACCEPTANCE" shall have the meaning set forth in Section 13.13. "AVAILABLE SENIOR FUNDED DEBT CAPACITY" for any period shall mean, as of the first day of that period, the principal amount of additional Senior Funded Debt that the Borrower would be permitted to issue under the then existing indentures, note purchase agreements and credit agreements (other than the Agreement and other revolving credit agreements). "BANK" shall have the meaning set forth in the preamble hereto and shall include the Agent, in its individual capacity. "BORROWER" shall have the meaning set forth in the preamble hereto. 3 "BORROWING DATE" shall mean a date upon which the Borrower has requested a Loan is to be made in a Notice of Borrowing delivered pursuant to Section 2.1. "BUSINESS DAY" shall mean a day when the Agent is open for business, provided that, if the applicable Business Day relates to any Eurodollar Rate Loan, it shall mean a day when the Agent is open for business and banks are open for business in the London interbank market and in New York City. "CAPITAL LEASE" shall mean any lease of any Property (whether real, personal, or mixed) which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of the lessee. "CAPITALIZED LEASE OBLIGATIONS" shall mean, for the Borrower and its Subsidiaries, any of their obligations that should, in accordance with GAAP, be recorded as Capital Leases. "CASH INTEREST EXPENSE" shall mean, for any period, total interest expense to the extent paid in cash (including the interest component of Capitalized Lease Obligations and capitalized interest and all dividends and interest paid on or with respect to Borrower's Structured Securities) of the Borrower and any Subsidiary for such period all as determined in conformity with GAAP. "CLOSING DATE" shall mean May 31, 2000. "CODE" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder issued by the Internal Revenue Service. "COMMITMENT" shall have the meaning set forth in Section 2.1(a) and "Commitments" shall mean, collectively, the Commitments of all of the Banks. "CONSOLIDATED NET INCOME" shall mean for any period the consolidated net income of the Borrower and all Subsidiaries, determined in accordance with GAAP, for such period. "CONSOLIDATED NET WORTH" shall mean, for any period for the Borrower and all Subsidiaries, (a) the consolidated stockholders' equity of the Borrower and its Subsidiaries, and preferred securities of the Borrower's Subsidiaries, all determined in accordance with GAAP, LESS (b) the sum of the following consolidated items, without duplication: the book amount of any deferred charges (including, but not limited to, unamortized debt discount and expenses, organization expenses, experimental and development expenses, but excluding prepaid expenses) that are not permitted to be recovered by the Borrower under rates permitted under rate tariffs, PLUS (c) the sum of all amounts contributed or paid by the Borrower to the Rabbi Trusts for purposes of funding the same, but only to the extent such contributions and payments are required to be deducted from the consolidated stockholders' equity of the Borrower and its Subsidiaries in accordance with GAAP. "CONSOLIDATED TOTAL CAPITALIZATION" shall mean at any time the sum of: (a) Consolidated Net Worth at such time; PLUS (b) the principal amount of outstanding Debt of the Borrower and its Subsidiaries. 4 "CONSOLIDATED TOTAL INDEBTEDNESS" shall mean all Debt of the Borrower and all Subsidiaries including any current maturities thereof, PLUS, without duplication, all amounts outstanding under Standby Letters of Credit and, without duplication, all Facility Letter of Credit Obligations. "DEBT" means (without duplication), for any Person indebtedness for money borrowed determined in accordance with GAAP but in any event including, (a) indebtedness of such Person for borrowed money or arising out of any extension of credit to or for the account of such Person (including, without limitation, extensions of credit in the form of reimbursement or payment obligations of such Person relating to letters of credit issued for the account of such Person) or for the deferred purchase price of property or services, except indebtedness which is owing to trade creditors in the ordinary course of business and which is due within thirty (30) days after the original invoice date; (b) indebtedness of the kind described in clause (a) of this definition which is secured by (or for which the holder of such Debt has any existing right, contingent or otherwise, to be secured by) any Lien upon or in Property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness or obligations; (c) Capitalized Lease Obligations of such Person; (d) obligations under direct or indirect Guaranties other than Guaranties issued by the Borrower covering obligations of the Southern Union Trusts under the Structured Securities. Whenever the definition of Debt is being used herein in order to compute a financial ratio or covenant applicable to the consolidated business of the Borrower and its Subsidiaries, Debt which is already included in such computation by virtue of the fact that it is owed by a Subsidiary of the Borrower will not also be added by virtue of the fact that the Borrower has executed a guaranty with respect to such Debt that would otherwise require such guaranteed indebtedness to be considered Debt hereunder. Nothing contained in the foregoing sentence is intended to limit the other provisions of this Agreement which contain limitations on the amount and types of Debt which may be incurred by the Borrower or its Subsidiaries. "DEBTOR LAWS" shall mean all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization, or similar laws, or general equitable principles from time to time in effect affecting the rights of creditors generally. "DEFAULT" shall mean any of the events specified in Section 11, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "DOLLARS" and "$" shall mean lawful currency of the United States of America. "DOMESTIC LENDING OFFICE" shall mean, with respect to each Bank, the office of such Bank located at its "Address for Notices" set forth below the name of such Bank on the signature pages hereof or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "EBDIT" shall mean for any period the sum of (a) consolidated net earnings for the Borrower and its Subsidiaries (excluding for all purposes hereof all extraordinary items), PLUS (b) each of the following to the extent actually deducted in deriving such net earnings: (i) depreciation and amortization expense; (ii) interest expense; (iii) federal and state income taxes; and (iv) dividends charged against income on or with respect to Structured Securities, in each case before adjustment for extraordinary items, as shown in the financial statements of Borrower 5 and its Subsidiaries referred to in Section 7.2 hereof (excluding for all purposes hereof all extraordinary items), and determined in accordance with GAAP, and (c) PLUS (or MINUS, if applicable) the net amount of non-cash deductions from (or additions to, if applicable) such net earnings for such period attributable to fluctuations in the market price(s) of securities which the Borrower is obligated to purchase in future periods under any of the Rabbi Trusts, but only to the extent that such deductions (or additions, if applicable) are required to be taken in accordance with GAAP. "ELIGIBLE ASSIGNEE" shall mean: (i) any Bank, or any Affiliate of any Bank, or any institution 100% of the voting stock of which is directly, or indirectly owned by such Bank or by the immediate or remote parent of such Bank; or (ii) a commercial bank, a foreign branch of a United States commercial bank, a domestic branch of a foreign commercial bank or other financial institution having in each case assets in excess of $1,000,000,000.00. "ENVIRONMENTAL LAW" shall mean (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601 ET SEQ.), as amended from time to time, and any and all rules and regulations issued or promulgated thereunder ("CERCLA"); (b) the Resource Conservation and Recovery Act (as amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.A. Section 6901 ET SEQ.), as amended from time to time, and any and all rules and regulations promulgated thereunder ("RCRA"); (c) the Clean Air Act, 42 U.S.C.A. Section 7401 ET SEQ., as amended from time to time, and any and all rules and regulations promulgated thereunder; (d) the Clean Water Act of 1977, 33 U.S.CA Section 1251 ET SEQ., as amended from time to time, and any and all rules and regulations promulgated thereunder; (e) the Toxic Substances Control Act, 15 U.S.C.A. Section 2601 ET SEQ., as amended from time to time, and any and all rules and regulations promulgated thereunder; or (f) any other federal or state law, statute, rule, or emulation enacted in connection with or relating to the protection or regulation of the environment (including, without limitation, those laws, statutes, rules, and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing, or transporting of Hazardous Materials) and any rules and regulations issued or promulgated in connection with any of the foregoing by any governmental authority, and "ENVIRONMENTAL LAWS" shall mean each of the foregoing. "EPA" shall mean the Environmental Protection Agency, or any successor organization. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules, regulations, rulings and interpretations thereof issued by the Internal Revenue Service or the Department of Labor thereunder. "EUROCURRENCY LIABILITIES" shall have the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "EURODOLLAR LENDING OFFICE" shall mean, with respect to each Bank, the office of such Bank located at its "Address for Notices" set forth below the name of such Bank on the signature pages hereof, or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "EURODOLLAR RATE" shall mean with respect to the applicable Rate Period in effect for each Eurodollar Rate Loan, the sum of (a) the quotient obtained by dividing (i) the annual rate of interest determined by the Agent, at or before 11:00 a.m. Houston time (or as soon thereafter as 6 practicable), on the second Business Day prior to the first day of such Rate Period, to be the annual rate of interest at which deposits of Dollars are offered to the Agent by prime banks in whatever Eurodollar interbank market may be selected by the Agent in its sole discretion, acting in good faith, at the time of determination and in accordance with then existing practice in such market for delivery on the first day of such Rate Period in immediately available funds and having a maturity equal to such Rate Period in an amount substantially equal to the amount of such Eurodollar Rate Loan by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Rate Period, PLUS (b) an additional percentage per annum changing with the rating of the Borrower's unsecured, non-credit enhanced Senior Funded Debt and determined in accordance with the following grid:
--------------------------------------------------------------------------------------- ADDITIONAL RATING OF THE BORROWER'S UNSECURED, NON-CREDIT PERCENTAGE ENHANCED SENIOR FUNDED DEBT PER ANNUM --------------------------------------------------------------------------------------- Equal to or greater than A3 by Moody's Investor Service, Inc. AND equal to or greater than A- by Standard and Poor's Ratings Group 0.500% --------------------------------------------------------------------------------------- Baa1 by Moody's Investor Service, Inc. OR BBB+ by Standard and Poor's Ratings Group 0.600% --------------------------------------------------------------------------------------- Baa2 by Moody's Investor Service, Inc. OR BBB by Standard and Poor's Ratings Group 0.650% --------------------------------------------------------------------------------------- Baa3 by Moody's Investor Service, Inc. OR BBB- by Standard and Poor's Ratings Group 0.700% --------------------------------------------------------------------------------------- Equal to or less than Ba1 by Moody's Investor Service, Inc. AND equal to or less than BB+ by Standard and Poor's Ratings Group 1.200% ---------------------------------------------------------------------------------------
"EURODOLLAR RATE LOAN" shall mean any Loan that bears interest at the Eurodollar Rate. "EURODOLLAR RATE RESERVE PERCENTAGE" of the Agent for any Rate Period for any Eurodollar Rate Loan shall mean the reserve percentage applicable during such Rate Period (or if more than one such percentages shall be so applicable, the daily average of such percentages for those days in such Rate Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental, or other marginal reserve requirement) for member banks of the Federal Reserve System with deposits exceeding $1,000,000,000 with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Rate Period. "EVENT OF DEFAULT" shall mean any of the events specified in Section 11, PROVIDED THAT there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. 7 "EXPIRATION DATE" shall mean the last day of a Rate Period. "FACILITY LETTER(S) OF CREDIT" shall mean, in the singular form, any Standby Letter of Credit issued by an Issuing Bank for the account of the Borrower pursuant to Section 3 and, in the plural form, all such Standby Letters of Credit issued for the account of the Borrower. "FACILITY LETTER OF CREDIT FEE PERCENTAGE" shall mean a fee expressed as a percent per annum for all periods equal to a percentage per annum changing with the rating of the Borrower's unsecured, non-credit enhanced Senior Funded Debt and determined in accordance with the following grid:
----------------------------------------------------------------------------------------- ADDITIONAL RATING OF THE BORROWER'S UNSECURED, NON-CREDIT PERCENTAGE ENHANCED SENIOR FUNDED DEBT PER ANNUM ----------------------------------------------------------------------------------------- Equal to or greater than A3 by Moody's Investor Service, Inc. AND equal to or greater than A- by Standard and Poor's Ratings Group 0.500% ----------------------------------------------------------------------------------------- Baa1 by Moody's Investor Service, Inc. OR BBB+ by Standard and Poor's Rating 0.600% ----------------------------------------------------------------------------------------- Baa2 by Moody's Investor Service, Inc. OR BBB by Standard and Poor's Rating Group 0.650% ----------------------------------------------------------------------------------------- Baa3 by Moody's Investor Service, Inc. OR BBB- by Standard and Poor's Rating Group 0.700% ----------------------------------------------------------------------------------------- Equal to or less than Ba1 by Moody's Investor Service, Inc. AND equal to or less than BB+ by Standard and Poor's Rating Group 1.200% -----------------------------------------------------------------------------------------
"FACILITY LETTER OF CREDIT OBLIGATIONS" shall mean, at any particular time, the sum of (a) the Reimbursement Obligations, PLUS (b) the aggregate undrawn face amount of all outstanding Facility Letters of Credit, in each case as determined by the Agent. "FEDERAL FUNDS RATE" shall mean, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates (rounded to the nearest 1/100 of 1%) on overnight federal fund transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from Fulton Prebon and Garvin Guy Butler or two other federal funds brokers of recognized standing selected by the Agent. "FUNDED DEBT" means all Debt of a Person which matures more than one year from the date of creation or matures within one year from such date but is renewable or extendible, at the 8 option of such Person, by its terms or by the terms of any instrument or agreement relating thereto, to a date more than one year from such date or arises under a revolving credit or similar agreement which obligates Banks to extend credit during a period of more than one year from such date, including, without limitation, all amounts of any Funded Debt required to be paid or prepaid within one year from the date of determination of the existence of any such Funded Debt. "GAAP" shall mean generally accepted accounting principles, applicable to the circumstances as of the date of determination, applied consistently with such principles as applied in the preparation of the Borrowers audited financial statements referred to in Section 7.2. "GENERAL INTANGIBLES" shall mean all of the Borrower's contract rights now existing or hereafter acquired, arising or created under contracts or arrangements for the purchase, sale, storage or transportation of gas or other Inventory. "GOVERNMENTAL AUTHORITY" shall mean any (domestic or foreign) federal, state, county, municipal, parish, provincial, or other government, or any department, commission, board, court, agency (including, without limitation, the EPA), or any other instrumentality of any of them or any other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of, or pertaining to, government, including, without limitation, any arbitration panel, any court, or any commission. "GOVERNMENTAL REQUIREMENT" means any Order, Permit, law, statute (including, without limitation, any Environmental Protection Statute), code, ordinance, rule, regulation, certificate, or other direction or requirement of any Governmental Authority. "GUARANTY" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of another Person, including, without limitation, by means of an agreement to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to maintain financial covenants, or to assure the payment of such Debt by an agreement to make payments in respect of goods or services regardless of whether delivered or to purchase or acquire the Debt of another, or otherwise, provided that the term "Guaranty" shall not include endorsements for deposit or collection in the ordinary course of business. "HAZARDOUS MATERIALS" shall mean any substance which, pursuant to any Environmental Laws, requires special handling in its collection, use, storage, treatment or disposal, including but not limited to any of the following: (a) any "hazardous waste" as defined by RCRA; (b) any "hazardous substance" as defined by CERCLA; (c) asbestos; (d) polychlorinated biphenyls; (e) any flammables, explosives or radioactive materials; and (f) any substance, the presence of which on any of the Borrower's or any Subsidiary's properties is prohibited by any Governmental Authority. "HIGHEST LAWFUL RATE" shall mean, with respect to each Bank, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged, or received with respect to the Notes or on other amounts, if any, due to such Bank pursuant to this Agreement, under laws applicable to such Bank which are presently in effect, or, to the extent allowed by law, under such applicable laws which may hereafter be in 9 effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "INDEMNIFIED PARTIES" shall have the meaning set forth in Section 13.16. "INTEREST PAYMENT DATE" shall mean (a) as to any Eurodollar Rate Loan in which the Rate Period with respect thereto is not greater than three (3) months, the date on which such Rate Period ends; (b) as to any Eurodollar Rate Loan in which the Rate Period with respect thereto is greater than three (3) months, the date on which the third month of such Rate Period ends, and the date on which each such Rate Period ends; (c) as to any Alternate Base Rate Loan in which the Rate Period with respect thereto is not greater than ninety (90) days, the date on which such Rate Period ends; (d) as to any Alternate Base Rate Loan in which the Rate Period with respect thereto is greater than ninety (90) days, the ninetieth (90th) day of such Rate Period, and the date on which each such Rate Period ends; and (e) as to all Loans, such time as the principal of and interest on the Notes shall have been paid in full. "INVENTORY" means, with respect to Borrower or any Subsidiary, all of such Person's now owned or hereafter acquired or created inventory in all of its forms and of every nature, wherever located, whether acquired by purchase, merger, or otherwise, and all raw materials, work in process therefor and finished goods thereof, and all supplies, materials, and products of every nature and description used, usable, or consumed in connection with the manufacture, packing, shipping, advertising, selling, leasing, furnishing, or production of such goods, and shall include, in any event, all "inventory" (within the meaning of such term in the Uniform Commercial Code in effect in any applicable jurisdiction), whether in mass or joint, or other interest or right of any kind in goods which are returned to, repossessed by, or stopped in transit by such Person, and all accessions to any of the foregoing and all products of any of the foregoing. "INVESTMENT" of any Person means any investment so classified under GAAP, and, whether or not so classified, includes (a) any direct or indirect loan advance made by it to any other Person; (b) any direct or indirect Guaranty for the benefit of such Person; PROVIDED, HOWEVER, that for purposes of determining Investments of Borrower hereunder, the existing Guaranty by Borrower of certain tax increment financing extended by The Fidelity Deposit and Discount Bank to The Redevelopment Authority of the County of Lackawanna shall be deemed to not be an Investment; (c) any capital contribution to any other Person; and (d) any ownership or similar interest in any other Person; and the amount of any Investment shall be the original principal or capital amount thereof (PLUS any subsequent principal or capital amount) MINUS all cash returns of principal or capital thereof. "ISSUING BANK" shall mean (a) Banks and/or Affiliates of Banks listed on the signature pages of this Agreement attached hereto and made a part hereof, or (b) any Bank or any Affiliate not listed on the signature pages of this Agreement in the event that such Bank or such Affiliate agrees, in its sole discretion at the request of the Borrower, and on the terms and conditions mutually acceptable to such Bank or such Affiliate, as the case may be, to become an Issuing Bank for the purpose of issuing one or more Facility Letters of Credit pursuant to Section 3. When a Bank is referred to as an Issuing Bank under this Agreement, such reference to such Bank shall be interpreted to refer to such Bank solely in its capacity as an Issuing Bank. "L/C SUBFACILITY" shall mean that portion of the Commitments equal to $25,000,000.00. 10 "LETTER(S) OF CREDIT" shall mean, in the singular form, any letter of credit issued by any Person for the account of the Borrower and, in the plural form, all such letters of credit issued by any Person for the account of the Borrower. "LETTER OF CREDIT COMMITMENT" shall mean, with respect to each Issuing Bank, such Issuing Bank's commitment to issue Facility Letters of Credit. "LETTER OF CREDIT REIMBURSEMENT AGREEMENT" shall mean, with respect to a Facility Letter of Credit, such form of application therefor and form of reimbursement agreement therefor (whether in a single or several documents, taken together) as the Issuing Bank from which the Facility Letter of Credit is requested may employ in the ordinary course of business for its own account, whether or not providing for collateral security, with such modifications thereto as may be agreed upon by such Issuing Bank and the account party and as are not materially adverse to the interests of any Bank; PROVIDED, HOWEVER, in the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agreement, the terms of this Agreement shall control; and PROVIDED, FURTHER, that any grant or purported grant of a security interest in favor of the Issuing Bank contained in any Letter of Credit Reimbursement Agreement shall be void. "LIEN" shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lien (including without limitation, any such interest arising under any Environmental Law), or similar charge of any kind (including without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or the interest of the lessor under any Capital Lease. "LOAN" or "LOANS" shall mean a loan or loans, respectively, from the Banks to the Borrower made under Section 2.1. "LOAN DOCUMENT" shall mean this Agreement, any Note, or any other document, agreement or instrument now or hereafter executed and delivered by the Borrower or any other Person in connection with any of the transactions contemplated by any of the foregoing, as any of the foregoing may hereafter be amended, modified, or supplemented, and "LOAN DOCUMENTS" shall mean, collectively, each of the foregoing. "MAJORITY BANK" shall mean at any time Banks holding more than 50% of the unpaid principal amounts outstanding under the Notes, or, if no such amounts are outstanding, more than 50% of the Pro Rata Percentages. "MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on (a) the financial condition, business, properties, assets, prospects or operations of the Borrower and its Subsidiaries taken as a whole, or (b) the ability of the Borrower to perform its obligations under this Agreement, any Note or any other Loan Document on a timely basis. "MATURITY DATE" shall mean May 31, 2003, as modified pursuant to the provisions of Section 2.4 hereof. "NON-FACILITY LETTER OF CREDIT" shall mean any Letter of Credit which is not a Facility Letter of Credit. 11 "NOTE" or "NOTES" shall mean a promissory note or notes, respectively, of the Borrower, executed and delivered under this Agreement. "NOTICE OF BORROWING" shall have the meaning set forth in Section 2.1(c). "OBLIGATIONS" shall mean (a) all obligations of the Borrower to the Bank under this Agreement, the Notes and all other Loan Documents to which it is a party; (b) all Reimbursement Obligations; and (c) any other obligations of the Borrower with respect to a Facility Letter of Credit. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Borrower or a Subsidiary, as the case may be, by either its President, one of its Vice Presidents, its Treasurer, its Secretary, or one of its Assistant Treasurers or Assistant Secretaries. "PENDING ACQUISITIONS" shall mean collectively the following described mergers by the Borrower with such specified entities, so long as (i) after the finalization and consummation of such mergers the Borrower is the surviving entity and (ii) such mergers are finalized and consummated on or before November 30, 2000 in substantial compliance with the following specified terms: (a) The contemplated merger of the Borrower and Fall River Gas Company announced October 5, 1999, whereby the Borrower acquires Fall River Gas Company for consideration of approximately $75,000,000.00, including assumption of certain existing Debt of Fall River Gas Company; (b) The contemplated merger of the Borrower and Providence Energy Corporation announced November 15, 1999, whereby the Borrower acquires Providence Energy Corporation for consideration of approximately $400,000,000.00, including assumption of certain existing Debt of Providence Energy Corporation, with each shareholder of Providence Energy Corporation receiving cash of $42.50 per each outstanding share of Providence Energy Corporation; and (c) The contemplated merger of the Borrower and Valley Resources, Inc. announced December 1, 1999, whereby the Borrower acquires Valley Resources, Inc. for consideration of approximately $160,000,000.00, including assumption of certain existing Debt of Valley Resources, Inc., with each shareholder of Valley Resources, Inc. receiving cash of $25.00 per each outstanding share of Valley Resources, Inc. "PERSON" shall mean an individual, partnership, joint venture, corporation, joint stock company, bank, trust, unincorporated organization and/or a government or any department or agency thereof. "PLAN" shall mean any plan subject to Title IV of ERISA and maintained for employees of the Borrower or of any member of a "controlled group of corporations," as such term is defined in the Code, of which the Borrower or any Subsidiary is a member, or any such plan to which the Borrower or any Subsidiary is required to contribute on behalf of its employees. 12 "PRIME RATE" shall mean, on any day, the rate determined by the Agent as being its prime rate for that day. Without notice to the Borrower or any other Person, the Prime Rate shall change automatically from time to time as and in the amount by which said Prime Rate shall fluctuate, with each such change to be effective as of the date of each change in such Prime Rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Agent may make commercial or other loans at rates of interest at, above or below the Prime Rate. "PRO-RATA PERCENTAGE" shall mean with respect to any Bank, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Bank's Commitment and the denominator of which shall be the aggregate amount of all the Commitments of the Banks, as adjusted from time to time in accordance with Section 4.6. "PROPERTY" shall mean any interest or right in any kind of property or asset, whether real, personal, or mixed, owned or leased, tangible or intangible, and whether now held or hereafter acquired. "QUALIFYING ASSETS" shall mean (i) equity interests owned one hundred percent (100%) by the Borrower in entities engaged primarily in one or more of the Borrower's lines of business described in Section 7.15 (singly, a "Qualified Entity," collectively, "Qualified Entities"), or productive assets used in one or more of such lines of business; PROVIDED, HOWEVER, that as to any related group of such Assets acquired for a purchase price of more than Sixty Million Dollars ($60,000,000.00) (including the amount of any Debt assumed or deemed incurred in connection with such acquisition), the Majority Banks shall have delivered to the Borrower their prior written consent; and (ii) equity interests of less than one hundred percent (100%) owned by the Borrower in one or more Qualifying Entities, provided that at any one time the amount of the Borrower's investment in Qualifying Assets described in clause (ii) (measured by the aggregate purchase price paid therefor, including the aggregate amount of Debt assumed or deemed incurred by Borrower in connection with such acquisitions) does not exceed ten percent (10%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date. "RABBI TRUSTS" shall mean those four (4) certain non-qualified deferred compensation irrevocable trusts existing as of the Closing Date, previously established by the Borrower for the benefit of its executive employees, so long as the assets in each of such trusts which have not yet been distributed to one or more executive employees of the Borrower remain subject to the claims of the Borrower's general creditors. "RATE PERIOD" shall mean the period of time for which the Alternate Base Rate or the Eurodollar Rate shall be in effect as to any Alternate Base Rate Loan or Eurodollar Rate Loan, as the case may be, commencing with the Borrowing Date or the Expiration Date of the immediately preceding Rate Period, as the case may be, applicable to and ending on the effective date of any reborrowing made as provided in Section 2.2(a) as the Borrower may specify in the related Notice of Borrowing, subject, however, to the early termination provisions of the second sentence of Section 2.3(b) relating to any Eurodollar Rate Loan; PROVIDED, HOWEVER, that any Rate Period that would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Rate Period shall end on the next preceding Business Day. For any Alternate Base Rate Loan, the Rate Period shall be 90 days; and for any Eurodollar Rate Loan the Rate 13 Period may be 15 days, 1, 2, 3, or 6 months, in each case as specified in the applicable Notice of Borrowing, subject to the provisions of Sections 2.2 and 2.3. "REIMBURSEMENT OBLIGATIONS" shall mean the reimbursement or repayment obligations of the Borrower to Issuing Banks pursuant to this Agreement or the applicable Letter of Credit Reimbursement Agreement with respect to Facility Letters of Credit issued for the account of the Borrower. "RELEASE" shall mean a "release", as such term is defined in CERCLA. "RESTRICTED PAYMENT" shall mean the Borrower's declaration or payment of any dividend on, or purchase or agreement to purchase any of, or making of any other distribution with respect to, any of its capital stock, except any such dividend, purchase or distribution consisting solely of capital stock of the Borrower, and except any dividend or interest paid on or with respect to the Borrower's Structured Securities to the extent that such amounts are included in Cash Interest Expense. "SECURITIES ACT" shall have the meaning set forth in Section 13.1. "SENIOR FUNDED DEBT" shall mean Funded Debt of the Borrower excluding Debt that is contractually subordinated in right of payment to any other Debt. "SENIOR NOTES" means (a) the $475,000,000 of 7.6% Senior Notes of the Borrower previously placed with investors on or about January 31, 1994, and (b) the $300,000,000 of 8.25% Senior Notes of the Borrower previously placed with investors on or about November 3, 1999, as such Senior Notes may be amended, modified, or supplemented from time to time in accordance with the terms of this Agreement; and "SENIOR NOTE" means each such note individually. "SHORT-TERM CREDIT FACILITY" means that certain $90,000,000.00 credit facility provided to the Borrower by the Banks, as evidenced and governed by the Short-Term Credit Facility Agreement. "SHORT-TERM CREDIT FACILITY AGREEMENT" means that certain Amended and Restated Revolving Credit Agreement (Short-Term Credit Facility) of even effective date herewith, executed by and among the Borrower, the Banks, and the Agent in connection with the Short-Term Credit Facility, as the same may be amended, modified, supplemented, or restated from time to time. "SHORT-TERM CREDIT FACILITY NOTES" means the promissory notes of the Borrower executed and delivered under the Short-Term Credit Facility Agreement. "SIGNIFICANT PROPERTY" shall mean at any time property or assets of the Borrower or any Subsidiary having a book value (net of accumulated depreciation taken in accordance with GAAP) of at least $5,000,000.00 or that contributed (or is an integrated physical portion of an assemblage of assets that contributed) at least 5% of the gross income of the owner thereof for the fiscal quarter most recently ended. "SOUTHERN UNION TRUST" means any of those certain Delaware business trusts organized for the sole purpose of purchasing Subordinated Debt Securities constituting a portion of, and 14 described in the definition of, Structured Securities and issuing the Preferred Securities and Common Securities also constituting a portion of, and described in the definition of, Structured Securities, and having no assets other than the Borrower's Subordinated Debt Securities, the Guaranties (as described in the definition of Structured Securities) and the proceeds thereof. Southern Union Trusts shall be considered to be Subsidiaries for purposes hereof so long as their affairs are consolidated under GAAP and for federal income tax purposes with the affairs of the Borrower. "STANDBY LETTER OF CREDIT" shall mean any standby letter of credit issued to support obligations (contingent or otherwise) of the Borrower. "STRUCTURED SECURITIES" shall mean collectively (a) the Subordinated Debt Securities, the Guaranties, the Common Securities and the Preferred Securities of the Southern Union Trusts, all as described and defined in the Registration Statement on Form S-3 filed by the Borrower with the Securities and Exchange Commission on March 25, 1995, and (b) subordinated debt securities, guaranties, common securities and/or preferred securities hereafter issued in connection with the consummation of the Pending Acquisitions in an aggregate face amount of not more than $150,000,000 upon terms and conditions substantially similar in all material respects to the terms and conditions described and defined in such Registration Statement on Form S-3 filed by the Borrower with the Securities and Exchange Commission on March 25, 1995. For all purposes of this Agreement, the amounts payable by Southern Union Trusts under the Preferred Securities and Common Securities (or similar securities provided for under subclause (b) above) and the amounts payable by the Borrower under the Subordinated Debt Securities or the Guaranties (or similar securities provided for under subclause (b) above) shall be treated without duplication, it being recognized that the amounts payable by Southern Union Trusts are funded with payments made or to be made by the Borrower to Southern Union Trusts and are also guaranteed by the Borrower under the Guaranties described in the S-3 mentioned above (or similar guaranties provided for under subclause (b) above). "SUBSIDIARY" or "SUBSIDIARIES" shall mean any corporation or corporations organized under the laws of any state of the United States of America, Canada, or any province of Canada, which conduct(s) the major portion of business in the United States of America or Canada and of which not less than 50% of the voting stock of every class (except for directors' qualifying shares), at the time as of which any determination is being made, is owned by the Borrower either directly or indirectly through other Subsidiaries. "TYPE" shall mean, with respect to any Loan, any Alternate Base Rate Loan or any Eurodollar Rate Loan. "UNUSED L/C SUBFACILITY" shall mean, at any time, the amount, if any, by which the L/C Subfacility then in effect exceeds the aggregate outstanding amount of all Facility Letter of Credit Obligations. 2. THE LOANS 2.1 THE LOANS 15 (a) Subject to the terms and conditions and relying upon the representations and warranties of the Borrower herein set forth, each Bank severally agrees to make Loans to the Borrower on any one or more Business Days prior to the Maturity Date, up to an aggregate principal amount of Loans not exceeding at any time outstanding: (i) the amount set opposite such Banks name on the signature pages hereof (such Bank's "Commitment"); MINUS (ii) such Bank's Pro Rata Percentage of the Facility Letter of Credit Obligations. Within such limits and during such period and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow hereunder. (b) The Borrower shall execute and deliver to the Agent for each Bank to evidence the Loans made by each Bank under such Bank's Commitment, a Note, which shall be: (i) dated the date of the Closing Date; (ii) in the principal amount of such Bank's maximum Commitment; (iii) in substantially the form attached hereto as EXHIBIT A, with blanks appropriately filled; (iv) payable to the order of such Bank on the Maturity Date; and (v) subject to acceleration upon the occurrence of an Event of Default. Each Note shall bear interest on the unpaid principal amount thereof from time to time outstanding at the rate per annum determined as specified in Sections 2.2(a), 2.2(b), 2.3(b) and 2.3(c), payable on each Interest Payment Date and at maturity, commencing with the first Interest Payment Date following the date of each Note. (c) Each Loan shall be: (i) in the case of any Eurodollar Rate Loan, in an amount of not less than $1,000,000.00 or an integral multiple of $1,000,000.00 in excess thereof; or (ii) in the case of any Alternate Base Rate Loan, in an amount of not less than $500,000.00 or an integral multiple of $100,000.00 in excess thereof and, at the option of the Borrower, any borrowing under this Section 2.1(c) may be comprised of two or more such Loans bearing different rates of interest. Each such borrowing shall be made upon prior notice from the Borrower to the Agent in the form attached hereto as EXHIBIT B (the "Notice of Borrowing") delivered to the Agent not later than 11:00 am (Houston time): (i) on the third Business Day prior to the Borrowing Date, if such borrowing consists of Eurodollar Rate Loans; and (ii) on the Borrowing Date, if such borrowing consists of Alternate Base Rate Loans. Each Notice of Borrowing shall be irrevocable and shall specify: (i) the amount of the proposed borrowing and of each Loan comprising a part thereof; (ii) the Borrowing Date; (iii) the rate of interest that each such Loan shall bear; (iv) the Rate Period with respect to each such Loan and the Expiration Date of each such Rate Period; and (v) the demand deposit account of the Borrower at Chase Bank of Texas, National Association into which the proceeds of the borrowing are to be deposited by the Agent. The Borrower may give the Agent telephonic notice by the required time of any proposed borrowing under this Section 2.1(c); PROVIDED THAT such telephonic notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than the Borrowing Date relating to any such borrowing) of a Notice of Borrowing. Neither the Agent nor any Bank shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent believes in good faith to have been given by the Borrower, or for otherwise acting in good faith under this Section 2.1(c). (d) In the case of a proposed borrowing comprised of Eurodollar Rate Loans, the Agent shall promptly notify each Bank of the applicable interest rate under 16 Section 2.2. Each Bank shall, before 11:00 am (Houston time) on the Borrowing Date, make available for the account of its Applicable Lending Office to the Agent at the Agent's address set forth in Section 13.4, in same day funds, its Pro Rata Percentage of such borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Section 8, on the Borrowing Date, the Agent shall make the borrowing available to the Borrower at its Applicable Lending Office in immediately available funds. Each Bank shall post on a schedule attached to its Note(s): (i) the date and principal amount of each Loan made under such Note; (ii) the rate of interest each such Loan will bear; and (iii) each payment of principal thereon; PROVIDED, HOWEVER, that any failure of such Bank so to mark such Note shall not affect the Borrower's obligations thereunder; and PROVIDED FURTHER that such Bank's records as to such matters shall be controlling whether or not such Bank has so marked such Note. Any deposit to the Borrower's demand deposit account by the Agent or by Chase Bank of Texas, National Association (of funds received from the Agent) pursuant to a request (whether written or oral) believed by the Agent or by Chase Bank of Texas, National Association to be an authorized request by the Borrower for a Loan hereunder shall be deemed to be a Loan hereunder for all purposes with the same effect as if the Borrower had in fact requested the Agent to make such Loan. (e) Unless the Agent shall have received notice from a Bank prior to the date of any borrowing that such Bank will not make available to the Agent such Bank's Pro Rata Percentage of such borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such borrowing in accordance with this Section 2.1 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such Pro Rata Percentage available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, (i) in the case of the Borrower, at the interest rate applicable at the time to the Loans comprising such borrowing, and (ii) in the case of such Bank, at the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan as part of such borrowing for purposes of this Agreement. (f) The failure of any Bank to make the Loan to be made by it as part of any borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on the date of any borrowing. 2.2 INTEREST RATE DETERMINATION (a) Except as specified in Sections 2.3(b) and 2.3(c), the Loans shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at a rate per annum (calculated based on a year of 360 days in the case of the Eurodollar Rate or the Alternate Base Rate based on the Federal Funds Rate and a year of 365 or 366 days, as the case may be, in the case of the Alternate Base Rate based on the Prime Rate) equal to the lesser of (A) the rate specified in the Notice of Borrowing with 17 respect thereto or (B) the Highest Lawful Rate from the first day to, but not including, the Expiration Date of the Rate Period then in effect with respect thereto. (b) Any principal, interest, fees or other amount owing hereunder, under any Note or under any other Loan Document that is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest at a rate per annum equal to the lesser of (i) two percent (2%) above the Alternate Base Rate in effect from time to time or (ii) the Highest Lawful Rate. 2.3 ADDITIONAL INTEREST RATE PROVISIONS (a) The Note may be held by each Bank for the account of its respective Domestic Lending Office or its respective Eurodollar Lending Office, and may be transferred from one to the other from time to time as each Bank may determine. (b) If the Borrower shall have chosen the Eurodollar Rate in a Notice of Borrowing and prior to the Borrowing Date, any Bank in good faith determines (which determination shall be conclusive) that (i) deposits in Dollars in the principal amount of such Eurodollar Rate Loan are not being offered to the Eurodollar Lending Office of such Bank in the Eurodollar interbank market selected by such Bank in its sole discretion in good faith or (ii) adequate and reasonable means do not exist for ascertaining the chosen Eurodollar Rate in respect of such Eurodollar Rate Loan or (iii) the Eurodollar Rate for any Rate Period for such Eurodollar Rate Loan will not adequately reflect the cost to such Bank of making such Eurodollar Rate Loan for such Rate Period, then such Bank will so notify the Borrower and the Agent and such Eurodollar Rate shall not become effective as to such Eurodollar Rate Loan on such Borrowing Date or at any time thereafter until such time thereafter as the Borrower receives notice from the Agent that the circumstances giving rise to such determination no longer apply. (c) Anything in this Agreement to the contrary notwithstanding, if at any time any Bank in good faith determines (which determination shall be conclusive) that the introduction of or any change in any applicable law, rule or regulation or any change in the interpretation or administration thereof by any governmental or other regulatory authority charged with the interpretation or administration thereof shall make it unlawful for the Bank (or the Eurodollar Lending Office of such Bank) to maintain or fund any Eurodollar Rate Loan, such Bank shall give notice thereof to the Borrower and the Agent. With respect to any Eurodollar Rate Loan which is outstanding when such Bank so notifies the Borrower, upon such date as shall be specified in such notice the Rate Period shall end and the lesser of (i) the Alternate Base Rate or (ii) the Highest Lawful Rate shall commence to apply in lieu of the Eurodollar Rate in respect of such Eurodollar Rate Loan and shall continue to apply unless and until the Borrower changes the rate as provided in Section 2.2(a). No more than five (5) Business Days after such specified date, the Borrower shall pay to such Bank (x) accrued and unpaid interest on such Eurodollar Rate Loan at the Eurodollar Rate in effect at the time of such notice to but not including such specified date PLUS (y) such amount or amounts (to the extent that such amount or amounts would not be usurious under applicable law) as may be necessary to compensate such Bank for any direct or indirect costs and losses incurred by it (to the extent that such amounts have not been included in the Additional Costs in calculating such Eurodollar Rate), but otherwise without penalty. If notice has been given by such 18 Bank pursuant to the foregoing provisions of this Section 2.3(c), then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such notice no longer apply, such Eurodollar Rate shall not again apply to such Loan or any other Loan and the obligation of such Bank to continue any Eurodollar Rate Loan as a Eurodollar Rate Loan shall be suspended. Any such claim by such Bank for compensation under clause (y) above shall be accompanied by a certificate setting forth the computation upon which such claim is based, and such certificate shall be conclusive and binding for all purposes, absent manifest error. (d) THE BORROWER WILL INDEMNIFY EACH BANK AGAINST, AND REIMBURSE EACH BANK ON DEMAND FOR, ANY LOSS (INCLUDING LOSS OF REASONABLY ANTICIPATED PROFITS DETERMINED USING REASONABLE ATTRIBUTION AND ALLOCATION METHODS), OR REASONABLE COST OR EXPENSE INCURRED OR SUSTAINED BY SUCH BANK (INCLUDING WITHOUT LIMITATION, ANY LOSS OR EXPENSE INCURRED BY REASON OF THE LIQUIDATION OR REEMPLOYMENT OF DEPOSITS OR OTHER FUNDS ACQUIRED BY SUCH BANK TO FUND OR MAINTAIN ANY EURODOLLAR RATE LOAN) AS A RESULT OF (I) ANY ADDITIONAL COSTS INCURRED BY SUCH BANK; (II) ANY PAYMENT OR REPAYMENT (WHETHER AUTHORIZED OR REQUIRED HEREUNDER OR OTHERWISE) OF ALL OR A PORTION OF ANY LOAN ON A DAY OTHER THAN THE EXPIRATION DATE OF A RATE PERIOD FOR SUCH LOAN; (III) ANY PAYMENT OR PREPAYMENT (WHETHER REQUIRED HEREUNDER OR OTHERWISE) OF ANY LOAN MADE AFTER THE DELIVERY OF A NOTICE OF BORROWING BUT BEFORE THE APPLICABLE BORROWING DATE IF SUCH PAYMENT OR PREPAYMENT PREVENTS THE PROPOSED BORROWING FROM BECOMING FULLY EFFECTIVE; OR (IV) AFTER RECEIPT BY THE AGENT OF A NOTICE OF BORROWING, THE FAILURE OF ANY LOAN TO BE MADE OR EFFECTED BY SUCH BANK DUE TO ANY CONDITION PRECEDENT TO A BORROWING NOT BEING SATISFIED BY THE BORROWER OR DUE TO ANY OTHER ACTION OR INACTION OF THE BORROWER. ANY BANK DEMANDING PAYMENT UNDER THIS SECTION 2.3(D) SHALL DELIVER TO THE BORROWER AND THE AGENT A STATEMENT REASONABLY SETTING FORTH THE AMOUNT AND MANNER OF DETERMINING SUCH LOSS, COST OR EXPENSE. THE FACTS SET FORTH IN SUCH STATEMENT SHALL BE CONCLUSIVE AND BINDING FOR ALL PURPOSES, ABSENT MANIFEST ERROR. (e) If, after the date of this Agreement, any Bank shall have determined that the adoption of any applicable law, rule, guideline, interpretation or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder and under similar lending arrangements to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into 19 consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material then the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (f) A certificate of such Bank setting forth such amount or amounts as shall be necessary to compensate such Bank as specified in subparagraph (e) above shall be delivered as soon as practicable to the Borrower (with a copy thereof to the agent) and to the extent determined in accordance with subparagraph (e) above shall be conclusive and binding, absent manifest error. The Borrower shall pay such Bank the amount shown as due on any such certificate within fifteen (15) days after such Bank delivers such certificate. In preparing such certificate, such Bank may employ such assumptions and allocations (consistently applied with respect to advances made by such Bank or commitments by such Bank to make advances) of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method (consistently applied with respect to advances made by such Bank or commitments by such Bank to make advances). (g) In calculating the Eurodollar Rate, the Facility Letter of Credit Fee Percentage and the commitment fee payable under SECTION 5.1 hereof, and notwithstanding the provisions set forth in the definitions of Eurodollar Rate and Facility Letter of Credit Fee Percentage or in the pricing grid established for the commitment fee in SECTION 5.1 hereof, in the event that ratings of the Borrower's unsecured, non-credit enhanced Senior Funded Debt under Standard & Poor's Ratings Group and under Moody's Investor Service, Inc. fall within different rating categories which are not functional equivalents, the Eurodollar Rate, the Facility Letter of Credit Fee Percentage and the commitment fee payable under SECTION 5.1 hereof shall be based on the higher of such ratings if there is only one category differential between the functional equivalents of such ratings, and if there is a two category differential between the functional equivalents of such ratings, the component of pricing from the grid set forth in such definitions or in SECTION 5.1 shall be based on the rating category which is then in the middle of or between the two category ratings which are then in effect. 