TRANSCO ENERGY CO, 10-K, 1994-03-24

TRANSCO ENERGY CO
10-K, 1994-03-24
NATURAL GAS TRANSMISSION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
---------------------
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-7513

TRANSCO ENERGY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 74-1758039
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
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Registrant's telephone number,
including area code
(713) 439-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, Par Value $0.50 Per Share New York Stock Exchange
Pacific Stock Exchange
Common Share Purchase Rights
Cumulative Convertible Preferred New York Stock Exchange
Stock, Without Par Value -- Stated
Value $50 Per Share, $4.75 Series
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in a definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/

The aggregate market value of the Common Stock, par value $0.50 per share,
held by non-affiliates of Registrant as of March 7, 1994 was approximately
$550,300,716. For the purposes of the determination of the above stated amount
only, all directors and executive officers of the Registrant are presumed to be
affiliates.

The number of shares of Common Stock, par value $0.50 per share,
outstanding as of March 7, 1994 was 40,941,132.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated herein by reference in
portions of the Parts of this report indicated below:

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Parts I, II and IV Annual Report to Stockholders for the Registrant's fiscal year ended
December 31, 1993.
Part III Proxy Statement relating to the Registrant's 1994 Annual Meeting of
Stockholders.
</TABLE>

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PART I

ITEM 1. BUSINESS.

GENERAL

Transco Energy Company is engaged primarily in the natural gas pipeline
(Pipelines) and the natural gas marketing (Gas Marketing) businesses. Transco
also has investments in coal mining and marketing operations (Coal), natural gas
liquids processing, natural gas gathering and a nonoperating interest in a
coalbed methane project in Alabama. In October 1991, Transco's Board of
Directors approved a comprehensive strategic and financial plan (Plan) designed
to stabilize Transco's financial position, improve its financial flexibility and
restore its earnings. Since the Plan's adoption, Transco has made significant
progress in the implementation of the Plan, including the sale of certain
non-core and non-strategic businesses, reduction in capital expenditures,
resolution of certain material litigation and improvement in its results of
operations and financial flexibility.

In September 1993, Transco successfully exited the power generation
business by selling Transco Energy Ventures Company (TEVCO) to National Power
America, Inc. for $150 million. The sale of TEVCO allowed Transco to exit a
business that it saw growing increasingly international. The exit was also
consistent with the Company's strategic focus and near-term funding abilities.
In August 1993, Transco transferred its interest in the coalbed methane
properties in the Black Warrior Basin in Alabama to TECO Energy Inc., in
exchange for $15.5 million and future production payments. The decision to make
this transfer was based upon the Company's desire to eliminate the need for
future capital investments and to improve earnings by eliminating losses
incurred in the operation of the properties.

As used herein the terms "Transco" or the "Company" refer to Transco Energy
Company together with its wholly-owned subsidiaries unless the context otherwise
requires.

The number of full-time employees of Transco at December 31, 1993, was
4,583.

Set forth below is a description of the principal business segments of
Transco. For financial information regarding the major industry segments, see
the "Schedule of Segment Information" contained in the Consolidated Financial
Statements incorporated herein by reference in Item 8 hereof.

PIPELINES

The Company's pipeline business is conducted through Transcontinental Gas
Pipe Line Corporation (TGPL) and Texas Gas Transmission Corporation (Texas Gas).
These companies, which are regulated by the Federal Energy Regulatory Commission
(FERC), principally transport natural gas from the Gulf of Mexico and the Gulf
Coast regions to markets in the eastern half of the United States through their
respective 10,500 and 6,050 mile interstate pipeline systems.

Prior to 1984, interstate pipelines, including TGPL and Texas Gas, served
primarily as merchants of natural gas, purchasing gas under long-term contracts
with numerous producers in production areas and transporting and reselling gas
to local utilities in market areas under long-term sales agreements. Such
service was known as "bundled" service. Regulatory policies under the Natural
Gas Act of 1938 (NGA), relating to both pipeline rates and conditions of
service, stressed security of gas supplies and service, and the recovery by
pipelines of their prudently incurred costs of providing that service.

However, commencing in 1984, the FERC issued a series of orders which have
resulted in a major restructuring of the natural gas transmission industry and
its business practices. With Order 380, issued in 1984, the FERC freed pipeline
customers from their contractual obligations to purchase certain minimum levels
of gas from their pipeline suppliers. With implementation of "open access"
transportation rules contained in FERC Orders 436 and 500, the FERC afforded
pipeline customers the opportunity to purchase gas from others and have it
transported to the customers by pipelines.

Faced with these changing conditions, increased competition and declining
bundled sales, TGPL and Texas Gas altered the manner in which they had
traditionally conducted their businesses and began to transport a larger
percentage of gas for customers that purchased such gas from others. In 1988,
TGPL and
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Texas Gas accepted certificates to become permanent open access pipeline systems
under FERC Orders 436 and 500.

On April 8, 1992, the FERC issued Order 636 which made further fundamental
changes in the way natural gas pipelines conduct their businesses. The FERC's
stated purpose of Order 636 was to improve the competitive structure of the
natural gas pipeline industry by, among other things, unbundling a pipeline's
merchant role from its transportation services; ensuring "equality" of
transportation services; ensuring that shippers and customers have equal access
to all sources of gas; providing "no-notice" firm transportation services that
are equal in quality to bundled sales service; and changing rate design
methodology from modified fixed-variable (MFV) to straight fixed-variable (SFV),
unless the pipeline and its customers agree to, and the FERC approves, a
different form of rate design methodology. Effective November 1, 1993, both TGPL
and Texas Gas implemented their Order 636 restructuring plans. For a complete
discussion of Order 636 see "Regulatory Matters -- Order 636" below.

As a result of the Order 636 requirement that a pipeline unbundle its
merchant role from its transportation services, Transco determined to implement
a plan to consolidate its gas marketing businesses under the common management
of TGMC. In January 1993, TGMC, through an agency agreement, began to manage all
jurisdictional sales of TGPL. In November 1993, TGMC, through an agency
agreement, began to manage all jurisdictional sales of Texas Gas, except for the
sale of gas purchased by Texas Gas under certain contracts with pricing
provisions that are not variable market based which is being resold by Texas Gas
at monthly auction pursuant to Order 636. See "Gas Marketing."

MARKETS

TGPL's principal markets encompass eleven Southeast and Atlantic seaboard
states, and include the New York City and Philadelphia metropolitan areas. A
large portion of the gas transported by TGPL to its market areas is used for
space heating, resulting in substantially higher daily delivery requirements for
TGPL's customers during the winter months than during the summer months. TGPL
has working storage capacity in five underground storage fields, located on or
near its pipeline system and/or market areas, and operates three of these
storage fields. The certificated storage capacity available to TGPL and its
customers is approximately 213 Bcf*.

Texas Gas' direct market area encompasses eight states in the South and
Midwest, and includes the Memphis, Louisville, Cincinnati, Dayton, and
Indianapolis metropolitan areas. Texas Gas also has indirect market access to
Northeast markets through interconnections with Columbia Gas Transmission
Corporation (Columbia), CNG Transmission Corporation and Texas Eastern
Transmission Corporation (Texas Eastern). A large portion of the gas transported
by Texas Gas to its market areas is used for space heating, resulting in
substantially higher daily requirements during the winter months than the summer
months. Texas Gas owns and operates ten underground storage reservoirs in or
near its market area, with certificated storage capacity available to Texas Gas
of approximately 176.7 Bcf.*

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* As used in this report, the term "Mcf" means thousand cubic feet, the term
"MMcf" means million cubic feet, the term "Bcf" means billion cubic feet, the
term "Tcf" means trillion cubic feet, the term "MMcf/d" means million cubic
feet per day, the term "MMBtu" means million British Thermal Units and the
term "MMGals" means million gallons.

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TGPL and Texas Gas' total system deliveries and the mix of sales and
transportation volumes for the years 1993, 1992 and 1991 are shown below. Sales
as shown below include only bundled sales. See "Gas Marketing."

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YEARS ENDED DECEMBER 31,
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1993 1992 1991
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TGPL SYSTEM DELIVERIES (Bcf):
Market-area deliveries
Sales................................ -- 0% -- 0% 0.4 0%
Long-haul transportation............. 823.9 60 821.8 59 873.5 63
Market-area transportation........... 374.4 27 379.8 27 250.3 18
------- --- ------- --- ------- ---
Total market-area
deliveries................. 1,198.3 87 1,201.6 86 1,124.2 81
Production-area transportation......... 171.2 13 199.3 14 255.3 19
------- --- ------- --- ------- ---
Total system deliveries................ 1,369.5 100% 1,400.9 100% 1,379.5 100%
------- --- ------- --- ------- ---
------- --- ------- --- ------- ---
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TGPL's facilities are divided into six rate zones. Three are located in the
production area and three are located in the market area. Long-haul
transportation is gas that is received in one of the production-area zones and
delivered in a market-area zone. Market-area transportation is gas that is both
received and delivered within market-area zones. Production-area transportation
is gas that is both received and delivered within production-area zones.

As shown in the table above, TGPL's total market-area deliveries for 1993
were comparable to those in 1992. Production-area deliveries decreased 28.1 Bcf,
or 14 percent for 1993 compared to 1992, primarily due to increased competition
for production-area transportation. However, as a result of the new SFV rate
structure that went into effect September 1, 1992, subject to refund, these
decreased deliveries had no significant impact on TGPL's operating income.

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YEARS ENDED DECEMBER 31,
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1993 1992 1991
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TEXAS GAS SYSTEM DELIVERIES (Bcf):
Sales................................. 51.5 7% 80.4 11% 89.9 13%
Long-haul transportation.............. 519.6 67 402.2 55 382.1 55
----- --- ----- --- ----- ---
Total mainline deliveries........ 571.1 74 482.6 66 472.0 68
Short-haul transportation............. 204.0 26 244.2 34 225.6 32
----- --- ----- --- ----- ---
Total system deliveries.......... 775.1 100% 726.8 100% 697.6 100%
----- --- ----- --- ----- ---
----- --- ----- --- ----- ---
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Texas Gas' facilities are divided into five rate zones. Receipts and
deliveries are made in four rate zones to service sales and long-haul
transportation markets. Receipts and deliveries in the remaining zone are made
to serve sales and short-haul transportation markets in southern Louisiana.

The decline in gas sales in 1993 was primarily attributable to the
conversion of customers' firm sales service to firm transportation service due
to Texas Gas' implementation of Order 636. The increase in transportation
volumes was principally the result of the conversion of customers' sales
service, additional firm service for TGPL and colder weather during the winter
months of 1993 compared to the winter months of 1992. The revenues associated
with short-haul transportation volumes are not material to Texas Gas.

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PIPELINE PROJECTS

Liberty Pipeline Company

In 1992, Liberty Pipeline Company, a partnership of interstate pipelines
and local distribution companies, filed for FERC approval to construct and
operate a natural gas pipeline to provide 500 MMcf/d in firm transportation
service to the greater New York City area. The partnership is comprised of
subsidiaries of Transco and two other interstate pipelines and subsidiaries of
three Transco customers in New York.

The pipeline is expected to cost approximately $162 million and is proposed
to be in service by the 1995-1996 winter heating season, subject to timely FERC
approval. The pipeline will offer a new firm transportation route from TGPL and
another interstate pipeline to a proposed new delivery point on Long Island near
the John F. Kennedy Airport.

Liberty Operating Company (LOC), an affiliate of TGPL, will construct and
operate the pipeline. LOC has begun design work, permit application, and survey
and right-of-way acquisition. The FERC has issued a notice that it intends to
prepare an Environmental Impact Statement associated with the Liberty Pipeline.

Transco Liberty Pipeline Company, an affiliate of TGPL, owns a 35 percent
interest in the pipeline, which will be project-financed. Transco Liberty
Pipeline Company expects its equity contribution to be approximately $14
million. In addition, TGPL anticipates investing approximately $78 million in
existing TGPL facilities upstream of Liberty Pipeline to provide additional
transportation capacity for subsequent delivery to the Liberty Pipeline. The
expenditures involve looping existing facilities and adding compression in
Pennsylvania and New Jersey. Texas Gas plans to spend approximately $80 million
on expansion projects to provide upstream transportation capacity to the Liberty
Pipeline. The expenditures involve constructing approximately 51 miles of
pipeline looping from Kentucky to Ohio. The expansion will permit delivery of an
additional 135 MMcf/d to Lebanon, Ohio, for subsequent delivery to Liberty
Pipeline customers. The expenditures for the equity contribution as well as the
majority of the expenditures for the TGPL and Texas Gas upstream expansions are
expected to be made in 1995 and 1996.

Southeast Expansion Projects

In November 1993, TGPL filed for FERC approval of its Southeast Expansion
Projects. These new expansion projects will provide additional firm
transportation capacity to growing southeastern markets in Alabama, Georgia,
South and North Carolina and Virginia.

The proposed Southeast Expansion Projects are expected to be phased into
service beginning in 1994 and, upon completion, will provide a total of 200
MMcf/d of firm transportation capacity to TGPL's southeast customers by the
1996-1997 winter heating season. The new firm transportation capacity will
extend from TGPL's Mobile Bay lateral interconnect, near Butler, Alabama, to
delivery points upstream of TGPL's Compressor Station 165 near Chatham,
Virginia. The expansion projects will include approximately 25 miles of pipeline
replacement and looping and the installation of additional compression totaling
approximately 70,000 horsepower. TGPL estimates the cost of the expansion to be
$125 million and has proposed rates based on the SFV rate design methodology.

The 1994 Southeast Expansion Project (SE94) will provide 35 MMcf/d of
incremental firm capacity by the 1994-1995 winter heating season. The 1995-1996
Southeast Expansion Project (SE95-96) will be constructed in two phases: Phase I
will add 115 MMcf/d of incremental firm capacity for the 1995-1996 winter
heating season, and Phase II will add the remaining 50 MMcf/d for the 1996-1997
winter heating season.

Subject to FERC approval, construction on SE94 is scheduled to begin in
June 1994. TGPL expects to invest approximately $45 million in these projects in
1994.

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Eminence Storage Field Expansion Project

During 1993, TGPL completed the first phase of its Eminence storage field
expansion project, expanding the working capacity from 6 Bcf to 9 Bcf and
increasing the withdrawal rate from 750 MMcf/d to 1.3 Bcf/d. The expansion of
the salt-dome structure, located at TGPL's Compressor Station 77, near Seminary,
Mississippi, will give TGPL additional flexibility to meet the peak-day and
emergency demands of its customers. High deliverability from storage helps
assure pipelines, such as TGPL, of gas availability for their customers during
adverse weather conditions.

TGPL plans further expansions of the storage field in 1994 and 1995,
allowing for withdrawals of up to 1.5 Bcf/d and ultimately increasing the
working capacity of the storage field to 15 Bcf.

Mobile Bay Pipeline Expansion Project

In September, the FERC issued an order authorizing the joint ownership and
expansion of TGPL's Mobile Bay lateral with Florida Gas Transmission Company
(Florida Gas). The lateral transports gas from the prolific Mobile Bay gas
supply basin to the TGPL mainline, near Butler, Alabama, and the expansion will
increase the capacity from 462 MMcf/d to 829 MMcf/d. The expansion will be
accomplished through the addition of compression facilities and will include a
new interconnection on the lateral with the Florida Gas mainline.

The cost of the expansion project will be funded entirely by Florida Gas,
and TGPL will receive approximately $13 million from Florida Gas for the sale of
a partial interest in the lateral. The expansion will increase the TGPL portion
of pipeline capacity by approximately 60 MMcf/d to 520 MMcf/d. The Mobile Bay
lateral expansion is expected to be placed in service by December 1994.

Also, TGPL and Exxon have agreed to construct a two-mile pipeline in 1994
to allow for connection of Exxon's recently constructed treatment plant to the
Mobile Bay lateral.

Both of these expansion projects will not only enhance TGPL's overall
access to supply, but will also provide additional supply for the Southeast
Expansion Projects.

West Tennessee Pipeline Expansion

In January 1994, Texas Gas received approval from the FERC to expand its
Jackson-Ripley pipeline system located in northwest Tennessee to provide 4.6
MMcf/d of additional firm deliveries to three West Tennessee customers and to
construct additional pipeline looping providing system security on that part of
Texas Gas' system. Construction is anticipated to commence during the first
quarter of 1994. Total cost for this system expansion is expected to be $3.2
million, which Texas Gas anticipates it will incur during the first half of
1994.

REGULATORY MATTERS

Rates

General

TGPL and Texas Gas' transportation rates are established through the FERC
ratemaking process. Key determinants in the ratemaking process are (i) volume
throughput assumptions, (ii) costs of providing service and (iii) allowed rate
of return. Rate design and the allocation of costs and return on equity between
the demand and commodity rates also impact profitability.

TGPL, effective September 1, 1992 and Texas Gas, effective November 1,
1993, changed from the MFV method of rate design to the SFV method of rate
design. Under MFV rate design, all fixed costs, with the exception of return on
equity and income taxes, are included in a demand charge to customers and return
on equity and income taxes are recovered as part of a volumetric charge to
customers. Accordingly, under MFV rate design overall throughput has a
significant impact on operating income. Under the SFV method of rate design, all
fixed costs, including return on equity and income taxes, are included in a
demand charge to

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customers and all variable costs are recovered through a commodity charge to
customers. While the use of SFV rate design limits TGPL and Texas Gas'
opportunity to earn incremental revenues through increased throughput, it also
minimizes TGPL and Texas Gas' risk associated with fluctuations in throughput.

TGPL

On June 4, 1992, the FERC issued its final order on rehearing in TGPL's
Rate Settlement and Gas Inventory Charge (GIC) Settlement (Docket No. RP90-8).
This order became effective in July 1992. As a result, in August 1992, TGPL made
refunds of approximately $102 million, including interest, for differences
between filed rates and settlement rates. Certain parties appealed the FERC's
June 4, 1992 order to the United States Court of Appeals for the D.C. Circuit
(D.C. Circuit Court). On December 17, 1993, the D.C. Circuit Court issued its
opinion affirming the FERC's order, except for one issue not material to TGPL
which was remanded to the FERC for further consideration.

On March 2, 1992, TGPL filed with the FERC a general rate case (Docket No.
RP92-137). The general rate filing proposed an increase in transportation rates,
based primarily on increases in operating and maintenance costs, including those
associated with additional services provided to TGPL's markets since its last
general rate filing, and increased cost of capital. The filing also included a
change to SFV rate design and an increase in rate base resulting from additional
plant and equipment costs and higher working capital requirements. On September
1, 1992, the increased rates went into effect subject to refund.

On September 17, 1992, the FERC issued a decision addressing the single
issue of the appropriate rate of return in Docket No. RP92-137. The FERC, using
a hypothetical capital structure based on the average capital structure of a
group of seven publicly-traded companies with pipeline subsidiaries, determined
TGPL's appropriate after-tax rate of return on equity to be 14.45%. The FERC did
not determine TGPL's cost of debt and preferred stock, suggesting that this
issue should be the subject of further proceedings in the context of the general
rate case. Consequently, TGPL's current rates reflect an after-tax rate of
return on equity of 14.45% but, consistent with the FERC order, the rates
continue to reflect the cost of debt and preferred stock originally filed in the
general rate case. The issue of the appropriate rate of return for TGPL is
currently on appeal before the D.C. Circuit Court. TGPL appealed seeking to
increase the rate of return and certain other parties have appealed seeking to
lower the rate of return.

