EMPIRE GAS CORP/NEW, S-1, 1994-04-29

EMPIRE GAS CORP/NEW
S-1, 1994-04-29

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

EMPIRE GAS CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
MISSOURI 5984 43-1494323
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
</TABLE>

P.O. BOX 303
(1700 SOUTH JEFFERSON STREET)
LEBANON, MISSOURI 65536
(417) 532-3101

(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------

Paul S. Lindsey, Jr.
Chief Operating Officer
Empire Gas Corporation
P.O. Box 303
Lebanon, Missouri 65536
(417) 532-3101
(Name and address, including zip code, and telephone number, including area
code,
of agent for service)
------------------------

COPIES TO:

<TABLE>
<S> <C>
Richard W. Cass, Esq. Joseph A. Coco, Esq.
Wilmer, Cutler & Pickering Skadden, Arps Slate, Meagher & Flom
2445 M Street, N.W. 919 Third Avenue
Washington, D.C. 20037-1420 New York, New York 10022
(202) 663-6000 (212) 735-3000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS POSSIBLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER NOTE (1) (2) FEE
<S> <C> <C> <C> <C>
% Senior Secured Notes due 2004................ $120,700,000 82.85% $100,000,000 $34,483
<FN>
(1) The amount to be registered and proposed maximum offering price of the
Senior Secured Notes will be calculated to result in a maximum aggregate
offering price to the public of $100,000,000.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457.
</TABLE>

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EMPIRE GAS CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page of
Prospectus....................................... Inside Front and Outside Back Cover Pages of Prospectus;
Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Pro Forma Consolidated
Financial and Other Data; Selected Consolidated
Financial and Other Data
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... Not Applicable
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page of Prospectus; The Underwriter
9. Description of Securities to be Registered........ Outside Front Cover Page of Prospectus; Description of
Senior Secured Notes
10. Interests of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant........ Outside and Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The Transaction;
Capitalization; Pro Forma Consolidated Financial and
Other Data; Selected Consolidated Financial and Other
Data; Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Relationships and Related
Transactions; Description of Senior Secured Notes;
Description of Other Indebtedness; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1994

$120,700,000
EMPIRE GAS CORPORATION
% SENIOR SECURED NOTES DUE 2004
---------------------

INTEREST PAYABLE AND
------------------------

CASH INTEREST ON THE SENIOR SECURED NOTES WILL BE PAYABLE AT THE RATE OF
% PER ANNUM OF THEIR PRINCIPAL AMOUNT AT MATURITY THROUGH AND
INCLUDING , 1999, AND AFTER SUCH DATE WILL BE PAYABLE AT THE
RATE OF % PER ANNUM OF THEIR PRINCIPAL AMOUNT AT MATURITY. THE
SENIOR SECURED NOTES WILL BE ISSUED AT A SUBSTANTIAL DISCOUNT
FROM THEIR PRINCIPAL AMOUNT AT MATURITY. SEE "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS." THE PRICE TO PUBLIC OF THE SENIOR
SECURED NOTES SHOWN BELOW REPRESENTS A YIELD TO MATURITY
OF % PER ANNUM, COMPUTED ON THE BASIS OF
SEMIANNUAL COMPOUNDING.
------------------------

THE SENIOR SECURED NOTES WILL BE REDEEMABLE AT THE OPTION OF THE
COMPANY, IN WHOLE OR IN PART, AT ANY TIME ON OR AFTER ,
1999, INITIALLY AT % OF THEIR ACCRETED VALUE, PLUS ACCRUED
INTEREST, DECLINING TO 100% OF THEIR ACCRETED VALUE PLUS ACCRUED
INTEREST, ON OR AFTER , 2001. IN ADDITION, UP TO $
MILLION AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF THE SENIOR
SECURED NOTES WILL BE REDEEMABLE, IN WHOLE OR IN PART, AT
THE OPTION OF THE COMPANY, FROM THE PROCEEDS OF ONE OR
MORE PUBLIC EQUITY OFFERINGS (AS DEFINED HEREIN)
FOLLOWING WHICH THERE IS A PUBLIC MARKET (AS DEFINED
HEREIN), AT THE REDEMPTION PRICES SET FORTH
HEREIN, PLUS ACCRUED INTEREST.
------------------------

THE SENIOR SECURED NOTES WILL BE SENIOR OBLIGATIONS OF THE COMPANY SECURED
BY A PLEDGE OF ALL OF THE CAPITAL STOCK OF THE COMPANY'S PRESENT AND FUTURE
SUBSIDIARIES. THE SENIOR SECURED NOTES WILL RANK PARI PASSU WITH ALL EXISTING
AND FUTURE SENIOR INDEBTEDNESS OF THE COMPANY. ON A PRO FORMA BASIS, AS OF
DECEMBER 31, 1993, AFTER GIVING EFFECT TO THE TRANSACTION (AS DEFINED HEREIN),
THE OFFERING AND THE APPLICATION OF THE NET PROCEEDS THEREFROM, THE COMPANY
WOULD HAVE HAD APPROXIMATELY $4.6 MILLION OF SENIOR INDEBTEDNESS OUTSTANDING,
EXCLUDING THE SENIOR SECURED NOTES, ALL OF WHICH WOULD HAVE BEEN SECURED. THE
COMPANY IS A HOLDING COMPANY, AND ACCORDINGLY, THE SENIOR SECURED NOTES WILL BE
EFFECTIVELY SUBORDINATED TO ALL EXISTING AND FUTURE LIABILITIES OF THE COMPANY'S
SUBSIDIARIES. ON A PRO FORMA BASIS, AS OF DECEMBER 31, 1993, AFTER GIVING EFFECT
TO THE TRANSACTION, THE OFFERING AND THE APPLICATION OF THE NET PROCEEDS
THEREFROM, THE COMPANY'S SUBSIDIARIES WOULD HAVE HAD APPROXIMATELY $480,000 OF
OUTSTANDING LIABILITIES (EXCLUDING GUARANTEES), INCLUDING TRADE PAYABLES AND
ACCRUED EXPENSES AND TAXES PAYABLE.
------------------------

SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

PRICE % AND ACCRUED INTEREST
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3)
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
PER SENIOR SECURED NOTE.................. % % %
TOTAL.................................... $ $ $
<FN>
------------
(1) PLUS ACCRUED INTEREST FROM , 1994.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITER AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "THE UNDERWRITER."
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
</TABLE>

THE SENIOR SECURED NOTES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF
ACCEPTED BY THE UNDERWRITER AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS BY
SKADDEN, ARPS, SLATE, MEAGHER & FLOM, COUNSEL FOR THE UNDERWRITER. IT IS
EXPECTED THAT THE DELIVERY OF THE SENIOR SECURED NOTES WILL BE MADE ON OR ABOUT
, 1994, AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK,
NEW YORK, AGAINST PAYMENT THEREFOR IN NEW YORK FUNDS.
------------------------
MORGAN STANLEY & CO.
INCORPORATED

, 1994
<PAGE>
[GRAPHIC]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SENIOR SECURED
NOTES OFFERED HEREBY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1994 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 10
The Transaction............................................................................................ 15
Use of Proceeds............................................................................................ 16
Capitalization............................................................................................. 17
Selected Consolidated Financial and Other Data For the Company Prior to the Transaction.................... 18
Pro Forma Consolidated Financial and Other Data............................................................ 20
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 27
Business................................................................................................... 35
Management................................................................................................. 41
Principal Shareholders..................................................................................... 47
Certain Relationships and Related Transactions............................................................. 48
Description of the Senior Secured Notes.................................................................... 51
Certain Federal Income Tax Considerations.................................................................. 79
Description of Other Indebtedness.......................................................................... 82
The Underwriter............................................................................................ 83
Legal Matters.............................................................................................. 84
Experts.................................................................................................... 84
Available Information...................................................................................... 84
Index to Financial Statements.............................................................................. F-1
</TABLE>

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR SECURED
NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN
THIS PROSPECTUS. AS USED HEREIN, UNLESS THE CONTEXT REQUIRES OTHERWISE, THE
TERMS "EMPIRE GAS" AND THE "COMPANY" REFER TO EMPIRE GAS CORPORATION AND ITS
SUBSIDIARIES ASSUMING CONSUMMATION OF THE TRANSACTION, WHICH WILL OCCUR
SIMULTANEOUSLY WITH THIS OFFERING. ALL REFERENCES IN THE PROSPECTUS TO FISCAL
YEARS ARE TO THE COMPANY'S FISCAL YEAR WHICH ENDS ON JUNE 30.

THE COMPANY

Empire Gas is one of the largest retail distributors of propane in the
United States and, through its subsidiaries, has been engaged in the retail
distribution of propane since 1963. During the fiscal year ended June 30, 1993,
without giving effect to the Transaction, Empire Gas supplied propane to
approximately 200,000 customers in 27 states from 284 retail service centers and
sold approximately 142.1 million gallons of propane, accounting for
approximately 91.4% of its operating revenue. The Company also sells related
gas-burning appliances and equipment and rents customer storage tanks.

The Company will implement a change in ownership and management
contemporaneously with this Offering by repurchasing shares of its common stock
from its controlling shareholder, Mr. Robert W. Plaster, and certain other
departing officers (the "Stock Purchase") in exchange for all of the shares of
common stock of a subsidiary that owns 133 retail service centers located
primarily in the Southeast. Mr. Paul S. Lindsey, Jr., who has been with the
Company for 26 years and currently serves as the Company's Chief Operating
Officer and Vice Chairman of the Board, will become the Company's controlling
shareholder, Chief Executive Officer, and President. The change in ownership and
management will enable the Company to pursue a growth strategy focused on
acquiring propane operating companies. Contemporaneously with the Offering, the
Company will acquire the assets of PSNC Propane Corporation, a company located
in North Carolina that has six retail service centers and five additional bulk
storage facilities with annual volume of approximately 9.5 million gallons (the
"Acquisition," and together with the Stock Purchase, the "Transaction"), for an
aggregate purchase price of approximately $14.0 million. The Company also
recently completed the acquisition of a retail propane company in Colorado with
annual volume of approximately 700,000 gallons, and has entered into a contract
to purchase a retail propane company in Missouri with annual volume of
approximately 690,000 gallons.

Following the Transaction, Empire Gas' operations will consist of 157 retail
service centers with 22 additional bulk storage facilities. During the fiscal
year ended June 30, 1993, Empire Gas, after giving effect to the Transaction,
sold approximately 84.9 million gallons of propane to approximately 112,000
customers in 20 states. The Company's operations after the Transaction will have
substantial geographic diversification reducing the impact of weather
fluctuations in a particular region.

Propane, a hydrocarbon with properties similar to natural gas, is separated
from natural gas at gas processing plants and refined from crude oil at
refineries. It is stored and transported in a liquid state and vaporizes into a
clean-burning energy source that is used for a variety of residential,
commercial, and agricultural purposes. Residential and commercial uses include
heating, cooking, water heating, refrigeration, clothes drying, and
incineration. Commercial uses also include metal cutting, drying, container
pressurization, and charring, as well as use as a fuel for internal combustion
engines. The propane industry has grown, as measured by the gallons of propane
sold, at the rate of 2.6% per annum over the ten-year period ending December 31,
1992.

4
<PAGE>
1990, there were approximately 23.7 million homes that used electricity for
heating, water heating, cooking and other household purposes, approximately 11.2
million homes that used fuel oil products, and approximately 5.7 million homes
that used propane for such purposes.

Empire Gas focuses on propane distribution to retail customers, including
residential, commercial, and agricultural users, emphasizing, in particular,
sales to residential customers, a stable segment of the retail propane market
that traditionally has generated higher gross margins per gallon than other
retail segments. Sales to residential customers, giving effect to the
Transaction, accounted for approximately 65.5% of the Company's aggregate
propane sales revenue and 74.3% of its aggregate gross margin from propane sales
in fiscal year 1993.

Empire Gas attracts and retains its residential customers by supplying them
storage tanks, by offering them superior service and by strategically locating
visible and accessible retail service centers on or near major highways. Empire
Gas focuses its operations on sales to customers to which it also leases tanks,
as sales to this segment of the retail propane market tend to be more stable and
typically provide higher gross margins than sales to customers who own tanks.
After the Transaction, Empire Gas will own approximately 109,000 storage tanks
that it leases to approximately 96% of its customers. Empire Gas' residential
customer base is relatively stable, because (i) fire safety regulations in most
states restrict the filling of a leased tank solely to the propane supplier that
leases the tank, (ii) rental agreements for its tanks restrict the customers
from using any other supplier, and (iii) the cost and inconvenience of switching
tanks minimizes a customer's tendency to change suppliers. Historically, the
Company has retained 90% of all its customers from year to year, with the
average customer remaining with Empire Gas for approximately 10 years.

The change in ownership and management of the Company will enable it to
pursue a business strategy to increase its revenues and profitability through
(i) expansion by acquisitions and start-ups, (ii) expansion of its existing
residential customer base, (iii) geographic rationalization, and (iv) the
reduction of operating expenses. Empire Gas will seek opportunities to acquire
retail service centers in areas where it already has a strong presence and to
develop new retail service centers in new markets. Efforts to expand the
existing residential customer base will focus primarily on conversion of
customers currently using electricity for heating and continuing to develop
Empire Gas' reputation for providing high quality service. Empire Gas intends to
dispose of a limited number of retail service centers that are located in
markets in which it does not have, and does not desire to develop, a strong
presence or that do not have the potential for long-term growth. Empire Gas
believes it will be able to reduce its operating expenses through a program of
consolidating a number of retail service centers where such consolidations will
yield operating efficiencies.

The Company's principal executive offices are located at 1700 South
Jefferson Street, Lebanon, Missouri 65536. The Company's telephone number is
(417) 532-3101.

THE OFFERING

<TABLE>
<S> <C>
Notes Offered..................... $120,700,000 estimated aggregate principal amount
($100,000,000 initial accreted value) of % Senior
Secured Notes due 2004 (the "Senior Secured Notes").
Maturity Date..................... , 2004
Interest.......................... Cash interest on the Senior Secured Notes will be
payable at the rate of % per annum of their principal
amount at maturity through and including , 1999,
and after such date will be payable at the rate of %
per annum of their principal amount at maturity. See
"Original Issue Discount" below. Interest on the notes
is payable semiannually on and
, commencing , 1994. The
price to the public of the Senior Secured Notes
represents a yield to maturity of % per annum,
computed on the basis of semiannual compounding.
</TABLE>

5
<PAGE>
<TABLE>
<S> <C>
Optional Redemption............... The Senior Secured Notes will be redeemable at the
option of the Company, in whole or in part, on or after
, 1999 at the redemption prices set forth
herein, plus accrued interest. In addition, up to
$ million aggregate principal amount at maturity of
the Senior Secured Notes are redeemable, in whole or in
part, at the option of the Company, from the proceeds of
one or more Public Equity Offerings following which
there is a Public Market, at the redemption prices set
forth herein, plus accrued interest.
Change of Control................. Upon a Change of Control (as defined herein), holders of
the Senior Secured Notes will have the right to require
the Company to purchase the Senior Secured Notes at a
purchase price of 101% of the accreted value thereof,
plus accrued and unpaid interest, if any, to the date of
purchase. The Company may not have sufficient funds or
the financing to satisfy its obligations to repurchase
the Senior Secured Notes and other debt that may come
due upon a Change of Control.
Security.......................... The Senior Secured Notes will be secured by a pledge of
all of the capital stock of the Company's present and
future subsidiaries.
Ranking........................... The Senior Secured Notes will be senior obligations of
the Company and will rank PARI PASSU in right of payment
with the Company's existing and future senior
indebtedness. On a pro forma basis as of December 31,
1993, after giving effect to the application of the net
proceeds of the Offering and the Transaction, the Compa-
ny would have had $4.6 million of senior indebtedness
outstanding, excluding the Senior Secured Notes, all of
which would have been secured. In addition, because the
Company is a holding company, the Senior Secured Notes
will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries. On a
pro forma basis as of December 31, 1993, after giving
effect to the application of the net proceeds of the
Offering and the Transaction, the aggregate liabilities
(excluding guarantees) of the Company's subsidiaries
would have been approximately $480,000, including trade
payables, accrued expenses, and taxes payable.
Certain Covenants................. The Indenture governing the Senior Secured Notes (the
"Indenture") will contain covenants, including, but not
limited to, covenants with respect to the following
matters: (i) limitations on the incurrence of additional
indebtedness; (ii) limitations on restricted payments;
(iii) limitations on incurrence of additional indebt-
edness by subsidiaries; (iv) limitations on the sale and
issuance of capital stock by subsidiaries; (v)
limitations on dividends and other payments; (vi)
limitations on transactions with affiliates; (vii)
limitations on liens; (viii) limitations on mergers,
consolidations, or asset sales; and (ix) limitations on
subsidiary investments.
Original Issue Discount........... The Senior Secured Notes are being issued with original
issue discount. For Federal income tax purposes, holders
of the Senior Secured Notes will be required to include
amounts in gross income in advance of receipt of cash to
which the income is attributable. See "Certain Federal
Income Tax Considerations."
</TABLE>

6
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds................... The net proceeds to the Company from this Offering will
be used to repay certain indebtedness of the Company, to
complete the Acquisition, to repay certain amounts due
in connection with the Stock Purchase, and for general
corporate purposes.
</TABLE>

RISK FACTORS

An investment in the Senior Secured Notes involves a high degree of risk.
Each prospective purchaser of the Senior Secured Notes should consider carefully
the specific factors set forth under "Risk Factors," as well as the other
information set forth in this Prospectus, before purchasing the Senior Secured
Notes offered by this Prospectus.

7
<PAGE>
SUMMARY PRO FORMA FINANCIAL AND OTHER DATA

The following table presents selected summary financial data of the
subsidiaries that will be retained by the Company following the consummation of
the Stock Purchase and PSNC Propane Corporation (the "PSNC Operations") as of
and for each of the four years ended June 30, 1992. The table also presents
selected summary pro forma financial data of the Company for the year ended June
30, 1993, and for the twelve months ended December 31, 1993. The pro forma
financial operating and other data for the year ended June 30, 1993 and for the
twelve months ended December 31, 1993 give effect to the Offering and the
Transaction, as if these transactions had occurred on July 1, 1992. Information
other than operating revenue, gross profit, retail gallons sold and weighted
average gross profit per gallon are not presented because the Company expects
new management to conduct its operations, including the PSNC Operations, on a
substantially different basis than current management. Accordingly, the Company
believes that presentation of such additional information would not be
appropriate. The financial data set forth below should be read in conjunction
with the Company's consolidated financial statements and related notes,
"Selected Consolidated Financial and Other Data for the Company Prior to the
Transaction," "Pro Forma Financial and Other Data," and "Management's Discussion
and Analysis of Results of Operations and Financial Condition," all contained
elsewhere in this Prospectus. See "Selected Consolidated and Other Financial
Data for the Company Prior to the Transaction" for a presentation of the
Company's historical consolidated financial data.
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
PRO FORMA FOR TRANSACTION AND
THE TRANSACTION OFFERING(1)
---------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
TWELVE
YEAR MONTHS
ENDED ENDED
JUNE DECEMBER
30, 31,
------- -------

<CAPTION>
1989 1990 1991 1992 1993 1993
------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS, DEGREE DAYS AND GROSS
PROFIT PER GALLON DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Operating revenue........... $65,469 $75,342 $75,250 $69,216 $76,931 $78,582
Gross profit (2)............ 36,838 39,455 37,799 38,031 41,243 41,874
Operating expenses.......... -- -- -- -- 23,825 24,160
EBITDA (3).................. -- -- -- -- 17,418 17,714
Depreciation and
amortization............... 5,560 5,863 6,022 6,531 6,722 6,675
Operating income............ -- -- -- -- 10,696 11,039
Interest expense:
Cash interest............. -- -- -- -- 8,808 8,503
Amortization of debt
discount and expense..... -- -- -- -- 4,162 4,316
Total interest
expense................ -- -- -- -- 12,970 12,819
Net loss.................... -- -- -- -- (1,792 ) (1,659 )
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
PRO FORMA FOR
THE
PRO FORMA FOR TRANSACTION AND
THE TRANSACTION OFFERING(1)
---------------------------------- ----------------
TWELVE
YEAR MONTHS
ENDED ENDED
JUNE DECEMBER
30, 31,
------- -------
1989 1990 1991 1992 1993 1993
------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS, DEGREE DAYS AND GROSS
PROFIT PER GALLON DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA AND
FINANCIAL RATIOS:
Capital expenditures:
Existing operations....... $ $
Start-up of new retail
service centers..........
Acquisitions..............
------- -------
Total capital
expenditures...........
Cash from sale of retail
service centers and other
assets..................... -- -- -- --
EBITDA (3) to interest
expense.................... -- -- -- -- 1.34 x 1.38 x
EBITDA (3) to cash
interest................... -- -- -- -- 1.98 x 2.08 x
Retail gallons sold......... 90,571 84,860 76,591 77,856 84,859 84,224
Weighted average gross
profit per gallon.......... .360 .418 .441 .426 .429 .438
Actual weighted average
heating degree days (4).... -- -- -- --
Deviation from normal
weighted average heating
degree days (4)............ -- -- -- --
Percent deviation from
normal average heating
degree days................ -- -- -- -- -- --
<FN>
- ------------
(1) For an explanation of adjustments to arrive at pro forma data, see
"Capitalization," and "Pro Forma Consolidated Financial and Other Data."
(2) Represents operating revenue less the cost of products sold.
(3) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, and other non-recurring expenses. EBITDA should not be
construed as an alternative either (i) to operating income (determined in
accordance with generally accepted accounting principles) or (ii) to cash
flows from operating activities (determined in accordance with generally
accepted accounting principles).
(4) Actual weighted average heating degree days represent the average heating
degree days in the Company's market areas for November through March of
each year, weighted to reflect the retail gallons sold in each area.
Heating degree days represent the summation of the amount by which a 65
degree Fahrenheit base amount exceeds the mean daily temperature (average
of daily maximum and minimum temperatures) at various locations in the
United States and are calculated by the National Weather Service. Normal
weighted average heating degree days are determined based on a 50 year
moving average. The increase in actual weighted average heating degree days
for fiscal year 1993 was due primarily to a change in the markets in which
the Company did business.
</TABLE>

9
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
PURCHASERS OF THE SENIOR SECURED NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS IN EVALUATING AN INVESTMENT IN THE SENIOR SECURED NOTES.

HIGH LEVERAGE AND ABILITY TO SERVICE DEBT

As of December 31, 1993, on a pro forma basis after giving effect to the
application of the proceeds of this Offering as set forth in "Use of Proceeds,"
and the Transaction, the Company would have had approximately $111.8 million
aggregate outstanding principal amount (in the case of the Senior Secured Notes,
such amount being the accreted value) of indebtedness on a consolidated basis,
and a stockholders' deficit of approximately $31.4 million. See
"Capitalization."

On a pro forma basis, after giving effect to the application of the proceeds
of this Offering and the Transaction, earnings would have been inadequate to
cover fixed charges by $2.6 million for fiscal year 1993 and by $2.3 million for
the twelve months ended December 31, 1993. See "Capitalization"; "Selected
Consolidated Financial and Other Data for the Company Prior to the Transaction";
and "Pro Forma Consolidated Financial and Other Data." The Company expects
earnings to be inadequate to cover fixed charges for fiscal year 1994.

The Company's high degree of leverage will make it vulnerable to adverse
changes in the weather and may limit its ability to respond to market
conditions, to capitalize on business opportunities, and to meet its contractual
and financial obligations. Fluctuations in interest rates will affect the
Company's financial condition inasmuch as the credit facility the Company will
enter into simultaneously with this Offering (the "New Credit Facility") will
bear interest at a floating rate.

The Company will be required to use a significant portion of its cash flow
from operations to meet its debt service obligations, which through fiscal year
1997 are expected to consist primarily of interest, including interest on the
Senior Secured Notes. The ability of the Company to meet its debt service
obligations, including the increase in the cash interest rate on the Senior
Secured Notes to % in fiscal year 1999, and to reduce its total debt, will
be dependent upon the future performance of the Company and its subsidiaries,
which, in turn, will be subject to general economic conditions and to financial,
business, weather, and other factors, including factors beyond the Company's
control. The Company believes that based on current levels of operations and
assuming normal winter weather, that it will be able to fund these debt service
obligations from funds generated from operations and other available sources of
cash. If the Company and its subsidiaries are unable to comply with the terms of
their debt agreements and fail to generate sufficient cash flow from operations
in the future, they may be required to refinance all or a portion of their
existing debt or to obtain additional financing. There can be no assurance that
any such refinancing would be possible or that any additional financing could be
obtained, particularly in view of the Company's anticipated high levels of debt,
the fact that a significant portion of the Company's consolidated current assets
will be given as collateral to secure indebtedness under the New Credit Facility
and all of the capital stock of the Company's present and future subsidiaries
will be pledged to secure the Senior Secured Notes, and the debt incurrence
restrictions under existing debt agreements. If no such refinancing or
additional financing were available, the Company could be forced to default on
its respective debt obligations and, as an ultimate remedy, seek protection
under the federal bankruptcy laws.

RESTRICTIONS IN FINANCING AGREEMENTS

The Indenture contains provisions that will limit, among other things, (a)
the ability of the Company and its subsidiaries to incur additional
indebtedness, (b) certain restricted payments and investments, (c) the sale and
issuance of capital stock by subsidiaries, (d) dividend and other payments, (e)
transactions with affiliates, (f) the creation of liens, (g) the types of
mergers, consolidations, or asset sales in which the Company may participate,
and (h) subsidiary investments. The Indenture also contains provisions which
require the Company, in the event of a Change in Control (as defined in the
Indenture), to make an offer to purchase the Senior Secured Notes. There can be
no assurance that the Company will have the financial resources necessary to
purchase the Senior Secured Notes upon a Change in Control.

10
<PAGE>
The New Credit Facility will contain provisions similar to the provisions in
the Indenture, as well as certain financial maintenance tests. Any failure of
the Company to comply with these or other covenants contained in these
agreements could result in a default thereunder, which, in turn, could cause
such indebtedness and by reason of cross-default provisions, the Senior Secured
Notes to be declared immediately due and payable. The ability of the Company to
comply with these provisions may be affected by events beyond its control.

EFFECTIVE RANKING OF SENIOR SECURED NOTES

The Senior Secured Notes will be senior secured obligations of the Company
and will rank PARI PASSU with all other existing and future senior indebtedness
of the Company. Pursuant to the Indenture, the Company may incur up to $15.0
million of senior secured indebtedness under the New Credit Facility and may,
subject to certain limitations, incur other secured indebtedness. In the event
of a bankruptcy, liquidation or similar proceeding affecting the Company, the
other secured creditors of the Company would be entitled to repayment in full
from the proceeds of any collateral subject to their security interests before
any payment therefrom could be made to holders of the Senior Secured Notes. See
"Description of Senior Secured Notes -- General" and "Description of Other
Indebtedness."

The Company is a holding company that conducts its operations through its
subsidiaries (the vast majority of which are retail service centers) and has no
material assets other than its interests in its subsidiaries. As a result of the
Company's holding company structure, except to the extent that the Senior
Secured Notes constitute recognized creditor claims against the assets and
earnings of the Company's subsidiaries, claims of creditors of the Company's
subsidiaries (including lenders under the New Credit Facility which will be
guaranteed by subsidiaries of the Company) will have priority with respect to
the assets and earnings of such subsidiaries over the claims of creditors of the
Company, including holders of the Senior Secured Notes, even though such
subsidiary obligations do not constitute senior indebtedness. On a pro forma
basis as of December 31, 1993, after giving effect to the application of the
proceeds of the Offering and the Transaction, the obligations of the Company's
subsidiaries, other than their respective guarantees of Empire Gas' obligations
under the New Credit Facility, would have consisted of total payables of
approximately $480,000 including trade payables, accrued expenses and taxes
payable. The New Credit Facility and the Indenture will restrict the
subsidiaries' ability to incur additional indebtedness other than in limited
circumstances, including to fund acquisitions. See "Description of the Senior
Secured Notes."

SECURITY FOR THE SENIOR SECURED NOTES

The Senior Secured Notes will be secured by a pledge of all of the capital
stock of the Company's present and future subsidiaries. Currently there is no
market for such stock. There can be no assurance that the proceeds from the sale
or sales of all such collateral would be sufficient to satisfy the amounts due
on the Senior Secured Notes in the event of a default. If such proceeds are not
sufficient to repay all such amounts due on the Senior Secured Notes, then
Holders of the Senior Secured Notes (to the extent not repaid from the proceeds
of the sale of the collateral) would have only an unsecured claim against the
Company's remaining assets. In addition, the ability of the Holders of the
Senior Secured Notes to rely upon the collateral for fulfillment of the
Company's obligations under the Indenture may be subject to certain bankruptcy
law limitations in the event of a bankruptcy.

PAYMENTS DUE ON INDEBTEDNESS PRIOR TO MATURITY OF SENIOR SECURED NOTES

The Company intends to refinance or replace some portion of its New Credit
Facility prior to its maturity on or about July 1997. There can be no assurance
that any such refinancing will be possible, or that any additional financing in
the future can be obtained, particularly in view of the Company's anticipated
high levels of debt, and the restrictions on the Company's ability to incur
additional debt under the New Credit Facility and the Indenture. If no such
refinancing or additional financing is available or possible, as the case may
be, the Company could be forced to default on its debt obligations and, as an
ultimate remedy, seek protection under the federal bankruptcy laws.

11
<PAGE>
TAX CONSEQUENCES OF THE OFFERING

The Senior Secured Notes will be issued at a substantial discount from their
principal amount. Consequently, purchasers of Senior Secured Notes generally
will be required to include amounts in gross income for Federal income tax
purposes in advance of their receipt of the cash payments to which the income is
attributable. If the Senior Secured Notes are "applicable high yield discount
obligations," the Company's federal income tax deductions with respect to the
original issue discount on the Senior Secured Notes will be deferred until the
Company makes the related payments and possibly, in part, disallowed. See
"Certain Federal Income Tax Considerations -- Certain Federal Income Tax
Consequences to the Company and to Corporate Holders."

BANKRUPTCY CONSIDERATIONS

If a bankruptcy case is commenced by or against the Company under the
Bankruptcy Code after the issuance of the Senior Secured Notes, the claim of a
holder of Senior Secured Notes may be limited to an amount equal to the sum of
(i) the initial public offering price and (ii) that portion of original issue
discount which is not deemed to constitute "unmatured interest" for purposes of
the Bankruptcy Code. Any original issue discount that was not amortized as of
the date of any such bankruptcy filing would constitute "unmatured interest."

WEATHER

Weather conditions have a substantial impact on the demand for propane,
particularly by retail customers, with peak sales typically occurring during the
winter months. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Warmer than normal winter weather in fiscal years
1991 and 1992 had a material adverse effect on the Company's operating income in
each of those years. Warmer than normal weather in the future could have a
material adverse effect on the Company's operating income and could affect its
ability to fulfil its debt service obligations. While the fiscal year 1993
winter was a nearly normal winter, there can be no assurance that average
temperatures in future years will be closer to the historical average.

PROPANE COST VOLATILITY

The cost of propane purchased by the Company can fluctuate dramatically over
a short period of time due to a variety of factors, including severe cold
weather and product transportation difficulties. In general, the Company's
supply contracts permit its suppliers to charge posted prices at the time of
delivery, less any negotiated discount. The Company has generally been able to
pass any cost increases on to its customers; however, there can be no assurance
that the Company will be able to pass on such cost increases in the future.

COMPETITION

Empire Gas encounters competition from a number of other propane
distributors in each geographic region in which it operates and competes for
customers against suppliers of other energy sources. For residential and
commercial customers, Empire Gas competes primarily with suppliers of
electricity and propane, although it currently enjoys a competitive advantage
over suppliers of electricity because of the higher cost of electricity. The
Company believes that fuel oil does not present a significant competitive threat
in the Company's primary service areas because: (i) propane is a residue-free,
cleaner energy source, (ii) environmental concerns make fuel oil relatively
unattractive, and (iii) fuel oil appliances are not as efficient as propane
appliances. Empire Gas generally does not attempt to sell propane in areas
served by natural gas distribution systems, except sales for specialized
industrial applications and for motor fuel, because the price per equivalent
energy unit of propane is, and has historically been, higher than that of
natural gas. To use natural gas, however, a retail customer must be connected to
a distribution system provided by a local utility. Because of the costs involved
in building or connecting to a natural gas distribution system, natural gas is
not expected to create significant competition for the Company in areas that are
not currently served by natural gas distribution systems.

12
<PAGE>
CONSERVATION AND IMPROVED EFFICIENCY OF GAS APPLIANCES

Retail customers primarily use propane for heating, water heating, and
cooking. Conservation measures or technological advances, including the
development of more efficient gas appliances, could slow the growth of demand
for propane by retail propane customers. The Company believes that decreases in
oil and gas prices in recent years have decreased the incentive to conserve and
that the gas appliances used today are already operating at high levels of
efficiency. The Company cannot predict the impact of future conservation
measures. Nor is the Company able to predict the effect that any technological
advances might have on the Company's operations.

OPERATING RISKS

The Company's propane operations are subject to all operating hazards and
risks normally incident to handling, storing and transporting combustible
liquids, such as the risk of personal injury and property damage caused by fire.
Empire Gas maintains insurance policies with insurers in such amounts and with
such coverages and deductibles as management of the Company believes is
reasonable and prudent. Empire Gas' current automobile liability policy provides
coverage for losses of up to $101.0 million per occurrence with a $500,000
deductible per occurrence. Empire Gas' general liability policy has a $500,000
deductible per occurrence (subject to an aggregate deductible of $1.0 million
per policy period) with total coverage of $101.0 million. Current liability
insurance coverage substantially exceeds any liability Empire Gas has previously
incurred. The occurrence of an event not fully covered by insurance could have a
material adverse effect on the Company's financial condition and results. See
"Business of the Company -- Propane Operations -- Risks of Business."

POTENTIAL ACQUISITIONS AND DEVELOPMENT OF NEW RETAIL SERVICE CENTERS

The Company intends to consider and evaluate opportunities for growth in its
industry through acquisitions and the development of new retail propane service
centers. While the Company recently completed an acquisition of one retail
service center in Colorado, has signed an agreement to purchase a small retail
propane company in Missouri, and will complete the Acquisition contemporaneously
with this Offering, there can be no assurance that the Company will continue to
find attractive acquisition opportunities, including opportunities to acquire
assets for the development of new retail service centers, or to the extent such
opportunities are identified, that the Company will be able to consummate the
acquisitions or will be able to obtain financing for any such acquisitions. In
addition, the Company's ability to undertake acquisitions will be limited by the
non-competition agreement (the "Non-Competition Agreement") entered into by the
Company and Empire Energy Corporation ("Energy"), whose stock will be
transferred to Mr. Plaster and certain other departing officers as part of the
Transaction. Subject to an exception for multi-state acquisitions, the
Non-Competition Agreement restricts the Company from making acquisitions in
seven states and certain territories in five states (the "Energy Territories")
for a period of three years from the date the Stock Purchase is consummated (the
"Effective Date"). See "The Transaction" and "Certain Relationships and Related
Transactions -- The Transaction." No assurance can be given as to the extent to
which such acquisitions or new retail service centers will contribute to the
Company's cash flows or results of operations.

DEPENDENCE ON CONTROLLING SHAREHOLDER AND CONFLICT OF INTERESTS

Upon consummation of the Transaction, Empire Gas will be dependent on the
efforts of Paul S. Lindsey, Jr. who will serve as the Company's Chief Executive
Officer, President, and Chairman of the Board. Mr. Lindsey and his wife, Kristin
Lindsey, will hold approximately 96% of the Company's Common Stock and generally
will be able to control the Company's operations. Although the Company will
purchase a key man life insurance policy in the amount of $30 million, the loss
of Mr. Lindsey's services could have a material adverse effect on the business
of the Company. As the holder of a majority of the Company's outstanding Common
Stock, Mr. Lindsey may have interests different from those of holders of the
Senior Secured Notes. In case of such a conflict of interests, there can be no
assurance that the Company will not take actions that the holders of the Senior
Secured Notes do not believe to be in their best interests.

13
<PAGE>
FRAUDULENT TRANSFER CONSIDERATIONS ASSOCIATED WITH THE STOCK REPURCHASE AND DEBT
REFINANCING

Under fraudulent transfer provisions of the Bankruptcy Code or comparable
provisions of state fraudulent transfer law, a transfer of property made within
a year before a bankruptcy filing (or within the applicable state law period)
can be avoided if the company (a) made such transfer with the intent of
hindering, delaying, or defrauding current or future creditors, or (b)(i)
received less than reasonably equivalent value or fair consideration therefor
and (ii) at the time of such transfer (A) was insolvent or was rendered
insolvent by such transfer, (B) was engaged or was about to engage in a business
or transaction for which its remaining assets constituted unreasonably small
capital to carry on such business, or (C) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they mature.

If a court were to find that, in substance, the Senior Secured Notes were
issued to repurchase the Common Stock of Mr. Plaster and the departing officers,
the court could find that the Company did not receive fair consideration or
reasonably equivalent value for the issuance of the Senior Secured Notes. In
addition, to the extent the proceeds are being used to repay (i) the Company's
12% Senior Subordinated Debentures due 2002 (the "12% Senior Subordinated
Debentures") which were incurred in repaying certain indebtedness incurred in
the 1983 leveraged buy-out of Empire Gas Corporation (the "LBO"), and (ii) $13.7
million principal amount of the Company's 9% Subordinated Debentures due 2007
(the "2007 9% Subordinated Debentures"), which were incurred in the LBO, of
which $4.7 million principal amount will be purchased from Mr. Plaster, a court
could find that the Company did not receive fair consideration or reasonably
equivalent value for the issuance of the Senior Secured Notes. If a court found
a lack of fair consideration for the Senior Secured Notes and also concluded
that one or more of the financial conditions described above was satisfied at
the time Empire Gas incurred the debt to the holders of the Senior Secured
Notes, or if the court found that the transaction was entered into with the
intent of hindering, delaying, or defrauding creditors, the court could set
aside the transaction as a fraudulent transfer and void the Senior Secured Notes
and order the return of any payments of principal and interest made thereon. To
the extent any Senior Secured Note was avoided as a fraudulent transfer, the
holder of that Senior Secured Note would cease to have any claim in respect of
the Company. In addition, the avoidance of the Senior Secured Notes could result
in an event of default with respect to the other indebtedness of the Company and
could result in the acceleration of such indebtedness, a change in control of
the Company, or otherwise adversely affect the Company.

The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a company will be considered insolvent if the sum of its debts, including
estimated contingent liabilities, was greater than all of its assets at a fair
valuation or if the present fair saleable value of its assets is less than the
amount that would be required to pay its probable liability on its existing
debts, including estimated contingent liabilities, as they become absolute and
mature.

The Company believes that the indebtedness represented by the Senior Secured
Notes is being incurred for proper purposes and in good faith, and without any
actual intent to delay, hinder, or defraud the Company's creditors. Furthermore,
the Company believes, based on analyses of internal cash flow, that it (i) will
not be considered insolvent, at the time of or as a result of the issuance of
the Senior Secured Notes, under any of the foregoing standards, (ii) will have
sufficient capital to meet the needs of the business in which it is engaged, and
(iii) will not have incurred debts beyond its ability to pay such debts as they
mature. Furthermore, as a condition to the consummation of the Stock Purchase,
the Company will receive a solvency opinion that the Stock Purchase and this
Offering will not render the Company insolvent, leave the Company with
inadequate or unreasonably small capital or result in the Company incurring
indebtedness beyond its ability to repay such indebtedness as it matures. There
can be no assurance, however, that a court passing on such questions would agree
with the Company.

ABSENCE OF PUBLIC MARKET

There is currently no established trading market for the Senior Secured
Notes and the Company does not intend to have the Senior Secured Notes listed
for trading on any securities exchange or on any automated dealer quotation
system. The Underwriter has advised the Company that it presently intends to
make a market in the Senior Secured Notes, but the Underwriter is not obligated
to make a market in the

14
<PAGE>
Senior Secured Notes and any such market making may be discontinued at any time
at the sole discretion of the Underwriter. Accordingly, no assurance can be
given as to the prices or liquidity of, or trading markets for, the Senior
Secured Notes. The liquidity of any market for the Senior Secured Notes will
depend upon the number of holders of Senior Secured Notes, the interest of
securities dealers in making a market in the Senior Secured Notes and other
factors. The absence of an active market for the Senior Secured Notes would
adversely affect the liquidity of the Senior Secured Notes. The liquidity of,
and trading markets for, the Senior Secured Notes may also be adversely affected
by the liquidity of, and market for high yield securities generally. Such a
decline may adversely affect the liquidity of, and trading markets for, the
Senior Secured Notes, independent of the financial performance of, and prospects
for, the Company.

THE TRANSACTION

The Company will implement a change in ownership and management
contemporaneously with this Offering by repurchasing shares of its common stock
from its controlling shareholder, Mr. Robert W. Plaster, and certain other
departing officers in exchange for all of the shares of a subsidiary that owns
133 retail service centers located primarily in the Southeast. Mr. Paul S.
Lindsey, Jr., who has been with the Company for 26 years and currently serves as
the Company's Chief Operating Officer and Vice Chairman of the Board, will
become the Company's controlling shareholder, Chief Executive Officer, and
President. The change in ownership and management will enable the Company to
pursue a growth strategy focusing on acquiring propane operating companies.
Contemporaneously with the Offering, the Company will acquire the assets of PSNC
Propane Corporation, a company located in North Carolina that has six retail
service centers and five additional bulk storage facilities with annual volume
of approximately 9.5 million gallons, for an aggregate purchase price of
approximately $14.0 million. The Company also recently completed the acquisition
of a retail propane company in Colorado with annual volume of approximately
700,000 gallons, and has entered into a contract to purchase a retail propane
company in Missouri with annual volume of approximately 690,000 gallons.

Pursuant to the Stock Purchase, the Company will transfer 100% of the common
stock of its subsidiary, Energy ("Energy Common Stock"), to Mr. Robert W.
Plaster and certain departing directors, officers and employees in exchange for
12,004,430 of their shares of Common Stock. Certain of the departing officers
and employees will receive $7.00 per share for the remaining 346,220 of shares
of Common Stock that they hold. Energy owns the common stock of approximately
136 subsidiaries, 133 of which are retail service centers located in ten states,
primarily in the Southeast, and certain other assets. Empire Gas will retain
ownership of 151 retail service centers located in 20 states and 8 nonretail
subsidiaries that provide services related to the Company's retail propane
business. Following the Transaction, Mr. Lindsey and his wife Kristin Lindsey
will beneficially own approximately 96% of the Company's Common Stock and Mr.
Lindsey will become the Company's Chief Executive Officer and President.

In connection with the Stock Purchase, Mr. Plaster will terminate his
positions with the Company as Chief Executive Officer and Chairman of the Board
of Directors. Mr. Plaster's employment contract with the Company will be
terminated. See "Management -- Employment Agreement." Similarly, the departing
directors, officers and employees will terminate their positions with the
Company and its subsidiaries.

In connection with the Stock Purchase, certain lease and use agreements
between the Company and Mr. Plaster, or entities controlled by Mr. Plaster, will
be terminated. The Company has also entered into certain agreements that will
become effective on the Effective Date, including the Non-Competition Agreement,
a lease for the Company's headquarters, and a services agreement pursuant to
which Empire Service Corporation ("Service Corp."), a subsidiary of Energy, will
provide data processing, management information and other services to the
Company (the "Service Agreement"). See "Certain Relationships and Related
Transactions."

15
<PAGE>
The Company has requested a private letter ruling from the Internal Revenue
Service concerning the federal income tax consequences of the Stock Purchase.
The consummation of the Transaction is conditioned upon the receipt of rulings
from the IRS that provide, among other things, that, based on certain
representations contained in the rulings, neither income nor gain for federal
income tax purposes will be recognized as a result of the Stock Purchase.

The obligations of the parties to consummate the Stock Purchase are also
subject to certain other conditions, including the receipt of a solvency opinion
that the consummation of the Stock Purchase and this Offering will not render
the Company insolvent, leave the Company with inadequate or unreasonably small
capital or result in the Company incurring indebtedness beyond its ability to
repay such indebtedness as it matures.

Simultaneously with this Offering, the Company will consummate the
acquisition of PSNC Propane Corporation, a company that has six retail service
centers and an additional five bulk storage facilities located in North
Carolina, an area in which the Company desires to strengthen its presence. The
Company will use approximately $12.0 million of the proceeds towards the $14.0
million aggregate purchase price. Approximately $1.5 million of the remaining
purchase price will be funded by borrowings on the Company's New Credit
Facility. The remaining $500,000 will be paid by the Company over five years.
See "Use of Proceeds." During 1993, PSNC Propane Corporation sold approximately
9.5 million gallons, 70% of which were higher margin sales to residential
customers.

The Company will use a portion of the proceeds to repay certain of its
existing indebtedness that have earlier maturity dates or that carry a higher
effective interest rate. The Company will enter into the $15.0 million New
Credit Facility.

Immediately prior to the consummation of the Offering, the Company's
subsidiary, Empire Gas Operating Corporation ("EGOC"), which owns the
outstanding capital stock of the Company's retail service centers and certain
nonretail subsidiaries, and certain other assets, will merge into the Company.

USE OF PROCEEDS

The net proceeds to the Company from the issuance and sale of the Senior
Secured Notes offered hereby will be approximately $95.0 million. The Company
intends to use approximately $73.4 million of the net proceeds to retire
existing indebtedness. Approximately $23.0 million will be used to redeem the
Company's 12% Senior Subordinated Debentures due 2002, which currently have an
annual sinking fund requirement of $690,000. Approximately $20.0 million will be
used to redeem the Company's 9% Convertible Subordinated Debentures due 1998,
which currently have an annual sinking fund requirement of $1.25 million.
Approximately $16.7 million will be used to repay the term loan (currently
accruing interest at 6.125% per annum) under the Existing Credit Facility (the
"Term Loan"), which matures June 30, 1998 and which currently has a quarterly
sinking fund requirement of $650,000. Approximately $13.7 million will be used
to repurchase $13.7 million principal amount 2007 9% Subordinated Debentures,
$4.7 principal amount of which will be purchased from Mr. Robert W. Plaster. See
"Certain Relationships and Related Transactions." The purchase of the 2007 9%
Subordinated Debentures will satisfy the Company's $1.37 million annual sinking
fund requirement through the maturity date of the Senior Secured Notes.
Approximately $12.0 million of the remaining net proceeds will be used by the
Company to complete the Acquisition, which has an aggregate purchase price of
$14.0 million. See "The Transaction" and "Business -- Business Strategy --
Growth through acquisition of retail service centers." Approximately $2.6
million of the net proceeds will be used to repurchase, at $7.00 per share,
approximately 346,220 shares of Common Stock held by the departing directors,
officers and employees, and approximately 31,640 shares of Common Stock held by
other shareholders. The Company will use approximately $4.1 million of the net
proceeds to make a payment to Energy in connection with the Stock Purchase,
reduced to the extent Energy may be required to make a payment to the Company
based on the balance, as of the Effective Date, of certain of the Company's
liabilities net of certain of its assets. See "Certain Relationships and Related
Transactions -- The Transaction." Any remaining net proceeds (estimated to be
$ ) will be used by the Company for general corporate purposes.

16
<PAGE>
CAPITALIZATION

The following table sets forth, as of December 31, 1993, the historical
capitalization of the Company and the pro forma capitalization of the Company as
adjusted to give effect to the Transaction and the application of the proceeds
of the Offering as described in "Use of Proceeds". This table should be read in
conjunction with the Company's consolidated financial statements and the pro
forma financial statements, including the notes thereto, included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1993
-----------------------------
HISTORICAL AS ADJUSTED
------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of
long-term debt............. $ 6,242 $ 360
------------- -------------
------------- -------------
Long-term debt (excluding
current portion of long-term
debt):
Existing Credit Facility:
Term Loan................. $ 14,100 $ --
$22 million revolving
credit facility.......... 11,800 --
New Credit Facility:
$15 million revolving
credit facility.......... -- 4,573
% Senior Secured Notes due
2004..................... -- 100,000
9% Convertible Subordinated
Debentures due 1998........ 15,682 --
9% Subordinated Debentures
due 2007................... 14,550 6,388 (1)
12% Senior Subordinated
Debentures due 2002........ 18,817 --
Purchase contract
obligations................ 664 883
------------- -------------
Total long-term debt...... 75,613 111,844
------------- -------------
Stockholders' equity
(deficit):
Common stock................ 14 14
Additional paid-in
capital.................... 27,088 27,088
Retained earnings........... 928 29,501
------------- -------------
28,030 56,603
Less: Treasury stock........ (1,299) (87,975)
------------- -------------
Total stockholders' equity
(deficit)................ 26,731 (31,372)
------------- -------------
Total capitalization.... $ 102,344 $ 80,472
------------- -------------
------------- -------------
<FN>
- ---------
(1) Face amount $12,287.
</TABLE>

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FOR THE COMPANY PRIOR TO THE TRANSACTION

The following table presents selected consolidated operating and balance
sheet data of Empire Gas, prior to the consummation of the Transaction, as of
and for each of the years in the five-year period ended June 30, 1993, as of and
for the six months ended December 31, 1992 and 1993, and for the twelve months
ended December 31, 1993. The financial data of the Company as of and for each of
the years in the five-year period ended June 30, 1993 were derived from the
Company's audited consolidated financial statements. The financial data for the
Company as of and for the six months ended December 31, 1992 and 1993, were
derived from the Company's unaudited consolidated financial statements which, in
the opinion of the Company, reflect all adjustments, of a normal and recurring
nature, necessary for a fair presentation of the results for the unaudited
periods. Due to the seasonal nature of the Company's business, the majority of
the Company's revenues are earned in its second and third fiscal quarters.
Accordingly, the results of operations for the six months ended December 31,
1993 are not indicative of the results of operations to be expected for the full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The financial and other data set forth below should be
read in conjunction with the Company's consolidated financial statements,
including the notes thereto, included elsewhere in this Prospectus. Because
these data do not take into account the effects of the Transaction on the
Company's results and financial condition, management does not believe they are
indicative of the results of the Company that can be expected after the
Transaction and Offering.

<TABLE>
<CAPTION>
EMPIRE GAS BEFORE THE TRANSACTION AND OFFERING
------------------------------------------------------------------------------------
TWELVE MONTHS
SIX MONTHS ENDED ENDED DECEMBER
YEAR ENDED JUNE 30, DECEMBER 31, 31,
------------------------------------------------ ------------------ --------------
1989 (1) 1990 1991 1992 1993 1992 1993 1993
-------- -------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating data:
Operating
revenue.......... $108,389 $123,153 $121,758 $112,080 $128,401 $ 62,344 $ 63,986 $130,043
Gross
profit (2)....... 61,995 64,962 61,787 61,107 68,199 33,233 33,333 68,299
Operating
expenses......... 36,438 39,563 44,772 40,052 41,665 20,392 21,001 42,454
EBITDA (3)........ 25,557 25,399 17,015 21,055 26,354 12,841 12,332 25,845
Depreciation and
amortization..... 8,194 9,334 9,552 10,062 10,351 5,109 4,940 10,182
Operating income
(loss)........... 17,363 16,566 7,463 10,993 16,003 7,732 7,392 15,663
Interest expense:
Cash interest... 12,288 11,437 12,038 10,721 9,826 5,161 4,364 9,529
Amortization of
debt discount
and expenses... 1,469 1,147 890 1,006 1,686 595 992 2,083
-------- -------- -------- -------- -------- -------- -------- --------------
Total interest
expense...... 13,757 12,584 12,928 11,727 11,512 5,756 5,356 11,612
Net income
(loss) (4)....... 857 1,216 (4,557) (1,474) 2,228 1,056 818 1,940
Ratio of earnings
to fixed
charges (5)...... 1.15x 1.21x -- -- 1.33x 1.31x 1.28x 1.31x
Deficiency in
earnings
available to
cover fixed
charges (5)...... -- -- (6,426) (1,414) -- -- -- --
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
---------------------------------------------------------------------------------- DECEMBER 31,
1989 1990 1991 1992 1993 1993
-------------- -------------- -------------- -------------- -------------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Total assets................ $ 161,727 $ 157,858 $156,613 $ 150,946 $ 147,445 $157,026
Long-term debt (including
current maturities)........ 77,775 79,666 84,289 78,958 79,249 81,855
Stockholders' equity........ 29,418 29,960 25,416 23,879 24,891 26,731
<FN>
- ------------
(1) The operating data for 1989 include the operating results of the Company's
predecessor, which was also named Empire Gas Corporation ("Old Empire"),
for the period ended October 28, 1988. The Company was formed in September
1988 to acquire Old Empire.
(2) Represents operating revenue less the cost of products sold.
(3) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, and other non-recurring expenses. EBITDA should not be
construed as an alternative either (i) to operating income (determined in
accordance with generally accepted accounting principles) or (ii) to cash
flows from operating activities (determined in accordance with generally
accepted accounting principles).
(4) Empire Gas did not declare or pay dividends on its common stock during the
five-year period ending June 30, 1993 or during the six-month period
ending December 31, 1993.
(5) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents net income before income taxes, plus "fixed charges"
and the amortization of capitalized interest, less interest capitalized.
"Fixed charges" consist of interest (including amortization of debt
issuance costs) and amortization of discount on indebtedness.
</TABLE>

19
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA

The following unaudited pro forma consolidated statements of operations have
been derived from the consolidated statement of operations of the Company for
the fiscal year ended June 30, 1993 and the consolidated statement of operations
for the six months and twelve months ended December 31, 1993 and adjust such
information to give effect to the Offering and the Transaction as if they had
been consummated on July 1, 1992. The unaudited pro forma consolidated balance
sheet has been derived from the consolidated balance sheet of the Company and
adjusts such information to give effect to the Offering and the Transaction as
if they had been consummated on December 31, 1993. The Pro Forma Consolidated
Financial and Other Data and accompanying notes should be read in conjunction
with the consolidated financial statements and related notes thereto appearing
elsewhere in this Prospectus. The Pro Forma Consolidated Financial and Other
Data is presented for informational purposes only and does not purport to
represent what the results of operations would actually have been if the
Offering and the Transaction had occurred on July 1, 1992, or what the Company's
financial position would actually have been if the Offering and the Transaction
had occurred on December 31, 1993, or to project the Company's results of
operations or financial position at any future date or for any future period.

20
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1993
----------------------------------------------------------------
ADJUSTMENTS EFFECTS OF
EMPIRE TO EXCLUDE PSNC EFFECTS OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
-------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... $128,401 $(61,057)(1) $ 9,587 $ $ 76,931
COST OF PRODUCT SOLD.................... 60,202 (29,157)(1) 4,643 35,688
-------- ------------ ------------ ---------
GROSS PROFIT............................ 68,199 (31,900) 4,944 41,243
-------- ------------ ------------ ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts....... 958 (442)(1) 30 546
General and administrative.............. 40,437 (19,852)(2) 2,619 23,204
Rent expense to related party........... 450 (375)(2) 75
Depreciation and amortization........... 10,351 (4,687)(3) 1,058 6,722
-------- ------------ ------------ ---------
52,196 (25,356) 3,707 30,547
-------- ------------ ------------ ---------
OPERATING INCOME........................ 16,003 (6,544) 1,237 10,696
-------- ------------ ------------ ---------
OTHER EXPENSE
Interest expense...................... (8,877) 271(4) (901) 699(6) (8,808)
Interest expense to related party..... (949) 94(4) 855(6)
Amortization of debt discount and
expense.............................. (1,686) (401) (2,075)(7) (4,162)
Restructuring proposal costs.......... (223) 105(2) (118)
-------- ------------ ------------ ----------- ---------
(11,735) 470 (1,302) (521) (13,088)
-------- ------------ ------------ ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES....... 4,268 (6,074) (65) (521) (2,392)
PROVISION (CREDIT) FOR INCOME TAXES 2,040 (2,433)(5) (25) (182)(8) (600)
-------- ------------ ------------ ----------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM................................... $ 2,228 $ (3,641) $ (40) $ (339)(9) $ (1,792)
-------- ------------ ------------ ----------- ---------
-------- ------------ ------------ ----------- ---------
EARNINGS (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM..................... $ .16 -- -- -- $ (1.07)
-------- ---------
-------- ---------
OTHER OPERATING DATA AND FINANCIAL
RATIOS
Ratio of earnings to fixed charges.... 1.33x -- -- -- --
--------
--------
Deficiency in earnings to cover fixed
charges.............................. -- -- -- -- $ (2,556)
---------
---------
EBITDA.................................. $ 26,354 -- -- -- $ 17,418
EBITDA to total interest expense........ 2.29x -- -- -- 1.34x
EBITDA to cash interest................. 2.68x -- -- -- 1.98x
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial
Statements of PSNC elsewhere in this Prospectus.
</TABLE>

21
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1993
----------------------------------------------------------------
ADJUSTMENTS EFFECTS OF
EMPIRE TO EXCLUDE PSNC EFFECTS OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
-------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... $ 63,986 $(31,010)(1) $ 4,388 $ $ 37,364
COST OF PRODUCT SOLD.................... 30,653 (14,930)(1) 2,076 17,799
-------- ------------
GROSS PROFIT............................ 33,333 (16,080) 2,312 19,565
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts 603 (283)(1) 20 340
General and administrative............ 20,173 (9,922)(1) 1,133 11,384
Rent expense to related party 225 (188)(2) 37
Depreciation and amortization......... 4,940 (2,189)(3) 517 3,268
-------- ------------ ------------ ---------
25,941 (12,582) 1,670 15,029
-------- ------------ ------------ ---------
OPERATING INCOME........................ 7,392 (3,498) 642 4,536
-------- ------------ ------------ ---------
OTHER EXPENSE
Interest expense...................... (4,364) 96(4) (446) 483(6) (4,231)
Amortization of debt discount and
expense.............................. (992) (216) (918)(7) (2,126)
Restructuring proposal costs.......... (398) 187(2) (211)
-------- ------------ ------------ ----------- ---------
(5,754) 283 (662) (435) (6,568)
-------- ------------ ------------ ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES....... 1,638 (3,215) (20) (435) (2,032)
PROVISION (CREDIT) FOR INCOME TAXES 820 (1,267)(5) (25) (128)(8) (600)
-------- ------------ ------------ ----------- ---------
NET INCOME (LOSS)....................... $ 818 $ (1,948) $ 5 $ (317) $ (1,432)
-------- ------------ ------------ ----------- ---------
-------- ------------ ------------ ----------- ---------
EARNINGS (LOSS) PER SHARE............... $ .06 -- -- -- $ (.80)
-------- ---------
-------- ---------
OTHER OPERATING DATA AND FINANCIAL
RATIOS
Ratio of earnings to fixed charges.... 1.28x -- -- -- --
--------
--------
Deficiency in earnings to cover fixed
charges.............................. -- -- -- -- $ (2,116)
---------
---------
EBITDA................................ $ 12,332 -- -- -- $ 7,804
EBITDA to total interest expense...... 2.30x -- -- -- 1.23x
EBITDA to cash interest............... 2.83x -- -- -- 1.84x
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial Statements
of PSNC elsewhere in this Prospectus.
</TABLE>

22
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1993
------------------------------------------------------------
ADJUSTMENTS
TO EFFECTS OF EFFECTS
EMPIRE EXCLUDE PSNC OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... $ 130,043 $(61,445)(1) $ 9,984 $ $ 78,582
COST OF PRODUCT SOLD.................... 61,744 (29,654)(1) 4,618 36,708
--------- --------- ------------ ---------
GROSS PROFIT............................ 68,299 (31,791) 5,366 41,874
--------- --------- ------------ ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts....... 1,044 (475)(1) 12 581
General and administrative............ 40,960 (19,997)(2) 2,541 23,504
Rent expense to related party......... 450 (375)(2) 75
Depreciation and amortization......... 10,182 (4,544)(3) 1,037 6,675
--------- --------- ------------ ---------
52,636 (25,391) 3,590 30,835
--------- --------- ------------ ---------
OPERATING INCOME........................ 15,663 (6,400) 1,776 11,039
--------- --------- ------------ ---------
OTHER EXPENSE
Interest expense...................... (8,363) 277(4) (874) 457(6) (8,503)
Interest expense to related party..... (666) 43(4) 623(6)
Amortization of debt discount and
expense.............................. (2,083) (422) (1,811)(7) (4,316)
Restructuring proposal costs.......... (621) 292(2) (329)
--------- --------- ------------ --------- ---------
(11,733) 612 (1,296) (731) (13,148)
--------- --------- ------------ --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES....... 3,930 (5,788) 480 (731) (2,109)
PROVISION (CREDIT) FOR INCOME TAXES..... 1,940 (2,383)(5) 147 (154)(8) (450)
--------- --------- ------------ --------- ---------
NET INCOME (LOSS)....................... $ 1,990 $ (3,405) $ 333 $ (577) $ (1,659)
--------- --------- ------------ --------- ---------
--------- --------- ------------ --------- ---------
EARNINGS (LOSS) PER SHARE............... $ .14 -- -- -- $ (.93)
--------- ---------
--------- ---------
OTHER OPERATING DATA AND FINANCIAL
RATIOS
Ratio of earnings to fixed charges.... 1.31x -- -- -- --
--------- ---------
--------- ---------
Deficiency in earnings to cover fixed
charges.............................. -- -- -- -- $ (2,256)
---------
---------
EBITDA................................ $ 25,845 -- -- -- 17,714
EBITDA to total interest expense...... 2.32x -- -- -- 1.38x
EBITDA to cash interest............... 2.86x -- -- -- 2.08x
Total Long-term debt (including
current portion) to EBITDA........... 3.17x -- -- -- 6.33x
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial
Statements of PSNC elsewhere in this Prospectus.
</TABLE>

23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS OF EMPIRE GAS
CORPORATION (EGC)
FOR THE YEAR ENDED JUNE 30, 1993, SIX MONTHS ENDED DECEMBER 31, 1993,
AND TWELVE MONTHS ENDED DECEMBER 31, 1993.

The pro forma consolidated income statement amounts are based on the
estimated pro forma effects of the consolidated balance sheet adjustments
assuming the transactions were consummated on July 1, 1992. The allocation of
income and expenses between the Company and Energy is based on the allocation of
assets in the Stock Redemption Agreement. The actual consolidated income
statement amounts may differ substantially because of changes in the
consolidated balance sheet effects at the actual consummation date.

(1) The revenues and expenses of the retail subsidiaries of Energy were
excluded. These subsidiaries represent substantially all the Operating
Revenue, Cost of Product Sold and the Provision for Doubtful Accounts
excluded on the pro forma statement of operations.

(2) The general and administrative expenses of Energy retail subsidiaries were
excluded. Exclusions of Energy non-retail general and administrative
expenses were determined as follows:

The amounts related to the salaries and related expenses of the
departing officers and certain agreements between the Company
and Mr. Plaster, or entities controlled by him, being terminated
were estimated as follows and eliminated:

<TABLE>
<S> <C>
Year Ended June 30, 1993....................... $2,556,100
Six Months Ended December 31, 1993............. $1,173,000
Twelve Months Ended December 31, 1993.......... $2,494,500
</TABLE>

Expenses related to maintenance and management of specific
energy non-retail assets were identified and eliminated.

All remaining non-retail expenses were assigned 52.3% to the
Company and 47.7% to Energy based on the respective proportions
of consolidated retail revenues.

(3) Depreciation and amortization of the assets of Energy retail subsidiaries
and non-retail subsidiaries were excluded.

(4) Interest expense and amortization of debt acquisition costs related to (a)
amounts directly related to liabilities of Energy retail subsidiaries and
(b) the revolving bank debt and related party note borrowings applicable to
Energy were excluded.

(5) Income tax expenses were based on the proportion of Energy taxable income to
the consolidated EGC taxable income.

(6) To (a) recognize additional interest expense assuming interest paid at 6% on
face value $106,235,000 of Senior Secured Note borrowings, (b) eliminate
interest expense on the repaid term credit facility, 9% Convertible
Subordinated Debentures due 1998 and the 12% Senior Subordinated Debentures
due 2002, the reduced amount of the 9% Subordinated Debentures due 2007, and
related party note borrowings and (c) reduce interest expense on the
revolving credit facility to reflect the reduction due to the proceeds of
this Offering.

(7) To (a) recognize amortization of new debt acquisition costs being amortized
over 10 years, (b) recognize amortization of new original issue discount on
new Senior Secured Secured Notes to bring the effective rate of the new debt
(excluding the amount included in the PSNC purchase accounting adjustments)
to 10.5% using the effective interest method, (c) eliminate amortization of
the discount on the 9% Convertable Subordinated Debentures due 1998 and the
12% Senior Subordinated Debentures due 2002, (d) reduce the amortization of
the discount that will result from the reduction of 9% Subordinated
Debentures due 2007 outstanding as a result of the Offering, and (e)
eliminate amortization of debt acquisition costs related to Bank of Boston
term credit facility and revolving credit facility being repaid.

(8) To record the increased estimated income tax credit provision, computed at
an effective rate of 38%, associated with the additional deductible expense
as a result of the operations after the Offering.

(9) The foregoing pro forma consolidated income statement does not give effect
to the gain of approximately $36.8 million resulting from the excess of the
fair value of Energy over its book value to be recognized upon the exchange
of Energy for Company common stock and the extraordinary expense of $8.6
million (net of estimated income tax effect) for the remaining unamortized
debt discount related to the 9% Convertible Subordinated Deventures due 1998
and the 12% Senior Subordinated Debentures due 2002 and the reduction of the
9% Subordinated Debentures due 2007 that will be recognized as a result of
use of proceeds of the Offering. The gain on disposition of Energy assets
has been assumed to be non-taxable. If any portion of the gain is deemed to
be taxable, such liablility would be accrued and payable by the Company.

24
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
ADJUSTMENTS EFFECTS OF
EMPIRE TO EXCLUDE PSNC EFFECTS OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
--------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash.................................. $ 1,667 $ (592)(1) $ $ $ 1,075
Trade Receivables..................... 16,985 (8,068)(1) 892 9,809
Inventories........................... 9,744 (4,705)(1) 1,173 6,212
Prepaid Expenses...................... 299 (106)(1) 193
Due from Energy....................... 3,121(2) (3,121)(5)
Deferred Income taxes................. 593 (434)(1) 275(6) 434
--------- ------------ ------------ ------------ ---------
Total current assets................ 29,288 10,784 2,065 (2,846) 17,723
--------- ------------ ------------ ------------ ---------
PROPERTY AND EQUIPMENT
At cost, net of accumulated
depreciation......................... 108,633 (51,765)(1) 12,000 68,868
--------- ------------ ------------ ---------
OTHER ASSETS
Debt acquisition, costs, net of
amortization......................... 473 4,527(7) 5,000
Excess of cost over fair value of net
assets acquired, at amortized cost... 18,193 (3,646)(3) 14,547
Other................................. 439 (288)(1) 500 651
--------- ------------ ------------ ------------ ---------
19,105 (3,934) 500 4,527 20,198
--------- ------------ ------------ ------------ ---------
$ 157,026 $(66,483) $ 14,565 $ 1,681 $106,789
--------- ------------ ------------ ------------ ---------
--------- ------------ ------------ ------------ ---------
CURRENT LIABILITIES
Current maturities of long-term
debt................................. $ 6,242 $ (76)(1) $ 100 $ (5,906)(10) $ 360
Accounts payable and accrued
expenses............................. 14,743 (3,008)(1) (846)(10) 10,889
--------- ------------ ------------ ---------
Total current liabilities........... 20,985 (3,084) 100 (6,752) 11,249
--------- ------------ ------------ ------------ ---------
LONG-TERM DEBT.......................... 75,613 (181)(1) 14,465 88,000(9)
(76,248)(10)
(3,121)(5)
2,645(8)
10,671(6) 111,844
--------- ------------ ------------ ------------ ---------
DEFERRED INCOME TAXES................... 31,865 (14,243)(1) (3,525)(6) 14,097
--------- ------------ ------------ ---------
ACCRUED SELF INSURANCE LIABILITY........ 1,832 (861)(1) 971
--------- ------------ ---------
STOCKHOLDERS' EQUITY
Capital stock
Common stock.......................... 14 14
Additional paid-in capital............ 27,088 27,088
Retained earnings..................... 928 35,917(4) (7,344)(6) 29,501
--------- ------------ ------------ ---------
28,030 35,917(4) (7,344) 56,603
Treasury Stock at cost................ (1,299) (84,031)(4) (2,645)(8) (87,975)
--------- ------------ ------------ ---------
26,731 (48,114) (9,989) (31,372)
--------- ------------ ------------ ---------
$ 157,026 $(66,483) $ 14,565 $ 1,681 $106,789
--------- ------------ ------------ ------------ ---------
--------- ------------ ------------ ------------ ---------
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial
Statements of PSNC elsewhere in this Prospectus.
</TABLE>

25
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF EMPIRE GAS
CORPORATION (EGC) AS OF DECEMBER 31, 1993

The pro forma consolidated balance sheet amounts assume the transactions
described below were consummated on December 31, 1993. The allocation of assets
and liabilities between the Company and Energy is based on the allocation in the
Stock Redemption Agreement. The actual consolidated amounts may differ
substantially because of changes in the financial position of the Company,
Energy and PSNC Propane Corporation as of the actual consummation date.

(1) The assets and liabilities of the retail distribution subsidiaries and
certain non-retail assets of Energy (principally administrative office and
data processing equipment, vehicles, airplanes, and home office parts
inventories) were excluded.

(2) The amount of $3,121,000 due from Energy was accrued under the provisions
of the Stock Redemption Agreement pertaining to certain non-retail assets
retained and liabilities assumed by the Company.

(3) The historical unamortized excess of cost over fair value of net assets
acquired for Energy retail subsidiaries was excluded.

(4) The fair value ($84,031,000) of 12,004,430 shares of EGC common stock
received in exchange for Energy was charged to Treasury Stock and the
resulting gain on the exchange of $35,917,000 was credited to retained
earnings. The gain on disposition of Energy assets has been assumed to be
non-taxable. If any portion of the gain is deemed to be taxable, such
liability would be accrued and payable by the Company.

(5) To record the payment due from Energy at the closing date of the
transaction based on the respective levels of certain non-retail assets
retained and liabilities assumed by the Company.

(6) To (a) eliminate the unamortized discount from face value of the 9%
Convertible Subordinated Debentures due 1998 and the 12% Senior
Subordinated Debentures due 2002 and the unamortized discount from face
value related to the paid 9% Subordinated Debentures due 2007 and (b)
record the tax benefit from the deductions related to the discounts.

(7) To (a) record $5,000,000 of debt acquisition costs paid in arranging the
financing which will be amortized on a straight-line basis over the term
of the new debt of 120 months and (b) eliminate the remaining unamortized
debt issuance costs of $473,000 for Bank of Boston term credit facility
and revolving credit facility.

(8) To record $2,645,000 for the purchase of 346,220 shares of Common Stock
from departing officers, directors and employees and 31,640 shares of
Common Stock from employees who are remaining with the Company.

(9) To record the proceeds of the new Senior Secured Notes.

(10) To (a) record repayment of $56,638,000 face value of existing debentures,
(b) record repayment of $16,700,000 of the term credit facility, (c)
record reduction of $8,816,000 of the revolving credit facility and (d)
payment of $846,000 of accrued interest.

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's results of
operations, financial condition and liquidity should be read in conjunction with
the "Selected Consolidated Financial and Other Data", the "Consolidated Pro
Forma Financial and Other Data" and the historical consolidated financial
statements of Empire Gas and the notes thereto included in this Prospectus. Pro
forma results reflect completion of the Transaction and the Offering. The
Company believes that the pro forma results are most indicative of the past
performance of the business of the Company as constituted after the Transaction
and Offering. Historical results and percentage relationships set forth in
"Selected Consolidated Financial Information," "Consolidated Pro Forma Financial
and Other Data" and the financial statements of Empire Gas should not be taken
as indicative of future operations of the Company.

RESULTS OF OPERATIONS

GENERAL

Empire Gas' primary source of revenue is retail propane sales, which
accounted for approximately 91.4% (90.4% on a pro forma basis taking account of
the Transaction) of its revenue in fiscal year 1993. Other sources of revenue
include sales of gas appliances and rental of customer tanks.

The Company's operating revenue is subject to both price and volume
fluctuations. Price fluctuations are generally caused by changes in the
wholesale cost of propane. The Company is not materially affected by these price
fluctuations, inasmuch as it can generally recover any cost increase through a
corresponding increase in retail prices. Consequently, the Company's gross
profit per retail gallon is relatively stable from year to year within each
customer class. Volume fluctuations from year to year are generally caused by
variations in the winter weather from year to year. Because a substantial amount
of the propane sold by the Company to residential and commercial customers is
used for heating, the severity of the weather will affect the volume sold.
Volume fluctuations do materially affect the Company's operations because lower
volume produces less revenue to cover the Company's fixed costs, including any
debt service costs. Because a substantial amount of the propane sold to
residential and commercial customers is used for heating, the Company's business
is seasonal with approximately 60% (62% on a pro forma basis) of Empire Gas'
sales occurring during the five months of November through March.

The Company's expenses consist primarily of cost of products sold, general
and administrative expenses and, to a much lesser extent, depreciation and
amortization and interest expense. Purchases of propane inventory account for
the vast majority of the cost of products sold. Historically, the Company has
purchased approximately 75% of its propane under supply contracts with major oil
companies. The Company purchases propane on the spot market to satisfy its
remaining propane requirements. The typical supply contract is for a one-year
term and requires the Company to purchase propane at the supplier's daily posted
price or at a negotiated discount. The Company believes that it will continue to
purchase inventory in this manner. While the cost of propane may fluctuate
considerably from year to year, as discussed above, these fluctuations do not
generally affect the Company's operating income because of corresponding changes
in the Company's retail price. The Company has not experienced any difficulty in
obtaining propane in recent years and believes that domestic sources of propane
will continue to meet its needs.

The Company's general and administrative expenses consist mainly of salaries
and related employee benefits, vehicle expenses, and insurance.

The Company's interest expense has consisted primarily of interest on its
Existing Credit Facility, 12% Senior Subordinated Debentures, 1998 9%
Subordinated Debentures, and 2007 9% Subordinated Debentures. While the Company
will use the proceeds of this Offering to repay all of its existing indebtedness
except its revolving credit line under its Existing Credit Facility (the
"Revolver") and a portion of its 2007 9% Subordinated Debentures, the Company's
interest expense will increase substantially as a result of the issuance of the
Senior Secured Notes. Through 1999 a significant portion of the increase will be
non-cash interest expense. See "-- Liquidity and Capital Resources."

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PRO FORMA OPERATIONS

GENERAL. Operating revenue of the Company on a pro forma basis is less than
actual operating revenue for each period because of a decrease in operating
revenue from the exclusion of the sales from the retail service centers that are
being transferred in the Transaction. This decrease will be partially offset by
an increase from the inclusion of sales from service centers acquired in the
Acquisition.

Changes between actual and pro forma results for most other operating
results (cost of products sold, gross profit, provisions for doubtful accounts
and depreciation and amortization) are roughly equivalent (on a percentage
basis) to changes in operating revenue. Other than for general and
administrative expenses and interest expense (discussed further below), the
Company does not currently foresee any changes in operating results resulting
from the Transaction that are not roughly proportional to changes in operating
revenue resulting from the disposition of centers and the Acquisition.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses on
a pro forma basis are $8.8 million less for the six months ended December 31,
1993, and $17.2 million less for the year ended June 30, 1993, than the
respective historical amounts. The reduction represents the elimination of
salaries and related expenses of the departing officers, the termination of
certain agreements between the Company and Mr. Plaster or entities controlled by
him, and the elimination of costs related to service centers that will not be
part of the Company after the Transaction. This reduction will be partially
offset by an increase in costs related to the operations acquired in the
Acquisition. The expenses of the operations acquired in the Acquisition were,
however, reduced by approximately $1.2 million for the fiscal year ended June
30, 1993, reflecting elimination of the costs of duplicative personnel and
certain other items. The Company believes that it will realize additional
reductions in operating expenses (which are not reflected in the pro forma
financial information) through the consolidation of a number of existing retail
service centers.

INTEREST EXPENSE. Pro forma interest expense (plus amortization of debt
discount and expense) was $6.2 million and $12.6 million for the six months
ended December 31, 1993 and the fiscal year ended June 30, 1993, respectively,
an increase of approximately 16% over the actual amounts. The overall increase
results from a $30.3 million increase in total indebtedness of the Company
offset by a reduction in the weighted average effective interest rate from 12.0%
(as of December 31, 1993) to 10.6%. The reduction in the effective interest rate
results from the repayment of all of the Company's currently outstanding debt
(other than approximately $12.3 million principal amount of the 2007 9%
Subordinated Indentures) in connection with the Offering, and the replacement of
that indebtedness with the Notes and the New Credit Facility, which will carry a
lower effective interest rate.

PRO FORMA OPERATING DATA FOR FISCAL YEARS ENDED JUNE 30, 1993 AND JUNE 30,
1992. Operating revenue of the Company on a pro forma basis for the fiscal year
ended June 30, 1993 and for the fiscal year ended June 30, 1992 was $76.9
million and $69.2 million, respectively. Cost of products sold of the Company on
a pro forma basis for the fiscal year ended June 30, 1993 and for the fiscal
year ended June 30, 1992 was $41.2 million and $38.0 million, respectively. The
Company's gross profit on a pro forma basis for the fiscal year ended June 30,
1993 and for the fiscal year ended June 30, 1992 was $35.7 million and $31.2
million, respectively. The Company's gross profit per gallon was $.429 for the
fiscal year ending June 30, 1993 and $.426 for the fiscal year ended June 30,
1992. The increase in operating revenue, cost of products sold and gross profits
was due primarily to an increase in gallons sold resulting from an increase in
weighted average degree days between the two periods.