2.4 EXTENSION OF MATURITY DATE. On a Business Day no less than sixty (60) and no more than ninety (90) days prior to May 31, 2001, and during such period in each year thereafter during which this Agreement is in effect, the Borrower may elect to notify the Agent, in writing, of its request for an extension of the maturity date of each Banks Commitment (on the terms and conditions set forth herein) for a period of up to one (1) year from the date of the then current Maturity Date. Promptly after receipt of such request, the Agent shall notify the Banks of such request. Each Bank shall notify the Agent in writing of its consent to, or rejection of, such request on or prior to April 30 of each such year. In the event that any Bank fails to so notify the Agent, that request shall be deemed to have been rejected by such Bank. The Commitments shall be extended hereunder only upon the consent of each Bank, whereupon the Maturity Date of each Note shall be deemed to be extended to the agreed date of extension, but in no event later than the date which is one (1) year after the date of the Maturity Date in effect prior to such extension. In the event of the renewal and extension of the Commitments and the maturity date of the Notes pursuant to this Section 2.4, the terms and conditions of this Agreement will apply during such renewal and extension period and, from and after the date of such extension, the term "Maturity Date" shall mean such date as so renewed and extended. 20 2.5 INCREASE OF COMMITMENTS (a) At any time after the Closing Date, provided that no Default or Event of Default shall have occurred and be continuing, the Borrower may request from time to time one or more increases of the Commitments by notice to the Agent in writing of the amount of each such proposed increase (each such notice, a "COMMITMENT INCREASE NOTICE"). Any such Commitment Increase Notice must offer each Bank the opportunity to subscribe for its pro rata share of the requested increase in the Commitments, and the Agent shall promptly provide to each Bank a copy of any Commitment Increase Notice received by the Agent. Within 10 Business Days after receipt by the Agent of the applicable Commitment Increase Notice, each Bank wishing to subscribe for its pro rata share of the requested increase in the Commitments must deliver written notice of such fact to the Agent. If any portion of the requested increase in the Commitments is not subscribed for by the Banks within such 10-day period, the Borrower may, in its sole discretion, but with the consent of the Agent as to any Person that is not at such time a Bank (which consent shall not be unreasonably withheld or delayed so long as such Person is an Eligible Assignee), offer to any existing Bank or to one or more additional banks or financial institutions the opportunity to participate in all or a portion of such unsubscribed portion of the requested increase in the Commitments pursuant to Section 2.5 (b) or (c) below, as applicable; (b) Any additional bank or financial institution that the Borrower selects to offer a participation in the unsubscribed portion of the increased Commitments, and that elects to become a party to this Agreement and obtain a Commitment, shall execute an agreement (a "NEW BANK AGREEMENT"), in the form required by the Agent, with the Borrower and the Agent, whereupon such bank or financial institution (a "NEW BANK") shall become a Bank for all purposes hereunder to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and the signature pages hereof shall be deemed to add the name and Commitment of such New Bank, provided that the Commitment of any such New Bank shall be in an amount not less than $5,000,000; (c) Any Bank that accepts an offer by the Borrower to increase its Commitment pursuant to this Section 2.5 shall, in each case, execute a commitment increase agreement (a "COMMITMENT INCREASE AGREEMENT"), in the form required by the Agent, with the Borrower and the Agent, whereupon such Bank shall be bound by and entitled to the benefits of this Agreement with respect to the full amount of its Commitment as so increased, and the signature pages hereof shall be deemed to be amended to reflect such increase in the Commitment of such Bank; (d) The effectiveness of any New Bank Agreement or Commitment Increase Agreement shall be contingent upon receipt by the Agent of such corporate resolutions of the Borrower and legal opinions of in-house counsel to the Borrower, if any, as the Agent shall reasonably request with respect thereto; (e) If any bank or financial institution becomes a New Bank pursuant to Section 2.5(b) or if any Bank's Commitment is increased pursuant to Section 2.5(c), additional Loans and additional liability for Facility Letters of Credit made or issued on or after the effectiveness thereof (the "RE-ALLOCATION DATE") shall be made pro rata based 21 on each Bank's (including each New Bank's) respective Commitment in effect on and after such Re-Allocation Date (except to the extent that any such pro rata borrowings or incurring of liability would result in any Bank making an aggregate principal amount of Loans and incurring liability for the Facility Letters of Credit in excess of its Commitment, in which case such excess amount will be allocated to, and made or incurred by, such New Bank and/or Banks with such increased Commitments to the extent of, and pro rata based on, their respective Commitments), and continuations of Eurodollar Rate Loans outstanding on such Re-Allocation Date shall be effected by repayment of such Eurodollar Rate Loans on the last day of the Rate Period applicable thereto and the extension of new Eurodollar Rate Loans pro rata based on the Banks' respective Commitments in effect on and after such Re-Allocation Date. In the event that on any such Re-Allocation Date there are Alternate Base Rate Loans outstanding, the Borrower shall make prepayments thereof and borrow new Alternate Base Rate Loans so that, after giving effect thereto, the Alternate Base Rate Loans outstanding are held pro rata based on the Banks' respective Commitments in effect on and after such Re-Allocation Date. In the event that on any such Re-Allocation Date there are Eurodollar Rate Loans outstanding, such Eurodollar Rate Loans shall remain outstanding with the respective holders thereof until the expiration of their respective Rate Periods (unless the Borrower elects to prepay any thereof in accordance with the applicable provisions of this Agreement), and interest on and repayments of such Eurodollar Rate Loans will be paid thereon to the respective Banks holding such Eurodollar Rate Loans pro rata based on the respective principal amounts thereof outstanding; (f) Notwithstanding anything to the contrary in this Section 2.5, (i) no Bank shall have any obligation to increase its Commitment under this Section 2.5 unless it agrees in writing to do so in its sole discretion, (ii) no Bank shall have any right to decrease the amount of its Commitment as a result of any requested increase of the Commitments pursuant to this Section 2.5, (iii) the Agent shall have no obligation to find or locate any New Bank to participate in any unsubscribed portion of any increase in the Commitments requested by the Borrower, (iv) each increase in the Commitments requested by the Borrower shall not be less than $10,000,000, (v) after giving effect to any increase in the Commitments pursuant to this Section 2.5, the sum of the Commitments and the aggregate commitments of the lenders under the Short-Term Credit Facility shall not exceed $250,000,000, and (vi) in the event the Borrower reduces the Commitments pursuant to Section 4.6 or any other provision of this Agreement more than one time during the term of this Agreement, the ability of the Borrower to request increases in the Commitments pursuant to this Section 2.5 shall automatically terminate; and (g) The Borrower shall execute and deliver to the Agent (for delivery by the Agent to each applicable Bank) a new Note payable to each applicable Bank (including each New Bank) participating in any increase of the Commitments in the original principal amount of such Bank's Commitment after giving effect to any such increase of the Commitments. 3. LETTERS OF CREDIT 3.1 OBLIGATION TO ISSUE. Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties of the Borrower set forth herein or in any 22 other Loan Document, each Issuing Bank hereby severally agrees to issue, from time to time during the period commencing on the Closing Date and ending on the Business Day immediately prior to the Maturity Date, for the account of the Borrower through such of the Issuing Bank's branches as it and the Borrower may jointly agree, one or more Facility Letters of Credit in accordance with this Section 3. Notwithstanding the foregoing, no Issuing Bank shall have any obligation to issue, and shall not issue, any Facility Letter of Credit at any time if: (a) the aggregate undrawn face amount of Facility Letters of Credit theretofore issued by such Issuing Bank, after giving effect to all requested but unissued Facility Letters of Credit, exceeds any limit imposed by law or regulation upon such Issuing Bank; (b) after taking into account the face amount of the requested Facility Letter of Credit the aggregate principal amount of Facility Letter of Credit Obligations with respect to Facility Letters of Credit issued by such Issuing Bank for the account of the Borrower (which amount shall be calculated without giving effect to the participation of the Banks pursuant to Section 3.5) would exceed such Issuing Bank's Letter of Credit Commitment; (c) immediately after giving effect to the issuance of such Facility Letter of Credit, the aggregate Facility Letter of Credit Obligations would exceed the L/C Subfacility; (d) immediately after giving effect to the issuance of such Facility Letter of Credit, the aggregate of outstanding Loans, would exceed the Banks' aggregate Commitments; or (e) such Facility Letter of Credit has an expiry date (i) more than one year after the date of issuance; or (ii) after the Business Day immediately preceding the Maturity Date. 3.2 CONDITIONS. The obligation of an Issuing Bank to issue any Facility Letter of Credit, and of each Bank to participate therein as provided in Section 3.5 is subject to the satisfaction in full of the applicable conditions precedent set forth in Section 8 and each of the following conditions: (a) the Borrower shall have delivered to the Issuing Bank, at such times and in such manner as such Issuing Bank may prescribe, a Letter of Credit application, a Letter of Credit Reimbursement Agreement, and such other documents and materials as may be required pursuant to the terms thereof; (b) the terms of the proposed Facility Letter of Credit shall not be inconsistent with any term or provision of this Agreement and otherwise shall be satisfactory to such Issuing Bank; and (c) as of the date of issuance of such Facility Letter of Credit, no order, judgment, or decree of any court, arbitrator, or governmental authority shall purport by its terms to enjoin or restrain the Issuing Bank from issuing such Facility Letter of Credit, and no law, rule, or regulation applicable to such Issuing Bank, and no request or 23 directive (whether or not having the force of law) from any governmental authority having jurisdiction over such Issuing Bank, shall prohibit or request that such Issuing Bank refrain from the issuance of Letters of Credit, generally or the issuance of such Facility Letter of Credit. 3.3 ISSUANCE OF FACILITY LETTERS OF CREDIT (a) The Borrower shall give the Agent written notice (or telephonic notice confirmed in writing by the Borrower not later than the requested issuance date of the Facility Letter of Credit) of its request for the issuance of a Facility Letter of Credit no later than 11:00 a.m. four (4) Business Days prior to the date such Facility Letter of Credit is requested to be issued. Such notice shall be irrevocable and shall specify, with respect to such requested Facility Letter of Credit, the face amount, beneficiary, effective date of issuance, expiry date (which effective date and expiry date shall be a Business Day and, with respect to the expiry date, shall be no later than the Business Day immediately preceding the Maturity Date), the identity of the Issuing Bank selected by the Borrower, and the purpose for which such Facility Letter of Credit is to be issued. At the time a request for the issuance of a Facility Letter of Credit is made, the Borrower shall also provide the Agent with a copy of the form of Letter of Credit that the proposed Issuing Bank has agreed to issue. If the face amount of the requested Facility Letter of Credit is less than or equal to the Unused L/C Subfacility, as determined by the Agent as of the close of business on the date of its receipt of written notice of the requested issuance, the Agent shall so notify the proposed Issuing Bank in writing (or by telephonic notice promptly confirmed thereafter in writing) not later than the close of business on the second Business Day following the Agent's receipt of the Borrower's written notice. The Issuing Bank shall issue such Facility Letter of Credit on the date requested by the Borrower, UNLESS (i) on or before the Business Day prior to such issuance date, such Issuing Bank shall have received written notice from the Agent or any Bank that the conditions precedent to the issuance of a Facility Letter of Credit as set forth in Section 3.2 have not been met; or (ii) on the requested issuance date, such Issuing Bank has actual knowledge that such conditions precedent have not been met. If an Issuing Bank receives written notice, or has actual knowledge, that the conditions precedent to the issuance of a Facility Letter of Credit have not been met, then such Issuing Bank shall have no obligation to issue, and shall not issue, any Facility Letter of Credit until (i) such notice is withdrawn; or (ii) such Issuing Bank receives a notice from the Agent that the condition(s) described in such notice have been waived in accordance with the provisions of this Agreement. The Issuing Bank shall give the Agent prompt written notice (or telephonic notice promptly confirmed in writing) of the issuance of any Facility Letter of Credit. Any Letter of Credit issued by an Issuing Bank in compliance with the provisions of this Section 3.3 shall be a Facility Letter of Credit. (b) An Issuing Bank shall not extend or amend any Facility Letter of Credit unless the requirements of this Section 3.3 are met as though a new Facility Letter of Credit was being requested and issued. (c) An Issuing Bank or any Bank may issue Non-Facility Letters of Credit for its own account, and at its own risk. None of the provisions of this Section 3 shall apply to any Non-Facility Letter of Credit. 24 3.4 REIMBURSEMENT OBLIGATIONS; DUTIES OF ISSUING BANK (a) Notwithstanding any provisions to the contrary in any Letter of Credit Reimbursement Agreement: (1) the Borrower shall reimburse the applicable Issuing Bank for a drawing under a Facility Letter of Credit issued by such Issuing Bank no later than the earlier of (A) the time specified in the related Letter of Credit Reimbursement Agreement; or (B) one (1) Business Day after the payment of such drawing by such Issuing Bank; and (2) the Borrower's Reimbursement Obligations with respect to a drawing under a Facility Letter of Credit shall bear interest from the date of such drawing to the date paid in full at the higher of (A) the interest rate specified in the applicable Letter of Credit Reimbursement Agreement; or (B) the interest rate for past due Alternate Base Rate Loans; BUT NOT GREATER than the Highest Lawful Rate. (b) No action taken or omitted to be taken by an Issuing Bank in connection with any Facility Letter of Credit shall (i) result in any liability on the part of such Issuing Bank to any Bank, unless such Issuing Bank's action or omission constitutes willful misconduct or gross negligence; or (ii) relieve any Bank of any of its obligations to such Issuing Bank hereunder, unless the Facility Letter of Credit in question was issued in contravention of the provisions of Section 3.3 or at a time during which a notice, described in Section 3.3, from such Bank to such Issuing Bank remained in effect. Each Bank agrees that, prior to making any payment to a beneficiary with respect to a drawing under a Facility Letter of Credit, the Issuing Bank shall be responsible only to confirm that documents required by the terms of such Facility Letter of Credit to be delivered as a condition precedent to such drawing have been delivered and that the same appear on their face to conform with the requirements thereof. Each Bank further agrees that such Issuing Bank may assume that documents appearing on their face to be the documents required to be delivered as a condition precedent to a drawing do in fact comply. 3.5 PARTICIPATIONS (a) Immediately upon the issuance by an Issuing Bank of any Facility Letter of Credit in compliance with the provisions of Section 3.3, and immediately upon conversion of a Letter of Credit of an Issuing Bank to a Facility Letter of Credit pursuant to Section 3.10, each Bank shall be deemed to have irrevocably and unconditionally purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation to the extent of such Bank's Pro Rata Percentage in such Facility Letter of Credit, including without limitation, all obligations of the Borrower with respect thereto and any security therefor or guaranty pertaining thereto. (b) An Issuing Bank shall promptly notify the Agent, and the Agent shall promptly notify the other Banks, if the Borrower fails to reimburse such Issuing Bank for payments made by such Issuing Bank in respect of drawings by a beneficiary under a Facility Letter of Credit. Upon each such other Banks receipt of such notice, such Bank shall unconditionally pay to the Agent, for the account of such Issuing Bank, an amount equal to such Bank's Pro Rata Percentage of the unreimbursed payment made by such 25 Issuing Bank under the Facility Letter of Credit. Such payment shall be made by such Bank in Dollars and in same day funds on the day such Bank receives notice from the Agent that such payment is owing, if such notice is received by such Bank prior to 11:00 a.m. (Houston time) on a Business Day; if such notice is not received by such time, then such Bank shall remit its payment on the next Business Day following the day such notice is received. Any amount payable by a Bank under this Section 3.5(b) which is not paid when due pursuant to the terms hereof shall be payable on demand, together with interest thereon at the Federal Funds Rate from the date such payment was due until paid in full. The failure of any Bank to make any payment owing by it under this Section 3.5(b) shall neither relieve nor increase the obligation of any other Bank to make any payment owing by it under this Section 3.5(b). The Agent shall promptly remit to the applicable Issuing Bank all amounts received by the Agent, for the account of such Issuing Bank, from each Bank pursuant to this Section 3.5(b). No payment made by a Bank pursuant to this Section 3.5(b) shall prejudice the ability of such Bank to claim that the Issuing Bank to which such payment is made is subject to liability under Section 3.4(b). (c) Whenever an Issuing Bank receives a payment with respect to a Reimbursement Obligation (including any interest thereon) for which such Issuing Bank has received payments from a Bank pursuant to Section 3.5(b), such Issuing Bank shall promptly remit to the Agent and the Agent shall promptly remit to each Bank which has funded its participating interest therein, in Dollars and in the kind of funds so received, an amount equal to each Bank's Pro Rata Percentage thereof. Each such payment shall be made by the Issuing Bank or the Agent, as the case may be, on the Business Day on which such Person receives the funds paid to such Person pursuant to the preceding sentence, if received prior to 11:00 a.m. (Houston time) on such Business Day, and otherwise on the next succeeding Business Day. (d) Upon the request of the Agent or any Bank, an Issuing Bank shall furnish to the Agent or each Bank copies of any Facility Letter of Credit, Letter of Credit Reimbursement Agreement, or Letter of Credit application to which Issuing Bank is party, and such other documentation as may reasonably be requested by the Agent or such Bank with respect to a Facility Letter of Credit issued by such Issuing Bank. (e) The obligations of a Bank under Section 3.5(b) to make payments to the Agent for the account of an Issuing Bank with respect to a Facility Letter of Credit shall be irrevocable, not subject to any qualification or exception whatsoever, and shall be made in accordance with, but not subject to, the terms and conditions of this Agreement under all circumstances (assuming that such Issuing Bank has issued such Facility Letter of Credit in compliance with the provisions of Section 3.3), including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any other Loan Document; (ii) the existence of any claim, set off, defense, or other right which the Borrower may have at any time against a beneficiary named in a Facility Letter of Credit or any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, any Bank, the Issuing Bank, or any 26 Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein, or any unrelated transactions (including any underlying transactions between the Borrower and the beneficiary named in any Facility Letter of Credit); (iii) any draft, certificate, of any other document presented under the Facility Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any Loan Document; (v) any failure by the Agent or an Issuing Bank to make any reports required pursuant to Section 3.8; or (vi) the occurrence of any Default or Event of Default. 3.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS (a) The Borrower agrees to pay to each Issuing Bank the amount of all Reimbursement Obligations, interest, and other amounts payable to such Issuing Bank under or in connection with any Facility Letter of Credit immediately when due, irrespective of any claim, set off, defense, or other right which the Borrower may have at any time against any Issuing Bank or any other Person. (b) In the event any payment by the Borrower received by an Issuing Bank with respect to a Facility Letter of Credit and distributed to Banks on account of their respective participation is thereafter set aside, avoided, or recovered from such Issuing Bank in connection with any Debtor Laws, each Bank which received such distribution shall, upon demand by such Issuing Bank, contribute each Bank's Pro Rata Percentage of the amount set aside, avoided, or recovered together with interest at the rate required to be paid by the Issuing Bank upon the amount required to be repaid by it. 3.7 EXONERATION. As between the Borrower, each Bank, and each Issuing Bank, the Borrower assumes all risks of the acts and omissions of, or misuse of the Facility Letter of Credit issued by such Issuing Bank by, the respective beneficiaries of such Facility Letter of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit applications, the Issuing Bank and the Banks shall not be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any document submitted by any party in connection with the application for and issuance of a Facility Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (b) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Facility Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; 27 (c) failure of the beneficiary of a Facility Letter of Credit to comply duly with conditions required in order to draw upon such Facility Letter of Credit, PROVIDED THAT the Issuing Bank complies with the provisions of Section 3.4(b); (d) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or otherwise, whether or not they be in cipher; (e) errors in interpretation of technical terms; (f) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Facility Letter of Credit or of the proceeds thereof; (g) the misapplication by the beneficiary of a Facility Letter of Credit; or (h) any consequences arising from causes beyond the control of the Agent, any Bank, or any Issuing Bank, including, without limitation, any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by an Issuing Bank under or in connection with the Facility Letters of Credit or any related certificates, if taken or omitted in good faith and not constituting gross negligence or willful misconduct, shall not put the Issuing Bank, the Agent, or any Bank under any resulting liability to the Borrower or relieve the Borrower of any of its obligations hereunder to any such Person. 3.8 ISSUING BANK'S REPORTING REQUIREMENTS. In addition to the reports required by Section 3.5, each Issuing Bank shall, no later than the tenth (10th) Business Day following the last day of each quarter of such Issuing Bank's fiscal year, provide to the Agent and the Borrower a schedule for Standby Letters of Credit issued as Facility Letters of Credit, in form and substance reasonably satisfactory to the Agent, showing the date of issue, beneficiary, face amount, expiration date, and the reference number of each Facility Letter of Credit issued by such Issuing Bank which was outstanding at any time during such quarter and the aggregate amount payable by the Borrower during the quarter pursuant to Section 3.9. 3.9 COMPENSATION FOR FACILITY LETTERS OF CREDIT (a) FACILITY LETTER OF CREDIT FEE. The Borrower agrees to pay to the Agent, for the account of each Bank, in the case of each Letter of Credit issued as, or converted to (for transactions which convert Letters of Credit in existence on the Closing Date to Facility Letters of Credit pursuant to Section 3.10), a Facility Letter of Credit, a facility letter of credit fee (the "Facility Letter of Credit Fee") payable quarterly in arrears equal to the applicable Facility Letter of Credit Fee Percentage of the average amount available to be drawn under such Letter of Credit during the quarter then ending multiplied by the actual number of days during such quarter on which such Letter of Credit was outstanding, divided by 360 but no less than $500.00 per Facility Letter of Credit per year. The Borrower shall also pay to the Agent in the event of any extension or modification of a Facility Letter of Credit which extends the expiration date or increases 28 the maximum amount available for drawing thereunder an additional fee calculated and payable on the same basis as that set forth in the first sentence of this Section 3.9(a) with respect to any such extension or additional amount. Whenever an Issuing Bank receives a payment from the Borrower with respect to any fees incurred in connection with any Facility Letter of Credit issued by such Issuing Bank, such Issuing Bank shall promptly remit to the Agent, and the Agent shall promptly remit to each Bank which has funded its participation in such Facility Letter of Credit, in Dollars and in same day funds, an amount equal to such Bank's Pro Rata Percentage of such fees. (b) ISSUING BANK'S CHARGES. Each Issuing Bank shall have the right to receive, solely for its own account, such amounts as it and the Borrower may agree, in writing, to compensate such Issuing Bank with respect to issuance fees and such Issuing Bank's out-of-pocket costs of issuing and servicing Facility Letters of Credit. (c) INCREASED CAPITAL. If either (i) the introduction of or any change in or in the interpretation of any law or regulation, or (ii) compliance by any Issuing Bank or any Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) affects or would affect (by an amount deemed by such Issuing Bank to be material) the capital required or expected to be maintained by it or any corporation controlling it, and such Bank or such Issuing Bank determines, on the basis of reasonable allocations, that the amount of such capital is increased by (an amount deemed by such Issuing Bank to be material) or is based (to a degree deemed by such Issuing Bank to be material) upon its issuance or maintenance of or participation in, or commitment to issue or to participate in, the Facility Letters of Credit then, upon demand by such Bank or such Issuing Bank, the Borrower shall immediately pay to the Agent (for the account of each Bank) or such Issuing Bank, from time to time as specified by such Bank or such Issuing Bank, additional amounts sufficient to compensate such Bank or such Issuing Bank therefor. A certificate as to such amounts submitted to the Borrower by such Bank or such Issuing Bank shall, in the absence of manifest error, be conclusive and binding for all purposes. 3.10 TRANSITIONAL PROVISIONS. SCHEDULE 3.10 contains a schedule of certain Letters of Credit issued for the account of the Borrower prior to the Closing Date by one or more of the Issuing Banks. Subject to the satisfaction of the conditions precedent contained in Section 8, on the Closing Date (a) such Letters of Credit shall be deemed to be converted into Facility Letters of Credit issued pursuant to Section 3.3; and (b) the face amount of such Letters of Credit shall be included in the calculation of the Facility Letter of Credit Obligations. 4. PAYMENTS AND PREPAYMENTS 4.1 REQUIRED PREPAYMENTS (a) The Borrower agrees that if at any time it or the Agent determines that the sum of (i) the aggregate principal amount of Loans outstanding and (ii) the face amount of Facility Letters of Credit issued hereunder exceeds the Commitments, then the Borrower shall make a prepayment of principal of the Loans in an amount at least equal to such excess. 29 (b) Upon the Borrower's reduction or termination of the Commitments under Section 4.6, the Borrower shall make such prepayments as are required by the terms of Section 4.6. (c) Immediately upon the termination of any period of 180 consecutive calendar days in which the aggregate principal amount outstanding under the Notes and the Short-Term Credit Facility Notes has exceeded the Borrower's Available Senior Funded Debt Capacity outstanding under the Senior Notes, the Borrower will prepay the Notes and/or the Short-Term Credit Facility Notes by the amount of such excess, together with all interest accrued on such prepaid amount and such other amounts that may be required to be paid in consequence of such prepayment under Section 2.3(d). 4.2 REPAYMENT OF THE LOANS. Borrower shall repay the principal amount of each Loan, on the last day of the Interest Period for such Loan, together with all accrued and unpaid interest thereon as of such date, irrespective of any claim, set off, defense, or other right which the Borrower may have at any time against any Bank, the Agent or any other Person. 4.3 PLACE OF PAYMENT OR PREPAYMENT. All payments and prepayments made in accordance with the provisions of this Agreement or of the Notes or of any other Loan Document or of the Letter of Credit Reimbursement Agreements in respect of commitment fees or of principal or interest on the Notes shall be made to the Agent for the account of the Banks at its Domestic Lending Office, no later than noon, Houston time, in immediately available funds. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make any payment due hereunder in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due to such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. If and to the extent that the Agent receives any payment or prepayment from the Borrower and fails to distribute such payment or prepayment to the Banks ratably on the basis of their respective Pro Rata Percentage on the day the Agent receives such payment or prepayment, and such distribution shall not be so made by the Agent in full on the required day, the Agent shall pay to each Bank such Bank's Pro Rata Percentage thereof together with interest thereon at the Federal Funds Rate for each day from the date such amount is paid to the Agent by the Borrower until the date the Agent pays such amount to such Bank. 4.4 NO PREPAYMENT PREMIUM OR PENALTY. Each prepayment pursuant to Section 4.1 or 4.3 shall be without premium or penalty, subject in the case of Eurodollar Rate Loans to the provisions of Section 2.3(d). 4.5 TAXES. All payments (whether of principal, interest, reimbursements or otherwise) under this Agreement or on the Notes or in respect of Facility Letter of Credit Obligations shall be made by the Borrower without set off or counterclaim and shall be made free and clear of and without deduction for any present or future tax, levy, impost or any other charge, if any, of any nature whatsoever now or hereafter imposed by any taxing authority. If the making of such payments is prohibited by law, unless such a tax, levy, impost or other charge is 30 deducted or withheld therefrom, the Borrower shall pay to the Banks, on the date of each such payment, such additional amounts as may be necessary in order that the net amounts received by the Banks after such deduction or withholding shall equal the amounts which would have been received if such deduction or withholding were not required. 4.6 REDUCTION OR TERMINATION OF COMMITMENTS. The Borrower may at any time or from time to time reduce or terminate the Commitment of each Bank by giving not less than ten (10) full Business Days' prior written notice to such effect to the Agent, provided that any partial reduction shall be in the amount of $1,000,000.00 or an integral multiple thereof. Concurrently with each such reduction or termination, all amounts in excess of the reduced Commitments shall be automatically due and payable and it is a condition to the effectiveness of such reduction that the Borrower shall immediately prepay the entire amount of such excess together with all accrued interest thereon and such other amounts that may be required to be paid in consequence of such prepayment under Section 2.3(d). Promptly after the Agent's receipt of such notice of reduction, the Agent shall notify each Bank of the proposed reduction and such reduction shall be effective on the date specified in the Borrower's notice with respect to such reduction and shall reduce the Commitment of each Bank proportionately in accordance with its Pro Rata Percentage (and such reduction shall also ratably reduce the Commitments related to Facility Letters of Credit). After each such reduction, the commitment fee shall be calculated upon the Commitments as so reduced. The Commitment of each Bank shall automatically terminate on the Maturity Date or in the event of acceleration of the maturity date of the Notes. Each reduction of the Commitment hereunder shall be irrevocable. 5. COMMITMENT FEE AND OTHER FEES 5.1 COMMITMENT FEE. The Borrower agrees to pay to the Agent for the account of each Bank a commitment fee based on a year of 360 days, from the Closing Date to, but not including, the Maturity Date (or such earlier date as of which all Commitments shall have terminated), on the daily average unused amount of each Bank's Commitment, such commitment fee to be payable quarterly in arrears on (a) the last day of each March, June, September, and December, commencing on June 30, 2000 and (b) the Maturity Date, at a rate per annum changing with the rating of the Borrower's unsecured, non-credit enhanced Senior Funded Debt, and determined in accordance with the following grid:
=============================================================================== RATING OF THE BORROWER'S UNSECURED, NON-CREDIT PERCENTAGE ENHANCED SENIOR FUNDED DEBT PER ANNUM ------------------------------------------------------------------------------- Equal to or greater than A3 by Moody's Investor Service, Inc. AND equal to or greater than A- by Standard and Poor's Ratings Group 0.125% ------------------------------------------------------------------------------- Baa1 by Moody's Investor Service, Inc. OR BBB+ by Standard and Poor's Ratings Group 0.150% ------------------------------------------------------------------------------- Baa2 by Moody's Investor Service, Inc. OR BBB by Standard and Poor's Ratings Group 0.150% ------------------------------------------------------------------------------- Baa3 by Moody's Investor Service, Inc. OR BBB- =============================================================================== 31 =============================================================================== by Standard and Poor's Ratings Group 0.150% ------------------------------------------------------------------------------- Equal to or less than Ba1 by Moody's Investor Service, Inc. AND equal to or less than BB+ by Standard and Poor's Ratings Group 0.250% ===============================================================================
5.2 FACILITY LETTER OF CREDIT FEE. The Borrower shall pay to the Agent, for the account of each Issuing Bank, the Facility Letter of Credit Fees as set forth in Section 3.9. 5.3 FEES NOT INTEREST; NONPAYMENT. The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money, and the obligation of the Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement. Fees shall be payable when due in Dollars and in immediately available funds. The commitment fee referred to in Section 5.1 shall be non-refundable, and shall, to the fullest extent permitted by law, bear interest, if not paid when due, at a rate per annum equal to the lesser of (a) five percent (5%) above the Alternate Base Rate as in effect from time to time or (b) the Highest Lawful Rate. 5.4 UTILIZATION FEE. The Borrower agrees to pay to Agent, for the account of each Bank, an utilization fee at a rate per annum equal to 0.125%, based on a year of 360 days, from the Closing Date to, but not including, the Maturity Date (or such earlier date as of which the Commitments have been terminated), on the daily average amount by which the sum of the aggregate principal amount of the Loans and the Facility Letter of Credit Obligations exceeds thirty-three percent (33%) of the aggregate amount of the Commitments, such utilization fee to be payable quarterly in arrears on (a) the last day of each March, June, September, and December, commencing on June 30, 2000, and (b) the Maturity Date. 6. APPLICATION OF PROCEEDS 6.1 APPLICATION OF PROCEEDS. The Borrower agrees that the proceeds of the Loans shall be used: (a) to provide working capital and for general corporate purposes; (b) to finance the acquisition of Qualifying Assets, which Qualifying Assets may be acquired on a revolving basis as long as at any one time the amount of the Borrower's investment in Qualifying Assets does not exceed the amounts set forth in clause (i) and clause (ii) of the definition of Qualifying Assets as applicable; PROVIDED, HOWEVER, that the prior written consent of the Majority Banks shall be required for the use of Loan proceeds to finance any portion of any such acquisition described in clause (i) of the definition of Qualifying Assets requiring the payment of more than $60,000,000; (c) to finance the Pending Acquisitions; PROVIDED, HOWEVER, that the prior written consent of the Majority Banks shall be required for the use of Loan proceeds, together with the use of proceeds of the Short-Term Credit Facility, if any, to finance the Pending Acquisitions in excess of $100,000,000 in the aggregate and PROVIDED, FURTHER, 32 that the use of any Loan proceeds, together with the use of proceeds of the Short-Term Credit Facility, if any, in excess of $60,000,000 in the aggregate to finance the Pending Acquisitions shall be repaid in full not more than 180 days after the consummation of the Pending Acquisitions or May 30, 2001, whichever occurs first; (d) to finance the Borrower's open market acquisition of its own 7.60% Senior Notes due 2024; PROVIDED, HOWEVER, that such use, together with the use of proceeds of the Short-Term Credit Facility for such purpose, if any, shall be limited to an aggregate amount advanced to $60,000,000; and (e) to finance the Borrower's repurchase of its own common stock and preferred equity securities; PROVIDED, HOWEVER, that such use, together with the use of proceeds of the Short-Term Credit Facility for such purpose, if any, shall be limited to an aggregate amount advanced to $50,000,000. 7. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: 7.1 ORGANIZATION AND QUALIFICATION. The Borrower and each Subsidiary: (a) are corporations duly organized, validly existing, and in good standing under the laws of their respective states of incorporation; (b) have the corporate or organizational power to own their respective properties and to carry on their respective businesses as now conducted; and (c) are duly qualified as foreign corporations (or, in the case of any Southern Union Trust, trusts) to do business and are in good standing in every jurisdiction where such qualification is necessary except when the failure to so qualify would not or does not have a Material Adverse Effect. The Borrower is a corporation organized under the laws of Delaware and has the Subsidiaries listed on SCHEDULE 7.1 attached hereto and made a part hereof for all purposes, and no others, each of which is a Delaware corporation unless otherwise noted on SCHEDULE 7.1. None of the Subsidiaries listed on SCHEDULE 7.1 as "Inactive Subsidiaries" conducts or will conduct any business, and none of such Subsidiaries has any assets other than minimum legal capitalization. 7.2 FINANCIAL STATEMENTS. The Borrower has furnished the Banks with (a) the Borrower's annual audit report containing the Borrower's consolidated balance sheet, statements of income and stockholder's equity and a cash flow statement as at and for the twelve month period ending June 30, 1999, accompanied by the certificate of Price Waterhouse Coopers and (b) the Borrower's unaudited financial report as of the fiscal quarter ending March 31, 2000. These statements are complete and correct and present fairly in accordance with GAAP, consistently applied throughout the periods involved, the consolidated financial position of the Borrower and the Subsidiaries and the results of its and their operations as at the dates and for the periods indicated subject, as to interim statements only, to changes resulting from customary end-of-year credit adjustments which in the aggregate will not be material. There has been no material adverse change in the condition, financial or otherwise, of the Borrower or any Subsidiary since March 31, 2000. 7.3 LITIGATION. Except as disclosed on SCHEDULE 7.3 or pursuant to Section 7.16, there is no: (a) action or proceeding pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary before any court, administrative agency or arbitrator which is reasonably expected to have a Material Adverse Effect; (b) judgment outstanding 33 against the Borrower for the payment of money; or (c) other outstanding judgment, order or decree affecting the Borrower or any Subsidiary before or by any administrative or governmental authority, compliance with or satisfaction of which may reasonably be expected to have a Material Adverse Effect. 7.4 DEFAULT. Neither the Borrower nor any Subsidiary is in default under or in violation of the provisions of any instrument evidencing any Debt or of any agreement relating thereto or any judgment, order, writ, injunction or decree of any court or any order, regulation or demand of any administrative or governmental instrumentality which default or violation might have a Material Adverse Effect. 7.5 TITLE TO ASSETS. The Borrower and each Subsidiary have good and marketable title to their respective assets, subject to no Liens except those permitted in Section 10.2. 7.6 PAYMENT OF TAXES. The Borrower and each Subsidiary have filed all tax returns required to be filed and have paid all taxes shown on said returns and all assessments which are due and payable (except such as are being contested in good faith by appropriate proceedings for which adequate reserves for their payment have been provided in a manner consistent with the accounting practices followed by the Borrower as of March 31, 2000). The Borrower is not aware of any pending investigation by any taxing authority or of any claims by any governmental authority for any unpaid taxes, except as disclosed on SCHEDULE 7.6. 7.7 CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS. Neither the Borrower nor any Subsidiary is a party to any contract or agreement or subject to any restriction which would have a Material Adverse Effect. Neither the execution and delivery of this Agreement or the Notes or any other Loan Document nor the consummation of the transactions contemplated hereby nor fulfillment of and compliance with the respective terms, conditions and provisions hereof or of the Notes or of any instruments required hereby will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation or imposition of any lien (other than as contemplated or permitted by this Agreement) on any of the property of the Borrower or any Subsidiary pursuant to (a) the charter or bylaws applicable to the Borrower or any Subsidiary; (b) any law or any regulation of any administrative or governmental instrumentality; (c) any order, writ, injunction or decree of any court; or (d) the terms, conditions or provisions of any agreement or instrument to which the Borrower or any Subsidiary is a party or by which it is bound or to which it is subject. 7.8 AUTHORIZATION, VALIDITY, ETC. The Borrower has the corporate power and authority to make, execute, deliver and carry out this Agreement and the transactions contemplated herein, to make the borrowings provided for herein, to execute and deliver the Notes and to perform its obligations hereunder and under the Notes and the other Loan Documents to which it is a party and all such action has been duly authorized by all necessary corporate proceedings on its part. This Agreement has been duly and validly executed and delivered by the Borrower and constitutes the valid and legally binding agreement of the Borrower enforceable in accordance with its terms, except as limited by Debtor Laws; and the Notes and the other Loan Documents, when duly executed and delivered by the Borrower pursuant to the provisions hereof, will constitute the valid and legally binding obligation of the Borrower enforceable in accordance with the terms thereof and of this Agreement, except as limited by Debtor Laws. 34 7.9 INVESTMENT COMPANY ACT NOT APPLICABLE. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.10 PUBLIC UTILITY HOLDING COMPANY ACT NOT APPLICABLE. Neither the Borrower nor any Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 7.11 REGULATIONS G, T, U AND X. No Loan shall be a "purpose credit secured directly or indirectly by margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System ("margin stock"); none of the proceeds of any Loan will be used to extend credit to others for the purpose of purchasing or carrying any margin stock, or for any other purpose which would constitute this transaction a "purpose credit secured directly or indirectly by margin stock" within the meaning of said Regulation U, as now in effect or as the same may hereafter be in effect. Neither the Borrower nor any Subsidiary will take or permit any action which would involve the Banks in a violation of Regulation G, Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or a violation of the Securities Exchange Act of 1934, in each case as now or hereafter in effect. After applying proceeds of the Loans and the Short-Term Credit Facility used to acquire the equity interests described in the definition of "Qualifying Assets", not more than twenty-five percent (25%) of the value (as determined by any reasonable method) of the assets subject to the negative pledge set forth in Section 10.2 of the Credit Agreement and the restrictions on disposition of assets set forth in Section 10.8 of the Credit Agreement is represented by margin stock. 