On May 3, 1993, TGPL filed with the FERC an Offer of Settlement (the
Settlement) with regard to Docket No. RP92-137. On November 4, 1993, the FERC
issued an order accepting the Settlement. The Settlement resolves all issues in
Docket No. RP92-137 except (i) issues relating to TGPL's rate of return which
are on appeal before the D.C. Circuit Court (see discussion above), and (ii) the
issue of appropriate load factor for the design of TGPL's interruptible rates
which the FERC referred to a hearing in Docket No. RP92-137 for prospective
effect only (see "Regulatory Matters-Order 636" for discussion of additional
issues referred to this hearing). On December 16, 1993, TGPL filed a request to
accelerate partial refunds under the Settlement on the ground that those refunds
could be made without prejudice to the pending requests for rehearing or
clarification. TGPL's request was granted by order of the FERC dated February
14, 1994. In early 1994, TGPL will make the initial refunds (approximately $100
million including interest) under RP92-137. TGPL has previously provided a
reserve for that refund. TGPL has also provided a reserve which it believes is
sufficient for any additional refunds that may be required under Docket No.
RP92-137.

Texas Gas

On April 29, 1993, Texas Gas filed a general rate case (Docket No.
RP93-106), which, pursuant to the FERC's Suspension Order issued May 28, 1993,
became effective November 1, 1993, subject to refund. The new rate case was
filed to satisfy the three-year filing requirement of the FERC's regulations, to
recover increased operating costs, to provide a return on increased capital
investment in pipeline facilities, to implement the SFV rate design methodology
and to facilitate resolution of various rate-related issues in Texas Gas' Order
636 restructuring proceeding. Texas Gas is currently engaged in settlement
proceedings regarding this case. Texas Gas has established a reserve, which it
believes to be adequate, to reflect the difference

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between the rates currently being collected and the rates expected to ultimately
be effective upon settlement of the rate case.

Fuel Retention Proceedings

On February 23, 1989, the FERC issued an order which found, among other
things, that TGPL had overcollected for fuel from transportation customers
during the period April 1, 1984 to April 1, 1987. The order required TGPL to
refund the difference between the amount collected and the rate allowed for fuel
retention. Accordingly, TGPL made refunds to customers of approximately $35
million, including interest. In response to subsequent FERC orders, TGPL
recalculated the refund and on November 30, 1993, under this revised
calculation, TGPL made additional refunds of approximately $11.6 million,
including interest. TGPL had previously provided a reserve that was sufficient
for these refunds. On February 9, 1994, the FERC issued an order accepting
TGPL's refund report, stating that TGPL made the refunds in accordance with the
FERC's orders.

Order 94-A

In 1983, the FERC issued Order 94-A, which permitted producers to collect
certain production-related gas costs from pipelines on a retroactive basis. The
FERC subsequently issued orders allowing several pipelines, including TGPL and
Texas Gas, to bill their customers for such production-related costs through
fixed monthly charges based on a customer's historical purchases. In February
1990, the D.C. Circuit Court overturned the FERC's authorization for pipelines
to bill production-related costs to customers based on gas purchased in prior
periods and remanded the matter to the FERC to determine an appropriate recovery
mechanism.

TGPL's GIC Settlement contains a provision pursuant to which TGPL's
customers, with the exception of Columbia, have agreed not to contest the Order
94-A payments previously made by them. TGPL had billed to and recovered from
Columbia approximately $7 million of Order 94-A costs. On October 26, 1993, TGPL
and Columbia executed a letter agreement by which the parties resolved the
amount of refunds to be made to Columbia in this proceeding. Pursuant to the
letter agreement, TGPL and Columbia agreed that TGPL shall refund $1.4 million
to Columbia, which amount is inclusive of principal and interest, in full and
final settlement of all issues in this proceeding. The letter agreement was
filed with the FERC on October 26, 1993 and is subject to approval by the FERC.
TGPL has provided a reserve which is sufficient to cover the refunds provided
for by the letter agreement. On January 26, 1994, Columbia filed a letter with
the FERC stating that, due to developments in other pipeline company proceedings
involving settlements of the issue of recovery of Order 94-A costs from
Columbia, Columbia could no longer support, pending rehearing in those
proceedings, the letter agreement between TGPL and Columbia. Columbia requested
that the FERC hold any action on the letter agreement in abeyance pending action
on rehearing in the other proceedings. On February 4, 1994, TGPL filed a
response opposing Columbia's January 26 letter, stating that the October 26
letter agreement constitutes a valid and binding agreement between TGPL and
Columbia and requesting that the FERC approve that letter agreement without
delay. This matter is pending before the FERC.

On April 28, 1992, Texas Gas filed a settlement with the FERC providing for
a reallocation of the Order 94-A payments previously collected from its
customers. The settlement provided for net refunds of $8.1 million to certain
customers and direct bill recovery of $2.7 million from other customers. The
remaining $5.4 million would be recovered through Texas Gas' purchased gas
adjustment mechanism. On February 11, 1993, the FERC issued an order approving
the settlement. Certain parties filed for rehearing of the settlement. On
January 12, 1994, the FERC issued its "Order Granting Rehearing" which found
that the FERC had committed a legal error in allowing the previously mentioned
direct bill of Order 94-A costs. The effect of this order as issued would be to
require Texas Gas to make refunds to certain customers of $13.5 million, recover
$2.7 million through direct billing of other customers, recover $5.4 million as
part of the direct billing of its unrecovered purchase gas costs and absorb the
remaining $5.4 million. Texas Gas believes it is entitled to full recovery of
these FERC-ordered costs. Texas Gas has filed for rehearing of this order and
has received an extension staying the effectiveness of this order until 30 days
after the FERC rules on rehearing. Texas Gas

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has provided a reserve which it believes is adequate to provide for any costs
which it may ultimately be required to absorb.

Although no assurances can be given, Transco believes that the final
resolution of the recovery of production-related costs will not have a material
adverse effect on its financial position or results of operations.

Order 636

TGPL

On November 1, 1993, TGPL implemented Order 636. In connection with its
implementation of Order 636, TGPL received orders from the FERC which, among
other things, (i) required TGPL to revise its throughput projection for rate
purposes to reflect a mix of throughput that includes a higher level of
interruptible transportation, (ii) accepted TGPL's proposal for rolled-in rate
treatment of its Mobile Bay facilities and exempted TGPL from having to reflect
Mobile Bay transportation volumes and related revenues in an interruptible
revenue crediting mechanism, (iii) approved a Stipulation and Agreement filed
with the FERC by TGPL and its sales customers resolving certain sales service
issues and mooting potential issues regarding TGPL's recovery of gas supply
realignment (GSR) costs associated with TGPL's firm sales service, and (iv)
referred to the hearing in Docket No. RP92-137 the following issues: TGPL's
limited Section 4 filing with the FERC relating to TGPL's production-area rate
design, the allocation of certain costs to TGPL's sales service, TGPL's use of a
system-wide cost of service, the level of TGPL's gathering rates and
aggregation/pooling services in TGPL's production area. Any changes in TGPL's
rates or services resulting from this hearing would have a prospective effect
only. Order 636 provides that pipelines should be allowed the opportunity to
recover all prudently incurred transition costs, including GSR costs. TGPL does
not expect to incur any GSR costs associated with its firm sales service. TGPL's
non-GSR transition costs are anticipated to be in a range of $5 million to $10
million.

TGPL and certain other parties have filed appeals of certain of the FERC's
orders to the D. C. Circuit Court. These appeals have been held in abeyance
pending completion of the FERC's rehearing process and the expiration of the
time to seek judicial review.

TGPL has expressed to the FERC concerns that inconsistent treatment under
Order 636 of TGPL and its competitor pipelines with regard to rate design and
cost allocation issues in the production area may result in rates which could
make TGPL less competitive, both in terms of production-area and long-haul
transportation rates. A hearing before a FERC Administrative Law Judge (ALJ)
dealing with, among other things, TGPL's production-area rate design has been
set for April 1994. TGPL is unable at this time to fully assess the competitive
effect and resulting financial impact on TGPL of having to maintain its current
production-area rate design which is different than that of its competitors.

Texas Gas

Texas Gas has restructured its business to implement the provisions of
Order 636. On October 1, 1993, the FERC issued its "Order on Compliance Filing
and Granting, In Part, and Denying, In Part, Rehearing and Clarification," which
essentially approved the major aspects of Texas Gas' Order 636 compliance plan.
Texas Gas filed revised tariff sheets and other changes pursuant to the October
1, 1993 order on October 18, 1993, which permitted implementation of Order 636
restructured services on November 1, 1993. On December 16, 1993, the FERC issued
another order which required minor tariff modifications. Texas Gas submitted a
filing in compliance with this order on January 7, 1994. This filing was
accepted by an order issued on February 10, 1994. Texas Gas' analysis of Order
636 indicates that Texas Gas' transition costs are not currently expected to
exceed $90 million, and are primarily related to GSR contract termination costs,
GSR pricing differential costs incurred pursuant to the auction process, as
discussed below, and unrecovered purchased gas costs.

8
<PAGE> 10

remaining gas purchase contracts with pricing provisions that are not variable
market based is being resold at a monthly auction pursuant to Order 636. Texas
Gas continues to pay to the supplier the actual contract price and is entitled
to file for full recovery of the difference between the contract price and the
amount received for sales at auction as GSR costs under Order 636.

Through December 31, 1993, Texas Gas had paid or committed to pay a total
of $38.2 million for GSR costs, primarily as a result of the contract
terminations. As of December 31, 1993, Texas Gas had paid $13.4 million of such
costs; the remaining $24.8 million was recorded as a current liability. Pursuant
to Order 636, Texas Gas may file to recover 100% of these costs as GSR costs.

On January 28, 1994, Texas Gas submitted its first filing to recover $11.5
million of GSR costs pursuant to the transition costs recovery provisions of
Order 636 and Texas Gas' approved FERC Gas Tariff. This amount represents 90% of
the total GSR costs paid through November 30, 1993, which are expected to be
recovered over a 12-month period by application of a surcharge to its firm
transportation demand rates. The remaining 10% is expected to be recovered from
interruptible transportation service. Texas Gas plans to make quarterly filings
to allow recovery of its GSR costs as such costs are paid.

As part of its implementation of Order 636, Texas Gas has been allowed to
retain its storage gas, in part to meet operational balancing needs on its
system, and in part to meet the requirements of Texas Gas' "no-notice"
transportation service, which allows customers to temporarily draw from Texas
Gas' storage gas to be repaid in-kind during the following summer season.

Consolidated

Transco expects that any Order 636 transition costs incurred should be
recovered from TGPL and Texas Gas' customers, subject only to the costs and
other risks associated with the difference between the time such costs are
incurred and the time those costs may be recovered from customers. Although no
assurances can be given, Transco does not believe that the implementation of
Order 636 by TGPL and Texas Gas will have a material adverse effect on its
financial position or results of operations.

Order 500 and Order 528

Pursuant to Order 500, certain other pipelines from which Texas Gas made
gas purchases (upstream pipelines) have received approval from the FERC to bill
customers for their producer settlement costs. Texas Gas had, in turn, received
FERC approval to flow these costs through to its customers under the Order 500
purchase deficiency-based direct bill methodology. Following the issuance of
Order 528, which replaced the purchase deficiency-based recovery methodology,
Texas Gas, in 1991, made a series of filings which reallocated these costs among
customers. Pursuant to these filings, Texas Gas proposed to ultimately flow
through to its customers approximately $64 million of costs billed from upstream
pipelines. The FERC has issued orders accepting these filings, subject to the
ultimate outcome of the underlying filings of the upstream pipelines and future
settlement by Texas Gas. Although the total billings to Texas Gas are unresolved
and Texas Gas may be required to refund certain amounts previously collected,
Texas Gas believes that it will be entitled to ultimately collect all amounts
that are billed by the upstream pipelines.

Under Order 528, Texas Gas may file to recover 75% of its producer
settlement costs, including amounts it may be required to pay producers pursuant
to indemnifications for royalties. On September 2, 1993, Texas Gas filed to
recover 75% of $3.4 million of such producer settlement costs. A FERC order,
accepting the filing subject to refund and certain conditions, was issued on
October 1, 1993, allowing for recovery of $0.9 million through direct bill and
$1.7 million through a volumetric surcharge, both to be collected over a
12-month period beginning October 3, 1993. See Note C "Legal
Proceedings -- Other Litigation and Claims" of the Notes to Consolidated
Financial Statements incorporated herein by reference in Item 8 hereof.

9
<PAGE> 11

COMPETITION

General

Competition for gas transportation has intensified in recent years due to
customer access to other pipelines, rate competitiveness between pipelines and
the customers' desire to have more than one supplier. The FERC's stated purpose
of Order 636 is to improve the competitive structure of the natural gas pipeline
industry. TGPL and Texas Gas implemented Order 636 on November 1, 1993. Future
utilization of pipeline capacity will depend on competition from other pipelines
and alternative fuels, the general level of natural gas demand and weather
conditions.

TGPL

TGPL and its primary market-area competitors (Texas Eastern, Columbia,
Southern Natural Gas Company, Tennessee Gas Pipeline Company (Tennessee) and
Iroquois Gas Transmission System) implemented Order 636 on their respective
systems during the period June 1993 to November 1993. TGPL and its major
competitors all employ SFV rate design for firm transportation as mandated by
Order 636. However, TGPL has expressed to the FERC concerns that inconsistent
treatment under Order 636 of TGPL and its competitor pipelines with regard to
rate design and cost allocation issues in TGPL's production area may result in
rates which could make TGPL less competitive, both in terms of production-area
and long-haul transportation rates. A hearing before a FERC ALJ dealing with,
among other things, TGPL's production-area rate design has been set for April
1994. TGPL is unable at this time to fully assess the competitive effect and
resulting financial impact on TGPL of having to maintain its current
production-area rate design which is different than that of its competitors.

TGPL does not expect to incur GSR costs associated with its firm sales
service. TGPL's non-GSR transition costs are anticipated to be in a range of $5
million to $10 million; therefore, TGPL believes the demand charges to recover
these costs will not make its rates noncompetitive in its markets. See
"Regulatory Matters -- Order 636."

Although a significant portion of TGPL's firm customers have relatively
secure residential and commercial end-users, virtually all of TGPL's local
distribution customers (LDCs) have some price-sensitive end-users that could
switch to alternate fuels. Approximately one-third of TGPL's customer deliveries
are at risk to such fuel switching; however, a recent survey of TGPL's largest
customers suggests that end-users will pay a premium to burn natural gas and
that LDCs will aggressively price their system transportation to stay
competitive in alternate-fuel markets.

Texas Gas

Texas Gas and its primary market-area competitors (ANR Pipeline Company,
Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Texas Eastern,
Columbia, Tennessee and Midwestern Gas Transmission Company) implemented Order
636 on their respective systems during the period May 1993 to November 1993.
Texas Gas and its major competitors all employ SFV rate design for firm
transportation as mandated by Order 636. Although some of Texas Gas' major
competitors implemented Order 636 and SFV rates prior to Texas Gas'
implementation, the impact on Texas Gas' throughput was minimal.

Texas Gas' analysis of Order 636 indicates that Texas Gas' transition costs
are not currently expected to exceed $90 million, primarily related to GSR
contract termination costs, GSR pricing differential costs incurred pursuant to
the auction process as discussed above and unrecovered gas purchase costs. Texas
Gas believes that under Order 636, with SFV rates, its rate structure will
remain competitive and surcharges for recovery of its total transition costs
will not make its rates noncompetitive in its market as competitor pipelines are
believed to have transition costs also to be recovered in their rates. See
"Regulatory Matters -- Order 636."

The end-use markets of several of Texas Gas' customers have the ability to
switch to alternate fuels. To date, however, such losses from fuel switching
have not been significant.

10
<PAGE> 12

GAS SUPPLY

As a result of the fundamental business changes resulting from FERC Order
636, especially the shifting of the responsibility for gas supply from the
pipeline companies to local distribution companies, committed proved gas
reserves are no longer material to TGPL and Texas Gas' businesses. See
"Pipelines," "Regulatory Matters -- Order 636" and "Capital Resources and
Liquidity -- Other Capital Requirements and Contingencies -- Long-term gas
purchase contracts" contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations incorporated herein by reference
in Item 7 hereof.

GAS MARKETING

Prior to 1993, TGPL and Texas Gas were responsible for all jurisdictional
gas sales to their pipeline customers and Transco Energy Marketing Company
(TEMCO) and TXG Gas Marketing Company (TXG Marketing) were responsible for all
non-jurisdictional gas sales. After FERC approval in January 1993, Transco began
to implement a plan to consolidate its gas marketing businesses under the common
management of TGMC. These changes were needed to more closely coordinate gas
marketing operations to improve efficiencies, reduce costs and improve
profitability. In January 1993, TGMC, through an agency agreement, began to
manage all jurisdictional sales of TGPL. In November 1993, TGMC, through an
agency agreement, began to manage all jurisdictional sales of Texas Gas, except
for the sale of gas purchased by Texas Gas under certain contracts with pricing
provisions that are not variable market based which is being resold by Texas Gas
at a monthly auction pursuant to Order 636. See "Regulatory Matters -- Order
636." TGMC also manages all non-jurisdictional sales that are offered by TEMCO
and TXG Marketing. TEMCO buys, arranges transportation for, and sells natural
gas, primarily in the eastern and midwestern United States and Gulf Coast
region. TXG Marketing markets natural gas, primarily to customers in the
midwestern United States.

TGMC is also engaged, through its subsidiary, Transco Liquids Company
(TLC), in the purchase and processing of natural gas and the sale of natural gas
liquids and separation, terminalling and storage of condensate. TLC owns varying
ownership interests in three natural gas processing facilities. TLC operates and
owns a 50 percent joint ownership interest in the Cameron Meadows Complex, a gas
processing facility located in southwestern Louisiana, with a capacity to
extract natural gas liquids from an inlet gas stream of approximately 500
MMcf/d. TLC also has a 50 percent partnership interest in the Bee County Plant,
a 60 MMcf/d cryogenic extraction facility located in south Texas as well as an
approximately 19 percent joint ownership interest in the Sabine Pass Plant, a
200 MMcf/d cryogenic extraction facility located in southwestern Louisiana. TLC
also processes natural gas at third-party owned facilities. In addition to its
processing business, TLC owns and operates the Crystal Beach Separation Facility
and owns the stock of the HI-BOL Pipeline Company which owns and operates the
HI-BOL Pipeline. TLC's net investment in wholly-owned or joint venture natural
gas processing and liquids separation and transportation facilities and HI-BOL
Pipeline totaled $27.5 million at December 31, 1993.