SIX MONTHS ENDED DECEMBER 31, 1993 AND DECEMBER 31, 1992

OPERATING REVENUE. Operating revenue increased by approximately $1.6
million, or 2.6%, from $62.3 million for the six months ended December 31, 1992
to $63.9 million for the six months ended December 31, 1993. This increase was
due to an increase in propane sales of approximately $1.2 million and an
increase in parts and appliances sales of approximately $400,000. The increase
in propane sales was due to an approximate $.02 increase in the average net
sales price per gallon while the number of gallons sold remained relatively
constant. The increase in parts and appliance sales was due to increased sales
efforts by the Company.

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COST OF PRODUCTS SOLD. Cost of products sold increased by approximately
$1.5 million, or 5.2%, from $29.1 million for the six months ended December 31,
1992 to $30.6 million for the six months ended December 31, 1993. This increase
was due to an increase of approximately $1.2 million in the cost of propane and
an increase of approximately $300,000 in the cost of parts and appliances. The
increase in the cost of propane was due to a $.017 increase in the average net
cost per gallon. The increase in the cost of parts and appliances was due to the
increased sales activity.

GROSS PROFIT. The Company's gross profit remained relatively constant,
increasing by approximately $100,000 (or less than 1%) from $33.2 million for
the six months ended December 31, 1992 to $33.3 million for the six months ended
December 31, 1993. The Company's gross profit per gallon also remained
relatively constant at $.401 for the six months ended Decmeber 31, 1992 and
$.403 for the six months ended December 31, 1993.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
increased approximately $600,000, or 2.9%, from $20.4 million for the six months
ended December 31, 1992 to $21.0 million for the six months ended December 31,
1993. This increase was due to increases of approximately $700,000 in insurance
and liability claims expense, approximately $200,000 in salaries and
commissions, and approximately $100,000 in office expenses. These increases were
offset by decreases of approximately $100,000 each in vehicle fuel and
maintenance, rent and maintenance, travel and entertainment, and professional
fees. The increase in insurance and liability claims was due primarily to
increased claims. The increase in salaries and commissions was due to normal pay
increases offset slightly by an overall average reduction in the total number of
employees. The increase in office expenses was due primarily to increased
postage costs as the result of more informational and advertising mailings to
customers. The decrease in vehicle fuel and maintenance was due to reduced
vehicle maintenance as a result of the purchase of new vehicles to replace some
of the older vehicles. The decrease in rent and maintenance was due to reduced
building maintenance. The decrease in travel and entertainment was due to
reduced travel by retail employees for training, as most Company-wide training
was performed in May and June 1993. The decrease in professional fees was due to
reduced fees incurred for tax and business planning.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
relatively constant, decreasing by approximately $200,000 or 4% from $5.1
million for the six months ended December 31, 1993 to $4.9 million for the six
months ended December 31, 1992.

INTEREST EXPENSE. Interest expense and amortization of debt discount and
expense decreased approximately $400,000 or 7.4%, from $5.8 million for the six
months ended December 31, 1992 to $5.4 million for the six months ended December
31, 1993. This decrease was the result of lower interest rates and reduced
borrowing levels as compared to the comparable period for the prior year.

TRANSACTION PROPOSAL COSTS. Transaction proposal costs of $398,000 for the
six months ended December 31, 1993 consisted of legal and accounting expenses
incurred in connection with a proposed restructuring of the Company's debt and
equity that resulted in the Transaction described herein.

FISCAL YEARS ENDED JUNE 30, 1993 AND JUNE 30, 1992

OPERATING REVENUE. Operating revenue increased $16.3 million, or 14.5%,
from $112.1 million in fiscal year 1992 to $128.4 million in fiscal year 1993.
This increase was the result of a $15.9 million increase in propane sales and
$800,000 increase in sales of parts and gas appliances, offset by a $400,000
decrease in other revenues. The increase in propane sales was caused by a 12.1%
increase in gallons sold and a 2% increase in the average gross sales price per
gallon. The increased volume reflects the results of a winter heating season
that was considered nearly normal based on historical standards as compared to a
warmer winter heating season in fiscal year 1992. There were approximately 12.7%
more weighted average heating degree days in fiscal year 1993 than in fiscal
year 1992. Other revenues decreased by $400,000 primarily due to a decrease in
fixed asset sales.

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<PAGE>
COST OF PRODUCTS SOLD. Cost of products sold increased $9.2 million, or
18%, from $51.0 million in fiscal year 1992 to $60.2 million in fiscal year
1993. The increase resulted from the 12.1% increase in gallons sold, which
reflects the increase in weighted average heating degree days, and a 4% increase
in the wholesale cost of propane.

GROSS PROFIT. The Company's gross profit for the year increased $7.1
million, or 11.6%. The increase was caused by a 14.5% increase in operating
revenue offset by an 18% increase in cost of products sold. The Company's gross
profit per gallon was relatively constant at $.429 in fiscal year 1993 and $.425
in fiscal year 1992.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
increased $1.0 million, or 2.5%, from $39.4 million in fiscal year 1992 to $40.4
million in fiscal year 1993. The increase was due primarily to increases of
$800,000 in salaries and commissions and $600,000 in insurance and liability
claims, offset by a decrease of $200,000 in professional fees. The increase in
salaries and commissions reflects an increase in the commissions earned due to
the increased sales activity. The increase in insurance costs is primarily due
to higher worker compensation insurance premiums. The decrease in professional
fees is due to reduced legal fees primarily related to federal income tax
matters that have been settled.

PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
increased $760,000 from $200,000 in fiscal year 1992 to $960,000 in fiscal year
1993. This increase reflects the adjustment of the Company's annual provision to
a level that the Company believes will be indicative of normal provisions for
future years. The provision for fiscal year 1992 was much lower because the
Company had significantly increased its provision in fiscal year 1991 due to
concerns about the effect of the Persian Gulf crisis and the economy on its
operations. The provision for fiscal year 1991 was more than adequate due, in
part, to certain measures the Company implemented in fiscal year 1992 that
improved the monitoring of its accounts receivable. Accordingly, a relatively
small provision was required for fiscal year 1992. See "Fiscal Years Ended June
30, 1992 and June 30, 1991."

DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
relatively constant, increasing by $300,000 or 3%, from $10.1 million in 1992 to
$10.4 million in 1993.

INTEREST EXPENSE. Cash interest expense decreased by approximately $900,000
or 8.4%, from $10.7 million in fiscal year 1992 to $9.8 million in fiscal year
1993. This decrease was primarily attributable to lower interest rates in fiscal
year 1993. Amortization of debt discount and expense increased $700,000 or 70%
from $1.0 million in 1992 to $1.7 million in 1993. This increase related to
increased amortization of the discounts on the Company's 1998 9% Subordinated
Debentures, 2007 9% Subordinated Debentures, and 12% Senior Subordinated
Debentures, as well as amortization of expenses related to the Company's
Existing Credit Facility.

RECAPITALIZATION COSTS. During fiscal year 1993, the Company incurred
$200,000 in expenses relating to a proposed recapitalization that the Company
later decided not to pursue.

FISCAL YEARS ENDED JUNE 30, 1992 AND JUNE 30, 1991

OPERATING REVENUE. Operating revenue decreased $9.7 million, or 8%, from
$121.8 million in 1991 to $112.1 million in 1992. The decrease was the result of
a $10.2 million decrease in propane sales offset by a $500,000 increase in other
revenues. The decrease in retail sales was the result of a 8.8% decrease in the
average gross sales price per gallon offset by a 1% increase in gallons sold.
The decrease in selling price was primarily attributable to the general trend of
a reduction in petroleum prices following the end of the Persian Gulf crisis.
Volume did not fluctuate significantly inasmuch as the weighted average degree
days decreased by less than 1% from fiscal year 1991 to 1992. Other revenues
increased $500,000 primarily due to gains on the sale of surplus real estate.

COST OF PRODUCTS SOLD. Cost of products sold decreased by $9.0 million, or
15%, from $60.0 million in fiscal year 1991 to $51.0 million in fiscal year
1992. The decrease in cost of products sold resulted from a

30
<PAGE>
15.7% decrease in the wholesale cost of propane offset by the 1% increase in
gallons sold. As discussed above, this cost decrease related to the general
trend of a reduction in petroleum prices following the end of the Persian Gulf
crisis.

GROSS PROFIT. The gross profit for the year decreased by $700,000, or 1.1%.
This decrease was caused by the 8% decrease in operating revenue offset by a
decrease of 15% in the cost of products sold. The Company's gross profit per
gallon decreased from $.441 in fiscal year 1991 to $.425 in fiscal year 1992.
The gross profit per gallon in 1991 was abnormally high as a result of the
Persian Gulf war.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
decreased $2.1 million, or 5%, from $41.5 million in 1991 to $39.4 million in
1992. The decrease was due to decreases of $800,000 in transportation expense,
$600,000 in insurance and liability claims, $400,000 in rent and maintenance,
and $300,000 in employee benefits. The decrease in transportation expense
primarily reflects the decrease in the cost of propane fuel used in the
transportation equipment. Insurance and liability claims expense decreased due
to a reduction in claims expense as the result of fewer claims. Maintenance
expense decreased primarily due to lower maintenance costs for the underground
storage facility and reduced purchases of paint for painting storage tanks.
Employee benefits decreased due to the reduction of the Company's costs for
employee health insurance claims due to an increase in the premiums charged to
employees which partially offset the cost of providing this insurance.

PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
decreased $2.6 million, or 92.9%, from $2.8 million in 1991 to $200,000 in 1992.
In fiscal year 1991 the Company reevaluated its reserve for doubtful accounts
and significantly increased its reserve because of concerns about the collection
of accounts due to the increase in retail propane prices caused by the Persian
Gulf Crisis and general concerns about the economy. Historically the Company's
provision had been approximately $1.2 million per year. During fiscal year 1992,
the Company completed the installation of computers in all of its retail service
centers, which enabled it to improve its monitoring of accounts receivable.
Because the Company's collection of accounts receivable relating to fiscal year
1991 was better than anticipated and because the Company improved its collection
process through the installation of the computers, a much smaller provision for
doubtful accounts was required for fiscal year 1992.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$500,000, or 5.2%, from $9.6 million in fiscal year 1991 to $10.1 million in
fiscal year 1992. This was primarily attributable to increased capital
expenditures.

INTEREST EXPENSE. Interest expense decreased $1.3 million, or 10.8%, from
$12.0 million in 1991 to $10.7 million in 1992. This decrease was primarily
attributable to decreased borrowing levels and lower interest rates in 1992 as
compared to 1991. Amortization of debt discount and expense increased $110,000
or 12.3% from $890,000 in 1991 to $1.0 million in 1992. This increase relates
primarily to increased amortization of the discounts on the Company's 1998 9%
Subordinated Debentures, 2007 9% Subordinated Debentures, and 12% Senior
Subordinated Debentures.

MERGER PROPOSAL COSTS. During fiscal year 1992, the Company recorded
expenses of $450,000 related to a proposed acquisition of a large competitor.
The Company incurred these costs in performing due diligence related to the
acquisition. The acquisition was later abandoned with the related costs being
expensed.

CRESTED BUTTE LITIGATION EXPENSE. During 1991, the Company incurred
approximately $700,000 in litigation losses related to a matter that was
concluded in fiscal year 1993. No further costs will be incurred.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements have arisen primarily from funding its
working capital needs, capital expenditures and debt service obligations.
Historically, the Company has met these requirements from cash flow generated by
operations and from borrowings under its revolving credit line.

OPERATING ACTIVITIES. Cash flow provided from operating activities was $6.2
million in fiscal year 1993 as compared to $10.0 million in fiscal year 1992.
Cash flow from operations for fiscal year 1993 does not fully reflect the
beneficial impact that the first nearly normal winter since fiscal year 1988 had
on the Company's

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<PAGE>
operations. As discussed above, the Company's operating revenue and gross profit
increased approximately $16.3 million and $7.1 million, respectively, due
primarily to increased sales of propane as a result of the increase in weighted
average heating degree days for fiscal year 1993. See "Results of Operations --
Fiscal Years Ended June 30, 1993 and June 30, 1992." EBITDA also increased, from
$21.1 million for fiscal year 1992 to $26.4 million for fiscal year 1993. Cash
flow from operations did not experience a similar increase due to the following
factors: (i) the Company used approximately $2.4 million during fiscal year 1993
for a non-recurring payment of accrued interest on federal income taxes, (ii)
the Company used approximately $3.5 million during fiscal year 1993 to pay the
current year's income taxes, a substantial increase from the prior year's income
tax payment, (iii) the Company used approximately $1.5 million during fiscal
year 1993 to reduce its accounts payables and accrued expenses, and (iv)
accounts receivable at the end of fiscal year 1993 increased as a result of the
increased sales activity.

The cash flow of the Company on a pro forma basis is lower than historical
levels as a result of the disposition of service centers in the Stock Purchase,
partially offset by an increase resulting from cash flow contributed by the
centers acquired in the Acquisition. The Company intends to increase its cash
flow from operations by reducing operating expenses by consolidating a number of
retail service centers, and by increasing its operating revenue through
acquisitions (including the Acquisition) of retail service centers, development
of new retail service centers, and expansion of the Company's existing
residential customer base. There can be no assurance that the foregoing
increases in cash flow can be realized.

The seasonal nature of the Company's business will require it to rely on
borrowings under the $15.0 million New Credit Facility as well as cash from
operations particularly during the summer and fall months when the Company is
building its inventory in preparation for the winter heating season. While
approximately 62% of the Company's operating revenue (on a pro forma basis) is
earned in the second and third quarters, certain expense items such as general
and administrative expense are recognized on a more annualized basis. Interest
expense also tends to be higher during the summer and fall months because the
Company relies in part on increased borrowings on its revolving credit line to
finance inventory purchases in preparation for the Company's winter heating
season.

CAPITAL EXPENDITURES. The Company's capital expenditures consist of routine
expenditures for existing operations as well as non-recurring expenditures,
purchases of assets for the start-up of new retail service centers, and
acquisition costs (including costs of acquiring retail service centers). Routine
expenditures usually consist of expenditures relating to the Company's bulk
delivery trucks, customer tanks, and costs associated with the installation of
new tanks. The Company believes that capital expenditures will increase as the
Company more actively pursues acquisitions. See "Business -- Business Strategy."

The Company's capital expenditures totalled $4.4 million in fiscal year 1993
and $6.7 million in fiscal year 1992. These capital expenditures were offset by
proceeds from the sale of retail service centers and surplus real estate
totalling $1.1 million in fiscal year 1993 and $3.1 million in fiscal year 1992.
Of these amounts, approximately $2.5 million in fiscal year 1993 and $3.4
million in fiscal year 1992 were for routine capital expenditures for existing
operations. The Company incurred relocation expenditures of $225,000 in fiscal
year 1992, relating to the relocation of the Company's retail service centers to
locations on or near major highways. The Company incurred nonrecurring
expenditures of $336,000 in fiscal year 1993 and $268,000 in fiscal year 1992.
These expenditures related to the development of a new program to build
dispensing stations and expenditures for the jet used by the Company, which the
Company is disposing of in connection with the Transaction. The Company started
10 new retail service centers in fiscal year 1993, and 11 new retail service
centers in fiscal year 1992, incurring costs of approximately $1.4 million and
$2.4 million, respectively. No expenditures were made for acquisitions during
fiscal year 1993, and acquisition costs of approximately $225,000 were incurred
in fiscal year 1992.

The Company believes that capital expenditures for routine expenditures will
be approximately $1.0 million per year, and that capital expenditures for the
start-up of new retail service centers will not exceed $2.0 million per year.
The Company anticipates that capital expenditures in fiscal year 1994 will be
significantly larger than 1993, primarily due to an increase in acquisition
activity. The Company will use approximately $12.0 million of the proceeds of
this Offering to fund the majority of the $14.0 million

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<PAGE>
Acquisition purchase price, with approximately $1.5 million being funded through
the Company's New Credit Facility. The remaining $500,000 will be funded with
cash from operations over a five-year period. The Company acquired a service
center in Colorado in March, 1994, at a cost of approximately $473,000, of which
$273,000 was paid in cash, with the remaining amount financed through the
issuance of two five-year notes to the seller, one for $100,000 bearing interest
at 7% and the other for $100,000 bearing no interest. The Company has entered
into an agreement to purchase another service center in Missouri at a cost of
$325,000, of which $210,000 will be paid in cash at closing and the remaining
amount will be financed through the issuance of two ten-year notes to the
seller, one for $90,000 bearing interest at 7% and the other for $25,000 bearing
no interest. For future acquisitions, the Company intends to fund acquisitions
with seller financing, to the extent feasible, and with cash from operations or
bank financing. The Company intends to fund its routine capital expenditures and
the purchases of assets for new retail service centers with cash from
operations, borrowings on the New Credit Facility, or other bank financing. The
Company does not currently have any material commitments for any capital
expenditures other than the agreements for the pending acquisitions discussed
above. Any acquisitions or purchases of assets will be subject to the
restrictions on investments and debt incurrence contained in the New Credit
Facility and the Indenture as well as the restrictions contained in the
Non-Competition Agreement. See "Financing Activities"; "Description of Senior
Secured Notes"; "Description of Other Indebtedness"; "Certain Relationships and
Related Transactions -- The Transaction."

FINANCING ACTIVITIES. During fiscal year 1993, the Company replaced its old
term loan and its Old Working Capital Facility with the Company's current
Existing Credit Facility. The Company also made non-recurring expenditures of
approximately $2.1 million in connection with the termination of two employee
benefit plans.

Upon consummation of the Offering and application of the net proceeds
therefrom, the Company will have substantial debt service obligations. While the
net proceeds will be used to retire all the Company's existing indebtedness
other than the Revolver (which will be paid off with borrowings under the New
Credit Facility) and approximately $13.7 million principal amount 2007 9%
Subordinated Debentures, the Company will carry a significant amount of debt and
will be required to use a substantial portion of its cash flow to make interest
payments. On a pro forma basis, after giving effect to the consummation of this
Offering and the application of the net proceeds therefrom, for the year ended
June 30, 1993, the Company's cash interest expense would have been approximately
$8.4 million. Because the New Credit Facility will bear interest at a floating
rate, the Company's financial condition will be affected by fluctuations in
interest rates. See "Description of Other Indebtedness -- New Credit Facility."

The Company's $15.0 million New Credit Facility will mature on or about
July, 1997, at which time the Company will have to refinance or replace some
portion of the facility and may be required to pay some portion of any
outstanding balance. There can be no assurance that the Company will be able to
refinance or replace the New Credit Facility, or the terms upon which any such
financing may occur. Beginning in fiscal year 1999, the cash interest rate on
the Senior Secured Notes will increase to %. The Company believes cash from
operations will be sufficient to meet the increased interest payments. See "Risk
Factors -- Payment on Indebtedness Prior to Maturity of Senior Secured Notes."

The Company's New Credit Facility and the Indenture will impose restrictions
on the Company's ability to incur additional indebtedness. Such restrictions,
together with the highly leveraged position of the Company, could restrict
corporate activities, including the Company's ability to respond to market
conditions, to provide funds for capital expenditures, to refinance its debt, if
desired, or to take advantage of business opportunities. After consummation of
the Offering, the Company's ability to borrow will be very limited.

The Company believes that based on current levels of operations and assuming
normal winter weather, cash flow from operations together with borrowings under
the New Credit Facility will be adequate to fund the Company's operating needs,
anticipated capital expenditures, and debt service obligations until the New
Credit Facility expires in 1997. The Company believes that it will have
sufficient capitalization and cash flow

33
<PAGE>
to refinance the New Credit Facility when it expires, but there can be no
assurance of this. In particular, there can be no assurance that the Company's
current level of operations will continue or that the Company will experience
normal winter weather. See "Risk Factors -- High Leverage and Ability to Service
Debt."

EFFECTS OF INFLATION AND CHANGING PRICES

General inflation does not have a material effect upon Company operations.
Prices of propane will change materially from time to time due to either the
combined or individual effects of weather and available supplies of petroleum
products. Such changes may have differing effects on revenues and costs of
products sold depending upon the inventory levels when such changes occur.
Generally, increases in the cost of propane do not substantially affect the
Company's gross margin, inasmuch as these cost increases are usually recovered
through a corresponding increase in the Company's retail price.

FUTURE CHANGES IN ACCOUNTING PRINCIPLE

Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). As a result of this change, there was no material effect upon the
Company's financial statements.

SFAS 109 requires recognition of deferred tax liabilities and assets for the
difference between the financial statement and tax basis of assets and
liabilities. Under this new standard, a valuation allowance is established to
reduce deferred tax assets if it is more likely than not that a deferred tax
asset will not be realized.

Prior to fiscal year 1994, deferred taxes were determined using the
Statement of Financial Accounting Standards No. 96.

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<PAGE>
BUSINESS

GENERAL

The Company will implement a change in ownership and management
contemporaneously with this Offering by repurchasing shares of its common stock
from its controlling shareholder, Mr. Robert W. Plaster, and certain other
departing officers in exchange for all of the shares of common stock of a
subsidiary that owns 133 retail service centers located primarily in the
Southeast. Mr. Paul S. Lindsey, Jr., who has been with the Company for 26 years
and currently serves as the Company's Chief Operating Officer and Vice Chairman
of the Board, will become the Company's controlling shareholder, Chief Executive
Officer, and President. The change in ownership and management will enable the
Company to pursue a growth strategy focussed on acquiring independent propane
operating companies. Contemporaneously with the Offering, the Company will
acquire the assets of PSNC Propane Corporation, a company located in North
Carolina that has six retail service centers and five additional bulk storage
facilities with annual volume of approximately 9.5 million gallons for an
aggregate purchase price of approximately $14.0 million. The Company also
recently completed the acquisition of a retail propane company in Colorado with
annual volume of approximately 700,000 gallons and has entered into a contract
to purchase a retail propane company in Missouri with annual volume of
approximately 690,000 gallons.

The Company believes the highly fragmented retail propane market presents
substantial opportunities for growth through consolidation. As of December 31,
1991, there were approximately 8,000 propane retail marketing companies in the
continental United States with approximately 13,500 retail distribution points.
In addition, Empire Gas believes growth can be achieved by the conversion to
propane of homes that currently use either electricity or fuel oil products
because of the price advantage propane has over electricity and because propane
is a cleaner source of energy than fuel oil products. As of December 31, 1990,
there were approximately 23.7 million homes that used electricity for heating,
water heating, cooking and other household purposes, approximately 11.2 million
homes that used fuel oil products, and approximately 5.7 million homes that used
propane for such purposes.

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<PAGE>
Sales to residential customers, giving effect to the Transaction, accounted for
approximately 65.5% of the Company's aggregate propane sales revenue and 74.3%
of its aggregate gross margin from propane sales in fiscal year 1993.

Empire Gas attracts and retains its residential customers by supplying
storage tanks, by offering superior service and by strategically locating
visible and accessible retail service centers on or near major highways. Empire
Gas focuses its operations on sales to customers to which it also leases tanks,
as sales to this segment of the retail propane market tend to be more stable and
typically provide higher gross margins than sales to customers who own tanks.
After the Transaction, Empire Gas will own approximately 109,000 storage tanks
that it leases to approximately 96% of its customers. Empire Gas' residential
customer base is relatively stable, because (i) fire safety regulations in most
states restrict the filling of a leased tank solely to the propane supplier that
leases the tank, (ii) rental agreements for its tanks restrict the customers
from using any other supplier, and (iii) the cost and inconvenience of switching
tanks minimizes a customer's tendency to change suppliers. Historically, the
Company has retained 90% of all its customers from year to year, with the
average customer remaining with Empire Gas for approximately 10 years.

BUSINESS STRATEGY

The change in ownership and management of the Company will enable it to
pursue a business strategy to increase its revenues and profitability through
(i) expansion by acquisitions and start-ups, (ii) expansion of its existing
residential customer base, (iii) geographic rationalization, and (iv) the
reduction of operating expenses. Empire Gas will seek opportunities to acquire
retail service centers in areas where it already has a strong presence and to
develop new retail service centers in new markets. Efforts to expand the
existing residential customer base will focus primarily on converting customers
currently using electricity for heating to propane and continuing to develop
Empire Gas' reputation for providing high quality service. Empire Gas intends to
dispose of a limited number of retail service centers that are located in
markets in which it does not have, and does not desire to develop, a strong
presence or that do not have the potential for long-term growth. Empire Gas
believes it will be able to reduce its operating expenses through a program of
consolidating a number of retail service centers where such consolidations will
yield operating efficiencies.

GROWTH THROUGH ACQUISITION OF RETAIL SERVICE CENTERS. Historically, the
acquisition of other retail service centers has been viewed by the industry as
one of the primary means of growth and much of the Company's growth over the
past thirty years has been attributable to acquisitions. As of December 31,
1991, there were substantially in excess of 8,000 retail marketing companies in
the continental United States with at least 13,500 distribution points. The
Company intends to focus its acquisition efforts on candidates that meet certain
criteria, including minimum cash flow requirements and location in areas of
economic growth or areas in which the Company currently has a market position
which it desires to strengthen.

The Company has not engaged in significant acquisition activity over the
past several years. With the change in ownership and management, the new
management, under the leadership of Mr. Lindsey, will emphasize achieving growth
through acquisitions. The Company has entered into an agreement which provides
that, contemporaneously with this Offering, the Company will complete the
acquisition of the assets of PSNC Propane Corporation, a company that has six
retail service centers with five additional bulk storage facilities located in
North Carolina, an area the Company has targeted because of its high economic
growth. The aggregate purchase price of the Acquisition will be approximately
$14.0 million, which consists of $12.0 million for certain assets, primarily
customer and storage tanks, approximately $1.5 million for accounts receivable
and inventory, and $500,000 for a non-compete agreement with the seller. The
Company will fund $12.0 million of the purchase price with the proceeds of this
Offering and will fund the $1.5 million for the purchase of the accounts
receivable and inventory through the Company's New Credit Facility. The purchase
price for the non-compete agreement will be paid out over five years with cash
flow from operations.

The Acquisition will enable the Company to expand its geographic market, to
increase its high margin residential customer base and to improve its operating
results and cash flow. The Company believes this acquisition will increase its
annual propane sales by approximately 9.5 million gallons, approximately 64% of
which will be for sales to residential customers. Empire Gas believes it will be
able to improve PSNC

36
<PAGE>
Propane Corporation's operating results through the integration of its
operations into the Company's operations and the elimination of certain
administrative personnel as well as the elimination of certain other general and
administrative costs. See "Pro Forma Financial and Other Data." There can be no
assurance that the anticipated cash flows will be indicative of the actual cash
flows realized by the Company.

In March of 1994, the Company completed the acquisition of a retail service
center in Colorado with annual propane volume of approximately 700,000 gallons
and in April of 1994 signed a contract for the acquisition of a retail service
center in Missouri with annual propane volume of approximately 690,000 gallons.
The Colorado acquisition was completed at a cost of approximately $473,000, of
which $273,000 was paid in cash, with the remaining amount financed through the
issuance of two five-year notes to the sellers, one for $100,000 bearing
interest at 7% and the other for $100,000 bearing no interest. The Missouri
center will be purchased for a total cost of $325,000, of which $210,000 will be
paid in cash at closing, with the remaining amount financed through the issuance
of two ten-year notes to the seller, one for $90,000 bearing interest at 7% and
the other for $25,000 bearing no interest. The Company will continue to seek
additional opportunities to acquire retail service centers and intends to
finance such acquisitions, to the extent possible, through seller financing. The
Company will also rely on internally generated cash flow and bank financing,
including borrowing under the New Credit Facility, to meet any remaining
financing requirements. See "Risk Factors -- Potential Acquisitions and
Development of New Retail Service Centers."

GROWTH THROUGH DEVELOPMENT OF NEW RETAIL SERVICE CENTERS IN NEW
MARKETS. The Company believes opportunities exist to increase the size and
profitability of its operations by starting new retail service centers in new
markets. The Company generally looks for opportunities in areas experiencing
economic growth. Indicators of this growth include the relocation of businesses
to an area or an increase in the population in the area. The Company started
three new retail service centers in fiscal year 1992 and four in fiscal year
1993 that will remain with the Company after the Transaction, and, to date, has
started three new retail service centers during fiscal year 1994.

The Company continues to look for opportunities to purchase land and assets
to start new retail service centers. Because minimal capital expenditures are
required to start up a new retail service center, the Company intends to rely
primarily on internally generated cash flow to fund this activity, with any
remaining financing needs being met by bank financing. In addition, the Company
currently owns excess propane storage tanks that it will be able to use to
minimize the cost of starting a new retail service center.

EXPANSION OF THE COMPANY'S EXISTING RESIDENTIAL RETAIL CUSTOMER
BASE. Empire Gas will also look for opportunities to expand its existing
residential customer retail base other than through acquisitions or the
development of new retail service centers. The Company believes there are
several factors that will enable it to expand its residential customer base
including (i) the Company's ability to supply storage tanks to its customers,
(ii) the Company's reputation for quality service, and (iii) the accessibility
and visibility of the Company's retail service centers, many of which are
located on or near highways. The Company's ability to expand its residential
customer base other than through acquisitions or the development of new retail
service centers in new markets may be limited by the relative stability of this
market.

In addition to the foregoing, Empire Gas will look for growth opportunities
including opportunities to expand its commercial customer base and opportunities
presented from developments in the industry, including the potential for the
growth in the use of propane in the alternative motor fuel market or in
cogeneration plants. Any acquisitions or purchases of assets will be subject to
the restrictions on investments and debt incurrence contained in the New Credit
Facility and the Indenture. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Financing Activities"; "Description of Senior Secured Notes"; "Description of
Other Indebtedness -- New Credit Facility." Any acquisitions or start-ups of
retail service centers will also be subject to the restrictions in the
Non-Competition Agreement. See "The Transaction" and "Certain Relationships and
Related Transactions."

There can be no assurance as to the extent to which the implementation of
the Company's business strategy will contribute to the Company's operating
efficiencies, results of operations, or cash flow. See "Risk Factors --
Potential Acquisitions and Development of New Retail Service Centers."

37
<PAGE>
PROPANE OPERATIONS

Propane is used for residential, commercial, and agricultural purposes.
Residential and commercial uses include heating, cooking, water heating,
refrigeration, clothes drying, and incineration. Commercial uses also include
metal cutting, drying, container pressurization, and charring, as well as use as
a fuel for internal combustion engines. Agricultural uses include brooder
heating, stock tank heating, crop drying, and weed control, as well as use as a
motor fuel for farm equipment and vehicles. Propane is also used for a number of
other purposes.

Sales of propane to residential and commercial customers, which account for
the vast majority of the Company's revenue, have provided a relatively stable
source of revenue for the Company. Sales to residential customers accounted for
65.5% of the Company's propane sales revenue and 74.3% of its gross margin (on a
pro forma basis after giving effect to the Transaction) in fiscal year 1993.
Historically, this market has provided higher margins than other retail propane
sales. Based on fiscal year 1993 propane sales revenue, the remaining customer
base consisted of 22.1% commercial and 12.4% agricultural and other customers.
While commercial propane sales are generally less profitable than residential
retail sales, the Company has traditionally relied on this customer base to
provide a steady, noncyclical source of revenues. No single customer accounts
for more than 2.1% of sales. On a pro forma basis, the Company's operations will
have substantial geographic diversification reducing the potential impact of
fluctuations of weather in a particular region.

SOURCES OF SUPPLY. Propane is derived from the refining of crude oil or is
extracted in the processing of natural gas. The Company obtains its supply of
propane primarily from oil refineries and natural gas plants located in the
South, West and Midwest. Most of the Company's propane inventory is purchased
under supply contracts with major oil companies which typically have a one-year
term, at the suppliers' daily posted prices or a negotiated discount. During
fiscal 1993, contract suppliers sold nearly 75% of the propane purchased by the
Company (including the centers that are being transferred in the Transaction),
and the two largest suppliers sold 21.2% and 18.5%, respectively, of the total
volume purchased by Empire Gas. The Company has established relationships with a
number of suppliers over the past few years and believes it would have ample
sources of supply under comparable terms to draw upon to meet its propane
requirements if it were to discontinue purchasing propane from its two largest
suppliers. The Company takes advantage of the spot market as appropriate. The
Company has not experienced a shortage that has prevented it from satisfying its
customer's needs and does not foresee any significant shortage in the supply of
propane.

DISTRIBUTION. The Company purchases propane at refineries, gas processing
plants, underground storage facilities and pipeline terminals and transports the
propane by railroad tank cars and tank trailer trucks to the Company's retail
service centers, each of which has bulk storage capacity ranging from 16,000 to
180,000 gallons. After the Transaction, the Company will have retail service
centers with an aggregate storage capacity of approximately 8.7 million gallons
of propane, and each service center will have equipment for transferring the gas
into and from the bulk storage tanks. The Company operates 15 over-the-road
tractors and 37 transport trailers to deliver propane to its retail service
centers and also relies on common carriers to deliver propane to its retail
service centers. The Company also maintains an underground storage capacity of
approximately 120 million gallons. This facility is not currently being used and
cannot be used until a new disposal well is constructed, and the system is
tested and brought up to industry standards.

Deliveries to customers are made by means of 325 bulk delivery tank trucks
owned by the Company. Propane is stored by the customers on their premises in
stationary steel tanks generally ranging in capacity from 25 to 1,000 gallons,
with large users occasionally having tanks with a capacity of up to 30,000
gallons. Approximately 96% of the propane storage tanks used by the Company's
residential and commercial customers are owned by the Company and leased,
rented, or loaned to customers.

38
<PAGE>
PROPANE GAS FROM SOURCE TO CUSTOMER

[GRAPHIC]
OPERATIONS. The Company has organized its operations in a manner that the
Company believes enables it to provide superior service to its customers and to
achieve maximum operating efficiencies. The Company's retail propane
distribution business is organized into eight regions. Each region is supervised
by a regional manager. The regions are grouped into three divisions and the
regional managers report to their respective divisional vice president.
Personnel located at the retail service centers in the various regions are
primarily responsible for customer service and sales.

A number of functions are centralized at the Company's corporate
headquarters in order to achieve certain operating efficiencies as well as to
enable the personnel located in the retail service centers to focus on customer
service and sales. The Company makes centralized purchases of propane through
its corporate headquarters for resale to the retail service centers enabling the
Company to achieve certain advantages, including price advantages, because of
its status as a large volume buyer. The functions of cash management,
accounting, taxes, payroll, permits, licensing, asset control, employee
benefits, human resources, and strategic planning are also performed on a
centralized basis.

The corporate headquarters and the retail service centers are linked via a
computer system. Each of the Company's primary retail service centers is
equipped with a computer that is connected to a central data processing
department in the Company's corporate headquarters. Following the Transaction,
this central data processing department will be owned and operated by Service
Corp, which will be an affiliate of Energy. Service Corp. will provide data
processing and management information services to the Company pursuant to the
Services Agreement. See "Certain Relationships and Related Transactions." This
computer network system provides retail company personnel with accurate and
timely information on pricing, inventory, and customer accounts. In addition,
this system enables management to monitor pricing, sales, delivery and the
general operations of its numerous retail service centers and plan accordingly
to improve the operations of the Company as a whole.

FACTORS INFLUENCING DEMAND. Because a substantial amount of propane is sold
for heating purposes, the severity of winter weather and resulting residential
and commercial heating usage have an important impact on the Company's earnings.
Approximately 62% of the Company's retail propane sales (on a pro forma basis)
usually occur during the five months of November through March. Sales and
profits are subject to variation from month to month and from year to year,
depending on temperature fluctuations.

COMPETITION. The Company encounters competition from a number of other
propane distributors in each geographic region in which it operates. The Company
competes with these distributors primarily on the basis of service, stability of
supply, availability of consumer storage equipment, and price. The propane
distribution industry is composed of two types of participants: larger
multi-state marketers, including the Company, and smaller intrastate marketers.
Most of the Company's retail service centers face competition from a number of
other marketers.

39
<PAGE>
Empire Gas also competes with suppliers of other energy sources. The Company
competes with suppliers of electricity for sales to residential and commercial
customers, although the Company currently enjoys a competitive advantage because
of the higher cost of electricity. Fuel oil does not present a significant
competitive threat in Empire Gas' primary service areas due to the following
factors: (i) propane is a residue-free, cleaner energy source, (ii)
environmental concerns make fuel oil relatively unattractive, and (iii) fuel oil
appliances are not as efficient as propane appliances.

Empire Gas generally does not attempt to sell propane in areas served by
natural gas distribution systems, except sales for specialized industrial
applications, because the price per equivalent energy unit of propane is, and
has historically been, higher than that of natural gas. To use natural gas,
however, a retail customer must be connected to a distribution system provided
by a local utility. Because of the costs involved in building or connecting to a
natural gas distribution system, natural gas does not create significant
competition for the Company in areas that are not currently served by natural
gas distribution systems. In each of the past five years, the Company has lost
fewer than 0.5% of its customers to natural gas distributors.

RISKS OF BUSINESS. The Company's propane operations are subject to all the
operating hazards and risks normally incident to handling, storing, and
transporting combustible liquids, such as the risk of personal injury and
property damages caused by accident or fire. The Company's current automobile
liability policy provides coverage for losses of up to $101.0 million per
occurrence with a $500,000 deductible per occurrence. The Company's general
liability policy provides coverage for losses of up to $101.0 million per
occurrence with a $500,000 deductible per occurrence subject to an aggregate
deductible of $1.0 million for any policy period.

REGULATION

The Company's operations are subject to various federal, state, and local
laws governing the transportation, storage and distribution of propane,
occupational health and safety, and other matters. All states in which the
Company operates have adopted fire safety codes that regulate the storage and
distribution of propane. In some states these laws are administered by state
agencies, and in others they are administered on a municipal level. Certain
municipalities prohibit the below ground installation of propane furnaces and
appliances, and certain states are considering the adoption of similar
regulations. The Company cannot predict the extent to which any such regulations
might affect the Company, but does not believe that any such effect would be
material. It is not anticipated that the Company will be required to expend
material amounts by reason of environmental and safety laws and regulations, but
inasmuch as such laws and regulations are constantly being changed, the Company
is unable to predict the ultimate cost to the Company of complying with
environmental and safety laws and regulations.

Empire Gas currently meets and exceeds Federal regulations requiring that
all persons employed in the handling of propane gas be trained in proper
handling and operating procedures. All employees have participated, or will
participate within 90 days of their employment date, in the National Propane Gas
Association's ("NPGA") Certified Employee Training Program. The Company has
established ongoing training programs in all phases of product knowledge and
safety.

EMPLOYEES

As of February 28, 1994, the Company had approximately 1,085 employees, none
of whom was represented by unions. Upon consummation of the Transaction, the
Company will have approximately 623 employees. The Company has never experienced
any significant work stoppage or other significant labor problems and believes
it has good relations with its employees.

LEGAL PROCEEDINGS

The Company and its subsidiaries are defendants in various routine
litigation incident to its business, none of which is expected to have a
material adverse effect on the Company's financial position or results of
operations.

40
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Upon consummation of the Transaction, the directors and executive officers
of the Company will be as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ---------------------------------------------
<S> <C> <C>
Paul S. Lindsey, Jr. 48 Chairman of the Board, Chief Executive
Officer, and President
Douglas A. Brown 33 Director
Kristin L. Lindsey 46 Director/Vice President
James E. Acreman 66 Vice President/Treasurer
Mark W. Buettner 51 Divisional Vice President
Kenneth J. DePrinzio 46 Divisional Vice President
Robert C. Heagerty 46 Divisional Vice President
Valeria Schall 39 Vice President/Corporate Secretary
Willis D. Green 56 Controller
</TABLE>

The directors will serve for a term ending on the date of the Company's next
annual meeting in October 1994, or until their successors are elected or
qualified. Officers of the Company are elected by the Board of Directors of the
Company and will serve at the discretion of the Board. As required by the
Indenture, immediately following this Offering, an audit committee will be
formed and two additional independent directors, who will serve as the audit
committee, will become members of the Board of Directors. See "Description of
the Senior Secured Notes."

BOARD OF DIRECTORS

Upon consummation of the Offering, the Company's directors will be as
follows:

PAUL S. LINDSEY, JR. Mr. Lindsey will serve as Chairman of the Board, Chief
Executive Officer, and President of the Company. Mr. Lindsey currently serves as
Vice Chairman of the Board and Chief Operating Officer of the Company, positions
he has held since February 1987 and March 1988, respectively. Mr. Lindsey joined
the Company in 1967 when the company by which he was employed, a subsidiary of
Gulf Oil Company, was acquired by the Company. He has a total of 29 years of
experience in the oil and gas industry, 26 of which are with the Company. After
serving in various administrative positions with the Company, including the
position of Vice President of Finance, Mr. Lindsey assumed responsibility for
operation of the Company's retail service centers and, essentially, all other
operational functions of the Company. Mr. Lindsey has been a Director of the
NPGA, the industry's leading association, since February 1991, and has served on
the Governmental Affairs Committee of the NGPA since May 1987.

DOUGLAS A. BROWN. Mr. Brown will serve as a director of the Company. Since
1989, Mr. Brown has been a member of Holding Capital Group, an equity investment
group specializing in the acquisition and investment in privately held, middle
market businesses. Holding Capital Group has performed certain investment
services for Empire Gas. See "Certain Relationships and Related Transactions."

KRISTIN L. LINDSEY. Mrs. Lindsey will serve as a director and Vice
President of the Company. Mrs. Lindsey is the wife of Paul S. Lindsey, Jr., (see
above). For the past five years, Mrs. Lindsey has been pursuing charitable and
other personal interests. Ms. Lindsey has 11 years of experience in the LP gas
industry, all of these with the Company. Her experience is primarily in the area
of LP gas supply and distribution. In her capacity as Vice President, Mrs.
Lindsey will be involved in the Company's propane supply and distribution
activities.

EXECUTIVE OFFICERS

Upon consummation of the Transaction, the individuals listed below will
serve as the Company's executive officers. These individuals have an average of
20 years of experience in the LP gas industry and have been with the Company an
average of 11 years.

41
<PAGE>
PAUL S. LINDSEY, JR. Chairman of the Board, Chief Executive Officer and
President. See description under "Board of Directors."

JAMES E. ACREMAN. Mr. Acreman will serve the Company as Vice President and
Treasurer. Mr. Acreman has held the position of Senior Vice President of the
Company since 1989. Mr. Acreman has 16 years of experience in the LP gas
industry, all of those with the the Company. During that time he has held the
positions of Regional Vice President, Regional Manager, and Retail Manager. As
Senior Vice President of the Company, Mr. Acreman has been responsible for
various areas including expense control and human resources.

MARK W. BUETTNER. Mr. Buettner will serve the Company as a Divisional Vice
President, a position he has held with the Company since mid-1993. Mr. Buettner
has also held the positions of Regional Vice President and Regional Manager
during his five years with the Company. Mr. Buettner began his career in the LP
gas industry in a family-owned business and has a total of 39 years experience
in the LP gas industry. As Divisional Vice President of the Company, Mr.
Buettner is responsible for the Company's retail operations on the West Coast
and in Arizona, Colorado, and Idaho.

KENNETH J. DEPRINZIO. Mr. DePrinzio will serve the Company as a Divisional
Vice President, a position he has held with the Company since mid-1993. Mr.
DePrinzio joined the Company in May 1992 as a Regional Manager. From 1991 to
1992, he owned and operated a restaurant. From 1990 to 1991, Mr. DePrinzio was a
Vice President of Star Gas Corporation. For the prior 17 years, Mr. DePrinzio
worked with Petrolane, Inc., serving as an area Vice President during part of
his tenure. As Divisional Vice President of the Company, Mr. DePrinzio is
responsible for the Company's retail operations in Michigan, Ohio, South
Carolina, and North Carolina.

ROBERT C. HEAGERTY. Mr. Heagerty will serve the Company as a Divisional
Vice President, a position he has held with the Company since mid-1993. Mr.
Heagerty has also held the positions of Regional Manager and Regional Vice
President during his seven years with the Company. He has 15 years of experience
in the LP gas industry and joined the Company when it acquired D&H Propane. At
the time of the acquisition, Mr. Heagerty was President of D&H Propane. As
Divisional Vice President of the Company, Mr. Heagerty is responsible for the
Company's retail operations in Oklahoma, Kansas, Missouri, Arkansas, Texas,
Louisiana, Iowa, Minnesota, Wisconsin, and Illinois.

VALERIA SCHALL. Ms. Schall will serve the Company as Vice President,
Corporate Secretary, and Assistant to the Chairman of the Board of Directors.
She has held the position of Vice President of Empire Gas since December 1992,
and those of Corporate Secretary and Assistant to the Vice Chairman of the Board
of Directors since September 1985, and February 1987, respectively. Ms. Schall
has 12 years of experience in the LP gas industry, all of those with the
Company. During that time she has had various administrative and accounting
responsibilities. Ms. Schall is responsible for federal compliance filings,
acquisitions, divestitures, real estate closings, control of certain corporate
assets, internal audit, risk management, and communications with employees
through various corporate handbooks and manuals, and acting as a liaison with
legal counsel.

KRISTIN L. LINDSEY. Director and Vice President. See description under
"Board of Directors."

WILLIS D. GREEN. Mr. Green will serve as Controller of the Company, a
position he has held with the Company since July 1989. Mr. Green has 22 years of
experience in the LP gas industry. He joined the Company in 1979 and during his
tenure has had responsibility for various administrative and accounting
functions. Prior thereto, he was an internal auditor and systems analyst with
Phillips Petroleum Co. for nine years. Mr. Green is a Certified Public
Accountant and is responsible for the corporate financial control of the
Company.

42
<PAGE>
The individuals currently serving as directors and executive officers of
Empire Gas are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Robert W. Plaster* 63 Chairman of the Board and Chief Executive Officer (1)
Paul S. Lindsey, Jr. 48 Vice Chairman of the Board and Chief Operating Officer
Stephen R. Plaster* 35 Director and President (2)
Robert L. Wooldridge* 63 Executive Vice President -- Marketing (3)
Joseph L. Schaefer* 38 Vice President and Treasurer (4)
Valeria Schall 39 Vice President/Corporate Secretary
Willis D. Green 56 Vice President/Controller
<FN>
- ---------
* These individuals will terminate their employment with Empire Gas upon
consummation of the Transaction.
(1) Mr. Plaster has served as the Chairman of the Board and Chief Executive
Officer of the Company since 1963. Mr. Plaster established the Company in
1963 and has been involved in the propane industry since the early 1960s.
(2) Mr. Stephen Plaster has served as a director and President of the Company
since 1988. Prior thereto, Mr. Plaster served the Company in various
positions. Mr. Plaster is the son of Mr. Robert W. Plaster, the Chairman of
the Board, Chief Executive Officer and President of the Company.
(3) Mr. Wooldridge has served the Company as Executive Vice President --
Marketing since April 1992. Prior thereto, he held the position of Senior
Vice President -- Marketing at the Company.
(4) Mr. Schaefer has served as Vice President and Treasurer of the Company
since 1988. Mr. Schaefer is the son-in-law of Mr. Robert W. Plaster.
</TABLE>

EXECUTIVE COMPENSATION

The following table provides compensation information for each of the years
ended June 30, 1993, 1992, and 1991 for Empire Gas' Chief Executive Officer and
the four other most highly compensated executive officers of Empire Gas for
services rendered to the Company during each of those years.

43
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------- ALL
OTHER OTHER
FISCAL ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) (1) (2)
- ------------------------------ --------- --------- --------- ------------- -----------
Robert W. Plaster(3) 1993 $1,000,000 -- $ 100,000 (4) $ 1,648
Chief Executive Officer 1992 1,000,000 -- -- --
and Chairman of the Board 1991 947,916 -- -- --
<S> <C> <C> <C> <C> <C>
Paul S. Lindsey, Jr. 1993 230,000 $ 5,000 -- 1,648
Chief Operating Officer and 1992 230,000 -- -- --
Vice Chairman of the Board 1991 230,000 -- -- --
Stephen R. Plaster(3) 1993 100,000 50,000 -- 927
President and Director 1992 75,000 50,000 -- --
1991 75,000 50,000 -- --
Robert L. Wooldridge(3) 1993 90,000 69,222 -- 970
Executive Vice President -- 1992 85,000 45,663 -- --
Marketing 1991 85,000 45,000 -- --
James E. Acreman 1993 70,000 34,794 -- 464
Senior Vice President 1992 40,000 22,664 -- --
1991 40,000 27,866 -- --
<FN>
- ---------
(1) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosures adopted by
the Securities and Exchange Commission, amounts of Other Annual
Compensation and All Other Compensation for Empire Gas' 1992 and 1991
fiscal years are excluded.
(2) This amount includes the allocation of a portion of the forfeitures under
the Company's profit sharing plan (the "Profit Sharing Plan") to each of
the named officers in the following amounts: Mr. R. Plaster -- $1,296, Mr.
Lindsey -- $1,296, Mr. S. Plaster -- $198, Mr. Wooldridge -- $207, and Mr.
Acreman -- $99. This amount also includes the allocation of a portion of
the forfeitures under the Company's stock bonus plan (the "Stock Bonus
Plan") to each of the named officers in the following amounts: Mr. R.
Plaster -- $352, Mr. Lindsey -- $352, Mr. S. Plaster -- $729, Mr.
Wooldridge -- $763, and Mr. Acreman -- $365. The Company made no
contributions to either plan in fiscal year 1993. In September 1992, the
Company terminated both plans and filed with the Internal Revenue Service
("IRS") for determination that the plans were qualified at termination. The
IRS issued favorable determination letters for both plans in December 1992.
The Company liquidated the assets of both plans and paid out the plan
accounts to participants on March 31, 1993.
(3) Upon consummation of the Transaction, these individuals will no longer
serve as executive officers of the Company.
(4) Includes $75,000 to meet the requirements for a new car each year for Mr.
Plaster and $25,000 for services provided by the Company, free of charge,
to Empire Ranch, Inc., a corporation wholly owned by Mr. Plaster and
members of his family. These perquisites were provided to Mr. Plaster in
accordance with the terms of his employment agreement with the Company. See
"-- Employment Agreements." This amount does not include amounts paid to a
corporation owned by Mr. Plaster to lease the jet aircraft used by Mr.
Plaster. Nor does it include amounts paid to Empire Ranch, Inc. pursuant to
an agreement between the Company and Empire Ranch, Inc. See "Certain
Relationships and Related Transactions -- Past Transactions and
Relationships."
</TABLE>

44
<PAGE>
EMPLOYMENT AGREEMENTS

Upon consummation of the Transaction, Mr. Lindsey will enter into an
employment agreement with the Company. The agreement will have a five-year term
and will provide for the payment of an annual salary of $350,000 and
reimbursement for reasonable travel and business expenses. The agreement will
require Mr. Lindsey to devote substantially all of his time to the Company's
business.

The Company has an employment agreement with Mr. Robert W. Plaster that will
be terminated, at no cost to the Company, in connection with the Transaction.
The agreement provides for payment of an annual salary of at least $1.0 million,
reimbursement of all expenses incurred pursuant to his employment and certain
fringe benefits, including but not limited to, a new car each year, the
provision of certain services free of charge to Empire Ranch, Inc., a
corporation owned by Mr. Plaster and members of his family, and the use of the
jet aircraft leased by the Company. See "Certain Relationships and Related
Transactions." Under the agreement, if Mr. Plaster dies or becomes permanently
incapacitated during its term, the agreement provides that the Company will make
a one-time payment, in an amount equal to Mr. Plaster's annual salary, to the
Robert W. Plaster Trust established December 31, 1988.

INCENTIVE STOCK OPTION PLAN

Pursuant to the Company's Incentive Stock Option Plan (the "Stock Option
Plan"), the Company grants options to its employees for the purchase of its
Common Stock. Options granted pursuant to the Stock Option Plan are exercisable
at the end of the first month following the date of grant at 6.7% of the total
number of shares subject to options and for each month thereafter, at the rate
of 1.7% of the total number of shares subject to options. The options expire ten
years from their grant. Stock issued under the Plan is subject to restrictions
on transfer including a right of first refusal exercisable by the Company in the
event an employee terminates his employment with the Company or wishes to
transfer his shares. During fiscal year 1993 no options were granted pursuant to
this Plan. Prior to the consummation of the Offering, all of the 129,250
outstanding options, all of which are exercisable, must be exercised. See
"Certain Relationships and Related Transactions."

The following table sets forth certain information concerning options
exercised during fiscal year 1993 and unexercised options held as of that date
by each of the individuals named in the Summary Compensation Table:

AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JUNE 30, 1993
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED JUNE 30, 1993 JUNE 30, 1993(1)
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------- ----------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Plaster.......... -- -- -- -- -- --
Paul S. Lindsey, Jr........ -- -- -- -- -- --
Stephen R. Plaster......... 19,500 $ 112,313 -- -- -- --
Robert L. Wooldridge....... 72,467 479,898 40,000 -- $ 220,000
James E. Acreman........... 13,250 87,755 8,000 -- 44,000 --
<FN>
- ---------
(1) Calculated based on the estimated fair market value of the Company's common
stock at the exercise date or year-end, as the case may be, minus the
exercise price. The Company has estimated the fair market value of the
stock as of these dates to be $7.00, the price per share to be received by
certain officers, directors, and employees in connection with the
Transaction.
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company does not have a compensation committee. Mr. Lindsey, the Vice
Chairman of the Board and Chief Operating Officer of the Company, makes the
initial decision concerning executive compensation

45
<PAGE>
for the executive officers of the Company, other than decisions concerning his
own and his wife's compensation, which are then approved by the Board of
Directors of the Company. Upon consummation of the Transaction, the Company will
not have a compensation committee, and all decisions concerning compensation,
other than decisions concerning his own and his wife's compensation, will be
made by Mr. Lindsey, subject to approval by the Company's Board of Directors.
The independent directors will determine the compensation of Mr. Lindsey and his
wife.

DIRECTOR COMPENSATION

The directors of Empire Gas do not receive any compensation for their
services. Directors of a subsidiary of Empire Gas, other than Mr. Lindsey and
Mr. Stephen Plaster, receive an annual fee of $25,000, payable quarterly, for
their services. Following the Transaction, all directors of Empire Gas will
receive an annual fee of $25,000, payable quarterly.

46
<PAGE>
PRINCIPAL SHAREHOLDERS

EMPIRE GAS

The table below sets forth the following information with respect to the
beneficial ownership of Empire Gas as of April 1, 1994, and on a pro forma
basis, upon consummation of the Transaction and this Offering and the
application of net proceeds therefrom, by persons owning more than five percent
of any class, by all directors of the Company, by the individuals named in the
Summary Compensation Table, and by all directors and executive officers of the
Company as a group.

<TABLE>
<CAPTION>
AS OF APRIL 1, 1994 PRO FORMA FOR THE TRANSACTION
------------------------------ ------------------------------
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED PERCENT OWNED PERCENT
- -------------------------------------------------------- ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Robert W. Plaster(2).................................... 10,765,103 77.8% -- --
Paul S. Lindsey, Jr.(3)................................. 1,507,610 10.9 1,507,610 95.5 %
Kristin L. Lindsey(3)................................... 753,805 5.4 753,805 47.7
Stephen R. Plaster(4)................................... 619,888 4.5 -- --
Robert L. Wooldridge(5)................................. 260,500 1.9 -- --
James E. Acreman(6)..................................... 21,550 .2 17,701 1.1
Douglas A. Brown........................................ -- -- -- --
All directors and executive officers as a group
(3 persons, 8 persons on a pro forma basis)(7)......... 13,411,554 96.6 1,554,170 98.4
<FN>
- ---------
(1) The address of each of the beneficial owners is c/o Empire Gas
Corporation, P.O. Box 303, 1700 South Jefferson Street, Lebanon, Missouri
65536.
(2) Prior to the Transaction, Mr. Plaster's shares consist of 10,515,103
shares owned by the Robert W. Plaster Trust established December 13, 1988
and 250,000 shares owned by two trusts for the benefit of two of Mr.
Plaster's daughters, the Tammy Jane Plaster Trust established July 30,
1984 and the Dolly Francine Plaster Trust established July 30, 1984.
(3) Mr. Lindsey's shares consist of 753,805 shares owned by the Paul S.
Lindsey, Jr. Trust established January 24, 1992 and 753,805 shares owned
by the Kristin L. Lindsey Trust established January 24, 1992. Mr. Lindsey
has the power to vote and to dispose of the shares held in the Kristin L.
Lindsey Trust. Mrs. Lindsey's shares consist of the shares owned by the
Kristin L. Lindsey Trust. Mrs. Lindsey disclaims beneficial ownership of
the shares held by her husband in the Paul S. Lindsey, Jr. Trust.
(4) Mr. Stephen Plaster's shares are owned by the Stephen Robert Plaster Trust
established October 30, 1988 and the Stephen Robert Plaster Trust
established July 30, 1984.
(5) Includes 40,000 shares Mr. Wooldridge may acquire upon exercise of options
that are currently exercisable. Mr. Wooldridge will be required to
exercise these options prior to the Effective Date. See "Management --
Incentive Stock Option Plan."
(6) Includes 8,000 shares Mr. Acreman may acquire upon exercise of options
that are currently exercisable. Mr. Acreman will be required to exercise
these options prior to the Effective Date. See "Management -- Incentive
Stock Option Plan."
(7) The amount shown as of April 1, 1994, includes the shares beneficially
owned by Messrs. R. Plaster, Lindsey, S. Plaster, Wooldridge, and Acreman
as set forth above, and 236,903 shares owned by other executive officers,
including 15,000 shares those officers may acquire upon exercise of
options that are currently exercisable. The options must be exercised
prior to the Effective Date. See "Management -- Incentive Stock Option
Plan." The amounts shown immediately after the Transaction include the
shares beneficially owned by Messrs. Lindsey and Acreman, and Mrs. Lindsey
as set forth above, and 28,859 shares owned by other executive officers.
</TABLE>

47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE TRANSACTION

The following will occur in connection with the Transaction:

Pursuant to the terms of the Stock Redemption Agreement, the Company will
repurchase the shares of Common Stock held by Mr. Robert W. Plaster, and trusts
for the benefit of Mr. Plaster, Mr. Stephen Plaster, and Mr. Joseph L. Schaefer
and certain of their relatives by exchanging one share of Energy Common Stock
for each share of Common Stock. The Stock Redemption Agreement also obligates
the Company to repurchase the shares of Common Stock held by Mr. Robert L.
Wooldridge, an executive officer of the Company, and Mr. S. A. Spencer, a
director of a subsidiary of the Company. Mr. Wooldridge and Mr. Spencer will
receive $7.00 per share for a portion of their shares of Common Stock and one
share of Energy Common Stock for their remaining shares of Common Stock. The
aggregate amount of shares of Common Stock held by these individuals and the
consideration to be received for the shares is as set forth below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES OF ENERGY COMMON
NAME OF COMMON STOCK STOCK CASH
- ---------------------------------------- ----------------- ----------------- ----------
<S> <C> <C> <C>
Mr. Robert W. Plaster................... 10,765,103(1) 10,765,103 --
Mr. Stephen R. Plaster.................. 619,888(2) 619,888 --
Mr. Wooldridge.......................... 260,500 (3) 163,686 $ 677,698
Mr. Schaefer............................ 209,000 (4) 209,000 --
Mr. S.A. Spencer........................ 125,000 100,000 175,000
<FN>
- ---------
(1) Includes 250,000 shares held in two trusts for Mr. Plaster's daughters.
(2) These shares are held in two trusts for Mr. S. Plaster.
(3) Includes 40,000 options Mr. Wooldridge is required to exercise prior to
the Effective Date.
(4) Consists of shares held in trusts for Mr. Schaefer's wife.
</TABLE>

Following the Transaction, Mr. Plaster will be the controlling shareholder of
Energy, which will own approximately 133 retail services centers located in ten
states. See "The Transaction."

Upon consummation of the Transaction, Mr. Plaster will resign from his
positions as Chairman of the Board and as Chief Executive Officer of the Company
and from his positions with the Company's subsidiaries. Messrs. S. Plaster,
Wooldridge, Schaefer, and Spencer will also resign from their positions with the
Company and its subsidiaries. Energy and Messrs. Plaster, S. Plaster, and
Schaefer have entered into the Non-Competition Agreement which restricts them
and their affiliates from competing with the Company, Mr. Lindsey and their
affiliates in the territories in which the Company is doing business immediately
following the Stock Purchase. Similarly, Empire Gas, Mr. Lindsey, and their
affiliates are restricted from competing with Energy, Messrs. Plaster, S.
Plaster, and Schaefer and their affiliates in seven states and certain areas
within five states. The Non-Competition Agreement is for a term of three years
from the Effective Date. Certain relatives of Mr. Plaster and Mr. Lindsey, and
the officers of Energy and the Company must enter into a substantially similar
non-competition agreement. See "The Transaction."

The Stock Redemption Agreement also provides for: (i) a payment to be made
by either the Company or Energy based on the balance of certain liabilities net
of certain assets as of the Effective Date; (ii) a payment of approximately $4.1
million to be made by the Company to Energy; (iii) an agreement regarding use of
the Empire Gas name and logo; and (iv) the allocation, between the Company and
Energy, of the responsibility for litigation relating to matters or events
occurring prior to the Effective Date, and the responsibility for any costs
related to any such litigation. The Company and Energy have also entered into a
tax indemnity agreement allocating liability for taxes incurred prior to the
Transaction.

Pursuant to the terms of the Stock Redemption Agreement, the Company will
repurchase, at face value, $4.7 million principal amount of the Company's 2007
9% Subordinated Debentures from Robert W. Plaster

48
<PAGE>
and will purchase, at face value, $300,000 principal amount of the Company's
2007 9% Subordinated Debentures from certain departing officers and employees of
the Company. See "Use of Proceeds." The Company is required to redeem
approximately $1.37 million principal amount of the debentures in December of
each year through the year 2006. As a result of this transaction and the
purchase by the Company of an additional $8.7 million principal amount of the
2007 9% Subordinated Debentures from unaffiliated noteholders, the Company will
not be required to purchase additional 2007 9% Subordinated Debentures to meet
sinking fund requirements until after the maturity of the Senior Secured Notes.

ONGOING TRANSACTIONS AND RELATIONSHIPS

The following discussion describes ongoing transactions that will occur in
connection with the Transaction, and existing transactions and relationships
that are expected to continue following the Transaction.

The Company and Empire Service Corp. ("Service Corp."), a wholly owned
subsidiary of Energy that will be controlled by Mr. Robert W. Plaster following
the Transaction, have entered into the Service Agreement pursuant to which
Service Corp. will provide to the Company certain data processing, management
information, receptionist and switchboard services. The Company will perform its
own accounting and bookkeeping functions. The Company shall pay a monthly fee
equal to (i) its proportionate share of the actual costs incurred by Service
Corp. in providing these services to the Company and to Energy, less
approximately $2,500 for services provided to two other entities controlled by
Mr. Plaster, and (ii) the actual cost incurred for certain telephone and postal
costs and for the maintenance contract for the computer terminals used by the
Company in its operations. At any time after June 30, 1998, the Company may
terminate the Service Agreement in the event of a change in its business
circumstances, such as an acquisition. In the event the Service Agreement is
terminated by the Company prior to its expiration date, the Company will
continue to be obligated to pay, for the remainder of the original term, a
monthly payment equal to the amount paid by the Company for the last full month
for which services were rendered. The Service Agreement is for a term expiring
June 30, 2001, subject to earlier termination if the Company's new lease for its
headquarters expires or if there is a change in control of the Company.

The Company leases its headquarters in Lebanon, Missouri from a corporation
controlled by Mr. Robert W. Plaster, under a lease agreement effective June 30,
1991 for an initial term ending June 30, 2001. The Company made annual lease
payments of $200,000 in fiscal years 1991, 1992, and 1993. The Company also paid
the utilities, taxes and maintenance costs during each of those years. This
lease will be terminated and a new lease will become effective upon consummation
of the Transaction. The new lease provides the Company the right to use
approximately 8,020 square feet of office space in the Lebanon location as well
as the use of the parking facilities for a term expiring June 30, 2001. The
Company will pay monthly rent of $6,250 and will be responsible for its
proportionate share of utilities and taxes and for the payment of certain
repairs and maintenance costs. The lease is subject to earlier termination, at
the option of the lessor, in the event of a change in control of the Company. At
any time after June 30, 1998, the Company may terminate the lease in the event
of a change in its business circumstances, such as an acquisition. In the event
the Company terminates the lease prior to its expiration date, the Company will
continue to be obligated to pay, for the remainder of the original term, the
monthly rent payment; provided, however, that the lessor shall use its best
efforts to re-let the premises.

Pursuant to the Aircraft Facility Agreement, the Company leased a jet
aircraft and an airport hangar from a corporation owned by Mr. Robert W. Plaster
during the last quarter of fiscal year 1992 and all of fiscal year 1993. Under
the terms of this agreement, the Company was responsible for direct lease
payments and operating costs, including insurance, of the aircraft and the
hangar. The Company paid direct rent of $25,000 in fiscal year 1992 and $100,000
in fiscal year 1993. The Company also paid operating expenses relating to the
lease of $385,000 in fiscal year 1992 and $276,000 in fiscal year 1993. This jet
had been purchased by Mr. Plaster from the Company on June 30, 1991, when he
exercised an option to purchase the jet at its depreciated net book value of
$32,399, an amount the Company believes was substantially less than its fair
market value at that date. This option had been granted to Mr. Plaster pursuant
to an employment agreement, negotiated in 1983 between Mr. Plaster and the
then-controlling shareholders of the Company in connection with a leveraged
buy-out and merger involving the Company. In connection with the Transaction,

49
<PAGE>
the Aircraft Facility Agreement will be terminated; however, pursuant to the
Stock Redemption Agreement, the Company may use the hangar, at no cost, for
storage and maintenance of the Company's two turbo prop aircraft for a term that
coincides with the Company's new lease for its headquarters.

Mrs. Kristin L. Lindsey, who beneficially owns approximately 5.4% of the
Company's outstanding common stock and who will become a director of the Company
upon consummation of the Transaction, is the majority stockholder in a company
that supplies paint to the Company. The Company's purchases of paint from this
company totalled $117,000 in fiscal year 1992 and $125,000 in fiscal year 1993.

During fiscal year 1993, the Company received certain financial advisory
services in connection with the negotiation of the Existing Credit Facility from
Mr. Douglas A. Brown and Holding Capital Group, Inc. ("HCGI"), who received
$125,000 as compensation for these services. Mr. Brown, who will become a
director of the Company upon consummation of the Transaction and Mr. S.A.
Spencer, a director of a subsidiary of the Company, are affiliated with HCGI.
Mr. Brown and HCGI have been engaged to provide certain financial advisory
services in connection with the negotiation of the New Credit Facility and the
structuring and execution of this Offering, and will receive $500,000 for these
services.

PAST TRANSACTIONS AND RELATIONSHIPS

The following discussion describes transactions that have occurred during
the past three fiscal years that are not expected to continue following the
Transaction.

During fiscal years 1991, 1992, and 1993, pursuant to the terms of the Ranch
Agreement, the Company paid $150,000 annually and provided services each year at
a cost of approximately $25,000 to a wildlife preserve owned by Empire Ranch,
Inc. The Company used the facilities at the preserve for meetings with Company
employees and business guests. In connection with the Transaction, the Ranch
Agreement is being terminated.

Mr. Robert W. Plaster and trusts or entities controlled by Mr. Plaster have
provided demand loans to the Company over the past three years. The maximum
amount loaned to the Company during fiscal year 1991, 1992, and 1993 was
$5,928,000, $5,753,000, and $3,000,000, respectively. These loans were fully
repaid by June 30, 1993. The interest rate on these loans was equal to or below
the average rates available to the Company through its bank lines of credit in
effect during each of those years. The Company incurred total interest expense
of $583,000, $315,000, and $200,000 for fiscal years 1991, 1992, and 1993,
respectively.

The Company provides bookkeeping, data processing, and accounting services
to two corporations controlled by Mr. Robert W. Plaster for an annual fee of
$84,000. The Company received an annual fee of $84,000 in fiscal year 1991,
1992, and 1993 for providing these services. Following the Transaction, the
Company will no longer provide these services to the two corporations. See "--
Ongoing Transactions and Relationships"

Mr. Paul W. Zeller, a director of a subsidiary of the Company during fiscal
year 1991 and 1992, was an officer of Reliance Insurance Company, the Company's
lender on its Old Term Loan. The maximum outstanding balance on the Old Term
Loan was $20 million during fiscal year 1991 and $13.25 million during fiscal
year 1992. The Company paid interest of $2.9 million, $2.4 million, and $710,000
on the Old Term Loan during fiscal years 1991, 1992, and 1993, respectively. In
November 1992, the Old Term Loan (which was accruing interest at 14.5% per
annum) was repaid with funds provided by a $13.25 million loan from Mr. Robert
W. Plaster, through the Robert W. Plaster Trust established December 13, 1988.
This loan was secured by substantially all of the assets of the Company and its
subsidiaries on a PARI PASSU basis with the Company's Old Working Capital
Facility. The loan bore interest at 10% per annum and was repaid in June 1993
with the proceeds from the Term Loan. The Company incurred interest expense of
$749,000 during fiscal year 1993 for this loan.

50
<PAGE>
DESCRIPTION OF THE SENIOR SECURED NOTES

GENERAL

The Senior Secured Notes are to be issued under an Indenture (the
"Indenture") to be dated as of , 1994, among the Company and Shawmut Bank
Connecticut, National Association, as trustee (the "Trustee"). A copy of the
proposed form of the Indenture has been filed as an exhibit to the Registration
Statement, of which this Prospectus is a part. See "Available Information."

The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein.

The Senior Secured Notes will be issued in fully registered form only,
without coupons, in denominations of $1,000 or integral multiples thereof.

The Senior Secured Notes are transferable and exchangeable at the office of
the Registrar. Principal, premium, if any, and interest are payable at the
office of the Paying Agent, but at the option of the Company, interest may be
paid by check mailed to the registered holders at their registered addresses.
The Company has initially appointed the Trustee as the Paying Agent and the
Registrar under the Indenture.

The Company has no sinking fund or mandatory redemption obligations with
respect to the Senior Secured Notes.

The Company is subject to the informational reporting requirements of
Sections 13 and 15(d) under the Exchange Act and, in accordance therewith, will
file certain reports and other information with the Commission. See "Available
Information." In addition, if Sections 13 and 15(d) cease to apply to the
Company, the Company will covenant in the Indenture to file such reports and
information with the Trustee and the Commission, and mail such reports and
information to Noteholders at their registered addresses, for so long as any
Senior Secured Notes remain outstanding.

The Company conducts substantially all of its operations through its
subsidiaries. Creditors of its subsidiaries, including trade creditors, would
have a claim on the subsidiaries' assets that would be prior to the claims of
the holders of the Senior Secured Notes. See "Risk Factors -- Effective Ranking
of Senior Secured Notes."

The Senior Secured Notes will be issued in the form of a fully registered
global note (the "Global Note") and will be deposited with, or on behalf of, The
Depositary Trust Company (the "Depositary") and registered in the name of a
nominee of the Depositary. Except as set forth in "-- Form, Denomination and
Registration" below, owners of beneficial interests in such Global Note will not
be entitled to have Senior Secured Notes registered in their names, will not
receive or be entitled to receive physical delivery of Senior Secured Notes in
definitive form and will not be considered the owners or Holders thereof under
the Indenture. See "-- Form, Denomination and Registration." No service charge
will be made for any registration of transfer or exchange of Senior Secured
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.

TERMS OF THE SENIOR SECURED NOTES

The Senior Secured Notes will be senior obligations of the Company. The
Senior Secured Notes will mature on , 2004. Prior to , 1999,
interest will accrue on the Senior Secured Notes from , 1994, or from the
most recent Interest Payment Date to which interest has been paid or provided
for, and will be payable in cash semiannually at the rate of % per annum of
the principal amount at maturity of the Senior Secured Notes (to Holders of
record at the close of business on the or immediately preceding
the Interest Payment Date) on and of each year, commencing
, 1994. In addition, prior to , 1999, original issue discount will
accrete on the Senior Secured Notes such that the yield to maturity will be %
per annum, compounded on the basis of semiannual compounding. From and after
, 1999, interest on the Senior Secured Notes will accrue

51
<PAGE>
and be payable in cash semiannually at the rate of % per annum of the
principal amount at maturity of the Senior Secured Notes (to Holders of record
at the close of business on the or immediately preceding the
Interest Payment Date) on and of each year, commencing ,
1999.

For federal income tax purposes, Holders of Senior Secured Notes will be
required to recognize interest income in respect of the Senior Secured Notes in
the form of original issue discount in advance of the receipt of the cash
payments to which such income is attributable. See "Certain Federal Income Tax
Considerations" for information concerning certain federal income tax
considerations associated with the Senior Secured Notes.

OPTIONAL REDEMPTION

Except as set forth in the following paragraph, the Company may not redeem
the Senior Secured Notes prior to , 1999. On and after such date, the
Company may redeem the Senior Secured Notes at any time as a whole, or from time
to time in part, at the following redemption prices (expressed in percentages of
Accreted Value), plus accrued interest to the redemption date, if redeemed
during the 12-month period beginning :

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1999........................................................................ %
2000........................................................................ %
2001 and thereafter......................................................... %
</TABLE>

The Company may redeem up to $ million principal amount at maturity of
Senior Secured Notes with the proceeds of one or more Public Equity Offerings
following which there is a Public Market, at any time as a whole or from time to
time in part, at a redemption price (expressed as a percentage of Accreted
Value), plus accrued interest to the redemption date, of % if redeemed at any
time prior to , 1997.

SELECTION FOR REDEMPTION

In the case of any partial redemption, selection of the Senior Secured Notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee in its sole discretion shall deem to
be fair and appropriate; provided that no Senior Secured Note of $1,000 in
principal amount at maturity or less shall be redeemed in part. If any Senior
Secured Note is to be redeemed in part only, the notice of redemption relating
to such Senior Secured Note shall state the portion of the principal amount
thereof to be redeemed. A Senior Secured Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Senior Secured Note.

RANKING

The Indebtedness evidenced by the Senior Secured Notes constitutes Senior
Indebtedness of the Company and will rank PARI PASSU in right of payment with
all existing and future Senior Indebtedness of the Company, including, without
limitation, amounts due under the New Credit Facility. Any borrowings under the
new Credit Facility, but not the Senior Secured Notes, will be secured by the
inventory and accounts receivable of the Company and its subsidiaries. The
Company conducts substantially all of its operations through its subsidiaries.
Claims of creditors of such subsidiaries, including trade creditors and holders
of indebtedness guaranteed by such subsidiaries, will have priority with respect
to the assets and earnings of such subsidiaries over creditors of the Company,
including holders of Senior Secured Notes. See "Risk Factors -- Effective
Ranking of Senior Secured Notes."

COLLATERAL AND SECURITY

Pursuant to the Indenture and the Pledge Agreement, the Company will pledge
to the Trustee all shares of Capital Stock of each of its Restricted
Subsidiaries (including, without limitation, PSNC Propane Corporation) and all
other Restricted Subsidiaries of the Company formed or acquired after the date
of the Indenture (such Capital Stock, together with any proceeds therefrom or
replacements therefor pursuant to the terms of the Indenture, being hereafter
referred to as the "Collateral"). The security interest in the Collateral will
be a first priority perfected security interest. However, absent any Default or
Event of

52
<PAGE>
Default, the Company will be able to receive dividends and vote, as it sees fit
in its sole discretion, the Capital Stock of the Restricted Subsidiaries,
provided that no vote may be cast, and no consent, waiver or ratification given
or action taken, which would be inconsistent with or violate any provision of
the Indenture or the Senior Secured Notes.

The Indenture will provide that the Collateral may be released from the Lien
thereon (a) upon payment in full of all obligations under the Indenture and the
termination thereof or (b) upon the sale or other disposition of such Collateral
if (i) the Company or a Subsidiary receives consideration at the time of such
sale or other disposition at least equal to the fair market value, as determined
in good faith by the Board of Directors, of the Collateral subject to the sale
or other disposition, (ii) at least 80% of the consideration thereof received by
the Company or a Subsidiary is in the form of Additional Assets or cash or cash
equivalents which cash equivalents are promptly converted into cash by the
Company, and (iii) an amount equal to 100% of the Net Available Cash is applied
by the Company as set forth in the following paragraph. The Net Available Cash
resulting from the sale or other disposition of any Collateral shall, to the
extent permitted by law, be immediately deposited in an account (the "Collateral
Account") subject to a first priority perfected Lien in favor of the Trustee,
and the Company shall cause any non-cash proceeds from such sale or other
disposition (including securities) received by the Company or a Subsidiary to
immediately become subject to a first priority perfected Lien in favor of the
Trustee.

Within 360 days after consummation of any sale or disposition of Collateral,
the Company shall apply 100% of the Net Available Cash resulting from such sale
or disposition to (i) the purchase of Additional Assets (the "Replacement
Assets"), provided, however, that, when acquired, such Replacement Assets are
subject to a first priority perfected Lien in favor of the Trustee, (ii) the
purchase of Senior Secured Notes tendered to the Company for purchase at a price
equal to at least 100% of the Accreted Value thereof, plus accrued interest, if
any, to the date of purchase (which purchase shall be made pursuant to an offer
substantially similar to an Asset Sale Offer to all of the holders of the Senior
Secured Notes), or (iii) the acquisition or formation of a Subsidiary, provided,
however, that, when acquired or formed, the Capital Stock of such Subsidiary is
subject to a first priority perfected Lien in favor of the Trustee; PROVIDED,
that if the Company does not apply such Net Available Cash in accordance with
(i), (ii) or (iii) above, such Net Available Cash shall remain in the Collateral
Account and not be released until the obligations of the Company under the
Indenture and the Senior Secured Notes have been discharged. See "-- Covenants
- -- Sale of Assets." Subject to the proviso in the preceding sentence, amounts in
the Collateral Account shall be released (i) upon the purchase of Additional
Assets, (ii) upon the purchase of Senior Secured Notes pursuant to an clause
(ii) above, or (iii) upon the acquisition or formation of a Subsidiary, all of
whose Capital Stock has been pledged to the Trustee. Any such actions by the
Trustee to release the Collateral must be taken in accordance with the Trust
Indenture Act of 1939, as amended, including Section 314 thereunder.