7.12 ERISA. No Reportable Event (as defined in Section 4043(b) of ERISA) has occurred with respect to any Plan. Each Plan complies in all material respects with a applicable provisions of ERISA, and the Borrower and each Subsidiary have filed all reports required by ERISA and the Code to be filed with respect to each Plan. The Borrower has no knowledge of any event which could result in a liability of the Borrower or any Subsidiary to the Pension Benefit Guaranty Corporation. The Borrower and each Subsidiary have met all requirements with respect to funding the Plans imposed by ERISA or the Code. Since the effective date of Title IV of ERISA, there have not been any, nor are there now existing any, events or conditions that would permit any Plan to be terminated under circumstances which would cause the lien provided under Section 4068 of ERISA to attach to any property of the Borrower or any Subsidiary. The value of the Plans' benefits guaranteed under Title IV of ERISA on the date hereof does not exceed the value of such Plans' assets allocable to such benefits as of the date of this Agreement and shall not be permitted to do so hereafter. 7.13 NO FINANCING OF CERTAIN SECURITY ACQUISITIONS. None of the proceeds of any Loan will be used to acquire any security in any transaction that is subject to Section13 or Section14 of the Securities Exchange Act of 1934, as amended, except the equity interests described in subparagraph (ii) of the definition of "Qualifying Assets". 7.14 FRANCHISES, CO-LICENSES, ETC. The Borrower and each Subsidiary own or have obtained all the material governmental permits, certificates of authority, leases, patents, trademarks, service marks, trade names, copyrights, franchises and licenses, and rights with 35 respect thereto, required or necessary (or, in the sole and independent judgment of the Borrower, prudent) in connection with the conduct of their respective businesses as presently conducted or as proposed to be conducted. 7.15 LINES OF BUSINESS. The nature of the Borrower's lines of business are predominately the following: (a) the operation of energy distribution and transportation services, including without limitation, natural gas sales and transportation and distribution, propane sales and distribution and promotion, marketing and sale of compressed natural gas and liquified natural gas; (b) the development and marketing of fuel cell and distributive energy options; (c) electric marketing/generation; (d) the operation of fuel oil distribution and transportation networks; and (e) sales and rentals of appliances utilizing one or more of the fuel or energy options specified in this Section 7.15. 7.16 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 7.16, all facilities and property owned or leased by the Borrower or any Subsidiary have been and continue to be, owned or leased and operated by the Borrower and each Subsidiary in material compliance with all Environmental Laws; (i) there has not been (during the period of the Borrower's, or a Subsidiary's ownership or lease) any Release of Hazardous Materials at, on or under any property now (or, to the Borrower's knowledge, previously) owned or leased by the Borrower or any Subsidiary (A) in quantities that would be required to be reported under any Environmental Law, (B) that required, or may reasonably be expected to require, the Borrower to expend funds on remediation or cleanup activities pursuant to any Environmental Law except for remediation or clean-up activities that would not be reasonably expected to have a Material Adverse Effect, or (C) that otherwise, singly or in the aggregate, has, or may reasonably be expected to have, a Material Adverse Effect; (ii) the Borrower and each Subsidiary have been issued and are in material compliance with all permits, certificates, approvals, orders, licenses and other authorizations relating to environmental matters necessary for their respective businesses; and (iii) there are no polychlorinated biphenyls (PCB's) or asbestos-containing materials or surface impoundments in any of the facilities now (or, to the knowledge of the Borrower, previously) owned or leased by the Borrower or any Subsidiary, except for asbestos-containing materials of the type and in quantities that, to the knowledge of the borrower, do not currently require remediation, and if remediation of such asbestos-containing materials is hereafter required for any reason, such remediation activities would not reasonably be expected to have a Material Adverse Effect; (iv) Hazardous Materials have not been generated, used, treated, recycled, stored or disposed of in any of the facilities or on any of the property now (or, to the knowledge of the Borrower, previously) owned or leased by the Borrower or any Subsidiary during the time of the Borrower's or such Subsidiary's ownership or leased by the Borrower or any Subsidiary during the time of the Borrower's or such Subsidiary's ownership except in material compliance with all applicable Environmental Laws; and (v) all underground storage tanks located on the property now (or, to the knowledge of the Borrower, previously) owned or leased by the Borrower or any Subsidiary have been (and to the extent currently owned or leased are) operated in material compliance with all applicable Environmental Laws. 8. CONDITIONS The obligation of the Banks to make any Loans or issue any Facility Letters of Credit is subject to the following conditions: 8.1 REPRESENTATIONS TRUE AND NO DEFAULTS 36 (a) The representations and warranties contained in Section 7 shall be true and correct on and as of the particular Borrowing Date as though made on and as of such date; (b) The Borrower shall not be in default in the due performance of any covenant on its part contained in this Agreement; (c) no material adverse change shall have occurred with respect to the business, assets, properties or condition (financial or otherwise) of the Borrower reflected in the quarterly financial statements of the Borrower dated March 31, 2000 (copies of such audited financial statements having been supplied to the Agent and each Bank); and (d) no Event of Default or Default shall have occurred and be continuing. 8.2 GOVERNMENTAL APPROVALS. The Borrower shall have obtained all orders, approvals or consents of all public regulatory bodies required for the making and carrying out of this Agreement, the making of the borrowings pursuant hereto, the issuance of the Notes to evidence such borrowings, and the execution and delivery of the Security Documents. 8.3 COMPLIANCE WITH LAW. The business and operations of the Borrower and each Subsidiary as conducted at all times relevant to the transactions contemplated by this Agreement to and including the close of business on the particular Borrowing Date shall have been and shall be in compliance in all material respects with all applicable State and Federal laws, regulations and orders affecting the Borrower and each Subsidiary and the business and operations of any of them. 8.4 NOTICE OF BORROWING AND OTHER DOCUMENTS. On each Borrowing Date, the Banks shall have received (a) a Notice of Borrowing; and (b) such other documents and certificates relating to the transactions herein contemplated as the Banks may reasonably request. 8.5 PAYMENT OF FEES AND EXPENSES. The Borrower shall have paid (a) all expenses of the type described in Section 13.3 through the date of such Loan or the issuance of such Facility Letter of Credit and (b) all closing, structuring and other invoiced fees owed as of the Closing Date to the Agent, any of the Banks and/or Chase Securities Inc. by the Borrower under this Agreement or any other written agreement between the Borrower and the Agent, the applicable Bank(s) or Chase Securities Inc. 8.6 LOAN DOCUMENTS, OPINIONS AND OTHER INSTRUMENTS. As of the Closing Date, the Borrower shall have delivered to the Agent the following: (a) this Agreement, each of the Notes and all other Loan Documents required by the Agent and the Banks to be executed and delivered by the Borrower in connection with this Agreement; (b) a certificate from the Secretary of State of the State of Delaware as to the continued existence and good standing of the Borrower in the State of Delaware; (c) a certificate from Secretary of State of the State of Texas as to the continued qualification of the Borrower to do business in the State of Texas; (d) a current certificate from the Office of the Comptroller of the State of Texas as to the good standing of the Borrower in the State of Texas; (e) a Secretary's Certificate executed by the duly elected Secretary or a duly elected Assistant Secretary of the Borrower, in a form acceptable to the Agent, whereby such Secretary or Assistant Secretary certifies that one or more corporate resolutions adopted by the Board of Directors of the Borrower remain in full force and effect 37 authorizing the Borrower to secure Loans and Facility Letters of Credit in accordance with the terms of this Agreement and the Short-Term Credit Facility; and (f) a legal opinion from in-house counsel for the Borrower, dated as of the Closing Date, addressed to the Agent and the Lenders and otherwise acceptable in all respects to the Agent in its discretion. 9. AFFIRMATIVE COVENANTS The Borrower covenants and agrees that, so long as the Borrower may borrow hereunder and until payment in full of the Notes, and its other obligations under this Agreement and the other Loan Documents the Borrower will: 9.1 FINANCIAL STATEMENTS AND INFORMATION. Deliver to the Banks: (a) as soon as available, and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the annual audit report of the Borrower and the Subsidiaries for such fiscal year containing a balance sheet, statements of income and stockholders equity and a cash flow statement, all in reasonable detail and certified by Price Waterhouse Coopers or another independent certified public accountant of recognized standing satisfactory to the Banks. The Borrower will obtain from such accountants and deliver to the Banks at the time said financial statements are delivered the written statement of the accountants that in making the examination necessary to said certification they have obtained no knowledge of any Event of Default or Default, or if such accountants shall have obtained knowledge of any such Event of Default or Default, they shall state the nature and period of existence thereof in such statement; PROVIDED THAT such accountants shall not be liable directly or indirectly to the Banks for failure to obtain knowledge of any such Event of Default or Default; and (b) as soon as available, and in any event within sixty (60) days after the end of each quarterly accounting period in each fiscal year of the Borrower (excluding the fourth quarter), an unaudited financial report of the Borrower and the Subsidiaries as at the end of such quarter and for the period then ended, containing a balance sheet, statements of income and stockholders equity and a cash flow statement, all in reasonable detail and certified by a financial officer of the Borrower to have been prepared in accordance with GAAP, except as may be explained in such certificate; and (c) copies of all statements and reports sent to stockholders of the Borrower or filed with the Securities and Exchange Commission; and (d) such additional financial or other information as the Banks may reasonably request including, without limitation, copies of such monthly, quarterly, and annual reports of gas purchases and sales that the Borrower is required to deliver to or file with governmental bodies pursuant to tariffs and/or franchise agreements. All financial statements specified in clauses (a) and (b) above shall be furnished in consolidated and consolidating form for the Borrower and all Subsidiaries with comparative consolidated figures for the corresponding period in the preceding year. Together with each delivery of financial statements required by clauses (a) and (b) above, the Borrower will deliver to the Banks (i) such schedules, computations and other information as may be required to demonstrate that the Borrower is in compliance with its covenants in Section 10.1 or reflecting any 38 noncompliance therewith as at the applicable date and (ii) an Officer's Certificate stating that there exists no Event of Default or Default, or, if any such Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Borrower has taken or proposes to take with respect thereto. The Banks are authorized to deliver a copy of any financial statement delivered to it to any regulatory body having jurisdiction over them, and to disclose same to any prospective assignees or participant Lenders. 9.2 LEASE AND INVESTMENT SCHEDULES. Deliver to the Banks: (a) from time to time and, in any event, with each delivery of annual financial statements under Section 9.1(a), a current, complete schedule (in the form of SCHEDULE 9.2) of all agreements to rent or lease any property (personal, real or mixed, but not including oil and gas leases) to which the Borrower or any Subsidiary is a party lessee and which, considered independently or collectively with other leases with the same lessor, involve an obligation by the Borrower or a Subsidiary to make payments of at least $250,000.00 in any year, showing the total amounts payable under each such agreement, the amounts and due dates of payments thereunder and containing a description of the rented or leased property, and all other information the Majority Banks may request; and (b) with each delivery of annual financial statements under Section 9.1(a) a current complete schedule (in the form of SCHEDULE 9.2) listing all debt exceeding $200,000.00 in principal amount outstanding and equity owned or held by the Borrower or any Subsidiary containing all information required by, and in a form satisfactory to, the Banks, except for such debt or equity of Subsidiaries. 9.3 BOOKS AND RECORDS. Maintain, and cause each Subsidiary to maintain, proper books of record and account in accordance with sound accounting practices in which true, full and correct entries will be made of all their respective dealings and business affairs. 9.4 INSURANCE. Maintain, and cause each Subsidiary to maintain, insurance with financially sound, responsible and reputable companies in such types and amounts and against such casualties, risks and contingencies as is customarily carried by owners of similar businesses and properties, and furnish to the Banks, together with each delivery of annual financial statements under Section 9.1(a), an Officer's Certificate containing full information as to the insurance carried. 9.5 MAINTENANCE OF PROPERTY. Cause its Significant Property and the Significant Property of each Subsidiary to be maintained, preserved, protected and kept in good repair, working order and condition so that the business carried on in connection therewith may be conducted properly and efficiently, except for normal wear and tear; PROVIDED, HOWEVER, that the improved properties of Lavaca Realty Company should be maintained, preserved and protected in a manner consistent with the maintenance, preservation and protection of improved real property held for sale. 9.6 INSPECTION OF PROPERTY AND RECORDS. Permit any officer, director or agent of the Agent or any Bank, on written notice and at such Banks expense, to visit and inspect during normal business hours any of the properties, corporate books and financial records of the 39 Borrower and each Subsidiary and discuss their respective affairs and finances with their principal officers, all at such times as the Agent or any Bank may reasonably request. 9.7 EXISTENCE, LAWS, OBLIGATIONS. Maintain, and cause each Subsidiary to maintain, its corporate existence and franchises, and any license agreements and tariffs that permit the recovery of a return that the Borrower considers to be fair (and as to licenses, franchises, and tariffs that are subject to regulatory determinations of recovery of returns, the Borrower has presented or is presenting favorable defense thereof); and to comply, and cause each Subsidiary to comply, with all statutes and governmental regulations noncompliance with which might have a Material Adverse Effect, and pay, and cause each Subsidiary to pay, all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which if unpaid might become a lien against the property of the Borrower or any Subsidiary except liabilities being contested in good faith. Notwithstanding the foregoing, the Borrower may dissolve those certain inactive and minimally capitalized Subsidiaries designated as such on SCHEDULE 7.1. 9.8 NOTICE OF CERTAIN MATTERS. Notify the Agent Bank immediately upon acquiring knowledge of the occurrence of any of the following events: (a) the institution or threatened institution of any lawsuit or administrative proceeding affecting the Borrower or any Subsidiary that is not covered by insurance (less applicable deductible amounts) and which, if determined adversely to the Borrower or such Subsidiary, could reasonably be expected to have a Material Adverse Effect; (b) the occurrence of any material adverse change, or of any event that in the good faith opinion of the Borrower is likely, to result in a material adverse change, in the assets, liabilities, financial condition, business or affairs of the Borrower or any Subsidiary; (c) the occurrence of any Event of Default or any Default; or (d) a change by Moody's Investors Service, Inc. or by Standard and Poor's Ratings Group in the rating of the Borrower's Funded Debt. 9.9 ERISA. At all times: (a) maintain and keep in full force and effect each Plan; (b) make contributions to each Plan in a timely manner and in an amount sufficient to comply with the minimum funding standards requirements of ERISA; (c) immediately upon acquiring knowledge of any "reportable event" or of any "prohibited transaction" (as such terms are defined in the Code Section 4043) in connection with any Plan, furnish the Banks with a statement executed by the president or chief financial officer of the Borrower setting forth the details thereof and the action which the Borrower proposes to take with respect thereto and, when known, any action taken by the Internal Revenue Service with respect thereto; (d) notify the Banks promptly upon receipt by the Borrower or any Subsidiary of any notice of the institution of any proceeding or other action which may result in the termination of any Plan and furnish to the Banks copies of such notice; (e) acquire and maintain in amounts satisfactory to the Banks from either the Pension Benefit Guaranty Corporation or authorized private insurers, when available, the contingent employer liability coverage insurance required under ERISA; 40 (f) furnish the Banks with copies of the summary annual report for each Plan filed with the Internal Revenue Service as the Agent or the Banks may request; and (g) furnish the Banks with copies of any request for waiver of the funding standards or extension of the amortization periods required by Section 303 and Section 304 of ERISA or Section 412 of the Code promptly after the request is submitted to the Secretary of the Treasury, the Department of Labor or the Internal Revenue Service, as the case may be. 9.10 COMPLIANCE WITH ENVIRONMENTAL LAWS. At all times: (a) use and operate, and cause each Subsidiary to use and operate, all of their respective facilities and properties in material compliance with all Environmental Laws; keep, and cause each Subsidiary to keep, all necessary permits, approvals, orders, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith; handle, and cause each Subsidiary to handle, all Hazardous Materials in material compliance with all applicable Environmental Laws; and dispose, and cause each Subsidiary to dispose, of all Hazardous Materials generated by the Borrower or any Subsidiary or at any property owned or leased by them at facilities or with carriers that maintain valid permits, approvals, certificates, licenses or other authorizations for such disposal under applicable Environmental Laws; (b) promptly notify the Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries relating to the condition of the facilities and properties of the Borrower and each Subsidiary under, or their respective compliance with, applicable Environmental Laws wherein the condition or the noncompliance that is the subject of such claim, complaint, notice, or inquiry involves, or could reasonably be expected to involve, liability of or expenditures by the Borrower and its Subsidiaries of $10,000,000.00 or more; and (c) provide such information and certifications which the Banks may reasonably request from time to time to evidence compliance with this Section 9.10. 9.11 PGA CLAUSES. The Borrower will use its best efforts to maintain in force provisions in all of its tariffs and franchise agreements that permit the Borrower to recover from customers substantially all of the amount by which the cost of gas purchases exceeds the amount currently billed to customers for the delivery of such gas (sometimes referred to as PGA clauses). 10. NEGATIVE COVENANTS So long as the Borrower may borrow hereunder and until payment in full of the Notes, except with the written consent of the Banks: 10.1 CAPITAL REQUIREMENTS. The Borrower will not: (a) permit its Consolidated Net Worth at the end of any fiscal quarter to be less than the sum of (i) $698,603,000; (ii) 40% of Consolidated Net Income (if positive) for the period commencing on January 1, 2000 and ending on the date of determination, and treated as a single accounting period; (iii) the difference between (A) 100% of the net proceeds of any issuance of capital or preferred stock by the Borrower or any 41 consolidated Subsidiary received by the Borrower or such consolidated Subsidiary at any time after December 31, 1999; and (B) the aggregate amount of all redemption or repurchase payments hereafter made, if any, by the Borrower and any such consolidated Subsidiary in connection with the repurchase by the Borrower or any such consolidated Subsidiary of any of their respective capital or preferred stock; and (iv) without duplication, the difference between (A) 100% of the net proceeds heretofore and hereafter received by the Borrower and any consolidated Subsidiary in respect of the issuance by the Borrower or such consolidated Subsidiary of the Structured Securities, and (B) the aggregate amount of all redemption payments hereafter made, if any, by the Borrower and any such consolidated Subsidiary in connection with the redemption of any of the Structured Securities; or (b) permit the ratio of its Consolidated Total Indebtedness to its Consolidated Total Capitalization to be greater than 0.65 to 1.00 at the end of any fiscal quarter; or (c) acquire, or permit any Subsidiary to acquire, any assets other than (i) investments permitted under Section 10.4, or (ii) Qualifying Assets; or (d) permit the ratio of EBDIT to Cash Interest Expense for the four fiscal quarters most recently ended (considered as a single accounting period) at any time to be less than (i) 2.00 to 1.0 at all times during the period ending June 30, 2002, and (ii) 2.25 to 1.0 at all times thereafter; or (e) permit the aggregate outstanding principal amount of the Notes and the Short-Term Credit Facility Notes to exceed for a period of 180 consecutive days the Borrower's Available Senior Funded Debt Capacity. 10.2 MORTGAGES, LIENS, ETC. The Borrower will not, and will not permit any Subsidiary to, create or permit to exist any Lien (including the charge upon assets purchased under a conditional sales agreement, purchase money mortgage, security agreement or other title retention agreement) upon any of its respective assets, whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income, except: (a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings; (b) other Liens incidental to the conduct of its business or the ownership of its assets that were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and that do not in the aggregate materially detract from the value of such assets or materially impair the use thereof in the operation of such business; (c) Liens on assets of a Subsidiary to secure obligations of such Subsidiary to the Borrower or another Subsidiary; and (d) Liens on property existing at the time of acquisition thereof by the Borrower or any Subsidiary, including without limitation, any property acquired by the Borrower in consummating and finalizing any of the Pending Acquisitions, or purchase money Liens placed on an item of real or personal property purchased by the Borrower or any Subsidiary to secure a portion of the purchase price of such property, PROVIDED THAT 42 no such Lien may encumber or cover any other property of the Borrower or any Subsidiary. 10.3 DEBT. The Borrower will not, and will not permit any Subsidiary to, incur or permit to exist any Debt, except: (a) Debt evidenced by the Notes, the Short-Term Credit Facility Notes and Facility Letter of Credit Obligations not in default; (b) Debt of any Subsidiary to the Borrower or any other Subsidiary; (c) Debt existing as of March 31, 2000 as reflected on financial statements delivered under Section 7.2(b) and refinancings thereof other than Debt that has been refinanced by the proceeds of Loans or the proceeds of the Short-Term Credit Facility; (d) endorsements in the ordinary course of business of negotiable instruments in the course of collection; (e) Debt of the Borrower or any Subsidiary representing the portion of the purchase price of property acquired by the Borrower or such Subsidiary that is secured by Liens permitted by the provisions of Section 10.2(d); PROVIDED, HOWEVER, that at no time may the aggregate principal amount of such Debt outstanding exceed thirty percent (30%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date; (f) Debt evidenced by Senior Notes; and (g) additional Debt of the Borrower and Structured Securities of the Borrower and the Southern Union Trusts provided that after giving effect to the issuance thereof, there shall exist no Default or Event of Default; and: (i) the ratio of Consolidated Total Indebtedness to Consolidated Total Capitalization shall be no greater than 0.65 to 1.00; (ii) the ratio of EBDIT for the four fiscal quarters most recently ended to pro forma Cash Interest Expense for the following four fiscal quarters shall be no less than (A) 2.00 to 1.0 at all times during the period ending June 30, 2002, and (B) 2.25 to 1.0 at all times thereafter; PROVIDED, HOWEVER, that if the additional Debt for which the determinations required to be made by this subparagraph (g) will be used to finance in whole or in part the consideration to be paid by the Borrower for the acquisition of any entity otherwise permitted under the terms of this Agreement, the determination of EBDIT for purposes of this ratio shall include not only the EBDIT of the Borrower and its Subsidiaries for the four fiscal quarters most recently ended, but shall also include the EBDIT of such entity to be acquired for such four fiscal quarters most recently ended; and (iii) (A) such Debt and Structured Securities shall have a final maturity or mandatory redemption date, as the case may be, no earlier than the Maturity Date (as the same may be extended pursuant to Section 2.4) and shall mature or be subject to mandatory redemption or mandatory defeasance no earlier than the Maturity Date (as so extended) and shall be subject to no mandatory redemption or "put" to the Borrower or any Southern Union Trust exercisable, or sinking fund or other similar mandatory principal payment provisions that require payments to be made toward principal, prior to such Maturity Date (as so extended); or (B) (x) such additional Debt shall have a final maturity date prior to the Maturity Date, 43 (y) such additional Debt shall not exceed Eighty Million Dollars ($80,000,000.00) in the aggregate plus Twenty Million Dollars ($20,000,000.00) of reimbursement obligations incurred in connection with Non-Facility Letters of Credit issued by a Bank or Banks or by any other financial institution; PROVIDED, HOWEVER, that for purposes of determining the aggregate amount of such additional Debt for purposes of this subclause (y), the $30,000,000 of 8.375% mortgage notes of PG Energy maturing December 1, 2002 shall not be included, and (z) such additional Debt shall be borrowed from a Bank or Banks as a loan or loans arising independent of this Agreement or the Short-Term Credit Facility Agreement or shall be borrowed from a financial institution that is not a Bank under this Agreement or the Short-Term Credit Facility Agreement. (h) existing short-term Debt of any entity specified in the definition of "Pending Acquisitions" that is assumed by the Borrower in connection with the consummation of any of the Pending Acquisitions, so long as (i) the aggregate principal amount of such Debt assumed for all of the Pending Acquisitions does not exceed $100,000,000.00 and (ii) none of such Debt remains outstanding for more than 180 days after the consummation of the applicable merger, unless all or a portion of such Debt is refinanced with Debt otherwise permitted by other provisions of this Section 10.3. 10.4 LOANS, ADVANCES AND INVESTMENTS. The Borrower will not, and will not permit any Subsidiary to, make or have outstanding any loan or advance to, or own or acquire any stock or securities of or equity interest or other Investment in, any Person, except (without duplication): (a) stock of (i) the Subsidiaries named in Section 7.1 and any other Subsidiary to be acquired in accordance with the terms of any of the Pending Acquisitions; (ii) other entities that are acquired by the Borrower or any Subsidiary but that are promptly merged with and into the Borrower, including without limitation, the stock of each entity merging with the Borrower under any of the Pending Acquisitions; and (iii) the same Qualifying Entities as the Qualifying Entities under subparagraph (ii) of the definition of "Qualifying Assets," provided that at any one time the aggregate purchase price paid for such stock in such Qualifying Entities, including the aggregate amount of Debt assumed or deemed incurred by Borrower in connection with the purchase of such stock, is not more than ten percent (10%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date; (b) loans or advances to a Subsidiary; (c) Securities maturing no more than 180 days after Borrower's purchase that are either: (i) readily marketable securities issued by the United States or its agencies or instrumentalities; or (ii) commercial paper rated "Prime 2" by Moody's Investors Service, Inc. ("Moody's") or A-2 by Standard and Poor's Ratings Group ("S&P"); or 44 (iii) certificates of deposit or repurchase contracts on customary terms with financial institutions in which deposits are insured by any agency or instrumentality of the United States; or (iv) readily marketable securities received in settlement of liabilities created in the ordinary course of business; or (v) obligations of states, agencies, counties, cities and other political subdivisions of any state rated at lest MIG2, VMIG2 or Aa by Moody's or AA by S&P; or (vi) loan participations in credits in which the borrower's debt is rated at least Aa or Prime 2 by Moody's or AA or A-2 by S&P; or (vii) money market mutual funds that are regulated by the Securities and Exchange Commission, have a dollar-weighted average stated maturity of 90 days or fewer on their investments and include in their investment objectives the maintenance of a stable net asset value of $1 for each share. (d) other equity interests owned by a Subsidiary on the date of this Agreement and such additional equity interests to the extent (but only to the extent) that such Subsidiary is legally obligated to acquire those interests on the date of this Agreement, in each case as disclosed to the Banks in writing; (e) loans or advances by the Borrower to customers in connection with and pursuant to marketing and merchandising products that the Borrower reasonably expects to increase sales of the Borrower or Subsidiaries, PROVIDED that: (i) such loans must be either less than $2,000,000.00 to any one customer (or group of affiliated customers, shown on the Borrower's records to be Affiliates) or must be disclosed on SCHEDULE 9.2 hereof; and (ii) all such loans must not exceed $24,000,000.00 in the aggregate outstanding at any time; (f) travel and expense advances in the ordinary course of business to officers and employees; (g) stock or securities of or equity interests in, any Person provided that, after giving effect to the acquisition and ownership thereof, the Borrower is in compliance with the provisions of Section 10.1(c) of this Agreement; and (h) loans, advances or other Investments by the Borrower or any Subsidiary not otherwise permitted under the other provisions of this Section 10.4, so long as the sum of the outstanding balance of all of such loans and advances and the purchase price paid for all of such other Investments does not exceed in the aggregate seven percent (7%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date. 10.5 STOCK AND DEBT OF SUBSIDIARIES. The Borrower will not, and will not permit any Subsidiary to, sell or otherwise dispose of any shares of stock or Debt of any Subsidiary, or permit any Subsidiary to issue or dispose of its stock (other than directors' qualifying shares), 45 except to the Borrower or another Subsidiary, and except that Southern Union Trusts may issue preferred beneficial interests in public offerings of Borrower's Structured Securities. 10.6 MERGER, CONSOLIDATION, ETC. The Borrower will not, and will not permit any Subsidiary to, merge or consolidate with any other Person or sell, lease, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or a substantial part of its assets or acquire (whether in one transaction or a series of transactions) all or a substantial part of the assets of any Person, except that: (a) any Subsidiary may merge or consolidate with the Borrower (PROVIDED THAT the Borrower shall be the continuing or surviving corporation) or with any one or more Subsidiaries; (b) any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Borrower or another Subsidiary; (c) subject to Section 10.14, Lavaca Realty Company may dispose of all or a substantial part of its assets to any Person, whether in one transaction or a series of transactions, for a price or prices that do not result in a Material Adverse Effect; (d) the Borrower may acquire the assets of any Person, PROVIDED that, after giving effect to such acquisition, the Borrower is in compliance with the provisions of Sections 10.1(c); (e) the Borrower or any Subsidiary may sell, lease, assign or otherwise dispose of assets as otherwise permitted under Section 10.8; and (f) the Borrower may merge with the entities described in and as contemplated under the definition of "Pending Acquisitions." 10.7 SUPPLY AND PURCHASE CONTRACTS. The Borrower will not, and will not permit any Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property if such contract requires that payment for such materials, supplies or other property shall be made regardless of whether or not delivery is ever made or tendered of such materials, supplies and other property, except in those circumstances and involving those supply or purchase contracts that the Borrower reasonably considers to be necessary or helpful in its operations in the ordinary course of business and that the Borrower reasonably considers not to be unnecessarily burdensome on the Borrower or its Subsidiaries. 10.8 SALE OR OTHER DISPOSITION OF ASSETS. The Borrower will not, and will not permit any Subsidiary to, except as permitted under this Section 10.8, sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or any part of its Property (whether now owned or hereafter acquired); PROVIDED, HOWEVER, that (i) the Borrower or any Subsidiary may in the ordinary course of business dispose of (a) Property consisting of Inventory; and (b) Property consisting of goods or equipment that are, in the opinion of the Borrower or any Subsidiary, obsolete or unproductive, but if in the good faith judgment of the Borrower or any Subsidiary such disposition without replacement thereof would have a Material Adverse Effect, such goods and equipment shall be replaced, or their utility and function substituted, by new or existing goods or equipment; (ii) Lavaca Realty Company may dispose of 46 its Property on the terms set forth in Section 10.6(c); (iii) the Borrower may transfer or dispose of any of its Significant Property (in any transaction or series of transactions) to any Subsidiary or Subsidiaries only if such Property so transferred or disposed of after the Closing Date has an aggregate value (determined after depreciation and in accordance with GAAP) of not more than ten percent (10%) of the aggregate value of all of the Borrower's and its Subsidiaries' real property and tangible personal property other than Inventory considered on a consolidated basis and determined after depreciation and in accordance with GAAP, as of March 31, 2000; (iv) the Borrower and Lavaca Realty Company may dispose of their real property in one or more sale/leaseback transactions, provided that any Debt incurred in connection with such transaction does not create a Default as defined herein; (v) a Southern Union Trust may distribute the Borrower's subordinated debt securities constituting a portion of the Structured Securities, on the terms and under the conditions set out in the registration statement therefor filed with the Securities and Exchange Commission on March 25, 1995 or any similar registration statement hereafter filed with the Securities and Exchange Commission in connection with any other Structured Securities issued in connection with the Pending Acquisitions; (vi) the Borrower or any Subsidiary may dispose of real property or tangible personal property other than Inventory (in consideration of such amount as in the good faith judgment of the Borrower or such Subsidiary represents a fair consideration therefor), provided that the aggregate value of such property disposed of (determined after depreciation and in accordance with GAAP) after the Closing Date does not exceed ten percent (10%) of the aggregate value of all of the Borrower's and its Subsidiaries' real property and tangible personal property other than Inventory considered on a consolidated basis and determined after depreciation and in accordance with GAAP, as of March 31, 2000; (vii) the Borrower may dispose of Qualifying Assets of the type described in clause (ii) of the definition of Qualifying Assets, provided that the Borrower make a payment on the Loan in an amount equal to the lesser of (a) the net sales proceeds from such disposition, and (b) the amount of Loan proceeds used to acquire such clause (ii) Qualifying Assets; and (viii) the Borrower may dispose of other Investments of the type acquired under the terms of Section 10.4(h), provided that the Borrower make a payment on the Loan in an amount equal to the lesser of (a) the net sales proceeds from such disposition, and (b) the amount of Loan proceeds used to acquire such other Investments. 10.9 DISCOUNT OR SALE OF RECEIVABLES. The Borrower will not, and will not permit any Subsidiary, other than Southern Union Total Energy Services, Inc., to discount or sell with recourse, or sell for less than the face value thereof (including any accrued interest) any of its notes receivable, receivables under leases or other accounts receivable. 10.10 CHANGE IN ACCOUNTING METHOD. The Borrower will not, and will not permit any Subsidiary to, make any change in the method of computing depreciation for either tax or book purposes or any other material change in accounting method representing any departure from GAAP without the Majority Banks' prior written approval. 10.11 RESTRICTED PAYMENT. The Borrower will not pay or declare any Restricted Payment unless immediately prior to such payment AND after giving effect to such payment, the Borrower could incur at least $1 of additional Debt without violating the provisions of Section 10.3(g) AND after giving effect thereto no Default or Event of Default exists hereunder. 10.12 SECURITIES CREDIT REGULATIONS. Neither the Borrower nor any Subsidiary will take or permit any action which might cause the Loans or the Facility Letter of Credit Obligations or this Agreement to violate Regulation G, Regulation T, Regulation U, Regulation 47 X or any other regulation of the Board of Governors of the Federal Reserve System or a violation of the Securities Exchange Act of 1934, in each case as now or hereafter in effect. 10.13 NATURE OF BUSINESS; MANAGEMENT. The Borrower will not, and will not permit any Subsidiary to: (a) change its principal line of business; or (b) enter into any business not within the scope of Section 7.15 and the definition of Qualifying Assets; or (c) permit any material overall change in the management of the Borrower. 10.14 TRANSACTIONS WITH RELATED PARTIES. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction or agreement with any officer, director or holder of ten percent (10%) or more of any class of the outstanding capital stock of the Borrower or any Subsidiary (or any Affiliate of any such Person) unless the same is upon terms substantially similar to those obtainable from wholly unrelated sources. 10.15 HAZARDOUS MATERIALS. The Borrower will not, and will not permit any Subsidiary to (a) cause or permit any Hazardous Materials to be placed, held, used, located, or disposed of on, under or at any of such Person's property or any part thereof by any Person in a manner which could reasonably be expected to have a Material Adverse Effect; (b) cause or permit any part of any of such Person's property to be used as a manufacturing, storage, treatment or disposal site for Hazardous Materials, where such action could reasonably be expected to have a Material Adverse Effect; or (c) cause or suffer any liens to be recorded against any of such Person's property as a consequence of, or in any way related to, the presence, remediation, or disposal of Hazardous Materials in or about any of such Person's property, including any so-called state, federal or local "superfund" lien relating to such matters, where such recordation could reasonably be expected to have a Material Adverse Effect. 10.16 LIMITATIONS ON PAYMENTS ON SUBORDINATED DEBT. The Borrower will not, and will not permit any Subsidiary to, make any payment in respect of interest on, principal of, or otherwise relating to, the borrower's subordinated debt securities issued in connection with the Structured Securities if, after giving effect to such payment, a Default or Event of Default would exist. 11. EVENTS OF DEFAULT; REMEDIES If any of the following events shall occur, then the Agent shall at the request, or may with the consent, of the holders of more than fifty percent (50%) in principal amount of the Notes then outstanding or, if no Note is then outstanding, Banks having more than fifty percent (50%) of the Commitments, (a) by notice to the Borrower, declare the Commitment of each Bank and the several obligation of each Bank to make Loans hereunder to be terminated, whereupon the same shall forthwith terminate, and (b) declare the Notes and all interest accrued and unpaid thereon, and all other amounts payable under the Notes, this agreement and the other Loan Documents, to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts, shall become and be forthwith due and payable without presentment, demand, protest, or further notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that with respect to any Event of Default described in Sections 11.7 or 11.8 hereof, (i) the Commitment of each Bank and the obligation of the Banks to make Loans shall automatically be terminated and (ii) the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon, and all such other amounts payable under the Notes, this Agreement and the 48 other Loan Documents, shall automatically become immediately due and payable, without presentment demand, protest, or any notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower: 11.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower does not pay, repay or prepay any principal of or interest on any Note or any Short-Term Credit Facility Note when due; or 11.2 FAILURE TO PAY COMMITMENT FEE OR OTHER AMOUNTS. The Borrower does not pay any commitment fee or any other obligation or amount payable under this Agreement, the Short-Term Credit Facility Agreement, the Notes, the Short-Term Credit Facility Notes, or any Letter of Credit Reimbursement Agreement within two (2) calendar days after the same shall have become due; or 11.3 FAILURE TO PAY OTHER DEBT. The Borrower or any Subsidiary fails to pay principal or interest aggregating more than $2,000,000.00 on any other Debt when due and any related grace period has expired, or the holder of any of such other Debt declares such Debt due prior to its stated maturity because of the Borrower's or any Subsidiary's default thereunder and the expiration of any related grace period; or 11.4 MISREPRESENTATION OR BREACH OF WARRANTY. Any representation or warranty made by the Borrower herein or otherwise furnished to the Bank in connection with this Agreement or any other Loan Document shall be incorrect, false or misleading in any material respect when made; or 11.5 VIOLATION OF NEGATIVE COVENANTS. The Borrower violates any covenant, agreement or condition contained in Sections 10.2, 10.3, 10.5, 10.6, 10.9, 10.10, 10.11, or 10.15; or 11.6 VIOLATION OF OTHER COVENANTS, ETC. The Borrower violates any other covenant, agreement or condition contained herein (other than the covenants, agreements and conditions set forth or described in Sections 11.1, 11.2, 11.3, 11.4, and 11.5 above) or in any other Loan Document and such violation shall not have been remedied within (30) days after written notice has been received by the Borrower from the Bank or the holder of the Note; or 11.7 BANKRUPTCY AND OTHER MATTERS. The Borrower or any Subsidiary (a) makes an assignment for the benefit of creditors; or (b) admits in writing its inability to pay its debts generally as they become due; or (c) generally fails to pay its debts as they become due; or (d) files a petition or answer seeking for itself, or consenting to or acquiescing in, any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any applicable Debtor Law (including, without limitation, the Federal Bankruptcy Code); or (i) there is appointed a receiver, custodian, liquidator, fiscal agent, or trustee of the Borrower or any Subsidiary or of the whole or any substantial part of their respective assets; or (ii) any court enters an order, judgment or decree approving a petition filed against the Borrower or any Subsidiary seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any Debtor Law and either such order, decree or judgment so filed against it is not dismissed or stayed (unless and until such stay is no longer in effect) within thirty (30) days of entry thereof or an order for relief is entered pursuant to any such law; or 49 11.8 DISSOLUTION. Any order is entered in any proceeding against the Borrower or any Subsidiary decreeing the dissolution, liquidation, winding-up or split-up of the Borrower or such Subsidiary, and such order remains in effect for thirty (30) days; or 11.9 UNDISCHARGED JUDGMENT. Final Judgment or judgments in the aggregate, that might be or give rise to Liens on any property of the Borrower or any Subsidiary, for the payment of money in excess of $1,000,000.00 shall be rendered against the Borrower or any Subsidiary and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or 11.10 ENVIRONMENTAL MATTERS. The occurrence of any of the following events that could result in liability to the Borrower or any Subsidiary under any Environmental Law or the creation of a Lien on any property of the Borrower or any Subsidiary in favor of any governmental authority or any other Person for any liability under any Environmental Law or for damages arising from costs incurred by such Person in response to a Release or threatened Release of Hazardous Materials into the environment if any such asserted liability or Lien exceeds $10,000,000.00 and if any such lien would cover any property of the Borrower or any Subsidiary which property is or would reasonably be considered to be integral to the operations of the Borrower or any Subsidiary in the ordinary course of business: (a) the Release of Hazardous Materials at, upon, under or within the property owned or leased by the Borrower or any Subsidiary or any contiguous property; (b) the receipt by the Borrower or any Subsidiary of any summons, claim, complaint, judgment, order or similar notice that it is not in compliance with or that any governmental authority is investigating its compliance with any Environmental Law; (c) the receipt by the Borrower or any Subsidiary of any notice or claim to the effect that it is or may be liable for the Release or threatened Release of Hazardous Materials into the environment; or (d) any governmental authority incurs costs or expenses in response to the Release of any Hazardous Material which affects in any way the properties of the Borrower or any Subsidiary. 11.11 OTHER REMEDIES. In addition to and cumulative of any rights or remedies expressly provided for in this Section 11, if any one or more Events of Default shall have occurred, the Agent shall at the request, and may with the consent, of the Majority Banks proceed to protect and enforce the rights of the Banks hereunder by any appropriate proceedings. The Agent shall at the request, and may with the consent, of the Majority Banks also proceed either by the specific performance of any covenant or agreement contained in this Agreement or by enforcing the payment of the Notes or by enforcing any other legal or equitable right provided under this Agreement or the Notes or otherwise existing under any law in favor of the holder of the Notes. 