The following table sets forth the Gas Marketing sales volumes during 1993,
1992 and 1991.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
SALES VOLUMES 1993 1992 1991
------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Gas sales (Bcf)
Long-term................................................. 352.7 148.6 158.3
Short-term................................................ 226.2 193.8 244.8
----- ----- -----
Total gas sales................................... 578.9 342.4 403.1
----- ----- -----
----- ----- -----
Liquids sales (MMGals)...................................... 130.6 234.9 303.1
----- ----- -----
----- ----- -----
</TABLE>

Gas sales volumes increased due primarily to the inclusion in 1993 of
TGPL's sales service volumes of 234.5 Bcf and Texas Gas' sales service volumes
of 6.9 Bcf. TGPL's sales service volumes in 1992 and 1991 were 221.1 Bcf and
241.6 Bcf, respectively. The revenues associated with such volumes in 1992 and
1991 were

11
<PAGE> 13

reported in the Pipelines segment. See "Results of Operations -- Pipelines"
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations incorporated herein by reference in Item 7 hereof. Liquids
sales volumes decreased due to processing curtailments beginning in May 1993 and
the discontinuation of naptha processing in August 1992 due to product-price
economics, which are largely dictated by crude oil prices.

Gas Marketing's profitability is determined by volumes and margins, both of
which are heavily influenced by gas demand, alternate fuels, competition and
commodity price volatility. Moreover, the costs associated with maintaining Gas
Marketing's long-term supply portfolio must be recovered in premiums paid by
customers pursuant to long-term contracts in order to avoid a loss on such sales
to the spot market. See "Capital Resources and Liquidity -- Other Capital
Requirements and Contingencies -- Long-term gas purchase contracts" contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated herein by reference in Item 7 hereof.

COMPETITION

Changes in the natural gas industry over the past several years have
substantially increased competition for gas sales. TGMC's competitors include
other natural gas marketers and producers.

COAL

Transco Coal Company (TCC) is engaged in the surface and deep mining,
preparation and marketing of various grades of bituminous steam coal. In
addition, TCC purchases minimal amounts of coal from independent producers for
resale to customers. As used herein, the term TCC refers to Transco Coal
Company, together with its wholly-owned subsidiaries, unless the context
otherwise requires.

SALES AND MARKETING

TCC, through its subsidiaries, owns and currently operates 4 deep mines and
5 surface mines in eastern Kentucky and Tennessee. TCC sells coal, both under
long-term supply agreements and in the spot market, to electric utilities and
industrial customers located primarily in the southeastern United States. Sales
in 1993 totaled 8.9 million tons, compared to 1992 sales of 9.0 million tons.

Generally under TCC's major sales agreements, contract duration may be
extended at the option of the utility, quantities may be decreased or increased
within specified ranges at the option of the utility, quantities may be
decreased by a force majeure event causing a utility to decrease power
production, prices may be renegotiated in certain cases and other adjustments
may occur under certain conditions. TCC's long-term contracts contain provisions
for adjustments to the base price of coal in response to variations in quality
and changes in economic indices. All of TCC's contracts contain quality
specifications relating to moisture, ash, sulfur content and heating value
(Btu). Premiums are generally paid per Btu value above the guaranteed contract
minimum.

COMPETITION

The sale of coal is highly competitive. TCC must compete with other coal
producers in negotiating coal sales contracts and spot sales. The primary
factors in competition for contract and spot sales are price, quantity and the
quality of coal reserves, production costs and the availability of economical
transportation. In addition, the level of economic activity, energy conservation
and the cost of complying with various environmental regulations directly affect
the demand for coal. Steam grade coal competes with other fuels such as nuclear,
oil and natural gas.

TCC's competition includes the Kentucky operations of Cyprus Minerals
Company, Arch Mineral Corporation, Sun Coal Company and Ashland Coal, Inc.,
although any coal operation with the ability to provide at competitive prices
the quantity and quality of coal needed by TCC's current customers could impact
TCC's future sales.

12
<PAGE> 14

RESERVES

All of TCC's coal reserves are held under coal leases in Kentucky and
Tennessee. The coal reserves controlled by TCC are primarily leased from
independent landowners. Terms of these leases vary considerably; however, the
majority of these leases contain provisions allowing TCC to mine such properties
until the mineable and merchantable coal thereunder is exhausted, provided that
certain minimum production levels are maintained and royalty payments are made.

The following table sets forth TCC's estimates of its coal reserves in
Kentucky and Tennessee as of December 31, 1993. It should be noted that the
amounts reported are estimates only, based on geological observations and
assumptions, and no assurance can be given that the amounts presented will
ultimately be recovered.

<TABLE>
<CAPTION>
(THOUSAND TONS)(1)(2)
---------------------
<S> <C>
In-Place Reserves.................................................. 285,545
--------
--------
Recoverable Reserves............................................... 218,302
--------
--------
</TABLE>

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

(1) The coal deposits which constitute TCC's coal reserves may extend beyond the
seams used in the reserve computations, although the extent of such deposits
and the degree to which such deposits may be mineable cannot be determined
without further exploration.

(2) The estimated reserves stated herein were determined by TCC's experience in
mining the present reserves and data compiled from maps and tests within
TCC's present reserves. Such reserves do not represent the amount of coal
that will ultimately be mined, processed and shipped to customers.
Constantly changing factors which affect mining of the reserves include:
loss from extraction processes, loss from preparation and cleaning
processes, marketability, present and future government laws and
regulations, and changes in mining technology.

Transco has identified its coal mining and marketing business as a business
for which an exit strategy will be developed. In the interim, a new mining plan
has been adopted to improve profitability and preserve value.

OTHER INVESTMENTS

GAS GATHERING

Transco Gas Gathering Company (TGGC) owns non-jurisdictional and intrastate
gas-gathering lines located offshore and onshore Texas, as well as the Magnolia
Pipeline in Alabama. In total, TGGC owns or has an interest in more than 500
miles of pipeline, and most of the gathering lines connect to TGPL. These
systems have a combined capacity of approximately 800 MMcf/d.

At year-end 1993, TGGC's net investment in wholly-owned and joint venture
gas gathering lines, including the Magnolia Pipeline, totaled $173 million.

At December 31, 1993, TGGC's investment in the Magnolia Pipeline totaled
$68 million. The ultimate recovery of TGGC's investment in the Magnolia Pipeline
is dependent on transportation of gas produced in the Black Warrior Basin,
including production from the properties transferred to TECO Coalbed Methane,
Inc. (TECO), a subsidiary of TECO Energy, Inc. (see "Coalbed Methane" below), as
well as transportation of gas from other sources.

COALBED METHANE

In 1989 Transco began investing in certain coalbed methane properties in
the Black Warrior Basin in Alabama. The coalbed methane project has not
performed up to the original expectations and the project has encountered
higher-than-originally-anticipated costs. Commencing in October 1991, a
comprehensive study was undertaken to reevaluate the performance and economic
viability of the coalbed methane project. This study included, among other
things, a review of both the developed and undeveloped properties, applied

13
<PAGE> 15

technologies and procedures and the causes for the higher-than-anticipated
costs. As a result of the study, Transco recorded in the fourth quarter of 1991
a charge to earnings of $97.0 million, $64.0 million after-tax, $2.18 per share,
attributable to a reduction in the book value of the coalbed methane properties.

Transco, through its subsidiary Magnolia Methane Corp. (Magnolia), assumed
operatorship of the coalbed methane project in February 1992. In order to
eliminate the need for future capital investments by the Company and to
eliminate losses incurred in the operation of these properties, on July 9, 1993,
Magnolia agreed to transfer its interest in 500 wells in the Black Warrior Basin
of Alabama to TECO. In exchange for the transfer of its interest, Magnolia
received $15.5 million in cash plus future production payments based on various
percentages of net proceeds, as defined, generated from gas production from the
properties and tax credits under Section 29 of the Internal Revenue Code of
1986. The transaction was completed on August 6, 1993. The $15.5 million of
proceeds were treated as a recovery of capitalized costs with no gain or loss
recognized. Under the terms of the agreement, before Magnolia begins to receive
payments for its nonoperating interest, TECO is entitled to recover its initial
cash investment and a return thereon. Magnolia is entitled to receive production
payments until the termination date which is the earlier of (i) December 31,
2005, or (ii) such date as it is determined that 85% of the economically
recoverable reserves existing at July 1, 1993 have been recovered from the
transferred properties. As of December 31, 1993, Transco had not received any
payments pursuant to the agreement other than the initial $15.5 million cash
payment. Although all future development costs will be borne by TECO, TECO is
under no obligation to invest in or develop any gas production from the coalbed
methane properties. Magnolia has agreed to indemnify TECO from certain
liabilities (including environmental liabilities) relating to Magnolia's coalbed
methane properties. Transco has guaranteed performance of Magnolia's obligations
under the agreement and TEMCO's obligation to purchase gas from certain of the
coalbed methane properties.

At December 31, 1993, a total of 500 wells had been drilled on the coalbed
methane properties transferred to TECO, of which 322 were completed and 139 were
producing gas at a combined rate of approximately 12 to 13 MMcf/d. Based on
reserve engineering studies prepared by Ryder Scott Company and H.J. Gruy and
Company, the Company estimates that proved gas reserves net to TECO and the
Company's interest are approximately 75 Bcf as of January 1, 1994.

Transco has been advised by TECO that TECO's initial plans for the coalbed
methane properties transferred from Magnolia include the completion of the
shallow zones in an area with 75 producing wells because TECO believes that such
development provides the best immediate opportunity for increases in production
and favorable economic results from the required investment. Through December
31, 1993, TECO has made completions in shallow zones in five wells, four of
which have been judged successful. During 1994, TECO expects to make shallow
zone completions in additional wells that currently have completions in the
deeper zones.

In another area, as of December 31, 1993, 145 wells have been drilled, of
which 72 wells have been completed with 64 wells producing and 8 wells capable
of production, but shut-in by TECO pending evaluation of these wells. Although
no comprehensive evaluation plan has been prepared, in 1994 TECO expects to
begin completing those wells that appear to provide the best opportunity for
increased production. These wells may include nonproducing wells that have not
been completed previously and/or producing wells with shallow zones that have
not been completed. There are a number of shallow zones in this area that have
not been completed. TECO expects to have its evaluation of this second area
completed by the end of 1994.

In a third area, which is essentially an unevaluated area, there were 280
wells, 175 wells in which deep zones had been completed with 27 wells having
been placed on production. However, all 27 wells, which were producing gas and
water, have been shut-in since August 1993 because of low gas production
volumes. No shallow zones have been completed in this area. From December 1993
through February 1994, TECO released three leases with 20 uncompleted wells and
plans to release a fourth lease with 11 uncompleted wells in April 1994. TECO
has advised Transco that it expects to have an evaluation of this area completed
by the end of 1995.

14
<PAGE> 16

Transco's remaining investment is subject to a ceiling test that limits the
investment to the aggregate of the present value of future net revenues of
proved properties and the lower of cost or fair value of unproved properties.
Transco's limitation at December 31, 1993, was calculated using estimated future
production payments to be received from TECO based on year-end gas prices and
the cost of currently unevaluated properties. Based on that calculation, Transco
recorded a non-cash charge of $70.0 million, $45.5 million after-tax, $1.16 per
share, to reduce the book value of its nonoperating interest in the coalbed
methane properties.

At December 31, 1993, Transco's investment totaled $131 million (after the
effects of the $97 million charge in 1991, the $70 million charge in 1993 and
the $15.5 million of cash proceeds received from TECO). Of the total $131
million investment, approximately $93 million relates to Transco's investment in
unproved properties and was incurred primarily during 1991 and prior years.
These unproved properties are excluded from amortization until a determination
has been made as to the existence of proved reserves or that an impairment has
occurred. Transco will continue to monitor the status of the unproved properties
as well as TECO's future plans for development of the unproved properties.

There are significant uncertainties inherent in estimating quantities of
proved reserves and in projecting rates of production and the timing and amount
of future costs. Oil and gas reserve engineering must be recognized as a
subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact way and estimates of other engineers might differ
materially from those of Ryder Scott Company and H.J. Gruy and Company. The
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. Results of
drilling, testing and production subsequent to the date of the estimate may
justify revision of such estimate, and, as a general rule, reserve estimates
based upon volumetric analysis are inherently less reliable than those based on
lengthy production history. Accordingly, reserve estimates are often different
from the quantities of oil and gas that ultimately are recovered.

The ultimate recovery of Transco's remaining investment depends on
production from the properties and future gas prices. The Company cannot predict
at this time the ultimate results of these operations or the amounts of reserves
that may ultimately be recoverable. If future development operations do not
result in establishing sufficient reserves to recover the Company's remaining
coalbed methane investment, or if other factors cause the Company's evaluation
of its investment to diminish, additional reductions in the book value of the
Company's investment would be required in future periods through non-cash
charges to earnings. Any resulting non-cash charge to earnings could reduce the
Company's financial flexibility, including its ability to remain in compliance
with certain restrictive provisions in various debt instruments and to pay
dividends on its capital stock.

OFFICE BUILDING

TGPL has a 20-year lease agreement for 1,005,478 square feet at its
headquarters building in Houston which expires in 2004. The lease is with
Transco Tower Limited (TTL), a partnership in which Transco has an indirect
12.5% interest. For information concerning lease commitments see Note M of the
Notes to Consolidated Financial Statements incorporated herein by reference in
Item 8 hereof. On November 3, 1993, Transco received notice from McCue Street
Investors Corporation ("McCue"), a partner in TTL, indicating that McCue had
elected to initiate the Buy/Sell procedure pursuant to the TTL Partnership
Agreement. Under the Buy/Sell procedure, McCue, the 75% partner in TTL, has
offered to Post Oak/Alabama Partnership (PO/A), the 25% partner in TTL (of which
Transco Tower Realty, Inc. a wholly owned subsidiary of Transco, owns a 50%
interest), the option of either (i) buying McCue's interest in TTL for
approximately $225 million or (ii) selling the PO/A interest in TTL to McCue for
the net asset value of PO/A's interest in TTL. In the latter case, it is not
anticipated that Transco's share of any net sales proceeds would be significant.
PO/A has 270 days from the date of the offer to accept either of the two
alternatives.

15
<PAGE> 17

REGULATION

INTERSTATE GAS PIPELINE OPERATIONS

TGPL and Texas Gas are subject to regulation by the FERC as "natural gas
companies" under the NGA. The NGA grants to the FERC authority over the
construction and operation of pipeline and related facilities utilized in the
transportation and sale of natural gas in interstate commerce, including the
extension, enlargement and abandonment of such facilities. The FERC requires the
filing of appropriate applications by natural gas companies showing that the
extension, enlargement or abandonment of any facilities, as the case may be, is
or will be required by a certificate of public convenience and necessity. TGPL
and Texas Gas hold certificates of public convenience and necessity issued by
the FERC authorizing them to construct and operate all pipelines, facilities and
properties now in operation for which certificates are required.

The NGA also grants to the FERC authority to regulate rates, charges and
terms of service for natural gas transported in interstate commerce or sold by a
natural gas company in interstate commerce for resale, and to regulate
curtailments of sales to customers. The FERC has authorized TGPL and Texas Gas
to charge natural gas sales rates that are market-based. As necessary, TGPL and
Texas Gas file with the FERC changes in their respective transportation and
storage rates and charges designed to allow them to recover fully their costs of
providing service to their interstate systems' customers, including reasonable
rates of return. Regulation of gas curtailment priorities and the importation of
gas are, under the Department of Energy Reorganization Act of 1977, vested in
the Secretary of Energy.

TGPL and Texas Gas also are subject to regulation by the Department of
Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to
safety requirements in the design, construction, operation and maintenance of
their interstate gas transmission facilities.

COAL OPERATIONS

The coal mining industry is subject to a number of federal, state and local
statutes and regulations relating to health and safety standards and protection
of the environment. These laws require procedures for obtaining mining permits
and posting bonds, subject mining operations to compliance inspections, impose
land reclamation responsibilities and control the discharge of water from mines
and related facilities. Failure to comply with these laws may result in closure
of mines, bond forfeitures and permit revocation, and other civil and criminal
fines and penalties.

The Surface Mining Control and Reclamation Act of 1977, as amended, and the
regulations promulgated thereunder by the Federal Office of Surface Mining
Reclamation and the enforcement thereof by the Department of the Interior,
established mining and reclamation standards for all aspects of surface mining
as well as certain aspects of underground mining.

TCC's operations are also subject to the federal Clean Air Act, as amended,
and the federal Water Pollution Control Act, as amended, and similar state laws
which regulate the discharge of materials into the environment. While it is not
possible to quantify the costs of compliance with these statutes, the costs have
been and are expected to be significant. TCC believes that its operations are in
substantial compliance with the foregoing legislation.

For the past several years, TCC has been liable under federal legislation
for the payment of benefits to coal miners with pneumoconiosis (black lung). The
Black Lung Benefits Revenue Act of 1977 and the Black Lung Benefits Reform Act
of 1977 (1977 Act) expanded the benefits for black lung disease and levied a tax
on production of $0.50 per ton on underground mined coal and $0.25 per ton on
surface mined coal, but not to exceed 2% of the sales price. Since the enactment
date, this tax has increased twice. Effective April 1, 1986, the rates are $1.10
per ton for underground mined coal and $0.55 per ton for surface mined coal,
but, not to exceed 4.4% of the sales price. In addition, the Black Lung Benefits
and Revenue Amendments Act of 1981 (1981 Act) provides that certain claims which
had previously been assigned to coal operators will be transferred to the Black
Lung Disability Trust Fund. Further, the 1981 Act tightened standards set by the
1977 Act for establishing and maintaining eligibility for benefits. In addition
to contributing to the federal

16
<PAGE> 18

black lung program, TCC has established a reserve of approximately $7.1 million
to cover future black lung payments.

With regard to quality of coal, important criteria include Btu, and sulfur
and ash content. Many customers are required by environmental and other
considerations to restrict their consumption of high sulfur content coal,
although certain amounts of sulfur may be required by certain other users. TCC
is able to meet current sulfur content requirements under existing sales
agreements.

ENVIRONMENTAL

Transco and certain of its subsidiaries are subject to extensive federal,
state and local environmental laws and regulations which affect Transco's
operations related to the construction and operation of pipeline facilities, oil
and gas exploration, development and production and coal mining. Appropriate
governmental authorities may enforce these laws and regulations with a variety
of civil and criminal enforcement measures, including monetary penalties,
assessment and remediation requirements and injunctions as to future compliance.
Transco and certain of its subsidiaries' use and disposal of hazardous materials
are subject to the requirements of the federal Toxic Substances Control Act
(TSCA), the federal Resource Conservation and Recovery Act (RCRA) and comparable
state statutes. The Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), also known as "Superfund," imposes liability, without
regard to the fault or the legality of the original act, for release of a
"hazardous substance" into the environment. Because these laws and regulations
change from time to time, practices which have been acceptable to the industry
and to the regulators have to be changed and assessment and monitoring have to
be undertaken to determine whether those practices have damaged the environment
and whether remediation is required. Since 1989, TGPL and Texas Gas have had
studies underway to test their facilities for the presence of toxic and
hazardous substances to determine to what extent, if any, remediation may be
necessary. On the basis of the findings to date, TGPL and Texas Gas estimate
that environmental assessment and remediation costs that will be incurred over
the next five years under TSCA, RCRA, CERCLA and comparable state statutes will
total approximately $60 million to $75 million. This estimate depends upon a
number of assumptions concerning the scope of remediation that will be required
at certain locations and the cost of remedial measures to be undertaken. TGPL
and Texas Gas are continuing to conduct environmental assessments and are
implementing a variety of remedial measures that may result in increases or
decreases in the total estimated costs. At December 31, 1993, Transco had a
reserve of approximately $60 million for these estimated costs.