There can be no assurance that the proceeds of any sale of the Collateral
pursuant to the Indenture following an Event of Default would be sufficient to
satisfy payments due on the Senior Secured Notes. If such proceeds are not
sufficient to repay all such amounts due on the Senior Secured Notes, then
Holders of the Senior Secured Notes (to the extent not repaid from the proceeds
of the sale of the Collateral) would have only an unsecured claim against the
Company's remaining assets. In addition, the ability of the Holders of the
Senior Secured Notes to rely upon the Collateral for fulfillment of the
Company's obligations under the Indenture may be subject to certain bankruptcy
law limitations in the event of a bankruptcy.

CERTAIN DEFINITIONS

Set forth below is a summary of certain defined terms used in the
Indentures.

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<PAGE>
"ACCRETED VALUE" as of any date (the "specified date") means, with respect
to each $1,000 face amount of Senior Secured Notes, the following amount:

(i) if the specified date is one of the following dates (each an
"accrual date"), the amount set forth opposite such date below:

<TABLE>
<CAPTION>
ACCRETED
ACCRUAL DATE VALUE
- ---------------------- -------------
<S> <C>
, 1994.... --
, 1994.... --
, 1995.... --
, 1995.... --
, 1996.... --
, 1996.... --
, 1997.... --
, 1997.... --
, 1998.... --
, 1998.... --
, 1999.... 1,000.00;
</TABLE>

(ii) if the specified date occurs between two accrual dates, the sum of
(A) the accreted value for the accrual date immediately preceding the
specified date and (B) an amount equal to the product of (i) the accreted
value for the immediately following accrual date less the accreted value for
the immediately preceding accrual date and (ii) a fraction, the numerator of
which is the number of days (not to exceed 180 days) from the immediately
preceding accrual date to the specified date, using a 360-day year of twelve
30-day months, and the denominator of which is 180 (or, if the immediately
following accrual date is , 1999, ); and

(iii) if the specified date occurs after , 1999, $1,000.

"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the time
at which such Person became a Subsidiary and not incurred in connection with, or
in contemplation of, such Person becoming a Subsidiary. Acquired Indebtedness
shall be deemed to be Incurred on the date the acquired Person becomes a
Subsidiary.

"ACQUISITION INDEBTEDNESS" means Indebtedness of a Restricted Subsidiary
incurred in connection with the acquisition of property or assets related to the
Line of Business which will be owned and used by the Company or a Restricted
Subsidiary, which Indebtedness is without recourse to the Company or any other
Restricted Subsidiary.

"ADDITIONAL ASSETS" means (i) any property or assets related to the Line of
Business which will be owned and used by the Company or a Restricted Subsidiary;
(ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in
any Person that at such time is a Restricted Subsidiary.

"AFFILIATE" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Covenants -- Transactions with
Affiliates" and "-- Sales of Assets" only, "Affiliate" shall also mean any
beneficial owner of 5% or more of the total Voting Shares (on a Fully Diluted
Basis) of the Company or of rights or warrants to purchase such stock (whether
or not currently exercisable) and any Person who would be an Affiliate of any
such beneficial owner pursuant to the first sentence hereof. For purposes of the
provision described under "-- Covenants -- Limitation on

54
<PAGE>
Restricted Payments" only, "Affiliate" shall also mean any Person of which the
Company owns 5% or more of any class of Capital Stock or rights to acquire 5% or
more or any class of Capital Stock and any Person who would be an Affiliate of
any such Person pursuant to the first sentence hereof.

"ASSET SALE" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale leaseback transactions, but excluding (except
as provided for in the provisions described in the last paragraph under "--
Covenants -- Sales of Assets") those permitted by the provisions described under
"-- Covenants -- Merger and Consolidation") in one or a series of transactions
by the Company or any Restricted Subsidiary to any Person other than the Company
or any Wholly Owned Subsidiary, of (i) all or any of the Capital Stock of the
Company or any Restricted Subsidiary, (ii) all or substantially all of the
assets of any operating unit, division or line of business of the Company or any
Restricted Subsidiary or (iii) any other property or assets or rights to acquire
property or assets of the Company or any Restricted Subsidiary outside of the
ordinary course of business of the Company or such Restricted Subsidiary.

"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Senior Secured Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).

"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of (A) the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption or similar payment with respect to such Indebtedness or
Preferred Stock multiplied by (B) the amount of such payment by (ii) the sum of
all such payments.

"BASIC AGREEMENTS" means (i) the Stock Redemption Agreement, dated April ,
1994, among the Company, Energy, Mr. Lindsey, Mr. Robert Plaster, and the other
parties named therein; (ii) the Services Agreement, dated April , 1994,
between the Company and Empire Service Corporation; (iii) the Lease Agreement,
dated April , 1994, between the Company and Evergreen National Corporation;
(iv) and the Non-Competition Agreement, dated April , 1994, among the Company,
Energy, Paul Lindsey, Robert Plaster, Stephen Plaster and Joseph Schaefer.

"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
authorized committee thereof.

"BUSINESS DAY" means each day which is not a Legal Holiday.

"CAPITAL STOCK" means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation or any and
all equivalent ownership interests in a Person (other than a corporation).

"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; the Stated
Maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which the lease may be
terminated by the lessee without payment of a penalty; and "Capitalized Lease
Obligations" means the rental obligations, as aforesaid, under such lease.

"CHANGE OF CONTROL" means the occurrence of any of the following events: (i)
at any time after the occurrence of a Public Market, any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), other than the
Management Group or an underwriter engaged in a firm commitment underwriting on
behalf of the Company, is or becomes the beneficial owner (as such term is used
in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of
this clause (i) a person shall be deemed to have "beneficial ownership" of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 30%, of the total Voting Shares of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors together with any new directors
whose

55
<PAGE>
election by Board of Directors or whose nomination for election by the
stockholders was approved by a vote of 66 2/3% of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved cease
for any reason to constitute a majority of the Board of Directors, as the case
may be, then in office; (iii) all or substantially all of the Company's and its
Restricted Subsidiaries' assets are sold, leased, exchanged or otherwise
transferred to any Person or group of Persons acting in concert; (iv) the
Company is liquidated or dissolved or adopts a plan of liquidation; (v) prior to
the occurrence of a Public Market, the Management Group ceases in the aggregate
to beneficially own, directly or indirectly, at least 50% in the aggregate of
the total Voting Shares of the Company; or (vi) at any time prior to the
occurrence of a Change of Control pursuant to clauses (i) to (v) of this
definition as a result of which a Change of Control Offer was made, (A) the
failure of the Company for a period of greater than 90 days in any 12 month
period to continuously maintain (following the 6 month anniversary of the
Offering) on its Board of Directors at least two Outside Directors, (B) the
failure of the Company for a period of greater than 90 days in any 12 month
period to continuously maintain an audit committee of its Board of Directors
consisting solely of Outside Directors or (C) the Board of Directors consists of
greater than seven members; and the Company has agreed that upon the occurrence
of any of the events in this item (vi) the Company shall notify the Trustee of
such occurrence.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COMPANY" means the party named as such in the Indenture until a successor
replaces it pursuant to the terms and conditions of the Indenture and thereafter
means the successor.

"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters to (ii) the Consolidated Interest Expense for
such four fiscal quarters; PROVIDED, HOWEVER, that if the Company or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, both EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to (x) such new Indebtedness
as if such Indebtedness had been Incurred on the first day of such period and
(y) the repayment, redemption, repurchase, defeasance or discharge of any
Indebtedness repaid, redeemed, repurchased, defeased or discharged with the
proceeds of such new Indebtedness as if such repayment, redemption, repurchase,
defeasance or discharge had been made on the first day of such period; PROVIDED,
FURTHER, that if within the period during which EBITDA or Consolidated Interest
Expense is measured, the Company or any of its Restricted Subsidiaries shall
have made any Asset Sales, (x) the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets or
Capital Stock which are the subject of such Asset Sales for such period, or
increased by an amount equal to the EBITDA (if negative), directly attributable
thereto for such period and (y) the Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness for which neither Company nor any
Restricted Subsidiary shall continue to be liable as a result of any such Asset
Sale or repaid, redeemed, defeased, discharged or otherwise retired in
connection with or with the proceeds of the assets or Capital Stock which are
the subject of such Asset Sales for such period; and PROVIDED, FURTHER, that if
the Company or any Restricted Subsidiary shall have made any acquisition of
assets or Capital Stock (occurring by merger or otherwise) since the beginning
of such period (including any acquisition of assets or Capital Stock occurring
in connection with a transaction causing a calculation to be made hereunder) the
EBITDA and Consolidated Interest Expense for such period shall be calculated,
after giving pro forma effect thereto (and without regard to clause (iv) of the
definition of "Consolidated Net Income"), as if such acquisition of assets or
Capital Stock took place on the first day of such period. For all purposes of
this definition, if the date of determination occurs prior to the completion of
the first four full fiscal quarters following the Issue Date, then "EBITDA" and
"Consolidated Interest Expense" shall be calculated after giving effect on a pro
forma basis to the Offering as if the Offering occurred on the first day of the
four full fiscal quarters that were completed preceding such date of
determination.

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<PAGE>
current liabilities (including taxes accrued as estimated), after eliminating
(i) all inter-company items between the Company and any Subsidiary and (ii) all
current maturities of long-term Indebtedness, all as determined in accordance
with GAAP.

"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, as applied to the
Company, the provision for local, state, federal or foreign income taxes on a
Consolidated basis for such period determined in accordance with GAAP.

"CONSOLIDATED INTEREST EXPENSE" means, for any period, as applied to the
Company, the sum of (a) the total interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period as determined in accordance
with GAAP, including, without limitation, (i) amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting, and amortization of debt issuance costs (other than issuance costs
with regard to the Offering, the execution of the New Credit Facility and the
related transactions occurring simultaneously therewith), (ii) accrued interest,
(iii) noncash interest payments, (iv) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (v) interest actually paid by the Company or any such Subsidiary
under any guarantee of Indebtedness or other obligation of any other Person and
(vi) net costs associated with Interest Rate Agreements (including amortization
of discounts) and Currency Agreements, plus (b) all but the principal component
of rentals in respect of Capitalized Lease Obligations paid, accrued, or
scheduled to be paid or accrued by the Company or its Consolidated Restricted
Subsidiaries, plus (c) one-third of all Operating Lease Obligations paid,
accrued and/or scheduled to be paid by the Company and its Consolidated
Restricted Subsidiaries, plus (d) amortization of capitalized interest, plus (e)
dividends paid in respect of Preferred Stock of the Company or any Restricted
Subsidiary held by Persons other than the Company or a Wholly Owned Subsidiary,
plus (f) cash contributions to any employee stock ownership plan to the extent
such contributions are used by such employee stock ownership plan to pay
interest or fees to any person (other than the Company or a Restricted
Subsidiary) in connection with loans incurred by such employee stock ownership
plan to purchase Capital Stock of the Company.

"CONSOLIDATED NET INCOME (LOSS)" means, for any period, as applied to the
Company, the Consolidated net income (loss) of the Company and its Consolidated
Restricted Subsidiaries for such period, determined in accordance with GAAP,
adjusted by excluding (without duplication), to the extent included in such net
income (loss), the following: (i) all extraordinary gains or losses; (ii) any
net income of any Person if such Person is not a Restricted Subsidiary, except
that (A) the Company's equity in the net income of any such Person for such
period shall be included in Consolidated Net Income (Loss) up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution and (B)
the equity of the Company or a Restricted Subsidiary in a net loss of any such
Person for such period shall be included in determining Consolidated Net Income
(Loss); (iii) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such income is not at the time thereof permitted, directly or
indirectly, by operation of the terms of its charter or by-laws or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary or its stockholders; (iv)
any net income (or loss) of any Person combined with the Company or any of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of such combination; (v) any gain or loss realized upon
the sale or other disposition of any property, plant or equipment of the Company
or its Restricted Subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course
of business and any gain (but not loss) realized upon the sale or other
disposition by the Company or any Restricted Subsidiary of any Capital Stock of
any Person; and (vi) the cumulative effect of a change in accounting principles;
and further adjusted by subtracting from such net income the tax liability of
any parent of the Company to the extent of payments made to such parent by the
Company pursuant to any tax sharing agreement or other arrangement for such
period.

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<PAGE>
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of determination,
as applied to the Company, the total amount of assets (less accumulated
depreciation or amortization, allowances for doubtful receivables, other
applicable reserves and other properly deductible items) which would appear on a
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, and
after giving effect to purchase accounting and after deducting therefrom, to the
extent otherwise included, the amounts of: (i) Consolidated Current Liabilities;
(ii) minority interests in Consolidated Subsidiaries held by Persons other than
the Company or a Restricted Subsidiary; (iii) excess of cost over fair value of
assets of businesses acquired, as determined in good faith by the Board of
Directors; (iv) any revaluation or other write-up in value of assets subsequent
to December 31, 1993 as a result of a change in the method of valuation in
accordance with GAAP; (v) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items; (vi) treasury stock; and (vii) any cash set apart and
held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of Capital Stock to the extent such obligation is
not reflected in Consolidated Current Liabilities.

"CONSOLIDATED NET WORTH" means, at any date of determination, as applied to
the Company, stockholders' equity as set forth on the most recently available
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries (which shall be as of a date no more than 60 days prior to the date
of such computation), less any amounts attributable to Redeemable Stock or
Exchangeable Stock, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of the Company or any
Subsidiary.

"CONSOLIDATION" means, with respect to any Person, the consolidation of
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and such subsidiaries are consolidated in accordance
with GAAP. The term "Consolidated" shall have a correlative meaning.

"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values to
or under which the Company or any Restricted Subsidiary is a party or a
beneficiary on the Issue Date or becomes a party or beneficiary thereafter.

"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"DOMESTIC SUBSIDIARY" means a Restricted Subsidiary that is not a Foreign
Subsidiary.

"DEFAULTED INTEREST" means any interest on any Security which is payable,
but is not punctually paid or duly provided for on any Interest Payment Date.

"EBITDA" means, for any period, as applied to the Company, the sum of
Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net Income
(Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense,
(c) depreciation expense, and (d) amortization expense, in each case for such
period; PROVIDED that, if the Company has any Subsidiary that is not a Wholly
Owned Subsidiary, EBITDA shall be reduced (to the extent not otherwise reduced
by GAAP) by an amount equal to (A) the consolidated net income (loss) of such
Subsidiary (to the extent included in Consolidated Net Income (Loss) multiplied
by (B) the quotient of (1) the number of shares of outstanding common stock of
such Subsidiary not owned on the last day of such period by the Company or any
Wholly Owned Subsidiary of the Company divided by (2) the total number of shares
of outstanding common stock of such Subsidiary on the last day of such period.

"ENERGY" means Empire Energy Corporation, a Tennessee corporation.

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<PAGE>
purchase plan or program or any similar plan or arrangement, to, or for the
benefit of, a Lindsey Entity in excess of the lesser of (A) the aggregate
scheduled amounts of any such payments as set forth in the Employment Agreements
between each of Paul Lindsey and Kristen Lindsey, on the one hand, and the
Company on the other hand, each dated as of , 1994, as they may be
amended from time to time, and (B) an aggregate of $1,000,000.

"EXCHANGEABLE STOCK" means any Capital Stock which by its terms is
exchangeable or convertible at the option of any Person other than the Company
into another security (other than Capital Stock of the Company which is neither
Exchangeable Stock nor Redeemable Stock).

"FOREIGN ASSET SALE" means an Asset Sale in respect of the Capital Stock or
assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described
in Section 936 of the Code to the extent that the proceeds of such Asset Sale
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States of America or any State thereof or
the District of Columbia.

"FOREIGN SUBSIDIARY" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States of America or a State thereof or the
District of Columbia.

"FULLY DILUTED BASIS" means after giving effect to the exercise of any
outstanding options, warrants or rights to purchase Voting Shares and the
conversion or exchange of any securities convertible into or exchangeable for
Voting Shares.

"GAAP" means generally accepted accounting principles in the United States
of America as in effect and, to the extent optional, adopted by the Company on
the Issue Date, consistently applied, including, without limitation, those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.

"GUARANTEE" means, as applied to any obligation, contingent or otherwise, of
any Person, (i) a guarantee, direct or indirect, in any manner, of any part or
all of such obligation (other than by endorsement of negotiable instruments for
collection in the ordinary course of business) and (ii) an agreement, direct or
indirect, contingent or otherwise, the practical effect of which is to insure in
any way the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including the payment of
amounts drawn down under letters of credit.

"HOLDER" or "SECURITYHOLDER" means the Person in whose name a Senior Secured
Note is registered on the Registrar's books.

"INCUR" means, as applied to any obligation, to create, incur, issue,
assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "INCURRED," "INCURRENCE" and
"INCURRING" shall each have a correlative meaning; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary; and PROVIDED, FURTHER, that any amendment,
modification or waiver of any provision of any document pursuant to which
Indebtedness was previously Incurred shall not be deemed to be an Incurrence of
Indebtedness as long as (i) such amendment, modification or waiver does not (A)
increase the principal or premium thereof or interest rate thereon, (B) change
to an earlier date the Stated Maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances under which such
Indebtedness may or shall be redeemed, (C) if such Indebtedness is contractually
subordinated in right of payment to the Senior Secured Notes, modify or affect,
in any manner adverse to the Holders, such subordination, (D) if the Company is
the obligor thereon, provide that a Restricted Subsidiary shall be an obligor,
or (E) violate, or cause the Indebtedness to violate, the provisions described
under "-- Covenants -- Limitation on Payment Restrictions Affecting
Subsidiaries" and "-- Limitation on Liens" and (ii) such Indebtedness would,
after giving effect to such amendment, modification or waiver as if it were an
Incurrence, comply with clause (i) of the first proviso to the definition of
"Refinancing Indebtedness."

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<PAGE>
"INDEBTEDNESS" of any Person means, without duplication, (i) the principal
of and premium (if any such premium is then due and owing) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable; (ii) all Capitalized Lease Obligations of
such Person; (iii) all obligations of such Person Incurred as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement; (iv) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such Person with respect to the scheduled redemption,
repayment or other repurchase of any Redeemable Stock and, in the case of any
Subsidiary, with respect to any other Preferred Stock (but excluding in each
case any accrued dividends); (vi) all obligations of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any guarantee; (vii) all liabilities or other
obligations, contingent or otherwise, purchased, assumed or with respect to
which such Person shall otherwise become liable or responsible in connection
with the purchase, acquisition or assumption of property, services or business
operations to the extent reflected on the balance sheet of such Person in
accordance with GAAP; (viii) contractual obligations to repurchase goods sold or
distributed; (ix) all obligations of such Person in respect of Interest Rate
Agreements and Currency Agreements; and (x) all obligations of the type referred
to in clauses (i) through (ix) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is assumed by
such Person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured;
PROVIDED, HOWEVER, that Indebtedness shall not include trade accounts payable
arising in the ordinary course of business. The amount of Indebtedness of any
Person at any date shall be, with respect to unconditional obligations, the
outstanding balance at such date of all such obligations as described above and,
with respect to any contingent obligations (other than pursuant to clause (vii)
above, which shall be included to the extent reflected on the balance sheet of
such Person in accordance with GAAP) at such date, the maximum liability
determined by such Person's board of directors, in good faith, as, in light of
the facts and circumstances existing at the time, reasonably likely to be
Incurred upon the occurrence of the contingency giving rise to such obligation.

"INTEREST PAYMENT DATE" means the stated maturity of an installment of
interest on the Senior Secured Notes.

"INTEREST RATE AGREEMENT" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect against fluctuations in interest rates to or under which the Company
or any of its Restricted Subsidiaries is a party or beneficiary on the Issue
Date or becomes a party or beneficiary thereunder.

"INVESTMENT" means, with respect to any Person, any direct or indirect
advance, loan (other than advances to customers who are not Affiliates in the
ordinary course of business that are recorded as accounts receivable on the
balance sheet of such Person or its Subsidiaries) or other extension of credit
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any other investment in any other Person, or any purchase or
acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities or assets issued or owned by any other Person (whether by
merger, consolidation, amalgamation, sale of assets or otherwise). For purposes
of the definition of "Unrestricted Subsidiary" and the provisions set forth
under "-- Covenants -- Limitation on Restricted Payments", (i) "Investment"
shall include the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such

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Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.

"ISSUE DATE" means the date on which the Senior Secured Notes are originally
issued under the Indenture.

"LIEN" means any mortgage, lien, pledge, charge, or other security interest
or encumbrance of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof).

"LINDSEY ENTITY" means Paul S. Lindsey, Jr., Kristen L. Lindsey, any member
of their family and any Person of which any of the foregoing Persons are
Affiliates.

"LINE OF BUSINESS" means the sale and distribution of propane gas and
operations related thereto.

"MANAGEMENT GROUP" means, collectively, (i) those individuals who
beneficially own, directly or indirectly, Voting Shares of the Company or any
successor thereto immediately following the consummation of the Offering and the
transactions related thereto and are members of management of the Company or any
of its Subsidiaries (or the estate or any beneficiary of any such individual or
any immediate family member of any such individual or any trust established for
the benefit of any such individual or immediate family member).

"NET AVAILABLE CASH" means, with respect to any Asset Sale or Collateral
Sale, the cash or cash equivalent payments received by the Company or a
Subsidiary in connection with such Asset Sale or Collateral Sale (including any
cash received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as or when received and also
including the proceeds of other property received when converted to cash or cash
equivalents) net of the sum of, without duplication, (i) all reasonable legal,
title and recording tax expenses, reasonable commissions, and other reasonable
fees and expenses incurred directly relating to such Asset Sale or Collateral
Sale, (ii) provision for all local, state, federal and foreign taxes expected to
be paid (whether or not such taxes are actually be paid or payable) as a
consequence of such Asset Sale or Collateral Sale, without regard to the
consolidated results of the Company and its Subsidiaries, (iii) payments made to
repay Indebtedness which is secured by any assets subject to such Asset Sale or
Collateral Sale in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or by applicable law, be repaid out of the proceeds from such Asset Sale or
Collateral Sale, and (iv) reasonable amounts reserved by the Company or any
Subsidiary of the Company receiving proceeds of such Asset Sale or Collateral
Sale against any liabilities associated with such Asset Sale or Collateral Sale,
including without limitation, indemnification obligations, PROVIDED that such
amounts shall not exceed 10% of the payments received by the Company or a
Subsidiary in connection with such Asset Sale or Collateral Sale, and PROVIDED
FURTHER that such amounts will be applied as described under "-- Covenants --
Sales of Assets" or "Collateral and Security," as the case may be, no later than
the fifth anniversary of such Asset Sale or Collateral Sale if not previously
paid to satisfy such liabilities.

"NET CASH PROCEEDS" means, with respect to any issuance or sale of Capital
Stock by any Person, the cash proceeds to such Person of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultancy and other fees
actually incurred by such Person in connection with such issuance or sale and
net of taxes paid or payable by such Person as a result thereof.

"NEW CREDIT FACILITY" means the credit facility provided pursuant to the
credit agreement, dated as of , 1994, between the Company and Continental
Bank, N.A.

"NON-CONVERTIBLE CAPITAL STOCK" means, with respect to any corporation, any
Capital Stock of such corporation which is not convertible into another security
other than non-convertible common stock of such corporation; PROVIDED, HOWEVER,
that Non-Convertible Capital Stock shall not include any Redeemable Stock or
Exchangeable Stock.

"OFFERING" means the public offering and sale of the Senior Secured Notes.

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"OFFICER" means the Chairman, the President, any Vice President, the Chief
Operating Officer, the Chief Financial Officer, the Treasurer, the Secretary,
any Assistant Treasurer, any Assistant Secretary or the Controller of the
Company.

"OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one of
whom must be the President, the Treasurer or a Vice President of the Company.
Each Officers' Certificate (other than certificates provided pursuant to TIA
Section 314(a)(4)) shall include the statements provided for in TIA Section
314(e).

"OPERATING LEASE OBLIGATIONS" means any obligation of the Company and its
Restricted Subsidiaries on a Consolidated basis incurred or assumed under or in
connection with any lease of real or personal property which, in accordance with
GAAP, is not required to be classified and accounted for as a capital lease.

"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel, if so acceptable, may be an employee of
or counsel to the Company or the Trustee. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e).

"OUTSIDE DIRECTOR" means any Person who is a member of the Board of
Directors who is not (i) an employee or Affiliate of the Company, any Subsidiary
of the Company or Energy, (ii) an employee or Affiliate of Holding Capital
Group, (iii) a Plaster Entity or a Lindsey Entity, or (iv) a Person who has
engaged in a transaction with the Company or any Subsidiary of the Company that
would be required to be disclosed under Item 13 of Form 10-K if such Person were
a director of a registrant under the Securities Exchange Act of 1934, as
amended.

"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.

"PLASTER ENTITY" means Robert W. Plaster, Stephen R. Plaster, any member of
each of such individual's family, and any Person of which any of the foregoing
Persons are Affiliates.

"PLEDGE AGREEMENT" means that certain Pledge Agreement, dated as of the date
of the Indenture, by the Company in favor of the Trustee, in the form attached
to the Indenture.

"PREFERRED STOCK", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.

"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act.

"PUBLIC MARKET" shall be deemed to have occurred if (x) a Public Equity
Offering has been consummated and (y) at least 25% (for purposes of the
definition of "Change of Control") or 20% (for purposes of the provisions
described under "-- Optional Redemption") of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.

"REDEEMABLE STOCK" means any class or series of Capital Stock of any Person
that (a) by its terms, by the terms of any security into which it is convertible
or exchangeable or otherwise is, or upon the happening of an event or passage of
time would be, required to be redeemed (in whole or in part) on or prior to the
first anniversary of the Stated Maturity of the Senior Secured Notes, (b) is
redeemable at the option of the holder thereof at any time on or prior to the
first anniversary of the Stated Maturity of the Senior Secured Notes or (c) is
convertible into or exchangeable for Capital Stock referred to in clause (a) or
clause (b) above or debt securities at any time prior to the first anniversary
of the Stated Maturity of the Senior Secured Notes.

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Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) the Refinancing
Indebtedness shall be contractually subordinated in right of payment to the
Senior Secured Notes on terms at least as favorable to the Holders of Senior
Secured Notes as the terms set forth in the form of subordination provisions
attached to the Indenture, (ii) the Refinancing Indebtedness is scheduled to
mature either (a) no earlier than the Indebtedness being refinanced or (b) after
the Stated Maturity of the Senior Secured Notes, (iii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced and (iv) such Refinancing Indebtedness is in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding (plus fees and expenses, including any premium and defeasance costs)
under the Indebtedness being refinanced; and PROVIDED, FURTHER, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Subsidiary of the Company
that refinances Indebtedness of the Company or (y) Indebtedness of the Company
or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.

"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not
designated an Unrestricted Subsidiary by the Board of Directors.

"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and leases it back from such Person, other than leases for
a term of not more than 36 months or between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.

"SECURITIES" means all series of the Senior Secured Notes Due 2004 that are
issued under and pursuant to the terms of the Indenture, as amended or
supplemented from time to time.

"SENIOR INDEBTEDNESS" means (i) all obligations consisting of the principal
of and premium, if any, and accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not post-filing interest is
allowed in such proceeding), whether existing on the Issue Date or thereafter
Incurred, in respect of (A) Indebtedness of the Company for money borrowed and
(B) Indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable; (ii)
all Capitalized Lease Obligations of the Company; (iii) all obligations of the
Company (A) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (B) under Interest Rate
Agreements and Currency Agreements entered into in respect of any obligations
described in clauses (i) and (ii) or (C) issued or assumed as the deferred
purchase price of property, and all conditional sale obligations of the Company
and all obligations of the Company under any title retention agreement; (iv) all
guarantees of the Company with respect to obligations of other persons of the
type referred to in clauses (ii) and (iii) and with respect to the payment of
dividends of other Persons; and (v) all obligations of the Company consisting of
modifications, renewals, extensions, replacements and refundings of any
obligations described in clauses (i), (ii), (iii) or (iv); unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinated in right of
payment to the Senior Secured Notes, or any other Indebtedness or obligation of
the Company; PROVIDED, HOWEVER, that Senior Indebtedness shall not be deemed to
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, local or other taxes or (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities).

"SIGNIFICANT SUBSIDIARY" means any Subsidiary (other than an Unrestricted
Subsidiary) that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulations S-X promulgated by the SEC.

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"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency).

"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is contractually
subordinated or junior in right of payment to the Senior Secured Notes or any
other Indebtedness of the Company.

"SUBSIDIARY" means, as applied to any Person, (i) a corporation at least a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect a majority of the Board of Directors of such corporation is at the
time, directly or indirectly, owned or controlled by such Person, by a
Subsidiary or Subsidiaries of such Person, or by such Person and a Subsidiary or
Subsidiaries of such Person or (ii) any other Person (other than a corporation)
in which such Person, a Subsidiary or Subsidiaries of such Person, or such
Person and a Subsidiary or Subsidiaries of such Person, directly or indirectly,
at the date of determination, has at least a majority ownership interest.

"UNRELATED BUSINESS" means any business other than the Line of Business.

"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any other Subsidiary that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted pursuant to the provisions under "Covenants -- Limitation on
Restricted Payments". The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; PROVIDED, HOWEVER, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness pursuant to the first paragraph of "Covenants
- -- Limitation on Incurrence of Indebtedness" and (y) no Default or Event of
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the respective Trustee by promptly filing
with the respective Trustee a copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.

"U.S. GOVERNMENT OBLIGATIONS" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable before the maturity thereof.

"U.S. SUBSIDIARY" means a Subsidiary organized under the laws of any
jurisdiction in the United States of America.

"VOTING SHARES", with respect to any corporation, means the Capital Stock
having the general voting power under ordinary circumstances to elect at least a
majority of the board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

"WHOLLY OWNED SUBSIDIARY" means a Subsidiary (other than an Unrestricted
Subsidiary) all the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly Owned Subsidiary.

COVENANTS

The Indentures contains covenants including, among others, the following:

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LIMITATION ON RESTRICTED PAYMENTS. Under the terms of the Indenture, so
long as any of the Senior Secured Notes are outstanding, the Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend on or make any distribution or similar payment of
any sort in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company) to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Non-Convertible Capital Stock or rights to acquire its
Non-Convertible Capital Stock and dividends or distributions payable solely to
the Company or a Restricted Subsidiary), (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Capital Stock of the Company or of any
direct or indirect parent of the Company, or, with respect to the Company,
exercise any option to exchange any Capital Stock that by its terms is
exchangeable solely at the option of the Company (other than into Capital Stock
of the Company which is neither Exchangeable Stock nor Redeemable Stock), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity or scheduled repayment thereof or scheduled sinking
fund payment thereon, any Subordinated Indebtedness (other than the purchase,
repurchase, call or other acquisition of Subordinated Indebtedness purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) make any Investment in any Unrestricted Subsidiary or any Affiliate of the
Company other than a Restricted Subsidiary or a Person which will become a
Restricted Subsidiary as a result of any such Investment (each such payment
described in clauses (i)-(iv) of this paragraph, a "Restricted Payment"), unless
at the time of and after giving effect to the proposed Restricted Payment: (1)
no Default or Event of Default shall have occurred and be continuing (or would
result therefrom); (2) the Company would be permitted to Incur an additional $1
of Indebtedness pursuant to the provisions described in the first paragraph
under "-- Limitation on Incurrence of Indebtedness", and (3) the aggregate
amount of all such Restricted Payments subsequent to the Issue Date shall not
exceed the sum of (A) 50% of aggregate Consolidated Net Income (or if such
Consolidated Net Income is a deficit, minus 100% of such deficit), and minus
100% of the amount of any write-downs, write-offs, other negative reevaluations
and other negative extraordinary charges not otherwise reflected in Consolidated
Net Income during such period; (B) the aggregate Net Cash Proceeds received by
the Company after the Issue Date from a sale by the Company of Capital Stock
(other than Redeemable Stock or Exchangeable Stock) of the Company or from the
issuance of any options or warrants or other rights to acquire Capital Stock
(other than Redeemable Stock or Exchangeable Stock); (C) the amount by which the
principal amount of Indebtedness of the Company or its Restricted Subsidiaries
is reduced on the Company's Consolidated balance sheet upon the conversion or
exchange (other than by a Subsidiary) subsequent to the Issue Date of any
Indebtedness of the Company or any Restricted Subsidiary converted or exchanged
for Capital Stock (other than Redeemable Stock or Exchangeable Stock) of the
Company (less the amount of any cash, or the value of any other property,
distributed by the Company or any Restricted Subsidiary upon such conversion or
exchange); (D) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Unrestricted Subsidiary the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary; and (E) $1,000,000 million, less the
aggregate of all Excess Payments made during such period.

The failure to satisfy the conditions set forth in clauses (2) and (3) of
the first paragraph under "-- Limitation on Restricted Payments" shall not
prohibit any of the following as long as the condition set forth in clause (1)
of such paragraph is satisfied (except as set forth below): (i) dividends paid
within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with the provisions described in
the first paragraph under "-- Limitation on Restricted Payments"; (ii) any
purchase, redemption, defeasance, or other acquisition or retirement for value
of Capital Stock or Subordinated Indebtedness of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of, Capital
Stock of the Company (other than Redeemable Stock or Exchangeable Stock and
other than stock issued or sold to a Subsidiary or to an employee stock
ownership plan), PROVIDED, HOWEVER, that notwithstanding clause (1) of the
immediately preceding paragraph, the occurrence or existence of a

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Default or Event of Default shall not prohibit the making of such purchase,
redemption, defeasance or other acquisition or retirement, and PROVIDED,
FURTHER, such purchase, redemption, defeasance or other acquisition or
retirement shall not be included in the calculation of Restricted Payments made
for purposes of clause (3) of the immediately preceding paragraph and PROVIDED,
FURTHER, that the Net Cash Proceeds from such sale shall be excluded from
sub-clause (B) of clause (3) of the immediately preceding paragraph; (iii) any
purchase, redemption, defeasance or other acquisition or retirement for value of
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent Incurrence of for cash (other than to a
Subsidiary), new Indebtedness of the Company, PROVIDED, HOWEVER, that (A) such
new Indebtedness shall be contractually subordinated in right of payment to the
Senior Secured Notes on terms at least as favorable to the Holders of Senior
Secured Notes as the terms set forth in the form of subordination provisions
attached to the Indenture, (B) such new Indebtedness has a Stated Maturity
either (1) no earlier than the Stated Maturity of the Indebtedness redeemed,
repurchased, defeased, acquired or retired or (2) after the Stated Maturity of
the Senior Secured Notes and (C) such Indebtedness has an Average Life equal to
or greater than the Average Life of the Indebtedness redeemed, repurchased,
defeased, acquired or retired, and PROVIDED, FURTHER, that such purchase,
redemption, defeasance or other acquisition or retirement, shall not be included
in the calculation of Restricted Payments made for purposes of clause (3) of the
immediately preceding paragraph; (iv) any purchase, redemption, defeasance or
other acquisition or retirement for value of Subordinated Indebtedness upon a
Change of Control or an Asset Sale to the extent required by the indenture or
other agreement pursuant to which such Subordinated Indebtedness was issued, but
only if the Company (A) in the case of a Change of Control, has made an offer to
repurchase the Senior Secured Notes as described under "-- Covenants -- Change
of Control" or (B) in the case of an Asset Sale, has applied the Net Available
Cash from such Asset Sale in accordance with the provisions described under "--
Covenants -- Sales of Assets"; (v) pro rata dividends paid by a Subsidiary with
respect to a series or class of its Capital Stock the majority of which is held
by the Company or a Wholly Owned Subsidiary; (vi) the payment of dividends on
the Capital Stock of the Company following an initial Public Equity Offering of
such Capital Stock of up to an amount per annum of 6% of the Net Cash Proceeds
received by the Company in such Public Equity Offering; (vii) the purchase,
redemption, acquisition, cancellation, or other retirement for value of shares
of Capital Stock of the Company options on any such shares or related phantom
stock or stock appreciation rights or similar securities held by officers or
employees or former officers or employees (or their estates or beneficiaries
under their estates), upon the death, disability, retirement or termination of
employment of such employee or former employee, pursuant to the terms of an
employee benefit plan or any other agreement under which such shares of stock or
related rights were issued, provided that the aggregate cash consideration paid,
or distributions made, pursuant to this clause (vii) after the date of the
Indenture does not exceed an aggregate amount of $1,000,000 plus the cash
proceeds received by or contributed to the Company from any reissuance of
Capital Stock by the Company to members of management and employees of the
Company and its Subsidiaries; and (viii) Investments in Unrestricted
Subsidiaries of up to $3,000,000 at any one time outstanding.

LIMITATION ON INCURRENCE OF INDEBTEDNESS. Under the terms of the Indenture,
the Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness, except that the Company may
Incur Indebtedness if, after giving effect thereto, the Consolidated Coverage
Ratio would be greater than 1.75:1, if such Incurrence takes place on or prior
to , 1998, or 2.0:1, if such Incurrence takes place thereafter.

The foregoing provision will not limit the ability of the Company or any
Restricted Subsidiary to Incur the following Indebtedness: (i) Refinancing
Indebtedness (except with respect to Indebtedness referred to in clause (ii),
(iii) or (iv) below); (ii) Acquisition Indebtedness at any one time outstanding
in an aggregate principal amount not to exceed $12,000,000, PROVIDED that not
more than an aggregate of $5,000,000 of such Acquisition Indebtedness may be
incurred in any twelve month period; (iii) Indebtedness of the Company which is
owed to and held by a Wholly Owned Subsidiary and Indebtedness of a Wholly Owned
Subsidiary which is owed to and held by the Company or a Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any transfer of such Indebtedness (other than to the
Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such

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Indebtedness by the Company or by a Wholly Owned Subsidiary, as the case may be;
(iv) Indebtedness (under the New Credit Facility or otherwise) Incurred for the
purpose of financing the working capital needs of the Company and its Restricted
Subsidiaries, PROVIDED, HOWEVER, that after giving effect to the Incurrence of
such Indebtedness and any substantially simultaneous use of the proceeds
thereof, the aggregate principal amount of all such Indebtedness Incurred
pursuant to this clause (iv) and then outstanding immediately after such
Incurrence and such use of proceeds shall not exceed the sum of 60% of the book
value of the inventory and 90% of the book value of the receivables of the
Company and the Restricted Subsidiaries on a consolidated basis at such time,
and PROVIDED FURTHER, that such Incurrence shall not exceed $15,000,000 at any
time prior to , 1997; (v) Acquired Indebtedness; PROVIDED, HOWEVER, that
the Company would have been able to Incur such Indebtedness at the time of the
Incurrence thereof pursuant to the immediately preceding paragraph; and (vi)
Indebtedness of the Company or a Restricted Subsidiary outstanding on the Issue
Date (other than Indebtedness referred to in clause (iv) above and Indebtedness
being repaid or retired with the proceeds of the Offering.

Notwithstanding the provisions of this covenant described in the first two
paragraphs above, the Indenture provides that the Company shall not Incur any
Indebtedness if the proceeds thereof are used, directly or indirectly, to repay,
prepay, redeem, defease, retire, refund or refinance any Subordinated
Indebtedness unless such repayment, prepayment, redemption, defeasance,
retirement, refunding or refinancing is not prohibited under "-- Limitation on
Restricted Payments" or unless such Indebtedness shall be contractually
subordinated to the Senior Secured Notes at least to the same extent as such
Subordinated Indebtedness.

LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Under the terms
of the Indenture, the Company shall not, and shall not permit any Subsidiary, to
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends to or make any other distributions on its Capital Stock, or pay
any Indebtedness or other obligations owed to the Company or any other
Restricted Subsidiary, (ii) make any Investments in the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary; PROVIDED, HOWEVER, that the
foregoing shall not apply to (a) any encumbrance or restriction existing
pursuant to the Indenture or any other agreement or instrument as in effect or
entered into on the Issue Date (including the New Credit Facility); (b) any
encumbrance or restriction with respect to a Subsidiary pursuant to an agreement
relating to any Acquired Indebtedness; PROVIDED, HOWEVER, that such encumbrance
or restriction was not Incurred in connection with or in contemplation of such
Subsidiary becoming a Subsidiary; (c) any encumbrance or restriction pursuant to
an agreement effecting a refinancing, renewal, extension or replacement of
Indebtedness referred to in clause (a) or (b) above or contained in any
amendment or modification with respect to such Indebtedness; PROVIDED, HOWEVER,
that the encumbrances and restrictions contained in any such agreement,
amendment or modification are no less favorable in any material respect with
respect to the matters referred to in clauses (i), (ii) and (iii) above than the
encumbrances and restrictions with respect to the Indebtedness being refinanced,
amended or modified; (d) in the case of clause (iii) above, customary
non-assignment provisions of any leases governing a leasehold interest or of any
supply, license or other agreement entered into in the ordinary course of
business of the Company or any Subsidiary; (e) any restrictions with respect to
a Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary pending the closing of such sale or disposition or (f) any
encumbrance or restriction existing by reason of applicable law. Nothing
contained in the covenant described in this paragraph prevents the sale of
assets that secure Indebtedness of the Company or its Subsidiaries.

LIMITATION ON SALE/LEASEBACK TRANSACTIONS. Under the terms of the
Indenture, the Company shall not, and shall not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction unless (i) the Company or such
Subsidiary would be entitled to create a Lien on such property securing
Indebtedness in an amount equal to the Attributable Debt with respect to such
transaction without equally and ratably securing the Securities pursuant to the
covenant entitled "Limitation on Liens" or (ii) the net proceeds of such sale
are at least equal to the fair value (as determined by the Board of Directors)
of such property and the Company or such Subsidiary shall apply or cause to be
applied an amount in cash equal to the net proceeds

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of such sale to the retirement, within 30 days of the effective date of any such
arrangement, of Senior Indebtedness or Indebtedness of a Restricted Subsidiary,
PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary may enter into
a Sale/Leaseback Transaction as long as the sum of (x) the Attributable Debt
with respect to such Sale/Leaseback Transaction and all other Sale/Leaseback
Transactions entered into pursuant to this proviso, plus (y) the amount of
outstanding Indebtedness secured by Liens Incurred pursuant to the proviso to
the covenant described under "-- Limitation on Liens" below, does not exceed 10%
of Consolidated Net Tangible Assets as determined based on the consolidated
balance sheet of the Company as of the end of the most recent fiscal quarter for
which financial statements are available.

LIMITATION ON LIENS. Under the terms of the Indenture, except as described
under "-- Security," the Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, incur or permit to exist any Lien of any
nature whatsoever on any of its properties (including, without limitation,
Capital Stock), whether owned at the date of such Indenture or thereafter
acquired, other than (a) pledges or deposits made by such Person under workers'
compensation, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
statutory or regulatory obligations of such Person or deposits of cash of United
States Government bonds to secure surety, appeal or performance bonds to which
such Person is a party, or deposits as security for contested taxes or import
duties or for the payment of rent, in each case Incurred in the ordinary course
of business; (b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens, in each case, arising in the ordinary course of business and
with respect to amounts not yet due or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; or other Liens arising out of
judgments or awards against such Person with respect to which such Person shall
then be diligently prosecuting appeal or other proceedings for review; (c) Liens
for property taxes not yet subject to penalties for non-payment or which are
being contested in good faith and by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (d) Liens in favor of issuers or surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the ordinary
course of its business; PROVIDED, HOWEVER, that such letters of credit may not
constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were not Incurred in connection with Indebtedness or other
extensions of credit and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such Person; (f) Liens securing Indebtedness
Incurred to finance the construction of, purchase of, or repairs, improvements
or additions to, property (including Acquisition Indebtedness Incurred pursuant
to clause (ii) of the penultimate paragraph under "-- Limitation on the
Incurrence of Indebtedness"); PROVIDED, HOWEVER, that the Lien may not extend to
any other property owned by the Company or any Restricted Subsidiary at the time
the Lien is incurred, and the Indebtedness secured by the Lien may not be issued
more than 180 days after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full operation of
the property subject to the Lien; (g) Liens existing on the Issue Date (other
than Liens relating to Indebtedness or other obligations being repaid or Liens
that are otherwise extinguished with the proceeds of the Offering), (h) Liens on
property of a Person (excluding Capital Stock) of such Person at the time such
Person becomes a Subsidiary; PROVIDED, HOWEVER, that any such Lien may not
extend to any other property owned by the Company or any Restricted Subsidiary;
(i) Liens on property at the time the Company or a Subsidiary acquires the
property, including any acquisition by means of a merger or consolidation with
or into the Company or a Subsidiary; PROVIDED, HOWEVER, that such Liens are not
incurred in connection with, or in contemplation of, such merger or
consolidation; and PROVIDED, FURTHER, that the Lien may not extend to any other
property owned by the Company or any Restricted Subsidiary; (j) Liens securing
Indebtedness or other obligations of a Subsidiary owing to the Company or a
Wholly Owned Subsidiary; (k) Liens incurred by a Person other than the Company
or any Subsidiary on assets that are the subject of a Capitalized Lease
Obligation to which the

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Company or a Subsidiary is a party; PROVIDED, HOWEVER, that any such Lien may
not secure Indebtedness of the Company or any Subsidiary (except by virtue of
clause (x) of the definition of "Indebtedness") and may not extend to any other
property owned by the Company or any Restricted Subsidiary; (l) Liens on
inventory and accounts receivable of the Company and its subsidiaries securing
Indebtedness permitted to be Incurred under the provision described in clause
(iv) of the penultimate paragraph under "-- Limitation on the Incurrence of
Indebtedness"; (m) Liens to secure any refinancing, refunding, extension,
renewal or replacement (or successive refinancings, refundings, extensions,
renewals or replacements) as a whole, or in part, of any Indebtedness secured by
any Lien referred to in the foregoing clauses (f), (g), (h), (i) and (m),
PROVIDED, HOWEVER, that (x) such new Lien shall be limited to all or part of the
same property that secured the original Lien (plus improvements on such
property) and (y) the Indebtedness secured by such Lien at such time is not
increased (other than by an amount necessary to pay fees and expenses, including
premiums, related to the refinancing, refunding, extension, renewal or
replacement of such Indebtedness); and (n) Liens by which the Senior Secured
Notes are secured equally and ratably with other Indebtedness of the Company
pursuant to this paragraph, without effectively providing that the Senior
Secured Notes shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured; PROVIDED,
HOWEVER, that the Company may incur other Liens other than on the Collateral to
secure Indebtedness as long as the sum of (x) the amount of outstanding
Indebtedness secured by Liens incurred pursuant to this proviso plus (y) the
Attributable Debt with respect to all outstanding leases in connection with
Sale/ Leaseback Transactions entered into pursuant to the proviso under "--
Limitation on Sale/Leaseback Transactions," does not exceed 5% of Consolidated
Net Tangible Assets as determined with respect to the Company as of the end of
the most recent fiscal quarter for which financial statements are available.

CHANGE OF CONTROL. Under the terms of the Indenture, in the event of a
Change of Control, the Company shall make an offer to purchase (the "Change of
Control Offer") the Senior Secured Notes then outstanding at the time at a
purchase price equal to 101% of the Accreted Value thereof plus accrued interest
to the Change of Control Purchase Date (as defined below) on the terms set forth
in this provision. The date on which the Company shall purchase the Securities
pursuant to this provision (the "Change of Control Purchase Date") shall be no
earlier than 30 days, nor later than 60 days, after the notice referred to below
is mailed, unless a longer period shall be required by law. The Company shall
notify the Trustee in writing promptly after the occurrence of any Change of
Control of the Company's obligation to purchase the Senior Secured Notes.

Notice of a Change of Control Offer shall be mailed by the Company to the
Holders of the Senior Secured Notes at their last registered address (with a
copy to the Trustee and the Paying Agent) within thirty (30) days after a Change
in Control has occurred. The Change of Control Offer shall remain open from the
time of mailing until five (5) Business Days before the Change of Control
Purchase Date. The notice shall contain all instructions and materials necessary
to enable such Holders to tender (in whole or in part) the Senior Secured Notes
pursuant to the Change of Control Offer. The notice, which shall govern the
terms of the Change of Control Offer, shall state: (a) that the Change of
Control Offer is being made pursuant to the Indenture; (b) the purchase price
and the Change of Control Purchase Date; (c) that any Senior Secured Note not
surrendered or accepted for payment will continue to accrue interest; (d) that
any Senior Secured Note accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control Purchase Date;
(e) that any Holder electing to have a Senior Secured Note purchased (in whole
or in part) pursuant to a Change of Control Offer will be required to surrender
the Senior Secured Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Secured Note completed, to the Paying
Agent at the address specified in the notice (or otherwise make effective
delivery of the Senior Secured Note pursuant to book-entry procedures and the
related rules of the applicable depositories) at least five Business Days before
the Change of Control Purchase Date; and (f) that any Holder will be entitled to
withdraw his or her election if the Paying Agent receives, not later than three
Business Days prior to the Change of Control Purchase Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Senior Secured Note the Holder delivered for purchase
and a statement that such Holder is withdrawing his or her election to have the
Senior Secured Note purchased.

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On the Change of Control Purchase Date, the Company shall (i) accept for
payment the Senior Secured Notes, or portions thereof, surrendered and properly
tendered and not withdrawn, pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent money sufficient to pay the purchase price plus
accrued interest of all the Senior Secured Notes or portions thereof, so
accepted and (iii) deliver to the Trustee the Senior Secured Notes so accepted
together with an Officers' Certificate stating that such securities have been
accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to Holders of securities so accepted payment in an amount equal to the
purchase price. Holders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.

TRANSACTIONS WITH AFFILIATES. Under the terms of the Indenture, the Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, enter into, permit to exist, renew or extend any transaction or
series of transactions (including, without limitation, the sale, purchase,
exchange or lease of any assets or property or the rendering of any services)
with any Affiliate of the Company, any Plaster Entity, any Lindsey Entity or
Energy unless (i) the terms of such transaction or series of transactions are
(A) no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than would be obtainable in a comparable transaction or series of
related transactions in arm's-length dealings with an unrelated third party and,
in the case of a transaction or series of transactions involving payments or
consideration in excess of $100,000, approved by a majority of the Outside
Directors, and (B) set forth in writing, if such transaction or series of
transactions involves aggregate payments or consideration in excess of $250,000,
and (ii) with respect to a transaction or series of transactions involving
aggregate payments or consideration in excess of $1 million, such transaction or
series of transactions has been determined, in the written opinion of an
independent nationally recognized investment banking firm, to be fair, from a
financial point of view, to the Company or such Restricted Subsidiary. The
foregoing provisions do not prohibit (i) the payment of reasonable fees to
directors of the Company and its subsidiaries, (ii) scheduled payments made
pursuant to the terms of any of the Basic Agreements, as the terms of each such
agreement are in effect on the Issue Date, or (iii) any transaction between the
Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries
otherwise permitted by the terms of the Indenture. Any transaction which has
been determined, in the written opinion of an independent nationally recognized
investment banking firm, to be fair, from a financial point of view, to the
Company or the applicable Restricted Subsidiary shall be deemed to be in
compliance with this provision.

SALES OF ASSETS. Under the terms of the Indenture, neither the Company nor
any Restricted Subsidiary shall consummate any Asset Sale unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Sale at least equal to the fair market value, as determined in good faith by the
Board of Directors, of the shares or assets subject to such Asset Sale, (ii) at
least 80% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of Additional Assets or cash or cash
equivalents which cash equivalents are promptly converted into cash by the
Person receiving such payment and (iii) an amount equal to 100% of the Net
Available Cash is applied by the Company (or such Subsidiary, as the case may
be) as set forth herein. Under the terms of the Indenture, the Company shall not
permit any Unrestricted Subsidiary to make any Asset Sale unless such
Unrestricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value of the shares or assets so disposed of as
determined in good faith by the Board of Directors.

Under the terms of the Indenture, within 360 days (such period being the
"Application Period") following the consummation of an Asset Sale, the Company
or such Restricted Subsidiary shall apply the Net Available Cash from such Asset
Sale as follows: (i) FIRST, to the extent the Company or such Restricted
Subsidiary elects, to reinvest in Additional Assets; (ii) SECOND, to the extent
of the balance of such Net Available Cash after application in accordance with
clause (i), and to the extent the Company or such Restricted Subsidiary elects
(or is required by the terms of any Senior Indebtedness or any Indebtedness of
such Restricted Subsidiary), to prepay, repay or purchase secured Senior
Indebtedness or Indebtedness (other than any Preferred Stock) of a Restricted
Subsidiary (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company), (iii) THIRD, to the extent of the balance of such Net
Available Cash after application in accordance with clause (i) and (ii), to make
an offer to purchase the Senior Secured

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Notes at not less than 100% of their Accreted Value, plus accrued interest (if
any) pursuant to and subject to the conditions set forth in the Indenture;
PROVIDED, HOWEVER that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (ii) or (iii) above, the Company or
Restricted Subsidiary shall retire such Indebtedness and cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. To the extent that any Net
Available Cash of Asset Sales remains after the application of such Net
Available Cash in accordance with this paragraph, the Company or such Restricted
Subsidiary may utilize such remaining Net Available Cash in any manner set forth
in clause (i) or clause (ii) above.

To the extent that any or all of the Net Available Cash of any Foreign Asset
Sale is prohibited or delayed by applicable local law from being repatriated to
the United States, the portion of such Net Available Cash so affected shall not
be required to be applied at the time provided above, but may be retained by the
applicable Restricted Subsidiary so long, but only so long, as the applicable
local law will not permit repatriation to the United States (the Company hereby
agreeing to promptly take or cause the applicable Restricted Subsidiary to
promptly take all actions required by the applicable local law to permit such
repatriation). Once such repatriation of any of such affected Net Available Cash
is permitted under the applicable local law, such repatriation shall be
immediately effected and such repatriated Net Available Cash will be applied in
the manner set forth in this provision as if such Asset Sale had occurred on the
date of such repatriation.

To the extent that the Board of Directors determines, in good faith, that
repatriation of any or all of the Net Available Cash of any Foreign Asset Sale
would have a material adverse tax consequence to the Company, the Net Available
Cash so affected may be retained outside of the United States by the applicable
Restricted Subsidiary for so long as such material adverse tax consequence would
continue.

Under the Indenture, the Company shall not be required to make an offer to
purchase the Senior Secured Notes if the Net Available Cash available from an
Asset Sale (after application of the proceeds as provided in clauses (i) and
(ii) of the second paragraph of this covenant above) is less than $1,000,000 for
any particular Asset Sale (which lesser amounts shall not be carried forward for
purposes of determining whether an offer is required with respect to the Net
Available Cash from any subsequent Asset Sale).

Notwithstanding the foregoing, this provision shall not apply to, or prevent
any sale of assets, property, or Capital Stock of Subsidiaries to the extent
that the fair market value (as determined in good faith by the Board of
Directors) of such asset, property or Capital Stock, together with the fair
market value of all other assets, property, or Capital Stock of Subsidiaries
sold, transferred or otherwise disposed of in Asset Sales during the twelve
month period preceding the date of such sale, does not exceed 5% of Consolidated
Net Tangible Assets as determined as of the end of the most recent fiscal
quarter, and no violation of this provision shall be deemed to have occurred as
a consequence thereof.

In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under the covenant described under "-- Merger and Consolidation", the
Successor Corporation shall be deemed to have sold the properties and assets of
the Company not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale.

LIMITATION ON THE ISSUANCE OF CAPITAL STOCK AND THE INCURRENCE OF
INDEBTEDNESS OF RESTRICTED SUBSIDIARIES. Pursuant to the terms of the Indenture,
the Company shall not permit any Restricted Subsidiary, directly or indirectly,
to issue or sell, and shall not permit any Person other than the Company or a
Wholly Owned Subsidiary to own (except to the extent that any such Person may
own on the Issue Date), any shares of such Restricted Subsidiary's Capital Stock
(including options, warrants or other rights to purchase shares of Capital
Stock) except, to the extent otherwise permitted by the Indenture, (i) to the
Company or another Restricted Subsidiary that is a Wholly Owned Subsidiary of
the Company, or (ii) if, immediately after giving effect to such issuance and
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary for purposes of the Indenture. The Company shall not permit any
Restricted Subsidiary, directly or indirectly, to Incur Indebtedness other than
pursuant to the second paragraph under "-- Limitation on Indebtedness."

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LIMITATION ON CHANGES IN THE NATURE OF BUSINESS. The Indenture provides
that the Company and its Subsidiaries shall not engage in any line of business
other than the business of the sale and distribution of propane gas and
operations related thereto for any period of time in excess of 270 consecutive
days for any such unrelated line of business.

MERGER AND CONSOLIDATION. Under the terms of the Indenture, the Company
shall not, in a single transaction or through a series of related transactions,
consolidate with or merge with or into any other corporation or sell, assign,
convey, transfer or lease or otherwise dispose of all or substantially all of
its properties and assets to any Person or group of affiliated Persons unless:
(a) either the Company shall be the continuing Person, or the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or to which the properties and assets of the Company as an entirety are
transferred (the "Successor Corporation"), shall be a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by an indenture supplemental to
the Indenture, executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, all the obligations of the Company under
the Indenture and the Senior Secured Notes; (b) immediately before and
immediately after giving effect to such transaction on a pro forma basis (and
treating any Indebtedness which becomes an obligation of the Company (or the
Successor Corporation if the Company is not the continuing obligor under the
Indenture) or any Restricted Subsidiary as a result of such transaction as
having been Incurred by such Person at the time of such transaction), no Default
shall have occurred and be continuing; (c) the Company shall have delivered, or
caused to be delivered, to the respective Trustee an Officers' Certificate and,
as to legal matters, an Opinion of Counsel, each in form and substance
reasonably satisfactory to the respective Trustee, each stating that such
consolidation, merger or transfer and such supplemental indenture comply with
this provision and that all conditions precedent herein provided for relating to
such transaction have been complied with; (d) immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the Company (or the Successor Corporation if the
Company is not the continuing obligor under the Indenture) or a Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred by such Person at the time of such transaction, the Consolidated
Coverage Ratio of the Company (or the Successor Corporation if the Company is
not the continuing obligor under the Indenture) is at least 1:1, PROVIDED that,
if the Consolidated Coverage Ratio before giving effect to such transaction is
within the range set forth in column (A) below, then the pro forma Consolidated
Coverage Ratio of the Company or the Successor Corporation shall be at least
equal to the lessor of (1) the ratio determined by multiplying the percentage
set forth in column (B) below by the Consolidated Coverage Ratio of the Company
prior to such transaction and (2) the ratio set forth in column (C) below:

and (e) immediately after giving effect to such transaction on a pro forma basis
(and treating any Indebtedness which becomes an obligation of the Company (or
the Successor Corporation if the Company is not the continuing obligor under the
Indenture) or a Restricted Subsidiary in connection with or as a result of such
transaction as having been Incurred by such Person at the time of such
transaction), the Company (or the Successor Corporation if the Company is not
the continuing obligor under the Indenture) shall have Consolidated Net Worth in
an amount which is not less than the Consolidated Net Worth immediately prior to
such transaction. Notwithstanding the foregoing clauses (b), (d) and (e), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or any Wholly Owned Subsidiary or
Wholly Owned Subsidiaries and no violation of this provision will be deemed to
have occurred as a consequence thereof, as long as the requirements of clauses
(a) and (c) are satisfied in connection therewith.

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Upon any such assumption by the Successor Corporation, except in the case of
a lease, the Successor Corporation shall succeed to and be substituted for the
Company under the Indenture and the Senior Secured Notes and the Company shall
thereupon be released from all obligations under the Indenture and under the
Senior Secured Notes and the Company as the predecessor corporation may
thereupon or at any time thereafter be dissolved, wound up or liquidated. The
Successor Corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of the Company, all or any of the Senior Secured
Notes issuable under the Indenture which theretofore shall not have been signed
by the Company and delivered to the Trustee; and, upon the order of the
Successor Corporation instead of the Company and subject to all the terms,
conditions and limitations prescribed in the Indenture, the Trustee shall
authenticate and shall deliver any Senior Secured Notes which the Successor
Corporation thereafter shall cause to be signed and delivered to the Trustee for
that purpose. All the Senior Secured Notes so issued shall in all respects have
the same legal rank and benefit under the Indenture as the Senior Secured Notes
theretofore or thereafter issued in accordance with the terms of the Indenture
as though all such Senior Secured Notes had been issued at the date of the
execution of the Indenture.

In the case of any such consolidation, merger or transfer, such changes in
form (but not in substance) may be made in the Senior Secured Notes thereafter
to be issued as may be appropriate.

EVENTS OF DEFAULT

"EVENTS OF DEFAULT" are defined in the Indenture as (i) default for 30 days
in payment of any interest installment due and payable on the Senior Secured
Notes, (ii) default in payment of the principal when due on the Senior Secured
Notes, or failure to redeem or purchase the Senior Secured Notes when required
pursuant to the respective Indenture, (iii) default in performance of any other
covenants or agreements in the respective Indenture or in the Senior Secured
Notes, for 30 days after written notice to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in principal amount of
the outstanding Senior Secured Notes; PROVIDED that the failure to commence a
Change of Control Offer following a Change of Control pursuant to clause (vi) of
the definition of "Change of Control" shall not constitute an Event of Default
if, during such 30 day period, the Company takes the necessary actions with
respect to the Board of Directors to comply with the requirements of clauses
(vi)(A), (vi)(B) and (vi)(C) of the definition of "Change of Control", (iv)
there shall have occurred either (a) a default by the Company or any Subsidiary
under any instrument under which there is or may be secured or evidenced any
Indebtedness of the Company or any Subsidiary of the Company (other than the
Securities) having an outstanding principal amount of $2,000,000 (or its foreign
currency equivalent) or more individually or $5,000,000 (or its foreign currency
equivalent) or more in the aggregate that has caused the holders thereof to
declare such Indebtedness to be due and payable prior to its Stated Maturity or
(b) a default by the Company or any Subsidiary in the payment when due of any
portion of the principal under any such instrument, and such unpaid portion
exceeds $2,000,000 (or its foreign currency equivalent) individually or
$5,000,000 (or its foreign currency equivalent) in the aggregate and is not
paid, or such default is not cured or waived, within any grace period applicable
thereto; (v) any final judgment or order (not covered by insurance) for the
payment of money shall be rendered against the Company or any Subsidiary in an
amount in excess of $2,000,000 (or its foreign currency equivalent) individually
or $5,000,000 (or its foreign currency equivalent) in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) and shall not be discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order in excess of $2,000,000 individually or that causes the
aggregate amount for all such final judgments or orders outstanding against all
such Persons to exceed $5,000,000 during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; (vi) certain events of bankruptcy, insolvency and reorganization
of the Company; and (vii) except as permitted by the Indenture, the Trustee
fails to have a first priority perfected security interest in the Collateral.

If any Event of Default (other than an Event of Default described in clause
(vi) with respect to the Company) has occurred and is continuing, the Indenture
provides that the Trustee may by notice to the Company, or the Holders of not
less than 25% in principal amount of the Senior Secured Notes may by notice to
the Company and the Trustee, declare the principal amount of the Senior Secured
Notes and any

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accrued and unpaid interest to be due and payable immediately. If an Event of
Default described in clause (vi) with respect to the Company occurs, the
principal of and interest on all the Senior Secured Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of Senior Secured Notes. The Holders
of a majority in principal amount of the Senior Secured Notes by notice to the
Trustee may rescind any such declaration and its consequences (if the rescission
would not conflict with' any judgment or decree) if all existing Events of
Default (other than the non-payment of principal of or interest on the Senior
Secured Notes which shall have become due by such declaration) shall have been
cured or waived.

The Company must file annually with the Trustee a certificate describing any
Default by the Company in the performance of any conditions or covenants that
has occurred under the Indenture and its status. The Company must give the
Trustee written notice within 30 days of any Default under the Indenture that
could mature into an Event of Default described in clause (iii), (iv), (v),
(vi), (vii) or (viii) of the second preceding paragraph.

The Trustee is entitled, subject to the duty of the Trustee during a Default
to act with the required standard of care, to be indemnified before proceeding
to exercise any right or power under the Indenture at the direction of the
Holders of the Senior Secured Notes or which requires the Trustee to expend or
risk its own funds or otherwise incur any financial liability. The Indenture
also provides that the Holders of a majority in principal amount of the Senior
Secured Notes issued under the Indenture may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; however, the Trustee may
refuse to follow any such direction that conflicts with law or the Indenture, is
unduly prejudicial to the rights of other Holders of the Senior Secured Notes,
or would involve the Trustee in personal liability.

The Indenture provides that while the Trustee generally must mail notice of
a Default or Event of Default to the holders of the Senior Secured Notes within
90 days of occurrence, the Trustee may withhold notice to the Holders of the
Senior Secured Notes of any Default or Event of Default (except in payment on
the Senior Secured Notes) if the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders of the Senior
Secured Notes.

MODIFICATION OF THE INDENTURE

Under the terms of the Indenture, the Company and the Trustee may, with the
consent of the Holders of a majority in principal amount of the outstanding
Senior Secured Notes amend or supplement the Indenture, the Pledge Agreement or
the Senior Secured Notes except that no amendment or supplement may, without the
consent of each affected Holder, (i) reduce the principal of or change the
Stated Maturity of any Senior Secured Note, (ii) reduce the rate of or change
the time of payment of interest on any Senior Secured Note, (iii) change the
currency of payment of the Senior Secured Notes, (iv) reduce the premium payable
upon the redemption of any Senior Secured Note, or change the time at which any
such Senior Secured Note may or shall be redeemed, (v) reduce the amount of
Senior Secured Notes, the holders of which must consent to an amendment or
supplement, (vi) change the provisions of the Indenture relating to Waiver of
past defaults, rights of Holders of the Senior Secured Notes to receive payments
or the provisions relating to amendments of the Indenture that require the
consent of Holders of each affected Senior Secured Note or (vii) directly or
indirectly release the Liens on all or substantially all of the collateral
securing the Senior Secured Notes..

ACTIONS BY NOTEHOLDERS

Under the terms of the Indenture, a Holder of Senior Secured Notes may not
pursue any remedy with respect to the Indenture or the Senior Secured Notes
(except actions for payment of overdue principal or interest), unless (i) the
Holder has given notice to the Trustee of a continuing Event of Default, (ii)
Holders of at least 25% in principal amount of the Senior Secured Notes have
made a written request to the Trustee to pursue such remedy, (iii) such Holder
or Holders have offered the Trustee security or indemnity reasonably
satisfactory to it against any loss, liability or expense, (iv) the Trustee has
not complied with such request within 60 days of such request and offer and (v)
the Holders of a majority in principal amount of the Senior Secured Notes have
not given the Trustee an inconsistent direction during such 60-day period.

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DEFEASANCE, DISCHARGE AND TERMINATION

DEFEASANCE AND DISCHARGE. The Indenture provides that the Company will be
discharged from any and all obligations in respect of the Senior Secured Notes,
and the provisions of the Indenture will no longer be in effect with respect to
such Senior Secured Notes (except for, among other matters, certain obligations
to register the transfer or exchange of such Senior Secured Notes, to replace
stolen, lost or mutilated Senior Secured Notes, to maintain paying agencies and
to hold monies for payment in trust, and the rights of holders to receive
payments of principal and interest thereon), on the 123rd day after the date of
the deposit with the appropriate Trustee, in trust, of money or U.S. Government
Obligations that, through the payment of interest and principal in respect
thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
such Senior Secured Notes, when due in accordance with the terms of the
Indenture and such Senior Secured Notes. Such a trust may only be established
if, among other things, (i) the Company has delivered to the Trustee either (a)
an Opinion of Counsel (who must not be employed by the Company) to the effect
that holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must refer to and be based
upon a ruling of the Internal Revenue Service or a change in applicable federal
income tax law occurring after the date of the Indentures or (b) a ruling of the
Internal Revenue Service to such effect and (ii) no Default under the Indenture
shall have occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after such date of deposit and such deposit shall
not result in or constitute a Default or result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company is a party or by which the Company is bound.

DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to the provisions described in clauses (d), (e) and
(f) under "-- Merger and Consolidation" and all the covenants described herein
under "-- Covenants," clause (iii) under "-- Events of Default" with respect to
such covenants and clauses (d), (e) and (f) under "-- Merger and Consolidation,"
and clauses (v) and (vi) under "-- Events of Default" shall be deemed not to be
Events of Default under the Indenture, and the provisions described herein under
"-- Ranking" shall not apply, upon the deposit with the Trustee, in trust, of
money or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Senior Secured Notes issued thereunder when due in accordance
with the terms of the Indenture. Such a trust may only be established if, among
other things, the provisions described in clause (ii) of the immediately
preceding paragraph have been satisfied and the Company has delivered to the
Trustee an Opinion of Counsel (who must not be an employee of the Company) to
the effect that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred.

DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Senior Secured Notes, as described in the
immediately preceding paragraph and such Senior Secured Notes are declared due
and payable because of the occurrence of an Event of Default that remains
applicable, the amount of money or U.S. Government Obligations on deposit with
the relevant Trustee will be sufficient to pay principal of and interest on
Senior Secured Notes on the respective dates on which such amounts are due but
may not be sufficient to pay amounts due on such Senior Secured Notes, at the
time of the acceleration resulting from such Event of Default. However, the
Company shall remain liable for such payments.

TERMINATION OF COMPANY'S OBLIGATIONS IN CERTAIN CIRCUMSTANCES. The
Indenture further provides that the Company will be discharged from any and all
obligations in respect of the Senior Secured Notes and the provisions of such
Indenture will no longer be in effect with respect to the Senior Secured Notes
(except to the extent provided under "-- Defeasance and Discharge"), if such
Senior Secured Notes mature within one

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year or all of them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the notice of redemption,
and the Company deposits with the appropriate Trustee, in trust, money or U.S.
Government Obligations that, through the payment of interest and principal in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of, premium if any and accrued interest on such
Senior Secured Notes when due in accordance with the terms of the applicable
Indenture and such Senior Secured Notes. Such a trust may only be established
if, among other things, (i) no Default under the Indenture shall have occurred
and be continuing on the date of such deposit, (ii) such deposit will not result
in or constitute a Default or result in a breach or violation of, or constitute
a Default under, any other agreement or instrument to which the Company is a
party or by which it is bound and (iii) the Company has delivered to the Trustee
an Opinion of Counsel stating that such conditions have been complied with.
Pursuant to this provision, the Company is not required to deliver an Opinion of
Counsel to the effect that Holders will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such deposit and termination,
and there is no assurance that Holders would not recognize income, gain or loss
for U.S. federal income tax purposes as a result thereof or that Holders would
be subject to U.S. federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit and
termination had not occurred.

UNCLAIMED MONEY

Under the terms of the Indenture, subject to any applicable abandoned
property law, the Trustee will pay to the Company upon request any money held by
it for the payment of principal or interest that remains unclaimed for two
years. After payment to the Company, Noteholders entitled to such money must
look to the Company for payment as general creditors.

CONCERNING THE TRUSTEES AND PAYING AGENTS

Shawmut Bank Connecticut, National Association will act as Trustee under the
Indenture and the Pledge Agreement and will initially be Paying Agent and
Registrar for the Senior Secured Notes. The Company has had, from time to time,
and may have in the future, other relationships with such bank. Notices to the
Trustee, Paying Agent and Registrar under the Indenture should be directed to
Shawmut Bank Connecticut, National Association, 777 Main Street -- MSN238,
Hartford, Connecticut 06115, Attention: Corporate Trust Department.

GOVERNING LAW

Under the terms of the Indenture the laws of the State of New York govern
the Indenture and the Senior Secured Notes.

FORM, DENOMINATION AND REGISTRATION

The Senior Secured Notes will be issued in the form of a fully registered
Global Note which will be deposited with, or on behalf of, the Depositary and
registered in the name of a nominee of the Depositary. The Depositary has
provided the Company and the Underwriter with the information set forth below.

The Depositary will act as securities depositary for the Global Note. The
Global Note will be issued as a fully-registered security in the name of Cede &
Co. (the Depositary's partnership nominee).

The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants (the "Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. The Depositary is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and
the National Association of Securities Dealers, Inc. Access to the Depositary
system is also available to others such as securities brokers and dealers,
banks, and trust

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companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to the Depositary and its Participants are on file with the
Commission.

Purchases of Senior Secured Notes under the Depositary system must be made
by or through Direct Participants, which will receive a credit for the Senior
Secured Notes on the Depositary's records. The ownership interest of each actual
purchaser of each Senior Secured Note (the "Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in the Senior
Secured Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Senior Secured
Notes, except in the event that use of the book-entry system for the Senior
Secured Notes is discontinued.

To facilitate subsequent transfers, all Senior Secured Notes deposited by
Participants with the Depositary are registered in the name of the Depositary's
partnership nominee, Cede & Co. The deposit of Senior Secured Notes with the
Depositary and their registration in the name of Cede & Co. effect no change in
beneficial ownership. The Depositary has no knowledge of the actual Beneficial
Owners of the Senior Secured Notes. The Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Senior Secured Notes
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.

Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.

Redemption notices shall be sent to Cede & Co. if less than all of the
Senior Secured Notes within an issue are being redeemed. The Depositary's
practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.

Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Senior Secured Notes. Under its usual procedures, the Depositary made an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Senior Secured Notes are credited on the
record date identified in a listing attached to the Omnibus Proxy.

Principal and interest payments on the Senior Secured Notes will be made to
the Depositary. The Depositary's practice is to credit Direct Participants'
accounts on payable date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on payable date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participant
and not of the Depositary, the Agent, or the Company, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
principal and interest to the Depositary is the responsibility of the Company or
the Agent, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.

So long as the Depositary, or its nominee, is the registered owner of the
Global Note, the Depositary or its nominee, as the case may be, will be
considered the sole owner or Holder of the Senior Secured Notes represented by
the Global Note for all purposes under the Indenture governing such Senior
Secured Notes. Except as set forth below, owners of beneficial interests in such
Global Note will not be entitled to have Senior Secured Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Senior Secured Notes in definitive form and will
not be considered the

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owners or Holders thereof under the Indenture. Accordingly, each person owning a
beneficial interest in a Global Note must rely on the procedures of the
Depositary and, if such person is not a Participant, those of the Participant
through which such person owns its interests, in order to exercise any rights of
a Holder under the Indenture or such Senior Secured Note.

The Indenture provides that the Depositary, as a Holder, may appoint agents
and otherwise authorize Participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action which a Holder
is entitled to give or take under the Indenture, including the right to sue for
payment of principal or interest pursuant to Section 316(b) of the Trust
Indenture Act of 1939, as amended. The Company understands that under existing
industry practices, when the Company requests an action of Holders or when a
Beneficial Owner desires to give or take any action which a Holder is entitled
to give or take under the Indenture, the Depositary generally will give or take
such action, or authorize the relevant Participants to give or take such action,
and such Participants would authorize Beneficial Owners through such
Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners owning through them.

The Company has been informed by the Depositary that the Depositary will
assist its Participants and their customers (Beneficial Owners) in taking any
action a Holder is entitled to take under the Indenture or exercise any rights
available to Cede & Co., as the holder of record of the Senior Secured Notes,
including the right to demand acceleration upon an event of default as defined
under the Indenture or to institute suit for the enforcement of payment or
interest pursuant to Section 316(b) of the Trust Indenture Act of 1939, as
amended. The Depositary has advised the Company that it will act with respect to
such matters upon written instructions from a Participant to whose account with
the Depositary the relevant beneficial ownership in the Senior Secured Notes is
credited. The Company understands that a Participant will deliver such written
instructions to the Depositary upon itself receiving similar written
instructions from either Indirect Participants or Beneficial Owners, as the case
may be. Under Rule 6 of the rules and procedures filed by the Depositary with
the Securities and Exchange Commission pursuant to Section 17 of the Securities
Exchange Act of 1934, as amended, Participants are required to indemnify the
Depositary against all liability the Depositary may sustain without fault on the
part of the Depositary or its nominee, as a result of any action they may take
pursuant to the instructions of the Participant in exercising any such rights.

The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
such laws may impair the ability to transfer beneficial interests in a Global
Note.

Principal, premium, if any, and interest payments on Senior Secured Notes
registered in the name of or held by the Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the registered owner or
the Holder of the Global Note representing such Senior Secured Notes. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in a Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.

If the Depositary is at any time unwilling, unable or ineligible to continue
as depositary, or if the Company determines to discontinue use of the system of
book-entry transfers through the Depositary, and a successor depositary is not
appointed by the Company within sixty days or if an Event of Default under the
Indenture has occurred and is continuing, the Company will issue Senior Secured
Notes in definitive registered form, without coupons, in denominations of $1,000
of principal amount at maturity and any integral multiple thereof, in exchange
for the Global Note representing such Senior Secured Notes. In addition, the
Company may at any time and in its sole discretion determine not to have any
Senior Secured Notes in registered form represented by the Global Note and, in
such event, will issue Senior Secured Notes in definitive registered form in
exchange for the Global Note representing such Senior Secured Notes. In any such
instance, an owner of a beneficial interest in a Global Note will be entitled to
physical delivery in definitive form of Senior Secured Notes represented by such
Global Note equal in principal amount to such beneficial interest and to have
such Senior Secured Notes registered in its name.

The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
and the Underwriter believe to be reliable, but the Company and the Underwriter
take no responsibility for the accuracy thereof.

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain Federal income tax consequences
associated with the acquisition, ownership, and disposition of the Senior
Secured Notes by holders who acquire the Senior Secured Notes on original issue
for cash. The following summary does not discuss all of the aspects of Federal
income taxation that may be relevant to a prospective holder of the Senior
Secured Notes in light of his or her particular circumstances or to certain
types of holders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) which are subject to special
treatment under the Federal income tax laws. In addition, this summary does not
describe any tax consequences under state, local, or foreign tax laws.

The discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. Any such
changes may be applied retroactively in a manner that could adversely affect a
holder of the Senior Secured Notes. The Company will treat the Senior Secured
Notes as indebtedness for federal income tax purposes, and the balance of the
discussion is based on the assumption that such treatment will be respected. The
Company has not sought and will not seek any rulings from the IRS with respect
to the matters discussed below. There can be no assurance that the IRS will not
take positions concerning the tax consequences of the purchase, ownership or
disposition of the Senior Secured Notes which are different from those discussed
herein.