11.12 REMEDIES CUMULATIVE. No remedy, right or power conferred upon the Banks is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 50 12. THE AGENT 12.1 AUTHORIZATION AND ACTION. Each Bank hereby appoints Chase as its Agent under and irrevocably authorizes the Agent (subject to Sections 12.1 and 12.7) to take such action as the Agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. Without limitation of the foregoing, each Bank expressly authorizes the Agent to execute, deliver, and perform its obligations under this Agreement, and to exercise all rights, powers, and remedies that the Agent may have hereunder. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act, or to refrain from acting (and shall be fully protected in so acting or refraining from acting), upon the instructions of the Majority Banks, and such instructions shall be binding upon all the Banks and all holders of any Note; PROVIDED, HOWEVER, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Bank prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. 12.2 AGENT'S RELIANCE, ETC. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable to any Bank for any action taken or omitted to be taken by it or them under or in connection with this Agreement, the Notes and the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (a) may treat the original or any successor holder of any Note as the holder thereof until the Agent receives notice from the Bank which is the payee of such Note concerning the assignment of such Note; (b) may employ and consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable to any Bank for any action taken, or omitted to be taken, in good faith by it or them in accordance with the advice of such counsel, accountants, or experts received in such consultations and shall not be liable for any negligence or misconduct of any such counsel, accountants, or other experts; (c) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any opinions, certifications, statements, warranties, or representations made in or in connection with this Agreement; (d) shall not have any duty to any Bank to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of this Agreement or any other instrument or document furnished pursuant thereto or to satisfy itself that all conditions to and requirements for any Loan have been met or that the Borrower is entitled to any Loan or to inspect the property (including the books and records) of the Borrower or any Subsidiary; (e) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of this Agreement by acing upon any notice, consent, certificate, or other instrument or writing (which may be by telegram, cable, telex, or otherwise) believed by it to be genuine and signed or sent by the PROPER PARTY or parties. 12.3 DEFAULTS. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the nonpayment of principal of or interest hereunder or of any fees) unless the Agent has received notice from a Bank or the Borrower specifying such Default and stating that such notice is a Notice of Default. In the event that the Agent receives such a notice of the 51 occurrence of a Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such nonpayment). The Agent shall (subject to Section 12.7) take such action with respect to such Default; PROVIDED THAT, unless and until the Agent shall have received the directions referred to in Sections 12.1 or 12.7, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable and in the best interest of the Banks. 12.4 CHASE AND AFFILIATES. With respect to its Commitment, any Loan made by it, and the Note issued to it, Chase shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Chase in its individual capacity. Chase and its respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its respective Affiliates and any Person who may do business with or own securities of the Borrower or any such Affiliate, all as if Chase were not the Agent and without any duty to account therefor to the Banks. 12.5 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and each Subsidiary and its decision to enter into the transactions contemplated by this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement or to inspect the properties or books of the Borrower or any Subsidiary. Except for notices, reports, and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition, or business of the Borrower or any Subsidiary (or any of their Affiliates) which may come into the possession of the Agent or any of its Affiliates. 12.6 INDEMNIFICATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN CONTAINED, THE AGENT SHALL BE FULLY JUSTIFIED IN FAILING OR REFUSING TO TAKE ANY ACTION HEREUNDER UNLESS IT SHALL FIRST BE INDEMNIFIED TO ITS SATISFACTION BY THE BANKS AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ITS TAKING OR CONTINUING TO TAKE ANY ACTION. EACH BANK AGREES TO INDEMNIFY THE AGENT (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), ACCORDING TO SUCH BANK'S COMMITMENT, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE NOTES OR ANY ACTION TAKEN OR OMITTED BY THE AGENT UNDER THIS AGREEMENT OR THE NOTES; PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON BEING INDEMNIFIED; AND PROVIDED FURTHER THAT IT IS THE INTENTION OF EACH BANK TO INDEMNIFY 52 THE AGENT AGAINST THE CONSEQUENCES OF THE AGENT'S OWN NEGLIGENCE, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT, CONCURRENT, ACTIVE OR PASSIVE. WITHOUT LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA PERCENTAGE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE AGENT IN CONNECTION WITH THE PREPARATION, ADMINISTRATION, OR ENFORCEMENT OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT AND THE NOTES, TO THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER. 12.7 SUCCESSOR AGENT. The Agent may resign at any time as Agent under this Agreement by giving written notice thereof to the Banks and the Borrower and may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks or shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000.00. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 12.8 AGENT'S RELIANCE. The Borrower shall notify the Agent in writing of the names of its officers and employees authorized to request a Loan on behalf of the Borrower and shall provide the Agent with a specimen signature of each such officer or employee. The Agent shall be entitled to rely conclusively on such officer's or employee's authority to request a Loan on behalf of the Borrower until the Agent receives written notice from the Borrower to the contrary. The Agent shall have no duty to verify the authenticity of the signature appearing on any Notice of Borrowing, and, with respect to any oral request for a Loan, the Agent shall have no duty to verify the identity of any Person representing himself as one of the officers or employees authorized to make such request on behalf of the Borrower. Neither the Agent nor any Bank shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent or such Bank believes in good faith to have been given by a duly authorized officer or other Person authorized to borrow on behalf of the Borrower or for otherwise acting in good faith. 13. MISCELLANEOUS 13.1 REPRESENTATION BY THE BANKS. Each Bank represents that it is the intention of such Bank, as of the date of its acquisition of its Note, to acquire the Note for its account or for the account of its Affiliates, and not with a view to the distribution or sale thereof, and, subject to any applicable laws, the disposition of such Bank's property shall at all times be within its control. The Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred, sold or otherwise disposed of EXCEPT (a) in a registered Offering under the Securities Act; (b) pursuant to an exemption from the registration 53 provisions of the Securities Act; or (c) if the Securities Act shall not apply to the Notes or the transactions contemplated hereunder as commercial lending transactions. 13.2 AMENDMENTS, WAIVERS, ETC. No amendment or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Majority Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver, or consent shall, unless in writing and signed by each Bank, do any of the following: (a) waive any of the conditions specified in Section 8; (b) increase the Commitment of any Bank or alter the term thereof, or subject any Bank to any additional or extended obligations; (c) change the principal of, or rate of interest on, any Note, or any fees or other amounts payable hereunder; (d) postpone any date fixed for any payment of principal of, or interest on, any Note, or any fees (including, without limitation, any fee) or other amounts payable hereunder; (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of any Note, or the number of Banks which shall be required for Banks, or any of them, to take any action hereunder; or (f) amend this Section 13.2; and PROVIDED, FURTHER, that no amendment, waiver, or consent shall, unless in writing and signed by the Agent in addition to each Bank, affect the rights or duties of the Agent under any Loan Document. No failure or delay on the part of any Bank or the Agent in exercising any power or right hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between the Borrower and any Bank or the Agent shall operate as a waiver of any right of any Bank or the Agent. No modification or waiver of any provision of this Agreement or the Note nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. 13.3 REIMBURSEMENT OF EXPENSES. Other than expenses provided in Section 9.7, any provision hereof to the contrary notwithstanding, and whether or not the transactions contemplated by this Agreement shall be consummated, the Borrower agrees to reimburse the Bank for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of counsel to the Bank, in connection with such transactions, or any of them, or otherwise in connection with this Agreement, including its negotiation, preparation, execution, administration, modification and enforcement, and all reasonable fees, including the reasonable fees and expenses of counsel to the Agent and each Bank, costs and expenses of the Agent for environmental consultants and costs and expenses of the Agent and each Bank in connection with due diligence, transportation, computer time and research and duplication. The Borrower agrees to pay any and all stamp and other taxes which may be payable or determined to be payable in connection with the execution and delivery of this Agreement or the Notes, and to save any holder of any Note harmless from any and all liabilities with respect to or resulting from any delay or omission to pay any such taxes. The obligations of the Borrower under this Section 13.3 shall survive the termination of this Agreement and/or the payment of the Notes. 54 13.4 NOTICES. All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, telecopied, telexed, cabled or delivered addressed as follows: (a) If to the Borrower, to it at: Southern Union Company 504 Lavaca, Suite 800 Austin, Texas 78701 Attention: Mr. Ronald J. Endres Fax: (512) 370-8253 with copies to: Susan Westbrook, Esq. Ms. Cheryl Yager Southern Union Company 504 Lavaca, Suite 800 Austin, Texas 78701 Fax: (512) 370-8253 (b) If to the Agent, to it at: Chase Bank of Texas, National Association 700 Lavaca, 2nd Floor Austin, Texas 78701 Attention: Manager/Commercial Lending Fax: (512) 479-2853 with a copy to: Chase Securities Inc. 707 Travis Street, 8th Floor Houston, Texas 77002 Attention: Kelly Schrock Fax: (713) 216-2291
and if to any Bank, at the address specified below its name on the signature pages hereof, or as to the Borrower or the Agent, to such other address as shall be designated by such party in a written notice to the other party and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, telecopied, telexed, transmitted, or cabled, become effective when deposited in the mail, confirmed by telex answer back, transmitted to the telecopier, or delivered to the cable company, except that notices and communications to the Agent under Sections 2.1(c) or 2.2 shall not be effective until actually received by the Agent. 13.5 GOVERNING LAW; VENUE. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA; PROVIDED, HOWEVER, that Chapter 346 of the Texas Finance Code, as amended, shall not apply to this Agreement and the Notes issued hereunder. Travis County, Texas shall be a proper place of venue to enforce payment or performance of this Agreement and the other Loan Documents by the Borrower, unless the Agent shall give its prior written consent to a different venue. The Borrower hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to any of the Loan Documents in the District Courts of Travis County, Texas, or in the United 55 States District Court for the Western District of Texas, Austin Division, and hereby further irrevocably waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. The Borrower hereby irrevocably agrees that, provided that the Borrower can obtain personal jurisdiction over and service of process upon the Agent or the applicable Bank, any legal proceeding against the Agent or any Bank arising out of or in connection with this Agreement or the other Loan Documents shall be brought in the district courts of Travis County, Texas, or in the United States District Court for the Western District of Texas, Austin Division. Nothing contained in this Section or in any other provision of any Loan Document (unless expressly provided otherwise) shall be deemed or construed as an agreement by any Bank to be subject to the jurisdiction of such courts. 13.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants contained herein or made in writing by the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Notes, and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not, PROVIDED THAT the undertaking of the Banks to make the Loans to the Borrower shall not inure to the benefit of any successor or assign of the Borrower. No investigation at any time made by or on behalf of the Banks shall diminish the Banks' rights to rely on any representations made herein or in connection herewith. All statements contained in any certificate or other written instrument delivered by the Borrower or by any Person authorized by the Borrower under or pursuant to this Agreement or in connection with the transactions contemplated hereby shall constitute representations and warranties hereunder as of the time made by the Borrower. 13.7 COUNTERPARTS. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument and all such separate counterparts shall constitute but one and the same instrument. 13.8 SEPARABILITY. Should any clause, sentence, paragraph or section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. Each covenant contained in this Agreement shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 13.9 DESCRIPTIVE HEADINGS. The section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatsoever in construing the terms and provisions of this Agreement. 13.10 ACCOUNTING TERMS. All accounting terms used herein which are not expressly defined in the Agreement, or the respective meanings of which are not otherwise qualified, shall have the respective meanings given to them in accordance with GAAP. 56 13.11 LIMITATION OF LIABILITY. No claim may be made by the Borrower or any other Person against the Agent or any Bank or the Affiliates, directors, officers, employees, attorneys, or agents of the Agent or any Bank for any special, indirect, consequential, or punitive damages in respect to any claim for breach of contract arising out of or related to the transactions contemplated by this Agreement, or any act, omission, or event occurring in connection herewith and the Borrower hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 13.12 SET-OFF. The Borrower hereby gives and confirms to each Bank a right of set-off of all moneys, securities and other property of the Borrower (whether special, general or limited) and the proceeds thereof, now or hereafter delivered to remain with or in transit in any manner to such Bank, its Affiliates, correspondents or agents from or for the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise or coming into possession of such Bank, its Affiliates, correspondents or agents in any way, and also, any balance of any deposit accounts and credits of the Borrower with, and any and all claims of security for the payment of the Notes and of all other liabilities and obligations now or hereafter owed by the Borrower to such Bank, contracted with or acquired by such Bank, whether such liabilities and obligations be joint, several, absolute, contingent, secured, unsecured, matured or unmatured, and the Borrower hereby authorizes each Bank, its Affiliates, correspondents or agents at any time or times, without prior notice, to apply such money, securities, other property, proceeds, balances, credits of claims, or any part of the foregoing, to such liabilities in such amounts as it may select, whether such liabilities be contingent, unmatured or otherwise, and whether any collateral security therefor is deemed adequate or not. The rights described herein shall be in addition to any collateral security, if any, described in any separate agreement executed by the Borrower. 13.13 SALE OR ASSIGNMENT (a) Subject to the prior written consent of the Agent and the Borrower, such consent not to be unreasonably withheld, each Bank may assign to an Eligible Assignee all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments and the Note held by it); PROVIDED, HOWEVER, that: (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Banks rights and obligations under this Agreement; (ii) the amount of the Commitments so assigned shall equal or exceed $5,000,000.00; (iii) the Commitment of each Bank shall be not less than $5,000,000.00 (subject only to reductions pursuant to Sections 4.6 and 11 hereof); (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register (as hereinafter defined), an Assignment and Acceptance in the form of EXHIBIT C attached hereto and made a part hereof (the "Assignment and Acceptance"), together with any Note subject to such assignment and a processing and recordation fee of $2,000.00; (v) any such assignment from one Bank to another Bank shall not require the consent of the Agent or the Borrower if such assignment does not result in any Bank holding more than 60% of the aggregate outstanding Commitments; and (vi) any such assignment shall not require the consent of the Borrower if a Default or Event of Default shall have occurred and is then continuing. Upon such execution, delivery, acceptance, and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be the date on which such Assignment and 57 Acceptance is accepted by the Agent, (A) the Eligible Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank under the Loan Documents, and (B) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under the Loan Documents, such Bank shall cease to be a party thereto). (b) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the Eligible Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such Eligible Assignee confirms that it has received a copy of the Loan Documents, together with copies of the financial statements referred to in Section 7.2 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Eligible Assignee, independently and without reliance upon the Agent, such assigning Bank, or any Bank and based on such documents and information as it shall deem appropriate at the time, will continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Eligible Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under any Loan Document as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vi) such Eligible Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of any Loan Document are required to be performed by it as a Bank. (c) The Agent shall maintain at its address referred to in Section 13.4 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent, and Banks may treat each Person whose name is recorded in the Register as Bank hereunder for all purposes of the Loan Documents. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank, together with any Note subject to such assignment, the Agent, if such 58 Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT C, shall (i) accept such Assignment and Acceptance; (ii) record the information contained therein in the Register; and (iii) give prompt notice thereof to the Borrower. Within three (3) Business Days after its receipt of such notice, the Borrower at its own expense, shall execute and deliver to the Agent in exchange for each surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Bank has retained a Commitment hereunder, a new Note to the order of the assigning Bank in an amount equal to the Commitment retained by it hereunder. The new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of EXHIBIT C attached hereto and made a part hereof. Upon receipt by the Agent of each such new Note conforming to the requirements set forth in the preceding sentences, the Agent shall return to the Borrower each such surrendered Note marked to show that each such surrendered Note has been replaced, renewed, and extended by such new Note. (e) Each Bank may sell participations to one or more banks or other entities in or to all or a portion of its rights and/or obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Note held by it); PROVIDED, HOWEVER, that (i) each Bank's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged; (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) except as provided below, such Bank shall remain the holder of any such Note for all purposes of this Agreement; and (iv) the participating banks or other entities shall be entitled to the benefits of Sections 2.3 and 4.6 to recover costs, losses and expenses in the circumstances, and to the extent provided in Section 2.3, as though such participant were a Bank; PROVIDED, HOWEVER, the amounts to which a participant shall be entitled to obtain pursuant to Sections 2.3 and 4.6 shall be determined by reference to such participant's selling Bank and shall be recoverable solely from such selling Bank and (v) the Borrower, the Agent and the other Banks shall continue to deal solely and directly with the selling Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents; PROVIDED, HOWEVER, the selling Bank may grant a participant rights with respect to amendments, modification or waivers with respect to any fees payable hereunder to such Bank (including the amount and the dates fixed for the payment of any such fees) or the amount of principal or the rate of interest payable on, the dates fixed for any payment of principal or interest on, the Loans, or the release of any obligations of the Borrower hereunder and under the other Loan Documents, or the release of any security for any of the Obligations. Except with respect to cost protections contained in Sections 2.3 and 4.6, no participant shall be a third party beneficiary of this Agreement and shall not be entitled to enforce any rights provided to its selling Bank against the Company under this Agreement. 13.14 NON U.S. BANKS. Prior to the date of the initial Borrowings hereunder, and from time to time thereafter if requested by the Borrower or the Agent, each Bank organized under the laws of a jurisdiction outside the United States of America shall provide the Agent and the Borrower with the forms prescribed by the Internal Revenue Service of the United States of America certifying such Banks exemption from United States withholding taxes with respect to 59 all payments to be made to such Bank hereunder or under such Bank's Note. Unless the Borrower and the Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under such Bank's Note are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank organized under the laws of a jurisdiction outside the United States. 13.15 INTEREST. All agreements between the Borrower, the Agent or any Bank, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on any Note or otherwise, shall the amount paid, or agreed to be paid, to the Agent or any Bank for the use, forbearance, or detention of the money to be loaned under this Agreement or otherwise or for the payment or performance of any covenant or obligation contained herein or in any document related hereto exceed the amount permissible at the Highest Lawful Rate. If, as a result of any circumstances whatsoever, fulfillment of any provision hereof or of any of such documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law, then, IPSO FACTO, the obligation to be filled shall be reduced to the limit of such validity, and if, from any such circumstance, the Agent or any Bank shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the amount permissible at the Highest Lawful Rate, such amount which would be excessive interest shall be applied to the reduction of the principal amount owing on account of the Notes or the amounts owing on other obligations of the Borrower to the Agent or any Bank under this Agreement or any document related hereto and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of the Notes and the amounts owing on other obligations of the Borrower to the Agent or any Bank under this Agreement or any document related hereto, as the case may be, such excess shall be refunded to the Borrower. All sums paid or agreed to be paid to the Agent or any Bank for the use, forbearance, or detention of the indebtedness of the Borrower to the Agent or any Bank shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal thereof (Including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate. The terms and provisions of this Section 13.15 shall control and supersede every other provision of all agreements between the Borrower and the Banks. 13.16 INDEMNIFICATION. THE BORROWER AGREES TO INDEMNIFY, DEFEND, AND SAVE HARMLESS THE AGENT, EACH BANK AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND ATTORNEYS, AND EACH OF THEM (THE "INDEMNIFIED PARTIES"), FROM AND AGAINST ALL CLAIMS, ACTIONS, SUITS, AND OTHER LEGAL PROCEEDINGS, DAMAGES, COSTS, INTEREST, CHARGES, TAXES, COUNSEL FEES, AND OTHER EXPENSES AND PENALTIES (INCLUDING WITHOUT LIMITATION ALL ATTORNEY FEES AND COSTS OR EXPENSES OF SETTLEMENT) WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR BY REASON OF OR ARISING OUT OF (a) THE MAKING OF ANY LOAN HEREUNDER, THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE NOTES AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY AND THE EXERCISE OF ANY OF THE BANKS' RIGHTS UNDER THIS AGREEMENT AND THE NOTES OR 60 OTHERWISE, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS, AND EXPENSES INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN INVESTIGATING, PREPARING FOR, DEFENDING AGAINST, OR PROVIDING EVIDENCE, PRODUCING DOCUMENTS, OR TAKING ANY OTHER ACTION IN RESPECT OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY FEDERAL SECURITIES LAW OR ANY SIMILAR LAW OF ANY JURISDICTION OR AT COMMON LAW OR (b) ANY AND ALL CLAIMS OR PROCEEDINGS (WHETHER BROUGHT BY A PRIVATE PARTY, GOVERNMENTAL AUTHORITY OR OTHERWISE) FOR BODILY INJURY, PROPERTY DAMAGE, ABATEMENT, REMEDIATION, ENVIRONMENTAL DAMAGE, OR IMPAIRMENT OR ANY OTHER INJURY OR DAMAGE RESULTING FROM OR RELATING TO THE RELEASE OF ANY HAZARDOUS MATERIALS LOCATED UPON, MIGRATING INTO, FROM, OR THROUGH OR OTHERWISE RELATING TO ANY PROPERTY OWNED OR LEASED BY THE BORROWER OR ANY SUBSIDIARY (WHETHER OR NOT THE RELEASE OF SUCH HAZARDOUS MATERIALS WAS CAUSED BY THE BORROWER, ANY SUBSIDIARY, A TENANT, OR SUBTENANT OF THE BORROWER OR ANY SUBSIDIARY, A PRIOR OWNER, A TENANT, OR SUBTENANT OF ANY PRIOR OWNER OR ANY OTHER PARTY AND WHETHER OR NOT THE ALLEGED LIABILITY IS ATTRIBUTABLE TO THE HANDLING, STORAGE, GENERATION, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS MATERIALS OR THE MERE PRESENCE OF ANY HAZARDOUS MATERIALS ON SUCH PROPERTY; PROVIDED THAT THE BORROWER SHALL NOT BE LIABLE TO THE INDEMNIFIED PARTIES WHERE THE RELEASE OF SUCH HAZARDOUS MATERIALS OCCURS AT ANY TIME AT WHICH THE BORROWER OR ANY SUBSIDIARY CEASES TO OWN OR LEASE SUCH PROPERTY); AND PROVIDED FURTHER THAT NO INDEMNIFIED PARTY SHALL BE ENTITLED TO THE BENEFITS OF THIS SECTION 13.16 TO THE EXTENT ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT CONTRIBUTED TO ITS LOSS; AND PROVIDED FURTHER THAT IT IS THE INTENTION OF THE BORROWER TO INDEMNIFY THE INDEMNIFIED PARTIES AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE. THIS AGREEMENT IS INTENDED TO PROTECT AND INDEMNIFY THE INDEMNIFIED PARTIES AGAINST ALL RISKS HEREBY ASSUMED BY THE BORROWER. FOR PURPOSES OF THE FOREGOING SECTION 13.16, THE PHRASE "CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY" SET FORTH IN SUBPARAGRAPH (a) ABOVE SHALL INCLUDE, BUT NOT BE LIMITED TO, THE FINANCING OF ANY CORPORATE TAKEOVER PERMITTED HEREUNDER AND THE BORROWER'S USE OF THE LOAN PROCEEDS FOR THE PURPOSE OF ACQUIRING ANY EQUITY INTERESTS DESCRIBED IN SUBPARAGRAPH (ii) OF THE DEFINITION OF "QUALIFYING ASSETS" SET FORTH IN THIS AGREEMENT (AS AMENDED). THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 13.16 SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND THE REPAYMENT OF THE NOTES. 13.17 PAYMENTS SET ASIDE. To the extent that the Borrower makes a payment or payments to the Agent or any Bank or the Agent or any Bank exercises its right of set off, and such payment or payments or the proceeds of such set off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a 61 trustee, receiver or any other Person under any Debtor Law or equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and shall continue in full force and effect as if such payment had not been made or set off had not occurred. 13.18 LOAN AGREEMENT CONTROLS. If there are any conflicts or inconsistencies among this Agreement and any other document executed in connection with the transactions connected herewith, the provisions of this Agreement shall prevail and control. 13.19 OBLIGATIONS SEVERAL. The obligations of each Bank under this Agreement and the Note to which it is a party are several, and no Bank shall be responsible for any obligation or Commitment of any other Bank under this Agreement and the Note to which it is a party. Nothing contained in this Agreement or the Note to which it is a party, and no action taken by any Bank pursuant thereto, shall be deemed to constitute the Banks to be a partnership, an association, a joint venture, or any other kind of entity. 13.20 PRO RATA TREATMENT. All Loans under, and all payments and other amounts received in connection with this Agreement (including, without limitation, amounts received as a result of the exercise by any Bank of any right of set off) shall be effectively shared by the Banks ratably in accordance with the respective Pro Rata Percentages of the Banks. If any Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set off, or otherwise) on account of the principal of, or interest on, or fees in respect of, any Note held by it (other than pursuant to Section 2.3(d)) in excess of its Pro Rata Percentage of payments on account of similar Notes obtained by all the Banks, such Bank shall forthwith purchase from the other Banks such participations in the Notes or Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such recovery together with an amount equal to such Bank's ratable share (according to the proportion of (a) the amount of such Bank's required repayment to (b) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. Disproportionate payments of interest shall be shared by the purchase of separate participations in unpaid interest obligations, disproportionate payments of fees shall be shared by the purchase of separate participations in unpaid fee obligations, and disproportionate payments of principal shall be shared by the purchase of separate participations in unpaid principal obligations. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 13.20 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. Notwithstanding the foregoing, a Bank may receive and retain an amount in excess of its Pro Rata Percentage to the extent but only to the extent, that such excess results from such Bank's Highest Lawful Rate exceeding another Bank's Highest Lawful Rate. 13.21 NO RIGHTS, DUTIES OR OBLIGATIONS OF SYNDICATION AGENT OR DOCUMENTATION AGENT. The Borrower, the Agent and each Bank acknowledge and agree that except for the rights, powers, obligations and liabilities under this Agreement and the other Loan Documents as a Bank, Bank One, NA, as Syndication Agent, and First Union National Bank, as Documentation Agent, shall have no additional rights, powers, obligations or liabilities under this agreement or 62 any other Loan Documents in their capacities as Syndication Agent or Documentation Agent, respectively. 13.22 FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT'S OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement on the dates set forth below to be effective as of May 31, 2000. SOUTHERN UNION COMPANY By. GEORGE E. YANKOWSKI, JR. ------------------------ George E. Yankowski, Jr., Treasurer Commitment: CHASE BANK OF TEXAS, NATIONAL $15,000,000 ASSOCIATION, for itself and as Agent for the Banks By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- 63 Commitment: BANK ONE, NA $15,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Bank One, NA 1 Bank One Plaza, Suite IL1-0363 Chicago, Illinois 60670 Attention: Namita Solanki-Patel Fax No.: (312) 732-3055 Commitment: FIRST UNION NATIONAL BANK $15,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: First Union National Bank 301 S. College Street Charlotte, North Carolina 28288-0735 Attention: Mitch Wilson Fax No.: (704) 383-7611 64 Commitment: SUNTRUST BANK $9,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: SunTrust Bank 303 Peachtree Street NE, 3rd Floor, M.C. 1929 Atlanta, Georgia 30308 Attention: Linda Stanley Fax No.: (404) 827-6270 Commitment: FLEET NATIONAL BANK $9,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Fleet National Bank 100 Federal Street Boston, Massachusetts 02110 Attention: Stephen Hoffman Fax No.: (617) 434-3652 65 Commitment: CREDIT LYONNAIS NEW YORK BRANCH $9,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Credit Lyonnais New York Branch 1000 Louisiana, Suite 5360 Houston, Texas 77002 Attention: Darrell Stanley Fax No.: (713) 751-0307 Commitment: BANK OF AMERICA, N.A. $9,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Bank of America, N.A. 100 N. Tryon Street Mail Code: NC1-007-16-13 Charlotte, North Carolina 28255 Attention: Michelle Schoenfeld Fax No.: (704) 386-1319 66 Commitment: UMB BANK, N.A. $9,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: UMB Bank, N.A. 1010 Grand Boulevard Kansas City, Missouri 64106 Attention: David Proffitt Fax No.: (816) 860-7143 Commitment: THE FUJI BANK, LIMITED $9,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: The Fuji Bank, Limited 1221 McKinney Street, Suite 4100 Houston, Texas 77010 Attention: Kim Wood Fax No.: (713) 759-0048 Separate Domestic and Eurodollar Lending Office: The Fuji Bank, Limited Two World Trade Center New York, New York 10048-0042 67 Commitment: THE BANK OF TOKYO-MITSUBISHI, LTD. $9,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: The Bank of Tokyo-Mitsubishi, Ltd. 1100 Louisiana Street, Suite 2800 Houston, Texas 77002 Attention: Iris Munoz Fax No.: (713) 655-3855 Commitment: CITIZENS BANK OF RHODE ISLAND $6,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Citizens Bank of Rhode Island One Citizens Plaza, Mail Stop 0480 Providence, Rhode Island 02903 Attention: Marian L. Barrette Fax No.: (401) 455-5404 68 Commitment: WELLS FARGO BANK (TEXAS), N.A. $6,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Wells Fargo Bank (Texas), N.A. 1000 Louisiana, 3rd Floor - Energy Department Houston, Texas 77002 Attention: Alan Smith Fax No.: (713) 739-1087 Commitment: FIRSTAR BANK, N.A. $6,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Firstar Bank, N.A. One Firstar Plaza, 12th Floor St. Louis, Missouri 63101 Attention: Greg Dryden Fax No.: (314) 418-2203 69 Commitment: WESTDEUTSCHE LANDESBANK $6,000,000 GIROZENTRALE, NEW YORK BRANCH By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Westdeutsche Landesbank Girozentrale, New York Branch 1211 Avenues of the Americas New York, New York 10036 Attention: Anthony Alessandro Fax No.: (212) 852-6148 Commitment: GULF INTERNATIONAL BANK B.S.C. $3,000,000 By: --------------------------------------------- Name: --------------------------------------------- Title: --------------------------------------------- Address for Notices: Gulf International Bank B.S.C. 380 Madison Avenue, 21st Floor New York, New York 10017 Attention: Ms. Mireille Khalidi Fax No.: (212) 922-2339 Separate Eurodollar Lending Office: Gulf International Bank B.S.C., Grand Cayman c/o 380 Madison Avenue, 21st Floor New York, New York 10017 70 EXHIBIT A REVOLVING NOTE (Long-Term Credit Facility) $___________ ____________, 200__ FOR VALUE RECEIVED, the undersigned, SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (the "Borrower"), HEREBY PROMISES TO PAY to the order of ___________________________________ (the "Bank"), on or before _______________________ (the "Maturity Date"), the principal sum of ________________ Million and No/ 100ths Dollars ($_,000,000.00) in accordance with the terms and provisions of that certain Amended and Restated Revolving Credit Agreement (Long-Term Credit Facility) dated May ___, 2000, by and among the Borrower, the Bank, the other banks named on the signature pages thereof, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent (the "Credit Agreement"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement. The outstanding principal balance of this Revolving Note shall be payable at the Maturity Date. The Borrower promises to pay interest on the unpaid principal balance of this Revolving Note from the date of any Loan evidenced by this Revolving Note until the principal balance thereof is paid in full. Interest shall accrue on the outstanding principal balance of this Revolving Note from and including the date of any Loan evidenced by this Revolving Note to but not including the Maturity Date at the rate or rates, and shall be due and payable on the dates, set forth in the Credit Agreement. Any amount not paid when due with respect to principal (whether at stated maturity, by acceleration or otherwise), costs or expenses, or, to the extent permitted by applicable law, interest, shall bear interest from the date when due to and excluding the date the same is paid in full, payable on demand, at the rate provided for in Section 2.2(b) of the Credit Agreement. Payments of principal and interest, and all amounts due with respect to costs and expenses, shall be made in lawful money of the United States of America in immediately available funds, without deduction, set off or counterclaim to the account of the Agent at the principal office of Chase Bank of Texas, National Association in Houston, Texas (or such other address as the Agent under the Credit Agreement may specify) not later than noon (Houston time) on the dates on which such payments shall become due pursuant to the terms and provisions set forth in the Credit Agreement. If any payment of interest or principal herein provided for is not paid when due, then the owner or holder of this Revolving Note may at its option, by notice to the Borrower, declare the unpaid, principal balance of this Revolving Note, all accrued and unpaid interest thereon and all other amounts payable under this Revolving Note to be forthwith due and payable, whereupon this Revolving Note, all such interest and all such amounts shall become and be forthwith due and payable in full, without presentment, demand, protest, notice of intent to accelerate, notice of actual acceleration or further notice of any kind, all of which are hereby expressly waived by the Borrower. 1 If any payment of principal or interest on this Revolving Note shall become due on a Saturday, Sunday, or public holiday on which the Agent is not open for business, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in computing interest in connection with such payment. In addition to all principal and accrued interest on this Revolving Note, the Borrower agrees to pay (a) all reasonable costs and expenses incurred by the Agent and all owners and holders of this Revolving Note in collecting this Revolving Note through any probate, reorganization bankruptcy or any other proceeding and (b) reasonable attorneys' fees when and if this Revolving Note is placed in the hands of an attorney for collection after default. All agreements between the Borrower and the Bank, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on this Revolving Note or otherwise, shall the amount paid, or agreed to be paid, to the Bank for the use, forbearance, or detention of the money to be loaned under the Credit Agreement and evidenced by this Revolving Note or otherwise or for the payment or performance of any covenant or obligation contained in the Credit Agreement or this Revolving Note exceed the amount permissible at Highest Lawful Rate. If as a result of any circumstances whatsoever, fulfillment of any provision hereof or of the Credit Agreement at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law, then, IPSO FACTO, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance, the Bank shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the amount permissible at the Highest Lawful Rate, such amount which would be excessive interest shall be applied to the reduction of the principal amount owing on account of this Revolving Note or the amounts owing on other obligations of the Borrower to the Bank under the Credit Agreement and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of this Revolving Note and the amounts owing on other obligations of the Borrower to the Bank under the Credit Agreement, as the case may be, such excess shall be refunded to the Borrower. In determining whether or not the interest paid or payable under any specific contingencies exceeds the Highest Lawful Rate, the Borrower and the Bank shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate and spread in equal parts during the period of the full stated term of this Revolving Note, all interest at any time contracted for, charged, received or reserved in connection with the indebtedness evidenced by this Revolving Note. This Revolving Note is one of the Notes provided for in, and is entitled to the benefits of, the Credit Agreement, which Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events, for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions and with the effect therein specified, and provisions to the effect that no provision of the Credit Agreement or this Revolving Note shall require the payment or permit the collection of interest in excess of the Highest Lawful Rate. It is contemplated that by reason of prepayments or repayments hereon prior to the Maturity Date, there may be times when no indebtedness is owing hereunder prior to such date; but notwithstanding such occurrence this Revolving Note shall 2 remain valid and shall be in full force and effect as to Loans made pursuant to the Credit Agreement subsequent to each such occurrence. Except as otherwise specifically provided for in the Credit Agreement, the Borrower and any and all endorsers, guarantors and sureties severally waive grace, demand, presentment for payment, notice of dishonor or default, protest, notice of protest, notice of intent to accelerate, notice of acceleration and diligence in collecting and bringing of suit against any party hereto, and agree to all renewals, extensions or partial payments hereon and to any release or substitution of security hereof, in whole or in part, with or without notice, before or after maturity. THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW. IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be executed and delivered by its officer thereunto duly authorized effective as of the date first above written. SOUTHERN UNION COMPANY By:_________________________________ Name:_______________________________ Title:______________________________ 3 EXHIBIT B NOTICE OF BORROWING (Long-Term Credit Facility) The undersigned hereby certifies that s/he is an officer of SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (the "Borrower"), authorized to execute this Notice of Borrowing on behalf of the Borrower. With reference to that certain Amended and Restated Revolving Credit Agreement (Long-Term Credit Facility) dated May ___, 2000 (as same may be amended, modified, increased, supplemented and/or restated from time to time, the "Credit Agreement") entered into by and between the Borrower, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent, and the Banks identified therein, the undersigned further certifies, represents and warrants to Banks on behalf of the Borrower that to his best knowledge and belief after reasonable and due investigation and review, all of the following statements are true and correct (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): (a) Borrower requests that the Banks advance to the Borrower the aggregate sum of $__________by no later than ____________, 200__ (the "Borrowing Date"). Immediately following such Loan, the aggregate outstanding balance of Loans shall equal $__________. Borrower requests that the Loans bear interest as follows: (i) The principal amount of the Loans, if any, which shall bear interest at the Alternate Base Rate requested to be made by the Banks is $________. The initial Rate Period for such Loans shall be 90 DAYS. (ii) The principal amount of the Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be FIFTEEN DAYS requested to be made by the Banks is $___________. (iii) The principal amount of the Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be ONE MONTH requested to be made by the Banks is $__________. (iv) The principal amount of the Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be TWO MONTHS requested to be made by the Banks is $_________. (v) The principal amount of the Revolving Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be THREE MONTHS requested to be made by the Banks is $___________. (vi) The principal amount of the Revolving Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be SIX MONTHS requested to be made by the Banks is $___________. (b) The proceeds of the borrowing shall be deposited into Borrower's demand deposit account at Chase Bank of Texas, National Association more fully described as follows: 1 Account No. 09916100522, styled Southern Union Company. (c) Of the aggregate sum to be advanced, $_____________ will be advanced to provide working capital pursuant to Section 6.1(a) of the Credit Agreement and $__________will be advanced for the purposes set forth in Section 6.1(b) of the Credit Agreement; and $__________ will be advanced for the purposes set forth in Section 6.1(c) of the Credit Agreement; and $___________ will be advanced for the purposes of replacing Loans currently outstanding under the Credit Agreement. (d) The Expiration Date of each Rate Period specified in (a) above shall be the last day of such Rate Period. (e) As of the date hereof, and as a result of the making of the requested Loans, there does not and will not exist any Default or Event of Default. (f) The representations and warranties contained in Section 7 of the Credit Agreement are true and correct in all material respects as of the date hereof and shall be true and correct upon the making of the requested Loan, with the same force and effect as though made on and as of the date hereof and thereof. (g) No change that would cause a material adverse effect on the business, operations or condition (financial or otherwise) of the Borrower has occurred since the date of the most recent financial statements provided to the Banks dated as of __________, 200__. EXECUTED AND DELIVERED this _____ day of _______________, 200__. SOUTHERN UNION COMPANY --------------------------------- By: ------------------------- Name: ----------------------- Title: ---------------------- 2 EXHIBIT C ASSIGNMENT AND ACCEPTANCE [NAME AND ADDRESS OF ASSIGNING BANK] _______________, 200__ - ---------------- - ---------------- - ---------------- - ---------------- Re: Southern Union Company Amended and Restated Revolving Credit Agreement (Long-Term Credit Facility) Ladies and Gentlemen: We have entered into an Amended and Restated Revolving Credit Agreement (Long-Term Credit Facility) dated as of May ____, 2000 (the "Credit Agreement"), among certain banks (including us), Chase Bank of Texas, National Association (the "Agent") and Southern Union Company (the "Company"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement. Each reference to the Credit Agreement, the Notes, or any other document evidencing or governing the Loans (all such documents collectively, the "Financing Documents") includes each such document as amended, modified, extended or replaced from time to time. All times are Houston times. 1. ASSIGNMENT. WE HEREBY SELL YOU AND ASSIGN TO YOU WITHOUT RECOURSE, AND YOU HEREBY UNCONDITIONALLY AND IRREVOCABLY ACQUIRE FOR YOUR OWN ACCOUNT AND RISK, A PERCENT ( %) UNDIVIDED INTEREST ("YOUR ASSIGNED SHARE") IN EACH OF THE FOLLOWING (THE "ASSIGNED OBLIGATIONS"): a. our Note; b. all Loans and interest thereon as provided in Section 2 of the Credit Agreement [,except that interest shall accrue on your assigned share in the principal of Alternate Base Rate Loans and Eurodollar Rate Loans at an annual rate equal to the rate provided in the Credit Agreement minus _____%]; and 1 c. commitment fees payable pursuant to Section 5 of the Credit Agreement[, except that your assigned share in such fees shall be at an annual rate equal to the rate provided in the Credit Agreement minus ____%]. 