TGPL and Texas Gas consider environmental assessment and remediation costs
and costs associated with compliance with environmental standards to be
recoverable through rates, since they are prudent costs incurred in the ordinary
course of business. To date, TGPL and Texas Gas have been permitted recovery of
environmental costs incurred, and it is their intent to continue seeking
recovery of such costs, as incurred, through rate filings. Therefore, these
estimated costs of environmental assessment and remediation have been recorded
as regulatory assets.

Since 1989, TGPL has been involved in discussions with the Pennsylvania
Department of Environmental Resources (PADER) concerning environmental
conditions at TGPL's operating sites in Pennsylvania. These discussions have
resulted in the execution of a consent order and agreement in 1992 between PADER
and TGPL. TGPL agreed to conduct an environmental assessment and remediation
program at its Pennsylvania sites, fund certain beneficial environmental
projects, pay oversight costs and pay a $425,000 civil penalty. Of such penalty,
$142,000 remains to be paid in May 1994. The estimated costs of the
environmental assessment and remediation program are included in the $60 million
to $75 million range discussed above.

TGPL and Texas Gas have both used lubricating oils containing
polychlorinated biphenyls (PCBs) and, although the use of such oils was
discontinued in the 1970s, have discovered residual PCB contamination in
equipment and soils at certain gas compressor station sites. TGPL and Texas Gas
have worked closely with the Environmental Protection Agency (EPA) and state
regulatory authorities regarding PCB issues, and both have programs to assess
and remediate such conditions where they exist, the costs of which are a
significant portion of the $60 million to $75 million range discussed above.
Proposed civil penalties have been assessed by the EPA against another major
pipeline company for the alleged improper use and disposal of PCBs. Although

17
<PAGE> 19

similar penalties have not been asserted against TGPL or Texas Gas to date, no
assurances can be given that the EPA may not seek such penalties in the future.

TGPL has been named as a potentially responsible party (PRP) in one
Superfund waste disposal site, the Combustion Inc. site, and in two state sites.
Texas Gas has either been named as a PRP or received an information request
regarding its potential involvement in four Superfund sites and one state site;
while Transco Exploration Company (TXC), for itself and as managing general
partner of Transco Exploration Partners, Ltd. has been named as a PRP in three
Superfund sites and in two state sites. Based on present volumetric estimates,
TGPL's exposure for remediation of the Combustion, Inc. site is estimated to be
$500,000; Texas Gas' estimated aggregate exposure is approximately $500,000; and
TXC's estimated exposure at two of the Superfund sites where it has been named
as a PRP is less than $100,000. TXC's estimated exposure at the third Superfund
site, based on a 1993 reallocation by the EPA, is approximately $300,000. TXC
and TGPL's estimated individual exposure at each of the two state sites where
they have been named as PRPs is less than $100,000 per site. The estimated
remediation costs for all such sites have been included in Transco's
environmental reserve discussed above. Liability under CERCLA (and applicable
state law) can be joint and several with other PRPs. Although volumetric
allocation is a factor in assessing liability, it is not necessarily
determinative; thus, the ultimate liability could be substantially greater than
the amounts described above. Although no assurances can be given, Transco does
not believe that the PRP status of TGPL, Texas Gas nor TXC will have a material
adverse effect on its financial position or results of operations.

Transco and certain of its subsidiaries are also subject to the federal
Clean Air Act and to the federal Clean Air Act Amendments of 1990 (1990
Amendments), which added significantly to the existing requirements established
by the federal Clean Air Act. The 1990 Amendments required that the EPA issue
new regulations, mainly related to mobile sources, air toxics, ozone
non-attainment areas and acid rain. Transco is installing new emission control
devices where required and conducting certain emission testing programs to
comply with the federal Clean Air Act standards and the 1990 Amendments. In
addition, pursuant to the 1990 Amendments the EPA has issued regulations under
which states must implement new air pollution controls to achieve attainment of
national ambient air quality standards in areas where they are not currently
achieved. Both TGPL and Texas Gas have compressor stations in ozone
non-attainment areas that could require substantial additional air pollution
reduction expenditures, depending on the requirements imposed. While it will not
be possible to estimate the ultimate costs of compliance with these new
requirements until the states approve TGPL's proposed plans for modifications,
Transco expects that significant capital spending may be required to modify
Transco's facilities, particularly the compressor engines along TGPL's pipeline
system. Additions to facilities for compliance with currently known federal
Clean Air Act standards and the 1990 Amendments are expected to cost in the
range of $20 million to $35 million over the next five years and will be
recorded as assets as the facilities are added.

ITEM 2. PROPERTIES.

See "Item 1. Business"

ITEM 3. LEGAL PROCEEDINGS.

The information required by this item is contained in Note C of the Notes
to Consolidated Financial Statements incorporated herein by reference in Item 8
hereof.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

18
<PAGE> 20

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table shows certain information about the executive officers
as such term is defined in Rule 3b-7 promulgated under the Securities Exchange
Act of 1934, as amended, of the Company as of March 7, 1994.

<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---------------------- --- ----------------------------------------- -------------
<S> <C> <C> <C>
John P. DesBarres..... 54 Chairman of the Board, President & Chief October 1991
Executive Officer
Robert W. Best........ 47 Senior Vice President -- Natural Gas January 1991
Larry J. Dagley....... 45 Senior Vice President, Chief Financial August 1985
Officer & Controller
David E. Varner....... 56 Senior Vice President, General Counsel & May 1982
Secretary
Nicholas J. 48 Senior Vice President -- Human June 1993
Neuhausel........... Resources & Administration
</TABLE>

With the exception of the following, all officers of the Company have been
employed by the Company or its subsidiaries for more than the last five years.

John P. DesBarres joined Transco in October 1991 as President and Chief
Executive Officer. He was elected Chairman of the Board in May 1992. Prior to
joining Transco, Mr. DesBarres served from April 1988 through September 1991 as
Chairman, President and Chief Executive Officer of Santa Fe Pacific Pipelines,
Inc. Prior to joining Santa Fe, he served as President of Sun Pipe Line Company,
a subsidiary of Sun Company, Inc., a diversified energy company.

Nicholas J. Neuhausel joined Transco in June 1993 as Senior Vice
President -- Human Resources & Administration. Prior to joining Transco, Mr.
Neuhausel held various positions with Sun Company, Inc., a diversified energy
company, and its subsidiaries, including Vice President of Human Resources and
Administration.

The officers of the Company serve at the pleasure of the Board of
Directors. No family relationship exists between any of them.

19
<PAGE> 21

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The information required by this item appears below and in Notes F and G of
the Notes to Consolidated Financial Statements incorporated by reference in Item
8 hereof.

Transco common stock is traded on the New York Stock Exchange and the
Pacific Stock Exchange. The range of New York Stock Exchange composite trading
prices and dividends paid during 1993 and 1992 by quarters were as follows:

<TABLE>
<CAPTION>
PRICE RANGE
----------------------------- DIVIDENDS
HIGH LOW LAST PAID
----- ----- ----- -----
<S> <C> <C> <C> <C>
1993
1st Quarter............................. $ 17 $ 13 $15 1/4 $0.15
2nd Quarter............................. 16 7/8 13 7/8 16 3/4 0.15
3rd Quarter............................. 17 7/8 15 3/4 17 0.15
4th Quarter............................. 18 13 7/8 14 1/8 0.15
1992
1st Quarter............................. $20 5/8 $ 11 $12 3/4 $0.15
2nd Quarter............................. 15 3/8 9 1/2 14 0.15
3rd Quarter............................. 17 7/8 13 7/8 16 3/8 0.15
4th Quarter............................. 16 1/4 12 14 1/4 0.15
</TABLE>

The approximate number of holders of Transco common stock was 38,000 as of
February 16, 1994. The approximate number of record holders as of the same date
was 15,700.

20
<PAGE> 22

TRANSCO ENERGY COMPANY AND SUBSIDIARIES

ITEM 6. SELECTED FINANCIAL DATA
(EXPRESSED IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989(1)
---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues............... $2,921,926 $2,692,339 $2,714,827 $3,057,506 $2,969,855
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Common Stock Equity in Net Income
(Loss)......................... $ (28,983) $ (75,074) $(193,143) $ 15,438 $ 88,730
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Primary Earnings (Loss) Per Share
of Common Stock and Common
Stock Equivalents.............. $ (0.74) $ (2.35) $ (6.58) $ 0.53 $ 3.10
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Total Assets..................... $4,080,485 $4,258,563 $4,609,195 $4,548,873 $4,109,784
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Short-term Debt and Current
Maturities of Long-term Debt... $ 159,479 $ 188,787 $ 398,014 $ 461,828 $ 327,508
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Capitalization:
Long-term debt, less current
maturities.................. 1,786,571 1,819,915 1,721,758 1,446,533 1,043,018
Preferred stock of
subsidiaries -- redeemable,
net......................... 75,191 101,006 105,968 111,280 116,615
Convertible preferred stock --
redeemable, net............. -- 117,740 117,740 117,740 117,740
Convertible preferred stock --
non-redeemable, net......... 265,418 143,995 143,995 143,995 143,995
Common stockholders' equity.... 391,283 429,939 386,795 600,487 606,436
---------- --------- --------- --------- ----------
Total capitalization... $2,518,463 $2,612,595 $2,476,256 $2,420,035 $2,027,804
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Cash Dividends Declared Per
Common Share................... $ 0.60 $ 0.60 $ 1.17 $ 1.36 $ 1.36
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
</TABLE>

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

(1) Excludes the results of Texas Gas prior to its April 3, 1989 acquisition
date.

21
<PAGE> 23

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The information required by this item appears under the caption "Financial
Review" on pages 31 through 48 of the Annual Report and is incorporated
herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this item appears on pages 49 through 87 of the
Annual Report and is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

22
<PAGE> 24

PART III

Transco will file a definitive proxy statement with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act
of 1934 (the Proxy Statement) not later than 120 days after the end of the
fiscal year covered by this Form 10-K, relating to Transco's annual meeting of
stockholders to be held on May 17, 1994. Information required by Part III will
appear in the Proxy Statement and is incorporated herein by reference.

23
<PAGE> 25

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

A. INDEX

<TABLE>
<CAPTION>
PAGE REFERENCE TO
---------------------------
1993
1993 10-K ANNUAL REPORT
---------- --------------
<S> <C> <C>
1. FINANCIAL STATEMENTS:
Report of Independent Public Accountants......................... 49
Consolidated Balance Sheet as of December 31, 1993 and 1992...... 50-51
Consolidated Statement of Operations for the Years Ended December
31, 1993, 1992 and 1991......................................... 52
Consolidated Statement of Cash Flows for the Years Ended December
31, 1993, 1992 and 1991......................................... 53
Consolidated Statement of Common Stockholders' Equity for the
Years Ended December 31, 1993, 1992 and 1991.................... 54
Schedule of Segment Information for the Years Ended December 31,
1993, 1992 and 1991............................................. 55-57
Notes to Consolidated Financial Statements....................... 58-87
Consent of Independent Public Accountants........................ 30
2. FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants
On Financial Statement Schedules............................... 31
Schedule III -- Condensed financial information of
Registrant -- for the years ended December 31,
1993, 1992 and 1991............................. 32-34
Schedule IV -- Indebtedness of and to related parties -- not
current -- for the years ended December 31,
1993, 1992 and 1991............................. 35-36
Schedule V -- Property, plant and equipment -- for the years
ended December 31, 1993, 1992 and 1991.......... 37
Schedule VI -- Accumulated depreciation, depletion and
amortization of property, plant and
equipment -- for the years ended December 31,
1993, 1992 and 1991............................. 38
Schedule VIII -- Valuation and qualifying accounts and
reserves -- for the years ended December 31,
1993, 1992 and 1991............................. 39
Schedule IX -- Short-term borrowings -- for the years ended
December 31, 1993, 1992 and 1991................ 40
Schedule X -- Supplementary income statement
information -- for the years ended December 31,
1993, 1992 and 1991............................. 41
</TABLE>

The following schedules are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements or notes thereto incorporated by reference
herein:

I, II, VII, XI, XII and XIII.

3. EXHIBITS:

The following instruments are included as exhibits to this report. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, copies of the instrument have been included herewith.

24
<PAGE> 26

<TABLE>
<S> <C> <C> <C>
(3) 1 -- Second Restated Certificate of Incorporation, as amended, of Registrant.
(Exhibit (3)-1 to Transco Form 10-K for 1989 Commission File Number 1-7513)
2 -- By-Laws of Registrant, as amended. (Exhibit (3)-2 to Transco Form 10-K for 1991
Commission File Number 1-7513)
(4) Transco Energy Company
1 -- Rights Agreement, dated as of January 13, 1986, between Transco and Morgan
Guaranty Trust Company of New York. (Transco Form 8-A dated January 14, 1986)
(a) Amendment No. 1 to Rights Agreement, dated as of June 1, 1988, between
Transco and Morgan Shareholder Services Trust Company. (Transco Form 8,
Amendment No. 1, dated March 30, 1989)
(b) Amendment No. 2 to Rights Agreement, dated as of March 30, 1989, between
Transco and Morgan Shareholders Services Trust Company. (Transco Form 8,
Amendment No. 2, dated March 30, 1989)
(c) Amendment No. 3 to Rights Agreement, dated as of January 1991, between
Transco and First Chicago Trust Company. (Transco Form 8, Amendment No.
3, dated July 1, 1991)
2 -- Certificate of Designation, Preferences and Rights relating to Registrant's
Cumulative Convertible Preferred Stock $3.50 Series.
3 -- Certificate of Designation, Preferences and Rights relating to Registrant's
Cumulative Convertible Preferred Stock, $4.75 Series. (Registration Statement
No. 33-1145)
4 -- Indenture dated as of May 1, 1990 between Transco and The Bank of New York, as
Trustee. (Transco Form 8-K dated June 25, 1990 Commission File Number 1-7513)
(a) First Supplemental Indenture dated as of June 20, 1990 between Transco
and The Bank of New York, as Trustee. (Transco Form 8-K dated June 25,
1990 Commission File Number 1-7513)
(b) Certified Resolutions of Transco Board of Directors, adopted July 20,
1990. (Transco Form 8-K dated August 2, 1990 Commission File Number
1-7513)
(c) Second Supplemental Indenture dated as of November 29, 1990. (Transco
Form 8-K dated December 7, 1990 Commission File Number 1-7513)
(d) Third Supplemental Indenture dated as of April 23, 1991. (Transco Form
8-K dated April 30, 1991 Commission File Number 1-7513)
(e) Fourth Supplemental Indenture dated as of August 22, 1991. (Transco Form
8-K dated August 27, 1991 Commission File Number 1-7513)
5 -- Credit Agreement dated as of December 31, 1991 among Transco, the Banks named
therein and Citibank, N.A., as Agent and Bank of Montreal, as Co-Agent.
(Exhibit (4)-13 to Transco Form 10-K for 1991 Commission File Number 1-7513)
(a) First Amendment Agreement dated as of March 31, 1992 among Transco, the
Banks named therein, Citibank N.A., as Agent and Bank of Montreal, as
Co-Agent. (Transco Form 10-Q for March 31, 1992 Commission File Number
1-7513).
(b) Second Amendment Agreement dated as of May 11, 1992 among Transco, the
Banks named therein, Citibank N.A., as Agent and Bank of Montreal, as
Co-Agent. (Transco Form 10-Q for March 31, 1992 Commission File Number
1-7513).
(c) Amended and Restated Credit Agreement dated as of December 31, 1993 among
Transco, the Banks named therein, Citibank, N.A. as Agent and Bank of
Montreal, as Co-Agent
6 -- Indenture dated as of July 1, 1992 between Transco and The Bank of New York, as
Trustee. (Transco Form 8-K dated July 2, 1992 Commission File Number 1-7513).
(a) First Supplemental Indenture dated as of October 15, 1993 between Transco
and the Bank of New York, as Trustee.
7 -- Reimbursement Agreement dated as of December 31, 1993 among Transco, the Banks
named herein and Bank of Montreal as Agent and Issuing Bank.
(10) COMPENSATION PLANS AND MANAGEMENT CONTRACTS
1 -- 1983 Incentive Plan of Transco. (Transco Registration Statement No. 2-85895)
2 -- 1991 Incentive Plan of Transco. (Transco Registration Statement No. 33-40495)
</TABLE>

25
<PAGE> 27

<TABLE>
<S> <C> <C> <C>
3 -- Transco Incentive Compensation Plan. (Exhibit (10)-4 to Transco Form 10-K for
1989 Commission File Number 1-7513)
4 -- Benefit Restoration Plan of Transco. (Exhibit (10)-4 to Transco Form 10-K for
1992 Commission File Number 1-7513)
5 -- Transco Tran$tock Employee Stock Ownership Plan. (Transco Registration
Statement No. 33-11721)
6 -- Form of Supplemental Retirement Agreement which Transco has entered into with
Messrs. Dagley, Spencer and Varner. (Exhibit (10)-7 to Transco Form 10-K for
1992 Commission File Number 1-7513)
7 -- Form of Termination Agreement which Transco has entered into with Messrs. Best,
Chiste, Dagley, Spencer and Varner. (Exhibit (10)-8 to Transco Form 10-K for
1992 Commission File Number 1-7513)
8 -- Severance Agreement between Transco and John P. DesBarres, effective as of
September 14, 1991. (Exhibit (10)-10 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
9 -- Termination Agreement between Transco and John P. DesBarres, effective as of
September 14, 1991. (Exhibit (10)-11 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
10 -- Transco Energy Ventures Company Sales Incentive Plan, dated as of May 1, 1993
11 -- Amended and Restated Transco Energy Ventures Company Incentive Plan dated as of
May 1, 1993
12 -- Severance Agreement, dated as of March 25, 1992, by and between Transco and
Robert W. Best
13 -- Severance Agreement, dated as of March 17, 1993, by and between Transco and
David E. Varner and schedule identifying substantially similar Severance
Agreements between Transco and other executive officers
14 -- Severance Agreement, dated as of March 17, 1993, by and between Transco and
Thomas W. Spencer
15 -- Incentive Severance Agreement, dated July 20, 1993, by and between Transco
Energy Company and Robert M. Chiste
16 -- Indemnification Agreement between Transco and David E. Varner and schedule
identifying substantially similar Indemnification Agreements between Transco
and other executive officers
MATERIAL CONTRACTS -- TRANSCONTINENTAL GAS PIPE LINE CORPORATION
17 -- Second Restated Certificate of Incorporation, as amended of TGPL. (Exhibit 3.1
to TGPL Form 8-K dated January 23, 1987 Commission File Number 1-7584)
(a) Certificate of Amendment, dated July 30, 1992, of the Second Restated
Certificate of Incorporation
(b) Certificate of Amendment, dated December 22, 1987, of the Second Restated
Certificate of Incorporation
(c) Certificate of Amendment, dated August 5, 1987, of the Second Restated
Certificate of Incorporation
18 -- By-Laws of TGPL, as amended. (Exhibit (10)-13 to Transco Form 10-K for 1992
Commission File Number 1-7513)
19 -- Certificate of Designation, Preferences and Rights relating to TGPL's
Cumulative Preferred Stock, $8.75 Series. (Exhibit 3.1 to TGPL Form 8-K dated
January 23, 1987 Commission File Number 1-7584)
20 -- Indenture dated as of June 1, 1983 between TGPL and RepublicBank Houston,
National Association, as Trustee. (Exhibit (4)-5 to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(a) First Supplemental Indenture dated September 20, 1984 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5a to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(b) Second Supplemental Indenture dated as of May 31, 1985 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5b to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
</TABLE>