PROSPECTIVE PURCHASERS OF SENIOR SECURED NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING,
OWNING AND DISPOSING OF THE SENIOR SECURED NOTES, AS WELL AS THE APPLICATION OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS

AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE SENIOR SECURED NOTES

The Senior Secured Notes will be issued with original issue discount for
federal income tax purposes, and holders of the Senior Secured Notes will be
required to recognize such original issue discount as ordinary interest income
as it accrues on the Senior Secured Notes (regardless of whether the holder is a
cash or accrual basis taxpayer). As a result, in certain accrual periods the
holder will be required to recognize gross income in excess of the amount of
cash payments received.

The amount of original issue discount with respect to each Senior Secured
Note will be equal to the excess of the "stated redemption price at maturity" of
such Senior Secured Notes over its "issue price." The "issue price" of a Senior
Secured Note will equal the first price at which a substantial amount of the
Senior Secured Notes is sold for money (excluding for such purposes sales to
bond houses, brokers, or similar persons or organizations acting in the capacity
of underwriters, placement agents, or wholesalers). The "stated redemption price
at maturity" of each Senior Secured Note will include all cash payments (other
than stated interest to the extent that it is unconditionally payable at least
annually at a single fixed rate ("qualified stated interest")) required to be
made thereunder until maturity. Qualified stated interest on the Senior Secured
Notes is % per annum. To the extent that the stated interest of % that
accrues beginning , 1999 exceeds qualified stated interest, such excess
will be included in the Senior Secured Notes' stated redemption price at
maturity.

TAXATION OF ORIGINAL ISSUE DISCOUNT ON THE SENIOR SECURED NOTES

Each holder of a Senior Secured Note will be required to include in gross
income (as interest) an amount equal to the sum of the "daily portions" of the
original issue discount on the Senior Secured Notes for each day such holder
holds a Senior Secured Note. The daily portions of original issue discount
required to be included in a holder's gross income will be determined on a
constant yield basis by allocating to each day during the taxable year in which
the holder holds the Senior Secured Notes a pro rata portion of the original
issue discount thereon which is attributable to the "accrual period." The amount
of the original issue discount attributable to each accrual period will be the
product of the "adjusted issue price" of the Senior

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Secured Notes at the beginning of such accrual period multiplied by the "yield
to maturity" of the Senior Secured Notes, less the amount of any qualified
stated interest allocable to the accrual period. Appropriate adjustments will be
made in computing the amount of original issue discount attributable to the
initial accrual period. The adjusted issue price of the Senior Secured Notes at
the beginning of the first accrual period is the issue price. Thereafter, the
adjusted issue price of a Senior Secured Note is the issue price of the Senior
Secured Notes plus the aggregate amount of original issue discount that accrued
in all prior accrual periods, and less any payments (other than payments of
qualified stated interest) on the Senior Secured Notes. The yield to maturity of
a Senior Secured Note will be the discount rate that, when used to compute the
present value (on a semi-annual compounded basis) of all principal and interest
payments to be made under a Senior Secured Note, produces a present value equal
to the issue price of the Senior Secured Notes.

The "accrual periods" of a Senior Secured Note (other than the initial
accrual period) are each of the six-month periods during the term of the Senior
Secured Notes that end on and of each year.

TAXATION OF QUALIFIED STATED INTEREST ON THE SENIOR SECURED NOTES

Qualified stated interest paid on a Senior Secured Note will generally be
taxable to a holder as ordinary interest income at the time it accrues or is
received, in accordance with the holder's regular method of accounting for
Federal income tax purposes.

The Company will furnish annually to certain record holders of the Senior
Secured Notes and to the IRS information with respect to original issue discount
accruing during the calendar year (as well as qualified stated interest paid
during that year) as may be required under applicable regulations.

EFFECT OF MANDATORY REPURCHASE AND OPTIONAL REDEMPTION ON ORIGINAL ISSUE
DISCOUNT OF THE SENIOR SECURED NOTES

In the event the Company is required to make a Change of Control Offer, each
holder may require the Company to repurchase such holder's Senior Secured Notes
in accordance with such Offer. In addition, in the event of Sales of Assets, the
Company may be required to make an offer ("Sale of Assets Offer") to purchase
the Senior Secured Notes. Treasury Regulations contain special rules for
calculating the yield to maturity and maturity on a note in the event the debt
instrument provides for a contingency that could result in the acceleration or
deferral of one or more payments. Further, Treasury Regulations contain special
rules for determining the yield to maturity or maturity of a debt instrument if
either the holder or the issuer has an option to defer or accelerate payments.
Because neither of these rules apply by reason of a Change of Control Offer or a
Sale of Assets Offer, the Company has no present intention of treating such
repurchase provisions of the Senior Secured Notes as affecting the computation
of the yield to maturity or maturity date of any Senior Secured Notes.

The Company may redeem the Senior Secured Notes, in whole or part, at any
time on or after 1999. The Company may also redeem a limited portion of
the Senior Secured Notes (up to $ million) prior to 19 , in connection
with one or more Public Equity Offerings following which there is a Public
Market. Treasury Regulations set forth special rules, relating to the
determination of yield to maturity and maturity, for a debt instrument that may
be redeemed prior to its stated maturity date at the option of the issuer. These
rules should not apply to a debt instrument, and, hence, should not affect the
determination of the yield to maturity or the maturity date of such debt
instrument, unless the issuer's exercise of its redemption rights would reduce
the yield to maturity on such instrument. The Company's exercise of either of
these redemption rights would not reduce the yield to maturity on the Senior
Secured Notes; therefore the special option rules will not apply to the Senior
Secured Notes.

SALE OR OTHER TAXABLE DISPOSITION OF THE SENIOR SECURED NOTES

In general, the holder of a Senior Secured Note will recognize gain or loss
upon the sale or other taxable disposition of such Senior Secured Note measured
by the difference between (a) the amount of cash and fair market value of
property received (except to the extent attributable to the payment of accrued
qualified stated interest) in exchange therefor and (b) the holder's adjusted
tax basis in such Senior Secured Note.

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A holder's initial tax basis in a Senior Secured Notes purchased by such
holder will be equal to the price paid by such holder for the Senior Secured
Note. The holder's initial tax basis in a Senior Secured Note will be increased
by the amount of original issue discount included in gross income with respect
to such Senior Secured Note to the date of disposition and decreased by the
amount of payments (other than payments of qualified stated interest) with
respect to such Senior Secured Note.

Any gain or loss on the sale or other taxable disposition of a Senior
Secured Note will be capital gain or loss, assuming purchasers of the Senior
Secured Notes will hold such securities as "capital assets" (generally property
held for investment) within the meaning of Section 1221 of the Code. Any capital
gain or loss will be long-term capital gain or loss if the Senior Secured Note
had been held for more than one year and otherwise will be short-term capital
gain or loss. Payments on such disposition for accrued qualified stated interest
not previously included in income will be treated as ordinary interest income.

PURCHASERS OF SENIOR SECURED NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE OR DATE

The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquire Senior Secured Notes either (a) other than at the
time of original issuance or (b) at the time of original issuance other than at
the issue price, including those provisions of the Code relating to the
treatment of "market discount", "acquisition premium" and "amortizable bond
premium." For example, the market discount provisions of the Code may require a
subsequent purchaser of a Senior Secured Note at a market discount to treat all
or a portion of any gain recognized upon sale or other disposition of the Senior
Secured Note as ordinary income and to defer a portion of any interest expense
that would otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry such Senior Secured Note until the holder disposes of the
Senior Secured Note in a taxable transaction.

BACKUP WITHHOLDING

The backup withholding rules require a payor to deduct and withhold a tax if
(a) the payee fails to furnish a taxpayer identification number ("TIN") to the
payor, (b) the IRS notifies the payor that the TIN furnished by the payee is
incorrect, (c) the payee has failed to report properly the receipt of
"reportable payments" and the IRS has notified the payor that withholding is
required, or (d) there has been a failure of the payee to certify under the
penalty of perjury that a payee is not subject to withholding under section 3406
of the Code. As a result, if any one of the events discussed above occurs with
respect to a holder of Senior Secured Notes, the Company, its paying agent or
other withholding agent will be required to withhold a tax equal to 31% of any
"reportable payment" made in connection with the Senior Secured Notes of such
holder. A "reportable payment" includes, among other things, amounts paid in
respect of interest or original issue discount and amounts paid through brokers
in retirement of securities. Any amounts withheld from a payment to a holder
under the backup withholding rules will be allowed as a refund or credit against
such holder's federal income tax, provided that the required information is
furnished to the IRS. Certain holders (including, among others, corporations and
certain tax-exempt organizations) are not subject to the backup withholding and,
as discussed above, information reporting requirements.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS

The Senior Secured Notes will constitute "applicable high yield discount
obligations" ("AHYDOs") if (i) the yield to maturity of such Senior Secured
Notes is equal to or greater than the sum of the relevant applicable federal
rate (the "AFR") plus five percentage points, and (ii) such notes have
"significant original discount." The relevant AFR for debt instruments issued in
1994 is %. If the Senior Secured Notes constitute AHYDOs, the Company
will not be entitled to deduct original issue discount that accrues with respect
to such Senior Secured Notes until amounts attributable to original issue
discount are paid, although the tax consequences to holders will not be
affected. In addition, if the yield to maturity of the Senior Secured Notes
exceeds the sum of the relevant AFR plus six percentage points (the "Excess
Yield"), the "disqualified portion" of the original issue discount accruing on
the Senior Secured Notes will be characterized as a non-deductible dividend with
respect to the Company and also may be treated as a dividend distribution solely
for purposes of the dividends received deduction of Sections 243, 246 and 246A
of the Code with respect to holders which are corporations. In general, the
"disqualified portion" of original issue discount for any accrual period will be
equal to the product of (i) a percentage determined by dividing

81
<PAGE>
the Excess Yield by the yield to maturity, and (ii) the original issue discount
for the accrual period. Assuming a corporate holder satisfies the requirements
of Sections 243, 246 and 246A of the Code (which include a holding period
requirement and a debt financing limitation), such a holder will be entitled to
a dividends received deduction (generally at a 70% rate) with respect to the
disqualified portion of the accrued original issue discount if the Company has
sufficient current or accumulated "earnings and profits". To the extent that the
Company's earnings and profits are insufficient, any portion of the original
issue discount that otherwise would have been recharacterized as a dividend for
purposes of the dividends received deduction will continue to be taxed as
ordinary original issue discount income in accordance with the rules described
above in "Certain Federal Income Tax Considerations -- Amount of Original Issue
Discount in the Senior Secured Notes -- Taxation of Original Issue Discount on
the Senior Secured Notes."

DESCRIPTION OF OTHER INDEBTEDNESS

NEW CREDIT FACILITY

The Company expects to enter into a New Credit Facility contemporaneously
with the consummation of this Offering. The following is a brief description of
certain terms the Company expects the New Credit Facility will contain, based on
the commitment letter it has received from its lender. This summary is qualified
in its entirety by reference to the credit agreement governing the New Credit
Facility (the "Credit Agreement"). Capitalized terms used in this section and
not otherwise defined have the meanings ascribed thereto in the Credit
Agreement.

The New Credit Facility will be provided by Continental Bank ("CBNA") as
agent. The Credit Agreement will provide for maximum borrowings under a
revolving credit line of $15 million, with available borrowings determined as
follows: (i) up to 85% of eligible accounts receivable with eligibility
determined by CBNA; (ii) up to 60% of eligible inventory; (iii) for the months
of August through January, an additional seasonal overadvance of $3.0 million,
but with inventory advances plus the seasonal overadvance not to exceed 80% of
eligible inventory. All current assets of the Company and a negative pledge on
fixed assets will secure the Company's obligations under the New Credit
Facility.

INTEREST AND FEES. Amounts borrowed under the revolving credit line will
bear interest at either (i) 1.0% over CBNA's Reference Rate per annum (as
defined), or, at the Company's option, (ii) 2.75% over the LIBOR rate.

The Company will be required to pay a commitment fee of .375% per annum on
the unused portion of the New Credit Facility. The Company will be required to
pay a fee of 1% of the total New Credit Facility payable at the closing.

PRINCIPAL REPAYMENTS. The New Credit Facility will mature on or about July
1, 1997.

FINANCIAL COVENANTS. Under the Credit Agreement, the Company will be
subject to certain financial covenants, including financial covenants related to
(i) interest coverage, (ii) minimum tangible net worth, (iii) liabilities to net
worth, and (iv) maximum capital expenditures.

EVENTS OF DEFAULT. The Credit Agreement will contain usual and customary
provisions specifying various events that shall be events of default and will
include cross default and cross acceleration provisions to all material
indebtedness of the Company, including the Senior Secured Notes.

2007 9% SUBORDINATED DEBENTURES

The following is a brief description of certain terms contained in the
Company's indenture, as such indenture has been amended, for the 2007 9%
Subordinated Debentures and is qualified in its entirety by reference to the
indenture, as amended. Capitalized terms used in this section and not otherwise
defined have the meanings ascribed thereto in the indenture, as amended

Pursuant to an indenture dated June 7, 1983, as amended by the First
Supplemental Indenture dated December 13, 1989, the Company is indebted to the
holders of $25.9 principal amount of debentures due in 2007. The Company will
repurchase approximately $13.7 million principal amount of these debentures,
$4.7 million of which will be repurchased from Mr. Plaster, with the proceeds of
this Offering. See "Use of

82
<PAGE>
Proceeds" and "Certain Relationships and Related Transactions." The 2007 9%
Subordinated Debentures represent general unsecured obligations of the Company
and rank junior in right of payment to all Senior Indebtedness (as defined) of
the Company, including the Senior Secured Notes.

The 2007 9% Subordinated Debentures mature on December 31, 2007, unless
redeemed before such date. The 2007 9% Subordinated Debentures bear interest at
the rate of 9% per annum payable semi-annually on December 31 and June 30 of
each year.

The 2007 9% Subordinated Debentures are subject to redemption at any time,
in whole or in part, at the option of the Company, at a redemption price,
beginning January 1, 1993, of 100% of the principal amount thereof, plus accrued
and unpaid interest. The Company is required to redeem $1.37 million principal
amount 2007 9% Subordinated Debentures commencing December 31, 1993 and on each
December 31 thereafter, at 100% of the principal amount thereof plus accrued and
unpaid interest. The repurchase of $13.7 million principal amount of these
debentures will satisfy the Company's sinking fund obligation through 2004.

The 2007 9% Subordinated Debenture indenture contains a number of covenants,
including affirmative covenants relating to maintenances of offices or agency,
maintenance of corporate existence, and other matters.

Events of default under the indenture for the 2007 9% Subordinated
Debentures include: (i) failure to pay any interest on any debenture when due
and the continuance of such failure for a period of 30 days; (ii) failure to pay
the principal or any premium, on any debenture when due whether at maturity or
upon redemption by declaration or otherwise, including any Sinking Fund (as
defined) payment; (iii) failure to perform or breach of the covenants or
agreements on the part of the Company contained in the debenture or in the
indenture and the continuance of such failure for a period of 60 days following
written notice of such failure; or (iv) certain events of bankruptcy or
insolvency.

THE UNDERWRITER

Under the terms and subject to the conditions in an Underwriting Agreement
dated the date hereof, Morgan Stanley & Co. Incorporated (the "Underwriter") has
agreed to purchase, and Holdings has agreed to sell to the Underwriter,
$120,700,000 estimated aggregate principal amount at maturity ($100 million
initial accreted value) of the Senior Secured Notes.

The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Senior Secured Notes is subject to the
approval of certain legal matters by its counsel and to certain other
conditions. The Underwriter is obligated to take and pay for all the Senior
Secured Notes if any are taken. The Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.

The Underwriter proposes to offer part of the Senior Secured Notes directly
to the public initially at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of % of the initial accreted value of the Senior Secured Notes. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of % of the initial accreted value of the Senior Secured Notes to certain
other dealers.

The Company does not intend to apply for listing of the Senior Secured Notes
on a national securities exchange, but has been advised by the Underwriter that
it presently intends to make a market in the Senior Secured Notes, as permitted
by applicable laws and regulations. The Underwriter is not obligated, however,
to make a market in the Senior Secured Notes and any such market making may be
discontinued at any time at the sole discretion of the Underwriter. Accordingly,
no assurance can be given as to the liquidity of, or trading markets for, the
Senior Secured Notes. See "Risk Factors -- Absence of Public Market."

83
<PAGE>
LEGAL MATTERS

The validity of the issuance of the Senior Secured Notes offered hereby will
be passed upon for the Company by Wilmer, Cutler & Pickering, Washington, D.C.
Certain legal matters with respect to the Offering will be passed upon for the
Underwriter by Skadden, Arps, Slate, Meagher & Flom, New York, New York.

EXPERTS

The consolidated financial statements and the related schedules of Empire
Gas included in this Prospectus and the Registration Statement have been
examined by Baird, Kurtz, & Dobson, independent public accountants, for the
periods indicated in its reports thereon which appear elsewhere herein and in
the Registration Statement. The consolidated financial statements and schedules
examined by Baird, Kurtz & Dobson have been included in reliance on its reports
given on its authority as experts in accounting and auditing.

AVAILABLE INFORMATION

Empire Gas has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Senior Secured Notes offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement as permitted by the rules
and regulations of the Commission. For further information pertaining to the
Company and the Senior Secured Notes offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, with respect
to any contract or other document filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by reference to such
exhibit.

The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"). As a result of the
Offering, the Company will become subject to such requirements, and in
accordance therewith will file periodic reports and other information with the
Commission. Empire Gas Operating Corporation (formerly Empire Gas Corporation),
a subsidiary of the Company, is currently subject to the informational
requirements of the Exchange Act, and in accordance therewith, files periodic
reports and other information with the Commission and with the Pacific Stock
Exchange. The Registration Statement and the exhibits and schedules thereto,
filed by Empire Gas Operating Corporation as well as the reports and information
filed by the Company under the Exchange Act, may be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at its regional offices located at Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and Suite
1300, 7 World Trade Center, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports and
other information concerning the Company can also be inspected at the Pacific
Stock Exchange, 301 Pine Street, San Francisco, California.

The Indenture requires the Company to file with the Commission annual
reports containing consolidated financial statements and the related report of
independent public accountants and quarterly reports containing unaudited
consolidated financial statements for the first three quarters of each fiscal
year for so long as any Senior Secured Notes are outstanding.

84
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
HISTORICAL:
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets as of June 30, 1992 and 1993 and
as of December 31, 1993 (unaudited).................................................. F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1991, 1992, and 1993 and for the Six Months Ended
December 31, 1992 and 1993 (unaudited)............................................... F-4
Consolidated Statements of Stockholders' Equity for the Years
June 30, 1991, 1992, and 1993 for the Six Months
Ended December 31, 1993 (unaudited).................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1991, 1992, and 1993 and for the
Six Months Ended December 31, 1992 and 1993 (unaudited).............................. F-6
Notes to Consolidated Financial Statements............................................ F-8
PRO FORMA:
Unaudited Pro Forma Income Statements of PSNC Propane
Corporation (PSNC) for the Year Ended June 30,
1993, Six Months Ended December 31, 1993, and
Twelve Months Ended December 31, 1993................................................ P-1
Unaudited Pro Forma Balance Sheet of PSNC Propane
Corporation (PSNC) as of December 31, 1993........................................... P-7
</TABLE>

F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT

Board of Directors and Stockholders
Empire Gas Corporation
Lebanon, Missouri

We have audited the accompanying consolidated balance sheets of EMPIRE GAS
CORPORATION (FORMERLY EMPIRE GAS ACQUISITION CORPORATION) as of June 30, 1993
and 1992, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EMPIRE GAS CORPORATION at June 30, 1993 and 1992, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1993, in conformity with generally accepted accounting
principles.

Springfield, Missouri
July 30, 1993

F-2
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30,
--------------------
1992 1993
--------- --------- DECEMBER 31,
------------
1993
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................. $ 216 $ 362 $ 1,667
Trade receivables, less allowance for doubtful accounts; June 30,
1992 - $2,720, June 30, 1993 - $2,657, December 31, 1993 -
$3,169 (NOTE 3)................................................. 6,508 8,199 16,985
Inventories (NOTE 3)............................................. 7,913 9,691 9,744
Prepaid expenses................................................. 629 305 299
Deferred income taxes (NOTE 4)................................... -- -- 593
--------- --------- ------------
Total Current Assets........................................... 15,266 18,557 29,288
--------- --------- ------------
PROPERTY AND EQUIPMENT, At Cost (NOTE 3)
Land and buildings............................................... 11,821 12,215 12,453
Storage and consumer service facilities.......................... 113,450 113,821 114,476
Transportation, office and other equipment....................... 24,245 25,550 27,101
--------- --------- ------------
149,516 151,586 154,030
Less accumulated depreciation.................................... 34,055 41,906 45,397
--------- --------- ------------
115,461 109,680 108,633
--------- --------- ------------
OTHER ASSETS
Debt acquisition costs, net of amortization...................... -- 475 473
Excess of cost over fair value of net assets acquired, at
amortized cost.................................................. 20,212 18,834 18,193
Other............................................................ 532 474 439
--------- --------- ------------
20,744 19,783 19,105
--------- --------- ------------
$ 151,471 $ 148,020 $ 157,026
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (NOTE 3).................... $ 16,590 $ 5,181 $ 6,242
Accounts payable................................................. 5,341 4,485 6,140
Accrued salaries................................................. 1,574 1,573 2,050
Accrued expenses................................................. 2,612 2,193 4,220
Income taxes payable (NOTE 9).................................... 3,094 165 2,333
--------- --------- ------------
Total Current Liabilities.................................... 29,211 13,597 20,985
--------- --------- ------------
LONG-TERM DEBT (NOTE 3)............................................ 59,372 74,068 75,613
--------- --------- ------------
DUE TO RELATED PARTY (NOTES 2 AND 3)............................... 2,996 -- --
--------- --------- ------------
DEFERRED INCOME TAXES (NOTE 4)..................................... 33,428 32,568 31,865
--------- --------- ------------
ACCRUED SELF INSURANCE LIABILITY (NOTE 8).......................... 1,563 1,874 1,832
--------- --------- ------------
STOCKHOLDERS' EQUITY...............................................
Common; $.001 par value; authorized 20,000,000 shares; issued
and outstanding June 30, 1992 - 13,921,458 shares, June 30,
1993 and December 31, 1993 - 13,832,270 shares................ 14 14 14
Additional paid-in capital..................................... 27,133 27,088 27,088
Retained earnings (deficit).................................... (2,118) 110 928
--------- --------- ------------
25,029 27,212 28,030
Treasury stock, at cost June 30, 1992 - 39,367 shares, June 30,
1993 and December 31, 1993 - 329,500 shares................... (128) (1,299) (1,299)
--------- --------- ------------
24,901 25,913 26,731
--------- --------- ------------
$ 151,471 $ 148,020 $ 157,026
--------- --------- ------------
--------- --------- ------------
</TABLE>

See Notes to Consolidated Financial Statements

F-3
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------- ----------------------
1991 1992 1993 1992 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE.................................... $ 121,758 $ 112,080 $ 128,401 $ 62,344 $ 63,986
COST OF PRODUCT SOLD................................. 59,971 50,973 60,202 29,111 30,653
---------- ---------- ---------- ---------- ----------
GROSS PROFIT......................................... 61,787 61,107 68,199 33,233 33,333
---------- ---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts.................... 2,828 214 958 517 603
General and administrative......................... 41,594 39,463 40,437 19,650 20,173
Rent expense to related party (NOTE 2)............. 350 375 450 225 225
Depreciation and amortization...................... 9,552 10,062 10,351 5,109 4,940
---------- ---------- ---------- ---------- ----------
54,324 50,114 52,196 25,501 25,941
---------- ---------- ---------- ---------- ----------
OPERATING INCOME..................................... 7,463 10,993 16,003 7,732 7,392
---------- ---------- ---------- ---------- ----------
OTHER EXPENSE
Interest expense................................... (11,455) (10,406) (8,877) (4,878) (4,364)
Interest expense to related party
(NOTES 2 AND 3).................................. (583) (315) (949) (283) --
Amortization of debt discount and expense.......... (890) (1,006) (1,686) (595) (992)
Crested Butte litigation (NOTE 8).................. (702) -- -- -- --
Merger proposal costs (NOTE 5)..................... -- (450) -- -- --
Restructuring proposal costs (NOTE 6).............. -- -- (223) -- (398)
---------- ---------- ---------- ---------- ----------
(13,630) (12,177) (11,735) (5,756) (5,754)
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................... (6,167) (1,184) 4,268 1,976 1,638
PROVISION (CREDIT) FOR INCOME TAXES (NOTE 4)......... (1,610) 290 2,040 920 820
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).................................... $ (4,557) $ (1,474) $ 2,228 $ 1,056 $ 818
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) PER COMMON SHARE (NOTE 1).............. $ (.33) $ (.11) $ .16 $ .07 $ .06
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

See Notes to Consolidated Financial Statements

F-4
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
PAID-IN EARNINGS TREASURY STOCKHOLDERS'
COMMON STOCK CAPITAL (DEFICIT) STOCK EQUITY
------------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1990................................. $ 14 $ 27,105 $ 3,913 $ (50) $ 30,982
STOCK OPTIONS EXERCISED................................ -- 13 -- -- 13
NET LOSS............................................... -- -- (4,557) -- (4,557)
--- ----------- ----------- --------- ------------
BALANCE, JUNE 30, 1991................................. 14 27,118 (644) (50) 26,438
STOCK OPTIONS EXERCISED................................ -- 15 -- -- 15
PURCHASE OF TREASURY STOCK............................. -- -- -- (78) (78)
NET LOSS............................................... -- -- (1,474) -- (1,474)
--- ----------- ----------- --------- ------------
BALANCE, JUNE 30, 1992................................. 14 27,133 (2,118) (128) 24,901
STOCK OPTIONS EXERCISED................................ -- 225 -- -- 225
NET INCOME............................................. -- -- 2,228 -- 2,228
SALE OF TREASURY STOCK................................. -- (270) -- 270 --
PURCHASE OF TREASURY STOCK............................. -- -- -- (1,441) (1,441)
--- ----------- ----------- --------- ------------
BALANCE, JUNE 30, 1993................................. 14 27,088 110 (1,299) 25,913
NET INCOME (UNAUDITED)................................. -- -- 818 -- 818
--- ----------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1993 (UNAUDITED)................. $ 14 $ 27,088 $ 928 $ (1,299) $ 26,731
--- ----------- ----------- --------- ------------
--- ----------- ----------- --------- ------------
</TABLE>

See Notes to Consolidated Financial Statements

F-5
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------- --------------------
1991 1992 1993 1992 1993
--------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $ (4,557) $ (1,474) $ 2,228 $ 1,056 $ 818
Items not requiring (providing) cash:
Depreciation....................................... 8,263 8,789 9,004 4,480 4,335
Amortization....................................... 2,179 2,279 3,033 1,224 1,597
(Gain) loss on sale of assets...................... 252 (758) 155 (99) (4)
Deferred income taxes.............................. (2,210) (810) (860) (880) (1,296)
Changes in:
Bank overdraft..................................... (872) -- -- -- --
Trade receivables.................................. 1,360 32 (1,691) (8,461) (8,786)
Inventories........................................ (1,074) (300) (1,886) (2,998) (53)
Accounts payable................................... 1,418 246 (856) 3,173 1,655
Accrued expenses and self insurance................ (560) 1,772 (3,158) 161 4,630
Prepaid expenses and other......................... 348 224 272 (1,281) (44)
--------- --------- ----------- --------- ---------
Net cash provided by (used in) operating
activities...................................... 4,547 10,000 6,241 (3,625) 2,852
--------- --------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets......................... 497 3,062 1,088 374 129
Purchases of property and equipment.................. (8,629) (6,601) (4,358) (2,414) (3,424)
--------- --------- ----------- --------- ---------
Net cash used in investing activities............ (8,132) (3,539) (3,270) (2,040) (3,295)
--------- --------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in working capital financing..... 3,500 3,400 (1,875) 7,100 4,500
Increase (decrease) in notes payable to related
party............................................... 382 (2,756) (2,996) 4 --
Principal payments on acquisition credit facility.... -- (6,750) (13,250) -- --
Principal payments on other long-term debt........... (195) (191) (182) (97) (130)
Debenture sinking fund payments...................... -- -- (528) (537) (1,322)
Purchase of debentures from employee benefit plan.... -- -- (778) -- --
Proceeds from issuance of term credit facility....... -- -- 18,000 -- --
Principal payments on term credit facility........... -- -- -- -- (1,300)
Stock options exercised.............................. 13 15 173 161 --
Purchase of treasury stock........................... -- (78) (1,441) (142) --
Sale of treasury stock............................... -- -- 52 52 --
--------- --------- ----------- --------- ---------
Net cash provided by (used in) financing
activities...................................... $ 3,700 $ (6,360) $ (2,825) $ 6,541 $ 1,748
--------- --------- ----------- --------- ---------
INCREASE IN CASH....................................... $ 115 $ 101 $ 146 $ 876 $ 1,305
CASH, BEGINNING OF PERIOD.............................. -- 115 216 216 362
--------- --------- ----------- --------- ---------
CASH, END OF PERIOD.................................... $ 115 $ 216 $ 362 $ 1,092 $ 1,667
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>

See Notes to Consolidated Financial Statements

F-6
<PAGE>
EMPIRE GAS CORPORATION
(Formerly Empire Gas Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Years Ended June 30, 1991, 1992 and 1993
and for the Six Months Ended December 31, 1992 and 1993 (Unaudited)

NOTE 1 : ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company's principal operations are the sale of LP gas at retail and
wholesale. Most of the Company's customers are owners of residential single or
multi-family dwellings who make periodic purchases on credit. Such customers are
located throughout the United States with the larger number concentrated in the
central and southeastern states and along the Pacific coast. The Company was
formed in September 1988 to acquire 100% of the stock of Empire Gas Operating
Corporation (formerly Empire Gas Corporation) in a transaction which was
accounted for by the purchase method of accounting. At acquisition date, asset
and liability values were recorded at their market values with respect to the
purchase price.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Empire Gas
Corporation and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.

UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly Empire
Gas Corporation's consolidated financial position as of December 31, 1993, and
the related consolidated results of its operations and cash flows for the
six-month periods ended December 31, 1992 and 1993. All such adjustments are of
a normal recurring nature.

The results of operations for the six-month period ended December 31, 1993,
are not necessarily indicative of the results to be expected for the full year
due to the seasonal nature of the Company's business.

INVENTORIES

Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method for retail operations and specific identification
method for wholesale operations. At June 30 the inventories were:

<TABLE>
<CAPTION>
1992 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Gas and other petroleum products................ $ 3,199 $ 4,279
Gas distribution parts, appliances and
equipment...................................... 4,714 5,412
--------- ---------
$ 7,913 $ 9,691
--------- ---------
--------- ---------
</TABLE>

PROPERTY AND EQUIPMENT

Depreciation is provided on all property and equipment on the straight-line
method over estimated useful lives of 5 to 33 years.

INCOME TAXES

Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.

RECLASSIFICATION

Certain reclassifications have been made to the 1992 and 1991 financial
statements to conform to the 1993 Financial Statement presentation. These
reclassifications had no effect on net earnings.

F-7
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 1 : ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
AMORTIZATION

The debt acquisition costs related to the revolving credit facility and term
credit facility (originally $525,000) are being amortized over five years.

Amortization of discounts on debentures (Note 3) is on the effective
interest, bonds outstanding method.

The excess of cost over fair value of net assets acquired (originally
$25,000,000) is being amortized on the straight-line basis over 20 years.

EARNINGS PER COMMON SHARE

Earnings per common share are computed by dividing net income, after
deduction for annual preferred dividend requirements, by the weighted average
number of common shares and, except where anti-dilutive, common share
equivalents outstanding, if any. The weighted average number of common shares
outstanding used in the computation of earnings per share was 13,881,091,
13,885,087, and 14,055,407 for each of the fiscal years ended June 30, 1991,
1992, and 1993, respectively.

NOTE 2 : RELATED PARTY TRANSACTIONS
During each of the last three years, the Company has periodically borrowed
funds from an officer of the Company who is also a principal shareholder (the
"Shareholder") of the Company and from individuals and corporations related to
the Shareholder. The Company had no outstanding borrowings from this related
party at June 30, 1993. The amounts of outstanding borrowings from this related
party at June 30, 1991 and 1992, were $5,753,000 and $2,996,000, respectively.
The maximum amounts borrowed from this related party except for the November
1992 agreement described below during the years ended June 30, 1991, 1992 and
1993, were $5,928,000, $5,753,000 and $3,000,000, respectively. The interest
rate on these borrowings was equal to or below the rates available through the
working capital facility. Interest expense incurred on these related party
borrowings was $583,000, $315,000 and $200,000, for the years ended June 30,
1991, 1992 and 1993, respectively. During November 1992 the Shareholder loaned
under a separate agreement $13.25 million to the Company to repay the
acquisition credit facility (see Note 3). Interest expense incurred on this
related party borrowing for the year ended June 30, 1993, was $749,000. In June
1993, all outstanding borrowings from the Shareholder were repaid using the
proceeds from the new term credit facility.

The Company provides data processing, office rent and other clerical
services to two corporations principally owned by certain officers and
shareholders of the Company and is currently being reimbursed $7,000 per month
for these services.

The Company leases a jet aircraft and an airport hanger from a corporation
owned by the Shareholder. The lease requires annual rent payments of $100,000
beginning April 1, 1992, for a period of eight years. In addition to direct
lease payments, the Company is also responsible for the operating costs of the
aircraft and the hanger. During the years ended June 30, 1992 and 1993, the
Company paid direct rent of $25,000 and $100,000, respectively.

The Company paid $150,000 in each of the three years ended June 30, 1993, to
a corporation owned by the Shareholder pursuant to an agreement providing the
Company the right to use business guest facilities owned by the corporation.

F-8
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 2 : RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has entered into a lease agreement with a corporation which is
principally owned by the Shareholder for the corporate home office, land,
buildings and equipment. The lease was extended in 1991 for a term of ten years,
with two three-year renewal options. The Company paid $200,000 during each of
the three years ended June 30, 1993, related to this lease.

NOTE 3 : LONG-TERM DEBT

Long-term debt (in thousands) consisted of:

<TABLE>
<CAPTION>
JUNE 30,
-------------------- DECEMBER 31,
1992 1993 1993
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Acquisition credit facility (A)......................... $ 13,250 $ -- $ --
Working capital facility (B)............................ 8,700 -- --
Term credit facility (C)................................ -- 18,000 16,700
Revolving credit facility (C)........................... -- 7,300 11,800
9% Convertible Subordinated Debentures,
due 1998 (D)........................................... 17,539 17,767 16,932
9% Subordinated Debentures, due 2007 (E)................ 16,040 15,691 15,916
12% Senior Subordinated Debentures,
due 2002 (F)........................................... 19,121 19,361 19,507
Purchase contract obligations (G)....................... 1,312 1,130 1,000
--------- --------- ------------
75,962 79,249 81,855
Less current maturities................................. 16,590 5,181 6,242
--------- --------- ------------
$ 59,372 $ 74,068 $ 75,613
--------- --------- ------------
--------- --------- ------------
<FN>
- ---------
(A) The acquisition credit agreement to which substantially all the Company's
assets were pledged bore interest at 14 1/2%.
In November 1992 the principal shareholder of the Company, referred to in
Note 2 as the Shareholder, loaned $13.25 million to the Company. The
proceeds were used by the Company to repay the acquisition credit facility.
The loan was secured by substantially all of the assets of the Company on
an equal basis with the working capital facility. The loan bore interest at
10% per annum. This loan was repaid in June 1993, with the proceeds from
the new term credit facility.
(B) The Company's working capital facility, under which substantially all the
Company's assets were pledged, provided for borrowings up to $20 million
and bore interest at 1% over prime. The agreement provided for a commitment
fee of 1/2% per annum of the unadvanced portion of the commitment. This
loan was repaid in June 1993 with the proceeds from the new term and
revolving credit facilities.
At June 30, 1992, the Company was in default of the working capital ratio
covenant and a covenant requiring minimum consolidated operating cash flow.
The lenders waived the noncompliance with these covenants.
(C) The term credit facility and revolving credit facility are provided to the
Company by the same lender under one agreement. In June 1993 the proceeds
from these new loans were used to repay the $13.25
</TABLE>

F-9
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 3 : LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C>
million loan from Shareholder, working capital facility and other
outstanding borrowings to Shareholder. Substantially all of the Company's
assets are pledged to the agreement which contains working capital, debt
and certain dividend restrictions. These dividend restrictions prohibit the
Company from paying common stock cash dividends.The term credit facility
bears interest at either 1.125% over prime or 2.625% over the Eurodollar
rate. The agreement requires quarterly principal payments of $650,000.
The revolving credit facility provides for borrowings up to $22 million and
bears interest at either 1 % over prime or 2.5 % over the Eurodollar rate.
The agreement provides for a commitment fee of .5% per annum of the
unadvanced portion of the commitment. The Company's unused revolving credit
line amounted to $13,448,000 at June 30, 1993, after considering $1,252,000
of letters of credit. At December 31, 1993, the Company was in default of
the consolidated working capital covenant. The lender waived the
noncompliance with this covenant.
(D) The convertible debentures issued in January 1981 were convertible into
common stock at a rate equal to $10.31 of principal amount for each share
of common stock through December 1989. In December 1989 the Company
executed a supplemental indenture for the convertible debentures. The
supplemental indenture provides that the holder of each convertible
debenture now has, in lieu of the right to convert each debenture into
common stock, the right to convert each debenture into the right to receive
$3.75 cash for each $10.31 face amount of debentures. The debentures mature
in 1998, and at maturity an 8% premium of the outstanding principal amount
will be paid. Such premium is being accrued over the term to maturity. The
debentures are redeemable at the Company's option, as a whole or in part,
at 100% of the principal amount plus accrued interest to the redemption
date, on any date prior to maturity. A sinking fund payment sufficient to
retire $1,250,000 of principal is required annually on each December 31.
The original principal amount of debentures outstanding ($21,854,000) was
adjusted to market value (effective interest rate of 14.5%) in October
1988, in accordance with the purchase method of accounting. The discount on
these debentures is being amortized over the remaining life of the
debentures using the effective interest, bonds outstanding method. The face
value of debentures outstanding at June 30, 1993, is $21,230,000.
(E) The debentures, issued June 1983, are redeemable at the Company's option,
as a whole or in part, at par value. Annual sinking fund payments
sufficient to retire $1,366,000 of principal outstanding are required
beginning December 31, 1993.
The original principal amount of debentures issued ($27,313,000) was
adjusted to market value (effective interest rate of 16.5%) in October
1988, in accordance with the purchase method of accounting. The discount on
these debentures is being amortized over the remaining life of the
debentures using the effective interest, bonds outstanding method. The face
value of debentures outstanding at June 30, 1993, is $26,037,000.
(F) The debentures, issued April 1986, are redeemable at the Company's option,
as a whole or in part, at 100% of the principal amount plus accrued
interest to the redemption date, on any date prior to maturity. Annual
sinking fund payments sufficient to retire $690,000 of principal
outstanding, are required beginning March 31, 1994.
</TABLE>

F-10
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 3 : LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C>
The original principal amount of debentures issued ($23,000,000) was
adjusted to market value (effective interest rate of 15.0%) in October
1988, in accordance with the purchase method of accounting. The discount on
the debentures is being amortized over the remaining life of the debentures
using the effective interest, bonds outstanding method. The face value of
debentures outstanding at June 30, 1993, is $22,998,000.
(G) Purchase contract obligations arise from the purchase of operating
businesses and are collateralized by the equipment and real estate acquired
in the respective acquisitions. At June 30, 1992 and 1993, these
obligations carried interest rates from 7.5% to 10% and are due
periodically through 1999. Aggregate annual maturities and sinking fund
requirements (in thousands) of the long-term debt outstanding at June 30,
1993, are:
<CAPTION>
1994... $ 5,181
<S> <C>
1995............................................................ 6,027
1996............................................................ 6,025
1997............................................................ 5,973
1998............................................................ 18,469
Thereafter...................................................... 37,574
---------
$ 79,249
---------
---------
</TABLE>

NOTE 4 : INCOME TAXES
Components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
CURRENT DEFERRED
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDED JUNE 30, 1991
Tax expense (benefit) before application of tax credits $ 241 $ (1,851)
Alternative minimum tax 359 (359)
----------- ---------
Tax expense (benefit) $ 600 $ (2,210)
----------- ---------
----------- ---------
YEAR ENDED JUNE 30, 1992
Tax expense (benefit) before application of tax credits $ 954 $ (664)
Alternative minimum tax 146 (146)
----------- ---------
Tax expense (benefit) $ 1,100 $ (810)
----------- ---------
----------- ---------
YEAR ENDED JUNE 30, 1993
Tax expense (benefit) before application of tax credits $ 3,548 $ (1,508)
Alternative minimum tax credit (648) 648
----------- ---------
Tax expense (benefit) $ 2,900 $ (860)
----------- ---------
----------- ---------
</TABLE>

F-11
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 4 : INCOME TAXES (CONTINUED)
Principal items making up the deferred income tax provisions are as follows:

<TABLE>
<CAPTION>
1991 1992 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and asset dispositions................................... $ (942) $ (1,332) $ (1,439)
Amortization of 1981 debenture costs.................................. (130) (190) (284)
Allowance for doubtful accounts....................................... (564) -- 23
Accrued expenses...................................................... (201) 936 147
Alternative minimum tax............................................... (359) (146) 648
Other................................................................. (14) (78) 45
--------- --------- ---------
$ (2,210) $ (810) $ (860)
--------- --------- ---------
--------- --------- ---------
</TABLE>

Reconciliation of the statutory federal income tax rate to the effective tax
rate as a percent of pretax financial income is as follows:

<TABLE>
<CAPTION>
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax rate................................................... (34.0)% (34.0)% 34.0%
State income taxes, net of federal income tax benefits............... 2.1 13.9 4.8
Amortization of excess cost over fair value of net assets acquired... 6.3 32.5 9.0
Unamortized excess cost over fair value of assets sold............... -- 5.7 .9
Other tax accruals................................................... (.5) 6.4 (.9)
----------- ----------- ---
Effective tax rate............................................. (26.1)% 24.5 % 47.8%
----------- ----------- ---
----------- ----------- ---
</TABLE>

CHANGE IN ACCOUNTING PRINCIPLE

Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). As a result of the change, there was no effect on income tax expense and
the effect on current-noncurrent classification of deferred assets and
liabilities was not material.

Prior to July 1, 1993, deferred taxes were determined using the Statement of
Financial Accounting Standards No. 96.

F-12
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 4 : INCOME TAXES (CONTINUED)
Deferred tax balances at July 1, 1993, consisted of:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts............................................................... $ 1,016
Accounts receivable advance collections....................................................... 182
Self insurance liabilities and contingencies.................................................. 1,474
1981 debenture premium........................................................................ 403
--------------
3,075
--------------
</TABLE>

<TABLE>
<S> <C>
Deferred Tax Liabilities
Accumulated depreciation.................................................. (33,975)
1981 debenture discount................................................... (1,668)
-----------
(35,643)
-----------
Net Deferred Tax Liability................................................ $ (32,568)
-----------
-----------
</TABLE>

NOTE 5 : MERGER PROPOSAL COSTS
During the year ended June 30, 1992, the Company submitted a proposal to
acquire a large competitor in the propane business after incurring due diligence
costs including professional fees and out-of-pocket expenses in connection with
the proposed acquisition. The Company abandoned the proposal and expensed the
related $450,000 of costs in 1992.

NOTE 6 : RESTRUCTURING PROPOSAL COSTS
During the year ended June 30, 1993, the Company was considering proposals
to restructure the debt and equity of the Company. The Company abandoned the
proposal and expensed the related $223,000 of costs in 1993.

NOTE 7 : EMPLOYEE BENEFIT PLANS
The Company had a qualified profit-sharing plan which covered substantially
all full-time employees under which annual Company contributions were determined
by the Board of Directors. No contributions to the plan were made in the past
six fiscal years.

The Company had an employee stock bonus plan which covered substantially all
full-time employees under which no contributions to the plan were made in fiscal
years ended June 30, 1992 and 1993. The annual Company contribution was $100,000
in the year ended June 30, 1991, as determined by the Board of Directors.

In April 1992 the Company's Board of Directors voted to terminate both
employee benefit plans effective June 30, 1992. Applications for a Determination
Upon Plan Termination were filed with the Internal Revenue Service (IRS) and
were approved in December 1992. The Company liquidated the plans' assets and
paid out the plans' funds to participants on March 31, 1993. The Company
purchased from the plans the Company's common stock for $1.3 million and Company
debentures for $.8 million.

NOTE 8 : SELF INSURANCE AND RELATED CONTINGENCIES
Under the Company's current insurance program, coverage for comprehensive
general liability and vehicle liability is obtained for catastrophic exposures
as well as those risks required to be insured by law or

F-13
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 8 : SELF INSURANCE AND RELATED CONTINGENCIES (CONTINUED)
contract. The Company retains a significant portion of certain expected losses
related primarily to comprehensive general liability and vehicle liability.
Under these current insurance programs, the Company self-insures the first
$500,000 of coverage (per incident). The Company obtains excess coverage from
carriers for these programs on claims-made basis policies. The excess coverage
for comprehensive general liability provides a loss limitation that limits the
Company's aggregate of self-insured losses to $1 million per policy period. The
aggregate cost of obtaining this excess coverage from carriers for the years
ended June 30, 1991, 1992 and 1993, was $961,000, $1,222,000 and $1,441,000,
respectively.

For the policy periods July 1, 1989 through December 30, 1989, and December
31, 1989 through June 30, 1991, the Company has incurred aggregate comprehensive
general liability losses in excess of the policies' $1 million loss limit.
Additional losses (except for punitive damages), if any, are insured by the
excess carrier and should not result in additional expense to the Company. As of
June 30, 1993, the Company has not exceeded the $1 million loss limit for the
comprehensive general liability policy periods July 1, 1991 through June 30,
1992, and July l, 1992 through June 30, 1993.

Provisions for self-insured losses are recorded based upon the Company's
estimates of the aggregate self-insured liability for claims incurred. A summary
of the self-insurance liability, general and vehicle liability (in thousands)
for the years ended June 30, 1991, 1992 and 1993, are:

<TABLE>
<CAPTION>
BEGINNING SELF
SELF SELF INSURED ENDING SELF
INSURANCE INSURANCE CLAIMS INSURANCE
LIABILITY EXPENSES PAID LIABILITY
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
June 30, 1991........... $ 2,070 $ 2,701 $ 2,533 $ 2,238
June 30, 1992........... $ 2,238 $ 1,764 $ 1,336 $ 2,666
June 30, 1993........... $ 2,666 $ 1,148 $ 1,480 $ 2,334
</TABLE>

The ending accrued liability for each period includes $500,000 for incurred
but not reported claims. The current portion of the ending liability of
$350,000, $1,103,000 and $460,000 at June 30, 1991, 1992 and 1993, respectively,
is included in accrued expenses in the consolidated balance sheets. The
noncurrent portion at the end of each period is included in accrued
self-insurance liability.

In November 1991 and February 1992, jury verdicts including compensatory and
punitive damages were returned in favor of numerous plaintiffs in claims filed
against the Company resulting from an explosion in Crested Butte, Colorado,
during 1990. All of the compensatory damage awards were settled by the Company's
insurance carrier in 1992. The Company paid $300,000 in October 1992 to settle
all the remaining punitive damage awards which were accrued at June 30, 1991.

The Company and its subsidiaries are also defendants in various other
lawsuits related to the self-insurance program which are not expected to have a
material adverse effect on the Company's financial position or results of
operations.

During the years ended June 30, 1991, 1992 and 1993, the Company had
obtained workers' compensation coverage from carriers and state insurance pools
at annual costs of $810,000, $733,000 and $1,743,000, respectively. Effective
July 1, 1993, the Company changed its policy so that it will retain $500,000 of
expected losses related to workers' compensation. Provisions for losses expected
under this program will be recorded

F-14
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 8 : SELF INSURANCE AND RELATED CONTINGENCIES (CONTINUED)
based upon the Company's estimates of the aggregate liability for claims
incurred. The Company will provide letters of credit aggregating approximately
$2.3 million in connection with this program of which $582,000 was already
provided at June 30, 1993.

Interim accruals for the costs of excess coverages, general liability,
vehicle liability and workers' compensation are based on an estimate of the
related annual costs compared to the estimated total gallons of propane to be
sold during the same period. Presently, the resulting accrual rate of expense
recognizing these costs is 3.5 cents per gallon sold.

The Company currently self insures health benefits provided to the employees
of the Company and its subsidiaries. Provisions for losses expected under this
program are recorded based upon the Company's estimate of the aggregate
liability for claims incurred. The aggregate cost of providing the health
benefits declined in the year ended June 30, 1993, as a result of employees
paying a larger percentage of their insurance premiums.

NOTE 9 : LITIGATION CONTINGENCIES
The Company's federal income tax returns for the fiscal years 1979 and 1980
were audited by the IRS. During August 1992, the Company paid $2.4 million which
represented interest on previously paid income taxes. This payment settled all
outstanding federal tax audits. The last federal income tax return audited by
the IRS was for fiscal year 1987. The Company has no federal income tax audits
in process at June 30, 1993.

The Company and its subsidiaries are also defendants in various state income
tax audits and other business-related lawsuits which are not expected to have a
material adverse effect on the Company's financial position or results of
operations.

NOTE 10 : STOCK OPTIONS

The table below summarizes transactions under the Company's stock option
plan:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
----------- ----------------
<S> <C> <C>
Balance June 30, 1990................................ 495,737 $ .377 - $1.50
Exercised.......................................... (11,858) .377 - 1.50
-----------
Balance June 30, 1991................................ 483,879 .377 - 1.50
Exercised.......................................... (15,950) .377 - 1.50
-----------
Balance June 30, 1992................................ 467,929 .377 - 1.50
Exercised.......................................... (338,679) .377 - 1.50
-----------
Balance June 30, 1993................................ 129,250 1.12 - 1.50
-----------
-----------
</TABLE>

NOTE 11 : SUBSEQUENT EVENT
The Company is considering an exchange of assets and liabilities of
approximately 133 retail subsidiaries plus other non-retail assets for
12,004,430 shares of Company Common Stock, at a fair value of $84,031,000. The
proposed shares of stock being redeemed are principally held by the Shareholder
described in Note 2. In connection with this transaction, the Company will issue
approximately $120 million of new

F-15
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1992 AND 1993 (UNAUDITED)

NOTE 11 : SUBSEQUENT EVENT (CONTINUED)
debentures (with expected proceeds before expenses of approximately $100
million) which will be used to retire approximately $73 million of existing
debt. The remaining net proceeds will be used to finance an acquisition,
repurchase common shares for cash and for working capital.

NOTE 12 : ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------------- --------------------
1991 1992 1993 1992 1993
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES
Mortgage obligations incurred on property and
equipment purchases.................................. $ 184 $ 102 -- -- --
Short-term note payable issued for the repurchase of
debentures from the employee benefit plan............ -- -- -- $ 778 --
Short-term note payable issued for the purchase of
Company stock from the employee benefit plan......... -- -- -- $ 1,299 --
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid......................................... $ 11,880 $ 11,213 $ 12,185 $ 7,592 $ 4,182
Income taxes paid (net of refunds).................... $ 1,328 $ (441) $ 3,434 $ 437 $ (52)
</TABLE>

F-16
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENTS OF PSNC PROPANE CORPORATION (PSNC)
FOR THE YEAR ENDED JUNE 30, 1993, SIX MONTHS ENDED
DECEMBER 31, 1993, AND TWELVE MONTHS ENDED DECEMBER 31, 1993

The following unaudited income statements show the results of PSNC and the
pro forma effects of purchase accounting adjustments in connection with the
acquisition of PSNC by EGC as if the acquisition had been consummated as of July
1, 1992. The unaudited pro forma results are not necessarily indicative of the
actual results that would have occurred had the acquisition been consummated as
of July 1, 1992, or of the future operations of the Company.

P-1
<PAGE>
PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1993
-------------------------------------
PURCHASE
PSNC ACCOUNTING
PROPANE ADJUSTMENTS PRO FORMA
CORPORATION ------------- ---------
-----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE.......................................................... $ 9,587 $ $ 9,587
COST OF PRODUCT SOLD....................................................... 4,643 4,643
----------- ---------
GROSS PROFIT............................................................... 4,944 4,944
----------- ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts.......................................... 30 30
General and administrative............................................... 3,838 (1,219)(1) 2,619
Depreciation and amortization............................................ 975 83(2) 1,058
----------- ------------- ---------
4,843 (1,136) 3,707
----------- ------------- ---------
OPERATING INCOME........................................................... 101 (1,136) 1,237
----------- ------------- ---------
OTHER INCOME (EXPENSE)
Interest income (expense)................................................ 61 (962)(3) (901)
Amortization of debt discount and expense................................ -- (401)(4) (401)
----------- ------------- ---------
61 (1,363) (1,302)
----------- ------------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.......................................... 162 (227) (65)
PROVISION (CREDIT) FOR INCOME TAXES........................................ 63 (88)(5) (25)
----------- ------------- ---------
NET INCOME (LOSS).......................................................... $ 99 $ (139) $ (40)
----------- ------------- ---------
----------- ------------- ---------
</TABLE>

P-2
<PAGE>
PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1993
--------------------------------------
PURCHASE
PSNC ACCOUNTING
PROPANE ADJUSTMENTS PRO FORMA
CORPORATION -------------- ---------
-----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE............................................................ $ 4,388 $ $ 4,388
COST OF PRODUCT SOLD......................................................... 2,076 2,076
----------- ---------
GROSS PROFIT................................................................. 2,312 2,312
----------- ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts............................................ 20 20
General and administrative................................................. 1,695 (562)(1) 1,133
Depreciation and amortization.............................................. 464 53(2) 517
----------- ----- ---------
2,179 (509) 1,670
----------- ----- ---------
OPERATING INCOME............................................................. 133 (509) 642
----------- ----- ---------
OTHER INCOME (EXPENSE)
Interest income (expense).................................................. 16 (462)(3) (446)
Amortization of debt discount and expense.................................. -- (216)(4) (216)
----------- ----- ---------
16 (678) (662)
----------- ----- ---------
INCOME (LOSS) BEFORE INCOME TAXES............................................ 149 (169) (20)
PROVISION (CREDIT) FOR INCOME TAXES.......................................... 41 (66)(5) (25)
----------- ----- ---------
NET INCOME (LOSS)............................................................ $ 108 $ (103) $ (5)
----------- ----- ---------
----------- ----- ---------
</TABLE>

P-3
<PAGE>
PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1993
-------------------------------------
PURCHASE
ACCOUNTING
PSNC ADJUSTMENTS PRO FORMA
PROPANE ------------- ---------
CORPORATION
-----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE.......................................................... $ 9,984 $ $ 9,984
COST OF PRODUCT SOLD....................................................... 4,618 4,618
----------- ---------
GROSS PROFIT............................................................... 5,366 5,366
----------- ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts.......................................... 12 12
General and administrative............................................... 3,705 (1,164)(1) 2,541
Depreciation and amortization............................................ 942 95(2) 1,037
----------- ------------- ---------
4,659 (1,069) 3,590
----------- ------------- ---------
OPERATING INCOME........................................................... 707 (1,069) 1,776
----------- ------------- ---------
OTHER INCOME (EXPENSE)
Interest income (expense)................................................ 42 (916)(3) (874)
Amortization of debt discount and expense................................ -- (422)(4) (422)
----------- ------------- ---------
42 (1,338) (1,296)
----------- ------------- ---------
INCOME BEFORE INCOME TAXES................................................. 749 (269) 480
PROVISION FOR INCOME TAXES................................................. 252 (105)(5) 147
----------- ------------- ---------
NET INCOME................................................................. $ 497 $ (164) $ 333
----------- ------------- ---------
----------- ------------- ---------
</TABLE>

P-4
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1993,
THE SIX MONTHS ENDED DECEMBER 31, 1993 AND
THE TWELVE MONTHS ENDED DECEMBER 31, 1993

(1) To record the effect of (a) elimination of salaries of executive and
administrative personnel and related costs, (b) elimination of auto and
travel expenses related to executive and administrative personnel being
terminated, (c) elimination of newspaper, radio, and magazine advertising,
(d) elimination of dedicated computer telephone lines and cellular
telephones, (e) elimination of temporary service personnel and overtime
wages, (f) elimination of payroll taxes related to salaries eliminated and
(g) elimination of courier service, credit bureau fees, answering service
expense and office supplies.

<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED DECEMBER ENDED DECEMBER
JUNE 30, 1993 31, 1993 31, 1993
------------- ----------------- -----------------
<S> <C> <C> <C>
Executive and administrative salaries............. $ 695,000 $ 347,000 $ 695,000
Auto and travel expenses.......................... 29,000 12,000 27,000
Advertising expenses.............................. 18,000 5,000 12,000
Telephone expenses................................ 56,000 26,000 53,000
Temporary personnel and overtime wages............ 241,000 101,000 217,000
Payroll taxes..................................... 67,000 32,000 65,000
Other expenses.................................... 113,000 39,000 95,000
------------- -------- -----------------
Total General and Administrative Expense
Reduction...................................... $ 1,219,000 $ 562,000 $ 1,164,000
------------- -------- -----------------
------------- -------- -----------------
</TABLE>

(2) To (a) record additional depreciation based upon the purchase price of
PSNC's property and equipment, (b) record amortization on the new
non-compete agreement being amortized over five years and (c) eliminate
amortization on pre-acquisition non-compete agreements.

<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED DECEMBER ENDED
JUNE 30, 1993 31, 1993 DECEMBER 31, 1993
------------- ----------------- -----------------
<S> <C> <C> <C>
Depreciation...................................... $ 180,000 $ 90,000 $ 180,000
New non-compete amortization...................... 100,000 50,000 100,000
Old non-compete amortization...................... (197,000) (87,000) (185,000)
------------- -------- -----------------
$ 83,000 $ 53,000 $ 95,000
------------- -------- -----------------
------------- -------- -----------------
</TABLE>

(3) To (a) record additional interest expense assuming interest paid at 6% on
face value $14,487,000 of new Senior Secured Note borrowings, (b) recognize
additional interest expense on the revolving credit facility to reflect the
purchase of PSNC's working capital assets and the effect of operational
changes and (c) eliminate interest income earned on excess PSNC cash.

P-5
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1993,
THE SIX MONTHS ENDED DECEMBER 31, 1993 AND
THE TWELVE MONTHS ENDED DECEMBER 31, 1993

(4) To recognize amortization of the original discount on face value $14,487,000
of new Senior Secured Notes to bring the effective rate of the new debt to
10.5% using the effective interest method.

<TABLE>
<S> <C>
Year Ended June 30,1993........................................... $ 401,000
Six Months Ended December 31, 1993................................ $ 216,000
Twelve Months Ended December 31, 1993............................. $ 422,000
</TABLE>

(5) To record the estimated income tax reduction, computed at an effective rate
of 39%, associated with the additional deductible expense as a result of the
acquired operations.

P-6
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET OF PSNC PROPANE CORPORATION (PSNC)
AS OF DECEMBER 31, 1993

The following unaudited balance sheet shows the balance sheet of PSNC and
the pro forma effects of purchase accounting adjustments in connection with the
acquisition of PSNC by EGC as if the acquisition had been completed on December
31, 1993.

PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------
EFFECTS OF
PSNC PSNC PSNC
PROPANE ADJUSTMENTS ACQUISITION
CORPORATION --------------- -----------
-----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................................. $ 527 $ (527)(1) $ 0
Trade receivables.................................................... 892 892
Inventories.......................................................... 1,173 1,173
Prepaid expenses..................................................... 139 (139)(1) 0
----------- ------- -----------
Total current assets............................................... 2,731 (666) 2,065
----------- ------- -----------
PROPERTY AND EQUIPMENT,
At Cost, net of accumulated depreciation............................. 8,969 3,031(2) 12,000
----------- ------- -----------
OTHER ASSETS
Other................................................................ 345 155(3) 500
----------- ------- -----------
345 155 500
----------- ------- -----------
TOTAL ASSETS......................................................... $ 12,045 $ 2,520 $ 14,565
----------- ------- -----------
----------- ------- -----------
CURRENT LIABILITIES
Current maturities of long-term debt................................. $ 100(4) $ 100
Accounts payable and accrued expenses................................ $ 788 (788)(1) 0
----------- ------- -----------
Total current liabilities.......................................... 788 (688) 100
----------- ------- -----------
LONG-TERM DEBT......................................................... 8,363 6,102(4) 14,465
----------- ------- -----------
DEFERRED INCOME TAXES.................................................. 1,724 (1,724)(5) 0
----------- ------- -----------
STOCKHOLDER'S EQUITY
Common stock......................................................... 1 (1)(5) 0
Retained earnings.................................................... 1,169 (1,169)(5) 0
----------- ------- -----------
1,170 (1,170) 0
----------- ------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $ 12,045 $ 2,520 $ 14,565
----------- ------- -----------
----------- ------- -----------
<FN>
- ---------
(1) To eliminate working capital assets and liabilities not acquired under the
acquisition agreement.
(2) To increase the property and equipment to purchase price which does not
exceed fair value.
(3) To (a) eliminate pre-acquisition deferred charges, intangibles and
non-compete agreements and (b) record a $500,000 non-compete agreement
issued as part of the PSNC acquisition by EGC.
(4) To (a) eliminate a payable of $8,363,000 to PSNC's parent not assumed
under the acquisition agreement, (b) record the net proceeds ($12,000,000)
of Senior Secured Notes issued to acquire the fixed assets, (c) record a
revolver advance of $2,065,000 to purchase the accounts receivable and
inventory under the acquisition agreement and (d) record a liability to
PSNC's parent of $500,000 for the non-compete agreement issued.
(5) To eliminate pre-acquisition equity and deferred income taxes.
</TABLE>

P-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses expected to be incurred in
connection with the Offering described in this Registration Statement. All of
such amounts (except the Commission Registration Fee and the NASD Filing Fee)
are estimates.

<TABLE>
<S> <C>
Commission Registration Fee................................................ $ 34,483
NASD Filing Fee............................................................ 10,500
Blue Sky Fees and Expenses (excluding legal fees).......................... *
Printing and Engraving Costs............................................... *
Legal Fees and Expenses.................................................... *
Accounting Fees and Expenses............................................... *
Trustee's Fees and Expenses................................................ *
Miscellaneous.............................................................. *
---------
Total...................................................................... $ *
---------
---------
<FN>
- ---------
* To be supplied by amendment.
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Article 9 of the Company's Articles of Incorporation, included as Exhibit
3.1 to this Registration Statement to this Registration Statement, provide for
the indemnification of the directors, officers and employees of the Company. The
effect of these provisions is to indemnify the directors, officers and employees
for all expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, in which they are involved by reason
of their affiliation with the Company if they acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action, with no reasonable cause to
believe their actions unlawful, to the full extent allowed by The General and
Business Corporation Law of Missouri; except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person's conduct
shall have been adjudged to be knowingly fraudulent or deliberately dishonest or
willful misconduct.

Article VII, Section 7, of the Company's By-Laws, included as Exhibit 3.2 to
this Registration Statement, provides that the Company may purchase liability
insurance that indemnifies directors, officers, employees and agents against any
liability and any expense asserted against or incurred by them in their capacity
as such and also may establish a separate fund alone or with other companies to
provide and maintain such insurance. At the present time, the Company has not
purchased any such insurance, or established or contributed to any such fund.

Section 351.355 of The General and Business Corporation Law of Missouri
requires a corporation to indemnify a director, officer, employee, or agent of
the corporation who has been successful on the merits or otherwise in defense of
any action for all expenses, including attorneys' fees, actually and reasonably
incurred in connection with the action. The Section also permits indemnification
for expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred in connection with actions, suits or
proceedings in which a corporate director, officer, employee, or agent, if he is
a party by reason of the fact that he is or was such a director, officer,
employee, or agent, 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 and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Indemnification in connection with actions by
or in the right of the corporation is permitted only for expenses, including
attorneys' fees, and amounts paid in settlement actually and reasonably incurred
by him in connection with the defense or settlement of the action or suit and
only if the officer, director, or

II-1
<PAGE>
employee 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 is not adjudged liable
for negligence or misconduct in the performance of his duty to the corporation,
unless the court otherwise provides.

The employment agreement between the Company and Robert W. Plaster provides
that Mr. Plaster, his heirs, executors and administrators shall be indemnified
by the Company against fines, judgments, amounts paid in settlement and
reasonable expenses, including attorneys' fees, incurred by him in connection
with any pending, threatened or completed action, suit or proceeding against him
arising by reason of his being or having been a director or officer of the
Company, any parent company, or any subsidiary, except in relation to any matter
in which his conduct has been finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct. The obligation of the
Company to provide indemnification to Mr. Plaster shall continue after
termination of the employment agreement with respect to any matter against Mr.
Plaster arising by reason of his having been a director or officer of the
Company or of any parent or subsidiary of the Company prior to such termination,
or by reason of any action taken by him as such director or officer prior to the
date of such termination.

The Company has entered into agreements with directors and certain of its
officers whereby the Company shall indemnify such persons for all damages,
judgments, settlements and costs, cost of investigation, and cost of defense of
legal actions (other than fines or other obligations which it is prohibited by
applicable law from paying for any reason), because of any claim or claims made
against such persons of any act or omission or neglect or breach of duty
including any actual or alleged error or misstatement committed or suffered
while acting in the capacity and solely because of such capacity as officer and
director.

Reference is made to Section 7 of the form of Underwriting Agreement filed
as Exhibit 1.1 to the Registration Statement for additional indemnification
provisions.

See Item 17 for the Registrants' undertakings with respect to
indemnification.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information relates to securities of the Company issued or
sold within the past three years that were not registered under the Securities
Act.

The purchases described below were made upon exercise of options issued
pursuant to the Company's Incentive Stock Option Plan.

On July 16, 1991, Mr. Alan Simer, an employee of the Company, purchased
2,010 shares of the Company's common stock, $.001 par value, at $.377 per share
and 8,000 shares at $1.50 per share for an aggregate purchase price of $12,758.

On August 20, 1991, Mr. Larry Bisig, an employee of the Company, purchased
8,000 shares of the Company's common stock at $1.50 per share and 7,950 shares
at $.377 per share, for an aggregate purchase price of $14,997.

On October 29, 1992, Joseph L. Schaefer, an executive officer of the
Company, purchased 39,750 shares of the Company's common stock at $.377 per
share, 20,250 shares at $1.125 per share, and 20,000 shares at $1.50 per share,
for an aggregate purchase price of $67,767.

On October 30, 1992, Mr. Stephen R. Plaster, a director and executive
officer of the Company, purchased 13,500 shares of the Company's common stock,
$.001 par value, at $1.125 per share and 6,000 shares at $1.50 per share, for an
aggregate purchase price of $24,188.

On November 27, 1992, Mr. Dwight Gilpin, an officer of the Company,
purchased 26,500 shares of the Company's common stock at $.377 per share, 20,000
shares at $1.50 per share, and 3,500 shares at $1.125 per share, for an
aggregate purchase price of $43,929.

On December 10, 1992, Ms. Gwendolyn B. VanDerhoef, an officer of the
Company, purchased 26,500 shares of the Company's common stock at $.377 per
share, 8,000 shares at $1.50 per share, and 5,500 shares at $1.125 per share,
for an aggregate purchase price of $28,178.

II-2
<PAGE>
On December 21, 1992, Mr. Robert L. Wooldridge, an executive officer of the
Company, purchased 72,467 shares of the Company's common stock at $.377 per
share, for an aggregate purchase price of $27,320.

On December 31, 1992, Floyd Waterman, an officer of the Company, purchased
5,000 shares of the Company's common stock at $1.125 per share, for an aggregate
purchase price of $5,625, and Earl L. Noe, an executive officer of the Company,
purchased 26,500 shares of the Company's common stock at $.377 per share for an
aggregate purchase price of $9,991.

On February 17, 1993, Mr. Paul Stahlman, an officer of the Company,
purchased 18,712 shares of the Company's common stock at $.377 per share, for an
aggregate purchase price of $7,054.

On April 15, 1993, Mr. Charles Jones, an officer of the Company, purchased
13,250 shares of the Company's common stock at $.377 per share, for an aggregate
purchase price of $4,995.

On June 18, 1993, Mr. James E. Acreman, an executive officer of the Company,
purchased 13,250 shares of the Company's common stock at $.377 per share, for an
aggregate purchase price of $4,995.

These transactions were completed without registration under the Securities
Act in reliance on Section 4(2) of the Act. In relying on this exemption, the
Company relied on representations from these purchasers that each purchaser was
an accredited investor, that each was acquiring the shares for investment
purposes, and that each had received adequate opportunity to obtain information
regarding the Company. The shares issued contained a legend restricting transfer
of the shares absent registration under the Securities Act or the availability
of an exemption therefrom.

II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Articles of Incorporation of the Company
3.2* By-laws of the Company
4.1* Form of Indenture between EGOC and IBJ Schroder Bank & Trust Company, Trustee, relating to the 9%
Subordinated Debentures due December 31, 2007, including amendments thereto and the form of 9%
Subordinated Debentures due December 31, 2007.
4.2 Form of Proposed Indenture between the Company and Shawmut Bank Connecticut, National Association,
Trustee, relating to the % Senior Secured Notes due 2004, including the form of % Senior
Secured Notes due 2004.
4.3* Form of Stock Redemption Agreement, dated , 1994, between the Company, EGOC, Energy,
Robert W. Plaster, Paul S. Lindsey, Jr., Stephen R. Plaster, Joseph L. Schaefer, the Robert W.
Plaster Trust dated December 13, 1988, the Dolly Francine Plaster 7/30/84 Trust, the Tammy Jane
Plaster 7/30/84 Trust, the Stephen Robert Plaster 10/30/88 Trust, the Stephen Robert Plaster
7/30/84 Trust, the Cheryl Jean Plaster Schaefer 10/30/88 Trust, the Cheryl Jean Plaster Schaefer
7/30/84 Trust, Empire Ranch, Inc., Empire Airlines, Inc., and Evergreen National Corporation).
5.1* Opinion of Wilmer, Cutler & Pickering as to the validity of the issuance of the Senior Secured
Notes
10.1* 1989 Incentive Stock Option Plan
10.2* Form of Credit Agreement between the Company and Continental Bank, as agent
10.3* Lease Agreement dated , 1994 between the Company and Evergreen National Corporation
10.4* Services Agreement dated , 1994 between the Company and Empire Service Corporation
10.5* Non-Competition Agreement dated , 1994 by and among the Company, Energy, Robert W.
Plaster, Stephen R. Plaster, Joseph L. Schaefer, Paul S. Lindsey, Jr.
10.6* Employment Agreement dated , 1994 between the Company and Paul S. Lindsey, Jr.
10.7* Acquisition Agreement dated , 1994 between the Company, PSNC Propane Corporation, and
Public Service of North Carolina
12.1* Statement regarding computation of ratio of earnings to fixed charges
15.1* Letter regarding unaudited interim financial information
21.1* Subsidiaries of the Company.
23.1 Consent of Baird, Kurtz & Dobson
23.2* Consent of Wilmer, Cutler & Pickering, included in the opinion filed as Exhibit 5.1.
23.3 Consent of Douglas A. Brown to being named as a director
24.1 Power of Attorney, located on signature page
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
<FN>
- ---------
* To be supplied by amendment.
</TABLE>

II-4
<PAGE>
(b) Financial Statement Schedules

<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
V. Property and Equipment
VI. Accumulated Depreciation
VIII. Valuation and Qualifying Accounts
X. Supplementary Income Statement Information
</TABLE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertake as follows:

(1) insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 14 hereof, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by the director, officer, or controlling person thereof 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 Company will, unless in the opinion of 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 Act and will be governed by the final adjudication of
such issue.

(2) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(3) for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the District of Columbia on the 29th
day of April, 1994.

EMPIRE GAS CORPORATION
By: _______/s/_Robert W. Plaster______
CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes and constitutes Paul S. Lindsey, Jr., his true and lawful
attorney with full power to sign for him and in his name in the capacities
indicated below and file any and all amendments (including post-effective
amendments) to this Registration Statement, and he hereby ratifies and confirms
his signature as it may be signed by said attorney to any and all such
amendments.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------------------------------ --------------------------------------- ----------------
<C> <S> <C>
Chief Executive Officer and Chairman of
/s/Robert W. Plaster the Board (principal executive April 29, 1994
Robert W. Plaster officer)
/s/Willis D. Green Vice President/Controller(principal
Willis D. Green financial and accounting officer) April 29, 1994
/s/Paul S. Lindsey, Jr.
Paul S. Lindsey, Jr. Director April 29, 1994
/s/Stephen R. Plaster
Stephen R. Plaster Director April 29, 1994
</TABLE>

II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES

Board of Directors and Stockholders
Empire Gas Corporation
Lebanon, Missouri

In connection with our audit of the financial statements of EMPIRE GAS
CORPORATION (FORMERLY EMPIRE GAS ACQUISITION CORPORATION) for each of the three
years in the period ended June 30, 1993, we have also audited the following
financial statement schedules. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion of these financial statement schedules based on our audits of the basic
financial statements. The schedules are presented for purposes of complying with
the Securities and Exchange Commission's rules and regulations and are not a
required part of the consolidated financial statements.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.

BAIRD, KURTZ & DOBSON

Springfield, Missouri
July 30, 1993

S-1
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY AND EQUIPMENT
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)

<TABLE>
<CAPTION>
COL. B COL. F
---------- COL. C ----------
COL. A BALANCE AT ----------- COL. D COL. E BALANCE AT
- ------------------------------------------------------- BEGINNING ADDITIONS ----------- --------- END OF
CLASSIFICATION OF YEAR AT COST RETIREMENTS OTHER YEAR
- ------------------------------------------------------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1993:
Land and buildings................................... $ 11,821 $ 884 $ 490 $ 12,215
Storage and consumer service facilities.............. 113,450 1,520 1,149 113,821
Transportation, office and other equipment........... 24,245 1,954 649 25,550
---------- ----------- ----------- ----------
$ 149,516 $ 4,358 $ 2,288 $ 151,586
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Year Ended June 30, 1992:
Land and buildings................................... $ 10,781 $ 1,381 $ 341 $ 11,821
Storage and consumer service facilities.............. 113,343 2,058 1,951 113,450
Transportation, office and other equipment........... 22,765 3,264 1,784 24,245
---------- ----------- ----------- ----------
$ 146,889 $ 6,703 $ 4,076 $ 149,516
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Year Ended June 30, 1991:
Land and buildings................................... $ 9,457 $ 1,439 $ 115 $ 10,781
Storage and consumer service facilities.............. 111,646 2,651 954 113,343
Transportation, office and other equipment........... 20,150 4,723 2,108 22,765
---------- ----------- ----------- ----------
$ 141,253 $ 8,813 $ 3,177 $ 146,889
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>

S-2
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)

<TABLE>
<CAPTION>
COL. C
COL. B ----------- COL. F
----------- ADDITIONS -----------
COL. A BALANCE AT CHARGED TO COL. D COL. E BALANCE AT
- ------------------------------------------------------ BEGINNING COSTS AND ----------- --------- END OF
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS OTHER YEAR
- ------------------------------------------------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1993:
Buildings........................................... $ 1,444 $ 332 $ 73 $ 1,703
Storage and consumer service facilities............. 19,536 5,529 631 24,434
Transportation, office and other equipment.......... 13,075 3,143 449 15,769
----------- ----------- ----------- -----------
$ 34,055 $ 9,004 $ 1,153 $ 41,906
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year Ended June 30, 1992:
Buildings........................................... $ 1,172 $ 302 $ 30 $ 1,444
Storage and consumer service facilities............. 14,751 5,473 688 19,536
Transportation, office and other equipment.......... 11,378 3,014 1,317 13,075
----------- ----------- ----------- -----------
$ 27,301 $ 8,789 $ 2,035 $ 34,055
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year Ended June 30, 1991:
Buildings........................................... $ 928 $ 260 $ 16 $ 1,172
Storage and consumer service facilities............. 9,710 5,316 275 14,751
Transportation, office and other equipment.......... 10,828 2,687 2,137 11,378
----------- ----------- ----------- -----------
$ 21,466 $ 8,263 $ 2,428 $ 27,301
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

S-3
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO AMOUNT BALANCE AT
BEGINNING COSTS AND WRITTEN END OF
DESCRIPTION OF YEAR EXPENSES OFF YEAR
- ------------------------------------------------------------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Valuation accounts deducted from assets to which they apply -- for
doubtful accounts receivable:
June 30, 1993.................................................... $ 2,720 $ 958 $ 1,021 $ 2,657
June 30, 1992.................................................... 2,719 214 213 2,720
June 30, 1991.................................................... 1,648 2,828 1,757 2,719
</TABLE>

S-4
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)

<TABLE>
<CAPTION>
COL. B
-----------
COL. A CHARGED TO
- ------------------------------------------------------------------------------------------------------ COSTS AND
ITEM EXPENSES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
June 30, 1993:
Maintenance and repairs............................................................................. $ 2,963
June 30, 1992:
Maintenance and repairs............................................................................. $ 3,070
June 30, 1991:
Maintenance and repairs............................................................................. $ 3,806
</TABLE>

S-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
4.2 Form of Proposed Indenture between the Company and Shawmut Bank Connecticut, National
Association, Trustee, relating to the % Senior Secured Notes due 2004, including the form
of % Senior Secured Notes due 2004.........................................................
23.1 Consent of Baird, Kurtz & Dobson................................................................
23.3 Consent of Douglas A. Brown to being named as a director........................................
24.1 Power of Attorney, located on signature page....................................................
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1...............................
</TABLE>
<PAGE>

DESCRIPTION OF GRAPHIC:

Inside front cover

Map of the United States showing the locations of retail service centers, bulk
storage facilities, transport terminals, rail terminals, underground storage,
pipeline terminals and home office (on a pro form basis for the Transaction).