2. MATERIALS PROVIDED ASSIGNEE a. We will promptly request that the Company issue new Notes to us and to you in substitution for our Note to reflect the assignment set forth herein. Upon issuance of such substitute Notes, (i) you will become a Bank under the Credit Agreement, (ii) you will assume our obligations under the Credit Agreement to the extent of your assigned share, and (iii) the Company will release us from our obligations under the Credit Agreement to the extent, but only to the extent, of your assigned share. The Company consents to such release by signing this Agreement where indicated below. As a Bank, you will be entitled to the benefits and subject to the obligations of a "Bank", as set forth in the Credit Agreement, and your rights and liabilities with respect to the other Banks and the Agent will be governed by the Credit Agreement, including without limitation Section 12 thereof. b. We have furnished you copies of the Credit Agreement, our Note and each other Financing Document you have requested. We do not represent or warrant (i) the priority, legality, validity, binding effect or enforceability of any Financing Document or any security interest created thereunder, (ii) the truthfulness and accuracy of any representation contained in any Financing Document, (iii) the filing or recording of any Financing Document necessary to perfect any security interest created thereunder, (iv) the financial condition of the Company or any other Person obligated under any Financing Document, any financial or other information, certificate, receipt or other document furnished or to be furnished under any Financing Document or (v) any other matter not specifically set forth herein having any relation to any Financing Document, your interest in one Note, the Company or any other Person. You represent to us that you are able to make, and have made, your own independent investigation and determination of the foregoing matters, including, without limitation, the credit worthiness of the Company and the structure of the transaction. 3. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. You irrevocably submit to the jurisdiction of any State or Federal court sitting in Austin, Texas in any suit, action or proceeding arising out of or relating to this Agreement and irrevocably waive any objection you may have to this laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. We may serve process in any manner permitted by law and may bring proceedings against you in any other jurisdiction. 4. NOTICES. All notices and other communications given hereunder to a party shall be given in writing (including bank wire, telecopy, telex or similar writing) at such party's address set forth on the signature pages hereof or such other address as such party may hereafter specify by notice to the other party. Notice may also be given by telephone to the Person, or any other officer in the office, listed on the signature pages hereof if confirmed promptly by telex or telecopy. Notices shall be effective immediately, if given by telephone; upon transmission, if given by bank wire, telecopy or telex; five days after deposit in the mails, if mailed; and when delivered, if given by other means. 2 5. AUTHORITY. Each of us represents and warrants that the execution and delivery of this Agreement have been validly authorized by all necessary corporate action and that this Agreement constitutes a valid and legally binding obligation enforceable against it in accordance with its terms. 6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, and by each party on separate counterparts, each of which shall be an original but all of which taken together shall be but one instrument. 7. AMENDMENTS. No amendment modification or waiver of any provision of this Agreement shall be effective unless in writing and signed by the party against whom enforcement is sought. If the foregoing correctly sets forth our agreement, please so indicate by signing the enclosed copy of this Agreement and returning it to us. Very truly yours, ----------------------------------- By: -------------------------------- Name: ------------------------------ Title: ----------------------------- [Street Address] ------------------- [City, State, Zip Code] ------------ Telephone: ------------------------- Telecopy: -------------------------- AGREED AND ACCEPTED: - ------------------------------- By: ---------------------- ---------------------- ---------------------- ---------------------- Attention: ------------------- Telephone: ------------------- Telecopy: ------------------- Account for Payments: --------- ASSIGNMENT APPROVED PURSUANT TO SECTION 13.13 OF THE CREDIT AGREEMENT AND RELEASE APPROVED IN SECTION 2 OF THIS AGREEMENT: SOUTHERN UNION COMPANY 3 By: ----------------------- Name: --------------------- Title: -------------------- 4 EX-10.2 6 ex-10_2.txt EX 10.2 EXHIBIT 10.2 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (SHORT-TERM CREDIT FACILITY) DATED AS OF MAY 31, 2000 BY AND AMONG SOUTHERN UNION COMPANY AS THE BORROWER AND THE BANKS NAMED HEREIN AS THE BANKS AND CHASE BANK OF TEXAS, NATIONAL ASSOCIATION AS THE ADMINISTRATIVE AGENT AND BANK ONE, NA AS THE SYNDICATION AGENT AND FIRST UNION NATIONAL BANK AS THE DOCUMENTATION AGENT AND CHASE SECURITIES INC. AS THE SOLE BOOK MANAGER AND LEAD ARRANGER AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (SHORT-TERM CREDIT FACILITY) Reference is hereby made to that certain Revolving Credit Agreement (Short-Term Credit Facility) dated as of November 10, 1998, executed by and between SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (the "Borrower"), the financial institutions listed on the signature pages of said Revolving Credit Agreement (each of said financial institutions now or hereafter a party to said Revolving Credit Agreement being hereinafter referred to collectively as "Banks" and individually as a "Bank"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association ("Chase"), in its capacity as agent (the "Agent") for the Banks. The Borrower, the Banks and the Agent have previously amended said Revolving Credit Agreement pursuant to the terms of a First Amendment to Revolving Credit Agreement (Short-Term Facility) dated as of February 25, 1999 (the "First Amendment") and a Second Amendment to Revolving Credit Agreement (Short-Term Facility) dated as of July 14, 1999 (the "Second Amendment"). Said Revolving Credit Agreement, as previously amended by the First Amendment and the Second Amendment, is referred to herein as the "Original Agreement." As a result of certain discussions between the Borrower, the Agent and the Banks, the parties to the Original Agreement now desire to amend and restate the Original Agreement in its entirety. Accordingly, the Original Agreement is hereby amended and restated in its entirety to hereafter be and read as follows: SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (hereinafter called the "Borrower"), the financial institutions listed on the signature pages hereof (collectively, the "Banks" and individually, a "Bank"), CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association ("Chase") in its capacity as administrative agent (the "Agent") for the Banks hereunder, BANK ONE, NA, a national banking association, in its capacity as syndication agent (the "Syndication Agent") for the Banks hereunder, and FIRST UNION NATIONAL BANK, a national banking association, in its capacity as documentation agent (the "Documentation Agent") for the Banks hereunder, hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "ADDITIONAL COSTS" shall mean, with respect to any Rate Period in the case of any Eurodollar Rate Loan, all costs, losses or payments, as determined by any Bank in its sole and absolute discretion (which determination shall be conclusive in the absence of manifest error) that such Bank or its Domestic Lending Office or its Eurodollar Lending Office does, or would, if such Eurodollar Rate Loan were funded during such Rate Period by the Domestic Lending Office or the Eurodollar Lending Office of such Bank, incur, suffer or make by reason of: (a) any and all present or future taxes (including, without limitation, any interest equalization tax or any similar tax on the acquisition of debt obligations, or any stamp or registration tax or duty or official or sealed papers tax), levies, imposts or any other charge of any nature 1 whatsoever imposed by any taxing authority on or with regard to any aspect of the transactions contemplated by this Agreement, except such taxes as may be measured by the overall net income of such Bank or its Domestic Lending Office or its Eurodollar Lending Office and imposed by the jurisdiction, or any political subdivision or taxing authority thereof, in which such Bank's Domestic Lending Office or its Eurodollar Lending Office is located; and (b) any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Eurodollar Rate Loan because of or arising from (i) the introduction of, or any change (other than any change by way of imposition or increase of reserve requirements, in the case of any Eurodollar Rate Loan, included in the Eurodollar Rate Reserve Percentage) in or in the interpretation or administration of, any law or regulation or (ii) the compliance with any request from any central bank or other governmental authority (whether or not having the force of law). "AFFILIATE" shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. If any Person shall own, directly or indirectly, beneficially or of record, twenty percent (20%) or more of the voting equity (whether outstanding capital stock, partnership interests or otherwise) of another Person, such Person shall be deemed to be an Affiliate. "AGENT" shall have the meaning set forth in the preamble hereto. "AGREEMENT" shall mean this Revolving Credit Agreement, as the same may be amended, modified, supplemented or restated from time to time. "ALTERNATE BASE RATE" shall mean, for any day, a rate, per annum (rounds upward to the nearest 1/16 of 1%) equal to: (a) the greatest of (i) the Prime Rate (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) in effect on such day; or (ii) the Federal Funds Rate in effect for such day PLUS one-half of one percent (1/2%) (computed on the basis of the actual number of days elapsed over a year of 360 days). "ALTERNATE BASE RATE LOAN" shall mean any Loan which bears interest at the Alternate Base Rate. "APPLICABLE LENDING OFFICE" shall mean, with respect to each Bank, such Bank's (a) Domestic Lending Office in the case of an Alternate Base Rate Loan; and (b) Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "ASSIGNMENT AND ACCEPTANCE" shall have the meaning set forth in Section 12.13. "AVAILABLE SENIOR FUNDED DEBT CAPACITY" for any period shall mean, as of the first day of that period, the principal amount of additional Senior Funded Debt that the Borrower would be permitted to issue under the then existing indentures, note purchase agreements and credit agreements (other than the Agreement and other revolving credit agreements). "BANK" shall have the meaning set forth in the preamble hereto and shall include the Agent, in its individual capacity. 2 "BORROWER" shall have the meaning set forth in the preamble hereto. "BORROWING DATE" shall mean a date upon which the Borrower has requested a Loan is to be made in a Notice of Borrowing delivered pursuant to Section 2.1. "BUSINESS DAY" shall mean a day when the Agent is open for business, provided that, if the applicable Business Day relates to any Eurodollar Rate Loan, it shall mean a day when the Agent is open for business and banks are open for business in the London interbank market and in New York City. "CAPITAL LEASE" shall mean any lease of any Property (whether real, personal, or mixed) which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of the lessee. "CAPITALIZED LEASE OBLIGATIONS" shall mean, for the Borrower and its Subsidiaries, any of their obligations that should, in accordance with GAAP, be recorded as Capital Leases. "CASH INTEREST EXPENSE" shall mean, for any period, total interest expense to the extent paid in cash (including the interest component of Capitalized Lease Obligations and capitalized interest and all dividends and interest paid on or with respect to Borrower's Structured Securities) of the Borrower and any Subsidiary for such period all as determined in conformity with GAAP. "CLOSING DATE" shall mean May 31, 2000. "CODE" shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder issued by the Internal Revenue Service. "COMMITMENT" shall have the meaning set forth in Section 2.1(a) and "Commitments" shall mean, collectively, the Commitments of all of the Banks. "CONSOLIDATED NET INCOME" shall mean for any period the consolidated net income of the Borrower and all Subsidiaries, determined in accordance with GAAP, for such period. "CONSOLIDATED NET WORTH" shall mean, for any period for the Borrower and all Subsidiaries, (a) the consolidated stockholders' equity of the Borrower and its Subsidiaries, and preferred securities of the Borrower's Subsidiaries, all determined in accordance with GAAP, LESS (b) the sum of the following consolidated items, without duplication: the book amount of any deferred charges (including, but not limited to, unamortized debt discount and expenses, organization expenses, experimental and development expenses, but excluding prepaid expenses) that are not permitted to be recovered by the Borrower under rates permitted under rate tariffs, PLUS (c) the sum of all amounts contributed or paid by the Borrower to the Rabbi Trusts for purposes of funding the same, but only to the extent such contributions and payments are required to be deducted from the consolidated stockholders' equity of the Borrower and its Subsidiaries in accordance with GAAP. "CONSOLIDATED TOTAL CAPITALIZATION" shall mean at any time the sum of: (a) Consolidated Net Worth at such time; PLUS (b) the principal amount of outstanding Debt of the Borrower and its Subsidiaries. 3 "CONSOLIDATED TOTAL INDEBTEDNESS" shall mean all Debt of the Borrower and all Subsidiaries including any current maturities thereof, PLUS, without duplication, all amounts outstanding under Standby Letters of Credit and, without duplication, all Facility Letter of Credit Obligations. "DEBT" means (without duplication), for any Person indebtedness for money borrowed determined in accordance with GAAP but in any event including, (a) indebtedness of such Person for borrowed money or arising out of any extension of credit to or for the account of such Person (including, without limitation, extensions of credit in the form of reimbursement or payment obligations of such Person relating to letters of credit issued for the account of such Person) or for the deferred purchase price of property or services, except indebtedness which is owing to trade creditors in the ordinary course of business and which is due within thirty (30) days after the original invoice date; (b) indebtedness of the kind described in clause (a) of this definition which is secured by (or for which the holder of such Debt has any existing right, contingent or otherwise, to be secured by) any Lien upon or in Property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness or obligations; (c) Capitalized Lease Obligations of such Person; (d) obligations under direct or indirect Guaranties other than Guaranties issued by the Borrower covering obligations of the Southern Union Trusts under the Structured Securities. Whenever the definition of Debt is being used herein in order to compute a financial ratio or covenant applicable to the consolidated business of the Borrower and its Subsidiaries, Debt which is already included in such computation by virtue of the fact that it is owed by a Subsidiary of the Borrower will not also be added by virtue of the fact that the Borrower has executed a guaranty with respect to such Debt that would otherwise require such guaranteed indebtedness to be considered Debt hereunder. Nothing contained in the foregoing sentence is intended to limit the other provisions of this Agreement which contain limitations on the amount and types of Debt which may be incurred by the Borrower or its Subsidiaries. "DEBTOR LAWS" shall mean all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization, or similar laws, or general equitable principles from time to time in effect affecting the rights of creditors generally. "DEFAULT" shall mean any of the events specified in Section 10, whether or not there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "DOLLARS" and "$" shall mean lawful currency of the United States of America. "DOMESTIC LENDING OFFICE" shall mean, with respect to each Bank, the office of such Bank located at its "Address for Notices" set forth below the name of such Bank on the signature pages hereof or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "EBDIT" shall mean for any period the sum of (a) consolidated net earnings for the Borrower and its Subsidiaries (excluding for all purposes hereof all extraordinary items), PLUS (b) each of the following to the extent actually deducted in deriving such net earnings: (i) depreciation and amortization expense; (ii) interest expense; (iii) federal and state income taxes; and (iv) dividends charged against income on or with respect to Structured Securities, in each case before 4 adjustment for extraordinary items, as shown in the financial statements of Borrower and its Subsidiaries referred to in Section 6.2 hereof (excluding for all purposes hereof all extraordinary items), and determined in accordance with GAAP, and (c) PLUS (or MINUS, if applicable) the net amount of non-cash deductions from (or additions to, if applicable) such net earnings for such period attributable to fluctuations in the market price(s) of securities which the Borrower is obligated to purchase in future periods under any of the Rabbi Trusts, but only to the extent that such deductions (or additions, if applicable) are required to be taken in accordance with GAAP. "ELIGIBLE ASSIGNEE" shall mean: (i) any Bank, or any Affiliate of any Bank, or any institution 100% of the voting stock of which is directly, or indirectly owned by such Bank or by the immediate or remote parent of such Bank; or (ii) a commercial bank, a foreign branch of a United States commercial bank, a domestic branch of a foreign commercial bank or other financial institution having in each case assets in excess of $1,000,000,000.00. "ENVIRONMENTAL LAW" shall mean (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601 ET SEQ.), as amended from time to time, and any and all rules and regulations issued or promulgated thereunder ("CERCLA"); (b) the Resource Conservation and Recovery Act (as amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.A. Section 6901 ET SEQ.), as amended from time to time, and any and all rules and regulations promulgated thereunder ("RCRA"); (c) the Clean Air Act, 42 U.S.C.A. Section 7401 ET SEQ., as amended from time to time, and any and all rules and regulations promulgated thereunder; (d) the Clean Water Act of 1977, 33 U.S.CA Section 1251 ET SEQ., as amended from time to time, and any and all rules and regulations promulgated thereunder; (e) the Toxic Substances Control Act, 15 U.S.C.A. Section 2601 ET SEQ., as amended from time to time, and any and all rules and regulations promulgated thereunder; or (f) any other federal or state law, statute, rule, or emulation enacted in connection with or relating to the protection or regulation of the environment (including, without limitation, those laws, statutes, rules, and regulations regulating the disposal, removal, production, storing, refining, handling, transferring, processing, or transporting of Hazardous Materials) and any rules and regulations issued or promulgated in connection with any of the foregoing by any governmental authority, and "ENVIRONMENTAL LAWS" shall mean each of the foregoing. "EPA" shall mean the Environmental Protection Agency, or any successor organization. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules, regulations, rulings and interpretations thereof issued by the Internal Revenue Service or the Department of Labor thereunder. "EUROCURRENCY LIABILITIES" shall have the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "EURODOLLAR LENDING OFFICE" shall mean, with respect to each Bank, the office of such Bank located at its "Address for Notices" set forth below the name of such Bank on the signature pages hereof, or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "EURODOLLAR RATE" shall mean with respect to the applicable Rate Period in effect for each Eurodollar Rate Loan, the sum of (a) the quotient obtained by dividing (i) the annual rate of interest 5 determined by the Agent, at or before 11:00 a.m. Houston time (or as soon thereafter as practicable), on the second Business Day prior to the first day of such Rate Period, to be the annual rate of interest at which deposits of Dollars are offered to the Agent by prime banks in whatever Eurodollar interbank market may be selected by the Agent in its sole discretion, acting in good faith, at the time of determination and in accordance with then existing practice in such market for delivery on the first day of such Rate Period in immediately available funds and having a maturity equal to such Rate Period in an amount substantially equal to the amount of such Eurodollar Rate Loan by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Rate Period, PLUS (b) an additional percentage per annum changing with the rating of the Borrower's unsecured, non-credit enhanced Senior Funded Debt and determined in accordance with the following grid:
======================================================================================== ADDITIONAL RATING OF THE BORROWER'S UNSECURED, NON-CREDIT PERCENTAGE ENHANCED SENIOR FUNDED DEBT PER ANNUM ---------------------------------------------------------------------------------------- Equal to or greater than A3 by Moody's Investor Service, Inc. and equal to or greater than A- by Standard and Poor's Ratings Group 0.500% ---------------------------------------------------------------------------------------- Baa1 by Moody's Investor Service, Inc. OR BBB+ by Standard and Poor's Ratings Group 0.600% ---------------------------------------------------------------------------------------- Baa2 by Moody's Investor Service, Inc. OR BBB by Standard and Poor's Ratings Group 0.650% ---------------------------------------------------------------------------------------- Baa3 by Moody's Investor Service, Inc. OR BBB- by Standard and Poor's Ratings Group 0.700% ---------------------------------------------------------------------------------------- Equal to or less than Ba1 by Moody's Investor Service, Inc. AND equal to or less than BB+ by Standard and Poor's Ratings Group 1.200% ----------------------------------------------------------------------------------------
"EURODOLLAR RATE LOAN" shall mean any Loan that bears interest at the Eurodollar Rate. "EURODOLLAR RATE RESERVE PERCENTAGE" of the Agent for any Rate Period for any Eurodollar Rate Loan shall mean the reserve percentage applicable during such Rate Period (or if more than one such percentages shall be so applicable, the daily average of such percentages for those days in such Rate Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental, or other marginal reserve requirement) for member banks of the Federal Reserve System with deposits exceeding $1,000,000,000 with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Rate Period. 6 "EVENT OF DEFAULT" shall mean any of the events specified in Section 10, PROVIDED THAT there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act. "EXPIRATION DATE" shall mean the last day of a Rate Period. "FACILITY LETTER(S) OF CREDIT" shall mean, in the singular form, any Standby Letter of Credit issued for the account of the Borrower under the Long-Term Credit Facility and, in the plural form, all such Standby Letters of Credit issued for the account of the Borrower. "FACILITY LETTER OF CREDIT OBLIGATIONS" shall mean, at any particular time, the sum of (a) the Reimbursement Obligations, PLUS (b) the aggregate undrawn face amount of all outstanding Facility Letters of Credit, in each case as determined by the Agent. "FEDERAL FUNDS RATE" shall mean, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates (rounded to the nearest 1/100 of 1%) on overnight federal fund transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from Fulton Prebon and Garvin Guy Butler or two other federal funds brokers of recognized standing selected by the Agent. "FUNDED DEBT" means all Debt of a Person which matures more than one year from the date of creation or matures within one year from such date but is renewable or extendible, at the option of such Person, by its terms or by the terms of any instrument or agreement relating thereto, to a date more than one year from such date or arises under a revolving credit or similar agreement which obligates Banks to extend credit during a period of more than one year from such date, including, without limitation, all amounts of any Funded Debt required to be paid or prepaid within one year from the date of determination of the existence of any such Funded Debt. "GAAP" shall mean generally accepted accounting principles, applicable to the circumstances as of the date of determination, applied consistently with such principles as applied in the preparation of the Borrowers audited financial statements referred to in Section 6.2. "GENERAL INTANGIBLES" shall mean all of the Borrower's contract rights now existing or hereafter acquired, arising or created under contracts or arrangements for the purchase, sale, storage or transportation of gas or other Inventory. "GOVERNMENTAL AUTHORITY" shall mean any (domestic or foreign) federal, state, county, municipal, parish, provincial, or other government, or any department, commission, board, court, agency (including, without limitation, the EPA), or any other instrumentality of any of them or any other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of, or pertaining to, government, including, without limitation, any arbitration panel, any court, or any commission. 7 "GOVERNMENTAL REQUIREMENT" means any Order, Permit, law, statute (including, without limitation, any Environmental Protection Statute), code, ordinance, rule, regulation, certificate, or other direction or requirement of any Governmental Authority. "GUARANTY" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of another Person, including, without limitation, by means of an agreement to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to maintain financial covenants, or to assure the payment of such Debt by an agreement to make payments in respect of goods or services regardless of whether delivered or to purchase or acquire the Debt of another, or otherwise, provided that the term "Guaranty" shall not include endorsements for deposit or collection in the ordinary course of business. "HAZARDOUS MATERIALS" shall mean any substance which, pursuant to any Environmental Laws, requires special handling in its collection, use, storage, treatment or disposal, including but not limited to any of the following: (a) any "hazardous waste" as defined by RCRA; (b) any "hazardous substance" as defined by CERCLA; (c) asbestos; (d) polychlorinated biphenyls; (e) any flammables, explosives or radioactive materials; and (f) any substance, the presence of which on any of the Borrower's or any Subsidiary's properties is prohibited by any Governmental Authority. "HIGHEST LAWFUL RATE" shall mean, with respect to each Bank, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged, or received with respect to the Notes or on other amounts, if any, due to such Bank pursuant to this Agreement, under laws applicable to such Bank which are presently in effect, or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "INDEMNIFIED PARTIES" shall have the meaning set forth in Section 12.16. "INTEREST PAYMENT DATE" shall mean (a) as to any Eurodollar Rate Loan in which the Rate Period with respect thereto is not greater than three (3) months, the date on which such Rate Period ends; (b) as to any Eurodollar Rate Loan in which the Rate Period with respect thereto is greater than three (3) months, the date on which the third month of such Rate Period ends, and the date on which each such Rate Period ends; (c) as to any Alternate Base Rate Loan in which the Rate Period with respect thereto is not greater than ninety (90) days, the date on which such Rate Period ends; (d) as to any Alternate Base Rate Loan in which the Rate Period with respect thereto is greater than ninety (90) days, the ninetieth (90th) day of such Rate Period, and the date on which each such Rate Period ends; and (e) as to all Loans, such time as the principal of and interest on the Notes shall have been paid in full. "INVENTORY" means, with respect to Borrower or any Subsidiary, all of such Person's now owned or hereafter acquired or created inventory in all of its forms and of every nature, wherever located, whether acquired by purchase, merger, or otherwise, and all raw materials, work in process therefor and finished goods thereof, and all supplies, materials, and products of every nature and description used, usable, or consumed in connection with the manufacture, packing, shipping, advertising, selling, leasing, furnishing, or production of such goods, and shall include, in any event, all "inventory" (within the meaning of such term in the Uniform Commercial Code in effect in any applicable jurisdiction), whether in mass or joint, or other interest or right of any kind in goods 8 which are returned to, repossessed by, or stopped in transit by such Person, and all accessions to any of the foregoing and all products of any of the foregoing. "INVESTMENT" of any Person means any investment so classified under GAAP, and, whether or not so classified, includes (a) any direct or indirect loan advance made by it to any other Person; (b) any direct or indirect Guaranty for the benefit of such Person; PROVIDED, HOWEVER, that for purposes of determining Investments of Borrower hereunder, the existing Guaranty by Borrower of certain tax increment financing extended by The Fidelity Deposit and Discount Bank to The Redevelopment Authority of the County of Lackawanna shall be deemed to not be an Investment; (c) any capital contribution to any other Person; and (d) any ownership or similar interest in any other Person; and the amount of any Investment shall be the original principal or capital amount thereof (PLUS any subsequent principal or capital amount) MINUS all cash returns of principal or capital thereof. "LETTER(S) OF CREDIT" shall mean, in the singular form, any letter of credit issued by any Person for the account of the Borrower and, in the plural form, all such letters of credit issued by any Person for the account of the Borrower. "LIEN" shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lien (including without limitation, any such interest arising under any Environmental Law), or similar charge of any kind (including without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof), or the interest of the lessor under any Capital Lease. "LOAN" or "LOANS" shall mean a loan or loans, respectively, from the Banks to the Borrower made under Section 2.1. "LOAN DOCUMENT" shall mean this Agreement, any Note, or any other document, agreement or instrument now or hereafter executed and delivered by the Borrower or any other Person in connection with any of the transactions contemplated by any of the foregoing, as any of the foregoing may hereafter be amended, modified, or supplemented, and "LOAN DOCUMENTS" shall mean, collectively, each of the foregoing. "LONG-TERM CREDIT FACILITY" means that certain $135,000,000.00 credit facility provided to the Borrower by the Banks, as evidenced and governed by the Long-Term Credit Facility Agreement. "LONG-TERM CREDIT FACILITY AGREEMENT" means that certain Revolving Credit Agreement of even effective date herewith, executed by and among the Borrower, the Banks, and the Agent in connection with the Long-Term Credit Facility, as the same may be amended, modified, supplemented, or restated from time to time. "LONG-TERM CREDIT FACILITY NOTES" means the promissory notes of the Borrower executed and delivered under the Long-Term Credit Facility Agreement. "MAJORITY BANK" shall mean at any time Banks holding more than 50% of the unpaid principal amounts outstanding under the Notes, or, if no such amounts are outstanding, more than 50% of the Pro Rata Percentages. 9 "MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on (a) the financial condition, business, properties, assets, prospects or operations of the Borrower and its Subsidiaries taken as a whole, or (b) the ability of the Borrower to perform its obligations under this Agreement, any Note or any other Loan Document on a timely basis. "MATURITY DATE" shall mean May 30, 2001, as modified pursuant to the provisions of Section 2.4 hereof. "NON-FACILITY LETTER OF CREDIT" shall mean any Letter of Credit which is not a Facility Letter of Credit. "NOTE" or "NOTES" shall mean a promissory note or notes, respectively, of the Borrower, executed and delivered under this Agreement. "NOTICE OF BORROWING" shall have the meaning set forth in Section 2.1(c). "OBLIGATIONS" shall mean all obligations of the Borrower to the Bank under this Agreement, the Notes and all other Loan Documents to which it is a party. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Borrower or a Subsidiary, as the case may be, by either its President, one of its Vice Presidents, its Treasurer, its Secretary, or one of its Assistant Treasurers or Assistant Secretaries. "PENDING ACQUISITIONS" shall mean collectively the following described mergers by the Borrower with such specified entities, so long as (i) after the finalization and consummation of such mergers the Borrower is the surviving entity and (ii) such mergers are finalized and consummated on or before November 30, 2000 in substantial compliance with the following specified terms: (a) The contemplated merger of the Borrower and Fall River Gas Company announced October 5, 1999, whereby the Borrower acquires Fall River Gas Company for consideration of approximately $75,000,000.00, including assumption of certain existing Debt of Fall River Gas Company; (b) The contemplated merger of the Borrower and Providence Energy Corporation announced November 15, 1999, whereby the Borrower acquires Providence Energy Corporation for consideration of approximately $400,000,000.00, including assumption of certain existing Debt of Providence Energy Corporation, with each shareholder of Providence Energy Corporation receiving cash of $42.50 per each outstanding share of Providence Energy Corporation; and (c) The contemplated merger of the Borrower and Valley Resources, Inc. announced December 1, 1999, whereby the Borrower acquires Valley Resources, Inc. for consideration of approximately $160,000,000.00, including assumption of certain existing Debt of Valley Resources, Inc., with each shareholder of Valley Resources, Inc. receiving cash of $25.00 per each outstanding share of Valley Resources, Inc. 10 "PERSON" shall mean an individual, partnership, joint venture, corporation, joint stock company, bank, trust, unincorporated organization and/or a government or any department or agency thereof. "PLAN" shall mean any plan subject to Title IV of ERISA and maintained for employees of the Borrower or of any member of a "controlled group of corporations," as such term is defined in the Code, of which the Borrower or any Subsidiary is a member, or any such plan to which the Borrower or any Subsidiary is required to contribute on behalf of its employees. "PRIME RATE" shall mean, on any day, the rate determined by the Agent as being its prime rate for that day. Without notice to the Borrower or any other Person, the Prime Rate shall change automatically from time to time as and in the amount by which said Prime Rate shall fluctuate, with each such change to be effective as of the date of each change in such Prime Rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Agent may make commercial or other loans at rates of interest at, above or below the Prime Rate. "PRO-RATA PERCENTAGE" shall mean with respect to any Bank, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Bank's Commitment and the denominator of which shall be the aggregate amount of all the Commitments of the Banks, as adjusted from time to time in accordance with Section 3.6. "PROPERTY" shall mean any interest or right in any kind of property or asset, whether real, personal, or mixed, owned or leased, tangible or intangible, and whether now held or hereafter acquired. "QUALIFYING ASSETS" shall mean (i) equity interests owned one hundred percent (100%) by the Borrower in entities engaged primarily in one or more of the Borrower's lines of business described in Section 6.15 (singly, a "Qualified Entity," collectively, "Qualified Entities"), or productive assets used in one or more of such lines of business; PROVIDED, HOWEVER, that as to any related group of such Assets acquired for a purchase price of more than Sixty Million Dollars ($60,000,000.00) (including the amount of any Debt assumed or deemed incurred in connection with such acquisition), the Majority Banks shall have delivered to the Borrower their prior written consent; and (ii) equity interests of less than one hundred percent (100%) owned by the Borrower in one or more Qualifying Entities, provided that at any one time the amount of the Borrower's investment in Qualifying Assets described in clause (ii) (measured by the aggregate purchase price paid therefor, including the aggregate amount of Debt assumed or deemed incurred by Borrower in connection with such acquisitions) does not exceed ten percent (10%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date. "RABBI TRUSTS" shall mean those four (4) certain non-qualified deferred compensation irrevocable trusts existing as of the Closing Date, previously established by the Borrower for the benefit of its executive employees, so long as the assets in each of such trusts which have not yet been distributed to one or more executive employees of the Borrower remain subject to the claims of the Borrower's general creditors. "RATE PERIOD" shall mean the period of time for which the Alternate Base Rate or the Eurodollar Rate shall be in effect as to any Alternate Base Rate Loan or Eurodollar Rate Loan, as 11 the case may be, commencing with the Borrowing Date or the Expiration Date of the immediately preceding Rate Period, as the case may be, applicable to and ending on the effective date of any reborrowing made as provided in Section 2.2(a) as the Borrower may specify in the related Notice of Borrowing, subject, however, to the early termination provisions of the second sentence of Section 2.3(b) relating to any Eurodollar Rate Loan; PROVIDED, HOWEVER, that any Rate Period that would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Rate Period shall end on the next preceding Business Day. For any Alternate Base Rate Loan, the Rate Period shall be 90 days; and for any Eurodollar Rate Loan the Rate Period may be 15 days, 1, 2, 3, or 6 months, in each case as specified in the applicable Notice of Borrowing, subject to the provisions of Sections 2.2 and 2.3. "REIMBURSEMENT OBLIGATIONS" shall mean the reimbursement or repayment obligations of the Borrower with respect to Facility Letters of Credit issued for the account of the Borrower. "RELEASE" shall mean a "release", as such term is defined in CERCLA. "RESTRICTED PAYMENT" shall mean the Borrower's declaration or payment of any dividend on, or purchase or agreement to purchase any of, or making of any other distribution with respect to, any of its capital stock, except any such dividend, purchase or distribution consisting solely of capital stock of the Borrower, and except any dividend or interest paid on or with respect to the Borrower's Structured Securities to the extent that such amounts are included in Cash Interest Expense. "SECURITIES ACT" shall have the meaning set forth in Section 12.1. "SENIOR FUNDED DEBT" shall mean Funded Debt of the Borrower excluding Debt that is contractually subordinated in right of payment to any other Debt. "SENIOR NOTES" means (a) the $475,000,000 of 7.6% Senior Notes of the Borrower previously placed with investors on or about January 31, 1994, and (b) the $300,000,000 of 8.25% Senior Notes of the Borrower previously placed with investors on or about November 3, 1999, as such Senior Notes may be amended, modified, or supplemented from time to time in accordance with the terms of this Agreement; and "SENIOR NOTE" means each such note individually. "SIGNIFICANT PROPERTY" shall mean at any time property or assets of the Borrower or any Subsidiary having a book value (net of accumulated depreciation taken in accordance with GAAP) of at least $5,000,000.00 or that contributed (or is an integrated physical portion of an assemblage of assets that contributed) at least 5% of the gross income of the owner thereof for the fiscal quarter most recently ended. "SOUTHERN UNION TRUST" means any of those certain Delaware business trusts organized for the sole purpose of purchasing Subordinated Debt Securities constituting a portion of, and described in the definition of, Structured Securities and issuing the Preferred Securities and Common Securities also constituting a portion of, and described in the definition of, Structured Securities, and having no assets other than the Borrower's Subordinated Debt Securities, the Guaranties (as described in the definition of Structured Securities) and the proceeds thereof. Southern Union Trusts 12 shall be considered to be Subsidiaries for purposes hereof so long as their affairs are consolidated under GAAP and for federal income tax purposes with the affairs of the Borrower. "STANDBY LETTER OF CREDIT" shall mean any standby letter of credit issued to support obligations (contingent or otherwise) of the Borrower. "STRUCTURED SECURITIES" shall mean collectively (a) the Subordinated Debt Securities, the Guaranties, the Common Securities and the Preferred Securities of the Southern Union Trusts, all as described and defined in the Registration Statement on Form S-3 filed by the Borrower with the Securities and Exchange Commission on March 25, 1995, and (b) subordinated debt securities, guaranties, common securities and/or preferred securities hereafter issued in connection with the consummation of the Pending Acquisitions in an aggregate face amount of not more than $150,000,000 upon terms and conditions substantially similar in all material respects to the terms and conditions described and defined in such Registration Statement on Form S-3 filed by the Borrower with the Securities and Exchange Commission on March 25, 1995. For all purposes of this Agreement, the amounts payable by Southern Union Trusts under the Preferred Securities and Common Securities (or similar securities provided for under subclause (b) above) and the amounts payable by the Borrower under the Subordinated Debt Securities or the Guaranties (or similar securities provided for under subclause (b) above) shall be treated without duplication, it being recognized that the amounts payable by Southern Union Trusts are funded with payments made or to be made by the Borrower to Southern Union Trusts and are also guaranteed by the Borrower under the Guaranties described in the S-3 mentioned above (or similar guaranties provided for under subclause (b) above). "SUBSIDIARY" or "SUBSIDIARIES" shall mean any corporation or corporations organized under the laws of any state of the United States of America, Canada, or any province of Canada, which conduct(s) the major portion of business in the United States of America or Canada and of which not less than 50% of the voting stock of every class (except for directors' qualifying shares), at the time as of which any determination is being made, is owned by the Borrower either directly or indirectly through other Subsidiaries. "TYPE" shall mean, with respect to any Loan, any Alternate Base Rate Loan or any Eurodollar Rate Loan. 2. THE LOANS 2.1 THE LOANS (a) Subject to the terms and conditions and relying upon the representations and warranties of the Borrower herein set forth, each Bank severally agrees to make Loans to the Borrower on any one or more Business Days prior to the Maturity Date, up to an aggregate principal amount of Loans not exceeding at any time outstanding the amount set opposite such Banks name on the signature pages hereof (such Bank's "Commitment"). Within such limits and during such period and subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow hereunder. 13 (b) The Borrower shall execute and deliver to the Agent for each Bank to evidence the Loans made by each Bank under such Bank's Commitment, a Note, which shall be: (i) dated the date of the Closing Date; (ii) in the principal amount of such Bank's maximum Commitment; (iii) in substantially the form attached hereto as EXHIBIT A, with blanks appropriately filled; (iv) payable to the order of such Bank on the Maturity Date; and (v) subject to acceleration upon the occurrence of an Event of Default. Each Note shall bear interest on the unpaid principal amount thereof from time to time outstanding at the rate per annum determined as specified in Sections 2.2(a), 2.2(b), 2.3(b) and 2.3(c), payable on each Interest Payment Date and at maturity, commencing with the first Interest Payment Date following the date of each Note. (c) Each Loan shall be: (i) in the case of any Eurodollar Rate Loan, in an amount of not less than $1,000,000.00 or an integral multiple of $1,000,000.00 in excess thereof; or (ii) in the case of any Alternate Base Rate Loan, in an amount of not less than $500,000.00 or an integral multiple of $100,000.00 in excess thereof and, at the option of the Borrower, any borrowing under this Section 2.1(c) may be comprised of two or more such Loans bearing different rates of interest. Each such borrowing shall be made upon prior notice from the Borrower to the Agent in the form attached hereto as EXHIBIT B (the "Notice of Borrowing") delivered to the Agent not later than 11:00 am (Houston time): (i) on the third Business Day prior to the Borrowing Date, if such borrowing consists of Eurodollar Rate Loans; and (ii) on the Borrowing Date, if such borrowing consists of Alternate Base Rate Loans. Each Notice of Borrowing shall be irrevocable and shall specify: (i) the amount of the proposed borrowing and of each Loan comprising a part thereof; (ii) the Borrowing Date; (iii) the rate of interest that each such Loan shall bear; (iv) the Rate Period with respect to each such Loan and the Expiration Date of each such Rate Period; and (v) the demand deposit account of the Borrower at Chase Bank of Texas, National Association into which the proceeds of the borrowing are to be deposited by the Agent. The Borrower may give the Agent telephonic notice by the required time of any proposed borrowing under this Section 2.1(c); PROVIDED THAT such telephonic notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than the Borrowing Date relating to any such borrowing) of a Notice of Borrowing. Neither the Agent nor any Bank shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent believes in good faith to have been given by the Borrower, or for otherwise acting in good faith under this Section 2.1(c). (d) In the case of a proposed borrowing comprised of Eurodollar Rate Loans, the Agent shall promptly notify each Bank of the applicable interest rate under Section 2.2. Each Bank shall, before 11:00 am (Houston time) on the Borrowing Date, make available for the account of its Applicable Lending Office to the Agent at the Agent's address set forth in Section 12.4, in same day funds, its Pro Rata Percentage of such borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Section 7, on the Borrowing Date, the Agent shall make the borrowing available to the Borrower at its Applicable Lending Office in immediately available funds. Each Bank shall post on a schedule attached to its Note(s): (i) the date and principal amount of each Loan made under such Note; (ii) the rate of interest each such Loan will bear; and (iii) each payment of principal thereon; PROVIDED, HOWEVER, that any failure of such Bank so to mark 14 such Note shall not affect the Borrower's obligations thereunder; and PROVIDED FURTHER that such Bank's records as to such matters shall be controlling whether or not such Bank has so marked such Note. Any deposit to the Borrower's demand deposit account by the Agent or by Chase Bank of Texas, National Association (of funds received from the Agent) pursuant to a request (whether written or oral) believed by the Agent or by Chase Bank of Texas, National Association to be an authorized request by the Borrower for a Loan hereunder shall be deemed to be a Loan hereunder for all purposes with the same effect as if the Borrower had in fact requested the Agent to make such Loan. (e) Unless the Agent shall have received notice from a Bank prior to the date of any borrowing that such Bank will not make available to the Agent such Bank's Pro Rata Percentage of such borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such borrowing in accordance with this Section 2.1 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such Pro Rata Percentage available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, (i) in the case of the Borrower, at the interest rate applicable at the time to the Loans comprising such borrowing, and (ii) in the case of such Bank, at the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan as part of such borrowing for purposes of this Agreement. (f) The failure of any Bank to make the Loan to be made by it as part of any borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on the date of any borrowing. 