26
<PAGE> 28

<TABLE>
<S> <C> <C> <C>
(c) Third Supplemental Indenture dated as of December 3, 1985 from TGPL to
RepublicBank Houston, National Association related to the Indenture dated
as of June 1, 1983. (Exhibit (4)-5c to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(d) Certified Resolutions of a Special Committee of the Board of Directors
dated October 31, 1986. (Exhibit (4)-5d to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(e) Fourth Supplemental Indenture dated as of November 7, 1986 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5e to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(f) Fifth Supplemental Indenture dated as of January 15, 1987 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5f to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(g) Certified Resolutions of a Special Committee of the Board of Directors
dated January 29, 1987. (Exhibit (4)-5g to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(h) Sixth Supplemental Indenture dated as of September 15, 1987 from TGPL to
First RepublicBank Houston, National Association related to Indenture
dated as of June 1, 1983. (Exhibit (4)-5h to TGPL Form 10-K for 1989
Commission File Number 1-7584)
21 -- Indenture dated September 15, 1992 between TGPL and the Bank of New York, as
Trustee. (Exhibit 4.2 to TGPL Form 8-K dated September 17, 1992 Commission File
Number 1-7584)
MATERIAL CONTRACTS -- TEXAS GAS TRANSMISSION CORPORATION
22 -- Certificate of Incorporation of Texas Gas (Exhibit 3.1 to Texas Gas Form 10-K
for 1989 Commission File Number 1-4169)
23 -- By-laws of Texas Gas. (Texas Gas Form 10-K for 1991 Commission File Number
1-4169)
24 -- Indenture dated November 1, 1987, securing 10% Debentures due November 1, 1994
(Exhibit 4.1 to Texas Gas Form 10-K for 1987 Commission File Number 1-4169)
25 -- Indenture dated July 15, 1992 between Texas Gas and Chase Manhattan Bank
(Exhibit 4.2 to Texas Gas Form 8-K dated July 16, 1992 Commission File Number
1-4169)
26 -- Texas Gas Supplemental Benefit Plan.
(13) Certain portions of Transco's Annual Report to Stockholders for its fiscal year
ending December 31, 1993 are included as an exhibit to this report and have been
specifically incorporated by reference elsewhere herein.
(21) Schedule listing subsidiaries of the Registrant.
(23) Consent of Independent Public Accountants is set forth on page 30.
</TABLE>

B. REPORTS ON FORM 8-K

Transco filed a Current Report on Form 8-K dated October 25, 1993, which
reported the settlement of the Corpus Christi lawsuit and the charge to earnings
related thereto.

C. OTHER MATTERS

For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
File No. 33-28358 (filed April 28, 1989), No. 2-71716 (filed April 10, 1981),
No. 33-11721 (filed February 3, 1987), No. 2-64025 (filed April 6, 1979), No.
33-31179 (filed September 20, 1979), No. 33-40495 (filed May 9, 1991), No.
33-44478 (filed December 12, 1991) and No. 33-47727 (filed May 7, 1992):

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission

27
<PAGE> 29

such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer,
or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

28
<PAGE> 30

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 23RD DAY OF
MARCH, 1994.

TRANSCO ENERGY COMPANY
REGISTRANT

BY: LARRY J. DAGLEY
(LARRY J. DAGLEY)
Senior Vice President, Chief
Financial Officer
& Controller (principal financial
officer and
principal accounting officer)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED ON THIS 23RD DAY OF MARCH, 1994, BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
GORDON F. AHALT Director
(Gordon F. Ahalt)
BENJAMIN F. BAILAR Director
(Benjamin F. Bailar)
JOHN P. DESBARRES Chairman of the Board, President and Chief
(John P. DesBarres) Executive Officer (principal executive
officer)
ROBERT W. FRI Director
(Robert W. Fri)
J. DAVID GRISSOM Director
(J. David Grissom)
WILLIAM H. LUERS Director
(William H. Luers)
FREDERICK H. SCHULTZ Director
(Frederick H. Schultz)
LARRY J. DAGLEY Senior Vice President, Chief Financial Officer
(Larry J. Dagley) & Controller (principal financial officer
and principal accounting officer)
</TABLE>

29
<PAGE> 31

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference of our report dated February 18, 1994 included in the 1993 annual
report to stockholders of Transco Energy Company (Transco) and incorporated by
reference in this Form 10-K, and of our report dated February 18, 1994, on the
financial statement schedules included in this Form 10-K into Transco's
previously filed registration statements on Form S-8 (File Nos. 2-64025,
2-71716, 33-28358, 33-11721, 33-31179, 33-40495, 33-44478 and 33-47727).

ARTHUR ANDERSEN & CO.

Houston, Texas
March 22, 1994

30
<PAGE> 32

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS,
TRANSCO ENERGY COMPANY:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Transco Energy Company's 1993
annual report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 18, 1994. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
financial statement schedules listed in the index to Part IV, Item 14 are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These financial statement
schedules have been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN & CO.

Houston, Texas
February 18, 1994

31
<PAGE> 33

TRANSCO ENERGY COMPANY

SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Operating Costs and Expenses:
Operation............................................. $ 8,855 $ 8,519 $ 7,565
Taxes -- other than income taxes...................... 332 26 (5)
--------- --------- ---------
Total operating costs and expenses............ 9,187 8,545 7,560
--------- --------- ---------
Operating Loss.......................................... (9,187) (8,545) (7,560)
--------- --------- ---------
Other (Income) and Other Deductions:
Interest expense -- advances from subsidiaries*....... 16,272 12,794 19,464
Other interest expense................................ 101,149 103,819 89,004
Interest income from subsidiaries*.................... (11,131) (18,540) (37,692)
Losses on sales of assets............................. -- 56,317 --
Other, net............................................ (2,469) (1,405) 6,635
--------- --------- ---------
Total other (income) and other deductions..... 103,821 152,985 77,411
--------- --------- ---------
Loss from Continuing Operations Before Income Taxes and
Equity in Earnings (Losses) of Subsidiaries........... (113,008) (161,530) (84,971)
Benefit of Income Taxes................................. (39,623) (55,515) (31,032)
Loss from Continuing Operations Before Equity in
Earnings (Losses) of Subsidiaries..................... (73,385) (106,015) (53,939)
Equity in Earnings (Losses) of Subsidiaries* (Dividends
of $36,424, $4,792, and $31,778 in 1993, 1992 and
1991, respectively)................................... 37,970 54,022 (108,764)
--------- --------- ---------
Income (Loss) from Continuing Operations................ (35,415) (51,993) (162,703)
--------- --------- ---------
Income (Loss) from Operations of Discontinued Segment,
Net of Income Taxes................................... (93) 2,649 (4,710)
Gain on Sale of Discontinued Segment, Net of Income
Taxes................................................. 31,572 -- --
--------- --------- ---------
Net Income (Loss) from Discontinued Operations.......... 31,479 2,649 (4,710)
--------- --------- ---------
Net Income (Loss)....................................... (3,936) (49,344) (167,413)
Dividends on Convertible Preferred Stock................ 25,047 25,730 25,730
--------- --------- ---------
Common Stock Equity in Net Income (Loss)................ $ (28,983) $ (75,074) $(193,143)
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

* Eliminated in consolidation.

This condensed statement should be read in conjunction with the Consolidated
Financial Statements and Notes thereto which are incorporated herein by
reference in Item 8 hereof.

32
<PAGE> 34

TRANSCO ENERGY COMPANY

SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(THOUSANDS OF DOLLARS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
--------- ---------
<S> <C> <C>
Current Assets:
Cash and temporary cash investments.......................................... $ 152,324 $ 5,951
Deposits..................................................................... 25,336 19,432
Receivables:
Subsidiaries*.............................................................. 20,619 33,268
Federal income tax benefits................................................ 7,719 16,215
Other...................................................................... 10,002 199
Deferred income taxes........................................................ 4,362 3,137
---------- ----------
Total current assets.................................................. 220,362 78,202
---------- ----------
Investments at cost plus equity in undistributed earnings:
Subsidiaries*:
Cost plus equity in undistributed earnings................................. 1,968,999 1,988,425
Advances................................................................... 391,351 435,669
---------- ----------
Total investments..................................................... 2,360,690 2,424,094
---------- ----------
Other Assets:
Notes receivable............................................................. 2,000 2,000
Other........................................................................ 9,978 11,472
---------- ----------
Total other assets.................................................... 11,978 13,472
---------- ----------
$2,592,690 $2,515,768
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt......................................... $ 9,383 $ 8,841
Payables:
Subsidiaries*.............................................................. 67,183 28,024
Advances from subsidiaries*................................................ 207,504 103,122
Other...................................................................... 4,254 410
Dividends.................................................................. 5,653 6,433
Accrued liabilities:
Interest................................................................... 23,730 24,441
Employee benefits.......................................................... 14,229 13,197
Other...................................................................... 551 490
Other........................................................................ 9,844 7,827
---------- ----------
Total current liabilities............................................. 342,331 192,785
---------- ----------
Advances from Subsidiaries*.................................................... 204,891 233,482
---------- ----------
Long-term Debt, less current maturities........................................ 1,043,843 1,052,322
---------- ----------
Other Liabilities and Deferred Credits:
Income taxes................................................................. 267,162 272,660
Other........................................................................ 77,762 72,845
---------- ----------
Total other liabilities and deferred credits.......................... 344,924 345,505
---------- ----------
Convertible Preferred Stock -- redeemable, net................................. -- 117,740
---------- ----------
Convertible Preferred Stock -- non-redeemable, net............................. 265,418 143,995
---------- ----------
Common Stockholders' Equity:
Common stock................................................................. 20,693 20,165
Premium on capital stock and other paid-in capital........................... 511,797 522,739
Retained earnings (deficit).................................................. (115,447) (62,471)
---------- ----------
417,043 480,433
Less -- Treasury stock, at cost.............................................. 207 955
-- Common stock held by Tran$tock
Deferred compensation............................................... 14,395 29,220
Receivable from Tran$tock........................................... 9,383 18,224
-- Restricted stock
Deferred compensation............................................... 1,775 2,095
---------- ----------
Total common stockholders' equity..................................... 391,283 429,939
---------- ----------
$2,592,690 $2,515,768
---------- ----------
---------- ----------
</TABLE>

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

* Eliminated in consolidation.

This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are incorporated
herein by reference in Item 8 hereof.

33
<PAGE> 35

TRANSCO ENERGY COMPANY

SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ (3,936) $ (49,344) $(167,413)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Deferred income taxes................................ 1,628 (10,686) (18,187)
Equity in earnings of subsidiaries, net of
distributions*..................................... (1,453) (51,879) 145,252
Losses (gains) on sales of assets.................... (50,481) 56,317 --
Changes in operating assets and liabilities:
Deposits........................................... (5,905) (19,432) --
Receivables........................................ 8,363 (4,340) (14,710)
Receivables from subsidiaries*..................... (2,045) 10,279 11,033
Payables........................................... (156) (10,694) 10,354
Payables to subsidiaries*.......................... 42,336 4,478 15,870
Accrued liabilities................................ 380 7,688 17,518
Other, net......................................... 5,249 (4,728) (5,902)
--------- --------- ---------
Net cash used in operating activities.............. (6,020) (72,341) (6,185)
--------- --------- ---------
Cash flows from financing activities:
Net decrease in short-term debt......................... -- (320,000) (33,612)
Sale of common stock, net of issue expense**............ 218 126,573 194
Net additions to long-term debt......................... -- 441,517 345,982
Retirement of long-term debt............................ (8,841) (158,330) (7,848)
Sale of preferred stock, net of issue expense........... 121,423 -- --
Retirement of preferred stock........................... (132,658) -- --
Net increase (decrease) in advances from
subsidiaries*........................................ 75,792 98,693 (195,661)
Dividends on common stock............................... (24,374) (20,112) (35,858)
Dividends on preferred stock............................ (25,827) (25,730) (25,730)
Other, net.............................................. (702) (84) (86)
--------- --------- ---------
Net cash provided by financing activities.......... 5,031 142,527 47,381
--------- --------- ---------
Cash flows from investing activities:
Return of capital by subsidiaries*...................... 18,928 72,546 24,333
Net (increase) decrease in advances to subsidiaries*.... (21,909) 120,419 (33,135)
Investment in subsidiaries*............................. (1) (306,887) (51,548)
Proceeds from sales of assets........................... 143,631 40,370 --
Retirement of loan by Tran$tock......................... 8,841 8,330 7,848
Other, net.............................................. (2,128) (959) 3,812
--------- --------- ---------
Net cash provided by (used in) investing
activities...................................... 147,362 (66,181) (48,690)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... 146,373 4,005 (7,494)
Cash and cash equivalents at beginning of period.......... 5,951 1,946 9,440
--------- --------- ---------
Cash and cash equivalents at end of period................ $ 152,324 $ 5,951 $ 1,946
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest............................................. $ 101,766 $ 90,863 $ 85,014
Income taxes, net.................................... 9,401 (1,572) 35,226
</TABLE>

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

* Eliminated in consolidation.

** 1992 includes $15,000 of common stock sold to a subsidiary, which is
eliminated in consolidation.

This condensed statement should be read in conjunction with the
Consolidated Financial Statements and Notes thereto which are incorporated
herein by reference in Item 8 hereof.

34
<PAGE> 36

TRANSCO ENERGY COMPANY

SCHEDULE IV -- INDEBTEDNESS OF
AND TO RELATED PARTIES -- NOT CURRENT
FOR YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
INDEBTEDNESS OF
--------------------------------------------------
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1993
Consolidated subsidiaries:
Wholly-owned subsidiaries:
Transco Energy Ventures Company............ $ 68,530 $ 44,846 $ 113,376 $ --
Transco Coal Company....................... 22,786 117,463 112,914 27,335
Transco Offshore Gathering Company......... 44,365 5,665 13,441 36,589
Transco Gas Gathering Company.............. 100,707 40,429 45,370 95,766
Magnolia Methane Corp. .................... 140,557 61,100 33,658 167,999
Other (11 Companies)....................... 58,724 448,012 443,074 63,662
---------- --------- ---------- ---------
$435,669 $ 717,515 $ 761,833 $ 391,351
---------- --------- ---------- ---------
---------- --------- ---------- ---------
1992
Consolidated subsidiaries:
Wholly-owned subsidiaries:
Transco Energy Ventures Company............ $ 3,771 $ 110,837 $ 46,078 $ 68,530
TransAbama Intrastate Pipeline Company..... 32,976 1,738 34,714 --
Transco Coal Company....................... 22,131 118,911 118,256 22,786
Green Canyon Pipe Line Company............. 35,423 1,955 37,378 --
Transco Exploration and Production
Company.................................. 50,677 21,786 72,463 --
Transco Offshore Gathering Company......... 75,789 7,109 38,533 44,365
Transco Gas Gathering Company.............. 19,810 92,219 11,322 100,707
Magnolia Methane Corp. .................... 219,820 35,615 114,878 140,557
Other (16 Companies)....................... 95,775 1,579,179 1,616,230 58,724
---------- --------- ---------- ---------
$556,172 $1,969,349 $2,089,852 $ 435,669
---------- --------- ---------- ---------
---------- --------- ---------- ---------
1991
Consolidated subsidiaries:
Wholly-owned subsidiaries:
TransAbama Intrastate Pipeline Company..... $ -- $ 32,976 $ -- $ 32,976
Transco Coal Company....................... 41,949 151,591 171,409 22,131
Green Canyon Pipe Line Company............. 38,967 24,120 27,664 35,423
Transco Exploration and Production
Company.................................. 49,766 58,155 57,244 50,677
Transco Offshore Gathering Company......... 102,734 49,623 76,568 75,789
Transco Gas Gathering Company.............. 28,971 75,412 84,573 19,810
Magnolia Methane Corp. .................... 157,972 152,438 90,590 219,820
Other (16 Companies)....................... 111,712 160,163 172,329 99,546
---------- --------- ---------- ---------
$532,071 $ 704,478 $ 680,377 $ 556,172
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>

Periodically, for consolidated cash management purposes, certain wholly
owned subsidiaries make interest bearing advances to Transco Energy Company
(Transco) and Transco makes interest bearing advances to certain of its wholly
owned subsidiaries. The advances are represented by demand notes bearing
interest at the rate of 1.5% below the prime rate of Citibank, N.A. The
managements of Transco and the respective subsidiaries are of the opinion that
such advances are of a noncurrent nature and do not expect to demand repayment
during 1994.