Page 39

Illustration showing movement of propane from refinery or gas processing plant
to retail distriubtion center by rail, pipeline or truck, and then on to
residential, commercial and agricultural users.

<PAGE>

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

EMPIRE GAS CORPORATION

and

SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, Trustee

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

Indenture

Dated as of __________, 1994

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

$___,000,000 Principal Amount at Maturity

Senior Secured Notes Due 2004

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

<PAGE>

CROSS-REFERENCE TABLE

INDENTURE
TIA SECTION SECTION
- ----------- ---------

310 (a)(1).................................................... 6.10
(a)(2).................................................... 6.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... 6.10
(b)....................................................... 6.8; 6.10;
11.2
(c)....................................................... N.A.
311 (a)....................................................... 6.11
(b)....................................................... 6.11
(c)....................................................... N.A.
312 (a)....................................................... 2.5
(b)....................................................... 11.3
(c)....................................................... 11.3
313 (a)....................................................... 6.6
(b)(1).................................................... N.A.
(b)(2).................................................... 6.6
(c)....................................................... 6.6
(d)....................................................... 6.6
314 (a)(1).................................................... 3.10; 11.2
(a)(2).................................................... 3.10; 11.2
(a)(3).................................................... 3.10; 11.2
(a)(4).................................................... 3.9
(b)....................................................... 10.2
(c)(1).................................................... 10.6; 11.4
(c)(2).................................................... 10.6; 11.4
(c)(3).................................................... N.A.
(d)....................................................... 10.6;
(e)....................................................... 11.5
(f)....................................................... N.A.
315 (a)....................................................... 6.1(b)
(b)....................................................... 6.5; 11.2
(c)....................................................... 6.1(a)
(d)....................................................... 6.1(c)
(e)....................................................... 5.11
316 (a) (last sentence)....................................... 2.9
(a)(1)(A)................................................. 5.5
(a)(1)(B)................................................. 5.4
(a)(2).................................................... N.A.
(b)....................................................... 5.7
(c)....................................................... 8.7
317 (a)(1).................................................... 5.8
(a)(2).................................................... 5.9
(b)....................................................... 2.4
318 (a)....................................................... 11.1

________________

N.A. means not applicable.

<PAGE>

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 Definitions................................................ 1
SECTION 1.2 Other Definitions......................................... 25
SECTION 1.3 Incorporation by Reference of
Trust Indenture Act..................................... 26
SECTION 1.4 Rules of Construction..................................... 27

ARTICLE II

THE SECURITIES

SECTION 2.1 Form and Dating........................................... 28
SECTION 2.2 Execution and Authentication.............................. 28
SECTION 2.3 Registrar and Paying Agent................................ 29
SECTION 2.4 Paying Agent To Hold Money in Trust....................... 30
SECTION 2.5 Securityholder Lists...................................... 31
SECTION 2.6 Transfer and Exchange..................................... 31
SECTION 2.7 Replacement Securities.................................... 33
SECTION 2.8 Outstanding Securities.................................... 34
SECTION 2.9 Determination of Holders' Action.......................... 35
SECTION 2.10 Temporary Securities...................................... 35
SECTION 2.11 Cancellation.............................................. 35
SECTION 2.12 Defaulted Interest........................................ 36

ARTICLE III

COVENANTS

SECTION 3.1 Payment of Securities..................................... 36
SECTION 3.2 Maintenance of Office or Agency........................... 36
SECTION 3.3 Limitation on Restricted Payments......................... 37
SECTION 3.4 Limitation on Incurrence of Indebtedness.................. 42
SECTION 3.5 Limitation on Payment Restrictions
Affecting Subsidiaries...................................43
SECTION 3.6 Limitation on Sale/Leaseback Transactions..................45
SECTION 3.7 Limitation on Liens........................................43
SECTION 3.8 Change of Control......................................... 48
SECTION 3.9 Compliance Certificate.................................... 50
SECTION 3.10 SEC Reports............................................... 51
SECTION 3.11 Transactions with Affiliates.............................. 51
SECTION 3.12 Sales of Assets........................................... 52
SECTION 3.13 Corporate Existence....................................... 57
SECTION 3.14 Payment of Taxes and Other Claims......................... 58
SECTION 3.15 Notice of Defaults and Other Events....................... 58
SECTION 3.16 Maintenance of Properties and Insurance................... 58
SECTION 3.17 Limitation on Issuance of Capital Stock
and Incurrence of Indebtedness of
Restricted Subsidiaries................................. 59
SECTION 3.18 Limitation on Changes in the Nature of
the Business.............................................59

<PAGE>

ARTICLE IV

CONSOLIDATION, MERGER AND SALE

SECTION 4.1 Merger and Consolidation of Company....................... 60
SECTION 4.2 Successor Substituted..................................... 62

ARTICLE V

DEFAULTS AND REMEDIES

SECTION 5.1 Events of Default......................................... 62
SECTION 5.2 Acceleration.............................................. 65
SECTION 5.3 Other Remedies............................................ 66
SECTION 5.4 Waiver of Past Defaults................................... 66
SECTION 5.5 Control by Majority....................................... 67
SECTION 5.6 Limitation on Suits....................................... 67
SECTION 5.7 Rights of Holders To Receive Payment...................... 68
SECTION 5.8 Collection Suit by Trustee................................ 68
SECTION 5.9 Trustee May File Proofs of Claim.......................... 68
SECTION 5.10 Priorities................................................ 69
SECTION 5.11 Undertaking for Costs..................................... 70
SECTION 5.12 Waiver of Stay or Extension Laws.......................... 70

ARTICLE VI

TRUSTEE

SECTION 6.1 Duties of Trustee......................................... 70
SECTION 6.2 Rights of Trustee......................................... 72
SECTION 6.3 Individual Rights of Trustee.............................. 73
SECTION 6.4 Trustee's Disclaimer...................................... 73
SECTION 6.5 Notice of Defaults........................................ 73
SECTION 6.6 Reports by Trustee to Holders............................. 73
SECTION 6.7 Compensation and Indemnity................................ 74
SECTION 6.8 Replacement of Trustee.................................... 75
SECTION 6.9 Successor Trustee by Merger, etc.......................... 76
SECTION 6.10 Eligibility; Disqualification............................. 76
SECTION 6.11 Preferential Collection of Claims Against
Company................................................. 77

ARTICLE VII

SATISFACTION AND DISCHARGE OF INDENTURE

SECTION 7.1 Discharge of Liability on Securities;
Defeasance.............................................. 77
SECTION 7.2 Termination of Company's Obligations...................... 77
SECTION 7.3 Defeasance and Discharge of Indenture..................... 78
SECTION 7.4 Defeasance of Certain Obligations......................... 82
SECTION 7.5 Application of Trust Money................................ 84
SECTION 7.6 Repayment to Company...................................... 84
SECTION 7.7 Reinstatement............................................. 85

<PAGE>

ARTICLE VIII

AMENDMENTS AND SUPPLEMENTS

SECTION 8.1 Without Consent of Holders................................ 85
SECTION 8.2 With Consent of Holders................................... 86
SECTION 8.3 Compliance with Trust Indenture Act....................... 87
SECTION 8.4 Revocation and Effect of Consents......................... 87
SECTION 8.5 Notation on or Exchange of Securities..................... 88
SECTION 8.6 Trustee To Sign Amendments................................ 88
SECTION 8.7 Fixing of Record Dates.................................... 88

ARTICLE IX

REDEMPTION

SECTION 9.1 Notices to Trustee........................................ 89
SECTION 9.2 Selection of Securities To Be Redeemed.................... 89
SECTION 9.3 Notice of Redemption...................................... 90
SECTION 9.4 Effect of Notice of Redemption............................ 91
SECTION 9.5 Deposit of Redemption Price............................... 91
SECTION 9.6 Securities Redeemed in Part............................... 91

ARTICLE X

SECURITY AND PLEDGE OF COLLATERAL

SECTION 10.1 Collateral Documents...................................... 92
SECTION 10.2 Recording and Opinions.................................... 93
SECTION 10.3 Remedies Upon an Event of Default......................... 93
SECTION 10.4 Release of the Collateral................................. 93
SECTION 10.5 Purchase of Securities with Net Available Cash............ 95
SECTION 10.6 Certificates of Company................................... 97
SECTION 10.7 Authorization of Actions to be Taken by the
Trustee Under the Pledge Agreement.........................98

ARTICLE XI

MISCELLANEOUS

SECTION 11.1 Trust Indenture Act Controls...............................98
SECTION 11.2 Notice.................................................... 99
SECTION 11.3 Communication by Holders with Other Holders............... 99
SECTION 11.4 Certificate and Opinion as to Conditions Precedent....... 100
SECTION 11.5 Statements Required in Certificate or Opinion............ 100
SECTION 11.6 Rules by Trustee and Agents.............................. 101
SECTION 11.7 Legal Holidays........................................... 101
SECTION 11.8 Successors; No Recourse Against Others................... 101
SECTION 11.9 Duplicate Originals...................................... 101
SECTION 11.10 Other Provisions......................................... 102
SECTION 11.11 Governing Law............................................ 102

SIGNATURES................................................................. 103
EXHIBIT A--FORM OF SECURITY.................................................A-1
EXHIBIT B--FORM OF SUBORDINATION PROVISIONS................................ B-1

iii

<PAGE>

EXHIBIT C -- PLEDGE AGREEMENT...............................................C-1

iv
<PAGE>

INDENTURE dated as of ___________, 1994, between Empire Gas
Corporation, a Missouri corporation (the "Company"), and Shawmut Bank
Connecticut, National Association, a Connecticut corporation (the "Trustee").

Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the holders of the Company's Senior
Secured Notes Due 2004:

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 DEFINITIONS.

"ACCRETED VALUE" means as of any date (the "specified date")
with respect to each $1,000 face amount of Securities, the following amount:

(i) if the specified date is one of the following dates
(each an "accrual date"), the amount set forth opposite such date below:

Accrual Date Accreted Value
------------ --------------
<S> <C>
______, 1994 . . . . . . . . . . . . _________
______, 1994 . . . . . . . . . . . . _________
______, 1995 . . . . . . . . . . . . _________
______, 1995 . . . . . . . . . . . . _________
______, 1996 . . . . . . . . . . . . _________
______, 1996 . . . . . . . . . . . . _________
______, 1997 . . . . . . . . . . . . _________
______, 1997 . . . . . . . . . . . . _________
______, 1998 . . . . . . . . . . . . _________
______, 1998 . . . . . . . . . . . . _________
______, 1999 . . . . . . . . . . . . $1,000;

</TABLE>

<PAGE>

number of days (not to exceed 180 days) from the immediately preceding
accrual date to the specified date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180 (or, if the immediately following
accrual date is _________, 1999,____); and

(iii) if the specified date occurs after ___, 1999,
$1,000.

"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing
at the time at which such Person became a Subsidiary and not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary.
Acquired Indebtedness shall be deemed to be Incurred on the date the acquired
Person becomes a Subsidiary.

"ADDITIONAL ASSETS" means (i) any property or assets related to
the Line of Business which will be owned and used by the Company or a
Restricted Subsidiary, (ii) the Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a
Restricted Subsidiary.

"ACQUISITION INDEBTEDNESS" means Indebtedness of a Restricted
Subsidiary incurred in connection with the acquisition of property or assets
related to the Line of Business which will be owned and used by the Company or
a Restricted Subsidiary, which Indebtedness is without recourse to the Company
or any other Restricted Subsidiary.

"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person. For the purposes of this
definition, "control," when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Sections 3.11 and 3.12 only, "Affiliate" shall
also mean any beneficial owner of 5% or more of the total Voting Shares (on a
Fully Diluted Basis) of the

<PAGE>

Company or of rights or warrants to purchase such stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof. For purposes of
Section 3.3, "Affiliate" shall also mean any Person of which the Company owns
5% or more of any class of Capital Stock or rights to acquire 5% or more of
any class of Capital Stock and any Person who would be an Affiliate of any
such Person pursuant to the first sentence hereof.

"AGENT" means any Registrar, Paying Agent or co-registrar.

"ASSET SALE" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale/leaseback transactions, but
excluding (except as provided for in the last paragraph of Section 3.12(b))
those permitted by Article IV hereof) in one or a series of transactions by
the Company or any Restricted Subsidiary to any Person other than the Company
or any Wholly Owned Subsidiary, of (i) all or any of the Capital Stock of the
Company or any Restricted Subsidiary, (ii) all or substantially all of the
assets of any operating unit, or line of business of the Company or any
Restricted Subsidiary or (iii) any other property or assets or rights to
acquire property or assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary.

"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).

"AVERAGE LIFE" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of (A) the numbers of years from the date
of determination to the dates of each successive scheduled principal payment
of such Indebtedness or scheduled redemption or similar payment with respect
to such Indebtedness or Preferred Stock multiplied by (B) the

<PAGE>

amount of such payment by (ii) the sum of all such payments.

"BASIC AGREEMENTS" means (i) the Stock Redemption Agreement,
dated _________ __, 1994, among the Company, Energy, Mr. Lindsey, Mr. Robert
Plaster and the other parties named therein; (ii) the Services Agreement,
dated ________ __, 1994, between the Company and Empire Service Corp.; (iii)
the Lease Agreement, dated ___________ ___, 1994, among the Company and
Evergreen National Corporation and (iv) the Non-Competition Agreement, dated
__________ __, 1994, among the Company, Energy, Paul Lindsey, Robert Plaster,
Stephen Plaster and Joseph Schaefer.

"BOARD OF DIRECTORS" means the Board of Directors of the Company
or any authorized committee thereof.

"BUSINESS DAY" means each day which is not a Legal Holiday.

"CAPITAL STOCK" means any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation or any and all equivalent ownership interests in a Person (other
than a corporation).

"CAPITALIZED LEASE" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in
conformity with GAAP, is required to be capitalized on the balance sheet of
such Person; the Stated Maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which the lease may be terminated by the lessee without payment of a penalty;
and "Capitalized Lease Obligations" means the rental obligations, as
aforesaid, under such lease.

<PAGE>

used in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes
of this clause (i) a person shall be deemed to have beneficial ownership of
all shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 30% of the total Voting Shares of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning
of such period constituted the Board of Directors together with any new
directors whose election by the Board of Directors or whose nomination for
election by the stockholders was approved by a vote of 66-2/3% of the
directors of such person then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved cease for any reason to constitute a majority of the
Board of Directors then in office; (iii) all or substantially all of the
Company's and its Restricted Subsidiaries' assets are sold, leased, exchanged
or otherwise transferred to any Person or group of Persons acting in concert;
(iv) the Company is liquidated or dissolved or adopts a plan of liquidation;
(v) prior to the occurrence of a Public Market, the Management Group ceases in
the aggregate to beneficially own, directly or indirectly, at least 50% in the
aggregate of the total voting power of the Voting Shares of the Company; or
(vi) at any time prior to the occurrence of a Change of Control pursuant to
clauses (i) to (v) of this definition as a result of which a Change of Control
Offer was made, (A) the failure of the Company for a period of greater than 90
days in any 12 month period to continuously maintain (following the 6 month
anniversary of the Offering) on its Board of Directors at least two Outside
Directors, (B) the failure of the Company for a period of greater than 90 days
in any 12 month period to continuously maintain an audit committee of its
Board of Directors consisting solely of Outside Directors or (C) the Board of
Directors consists of greater than seven members; PROVIDED, HOWEVER, that
upon the occurrence of any of the events in this item (vi) the Company shall
notify the Trustee of such occurrence.

"CODE" means the Internal Revenue Code of 1986, as amended.

<PAGE>

"COLLATERAL" means the collateral securing the Obligations of
the Company hereunder as defined in the Pledge Agreement.

"COLLATERAL ACCOUNT" means an account subject to a first
priority perfected Lien in favor of the Trustee, the funds of which shall be
invested at the direction of the Trustee in Temporary Cash Investments.

"COMPANY" means the party named as such in the Indenture until a
successor replaces it pursuant to the terms and conditions of the Indenture
and thereafter means the successor.

<PAGE>

continue to be liable as a result of any such Asset Sale or which is repaid,
redeemed, defeased, discharged or otherwise retired in connection with or with
the proceeds of the assets or Capital Stock which are the subject of such
Asset Sales for such period; and PROVIDED, FURTHER, that if the Company or
any Restricted Subsidiary shall have made any acquisition of assets or Capital
Stock (occurring by merger or otherwise) since the beginning of such period
(including any acquisition of assets or Capital Stock occurring in connection
with a transaction causing a calculation to be made hereunder) the EBITDA and
Consolidated Interest Expense for such period shall be calculated, after
giving pro forma effect thereto (and without regard to clause (iv) of the
proviso to the definition of "Consolidated Net Income"), as if such
acquisition of assets or Capital Stock took place on the first day of such
period. For all purposes of this definition, if the date of determination
occurs prior to the completion of the first four full fiscal quarters
following the Issue Date, then "EBITDA" and "Consolidated Interest Expense"
shall be calculated after giving effect on a pro forma basis to the Offering
as if the Offering occurred on the first day of the four full fiscal quarters
that were completed preceding such date of determination.

"CONSOLIDATED CURRENT LIABILITIES," as of the date of
determination, means the aggregate amount of liabilities of the Company and
its Consolidated Restricted Subsidiaries which may properly be classified as
current liabilities (including taxes accrued as estimated), after eliminating
(i) all inter-company items between the Company and any Subsidiary and (ii)
all current maturities of long-term Indebtedness, all as determined in
accordance with GAAP.

"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, as
applied to the Company, the provision for local, state, federal or foreign
income taxes on a Consolidated basis for such period determined in accordance
with GAAP.

<PAGE>

(i) amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting, and amortization of debt
issuance costs (other than issuance costs with regard to the Offering, the
execution of the New Credit Facility and the related transactions occurring
simultaneously therewith), (ii) accrued interest, (iii) noncash interest
payments, (iv) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (v) interest
actually paid by the Company or any such Subsidiary under any guarantee of
Indebtedness or other obligation of any other Person and (vi) net costs
associated with Interest Rate Agreements (including amortization of discounts)
and Currency Agreements, plus (b) all but the principal component of rentals
in respect of Capitalized Lease Obligations paid, accrued, or scheduled to be
paid or accrued by the Company or its Consolidated Restricted Subsidiaries,
plus (c) one-third of all Operating Lease Obligations paid, accrued and/or
scheduled to be paid by the Company and its Consolidated Restricted
Subsidiaries, plus (d) amortization of capitalized interest, plus (e)
dividends paid in respect of Preferred Stock of the Company or any Restricted
Subsidiary held by Persons other than the Company or a Wholly Owned
Subsidiary, plus (f) cash contributions to any employee stock ownership plan
to the extent such contributions are used by such employee stock ownership
plan to pay interest or fees to any person (other than the Company or a
Restricted Subsidiary) in connection with loans incurred by such employee
stock ownership plan to purchase Capital Stock of the Company.

<PAGE>

or a Restricted Subsidiary as a dividend or other distribution and (B) the
equity of the Company or a Restricted Subsidiary in a net loss of any such
Person for such period shall be included in determining Consolidated Net
Income (Loss); (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such income is not at the time thereof permitted,
directly or indirectly, by operation of the terms of its charter or by-laws or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary or its
stockholders; (iv) any net income (or loss) of any Person combined with the
Company or any of its Restricted Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of such combination; (v)
any gain or loss realized upon the sale or other disposition of any property,
plant or equipment of the Company or its Restricted Subsidiaries (including
pursuant to any sale/leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (but not loss)
realized upon the sale or other disposition by the Company or any Restricted
Subsidiary of any Capital Stock of any Person; and (vi) the cumulative effect
of a change in accounting principles; and further adjusted by subtracting from
such net income the tax liability of any parent of the Company to the extent
of payments made to such parent by the Company pursuant to any tax sharing
agreement or other arrangement for such period.

"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of
determination, as applied to the Company, the total amount of assets (less
accumulated depreciation or amortization, allowances for doubtful receivables,
other applicable reserves and other properly deductible items) which would
appear on a Consolidated balance sheet of the Company and its Consolidated
Restricted Subsidiaries, determined on a Consolidated basis in accordance with
GAAP, and after giving effect to purchase accounting and after deducting
therefrom, to the extent otherwise included, the amounts of: (i) Consolidated
Current Liabilities; (ii) minority interests in Consolidated Subsidiaries held
by Persons other than the Company or a Restricted Subsidiary; (iii) excess of
cost over fair value of assets of businesses acquired, as determined in good
faith by the Board of Directors; (iv) any revaluation or

<PAGE>

other write-up in value of assets subsequent to December 31, 1993 as a result
of a change in the method of valuation in accordance with GAAP; (v)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights,
licenses, organization or developmental expenses and other intangible items;
(vi) treasury stock; and (vii) any cash set apart and held in a sinking or
other analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities.

"CONSOLIDATED NET WORTH" means, at any date of determination, as
applied to the Company, stockholders' equity as set forth on the most recently
available Consolidated balance sheet of the Company and its Consolidated
Restricted Subsidiaries (which shall be as of a date no more than 60 days
prior to the date of such computation), less any amounts attributable to
Redeemable Stock or Exchangeable Stock, the cost of treasury stock and the
principal amount of any promissory notes receivable from the sale of Capital
Stock of the Company or any Subsidiary.

"CONSOLIDATION" means, with respect to any Person, the
consolidation of accounts of such Person and each of its subsidiaries if and
to the extent the accounts of such Person and such subsidiaries are
consolidated in accordance with GAAP. The term "Consolidated" shall have a
correlative meaning.

"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
currency values to or under which the Company or any Restricted Subsidiary is
a party or a beneficiary on the Issue Date or becomes a party or beneficiary
thereafter.

"DEFAULT" means any event which is, or after notice or passage
of time or both would be, an Event of Default.

"DEPOSITARY" means The Depositary Trust Company, its nominees,
and their respective successors until a successor Depositary shall have become
such pursuant to

<PAGE>

the applicable provisions of this Indenture and thereafter "Depositary" shall
mean or include each Person who is then a Depositary hereunder.

"DOMESTIC SUBSIDIARY" means a Restricted Subsidiary that is not
a Foreign Subsidiary.

"DEFAULTED INTEREST" means any interest on any Security which is
payable, but is not punctually paid or duly provided for on any Interest
Payment Date.

"EBITDA" means, for any period, as applied to the Company, the
sum of Consolidated Net Income (Loss) (but without giving effect to
adjustments, accruals, deductions or entries resulting from purchase
accounting, extraordinary losses or gains and any gains or losses from any
Asset Sales), plus the following to the extent included in calculating
Consolidated Net Income (Loss): (a) Consolidated Income Tax Expense, (b)
Consolidated Interest Expense, (c) depreciation expense and (d) amortization
expense, in each case for such period; PROVIDED that, if the Company has any
Subsidiary that is not a Wholly Owned Subsidiary, EBITDA shall be reduced (to
the extent not otherwise reduced by GAAP) by an amount equal to (A) the
consolidated net income (loss) of such Subsidiary (to the extent included in
Consolidated Net Income (Loss)) multiplied by (B) the quotient of (1) the
number of shares of outstanding common stock of such Subsidiary not owned on
the last day of such period by the Company or any Wholly Owned Subsidiary of
the Company divided by (2) the total number of shares of outstanding common
stock of such Subsidiary on the last day of such period.

"ENERGY" means Empire Energy Corporation, a Missouri
corporation.

"EXCESS PAYMENTS" means any amounts paid in respect of salary,
bonus, insurance or annuity premiums, or other payments or contributions to
any employee benefit, severance, retirement, stock ownership or stock purchase
plan or program or any similar plan or arrangement, to, or for the benefit of,
a Lindsey Entity in excess of the lesser of (A) the aggregate scheduled
amounts of any such payments as set forth in the Employment Agreements between
each of Paul Lindsey and Kristen Lindsey, on the one hand, and the Company or
the other hand, each dated as of _______, 1994, as they may be

<PAGE>

amended from time to time and (B) an aggregate of $1,000,000.

"EXCHANGEABLE STOCK" means any Capital Stock which by its terms
is exchangeable or convertible at the option of any Person other than the
Company into another security (other than Capital Stock of the Company which
is neither Exchangeable Stock nor Redeemable Stock).

"FAIR VALUE" of any property shall mean its fair value as of a
date not more than 90 days prior to the date of the certificate relating
thereto, such Fair Value to be determined in any case as if such property were
free of Liens securing Indebtedness, if any.

"FOREIGN ASSET SALE" means an Asset Sale in respect of the
Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of
the type described in Section 936 of the Code to the extent that the proceeds
of such Asset Sale are received by a Person subject in respect of such
proceeds to the tax laws of a jurisdiction other than the United States of
America or any State thereof or the District of Columbia.

"FOREIGN SUBSIDIARY" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States of America or a
State thereof or the District of Columbia.

"FULLY DILUTED BASIS" means after giving effect to the exercise
of any outstanding options, warrants or rights to purchase Voting Shares and
the conversion or exchange of any securities convertible into or exchangeable
for Voting Shares.

"GAAP" means generally accepted accounting principles in the
United States of America as in effect and, to the extent optional, adopted by
the Company on the Issue Date, consistently applied, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board.

"GUARANTEE" means, as applied to any obligation, contingent or
otherwise, of any Person, (i) a

<PAGE>

guarantee, direct or indirect, in any manner, of any part or all of such
obligation (other than by endorsement of negotiable instruments for collection
in the ordinary course of business) and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to insure in any way
the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including the payment
of amounts drawn down under letters of credit.

"HOLDER" or "SECURITYHOLDER" means the Person in whose name a
Security is registered on the Registrar's books.

"INCUR" means, as applied to any obligation, to create, incur,
issue, assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "INCURRED," "INCURRENCE"
and "INCURRING" shall each have a correlative meaning; PROVIDED,
HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the
time such Person becomes (after the Issue Date) a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Subsidiary at the time it becomes a Subsidiary; and
PROVIDED, FURTHER, that any amendment, modification or waiver of any
provision of any document pursuant to which Indebtedness was previously
Incurred shall not be deemed to be an Incurrence of Indebtedness as long as
(i) such amendment, modification or waiver does not (A) increase the principal
or premium thereof or interest rate thereon, (B) change to an earlier date the
Stated Maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under which such Indebtedness may
or shall be redeemed, (C) if such Indebtedness is contractually subordinated
in right of payment to the Securities, modify or affect, in any manner adverse
to the Holders, such subordination, (D) if the Company is the obligor thereon,
provide that a Restricted Subsidiary shall be an obligor, or (E) violate, or
cause the Indebtedness to violate, the provisions of Sections 3.5 or 3.7 and
(ii) such Indebtedness would, after giving effect to such amendment,
modification or waiver as if it were an Incurrence, comply with clause (i) of
the first proviso to the definition of "Refinancing Indebtedness."

<PAGE>

"INDEBTEDNESS" of any Person means, without duplication, (i) the
principal of and premium (if any such premium is then due and owing) in
respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(ii) all Capitalized Lease Obligations of such Person; (iii) all obligations
of such Person Incurred as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement; (iv) all obligations of such Person for
the reimbursement of any obligor on any letter of credit, banker's acceptance
or similar credit transaction (other- than obligations with respect to letters
of credit securing obligations (other than obligations described in (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to
the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations
of such Person with respect to the scheduled redemption, repayment or other
repurchase of any Redeemable Stock and, in the case of any Subsidiary, with
respect to any other Preferred Stock (but excluding in each case any accrued
dividends); (vi) all obligations of other Persons and all dividends of other
Persons for the payment of which, in either case, such Person is responsible
or liable, directly or indirectly, as obligor, guarantor or otherwise,
including by means of any guarantee; (vii) all liabilities or other
obligations, contingent or otherwise, purchased, assumed or with respect to
which such Person shall otherwise become liable or responsible in connection
with the purchase, acquisition or assumption of property, services or business
operations to the extent reflected on the balance sheet of such Person in
accordance with GAAP; (viii) contractual obligations to repurchase goods sold
or distributed; (ix) all obligations of such Person in respect of Interest
Rate Agreements and Currency Agreements; and (x) all obligations of the type
referred to in clauses (i) through (ix) of other Persons secured by any Lien
on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of

<PAGE>

the obligation so secured; PROVIDED, HOWEVER, that Indebtedness shall not
include trade accounts payable arising in the ordinary course of business.
The amount of Indebtedness of any Person at any date shall be, with respect to
unconditional obligations, the outstanding balance at such date of all such
obligations as described above and, with respect to any contingent obligations
(other than pursuant to clause (vii) above, which shall be included to the
extent reflected on the balance sheet of such Person in accordance with GAAP)
at such date, the maximum liability determined by such Person's board of
directors, in good faith, as, in light of the facts and circumstances existing
at the time, reasonably likely to be Incurred upon the occurrence of the
contingency giving rise to such obligation.

"INTEREST PAYMENT DATE" means the stated maturity of an
installment of interest on the Securities.

"INTEREST RATE AGREEMENT" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect against fluctuations in interest rates to or
under which the Company or any of its Restricted Subsidiaries is a party or
beneficiary on the Issue Date or becomes a party or beneficiary thereafter.

"INVESTMENT" means, with respect to any Person, any direct or
indirect advance, loan (other than advances to customers who are not
Affiliates in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of such Person or its Subsidiaries) or other
extension of credit or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any other investment in any other Person, or
any purchase or acquisition by such Person of any Capital Stock, bonds, notes,
debentures or other securities or assets issued or owned by any other Person
(whether by merger, consolidation, amalgamation, sale of assets or otherwise).
For purposes of the definition of "Unrestricted Subsidiary" and the provisions
set forth in Section 3.3, (i) "Investment" shall include the portion
(proportionate to the Company's

<PAGE>

equity interest in such Subsidiary) of the fair market value of the net assets
of any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.

"ISSUE DATE" means the date on which the Securities are
originally issued under the Indenture.

"LIEN" means any mortgage, lien, pledge, charge, hypothecation,
assignment, claim, option, priority, preferential arrangement of any kind or
nature or other security interest or encumbrance of any kind or nature
(including any conditional sale or other title retention agreement and any
lease in the nature thereof).

"LINDSEY ENTITY" means Paul S. Lindsey, Jr., Kristen L. Lindsey
any member of their family and any Person of which any of the foregoing
Persons are Affiliates.

"LINE OF BUSINESS" means the sale and distribution of propane
gas and operations related thereto.

"MANAGEMENT GROUP" means, collectively, (i) those individuals
who beneficially own, directly or indirectly, Voting Shares of the Company or
any successor thereto immediately following the consummation of the Offering
and the transactions related thereto and are members of management of the
Company or any of it Subsidiaries of the Company (or the estate or any
beneficiary of any such individual or any immediate family member of any such
individual or any trust established for the benefit of any such individual or
immediate family member).

<PAGE>

principal pursuant to a note or installment receivable or otherwise, but only
as or when received and also including the proceeds of other property received
when converted to cash or cash equivalents) net of the sum of, without
duplication, (i) all reasonable legal, title and recording tax expenses,
reasonable commissions, and other reasonable fees and expenses incurred
directly relating to such Asset Sale or Collateral Sale, (ii) provision for
all local, state, federal and foreign taxes expected to be paid (whether or
not such taxes are actually paid or payable) as a consequence of such Asset
Sale or Collateral Sale, without regard to the consolidated results of the
Company and its Subsidiaries, (iii) payments made to repay Indebtedness which
is secured by any assets subject to such Asset Sale or Collateral Sale in
accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or by applicable
law, be repaid out of the proceeds from such Asset Sale or Collateral Sale,
and (iv) reasonable amounts reserved by the Company or any Subsidiary of the
Company receiving proceeds of such Asset Sale or Collateral Sale against any
liabilities associated with such Asset Sale or Collateral Sale, including
without limitation, indemnification obligations PROVIDED that, such amounts
shall be applied as described in Section 3.12 or Section 10.4, as the case may
be, no later than the fifth anniversary of such Asset Sale or Collateral Sale
if not previously paid to satisfy such liabilities and PROVIDED FURTHER
that such amounts shall not exceed 10% of the payments received by the Company
or a Subsidiary in connection with such Asset Sale or Collateral Sale.

"NET CASH PROCEEDS" means, with respect to any issuance or sale
of Capital Stock by any Person, the cash proceeds to such Person of such
issuance or sale net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultancy
and other fees actually incurred by such Person in connection with such
issuance or sale and net of taxes paid or payable by such Person as a result
thereof.

"NEW CREDIT FACILITY" means the credit facility provided pursuant
to the credit agreement, dated as of _________ __, 1994, between the Company
and Continental Bank, N.A.

<PAGE>

"NON-CONVERTIBLE CAPITAL STOCK" means, with respect to any
corporation, any Capital Stock of such corporation which is not convertible
into another security other than non-convertible common stock of such
corporation; PROVIDED, HOWEVER, that Non-Convertible Capital Stock shall
not include any Redeemable Stock or Exchangeable Stock.

"OFFERING" means the public offering and sale of the Securities.

"OFFICER" means the Chairman, the President, any Vice President,
the Chief Operating Officer, the Chief Financial Officer, the Treasurer, the
Secretary, any Assistant Treasurer, any Assistant Secretary or the Controller
of the Company.

"OFFICERS' CERTIFICATE" means a certificate signed by two
Officers, one of whom must be the President, the Treasurer or a Vice President
of the Company. Each Officers' Certificate (other than certificates provided
pursuant to TIA Section 314(a)(4)) shall include the statements provided for
in TIA Section 314(e).

"OPERATING LEASE OBLIGATIONS" means any obligation of the
Company and its Restricted Subsidiaries on a Consolidated basis incurred or
assumed under or in connection with any lease of real or personal property
which, in accordance with GAAP, is not required to be classified and accounted
for as a capital lease.

"OBLIGATIONS" means for any Person all principal, premium,
interest, penalties, expenses, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness of such Person.

"OPINION OF COUNSEL" means a written opinion from legal counsel
who is acceptable to the Trustee. The counsel, if so acceptable, may be an
employee of or counsel to the Company or the Trustee. Each such Opinion of
Counsel shall include the statements provided for in TIA Section 314(e).

"OUTSIDE DIRECTOR" means any Person who is a member of the Board
of Directors who is not (i) an employee or Affiliate of the Company, any
Subsidiary of the

<PAGE>

Company or Energy, (ii) an employee or Affiliate of Holding Capital Group,
(iii) a Plaster Entity or a Lindsey Entity, or (iv) a Person who has engaged
in a transaction with the Company or any Subsidiary of the Company that would
be required to be disclosed under Item 13 of Form 10-K if such Person were a
director of a registrant under the Securities Exchange Act of 1934, as
amended.

"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.

"PLASTER ENTITY" means Robert W. Plaster, Stephen R. Plaster,
any member of each such individual's family, and any Person of which any of
the foregoing Persons are Affiliates.

"PLEDGE AGREEMENT" means that certain Pledge Agreement, dated as
of the date hereof, by the Company in favor of the Trustee, in the form
attached hereto as EXHIBIT C, as amended, supplemented and/or restated.

"PREFERRED STOCK", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution
of assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.

"PRINCIPAL" means, with respect to the Securities, the Accreted
Value of the Securities.

"PUBLIC EQUITY OFFERING" means an underwritten primary public
offering of equity securities of the Company pursuant to an effective
registration statement under the Securities Act.

"PUBLIC MARKET" shall be deemed to have occurred if (x) a Public
Equity Offering has been consummated and (y) at least 25% (for purposes of the
definition of "Change of Control") or 20% (for purposes of paragraph 5 of the
Securities attached hereto) of the total issued and outstanding common stock
of the Company has been distributed by means of an effective registra-

<PAGE>

tion statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.

"REDEEMABLE STOCK" means any class or series of Capital Stock of
any Person that (a) by its terms, by the terms of any security into which it
is convertible or exchangeable or otherwise is, or upon the happening of an
event or passage of time would be, required to be redeemed (in whole or in
part) on or prior to the first anniversary of the Stated Maturity of the
Securities, (b) is redeemable at the option of the holder thereof at any time
on or prior to the first anniversary of the Stated Maturity of the Securities
or (c) is convertible into or exchangeable for Capital Stock referred to in
clause (a) or clause (b) above or debt securities at any time prior to the
first anniversary of the Stated Maturity of the Securities.

"REFINANCING INDEBTEDNESS" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness of the Company
or a Restricted Subsidiary existing on the Issue Date or Incurred in
compliance with the Indenture (including Indebtedness of the Company that
refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any
Restricted Subsidiary that refinances Indebtedness of another Restricted
Subsidiary) including Indebtedness that refinances Refinancing Indebtedness;
PROVIDED, HOWEVER, that (i) the Refinancing Indebtedness shall be
contractually subordinated in right of payment to the Securities on terms at
least as favorable to the Holders of the Securities as the terms set forth in
the form of subordinated provisions attached hereto as Exhibit B, (ii) the
Refinancing Indebtedness shall be scheduled to mature either (a) no earlier
than the Indebtedness being refinanced or (b) after the Stated Maturity of the
Securities, (iii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (iv) such Refinancing
Indebtedness shall have an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then out-

20
<PAGE>

standing (plus fees and expenses, including any premium and defeasance costs)
under the Indebtedness being refinanced; and PROVIDED, FURTHER, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary of
the Company that refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.

"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that
is not designated an Unrestricted Subsidiary by the Board of Directors.

"SALE/LEASEBACK TRANSACTION" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Subsidiary
transfers such property to a Person and leases it back from such Person, other
than leases for a term of not more than 36 months or between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.

"SEC" means the Securities and Exchange Commission.

"SECURITIES" means all series of the Senior Secured Notes Due
2004 that are issued under and pursuant to the terms of this Indenture, as
amended or supplemented from time to time.

"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.

21
<PAGE>

Interest Rate Agreements and Currency Agreements entered into in respect
of any obligations described in clauses (i) and (ii) or (C) issued or assumed
as the deferred purchase price of property, and all conditional sale
obligations of the Company and all obligations of the Company under any title
retention agreement; (iv) all guarantees of the Company with respect to
obligations of other persons of the type referred to in clauses (ii) and (iii)
and with respect to the payment of dividends of other Persons; and (v) all
obligations of the Company consisting of modifications, renewals, extensions,
replacements and refundings of any obligations described in clauses (i), (ii),
(iii) or (iv); unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are subordinated in right of payment to the Securities, or any
other Indebtedness or obligation of the Company; PROVIDED, HOWEVER, that
Senior Indebtedness shall not be deemed to include (1) any obligation of the
Company to any Subsidiary, (2) any liability for Federal, state, local or
other taxes or (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities).

"SIGNIFICANT SUBSIDIARY" means any Subsidiary (other than an
Unrestricted Subsidiary) that would be a "Significant Subsidiary" of the
Company within the meaning of Rule 1-02 under Regulations S-X promulgated by
the SEC.

"STATED MATURITY" means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).

"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which
is contractually subordinated or junior in right of payment to the Securities
or any other Indebtedness of the Company.

"SUBSIDIARY" means, as applied to any Person, (i) a corporation,
at least a majority of whose Capital

22
<PAGE>

Stock with voting power, under ordinary circumstances, to elect a majority of
the board of directors of such corporation is at the time, directly or
indirectly, owned or controlled by such Person, by a Subsidiary or
Subsidiaries of such Person, or by such Person and a Subsidiary or
Subsidiaries of such Person or (ii) any other Person (other than a
corporation) in which such Person, a Subsidiary or Subsidiaries of such
Person, or such Person and a Subsidiary or Subsidiaries of such Person,
directly or indirectly, at the date of determination, has at least a majority
ownership interest. As of the date of this Indenture, the Subsidiaries of the
Company include, without limitation, PSNC __________.

"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date first above written.

"TEMPORARY CASH INVESTMENTS" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or
any agency thereof, in each case, maturing within 360 days of the date of
acquisition thereof, (ii) investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company (including the Trustee)
which is organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States having capital,
surplus and undivided profits aggregating in excess of $250,000,000 and whose
debt is rated "A" (or such similar equivalent rating) or higher by at least
one nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by an
registered broker dealer or mutual fund distributor,(iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 90 days after the date of acquisition, issued by
a corporation (other than an Affiliate or Subsidiary of the Company) organized
and in existence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the time
as of which

23
<PAGE>

any investment therein is made of "P-2" (or higher) according to Moody's
Investors Service, Inc. or "A-2" (or higher) according to Standard and Poor's
Corporation, (v) securities with maturities or six months or less from the
date of acquisition backed by standby or direct pay letters of credit issued
by any bank satisfying the requirements of clause (ii) above and (vi)
securities with maturities of six months or less from the date of acquisition
issued or fully Guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by Standard and Poor's Corporation or "A" by
Moody's Investors Service, Inc.

"TRUSTEE" means the party named as such above until a successor
replaces it and thereafter means the successor.

"TRUST OFFICER" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters or to whom any corporate
trust matter is referred because of that officer's knowledge of and
familiarity with the particular subject.

"UNIFORM COMMERCIAL CODE" means the New York Uniform Commercial
Code as in effect from time to time.

"UNRELATED BUSINESS" means any business other than the Line of
Business.

24
<PAGE>

giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness pursuant to Section 3.4(a) and (y) no Default or Event
of Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the respective Trustee by promptly
filing with the respective Trustee a copy of the board resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.

"U.S. GOVERNMENT OBLIGATIONS" means securities that are (i)
direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America the payment of which is unconditionally guaranteed as
a full faith and credit obligation by the United States of America, which, in
either case under clauses (i) or (ii) are not callable or redeemable before
the maturity thereof.

"U.S. SUBSIDIARY" means a Subsidiary organized under the laws of
any jurisdiction in the United States of America.

"VOTING SHARES," with respect to any corporation, means the
Capital Stock having the general voting power under ordinary circumstances to
elect at least a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of
any contingency).

"WHOLLY OWNED SUBSIDIARY" means a Subsidiary (other than an
Unrestricted Subsidiary) all the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly Owned Subsidiary.

SECTION 1.2 OTHER DEFINITIONS.

TERM DEFINED IN SECTION

"Additional Shares"..................................... 10.1
"Application Period"..................................... 3.12

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"Asset Sale Offer"....................................... 3.12
"Asset Sale Offer Amount"................................ 3.12
"Asset Sale Purchase Date"............................... 3.12
"Bankruptcy Law"......................................... 5.1
"Change of Control Offer"................................ 3.8
"Change of Control Purchase Date"........................ 3.8
"Collateral"............................................. 10.1
"Collateral Application Period".......................... 10.5
"Collateral Offer Period"................................ 10.5
"Collateral Sale"....................................... 10.5
"Collateral Sale Offer".................................. 10.5
"Collateral Sale Offer Amount"........................... 10.5
"Collateral Sale Purchase Date".......................... 10.5
"Custodian" ............................................ 10.5
"Event of Default"....................................... 5.1
"Global Securities"....................................... 2.1
"Legal Holiday".......................................... 11.7
"Offer Period"........................................... 3.12
"Paying Agent"........................................... 2.3
"Pledged Shares"......................................... 10.1
"Registrar".............................................. 2.3
"Replacement Assets"..................................... 10.5
"Restricted Payment" ................................... 3.3(a)
"Successor Corporation".................................. 4.1(a)

SECTION 1.3 INCORPORATION BY REFERENCE OF
TRUST INDENTURE ACT.

Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following
meanings:

"COMMISSION" means the SEC;

"INDENTURE SECURITIES" means the Securities;

"INDENTURE SECURITY HOLDER" means a Holder or Securityholder;

"INDENTURE TO BE QUALIFIED" means this Indenture;

"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee; and

26
<PAGE>

"OBLIGOR" on the indenture securities means the Company.

All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings assigned to them.

SECTION 1.4 RULES OF CONSTRUCTION.

Unless the context otherwise requires:

(a) a term has the meaning assigned to it;

(b) "generally accepted accounting principles" means, and any
accounting term not otherwise defined has the meaning assigned to it and shall
be construed in accordance with, GAAP;

(d) words in the singular include the plural, and in the plural
include the singular;

(e) provisions apply to successive events and transactions;

(f) "including" means including, without limitation;

(g) unsecured debt shall not be deemed to be subordinate or
junior to secured debt merely by virtue of its nature as unsecured debt;

(h) the principal amount of any non-interest bearing or other
discount security (other than the Securities) at any date shall be the
principal amount thereof that would be shown on a balance sheet of the issuer
dated such date prepared in accordance with generally accepted accounting
principles and accretion of principal on such security shall be deemed to be
the Incurrence of Indebtedness; and

(i) the principal amount (if any) of any Preferred Stock shall be
the greatest of (i) the stated value, (ii) the redemption price or (iii) the
liquidation preference of such Preferred Stock.

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<PAGE>

ARTICLE II

THE SECURITIES

SECTION 2.1 FORM AND DATING.

The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A annexed hereto, which is part
of this Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Security shall be dated
the date of its authentication.

The terms and provisions contained in the form of Security annexed
hereto as Exhibit A shall constitute, and are expressly made, a part of this
Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.

The Securities shall be issued initially in the form of one or
more permanent global Securities in registered form (the "Global Securities"),
deposited with, or on behalf of, the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. Each Global
Security shall bear such legend as may be required or reasonably requested by
the Depositary.

The definitive Securities shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which
the Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.

SECTION 2.2 EXECUTION AND AUTHENTICATION.

Two Officers shall sign the Securities for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the
Securities.

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<PAGE>

If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall
nevertheless be valid.

A Security shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.

The Trustee shall authenticate Securities for original issue up to
the aggregate principal amount stated in paragraph 4 of Exhibit A upon a
written order of the Company signed by two Officers. Such order shall specify
the amount of the Securities to be authenticated and the date on which the
original issue of Securities is to be authenticated. The aggregate principal
amount of Securities outstanding at any time may not exceed that amount except
as provided in Section 2.7.

The Trustee shall initially act as authenticating agent and may
subsequently appoint another Person acceptable to the Company as
authenticating agent to authenticate Securities. Unless limited by the terms
of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate of the Company. Provided that the authentication agent has
entered into an agreement with the Company concerning the authentication
agent's duties, the Trustee shall not be liable for any act or any failure of
the authenticating agent to perform any duty either required herein or
authorized herein to be performed by such person in accordance with this
Indenture.

The Securities shall be issued only in registered form without
coupons and only in denominations of $1,000 and integral multiples thereof.

SECTION 2.3 REGISTRAR AND PAYING AGENT.

The Company shall maintain an office or agency where Securities
may be presented for registration of transfer or for exchange ("Registrar")
and an office or

29
<PAGE>

agency where Securities may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent.

The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture.
The agreement shall implement the provisions of this Indenture that relate to
such agent. The Company shall promptly notify the Trustee of the name and
address of any such agent and any change in the address of such agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act
as such and shall be entitled to appropriate compensation therefor pursuant to
Section 6.7. The Company or any Subsidiary or Affiliate of the Company may
act as Paying Agent, Registrar, co-registrar or transfer agent.

The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.

SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.

On or prior to each due date of the principal and interest on any
Security (including any redemption date fixed under the terms of such Security
or this Indenture) the Company shall deposit with the Paying Agent a sum of
money sufficient to pay such principal and interest in funds available when
such becomes due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent
for the payment of principal of or interest on the Securities (whether such
money has been paid to it by the Company or any other obligor on the
Securities) and shall notify the Trustee of any default by the Company (or any
other obligor on the Securities) in making any such payment. If the Company
or a Subsidiary or an affiliate of the Company acts as Paying Agent, it shall
segregate the money held by it as Paying Agent and hold it as a separate trust
fund for the benefit of the Securityholders. If the Company defaults in its
obligation to deposit

30
<PAGE>

funds for the payment of principal and interest the Trustee may, during the
continuation of such default, require a Paying Agent to pay all money held by
it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any funds disbursed by
it. Upon doing so, the Paying Agent (other than the Company or a Subsidiary
or Affiliate of the Company) shall have no further liability for the money
delivered to the Trustee.

SECTION 2.5 SECURITYHOLDER LISTS.

The Trustee shall preserve in as current a form as reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee at least five Business Days before each interest
payment date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Securityholders, and the Company shall
otherwise comply with TIA Section 312(a).

SECTION 2.6 TRANSFER AND EXCHANGE.

The Securities shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if the requirements of
Section 8-401(1) of the Uniform Commercial Code are met and, if so required by
the Trustee or the Company, if the Security presented is accompanied by a
written instrument of transfer in form satisfactory to the trustee and the
Company, duly executed by the registered owner or by his or her attorney duly
authorized in writing. When Securities are presented to the Registrar or a
co-registrar with a request to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall make the exchange as
requested if the same requirements are met. To permit registration of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's or co-registrar's request. No
service charge shall be made for any registration of transfer or exchange of
the Securities, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar

31
<PAGE>

governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon exchange
pursuant to Section 2.10 or 8.5 of this Indenture). The Company shall not be
required to make and the Registrar need not register transfers or exchanges of
Securities selected for redemption (except, in the case of Securities to be
redeemed in part, the portion thereof not to be redeemed) or for a period of
15 days before a selection of Securities to be redeemed or 15 days before an
interest payment date.

Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other
purposes whatsoever, whether or not such Security is overdue, and none of the
Company, the Trustee, the Paying Agent, the Registrar or any co-registrar
shall be affected by notice to the contrary.

Notwithstanding any other provisions of this Section 2.6, unless
and until it is exchanged in whole or in part for Securities in definitive
registered form, a Global Security representing all or a portion of the
Securities may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.

If the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the Global Securities or if at any time
the Depositary shall no longer be eligible under the next sentence of this
paragraph, the Company shall appoint a successor Depositary with respect to
the Securities. Each Depositary appointed pursuant to this Section 2.6 must,
at the time of its appointment and at all times while it serves as Depositary,
be a clearing agency registered under the Exchange Act and any other
applicable statute or regulation. The Company will execute, and the Trustee
will authenticate and deliver upon a written order of the Company signed by two
Officers, Securities in definitive

32
<PAGE>

registered form in any authorized denominations representing such Securities in
exchange for such Global Security or Securities if (i) the Depositary notifies
the Company that it is unwilling or unable to continue or unable to continue as
Depositary for the Global Securities or if at any time the Depositary shall no
longer be eligible to serve as Depositary and a successor Depositary for the
Securities is not appointed by the Company within 60 days after the Company
receives such notice or becomes aware of such ineligibility of (ii) an Event of
Default has occurred and is continuing.

The Company may at any time and in its sole discretion determine
that the Securities shall no longer be represented by a Global Security or
Securities. In such event the Company will execute, and the Trustee will
authenticate and deliver upon a written order of the Company signed by two
Officers, Securities in exchange for such Global Security or Securities.

Upon the exchange of a Global Security for Securities in
definitive registered form without coupons, in authorized denominations, such
Global Security shall be cancelled by the Trustee. Securities in definitive
registered form issued in exchange for a Global Security pursuant to this
Section 2.6 shall be registered in such names and in such authorized
denominations as the Depositary for such Global Security, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Securities to or as
directed by the Persons in whose names such Securities are so registered.

All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture will evidence the same debt and will be entitled
to the same benefits under this Indenture as the Securities surrendered upon
such transfer or exchange.

SECTION 2.7 REPLACEMENT SECURITIES.

If a mutilated security is surrendered to the Registrar or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken and the Holder furnishes to the Company and the Trustee
evidence to their satisfaction of such loss, destruction or wrongful taking, the
Company shall issue and the

33
<PAGE>

Trustee shall, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a BONA FIDE purchaser, authenticate a replacement
Security if the requirements of Section 8-405 of the Uniform Commercial Code are
met and if there is delivered to the Company and the Trustee such security or
indemnity as may be required to save each of them harmless, satisfactory to the
Company or the Trustee, as the case may be. The Company and the Trustee may
charge the Holder for their expenses in replacing a Security.

Every replacement Security is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.

SECTION 2.8 OUTSTANDING SECURITIES.

The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, and those described in this Section as not
outstanding.

If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a BONA FIDE purchaser.

If all the principal and interest on any Securities are considered
paid under Section 3.1, such Securities cease to be outstanding under this
Indenture and interest on such Securities shall cease to accrue.

If the Paying Agent (other than the Company or a Subsidiary or an
Affiliate of the Company) holds in accordance with this Indenture on a
redemption date or maturity date money sufficient to pay all principal and
interest due on that date then on and after that date such Securities cease to
be outstanding and interest on them ceases to accrue (unless there shall be a
default in such payment).

If a Security is called for redemption, the Company and the
Trustee need not treat the Security as outstanding in determining whether
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent.

<PAGE>

Subject to Section 2.9, a Security does not cease to be
outstanding because the Company or an Affiliate thereof holds the Security.

SECTION 2.9 DETERMINATION OF HOLDERS' ACTION.

In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, amendment, waiver or
consent, Securities owned by or pledged to the Company, any other obligor upon
the Securities or any Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned or pledged shall be so disregarded.

SECTION 2.10 TEMPORARY SECURITIES.

Until definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities. Without unreasonable delay, the Company shall prepare
and the Trustee, upon the written order of the Company signed by two Officers,
shall authenticate definitive Securities in exchange for temporary Securities.
Until such exchange, temporary Securities shall be entitled to the same
rights, benefits and privileges as definitive Securities.

SECTION 2.11 CANCELLATION.

The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment or cancellation and shall destroy the same or
otherwise dispose of canceled Securities as the Company directs by written
order signed by two Officers. The Company may not issue new Securities to
replace Securities that it has paid or delivered to the Trustee for
cancellation.

35
<PAGE>

SECTION 2.12 DEFAULTED INTEREST.

If the Company defaults in a payment of interest on the
Securities, it shall pay defaulted interest, plus any interest payable on the
defaulted interest to the extent permitted by law, in any lawful manner. It
may pay the defaulted interest to the Persons who are Securityholders on a
subsequent special record date which date shall be at least five Business Days
prior to the payment date. The Company shall fix the special record date and
payment date. At least 15 days before the special record date, the Company
(or the Trustee, in the name of and at the expense of the Company) shall mail
to Securityholders a notice that states the special record date, payment date
and amount of interest to be paid.

ARTICLE III

COVENANTS

SECTION 3.1 PAYMENT OF SECURITIES.

The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. The
Company shall pay interest on overdue principal at the rate borne by the
Securities; it shall pay interest on overdue installments of interest at the
rate borne by the Securities to the extent lawful. Principal and interest
shall be considered paid on the date due (including a redemption date) if the
Trustee or the Paying Agent (other than the Company or a Subsidiary or an
Affiliate of the Company) has received from or on behalf of the Company on or
prior to that date money sufficient to pay all principal and interest then
due.

SECTION 3.2 MAINTENANCE OF OFFICE OR AGENCY.

The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the loca-

<PAGE>

tion, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the address of the Trustee set forth in Section 11.2 of this
Indenture.

The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any
manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York, for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.

The Company hereby initially designates the office of _________ in
the Borough of Manhattan, the City of New York, as such office of the Company
in accordance with Section 2.3.

SECTION 3.3 LIMITATION ON RESTRICTED PAYMENTS.

(a) So long as any of the Securities are outstanding, the
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, (i) declare or pay any dividend on or make any distribution or
similar payment of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the Company)
to the direct or indirect holders of its Capital Stock (other than dividends
or distributions payable solely in its Non-Convertible Capital Stock or rights
to acquire its Non-Convertible Capital Stock and dividends or distributions
payable solely to the Company or a Restricted Subsidiary), (ii) purchase,
redeem, defease or otherwise acquire or retire for value any Capital Stock of
the Company or of any direct or indirect parent of the Company or, with
respect to the Company, exercise any option to exchange any Capital Stock that
by its terms is exchangeable solely at the option of the Company (other than
into Capital Stock of the Company which is neither Exchangeable Stock nor
Redeemable Stock), (iii) purchase,

37
<PAGE>

repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity or scheduled repayment thereof or scheduled sinking fund
payment thereon, any Subordinated Indebtedness (other than the purchase,
repurchase, all or other acquisition of Subordinated Indebtedness purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition)
or (iv) make any Investment in any Unrestricted Subsidiary or any Affiliate of
the Company other than a Restricted Subsidiary or a Person which will become a
Restricted Subsidiary as a result of any such Investment (each such payment
described in clauses (i)-(iv) of this paragraph, a "Restricted Payment"),
unless at the time of and after giving effect to the proposed Restricted
Payment:

(1) no Default or Event of Default shall have occurred and
be continuing (or would result therefrom);

(2) the Company would be permitted to Incur an additional $1
of Indebtedness pursuant to the provisions of Section 3.4(a); and

(3) the aggregate amount of all such Restricted Payments
subsequent to the Issue Date shall not exceed the sum of:

(A) 50% of aggregate Consolidated Net Income (or if
such Consolidated Net Income is a deficit, minus 100% of such
deficit), and minus 100% of the amount of any write-downs,
write-offs, other negative reevaluations and other negative
extraordinary charges not otherwise reflected in Consolidated Net
Income during such period;

(B) the aggregate Net Cash Proceeds received by the
Company after the Issue Date from a sale by the Company of Capital
Stock (other than Redeemable Stock or Exchangeable Stock) of the
Company or from the issuance of any options or warrants or other
rights to acquire Capital Stock (other than Redeemable Stock or
Exchangeable Stock);

38
<PAGE>

(C) the amount by which the principal amount of
Indebtedness of the Company or its Restricted Subsidiaries is
reduced on the Company's Consolidated balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent to
the Issue Date of any Indebtedness of the Company or any
Restricted Subsidiary converted or exchanged for Capital Stock
(other than Redeemable Stock or Exchangeable Stock) of the Company
(less the amount of any cash, or the value of any other property,
distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange);

(D) an amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from payments
of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the
Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), not to exceed in the case of any
Unrestricted Subsidiary the amount of Investments previously made
by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary; and

(E) $1,000,000, less the aggregate of all Excess
Payments made during such period.

(b) The failure to satisfy the conditions set forth in clauses (2)
and (3) of Section 3.3(a) shall not prohibit any of the following as long as
the condition set forth in Section 3.3(a)(1) is satisfied (except as set forth
below):

(i) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with Section 3.3(a);

(ii) any purchase, redemption, defeasance, or other
acquisition or retirement for value of Capital Stock or Subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds

39
<PAGE>

of the substantially concurrent sale of, Capital Stock of the Company
(other than Redeemable Stock or Exchangeable Stock and other than stock
issued or sold to a Subsidiary or to an employee stock ownership plan),
PROVIDED, HOWEVER, that notwithstanding Section 3.3(a)(1), the
occurrence or existence of a Default or Event of Default shall not
prohibit the making of such purchase, redemption, defeasance or other
acquisition or retirement, and PROVIDED, FURTHER, such purchase,
redemption, defeasance or other acquisition or retirement shall not be
included in the calculation of Restricted Payments made for purposes of
Section 3.3(a)(3) and PROVIDED, FURTHER, that the Net Cash Proceeds
from such sale shall be excluded from Section 3.3(a)(B)(3);

(iii) any purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness of the
Company made by exchange for, or out of the proceeds of the
substantially concurrent Incurrence of for cash (other than to a
Subsidiary), new Indebtedness of the Company, PROVIDED, HOWEVER,
that (A) such new Indebtedness shall be contractually subordinated in
right of payment to the Securities on terms at least as favorable to the
Security holders as the terms set forth in the form of subordination
provisions attached hereto as Exhibit B, (B) such new Indebtedness has a
Stated Maturity either (1) no earlier than the Stated Maturity of the
Indebtedness redeemed, repurchased, defeased, acquired or retired or (2)
after the Stated Maturity of the Securities and (C) such Indebtedness
has an Average Life equal to or greater than the Average Life of the
Indebtedness redeemed, repurchased, defeased, acquired or retired, and
PROVIDED, FURTHER, that such purchase, redemption, defeasance or
other acquisition or retirement shall not be included in the calculation
of Restricted Payments made for purposes of Section 3.3(a)(3);

(iv) any purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness upon a
Change of Control or an Asset Sale to the extent required by the
indenture or other agreement pursuant to which such Subordinated
Indebtedness was issued, but only if

40
<PAGE>

the Company (A) in the case of a Change of Control, has made an offer to
repurchase the Securities as described under Section 3.8 or (B) in the
case of an Asset Sale, has applied the Net Available Cash from such
Asset Sale in accordance with Section 3.12;

(v) pro rata dividends paid by a Subsidiary with respect to
a series or class of its Capital Stock the majority of which is held by
the Company or a Wholly Owned Subsidiary;

(vi) the payment of dividends on the Capital Stock of the
Company following an initial Public Equity Offering of such Capital
Stock of up to an amount per annum of 6% of the Net Cash Proceeds
received by the Company in such Public Equity Offering;

(vii) the purchase, redemption, acquisition, cancellation,
or other retirement for value of shares of Capital Stock of the Company
options on any such shares or related phantom stock or stock
appreciation rights or similar securities held by officers or employees
or former officers or employees (or their estates or beneficiaries under
their estates), upon the death, disability, retirement or termination of
employment of such employee or former employee, pursuant to the terms of
an employee benefit plan or any other agreement under which such shares
of stock or related rights were issued, provided that the aggregate cash
consideration paid, or distributions made, pursuant to this clause (vii)
after the date of this Indenture does not exceed an aggregate amount of
$1,000,000 plus the cash proceeds received by or contributed to the
Company from any reissuance of Capital Stock by the Company to members
of management and employees of the Company and its Subsidiaries; and

(viii) Investments in Unrestricted Subsidiaries of up to
$3,000,000 at any one time outstanding.

SECTION 3.4 LIMITATION ON INCURRENCE OF INDEBTEDNESS.

(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indi-

41
<PAGE>

rectly, Incur any Indebtedness, except that the Company may Incur Indebtedness
if, after giving effect thereto, the Consolidated Coverage Ratio would be
greater than 1.75:1 if such Incurrence takes place on or prior to __________,
1998, or 2.0:1, if such Incurrence takes place thereafter.

(b) Notwithstanding the foregoing, this Section shall not limit
the ability of the Company or any Restricted Subsidiary to Incur the following
Indebtedness:

(i) Refinancing Indebtedness (except with respect to
Indebtedness referred to in clauses (ii), (iii) or (iv) below);

(ii) Acquisition Indebtedness at any one time outstanding in
an aggregate principal amount not to exceed $10,000,000, PROVIDED that
not more than an aggregate of $5,000,000 of such Acquisition
Indebtedness may be incurred in any twelve month period;

(iii) Indebtedness of the Company which is owed to and held
by a Wholly Owned Subsidiary and Indebtedness of a Wholly Owned
Subsidiary which is owed to and held by the Company or a Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any transfer of
such Indebtedness (other than to the Company or a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the Incurrence
of such Indebtedness by the Company or by a Wholly Owned Subsidiary, as
the case may be;

(iv) Indebtedness (under the New Credit Facility or
otherwise) Incurred for the purpose of financing the working capital
needs of the Company and its Restricted Subsidiaries, PROVIDED,
HOWEVER, that after giving effect to the Incurrence of such
Indebtedness and any substantially simultaneous use of the proceeds
thereof, the aggregate principal amount of all such Indebtedness
Incurred pursuant to this clause (iv) and then outstanding immediately
after such Incurrence and such use of proceeds shall

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<PAGE>

not exceed the sum of 60% of the book value of the inventory and 90% of
the book value of the receivables of the Company and the Restricted
Subsidiaries on a consolidated basis at such time and, PROVIDED,
FURTHER, that such aggregate principal amount outstanding shall not
exceed $15,000,000 at any time prior to __________, 1997.

(v) Acquired Indebtedness; PROVIDED, HOWEVER, that the
Company would have been able to Incur such Indebtedness at the time of
the Incurrence thereof pursuant to the immediately preceding paragraph;
and

(vi) Indebtedness of the Company or a Restricted Subsidiary
outstanding on the Issue Date (other than Indebtedness referred to in
clause (iv) above and Indebtedness being repaid or retired with the
proceeds of the Offering).

(c) Notwithstanding Sections 3.4(a) and (b), the Company shall
not Incur any Indebtedness if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Indebtedness unless such repayment, prepayment, redemption,
defeasance, retirement, refunding or refinancing is not prohibited by Section
3.3 or unless such Indebtedness shall be contractually subordinated to the
Securities at least to the same extent as such Subordinated Indebtedness.

SECTION 3.5 LIMITATION ON PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES.

The Company shall not, and shall not permit any Subsidiary, to
create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends to or make any other distributions on its
Capital Stock, or pay any Indebtedness or other obligations owed to the
Company or any other Restricted Subsidiary, (ii) make any Investments in the
Company or any other Restricted Subsidiary or (iii) transfer any of its
property or assets to the Company or any other Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing shall not apply to:

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<PAGE>

(a) any encumbrance or restriction existing pursuant to this
Indenture or any other agreement or instrument as in effect or entered into on
the Issue Date (including the New Credit Facility);

(b) any encumbrance or restriction with respect to a Subsidiary
pursuant to an agreement relating to any Acquired Indebtedness; PROVIDED,
HOWEVER, that such encumbrance or restriction was not Incurred in connection
with or in contemplation of such Subsidiary becoming a Subsidiary;

(c) any encumbrance or restriction pursuant to an agreement
effecting a refinancing, renewal, extension or replacement of Indebtedness
referred to in clause (a) or (b) above or contained in any amendment or
modification with respect to such Indebtedness; PROVIDED, HOWEVER, that
the encumbrances and restrictions contained in any such agreement, amendment
or modification are no less favorable in any material respect with respect to
the matters referred to in clauses (i), (ii) and (iii) above than the
encumbrances and restrictions with respect to the Indebtedness being
refinanced, amended or modified;

(d) in the case of clause (iii) above, customary non-assignment
provisions of any leases governing a leasehold interest or of any supply,
license or other agreement entered into in the ordinary course of business of
the Company or any Subsidiary;

(e) any restrictions with respect to a Subsidiary imposed pursuant
to an agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary pending
the closing of such sale or disposition; or

(f) any encumbrance or restriction existing by reason of
applicable law.

Nothing contained in this Section 3.5 shall prohibit the sale of
assets that secure Indebtedness of the Company or its subsidiaries.

SECTION 3.6 LIMITATION ON SALE/LEASEBACK TRANSACTIONS.

The Company shall not, and shall not permit any Restricted
Subsidiary to, enter into any Sale/Leaseback

44
<PAGE>

Transaction unless (i) the Company or such Subsidiary would be entitled to
create a Lien on such property securing Indebtedness in an amount equal to the
Attributable Debt with respect to such transaction without equally and ratably
securing the Securities pursuant to Section 3.7 or (ii) the net proceeds of
such sale are at least equal to the fair value (as determined by the Board of
Directors) of such property and the Company or such Subsidiary shall apply or
cause to be applied an amount in cash equal to the net proceeds of such sale
to the retirement, within 30 days of the effective date of any such
arrangement, of Senior Indebtedness or Indebtedness of a Restricted
Subsidiary, PROVIDED, HOWEVER, that the Company or any Restricted
Subsidiary may enter into a Sale/Leaseback Transaction as long as the sum of
(x) the Attributable Debt with respect to such Sale/Leaseback Transaction and
all other Sale/Leaseback Transactions entered into pursuant to this proviso,
plus (y) the amount of outstanding Indebtedness secured by Liens Incurred
pursuant to the final proviso of Section 3.7, does not exceed 10% of
Consolidated Net Tangible Assets as determined based on the consolidated
balance sheet of the Company as of the end of the most recent fiscal quarter
for which financial statements are available.

SECTION 3.7 LIMITATION ON LIENS.

Except as provided for under Article X, the Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, incur
or permit to exist any Lien of any nature whatsoever on any of its properties
(including, without limitation, Capital Stock), whether owned at the date of
such Indenture or thereafter acquired, other than:

(a) pledges or deposits made by such Person under workers'
compensation, unemployment insurance laws or similar legislation, or good
faith deposits in connection with bids, tenders, contracts (other than for
payment of Indebtedness) or leases to which such Person is a party, or
deposits to secure statutory or regulatory obligations of such Person or
deposits of cash of United States Government bonds to secure surety, appeal or
performance bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business;

45
<PAGE>

(b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens, in each case, arising in the ordinary course of business and
with respect to amounts not yet due or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; or other Liens arising
out of judgments or awards against such Person with respect to which such
Person shall then be diligently prosecuting appeal or other proceedings for
review;

(c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
legal proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;

(d) Liens in favor of issuers or surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; PROVIDED, HOWEVER, that such letters of
credit may not constitute Indebtedness;

(e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real properties or liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not Incurred in connection with Indebtedness or other extensions of
credit and which do not in the aggregate materially adversely affect the value
of said properties or materially impair their use in the operation of the
business of such Person;

(f) Liens securing Indebtedness Incurred to finance the
construction of, purchase of, or repairs, improvements or additions to,
property (including Acquisition Indebtedness Incurred pursuant to Section
3.4(b)(ii)); PROVIDED, HOWEVER, that the Lien may not extend to any other
property owned by the Company or any Restricted Subsidiary at the time the
Lien is incurred, and the Indebtedness secured by the Lien may not be issued
more than 180 days after the later of the acquisition, comple-

46
<PAGE>

tion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien;

(g) Liens existing on the Issue Date (other than Liens relating to
Indebtedness or other obligations being repaid or Liens that are otherwise
extinguished with the proceeds of the Offering);

(h) Liens on property (excluding Capital Stock) of a Person at the
time such Person becomes a Subsidiary; PROVIDED, HOWEVER, that any such
Lien may not extend to any other property owned by the Company or any
Restricted Subsidiary;

(i) Liens on property at the time the Company or a Subsidiary
acquires the property, including any acquisition by means of a merger or
consolidation with or into the Company or a Subsidiary; PROVIDED, HOWEVER,
that such Liens are not incurred in connection with, or in contemplation of,
such merger or consolidation; and PROVIDED, FURTHER, that the Lien may not
extend to any other property owned by the Company or any Restricted
Subsidiary;

(j) Liens securing Indebtedness or other obligations of a
Subsidiary owing to the Company or a Wholly Owned Subsidiary;

(k) Liens incurred by a Person other than the Company or any
Subsidiary on assets that are the subject of a Capitalized Lease Obligation to
which the Company or a Subsidiary is a party; PROVIDED, HOWEVER, that any
such Lien may not secure Indebtedness of the Company or any Subsidiary (except
by virtue of clause (x) of the definition of "Indebtedness") and may not
extend to any other property owned by the Company or any Restricted
Subsidiary;

(l) Liens on inventory and account receivables of the Company and
its subsidiaries securing Indebtedness permitted to be incurred pursuant to
Section 3.4(b)(iv);

(m) Liens to secure any refinancing, refunding, extension, renewal
or replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness secured by

47
<PAGE>

any Lien referred to in the foregoing clauses (f), (g), (h), (i), and (m),
PROVIDED, HOWEVER, that (x) such new Lien shall be limited to all or part of the
same property that secured the original Lien (plus improvements on such
property) and (y) the Indebtedness secured by such Lien at such time is not
increased (other than by an amount necessary to pay fees and expenses, including
premiums, related to the refinancing, refunding, extension, renewal or
replacement of such Indebtedness); and

(n) Liens by which the Securities are secured equally and ratably
with other Indebtedness of the Company pursuant to this Section 3.7;

without effectively providing that the Securities shall be secured equally and
ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured; PROVIDED, HOWEVER, that the Company may incur
other Liens other than on the Collateral to secure Indebtedness as long as the
sum of (x) the amount of outstanding Indebtedness secured by Liens incurred
pursuant to this proviso plus (y) the Attributable Debt with respect to all
outstanding leases in connection with Sale/Leaseback Transactions entered into
pursuant to the proviso to Section 3.6 does not exceed 5% of Consolidated Net
Tangible Assets as determined with respect to the Company as of the end of the
most recent fiscal quarter for which financial statements are available.

SECTION 3.8 CHANGE OF CONTROL.

In the event of a Change of Control, the Company shall make an
offer to purchase (the "Change of Control Offer") the Securities then
outstanding at a purchase price equal to 101 percent (101%) of the Accreted
Value thereof plus accrued interest to the Change of Control Purchase Date (as
defined below) on the terms set forth in this Section. The date on which the
Company shall purchase the Securities pursuant to this Section (the "Change of
Control Purchase Date") shall be no earlier than 30 days, nor later than 60
days, after the notice referred to below is mailed, unless a longer period
shall be required by law. The Company shall notify the Trustee in writing
promptly after the occurrence of any Change of Control of the Company's
obligation to offer to purchase the Securities.

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<PAGE>

Notice of a Change of Control Offer shall be mailed by the Company
to the Holders of the Securities at their last registered address (with a copy
to the Trustee and the Paying Agent) within thirty (30) days after a Change in
Control has occurred. The Change of Control Offer shall remain open from the
time of mailing until five (5) Business Days before the Change of Control
Purchase Date. The notice shall contain all instructions and materials
necessary to enable such Holders to tender (in whole or in part) the
Securities pursuant to the Change of Control Offer. The notice, which shall
govern the terms of the Change of Control Offer, shall state:

(a) that the Change of Control Offer is being made
pursuant to this Section;

(b) the purchase price and the Change of Control
Purchase Date;

(d) that any Security accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Purchase Date;

(e) that any Holder electing to have a Security purchased (in
whole or in part) pursuant to a Change of Control Offer will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent at the
address specified in the notice (or otherwise make effective delivery of the
Security pursuant to book-entry procedures and the related rules of the
applicable depositories) at least five Business Days before the Change of
Control Purchase Date; and

(f) that any Holder will be entitled to withdraw his or her
election if the Paying Agent receives, not later than three Business Days
prior to the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security the Holder delivered for purchase and a statement that
such Holder is withdrawing his or her election to have the Security purchased.

49
<PAGE>

On the Change of Control Purchase Date, the Company shall (i)
accept for payment the Securities, or portions thereof, surrendered and
properly tendered and not withdrawn, pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent money sufficient to pay the purchase price
plus accrued interest of all the Securities or portions thereof, so accepted
and (iii) deliver to the Trustee the Securities so accepted together with an
Officers' Certificate stating that such Securities have been accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the purchase
price. Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.

The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant
to this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.

SECTION 3.9 COMPLIANCE CERTIFICATE.

The Company shall, within 120 days after the close of each fiscal
year following the issuance of the Securities, file with the Trustee an
Officer's Certificate, PROVIDED that one Officer executing the same shall be
the principal executive officer, the principal financial officer or the
principal accounting officer of the Company, covering the period from the date
of issuance of the Securities to the end of the fiscal year in which the
Securities were issued, in the case of the first such certificate, and
covering the preceding fiscal year in the case of each subsequent certificate,
and stating whether or not, to the knowledge of each such executing Officer,
the Company has complied with and performed and fulfilled all conditions and
covenants on its part contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions
contained in this Indenture, and, if any

50
<PAGE>

such signer has obtained knowledge of any default by the Company in the
performance, observance or fulfillment of any such condition, covenant, term
or provision specifying each such default and the nature thereof. For the
purpose of this Section 3.9, compliance shall be determined without regard to
any grace period or requirement of notice provided pursuant to the terms of
this Indenture.

SECTION 3.10 SEC REPORTS.

The Company shall, to the extent required by TIA Section 314(a),
file with the Trustee, within 15 days after the filing with the SEC, copies of
the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. In the event the Company
is at any time no longer subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, it shall, for so long as the Securities remain
outstanding, file with the Trustee and the SEC and mail to each Securityholder
at such Securityholder's registered address, within 15 days after the Company
would have been required to file such documents with the SEC, copies of the
annual reports and of the information, documents and other reports which the
Company would have been required to file with the SEC if the Company had
continued to be subject to such Sections 13 or 15(d). The Company also shall
comply with the other provisions of TIA Section 314(a).

SECTION 3.11 TRANSACTIONS WITH AFFILIATES.

The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into, permit to exist, renew or
extend any transaction or series of transactions (including, without
limitation, the sale, purchase, exchange or lease of any assets or property or
the rendering of any services) with any Affiliate of the Company, any Plaster
Entity, any Lindsey Entity or Energy unless (i) the terms of such transaction
or series of transactions are (A) no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would be obtainable in a
comparable transaction or series of related transactions in arm's-length

51
<PAGE>

dealings with an unrelated third party and, in the case of a transaction or
series of transactions involving payments or consideration in excess of
$100,000 approved by a majority of the Outside Directors, and (B) set forth in
writing if such transaction or series of transactions involves aggregate
payments or consideration in excess of $250,000, and (ii) with respect to a
transaction or series of transactions involving aggregate payments or
consideration in excess of $1,000,000, such transaction or series of
transactions has been determined, in the written opinion of an independent
nationally recognized investment banking firm, to be fair, from a financial
point of view, to the Company or such Restricted Subsidiary. The foregoing
provisions do not prohibit (i) the payment of reasonable fees to directors of
the Company and its subsidiaries, (ii) scheduled payments made pursuant to the
terms of any of the Basic Agreements, as the terms of each such agreement are
in effect on the Issue Date, or (iii) any transaction between the Company and
a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries otherwise
permitted by the terms of the Indenture. Any transaction which has been
determined, in the written opinion of an independent nationally recognized
investment banking firm, to be fair, from a financial point of view, to the
Company or the applicable Restricted Subsidiary shall be deemed to be in
compliance with this Section 3.11.

SECTION 3.12 SALES OF ASSETS.

(a) Neither the Company nor any Restricted Subsidiary shall
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the
fair market value, as determined in good faith by the Board of Directors, of
the shares or assets subject to such Asset Sale, (ii) at least 80% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of Additional Assets or cash or cash equivalents which cash
equivalents are promptly converted into cash by the Person receiving such
payment and (iii) an amount equal to 100% of the Net Available Cash is applied
by the Company (or such Subsidiary, as the case may be) as set forth herein.
The Company shall not permit any Unrestricted Subsidiary to make any Asset
Sale unless such Unrestricted Subsidiary receives consideration at the time of
such Asset Sale at least equal to

52
<PAGE>

the fair market value of the shares or assets so disposed of as determined in
good faith by the Board of Directors.