2.2 INTEREST RATE DETERMINATION (a) Except as specified in Sections 2.3(b) and 2.3(c), the Loans shall bear interest on the unpaid principal amount thereof from time to time outstanding, until maturity, at a rate per annum (calculated based on a year of 360 days in the case of the Eurodollar Rate or the Alternate Base Rate based on the Federal Funds Rate and a year of 365 or 366 days, as the case may be, in the case of the Alternate Base Rate based on the Prime Rate) equal to the lesser of (A) the rate specified in the Notice of Borrowing with respect thereto or (B) the Highest Lawful Rate from the first day to, but not including, the Expiration Date of the Rate Period then in effect with respect thereto. (b) Any principal, interest, fees or other amount owing hereunder, under any Note or under any other Loan Document that is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest at a rate per annum equal to the lesser of (i) two percent (2%) above the Alternate Base Rate in effect from time to time or (ii) the Highest Lawful Rate. 2.3 ADDITIONAL INTEREST RATE PROVISIONS 15 (a) The Note may be held by each Bank for the account of its respective Domestic Lending Office or its respective Eurodollar Lending Office, and may be transferred from one to the other from time to time as each Bank may determine. (b) If the Borrower shall have chosen the Eurodollar Rate in a Notice of Borrowing and prior to the Borrowing Date, any Bank in good faith determines (which determination shall be conclusive) that (i) deposits in Dollars in the principal amount of such Eurodollar Rate Loan are not being offered to the Eurodollar Lending Office of such Bank in the Eurodollar interbank market selected by such Bank in its sole discretion in good faith or (ii) adequate and reasonable means do not exist for ascertaining the chosen Eurodollar Rate in respect of such Eurodollar Rate Loan or (iii) the Eurodollar Rate for any Rate Period for such Eurodollar Rate Loan will not adequately reflect the cost to such Bank of making such Eurodollar Rate Loan for such Rate Period, then such Bank will so notify the Borrower and the Agent and such Eurodollar Rate shall not become effective as to such Eurodollar Rate Loan on such Borrowing Date or at any time thereafter until such time thereafter as the Borrower receives notice from the Agent that the circumstances giving rise to such determination no longer apply. (c) Anything in this Agreement to the contrary notwithstanding, if at any time any Bank in good faith determines (which determination shall be conclusive) that the introduction of or any change in any applicable law, rule or regulation or any change in the interpretation or administration thereof by any governmental or other regulatory authority charged with the interpretation or administration thereof shall make it unlawful for the Bank (or the Eurodollar Lending Office of such Bank) to maintain or fund any Eurodollar Rate Loan, such Bank shall give notice thereof to the Borrower and the Agent. With respect to any Eurodollar Rate Loan which is outstanding when such Bank so notifies the Borrower, upon such date as shall be specified in such notice the Rate Period shall end and the lesser of (i) the Alternate Base Rate or (ii) the Highest Lawful Rate shall commence to apply in lieu of the Eurodollar Rate in respect of such Eurodollar Rate Loan and shall continue to apply unless and until the Borrower changes the rate as provided in Section 2.2(a). No more than five (5) Business Days after such specified date, the Borrower shall pay to such Bank (x) accrued and unpaid interest on such Eurodollar Rate Loan at the Eurodollar Rate in effect at the time of such notice to but not including such specified date PLUS (y) such amount or amounts (to the extent that such amount or amounts would not be usurious under applicable law) as may be necessary to compensate such Bank for any direct or indirect costs and losses incurred by it (to the extent that such amounts have not been included in the Additional Costs in calculating such Eurodollar Rate), but otherwise without penalty. If notice has been given by such Bank pursuant to the foregoing provisions of this Section 2.3(c), then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such notice no longer apply, such Eurodollar Rate shall not again apply to such Loan or any other Loan and the obligation of such Bank to continue any Eurodollar Rate Loan as a Eurodollar Rate Loan shall be suspended. Any such claim by such Bank for compensation under clause (y) above shall be accompanied by a certificate setting forth the computation upon which such claim is based, and such certificate shall be conclusive and binding for all purposes, absent manifest error. 16 (d) THE BORROWER WILL INDEMNIFY EACH BANK AGAINST, AND REIMBURSE EACH BANK ON DEMAND FOR, ANY LOSS (INCLUDING LOSS OF REASONABLY ANTICIPATED PROFITS DETERMINED USING REASONABLE ATTRIBUTION AND ALLOCATION METHODS), OR REASONABLE COST OR EXPENSE INCURRED OR SUSTAINED BY SUCH BANK (INCLUDING WITHOUT LIMITATION, ANY LOSS OR EXPENSE INCURRED BY REASON OF THE LIQUIDATION OR REEMPLOYMENT OF DEPOSITS OR OTHER FUNDS ACQUIRED BY SUCH BANK TO FUND OR MAINTAIN ANY EURODOLLAR RATE LOAN) AS A RESULT OF (i) ANY ADDITIONAL COSTS INCURRED BY SUCH BANK; (ii) ANY PAYMENT OR REPAYMENT (WHETHER AUTHORIZED OR REQUIRED HEREUNDER OR OTHERWISE) OF ALL OR A PORTION OF ANY LOAN ON A DAY OTHER THAN THE EXPIRATION DATE OF A RATE PERIOD FOR SUCH LOAN; (iii) ANY PAYMENT OR PREPAYMENT (WHETHER REQUIRED HEREUNDER OR OTHERWISE) OF ANY LOAN MADE AFTER THE DELIVERY OF A NOTICE OF BORROWING BUT BEFORE THE APPLICABLE BORROWING DATE IF SUCH PAYMENT OR PREPAYMENT PREVENTS THE PROPOSED BORROWING FROM BECOMING FULLY EFFECTIVE; OR (iv) AFTER RECEIPT BY THE AGENT OF A NOTICE OF BORROWING, THE FAILURE OF ANY LOAN TO BE MADE OR EFFECTED BY SUCH BANK DUE TO ANY CONDITION PRECEDENT TO A BORROWING NOT BEING SATISFIED BY THE BORROWER OR DUE TO ANY OTHER ACTION OR INACTION OF THE BORROWER. ANY BANK DEMANDING PAYMENT UNDER THIS SECTION 2.3(d) SHALL DELIVER TO THE BORROWER AND THE AGENT A STATEMENT REASONABLY SETTING FORTH THE AMOUNT AND MANNER OF DETERMINING SUCH LOSS, COST OR EXPENSE. THE FACTS SET FORTH IN SUCH STATEMENT SHALL BE CONCLUSIVE AND BINDING FOR ALL PURPOSES, ABSENT MANIFEST ERROR. (e) If, after the date of this Agreement, any Bank shall have determined that the adoption of any applicable law, rule, guideline, interpretation or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder and under similar lending arrangements to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material then the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (f) A certificate of such Bank setting forth such amount or amounts as shall be necessary to compensate such Bank as specified in subparagraph (e) above shall be delivered as soon as practicable to the Borrower (with a copy thereof to the agent) and to the extent 17 determined in accordance with subparagraph (e) above shall be conclusive and binding, absent manifest error. The Borrower shall pay such Bank the amount shown as due on any such certificate within fifteen (15) days after such Bank delivers such certificate. In preparing such certificate, such Bank may employ such assumptions and allocations (consistently applied with respect to advances made by such Bank or commitments by such Bank to make advances) of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method (consistently applied with respect to advances made by such Bank or commitments by such Bank to make advances). (g) In calculating the Eurodollar Rate and the commitment fee payable under SECTION 4.1 hereof, and notwithstanding the provisions set forth in the definitions of Eurodollar Rate or in the pricing grid established for the commitment fee in SECTION 4.1 hereof, in the event that the ratings for Borrower's unsecured, non-credit enhanced Senior Funded Debt under Standard & Poor's Ratings Group and under Moody's Investor Service, Inc. fall within different rating categories which are not functional equivalents, the Eurodollar Rate and the commitment fee payable under SECTION 4.1 hereof shall be based on the higher of such ratings if there is only one category difference between the functional equivalents of such ratings, and if there is a two category difference between the functional equivalents of such ratings, the component of pricing from the grid set forth in such definitions or in SECTION 4.1 shall be based on the rating category which is then in the middle of or between the two category ratings which are then in effect. 2.4 EXTENSION OF MATURITY DATE. On a Business Day no less than sixty (60) and no more than ninety (90) days prior to May 30, 2001, and during such period in each year thereafter during which this Agreement is in effect, the Borrower may elect to notify the Agent, in writing, of its request for an extension of the maturity date of each Banks Commitment (on the terms and conditions set forth herein) for a period of up to 364 days from the date of the then current Maturity Date. Promptly after receipt of such request, the Agent shall notify the Banks of such request. Each Bank shall notify the Agent in writing of its consent to, or rejection of, such request on or prior to April 30 of each such year. In the event that any Bank fails to so notify the Agent, that request shall be deemed to have been rejected by such Bank. The Commitments shall be extended hereunder only upon the consent of each Bank, whereupon the Maturity Date of each Note shall be deemed to be extended to the agreed date of extension, but in no event later than the date which is 364 days after the date of the Maturity Date in effect prior to such extension. In the event of the renewal and extension of the Commitments and the maturity date of the Notes pursuant to this Section 2.4, the terms and conditions of this Agreement will apply during such renewal and extension period and, from and after the date of such extension, the term "Maturity Date" shall mean such date as so renewed and extended. 2.5 INCREASE OF COMMITMENTS (a) At any time after the Closing Date, provided that no Default or Event of Default shall have occurred and be continuing, the Borrower may request from time to time one or more increases of the Commitments by notice to the Agent in writing of the amount of each such proposed increase (each such notice, a "COMMITMENT INCREASE NOTICE"). Any such Commitment Increase Notice must offer each Bank the opportunity to subscribe for its 18 pro rata share of the requested increase in the Commitments, and the Agent shall promptly provide to each Bank a copy of any Commitment Increase Notice received by the Agent. Within 10 Business Days after receipt by the Agent of the applicable Commitment Increase Notice, each Bank wishing to subscribe for its pro rata share of the requested increase in the Commitments must deliver written notice of such fact to the Agent. If any portion of the requested increase in the Commitments is not subscribed for by the Banks within such 10-day period, the Borrower may, in its sole discretion, but with the consent of the Agent as to any Person that is not at such time a Bank (which consent shall not be unreasonably withheld or delayed so long as such Person is an Eligible Assignee), offer to any existing Bank or to one or more additional banks or financial institutions the opportunity to participate in all or a portion of such unsubscribed portion of the requested increase in the Commitments pursuant to Section 2.5(b) or (c) below, as applicable; (b) Any additional bank or financial institution that the Borrower selects to offer a participation in the unsubscribed portion of the increased Commitments, and that elects to become a party to this Agreement and obtain a Commitment, shall execute an agreement (a "NEW BANK AGREEMENT"), in the form required by the Agent, with the Borrower and the Agent, whereupon such bank or financial institution (a "NEW BANK") shall become a Bank for all purposes hereunder to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and the signature pages hereof shall be deemed to add the name and Commitment of such New Bank, provided that the Commitment of any such New Bank shall be in an amount not less than $5,000,000; (c) Any Bank that accepts an offer by the Borrower to increase its Commitment pursuant to this Section 2.5 shall, in each case, execute a commitment increase agreement (a "COMMITMENT INCREASE AGREEMENT"), in the form required by the Agent, with the Borrower and the Agent, whereupon such Bank shall be bound by and entitled to the benefits of this Agreement with respect to the full amount of its Commitment as so increased, and the signature pages hereof shall be deemed to be amended to reflect such increase in the Commitment of such Bank; (d) The effectiveness of any New Bank Agreement or Commitment Increase Agreement shall be contingent upon receipt by the Agent of such corporate resolutions of the Borrower and legal opinions of in-house counsel to the Borrower, if any, as the Agent shall reasonably request with respect thereto; (e) If any bank or financial institution becomes a New Bank pursuant to Section 2.5(b) or if any Bank's Commitment is increased pursuant to Section 2.5(c), additional Loans and additional liability for Facility Letters of Credit made or issued on or after the effectiveness thereof (the "RE-ALLOCATION DATE") shall be made pro rata based on each Bank's (including each New Bank's) respective Commitment in effect on and after such Re-Allocation Date (except to the extent that any such pro rata borrowings or incurring of liability would result in any Bank making an aggregate principal amount of Loans and incurring liability for the Facility Letters of Credit in excess of its Commitment, in which case such excess amount will be allocated to, and made or incurred by, such New Bank and/or Banks with such increased Commitments to the extent of, and pro rata based on, their 19 respective Commitments), and continuations of Eurodollar Rate Loans outstanding on such Re-Allocation Date shall be effected by repayment of such Eurodollar Rate Loans on the last day of the Rate Period applicable thereto and the extension of new Eurodollar Rate Loans pro rata based on the Banks' respective Commitments in effect on and after such Re-Allocation Date. In the event that on any such Re-Allocation Date there are Alternate Base Rate Loans outstanding, the Borrower shall make prepayments thereof and borrow new Alternate Base Rate Loans so that, after giving effect thereto, the Alternate Base Rate Loans outstanding are held pro rata based on the Banks' respective Commitments in effect on and after such Re-Allocation Date. In the event that on any such Re-Allocation Date there are Eurodollar Rate Loans outstanding, such Eurodollar Rate Loans shall remain outstanding with the respective holders thereof until the expiration of their respective Rate Periods (unless the Borrower elects to prepay any thereof in accordance with the applicable provisions of this Agreement), and interest on and repayments of such Eurodollar Rate Loans will be paid thereon to the respective Banks holding such Eurodollar Rate Loans pro rata based on the respective principal amounts thereof outstanding; (f) Notwithstanding anything to the contrary in this Section 2.5, (i) no Bank shall have any obligation to increase its Commitment under this Section 2.5 unless it agrees in writing to do so in its sole discretion, (ii) no Bank shall have any right to decrease the amount of its Commitment as a result of any requested increase of the Commitments pursuant to this Section 2.5, (iii) the Agent shall have no obligation to find or locate any New Bank to participate in any unsubscribed portion of any increase in the Commitments requested by the Borrower, (iv) each increase in the Commitments requested by the Borrower shall not be less than $10,000,000, (v) after giving effect to any increase in the Commitments pursuant to this Section 2.5, the sum of the Commitments and the aggregate commitments of the lenders under the Long-Term Credit Facility shall not exceed $250,000,000, and (vi) in the event the Borrower reduces in the Commitments pursuant to Section 4.6 or any other provision of this Agreement more than one time during the term of this Agreement, the ability of the Borrower to request increases in the Commitments pursuant to this Section 2.5 shall automatically terminate; and (g) The Borrower shall execute and deliver to the Agent (for delivery by the Agent to each applicable Bank) a new Note payable to each applicable Bank (including each New Bank) participating in any increase of the Commitments in the original principal amount of such Bank's Commitment after giving effect to any such increase of the Commitments. 3. PAYMENTS AND PREPAYMENTS 3.1 REQUIRED PREPAYMENTS (a) The Borrower agrees that if at any time it or the Agent determines that the aggregate principal amount of Loans outstanding exceeds the Commitments, then the Borrower shall make a prepayment of principal of the Loans in an amount at least equal to such excess. 20 (b) Upon the Borrower's reduction or termination of the Commitments under Section 3.6, the Borrower shall make such prepayments as are required by the terms of Section 3.6. (c) Immediately upon the termination of any period of 180 consecutive calendar days in which the aggregate principal amount outstanding under the Notes and the Long-Term Credit Facility Notes has exceeded the Borrower's Available Senior Funded Debt Capacity outstanding under the Senior Notes, the Borrower will prepay the Notes and/or the Long-Term Credit Facility Notes by the amount of such excess, together with all interest accrued on such prepaid amount and such other amounts that may be required to be paid in consequence of such prepayment under Section 2.3(d). 3.2 REPAYMENT OF THE LOANS. Borrower shall repay the principal amount of each Loan, on the last day of the Interest Period for such Loan, together with all accrued and unpaid interest thereon as of such date, irrespective of any claim, set off, defense, or other right which the Borrower may have at any time against any Bank, the Agent or any other Person. 3.3 PLACE OF PAYMENT OR PREPAYMENT. All payments and prepayments made in accordance with the provisions of this Agreement or of the Notes or of any other Loan Document in respect of commitment fees or of principal or interest on the Notes shall be made to the Agent for the account of the Banks at its Domestic Lending Office, no later than noon, Houston time, in immediately available funds. Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make any payment due hereunder in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due to such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. If and to the extent that the Agent receives any payment or prepayment from the Borrower and fails to distribute such payment or prepayment to the Banks ratably on the basis of their respective Pro Rata Percentage on the day the Agent receives such payment or prepayment, and such distribution shall not be so made by the Agent in full on the required day, the Agent shall pay to each Bank such Bank's Pro Rata Percentage thereof together with interest thereon at the Federal Funds Rate for each day from the date such amount is paid to the Agent by the Borrower until the date the Agent pays such amount to such Bank. 3.4 NO PREPAYMENT PREMIUM OR PENALTY. Each prepayment pursuant to Section 3.1 or 3.3 shall be without premium or penalty, subject in the case of Eurodollar Rate Loans to the provisions of Section 2.3(d). 3.5 TAXES. All payments (whether of principal, interest, reimbursements or otherwise) under this Agreement or on the Notes shall be made by the Borrower without set off or counterclaim and shall be made free and clear of and without deduction for any present or future tax, levy, impost or any other charge, if any, of any nature whatsoever now or hereafter imposed by any taxing authority. If the making of such payments is prohibited by law, unless such a tax, levy, impost or 21 other charge is deducted or withheld therefrom, the Borrower shall pay to the Banks, on the date of each such payment, such additional amounts as may be necessary in order that the net amounts received by the Banks after such deduction or withholding shall equal the amounts which would have been received if such deduction or withholding were not required. 3.6 REDUCTION OR TERMINATION OF COMMITMENTS. The Borrower may at any time or from time to time reduce or terminate the Commitment of each Bank by giving not less than ten (10) full Business Days' prior written notice to such effect to the Agent, provided that any partial reduction shall be in the amount of $1,000,000.00 or an integral multiple thereof. Concurrently with each such reduction or termination, all amounts in excess of the reduced Commitments shall be automatically due and payable and it is a condition to the effectiveness of such reduction that the Borrower shall immediately prepay the entire amount of such excess together with all accrued interest thereon and such other amounts that may be required to be paid in consequence of such prepayment under Section 2.3(d). Promptly after the Agent's receipt of such notice of reduction, the Agent shall notify each Bank of the proposed reduction and such reduction shall be effective on the date specified in the Borrower's notice with respect to such reduction and shall reduce the Commitment of each Bank proportionately in accordance with its Pro Rata Percentage. After each such reduction, the commitment fee shall be calculated upon the Commitments as so reduced. The Commitment of each Bank shall automatically terminate on the Maturity Date or in the event of acceleration of the maturity date of the Notes. Each reduction of the Commitment hereunder shall be irrevocable. 4. COMMITMENT FEE AND OTHER FEES 4.1 COMMITMENT FEE. The Borrower agrees to pay to the Agent for the account of each Bank a commitment fee based on a year of 360 days, from the Closing Date to, but not including, the Maturity Date (or such earlier date as of which all Commitments shall have terminated), on the daily average unused amount of each Bank's Commitment, such commitment fee to be payable quarterly in arrears on (a) the last day of each March, June, September, and December, commencing on June 30, 2000 and (b) the Maturity Date, at a rate per annum changing with the rating of the Borrower's unsecured, non-credit enhanced Senior Funded Debt, and determined in accordance with the following grid:
======================================================================================== RATING OF THE BORROWER'S UNSECURED, NON-CREDIT PERCENTAGE ENHANCED SENIOR FUNDED DEBT PER ANNUM ---------------------------------------------------------------------------------------- Equal to or greater than A3 by Moody's Investor Service, Inc. and equal to or greater than A- by Standard and Poor's Ratings Group 0.105% ---------------------------------------------------------------------------------------- Baa1 by Moody's Investor Service, Inc. OR BBB+ by Standard and Poor's Ratings Group 0.130% ---------------------------------------------------------------------------------------- Baa2 by Moody's Investor Service, Inc. OR BBB by Standard and Poor's Ratings Group 0.130% ---------------------------------------------------------------------------------------- Baa3 by Moody's Investor Service, Inc. OR BBB- by Standard and Poor's Ratings Group 0.130% ======================================================================================== 22 ---------------------------------------------------------------------------------------- Equal to or less than Ba1 by Moody's Investor Service, Inc. AND equal to or less than BB+ by Standard and Poor's Ratings Group 0.230% ========================================================================================
4.2 FEES NOT INTEREST; NONPAYMENT. The fees described in this Agreement represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention, or forbearance of money, and the obligation of the Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower to pay interest, other fees described in this Agreement, and expenses otherwise described in this Agreement. Fees shall be payable when due in Dollars and in immediately available funds. The commitment fee referred to in Section 5.1 shall be non-refundable, and shall, to the fullest extent permitted by law, bear interest, if not paid when due, at a rate per annum equal to the lesser of (a) five percent (5%) above the Alternate Base Rate as in effect from time to time or (b) the Highest Lawful Rate. 4.3 UTILIZATION FEE. The Borrower agrees to pay to Agent, for the account of each Bank, an utilization fee at a rate per annum equal to 0.125%, based on a year of 360 days, from the Closing Date to, but not including, the Maturity Date (or such earlier date as of which the Commitments have been terminated), on the daily average amount by which the sum of the aggregate principal amount of the Loans and the Facility Letter of Credit Obligations exceeds thirty-three percent (33%) of the aggregate amount of the Commitments, such utilization fee to be payable quarterly in arrears on (a) the last day of each March, June, September, and December, commencing on June 30, 2000, and (b) the Maturity Date. 5. APPLICATION OF PROCEEDS 5.1 APPLICATION OF PROCEEDS. The Borrower agrees that the proceeds of the Loans shall be used: (a) to provide working capital and for general corporate purposes; (b) to finance the acquisition of Qualifying Assets, which Qualifying Assets may be acquired on a revolving basis as long as at any one time the amount of the Borrower's investment in Qualifying Assets does not exceed the amounts set forth in clause (i) and clause (ii) of the definition of Qualifying Assets as applicable; PROVIDED, HOWEVER, that the prior written consent of the Majority Banks shall be required for the use of Loan proceeds to finance any portion of any such acquisition described in clause (i) of the definition of Qualifying Assets requiring the payment of more than $60,000,000; (c) to finance the Pending Acquisitions; PROVIDED, HOWEVER, that the prior written consent of the Majority Banks shall be required for the use of Loan proceeds, together with the use of proceeds of the Long-Term Credit Facility, if any, to finance the Pending Acquisitions in excess of $100,000,000 in the aggregate and PROVIDED, FURTHER, that the use 23 of any Loan proceeds, together with the use of proceeds of the Long-Term Credit Facility, if any, in excess of $60,000,000 in the aggregate to finance the Pending Acquisitions shall be repaid in full not more than 180 days after the consummation of the Pending Acquisitions or May 30, 2001, whichever occurs first; (d) to finance the Borrower's open market acquisition of its own 7.60% Senior Notes due 2024; PROVIDED, HOWEVER, that such use, together with the use of proceeds of the Long-Term Credit Facility for such purpose, if any, shall be limited to an aggregate amount advanced to $40,000,000; and (e) to finance the Borrower's repurchase of its own common stock and preferred equity securities; PROVIDED, HOWEVER, that such use, together with the use of proceeds of the Long-Term Credit Facility for such purpose, if any, shall be limited to an aggregate amount advanced to $50,000,000. 6. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: 6.1 ORGANIZATION AND QUALIFICATION. The Borrower and each Subsidiary: (a) are corporations duly organized, validly existing, and in good standing under the laws of their respective states of incorporation; (b) have the corporate or organizational power to own their respective properties and to carry on their respective businesses as now conducted; and (c) are duly qualified as foreign corporations (or, in the case of any Southern Union Trust, trusts) to do business and are in good standing in every jurisdiction where such qualification is necessary except when the failure to so qualify would not or does not have a Material Adverse Effect. The Borrower is a corporation organized under the laws of Delaware and has the Subsidiaries listed on SCHEDULE 6.1 attached hereto and hereby made a part hereof for all purposes, and no others, each of which is a Delaware corporation unless otherwise noted. None of the Subsidiaries listed on SCHEDULE 6.1 as "Inactive Subsidiaries," conducts or will conduct any business, and none of such Subsidiaries has any assets other than minimum legal capitalization. 6.2 FINANCIAL STATEMENTS. The Borrower has furnished the Banks with (a) the Borrower's annual audit report containing the Borrower's consolidated balance sheet, statements of income and stockholder's equity and a cash flow statement as at and for the twelve month period ending June 30, 1999, accompanied by the certificate of Price Waterhouse Coopers and (b) the Borrower's unaudited financial report as of the fiscal quarter ending March 31, 2000. These statements are complete and correct and present fairly in accordance with GAAP, consistently applied throughout the periods involved, the consolidated financial position of the Borrower and the Subsidiaries and the results of its and their operations as at the dates and for the periods indicated subject, as to interim statements only, to changes resulting from customary end-of-year credit adjustments which in the aggregate will not be material. There has been no material adverse change in the condition, financial or otherwise, of the Borrower or any Subsidiary since March 31, 2000. 6.3 LITIGATION. Except as disclosed on SCHEDULE 6.3 or pursuant to Section 6.16, there is no: (a) action or proceeding pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary before any court, administrative agency or arbitrator which is reasonably 24 expected to have a Material Adverse Effect; (b) judgment outstanding against the Borrower for the payment of money; or (c) other outstanding judgment, order or decree affecting the Borrower or any Subsidiary before or by any administrative or governmental authority, compliance with or satisfaction of which may reasonably be expected to have a Material Adverse Effect. 6.4 DEFAULT. Neither the Borrower nor any Subsidiary is in default under or in violation of the provisions of any instrument evidencing any Debt or of any agreement relating thereto or any judgment, order, writ, injunction or decree of any court or any order, regulation or demand of any administrative or governmental instrumentality which default or violation might have a Material Adverse Effect. 6.5 TITLE TO ASSETS. The Borrower and each Subsidiary have good and marketable title to their respective assets, subject to no Liens except those permitted in Section 10.2. 6.6 PAYMENT OF TAXES. The Borrower and each Subsidiary have filed all tax returns required to be filed and have paid all taxes shown on said returns and all assessments which are due and payable (except such as are being contested in good faith by appropriate proceedings for which adequate reserves for their payment have been provided in a manner consistent with the accounting practices followed by the Borrower as of March 31, 2000). The Borrower is not aware of any pending investigation by any taxing authority or of any claims by any governmental authority for any unpaid taxes, except as disclosed on SCHEDULE 6.6. 6.7 CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS. Neither the Borrower nor any Subsidiary is a party to any contract or agreement or subject to any restriction which would have a Material Adverse Effect. Neither the execution and delivery of this Agreement or the Notes or any other Loan Document nor the consummation of the transactions contemplated hereby nor fulfillment of and compliance with the respective terms, conditions and provisions hereof or of the Notes or of any instruments required hereby will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation or imposition of any lien (other than as contemplated or permitted by this Agreement) on any of the property of the Borrower or any Subsidiary pursuant to (a) the charter or bylaws applicable to the Borrower or any Subsidiary; (b) any law or any regulation of any administrative or governmental instrumentality; (c) any order, writ, injunction or decree of any court; or (d) the terms, conditions or provisions of any agreement or instrument to which the Borrower or any Subsidiary is a party or by which it is bound or to which it is subject. 6.8 AUTHORIZATION, VALIDITY, ETC. The Borrower has the corporate power and authority to make, execute, deliver and carry out this Agreement and the transactions contemplated herein, to make the borrowings provided for herein, to execute and deliver the Notes and to perform its obligations hereunder and under the Notes and the other Loan Documents to which it is a party and all such action has been duly authorized by all necessary corporate proceedings on its part. This Agreement has been duly and validly executed and delivered by the Borrower and constitutes the valid and legally binding agreement of the Borrower enforceable in accordance with its terms, except as limited by Debtor Laws; and the Notes and the other Loan Documents, when duly executed and delivered by the Borrower pursuant to the provisions hereof, will constitute the valid and legally binding obligation of the Borrower enforceable in accordance with the terms thereof and of this Agreement, except as limited by Debtor Laws. 25 6.9 INVESTMENT COMPANY ACT NOT APPLICABLE. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 6.10 PUBLIC UTILITY HOLDING COMPANY ACT NOT APPLICABLE. Neither the Borrower nor any Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 6.11 REGULATIONS G, T, U AND X. No Loan shall be a "purpose credit secured directly or indirectly by margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System ("margin stock"); none of the proceeds of any Loan will be used to extend credit to others for the purpose of purchasing or carrying any margin stock, or for any other purpose which would constitute this transaction a "purpose credit secured directly or indirectly by margin stock" within the meaning of said Regulation U, as now in effect or as the same may hereafter be in effect. Neither the Borrower nor any Subsidiary will take or permit any action which would involve the Banks in a violation of Regulation G, Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or a violation of the Securities Exchange Act of 1934, in each case as now or hereafter in effect. After applying proceeds of the Loans and the Long-Term Credit Facility used to acquire the equity interests described in the definition of "Qualifying Assets", not more than twenty-five percent (25%) of the value (as determined by any reasonable method) of the assets subject to the negative pledge set forth in Section 9.2 of the Credit Agreement and the restrictions on disposition of assets set forth in Section 9.8 of the Credit Agreement is represented by margin stock. 6.12 ERISA. No Reportable Event (as defined in Section 4043(b) of ERISA) has occurred with respect to any Plan. Each Plan complies in all material respects with a applicable provisions of ERISA, and the Borrower and each Subsidiary have filed all reports required by ERISA and the Code to be filed with respect to each Plan. The Borrower has no knowledge of any event which could result in a liability of the Borrower or any Subsidiary to the Pension Benefit Guaranty Corporation. The Borrower and each Subsidiary have met all requirements with respect to funding the Plans imposed by ERISA or the Code. Since the effective date of Title IV of ERISA, there have not been any, nor are there now existing any, events or conditions that would permit any Plan to be terminated under circumstances which would cause the lien provided under Section 4068 of ERISA to attach to any property of the Borrower or any Subsidiary. The value of the Plans' benefits guaranteed under Title IV of ERISA on the date hereof does not exceed the value of such Plans' assets allocable to such benefits as of the date of this Agreement and shall not be permitted to do so hereafter. 6.13 NO FINANCING OF CERTAIN SECURITY ACQUISITIONS. None of the proceeds of any Loan will be used to acquire any security in any transaction that is subject to Section 13 or Section 14 of the Securities Exchange Act of 1934, as amended, except the equity interests described in subparagraph (ii) of the definition of "Qualifying Assets". 6.14 FRANCHISES, CO-LICENSES, ETC. The Borrower and each Subsidiary own or have obtained all the material governmental permits, certificates of authority, leases, patents, trademarks, 26 service marks, trade names, copyrights, franchises and licenses, and rights with respect thereto, required or necessary (or, in the sole and independent judgment of the Borrower, prudent) in connection with the conduct of their respective businesses as presently conducted or as proposed to be conducted. 6.15 LINES OF BUSINESS. The nature of the Borrower's lines of business are predominately the following: (a) the operation of energy distribution and transportation services, including without limitation, natural gas sales and transportation and distribution, propane sales and distribution and promotion, marketing and sale of compressed natural gas and liquified natural gas; (b) the development and marketing of fuel cell and distributive energy options; (c) electric marketing/generation; (d) the operation of fuel oil distribution and transportation networks; and (e) sales and rentals of appliances utilizing one or more of the fuel or energy options specified in this Section 7.15. 6.16 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 6.16, all facilities and property owned or leased by the Borrower or any Subsidiary have been and continue to be, owned or leased and operated by the Borrower and each Subsidiary in material compliance with all Environmental Laws; (i) there has not been (during the period of the Borrower's, or a Subsidiary's ownership or lease) any Release of Hazardous Materials at, on or under any property now (or, to the Borrower's knowledge, previously) owned or leased by the Borrower or any Subsidiary (A) in quantities that would be required to be reported under any Environmental Law, (B) that required, or may reasonably be expected to require, the Borrower to expend funds on remediation or cleanup activities pursuant to any Environmental Law except for remediation or clean-up activities that would not be reasonably expected to have a Material Adverse Effect, or (C) that otherwise, singly or in the aggregate, has, or may reasonably be expected to have, a Material Adverse Effect; (ii) the Borrower and each Subsidiary have been issued and are in material compliance with all permits, certificates, approvals, orders, licenses and other authorizations relating to environmental matters necessary for their respective businesses; and (iii) there are no polychlorinated biphenyls (PCB's) or asbestos-containing materials or surface impoundments in any of the facilities now (or, to the knowledge of the Borrower, previously) owned or leased by the Borrower or any Subsidiary, except for asbestos-containing materials of the type and in quantities that, to the knowledge of the borrower, do not currently require remediation, and if remediation of such asbestos-containing materials is hereafter required for any reason, such remediation activities would not reasonably be expected to have a Material Adverse Effect; (iv) Hazardous Materials have not been generated, used, treated, recycled, stored or disposed of in any of the facilities or on any of the property now (or, to the knowledge of the Borrower, previously) owned or leased by the Borrower or any Subsidiary during the time of the Borrower's or such Subsidiary's ownership or leased by the Borrower or any Subsidiary during the time of the Borrower's or such Subsidiary's ownership except in material compliance with all applicable Environmental Laws; and (v) all underground storage tanks located on the property now (or, to the knowledge of the Borrower, previously) owned or leased by the Borrower or any Subsidiary have been (and to the extent currently owned or leased are) operated in material compliance with all applicable Environmental Laws. 7. CONDITIONS The obligation of the Banks to make any Loans is subject to the following conditions: 27 7.1 REPRESENTATIONS TRUE AND NO DEFAULTS (a) The representations and warranties contained in Section 6 shall be true and correct on and as of the particular Borrowing Date as though made on and as of such date; (b) The Borrower shall not be in default in the due performance of any covenant on its part contained in this Agreement; (c) no material adverse change shall have occurred with respect to the business, assets, properties or condition (financial or otherwise) of the Borrower reflected in the quarterly financial statements of the Borrower dated March 31, 2000 (copies of such audited financial statements having been supplied to the Agent and each Bank); and (d) no Event of Default or Default shall have occurred and be continuing. 7.2 GOVERNMENTAL APPROVALS. The Borrower shall have obtained all orders, approvals or consents of all public regulatory bodies required for the making and carrying out of this Agreement, the making of the borrowings pursuant hereto, the issuance of the Notes to evidence such borrowings, and the execution and delivery of the Security Documents. 7.3 COMPLIANCE WITH LAW. The business and operations of the Borrower and each Subsidiary as conducted at all times relevant to the transactions contemplated by this Agreement to and including the close of business on the particular Borrowing Date shall have been and shall be in compliance in all material respects with all applicable State and Federal laws, regulations and orders affecting the Borrower and each Subsidiary and the business and operations of any of them. 7.4 NOTICE OF BORROWING AND OTHER DOCUMENTS. On each Borrowing Date, the Banks shall have received (a) a Notice of Borrowing; and (b) such other documents and certificates relating to the transactions herein contemplated as the Banks may reasonably request. 7.5 PAYMENT OF FEES AND EXPENSES. The Borrower shall have paid (a) all expenses of the type described in Section 13.3 through the date of such Loan or the issuance of such Facility Letter of Credit and (b) all closing, structuring and other invoiced fees owed as of the Closing Date to the Agent, any of the Banks and/or Chase Securities Inc. by the Borrower under this Agreement or any other written agreement between the Borrower and the Agent, the applicable Bank(s) or Chase Securities Inc. 7.6 LOAN DOCUMENTS, OPINIONS AND OTHER INSTRUMENTS. As of the Closing Date, the Borrower shall have delivered to the Agent the following: (a) this Agreement, each of the Notes and all other Loan Documents required by the Agent and the Banks to be executed and delivered by the Borrower in connection with this Agreement; (b) a certificate from the Secretary of State of the State of Delaware as to the continued existence and good standing of the Borrower in the State of Delaware; (c) a certificate from Secretary of State of the State of Texas as to the continued qualification of the Borrower to do business in the State of Texas; (d) a current certificate from the Office of the Comptroller of the State of Texas as to the good standing of the Borrower in the State of Texas; (e) a Secretary's Certificate executed by the duly elected Secretary or a duly elected 28 Assistant Secretary of the Borrower, in a form acceptable to the Agent, whereby such Secretary or Assistant Secretary certifies that one or more corporate resolutions adopted by the Board of Directors of the Borrower remain in full force and effect authorizing the Borrower to secure Loans and Facility Letters of Credit in accordance with the terms of this Agreement and the Long-Term Credit Facility; and (f) a legal opinion from in-house counsel for the Borrower, dated as of the Closing Date, addressed to the Agent and the Lenders and otherwise acceptable in all respects to the Agent in its discretion. 8. AFFIRMATIVE COVENANTS The Borrower covenants and agrees that, so long as the Borrower may borrow hereunder and until payment in full of the Notes, and its other obligations under this Agreement and the other Loan Documents the Borrower will: 8.1 FINANCIAL STATEMENTS AND INFORMATION. Deliver to the Banks: (a) as soon as available, and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the annual audit report of the Borrower and the Subsidiaries for such fiscal year containing a balance sheet, statements of income and stockholders equity and a cash flow statement, all in reasonable detail and certified by Price Waterhouse Coopers or another independent certified public accountant of recognized standing satisfactory to the Banks. The Borrower will obtain from such accountants and deliver to the Banks at the time said financial statements are delivered the written statement of the accountants that in making the examination necessary to said certification they have obtained no knowledge of any Event of Default or Default, or if such accountants shall have obtained knowledge of any such Event of Default or Default, they shall state the nature and period of existence thereof in such statement; PROVIDED THAT such accountants shall not be liable directly or indirectly to the Banks for failure to obtain knowledge of any such Event of Default or Default; and (b) as soon as available, and in any event within sixty (60) days after the end of each quarterly accounting period in each fiscal year of the Borrower (excluding the fourth quarter), an unaudited financial report of the Borrower and the Subsidiaries as at the end of such quarter and for the period then ended, containing a balance sheet, statements of income and stockholders equity and a cash flow statement, all in reasonable detail and certified by a financial officer of the Borrower to have been prepared in accordance with GAAP, except as may be explained in such certificate; and (c) copies of all statements and reports sent to stockholders of the Borrower or filed with the Securities and Exchange Commission; and (d) such additional financial or other information as the Banks may reasonably request including, without limitation, copies of such monthly, quarterly, and annual reports of gas purchases and sales that the Borrower is required to deliver to or file with governmental bodies pursuant to tariffs and/or franchise agreements. 29 All financial statements specified in clauses (a) and (b) above shall be furnished in consolidated and consolidating form for the Borrower and all Subsidiaries with comparative consolidated figures for the corresponding period in the preceding year. Together with each delivery of financial statements required by clauses (a) and (b) above, the Borrower will deliver to the Banks (i) such schedules, computations and other information as may be required to demonstrate that the Borrower is in compliance with its covenants in Section 9.1 or reflecting any noncompliance therewith as at the applicable date and (ii) an Officer's Certificate stating that there exists no Event of Default or Default, or, if any such Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Borrower has taken or proposes to take with respect thereto. The Banks are authorized to deliver a copy of any financial statement delivered to it to any regulatory body having jurisdiction over them, and to disclose same to any prospective assignees or participant Lenders. 8.2 LEASE AND INVESTMENT SCHEDULES. Deliver to the Banks: (a) from time to time and, in any event, with each delivery of annual financial statements under Section 9.1(a), a current, complete schedule (in the form of SCHEDULE 8.2) of all agreements to rent or lease any property (personal, real or mixed, but not including oil and gas leases) to which the Borrower or any Subsidiary is a party lessee and which, considered independently or collectively with other leases with the same lessor, involve an obligation by the Borrower or a Subsidiary to make payments of at least $250,000.00 in any year, showing the total amounts payable under each such agreement, the amounts and due dates of payments thereunder and containing a description of the rented or leased property, and all other information the Majority Banks may request; and (b) with each delivery of annual financial statements under Section 8.1(a) a current complete schedule (in the form of SCHEDULE 8.2) listing all debt exceeding $200,000.00 in principal amount outstanding and equity owned or held by the Borrower or any Subsidiary containing all information required by, and in a form satisfactory to, the Banks, except for such debt or equity of Subsidiaries. 8.3 BOOKS AND RECORDS. Maintain, and cause each Subsidiary to maintain, proper books of record and account in accordance with sound accounting practices in which true, full and correct entries will be made of all their respective dealings and business affairs. 8.4 INSURANCE. Maintain, and cause each Subsidiary to maintain, insurance with financially sound, responsible and reputable companies in such types and amounts and against such casualties, risks and contingencies as is customarily carried by owners of similar businesses and properties, and furnish to the Banks, together with each delivery of annual financial statements under Section 8.1(a), an Officer's Certificate containing full information as to the insurance carried. 8.5 MAINTENANCE OF PROPERTY. Cause its Significant Property and the Significant Property of each Subsidiary to be maintained, preserved, protected and kept in good repair, working order and condition so that the business carried on in connection therewith may be conducted properly and efficiently, except for normal wear and tear; PROVIDED, HOWEVER, that the improved properties of Lavaca Realty Company should be maintained, preserved and protected in a manner consistent with the maintenance, preservation and protection of improved real property held for sale. 30 8.6 INSPECTION OF PROPERTY AND RECORDS. Permit any officer, director or agent of the Agent or any Bank, on written notice and at such Banks expense, to visit and inspect during normal business hours any of the properties, corporate books and financial records of the Borrower and each Subsidiary and discuss their respective affairs and finances with their principal officers, all at such times as the Agent or any Bank may reasonably request. 