35
<PAGE> 37

TRANSCO ENERGY COMPANY

SCHEDULE IV -- INDEBTEDNESS OF
AND TO RELATED PARTIES -- NOT CURRENT
FOR YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
INDEBTEDNESS TO
--------------------------------------------------
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1993
Consolidated subsidiaries:
Wholly-owned subsidiaries:
Transco Gas Company........................ $ 22,699 $ 1,321 $ 1,704 $ 22,316
Transco Gas Marketing Company.............. 40,556 27,859 26,441 41,974
Texas Gas Transmission Corporation......... 145,000 38,000 46,000 137,000
Transco Energy Marketing Company........... 25,223 683,868 706,756 2,335
Other (5 Companies)........................ 4 92,352 91,090 1,266
---------- --------- ---------- ---------
$233,482 $ 843,400 $ 871,991 $ 204,891
---------- --------- ---------- ---------
---------- --------- ---------- ---------
1992
Consolidated subsidiaries:
Wholly-owned subsidiaries:
Transco Gas Company........................ $ -- $ 27,501 $ 4,802 $ 22,699
Transco Gas Marketing Company.............. 1 42,576 2,021 40,556
Texas Gas Transmission Corporation......... 103,000 42,000 -- 145,000
Transco Energy Marketing Company........... 30,929 585,623 591,329 25,223
Other (8 Companies)........................ 5 43,444 43,445 4
---------- --------- ---------- ---------
$133,935 $ 741,144 $ 641,597 $ 233,482
---------- --------- ---------- ---------
---------- --------- ---------- ---------
1991
Consolidated subsidiaries:
Wholly-owned subsidiaries:
Transcontinental Gas Pipe Line
Corporation.............................. $169,514 $ 587,382 $ 756,896 $ --
Texas Gas Transmission Corporation......... 75,000 28,000 -- 103,000
Transco Energy Ventures Company............ 7,500 13,781 21,281 --
Transco Energy Marketing Company........... 61,624 439,581 470,276 30,929
Transco Offshore Pipe Line Company......... 9,909 4,639 14,548 --
Other (9 Companies)........................ 777 454 1,225 6
---------- --------- ---------- ---------
$324,324 $1,073,837 $1,264,226 $ 133,935
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>

36
<PAGE> 38

TRANSCO ENERGY COMPANY AND SUBSIDIARIES

SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT (1)
FOR YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
BALANCE AT OTHER BALANCE
BEGINNING ADDITIONS RETIREMENTS CHANGES- AT END
CLASSIFICATION OF PERIOD AT COST OR SALES ADD (DEDUCT) OF PERIOD
- ---------------------------------------- ---------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1993
Natural gas transmission plant --
jurisdictional(2)..................... $4,947,649 $ 149,364 $ 38,467 $ -- $5,058,546
Natural gas gathering and liquids
separation and fractionation plant.... 141,693 82,512(3) 11,091 -- 213,114
Coal properties......................... 435,044 19,574 44,923 -- 409,695
Other property, plant and equipment..... 8,846 1,003 4,569 -- 5,280
---------- --------- ----------- ------------ ----------
$5,533,232 $ 252,453 $ 99,050 $ -- $5,686,635
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
1992
Natural gas transmission plant --
jurisdictional(2)..................... $4,874,706 $ 148,415 $ 75,472 $ -- $4,947,649
Natural gas gathering and liquids
separation and fractionation plant.... 253,382 1,178 112,867 -- 141,693
Oil and gas properties, full cost....... 470,962 36,119 194,040 (313,041)(4) --
Coal properties......................... 443,323 13,181 21,460 -- 435,044
Other property, plant and equipment..... 6,252 2,600 6 -- 8,846
---------- --------- ----------- ------------ ----------
$6,048,625 $ 201,493 $ 403,845 $ (313,041) $5,533,232
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
1991
Natural gas transmission plant --
jurisdictional(2)..................... $4,547,524 $ 319,538 $ 26,192 $ 33,836(5) $4,874,706
Natural gas gathering and liquids
separation and fractionation plant.... 221,980 31,402 -- -- 253,382
Oil and gas properties, full cost....... 378,211 93,169 418 -- 470,962
Coal properties......................... 464,962 14,168 35,807 -- 443,323
Other property, plant and equipment..... 13,763 1,534 9,045 -- 6,252
---------- --------- ----------- ------------ ----------
$5,626,440 $ 459,811 $ 71,462 $ 33,836 $6,048,625
---------- --------- ----------- ------------ ----------
---------- --------- ----------- ------------ ----------
</TABLE>

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

(1) For a discussion of the methods and rates used to compute depreciation,
depletion and amortization, this schedule should be read in conjunction
with Note A of the Notes to Consolidated Financial Statements thereto which
are incorporated herein by reference in Item 8 hereof.

(2) Transco acquired Texas Gas Transmission Corporation on April 3, 1989.
Included in Natural Gas Transmission Plant as of the date of acquisition
was an aggregate of $226 million related to amounts in excess of the
original cost of the regulated facilities which is being amortized over the
estimated life of the assets acquired.

(3) Includes assets acquired in the Corpus Christi litigation settlement.

(4) Transco's investment in the coalbed methane properties has been converted to
a nonoperating interest and therefore has been reclassified from the
Company's operating property, plant and equipment to other assets.

(5) Transfer from current gas stored underground to noncurrent gas stored
underground included in property, plant and equipment.

37
<PAGE> 39

TRANSCO ENERGY COMPANY AND SUBSIDIARIES

SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING CHARGED TO CLEARING RETIREMENTS CHANGES -- AT END
CLASSIFICATION OF PERIOD INCOME AND OTHER OR SALES ADD (DEDUCT) OF PERIOD
- ------------------------------- ---------- ---------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1993
Natural gas transmission
plant -- jurisdictional...... $2,509,214 $157,226 $ 13,113 $ 26,019 $ -- $2,653,534
Natural gas gathering and
liquids separation and
fractionation
plant........................ 9,545 4,667 -- 2,800 -- 11,412
Coal properties................ 153,081 23,378 326 37,063 (1,442)(1) 138,280
Other property, plant and
equipment.................... 3,458 249 82 572 -- 3,217
---------- ---------- ---------- ----------- ------------ ----------
$2,675,298 $185,520(2) $ 13,521 $ 66,454 $ (1,442) $2,806,443
---------- ---------- ---------- ----------- ------------ ----------
---------- ---------- ---------- ----------- ------------ ----------
1992
Natural gas transmission
plant -- jurisdictional...... $2,375,586 $151,701 $ 12,809 $ 30,882 $ -- $2,509,214
Natural gas gathering and
liquids separation and
fractionation
plant........................ 28,682 7,255 -- 26,199 (193) 9,545
Oil and gas properties, full
cost......................... 123,008 43,039(3) -- 63,907 (102,140)(4) --
Coal properties................ 142,733 25,310 308 13,929 (1,341)(1) 153,081
Other property, plant and
equipment.................... 3,031 381 46 -- -- 3,458
---------- ---------- ---------- ----------- ------------ ----------
$2,673,040 $227,686(2) $ 13,163 $ 134,917 $ (103,674) $2,675,298
---------- ---------- ---------- ----------- ------------ ----------
---------- ---------- ---------- ----------- ------------ ----------
1991
Natural gas transmission
plant -- jurisdictional...... $2,244,134 $147,133 $ 11,670 $ 27,351 $ -- $2,375,586
Natural gas gathering and
liquids separation and
fractionation
plant........................ 16,682 11,267 -- -- 733 28,682
Oil and gas properties, full
cost......................... 3,818 119,198(5) -- 8 -- 123,008
Coal properties................ 130,596 29,132 315 15,010 (2,300)(1) 142,733
Other property, plant and
equipment.................... 11,788 279 -- 9,036 -- 3,031
---------- ---------- ---------- ----------- ------------ ----------
$2,407,018 $307,009(2) $ 11,985 $ 51,405 $ (1,567) $2,673,040
---------- ---------- ---------- ----------- ------------ ----------
---------- ---------- ---------- ----------- ------------ ----------
</TABLE>

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

(1) Amortization charged to income and credited to property, plant and
equipment.

(2) Excludes depreciation and amortization charged to income on other assets not
included in property, plant and equipment.

(3) Includes a charge attributable to a reduction in the book value of
conventional oil and gas properties.

(5) Includes a charge attributable to a reduction in the book value of the
coalbed methane properties.

38
w
<PAGE> 40

TRANSCO ENERGY COMPANY AND SUBSIDIARIES

SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
DEDUCTIONS
ADDITIONS ------------
----------------------- FOR PURPOSE
BALANCE AT CHARGED TO CHARGED TO WHICH BALANCE AT
BEGINNING COSTS AND OTHER RESERVES END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED PERIOD
- ---------------------------------------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1993
Reserves deducted from assets to which
they apply --
Reserve for loss on investments in power
generation............................ $5,185 $ 200 $ -- $5,385(1) $ --
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
1992
Reserves deducted from assets to which
they apply --
Reserve for loss on investments in power
generation............................ $5,300 $ 600 $ -- $ (715) $5,185
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
1991
Reserves deducted from assets to which
they apply --
Reserve for loss on investments in power
generation............................ $1,100 $4,200 $ -- $ -- $5,300
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
</TABLE>

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

(1) Includes deductions of $2,639 as a result of sale of TEVCO.

39
<PAGE> 41

TRANSCO ENERGY COMPANY AND SUBSIDIARIES

SCHEDULE IX -- SHORT-TERM BORROWINGS
FOR YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS EXCEPT INTEREST RATES)

<TABLE>
<CAPTION>
WEIGHTED AVERAGE MAXIMUM AVERAGE WEIGHTED
INTEREST RATE AMOUNT AMOUNT AVERAGE
BALANCE AT ON AMOUNTS OUTSTANDING OUTSTANDING INTEREST RATE
END OF OUTSTANDING AT AT ANY DURING THE DURING THE
CATEGORY OF SHORT-TERM BORROWINGS(1) PERIOD END OF PERIOD MONTH END PERIOD(2) PERIOD(3)
- ----------------------------------------- ---------- ---------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1993
Transco Energy Company:
Bank credit facility................... -- -- $ 60,000 $ 27,660 5.9%
1992
Transco Energy Company:
Short-term loans from various banks.... -- -- 49,000 8,395 4.7
Bank credit facility/Revolving credit
agreement........................... -- -- 312,000 172,407 5.7
1991
Transco Energy Company:
Short-term loans from various banks.... $ 20,000 5.7% 268,500 170,157 6.4
Commercial paper....................... -- -- 289,600 140,600 6.3
Revolving credit agreement............. 300,000 6.5 325,000 124,986 7.2
</TABLE>

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

(1) Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note E of the Notes to Consolidated
Financial Statements which are incorporated herein by reference in Items 7
and 8 hereof.

(2) Total of daily outstanding principal divided by the actual number of days in
the year.

(3) Actual interest expense on short-term borrowings divided by the average
borrowings outstanding during the period.

40
<PAGE> 42

TRANSCO ENERGY COMPANY AND SUBSIDIARIES

SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
FOR YEARS ENDED DECEMBER 31,
-------------------------------
ITEM 1993 1992 1991
- -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maintenance Expense........................................... $87,186 $87,464 $77,583
------- ------- -------
------- ------- -------
Taxes, other than payroll and income taxes.................... $60,159 $54,325 $55,127
------- ------- -------
------- ------- -------
</TABLE>

41
<PAGE> 43

INDEX TO EXHIBITS

<TABLE>
<S> <C> <C> <C>
(10) COMPENSATION PLANS AND MANAGEMENT CONTRACTS
1 -- 1983 Incentive Plan of Transco. (Transco Registration Statement No. 2-85895)
2 -- 1991 Incentive Plan of Transco. (Transco Registration Statement No. 33-40495)
3 -- Transco Incentive Compensation Plan. (Exhibit (10)-4 to Transco Form 10-K for
1989 Commission File Number 1-7513)
4 -- Benefit Restoration Plan of Transco. (Exhibit (10)-4 to Transco Form 10-K for
1992 Commission File Number 1-7513)
5 -- Transco Tran$tock Employee Stock Ownership Plan. (Transco Registration
Statement No. 33-11721)
6 -- Form of Supplemental Retirement Agreement which Transco has entered into with
Messrs. Dagley, Spencer and Varner. (Exhibit (10)-7 to Transco Form 10-K for
1992 Commission File Number 1-7513)
7 -- Form of Termination Agreement which Transco has entered into with Messrs. Best,
Chiste, Dagley, Spencer and Varner. (Exhibit (10)-8 to Transco Form 10-K for
1992 Commission File Number 1-7513)
8 -- Severance Agreement between Transco and John P. DesBarres, effective as of
September 14, 1991. (Exhibit (10)-10 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
9 -- Termination Agreement between Transco and John P. DesBarres, effective as of
September 14, 1991. (Exhibit (10)-11 to Transco Form 10-K for 1992 Commission
File Number 1-7513)
10 -- Transco Energy Ventures Company Sales Incentive Plan, dated as of May 1, 1993
11 -- Amended and Restated Transco Energy Ventures Company Incentive Plan dated as of
May 1, 1993
12 -- Severance Agreement, dated as of March 25, 1992, by and between Transco and
Robert W. Best
13 -- Severance Agreement, dated as of March 17, 1993, by and between Transco and
David E. Varner and schedule identifying substantially similar Severance
Agreements between Transco and other executive officers
14 -- Severance Agreement, dated as of March 17, 1993, by and between Transco and
Thomas W. Spencer
15 -- Incentive Severance Agreement, dated July 20, 1993, by and between Transco
Energy Company and Robert M. Chiste
16 -- Indemnification Agreement between Transco and David E. Varner and schedule
identifying substantially similar Indemnification Agreements between Transco
and other executive officers
MATERIAL CONTRACTS -- TRANSCONTINENTAL GAS PIPE LINE CORPORATION
17 -- Second Restated Certificate of Incorporation, as amended of TGPL. (Exhibit 3.1
to TGPL Form 8-K dated January 23, 1987 Commission File Number 1-7584)
(a) Certificate of Amendment, dated July 30, 1992, of the Second Restated
Certificate of Incorporation
(b) Certificate of Amendment, dated December 22, 1987, of the Second Restated
Certificate of Incorporation
(c) Certificate of Amendment, dated August 5, 1987, of the Second Restated
Certificate of Incorporation
18 -- By-Laws of TGPL, as amended. (Exhibit (10)-13 to Transco Form 10-K for 1992
Commission File Number 1-7513)
19 -- Certificate of Designation, Preferences and Rights relating to TGPL's
Cumulative Preferred Stock, $8.75 Series. (Exhibit 3.1 to TGPL Form 8-K dated
January 23, 1987 Commission File Number 1-7584)
20 -- Indenture dated as of June 1, 1983 between TGPL and RepublicBank Houston,
National Association, as Trustee. (Exhibit (4)-5 to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(a) First Supplemental Indenture dated September 20, 1984 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5a to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
</TABLE>
<PAGE> 45

<TABLE>
<S> <C> <C> <C>
(b) Second Supplemental Indenture dated as of May 31, 1985 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5b to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(c) Third Supplemental Indenture dated as of December 3, 1985 from TGPL to
RepublicBank Houston, National Association related to the Indenture dated
as of June 1, 1983. (Exhibit (4)-5c to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(d) Certified Resolutions of a Special Committee of the Board of Directors
dated October 31, 1986. (Exhibit (4)-5d to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(e) Fourth Supplemental Indenture dated as of November 7, 1986 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5e to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(f) Fifth Supplemental Indenture dated as of January 15, 1987 from TGPL to
RepublicBank Houston, National Association related to Indenture dated as
of June 1, 1983. (Exhibit (4)-5f to TGPL Form 10-K for 1989 Commission
File Number 1-7584)
(g) Certified Resolutions of a Special Committee of the Board of Directors
dated January 29, 1987. (Exhibit (4)-5g to TGPL Form 10-K for 1989
Commission File Number 1-7584)
(h) Sixth Supplemental Indenture dated as of September 15, 1987 from TGPL to
First RepublicBank Houston, National Association related to Indenture
dated as of June 1, 1983. (Exhibit (4)-5h to TGPL Form 10-K for 1989
Commission File Number 1-7584)
21 -- Indenture dated September 15, 1992 between TGPL and the Bank of New York, as
Trustee. (Exhibit 4.2 to TGPL Form 8-K dated September 17, 1992 Commission File
Number 1-7584)
MATERIAL CONTRACTS -- TEXAS GAS TRANSMISSION CORPORATION
22 -- Certificate of Incorporation of Texas Gas (Exhibit 3.1 to Texas Gas Form 10-K
for 1989 Commission File Number 1-4169)
23 -- By-laws of Texas Gas. (Texas Gas Form 10-K for 1991 Commission File Number
1-4169)
24 -- Indenture dated November 1, 1987, securing 10% Debentures due November 1, 1994
(Exhibit 4.1 to Texas Gas Form 10-K for 1987 Commission File Number 1-4169)
25 -- Indenture dated July 15, 1992 between Texas Gas and Chase Manhattan Bank
(Exhibit 4.2 to Texas Gas Form 8-K dated July 16, 1992 Commission File Number
1-4169)
26 -- Texas Gas Supplemental Benefit Plan.
(13) Certain portions of Transco's Annual Report to Stockholders for its fiscal year
ending December 31, 1993 are included as an exhibit to this report and have been
specifically incorporated by reference elsewhere herein.
(21) Schedule listing subsidiaries of the Registrant.
(23) Consent of Independent Public Accountants is set forth on page 30.
</TABLE>

<PAGE> 1
EXHIBIT 4.2

TRANSCO ENERGY COMPANY

Certificate of Designation, Preferences and Rights of a
Series of Cumulative Preferred Stock by Resolution of
the Board of Directors Providing for an Issue of
2,500,000 Shares of Preferred Stock Designated
"Cumulative Convertible Preferred Stock, $3.50 Series"

Transco Energy Company (hereinafter referred to as the
"Company"), a corporation organized and existing under the General Corporation
Law of the State of Delaware, in accordance with the provisions of Section 151
of the General Corporation Law of the State of Delaware, does HEREBY CERTIFY:

That pursuant to authority conferred by the Second Restated
Certificate of Incorporation of the Company, the Board of Directors of the
Company has adopted resolutions providing for the issuance of a series of
Cumulative Convertible Preferred Stock consisting of 2,500,000 shares
designated "Cumulative Convertible Preferred Stock, $3.50 Series", which
resolutions, as amended, are as follows:

RESOLVED, That pursuant to the authority vested in the Board of
Directors (the "Board") of Transco Energy Company, a Delaware corporation (the
"Company"), by the Second Restated Certificate of Incorporation of the Company
(the "Restated Certificate"), the Board does hereby create, provide for and
approve a series of the class of authorized Cumulative Preferred Stock, without
par value (herein called "Preferred Stock"), of the Company to be designated
"Cumulative Convertible Preferred Stock, $3.50 Series" (such series being
herein called "Series $3.50 Preferred Stock"), consisting of 2,500,000 shares
of the presently authorized but unissued shares of Preferred Stock, and to the
extent that the designations, powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of the Series $3.50 Preferred Stock are not stated and expressed
in the Restated Certificate, does hereby fix and herein state and express such
designations, powers, preferences and relative, participating, optional and
other special rights and the qualifications, limitations and restrictions
thereof as follows (all terms used herein which are defined in the Restated
Certificate shall have the meaning provided in said Restated Certificate):

(1) Dividends. The dividend rate on the Series $3.50 Preferred Stock
shall be $3.50 per annum, payable in cash quarterly on the first day of the
months of February, May, August and November in each year commencing February
1, 1994 (with respect to the period from the date of issuance to, but not
including, February 1, 1994), when, as and if declared by the Board, out of any
funds of the Company legally available therefor, and the date from which
dividends thereon shall accrue shall be the date of original issue of the
Series $3.50 Preferred Stock, provided, however, that if the number of shares
of Series $3.50 Preferred Stock shall hereafter be increased by further
resolution of the Board,

<PAGE> 2

dividends on such additional shares may accrue from such other date or dates
as may be fixed by the Board in such resolution. Dividends payable on the
Series $3.50 Preferred Stock for any period less than the full dividend period
will be computed on the basis of a 360-day year consisting of twelve 30-day
months.

(2) Liquidation Rights. The holders of the Series $3.50 Preferred
Stock shall be entitled to receive the sum of $50.00 per share (plus accrued
and unpaid dividends) in the event of any liquidation, dissolution or
winding-up of the Company.

(3) Optional Redemption. The shares of the Series $3.50 Preferred
Stock are not redeemable prior to November 1, 1999. On and after November 1,
1999 the Series $3.50 Preferred Stock is redeemable, in whole at any time or
from time to time in part at the option of the Company at the following
redemption prices (the "Redemption Prices") per share if redeemed during the
twelve-month period beginning November 1 of the year indicated below; plus, in
each case, all dividends accrued and unpaid on the Series $3.50 Preferred Stock
up to the date fixed for redemption.