(b) Within three hundred and sixty (360) days (such 360 days
being the "Application Period") following the consummation of an Asset Sale,
the Company or such Restricted Subsidiary shall apply the Net Available Cash
from such Asset Sale as follows: (i) FIRST, to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets; (ii)
SECOND, to the extent of the balance of such Net Available Cash after
application in accordance with clause (i), and to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness or any Indebtedness of such Restricted Subsidiary), to prepay,
repay or purchase secured Senior Indebtedness or Indebtedness (other than any
Preferred Stock) of a Restricted Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company); and (iii)
THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clause (i) and (ii), to make an offer to
purchase the Securities at not less than 100% of their Accreted Value, plus
accrued interest (if any) pursuant to and subject to the conditions of Section
3.12(c); PROVIDED, HOWEVER, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (ii) or (iii) above,
the Company or such restricted Subsidiary shall retire such Indebtedness and
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased. To the
extent that any Net Available Cash remains after the application of such Net
Available Cash in accordance with this paragraph, the Company or such
Restricted Subsidiary shall utilize such remaining Net Available Cash in any
manner set forth in clause (i) or clause (ii) above.

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<PAGE>

promptly take all actions required by the applicable local law to permit such
repatriation). Once such repatriation of any of such affected Net Available
Cash is permitted under the applicable local law, such repatriation shall be
immediately effected and such repatriated Net Available Cash will be applied
in the manner set forth in this Section as if such Asset Sale had occurred on
the date of such repatriation.

To the extent that the Board of Directors determines, in good
faith, that repatriation of any or all of the Net Available Cash of any
Foreign Asset Sale would have a material adverse tax consequence to the
Company, the Net Available Cash so affected may be retained outside of the
United States by the applicable Restricted Subsidiary for so long as such
material adverse tax consequence would continue.

Notwithstanding the foregoing, this Section shall not apply to, or
prevent any sale of assets, property, or Capital Stock of Subsidiaries to the
extent that the fair market value (as determined in good faith by the Board of
Directors) of such asset, property or Capital Stock, together with the fair
market value of all other assets, property, or Capital Stock of Subsidiaries
sold, transferred or otherwise disposed of in Asset Sales during the twelve
month period preceding the date of such sale, does not exceed 5% of
Consolidated Net Tangible Assets as determined as of the end of the most
recent fiscal quarter, and no violation of this Section shall be deemed to
have occurred as a consequence thereof.

In the event of the transfer of substantially all (but not all) of
the property and assets of the Company as an entirety to a Person in a
transaction permitted under Article IV, the Successor Corporation shall be
deemed to have sold the properties and assets of the Company not so
transferred for purposes of Section 3.12, and shall comply with the Section
3.12 with respect to such deemed sale as if it were an Asset Sale.

(c) Subject to the last sentence of this paragraph, in the event
of an Asset Sale that requires the purchase of Securities pursuant to clause
(iii) of the first paragraph of Section 3.12(b), the Company will be required
to purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Asset Sale

54
<PAGE>

Offer") at a purchase price of not less than 100% of their Accreted Value plus
accrued interest to the Asset Sale Purchase Date in accordance with the
procedures (including prorationing in the event of oversubscription) set forth
in Section 3.12(d). If the aggregate purchase price of Securities tendered
pursuant to the Asset Sale Offer is less than the Net Available Cash allotted
to the purchase of the Securities, the Company shall apply the remaining Net
Available Cash in accordance with the last sentence of the first paragraph of
Section 3.12(b). The Company shall not be required to make an Asset Sale
Offer for Securities pursuant to this Section if the Net Available Cash
available therefor (after application of the proceeds as provided in Section
3.12(b)(i) and (ii)) is less than $1,000,000 for any particular Asset Sale
(which lesser amounts shall not be carried forward for purposes of determining
whether an Asset Sale Offer is required with respect to the Net Available Cash
from any subsequent Asset Sale).

(d) (1) Promptly, and in any event prior to the 360th day after
the later of the date of each Asset Sale as to which the Company must make an
Asset Sale Offer or the receipt of Net Available Cash therefrom, the Company
shall be obligated to deliver to the Trustee and send, by first-class mail to
each Holder, a written notice stating that the Holder may elect to have his
Securities purchased by the Company either in whole or in part (subject to
prorationing as hereinafter described in the event the Asset Sale Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days, nor more than 60 days, after the date of such notice (the "Asset
Sale Purchase Date") and shall contain the information required in a notice
for a Change of Control Offer, to the extent applicable.

(2) Not later than the date upon which written notice of an
Asset Sale Offer is delivered to the Trustee as provided below, the Company
shall deliver to the Trustee an Officers' Certificate as to (i) the amount of
the Asset Sale Offer (the "Asset Sale Offer Amount"), (ii) the allocation of
the Net Available Cash from the Asset Sales pursuant to which such Asset Sale
Offer is being made and (iii) the compliance of such allocation with Section
3.12(a). On such date, the Company shall

55
<PAGE>

also deposit with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust) funds in an amount equal to the
Asset Sale Offer Amount to be held for payment in accordance with the
provisions of this Section. Upon the expiration of the period for which the
Asset Sale Offer remains open (the "Offer Period"), the Company shall deliver,
or cause to be delivered, to the Trustee the Securities or portions thereof
which have been properly tendered to and are to be accepted by the Company.
The Paying Agent shall, on the Asset Sale Purchase Date, mail or deliver
payment to each tendering Holder in the amount of the purchase price. In the
event that the aggregate purchase price of the Securities delivered, or caused
to be delivered, by the Company to the Trustee is less than the Asset Sale
Offer Amount, the Paying Agent shall deliver the excess to the Company
immediately after the expiration of the Offer Period.

(3) Holders electing to have a Security purchased will be
required to surrender the Security, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Security duly completed, to the
Company or the Paying Agent, as specified in, and at the address specified in,
the notice at least ten Business Days prior to the Asset Sale Purchase Date.
Holders will be entitled to withdraw their election if the Trustee or the
Paying Agent receives, not later than three Business Days prior to the Asset
Sale Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Security
which was delivered for purchase by the Holder and a statement that such
Holder is withdrawing his election to have such Security purchased. If at the
expiration of the Offer Period the aggregate principal amount of Securities
surrendered by Holders exceeds the Asset Sale Offer Amount, the Company shall
select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.

(4) At the time the Company delivers Securities to the
Trustee which are to be accepted for

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<PAGE>

purchase, the Company will also deliver an Officers' Certificate stating that
such Securities are to be accepted by the Company pursuant to and in
accordance with the terms of this Section. A Security shall be deemed to have
been accepted for purchase at the time the Paying Agent, directly or through
an agent, mails or delivers payment therefor to the surrendering Holder.

(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant
to this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.

SECTION 3.13 CORPORATE EXISTENCE.

Except as permitted under Article IV, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each Restricted
Subsidiary in accordance with the respective organizational documents of the
Company and of each Restricted Subsidiary and the rights (charter and
statutory), licenses and franchises of the Company and the Restricted
Subsidiaries necessary or appropriate to carry out their businesses;
PROVIDED, HOWEVER, that the Company shall not be required to preserve any
such right, license or franchise, or the corporate existence of any Restricted
Subsidiary if the preservation thereof is no longer desirable in the conduct
of the business of the Company and the Restricted Subsidiaries taken as a
whole; and PROVIDED, FURTHER, that any Restricted Subsidiary may
consolidate with, merge into, or sell, convey, transfer, lease or otherwise
dispose of all or part of its property and assets to the Company or any Wholly
Owned Subsidiary to the extent otherwise permitted under this Indenture.

SECTION 3.14 PAYMENT OF TAXES AND OTHER CLAIMS.

The Company shall pay or discharge, or cause to be paid or
discharged, before any material penalty accrues thereon all material taxes,
assessments and govern-

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mental charges levied or imposed upon the Company or any Restricted Subsidiary
or upon the income, profits or property of the Company or any Restricted
Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to
pay or discharge, or cause to be paid or discharged, any such tax, assessment,
charge or claim the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
reserves, if the same shall be required in accordance with generally accepted
accounting principles, have been made.

SECTION 3.15 NOTICE OF DEFAULTS AND OTHER EVENTS.

In the event that any Indebtedness of the Company or any
Significant Subsidiary having an outstanding principal amount of $1,000,000 or
more individually or $2,000,000 or more in the aggregate has been or could be
declared due and payable before its maturity because of the occurrence of any
event of default under such Indebtedness (including any Default under this
Indenture), the Company, promptly after it becomes aware thereof, will give
written notice thereof to the Trustee.

SECTION 3.16 MAINTENANCE OF PROPERTIES AND INSURANCE.

The Company shall cause all properties used or useful in the
conduct of its business or the business of each Restricted Subsidiary and
material to the Company and the Restricted Subsidiaries taken as a whole to be
maintained and kept in normal condition, repair and working order and supplied
with all necessary equipment; PROVIDED, HOWEVER, that nothing in this
Section 3.16 shall prevent the Company or any Restricted Subsidiary from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the
judgment of an Officer (or other employee of the Company or any Restricted
Subsidiary) of the Company or such Restricted Subsidiary having managerial
responsibility for any such property, appropriate.

The Company shall provide or cause to be provided, for itself and
the Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by
corporations similarly situated and owning like proper-

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ties, including, but not limited to, product liability insurance and public
liability insurance with reputable insurers or with the government of the
United States of America, or an agency or instrumentality thereof, of such
kinds, and in such amounts, with such deductibles and by such methods as the
Company in good faith shall determine to be reasonable and appropriate in the
circumstances.

SECTION 3.17 LIMITATION ON ISSUANCE OF CAPITAL STOCK
AND INCURRENCE OF INDEBTEDNESS OF RESTRICTED
SUBSIDIARIES.

The Company shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell, and shall not permit any Person other than
the Company or a Wholly Owned Subsidiary to own (except to the extent that any
such Person may own on the Issue Date), any shares of such Restricted
Subsidiary's Capital Stock (including options, warrants or other rights to
purchase shares of Capital Stock) except, to the extent otherwise permitted by
the Indenture, (i) to the Company or another Restricted Subsidiary that is a
Wholly Owned Subsidiary of the Company, or (ii) if, immediately after giving
effect to such issuance and sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary for purposes of the Indenture. The Company
shall not permit any Restricted Subsidiary, directly or indirectly, to Incur
Indebtedness other than pursuant to Section 3.4(b).

SECTION 3.18 LIMITATION ON CHANGES IN THE
NATURE OF THE BUSINESS.

The Company and its Subsidiaries shall not engage in any line of
business other than the business of the sale and distribution of propane gas
and operations related thereto for any period of time in excess of 270
consecutive days for any such unrelated line of business.

ARTICLE IV

CONSOLIDATION, MERGER AND SALE

SECTION 4.1 MERGER AND CONSOLIDATION OF COMPANY.

The Company shall not, in a single transaction or through a series
of related transactions, consolidate

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with or merge with or into any other corporation or sell, assign, convey,
transfer or lease or otherwise dispose of all or substantially all of its
properties and assets to any Person or group of affiliated Persons unless:

(a) either the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or to which the properties and assets of the Company as
an entirety are transferred (the "Successor Corporation"), shall be a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto executed and delivered to the Trustee, in form
and substance satisfactory to the Trustee, all the obligations of the Company
under this Indenture and the Securities;

(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness which becomes
an obligation of the Company (or the Successor Corporation if the Company is
not the continuing obligor under the Indenture) or any Restricted Subsidiary
as a result of such transaction as having been Incurred by such Person at the
time of such transaction), no Default shall have occurred and be continuing;

(c) the Company shall have delivered, or caused to be delivered,
to the Trustee an Officers' Certificate and, as to legal matters, an Opinion
of Counsel, each in form and substance satisfactory to the Trustee, each
stating that such consolidation, merger or transfer and such supplemental
indenture comply with this Section and that all conditions precedent herein
provided for relating to such transaction have been complied with;

(d) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of the
Company (or the Successor Corporation if the Company is not the continuing
obligor under this Indenture) or a Restricted Subsidiary in connection with or
as a result of such transaction as having been Incurred by such Person at the
time of such transaction, the Consolidated Coverage Ratio of the Company (or
the Successor Corporation if the Company is not the continuing obligor under
this Inden-

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ture) is at least 1:1, PROVIDED that, if the Consolidated Coverage Ratio
before giving effect to such transaction is within the range set forth in
column (A) below, then the pro forma Consolidated Coverage Ratio of the
Company or the Successor Corporation shall be at least equal to the lessor of
(1) the ratio determined by multiplying the percentage set forth in column (B)
below by the Consolidated Coverage Ratio of the Company prior to such
transaction and (2) the ratio set forth in column (C) below:

(A) (B) (C)
- --- --- ---

(e) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of the
Company (or the Successor Corporation if the Company is not the continuing
obligor under this Indenture) or a Restricted Subsidiary in connection with or
as a result of such transaction as having been Incurred by such Person at the
time of such transaction), the Company (or the Successor Corporation if the
Company is not the continuing obligor under this Indenture) shall have
Consolidated Net Worth in an amount which is not less than the Consolidated
Net Worth immediately prior to such transaction.

Notwithstanding the foregoing paragraphs (b), (d) and (e), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or any Wholly Owned Subsidiary or
Wholly Owned Subsidiaries and no violation of this Section shall be deemed to
have occurred as a consequence thereof, as long as the requirements of
paragraphs (a) and (c) are satisfied in connection therewith.

SECTION 4.2 SUCCESSOR SUBSTITUTED.

(a) Upon any such consolidation or merger, or any conveyance,
transfer, or disposition of all or substantially all of the properties or
assets of the Company in accordance with Section 4.1, but not in the case of a
lease, the Successor Corporation shall succeed to and be

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substituted for the Company under this Indenture and the Securities, and the
Company shall thereupon be released from all obligations hereunder and under
the Securities and the Company, as the predecessor corporation, may thereupon
or at any time thereafter be dissolved, wound up or liquidated. The Successor
Corporation thereupon may cause to be signed, and may issue either in its own
name or in the name of the Company, all or any of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of the Successor Corporation
instead of the Company and subject to all the terms, conditions and
limitations prescribed in this Indenture, the Trustee shall authenticate and
shall deliver any Securities which the Successor Corporation thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the
Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter
issued in accordance with the terms of this Indenture as though all such
Securities had been issued at the date of the execution hereof.

(b) In the case of any consolidation, merger or transfer
described in Section 4.2(a) above, such changes in form (but not in substance)
may be made in the Securities thereafter to be issued as may be appropriate.

ARTICLE V

DEFAULTS AND REMEDIES

SECTION 5.1 EVENTS OF DEFAULT.

An "Event of Default" means any of the following events:

(a) default in the payment of interest on any Security when the
same becomes due and payable, and such default continues for a period of 30
days;

(b) default in the payment of the principal of any Security when
the same becomes due and payable at maturity or otherwise or a failure to
redeem or purchase Securities when required pursuant to this Indenture or the
Securities;

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(c) default in performance of any other covenants or agreements
in the Securities or this Indenture and the default continues for 30 days
after the date on which written notice of such default is given to the Company
by the Trustee or to the Company and the Trustee by Holders of at least 25% in
principal amount of the Securities then outstanding hereunder; PROVIDED that
the failure to commence a Change of Control Offer following a Change of
Control pursuant to clause (vi) of the definition of "Change of Control" shall
not constitute an Event of Default if, during such 30 day period, the Company
takes the necessary actions with respect to the Board of Directors to comply
with the requirements of clauses (vi)(A), (vi)(B) and (vi)(C) of the
definition of "Change of Control";

(d) there shall have occurred either (a) a default by the Company
or any Subsidiary under any instrument under which there is or may be secured
or evidenced any Indebtedness of the Company or any Subsidiary of the Company
(other than the Securities) having an outstanding principal amount of
$2,000,000 (or its foreign currency equivalent) or more individually or
$5,000,000 (or its foreign currency equivalent) or more in the aggregate that
has caused the holders thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity or (b) a default by the Company or any
Subsidiary in the payment when due of any portion of the principal under any
such instrument, and such unpaid portion exceeds $2,000,000 (or its foreign
currency equivalent) individually or $5,000,000 (or its foreign currency
equivalent) in the aggregate and is not paid, or such default is not cured or
waived, within any grace period applicable thereto; PROVIDED, HOWEVER,
that the foregoing shall not apply to any default on Non-recourse Debt;

(e) any final judgment or order (not covered by insurance) for
the payment of money shall be rendered against the Company or any Significant
Subsidiary in an amount in excess of $2,000,000 (or its foreign currency
equivalent) individually or $5,000,000 (or its foreign currency equivalent) in
the aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) and
shall not be discharged, and there shall be any period of 30 consecutive days
following entry of the

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final judgment or order in excess of $2,000,000 (or its foreign currency
equivalent) individually or that causes the aggregate amount for all such
final judgments or orders outstanding against all such Persons to exceed
$5,000,000 (or its foreign currency equivalent) during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;

(f) the Company or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:

(i) commences a voluntary case,

(ii) consents to the entry of an order for relief against
it in an involuntary case,

(iii) consents to the appointment of a Custodian of it or
for all or substantially all of its property,

(iv) makes a general assignment for the benefit of its
creditors, or

(v) admits in writing its inability to generally pay its
debts as such debts become due;

or takes any comparable action under any foreign laws relating to insolvency;

(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

(i) is for relief against the Company or any Significant
Subsidiary in an involuntary case,

(ii) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of its property, or

(iii) orders the winding up or liquidation of the Company
or any Significant Subsidiary;

or any similar relief is granted under any foreign laws; and the order or
decree remains unstayed and in effect for 60 days; and

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(h) except as permitted by this Indenture, the Trustee fails to
have a first priority perfected security interest in the Collateral; and

(i) the Company fails to observe or perform any covenant,
condition or agreement in this Indenture or the Pledge Agreement and such
failute continues for the period and after the notice specified below.

The term "Bankruptcy Law" means Title 11 of the U.S. Code or any
similar Federal or State law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under
any Bankruptcy Law.

Any notice of Default given by the Trustee or Securityholders
under this Section must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."

The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice of any event which with the giving of
notice or the lapse of time or both would become an Event of Default under
clause (c), (d), (e) or (g) hereof.

Subject to the provisions of Section 6.1 and 6.2, the Trustee
shall not be charged with knowledge of any Event of Default unless written
notice thereof shall have been given to the Trustee by the Company, the Paying
Agent, any Holder or an agent of any Holder.

SECTION 5.2 ACCELERATION.

If an Event of Default (other than an Event of Default specified
in clause (f) and (g) of Section 5.1 with respect to the Company) occurs and
is continuing, the Trustee by notice to the Company, or the Holders of at
least 25% in principal amount of the Securities by notice to the Company and
the Trustee, may declare the principal of and accrued interest on all the
Securities to be due and payable. Upon such declaration the principal and
interest shall be due and payable immediately. If an Event of Default
specified in clause (f) or (g) of Section 5.1 with respect to the Company
occurs, the principal of and interest on all the Securities shall IPSO
FACTO become and be immediately due and payable

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without any declaration or other act on the part of the Trustee or any
Securityholders. The Holders of a majority in principal amount of the
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration. No such rescission shall affect any subsequent or other Default
or Event of Default or impair any consequent right.

SECTION 5.3 OTHER REMEDIES.

If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the
Securities or this Indenture.

The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.

SECTION 5.4 WAIVER OF PAST DEFAULTS.

The Holders of a majority in principal amount of the Securities by
notice to the Trustee may waive an existing Default and its consequences
except (a) a Default in the payment of the principal of or interest on any
Security or (b) a Default in respect of a provision that under Section 8.2
cannot be amended without the consent of each Securityholder affected. When a
Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any consequent
right.

SECTION 5.5 CONTROL BY MAJORITY.

The Holders of a majority in principal amount of the Securities
may direct the time, method and place of conducting any proceeding for any
remedy available to

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the Trustee or exercising any trust or power conferred on it. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, or, subject to Section 6.1, that the Trustee determines is unduly
prejudicial to the rights of other Securityholders, or would involve the
Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may
take any other action deemed proper by the Trustee that is not inconsistent
with such direction. Prior to taking any action hereunder, the Trustee shall
be entitled to indemnification reasonably satisfactory to it against all risk,
losses and expenses caused by taking or not taking such action. Subject to
Section 6.1, the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
the Securityholders pursuant to this Indenture, unless such Securityholders
shall have provided to the Trustee security or indemnity reasonably
satisfactory to it against the costs, expenses and liabilities which might be
incurred in compliance with such request or direction.

SECTION 5.6 LIMITATION ON SUITS.

A Securityholder may pursue a remedy with respect to this
Indenture or the Securities only if:

(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;

(b) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;

(c) such Holder or Holders offer to the Trustee security
reasonably satisfactory to it or indemnity against any loss, liability or
expense;

(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of security or indemnity; and

(e) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the request
during such 60-day period.

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A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Security-holder.

SECTION 5.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.

Notwithstanding any other provision of this Indenture, the right
of any Holder of a Security to receive payment of principal and interest on
the Security, on or after the respective due dates expressed in the Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.

SECTION 5.8 COLLECTION SUIT BY TRUSTEE.

If an Event of Default specified in Section 5.1(a) or (b) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid (together with interest on such unpaid
interest to the extent lawful) and the amounts provided for in Section 6.7.

SECTION 5.9 TRUSTEE MAY FILE PROOFS OF CLAIM.

The Trustee may file such proofs of claim and other papers or
documents and take such other actions including participating as a member or
otherwise in any committees of creditors appointed in the matter as may be
necessary or advisable in order to have the claims of the Trustee (including
any claim for the amounts provided in Section 6.7) and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and its counsel, and any other amounts due the

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Trustee under Section 6.7. To the extent that the payment of any such amount
due to the Trustee under Section 6.7 out of the estate in any such proceeding
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties which the Holders of the Securities may be
entitled to receive in such proceeding whether in liquidation or under any
plan of reorganization or arrangement or otherwise.

SECTION 5.10 PRIORITIES.

If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:

First: to the Trustee for amounts due under Section 6.7;

Second: to Securityholders for amounts due and unpaid on the
Securities for principal, premium, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Securities for principal and interest, respectively;
and

Third: to the Company.

The Trustee may fix a record date and payment date for any payment
to Securityholders pursuant to this Section. At least 15 days before such
record date, the Company shall give written notice to each Securityholder and
the Trustee of the record date, the payment date and amount to be paid.

SECTION 5.11 UNDERTAKING FOR COSTS.

In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit, and
the court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or

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<PAGE>

defenses made by the party litigant. This Section does not apply to a suit by
the Trustee, a suit by a Holder pursuant to Section 5.7, or a suit by Holders
of more than 10% in principal amount of the Securities.

SECTION 5.12 WAIVER OF STAY OR EXTENSION LAWS.

The Company shall not at any time insist upon, or plead, or in any
manner whatsoever, claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and the Company
hereby expressly waives all benefit or advantage of any such law, and shall
not hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.

ARTICLE VI

TRUSTEE

SECTION 6.1 DUTIES OF TRUSTEE.

(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Pledge Agreement, and use the same degree of care and skill
in their exercise, as a prudent Person would exercise or use under the
circumstances in the conduct of his own affairs.

(b) Except during the continuance of an Event of Default:

(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others and no implied
covenants or obligations shall be read into this Indenture or the Pledge
Agreement against the Trustee.

(ii) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or

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opinions furnished to the Trustee and conforming to the requirements of
this Indenture or the Pledge Agreement. However, the Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture or the Pledge Agreement.

(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

(i) This paragraph does not limit the effect of paragraph
(b) of this Section.

(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts.

(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.2, 5.4 or 5.5.

(iv) No provision of this Indenture and the Pledge
Agreement shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers,
unless it receives indemnity satisfactory to it against any risk, loss,
liability or expense.

(d) Every provision of this Indenture and the Pledge Agreement
that in any way relates to the Trustee is subject to paragraphs (a), (b) and
(c) of this Section.

(e) The Trustee, in its capacity as Trustee and Registrar and
Paying Agent, shall not be liable to the Company, the Securityholders or any
other Person for interest on any money received by it, including, but not
limited to, money with respect to principal of or interest on the Securities,
except as the Trustee may agree with the Company.

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(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.

SECTION 6.2 RIGHTS OF TRUSTEE.

(a) The Trustee may rely on any document reasonably believed by
it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on any such Officers' Certificate or Opinion of Counsel.

(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.

(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers PROVIDED, HOWEVER, that the Trustee's conduct does not
constitute wilful misconduct, negligence or bad faith.

(e) The Trustee may consult with counsel, and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice of such counsel.

(f) The Trustee shall not be obligated to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or any other paper or document.

SECTION 6.3 INDIVIDUAL RIGHTS OF TRUSTEE.

The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate

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with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights. However, the Trustee is subject to Sections 6.10
and 6.11.

SECTION 6.4 TRUSTEE'S DISCLAIMER.

The Trustee makes no representation as to the validity or adequacy
of this Indenture, the Pledge Agreement or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement in the Securities other than its
authentication.

SECTION 6.5 NOTICE OF DEFAULTS.

If a Default or an Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Securityholders a
notice of the Default or Event of Default within 90 days of such occurrence.
Except in the case of a Default in any payment on any Security, the Trustee
may withhold the notice if and so long as a committee of its Trust Officers in
good faith determines that withholding the notice is in the interests of
Securityholders.

SECTION 6.6 REPORTS BY TRUSTEE TO HOLDERS.

Within 60 days after the reporting date stated in Section 11.10,
the Trustee shall mail to Securityholders a brief report dated as of such
reporting date that complies with TIA Section 313(a) if required by that
Section. The Trustee also shall comply with TIA Section 313(b)(2).

A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange on which
the Securities are listed. The Company shall promptly notify the Trustee when
the Securities are listed on any stock exchange and of any delisting thereof.

SECTION 6.7 COMPENSATION AND INDEMNITY.

The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The

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Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket disbursements, expenses and advances incurred by it. Such
expenses shall include the reasonable compensation and out-of-pocket
disbursements and expenses of the Trustee's agents and counsel.

The Company shall indemnify the Trustee for, and hold it harmless
against, any loss, liability and expenses including reasonable attorneys'
fees, disbursements and expenses, incurred by it in connection with the
administration of this trust and the performance of its duties hereunder and
under the Pledge Agreement including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder and thereunder. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve
the Company of its obligations hereunder. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its
consent.

The Company need not reimburse any expense or indemnify against
any loss or liability incurred by the Trustee through negligence or bad faith.

To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal
and interest on particular Securities.

When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 5.1(f) or (g) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.

The Company's obligations under this Section 6.7 and any Lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Company's obligations pursuant to Article VII of this
Indenture or the termination of this Indenture or the Pledge Agreement.

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SECTION 6.8 REPLACEMENT OF TRUSTEE.

A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.

The Trustee may resign at any time by so notifying the Company.
The Holders of a majority in principal amount of the Securities may, by
written notice to the Trustee, remove the Trustee by so notifying the Trustee
and the Company. The Company, by notice to the Trustee, shall remove the
Trustee if:

(a) the Trustee fails to comply with Section 6.10;

(b) the Trustee is adjudged a bankrupt or an insolvent;

(d) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.

If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company
or the Holders of at least 10% in principal amount of the Securities may
petition any court of competent jurisdiction for the appointment of a
successor Trustee.

If the Trustee fails to comply with Section 6.10, any
Securityholder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.

A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and

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to the Company. Thereupon the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture and the Pledge
Agreement. The successor Trustee shall mail a notice of its succession to
Securityholders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, subject to the Lien provided
for in Section 6.7.

SECTION 6.9 SUCCESSOR TRUSTEE BY MERGER, ETC.

If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.

SECTION 6.10 ELIGIBILITY; DISQUALIFICATION.

This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA Section
310(b). Nothing herein shall prevent the Trustee from filing with the SEC the
application referred to in the second-to-last paragraph of TIA Section 310(b).

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SECTION 6.11 PREFERENTIAL COLLECTION OF CLAIMS
AGAINST COMPANY.

The Trustee shall comply with TIA Section 311(a), except with
respect to any creditor relationship listed in TIA Section 311(b). A Trustee
who has resigned or been removed is subject to TIA Section 311(a) to the extent
indicated.

ARTICLE VII

SATISFACTION AND DISCHARGE OF INDENTURE

SECTION 7.1 DISCHARGE OF LIABILITY ON SECURITIES;
DEFEASANCE.

If (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.7) for
cancellation or (ii) all outstanding Securities have become due and payable
and the Company irrevocably deposits with the Trustee as trust funds solely
for the benefit of the Holders for that purpose funds sufficient to pay at
maturity the principal of and all accrued interest on all outstanding
Securities (other than Securities replaced pursuant to Section 2.7), and if in
either case the Company pays all other sums payable hereunder by the Company,
then, subject to Sections 7.2 and 7.7, this Indenture shall cease to be of
further effect. The Trustee shall acknowledge satisfaction and discharge of
this Indenture on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Company.

SECTION 7.2 TERMINATION OF COMPANY'S OBLIGATIONS.

Except as otherwise provided in this Section 7.2, the Company may
terminate its obligations under the Securities and this Indenture if:

(i) the Securities mature within one year or all of them are to
be called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (ii) the Company irrevocably
deposits in trust with the Trustee or Paying Agent (other than the Company or
a Subsidiary or Affiliate of

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the Company) during such one-year period, under the terms of an irrevocable
trust agreement in form and substance satisfactory to the Trustee, as trust
funds solely for the benefit of the Holders for that purpose, money or U.S.
Government Obligations sufficient (in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee), without consideration of any reinvestment
of such interest, to pay principal and interest on the Securities to maturity
or redemption, as the case may be, and to pay all other sums payable by it
hereunder, (iii) no Default shall have occurred and be continuing on the date
of such deposit, (iv) such deposit will not result in or constitute a Default
or result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company is a party or by which it
is bound and (v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with; PROVIDED that the
Trustee or Paying Agent shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government Obligations to the payment of
such principal and interest with respect to the Securities.

With respect to the foregoing, the Company's obligations in
Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.1, 3.2, 6.7, 6.8, 7.5 and 7.6
shall survive until the Securities are no longer outstanding. Thereafter,
only the Company's obligations in Sections 6.7, 6.8 and 7.6 shall survive.
After any such irrevocable deposit, the Trustee upon request shall acknowledge
in writing the discharge of the Company's obligations under the Securities and
this Indenture except for those surviving obligations specified above.

SECTION 7.3 DEFEASANCE AND DISCHARGE OF INDENTURE.

The Company will be deemed to have paid and will be discharged
from any and all obligations in respect of the Securities on the 123rd day
after the date of the deposit referred to in clause (i) hereof, and the
provisions of this Indenture will no longer be in effect with respect to the
Securities, and the Trustee, at the expense of the Company, shall execute
proper instruments

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acknowledging the same, except as to (a) rights of registration of transfer
and exchange, (b) substitution of apparently mutilated, defaced, destroyed,
lost or stolen Securities, (c) rights of Holders to receive payments of
principal thereof and interest thereon, (d) the Company's obligations under
Section 3.2, (e) the rights, obligations and immunities of the Trustee
hereunder and (f) the rights of the Holders as beneficiaries of this Indenture
with respect to the property so deposited with the Trustee payable to all or
any of them; PROVIDED that the following conditions shall have been
satisfied:

(i) with reference to this Section 7.3, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirement of Section 6.10)
or Paying Agent (other than the Company or a Subsidiary or Affiliate of
the Company) and conveyed all right, title and interest for the benefit
of the Holders, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the
benefit of the Holders, in and to, (A) money in an amount, (B) U.S.
Government Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount or (C) a combination
thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
without consideration of the reinvestment of such interest and after
payment of all federal, state and local taxes or other fees, charges and
assessments in respect thereof payable by the Trustee or Paying Agent,
the principal of and interest on the outstanding Securities when due;
PROVIDED that the Trustee or Paying Agent shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to the payment of such principal and interest with respect
to the Securities;

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(ii) such deposit will not result in or constitute a
Default or result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company is a party
or by which it is bound;

(iii) no Default shall have occurred and be continuing on
the date of such deposit or during the period ending on the 123rd day
after such date of deposit;

(iv) the Company shall have delivered to the Trustee (A)
either (1) a ruling directed to the Trustee received from the Internal
Revenue Service to the effect that the Holders will not recognize
income, gains or loss for federal income tax purposes as a result of the
Company's exercise of its option under this Section 7.3 and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such option had not
been exercised or (2) an Opinion of Counsel (who must not be an employee
of the Company) to the same effect as the ruling described in clause (1)
accompanied by a ruling to that effect published by the Internal Revenue
Service, unless there has been a change in the applicable federal income
tax law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (B) an Opinion of
Counsel to the effect that (1) the creation of the defeasance trust does
not violate the Investment Company Act of 1940, (2) after the passage of
123 days following the deposit (except, with respect to any trust funds
for the account of any Holder who may be deemed to be an "insider" for
purposes of Title 11 of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15
of the New York Debtor and Creditor Law in a case commenced by or
against the Company under either such statute, and either (x) the trust
funds will no longer remain the property of the Company (and therefore,
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally) or (y) if a court were to rule under any

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such law in any case or proceeding that the trust funds remained
property of the Company, (I) assuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent not
paid to Holders, the Trustee will hold, for the benefit of the Holders,
a valid and perfected security interest in such trust funds that is not
avoidable in bankruptcy or otherwise except for the effect of Section
552(b) of the United States Bankruptcy Code on interest on the trust
funds accruing after the commencement of a case under such statute and
(II) the Holders will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used in such
case or proceeding; and

(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 7.3 have been complied with.

Notwithstanding the foregoing clause (i), prior to the end of the
123-day period referred to in clause (iv)(B)(2) above, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end
of such 123-day period with respect to this Section 7.3, the Company's
obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.1, 3.2, 6.7,
6.8, 7.6 and 7.7 shall survive until the securities are no longer outstanding.
Thereafter, only the Company's obligations in Sections 6.7, 7.6 and 7.7 shall
survive. If and when a ruling from the Internal Revenue Service or Opinion of
Counsel referred to in clause (iv)(A) above is able to be provided
specifically without regard to, and not in reliance upon, the continuance of
the Company's obligations under Section 3.1, then the Company's obligations
under such Section 3.1 shall cease upon delivery to the Trustee of such ruling
or Opinion of Counsel and compliance with the other conditions precedent
provided for herein relating to the defeasance contemplated by this Section
7.3.

After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and

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this Indenture except for those surviving obligations in the immediately
preceding paragraph.

SECTION 7.4 DEFEASANCE OF CERTAIN OBLIGATIONS.

The Company may omit to comply with any term, provision or
condition set forth in clauses (d), (e) and (f) of Section 4.1 and Sections
3.3 through 3.19, and clause (c) of Section 5.1 with respect to clauses (d),
(e) and (f) of Section 4.1 and Sections 3.3 through 3.19, and clauses (d) and
(e) of Section 5.1 shall be deemed not to be Events of Default, in each case
with respect to the outstanding Securities if:

(i) with reference to this Section 7.4, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section 6.10)
or Paying Agent (other than the Company or a Subsidiary or Affiliate of
the Company) and conveyed all right, title and interest for the benefit
of the Holders, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the
benefit of the Holders, in and to, (A) money in an amount, (B) U.S.
Government obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount or (C) a combination
thereof in an amount, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
without consideration of the reinvestment of such interest and after
payment of all federal, state and local taxes or other fees, charges and
assessments in respect thereof payable by the Trustee or Paying Agent,
the principal of and interest on the outstanding Securities when due;
PROVIDED that the Trustee or Paying Agent shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to the payment of such principal and interest with respect
to the Securities;

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(iii) no Default shall have occurred and be continuing on
the date of such deposit;

(iv) the Company has delivered to the Trustee an Opinion of
Counsel who is not employed by the Company to the effect that (A) the
creation of the defeasance trust does not violate the Investment Company
Act of 1940, (B) the Holders have a valid first-priority security
interest in the trust funds, (C) the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain obligations and will be subject to federal
income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred and (D) after the passage of 123 days following the deposit
(except, with respect to any trust funds for the account of any Holder
who may be deemed to be an "insider" for purposes of the United States
Bankruptcy Code, after one year following the deposit), the trust funds
will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in
a case commenced by or against the Company under either such statute,
and either (1) the trust funds will no longer remain the property of the
Company (and therefore, will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (2) if a court were to rule
under any such law in any case or proceeding that the trust funds
remained property of the Company, (x) assuming such trust funds remained
in the possession of the Trustee prior to such court ruling to the
extent not paid to Holders, the Trustee will hold, for the benefit of
the Holders, a valid and perfected security interest in such trust funds
that is not avoidable in bankruptcy or otherwise except for the effect
of Section 552(b) of the United States Bankruptcy Code on interest on
the trust funds accruing after the

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commencement of a case under such statute and (y) the Holders will be
entitled to receive adequate protection of their interests in such trust
funds if such trust funds are used in such case or proceeding; and

SECTION 7.5 APPLICATION OF TRUST MONEY.

Subject to Section 7.7 of this Indenture, the Trustee or Paying
Agent shall hold in trust money or U.S. Government Obligations deposited with
it pursuant to Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be,
and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of principal of
and interest on the Securities. The Trustee shall be under no obligation to
invest such money or U.S. Government Obligations except as it may agree with
the Company.

SECTION 7.6 REPAYMENT TO COMPANY.

Subject to Sections 6.7, 7.2, 7.3 and 7.4 of this Indenture, the
Trustee and the Paying Agent shall promptly pay to the Company upon request
any excess money held by them at any time and thereupon shall be relieved from
all liability with respect to such money. The Trustee and the Paying Agent
shall pay to the Company upon request any money held by them for the payment
of principal or interest that remains unclaimed for two years; PROVIDED,
HOWEVER, that the Company shall, if requested by the Trustee or the Paying
Agent, give the Trustee or such Paying Agent indemnification reasonably
satisfactory to it against any and all liability which may be incurred by it
by reason of such payment; and PROVIDED, FURTHER, that the Trustee or such
Paying Agent before being required to make any payment may cause to be
published at the expense of the Company once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money at such Holder's address as set forth in the Security Register notice

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that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.

SECTION 7.7 REINSTATEMENT.

If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 7.2, 7.3 or 7.4 of this
Indenture, as the case may be, by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 7.2, 7.3 or
7.4 of this Indenture, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 7.2, 7.3 or 7.4 of this Indenture, as
the case may be; PROVIDED that, if the Company has made any payment of
principal of or interest on any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.

ARTICLE VIII

AMENDMENTS AND SUPPLEMENTS

SECTION 8.1 WITHOUT CONSENT OF HOLDERS.

The Company and the Trustee may amend or supplement this
Indenture, the Pledge Agreement or the Securities without notice to or the
consent of any Securityholder:

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(a) to cure any ambiguity, omission, defect or inconsistency;

(b) to comply with Article IV;

(c) to provide for uncertificated Securities in addition to
certificated Securities; PROVIDED, HOWEVER, that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of the
Internal Revenue Code of 1986, as amended, or in a manner such that the
uncertificated Securities are described in Section 163(f)(2)(B) of the Code;

(d) to add additional guarantees with respect to the Securities
or to secure the Securities;

(e) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company;

(f) to comply with the requirements of the SEC in connection with
qualification of the Indenture under the TIA;

(g) to make any change that does not adversely affect the rights
of any Securityholder; or

(h) to provide for certain amendments to the Pledge Agreement
expressly called for therein and to add Collateral thereto;

After an amendment or supplement under this Section becomes
effective, the Company shall mail to Securityholders a notice briefly
describing such amendment or supplement. The failure to give such notice to
all Securityholders, or any defect therein, shall not impair or affect the
validity of an amendment or supplement under this Section.

SECTION 8.2 WITH CONSENT OF HOLDERS.

The Company and the Trustee may amend or supplement this
Indenture, the Pledge Agreement or the Securities with the written consent of
the Holders of a majority in principal amount of the Securities. However,
without the consent of each Securityholder affected, an amendment or
supplement under this Section may not:

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(a) reduce the amount of Securities the Holders of which must
consent to an amendment or supplement;

(b) reduce the rate of or change the time for payment of interest
on any Security;

(d) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may or shall be redeemed in
accordance with Article IX;

(e) make any Security payable in currency or consideration other
than that stated in the Security;

(f) make any change in Section 5.4, 5.7 or 8.2 (second sentence);
or

(g) directly or indirectly release Liens on all or substantially
all of the Collateral.

It shall not be necessary for the consent of the Holders under
this Section 8.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.

SECTION 8.3 COMPLIANCE WITH TRUST INDENTURE ACT.

Every amendment or supplement to this Indenture or the Securities
shall be set forth in a supplemental indenture that complies with the TIA as
then in effect.

SECTION 8.4 REVOCATION AND EFFECT OF CONSENTS.

Until an amendment or supplement under this Article or a waiver
under Article VI becomes effective, a

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consent to it by a Holder of a Security is a continuing consent by the Holder
and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security, even if notation
of the consent is not made on any Security. However, any such Holder or
subsequent Holder may revoke the consent as to his Security or portion of a
Security if the Trustee receives the notice of revocation before the date the
amendment, supplement or waiver becomes effective.

After an amendment or supplement becomes effective, it shall bind
every Securityholder.

SECTION 8.5 NOTATION ON OR EXCHANGE OF SECURITIES.

If an amendment changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee. The Trustee
may place an appropriate notation on the Security regarding the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment.

SECTION 8.6 TRUSTEE TO SIGN AMENDMENTS.

The Trustee shall sign any supplemental indenture which sets forth
an amendment or supplement authorized pursuant to this Article if the
amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may but
need not sign it. In signing such supplemental indenture the Trustee shall be
entitled to receive, and (subject to Section 6.1) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such supplemental indenture is authorized or permitted by this Indenture.

SECTION 8.7 FIXING OF RECORD DATES.

The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to take any action under
this Indenture

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by vote or consent. Except as provided herein, such record date shall be the
later of 30 days prior to the first solicitation of such consent or vote or
the date of the most recent list of Securityholders furnished to the Trustee
pursuant to Section 2.5 prior to such solicitation. If a record date is
fixed, those Persons who were Securityholders at such record date (or their
duly designated proxies), and only those Persons, shall be entitled to take
such action by vote or consent or to revoke any vote or consent previously
given, whether or not such Persons continue to be Holders after such record
date; PROVIDED, HOWEVER, that unless such vote or consent is obtained from
the Holders (or their duly designated proxies) of the requisite principal
amount of outstanding Securities prior to the date which is the 120th day
after such record date, any such vote or consent previously given shall
automatically and without further action by any Holder be canceled and of no
further effect.

ARTICLE IX

REDEMPTION

SECTION 9.1 NOTICES TO TRUSTEE.

If the Company elects to redeem Securities pursuant to paragraph 5
of the Securities it shall notify the Trustee of the redemption date and the
principal amount (not including any premium in respect thereof) of Securities
to be redeemed and the paragraph of the Securities pursuant to which the
redemption will occur.

The Company shall give the notices provided for in this Section at
least 40 days before the redemption date (unless a shorter period shall be
satisfactory to the Trustee). Such notice shall be accompanied by an
Officers' Certificate to the effect that such redemption will comply with the
conditions herein. If fewer than all the Securities are to be redeemed, the
record date relating to such redemption shall be selected by the Company and
given to the Trustee, which record date shall be not less than 15 days after
the date of notice to the Trustee.

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SECTION 9.2 SELECTION OF SECURITIES TO BE REDEEMED.

If fewer than all the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed pro rata or by lot or by any other
method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee considers, in its sole discretion,
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make
the selection not more than 75 days before the redemption date from
outstanding Securities not previously called for redemption. The Trustee may
select for redemption portions of the principal of Securities that have
denominations larger than $1,000 in original principal amount at maturity.
Securities and portions of them selected by the Trustee shall be in amounts of
$1,000 or whole multiples of $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities
called for redemption.

SECTION 9.3 NOTICE OF REDEMPTION.

At least 30 days but not more than 60 days before a redemption
date, the Company shall mail a notice of redemption to each Holder whose
Securities are to be redeemed at the address set forth for such Holder on the
register referred to in Section 2.3.

The notice shall identify the Securities to be redeemed and shall
state:

(a) the redemption date;

(b) the redemption price;

(d) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;

(e) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;

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(f) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the redemption date; and

(g) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Securities.

At the Company's written request, made at least 45 days before a
redemption date, unless a shorter period shall be satisfactory to the Trustee,
the Trustee shall give the notice of redemption provided for in this Section
in the Company's name and at its expense.

SECTION 9.4 EFFECT OF NOTICE OF REDEMPTION.

Once notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at
the redemption price stated in the notice, plus accrued and unpaid interest to
the redemption date.

SECTION 9.5 DEPOSIT OF REDEMPTION PRICE.

Prior to the redemption date, the Company shall deposit with the
Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of
and accrued and unpaid interest on all Securities to be redeemed on that date
other than Securities or portions of Securities called for redemption which
have been delivered by the Company to the Trustee for cancellation.

SECTION 9.6 SECURITIES REDEEMED IN PART.

Upon surrender of a Security that is redeemed in part, the Company
shall execute and the Trustee shall authenticate for the Holder (at the
Company's expense) a new Security equal in principal amount to the unredeemed
portion of the Security surrendered.

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ARTICLE X

SECURITY AND PLEDGE OF COLLATERAL

SECTION 10.1 COLLATERAL DOCUMENTS.

The due and punctual payment of the principal of, premium, if any,
and interest on the Securities when and as the same shall be due and payable,
whether on an interest payment date, at maturity, by acceleration, repurchase,
redemption or otherwise, and interest on the overdue principal of, premium and
interest (to the extent permitted by law), if any, on the Securities and
performance of all other Obligations of the Company to the Holders or the
Trustee under this Indenture and the Securities, according to the terms
hereunder and thereunder, shall be secured as provided in the Pledge
Agreement. Each Holder, by its acceptance of a Security, consents and agrees
to the terms of the Pledge Agreement (including, without limitation, the
provisions providing for foreclosure and release of Collateral) as the same
may be in effect or may be amended from time to time in accordance with the
terms thereof and hereof and authorizes and directs the Trustee to enter into
the Pledge Agreement and to perform its Obligations and exercise its rights
thereunder in accordance therewith. The Company will do or cause to be done
all such acts and things as may be necessary or proper, or as may be required
by the provisions of the Pledge Agreement, to assure and confirm to the
Trustee the security interest in the Collateral contemplated hereby and by the
Pledge Agreement, as from time to time constituted, so as to render the same
available for the security and benefit of this Indenture and of the Securities
secured hereby, according to the intent and purposes herein expressed. The
Company shall take, upon request of the Trustee, any and all actions
reasonably required to cause the Pledge Agreement to create and maintain, as
security for the Obligations of the Company under this Indenture and the
Securities, valid and enforceable, perfected (except as expressly provided
therein), Liens in and on all the Collateral, in favor of the Trustee,
superior to and prior to the rights of all third Persons, and subject to no
other Liens, other than as provided herein and therein.

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SECTION 10.2 RECORDING AND OPINIONS.

The Company shall furnish to the Trustee within 5 days after the
execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, the Pledge
Agreement, financing statements or other instruments necessary to make
effective the Lien intended to be created by the Pledge Agreement, and
reciting the details of such action, or (ii) stating that, in the opinion of
such counsel, no such action is necessary to make such Lien effective.

SECTION 10.3 REMEDIES UPON AN EVENT OF DEFAULT.

(a) Upon the occurrence of an Event of Default, then or at any
time during the continuance of such occurrence, the Trustee is hereby
authorized and empowered, at its election, in accordance with its rights
hereunder and under the Pledge Agreement (i) to transfer and register in its
or its nominee's name the whole or any part of the Collateral, (ii) to
exercise all voting rights with respect thereto, (iii) to demand, sue for,
collect, receive and give acquittance for any and all cash dividends or other
distributions or monies due or to become due upon or by virtue thereof, and to
settle, prosecute or defend any action or proceeding with respect thereto,
(iv) to transfer to or to register in the name of the Trustee or any of its
nominees any or all of the Collateral, (v) to exchange certificates or
instruments representing or evidencing the Collateral for certificates or
instruments of different denominations, (vi) to sell in one or more sales the
whole or any part of the Collateral or otherwise to transfer or assign the
same, applying the proceeds therefrom to the payment of the Securities in
accordance with Section 5.10, and (vii) otherwise to act with respect to the
Collateral or the proceeds thereof as though the Trustee were the outright
owner thereof.

SECTION 10.4. RELEASE OF THE COLLATERAL

(a) As long as no Event of Default shall have occurred and be
continuing, at the sole cost and expense of the Company, the Company shall be
entitled at any time and from time to time to request the Trustee to release a

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portion of the Collateral and the Trustee shall release such portion of the
Collateral upon:

(i) payment in full of all obligations under this Indenture
and the termination thereof; or

(ii) the sale or other disposition of the Collateral (the
"Collateral Sale") if (A) the Company or a Subsidiary receives
consideration at the time of the Collateral Sale at least equal to the
fair market value, as determined in good faith by the Board of
Directors, of the Collateral subject to the sale or disposition, (B) at
least 80% of the consideration thereof received by the Company or a
Subsidiary is in the form of Additional Assets or cash or cash
equivalents which cash equivalents are promptly converted into cash by
the Company (or a Subsidiary, as the case may be), (C) an amount equal
to 100% of the Net Available Cash is immediately deposited in the
Collateral Account to be used in accordance with Section 10.4(b), (D)
the non-cash proceeds from such Collateral Sale (including securities or
other Additional Assets) received by the Company or a Subsidiary
immediately become subject to a first priority perfected Lien in favor
of the Trustee, and (E) the Company (or a Subsidiary, as the case may
be) complies with all the requirements of Section 10.6,

PROVIDED, that the Trustee shall not release any Lien on any Collateral
pursuant to this Section 10.5 unless and until it shall have received from the
Company an Officers' Certificate certifying that all conditions precedent
hereunder have been met and such other documents required by Section 10.7
hereof. Upon compliance with the above provisions, the Trustee shall execute,
deliver or acknowledge any necessary or proper instruments of termination,
satisfaction or release to evidence the release of any Collateral permitted to
be released pursuant to this Indenture.

(b) Within three hundred and sixty (360) days (such 360 days
being the "Collateral Application Period") following the sale or disposition
of the Collateral, the Company or such Subsidiary shall apply the Net
Available Cash from such Collateral Sale as follows: (i) FIRST, to the
extent the Company or the Subsidiary elects, to

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reinvest in Additional Assets, provided, however, that, when acquired, such
Additional Assets are subject to a first priority perfected Lien in favor of
the Trustee; (ii) SECOND, to the extent of the balance of such Net Available
Cash after application in accordance with clause (i), and to the extent the
Company or such Subsidiary elects, to make an offer to purchase the Securities
at not less than 100% of their Accreted Value, plus accrued interest (if any)
pursuant to and subject to the conditions of Section 10.5(a); and (iii)
THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (i) and (ii), and to the extent the
Company or such Subsidiary elects, to acquire or form a Subsidiary which, when
acquired or formed, the Capital Stock of such Subsidiary shall be subject to a
first priority perfected Lien in favor of the Trustee. To the extent that any
Net Available Cash remains after the application of the Net Available Cash in
accordance with the previous sentence, such Net Available Cash will remain in
the Collateral Account and will not be released until the obligations of the
Company under this Indenture and the Securities have been discharged.

SECTION 10.5. PURCHASE OF SECURITIES WITH NET AVAILABLE CASH.

(a) In the event of a purchase of Securities pursuant to clause
(ii) of Section 10.4(b), the Company will purchase Securities tendered
pursuant to an offer by the Company for the Securities (the "Collateral Sale
Offer") at a purchase price of not less than 100% of their Accreted Value plus
accrued interest to the Collateral Sale Purchase Date in accordance with the
procedures (including prorationing in the event of oversubscription) set forth
below. If the aggregate purchase price of Securities tendered pursuant to the
Collateral Sale Offer is less than the Net Available Cash allotted to the
purchase of the Securities, the Company shall apply the remaining Net
Available Cash in accordance with Section 10.4(b).

(b) Promptly, and in any event prior to the 360th day after the
later of the date of each Collateral Sale as to which the Company makes a
Collateral Sale Offer or the receipt of Net Available Cash therefrom, the
Company shall be obligated to deliver to the Trustee and send, by first-class
mail to each Holder, a written

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notice stating that the Holder may elect to have his Securities purchased by
the Company either in whole or in part (subject to prorationing as hereinafter
described in the event the Collateral Sale Offer is oversubscribed) in
integral multiples of $1,000 of principal amount at maturity, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days, nor more than 60 days, after the date of such notice (the
"Collateral Sale Purchase Date") and shall contain the information required in
a notice for a Change of Control Offer as described in Section 3.8, to the
extent applicable.

(c) Not later than the date upon which written notice of a
Collateral Sale Offer is delivered to the Trustee as provided below, the
Company shall deliver to the Trustee an Officers' Certificate as to (i) the
amount of the Collateral Sale Offer (the "Collateral Sale Offer Amount"), (ii)
the allocation of the Net Available Cash from the Collateral Sale pursuant to
which such Collateral Sale Offer is being made and (iii) the compliance of
such allocation with Section 10.4(a). On such date, the Trustee shall also
deposit with a Paying Agent other than the Company or a Subsidiary or an
Affiliate of the Company funds in an amount equal to the Collateral Sale Offer
Amount to be held for payment in accordance with the provisions of Section
10.4. Upon the expiration of the period for which the Collateral Sale Offer
remains open (the "Collateral Offer Period"), the Company shall deliver, or
cause to be delivered, to the Trustee the Securities or portions thereof which
have been properly tendered to and are to be accepted by the Company. The
Paying Agent shall, on the Collateral Sale Purchase Date, mail or deliver
payment to each tendering Holder in the amount of the purchase price. In the
event that the aggregate purchase price of the Securities delivered, or caused
to be delivered, by the Company to the Trustee is less than the Collateral
Sale Offer Amount, the Paying Agent shall deliver the excess to the Trustee
immediately after the expiration of the Collateral Offer Period and the
Trustee shall place such funds in the Collateral Account.

(d) Holders electing to have a Security purchased will be
required to surrender the Security, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Security duly completed, to the
Compa-

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ny or the Paying Agent, as specified in, and at the address specified in, the
notice at least ten Business Days prior to the Collateral Sale Purchase Date.
Holders will be entitled to withdraw their election if the Trustee or the
Paying Agent receives, not later than three Business Days prior to the
Collateral Sale Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Security which was delivered for purchase by the Holder and a statement that
such Holder is withdrawing his election to have such Security purchased. If
at the expiration of the Collateral Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Collateral Sale Offer
Amount, the Company shall select the Securities to be purchased on a pro rata
basis (with such adjustments as may be deemed appropriate by the Company so
that only Securities in denominations of $1,000, or integral multiples
thereof, shall be purchased). Holders whose Securities are purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.

(e) At the time the Company delivers Securities to the Trustee
which are to be accepted for purchase, the Company will also deliver an
Officers' Certificate stating that such Securities are to be accepted by the
Company pursuant to and in accordance with the terms of this Section. A
Security shall be deemed to have been accepted for purchase at the time the
Paying Agent, directly or through an agent, mails or delivers payment therefor
to the surrendering Holder.

(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant
to clause (ii) of Section 10.4(b). To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section by
virtue thereof.

SECTION 10.6. CERTIFICATES OF COMPANY.

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(a) The Company will furnish to the Trustee prior to each
proposed release of Collateral pursuant to Section 10.4 all documents required
by Sections 314(c) and 314(d) of the TIA. The Trustee may, to the extent
permitted by Sections 6.1 and 6.2 hereof, accept as conclusive evidence of
compliance with the foregoing provisions the appropriate statements contained
in such instruments. Any certificate or opinion required by Sections 314(c)
and 314(d) of the TIA may be made by an Officer of the Company, except in
cases where TIA Sections 314(c) and 314(d) require that such certificate or
opinion be made by an independent engineer, appraiser or other expert within
the meaning of Sections 314(c) and 314(d) of the TIA.

SECTION 10.7 AUTHORIZATION OF ACTIONS TO BE TAKEN UNDER THE PLEDGE
AGREEMENT

The Trustee may, in its sole discretion and without the consent of
the Holders, on behalf of the Holders, take all actions its deems necessary or
appropriate in order to (a) enforce any of the terms of the Pledge Agreement
and (b) collect and receive any and all amounts payable in respect of the
Obligations of the Company hereunder. The Trustee shall have the power to
institute and to maintain such suits and proceedings as it may deem expedient
to prevent any impairment of the Collateral by any acts that may be unlawful
or in violation of the Pledge Agreement or this Indenture, and such suits and
proceedings as the Trustee may deem expedient to preserve or protect its
interests and interests of the Holders in the Collateral (including power to
institute and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders or of the
Trustee).

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ARTICLE XI

MISCELLANEOUS

SECTION 11.1 TRUST INDENTURE ACT CONTROLS.

If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by any of TIA Sections 310 to 317, inclusive, through
operation of TIA Section 318(c), such imposed duties shall control.

SECTION 11.2 NOTICES.

Any notice or communication shall be in writing and delivered in
person, or mailed by first-class mail (certified, return receipt requested),
addressed as follows:

if to the Company:

Empire Gas Corporation
1700 South Jefferson Street
P.O. Box 303
Lebanon, Missouri 65536
Attention: Secretary

if to the Trustee:

Shawmut Bank Connecticut,
National Association
777 Main Street - MSNZ38
Hartford, Connecticut 06115
Attention: Corporate Trust Department

The Company or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications.

Any notice or communication to a Securityholder shall be mailed by
first-class mail to the Securityholder's address shown on the register kept
by the Registrar. Failure to mail a notice or communication to a
Securityholder or any defect in it shall not affect its sufficiency with
respect to other Securityholders.

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If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.

If the Company mails a notice or communication to Securityholders,
it shall mail a copy to the Trustee and each Agent at the same time.

SECTION 11.3 COMMUNICATION BY HOLDERS WITH OTHER
HOLDERS.

Securityholders may communicate pursuant to TIA Section312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall
have the protection of TIA Section312(c).

SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall, if requested by the
Trustee, furnish to the Trustee:

(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers, all
conditions precedent (including any covenants compliance with which
constitutes a condition precedent), if any, provided for in this Indenture
relating to the proposed action have been complied with; and

(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel
(which may rely upon an Officers' Certificate as to factual matters), all such
conditions precedent have been complied with.

SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR
OPINION.

Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture other than certificates
provided pursuant to Section 3.9 shall include:

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(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;

(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;

(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and

(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.

SECTION 11.6 RULES BY TRUSTEE AND AGENTS.

The Trustee may make reasonable rules for action by or a meeting
of Securityholders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.

SECTION 11.7 LEGAL HOLIDAYS.

A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the State of New York or
the State in which the office of the Paying Agent is located. If a payment
date is a Legal Holiday, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for
the intervening period. If a regular record date is a Legal Holiday, the
regular record date shall not be affected.

SECTION 11.8 SUCCESSORS; NO RECOURSE AGAINST OTHERS.

(a) All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.

(b) All liability of the Company described in the Securities
insofar as it relates to any director,

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<PAGE>

officer, employee or stockholder, as such, of the Company is waived and
released by each Securityholder.

SECTION 11.9 DUPLICATE ORIGINALS.

The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.

SECTION 11.10 OTHER PROVISIONS.

The first certificate pursuant to Section 3.9 shall be for the
fiscal year ending on June 30, 1994. The reporting date for Section 6.6 is
_______ of each year. The first reporting date is _________.

SECTION 11.11 GOVERNING LAW.

The laws of the State of New York govern this Indenture and the
Securities, without regard to the conflicts of laws rules thereof.

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SIGNATURES

Dated: , 199_

EMPIRE GAS CORPORATION

By_______________________
Name:
Title:

Attest: By_______________________
Name:
Title:
_________________________

SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, as Trustee

By_______________________
Name:
Title:

[SEAL]

Attest:

_________________________
Assistant Secretary

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<PAGE>

EXHIBIT A

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Form of Face of Security)

Unless this certificate is presented by an authorized
representative of The Depositary Trust Company, a New York corporatio ("DTC"),
to the Company (as defined below) or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co., or such other name as is requested by an authorized representative
of DTC (and any payment is made to Cede & Co., or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

Unless and until it is exchanged in whole or in part for
Securities in definitive registered form, this certificate may not be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of
DTC to DTC or another nominee of DTC or by DTC or any such nominee to a
successor Depositary or a nominee of such successor Depositary.

EMPIRE GAS CORPORATION
__% SENIOR SECURED NOTE DUE 2004

No. $

Empire Gas Corporation, a Missouri corporation, promises to pay to
, or registered assigns, the principal sum of Dollars on ,
2004.

Interest Payment Dates:
Record Dates:

Additional provisions of this Security are set forth on the
reverse hereof.

<PAGE>

IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.

Date:

EMPIRE GAS CORPORATION

By____________________________________
Name:
Title:

TRUSTEE'S CERTIFICATE
OF AUTHENTICATION:

, as Trustee,
certifies that this is one
of the Securities referred
to in the Indenture. (SEAL)

By: _________________________
Authorized Signature

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

A-2

<PAGE>

(Form of Back of Security)

EMPIRE GAS CORPORATION
__% SENIOR SECURED NOTE DUE 2004

(1) INTEREST. Empire Gas Acquisition Corporation, a Missouri
corporation (such corporation, and its successors and assigns under the
Indenture referred to below, being herein called the "Company"), promises to
pay interest on the Accreted Value of this Security at the rate of this Note
on [ ]% per annum until [ ], 1999 and at the rate of [ ]% per annum
from and including [ ], 1999 until maturity.

Interest will be payable semiannually (to the holders of record of
the Securities at the close of business on the [ ] or [ ]
immediately preceding the Interest Payment Date) on each Interest Payment
Date, commencing [ ], 1994.

Interest on the Securities will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from
[ ], 1994; PROVIDED that, if there is no existing default in the payment
of interest and if this Security is authenticated between a Regular Record Date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such Interest Payment Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

The Company shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum that is 2% in excess of the rate otherwise
payable.

(2) METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the persons who are registered
Holders of Securities at the close of business on the record date next
preceding the interest payment date even though Securities are canceled after
the record date and on or before the interest payment date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal and

A-3

<PAGE>

interest by check payable in such money. It may mail an interest check to a
Holder's registered address.

(3) PAYING AGENT, REGISTRAR. Initially, Shawmut Bank
Connecticut, N.A., a Connecticut banking corporation (the "Trustee"), will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without notice. The Company may act as Paying
Agent, Registrar or co-registrar.

(4) INDENTURE. The Company issued the Securities under an
Indenture dated as of , 1994 (the "Indenture") between the
Company and the Trustee. The Securities are general obligations of the
Company limited to $ in aggregate principal amount at maturity. The
Securities are secured by obligations of the Company. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) (the "TIA"). Capitalized terms used herein but not defined
herein are used as defined in the Indenture, and references to the principal
amount of any Security refer to the accreted value of such Security as
determined pursuant to the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the TIA for a
statement of such terms.

(5) OPTIONAL REDEMPTION. Except as set forth in the following
paragraph, the Company may not redeem the Securities prior to _____. 1999. On
and after such date, the Company may redeem the Securities at any time as a
whole, or from time to time in part, at the following redemption prices
(expressed in percentages of Accreted Value), plus accrued interest to the
redemption date, if redeemed during the 12-month period beginning _____,

Year %
---- -
1999 . . . . . . . . . .
2000 . . . . . . . . . .
2001, and thereafter . .

The Company may redeem up to $ principal amount at
maturity of Securities with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at any time in whole or
from time to time in part, at a price (expressed as a percentage of Accreted

A-4
<PAGE>

Value), plus accrued interest to the redemption date, of % if redeemed at
any time prior to , 1997.

(6) NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at the address set forth for such Holder
on the register referred to in Section 2.3 of the Indenture. Unless the
Company shall default in payment of the redemption price plus accrued
interest, on and after the redemption date interest ceases to accrue on such
Securities or portions of them called for redemption. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000.

(7) DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 in face amount and
whole multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not exchange or register the transfer of
any Security or portion of a Security selected for redemption (except, in the
case of a Security to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed, or 15 days before an interest payment date.

(8) PUT PROVISIONS. Upon a Change of Control, any Holder of
Securities will have the right to cause the Company to repurchase all or any
part of the Securities of such Holder at a repurchase price equal to 10_% of
the principal amount of the Securities to be repurchased plus accrued interest
to the date of repurchase as provided in, and subject to the terms of, the
Indenture.

(9) DEFEASANCE. Subject to certain conditions, the Company at
any time may terminate some or all of its obligations under the Securities and
the Indenture if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.

A-5
<PAGE>

(10) SECURITY. As provided in the Indenture and the Pledge
Agreement, and subject to certain limitations set forth therein, the
Obligations of the Company under the Indenture and the Pledge Agreement are
secured by the Collateral as provided in the Indenture and the Pledge
Agreement. Each Holder, by accepting a Security, agrees to be bound by all
terms and provisions of the Pledge Agreement, as the same may be amended from
time to time. The Liens created under the Indenture and the Pledge Agreement
shall be released upon the terms and subject to the conditions set forth in
the Indenture and Pledge Agreement.

(11) PERSONS DEEMED OWNERS. The registered Holder of a
Security may be treated as its owner for all purposes, except that interest
(other than defaulted interest) will be paid to the person that was the
registered Holder on the relevant record date for such payment of interest.

(12) AMENDMENTS AND WAIVERS. Subject to certain exceptions,
(i) the Indenture or the Securities may be amended or supplemented with the
consent of the Holders of a majority in principal amount of the Securities;
and (ii) any existing default may be waived with the consent of the Holders of
a majority in principal amount of the Securities. Without the consent of any
Securityholder, the Indenture or the Securities may be amended or supplemented
to cure any ambiguity, omission, defect or inconsistency, to provide for
assumption of Company obligations to Securityholders or to provide for
uncertificated Securities in addition to or in place of certificated
Securities, to provide for guarantees with respect to, or security for, the
Securities, or to comply with the TIA or to add additional covenants or
surrender Company rights, to make certain amendments to the Pledge Agreement
called for therein to add Collateralor to make any change that does not
adversely affect the Rights of any Securityholder.

(13) REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or Holders of at least 25% in principal amount of the
Securities may declare all the Securities to be due and payable immediately.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require an indemnity before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the Securities may direct the
Trustee

A-6
<PAGE>

in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a Default in payment
of principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.

(14) TRUSTEE DEALINGS WITH COMPANY. Subject to the provisions
of the TIA, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for
the Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee. The Trustee will initially be Shawmut
Bank Connecticut, National Association.

(15) NO RECOURSE AGAINST OTHERS. A director, officer, employee
or stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.

(16) AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of an authorized signatory of the
Trustee or an authenticating agent.

(17) ABBREVIATIONS. Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).

Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP
numbers to be printed on the Securities and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Securityholders.
No representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.

A-7
<PAGE>

THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE AND THE PLEDGE AGREEMENT,
WHICH INDENTURE HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS
MAY BE MADE TO: SECRETARY, EMPIRE GAS CORPORATION, 1700 SOUTH JEFFERSON
STREET, P.O. BOX 303, LEBANON, MISSOURI, 65536 ATTENTION: SECRETARY.

A-8
<PAGE>

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

ASSIGNMENT FORM

To assign this Security, fill in the form below:
I or we assign and transfer this Security to

(Insert assignee's soc. sec or tax I.D. no.)

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.

Dated:_________________________ Signed:________________________________

_______________________________________
(Sign exactly as your name appears on
the other side of this Security)

Signature Guarantee:____________________________________________________________

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

OPTION OF HOLDER TO ELECT PURCHASE FORM

If you wish to elect to have this Security purchased by the Company
pursuant to Section 3.8, 3.12 or 10.5 of the Indenture, check this box:
/ /
If you wish to elect to have only part of this Security purchased by the
Company pursuant to Section 3.8, 3.12 or 10.5 of the Indenture, state the
amount: $

*As set forth in the Indenture, any purchase pursuant to Section 3.12 is
subject to proration in the event the offer is oversubscribed.

Dated:_________________________ Signed:________________________________

_______________________________________
(Sign exactly as your name appears on
the other side of this Security)

Signature Guarantee:____________________________________________________________

A-9

<PAGE>

EXHIBIT B

FORM OF SUBORDINATION PROVISIONS

[THE TERM "SECURITIES" IN THIS FORM
REFERS TO THE SUBORDINATED SECURITIES
REFERRED TO IN THE DEFINITION OF
"REFINANCING INDEBTEDNESS" AND SECTION 3.3(b)
TO WHICH THESE PROVISIONS WOULD APPLY.]

ARTICLE ___

SUBORDINATION

SECTION 11.12 AGREEMENT TO SUBORDINATE.

The Company agrees, and each Securityholder by accepting a Security
agrees, that the indebtedness evidenced by the Securities is subordinated in
right of payment, to the extent and in the matter provided herein, to the
prior payment in full of all Senior Debt, and that the subordination is for
the benefit of the holders of Senior Debt.

SECTION 11.13 CERTAIN DEFINITIONS.

"REPRESENTATIVE" means the indenture trustee or other trustee, agent
or representative for an issue of Senior Debt.

"SENIOR DEBT" means (a) the principal of and accrued and unpaid
interest (including interest accruing on or after filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a
claim for post-filing interest is allowed in such proceeding) in respect of
(1) indebtedness (other than the Securities) of the Company for money
borrowed, including, without limitation, the Senior Secured Notes Due 2004 of
the Company, and for the reimbursement of amounts paid under letters of
credit, (2) express written guarantees by the Company of indebtedness for
money borrowed by any other Person, (3) indebtedness evidenced by notes,
debentures, bonds or other instruments of indebtedness for the payment of
which the Company is responsible or liable, by guarantees or otherwise, (4)
obligations of the Company under any agreement in respect of any interest rate
or currency swap, interest rate cap, floor or collar, interest rate future,
currency exchange or for-

B-1

<PAGE>

ward currency transaction, or any similar interest rate or currency hedging
transaction, but only to the extent such obligations relate to other Senior Debt
(exclusive of Senior Debt consisting of obligations referred to in this clause
(4)) and (5) obligations of the Company under any agreement to lease, or any
lease of, any real or personal property which, in accordance with generally
accepted accounting principles, is classified upon the Company's balance sheet
as a liability, irrespective of whether in any case referred to in the foregoing
(1) through (5) such indebtedness, guarantee or obligation is outstanding on the
date of execution of this Indenture or thereafter created, incurred or assumed,
and (b) modifications, renewals, extensions and refundings of any such
indebtedness, guarantee or obligation; unless, in any case referred to in the
foregoing clauses (a) and (b), in the instrument creating or evidencing the
indebtedness, guarantee or obligation or pursuant to which the same is
outstanding, it is provide that such indebtedness, guarantee or obligation, or
such modification, renewal, extension or refunding thereof, is not superior in
right of payment to the Securities; PROVIDED, HOWEVER, that Senior Debt shall
not be deemed to include (i) any obligation of the Company to any Subsidiary and
(ii) any other indebtedness, guarantee or obligation of the Company of the type
set forth in clauses (a) or (b) above which is subordinate or junior in ranking
in any respect to any other indebtedness, guarantee or obligation of the
Company.

SECTION 11.14 LIQUIDATION, DISSOLUTION, BANKRUPTCY.

Upon any payment or distribution of assets of the Company to creditors
upon a liquidation or total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:

(1) holders of Senior Debt shall be entitled to receive payment
in full of the Senior Debt before Securityholders shall be entitled to
received any payment of principal of, or interest on, the Securities;
and

(2) until Senior Debt shall received payment in full, any
distribution to which Securityholders would be entitled but for this
Article shall be made to holders of Senior Debt as their interests may
appear, except that Securityholders may receive securities that

B-2

<PAGE>

are subordinated to Senior Debt to at least the same extent as the
Securities.

For purposes of this Section "payment in full", as used with respect to Senior
Debt, means the receipt of cash or securities (taken at their fair value at
the time of receipt, determined as hereinafter provided) equal to the
principal of and interest on the Senior Debt to the date of payment. "Fair
value" means (i) if the securities are quoted on a nationally recognized
securities exchange, the closing price on the day such securities are received
or, if there are no sales reported on that day, the reported closing bid price
on that day, and (ii) if the securities are not so quoted, a price determined
by a nationally recognized investment banking house selected by the Trustee or
the Holders of a majority in principal amount of the Securities and the
Representative or the holders of Senior Debt receiving such securities, such
price to be determined as of the date of receipt of such securities by the
holders of Senior Debt.

SECTION 11.15 DEFAULT ON SENIOR DEBT.

(a) The Company may not pay principal of or interest on the Securities
and may not (and may not permit any Subsidiary to) acquire any Securities for
cash or property, other than capital stock of the Company, if:

(i) a default in the payment of any principal of or interest on
any Senior Debt occurs and is continuing, whether at maturity or at a
date fixed for redemption or by declaration or otherwise; or

(ii) a default on Senior Debt (other than as described in clause
(a)(i) of this Section) occurs and is continuing that permits holders of
such Senior Debt to accelerate its maturity, and the default is the
subject of judicial proceedings or the Company receives a notice of the
default from a Person who may give it pursuant to Section .12 (if the
Company receives any such notice, a similar notice received within nine
months thereafter relating to the same default on the same issue of
Senior Debt shall not be effective for purposes of this Section).

(b) The Company may resume payment on the Securities and the Company
or a Subsidiary may acquire them when:

B-3
<PAGE>

(i) the default is cured or waived, or

(ii) in the case of clause (a)(ii) of this Section, 180 days pass
after the notice is given if the default is not the subject of judicial
proceedings,

if this Article otherwise permits the payment or acquisition at that time.

SECTION 11.16 ACCELERATION OF SECURITIES.

If payment of the Securities is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify holders of Senior
Debt and their Representative of the acceleration. The Company may not pay
principal of or interest on the Securities until after 180 days following the
acceleration and only if this Article permits the payment at that time.

SECTION 11.17 WHEN PAYMENT OR DISTRIBUTION MUST BE PAID OVER.

If a payment or distribution is made to Securityholders that because of
this Article should not have been made to them, the Securityholders who
receive the payment or distribution shall hold it in trust for holders of
Senior Debt and pay it over to them or their Representative, if any, as their
interests may appear promptly after receipt thereof.

SECTION 11.18 NOTICE BY COMPANY.

The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of principal of or
interest on the Securities to violate this Article.

SECTION 11.19 SUBROGATION.

After all Senior Debt is paid in full and until the Securities are paid
in full, Securityholders shall be subrogated to the rights of holders of
Senior Debt to receive distributions applicable to Senior Debt to the extent
that distributions otherwise payable to the Securityholders have been applied
to the payment of Senior Debt. A distribution made under this Article to
holders of Senior Debt which otherwise would have been made to Securityholders
is not, as

B-4
<PAGE>

between the Company and Securityholders, a payment by the Company on Senior
Debt.

SECTION 11.20 RELATIVE RIGHTS.

This Article defines the relative rights of Securityholders and holders
of Senior Debt. Nothing in this Indenture shall:

(a) impair, as between the Company and Securityholders, the obligation
of the Company, which is absolute and unconditional, to pay principal of and
interest on the Securities in accordance with their terms;

(b) affect the relative rights of Securityholders and creditors of the
Company other than holders of Senior Debt; or

(c) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of Senior
Debt to receive distribution otherwise payable to Securityholders.

SECTION 11.21 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.

No right of any holder of Senior Debt to enforce the subordination of
the indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.

SECTION 11.22 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.

Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.

SECTION 11.23 RIGHTS OF TRUSTEE AND PAYING AGENT.

The Trustee or Paying Agent may continue to make payments on the
Securities until it receives notice of facts that would cause a payment of
principal of or interest on the Securities to violate this Article. The
Company, the Registrar, the Paying Agent, a Representative or a holder of an
issue of Senior Debt that has no Representative may give the notice.

B-5
<PAGE>

The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do
the same with the like rights.

SECTION 11.24 TRUSTEE AND SECURITYHOLDERS ENTITLED TO RELY.

In connection with any payment or distribution pursuant to this Article,
the Trustee and the Securityholders shall be entitled to rely (i) upon any
order or decree of a court of competent jurisdiction in which any proceedings
of the nature referred to in Section .03 are pending, (ii) upon a certificate
of the liquidating trustee or agent or other Person making such payment or
distribution to the Securityholders or (iii) upon the Representative, if any,
of the holders of Senior Debt for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holders of the
Senior Debt and other indebtedness of the Company, the amount thereof or
payment thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article. In the event that the
Trustee determines, in good faith, that evidence is required with respect to
the right of any Person as a holder of Senior Debt to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Debt held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and other facts
pertinent to the rights of such Person under this Article, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.

SECTION 11.25 ARTICLE [ ] NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE.

The failure to make a payment pursuant to the Securities by reason of
any provision in this Article shall not be construed as preventing the
occurrence of a Default or an Event of Default. Nothing in this Article shall
have any effect on the right of the Securityholders to accelerate the maturity
of the Securities.

B-6
<PAGE>

SECTION 11.26 TRUSTEE TO EFFECTUATE SUBORDINATION.

Each Securityholder by accepting a Security authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate
to acknowledge or effectuate the subordination between the Securityholders and
the holders of Senior Debt as provided in this Article and appoints the
Trustee as attorney-in-fact for any and all such purposes.

SECTION 11.27 TRUSTEE NOT CHARGED WITH KNOWLEDGE OF PROHIBITION.

Notwithstanding the provisions of this Article or any other provision of
this Indenture, but subject to the provisions under "Duties of Trustee" and
"Rights of Trustee", the Trustee and any Paying Agent shall not be charged
with knowledge of the existence of any Senior Debt, or of any default in the
payment of the principal of, or interest on, any Senior Debt, or of any facts
which would prohibit the making of any payment of money to or by the Trustee
or any such Paying Agent, unless and until the Trustee or such Paying Agent
shall have received at least three business days prior to the date set for
payment under the terms of this Indenture written notice thereof from the
Company or a holder of any kind or category of any Senior Debt or the
Representative or such holder; nor shall the Trustee or any such Paying Agent
be charged with knowledge of the curing of any such default or of the
elimination of the fact or condition preventing any such payment, unless and
until the Trustee or such Paying Agent shall have received an Officers'
Certificate to such effect. Nothing contained in this Section shall limit the
rights of holders of Senior Debt to recover payments pursuant to Section .06.