8.7 EXISTENCE, LAWS, OBLIGATIONS. Maintain, and cause each Subsidiary to maintain, its corporate existence and franchises, and any license agreements and tariffs that permit the recovery of a return that the Borrower considers to be fair (and as to licenses, franchises, and tariffs that are subject to regulatory determinations of recovery of returns, the Borrower has presented or is presenting favorable defense thereof); and to comply, and cause each Subsidiary to comply, with all statutes and governmental regulations noncompliance with which might have a Material Adverse Effect, and pay, and cause each Subsidiary to pay, all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which if unpaid might become a lien against the property of the Borrower or any Subsidiary except liabilities being contested in good faith. Notwithstanding the foregoing, the Borrower may dissolve those certain inactive and minimally capitalized Subsidiaries designated as such on SCHEDULE 6.1. 8.8 NOTICE OF CERTAIN MATTERS. Notify the Agent Bank immediately upon acquiring knowledge of the occurrence of any of the following events: (a) the institution or threatened institution of any lawsuit or administrative proceeding affecting the Borrower or any Subsidiary that is not covered by insurance (less applicable deductible amounts) and which, if determined adversely to the Borrower or such Subsidiary, could reasonably be expected to have a Material Adverse Effect; (b) the occurrence of any material adverse change, or of any event that in the good faith opinion of the Borrower is likely, to result in a material adverse change, in the assets, liabilities, financial condition, business or affairs of the Borrower or any Subsidiary; (c) the occurrence of any Event of Default or any Default; or (d) a change by Moody's Investors Service, Inc. or by Standard and Poor's Ratings Group in the rating of the Borrower's Funded Debt. 8.9 ERISA. At all times: (a) maintain and keep in full force and effect each Plan; (b) make contributions to each Plan in a timely manner and in an amount sufficient to comply with the minimum funding standards requirements of ERISA; (c) immediately upon acquiring knowledge of any "reportable event" or of any "prohibited transaction" (as such terms are defined in the Code Section 4043) in connection with any Plan, furnish the Banks with a statement executed by the president or chief financial officer of the Borrower setting forth the details thereof and the action which the Borrower proposes to take with respect thereto and, when known, any action taken by the Internal Revenue Service with respect thereto; (d) notify the Banks promptly upon receipt by the Borrower or any Subsidiary of any notice of the institution of any proceeding or other action which may result in the termination of any Plan and furnish to the Banks copies of such notice; 31 (e) acquire and maintain in amounts satisfactory to the Banks from either the Pension Benefit Guaranty Corporation or authorized private insurers, when available, the contingent employer liability coverage insurance required under ERISA; (f) furnish the Banks with copies of the summary annual report for each Plan filed with the Internal Revenue Service as the Agent or the Banks may request; and (g) furnish the Banks with copies of any request for waiver of the funding standards or extension of the amortization periods required by Section 303 and Section 304 of ERISA or Section 412 of the Code promptly after the request is submitted to the Secretary of the Treasury, the Department of Labor or the Internal Revenue Service, as the case may be. 8.10 COMPLIANCE WITH ENVIRONMENTAL LAWS. At all times: (a) use and operate, and cause each Subsidiary to use and operate, all of their respective facilities and properties in material compliance with all Environmental Laws; keep, and cause each Subsidiary to keep, all necessary permits, approvals, orders, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith; handle, and cause each Subsidiary to handle, all Hazardous Materials in material compliance with all applicable Environmental Laws; and dispose, and cause each Subsidiary to dispose, of all Hazardous Materials generated by the Borrower or any Subsidiary or at any property owned or leased by them at facilities or with carriers that maintain valid permits, approvals, certificates, licenses or other authorizations for such disposal under applicable Environmental Laws; (b) promptly notify the Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries relating to the condition of the facilities and properties of the Borrower and each Subsidiary under, or their respective compliance with, applicable Environmental Laws wherein the condition or the noncompliance that is the subject of such claim, complaint, notice, or inquiry involves, or could reasonably be expected to involve, liability of or expenditures by the Borrower and its Subsidiaries of $10,000,000.00 or more; and (c) provide such information and certifications which the Banks may reasonably request from time to time to evidence compliance with this Section 8.10. 8.11 PGA CLAUSES. The Borrower will use its best efforts to maintain in force provisions in all of its tariffs and franchise agreements that permit the Borrower to recover from customers substantially all of the amount by which the cost of gas purchases exceeds the amount currently billed to customers for the delivery of such gas (sometimes referred to as PGA clauses). 9. NEGATIVE COVENANTS So long as the Borrower may borrow hereunder and until payment in full of the Notes, except with the written consent of the Banks: 9.1 CAPITAL REQUIREMENTS. The Borrower will not: 32 (a) permit its Consolidated Net Worth at the end of any fiscal quarter to be less than the sum of (i) $698,603,000; (ii) 40% of Consolidated Net Income (if positive) for the period commencing on January 1, 2000 and ending on the date of determination, and treated as a single accounting period; (iii) the difference between (A) 100% of the net proceeds of any issuance of capital or preferred stock by the Borrower or any consolidated Subsidiary received by the Borrower or such consolidated Subsidiary at any time after December 31, 1999; and (B) the aggregate amount of all redemption or repurchase payments hereafter made, if any, by the Borrower and any such consolidated Subsidiary in connection with the repurchase by the Borrower or any such consolidated Subsidiary of any of their respective capital or preferred stock; and (iv) without duplication, the difference between (A) 100% of the net proceeds heretofore and hereafter received by the Borrower and any consolidated Subsidiary in respect of the issuance by the Borrower or such consolidated Subsidiary of the Structured Securities, and (B) the aggregate amount of all redemption payments hereafter made, if any, by the Borrower and any such consolidated Subsidiary in connection with the redemption of any of the Structured Securities; or (b) permit the ratio of its Consolidated Total Indebtedness to its Consolidated Total Capitalization to be greater than 0.65 to 1.00 at the end of any fiscal quarter; or (c) acquire, or permit any Subsidiary to acquire, any assets other than (i) investments permitted under Section 9.4, or (ii) Qualifying Assets; or (d) permit the ratio of EBDIT to Cash Interest Expense for the four fiscal quarters most recently ended (considered as a single accounting period) at any time to be less than (i) 2.00 to 1.0 at all times during the period ending June 30, 2002, and (ii) 2.25 to 1.0 at all times thereafter; or (e) permit the aggregate outstanding principal amount of the Notes and the Long-Term Credit Facility Notes to exceed for a period of 180 consecutive days the Borrower's Available Senior Funded Debt Capacity. 9.2 MORTGAGES, LIENS, ETC. The Borrower will not, and will not permit any Subsidiary to, create or permit to exist any Lien (including the charge upon assets purchased under a conditional sales agreement, purchase money mortgage, security agreement or other title retention agreement) upon any of its respective assets, whether now owned or hereafter acquired, or assign or otherwise convey any right to receive income, except: (a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings; (b) other Liens incidental to the conduct of its business or the ownership of its assets that were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and that do not in the aggregate materially detract from the value of such assets or materially impair the use thereof in the operation of such business; (c) Liens on assets of a Subsidiary to secure obligations of such Subsidiary to the Borrower or another Subsidiary; and 33 (d) Liens on property existing at the time of acquisition thereof by the Borrower or any Subsidiary, including without limitation, any property acquired by the Borrower in consummating and finalizing any of the Pending Acquisitions, or purchase money Liens placed on an item of real or personal property purchased by the Borrower or any Subsidiary to secure a portion of the purchase price of such property, PROVIDED THAT no such Lien may encumber or cover any other property of the Borrower or any Subsidiary. 9.3 DEBT. The Borrower will not, and will not permit any Subsidiary to, incur or permit to exist any Debt, except: (a) Debt evidenced by the Notes, the Long-Term Credit Facility Notes and Facility Letter of Credit Obligations not in default; (b) Debt of any Subsidiary to the Borrower or any other Subsidiary; (c) Debt existing as of March 31, 2000 as reflected on financial statements delivered under Section 6.2(b) and refinancings thereof other than Debt that has been refinanced by the proceeds of Loans or the proceeds of the Long-Term Credit Facility; (d) endorsements in the ordinary course of business of negotiable instruments in the course of collection; (e) Debt of the Borrower or any Subsidiary representing the portion of the purchase price of property acquired by the Borrower or such Subsidiary that is secured by Liens permitted by the provisions of Section 9.2(d); PROVIDED, HOWEVER, that at no time may the aggregate principal amount of such Debt outstanding exceed thirty percent (30%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date; (f) Debt evidenced by Senior Notes; and (g) additional Debt of the Borrower and Structured Securities of the Borrower and the Southern Union Trusts provided that after giving effect to the issuance thereof, there shall exist no Default or Event of Default; and: (i) the ratio of Consolidated Total Indebtedness to Consolidated Total Capitalization shall be no greater than 0.65 to 1.00; (ii) the ratio of EBDIT for the four fiscal quarters most recently ended to pro forma Cash Interest Expense for the following four fiscal quarters shall be no less than (A) 2.00 to 1.0 at all times during the period ending June 30, 2002, and (B) 2.25 to 1.0 at all times thereafter; PROVIDED, HOWEVER, that if the additional Debt for which the determinations required to be made by this subparagraph (g) will be used to finance in whole or in part the consideration to be paid by the Borrower for the acquisition of any entity otherwise permitted under the terms of this Agreement, the determination of EBDIT for purposes of this ratio shall include not only the EBDIT of the Borrower and its Subsidiaries for the four fiscal quarters most recently ended, but shall also include the EBDIT of such entity to be acquired for such four fiscal quarters most recently ended; and (iii) (A) such Debt and Structured Securities shall have a final maturity or mandatory redemption date, as the case may be, no earlier than the Maturity Date (as the same may be extended pursuant to Section 2.4) and shall mature or be subject to 34 mandatory redemption or mandatory defeasance no earlier than the Maturity Date (as so extended) and shall be subject to no mandatory redemption or "put" to the Borrower or any Southern Union Trust exercisable, or sinking fund or other similar mandatory principal payment provisions that require payments to be made toward principal, prior to such Maturity Date (as so extended); or (B) (x) such additional Debt shall have a final maturity date prior to the Maturity Date, (y) such additional Debt shall not exceed Eighty Million Dollars ($80,000,000.00) in the aggregate plus Twenty Million Dollars ($20,000,000.00) of reimbursement obligations incurred in connection with Non-Facility Letters of Credit issued by a Bank or Banks or by any other financial institution; PROVIDED, HOWEVER, that for purposes of determining the aggregate amount of such additional Debt for purposes of this subclause (y), the $30,000,000 of 8.375% mortgage notes of PG Energy maturing December 1, 2002 shall not be included, and (z) such additional Debt shall be borrowed from a Bank or Banks as a loan or loans arising independent of this Agreement or the Long-Term Credit Facility Agreement or shall be borrowed from a financial institution that is not a Bank under this Agreement or the Long-Term Credit Facility Agreement. (h) existing short-term Debt of any entity specified in the definition of "Pending Acquisitions" that is assumed by the Borrower in connection with the consummation of any of the Pending Acquisitions, so long as (i) the aggregate principal amount of such Debt assumed for all of the Pending Acquisitions does not exceed $100,000,000.00 and (ii) none of such Debt remains outstanding for more than 180 days after the consummation of the applicable merger, unless all or a portion of such Debt is refinanced with Debt otherwise permitted by other provisions of this Section 9.3. 9.4 LOANS, ADVANCES AND INVESTMENTS. The Borrower will not, and will not permit any Subsidiary to, make or have outstanding any loan or advance to, or own or acquire any stock or securities of or equity interest or other Investment in, any Person, except (without duplication): (a) stock of (i) the Subsidiaries named in Section 6.1 and any other Subsidiary to be acquired in accordance with the terms of any of the Pending Acquisitions; (ii) other entities that are acquired by the Borrower or any Subsidiary but that are promptly merged with and into the Borrower, including without limitation, the stock of each entity merging with the Borrower under any of the Pending Acquisitions; and (iii) the same Qualifying Entities as the Qualifying Entities under subparagraph (ii) of the definition of "Qualifying Assets," provided that at any one time the aggregate purchase price paid for such stock in such Qualifying Entities, including the aggregate amount of Debt assumed or deemed incurred by Borrower in connection with the purchase of such stock, is not more than ten percent (10%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date; (b) loans or advances to a Subsidiary; (c) Securities maturing no more than 180 days after Borrower's purchase that are either: (i) readily marketable securities issued by the United States or its agencies or instrumentalities; or 35 (ii) commercial paper rated "Prime 2" by Moody's Investors Service, Inc. ("Moody's") or A-2 by Standard and Poor's Ratings Group ("S&P"); or (iii) certificates of deposit or repurchase contracts on customary terms with financial institutions in which deposits are insured by any agency or instrumentality of the United States; or (iv) readily marketable securities received in settlement of liabilities created in the ordinary course of business; or (v) obligations of states, agencies, counties, cities and other political subdivisions of any state rated at lest MIG2, VMIG2 or Aa by Moody's or AA by S&P; or (vi) loan participations in credits in which the borrower's debt is rated at least Aa or Prime 2 by Moody's or AA or A-2 by S&P; or (vii) money market mutual funds that are regulated by the Securities and Exchange Commission, have a dollar-weighted average stated maturity of 90 days or fewer on their investments and include in their investment objectives the maintenance of a stable net asset value of $1 for each share. (d) other equity interests owned by a Subsidiary on the date of this Agreement and such additional equity interests to the extent (but only to the extent) that such Subsidiary is legally obligated to acquire those interests on the date of this Agreement, in each case as disclosed to the Banks in writing; (e) loans or advances by the Borrower to customers in connection with and pursuant to marketing and merchandising products that the Borrower reasonably expects to increase sales of the Borrower or Subsidiaries, PROVIDED that: (i) such loans must be either less than $2,000,000.00 to any one customer (or group of affiliated customers, shown on the Borrower's records to be Affiliates) or must be disclosed on SCHEDULE 8.2 hereof; and (ii) all such loans must not exceed $24,000,000.00 in the aggregate outstanding at any time; (f) travel and expense advances in the ordinary course of business to officers and employees; (g) stock or securities of or equity interests in, any Person provided that, after giving effect to the acquisition and ownership thereof, the Borrower is in compliance with the provisions of Section 9.1(c) of this Agreement; and (h) loans, advances or other Investments by the Borrower or any Subsidiary not otherwise permitted under the other provisions of this Section 9.4, so long as the sum of the outstanding balance of all of such loans and advances and the purchase price paid for all of such other Investments does not exceed in the aggregate seven percent (7%) of the Consolidated Net Worth of the Borrower and its Subsidiaries as of the applicable determination date. 36 9.5 STOCK AND DEBT OF SUBSIDIARIES. The Borrower will not, and will not permit any Subsidiary to, sell or otherwise dispose of any shares of stock or Debt of any Subsidiary, or permit any Subsidiary to issue or dispose of its stock (other than directors' qualifying shares), except to the Borrower or another Subsidiary, and except that Southern Union Trusts may issue preferred beneficial interests in public offerings of Borrower's Structured Securities. 9.6 MERGER, CONSOLIDATION, ETC. The Borrower will not, and will not permit any Subsidiary to, merge or consolidate with any other Person or sell, lease, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or a substantial part of its assets or acquire (whether in one transaction or a series of transactions) all or a substantial part of the assets of any Person, except that: (a) any Subsidiary may merge or consolidate with the Borrower (PROVIDED THAT the Borrower shall be the continuing or surviving corporation) or with any one or more Subsidiaries; (b) any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Borrower or another Subsidiary; (c) subject to Section 9.14, Lavaca Realty Company may dispose of all or a substantial part of its assets to any Person, whether in one transaction or a series of transactions, for a price or prices that do not result in a Material Adverse Effect; (d) the Borrower may acquire the assets of any Person, PROVIDED that, after giving effect to such acquisition, the Borrower is in compliance with the provisions of Sections 9.1(c); (e) the Borrower or any Subsidiary may sell, lease, assign or otherwise dispose of assets as otherwise permitted under Section 9.8; and (f) the Borrower may merge with the entities described in and as contemplated under the definition of "Pending Acquisitions." 9.7 SUPPLY AND PURCHASE CONTRACTS. The Borrower will not, and will not permit any Subsidiary to, enter into or be a party to any contract for the purchase of materials, supplies or other property if such contract requires that payment for such materials, supplies or other property shall be made regardless of whether or not delivery is ever made or tendered of such materials, supplies and other property, except in those circumstances and involving those supply or purchase contracts that the Borrower reasonably considers to be necessary or helpful in its operations in the ordinary course of business and that the Borrower reasonably considers not to be unnecessarily burdensome on the Borrower or its Subsidiaries. 9.8 SALE OR OTHER DISPOSITION OF ASSETS. The Borrower will not, and will not permit any Subsidiary to, except as permitted under this Section 9.8, sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or any part of its Property (whether now owned or hereafter acquired); PROVIDED, HOWEVER, that (i) the Borrower or any Subsidiary may in the ordinary course of business dispose of (a) Property consisting of Inventory; and (b) Property consist- 37 ing of goods or equipment that are, in the opinion of the Borrower or any Subsidiary, obsolete or unproductive, but if in the good faith judgment of the Borrower or any Subsidiary such disposition without replacement thereof would have a Material Adverse Effect, such goods and equipment shall be replaced, or their utility and function substituted, by new or existing goods or equipment; (ii) Lavaca Realty Company may dispose of its Property on the terms set forth in Section 9.6(c); (iii) the Borrower may transfer or dispose of any of its Significant Property (in any transaction or series of transactions) to any Subsidiary or Subsidiaries only if such Property so transferred or disposed of after the Closing Date has an aggregate value (determined after depreciation and in accordance with GAAP) of not more than ten percent (10%) of the aggregate value of all of the Borrower's and its Subsidiaries' real property and tangible personal property other than Inventory considered on a consolidated basis and determined after depreciation and in accordance with GAAP, as of March 31, 2000; (iv) the Borrower and Lavaca Realty Company may dispose of their real property in one or more sale/leaseback transactions, provided that any Debt incurred in connection with such transaction does not create a Default as defined herein; (v) a Southern Union Trust may distribute the Borrower's subordinated debt securities constituting a portion of the Structured Securities, on the terms and under the conditions set out in the registration statement therefor filed with the Securities and Exchange Commission on March 25, 1995 or any similar registration statement hereafter filed with the Securities and Exchange Commission in connection with any other Structured Securities issued in connection with the Pending Acquisitions; (vi) the Borrower or any Subsidiary may dispose of real property or tangible personal property other than Inventory (in consideration of such amount as in the good faith judgment of the Borrower or such Subsidiary represents a fair consideration therefor), provided that the aggregate value of such property disposed of (determined after depreciation and in accordance with GAAP) after the Closing Date does not exceed ten percent (10%) of the aggregate value of all of the Borrower's and its Subsidiaries' real property and tangible personal property other than Inventory considered on a consolidated basis and determined after depreciation and in accordance with GAAP, as of March 31, 2000; (vii) the Borrower may dispose of Qualifying Assets of the type described in clause (ii) of the definition of Qualifying Assets, provided that the Borrower make a payment on the Loan in an amount equal to the lesser of (a) the net sales proceeds from such disposition, and (b) the amount of Loan proceeds used to acquire such clause (ii) Qualifying Assets; and (viii) the Borrower may dispose of other Investments of the type acquired under the terms of Section 9.4(h), provided that the Borrower make a payment on the Loan in an amount equal to the lesser of (a) the net sales proceeds from such disposition, and (b) the amount of Loan proceeds used to acquire such other Investments. 9.9 DISCOUNT OR SALE OF RECEIVABLES. The Borrower will not, and will not permit any Subsidiary, other than Southern Union Total Energy Services, Inc., to discount or sell with recourse, or sell for less than the face value thereof (including any accrued interest) any of its notes receivable, receivables under leases or other accounts receivable. 9.10 CHANGE IN ACCOUNTING METHOD. The Borrower will not, and will not permit any Subsidiary to, make any change in the method of computing depreciation for either tax or book purposes or any other material change in accounting method representing any departure from GAAP without the Majority Banks' prior written approval. 9.11 RESTRICTED PAYMENT. The Borrower will not pay or declare any Restricted Payment unless immediately prior to such payment AND after giving effect to such payment, the Borrower 38 could incur at least $1 of additional Debt without violating the provisions of Section 9.3(g) AND after giving effect thereto no Default or Event of Default exists hereunder. 9.12 SECURITIES CREDIT REGULATIONS. Neither the Borrower nor any Subsidiary will take or permit any action which might cause the Loans or the Facility Letter of Credit Obligations or this Agreement to violate Regulation G, Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or a violation of the Securities Exchange Act of 1934, in each case as now or hereafter in effect. 9.13 NATURE OF BUSINESS; MANAGEMENT. The Borrower will not, and will not permit any Subsidiary to: (a) change its principal line of business; or (b) enter into any business not within the scope of Section 6.15 and the definition of Qualifying Assets; or (c) permit any material overall change in the management of the Borrower. 9.14 TRANSACTIONS WITH RELATED PARTIES. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction or agreement with any officer, director or holder of ten percent (10%) or more of any class of the outstanding capital stock of the Borrower or any Subsidiary (or any Affiliate of any such Person) unless the same is upon terms substantially similar to those obtainable from wholly unrelated sources. 9.15 HAZARDOUS MATERIALS. The Borrower will not, and will not permit any Subsidiary to (a) cause or permit any Hazardous Materials to be placed, held, used, located, or disposed of on, under or at any of such Person's property or any part thereof by any Person in a manner which could reasonably be expected to have a Material Adverse Effect; (b) cause or permit any part of any of such Person's property to be used as a manufacturing, storage, treatment or disposal site for Hazardous Materials, where such action could reasonably be expected to have a Material Adverse Effect; or (c) cause or suffer any liens to be recorded against any of such Person's property as a consequence of, or in any way related to, the presence, remediation, or disposal of Hazardous Materials in or about any of such Person's property, including any so-called state, federal or local "superfund" lien relating to such matters, where such recordation could reasonably be expected to have a Material Adverse Effect. 9.16 LIMITATIONS ON PAYMENTS ON SUBORDINATED DEBT. The Borrower will not, and will not permit any Subsidiary to, make any payment in respect of interest on, principal of, or otherwise relating to, the borrower's subordinated debt securities issued in connection with the Structured Securities if, after giving effect to such payment, a Default or Event of Default would exist. 10. EVENTS OF DEFAULT; REMEDIES If any of the following events shall occur, then the Agent shall at the request, or may with the consent, of the holders of more than fifty percent (50%) in principal amount of the Notes then outstanding or, if no Note is then outstanding, Banks having more than fifty percent (50%) of the Commitments, (a) by notice to the Borrower, declare the Commitment of each Bank and the several obligation of each Bank to make Loans hereunder to be terminated, whereupon the same shall forthwith terminate, and (b) declare the Notes and all interest accrued and unpaid thereon, and all other amounts payable under the Notes, this agreement and the other Loan Documents, to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts, shall 39 become and be forthwith due and payable without presentment, demand, protest, or further notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that with respect to any Event of Default described in Sections 10.7 or 10.8 hereof, (i) the Commitment of each Bank and the obligation of the Banks to make Loans shall automatically be terminated and (ii) the entire unpaid principal amount of the Notes, all interest accrued and unpaid thereon, and all such other amounts payable under the Notes, this Agreement and the other Loan Documents, shall automatically become immediately due and payable, without presentment demand, protest, or any notice of any kind (including, without limitation, notice of default, notice of intent to accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower: 10.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower does not pay, repay or prepay any principal of or interest on any Note or any Long-Term Credit Facility Note when due; or 10.2 FAILURE TO PAY COMMITMENT FEE OR OTHER AMOUNTS. The Borrower does not pay any commitment fee or any other obligation or amount payable under this Agreement, the Long-Term Credit Facility Agreement, the Notes, the Long-Term Credit Facility Notes, or any Reimbursement Obligation within two (2) calendar days after the same shall have become due; or 10.3 FAILURE TO PAY OTHER DEBT. The Borrower or any Subsidiary fails to pay principal or interest aggregating more than $2,000,000.00 on any other Debt when due and any related grace period has expired, or the holder of any of such other Debt declares such Debt due prior to its stated maturity because of the Borrower's or any Subsidiary's default thereunder and the expiration of any related grace period; or 10.4 MISREPRESENTATION OR BREACH OF WARRANTY. Any representation or warranty made by the Borrower herein or otherwise furnished to the Bank in connection with this Agreement or any other Loan Document shall be incorrect, false or misleading in any material respect when made; or 10.5 VIOLATION OF NEGATIVE COVENANTS. The Borrower violates any covenant, agreement or condition contained in Sections 9.2, 9.3, 9.5, 9.6, 9.9, 9.10, 9.11, or 9.15; or 10.6 VIOLATION OF OTHER COVENANTS, ETC. The Borrower violates any other covenant, agreement or condition contained herein (other than the covenants, agreements and conditions set forth or described in Sections 10.1, 10.2, 10.3, 10.4, and 10.5 above) or in any other Loan Document and such violation shall not have been remedied within (30) days after written notice has been received by the Borrower from the Bank or the holder of the Note; or 10.7 BANKRUPTCY AND OTHER MATTERS. The Borrower or any Subsidiary (a) makes an assignment for the benefit of creditors; or (b) admits in writing its inability to pay its debts generally as they become due; or (c) generally fails to pay its debts as they become due; or (d) files a petition or answer seeking for itself, or consenting to or acquiescing in, any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any applicable Debtor Law (including, without limitation, the Federal Bankruptcy Code); or (i) there is appointed a receiver, custodian, liquidator, fiscal agent, or trustee of the Borrower or any Subsidiary or of the whole or any substantial part of their respective assets; or (ii) any court enters an order, judgment or decree approving a petition filed against the Borrower or any Subsidiary seeking reorganization, 40 arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any Debtor Law and either such order, decree or judgment so filed against it is not dismissed or stayed (unless and until such stay is no longer in effect) within thirty (30) days of entry thereof or an order for relief is entered pursuant to any such law; or 10.8 DISSOLUTION. Any order is entered in any proceeding against the Borrower or any Subsidiary decreeing the dissolution, liquidation, winding-up or split-up of the Borrower or such Subsidiary, and such order remains in effect for thirty (30) days; or 10.9 UNDISCHARGED JUDGMENT. Final Judgment or judgments in the aggregate, that might be or give rise to Liens on any property of the Borrower or any Subsidiary, for the payment of money in excess of $1,000,000.00 shall be rendered against the Borrower or any Subsidiary and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or 10.10 ENVIRONMENTAL MATTERS. The occurrence of any of the following events that could result in liability to the Borrower or any Subsidiary under any Environmental Law or the creation of a Lien on any property of the Borrower or any Subsidiary in favor of any governmental authority or any other Person for any liability under any Environmental Law or for damages arising from costs incurred by such Person in response to a Release or threatened Release of Hazardous Materials into the environment if any such asserted liability or Lien exceeds $10,000,000.00 and if any such lien would cover any property of the Borrower or any Subsidiary which property is or would reasonably be considered to be integral to the operations of the Borrower or any Subsidiary in the ordinary course of business: (a) the Release of Hazardous Materials at, upon, under or within the property owned or leased by the Borrower or any Subsidiary or any contiguous property; (b) the receipt by the Borrower or any Subsidiary of any summons, claim, complaint, judgment, order or similar notice that it is not in compliance with or that any governmental authority is investigating its compliance with any Environmental Law; (c) the receipt by the Borrower or any Subsidiary of any notice or claim to the effect that it is or may be liable for the Release or threatened Release of Hazardous Materials into the environment; or (d) any governmental authority incurs costs or expenses in response to the Release of any Hazardous Material which affects in any way the properties of the Borrower or any Subsidiary. 10.11 OTHER REMEDIES. In addition to and cumulative of any rights or remedies expressly provided for in this Section 10, if any one or more Events of Default shall have occurred, the Agent shall at the request, and may with the consent, of the Majority Banks proceed to protect and enforce the rights of the Banks hereunder by any appropriate proceedings. The Agent shall at the request, and may with the consent, of the Majority Banks also proceed either by the specific performance of any covenant or agreement contained in this Agreement or by enforcing the payment of the Notes 41 or by enforcing any other legal or equitable right provided under this Agreement or the Notes or otherwise existing under any law in favor of the holder of the Notes. 10.12 REMEDIES CUMULATIVE. No remedy, right or power conferred upon the Banks is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 11. THE AGENT 11.1 AUTHORIZATION AND ACTION. Each Bank hereby appoints Chase as its Agent under and irrevocably authorizes the Agent (subject to Sections 11.1 and 11.7) to take such action as the Agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. Without limitation of the foregoing, each Bank expressly authorizes the Agent to execute, deliver, and perform its obligations under this Agreement, and to exercise all rights, powers, and remedies that the Agent may have hereunder. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act, or to refrain from acting (and shall be fully protected in so acting or refraining from acting), upon the instructions of the Majority Banks, and such instructions shall be binding upon all the Banks and all holders of any Note; PROVIDED, HOWEVER, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Bank prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. 11.2 AGENT'S RELIANCE, ETC. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable to any Bank for any action taken or omitted to be taken by it or them under or in connection with this Agreement, the Notes and the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (a) may treat the original or any successor holder of any Note as the holder thereof until the Agent receives notice from the Bank which is the payee of such Note concerning the assignment of such Note; (b) may employ and consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable to any Bank for any action taken, or omitted to be taken, in good faith by it or them in accordance with the advice of such counsel, accountants, or experts received in such consultations and shall not be liable for any negligence or misconduct of any such counsel, accountants, or other experts; (c) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any opinions, certifications, statements, warranties, or representations made in or in connection with this Agreement; (d) shall not have any duty to any Bank to ascertain or to inquire as to the performance or observance of any of the terms, covenants, or conditions of this Agreement or any other instrument or document furnished pursuant thereto or to satisfy itself that all conditions to and requirements for any Loan have been met or that the Borrower is entitled to any Loan or to inspect the property (including the books and records) of the Borrower or any Subsidiary; (e) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of this Agreement by acing upon any 42 notice, consent, certificate, or other instrument or writing (which may be by telegram, cable, telex, or otherwise) believed by it to be genuine and signed or sent by the PROPER PARTY or parties. 11.3 DEFAULTS. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the nonpayment of principal of or interest hereunder or of any fees) unless the Agent has received notice from a Bank or the Borrower specifying such Default and stating that such notice is a Notice of Default. In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such nonpayment). The Agent shall (subject to Section 11.7) take such action with respect to such Default; PROVIDED THAT, unless and until the Agent shall have received the directions referred to in Sections 11.1 or 11.7, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable and in the best interest of the Banks. 11.4 CHASE AND AFFILIATES. With respect to its Commitment, any Loan made by it, and the Note issued to it, Chase shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Chase in its individual capacity. Chase and its respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its respective Affiliates and any Person who may do business with or own securities of the Borrower or any such Affiliate, all as if Chase were not the Agent and without any duty to account therefor to the Banks. 11.5 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and each Subsidiary and its decision to enter into the transactions contemplated by this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement or to inspect the properties or books of the Borrower or any Subsidiary. Except for notices, reports, and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition, or business of the Borrower or any Subsidiary (or any of their Affiliates) which may come into the possession of the Agent or any of its Affiliates. 11.6 INDEMNIFICATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN CONTAINED, THE AGENT SHALL BE FULLY JUSTIFIED IN FAILING OR REFUSING TO TAKE ANY ACTION HEREUNDER UNLESS IT SHALL FIRST BE INDEMNIFIED TO ITS SATISFACTION BY THE BANKS AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ITS TAKING OR CONTINUING TO TAKE ANY ACTION. EACH BANK AGREES TO INDEMNIFY THE AGENT (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), ACCORDING TO SUCH BANK'S COMMITMENT, FROM AND AGAINST ANY AND ALL LIABILITIES, 43 OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE NOTES OR ANY ACTION TAKEN OR OMITTED BY THE AGENT UNDER THIS AGREEMENT OR THE NOTES; PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON BEING INDEMNIFIED; AND PROVIDED FURTHER THAT IT IS THE INTENTION OF EACH BANK TO INDEMNIFY THE AGENT AGAINST THE CONSEQUENCES OF THE AGENT'S OWN NEGLIGENCE, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT, CONCURRENT, ACTIVE OR PASSIVE. WITHOUT LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA PERCENTAGE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE AGENT IN CONNECTION WITH THE PREPARATION, ADMINISTRATION, OR ENFORCEMENT OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT AND THE NOTES, TO THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER. 11.7 SUCCESSOR AGENT. The Agent may resign at any time as Agent under this Agreement by giving written notice thereof to the Banks and the Borrower and may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks or shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000.00. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 11 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 11.8 AGENT'S RELIANCE. The Borrower shall notify the Agent in writing of the names of its officers and employees authorized to request a Loan on behalf of the Borrower and shall provide the Agent with a specimen signature of each such officer or employee. The Agent shall be entitled to rely conclusively on such officer's or employee's authority to request a Loan on behalf of the Borrower until the Agent receives written notice from the Borrower to the contrary. The Agent shall have no duty to verify the authenticity of the signature appearing on any Notice of Borrowing, and, with respect to any oral request for a Loan, the Agent shall have no duty to verify the identity of any Person representing himself as one of the officers or employees authorized to make such request on behalf of the Borrower. Neither the Agent nor any Bank shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent or such Bank believes in good faith to have been given by a duly authorized officer or other Person authorized to borrow on behalf of the Borrower or for otherwise acting in good faith. 12. MISCELLANEOUS 44 12.1 REPRESENTATION BY THE BANKS. Each Bank represents that it is the intention of such Bank, as of the date of its acquisition of its Note, to acquire the Note for its account or for the account of its Affiliates, and not with a view to the distribution or sale thereof, and, subject to any applicable laws, the disposition of such Bank's property shall at all times be within its control. The Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred, sold or otherwise disposed of EXCEPT (a) in a registered Offering under the Securities Act; (b) pursuant to an exemption from the registration provisions of the Securities Act; or (c) if the Securities Act shall not apply to the Notes or the transactions contemplated hereunder as commercial lending transactions. 12.2 AMENDMENTS, WAIVERS, ETC. No amendment or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Majority Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver, or consent shall, unless in writing and signed by each Bank, do any of the following: (a) waive any of the conditions specified in Section 7; (b) increase the Commitment of any Bank or alter the term thereof, or subject any Bank to any additional or extended obligations; (c) change the principal of, or rate of interest on, any Note, or any fees or other amounts payable hereunder; (d) postpone any date fixed for any payment of principal of, or interest on, any Note, or any fees (including, without limitation, any fee) or other amounts payable hereunder; (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of any Note, or the number of Banks which shall be required for Banks, or any of them, to take any action hereunder; or (f) amend this Section 12.2; and PROVIDED, FURTHER, that no amendment, waiver, or consent shall, unless in writing and signed by the Agent in addition to each Bank, affect the rights or duties of the Agent under any Loan Document. No failure or delay on the part of any Bank or the Agent in exercising any power or right hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between the Borrower and any Bank or the Agent shall operate as a waiver of any right of any Bank or the Agent. No modification or waiver of any provision of this Agreement or the Note nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. 12.3 REIMBURSEMENT OF EXPENSES. Other than expenses provided in Section 8.7, any provision hereof to the contrary notwithstanding, and whether or not the transactions contemplated by this Agreement shall be consummated, the Borrower agrees to reimburse the Bank for its reasonable out-of-pocket expenses, including the reasonable fees and expenses of counsel to the Bank, in connection with such transactions, or any of them, or otherwise in connection with this Agreement, including its negotiation, preparation, execution, administration, modification and enforcement, and all reasonable fees, including the reasonable fees and expenses of counsel to the Agent and each Bank, costs and expenses of the Agent for environmental consultants and costs and expenses of the Agent and each Bank in connection with due diligence, transportation, computer time and research and duplication. The Borrower agrees to pay any and all stamp and other taxes 45 which may be payable or determined to be payable in connection with the execution and delivery of this Agreement or the Notes, and to save any holder of any Note harmless from any and all liabilities with respect to or resulting from any delay or omission to pay any such taxes. The obligations of the Borrower under this Section 12.3 shall survive the termination of this Agreement and/or the payment of the Notes. 12.4 NOTICES. All notices and other communications provided for herein shall be in writing (including telex, facsimile, or cable communication) and shall be mailed, telecopied, telexed, cabled or delivered addressed as follows: (a) If to the Borrower, to it at: Southern Union Company 504 Lavaca, Suite 800 Austin, Texas 78701 Attention: Mr. Ronald J. Endres Fax: (512) 370-8253 with copies to: Susan Westbrook, Esq. Ms. Cheryl Yager Southern Union Company 504 Lavaca, Suite 800 Austin, Texas 78701 Fax: (512) 370-8253 (b) If to the Agent, to it at: Chase Bank of Texas, National Association 700 Lavaca, 2nd Floor Austin, Texas 78701 Attention: Manager/Commercial Lending Fax: (512) 479-2853 with a copy to: Chase Securities Inc. 707 Travis Street, 8th Floor Houston, Texas 77002 Attention: Kelly Schrock Fax: (713) 216-2291 and if to any Bank, at the address specified below its name on the signature pages hereof, or as to the Borrower or the Agent, to such other address as shall be designated by such party in a written notice to the other party and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, telecopied, telexed, transmitted, or cabled, become effective when deposited in the mail, confirmed by telex answer back, transmitted to the telecopier, or delivered to the cable company, except that notices and communications to the Agent under Sections 2.1(c) or 2.2 shall not be effective until actually received by the Agent. 46 12.5 GOVERNING LAW; VENUE. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA; PROVIDED, HOWEVER, that Chapter 346 of the Texas Finance Code, as amended, shall not apply to this Agreement and the Notes issued hereunder. Travis County, Texas shall be a proper place of venue to enforce payment or performance of this Agreement and the other Loan Documents by the Borrower, unless the Agent shall give its prior written consent to a different venue. The Borrower hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to any of the Loan Documents in the District Courts of Travis County, Texas, or in the United States District Court for the Western District of Texas, Austin Division, and hereby further irrevocably waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. The Borrower hereby irrevocably agrees that, provided that the Borrower can obtain personal jurisdiction over and service of process upon the Agent or the applicable Bank, any legal proceeding against the Agent or any Bank arising out of or in connection with this Agreement or the other Loan Documents shall be brought in the district courts of Travis County, Texas, or in the United States District Court for the Western District of Texas, Austin Division. Nothing contained in this Section or in any other provision of any Loan Document (unless expressly provided otherwise) shall be deemed or construed as an agreement by any Bank to be subject to the jurisdiction of such courts. 12.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants contained herein or made in writing by the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Notes, and will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not, PROVIDED THAT the undertaking of the Banks to make the Loans to the Borrower shall not inure to the benefit of any successor or assign of the Borrower. No investigation at any time made by or on behalf of the Banks shall diminish the Banks' rights to rely on any representations made herein or in connection herewith. All statements contained in any certificate or other written instrument delivered by the Borrower or by any Person authorized by the Borrower under or pursuant to this Agreement or in connection with the transactions contemplated hereby shall constitute representations and warranties hereunder as of the time made by the Borrower. 12.7 COUNTERPARTS. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument and all such separate counterparts shall constitute but one and the same instrument. 12.8 SEPARABILITY. Should any clause, sentence, paragraph or section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. Each covenant contained in this Agreement shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 47 12.9 DESCRIPTIVE HEADINGS. The section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatsoever in construing the terms and provisions of this Agreement. 