<TABLE>
<CAPTION>
REDEMPTION
PRICE
YEAR PER SHARE
- ---- ---------
<S> <C>
1999 ......................................................... $51.40
2000 ......................................................... 51.05
2001 ......................................................... 50.70
2002 ......................................................... 50.35
2003 and thereafter .......................................... 50.00
</TABLE>

In the event that the Company determines to redeem fewer than all of
the outstanding shares of the Series $3.50 Preferred Stock, the shares to be
redeemed shall be determined by lot or pro-rata or by any other method as
determined by the Company.

(4) Conversion. After 40 days following the date of original
issuance of the Series $3.50 Preferred Stock, at the option of the holder
thereof and upon surrender thereof for conversion to the Company at the office
of the Transfer Agent of the Company's Common Stock in the Borough of
Manhattan, the City of New York or in the City of Houston, each share of Series
$3.50 Preferred Stock shall be convertible (or if such share is called or
surrendered for redemption, then in respect of such share to and including, but
not after, the redemption date) into fully paid and nonassessable shares of
Common Stock at the initial conversion rate of 2.5 shares of Common Stock for
each share of Series $3.50 Preferred Stock, the conversion rate being subject
to adjustment as hereafter provided:

(a) In case the Company shall (i) pay a dividend in shares of its
capital stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of its
shares of Common Stock any shares of its capital stock, the conversion rate in
effect immediately prior thereto shall be adjusted so that the holder of a

<PAGE> 3

share of Series $3.50 Preferred Stock surrendered for conversion after the
record date fixing stockholders to be affected by such event shall be entitled
to receive upon conversion the number of such shares of Common Stock which he
would have been entitled to receive after the happening of such event had such
share of Series $3.50 Preferred Stock been converted immediately prior to such
record date. Such adjustment shall be made whenever any of such events shall
happen, but shall also be effective retroactively as to shares of Series $3.50
Preferred Stock converted between such record date and the date of the
happening of any such event.

(b) In case the Company shall issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Current Market Price Per
Share (as defined in subparagraph (d) below) of Common Stock at the record
date mentioned below, the number of shares of Common Stock into which each
share of Series $3.50 Preferred Stock shall thereafter be convertible shall be
determined by multiplying the number of shares of Common Stock into which such
share of Series $3.50 Preferred Stock was theretofore convertible by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
the denominator of which shall be the number of the shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such Current Market Price Per Share. Such adjustment
shall be made whenever such rights or warrants are issued, but shall also be
effected retroactively as to shares of Series $3.50 Preferred Stock converted
between the record date for the determination of stockholders entitled to
receive such rights or warrants and the date such rights or warrants are
issued.

(c) In case the Company shall distribute to all holders of its
Common Stock evidences of its indebtedness or assets (excluding any cash
dividend or distribution made out of current or retained earnings) or rights to
subscribe other than as set forth in subparagraph (b) above, then in each such
case the number of shares of Common Stock into which each share of Series
$3.50 Preferred Stock shall thereafter be convertible shall be determined by
multiplying the number of shares of Common Stock into which such share was
theretofore convertible by a fraction, the numerator of which shall be the
Current Market Price Per Share of the Common Stock on the record date fixed by
the Board for such distribution, and the denominator of which shall be such
Current Market Price Per Share of the Common Stock less the then fair market
value (as determined by the Board, whose determination shall be conclusive) of
the portion of the assets, evidences of indebtedness or subscription rights so
distributed applicable to one share of the Common Stock. Such adjustment shall
be made whenever any such distribution is made, but shall also be effective
retroactively as to shares of Series $3.50 Preferred Stock converted between
the record date for the determination of stockholders entitled to receive such
distribution and the date such distribution is made.

(d) For the purpose of any computation under subparagraphs (b) and
(c) above and
3

<PAGE> 4
(f) below, the "Current Market Price Per Share" of Common Stock at
any date shall be deemed to be the average of the daily closing prices for
the 15 consecutive trading days commencing 20 trading days before the day in
question. The closing price for each day shall be reported on the New York Stock
Exchange-Composite Transactions Tape or as reported by any successor central
market system.

(e) No adjustment in the conversion rate shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
rate; provided, however, that any adjustments which by reason of this
subparagraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under the Paragraph
(4) shall be made to the nearest one-hundredth of a share.

(f) No fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon the conversion of any share of Series $3.50
Preferred Stock. If the conversion thereof results in a fraction, an amount
equal to such fraction multiplied by the Current Market Price Per Share of
Common Stock (as defined in subparagraph (d) above) as of the conversion date
shall be paid to such holder in cash by the Company.

(5) Certain Rights to Require Redemption Upon Change in Control. In
the event of any Change in Control (as hereinafter defined) of the Company,
each holder of Series $3.50 Preferred Stock shall have the right, at the
holder's option, to require the Company to redeem all or any number of such
holder's shares of Series $3.50 Preferred Stock during the period (the
"Exercise Period") beginning on the 30th day and ending on the 90th day after
the date of such Change in Control at the Redemption Price (plus accrued and
unpaid dividends); provided, however, that such redemption right shall not be
applicable in the case of any Change in Control of the Company which shall have
been duly approved by the Continuing Directors (as hereinafter defined) during
the period (the "Approval Period") prior to or within 21 days after the date on
which such Change in Control shall have occurred. As used herein, (a)
"Acquiring Person" means any Person who is or becomes the Beneficial Owner,
directly or indirectly, of 10% or more of the outstanding Common Stock, (b)
"Beneficial Owner" has the meaning ascribed to such term in Rule 13d-3 adopted
pursuant to the Securities Exchange Act of 1934, as amended, (c) a "Change in
Control" of the Company shall be deemed to have occurred at such time as (i)
any Person is or becomes the Beneficial Owner, directly or indirectly, of 30%
or more of the outstanding Common Stock or (ii) individuals who constitute the
Continuing Directors cease for any reason to constitute at least a majority of
the Board; (d) "Continuing Director" means any member of the Board who is not
affiliated with an Acquiring Person and who was a member of the Board
immediately prior to the time that the Acquiring Person became an Acquiring
Person and any successor to a Continuing Director who is not affiliated with
the Acquiring Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors who are then members of the Board; and (e)
"Person" means any individual, corporation, partnership, limited partnership,
association, joint-stock company, trust, unincorporated organization, syndicate
or group as such terms are used in Section 13d-3 adopted pursuant to the
Securities Exchange Act of 1934, as amended) or government or political
subdivision thereof.
4

<PAGE> 5
On or before the seventh day after the termination of the Approval
Period, the Company shall mail to all holders of record of the Series $3.50
Preferred Stock as of the last day of the Approval Period, at their respective
addresses as the same shall appear on the books of the Company as of such date,
a notice disclosing (i) the Change in Control, (ii) whether or not the
Continuing Directors have approved the Change in Control, and (iii) if the
Continuing Directors have not approved the Change in Control, the respective
dates on which the Exercise Period commences and ends, the redemption price per
share of the Series $3.50 Preferred Stock applicable hereunder and the
procedure which the holder must follow to exercise the redemption right
provided above. The Company shall cause a copy of such notice to be published
in a newspaper of general circulation in the Borough of Manhattan, New York. To
exercise such redemption right, a holder of the Series $3.50 Preferred Stock
must deliver during the Exercise Period written notice to the Company (or an
agent designated by the Company for such purpose) of the holder's exercise of
such redemption right, and, to be valid, any such notice of exercise must be
accompanied by each certificate evidencing shares of the Series $3.50 Preferred
Stock with respect to which the redemption right is being exercised, duly
endorsed for transfer. On or prior to the seventh day after the close of the
Exercise Period, the Company shall accept for payment all shares of Series
$3.50 Preferred Stock properly surrendered to the Company (or an agent
designated by the Company for such purpose) during the Exercise Period for
redemption in connection with the valid exercise of such redemption right and
shall cause payment to be made in cash for such shares of Series $3.50
Preferred Stock.

and;

That the issuance of 2,500,000 shares of Cumulative
Convertible Preferred Stock, $3.50 Series, has been initially authorized by the
Board of Directors of said Company.

5
<PAGE> 6
IN WITNESS WHEREOF, Transco Energy Company has caused this
Certificate to be signed and acknowledged by C.E. Payne, Jr., its Vice
President, and its corporate seal to be heretofore affixed and attested by its
Assistant Secretary, this 1st day of November. 1993.

[Corporate Seal]

Attest:

MOLLY S. WILLIAMS
Assistant Secretary

TRANSCO ENERGY COMPANY

By: /s/ C. E. PAYNE, JR.
C. E. Payne, Jr.
Vice President & Treasurer
6

<PAGE> 1
EXHIBIT 4.5(c)

U.S. $ 450,000,000

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of December 31, 1993

Among

TRANSCO ENERGY COMPANY

as Borrower

and

THE BANKS
NAMED HEREIN

as Banks

and

CITIBANK, N.A.

as Agent

and

BANK OF MONTREAL

as Co-Agent
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PRELIMINARY STATEMENTS

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES

Section 2.01. The Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.02. Making the Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Notice Irrevocable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Agent Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Obligations of Banks Several . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(f) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Participation Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Fees under 1991 Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.04. Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.05. Repayment of the Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.06. Interest on Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Base Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.07. Additional Interest on Eurodollar Rate
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.08. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.09. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Procedure for Payments by Borrower . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Payment on Non-Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Agent Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(e) Interest on Overdue Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.10. Increased Costs and Capital
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Right to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>

-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
(c) Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) No Deduction for Certain Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Evidence of Tax Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(e) Foreign Bank Withholding Exemption . . . . . . . . . . . . . . . . . . . . . . . . . 30
(f) Bank Obligation to Mitigate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(g) Survival of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.12. Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.13. Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.14. Voluntary Conversion of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 33

ARTICLE III
CONDITIONS OF LENDING

Section 3.01. Condition Precedent to Initial Advances . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.02. Conditions Precedent to Each Borrowing . . . . . . . . . . . . . . . . . . . . . . . 35

ARTICLE IV
REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties of the
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) Authorization and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(d) Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(e) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(f) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(g) ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(h) Tax Returns Filed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(i) Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(j) Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . 41
(k) Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(l) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(m) Ownership of Material Subsidiary Stock . . . . . . . . . . . . . . . . . . . . . . . 41
(n) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE V
COVENANTS OF THE BORROWER

Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . 43
(c) Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(d) Payment of Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(e) Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>

-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
(f) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(a) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(b) Ratio of Cash Flow to Interest Expense . . . . . . . . . . . . . . . . . . . . . . . 48
(c) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(d) Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(e) Restrictions on Dividends, Intercompany
Loans, or Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(f) Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(g) Multiemployer Plans or Multiple Employer
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(h) Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(i) ERISA Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(j) Affiliate Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(k) Payments on Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(l) Preferred Stock and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(m) Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(n) Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(o) Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(p) Asset Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

ARTICLE VI
EVENTS OF DEFAULT

Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(a) Nonpayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(b) Representations and Warranties Untrue . . . . . . . . . . . . . . . . . . . . . . . . 53
(c) Covenant Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(d) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(e) Insolvency, Bankruptcy, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(f) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(g) Stock of Material Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(h) Termination Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(i) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
(j) Cross Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

ARTICLE VII
THE AGENT

Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.02. Agent's Reliance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.03. Citibank and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>

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<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS

Section 8.01. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.02. Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.04. Expenses and Taxes; Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(a) Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(b) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(c) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(d) Survival of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.05. Limitation and Adjustment of Interest . . . . . . . . . . . . . . . . . . . . . . . . 62
(a) Maximum Interest Under Texas Law . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(b) Maximum Interest Under Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 63
(c) Recapture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 8.06. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 8.07. Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 8.08. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 8.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 8.10. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 8.11. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>

SCHEDULES:

Schedule I --Notice Information for Banks
Schedule 5.02(a)--Existing Liens
Schedule 5.02(c)--Existing Indebtedness of Material Subsidiaries
Schedule 5.02(e)--Existing Restrictions on Dividends, Advances and
Investments

EXHIBITS:

Exhibit A --Form of Note
Exhibit B --Form of Notice of Borrowing
Exhibit C --Form of TGPL Guaranty
Exhibit D --Form of TXG Guaranty
Exhibit E --Form of Opinion of Counsel to the Borrower
Exhibit F --Form of Opinion of Special Counsel to the Agent
Exhibit G --Form of Opinion of Special New York Counsel
to the Agent
Exhibit H --Form of TGPL Solvency Certificate
Exhibit I --Form of TXG Solvency Certificate
Exhibit J --Form of Assignment and Acceptance
Exhibit K --Subordination Terms

-iv-
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 31, 1993

Transco Energy Company, a Delaware corporation (the "Borrower"), the
lenders party hereto, Citibank, N.A., as Agent hereunder, and Bank of Montreal,
as Co-Agent hereunder agree as follows:

PRELIMINARY STATEMENTS

1. The Borrower, the Agent, the Co-Agent, and certain of the
Banks previously entered into a Credit Agreement dated as of December 31, 1991
(as previously amended, the "1991 Credit Agreement") pursuant to which the
Banks committed to make Revolving Advances and Term Advances (as such terms are
defined in the 1991 Credit Agreement) to the Borrower on the terms and
conditions set forth therein. All Term Advances have subsequently been paid in
full.

2. The Borrower has requested the Banks to further amend the 1991
Credit Agreement in order to eliminate references to the Term Advances and to
revise certain other terms thereof and the Banks have agreed to do so on the
terms and conditions set forth herein.

3. The parties hereto have agreed to restate the 1991 Credit
Agreement as amended in its entirety for clarity only, and this Amended and
Restated Credit Agreement constitutes for all purposes an amendment to the 1991
Credit Agreement and not a new or substitute agreement and each reference to an
"Advance" herein shall include each Advance made heretofore under the 1991
Credit Agreement as well as each Advance made hereafter under this Amended and
Restated Credit Agreement.

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

Section 1.01. Certain Defined Terms. As used in this Agreement,
the term "Borrower" shall have the meaning set forth above and the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

"Advance" means an advance by a Bank to the Borrower as part of a
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each
of which shall be a "Type" of Advance.

"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such

<PAGE> 7
Person or any Subsidiary of such Person. The term "control" (including the
terms "controlled by" or "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of Voting Stock,
by contract or otherwise.

"Agent" means Citibank in its capacity as agent pursuant to Article
VII and any successor in such capacity pursuant to Section 7.06.

"Agreement" means this Amended and Restated Credit Agreement dated as
of December 31, 1993 among the Borrower, the Banks, the Agent, and the
Co-Agent, as amended from time to time in accordance with the terms hereof,
which is an amendment and restatement of the 1991 Credit Agreement.

"Applicable Lending Office" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of a Base Rate Advance, and such
Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

"Applicable Margin" means as to any Advance, the rate per annum set
forth in the following table for the relevant Type of such Advance and for the
relevant Rating Category applicable to the Borrower from time to time:

(a) if, after giving effect to the requested Borrowing, total
outstanding Advances are equal to or less than fifty percent (50%) of the
Commitments:

<TABLE>
<CAPTION>
Rating Eurodollar Rate Base Rate
Category Advance Advance
- -------- ------- -------
<S> <C> <C>
One 7/16% 0
Two 7/8% 0
Three 1-3/8% 3/8%
Four 1-7/8% 7/8%
</TABLE>

(b) if, after giving effect to the requested Borrowing, total
outstanding Advances are greater than fifty percent (50%) of the Commitments:

-2-
<PAGE> 8
<TABLE>
<CAPTION>
Rating Eurodollar Rate Base Rate
Category Advance Advance
- -------- ------- -------
<S> <C> <C>
One 9/16% 0
Two 1-1/8% 1/8%
Three 1-5/8% 5/8%
Four 2-1/2% 1-1/2%
</TABLE>

The Applicable Margin for any Advance shall change when and as the relevant
Rating Category applicable to the Borrower changes and shall change when and as
the total outstanding Advances as a percentage of total Commitments fluctuates
above, equal to or below 50%. For example, if total outstanding Advances are
less than fifty percent (50%) of Commitments and the Borrower borrows on
October 15 of a year a Eurodollar Rate Advance and the Rating Category
applicable to the Borrower from October 15 to October 20 of such year was
Rating Category Three and on and after October 20 of such year was Rating
Category Four, the Applicable Margin for such Advance would be 1-3/8% from
October 15 to October 20 and 1-7/8% on and after October 20 of such year.

"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and an Eligible Assignee, and accepted by the Agent, in
substantially the form of Exhibit J.

"Banks" means the lenders listed on the signature pages hereof and
each Eligible Assignee that becomes a party hereto pursuant to Section 8.07.

"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at all
times be equal to the highest of:

(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate; or

(b) 1/2 of one percent per annum above the latest three-week
moving average of secondary market morning offering rates in the United States
for three-month certificates of deposit of major United States money market
banks, such three-week moving average being determined weekly on each Monday
(or, if any such date is not a Business Day, on the next succeeding Business
Day) for the three-week period ending on the previous Friday by Citibank on the
basis of such rates reported by certificate of deposit dealers to and published
by the Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates received by
Citibank from three New York certificate of deposit dealers of recognized
standing selected by Citibank, in either case adjusted to the nearest 1/8 of
one percent

-3-
<PAGE> 9
or if there is no nearest 1/8 of one percent, to the next higher 1/8 of one
percent; or

"Base Rate Advance" means an Advance which bears interest as provided
in Section 2.06(a).

"Borrowing" means a borrowing consisting of simultaneous Advances of
the same Type made by each of the Banks pursuant to Section 2.01.

"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City or Houston, Texas and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on which
dealings are carried on in the London interbank market.

"Capitalized Lease Obligations" means, for any Person, all rental
obligations which, under GAAP, are or will be required to be capitalized on the
books of such Person, in each case taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.

"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time (by SARA or otherwise),
set forth at 42 U.S.C. Section Section 9601 et seq (1988), state and local
analogs and all rules and regulations promulgated thereunder, in each case as
now or hereafter in effect.

"Citibank" means Citibank, N.A., a national banking association.

"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code, and the regulations promulgated and rulings issued
thereunder, in each case as now or hereafter in effect, and any reference to
any statutory provision shall be deemed to be a reference to any successor
provision or provisions.

"Commitment" has the meaning specified in Section 2.01.

"Consolidated" refers to the consolidation of the accounts of the
Borrower and its Consolidated Subsidiaries in accordance with GAAP, including
principles of consolidation consistent with those applied in the preparation of
the Financial Statements.

"Consolidated Cash Flow" of the Borrower means for any period the
Consolidated Operating Income of the Borrower and its Consoli-

-4-
<PAGE> 10
dated Subsidiaries for such period plus (i) the Consolidated depreciation and
amortization expense included in calculating Consolidated Operating Income of
the Borrower and its Consolidated Subsidiaries for such period, plus (ii) any
other non-cash charges included in calculating Consolidated Operating Income of
the Borrower and its Consolidated Subsidiaries for such period reducing such
Consolidated Operating Income, minus (iii) non-cash items included in
calculating Consolidated Operating Income of the Borrower and its Consolidated
Subsidiaries for such period increasing such Consolidated Operating Income.