SECTION 11.28 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT.

The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Debt and shall not be liable to any such holders if it shall
mistakenly pay over or distribute to Securityholders or the Company or any
other Person, money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article or otherwise.

B-7
<PAGE>

SECTION 11.29 ARTICLE APPLYING TO PAYING AGENTS.

In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.

SECTION 11.30 RELIANCE BY HOLDERS OF SENIOR DEBT ON Subordination
Provisions.

Each Securityholder by accepting a Security acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such
Senior Debt and such holder of Senior Debt shall be deemed conclusively to
have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Debt.

SECTION 11.31 ENFORCEMENT BY HOLDERS OF SENIOR DEBT.

Each Securityholder by accepting a Security appoints each holder of
Senior Debt and each such holder's Representative as such Securityholder's
agent and attorney-in-fact to make and enforce any matured claim of such
Securityholder against the Company for payment on the Securities in the event
that the Trustee or such Securityholder does not make and enforce such a claim
within 60 days after receipt by the Trustee of a written demand for such
enforcement made by a holder of Senior Debt or such holder's Representative.
Each Securityholder authorizes such holder or Representative to take all
action and to execute all documents on behalf of such Securityholder or the
Trustee to make and enforce such a claim in such event.

B-8

<PAGE>

EXHIBIT C

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (as amended, amended and restated, supplemented
or otherwise modified form time to time in accordance with the terms hereof,
this "PLEDGE AGREEMENT") is made and entered into as of _________, 1994 by
EMPIRE GAS CORPORATION, a Missouri corporation, (the "PLEDGOR"), in favor of
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a national banking association,
not individually but in its capacity as trustee (the "TRUSTEE") for the holders
(the "HOLDERS") of the Senior Secured Notes (as defined herein).

WITNESSETH:

WHEREAS, the Pledgor and the Trustee have entered into an indenture,
dated as of _________, 1994 (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "SENIOR SECURED NOTE INDENTURE"),
pursuant to which the Pledgor is issuing on the date hereof $[ ],000,000 in
aggregate principal amount ($[ ] million initial accreted value) of its __%
Senior Secured Notes due 2004 (the "SENIOR SECURED NOTES");

WHEREAS, the Pledgor is the legal and beneficial owner of the out-
standing shares of common stock set forth on SCHEDULE I hereto (the "PLEDGED
SHARES") of the subsidiaries listed on SCHEDULE I hereto (such subsidiaries,
together with any present or future subsidiaries of the Pledgor, the "ISSUERS");
and

WHEREAS, to secure its Obligations under the Senior Secured Note
Indenture and the Senior Secured Notes (the "OBLIGATIONS"), the Pledgor has
agreed to (i) pledge to the Trustee, for the Trustee's benefit and the equal and
ratable benefit of the Holders, and grant to the Trustee for the Trustee's
benefit and the equal and ratable benefit of the Holders, a security interest in
the Collateral (as defined herein) and (ii) execute and deliver this Pledge
Agreement in order to secure the payment and performance when due by the Pledgor
of all such Obligations.

<PAGE>

AGREEMENT:

NOW, THEREFORE, in consideration of the premises and in order to
induce the Holders to purchase the Senior Secured Notes, the Pledgor hereby
agrees with the Trustee, for the Trustee's benefit and the equal and ratable
benefit of the Holders, as follows:

SECTION 1. DEFINITION.

(a) Capitalized terms used and not otherwise defined herein, includ-
ing, without limitation, the term "Event of Default," shall have the meanings
given to such terms in the Senior Secured Note Indenture, and terms defined in
the Uniform Commercial Code as in effect from time to time in the State of New
York (the "UCC") and not otherwise defined herein shall have the meanings
ascribed thereto in the UCC.

(b) The following terms shall have the following meanings:

"COLLATERAL" means, collectively.

(i) the Pledged Shares and the certificates representing the
Pledged Shares, the Relevant Records and all Proceeds, wherever located,
whether now owned or existing or hereafter acquired or arising; and

(ii) all additional shares of, all securities convertible
into, and all warrants, options or other rights to purchase, stock of or
other equity interests in, any of the Issuers from time to time acquired by
the Pledgor in any manner, and the certificates representing any such
additional shares (any such additional shares shall constitute part of the
Pledged Shares under and as defined in this Pledge Agreement), and all Pro-
ceeds of the foregoing.

"LIEN NOTICE" means any financing statement, notice of lien, assign-
ment or collateral assignment, security agreement, equipment mortgage,
mortgage, deed of trust or similar notice or instrument filed or recorded
in the public records which covers the Collateral or any portion thereof.

<PAGE>

"PLEDGE DOCUMENTS" means, collectively, this Pledge Agreement and each
of the stock powers and other instruments and documents pertaining to the
Collateral required to be delivered by the Pledgor pursuant to the terms
hereof, as the same may be amended, restated or otherwise modified from
time to time in accordance with the terms hereof and of the Senior Secured
Note Indenture.

"PROCEEDS" shall have the meaning ascribed thereto in the UCC and
shall include, without limitation, the following: (a) whatever is now or
hereafter received by the Pledgor upon the sale, exchange, collection or
other disposition of any Pledged Shares or any Relevant Records or any
proceeds thereof, including, without limitation, (i) all dividends, cash,
options, warrants, rights, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all Pledged Shares and (ii) all funds deposited in the Collater-
al Account pursuant to the terms of the Senior Secured Note Indenture; (b)
any property now or hereafter acquired by the Pledgor with any Proceeds;
and (c) any payments under insurance or any indemnity, warranty or guaran-
ty, payable by reason of loss or damage to or otherwise with respect to any
of the foregoing.

"RELEVANT RECORDS" means, collectively, all certificates, instruments,
account statements, books and other records of the Pledgor relating to the
Collateral.

"UCC COLLATERAL" means all Collateral in which a security interest or
Lien can be perfected under the UCC.

SECTION 2. PLEDGE. To secure the full and prompt payment and perfor-
mance when due of the Obligations, the Pledgor hereby pledges to the Trustee for
the Trustee's benefit and for the equal and ratable benefit of the Holders, and
grants to the Trustee for the Trustee's benefit and the equal and ratable
benefit of the Holders, a continuing first priority security interest in and
Lien upon all of the Pledgor's right, title and interest in the Collateral.

3
<PAGE>

SECTION 3. DELIVERY OF COLLATERAL. All certificates or instruments
representing or evidencing any of the Collateral shall be delivered to and held
by or on behalf of the Trustee pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed, undated stock
powers or other instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Trustee.

SECTION 4. REPRESENTATIONS AND WARRANTIES. The Pledgor hereby repre-
sents and warrants that:

(a) DUE AUTHORIZATION. The execution, delivery and performance by
the Pledgor of the Pledge Documents have been duly authorized by all
necessary corporate action of the Pledgor, and each of the Pledge Documents
has been duly executed and delivered by the Pledgor.

(b) ENFORCEABILITY. Each of the Pledge Documents constitutes a
legal, valid and binding obligation of the Pledgor, enforceable against the
Pledgor in accordance with its terms, except as enforceability may be
limited by the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally.

(c) NO VIOLATION; NO CONSENTS. The execution, delivery and perfor-
mance of the Pledge Documents by the Pledgor will not violate, conflict
with or constitute a breach of any of the terms or provisions of, or a
default under (or an event that, with notice or the lapse of time, or both,
would constitute a default), or require consent under, or result in the
imposition of a Lien on any properties of the Pledgor or any of its
subsidiaries (except for the security interest created by this Pledge
Agreement) or an acceleration of indebtedness pursuant to: (i) the
Pledgor's or any of its subsidiaries' charter or by-laws, (ii) any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which the Pledgor or any of its subsidiaries is party or by
which any of them or their property is or may be bound, (iii) any statute,
rule or regulation applicable to the Pledgor, any of its subsidiaries or
any of their assets or

4
<PAGE>

properties, or (iv) any judgment, order or decree of any court or govern-
mental agency or authority having jurisdiction over the Pledgor, any of its
subsidiaries, or any of its or their respective assets or properties,
which, in the case of clauses (ii) and (iii) only, could not reasonably be
expected to have a material adverse effect on the business, condition
(financial or other), results of operations or properties of the Pledgor
and its subsidiaries, taken as a whole. No consent, approval, authoriza-
tion or other action by, or order of, or filing, registration, qualifica-
tion, license or permit of or with, any court or governmental agency, body
or administrative agency is required either (i) for the pledge by the
Pledgor of the Collateral pursuant to this Pledge Agreement or for the
execution, delivery and performance of the Pledge Documents by the Pledgor
or (ii) for the exercise by the Trustee of the voting and other rights
provided for in this Pledge Agreement or the remedies in respect of the
Collateral pursuant to this Pledge Agreement (except as may be required in
connection with such disposition by laws affecting the offering and sale of
securities). No consents or waivers from any other person or entity are
required for the execution, delivery and performance by the Pledgor of the
Pledge Documents other than such consents and waivers as have been ob-
tained.

(d) PLEDGED SHARES. The Pledged Shares have been duly authorized and
validly issued and are fully paid and non-assessable.

(e) SECURITY INTEREST. The Pledgor is (or, to the extent Collateral
is acquired after the date hereof, will be) the sole legal, record and
beneficial owner of the Collateral. Upon delivery to the Trustee of the
Collateral and (as to certain of the Relevant Records and Proceeds that are
UCC Collateral) the filing of UCC financing statements, the pledge of the
Collateral pursuant to this Pledge Agreement creates a valid and perfected
first priority security interest in the Collateral, securing the payment of
the Obligations for the benefit of the Trustee and the Holders, and
enforceable as such against all creditors of the Pledgor and any persons or
entities purporting to purchase any of the Col-

5
<PAGE>

lateral from the Pledgor other than as permitted by the Senior Secured Note
Indenture. As of the date hereof, the Trustee's security interest in the
Collateral is free and clear of any Lien or claims of any person or entity
except for Liens permitted in the Senior Secured Note Indenture.

(f) LITIGATION. No litigation, investigation or proceeding of or
before any arbitrator or governmental authority is pending or, to the
knowledge of the Pledgor, threatened by or against the Pledgor or against
any of its properties or revenues with respect to any of the Pledge
Documents or any of the transactions contemplated thereby.

(g) CAPITAL STOCK. Pledged Shares constitute all of the authorized,
issued and outstanding capital stock of the respective Issuer and Schedule
I reflects all of the subsidiaries of Pledgor as of the date hereof.

(h) NO PROHIBITION. The pledge of the Collateral pursuant to the
Pledge Documents is not prohibited by any applicable law or governmental
regulation, release, interpretation or opinion of the Board of Governors of
the Federal Reserve System or other regulatory agency (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System).

(i) ACCURACY OF INFORMATION. All information set forth herein
relating to the Collateral is accurate and complete in all respects.

SECTION 5. VOTING RIGHTS; DIVIDENDS; ETC.

(a) So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Shares or any part
thereof for any purpose not inconsistent with the terms of this Pledge
Agreement or the Senior Secured Note Indenture; PROVIDED, HOWEVER, that the
Pledgor shall not exercise or shall refrain from exercising any such right
if such action would be inconsistent with or violate any provisions of

6
<PAGE>

any of the Pledge Documents or the Senior Secured Note Indenture.

(b) So long as no Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions hereof, the
Pledgor shall be entitled to receive, and to utilize free and clear of the
Lien of this Pledge Agreement, all dividends and distributions paid from
time to time in respect of the Pledged Shares as permitted by the Senior
Secured Note Indenture other than dividends and distributions in the form
of additional shares of capital stock of the respective Issuers which shall
be Collateral pursuant to Section 6(h) hereof.

(c) The Trustee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instru-
ments as the Pledgor may reasonably request for the purpose of enabling the
Pledgor to exercise the voting and other rights that it is entitled to
exercise pursuant to Sections 5(a) and (b) above.

(d) Upon the occurrence and during the continuance of an Event
of Default, all rights of the Pledgor to exercise the voting and other
consensual rights that it would otherwise be entitled to exercise pursuant
to Section 5(a) shall cease, and all such rights shall thereupon become
vested in the Trustee, which shall thereupon have the sole right to
exercise such voting and other consensual rights.

(e) Upon the occurrence and during the continuance of an Event
of Default, the Pledgor shall execute and deliver (or cause to be executed
and delivered) to the Trustee all such proxies and other instruments as the
Trustee may request for the purposes of enabling the Trustee to exercise
the voting and other rights that it is entitled to exercise pursuant to
Section 5(d) above.

(f) All dividends or other distributions that are received by
the Pledgor contrary to the provisions of this Section 5 shall be received
in trust for the benefit of the Trustee and the Holders, be segregated from
the other property or funds of the Pledgor and be forthwith delivered to
the

7
<PAGE>

Trustee as Collateral in the same form as so received (with any necessary
endorsements).

SECTION 6. COVENANTS. The Pledgor covenants and agrees with the
Trustee and the Holders from and after the date of this Pledge Agreement until
the Obligations have been paid in full:

(a) LIEN NOTICES. The Pledgor will defend the Collateral
against all Liens, claims and demands of all persons and entities at any
time claiming any interest therein, and the Pledgor will not permit any
Lien Notices with respect to the Collateral or any portion thereof to exist
or be on file in any public office, except with respect to Permitted Liens
and the Lien created hereby:

(b) FURTHER ASSURANCES. Promptly upon request by the Trustee,
the Pledgor will execute and deliver or cause to be executed and delivered,
or use its best efforts to procure, all stock powers, proxies, assignments,
instruments and other documents, all in form and substance satisfactory to
the Trustee, deliver any instruments to the Trustee and take any other
actions (including filing any Lien Notice covering Collateral or any
portion thereof) that are necessary or, in the opinion of the Trustee,
desirable to perfect, continue the perfection and priority of the Trustee's
security interest in the Collateral, to protect the Collateral against the
rights, claims, or interests of their persons or entities (other than
holders of Permitted Liens) or to effect the purposes of the Pledge
Documents. The Pledgor also hereby authorizes the Trustee to file any
financing or continuation statements with respect to the Collateral without
the signature of the Pledgor to the extent permitted by applicable law.
The Pledgor will pay all costs incurred in connection with any of the
foregoing.

(c) NO LIENS. Without the prior written consent of the Trustee,
the Pledgor will not in any way hypothecate, create or permit to exist any
Lien upon or with respect to any of the Collateral or any portion thereof.

8
<PAGE>

(d) DISPOSITION OF COLLATERAL. The Pledgor will not sell,
transfer, assign, pledge, collaterally assign, exchange or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral, except as permitted by the Senior Secured Note Indenture. If
the Collateral, or any part thereof, is sold, transferred, assigned,
exchanged, or otherwise disposed of in violation of these provisions, the
security interest of the Trustee shall continue in such Collateral or part
thereof notwithstanding such sale, transfer, assignment, exchange or other
disposition. In addition to its rights under Section 6(i) below, following
such a sale, transfer, assignment, exchange or other disposition, the
Trustee may elect to have the Pledgor transfer such proceeds to the Trustee
in kind.

(e) NO RESTRICTION ON SALES. Except as permitted by the Senior
Secured Note Indenture, the Pledgor will not enter into any agreement or
understanding that purports to or may restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the Trustee's
right or ability to sell or otherwise dispose of the Collateral or any part
thereof after the occurrence of an Event of Default.

(f) RIGHTS OF TRUSTEE. Upon the occurrence and during the
continuance of an Event of Default, the Trustee shall have the right at any
time to make any payments and do any other acts the Trustee may deem
necessary to protect its security interests in the Collateral, including,
without limitation, the rights to pay, purchase, contest or compromise any
Lien which, in the judgment of the Trustee, appears to be prior to or
superior to the security interests granted hereunder, and challenge any
action or proceeding purporting to affect its security interests in, and/or
the value of, the Collateral. The Pledgor hereby agrees to reimburse the
Trustee for all payments made and expenses incurred under the Pledge
Documents including fees, expenses and disbursements of attorneys and
paralegals (including, the allocated costs of inside counsel) acting for
the Trustee, including any of the foregoing payments under or acts taken to
perfect or

9
<PAGE>

protect its security interest in the Collateral, which amount shall be
secured under the Pledge Documents, and agrees that it shall be bound by
any payment made or act taken by the Trustee hereunder. The Trustee shall
have no obligation to make any of the foregoing payments or perform any of
the foregoing acts.

(g) NO MERGER. Except as permitted by the Senior Secured Note
Indenture, the Pledgor agrees that it will not permit any Issuer to merge
or consolidate, unless all outstanding capital stock of the surviving
corporation is, upon such merger or consolidation, pledged hereunder to the
Trustee.

(h) ADDITIONAL SHARES. The Pledgor agrees that immediately upon
becoming the beneficial owner of any additional shares of capital stock of
any of the Issuers, it will pledge and deliver to the Trustee for its
benefit and the ratable benefit of the Holders and grant to the Trustee for
its benefit and the ratable benefit of the Holders, a continuing first
priority security interest in such shares (as well as duly executed stock
powers or other instruments of transfer or assignment in blank, all form
and substance satisfactory to the Trustee). The Pledgor further agrees
that it will promptly (and in any event within five Business Days after
such acquisition) deliver to the Trustee a pledge amendment, duly executed
by the Pledgor, in substantially the form of EXHIBIT A hereto (a "PLEDGE
AMENDMENT"), with respect to the additional Collateral that is to be
pledged pursuant to this Pledge Agreement. The Pledgor hereby authorizes
the Trustee to attach each Pledge Amendment to this Pledge Agreement and
agrees that any stock listed on any Pledge Amendment delivered to the
Trustee shall for all purposes hereunder be considered Collateral.

(i) TURNOVER OF CERTAIN PROCEEDS. In the event any letters of
credit, chattel paper or negotiable documents, instruments or securities
included in the Collateral come into the Pledgor's possession, whether upon
consummation of an Asset Sale or otherwise, the Pledgor shall segregate
such items from its other cash and assets, hold such items in trust for the
Trustee, and shall promptly deliver

10
<PAGE>

the same to the Trustee with any necessary endorsements in favor of the
Trustee. No sale of Collateral may be made in contravention of the terms
of the Senior Secured Note Indenture and the cash proceeds of the sale of
any Collateral shall be immediately remitted to the Trustee for deposit in
the Collateral Account.

(j) RECORDS. The Pledgor will keep and maintain at its own cost
and expense complete Relevant Records in such form as is satisfactory to
the Trustee.

(k) ACCESS. The Trustee shall at all times have full and free
access during normal business hours to all the books, correspondence and
records of the Pledgor relating to the Collateral, and the Trustee and its
representatives may examine the same, take extracts therefrom and make
photocopies thereof, and the Pledgor agrees to render to the Trustee, at
the Pledgor's cost and expense, such clerical and other assistance, at all
times and in such manner as may be requested with regard thereto. The
Trustee and its representatives shall at all times also have the right to
enter, during normal business hours, into and upon any premises where any
of the Collateral is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein.

(l) NOTICES OF LIENS. The Pledgor will advise the Trustee
promptly, in reasonable detail, at the address set forth in SECTION 11.02
of the Senior Secured Note Indenture, of any Lien (other than Liens
permitted in the Senior Secured Note Indenture) on, or claim asserted
against, any of the Collateral.

(m) TAXES. The Pledgor shall pay all taxes, assessments and
levies as and to the extent required by SECTION 3.14 of the Senior Secured
Note Indenture; PROVIDED that the Pledgor shall in any event pay such
taxes, assessments or levies not later than five days prior to the date of
any proposed sale under any judgment, writ or warrant of attachment with
regard to any Collateral entered or

11
<PAGE>

filed against the Pledgor as a result of the failure to make such payment.

SECTION 7. SUBSEQUENT CHANGES AFFECTING COLLATERAL. The Pledgor
represents to the Trustee and the Holders that the Pledgor has made its own
arrangements for keeping informed of changes or potential changes affecting the
Collateral (including, but not limited to, rights to convert, rights to sub-
scribe, payment of dividends, payments of interest and/or principal, reorganiza-
tion or other exchanges, tender offers and voting rights), and the Pledgor
agrees that the Trustee and the Holders shall have no responsibility or liabili-
ty for informing the Pledgor of any such changes or potential changes or for
taking any action or omitting to take any action with respect thereto. Except
as permitted by the Senior Secured Note Indenture, the Pledgor covenants that it
will not, without the prior written consent of the Trustee, vote to enable, or
take any other action to permit, any Issuer to issue any capital stock or other
securities or to sell or otherwise dispose of, or grant any option with respect
to, any of the Collateral or create or permit to exist any Lien upon or with
respect to any of the Collateral, except for the security interests granted
under the Pledge Documents.

SECTION 8. REMEDIES UPON DEFAULT.

(a) If any Event of Default shall have occurred and be continu-
ing, the Trustee and the Holders shall have, in addition to all other
rights given by law or by the Pledge Documents or the Senior Secured Note
Indenture, all of the rights and remedies with respect to the Collateral of
a secured party under the applicable UCC in effect at that time. The
Trustee may, without notice and at its option, transfer or register, and
the Pledgor shall register or cause to be registered upon request therefor
by the Trustee, the Collateral or any part thereof on the books of the
Issuers or Obligors thereof into the name of the Trustee or the Trustee's
nominee(s). In addition, with respect to any Collateral that shall then be
in or shall thereafter come into the possession or custody of the Trustee,
the Trustee may sell or cause the same to be sold at any broker's board or
at public or private sale, in one or more sales or lots, at such price or
prices

12
<PAGE>

as the Trustee may deem best, for cash or on credit or for future delivery,
without assumption of any credit risk. The purchaser of any or all
Collateral so sold shall thereafter hold the same absolutely, free from any
claim, encumbrance or right of any kind whatsoever. Unless any of the
Collateral threatens to decline speedily in value or is or becomes of a
type sold on a recognized market, the Trustee will give the Pledgor
reasonable notice of the time and place of any public sale thereof, or of
the time after which any private sale or other intended disposition is to
be made. Any sale of the Collateral conducted in conformity with reason-
able commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property similar to
the Collateral shall be deemed to be commercially reasonable. Any
requirements of reasonable notice shall be met if such notice is mailed to
the Pledgor as provided in Section 10(a) herein, at least thirty (30) days
before the time of the sale or disposition. The Trustee or any Holder may,
in its own name or in te name of a designee or nominee, buy any of the
Collateral at any public sale and, if permitted by applicable law, at any
private sale. All expenses (including court costs and reasonable
attorneys' fees, expenses and disbursements) of, or incident to, the
enforcement of any of the provisions hereof shall be recoverable from the
proceeds of the sale or other disposition of the Collateral.

(b) If the Trustee shall determine to exercise its right to sell
any or all of the Pledged Shares pursuant to Section 8(a) above, and if in
the opinion of counsel for the Trustee it is necessary, or if in the
opinion of the Trustee it is advisable, to have the Pledged Shares or that
portion thereof to be sold, registered under the provisions of the Securi-
ties Act of 1933, as amended (the "SECURITIES ACT"), the Pledgor will cause
the Issuer to (i) execute and deliver, and cause its directors and officers
to execute and deliver, all at the Pledgor's own expense, all such instru-
ments and documents, and to do or cause to be done all such other acts and
things, as may be necessary or, in the opinion of the Trustee, advisable to
register such Pledged Shares under the provisions of the Securities Act,

13
<PAGE>

(ii) use its best efforts to cause the registration statement relating
thereto to become effective and to remain effective for period of 180 days
from the date of the first public offering of such Pledged Shares or that
portion thereof to be sold and (iii) make all amendments thereto and/or to
the related prospectus that, in the opinion of the Trustee, are necessary
or advisable, all in conformity with the requirements of the Securities Act
and the rules and regulations of the Securities and Exchange Commission
applicable thereto. The Pledgor agrees to use its best efforts to cause
the applicable Issuer to comply with the provisions of the securities or
"Blue Sky" laws of any jurisdiction that the Trustee shall designate for
the sale of the Pledged Shares and to make available to the Issuer's
security holders, as soon as practicable, an earnings statement (which need
not be audited) that will satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder. The Pledgor will cause the Issuer
to furnish to the Trustee such number of copies as the Trustee may reason-
ably request of each preliminary prospectus and prospectus, to notify
promptly the Trustee of the happening of any event as a result of which any
prospectus includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances when such
prospectus is delivered to any purchaser, misleading, and cause the Trustee
to be furnished with such number of copies as the Trustee may request of
such supplement to or amendment of such prospectus as is necessary to
eliminate such untrue statement or supply such omission. The Pledgor will
use its best efforts to cause the Issuer, to the extent permitted by law,
to indemnify, defend and hold harmless the Trustee and the Holders from and
against all losses, liabilities, expenses or claims (including reasonable
legal expenses and the reasonable costs of investigation) that the Trustee
or the Holders may incur under the Securities Act or otherwise, insofar as
such losses, liabilities, expenses or claims arise out of or are based upon
any alleged untrue statement of a material fact contained in such registra-
tion statement (or any amendment thereto) or in any preliminary prospectus
or prospectus (or any amendment or supple-

14
<PAGE>

ment thereto), or arise out of or are based upon any alleged omission to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. The Pledgor will cause the Issuer
to bear all costs and expenses of carrying out is obligation hereunder.

(c) In view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of certain of
the Collateral may be effected after an Event of Default, the Pledgor
agrees that upon the occurrence and during the continuance of an Event of
Default, the Trustee may, from time to time, attempt to sell all or any
part of the Collateral by means of a private placement, restricting the
prospective purchasers to those who will represent and agree that they are
purchasing for investment only and not for distribution. In so doing, the
Trustee may solicit offers to buy the Collateral, or any part of it, for
cash, from a limited number of investors who might be interested in
purchasing the Collateral. The Pledgor acknowledges and agrees that any
such private sale may result in prices and terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall be deemed to have been made in a
commercially reasonable manner. The Trustee shall be under no obligation
to delay a sale of any of the Collateral for the period of time necessary
to permit the Pledgor to cause the Issuer to register such securities for
public sale under the Securities Act, or under applicable state securities
laws, even if the Pledgor could cause the Issuer to do so.

(d) The Pledgor further agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale
or sales of all or any potion of the Collateral pursuant to this Section 8
valid and binding and in compliance with any and all other applicable
requirements of law. The Pledgor further agrees that a breach of any of
the covenants contained in this Section 8 will cause irreparable injury to
the Trustee and the Holders, that the Trustee and the Holders have no
adequate remedy at law in respect of

15
<PAGE>

such breach and, as a consequence, that each and every covenant contained
in this Section 8 shall be specifically enforceable against the Pledgor,
and the Pledgor hereby waives and agrees not to assert any defenses against
an action for specific performance of such covenants except for a defense
that no Event of Default has occurred.

SECTION 9. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO THE ISSUER.
The Pledgor hereby authorizes and instructs each Issuer to comply with any
instruction received by such Issuer from the Trustee that (i) states that an
Event of default has occurred and (ii) is otherwise in accordance with the
terms of this Pledge Agreement, without any other or further instructions from
the Pledgor, and the Pledgor agrees that each Issuer shall be fully protected in
so complying.

SECTION 10. MISCELLANEOUS PROVISIONS.

(a) NOTICES. All notices, approvals, consents or other communi-
cations required or desired to be given hereunder shall be in the form and
manner, and delivered to each of the parties hereto at their respective ad-
dresses, as set forth in Section 11.2 of the Senior Secured Note Indenture.

(b) NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Pledge
Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor, any Issuer or obligor or any subsidiary thereof.
No such pledge, security or debt agreement may be used to interpret any
Pledge Document.

(c) SEVERABILITY. The provisions of the Pledge Documents are
severable, and, if any clause or provision shall be held invalid, illegal
or unenforceable in whole or in part in any jurisdiction, then such inval-
idity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect
such clause or provision in any other jurisdiction or any other clause or
provision of any Pledge document in any jurisdiction.

16
<PAGE>

(d) HEADINGS. The headings in this Pledge Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provi-
sions hereof.

(e) COUNTERPART ORIGINALS. This Pledge Agreement may be signed
in two or more counterparts, each of which shall be deemed an original, but
all of which shall together constitute one and the same agreement.

(f) BENEFITS OF PLEDGE AGREEMENT. Nothing in this Pledge
Agreement, express or implied, shall give to any person or entity, other
than the parties hereto, the Holders and their respective successors and
permitted assigns, any benefit or any legal or equitable right, remedy or
claim under the Pledge Documents.

(g) AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or wavier
of any provision of this Pledge Agreement and any consent to any departure
by the Pledgor from any provision of any Pledge Document shall be effective
only if made or given in compliance with all of the terms and provisions of
the Senior Secured Note Indenture, and neither the Trustee nor any Holder
shall be deemed, by any act, delay, indulgence, omission or otherwise, to
have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and
conditions hereof. Failure of the Trustee or any Holder to exercise, or
delay in exercising, any right, power or privilege hereunder shall not
operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver
by the Trustee or any Holder of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that the
Trustee or such Holder would otherwise have on any future occasion. The
rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies provided by
law.

17
<PAGE>

(h) INTERPRETATION OF PLEDGE DOCUMENTS. Time is of the essence
in each provision of the Pledge Documents of which time is an element. All
terms not defined therein or in the Senior Secured Note Indenture shall
have the respective meanings set forth in the applicable UCC, except where
the context otherwise requires. To the extent a term or provision of this
Pledge Agreement conflicts with the Senior Secured Note Indenture and is
not dealt with herein with more specificity, the Senior Secured Note
Indenture shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance
rendered under the Pledge Document shall not be relevant to determine the
meaning of any Pledge Document even though the accepting or acquiescing
party had knowledge of the nature of the performance and opportunity for
objection.

(i) CONTINUING SECURITY INTEREST; TRANSFER OF SECURITIES. The
Pledge Documents shall create a continuing security interest in the
Collateral and shall (i) unless otherwise provided in the Senior Secured
Note Indenture or in the Pledge Documents, remain in full force and effect
until the payment in full and performance of all Obligations and payment in
full of all fees and expenses owing to the Trustee, (ii) be binding upon
the Pledgor, its successors and assigns, and (iii) inure, together with the
rights and remedies of the Trustee hereunder, to the benefit of the
Trustee, the Holders and their respective successors and permitted
transferees and assigns.

(j) SECURITY INTEREST ABSOLUTE. All rights of the Trustee and
the Holders and security interests hereunder, and all obligations of the
Pledgor hereunder, shall be absolute and unconditional irrespective of:

(i) any lack of validity or enforceability of the Senior
Secured Note Indenture or any other agreement or instrument relating
thereto;

(ii) any change in the time, manner or place of payment
of, or in any other

18
<PAGE>

term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Senior Secured Note
Indenture;

(iii) any exchange, surrender, release or non-perfection of
any Liens on any other collateral, or any release or amendment or
waiver of or consent to departure from any guarantee, for all or any
of the Obligations; or

(iv) any other circumstances which might otherwise consti-
tute a defense available to, or a discharge of, the Pledgor in respect
of the Obligations or of the Pledge Documents.

(k) REINSTATEMENT. The Pledge documents shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Trustee or any Holder in respect of the Obligations is
rescinded or must otherwise be restored or returned by the Trustee or any
Holder upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Pledgor or upon the appointment of any receiver,
intervenor, conservator, trustee or similar official for the Pledgor or any
substantial part of its assets, or otherwise, all as though such had not
been made.

(l) SURVIVAL OF PROVISIONS. All representations, warranties and
covenants of the Pledgor contained herein shall survive the execution and
delivery of the Pledge Documents, and shall terminate only upon the full
and final payment and performance by the Pledgor of the Obligations.

(m) POWER OF ATTORNEY. In addition to all of the powers granted
to the Trustee pursuant to Article VI of the Senior Secured Note Indenture,
the Pledgor hereby appoints and constitutes the Trustee as the Pledgor's
attorney-in-fact to exercise all of the following powers upon and at any
time after the occurrence and during the continuance of an Event of
Default: (i) collection of Proceeds; (ii) conveyance of any item of
Collateral to any purchaser thereof; (iii) giving of any notice or record-
ing of

19
<PAGE>

any Liens under Section 6(b) hereof; (iv) making of any payments or taking
any acts under Section 6(f) hereof and (v) paying or discharging taxes or
Liens levied or placed upon or threatened against the Collateral, the
legality or validity thereof and the amounts necessary to discharge the
same to be determined by the Trustee in its sole discretion, and such
payments made by the Trustee to become the Obligations of the Pledgor to
the Trustee, due and payable immediately without demand. The Trustee's
authority hereunder shall include, without limitation, the authority to
endorse and negotiate any checks or instruments in the name of the Pledgor,
execute and give receipt for any certificate of ownership or any document,
transfer title to any item of Collateral, prepare, file and sign the
Pledgor's name on all financing statements or any other documents deemed
necessary or appropriate by the Trustee to preserve, protect or perfect the
security interest in the Collateral and to file the same, and prepare, file
and sign the Pledgor's name on a proof of claim in bankruptcy or similar
document against any customer of the Pledgor, and to take any other actions
arising from or incident to the powers granted to the Trustee in this
Pledge Agreement. This power of attorney is coupled with an interest and
is irrevocable by the Pledgor.

(n) WAIVERS. The Pledgors waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or
default with respect to any of the Obligations, and all other notices to
which the Pledgor might otherwise be entitled, except as otherwise express-
ly provided herein or in the Senior Secured Not Indenture.

(o) AUTHORITY OF THE TRUSTEE.

(i) The Trustees shall have and be entitled to exercise
all powers hereunder that are specifically granted to the Trustee by
the terms hereof, together with such powers as are reasonably incident
thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon

20
<PAGE>

the advice of counsel concerning all such matters. Neither the
Trustee, any director, officer, employee, attorney or agent of the
Trustee nor the Holders shall be liable to the Pledgor for any action
taken or omitted to be taken by it or them hereunder, except for its
or their own negligence or bad faith, nor shall the Trustee be respon-
sible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Trustee and its
directors, officers, employees, attorneys and agents shall be entitled
to rely on any communication, instrument or document believed by it or
them to be genuine and correct and to have been signed or sent by the
proper person or persons.

(ii) The Pledgor acknowledges that the rights and respon-
sibilities of the Trustee under this Pledge Agreement with respect to
any action taken by the Trustee or the exercise or non-exercise by the
Trustee of any option, right, request, judgment or other right or
remedy provided for herein or resulting or arising out of this Pledge
Agreement shall, as between the Trustee and the Holders, be governed
by the Senior Secured Note Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as
between the Trustee and the Pledgor, the Trustee shall be conclusively
presumed to be acting as agent for the Holder with full and valid
authority so to act or refrain from acting, and the Pledgor shall not
be obliged or entitled to make any inquiry respecting such authority.

(p) RELEASE; TERMINATION OF PLEDGE AGREEMENT.

(i) Subject to the provisions of Section 10(k) hereof,
this Pledge Agreement shall terminate upon (A) full and final payment
and performance of all Obligations, (B) receipt by the Trustee of an
Officers' Certificate to the effect that all such Obligations have
been satisfied, and (C) payment in full of all fees

21
<PAGE>

and expenses owing by the Pledgor to the Trustee.

(ii) The Pledgor agrees that it will not, except as
permitted by the Senior Secured Note Indenture, sell, transfer or
otherwise dispose of any of the Collateral, PROVIDED, HOWEVER, that if
the Pledgor shall sell any of the Collateral in accordance with the
terms of the Senior Secured Note Indenture, the Trustee shall, at the
request of the Pledgor, release the Collateral subject to such sale
free and clear of the Lien and security interest under the Pledge
Documents.

(iii) Upon any termination of the Pledge Documents or
release of Collateral as permitted by the Senior Secured Note Inden-
ture, the Trustee will, at the expense of the Pledgor, execute and
deliver to the Pledgor such documents and take such other actions as
the Pledgor shall reasonably request to evidence the termination of
the Pledge Documents or the release of such Collateral, as the case
may be. Any such action taken by the Trustee shall be without warran-
ty by or recourse to the Trustee, except as to the absence of any
prior assignments by the Trustee of its interests in the Collateral,
and shall be at the expense of the Pledgor. The Trustee may conclu-
sively rely on any certificate delivered to it by the Pledgor stating
that the execution of such documents and release of the Collateral is
in accordance with and permitted by the terms of the Pledge Documents
and the Senior Secured Note Indenture.

(q) NO DUTY. The powers conferred on the Trustee hereunder are
solely to protect the interest of the Trustee and the Holders in the
Collateral and shall not impose any duties on the Trustee or any Holder to
exercise such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for any
monies actually received by it hereunder or under the Senior Secured Note
Indenture, the Trustee shall have no duty as to any Collateral or as to the

22
<PAGE>

taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to the Collateral. The Trustee shall be deemed
to exercise reasonable care in the custody and preservation of the Collat-
eral if the Collateral is accorded treatment substantially equal to that
which the Trustee accords its own property, it being understood that the
Trustee shall have no responsibility for (i) ascertaining or taking action
with respect to calls, conversations, exchanges, maturities, tenders or
other matters relative to any Collateral, whether or not the Trustee has or
is deemed to have knowledge of such matters, or (ii) collection of any
proceeds of any Collateral or by reason of any invalidity, lack of value
or uncollectibility of any of the payments received by it from obligors or
otherwise.

(r) PAYMENT OF FEES AND EXPENSES. The Pledgor will upon demand
pay to the Trustee, without duplication, the amount of all
expenses,including without limitation, the reasonable fees, expenses and
disbursements of its counsel, of any investment banking firm, business
broker or other selling agent and of any other experts and agents retained
by the Trustee that the Trustee may incur in connection with (i) adminis-
tration of the Pledge Documents, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the
rights of the Trustee and the Holders hereunder or (iv) the failure by the
Pledgor to perform to observe any of the provisions hereof.

(s) FINAL EXPRESSION. The Pledge Documents are intended by the
parties as a final expression of the Pledge Documents and are intended as a
complete and exclusive statement of the terms and conditions thereof.

(t) PLEDGOR TO REMAIN LIABLE. Anything herein to the contrary
notwithstanding: (i) the Pledgor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein,
to perform all of its duties and obligations thereunder to the same extent
as if this

23
<PAGE>

Pledge Agreement had not been executed, (ii) the exercise by the Trustee of
any of the rights hereunder shall not release the Pledgor from any of its
duties or obligations under the contracts and agreements included in the
Collateral, and (iii) the Trustee shall not have any obligation or liabili-
ty under any contracts and agreements included in the Collateral by reason
of this Pledge Agreement, nor shall the Trustee be obligated to perform any
of the obligations or duties of the Pledgor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.

(u) LIMITATION BY LAW. All rights, remedies and powers provided
herein may be exercised only to the extent that the exercise thereof does
not violate any applicable provision of law, and all the provisions hereof
are intended to be subject to all applicable mandatory provisions of law
which may be controlling and to be limited by the extent necessary so that
they will not render any of the Pledge documents invalid, unenforceable in
whole or in part or not entitled to be recorded, registered or filed under
provisions of any applicable law.

(v) INCORPORATION BY REFERENCE. THE PROVISIONS OF ARTICLE X OF
THE SENIOR SECURED NOTE INDENTURE ARE INCORPORATED BY REFERENCE HEREIN WITH
THE SAME FORCE AND EFFECT AS IF FULLY SET FORTH HEREIN.

[SIGNATURE PAGE FOLLOWS]

24
<PAGE>

IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused this
Pledge Agreement to be duly executed and delivered as of the date first above
written.

PLEDGOR:

EMPIRE GAS CORPORATION

By: ____________________________________
Name:
Title:

TRUSTEE:

SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, as Trustee

By: ____________________________________
Name:
Title:

25
<PAGE>

SCHEDULE I

Number of Pledged Share Certificate Percentage of
Issuer Shares Number Outstanding Shares
- ------ ----------------- ----------------- ------------------
100%

26
<PAGE>

EXHIBIT A

PLEDGE AMENDMENT

This Pledge Amendment, dated __________, 19__, is delivered pursuant
to Section 6(h) of the Pledge Agreement referred to below. The undersigned
hereby pledges to the Trustee for its benefit and the ratable benefit of the
Holders, and grants to the Trustee for its benefit and the ratable benefit of
the Holders, a continuing first priority security interest in all of its right,
title and interest in the shares of stock listed below:

Number of Pledged Share Certificate Percentage of
Issuer Shares Number Outstanding Shares
- ------ ----------------- ----------------- ------------------

The undersigned hereby agrees that this Pledge Agreement may be
attached to the Pledge Agreement, dated __________, 1993, between the under-
signed and Shawmut Bank Connecticut, National Association as Trustee (the
"PLEDGE AGREEMENT"); capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Pledge Agreement; and
the Collateral listed on this Pledge Amendment shall be deemed to be part of the
Collateral, and shall become part of the Collateral and shall secure all
Obligations.

EMPIRE GAS CORPORATION

By: ____________________________________
Name:
Title:

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Registration Statement on Form S-1 of
our reports dated July 30, 1993, relating to the financial statements and
financial statement schedules of EMPIRE GAS CORPORATION (FORMERLY EMPIRE GAS
ACQUISITION CORPORATION), which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.

BAIRD, KURTZ & DOBSON

Springfield, Missouri
April 29, 1994

<PAGE>
Exhibit 23.3

CONSENT OF PROSPECTIVE DIRECTOR

I hereby consent to my being named a director of Empire Gas Corporation in
its Registration Statement on Form S-1 relating to Senior Secured Notes due
2004.

/s/ DOUGLAS A. BROWN

--------------------------------------
Douglas A. Brown

April 29, 1994

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM T-1

STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE

/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)

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

SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
---------------------------------------------------------
(Exact name of trustee as specified in its charter)

Not applicable 06-0850628
- ------------------------------- -----------------------------
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank Identification No.)

777 Main Street, Hartford, Connecticut 06115
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Patricia Beaudry, 777 Main Street, Hartford, CT (203) 728-2065
------------------------------------------------------------------
(Name, address and telephone number of agent for service)

EMPIRE GAS CORPORATION
------------------------------------------------------------------
(Exact name of obligor as specified in its charter)

Missouri 43-1494323
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1700 South Jefferson Street,
P.O. Box 303, Lebanon, Missouri 65536
- ----------------------------------- ----------
(Address of principal executive offices) (Zip Code)

% Senior Secured Notes*
------------------------------------------------------------------
(Title of the indenture securities)

- --------------
*Specific title(s) to be determined in connection with sale(s) of
Securities

<PAGE>

GENERAL

ITEM 1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to
which it is subject:

The Comptroller of the Currency,
Washington, D.C.

Federal Reserve Bank of Boston
Boston, Massachusetts

Federal Deposit Insurance Corporation
Washington, D.C.

(b) Whether it is authorized to exercise corporate trust powers:

The trustee is so authorized.

ITEM 2. Affiliations with obligor.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

None with respect to the trustee; none with respect to Hartford
National Corporation, Shawmut Corporation, Shawmut Service
Corporation and Shawmut National Corporation (the "affiliates").

ITEM 16. List of exhibits:

List below all exhibits filed as a part of this statement of
eligibility and qualification.

1. A copy of the Organization Certificate of the Shawnut Bank
Connecticut, National Association, as now in effect.

2. A copy of the Certificate of Authority of the Trustee to
do Business.

3. A copy of the Certification of Fiduciary Powers of the Trustee.

4. A copy of the existing By-Laws of the Trustee.

5. The consent of the trustee required by Section 321(b) of the Act.

<PAGE>

6. A copy of the latest Consolidated Reports of Condition and Income of
the trustee published pursuant to law or the requirements of its
supervising or examining authority.

NOTES

Inasmuch as this Form T-1 is filed prior to the ascertainment by
the Trustee of all facts on which to base a responsive answer to Item 2, the
answer to said Item is based upon incomplete information.

Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.

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

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Shawmut Bank Connecticut, National Association, a national banking association
organized and existing under the laws of the United States, has duly caused
this statement of eligibility and to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford, and State
of Connecticut the day of April, 1994.
-----
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION
Trustee

By /s/ Robert L. Reynolds
-------------------------
Robert L. Reynolds
Assistant Vice President

<PAGE>

EXHIBIT 1

ARTICLES OF ASSOCIATION

SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION

FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Shawmut Bank
Connecticut, National Association".

SECOND. The main office of the Association shall be in Hartford, County of
Hartford, State of Connecticut. The general business of the Association shall
be conducted at its main office and its branches.

THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.

FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefor in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.

FIFTH. The authorized amount of capital stock of this Association shall be
three million five hundred thousand (3,500,000) shares of common stock of the
par value of six and 25/100 dollars ($6.25) each, but said capital stock may be
increased or decreased from time to time, in accordance with the provisions of
the laws of the United States.

No holder of shares of the capital stock of any class of the corporation shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the corporation, whether now or hereafter authorized, or to
any obligations convertible into stock of the corporation, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.

The Association, at any time and from time to time, may authorize and issue
debt obligations, whether or not subordinated, without the approval of the
shareholders.

<PAGE>

SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.

The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.

SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.

EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.

NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.

TENTH. Any person, his heirs, executors, or administrators may be indemnified
or reimbursed by the Association for reasonable expenses actually incurred in
connection with any action, suit, or proceeding, civil or criminal, to which he
or they shall be made a party by reason of his being or having been a director,
officer, or employee of the Association or any firm, corporation, or
organization which he served in any such capacity at the request of the
Association: provided, that no person shall be so indemnified or reimbursed in
relation to any matter in such action, suit, or proceeding as to which he shall
finally be adjudged to have been guilty of or liable for gross negligence,
willful misconduct or criminal acts in the performance of his duties to the
Association: and, provided further, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding which
has been made the subject of a compromise settlement except with the approval
of a court of competent jurisdiction, or the holders of record of a majority of
the outstanding shares of the Association, or the board of directors, acting by
vote of directors not parties to the same or substantially the same action,
suit, or proceeding, constituting a majority of the whole number of directors.
The foregoing right of indemnification or reimbursement shall not be exclusive
of other rights to which such person, his heirs, executors, or administrators
may be entitled as a matter of law.

<PAGE>

The Association may, upon the affirmative vote of a majority of its board of
directors, purchase insurance for the purpose of indemnifying its directors,
officers and other employees to the extent that such indemnification is allowed
in the preceding paragraph. Such insurance may, but need not, be for the
benefit of all directors, officers, or employees.

ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.

I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.

Secretary/Assistant Secretary
- --------------------------------------------------

Dated at , as of .
--------------------------------- ------------------

Revision of January 11, 1993

<PAGE>

EXHIBIT 2

[LOGO]

- -------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- -------------------------------------------------------------------------------
Washington, D.C. 20219

CERTIFICATE

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that:

1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et.
seq., as amended, 12 U.S.C. 1, et seg., as amended, has possession, custody and
control of all records pertaining to the chartering, regulation and supervision
of all National Banking Associations.

2. "Shawmut Bank Connecticut, National Association", Hartford, Connecticut,
(Charter No. 1338), is a National Banking Association formed under the laws of
the United States and is authorized thereunder to transact the business of
banking on the date of this Certificate.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal
of office to be affixed to these presents
at the Treasury Department, in the City of
Washington and District of Columbia, this
9th day of December, 1993.

/s/ Eugene A. Ludwig
--------------------------------------
Comptroller of the Currency

<PAGE>

EXHIBIT 3

[LOGO]

CERTIFICATION OF FIDUCIARY POWERS

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify the records
in this Office evidence "Shawmut Bank Connecticut, National Association",
Hartford, Connecticut, (Charter No. 1338), was granted under the hand and seal
of the Comptroller, the right to act in all fiduciary capacities authorized
under the provisions of The Act of Congress approved September 28, 1962, 76
Stat. 668, 12 U.S.C. 92a. I further certify the authority so granted remains
in full force and effect.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal
of Office of the Comptroller of the
Currency to be affixed to these
presents at the Treasury Department,
in the City of Washington and District
of Columbia, this 9th day of December,
1993.

/s/ Eugene A. Ludwig
--------------------------------------
Comptroller of the Currency

<PAGE>

EXHIBIT 4

BYLAWS
OF
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION

ARTICLE I

MEETINGS OF SHAREHOLDERS

Section 1.1 Annual Meeting. The regular annual meeting of the shareholders to
elect directors and transact whatever other business may properly come before
the meeting, shall be held at the main office of the association, city of
Hartford, state of Connecticut or such other places as the board of directors
may designate, at 1:00 o'clock, on the third Wednesday of April of each year,
or if that date falls on a legal holiday in the state in which the association
is located, on the next following banking day. If, for any cause, an election
of directors is not made on that date, or in the event of a legal holiday, on
the next following banking day, an election may be held on any subsequent day
within 60 days of the date fixed, to be designated by the board directors, or,
if the directors fail to fix the date, by shareholders representing two-thirds
of the shares.

Section 1.2. Special Meetings. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the board of directors or upon call of the Chairman or at the
written request of shareholders owning, in the aggregate, not less than ten
(10) percent of the stock of the association.

Section 1.3. Notice of Meetings. Unless otherwise provided by the laws of the
United States, a notice of the time, place and purpose of every regular annual
meeting or special meeting of shareholders shall be given by first-class mail,
postage prepaid, mailed at least ten (10) days prior to the date of such
meeting to each shareholder of record at his address as shown upon the books of
the association. If an annual or special shareholders' meeting is adjourned to
a different date, time, or place, notice need not be given of the new date,
time or place, if the new date, time or place is announced at the meeting
before adjournment, unless any additional items of business are to be
considered, or the association becomes aware of an intervening event materially
affecting any matter to be voted on more than 10 days prior to the date to
which the meeting is adjourned. If a new record date for the adjourned meeting
is fixed, however, notice of the adjourned meeting must be given to persons who
are shareholders as of the new record date.

Section 1.4. Proxies. Shareholders may vote at any meeting of the shareholders
by proxies duly authorized in writing. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and filed with the records of the meeting. Proxies with
rubber-stamped facsimile signatures may be used and unexecuted proxies may be
counted upon receipt of a confirming telegram from the shareholder. Proxies
meeting the above requirements submitted at any time during a meeting shall be
accepted.

<PAGE>

Section 1.5. Quorum. A majority of the outstanding capital stock, represented
in person or by proxy, shall constitute a quorum at any meeting of
shareholders, but less than a quorum may adjourn any meeting, from time to
time, and the meeting may be held, as adjourned, without further notice.

Section 1.6. Voting. In deciding on questions at meetings of shareholders,
except in the election of directors, each shareholder shall be entitled to one
vote for each share of stock held. A majority of votes cast shall decide each
matter submitted to the shareholders at the meeting except in cases where by
law a larger vote is required.

ARTICLE II

DIRECTORS

Section 2.1. Board of Directors. The board of directors shall manage and
administer the business and affairs of the association. Except as expressly
limited by law, all corporate powers of the association shall be vested in and
may be exercised by the board.

Section 2.2. Number. The board shall consist of not less than five nor more
than twenty-five shareholders, the exact number within such minimum and maximum
limits to be fixed and determined from time to time by resolution of a majority
of the full board or by resolution of a majority of the shareholders at any
meeting thereof.

Section 2.3. Term. The directors of this association shall hold office for one
year and until their successors are elected and have qualified.

Section 2.4. Oath. Each person elected or appointed a director of this
association must take the oath of such office as prescribed by the laws of the
United States. No person elected or appointed a director of this association
shall exercise the functions of such office until he has taken such oath.

Section 2.5. Honorary Directors. There may not be more than five honorary
directors of the association who shall be entitled to attend meetings of the
board and take part in its proceedings but without the right to vote. Honorary
directors shall be appointed at the annual meeting of the board of directors to
hold office until the next annual meeting provided, however, that the board may
at any regularly constituted meeting between annual meetings of the board of
directors appoint honorary directors within the limitations imposed by this
bylaw.

Section 2.6. Vacancies. Any vacancies occurring in the board of directors for
any reason, including an increase in the number thereof, may be filled, in
accordance with the laws of the United States, by appointment by the remaining
directors, and any director so appointed shall hold office until the next
annual meeting and until his successor is elected and has qualified.

-2-

<PAGE>

Section 2.7. Organization Meeting. The. annual meeting of the board of
directors shall be held at the main office of the association to organize the
new board and appoint committees of the board and officers of the association
for the succeeding year, and for transacting such other business as properly
may come before the meeting. Such meeting shall be held on the day of the
election of directors or as soon thereafter as practicable, and, in any event,
within 30 days thereof. If, at the time fixed for such meeting, there shall
not be a quorum, the directors present may adjourn the meeting, from time to
time, until a quorum is obtained.

Section 2.8. Regular Meetings. The regular meetings of the board of directors
shall be held, without notice, at the main office, or at such other place as
has been duly authorized by the board, on such day and at such time as the
board shall determine. When any regular meeting of the board falls upon a
holiday, the meeting shall be held on the next banking business day unless the
board shall designate another day.

Section 2.9. Special Meetings. Special meetings of the board of directors may
be called by the chairman, the president, or at the request of seven or more
directors. Each member of the board of directors shall be given notice stating
the time and place by telegram, letter, or in person, of each special meeting.

Section 2.10. Quorum. A majority of the members of the board shall constitute
a quorum at any meeting. If the number of directors is reduced below the
number that would constitute a quorum, no business may be transacted, except
selecting directors to fill vacancies in conformance with these bylaws. If a
quorum is present, the board of directors may take action through the vote of a
majority of the directors who are in attendance.

Section 2.11. Record Time. The board of directors may fix a day and hour, not
exceeding fifty (50) days preceding the date fixed for the payment of any
dividend or for any meeting of the shareholders as a record time for the
determination of shareholders entitled to receive such dividend, or as the time
as of which shareholders entitled to notice of and to vote at such meeting
shall be determined, as the case may be, and only shareholders of record at the
time so fixed shall be entitled to receive such dividend or to notice of and to
vote at such meeting.

Section 2.12. Fees. All directors other than directors who are officers of the
association or its affiliates shall be entitled to reasonable fees for their
services as such directors and as members of committees of the board, said fees
to be fixed by vote of the board.

ARTICLE III

COMMITTEES OF THE BOARD

Section 3.1. Executive Committee. The board of directors may establish an
executive committee consisting of the chairman, not less than five directors,
not officers, who are appointed by the board, and such other directors as the

-3-

<PAGE>

board may appoint. The board shall designate the chairman thereof. The
Executive Committee shall possess and may exercise such powers as are provided
in these bylaws and all other delegable powers of the board and shall meet at
the call of any member thereof. All action of said committee shall be reported
to the board at the next regular board meeting thereafter. Four members of the
Committee, of whom not less than three shall be directors who are not officers,
shall be necessary to constitute a quorum.

Section 3.2. Loan and Investment Committee. The board of directors shall
establish a loan and investment committee consisting of the chairman, the
president, not less than four directors, not officers, who are appointed by the
board, and such other directors as the board may appoint. The committee shall
ensure that the association's credit and investment policies are adequate and
that lending and investment activities are conducted in accordance with the
association's policies and with applicable laws and regulations. The committee
shall exercise oversight and receive reports with respect to lending activities
and credit risk management. The committee shall also exercise oversight and
receive reports with respect to the association's securities portfolio and
securities portfolio activities to ensure appropriate portfolio
diversification, asset quality, liquidity, and profitability. The committee
shall also have oversight responsibilities with respect to the association's
investment policy, liquidity policy, liquidity contingency planning and
interest rate risk exposure. All action by the committee shall be reported to
the board at the next regular board meeting thereafter. Four members of the
committee, of whom not less than two shall be directors who are not officers,
shall be necessary to constitute a quorum.

Section 3.3. Trust Committee. The board of directors shall establish a trust
committee consisting of the president and not less than four directors, not
officers, who are appointed by the board and such other directors as the board
may appoint. The trust committee shall have authority, between meetings of the
board, to discharge the responsibilities of the association with respect to the
exercise of fiduciary powers, except as the board may by resolution or other
appropriate action otherwise from time to time determine. All action by said
committee shall be reported to the board at the next regular board meeting
thereafter. Four members of the trust committee, of whom at least two shall be
directors who are not officers, shall be necessary to constitute a quorum.

Section 3.4. Audit Committee. The audit committee of Shawmut National
Corporation, no member of whom is an officer of the association, is designated
to oversee the audit affairs of the association. Members of the association's
board of directors, none of whom may be officers of the association, may serve
on the audit committee of Shawmut National Corporation. In addition, the board
may, from time to time, appoint an audit committee consisting of not less than
four members of the board, no one of whom shall be an executive officer of the
association, to perform such audit functions as may be assigned by the board.
The duty of the audit committee shall be to examine at least once during each
calendar year and within 15 months of the last examination of affairs of the
association or cause suitable examination to be made by auditors responsible
only to the board of directors and to report the result of such examination in
writing to the board at the next regular meeting

-4-

<PAGE>

thereafter. Such report shall state whether the association is in a sound
condition, whether fiduciary powers have been administered according to law and
sound fiduciary principles, whether adequate internal controls and procedures
are being maintained, and shall recommend to the board of directors such
changes in the manner of conducting the affairs of the association as shall be
deemed advisable.

Section 3.5. Community Affairs Committee. The board of directors shall
establish a community affairs committee consisting of not less than four
directors and such other persons as shall be appointed by the board. The
community affairs committee shall oversee compliance by the association with
the policies and provisions of the Community Reinvestment Act of 1978, as
amended; shall establish and supervise policies relating to voluntary corporate
contributions and other matters of business and community conduct, all as the
board or the chairman may from time to time specify or request. All actions by
said committee shall be reported to the board at the next regular board meeting
thereafter. Three members of the committee, of whom at least two shall be
directors who are not officers, shall be necessary to constitute a quorum.

Section 3.6. Substitute Committee Members. In the case of the absence of any
member of any committee of the board from any meeting of such committee, the
directors who are not officers and are present at such meeting, or the senior
officer present if no such directors are there, may designate a substitute to
serve in lieu of such absent member. Such substitute need not be a director
unless such absent member is a director but in any case when the board of
directors shall have designated one or more alternate members for such
committee, the substitute shall be selected from such of said alternates as are
then available.

Section 3.7. Additional Committees. The board of directors may by resolution
designate one or more additional committees, each consisting of two or more of
the directors. Any such additional committee shall have and may exercise such
powers as the board may from time to time prescribe for furthering the business
and affairs of the association.

ARTICLE IV

WAIVER OF NOTICE; WRITTEN CONSENT; PARTICIPATION BY TELEPHONE

Section 4.1. Waiver of Notice. Notice of the time, place and purpose of any
regular meeting of the board of directors or a committee thereof may be waived
in writing by any director or member of such committee, as the case may be,
either before or after such meeting. Attendance in person at a meeting of the
board of directors or a committee thereof shall be deemed to constitute a
waiver of notice thereof.

Section 4.2. Written Consent. Unless otherwise restricted by the articles of
association or these bylaws, any action required or permitted to be taken at
any meeting of the board of directors or a committee thereof may be taken
without a meeting if a consent in writing, setting forth the action to so be

-5-

<PAGE>

taken, shall be signed before or after such action by all of the directors, or
all of the members of a committee thereof, as the case may be. Such written
consent shall be filed with the records of the association.

Section 4.3. Participation by Telephone. One or more directors may participate
in a meeting of the board of directors, of a committee of the board, or of the
shareholders, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in this manner shall constitute presence in person
at such meeting.

ARTICLE V

OFFICERS AND EMPLOYEES

Section 5.1. Officers. The officers of the association shall consist of a
chairman, a president, one or more vice chairmen, one or more executive vice
presidents, one or more senior vice presidents, one or more vice presidents, a
secretary, an auditor and such other officers as may be appropriate for the
prompt and orderly transaction of the business of the association. Any officer
may hold more than one office, except that the chairman and president may not
also serve as secretary. The chairman, the president, any vice chairman, and
the auditor shall be elected annually by the board of directors to serve for
one year and until his successor is elected and qualifies. All other officers
shall be appointed to hold office during the pleasure of the board, which may
in its discretion delegate the authority to appoint and remove any officer or
officers (other than the auditor) below the ranks of president and vice
chairman.

Section 5.2. Chairman. The chairman shall preside or designate the presiding
officer at all meetings of the board of directors and shareholders. The
chairman shall be the chief executive officer of the association unless
otherwise designated by the board, and may have and exercise such further
powers and duties as from time to time may be conferred upon or assigned to the
chairman by the board of directors. The chairman may establish advisory
committees for any branch, region, or division of the association to advise on
the affairs of such branch, region, or division; provided that such advisory
committee members shall not attend meetings of the board of directors or any
committee thereof, and shall not participate in the management of the
association. If at any time the office of chairman shall be vacant, the powers
and duties of that office shall devolve upon the president; if the office of
president shall be vacant, the powers and duties of that office shall devolve
upon the chairman; and if the office of the chairman and president are vacant,
the board shall designate one or more officers of the association to perform
the duties of chairman until such time as a new chairman is appointed.

Section 5.3. President. The president shall have general executive powers and
may also have and exercise such further powers and duties as may be conferred
upon or assigned by the board or the chairman.

-6-

<PAGE>

Section 5.4. Vice Chairman. Each Vice Chairman shall perform such duties as
may be assigned from time to time by the board of directors or the chairman.

Section 5.5. Secretary. The secretary of the association, or other designated
officer of the association, shall keep accurate minutes of all meetings of the
board of directors; shall attend to the giving of all notices required by these
bylaws; shall be custodian of the corporate seal, records, documents and papers
of the association; shall provide for the keeping of proper records of all
transactions of the association; shall have and may exercise any and all other
powers and duties pertaining by law, regulation or practice, or imposed by the
bylaws; and shall also perform such other duties as may be assigned from time
to time, by the board of directors or the chairman.

Section 5.6. Auditor. The general auditor of the association, or his designee,
shall be the officer in charge of auditing. Said officer shall be responsible
for the conduct of a program of continuous audits of the association and all of
its departments and shall make, or cause to be made, further examinations as he
deems necessary or are required from time to time by the responsible audit
committee or the board. Said officer shall report the results of audit
activities periodically to the responsible audit committee or the board.

Section 5.7. Other Officers. All other officers shall perform such duties and
exercise such powers as shall pertain to their respective offices, or as shall
be imposed by law, or as may be conferred upon, or assigned to them by the
board of directors or the chairman.

Section 5.8. Resignation. An officer may resign at any time by delivering
notice to the association. A resignation is effective when the notice is given
unless the notice specifies a later effective date.

ARTICLE VI

SIGNING AUTHORITY

Section 6.1. Signing Authority. Each officer of this association, excluding
the auditor and each other officer whose primary duties are auditing in nature,
shall have authority for and on behalf of this association to execute, deliver,
sign and endorse checks, drafts, pledges, certificates, receipts for money,
warehouse receipts, bills of lading or similar documents, contracts arising in
the ordinary course of the business of the association, bankers' acceptances
made by the association, commercial credits of the association, securities and
property received in trust or for deposit, proxies to vote stock held by the
association in any capacity, petitions, foreclosures and other deeds, powers,
leases, assignments, discharges, releases, extensions, purchase agreements,
conveyances, and other written instruments pertaining to real estate or
interest therein and, where indicated, to affix the corporate seal of the
association to any of the foregoing; to guarantee and witness signatures upon
securities, documents or other written

-7-

<PAGE>

instruments; to purchase, sell, assign, pledge or transfer funds or other
securities of the association or within its control as a fiduciary; and,
subject to the approval of such officer or committee as the board may
designate, to accept trusts and appointments and to execute trust indentures
and any other instruments establishing trusts or making appointments. Each
officer at the level of senior vice president or above, shall be empowered to
authorize another person or persons, whether or not such other person or
persons are officers or employees of the association, to sign or endorse any of
the foregoing documents on behalf of the association in a particular
transaction; but such officer shall by signed entry personally note the fact of
such authorization on the records of the association relating to such
transaction. The officer in charge of the international division of the
association, or in his absence his designee, shall be empowered to authorize
another person or persons, whether or not such other person or persons are
officers or employees of the association, to execute documents and do such
other acts and things as may be required in connection with a particular loan
or extension of credit, proceeding before a court or other judicial or
administrative body, or other transaction; but such officer shall by signed
entry personally note the fact of such authorization on the records of the
association relating to such act or transaction. Any one officer at the level
of senior vice president or above shall have authority for and on behalf of the
association to borrow money. The chairman, the president, any vice chairman,
any executive vice president, and the senior vice president or other officer in
charge of investment administration or such other officers as may be designated
by the chairman may each, acting singly, authorize borrowings and request
advances from any Federal Reserve Bank or any Federal Home Loan Bank, as the
case may be, and may agree with said bank upon appropriate terms and collateral
for such transactions. The officers and other employees of the association
shall have such further signature powers as may be specified by the board of
directors or by the chairman or his designee.

ARTICLE VII

STOCK AND STOCK CERTIFICATES

Section 7.1. Transfers. Shares of stock shall be transferable on the books of
the association, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall in proportion to his or her shares, succeed to all rights of the prior
holder of such shares. The board of directors may impose conditions upon the
transfer of the stock reasonably calculated to simplify the work of the
association with respect to stock transfer, voting shareholder meetings, and
related matters and to protect it against fraudulent transfer.

Section 7.2. Stock Certificates. Certificates of stock shall bear the
signature of the chairman or president (which may be engraved, printed or
impressed), and shall be signed manually or by facsimile process by the
secretary or assistant secretary, and the seal of the association shall be
engraved thereon. Each certificate shall recite on its face that the stock
represented thereby is transferable only upon the books of the association
properly endorsed.

-8-

<PAGE>

ARTICLE VIII

CORPORATE SEAL

Section 8. Corporate Seal. The board of directors shall provide a seal for
the association. The secretary shall have custody thereof and may designate
such other officers as may have counterparts.

ARTICLE IX

MISCELLANEOUS PROVISIONS

Section 9.1. Fiscal Year. The fiscal year of the association shall be the
calendar year.

Section 9.2. Records. The articles of association, the bylaws and the
proceedings of all meetings of the shareholders, the board of directors, and
standing committees of the board, shall be recorded in appropriate minute books
provided for that purpose. The minutes of each meeting shall be signed by the
secretary or other officer appointed to act as secretary of the meeting.

ARTICLE X

BYLAWS

Section 10. Amendments. These bylaws may be altered, amended, or added to or
repealed by a vote of a majority of the members of the board then in office at
any meeting, provided that notice thereof shall have been given in the notice
of such meeting.

A true copy

Attest:

Secretary/Assistant Secretary
- ---------------------------------------

Dated at , as of .
------------------------------ -------------------

Revision of January 11, 1993

-9-

<PAGE>

EXHIBIT 5

CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939

The undersigned, as Trustee under an Indenture to be entered into between
Empire Gas Corporation and Shawmut Bank Connecticut, National Association,
Trustee, does hereby consent, pursuant to Section 321(b) of the Trust Indenture
Act of 1939, that reports of examinations with respect to the undersigned by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.

SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION
Trustee

By /s/ ROBERT L. REYNOLDS
-------------------------------
Robert L. Reynolds
Assistant Vice President

Dated: April , 1994
-----

<PAGE>

EXHIBIT 6

Federal Financial Institutions Examination Council

Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Expires February 28,1995
- ------------------------------------------------------------------------------

[LOGO] Please refer to page i, / 1 /
Table of Contents,
for the required disclosure
of estimated burden.

CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031

(931231)
REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, 1993 -----------
(RCRI 9999)

This report is required by law: 12 U.S.C. Section 324 (State member
banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section
161 (National banks).

This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.

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

NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, Romolo C. Santarosa, SVP and Controller
-----------------------------------------------------------
Name and Title of Officer Authorized to Sign Report

of the named bank do hereby declare that these Reports of Condition and
Income (including the supporting schedules) have been prepared in conformance
with the instructions issued by the appropriate Federal regulatory authority
and are true to the best of my knowledge and belief.

/S/ ROMOLO C. SANTAROSA
- --------------------------------------------------------------
Signature of Officer Authorized to Sign Report

Janrary 31, 1994
- --------------------------------------------------------------
Date of Signature

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.

We, the undersigned directors (trustees), attest to the correctness of
this Report of Condition (including the supporting schedules) and declare
that it has been examined by us and to the best of our knowledge and belief has
been prepared in conformance with the instructions issued by the appropriate
Federal regulatory authority and is true and correct.

/S/
- ------------------------------------------------------------
Director (Trustee)

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

FOR BANKS SUBMITTING HARD COPY REPORT FORMS:

STATE MEMBER BANKS: Return the original and one copy to the appropriate
Federal Reserve District Bank.

STATE NONMEMBER BANKS: Return the original only in the SPECIAL RETURN ADDRESS
ENVELOPE PROVIDED. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
Systems, 2139 Espey Court, Crofton, MD 21114.

NATIONAL BANKS: Return the original only in the SPECIAL RETURN ADDRESS
ENVELOPE PROVIDED. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
Systems, 2139 Espey Court, Crofton, MD 21114.

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

CALL NO. 186 31 12-31-93

CERT: 02499 10582 STBK 09-0590

SHAWMUT BANK CONNECTICUT, NATIONAL A
777 MAIN STREET
HARTFORD, CT 06115

Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency

<PAGE>

FFIEC 031
Page i
Consolidated Reports of Condition and Income for /2/
A Bank With Domestic and Foreign Offices
- --------------------------------------------------------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
SIGNATURE PAGE COVER
<S> <C>
REPORT OF INCOME
Schedule RI--Income Statment.................. RI-1,2,3
Schedule RI-A--Changes in Equity Capital...... RI-3
Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses...................................... RI-4,5
Schedule RI-C--Applicable Income Taxes by
Taxing Authority............................ RI-5
Schedule RI-D--Income from
International Operations.................... RI-6
Schedule RI-E--Explanations................... RI-7,8
</TABLE>

Disclosure of Estimated Burden

The estimated average burden associated with this information collection is 29.2
hours per respondent and is estimated to vary from 14.6 to 150 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the required
form, and completing the information collection, but exclude the time for
compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs, Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:

Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219

Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429

<TABLE>
<CAPTION>
REPORT OF CONDITION
<S> <C>
Schedule RC--Balance Sheet.................... RC-1,2
Schedule RC-A--Cash and Balances Due From
Depository Institutions..................... RC-3
Schedule RC-B--Securities..................... RC-4,5
Schedule RC-C--Loans and Lease Financing
Receivables:
Part I. Loans and Leases.................. RC-6,7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only).......................... RC-7a,7b
Schedule RC-D--Assets Held in Trading Accounts
in Domestic Offices Only (to be completed
only by banks with $1 billion or more in
total assets)............................... RC-8
Schedule RC-E--Deposit Liabilities............ RC-9,10
Schedule RC-F--Other Assets................... RC-11
Schedule RC-G--Other Liabilities.............. RC-11
Schedule RC-H--Selected Balance Sheet Items
for Domestic Offices........................ RC-12
Schedule RC-I--Selected Assets and Liabilities
of IBFs..................................... RC-12
Schedule RC-K--Quarterly Averages............. RC-13
Schedule RC-L--Off-Balance Sheet Items........ RC-14,15
Schedule RC-M--Memoranda...................... RC-16,17
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets.................... RC-18,19
Schedule RC-O--Other Data for Deposit
Insurance Assessments....................... RC-19,20
Schedule RC-R--Risk-Based Capital............. RC-21,22
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Condition and Income........................ RC-23
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities
(sent only to and to be completed only by
savings banks)
</TABLE>

For information or assistance, national and state nonmember banks should contact
the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C.
20429, toll free on (800) 688-FDIC (3342), Monday through Friday between 8:00
a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Consolidated Report of Income
for the period January 1, 1993-December 31, 1993

All report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.

Schedule RI--Income Statement

<TABLE>
<CAPTION>
1480 (-
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------- ----- ------------
<S> <C> <C>
1. Interest income: ///////////////////
a. Interest and fee income on loans: ///////////////////
(1) In domestic offices: ///////////////////
(a) Loans secured by real estate............................................ 4011 336,044 1.a.(1)(a)
(b) Loans to depository institutions........................................ 4019 164 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers..... 4024 173 1.a.(1)(c)
(d) Commercial and industrial loans......................................... 4012 142,406 1.a.(1)(d)
(e) Acceptances of other banks.............................................. 4026 8 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal ///////////////////
expenditures: ///////////////////
(1) Credit cards and related plans....................................... 4054 3,591 1.a.(1)(f)(1)
(2) Other................................................................ 4055 26,626 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions.................. 4056 0 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political ///////////////////
subdivisions in the U.S.: ///////////////////
(1) Taxable obligations................................................. 4503 17 1.a.(1)(h)(1)
(2) Tax-exempt obligations.............................................. 4504 3,362 1.a.(1)(h)(2)
(i) All other loans in domestic offices..................................... 4058 19,530 1.a.(1)(i)
2. In foreign offices, Edge and Agreement subsidiaries, and IBFs...................... 4059 0 1.a.(2)
b. Income from lease financing receivables: ///////////////////
(1) Taxable leases.............................................................. 4505 32 1.b.(1)
(2) Tax-exempt leases........................................................... 4307 0 1.b.(2)
c. Interest income on balances due from depository institutions:(1) ///////////////////
(1) In domestic offices......................................................... 4105 141 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs............... 4106 0 1.c.(2)
d. Interest and dividend income on securities: ///////////////////
(1) U.S. Treasury securities and U.S. Government agency and corporation ///////////////////
obligations................................................................. 4027 182,360 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: ///////////////////
(a) Taxable securities...................................................... 4506 0 1.d.(2)(a)
(b) Tax-exempt securities................................................... 4507 50 1.d.(2)(b)
(3) Other domestic debt securities.............................................. 3657 46,193 1.d.(3)
(4) Foreign debt securities..................................................... 3658 196 1.d.(4)
(5) Equity securities (including investments in mutual funds)................... 3659 1,400 1.d.(5)
e. Interest income from assets held in trading accounts............................. 4069 0 1.e.
<FN>
- -------------
(1) Includes interest income on time certificates on deposit not held in
trading accounts.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI--Continued

Dollar Amounts in Thousands Year-to-date
- ---------------------------------------------------------------- ------------
<C> <S> <C> <C> <C> <C>
1. Interest Income (continued) RIAD Bil Mil Thou
---- ------------
f. Interest income on federal funds sold and securities //////////////////
purchased under agreements to resell in domestic offices //////////////////
of the bank and of its Edge and Agreement subsidiaries, //////////////////
and in IBFs............................................. 4020 11,211 1.f.
g. Total interest income (sum of items 1.a through 1.f).... 4107 773,504 1.g.
2. Interest expense: //////////////////
a. Interest on deposits: //////////////////
(1) Interest on deposits in domestic offices: //////////////////
(a) Transaction accounts (NOW accounts, ATS //////////////////
accounts, and telephone and preauthorized //////////////////
transfer accounts).............................. 4508 12,644 2.a.(1)(a)
(b) Nontransaction accounts: //////////////////
(1) Money market deposit accounts (MMDAs)....... 4509 12,410 2.a.(1)(b)(1)
(2) Other savings deposits...................... 4511 41,316 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 //////////////////
or more..................................... 4174 23,002 2.a.(1)(b)(3)
(4) All other time deposits..................... 4512 68,330 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and //////////////////
Agreement subsidiaries, and IBFs.................... 4172 4,338 2.a.(2)
b. Expense of federal funds purchased and securities sold //////////////////
under agreements to repurchase in domestic offices of //////////////////
the bank and of its Edge and Agreement subsidiaries, //////////////////
and in IBFs............................................. 4180 96,690 2.b.
c. Interest on demand notes issued to the U.S. Treasury //////////////////
and on other borrowed money............................. 4185 4,322 2.c.
d. Interest on mortgage indebtedness and obligations under //////////////////
captialized leases...................................... 4072 888 2.d.
e. Interest on subordinated notes and debentures........... 4200 0 2.e.
f. Total interest income (sum of items 2.a through 2.e).... 4073 263,940 2.f.
3. Net interest income (item 1.g minus 2.f)................... ////////////////// RIAD 4074 509,564 3.
4. Provisions: //////////////////
a. Provision for loan and lease losses..................... ////////////////// RIAD 4230 78,268 4.a.
b. Provision for allocated transfer risk................... ////////////////// RIAD 4243 0 4.b.
5. Noninterest income: //////////////////
a. Income from fiduciary activities........................ 4070 72,197 5.a.
b. Service charges on deposit accounts in domestic //////////////////
offices................................................. 4080 67,148 5.b.
c. Trading gains (losses) and fees from foreign exchange //////////////////
transactions............................................ 4075 1,904 5.c.
d. Other foreign transaction gains (losses)................ 4076 0 5.d.
e. Gains (losses) and fees from assets held in trading //////////////////
accounts................................................ 4077 2,796 5.e.
f. Other noninterest income: //////////////////
(1) Other fee income.................................... 5407 42,705 5.f.(1)
(2) All other noninterest income*....................... 5408 91,646 5.f.(2)
g. Total noninterest income (sum of items 5.a through //////////////////
5.f).................................................... ////////////////// RIAD 4079 278,396 5.g.
6. Gains (losses) on securities not held in trading //////////////////
accounts................................................... ////////////////// RIAD 4091 (12,428) 6.
7. Noninterest expense: //////////////////
a. Salaries and employee benefits.......................... 4135 271,794 7.a.
b. Expenses of premises and fixed assets (net of rental //////////////////
income) (excluding salaries and employee benefits and //////////////////
mortgage interest)...................................... 4217 84,244 7.b.
c. Other noninterest expense*.............................. 4092 269,565 7.c.
d. Total noninterest expense (sum of items 7.a through //////////////////
7.c).................................................... ////////////////// RIAD 4093 625,603 7.d.
8. Income (loss) before income taxes and extraordinary items //////////////////
and other adjustments (item 3 plus or minus items 4.a, 4.b, //////////////////
5.g, 6, and 7.d)........................................... ////////////////// RIAD 4301 71,661 8.
9. Applicable income taxes (on item 8)........................ ////////////////// RIAD 4302 (14,895) 9.
10. Income (loss) before extraordinary items and other //////////////////
adjustments (item 8 minus 9)............................... ////////////////// RIAD 4300 86,556 10.
<FN>
- ---------------
* Describe on Schedule RI-E--Explanations.