12.10 ACCOUNTING TERMS. All accounting terms used herein which are not expressly defined in the Agreement, or the respective meanings of which are not otherwise qualified, shall have the respective meanings given to them in accordance with GAAP. 12.11 LIMITATION OF LIABILITY. No claim may be made by the Borrower or any other Person against the Agent or any Bank or the Affiliates, directors, officers, employees, attorneys, or agents of the Agent or any Bank for any special, indirect, consequential, or punitive damages in respect to any claim for breach of contract arising out of or related to the transactions contemplated by this Agreement, or any act, omission, or event occurring in connection herewith and the Borrower hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 12.12 SET-OFF. The Borrower hereby gives and confirms to each Bank a right of set-off of all moneys, securities and other property of the Borrower (whether special, general or limited) and the proceeds thereof, now or hereafter delivered to remain with or in transit in any manner to such Bank, its Affiliates, correspondents or agents from or for the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise or coming into possession of such Bank, its Affiliates, correspondents or agents in any way, and also, any balance of any deposit accounts and credits of the Borrower with, and any and all claims of security for the payment of the Notes and of all other liabilities and obligations now or hereafter owed by the Borrower to such Bank, contracted with or acquired by such Bank, whether such liabilities and obligations be joint, several, absolute, contingent, secured, unsecured, matured or unmatured, and the Borrower hereby authorizes each Bank, its Affiliates, correspondents or agents at any time or times, without prior notice, to apply such money, securities, other property, proceeds, balances, credits of claims, or any part of the foregoing, to such liabilities in such amounts as it may select, whether such liabilities be contingent, unmatured or otherwise, and whether any collateral security therefor is deemed adequate or not. The rights described herein shall be in addition to any collateral security, if any, described in any separate agreement executed by the Borrower. 12.13 SALE OR ASSIGNMENT (a) Subject to the prior written consent of the Agent and the Borrower, such consent not to be unreasonably withheld, each Bank may assign to an Eligible Assignee all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments and the Note held by it); PROVIDED, HOWEVER, that: (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Banks rights and obligations under this Agreement; (ii) the amount of the Commitments so assigned shall equal or exceed $5,000,000.00; (iii) the Commitment of each Bank shall be not less than $5,000,000.00 (subject only to reductions pursuant to Sections 3.6 and 10 hereof); (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register (as hereinafter defined), an Assignment and Acceptance in the form of EXHIBIT C attached hereto and made a part hereof (the "Assignment and Acceptance"), together with any Note subject to such assignment and a 48 processing and recordation fee of $2,000.00; (v) any such assignment from one Bank to another Bank shall not require the consent of the Agent or the Borrower if such assignment does not result in any Bank holding more than 60% of the aggregate outstanding Commitments; and (vi) any such assignment shall not require the consent of the Borrower if a Default or Event of Default shall have occurred and is then continuing. Upon such execution, delivery, acceptance, and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be the date on which such Assignment and Acceptance is accepted by the Agent, (A) the Eligible Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank under the Loan Documents, and (B) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under the Loan Documents, such Bank shall cease to be a party thereto). (b) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the Eligible Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such Eligible Assignee confirms that it has received a copy of the Loan Documents, together with copies of the financial statements referred to in Section 6.2 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Eligible Assignee, independently and without reliance upon the Agent, such assigning Bank, or any Bank and based on such documents and information as it shall deem appropriate at the time, will continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Eligible Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under any Loan Document as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vi) such Eligible Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of any Loan Document are required to be performed by it as a Bank. (c) The Agent shall maintain at its address referred to in Section 12.4 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in 49 the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent, and Banks may treat each Person whose name is recorded in the Register as Bank hereunder for all purposes of the Loan Documents. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank, together with any Note subject to such assignment, the Agent, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT C, shall (i) accept such Assignment and Acceptance; (ii) record the information contained therein in the Register; and (iii) give prompt notice thereof to the Borrower. Within three (3) Business Days after its receipt of such notice, the Borrower at its own expense, shall execute and deliver to the Agent in exchange for each surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Bank has retained a Commitment hereunder, a new Note to the order of the assigning Bank in an amount equal to the Commitment retained by it hereunder. The new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of EXHIBIT C attached hereto and made a part hereof. Upon receipt by the Agent of each such new Note conforming to the requirements set forth in the preceding sentences, the Agent shall return to the Borrower each such surrendered Note marked to show that each such surrendered Note has been replaced, renewed, and extended by such new Note. (e) Each Bank may sell participations to one or more banks or other entities in or to all or a portion of its rights and/or obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Note held by it); PROVIDED, HOWEVER, that (i) each Bank's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged; (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) except as provided below, such Bank shall remain the holder of any such Note for all purposes of this Agreement; and (iv) the participating banks or other entities shall be entitled to the benefits of Sections 2.3 and 3.6 to recover costs, losses and expenses in the circumstances, and to the extent provided in Section 2.3, as though such participant were a Bank; PROVIDED, HOWEVER, the amounts to which a participant shall be entitled to obtain pursuant to Sections 2.3 and 3.6 shall be determined by reference to such participant's selling Bank and shall be recoverable solely from such selling Bank and (v) the Borrower, the Agent and the other Banks shall continue to deal solely and directly with the selling Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents; PROVIDED, HOWEVER, the selling Bank may grant a participant rights with respect to amendments, modification or waivers with respect to any fees payable hereunder to such Bank (including the amount and the dates fixed for the payment of any such fees) or the amount of principal or the rate of interest payable on, the dates fixed for any payment of principal or interest on, the Loans, or the release of any obligations of the Borrower hereunder and under the other Loan Documents, or the release of any security for any of the Obligations. Except with respect to cost protections contained in Sections 2.3 and 3.6, no 50 participant shall be a third party beneficiary of this Agreement and shall not be entitled to enforce any rights provided to its selling Bank against the Company under this Agreement. 12.14 NON U.S. BANKS. Prior to the date of the initial Borrowings hereunder, and from time to time thereafter if requested by the Borrower or the Agent, each Bank organized under the laws of a jurisdiction outside the United States of America shall provide the Agent and the Borrower with the forms prescribed by the Internal Revenue Service of the United States of America certifying such Banks exemption from United States withholding taxes with respect to all payments to be made to such Bank hereunder or under such Bank's Note. Unless the Borrower and the Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under such Bank's Note are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank organized under the laws of a jurisdiction outside the United States. 12.15 INTEREST. All agreements between the Borrower, the Agent or any Bank, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on any Note or otherwise, shall the amount paid, or agreed to be paid, to the Agent or any Bank for the use, forbearance, or detention of the money to be loaned under this Agreement or otherwise or for the payment or performance of any covenant or obligation contained herein or in any document related hereto exceed the amount permissible at the Highest Lawful Rate. If, as a result of any circumstances whatsoever, fulfillment of any provision hereof or of any of such documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law, then, IPSO FACTO, the obligation to be filled shall be reduced to the limit of such validity, and if, from any such circumstance, the Agent or any Bank shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the amount permissible at the Highest Lawful Rate, such amount which would be excessive interest shall be applied to the reduction of the principal amount owing on account of the Notes or the amounts owing on other obligations of the Borrower to the Agent or any Bank under this Agreement or any document related hereto and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of the Notes and the amounts owing on other obligations of the Borrower to the Agent or any Bank under this Agreement or any document related hereto, as the case may be, such excess shall be refunded to the Borrower. All sums paid or agreed to be paid to the Agent or any Bank for the use, forbearance, or detention of the indebtedness of the Borrower to the Agent or any Bank shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal thereof (Including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate. The terms and provisions of this Section 12.15 shall control and supersede every other provision of all agreements between the Borrower and the Banks. 12.16 INDEMNIFICATION. THE BORROWER AGREES TO INDEMNIFY, DEFEND, AND SAVE HARMLESS THE AGENT, EACH BANK AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND ATTORNEYS, AND EACH OF THEM (THE "INDEMNIFIED PARTIES"), FROM AND AGAINST ALL CLAIMS, 51 ACTIONS, SUITS, AND OTHER LEGAL PROCEEDINGS, DAMAGES, COSTS, INTEREST, CHARGES, TAXES, COUNSEL FEES, AND OTHER EXPENSES AND PENALTIES (INCLUDING WITHOUT LIMITATION ALL ATTORNEY FEES AND COSTS OR EXPENSES OF SETTLEMENT) WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR BY REASON OF OR ARISING OUT OF (a) THE MAKING OF ANY LOAN HEREUNDER, THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE NOTES AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY AND THE EXERCISE OF ANY OF THE BANKS' RIGHTS UNDER THIS AGREEMENT AND THE NOTES OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS, AND EXPENSES INCURRED BY ANY OF THE INDEMNIFIED PARTIES IN INVESTIGATING, PREPARING FOR, DEFENDING AGAINST, OR PROVIDING EVIDENCE, PRODUCING DOCUMENTS, OR TAKING ANY OTHER ACTION IN RESPECT OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY FEDERAL SECURITIES LAW OR ANY SIMILAR LAW OF ANY JURISDICTION OR AT COMMON LAW OR (b) ANY AND ALL CLAIMS OR PROCEEDINGS (WHETHER BROUGHT BY A PRIVATE PARTY, GOVERNMENTAL AUTHORITY OR OTHERWISE) FOR BODILY INJURY, PROPERTY DAMAGE, ABATEMENT, REMEDIATION, ENVIRONMENTAL DAMAGE, OR IMPAIRMENT OR ANY OTHER INJURY OR DAMAGE RESULTING FROM OR RELATING TO THE RELEASE OF ANY HAZARDOUS MATERIALS LOCATED UPON, MIGRATING INTO, FROM, OR THROUGH OR OTHERWISE RELATING TO ANY PROPERTY OWNED OR LEASED BY THE BORROWER OR ANY SUBSIDIARY (WHETHER OR NOT THE RELEASE OF SUCH HAZARDOUS MATERIALS WAS CAUSED BY THE BORROWER, ANY SUBSIDIARY, A TENANT, OR SUBTENANT OF THE BORROWER OR ANY SUBSIDIARY, A PRIOR OWNER, A TENANT, OR SUBTENANT OF ANY PRIOR OWNER OR ANY OTHER PARTY AND WHETHER OR NOT THE ALLEGED LIABILITY IS ATTRIBUTABLE TO THE HANDLING, STORAGE, GENERATION, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS MATERIALS OR THE MERE PRESENCE OF ANY HAZARDOUS MATERIALS ON SUCH PROPERTY; PROVIDED THAT THE BORROWER SHALL NOT BE LIABLE TO THE INDEMNIFIED PARTIES WHERE THE RELEASE OF SUCH HAZARDOUS MATERIALS OCCURS AT ANY TIME AT WHICH THE BORROWER OR ANY SUBSIDIARY CEASES TO OWN OR LEASE SUCH PROPERTY); AND PROVIDED FURTHER THAT NO INDEMNIFIED PARTY SHALL BE ENTITLED TO THE BENEFITS OF THIS SECTION 12.16 TO THE EXTENT ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT CONTRIBUTED TO ITS LOSS; AND PROVIDED FURTHER THAT IT IS THE INTENTION OF THE BORROWER TO INDEMNIFY THE INDEMNIFIED PARTIES AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE. THIS AGREEMENT IS INTENDED TO PROTECT AND INDEMNIFY THE INDEMNIFIED PARTIES AGAINST ALL RISKS HEREBY ASSUMED BY THE BORROWER. FOR PURPOSES OF THE FOREGOING SECTION 12.16, THE PHRASE "CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY" SET FORTH IN SUBPARAGRAPH (a) ABOVE SHALL INCLUDE, BUT NOT BE LIMITED TO, THE FINANCING OF ANY CORPORATE TAKEOVER PERMITTED HEREUNDER AND THE BORROWER'S USE OF THE LOAN PROCEEDS FOR THE PURPOSE OF ACQUIRING ANY EQUITY INTERESTS DESCRIBED IN SUBPARAGRAPH (ii) OF THE 52 DEFINITION OF "QUALIFYING ASSETS" SET FORTH IN THIS AGREEMENT (AS AMENDED). THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 12.16 SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND THE REPAYMENT OF THE NOTES. 12.17 PAYMENTS SET ASIDE. To the extent that the Borrower makes a payment or payments to the Agent or any Bank or the Agent or any Bank exercises its right of set off, and such payment or payments or the proceeds of such set off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other Person under any Debtor Law or equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and shall continue in full force and effect as if such payment had not been made or set off had not occurred. 12.18 LOAN AGREEMENT CONTROLS. If there are any conflicts or inconsistencies among this Agreement and any other document executed in connection with the transactions connected herewith, the provisions of this Agreement shall prevail and control. 12.19 OBLIGATIONS SEVERAL. The obligations of each Bank under this Agreement and the Note to which it is a party are several, and no Bank shall be responsible for any obligation or Commitment of any other Bank under this Agreement and the Note to which it is a party. Nothing contained in this Agreement or the Note to which it is a party, and no action taken by any Bank pursuant thereto, shall be deemed to constitute the Banks to be a partnership, an association, a joint venture, or any other kind of entity. 12.20 PRO RATA TREATMENT. All Loans under, and all payments and other amounts received in connection with this Agreement (including, without limitation, amounts received as a result of the exercise by any Bank of any right of set off) shall be effectively shared by the Banks ratably in accordance with the respective Pro Rata Percentages of the Banks. If any Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set off, or otherwise) on account of the principal of, or interest on, or fees in respect of, any Note held by it (other than pursuant to Section 2.3(d)) in excess of its Pro Rata Percentage of payments on account of similar Notes obtained by all the Banks, such Bank shall forthwith purchase from the other Banks such participations in the Notes or Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such recovery together with an amount equal to such Bank's ratable share (according to the proportion of (a) the amount of such Bank's required repayment to (b) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. Disproportionate payments of interest shall be shared by the purchase of separate participations in unpaid interest obligations, disproportionate payments of fees shall be shared by the purchase of separate participations in unpaid fee obligations, and disproportionate payments of principal shall be shared by the purchase of separate participations in unpaid principal obligations. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 12.20 may, to the fullest extent 53 permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. Notwithstanding the foregoing, a Bank may receive and retain an amount in excess of its Pro Rata Percentage to the extent but only to the extent, that such excess results from such Bank's Highest Lawful Rate exceeding another Bank's Highest Lawful Rate. 12.21 NO RIGHTS, DUTIES OR OBLIGATIONS OF SYNDICATION AGENT OR DOCUMENTATION AGENT. The Borrower, the Agent and each Bank acknowledge and agree that except for the rights, powers, obligations and liabilities under this Agreement and the other Loan Documents as a Bank, Bank One, NA, as Syndication Agent, and First Union National Bank, as Documentation Agent, shall have no additional rights, powers, obligations or liabilities under this agreement or any other Loan Documents in their capacities as Syndication Agent or Documentation Agent, respectively. 12.22 FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT'S OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto, by their respective officers thereunto duly authorized, have executed this Agreement on the dates set forth below to be effective as of May 31, 2000. SOUTHERN UNION COMPANY By. GEORGE E. YANKOWSKI, JR. --------------------------------------- George E. Yankowski, Jr., Treasurer 54 Commitment: CHASE BANK OF TEXAS, NATIONAL $10,000,000 ASSOCIATION, for itself and as Agent for the Banks By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- 55 Commitment: BANK ONE, NA $10,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Bank One, NA 1 Bank One Plaza, Suite IL1-0363 Chicago, Illinois 60670 Attention: Namita Solanki-Patel Fax No.: (312) 732-3055 Commitment: FIRST UNION NATIONAL BANK $10,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: First Union National Bank 301 S. College Street Charlotte, North Carolina 28288-0735 Attention: Mitch Wilson Fax No.: (704) 383-7611 56 Commitment: SUNTRUST BANK $6,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: SunTrust Bank 303 Peachtree Street NE, 3rd Floor, M.C. 1929 Atlanta, Georgia 30308 Attention: Linda Stanley Fax No.: (404) 827-6270 Commitment: FLEET NATIONAL BANK $6,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Fleet National Bank 100 Federal Street Boston, Massachusetts 02110 Attention: Stephen Hoffman Fax No.: (617) 434-3652 57 Commitment: CREDIT LYONNAIS NEW YORK BRANCH $6,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Credit Lyonnais New York Branch 1000 Louisiana, Suite 5360 Houston, Texas 77002 Attention: Darrell Stanley Fax No.: (713) 751-0307 Commitment: BANK OF AMERICA, N.A. $6,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Bank of America, N.A. 100 N. Tryon Street Mail Code: NC1-007-16-13 Charlotte, North Carolina 28255 Attention: Michelle Schoenfeld Fax No.: (704) 386-1319 58 Commitment: UMB BANK, N.A. $6,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: UMB Bank, N.A. 1010 Grand Boulevard Kansas City, Missouri 64106 Attention: David Proffitt Fax No.: (816) 860-7143 Commitment: THE FUJI BANK, LIMITED $6,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: The Fuji Bank, Limited 1221 McKinney Street, Suite 4100 Houston, Texas 77010 Attention: Kim Wood Fax No.: (713) 759-0048 Separate Domestic and Eurodollar Lending Office: The Fuji Bank, Limited Two World Trade Center New York, New York 10048-0042 59 Commitment: THE BANK OF TOKYO-MITSUBISHI, LTD. $6,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: The Bank of Tokyo-Mitsubishi, Ltd. 1100 Louisiana Street, Suite 2800 Houston, Texas 77002 Attention: Iris Munoz Fax No.: (713) 655-3855 Commitment: CITIZENS BANK OF RHODE ISLAND $4,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Citizens Bank of Rhode Island One Citizens Plaza, Mail Stop 0480 Providence, Rhode Island 02903 Attention: Marian L. Barrette Fax No.: (401) 455-5404 60 Commitment: WELLS FARGO BANK (TEXAS), N.A. $4,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Wells Fargo Bank (Texas), N.A. 1000 Louisiana, 3rd Floor - Energy Department Houston, Texas 77002 Attention: Alan Smith Fax No.: (713) 739-1087 Commitment: FIRSTAR BANK, N.A. $4,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Firstar Bank, N.A. One Firstar Plaza, 12th Floor St. Louis, Missouri 63101 Attention: Greg Dryden Fax No.: (314) 418-2203 61 Commitment: WESTDEUTSCHE LANDESBANK $4,000,000 GIROZENTRALE, NEW YORK BRANCH By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Westdeutsche Landesbank Girozentrale, New York Branch 1211 Avenues of the Americas New York, New York 10036 Attention: Anthony Alessandro Fax No.: (212) 852-6148 Commitment: GULF INTERNATIONAL BANK B.S.C. $2,000,000 By: ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- Address for Notices: Gulf International Bank B.S.C. 380 Madison Avenue, 21st Floor New York, New York 10017 Attention: Ms. Mireille Khalidi Fax No.: (212) 922-2339 Separate Eurodollar Lending Office: Gulf International Bank B.S.C., Grand Cayman c/o 380 Madison Avenue, 21st Floor New York, New York 10017 62 EXHIBIT A REVOLVING NOTE (Short-Term Credit Facility) $___________ ____________, 200__ FOR VALUE RECEIVED, the undersigned, SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (the "Borrower"), HEREBY PROMISES TO PAY to the order of ___________________________________ (the "Bank"), on or before _______________________ (the "Maturity Date"), the principal sum of ________________ Million and No/ 100ths Dollars ($_,000,000.00) in accordance with the terms and provisions of that certain Amended and Restated Revolving Credit Agreement (Short-Term Credit Facility) dated May ___, 2000, by and among the Borrower, the Bank, the other banks named on the signature pages thereof, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent (the "Credit Agreement"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement. The outstanding principal balance of this Revolving Note shall be payable at the Maturity Date. The Borrower promises to pay interest on the unpaid principal balance of this Revolving Note from the date of any Loan evidenced by this Revolving Note until the principal balance thereof is paid in full. Interest shall accrue on the outstanding principal balance of this Revolving Note from and including the date of any Loan evidenced by this Revolving Note to but not including the Maturity Date at the rate or rates, and shall be due and payable on the dates, set forth in the Credit Agreement. Any amount not paid when due with respect to principal (whether at stated maturity, by acceleration or otherwise), costs or expenses, or, to the extent permitted by applicable law, interest, shall bear interest from the date when due to and excluding the date the same is paid in full, payable on demand, at the rate provided for in Section 2.2(b) of the Credit Agreement. Payments of principal and interest, and all amounts due with respect to costs and expenses, shall be made in lawful money of the United States of America in immediately available funds, without deduction, set off or counterclaim to the account of the Agent at the principal office of Chase Bank of Texas, National Association in Houston, Texas (or such other address as the Agent under the Credit Agreement may specify) not later than noon (Houston time) on the dates on which such payments shall become due pursuant to the terms and provisions set forth in the Credit Agreement. If any payment of interest or principal herein provided for is not paid when due, then the owner or holder of this Revolving Note may at its option, by notice to the Borrower, declare the unpaid, principal balance of this Revolving Note, all accrued and unpaid interest thereon and all other amounts payable under this Revolving Note to be forthwith due and payable, whereupon this Revolving Note, all such interest and all such amounts shall become and be forthwith due and payable in full, without presentment, demand, protest, notice of intent to accelerate, notice of actual acceleration or further notice of any kind, all of which are hereby expressly waived by the Borrower. 1 If any payment of principal or interest on this Revolving Note shall become due on a Saturday, Sunday, or public holiday on which the Agent is not open for business, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in computing interest in connection with such payment. In addition to all principal and accrued interest on this Revolving Note, the Borrower agrees to pay (a) all reasonable costs and expenses incurred by the Agent and all owners and holders of this Revolving Note in collecting this Revolving Note through any probate, reorganization bankruptcy or any other proceeding and (b) reasonable attorneys' fees when and if this Revolving Note is placed in the hands of an attorney for collection after default. All agreements between the Borrower and the Bank, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made on this Revolving Note or otherwise, shall the amount paid, or agreed to be paid, to the Bank for the use, forbearance, or detention of the money to be loaned under the Credit Agreement and evidenced by this Revolving Note or otherwise or for the payment or performance of any covenant or obligation contained in the Credit Agreement or this Revolving Note exceed the amount permissible at Highest Lawful Rate. If as a result of any circumstances whatsoever, fulfillment of any provision hereof or of the Credit Agreement at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable usury law, then, IPSO FACTO, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance, the Bank shall ever receive interest or anything which might be deemed interest under applicable law which would exceed the amount permissible at the Highest Lawful Rate, such amount which would be excessive interest shall be applied to the reduction of the principal amount owing on account of this Revolving Note or the amounts owing on other obligations of the Borrower to the Bank under the Credit Agreement and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of this Revolving Note and the amounts owing on other obligations of the Borrower to the Bank under the Credit Agreement, as the case may be, such excess shall be refunded to the Borrower. In determining whether or not the interest paid or payable under any specific contingencies exceeds the Highest Lawful Rate, the Borrower and the Bank shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate and spread in equal parts during the period of the full stated term of this Revolving Note, all interest at any time contracted for, charged, received or reserved in connection with the indebtedness evidenced by this Revolving Note. This Revolving Note is one of the Notes provided for in, and is entitled to the benefits of, the Credit Agreement, which Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events, for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions and with the effect therein specified, and provisions to the effect that no provision of the Credit Agreement or this Revolving Note shall require the payment or permit the collection of interest in excess of the Highest Lawful Rate. It is contemplated that by reason of prepayments or repayments hereon prior to the Maturity Date, there may be times when no indebtedness is owing hereunder prior to such date; but 2 notwithstanding such occurrence this Revolving Note shall remain valid and shall be in full force and effect as to Loans made pursuant to the Credit Agreement subsequent to each such occurrence. Except as otherwise specifically provided for in the Credit Agreement, the Borrower and any and all endorsers, guarantors and sureties severally waive grace, demand, presentment for payment, notice of dishonor or default, protest, notice of protest, notice of intent to accelerate, notice of acceleration and diligence in collecting and bringing of suit against any party hereto, and agree to all renewals, extensions or partial payments hereon and to any release or substitution of security hereof, in whole or in part, with or without notice, before or after maturity. THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW. IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be executed and delivered by its officer thereunto duly authorized effective as of the date first above written. SOUTHERN UNION COMPANY By:________________________________ Name:______________________________ Title:_____________________________ EXHIBIT B NOTICE OF BORROWING (Short-Term Credit Facility) The undersigned hereby certifies that s/he is an officer of SOUTHERN UNION COMPANY, a corporation organized under the laws of Delaware (the "Borrower"), authorized to execute this Notice of Borrowing on behalf of the Borrower. With reference to that certain Amended and Restated Revolving Credit Agreement (Short-Term Credit Facility) dated May ___, 2000 (as same may be amended, modified, increased, supplemented and/or restated from time to time, the "Credit Agreement") entered into by and between the Borrower, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Agent, and the Banks identified therein, the undersigned further certifies, represents and warrants to Banks on behalf of the Borrower that to his best knowledge and belief after reasonable and due investigation and review, all of the following statements are true and correct (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): (a) Borrower requests that the Banks advance to the Borrower the aggregate sum of $__________by no later than ____________, 200__ (the "Borrowing Date"). Immediately following such Loan, the aggregate outstanding balance of Loans shall equal $__________. Borrower requests that the Loans bear interest as follows: (i) The principal amount of the Loans, if any, which shall bear interest at the Alternate Base Rate requested to be made by the Banks is $________. The initial Rate Period for such Loans shall be 90 DAYS. (ii) The principal amount of the Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be FIFTEEN DAYS requested to be made by the Banks is $_______________. (iii) The principal amount of the Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be ONE MONTH requested to be made by the Banks is $__________. (iv) The principal amount of the Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be TWO MONTHS requested to be made by the Banks is $_________. (v) The principal amount of the Revolving Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be THREE MONTHS requested to be made by the Banks is $_______________. (vi) The principal amount of the Revolving Loans, if any, which shall bear interest at the Eurodollar Rate for which the Rate Period shall be SIX MONTHS requested to be made by the Banks is $_______________. 1 (b) The proceeds of the borrowing shall be deposited into Borrower's demand deposit account at Chase Bank of Texas, National Association more fully described as follows: Account No. 09916100522, styled Southern Union Company. (c) Of the aggregate sum to be advanced, $_____________ will be advanced to provide working capital pursuant to Section 5.1(a) of the Credit Agreement and $__________will be advanced for the purposes set forth in Section 5.1(b) of the Credit Agreement; and $__________ will be advanced for the purposes set forth in Section 5.1(c) of the Credit Agreement; and $___________ will be advanced for the purposes of replacing Loans currently outstanding under the Credit Agreement. (d) The Expiration Date of each Rate Period specified in (a) above shall be the last day of such Rate Period. (e) As of the date hereof, and as a result of the making of the requested Loans, there does not and will not exist any Default or Event of Default. (f) The representations and warranties contained in Section 6 of the Credit Agreement are true and correct in all material respects as of the date hereof and shall be true and correct upon the making of the requested Loan, with the same force and effect as though made on and as of the date hereof and thereof. (g) No change that would cause a material adverse effect on the business, operations or condition (financial or otherwise) of the Borrower has occurred since the date of the most recent financial statements provided to the Banks dated as of __________, 200__. EXECUTED AND DELIVERED this _____ day of _______________, 200__. SOUTHERN UNION COMPANY _____________________________________ By:______________________________ Name:____________________________ Title:___________________________ 2 EXHIBIT C ASSIGNMENT AND ACCEPTANCE [NAME AND ADDRESS OF ASSIGNING BANK] _______________, 200__ ________________ ________________ ________________ ________________ Re: Southern Union Company Amended and Restated Revolving Credit Agreement (Short-Term Credit Facility) Ladies and Gentlemen: We have entered into an Amended and Restated Revolving Credit Agreement (Short-Term Credit Facility) dated as of May ____, 2000 (the "Credit Agreement"), among certain banks (including us), Chase Bank of Texas, National Association (the "Agent") and Southern Union Company (the "Company"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement. Each reference to the Credit Agreement, the Notes, or any other document evidencing or governing the Loans (all such documents collectively, the "Financing Documents") includes each such document as amended, modified, extended or replaced from time to time. All times are Houston times. 1. ASSIGNMENT. WE HEREBY SELL YOU AND ASSIGN TO YOU WITHOUT RECOURSE, AND YOU HEREBY UNCONDITIONALLY AND IRREVOCABLY ACQUIRE FOR YOUR OWN ACCOUNT AND RISK, A PERCENT ( %) UNDIVIDED INTEREST ("YOUR ASSIGNED SHARE") IN EACH OF THE FOLLOWING (THE "ASSIGNED OBLIGATIONS"): a. our Note; b. all Loans and interest thereon as provided in Section 2 of the Credit Agreement [,except that interest shall accrue on your assigned share in the principal of Alternate Base Rate Loans and Eurodollar Rate Loans at an annual rate equal to the rate provided in the Credit Agreement minus _____%]; and 1 c. commitment fees payable pursuant to Section 4 of the Credit Agreement [,except that your assigned share in such fees shall be at an annual rate equal to the rate provided in the Credit Agreement minus ____%]. 2. MATERIALS PROVIDED ASSIGNEE a. We will promptly request that the Company issue new Notes to us and to you in substitution for our Note to reflect the assignment set forth herein. Upon issuance of such substitute Notes, (i) you will become a Bank under the Credit Agreement, (ii) you will assume our obligations under the Credit Agreement to the extent of your assigned share, and (iii) the Company will release us from our obligations under the Credit Agreement to the extent, but only to the extent, of your assigned share. The Company consents to such release by signing this Agreement where indicated below. As a Bank, you will be entitled to the benefits and subject to the obligations of a "Bank", as set forth in the Credit Agreement, and your rights and liabilities with respect to the other Banks and the Agent will be governed by the Credit Agreement, including without limitation Section 11 thereof. b. We have furnished you copies of the Credit Agreement, our Note and each other Financing Document you have requested. We do not represent or warrant (i) the priority, legality, validity, binding effect or enforceability of any Financing Document or any security interest created thereunder, (ii) the truthfulness and accuracy of any representation contained in any Financing Document, (iii) the filing or recording of any Financing Document necessary to perfect any security interest created thereunder, (iv) the financial condition of the Company or any other Person obligated under any Financing Document, any financial or other information, certificate, receipt or other document furnished or to be furnished under any Financing Document or (v) any other matter not specifically set forth herein having any relation to any Financing Document, your interest in one Note, the Company or any other Person. You represent to us that you are able to make, and have made, your own independent investigation and determination of the foregoing matters, including, without limitation, the credit worthiness of the Company and the structure of the transaction. 3. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. You irrevocably submit to the jurisdiction of any State or Federal court sitting in Austin, Texas in any suit, action or proceeding arising out of or relating to this Agreement and irrevocably waive any objection you may have to this laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. We may serve process in any manner permitted by law and may bring proceedings against you in any other jurisdiction. 4. NOTICES. All notices and other communications given hereunder to a party shall be given in writing (including bank wire, telecopy, telex or similar writing) at such party's address set forth on the signature pages hereof or such other address as such party may hereafter specify by notice to the other party. Notice may also be given by telephone to the Person, or any other officer in the office, listed on the signature pages hereof if confirmed promptly by telex or telecopy. Notices shall be effective immediately, if given by telephone; upon transmission, if given by bank wire, telecopy or telex; five days after deposit in the mails, if mailed; and when delivered, if given by other means. 2 5. AUTHORITY. Each of us represents and warrants that the execution and delivery of this Agreement have been validly authorized by all necessary corporate action and that this Agreement constitutes a valid and legally binding obligation enforceable against it in accordance with its terms. 6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, and by each party on separate counterparts, each of which shall be an original but all of which taken together shall be but one instrument. 7. AMENDMENTS. No amendment modification or waiver of any provision of this Agreement shall be effective unless in writing and signed by the party against whom enforcement is sought. If the foregoing correctly sets forth our agreement, please so indicate by signing the enclosed copy of this Agreement and returning it to us. Very truly yours, ----------------------------------- By: ------------------------------- Name: ----------------------------- Title: ----------------------------- [Street Address] ------------------ [City, State, Zip Code] ------------ Telephone: ------------------------ Telecopy: ------------------------ AGREED AND ACCEPTED: - --------------------------------------- By: ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- Attention: ------------------------- Telephone: ------------------------- Telecopy: ------------------------- Account for Payments: ----------------- 3 ASSIGNMENT APPROVED PURSUANT TO SECTION 12.13 OF THE CREDIT AGREEMENT AND RELEASE APPROVED IN SECTION 2 OF THIS AGREEMENT: SOUTHERN UNION COMPANY By: ---------------- Name: ---------------- Title: ---------------- 4 EX-21 7 ex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
NAME STATE OR COUNTRY OF INCORPORATION - ------------------------------- --------------------------------- Atlantic Gas Corporation Delaware Energia Estrella del Sur, S. A. de C. V. Mexico KellAir Aviation Company Delaware KellA NC Aviation Company North Carolina KeystDelawareline Services, Inc. Delaware Lavaca Realty Company Delaware Mercado Gas Services Inc. Delaware Norteno Pipeline Company Delaware PEI Power Corporation Pennsylvania PG Energy Services, Inc. Pennsylvanias Southern Transmission Company Delaware Southern Union Energy International, Inc. Delaware Southern Union Financing I Delaware Southern Union International Investments, Inc. Delaware Southern Union Total Energy Systems, Inc. Delaware SUPro Energy Company Delaware Sygent, Inc. Delaware
- -------------------- Note: Fifteen other wholly-owned subsidiaries of Southern Union Company, ConTigo, Inc. (a Delaware corporation), Energy WorX, Inc. (a Delaware corporation), GUS Acquisition Corporation (a Rhode Island corporation), Honesdale Gas Company (a Pennsylvania corporation), PG Energy, Inc. (a Pennsylvania corporation), Penn Gas Development Company (a Pennsylvania corporation), Pennsylvania Energy Resources, Inc. (a Pennsylvania corporation), Southern Union Financing II (a Delaware business trust), Southern Union Financing III (a Delaware business trust), Southern Union Gas Company, Inc. (a Delaware corporation), Southern Union Gas Company, Inc. (a Texas corporation), SU Acquisition Corporation (a California corporation), SUG Acquisition Corporation (a Rhode Island corporation), Western Utilities, Inc. (a Delaware corporation) and Western Utilities, Inc. (a New Mexico corporation), conduct no business except to the extent necessary to maintain their corporate existence. EX-23.1 8 ex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-4 of Southern Union Company ("Southern Union") of our report dated August 12, 1999, except for Note XVI as to which the date is September 3, 1999, relating to the consolidated financial statements, which appears in Southern Union's 1999 Annual Report to Shareholders, which is incorporated by reference in its Annual Report on Form 10-K for the year ended June 30, 1999. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PRICEWATERHOUSECOOPERS LLP -------------------------- PricewaterhouseCoopers LLP Austin, Texas July 6, 2000 EX-23.2 9 ex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-4 of our report dated February 17, 1999 relating to the consolidated financial statements and financial statement schedules, which appears in Pennsylvania Enterprises, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PRICEWATERHOUSECOOPERS LLP -------------------------- PricewaterhouseCoopers LLP Philadelphia, Pennsylvania July 6, 2000 EX-23.3 10 ex-23_3.txt EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement of our report dated February 19, 1997 on the consolidated financial statements of Pennsylvania Enterprises, Inc. for the year ended December 31, 1996 included in Pennsylvania Enterprises, Inc.'s 1998 Form 10-K and to all references to our Firm included in this Registration Statement. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP ------------------- Arthur Andersen LLP New York, New York July 6, 2000 EX-23.4 11 ex-23_4.txt EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Fall River Gas Company As independent public accountants, we hereby consent to the incorporation by reference of our report dated November 12, 1999, included in Fall River Gas Company's Form 10-K for the year ended September 30, 1999 into this registration statement on Form S-4 of Southern Union Company. It should be noted that we have not audited any financial statements of Fall River Gas Company subsequent to September 30, 1999 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP ------------------- Arthur Andersen LLP Boston, Massachusetts July 5, 2000 EX-23.5 12 ex-23_5.txt EXHIBIT 23.5 EXHIBIT 23.5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of Providence Energy Corporation: As independent public accountants, we hereby consent to the incorporation by reference of our report dated November 2, 1999 (except for the information discussed in Note 2, as to which the date is November 16, 1999), included in Providence Energy Corporation's Form 10-K for the fiscal year ended September 30, 1999, into this Registration Statement on Form S-4 of Southern Union Company. It should be noted that we have not audited any financial statements of Providence Energy Corporation subsequent to September 30, 1999, or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP -------------------------------- Arthur Andersen LLP Boston, Massachusetts July 5, 2000 EX-23.6 13 ex-23_6.txt EXHIBIT 23.6 EXHIBIT 23.6 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated September 27, 1999, accompanying the consolidated financial statements and schedule incorporated by reference or included in the Annual Report of Valley Resources, Inc. and subsidiaries on Form 10-K and Form 10-K/A and incorporated by reference in the Current Report on Form 8-K of Southern Union for the year ended August 31, 1999. We hereby consent to the inclusion and incorporation by reference of said reports in this Registration Statement of Southern Union Company on Form S-4. We also consent to the reference to us under the heading "Experts" in such Registration Statement. GRANT THORNTON LLP ------------------------------ Grant Thornton LLP Boston, Massachusetts July 5, 2000 EX-23.10 14 ex-23_10.txt EXHIBIT 23.10 EXHIBIT 23.10 LEGG MASON WOOD WALKER, INCORPORATED CONSENT We hereby consent to (i) the inclusion of our opinion letter, dated October 4, 1999 to the Board of Directors of Fall River Gas Company ("Fall River Gas") as Appendix B to the Proxy Statement/Prospectus of Fall River Gas and Southern Union Company ("Southern Union") relating to the proposed merger between Southern Union and Fall River Gas and (ii) all references to Legg Mason in the sections captioned "The Merger -- Fall River Gas Background of the Merger" and "The Merger-Opinion of Fall River Gas' Financial Advisor" of the Proxy Statement/Prospectus which form a part of this Registration Statement on Form S-4. In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7, of, and we do not admit that we are "experts" for purposes of, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. ALEXSANDER M. STEWART, Managing Director Legg Mason Wood Walker, Incorporated Baltimore, Maryland June 30, 2000 EX-24 15 ex-24.txt EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Peter H. Kelley, Ronald J. Endres, Dennis K. Morgan and David J. Kvapil, acting individually or together, as such person's true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and revocation, for any such person and in such person's name, place and stead, in any and all capacities, to sign the Southern Union Registration Statement on Form S-4 for the merger of Fall River Gas Company with and into Southern Union Company and to file the same, together with all exhibits thereto, other documents in connection therewith, including amendments thereto, with the Securities and Exchange Commission and New York Stock Exchange. Dated: May 31, 2000 JOHN E. BRENNAN GEORGE L. LINDEMANN -------------------------- ---------------------------------- John E. Brennan George L. Lindemann FRANK W. DENIUS ROGER J. PEARSON -------------------------- ---------------------------------- Frank W. Denius Roger J. Pearson AARON I. FLEISCHMAN GEORGE ROUNTREE, III -------------------------- ---------------------------------- Aaron I. Fleischman George Rountree, III PETER H. KELLEY DAN K. WASSONG -------------------------- ---------------------------------- Peter H. Kelley Dan K. Wassong ADAM M. LINDEMANN KURT A. GITTER, M.D. -------------------------- ---------------------------------- Adam M. Lindemann Kurt A. Gitter THOMAS F. KARAM RONALD W. SIMMS -------------------------- ---------------------------------- Thomas F. Karam Ronald W. Simms EX-99 16 ex-99.txt EX 99 Exhibit 99 PROXY FALL RIVER GAS COMPANY PROXY SPECIAL MEETING OF STOCKHOLDERS AUGUST 29, 2000 The undersigned, having received the Notice of the Special Meeting of Stockholders and Proxy Statement of Fall River Gas Company (the "Company"), dated July __, 2000, hereby appoints Cindy L. J. Audette, Bradford J. Faxon, Raymond H. Faxon and Donald R. Patnode, and any of them, as proxy or proxies of the undersigned, to vote the shares of the common stock of the Company owned by the undersigned, to vote the shares of the common stock of the company owned by the undersigned, at the Special Meeting of Stockholders of the Company to be held at the offices of the Company in Fall River, Massachusetts on August 29, 2000, at 10:00 A.M. local time and at any adjournment(s) thereof, with all powers the undersigned would possess if personally present at said meeting with full power of substitution or revocation. The following purposes for which this proxy may be exercised are set forth in the Notice of the Special Meeting of Stockholders and are more fully set forth in the Proxy Statement. 1. FOR / / AGAINST / / ABSTAIN / / The proposal to approve and adopt the Agreement of Merger between Southern Union Company and Fall River Gas Company. 1. FOR / / AGAINST / / ABSTAIN / / To act upon such other matters as may come before the meeting. The undersigned ratifies and confirms all that said proxy(ies) may do by virtue hereof. The proxies are authorized to vote in their discretion with respect to matters not known or determined at the date of the Proxy Statement. A majority of said proxies as shall be present and acting at the meeting shall have and may exercise all of the powers of proxies hereunder, or if only one be present and acting, then that one shall have and may exercise all of said powers. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ABOVE IN REGARD TO THE PROPOSALS NUMBERED 1 AND 2 IN THE ABSENCE OF A SPECIFICATION, THIS PROXY WILL BE VOTED FOR THE PROPOSALS NUMBERED 1 AND 2. Date __________________________, 2000 ------------------------------------- Signature ------------------------------------- Signature Stockholders should sign here exactly as the name or names are printed. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as such. Joint owners should each sign personally. [IMPORTANT] PLEASE DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. -----END PRIVACY-ENHANCED MESSAGE-----