</TABLE>
4

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI--Continued

<TABLE>
<CAPTION>
Year-to-date
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -------------------------------------------------------------------------- ----- ------------
<S> <C> <C> <C> <C>
1. Extraordinary items and other adjustments: ///////////////////
a. Extraordinary items and other adjustments, gross of income taxes*. 4310 31,011 11.a.
b. Applicable income taxes (on item 11.a)*........................... 4315 (1,750) 11.b.
c. Extraordinary items and other adjustments, net of income taxes ///////////////////
(item 11.a minus 11.b)............................................ /////////////////// RIAD 4320 32,761 11.c.
2. Net income (loss) (sum of items 10 and 11.c)......................... /////////////////// RIAD 4340 119,317 12.
</TABLE>

Memoranda

<TABLE>
<CAPTION>
Year-to-date
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------- ----- ------------
<S> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after ///////////////////
August 7, 1986, that is not deductible for federal income tax purposes...................... 4513 10 M.1.
2. Not applicable.............................................................................. ///////////////////
3. Estimated foreign tax credit included in applicable income taxes, items 9 and 11.b above.... 4309 0 M.3.
4. To be completed only by banks with $1 billion or more in total assets: ///////////////////
Taxable equivalent adjustment to "Income (loss) before income taxes and extraordinary ///////////////////
items and other adjustments" (item 8 above)................................................. 1244 2,165 M.4.
5. Number of full-time equivalent employees on payroll at end of current period (round to //// Number
nearest whole number)....................................................................... 4150 5,935 M.5.
</TABLE>

Schedule RI-A--Changes in Equity Capital
Indicate decreases and losses in parentheses.
<TABLE>
<CAPTION>
I483 (-
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ------------------------------------------------------------------------------------------------- ----- ------------
<S> <C> <C>
1. Total equity capital originally reported in the December 31, 1992, Reports of Condition ///////////////////
and Income.................................................................................. 3215 880,908 1.
2. Equity capital adjustments from amended Reports of Income, net*............................. 3216 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2)........................ 3217 880,908 3.
4. Net income (loss) (must equal Schedule RI, item 12)......................................... 4340 119,317 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net.......................... 4346 0 5.
6. Changes incident to business combinations, net.............................................. 4356 43,729 6.
7. LESS: Cash dividends declared on preferred stock............................................ 4470 0 7.
8. LESS: Cash dividends declared on common stock............................................... 4460 0 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions ///////////////////
for this schedule).......................................................................... 4411 0 9.
10. Corrections of material accounting errors from prior years* (see instructions for this ///////////////////
schedule).................................................................................... 4412 0 10.
11. Change in net unrealized loss on marketable equity securities................................ 4413 1,372 11.
12. Foreign currency translation adjustments..................................................... 4414 0 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above)..... 4415 86,300 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule ///////////////////
RC, item 28)................................................................................. 3210 1,131,626 14.
<FN>
- ---------------
* Describe on Schedule RI-E--Explanations.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses

Part I. Charge-Offs and Recoveries on Loans and Leases

Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.

<TABLE>
<CAPTION>
I486 (-
(Column A) (Column B)
Charge-offs Recoveries
-------------------- --------------------
calendar year-to-date
--------------------------------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou
- -------------------------------------------------------------------- ----- ------------ ----- ------------
<S> <C> <C> <C>
1. Loans secured by real estate: /////////////////// ///////////////////
a. To U.S. addressees (domicile)............................... 4651 116,676 4661 11,848 1.a.
b. To non-U.S. addressees (domicile)........................... 4652 0 4662 0 1.b.
2. Loans to depository institutions and acceptances of other /////////////////// ///////////////////
banks: /////////////////// ///////////////////
a. To U.S. banks and other U.S. depository institutions........ 4653 197 4663 450 2.a.
b. To foreign banks............................................ 4654 0 4664 0 2.b.
3. Loans to finance agricultural production and other loans to /////////////////// ///////////////////
farmers........................................................ 4655 104 4665 92 3.
4. Commercial and industrial loans: /////////////////// ///////////////////
a. To U.S. addressees (domicile)............................... 4645 27,921 4617 10,125 4.a.
b. To non-U.S. addressees (domicile)........................... 4646 0 4618 0 4.b.
5. Loans to individuals for household, family, and other personal /////////////////// ///////////////////
expenditures: /////////////////// ///////////////////
a. Credit cards and related plans.............................. 4656 1,472 4666 416 5.a.
b. Other (includes single payment, installment, and all student /////////////////// ///////////////////
loans)...................................................... 4657 5,016 4667 2,435 5.b.
6. Loans to foreign governments and official institutions......... 4643 0 4627 0 6.
7. All other loans................................................ 4644 2,101 4628 553 7.
8. Lease financing receivables: /////////////////// ///////////////////
a. Of U.S. addressees (domicile)............................... 4658 0 4668 0 8.a.
b. Of non-U.S. addressees (domicile)........................... 4659 0 4669 0 8.b.
9. Total (sum of items 1 through 8)............................... 4635 153,487 4605 25,919 9.
</TABLE>

<TABLE>
<CAPTION>
Cumulative Cumulative
Charge-offs Recoveries
Jan. 1, 1986 Jan. 1, 1986
Memoranda through through
Dollar Amounts in Thousands Dec. 31, 1989 Report Date
- --------------------------------------------------------------------- ------------------- -------------------
To be completed by national banks only. RIAD Bil Mil Thou RIAD Bil Mil Thou
---- ------------ ---- ------------
<S> <C> <C> <C>
1. Charge-offs and recoveries of Special-Category Loans, as defined /////////////////// ///////////////////
for this Call Report by the Comptroller of the Currency.......... /////////////////// 4784 513 M.1.
</TABLE>

<TABLE>
<CAPTION>
(Column A) (Column B)
Memorandum items 2 and 3 are to be completed by all banks. Charge-offs Recoveries
-------------------------------------------
calendar year-to-date
-------------------------------------------
RIAD Bil Mil Thou RIAD Bil Mil Thou
---- ------------ ---- ------------
<S> <C> <C> <C>
2. Loans to finance commercial real estate, construction, and land /////////////////// ///////////////////
development activities (not secured by real estate) included in /////////////////// ///////////////////
Schedule RI-B, part I, items 4 and 7, above..................... 5409 6,525 5410 2,499 M.2.
3. Loans secured by real estate in domestic offices (included in /////////////////// ///////////////////
Schedule RI-B, part I, item 1, above): /////////////////// ///////////////////
a. Construction and land development............................ 3582 24,028 3583 3,576 M.3.a.
b. Secured by farmland.......................................... 3584 249 3585 0 M.3.b.
c. Secured by 1-4 family residential properties: /////////////////// ///////////////////
(1) Revolving, open-end loans secured by 1-4 family residential /////////////////// ///////////////////
properties and extended under lines of credit............. 5411 2,635 5412 217 M.3.c.(1)
(2) All other loans secured by 1-4 family residential /////////////////// ///////////////////
properties............................................... 5413 19,992 5414 2,379 M.3.c.(2)
d. Secured by multifamily (5 or more) residential properties.... 3588 5,853 3589 1,035 M.3.d.
e. Secured by nonfarm nonresidential properties................. 3590 63,917 3591 4,641 M.3.e.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-B--Continued

Part II. Changes in Allowance for Loan and Lease Losses and in Allocated
Transfer Risk Reserve

<TABLE>
<CAPTION>
(Column A) (Column B)
Allowance for Allocated
Loan and Lease Transfer Risk
Losses Reserve
------------------- --------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou
- --------------------------------------------------------------------------- ---- ------------ ---- -------------
<S> <C> <C> <C>
1. Balance originally reported in the December 31, 1992, Reports of /////////////////// ////////////////////
Condition and Income.................................................... 3124 400,200 3131 0 1.
2. Recoveries (column A must equal part I, item 9, column B above)......... 4605 25,919 3132 0 2.
3. LESS: Charge-offs (column A must equal part I, item 9, column A above).. 4635 153,487 3133 0 3.
4. Provision (column A must equal Schedule RI, item 4.a; column B must /////////////////// ////////////////////
equal Schedule RI, item 4.b)............................................ 4230 78,268 4243 0 4.
5. Adjustments* (see instructions for this schedule)....................... 4815 0 3134 0 5.
6. Balance end of current period (sum of items 1 through 5) (column A must /////////////////// ////////////////////
equal Schedule RC, item 4.b; column B must equal Schedule RC, /////////////////// ////////////////////
item 4.c)............................................................... 3123 350,900 3128 0 6.
<FN>
- ---------------
* Describe on Schedule RI-E--Explanations.
</TABLE>

Schedule RI-C--Applicable Income Taxes by Taxing Authority

Schedule RI-C is to be reported with the December Report of Income.

<TABLE>
<CAPTION>
I489 (-
-------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C>
1. Federal......................................................................................... 4780 (16,268) 1.
2. State and local................................................................................. 4790 (377) 2.
3. Foreign......................................................................................... 4795 0 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b).............. 4770 (16,645) 4.
5. Deferred portion of item 4.................................................. RIAD 4772 24,264 //////////////////// 5.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-6
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-D--Income from International Operations

For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.

Part I. Estimated Income from International Operations

<TABLE>
<CAPTION>
1492 (-
-------------
Year-to-Date
-------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, /////////////////////
and IBFs: /////////////////////
a. Interest income booked.............................................................. 4837 N/A 1.a.
b. Interest expense booked............................................................. 4838 N/A 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and /////////////////////
IBFs (item 1.a minus 1.b)........................................................... 4839 N/A 1.c
2. Adjustments for booking location of international operations: /////////////////////
a. Net interest income attributable to international operations booked at domestic /////////////////////
offices.............................................................................. 4840 N/A 2.a.
b. Net interest income attributable to domestic business booked at foreign offices..... 4841 N/A 2.b.
c. Net booking location adjustment (item 2.a minus 2.b)................................ 4842 N/A 2.c.
3. Noninterest income and expense attributable to international operations: /////////////////////
a. Noninterest income attributable to international operations......................... 4097 N/A 3.a.
b. Provision for loan and lease losses attributable to international operations........ 4235 N/A 3.b.
c. Other noninterest expense attributable to international operations.................. 4239 N/A 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a. /////////////////////
minus 3.b. and 3.c)................................................................ 4843 N/A 3.d.
4. Estimated pretax income attributable to international operations before capital /////////////////////
allocation adjustment (sum of items 1.c, 2.c, and 3.d)................................ 4844 N/A 4.
5. Adjustment to pretax income for internal allocations to international operations to /////////////////////
reflect the effects of equity capital on overall bank funding costs................... 4845 N/A 5.
6. Estimated pretax income attributable to international operations after capital /////////////////////
allocation adjustment (sum of items 4 and 5).......................................... 4846 N/A 6.
7. Income taxes attributable to income from international operations as estimated in /////////////////////
item 6................................................................................ 4797 N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7)........ 4341 N/A 8.
</TABLE>

Memoranda

<TABLE>
<CAPTION>
Dollar Amounts in Thousands RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C>
1. Intracompany interest income included in item 1.a above............................. 4847 N/A M.1.
2. Intracompany interest expense included in item 1.b above............................ 4848 N/A M.2.
</TABLE>

Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts

<TABLE>
<CAPTION>
Year-to-Date
-------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- --------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C>
1. Interest income booked at IBFs...................................................... 4849 N/A 1.
2. Interest expense booked at IBFs..................................................... 4850 N/A 2.
3. Noninterest income attributable to international operations booked at domestic /////////////////////
offices (excluding IBFs): /////////////////////
a. Gains (losses) and extraordinary items............................................ 5491 N/A 3.a
b. Fees and other noninterest income................................................. 5492 N/A 3.b.
4. Provision for loan and lease losses attributable to international operations booked /////////////////////
at domestic offices (excluding IBFs)................................................. 4852 N/A 4.
5. Other noninterest expense attributable to international operations booked at /////////////////////
domestic offices (excluding (IBFs).................................................... 4853 N/A 5.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-E--Explanations

Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.

Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other noninterest
income and other noninterest expense in Schedule RI. (See instructions for
details.)

<TABLE>
<CAPTION>
I495 (-
--------
Year-to-date
-------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ---------------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) ////////////////////
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): ////////////////////
a. Net gains on other real estate owned................................................. 5415 0 1.a.
b. Net gains on sales of loans.......................................................... 5416 25,413 1.b.
c. Net gains on sales of premises and fixed assets...................................... 5417 0 1.c.
Itemize and describe the three largest other amounts that exceed 10% of ////////////////////
Schedule RI, item 5.f.(2): ////////////////////
d. TEXT 4461 OPERATING EXPENSE CHARGEBACK TO AFFILIATES 4461 55,698 1.d.
e. TEXT 4462 FORECLOSED PROPERTIES RENTAL INCOME 4462 9,660 1.e.
f. TEXT 4463 4463 1.f.
2. Other noninterest expense (from Schedule RI, item 7.c): ////////////////////
a. Amortization expense of intangible assets............................................ 4531 12,072 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: ////////////////////
b. Net losses on other real estate owned................................................ 5418 46,116 2.b.
c. Net losses on sales of loans......................................................... 5419 0 2.c.
d. Net losses on sales of premises and fixed assets..................................... 5420 0 2.d.
Itemize and describe the three largest other amounts that exceed 10% ////////////////////
of Schedule RI, item 7.c: ////////////////////
e. TEXT 4464 4464 2.e.
f. TEXT 4467 4467 2.f.
g. TEXT 4468 4468 2.g.
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and ////////////////////
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe ////////////////////
all extraordinary items and other adjustments): ////////////////////
a. (1) TEXT 6440 Effect of adopting FASB Statement No. 109, "Accounting for Income ////////////////////
Taxes" 6440 36,061 3.a.(1)
(2) Applicable income tax effect RIAD 4486 0 //////////////////// 3.a.(2)
b. (1) TEXT 4487 4487 (5,050) 3.b.(1)
(2) Applicable income tax effect RIAD 4488 //////////////////// 3.b.(2)
c. (1) TEXT 4489 4489 3.c.(1)
(2) Applicable income tax effect RIAD 4491 //////////////////// 3.c.(2)
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, ////////////////////
item 2) (itemize and describe all adjustments): ////////////////////
a. TEXT 4492 4492 4.a.
b. TEXT 4493 4493 4.b.
5. Cumulative effect of changes in accounting principles from prior years (from ////////////////////
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): ////////////////////
a. TEXT 4494 4494 5.a.
b. TEXT 4495 4495 5.b.
6. Corrections of material accounting errors from prior years (from Schedule RI-A, ////////////////////
item 10) (itemize and describe all corrections): ////////////////////
a. TEXT 4496 4496 6.a.
b. TEXT 4497 4497 6.b.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RI-E--Continued

<TABLE>
<CAPTION>
Year-to-date
------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- -------------------------------------------------------------------------------------- ----- ------------
<S> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) //////////////////
(itemize and describe all such transactions): //////////////////
a. TEXT 4498 CAPITAL CONTRIBUTION FROM THE PARENT COMPANY 4498 86,300 7.a.
b. TEXT 4499 4499 7.b.
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, //////////////////
item 5) (itemize and describe all adjustments): //////////////////
a. TEXT 4521 4521 8.a.
b. TEXT 4522 4522 8.b.
--------------------
9. Other explanations (the space below is provided for the bank to briefly describe, I498 I499 (-
at its option, any other significant items affecting the Report of Income):
No comment / / (RIAD 4769)
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for December 31, 1993

All schedules are to be reported in thousands of dollars. Unless
otherwise indicated, report the amount outstanding as of the last business day
of the quarter.

Schedule RC--Balance Sheet

C400 (-
------------
Dollars Amounts in Thousands RCFD Bil Mil Thou
- ---------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
ASSETS ////////////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): ////////////////////
a. Noninterest-bearing balances and currency and coin(1).................................. 0081 934,562 1.a.
b. Interest-bearing balances(2)........................................................... 0071 0 1.b.
2. Securities (from Schedule RC-B)........................................................... 0390 4,856,073 2.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices ////////////////////
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: ////////////////////
a. Federal funds sold..................................................................... 0276 0 3.a.
b. Securities purchased under agreements to resell........................................ 0277 0 3.b.
4. Loans and lease financing receivables: ////////////////////
a. Loans and leases, net of unearned income (from Schedule ////////////////////
RC-C)......................................................... RCFD 2122 8,185,289 //////////////////// 4.a.
b. LESS: Allowance for loan and lease losses..................... RCFD 3123 350,900 //////////////////// 4.b.
c. LESS: Allocated transfer risk reserve......................... RCFD 3128 0 //////////////////// 4.c.
d. Loans and leases, net of unearned income, ////////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c).................................... 2125 7,834,389 4.d.
5. Assets held in trading accounts........................................................... 2146 0 5.
6. Premises and fixed assets (including capitalized leases).................................. 2145 168,724 6.
7. Other real estate owned (from Schedule RC-M).............................................. 2150 27,827 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule ////////////////////
RC-M)..................................................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding.............................. 2155 30,676 9.
10. Intangible assets (from Schedule RC-M).................................................... 2143 73,719 10.
11. Other assets (from Schedule RC-F)......................................................... 2160 582,139 11.
12. Total assets (sum of items 1 through 11).................................................. 2170 14,508,109 12.
<FN>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC--Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands ///////// Bil Mil Thou
- ----------------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
LIABILITIES ///////////////////////
13. Deposits: ///////////////////////
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, ///////////////////////
part I).......................................................................... RCON 2200 8,134,364 13.a.
(1) Noninterest-bearing(1)..................................RCON 6631 2,878,991 /////////////////////// 13.a.(1)
(2) Interest-bearing........................................RCON 6636 5,255,373 /////////////////////// 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule ///////////////////////
RC-E, part II)................................................................... RCFN 2200 280,241 13.b.
(1) Noninterest-bearing......................................RCFN 6631 0 /////////////////////// 13.b.(1)
(2) Interest-bearing.........................................RCFN 6636 280,241 /////////////////////// 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase in ///////////////////////
domestic offices of the bank and of its Edge and Agreement subsidiaries, and ///////////////////////
in IBFs: ///////////////////////
a. Federal funds purchased.......................................................... RCFD 0278 862,958 14.a.
b. Securities sold under agreements to repurchase................................... RCFD 0279 3,536,716 14.b.
15. Demand notes issued to the U.S. Treasury............................................ RCON 2840 399,965 15.
16. Other borrowed money................................................................ RCFD 2850 42,298 16.
17. Mortgage indebtedness and obligations under capitalized leases...................... RCFD 2910 9,973 17.
18. Bank's liability on acceptances executed and outstanding............................ RCFD 2920 30,676 18.
19. Subordinated notes and debentures................................................... RCFD 3200 0 19.
20. Other liabilities (from Schedule RC-G).............................................. RCFD 2930 79,292 20.
21. Total liabilities (sum of items 13 through 20)...................................... RCFD 2948 13,376,483 21.
///////////////////////
22. Limited-life preferred stock and related surplus.................................... RCFD 3282 0 22.
EQUITY CAPITAL ///////////////////////
23. Perpetual preferred stock and related surplus....................................... RCFD 3838 0 23.
24. Common stock........................................................................ RCFD 3230 19,489 24.
25. Surplus (exclude all surplus related to preferred stock)............................ RCFD 3839 849,190 25.
26. a. Undivided profits and capital reserves........................................... RCFD 3632 261,575 26.a.
b. LESS: Net unrealized loss on marketable equity securities........................ RCFD 0297 (1,372) 26.b.
27. Cumulative foreign currency translation adjustments................................. RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27)................................... RCFD 3210 1,131,626 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of ///////////////////////
items 21, 22, and 28)............................................................... RCFD 3300 14,508,109 29.

Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best Number
describes the most comprehensive level of auditing work performed for the bank ----------
by independent external auditors as of any date during 1992......................... RCFD 6724 N/A M.1.

1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
<FN>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-A--Cash and Balances Due From Depository Institutions

Exclude assets held in trading accounts.

<TABLE>
<CAPTION>
C405 (-
-------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
------------------- -------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- -------------------------------------------------------------------------- ---- ------------ ---- ------------
<S> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency /////////////////// ///////////////////
and coin............................................................. 0022 704,656 /////////////////// 1.
a. Cash items in process of collection and unposted debits........... /////////////////// 0020 551,342 1.a.
b. Currency and coin................................................. /////////////////// 0080 153,314 1.b.
2. Balances due from depository institutions in the U.S................. /////////////////// 0082 91,824 2.
a. U.S. branches and agencies of foreign banks (including their /////////////////// ///////////////////
IBFs)............................................................. 0083 0 /////////////////// 2.a.
b. Other commercial banks in the U.S. and other depository /////////////////// ///////////////////
institutions in the U.S. (including their IBFs)................... 0085 91,824 /////////////////// 2.b.
3. Balances due from banks in foreign countries and foreign central /////////////////// ///////////////////
banks................................................................ /////////////////// 0070 4,942 3.
a. Foreign branches of other U.S. banks.............................. 0073 120 /////////////////// 3.a.
b. Other banks in foreign countries and foreign central banks........ 0074 4,822 /////////////////// 3.b.
4. Balances due from Federal Reserve Banks.............................. 0090 133,140 0090 133,140 4.
5. Total (sum of items 1 through 4) (total of column A must equal /////////////////// ///////////////////
Schedule RC, item 1)................................................. 0010 934,562 0010 934,562 5.
</TABLE>

<TABLE>
<CAPTION>
Memorandum Dollar Amounts in Thousands RCON Bil Mil Thou
- -------------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, ///////////////////
column B above).............................................................................. 0050 91,824 M.1.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-B--Securities
Exclude assets held in trading accounts.

C410 (-
-------
Consolidated Bank Domestic offices
-------------------------------------------- -------------------
(Column A) (Column B) (Column C)
Book Value Market Value(1) Book Value
-------------------- -------------------- -------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCON Bil Mil Thou
- ----------------------------------------------- ---- ------------ ---- ------------ ---- ------------
<S> <C> <C> <C> <C>
1. U.S. Treasury securities.................... 0400 2,119,457 0401 2,113,304 0400 2,119,457 1.
2. U.S. Government agency and corporation /////////////////// /////////////////// ///////////////////
obligations: /////////////////// /////////////////// ///////////////////
a. All holdings of U.S. Government-issued or /////////////////// /////////////////// ///////////////////
-guaranteed certificates of participation /////////////////// /////////////////// ///////////////////
in pools of residential mortgages: /////////////////// /////////////////// ///////////////////
(1) Issued by FNMA and FHLMC............. 3760 1,692,402 3761 1,721,515 3760 1,692,402 2.a.(1)
(2) Guaranteed by GNMA (exclude FNMA /////////////////// /////////////////// ///////////////////
and FHLMC issues).................... 3762 116,174 3763 114,974 3762 116,174 2.a.(2)
b. All other................................ 0604 0 0605 0 /////////////////// 2.b.
(1) Collateralized mortgage obligations /////////////////// /////////////////// ///////////////////
issued by FNMA and FHLMC (include /////////////////// /////////////////// ///////////////////
REMICs).............................. /////////////////// /////////////////// 3764 0 2.b.(1)
(2) All other U.S. Government-sponsored /////////////////// /////////////////// ///////////////////
agency obligations(2)................ /////////////////// /////////////////// 3765 0 2.b.(2)
(3) All other U.S. Government agency /////////////////// /////////////////// ///////////////////
obligations(3)....................... /////////////////// /////////////////// 3766 0 2.b.(3)
3. Securities issued by states and political /////////////////// /////////////////// ///////////////////
subdivisions in the U.S..................... 0602 154 0403 154 /////////////////// 3.
a. General obligations...................... /////////////////// /////////////////// 3767 154 3.a.
b. Revenue obligations...................... /////////////////// /////////////////// 3768 0 3.b.
c. Industrial development and similar /////////////////// /////////////////// ///////////////////
obligations.............................. /////////////////// /////////////////// 3769 0 3.c.
4. Other domestic debt securities: /////////////////// /////////////////// ///////////////////
a. All holdings of private (i.e., /////////////////// /////////////////// ///////////////////
nongovernment-issued or -guaranteed) /////////////////// /////////////////// ///////////////////
certificates of participation in pools of /////////////////// /////////////////// ///////////////////
residential mortgages.................... 0408 21,652 0409 19,586 0408 21,652 4.a.
b. All other domestic debt securities: /////////////////// /////////////////// ///////////////////
(1) Privately-issued collateralized /////////////////// /////////////////// ///////////////////
mortgage obligations (include /////////////////// /////////////////// ///////////////////
REMICs).............................. 5361 134,040 5362 134,039 5361 134,040 4.b.(1)
(2) All other............................ 5363 743,868 5364 760,807 5363 743,868 4.b.(2)
5. Foreign debt securities..................... 3635 3,250 3636 3,264 3635 3,250 5.
6. Equity securities: /////////////////// /////////////////// ///////////////////
a. Marketable equity securities: /////////////////// /////////////////// ///////////////////
(1) Investments in mutual funds.......... 3637 0 3638 0 3637 0 6.a.(1)
(2) Other marketable equity securities... 3639 0 3640 0 3639 0 6.a.(2)
(3) LESS: Net unrealized loss on /////////////////// /////////////////// ///////////////////
marketable equity securities......... 3641 0 /////////////////// 3641 0 6.a.(3)
b. Other equity securities (includes /////////////////// /////////////////// ///////////////////
Federal Reserve stock)................... 3642 25,076 3643 25,076 3642 25,076 6.b.
7. Total (sum of items 1 through 6) (total of /////////////////// /////////////////// ///////////////////
column A must equal Schedule RC, item 2).... 0390 4,856,073 0391 4,892,719 0390 4,856,073 7.
<FN>
- ---------------
(1) See discussion in Glossary entry for "market value of securities."
(2) Includes obligations (other than certificates of participation in pools of
residential mortgages, CMOs, and REMICs) issued by the Farm Credit System,
the Federal Home Loan Bank System, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing
Association, and the Tennessee Valley Authority.
(3) Includes Small Business Administration "Guaranteed Loan Pool Certificates,"
U.S. Maritime Administration obligations, and Export-Import Bank
participation certificates.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-B--Continued

<TABLE>
<CAPTION>
Consolidated Bank
-------------------
Book Value
Memoranda -------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ------------------------------------------------------------------------------------------------ ---- ------------
<S> <C> <C>
1. Pledged securities........................................................................... 0416 4,164,182 M.1.
2. Maturity and repricing data for debt securities(1),(2) (excluding those in nonaccrual status): ///////////////////
a. Fixed rate debt securities with a remaining maturity of: ///////////////////
(1) Three months or less.................................................................. 0343 26,955 M.2.a.(1)
(2) Over three months through 12 months................................................... 0344 14,639 M.2.a.(2)
(3) Over one year through five years...................................................... 0345 1,554,785 M.2.a.(3)
(4) Over five years....................................................................... 0346 3,072,364 M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)).... 0347 4,668,743 M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: ///////////////////
(1) Quarterly or more frequently.......................................................... 4544 66,193 M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly....................... 4545 96,061 M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually................ 4551 0 M.2.b.(3)
(4) Less frequently than every five years................................................. 4552 0 M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)). 4553 162,254 M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) through 2.b.(5)) (must equal total ///////////////////
debt securities from Schedule RC-B, sum of items 1 through 5, column A, minus ///////////////////
nonaccrual debt securities included in Schedule RC-N, item 9, column C)................... 0393 4,830,997 M.2.c.
3. Taxable securities issued by states and political subdivisions in the U.S. (included in ///////////////////
Schedule RC-B, item 3, column A, above)...................................................... 0301 0 M.3.
4. Debt securities restructured and in compliance with modified terms (included in ///////////////////
Schedule RC-B, items 3 through 5, column A, above)........................................... 5365 0 M.4.
5. Debt securities held for sale (included in Schedule RC-B, items 1 through 5, column A, ///////////////////
above)....................................................................................... 5366 1,452,531 M.5.
6. Floating rate debt securities with a remaining maturity of one year or less (included in ///////////////////
Memorandum item 2.b.(5) above)............................................................... 5519 1,750 M.6.
<FN>
- ---------------
(1) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(2) Memorandum item 2 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-6
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-C--Loans and Lease Financing Receivables

Part I. Loans and Leases

Do not deduct the allowance for loan and lease losses from amounts
reported on this schedule. Report total loans and leases, net of unearned
income. Exclude assets held in trading accounts.

<TABLE>
<CAPTION>
C415 (-
--------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
-------------------- --------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- -------------------------------------------------------------------- ----- ------------ ----- ------------
<S> <C> <C> <C>
1. Loans secured by real estate................................... 1410 4,273,021 /////////////////// 1.
a. Construction and land development........................... /////////////////// 1415 87,386 1.a.
b. Secured by farmland (including farm residential and other /////////////////// ///////////////////
improvements)............................................... /////////////////// 1420 1,571 1.b.
c. Secured by 1-4 family residential properties: /////////////////// ///////////////////
(1) Revolving, open-end loans secured by 1-4 family /////////////////// ///////////////////
residential properties and extended under lines of credit /////////////////// 1797 409,706 1.c.(1)
(2) All other loans secured by 1-4 family residential /////////////////// ///////////////////
properties: /////////////////// ///////////////////
(a) Secured by first liens.............................. /////////////////// 5367 2,414,262 1.c.(2)(a)
(b) Secured by junior liens............................. /////////////////// 5368 178,212 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties... /////////////////// 1460 88,115 1.d.
e. Secured by nonfarm nonresidential properties................ /////////////////// 1480 1,093,769 1.e.
2. Loans to depository institutions: /////////////////// ///////////////////
a. To commercial banks in the U.S.............................. /////////////////// 1505 6,582 2.a.
(1) To U.S. branches and agencies of foreign banks.......... 1506 0 /////////////////// 2.a.(1)
(2) To other commercial banks in the U.S.................... 1507 6,582 /////////////////// 2.a.(2)
b. To other depository institutions in the U.S................. 1517 0 1517 0 2.b.
c. To banks in foreign countries............................... /////////////////// 1510 0 2.c.
(1) To foreign branches of other U.S. banks................. 1513 0 /////////////////// 2.c.(1)
(2) To other banks in foreign countries..................... 1516 0 /////////////////// 2.c.(2)
3. Loans to finance agricultural production and other loans to /////////////////// ///////////////////
farmers........................................................ 1590 1,606 1590 1,606 3.
4. Commercial and industrial loans: /////////////////// ///////////////////
a. To U.S. addressees (domicile)............................... 1763 2,593,798 1763 2,593,798 4.a.
b. To non-U.S. addressees (domicile)........................... 1764 0 1764 0 4.b.
5. Acceptances of other banks: /////////////////// ///////////////////
a. Of U.S. banks............................................... 1756 228 1756 228 5.a.
b. Of foreign banks............................................ 1757 0 1757 0 5.b.
6. Loans to individuals for household, family, and other personal /////////////////// ///////////////////
expenditures (i.e., consumer loans) (includes purchased /////////////////// ///////////////////
paper)......................................................... /////////////////// 1975 370,720 6.
a. Credit cards and related plans (includes check credit and /////////////////// ///////////////////
other revolving credit plans).................................. 2008 28,083 /////////////////// 6.a.
b. Other (includes single payment, installment, and all student /////////////////// ///////////////////
loans)......................................................... 2011 342,637 /////////////////// 6.b.
7. Loans to foreign governments and official institutions /////////////////// ///////////////////
(including foreign central banks).............................. 2081 0 2081 0 7.
8. Obligations (other than securities and leases) of states and /////////////////// ///////////////////
political subdivisions in the U.S. (includes nonrated industrial /////////////////// ///////////////////
development obligations): /////////////////// ///////////////////
a. Taxable obligations......................................... 2033 290 2033 290 8.a.
b. Tax-exempt obligations...................................... 2079 55,452 2079 55,452 8.b.
9. Other loans.................................................... 1563 885,160 /////////////////// 9.
a. Loans for purchasing or carrying securities (secured and /////////////////// ///////////////////
unsecured).................................................. /////////////////// 1545 366,513 9.a.
b. All other loans (exclude consumer loans).................... /////////////////// 1564 518,647 9.b.
10. Lease financing receivables (net of unearned income)........... /////////////////// 2165 1,970 10.
a. Of U.S. addressees (domicile)............................... 2182 1,970 /////////////////// 10.a.
b. Of non-U.S. addressees (domicile)........................... 2183 0 /////////////////// 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 /////////////////// ///////////////////
above.......................................................... 2123 3,538 2123 3,538 11.
12. Total loans and leases, net of unearned income (sum of items 1 /////////////////// ///////////////////
through 10 minus item 11) (total of column A must equal /////////////////// ///////////////////
Schedule RC, item 4.a)......................................... 2122 8,185,289 2122 8,185,289 12.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-C--Continued

Part I. Continued

<TABLE>
<CAPTION>
(Column A) (Column B)
Consolidated Domestic
Bank Offices
Memoranda --------------------------------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou
- -------------------------------------------------------------------------- ---- ------------ ----- ------------
<S> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above.............. 1496 0 1496 0 M.1.
2. Loans and leases restructured and in compliance with modified terms /////////////////// ///////////////////
(included in Schedule RC-C, part I, above): /////////////////// ///////////////////
a. Loans secured by real estate: /////////////////// ///////////////////
(1) To U.S. addressees (domicile).................................... 1687 33,291 M.2.a.(1)
(2) To non-U.S. addressees (domicile)................................ 1689 0 M.2.a.(2)
b. Loans to finance agricultural production and other loans to farmers.. 1613 0 M.2.b.
c. Commercial and industrial loans: ///////////////////
(1) To U.S. addressees (domicile).................................... 1758 7,479 M.2.c.(1)
(2) To non-U.S. addressees (domicile)................................ 1759 0 M.2.c.(2)
d. All other loans (exclude loans to individuals for household, ///////////////////
family, and other personal expenditures)............................. 1615 0 M.2.d.
e. Lease financing receivables: ///////////////////
(1) Of U.S. addressees (domicile).................................... 1789 0 M.2.e.(1)
(2) Of non-U.S. addressees (domicile)................................ 1790 0 M.2.e.(2)
f. Total (sum of Memorandum items 2.a through 2.e)...................... 1616 40,770 M.2.f.
3. Maturity and repricing data for loans and leases(1) (excluding those ///////////////////
in nonaccrual status): ///////////////////
a. Fixed rate loans and leases with a remaining maturity of: ///////////////////
(1) Three months or less............................................. 0348 492,955 M.3.a.(1)
(2) Over three months through 12 months.............................. 0349 59,706 M.3.a.(2)
(3) Over one year through five years................................. 0356 685,285 M.3.a.(3)
(4) Over five years.................................................. 0357 1,699,047 M.3.a.(4)
(5) Total fixed rate loans and leases (sum of ///////////////////
Memorandum items 3.a.(1) through 3.a.(4))........................ 0358 2,936,993 M.3.a.(5)
b. Floating rate loans with a repricing frequency of: ///////////////////
(1) Quarterly or more frequently..................................... 4554 4,661,203 M.3.b.(1)
(2) Annually or more frequently, but less frequently than
quarterly........................................................ 4555 270,835 M.3.b.(2)
(3) Every five years or more frequently, but less frequently than ///////////////////
annually......................................................... 4561 139,066 M.3.b.(3)
(4) Less frequently than every five years............................ 4564 0 M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) ///////////////////
through 3.b.(4))................................................. 4567 5,071,104 M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) ///////////////////
(must equal the sum of total loans and leases, net, from ///////////////////
Schedule RC-C, part I, item 12, plus unearned income from ///////////////////
Schedule RC-C, part I, item 11, minus total nonaccrual loans and ///////////////////
leases from Schedule RC-N, sum of items 1 through 8, column C)....... 1479 8,008,097 M.3.c.
4. Loans to finance commercial real estate, construction, and land ///////////////////
development activities (not secured by real estate) included in ///////////////////
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2)............ 2746 44,662 M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, ///////////////////
above).................................................................. 5369 415,812 M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family ///////////////////
residential properties (included in Schedule RC-C, part I, item /////////////////// RCON Bil Mil Thou
1.c.(2)(a), column 8, page RC-6)........................................ /////////////////// 5370 1,115,563 M.6.
<FN>
- ---------------
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C,
part I, item 1, column A.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RB-D is to be completed only by banks with $1 billion or more in total
assets

Schedule RC-D--Assets Held in Trading Accounts in Domestic Offices Only

<TABLE>
<CAPTION>
C420 (-
-------------
Domestic Offices
---------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C> <C>
1. U.S. Treasury securities........................................................................ 1010 0 1.
2. U.S. Government agency and corporation obligations.............................................. 1020 0 2.
3. Securities issued by states and political subdivisions in the U.S. ............................. 1025 0 3.
4. Other bonds, notes, and debentures.............................................................. 1045 0 4.
5. Certificates of deposit......................................................................... 1026 0 5.
6. Commercial paper................................................................................ 1027 0 6.
7. Banker's acceptances............................................................................ 1028 0 7.
8. Other........................................................................................... 1029 0 8.
9. Total (sum of items 1 through 8)................................................................ 2146 0 9.
</TABLE>
18

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-9
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-E--Deposit Liabilities
Part I. Deposits in Domestic Offices

<TABLE>
<CAPTION>
C425 (-
------------------
Nontransaction
Transaction Accounts Accounts
--------------------------------------- ------------------
(Column A)
Total transaction (Column B) (Column C)
accounts Memo: Total Total
(including demand deposits nontransaction
total demand (included in accounts
deposits) column A) (including MMDAs)
------------------ ------------------ ------------------
Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
- ------------------------------------------------- ---- ------------ ---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Deposits of: ////////////////// ////////////////// //////////////////
1. Individuals, partnerships, and ////////////////// ////////////////// //////////////////
corporations................................ 2201 3,301,136 2240 2,307,810 2346 4,046,255 1.
2. U.S. Government............................. 2202 41,263 2280 41,263 2520 0 2.
3. States and political subdivisions in the ////////////////// ////////////////// //////////////////
U.S......................................... 2203 193,111 2290 164,781 2530 185,962 3.
4. Commercial banks in the U.S................. 2206 225,125 2310 225,125 ////////////////// 4.
a. U.S. branches and agencies of foreign ////////////////// ////////////////// //////////////////
banks....................................... ////////////////// ////////////////// 2347 0 4.a.
b. Other commercial banks in the U.S........ ////////////////// ////////////////// 2348 1,500 4.b.
5. Other depository institutions in the U.S.... 2207 89,142 2312 89,142 2349 0 5.
6. Banks in foreign countries.................. 2213 1,430 2320 1,430 ////////////////// 6.
a. Foreign branches of other U.S. banks..... ////////////////// ////////////////// 2367 0 6.a.
b. Other banks in foreign countries......... ////////////////// ////////////////// 2373 0 6.b.
7. Foreign governments and official ////////////////// ////////////////// //////////////////
institutions ////////////////// ////////////////// //////////////////
(including foreign central banks)........... 2216 468 2300 468 2377 0 7.
8. Certified and official checks............... 2330 48,972 2330 48,972 ////////////////// 8.
9. Total (sum of items 1 through 8) (sum of ////////////////// ////////////////// //////////////////
columns A and C must equal Schedule RC, ////////////////// ////////////////// //////////////////
item 13.a).................................. 2215 3,900,647 2210 2,878,991 2385 4,233,717 9.
</TABLE>

<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, colums A and C): //////////////////
a. Total Individual Retirement Accounts (IRA) and Keogh Plan accounts.................... 6835 804,140 M.1.a.
b. Total brokered deposits............................................................... 2365 41,218 M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): //////////////////
(1) Issued in denominations of less than $100,000..................................... 2343 48 M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than //////////////////
$100,000 and participated out by the broker in shares of $100,000 or less......... 2344 29,218 M.1.c.(2)
d. Total deposits denominated in foreign currencies...................................... 3776 0 M.1.d
e. Preferred deposits (deposits of states and political subdivisions in the U.S. reported //////////////////
in item 3 above which are secured or collateralized)..................................... 5590 379,072 M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must //////////////////
equal item 9, column C above): //////////////////
a. Savings deposits: //////////////////
(1) Money market deposit accounts (MMDAs)............................................. 6810 498,396 M.2.a.(1)
(2) Other savings deposits (excludes MMDAs)........................................... 0352 2,008,155 M.2.a.(2)
b. Total time deposits of less than $100,000............................................. 6648 1,395,922 M.2.b.
c. Time certificates of deposit of $100,000 or more...................................... 6645 331,244 M.2.c.
d. Open-account time deposits of $100,000 or more........................................ 6646 0 M.2.d.
3. All NOW accounts (included in column A above)............................................ 2398 1,021,654 M.3.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-10
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-E--Continued

Part I. Continued
Memoranda (continued)

<TABLE>
<CAPTION>
Deposit Totals for FDIC Insurance Assessments(1)
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------- ----- ------------
<S> <C> <C>
4. Total deposits in domestic offices (sum of item 9, column A and item 9, column C) ///////////////////
(must equal Schedule RC, item 13.a)..................................................... 2200 8,134,364 M.4.
///////////////////
a. Total demand deposits (must equal item 9, column B).................................. 2210 2,878,991 M.4.a.
b. Total time and savings deposits(2) (must equal item 9, column A plus item 9, column C ///////////////////
minus item 9, column B).............................................................. 2350 5,255,373 M.4.b.
<FN>
- ---------------
(1) An amended Certified Statement should be submitted to the FDIC if the
deposit totals reported in this item are amended after the semiannual
Certified Statement originally covering this report date has been filed
with the FDIC.
(2) For FDIC insurance assessment purposes, "total time and savings deposits"
consists of nontransaction accounts and all transaction accounts other
than demand deposits.
</TABLE>

<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------- ----- ------------
<S> <C> <C>
5. Time deposits of less than $100,000 and open-account time deposits of $100,000 or more ///////////////////
(included in Memorandum items 2.b and 2.d above) with a remaining maturity or repricing ///////////////////
frequency of:(1) ///////////////////
a. Three months or less................................................................. 0359 600,696 M.5.a.
b. Over three months through 12 months (but not over 12 months)......................... 3644 371,860 M.5.b.
6. Maturity and repricing data for time certificates or deposit of $100,000 or more:(1) ///////////////////
a. Fixed rate certificates of deposit of $100,000 or more with a remaining maturity of: ///////////////////
(1) Three months or less............................................................. 2761 223,046 M.6.a.(1)
(2) Over three months through 12 months.............................................. 2762 52,965 M.6.a.(2)
(3) Over one year through five years................................................. 2763 51,624 M.6.a.(3)
(4) Over five years.................................................................. 2765 3,609 M.6.a.(4)
(5) Total fixed rate time certificates of deposit of $100,000 or more (sum of ///////////////////
Memorandum items 6.a.(1) through 6.a.(4)......................................... 2767 331,244 M.6.a.(5)
b. Floating rate time certificates of deposit of $100,000 or more with a repricing ///////////////////
frequency of: ///////////////////
(1) Quarterly or more frequently..................................................... 4568 0 M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly.................. 4569 0 M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually........... 4571 0 M.6.b.(3)
(4) Less frequently than every five years............................................ 4572 0 M.6.b.(4)
(5) Total floating rate time certificates of deposit of $100,000 or more (sum of ///////////////////
Memorandum items 6.b.(1) through 6.b.(4)......................................... 4573 0 M.6.b.(5)
c. Total time certificates of deposit of $100,000 or more (sum of Memorandum items ///////////////////
6.a.(5) and 6.b.(5)) (must equal Memorandum item 2.c. above)......................... 6645 331,244 M.6.c.
<FN>
- ---------------
(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-11
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-E--Continued

Part II. Deposits in Foreign Offices (including Edge and Agreement subsidiaries
and IBFs)

<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCFN Bil Mil Thou
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
Deposits of: //////////////////
1. Individuals, partnerships, and corporations.................................................. 2621 280,241 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks)............................... 2623 0 2.
3. Foreign banks (including U.S. branches and //////////////////
agencies of foreign banks, including their IBFs)............................................. 2625 0 3.
4. Foreign governments and official institutions (including foreign central banks).............. 2650 0 4.
5. Certified and official checks................................................................ 2330 0 5.
6. All other deposits........................................................................... 2668 0 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b)......................... 2200 280,241 7.
</TABLE>

Schedule RC-F--Other Assets

<TABLE>
<CAPTION>
C430 (-
------------
Dollar Amounts in Thousands ////////// Bil Mil Thou
- --------------------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
1. Income earned, not collected on loans................................................... RCFD 2164 29,444 1.
2. Net deferred tax assets(1).............................................................. RCFD 2148 112,308 2.
3. Excess residential mortgage servicing fees receivable................................... RCFD 5371 0 3.
4. Other (itemize amounts that exceed 25% of this item).................................... RCFD 2168 440,387 4.
a. TEXT 3549 RCFD 3549 /////////////////////// 4.a.
b. TEXT 3550 RCFD 3550 /////////////////////// 4.b.
c. TEXT 3551 RCFD 3551 /////////////////////// 4.c.
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11)...................... RCFD 2160 582,139 5.
</TABLE>

Memorandum

<TABLE>
<CAPTION>
Dollar Amounts in Thousands ////////// Bil Mil Thou
- --------------------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes.......................... RCFD 5610 0 M.1.
</TABLE>

Schedule RC-G--Other Liabilities

<TABLE>
<CAPTION>
C435 (-
------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- --------------------------------------------------------------------------------------------- --------- ------------
<S> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2)....................... RCON 3645 8,133 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable)............ RCFD 3646 50,085 1.b.
2. Net deferred tax liabilities(1)......................................................... RCFD 3049 0 2.
3. Minority interest in consolidated subsidiaries.......................................... RCFD 3000 0 3.
4. Other (itemize amounts that exceed 25% of this item).................................... RCFD 2938 21,074 4.
a. TEXT 3552 RCFD 3552 /////////////////////// 4.a.
b. TEXT 3553 RCFD 3553 /////////////////////// 4.b.
c. TEXT 3554 RCFD 3554 /////////////////////// 4.c.
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20)...................... RCFD 2930 79,292 5.
<FN>
- ---------------
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-12
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-H--Selected Balance Sheet Items for Domestic Offices

<TABLE>
<CAPTION>
C440
------------------
Domestic Offices (-
------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ---------------------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C>
Customers' liability to this bank on acceptances outstanding................................... 2155 30,676 1.
Bank's liability on acceptances executed and outstanding....................................... 2920 30,676 2.
Federal funds sold and securities purchased under agreements to resell......................... 1350 0 3.
Federal funds purchased and securities sold under agreements to repurchase..................... 2800 4,399,674 4.
Other borrowed money........................................................................... 2850 42,298 5.
EITHER //////////////////
Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs.................... 2163 N/A 6.
OR //////////////////
Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs...................... 2941 280,241 7.
Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and //////////////////
IBFs).......................................................................................... 2192 14,508,109 8.
Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and //////////////////
IBFs).......................................................................................... 3129 13,096,240 9.
</TABLE>

Memorandum (to be completed only by banks with IBFs and other "foreign" offices)

<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------------- ---- -------------
<S> <C> <C>
EITHER //////////////////
Net due from the IBF of the domestic offices of the reporting bank............................ 3051 N/A M.1.
OR //////////////////
Net due to the IBF of the domestic offices of the reporting bank.............................. 3059 N/A M.2.
</TABLE>

Schedule RC-I--Selected Assets and Liabilities of IBFs

To be completed only by banks with IBFs and other "foreign" offices.

<TABLE>
<CAPTION>
C445 (-
------------------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- ---------------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12).................. 2133 N/A 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, //////////////////
column A)...................................................................................... 2076 N/A 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A)..... 2077 N/A 3.
4. Total IBF liabilities (component of Schedule RC, item 21)...................................... 2898 N/A 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, //////////////////
part II, items 2 and 3)........................................................................ 2379 N/A 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6)...... 2381 N/A 6.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-13
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-K--Quarterly Averages(1)

<TABLE>
<CAPTION>
C455 (-
------------------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- ---------------------------------------------------------------------------------------- ------------------------
<S> <C> <C>
ASSETS ///////////////////////
1. Interest-bearing balances due from depository institutions.......................... RCFD 3381 0 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations..... RCFD 3382 4,055,350 2.
3. Securities issued by states and political subdivisions in the U.S. ................. RCFD 3383 143 3.
4. a. Other debt securities............................................................ RCFD 3647 843,208 4.a.
b. Equity securities (includes investments in mutual funds and Federal Reserve stock) RCFD 3648 23,863 4.b.
5. Federal funds sold and securities purchased under agreements to resell in domestic ///////////////////////
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs......... RCFD 3365 96,431 5.
6. Loans: ///////////////////////
a. Loans in domestic offices: ///////////////////////
(1) Total Loans.................................................................. RCON 3360 7,629,112 6.a.(1)
(2) Loans secured by real estate................................................. RCON 3385 4,179,034 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers.......... RCON 3386 2,030 6.a.(3)
(4) Commercial and industrial loans.............................................. RCON 3387 2,408,262 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures.. RCON 3388 361,790 6.a.(5)
(6) Obligations (other than securities and leases) of states and political ///////////////////////
subdivisions in the U.S. .................................................... RCON 3389 57,620 6.a.(6)
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs........ RCFN 3360 0 6.b.
7. Assets held in trading accounts..................................................... RCFD 3401 0 7.
8. Lease financing receivables (net of unearned income)................................ RCFD 3484 31 8.
9. Total assets........................................................................ RCFD 3368 13,861,620 9.
LIABILITIES ///////////////////////
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, ///////////////////////
and telephone and preauthorized transfer accounts) (exclude demand deposits)........ RCON 3485 962,566 10.
11. Nontransaction accounts in domestic offices: ///////////////////////
a. Money market deposit accounts (MMDAs)............................................ RCON 3486 555,279 11.a.
b. Other savings deposits........................................................... RCON 3487 2,000,011 11.b.
c. Time certificates of deposit of $100,000 or more................................. RCON 3345 419,052 11.c.
d. All other time deposits.......................................................... RCON 3469 1,419,599 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and
IBFs................................................................................ RCFN 3404 192,571 12.
13. Federal funds purchased and securities sold under agreements to repurchase in domestic ///////////////////////
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs......... RCFD 3353 4,403,315 13.
14. Other borrowed money................................................................ RCFD 3355 35,894 14.
<FN>
- ---------------
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-14
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-L--Off-Balance Sheet Items

Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.

<TABLE>
<CAPTION>
C460 (-
------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- --------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Unused commitments: //////////////////
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home //////////////////
equity lines.......................................................................... 3814 402,071 1.a.
b. Credit card lines..................................................................... 3815 0 1.b.
c. Commercial real estate, construction, and land development: //////////////////
(1) Commitments to fund loans secured by real estate.................................. 3816 32,122 1.c.(1)
(2) Commitments to fund loans not secured by real estate.............................. 6550 20,669 1.c.(2)
d. Securities underwriting............................................................... 3817 0 1.d.
e. Other unused commitments.............................................................. 3818 3,907,464 1.e.
2. Financial standby letters of credit and foreign office guarantees........................ 3819 661,791 2.
a. Amount of financial standby letters of credit conveyed to others... RCFD 3820 1,940 ////////////////// 2.a.
3. Performance standby letters of credit and foreign office guarantees...................... 3821 49,122 3.
a. Amount of performance standby letters of credit conveyed to //////////////////
others............................................................ RCFD 3822 0 ////////////////// 3.a.
4. Commercial and similar letters of credit................................................. 3411 7,200 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by //////////////////
the reporting bank....................................................................... 3428 0 5.
6. Participations in acceptances (as described in the instructions) //////////////////
acquired by the reporting (nonaccepting) bank............................................ 3429 0 6.
7. Securities borrowed...................................................................... 3432 0 7.
8. Securities lent (including customers' securities lent where the customer is indemnified //////////////////
against loss by the reporting bank)...................................................... 3433 0 8.
9. Mortgages transferred (i.e., sold or swapped) with recourse that have been treated as //////////////////
sold for Call Report purposes: //////////////////
a. FNMA and FHLMC residential mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date...... 3650 163,670 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.............. 3651 163,670 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage //////////////////
loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date...... 3652 0 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.............. 3653 0 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: //////////////////
(1) Outstanding principal balance of mortgages transferred as of the report date...... 3654 0 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date.............. 3655 0 9.c.(2)
10. When-issued securities: //////////////////
a. Gross commitments to purchase......................................................... 3434 0 10.a.
b. Gross commitments to sell............................................................. 3435 0 10.b.
11. Interest rate contracts (exclude when-issued securities): //////////////////
a. Notional value of interest rate swaps................................................. 3450 2,059,000 11.a.
b. Futures and forward contracts......................................................... 3823 1,689,000 11.b.
c. Option contracts (e.g., options on Treasuries): //////////////////
(1) Written option contracts.......................................................... 3824 1,329,250 11.c.(1)
(2) Purchased option contracts........................................................ 3825 1,729,250 11.c.(2)
12. Foreign exchange rate contracts: //////////////////
a. Notional value of exchange swaps (e.g., cross-currency swaps)......................... 3826 0 12.a.
b. Commitments to purchase foreign currencies and U.S. dollar exchange (spot, forward, //////////////////
and futures).......................................................................... 3415 6,418,533 12.b.
c. Option contracts (e.g., options on foreign currency): //////////////////
(1) Written option contracts.......................................................... 3827 0 12.c.(1)
(2) Purchased option contracts........................................................ 3828 0 12.c.(2)
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-L--Continued

<TABLE>
<CAPTION>
C461 (-
------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
13. Contracts on other commodities and equities: //////////////////
a. Notional value of other swaps (e.g., oil swaps).......................................... 3829 0 13.a.
b. Futures and forward contracts (e.g., stock index and commodity--precious metals, //////////////////
wheat, cotton, (livestock--contracts).................................................... 3830 0 13.b.
c. Option contracts (e.g., options on commodities, individual stock and stock indexes): //////////////////
(1) Written option contracts............................................................. 3831 0 13.c.(1)
(2) Purchased option contracts........................................................... 3832 1,687 13.c.(2)
14. All other off-balance sheet liabilities (itemize and describe each component of this item //////////////////
over 25% of Schedule RC, item 28, "Total equity capital")................................... 3430 0 14.
//////////////////
a. TEXT 3555 RCFD 3555 ////////////////// 14.a.
b. TEXT 3556 RCFD 3556 ////////////////// 14.b.
c. TEXT 3557 RCFD 3557 ////////////////// 14.c.
d. TEXT 3558 RCFD 3558 ////////////////// 14.d.
15. All other off-balance sheet assets (itemize and describe each component of this item //////////////////
over 25% of Schedule RC, item 28, "Total equity capital")................................... 5591 0 15.
//////////////////
a. TEXT 5592 RCFD 5592 ////////////////// 15.a.
b. TEXT 5593 RCFD 5593 ////////////////// 15.b.
c. TEXT 5594 RCFD 5594 ////////////////// 15.c.
d. TEXT 5595 RCFD 5595 ////////////////// 15.d.
</TABLE>

Memoranda

<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Loans originated by the reporting bank that have been sold or participated to others during //////////////////
the calendar quarter ending with the report date (exclude the portions of such loans //////////////////
retained by the reporting bank; see instructions for other exclusions)...................... 3431 4,842 M.1.
2. Loans purchased by the reporting bank during the calendar quarter ending with the //////////////////
report date (see instructions for exclusions)............................................... 3488 1,341,264 M.2.
3. Unused commitments with an original maturity exceeding one year that are reported in //////////////////
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments //////////////////
that are fee paid or otherwise legally binding)............................................. 3833 2,277,171 M.3.
a. Participations in commitments with an original maturity //////////////////
exceeding one year conveyed to others........................... RCFD 3834 18,201 ////////////////// M.3.a.
4. To be completed only by banks with $1 billion or more in total assets: //////////////////
Standby letters of credit and foreign office guarantees (both financial and performance) //////////////////
issued to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above.... 3377 213,815 M.4.
5. To be completed for the September report only: //////////////////
Installment loans to individuals for household, family, and other personal expenditures that //////////////////
have been securitized and sold without recourse (with servicing retained), amount //////////////////
outstanding by type of loan: //////////////////
a. Loans to purchase private passenger automobiles.......................................... 2741 N/A M.5.a.
b. Credit cards and related plans........................................................... 2742 N/A M.5.b.
c. All other consumer installment credit (including mobile home loans)...................... 2743 N/A M.5.c.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-16
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-M--Memoranda

<TABLE>
<CAPTION>
C465 (-
------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal ///////////////////
shareholders, and their related interests as of the report date: ///////////////////
a. Aggregate amount of all extensions of credit to all executive officers, directors, ///////////////////
principal shareholders, and their related interests.................................... 6164 2,535 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount ///////////////////
of all extensions of credit by the reporting bank (including extensions of credit to ///////////////////
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number ///////////////////
of total capital as defined for this purpose in agency regulations. RCFD 6165 6 /////////////////// 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches ///////////////////
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b)............. 3405 0 2.
3. Not applicable. ///////////////////
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others ///////////////////
(include both retained servicing and purchased servicing): ///////////////////
a. Mortgages serviced under a GNMA contract............................................... 5500 31,012 4.a.
b. Mortgages serviced under a FHLMC contract: ///////////////////
(1) Serviced with recourse to servicer................................................. 5501 99,011 4.b.(1)
(2) Serviced without recourse to servicer.............................................. 5502 700,906 4.b.(2)
c. Mortgages serviced under a FNMA contract: ///////////////////
(1) Serviced under a regular option contract........................................... 5503 67,000 4.c.(1)
(2) Serviced under a special option contract........................................... 5504 2,126,124 4.c.(2)
d. Mortgages serviced under other servicing contracts..................................... 5505 4,122,566 4.d.
5. To be completed only by banks with $1 billion or more in total assets: ///////////////////
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b ///////////////////
must equal Schedule RC, item 9): ///////////////////
a. U.S. addresses (domicile).............................................................. 2103 30,676 5.a.
b. Non-U.S. addressees (domicile)......................................................... 2104 0 5.b.
6. Intangible assets: ///////////////////
a. Mortgage servicing rights.............................................................. 3164 18,466 6.a.
b. Other identifiable intangible assets: ///////////////////
(1) Purchased credit card relationships................................................ 5506 0 6.b.(1)
(2) All other identifiable intangible assets........................................... 5507 0 6.b.(2)
c. Goodwill............................................................................... 3163 55,253 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10)................. 2143 73,719 6.d.
e. Intangible assets that have been grandfathered for regulatory capital purposes......... 6442 0 6.e.

7. Does your bank have any mandatory convertible debt that is part of your primary or YES NO
secondary capital?........................................................................ 6167 /// X 7.

If yes, complete items 7.a through 7.e: RCFD Bil Mil Thou
----- ------------
a. Total equity contract notes, gross..................................................... 3290 N/A 7.a.
b. Common or perpetual preferred stock dedicated to redeem the above notes................ 3291 N/A 7.b.
c. Total equity commitment notes, gross................................................... 3293 N/A 7.c.
d. Common or perpetual preferred stock dedicated to redeem the above notes................ 3294 N/A 7.d.
e. Total (item 7.a minus 7.b plus 7.c minus 7.d).......................................... 3295 N/A 7.e.
<FN>
- ---------------
(1) Do not report federal funds sold and securities purchased under
agreements to resell with other commercial banks in the U.S. in this item.

</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-17
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-M--Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands ///////// Bil Mil Thou
- --------------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
1. a. Other real estate owned: ///////////////////////
(1) Direct and indirect investments in real estate ventures....................... RCFD 5372 0 8.a.(1)
(2) All other real estate owned: ///////////////////////
(a) Construction and land development in domestic offices..................... RCON 5508 7,701 8.a.(2)(a)
(b) Farmland in domestic offices.............................................. RCON 5509 0 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices..................... RCON 5510 4,345 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices........ RCON 5511 396 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices..................... RCON 5512 15,385 8.a.(2)(e)
(f) In foreign offices........................................................ RCFN 5513 0 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7)..... RCFD 2150 27,827 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: ///////////////////////
(1) Direct and indirect investments in real estate ventures....................... RCFD 5374 0 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated ///////////////////////
companies..................................................................... RCFD 5375 0 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8)..... RCFD 2130 0 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies.............. RCFD 5376 0 8.c.
2. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, ///////////////////////
item 23, "Perpetual preferred stock and related surplus"............................. RCFD 3778 0 9.
</TABLE>

<TABLE>
<CAPTION>
Memorandum Dollar Amounts in Thousands RCFD Bil Mil Thou
- -------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Interbank holdings of capital instruments (to be completed for the December report only): //////////////////
a. Reciprocal holdings of banking organizations' capital instruments..................... 3836 0 M.1.a.
b. Nonreciprocal holdings of banking organizations' capital instruments.................. 3837 0 M.1.b.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-18
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets

The FFIEC regards the information reported in
all of Memorandum item 1, in items 1 through 10, C470 (-
column A, and in Memorandum items 2 and 3, ------------------
column A, as confidential. (Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
-------------------- ------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- ------------------------------------------------- ---- ------------ ---- ------------ ---- ------------
<S> <C> <C> <C>
1. Loans secured by real estate: C ////////////////// //////////////////
a. To U.S. addressees (domicile)............ O 1246 12,507 1247 139,415 1.a.
b. To non-U.S. addressees (domicile)........ N 1249 0 1250 0 1.b.
2. Loans to depository institutions and F ////////////////// //////////////////
acceptances of other banks: I ////////////////// //////////////////
a. To U.S. banks and other U.S. depository D ////////////////// //////////////////
institutions............................. E 5378 0 5379 0 2.a.
b. To foreign banks......................... N 5381 0 5382 0 2.b.
3. Loans to finance agricultural production and T ////////////////// //////////////////
other loans to farmers...................... I 1597 15 1583 35 3.
4. Commercial and industrial loans: A ////////////////// //////////////////
a. To U.S. addressees (domicile)............ L 1252 2,276 1253 34,686 4.a.
b. To non-U.S. addressees (domicile)........ 1255 0 1256 0 4.b.
5. Loans to individuals for household, family, ////////////////// //////////////////
and other personal expenditures: ////////////////// //////////////////
a. Credit Cards and related plans........... 5384 74 5385 655 5.a.
b. Other (includes single payment, ////////////////// //////////////////
installment, and all student loans)......... 5387 554 5388 2,697 5.b.
6. Loans to foreign governments and official ////////////////// //////////////////
institutions................................ 5390 0 5391 0 6.
7. All other loans............................. 5460 1,071 5461 3,242 7.
8. Lease financing receivables: ////////////////// //////////////////
a. Of U.S. addressees (domicile)............ 1258 0 1259 0 8.a.
b. Of non-U.S. addressees (domicile)........ 1272 0 1791 0 8.b.
9. Debt securities and other assets (exclude ////////////////// //////////////////
other real estate owned and other ////////////////// //////////////////
repossessed assets)......................... 3506 0 3507 0 9.

</TABLE>
==============================================================================
Amounts reported in items 1 through 8 above include guaranteed and
unguaranteed portions of past due and nonaccrual loans and leases. Report in
item 10 below certain guaranteed loans and leases that have already been
included in the amounts reported in items 1 through 8.

<TABLE>
<CAPTION>
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
----- ------------ ----- ------------ ----- ------------
<S> <C> <C> <C> <C>
10. Loans and leases reported in items 1 ////////////////// //////////////////
through 8 above which are wholly or ////////////////// //////////////////
partially guaranteed by the ////////////////// //////////////////
U.S. Government............................. CONFIDENTIAL 5613 0 5614 555 10.
a. Guaranteed portion of loans and leases ////////////////// //////////////////
included in item 10 above................ 5616 0 5617 546 10.a.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-19
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-N--Continued

<TABLE>
<CAPTION>
C473 (-
Memoranda ------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- --------------------------------------------- ---- ------------ ---- ------------ ---- ------------
<S> <C> <C> <C>
1. Restructured loans and leases included ////////////////// //////////////////
in Schedule RC-N, items 1 through 8, ////////////////// //////////////////
above................................... C C O N F I D E N T I A L M.1.
2. Loans to finance commercial real estate, O ////////////////// //////////////////
construction, and land development N ////////////////// //////////////////
activities (not secured by real estate) F ////////////////// //////////////////
included in Schedule RC-N, items 4 I ////////////////// //////////////////
and 7, above............................ D 6559 0 6560 6,140 M.2.
3. Loans secured by real estate in domestic E RCON Bil Mil Thou RCON Bil Mil Thou
offices (included in Schedule RC-N, N ---- ------------ ---- ------------
item 1, above): T ////////////////// //////////////////
a. Construction and land development.... I 2769 245 3492 21,517 M.3.a.D
b. Secured by farmland.................. A 3494 747 3495 465 M.3.b.
c. Secured by 1-4 family residential L ////////////////// //////////////////
properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured ////////////////// //////////////////
by 1-4 family residential ////////////////// //////////////////
properties and extended under ////////////////// //////////////////
lines of credit.................. 5399 51 5400 1,087 M.3.c.(1)
(2) All other loans secured by 1-4
family residential properties.... 5402 5,221 5403 27,820 M.3.c.(2)
d. Secured by multifamily (5 or more) ////////////////// //////////////////
residential properties............... 3500 216 3501 11,626 M.3.d.
e. Secured by nonfarm nonresidential
properties........................... 3503 6,027 3504 76,900 M.3.e.
</TABLE>

Schedule RC-O--Other Data for Deposit Insurance Assessments

An amended Certified Statement should be submitted to the FDIC if the amounts
reported in items 1 through 9 of this schedule are amended after the
semiannual Certified Statement originally covering this report date has been
filed with the FDIC.

<TABLE>
<CAPTION>
C475 (-
------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------- ---- ------------
<S> <C> <C>
1. Unposted debits (see instructions): //////////////////
a. Actual amount of all unposted debits................................................. 0030 N/A 1.a.
OR //////////////////
b. Separate amount of unposted debits: //////////////////
(1) Actual amount of unposted debits to demand deposits.............................. 0031 0 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1)................. 0032 0 1.b.(2)
2. Unposted credits (see instructions): //////////////////
a. Actual amount of all unposted credits................................................ 3510 N/A 2.a.
OR //////////////////
b. Separate amount of unposted credits: //////////////////
(1) Actual amount of unposted credits to demand deposits................................ 3512 179,474 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1)................... 3514 0 2.b.(2)
3. Univested trust funds (cash) held in bank's own trust department (not included in total //////////////////
deposits in domestic offices)........................................................... 3520 0 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in //////////////////
Puerto Rico and U.S. territories and possessions (not included in total deposits): //////////////////
a. Demand deposits of consolidated subsidiaries......................................... 2211 12,198 4.a.
b. Time and savings deposits(1) of consoldiated subsidiaries............................ 2351 0 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries................. 5514 0 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: //////////////////
a. Demand deposits in insured branches (included in Schedule RC-E, Part II)............. 2229 0 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, //////////////////
Part II)............................................................................. 2383 0 5.b.
c. Interest accrued and unpaid on deposits in insured branches //////////////////
(included in Schedule RC-G, item 1.b)................................................ 5515 0 5.c.
<FN>
- ---------------
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists
of nontransaction accounts and all transaction accounts other than demand
deposits.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-20
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-O--Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------- ---- --------------
<S> <C> <C>
Item 6 is not applicable to state nonmember banks that have not been authorized by the //////////////////
Federal Reserve to act as pass-through correspondents. //////////////////
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on //////////////////
behalf of its respondent depository institutions that are also reflected as deposit //////////////////
liabilities of the reporting bank: //////////////////
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, //////////////////
Memorandum item 4.a)................................................................. 2314 0 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, //////////////////
Memorandum item 4.b)................................................................. 2315 0 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) //////////////////
a. Unamortized premiums................................................................. 5516 0 7.a.
b. Unamortized discounts................................................................ 5517 0 7.b.
- -----------------------------------------------------------------------------------------------------------------------------
8. To be completed by banks with "Oakar deposits."
Total "Adjusted Attributable Deposits" of all institutions acquired under Section //////////////////
5(d)(3) of the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction
Worksheet(s))........................................................................... 5518 N/A 8.
- -----------------------------------------------------------------------------------------------------------------------------
9. Deposits in lifeline accounts........................................................... 5596 ///////////// 9.
<FN>
- ---------------
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists
of nontransaction accounts and all transaction accounts other than demand
deposits.
</TABLE>

<TABLE>
<CAPTION>
Memoranda (to be completed each quarter except as noted)
Dollar Amounts in Thousands RCON Bil Mil Thou
- -------------------------------------------------------------------------------------------- ---- --------------
<S> <C>
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and //////////////////
1.b.(1) must equal Schedule RC, item 13.a): //////////////////
a. Deposit accounts of $100,000 or less: //////////////////
(1) Amount of deposit accounts of $100,000 or less.................................. 2702 4,598,798 M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number //////////////////
completed for the June report only) ......................... RCON 3779 N/A ////////////////// M.1.a.(2)
b. Deposit accounts of more than $100,000: //////////////////
(1) Amount of deposit accounts of more than $100,000......................... Number 2710 3,535,566 M.1.b.(1)
(2) Number of deposit accounts of more than $100,000............. RCON 2722 7,184 ////////////////// M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.

Indicate in the appropriate box at the right whether your bank has a method or YES NO
procedure for determining a better estimate of uninsured deposits than the estimate --------------------
described above..................................................................... 6861 /// x M.2.a.
b. If the box marked YES has been checked, report the estimate of uninsured deposits RCON Bil Mil Thou
determined by using your bank's method or procedure................................. 5597 N/A M.2.b.
- --------------------------------------------------------------------------------------------------------------------------------
Person to whom questions about Reports of Condition and Income should be directed: C477 (-
ROBERT DUFF, ASSISTANT VICE PRESIDENT (203) 986-2474
- --------------------------------------------------------------------------------------------- --------------------------------
Name and Title (TEXT 8901) Area code and phone number (TEXT
8902)
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-21
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-R--Risk-Based Capital

This schedule must be completed by all banks as follows: Banks that
reported total assets of $1 billion or more in Schedule RC, Item 12, for June
30, 1992, must complete items 2 through 9 and Memorandum item 1. Banks with
assets of less than $1 billion must complete items 1 through 3 below or Schedule
RC-R in its entirety, depending on their response to item 1 below.

<TABLE>
<S> <C> <C> <C> <C> <C>
Test for determining the extent to which Schedule RC-R must be completed. To be
completed only by banks with total assets of less than $1 billion. Indicate in the C480 (-
appropriate box at the right whether the bank has total capital greater than or YES NO
equal to eight percent of adjusted total assets..................................... RCFD 6056 //// 1.
</TABLE>

For purposes of this test, adjusted total assets equals total assets less
cash, U.S. Treasuries, U.S. Government agency obligations, and 80
percent of U.S. Government-sponsored agency obligations plus the allowance for
loan and lease losses and selected off-balance sheet items as reported on
Schedule RC-L (see instructions).

If the box marked YES has been checked, then the bank only has to complete
items 2 and 3 below. If the box marked NO has been checked, the bank
must complete the remainder of this schedule.

A NO response to item 1 does not necessarily mean that the bank's actual
risk-based capital ratio is less than eight percent or that the bank is
not in compliance with the risk-based capital guidelines.

<TABLE>
<CAPTION>
(Column A) (Column B)
Subordinated Debt(1) Other
and Intermediate Limited-
Term Preferred Life Capital
Items 2 and 3 are to be completed by all banks. Stock Instruments
------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou
- ----------------------------------------------------------------------- ----- ------------ ---- ------------
<S> <C> <C> <C>
1. Subordinated debt(1) and other limited-life capital instruments ////////////////// //////////////////
(original weighted average maturity of at least five years) with ////////////////// //////////////////
a remaining maturity of: ////////////////// //////////////////
a. One year or less.............................................. 3780 0 3786 0 2.a.
b. Over one year through two years............................... 3781 0 3787 0 2.b.
c. Over two years through three years............................ 3782 0 3788 0 2.c.
d. Over three years through four years........................... 3783 0 3789 0 2.d.
e. Over four years through five years............................ 3784 0 3790 0 2.e.
f. Over five years............................................... 3785 0 3791 0 2.f.

RCFD Bil Mil Thou
2. Total qualifying capital (i.e., Tier 1 and Tier 2 capital) allowable under the risk-based ---- ------------
capital guidelines........................................................................ 3792 1,210,840 3.
</TABLE>

<TABLE>
<CAPTION>
(Column A) (Column B)
Assets Credit Equivalent
Items 4-9 and Memorandum item 1 are to be completed Recorded Amount of
by banks that answered NO to item 1 above and on the Off-Balance
by banks with total assets of $1 billion or more. Balance Sheet Sheet Items(2)
- ----------------------------------------------------------------------- ------------------ ------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou
---- ------------ ---- ------------
<S> <C> <C> <C>
1. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the Zero percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Securities issued by, other claims on, and claims ////////////////// //////////////////
unconditionally guaranteed by, the U.S. Government and its ////////////////// //////////////////
agencies and other OECD central governments................. 3794 2,235,631 ////////////////// 4.a.(1)
(2) All other................................................... 3795 411,780 ////////////////// 4.a.(2)
b. Credit equivalent amount of off-balance sheet items............. ////////////////// 3796 0 4.b.
<FN>
- ---------------
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.e,
"Total."
(2) Do not report in column B in the risk-weighted amount of assets reported
in column A.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-22
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Schedule RC-R--Continued

<TABLE>
(Column A) (Column B)
Assets Credit Equivalent
Recorded Amount of
on the Off-Balance
Balance Sheet Sheet Items(1)
------------------ ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou
- -------------------------------------------------------------------- ---- ------------ ---- ------------
<S> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 20 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet: ////////////////// //////////////////
(1) Claims conditionally guaranteed by the U.S. Government ////////////////// //////////////////
and its agencies and other OECD central governments..... 3798 16,799 ////////////////// 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. ////////////////// //////////////////
Government and its agencies and other OECD central gov- ////////////////// //////////////////
ernments; by securities issued by U.S. Government-spon- ////////////////// //////////////////
sored agencies; and by cash on deposit................... 3799 0 ////////////////// 5.a.(2)
(3) All other................................................ 3800 2,347,474 ////////////////// 5.a.(3)
b. Credit equivalent amount of off-balance sheet items.......... ////////////////// 3801 127,972 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 50 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet......................... 3802 2,519,924 ////////////////// 6.a.
b. Credit equivalent amount of off-balance sheet items.......... ////////////////// 3803 42,524 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 100 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet......................... 3804 7,327,401 ////////////////// 7.a.
b. Credit equivalent amount of off-balance sheet items.......... ////////////////// 3805 1,815,364 7.b.
8. On-balance sheet values (or portions thereof) of interest rate, ////////////////// //////////////////
foreign exchange rate, and commodity contracts which have a ////////////////// //////////////////
capital assessment for their off-balance sheet exposure under the ////////////////// //////////////////
capital guidelines and those contracts (e.g., futures contracts) ////////////////// //////////////////
excluded from the calculation of the risk-based capital ratio ////////////////// //////////////////
(exclude margin accounts and accrued receivables from this item). 3806 0 ////////////////// 8.
9. Total assets recorded on the balance sheet (sum of items 4.a, ////////////////// //////////////////
5.a, 6.a, 7.a, and 8, column A) (must equal Schedule RC, item ////////////////// //////////////////
12 plus items 4.b and 4.c, plus Schedule RC-B, item 6.a.(3), ////////////////// //////////////////
column A)........................................................ 3807 14,859,009 ////////////////// 9.
</TABLE>

<TABLE>
<CAPTION>
(Column A) (Column B)
Notional Replacement
Principal Cost
Value (Market Value)
Memorandum ------------------- ------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou
- --------------------------------------------------------------------- ----- ------------ ---- ------------
<S> <C> <C> <C>
1. Notional principal value and replacement cost of interest rate ////////////////// //////////////////
and foreign exchange rate contracts (in column B, report only ////////////////// //////////////////
those contracts with a positive replacement cost): ////////////////// //////////////////
a. Interest rate contracts (exclude futures contracts).......... ////////////////// 3808 3,262 M.1.a.
(1) With a remaining maturity of one year or less............ 3809 1,395,000 ////////////////// M.1.a.(1)
(2) With a remaining maturity of over one year............... 3810 2,393,250 ////////////////// M.1.a.(2)
b. Foreign exchange rate contracts (exclude contracts with an ////////////////// //////////////////
original maturity of 14 days or less and futures contracts).. ////////////////// 3811 82,113 M.1.b.
(1) With a remaining maturity of one year or less............ 3812 6,180,084 ////////////////// M.1.b.(1)
(2) With a remaining maturity of over one year............... 3813 6,806 ////////////////// M.1.b.(2)
<FN>
- ---------------
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Call Date: 12/31/93 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-23
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
-----------
</TABLE>

Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on December 31, 1993
<TABLE>
<CAPTION>
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION Hartford , Connecticut
- ---------------------------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Legal Title of Bank City State
</TABLE>

The management of the reporting bank may, if it wishes, submit a brief narrative
statement on the amounts reported in the Reports of Condition and Income. This
optional statement will be made available to the public, along with the publicly
available data in the Reports of Condition and Income, in response to any
request for individual bank report data. However, the information reported in
column A and in all of Memorandum item 1 of Schedule RC-N is regarded as
confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT
THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE
NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE
AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER
INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD
COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a
statement may check the "No comment" box below and should make no entries of any
kind in the space provided for the narrative statement; i.e., DO NOT enter in
this space such phrases as "No statement," "Not applicable," "N/A," "No
comment," and "None."

The optional statement must be entered on this sheet. The statement should not
exceed 100 words. Further, regardless of the number of words, the statement must
not exceed 750 characters, including punctuation, indentation, and standard
spacing between words and sentences. If any submission should exceed 750
characters, as defined, it will be truncated at 750 characters with no notice to
the submitting bank and the truncated statement will appear as the bank's
statement both on agency computerized records and in computer-file releases to
the public.

All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.

If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing narrative
statement will be deleted from the files, and from disclosure; the bank, at its
option, may replace it with a statement, under signature, appropriate to the
amended data.

The optional narrative statement will appear in agency records and in release to
the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
- --------------------------------------------------------------------------------
No comment /X/ (RCON 6979) C471 C472 (-

BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)

<TABLE>
<S> <C>
- ------------------------------------------------ ----------------------------------
Signature of Executive Officer of Bank Date of Signature
</TABLE>