"Consolidated Interest Expense" for the Borrower means for any period
the amount (net of interest income) which, in conformity with GAAP, would be
set forth opposite the caption "interest expense" or any like caption as
reflected in Borrower's Consolidated income statement for such period prepared
on substantially the same basis as Borrower's Consolidated income statement for
its fiscal year ended December 31, 1992, or as set forth in the Borrower's Form
10-K for its fiscal year 1992.

"Consolidated Net Income" of the Borrower means for any period the
Consolidated net income (or loss) of the Borrower and its Consolidated
Subsidiaries for such period determined in accordance with GAAP; provided,
however, that there shall be (a) excluded therefrom (i) the net income (or
loss) of any Person acquired by the Borrower or a Subsidiary in a
pooling-of-interest transaction for any period prior to the date of such
transaction, (ii) the net income (but not net loss) of any Person which is
subject to any restriction which prevents the payment of dividends or the
making of distributions to the Borrower or any Subsidiary to the extent of such
restrictions, (iii) after-tax gains or losses on the sale, transfer or other
disposition of any Property by the Borrower or its Consolidated Subsidiaries
not in the ordinary course of business, (iv) all extraordinary gains and
extraordinary losses, net of applicable income taxes, and (v) any item
constituting the cumulative effect of a change in accounting principles, net of
applicable income taxes, and (b) included therein (to the extent not otherwise
included therein, and subject to the limitation set forth in clause (a)(ii) of
this definition) the Borrower's interest, determined in accordance with GAAP,
in the net income (or loss) of any Person in which the Borrower or any
Subsidiary owns an interest and which is not a Consolidated Subsidiary, as set
forth opposite the caption "equity in earnings of unconsolidated affiliates" or
any like caption as reflected in Borrower's Consolidated income statement for
such period prepared on substantially the same basis as Borrower's Consolidated
income statement for its fiscal year ended December 31, 1992, or as set forth
in the Borrower's Form 10-K for its fiscal year 1992.

-5-
<PAGE> 11
"Consolidated Net Worth" means the sum of, without duplication, (i)
the Consolidated common stockholders' equity of the Borrower and its
Consolidated Subsidiaries plus (ii) the aggregate stated value of all Preferred
Stock of the Borrower and Material Subsidiaries issued prior to September 30,
1993 and held by Persons other than the Borrower or any Subsidiary plus (iii)
Preferred Stock of the Borrower ("New Preferred Stock") held by Persons other
than the Borrower or any Subsidiary which is exchanged for, or substantially
all of the proceeds of which are used to acquire and retire, any Preferred
Stock outstanding on September 30, 1993 (or any extension or renewal thereof),
in an aggregate liquidation preference not to exceed the liquidation preference
of such Preferred Stock so exchanged, or acquired and retired and provided that
the New Preferred Stock by its terms, or by the terms of any agreement or
instrument pursuant to which such New Preferred Stock is issued, (x) does not
provide for payments of liquidation value at the stated maturity of such New
Preferred Stock or by way of a sinking fund applicable to such New Preferred
Stock or by way of any mandatory redemption, retirement or repurchase of such
New Preferred Stock (including any redemption, retirement or repurchase which
is contingent upon events or circumstances) prior to December 31, 1996 and (y)
does not permit redemption or other retirement of such New Preferred Stock at
the option of the holder thereof prior to December 31, 1996, other than a
redemption or other retirement at the option of the holder of such New
Preferred Stock (including pursuant to an offer to purchase made by the
Borrower) which is conditioned upon the change of control of the Borrower plus
(iv) 100% of the aggregate after-tax loss on disposition not in the ordinary
course of business after the date of this Agreement of any asset of the
Borrower or any Consolidated Subsidiary plus (v) the cumulative after-tax
amount not exceeding $100,000,000 of the Magnolia Charge to be taken by the
Borrower, provided, however, if the Magnolia Charge exceeds $100,000,000, then
the amount of such excess over $100,000,000 shall be included in the
calculation of Consolidated Net Worth until the earlier to occur of (a) the
sale by the Borrower of a minimum of $100,000,000 of common stock of the
Borrower after the date of this Agreement, or (b) December 31, 1994, all as
determined in accordance with GAAP.

"Consolidated Operating Income" of the Borrower means for any period
the Consolidated operating income (or loss) of the Borrower and its
Consolidated Subsidiaries for such period determined in accordance with GAAP
and set forth opposite the caption "Operating Income (Loss)" or any like
caption on a Consolidated income statement of the Borrower and its Consolidated
Subsidiaries for such period prepared on substantially the same basis as
Borrower's and its Consolidated Subsidiaries' income statement for its fiscal
year ended December 31, 1992, or as set forth in the Borrower's

-6-
<PAGE> 12
Form 10-K for its fiscal year 1992; provided, however, that there shall be (a)
excluded therefrom (to the extent otherwise included therein) (i) the operating
income (or loss) of any Person acquired by the Borrower or a Subsidiary in a
pooling-of-interest transaction for any period prior to the date of such
transaction, (ii) the operating income (but not loss) of any Person which is
subject to any restriction which prevents the payment of dividends or the
making of such distributions to the Borrower or any Subsidiary to the extent of
such restrictions, (iii) pre-tax gains or losses on the sale, transfer or other
disposition of any Property by the Borrower or its Consolidated Subsidiaries
not in the ordinary course of business, (iv) all extraordinary gains and
extraordinary losses, prior to applicable income taxes, and (v) any item
constituting the cumulative effect of a change in accounting principles, prior
to applicable income taxes, and (b) included therein (to the extent not
otherwise included therein, and subject to the limitation set forth in clause
(a)(ii) of this definition) the Borrower's interest, determined in accordance
with GAAP, in the income (or loss) of any Person in which the Borrower or any
Subsidiary owns an interest and which is not a Consolidated Subsidiary, as set
forth opposite the caption "equity in earnings of unconsolidated affiliates" or
any like caption as reflected in Borrower's Consolidated income statement for
such period prepared on substantially the same basis as Borrower's Consolidated
income statement for its fiscal year ended December 31, 1992, or as set forth
in the Borrower's Form 10-K for its fiscal year 1992.

"Consolidated Subsidiaries" of the Borrower means all Persons that
would be accounted for as consolidated Persons in the Borrower's financial
statements in accordance with GAAP.

"Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type pursuant to Section 2.14.

"Co-Agent" means Bank of Montreal in its capacity as Co-Agent
hereunder.

"Default" means any event or condition which with notice or lapse of
time or both would, unless cured or waived, become an Event of Default.

"Dollars" and "$" means lawful money of the United States of America.

"Domestic Lending Office" means, with respect to any Bank, the office
of such Bank specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Bank, or such other office

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<PAGE> 13
of such Bank as such Bank may from time to time specify to the Borrower and the
Agent.

"Eligible Assignee" means any Bank and, with the consent of the Agent
and the Borrower (which consent will not be unreasonably withheld), any other
Person.

"Environment" or "Environmental" shall have the meanings set forth in
42 U.S.C. Section 9601(8) (1988).

"Environmental Protection Statute" means any law, statute, ordinance,
rule, regulation, order, decision, decree, judgment, permit, license,
authorization or agreement (all as amended from time to time) arising from, in
connection with, or relating to the pollution, protection or regulation of the
Environment or the protection or regulation of health or safety, whether the
foregoing are required or promulgated by any government or agency or other
authority of or in the United States of America (whether local, state, or
federal) or any foreign country or subdivision thereof, including without
limitation, CERCLA, RCRA and other laws, statutes, ordinances, rules and
regulations relating to the disposal, removal, remediation, production,
storing, refining, handling, transferring, processing, recycling or
transporting of or exposure to Hazardous Materials, wherever located, and any
rule, regulation or decision issued or promulgated in connection with such
laws, statutes, ordinances, rules or regulations by any government, agency or
other authority of or in the United States of America (whether local, state or
federal) or of any foreign country or subdivision thereof, in each case as now
or hereafter in effect.

"EPA" means the United States Environmental Protection Agency, or any
successor thereto.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a group of which the Borrower is a member
and which is under common control within the meaning of the regulations under
Section 414 of the Code.

"ERISA Liabilities" means at any time the minimum liability with
respect to Plans which would be required to be reflected at such time as a
liability on the Consolidated balance sheet of the Borrower and its
Subsidiaries under paragraphs 36 and 70 of Statement of Financial Accounting
Standards No. 87 as such Statement may from time to time be amended, modified
or supple-

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<PAGE> 14
mented, or under any successor statement issued in replacement thereof.

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

"Eurodollar Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office" opposite its
name on Schedule I hereto or in the Assignment and Acceptance pursuant to which
it became a Bank (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Bank as such Bank may from time to time
specify to the Borrower and the Agent.

"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Advance comprising part of the same Borrowing, the rate per annum at which
deposits in Dollars are offered by the principal office of Citibank in London,
England, to prime banks in the London interbank market at 11:00 A.M. (London
time) two Business Days before the first day of such Interest Period in an
amount substantially equal to Citibank's Eurodollar Rate Advance comprising
part of such Borrowing and for a period equal to such Interest Period.

"Eurodollar Rate Advance" means an Advance which bears interest as
provided in Section 2.06(b).

"Eurodollar Rate Reserve Percentage" of any Bank for the Interest
Period for any Eurodollar Rate Advance means the reserve percentage applicable
during such Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such Bank
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.

"Event of Default" has the meaning specified in Section 6.01.

"Executive Officer" (whether or not capitalized) means the president,
secretary, treasurer, principal financial officer, principal accounting officer
and each vice-president of the Borrower or any Material Subsidiary and each
other person who performs similar policy making functions for the Borrower or
any Material Subsidiary.

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<PAGE> 15
"Federal Funds Rate" means, for any day, a fluctuating interest rate
per annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Agent from three Federal funds brokers of recognized standing
selected by it.

"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereof.

"Financial Statements" means the Consolidated and consolidating
balance sheets and other financial statements of the Borrower and its
Subsidiaries dated September 30, 1993 referred to in Section 4.01(e), copies of
which have been delivered to the Agent and the Banks listed on the signature
pages hereof.

"GAAP" means United States generally accepted accounting principles as
in effect from time to time, applied on a basis consistent with the
requirements of Section 1.03; provided, however, that for purposes of the
definitions herein of Consolidated Cash Flow, Consolidated Interest Expense,
Consolidated Net Income and Consolidated Operating Income, so long as Transco
Coal is a Subsidiary it shall be treated as a Consolidated Subsidiary even if
it shall be treated as a discontinued operation pursuant to GAAP.

"Guaranties" mean the TGPL Guaranty and the TXG Guaranty.

"Hazardous Materials" means (i) any substance or material identified
as a hazardous substance pursuant to CERCLA; (ii) any substance or material
regulated as a hazardous or solid waste pursuant to RCRA; and (iii) any other
material or substance regulated under any Environmental Protection Statute.
"Hazardous Materials" shall include, without limitation, pollutants,
contaminants, toxic substances, radioactive materials, oil, petroleum and
petroleum products, polychlorinated biphenyls and asbestos.

"Indebtedness" means, for any Person, (a) its liabilities for borrowed
money or the deferred purchase price of Property or services (other than
current accounts and salaries payable or accrued in the ordinary course of
business), (b) obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) Capitalized Lease Obligations of such Person,
and (d) all Indebtedness of others (i) which is secured by any Lien on

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<PAGE> 16
Property owned by such Person, whether or not such Person has assumed or become
liable for the payment of such Indebtedness or (ii) the payment, purchase or
other acquisition or obligation of which such Person has assumed, or the
payment, purchase or acquisition or obligation of which such Person has
otherwise become directly or contingently liable.

"Insufficiency" means, with respect to any Plan, the amount, if any,
by which the present value of the vested benefits under such Plan exceeds the
fair market value of the assets of such Plan allocable to such benefits.

"Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same Borrowing, the period commencing on the date of such Advance
or the date of the Conversion of any Advance into such an Advance and ending on
the last day of the period selected by the Borrower pursuant to the provisions
below and, thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The duration of
each such Interest Period shall be one, two, three or six months, in each case
as the Borrower may, upon notice received by the Agent not later than 11:00
a.m. (New York City time) on the third Business Day prior to the first day of
such Interest Period, select; provided, however, that:

(i) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same
duration;

(ii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next
succeeding Business Day, provided that if such extension would
cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day;

(iii) any Interest Period which begins on the last Business Day of
the calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of
the calendar month in which it would have ended if there were
a numerically corresponding day in such calendar month; and

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<PAGE> 17
(iv) the Borrower may not select an Interest Period for any Advance
if the last day of such Interest Period would be later than
the Termination Date.

"Investment" means, as applied to any Person, any direct or indirect
(i) purchase or other acquisition by such Person of any interest in stock or
other securities of any other Person, (ii) loan or advance by such Person to
any other Person, including, without limitation, all Indebtedness owed to such
Person by any other Person, (iii) guaranty, assumption or other incurrence of
liability by such Person of any Indebtedness or other obligation of any other
Person, or (iv) capital contribution or other investment by such Person in any
other Person. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.

"Letter of Credit Facility" means the Reimbursement Agreement dated as
of December 31, 1993 among the Borrower, the lenders parties thereto, and Bank
of Montreal as agent and issuing bank, which provides for letters of credit to
be issued for the account of Borrower in an aggregate face amount not to exceed
$50,000,000 at any time, as amended from time to time in accordance with the
terms thereof.

"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind.

"Loan Documents" means this Agreement, the Notes, the Guaranties and
each other agreement, instrument or document executed at any time in connection
with this Agreement.

"Magnolia Charge" means any charge to be taken by the Borrower after
September 30, 1993 with respect to the Borrower's Investment in the coal bed
methane properties held by Magnolia Methane Company and the natural gas
pipeline held by Magnolia Pipeline Company.

"Material Subsidiary" means each of TGC, TGPL and TXG.

"Moody's" means Moody's Investors Service, Inc.

"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of
the preceding five plan years made or accrued an obligation to make
contributions.

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<PAGE> 18
"Multiple Employer Plan" means an employee benefit plan, other than a
Multiemployer Plan, subject to Title IV of ERISA to which the Borrower or any
ERISA Affiliate, and more than one employer other than the Borrower or an ERISA
Affiliate, is making or accruing an obligation to make contributions or, in the
event that any such plan has been terminated, to which the Borrower or any
ERISA Affiliate made or accrued an obligation to make contributions during any
of the five plan years preceding the date of termination of such plan.

"Net Cash Proceeds" means all consideration (valued at fair market
value if other than cash) received by the Borrower or any Subsidiary at any
time as a result of or in connection with any sale of capital stock or other
equity securities of the Borrower or such Subsidiary, as the case may be, net
of all reasonable fees, commissions, underwriting discounts and expenses
incurred by the Borrower in such sale.

"1991 Credit Agreement" means the Credit Agreement dated as of
December 31, 1991, as amended prior to the date hereof, among the Borrower, the
lenders parties thereto, Citibank, N.A. as agent thereunder and Bank of
Montreal as co-agent thereunder.

"Note" means a promissory note of the Borrower payable to the order of
any Bank, in substantially the form of Exhibit A, evidencing indebtedness of
the Borrower to such Bank resulting from Advances owing to such Bank.

"Notice of Borrowing" has the meaning specified in Section 2.02(a).

"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof or any trustee, receiver, custodian or similar official.

"Plan" means an employee benefit plan (other than a Multiemployer
Plan) which is (or, in the event that any such plan has been terminated within
five years after a transaction described in Section 4069 of ERISA, was)
maintained for employees of the Borrower or any ERISA Affiliate and covered by
Title IV of ERISA.

"Preferred Stock" means, (i) as applied to any partnership,
partnership interests in such partnership which shall be entitled

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<PAGE> 19
to preference or priority over any other partnership interest in such
partnership in respect of any distribution of cash, property or other assets
and (ii) as applied to any corporation, shares of capital stock of such
corporation which shall be entitled to preference or priority over any other
shares of capital stock of such corporation in respect of either the payment of
dividends or the distribution of assets upon liquidation.

"Property" or "asset" (in each case, whether or not capitalized) means
any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible.

"Rating Category" means any of Rating Category One, Rating Category
Two, Rating Category Three or Rating Category Four.

"Rating Category One" is applicable to the Borrower at such times as
the senior unsecured long-term debt of the Borrower is rated BBB- or better by
S&P and Baa3 or better by Moody's.

"Rating Category Two" is applicable to the Borrower at such times as
(a) Rating Category One is not applicable to the Borrower and (b) the senior
unsecured long-term debt of the Borrower is rated BB+ or better by S&P and Ba1
or better by Moody's.

"Rating Category Three" is applicable to the Borrower at such times as
(a) neither Rating Category One nor Rating Category Two is applicable to the
Borrower and (b) the senior unsecured long-term debt of the Borrower is rated B
or better by S&P and B2 or better by Moody's.

"Rating Category Four" is applicable to the Borrower at such times as
(a) the senior unsecured long-term debt of the Borrower is rated B- or lower by
S&P or B3 or lower by Moody's or (b) the Borrower is Unrated.

"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended from time to time, set forth at 42 U.S.C. Section 6901 et seq
(1988), state and local analogs and all rules and regulations promulgated
thereunder, in each case as now or hereafter in effect.

"Register" has the meaning specified in Section 8.07(c).

"Regulation G" means Regulation G of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.

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<PAGE> 20
"Regulation U" means Regulation U of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.

"Regulation X" means Regulation X of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.

"Required Banks" means at any time Banks holding at least 66-2/3% of
the then aggregate unpaid principal amount of the Advances owing to Banks, or,
if no such principal amount is then outstanding, Banks having at least 66-2/3%
of the total Commitments (provided, however, that, for purposes hereof, neither
the Borrower, nor any of its Affiliates, if a Bank, shall be included in (i)
the Banks holding such amount of the Advances or having such amount of the
Commitments or (ii) determining the aggregate unpaid principal amount of the
Advances or the total Commitments).

"Restricted Preferred Stock" means (a) Preferred Stock of the Borrower
which (i) was issued on or after September 30, 1993 and (ii) is subject to
redemption or other retirement or to conversion (other than conversion to
common stock), in whole or in part, at the option of the holder thereof (unless
such option may only be exercised on a fixed or determinable date or dates
after December 31, 1996) or at a fixed or determinable date or dates prior to
or on December 31, 1996, except any redemption or other retirement at the
option of the holder of such Preferred Stock (including pursuant to an offer to
purchase made by the Borrower) which is conditioned upon the change of control
of the Borrower and (b) Preferred Stock of the Borrower which (i) was issued
prior to September 30, 1993, (ii) became outstanding on or after September 30,
1993, and (iii) is subject to redemption or other retirement or to conversion
(other than conversion to common stock), in whole or in part, at the option of
the holder thereof (unless such option may only be exercised on a fixed or
determinable date or dates after December 31, 1996) or at a fixed or
determinable date or dates prior to or on December 31, 1996, except any
redemption or other retirement at the option of the holder of such Preferred
Stock (including, pursuant to an offer to purchase made by the Borrower) which
is conditioned upon the change of control of the Borrower.

"Restricted Subsidiary" means (i) each Material Subsidiary and (ii)
each subsidiary of a Material Subsidiary other than Transco Gas Marketing
Company and Transco Gas Gathering Company and each of their respective
subsidiaries.

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<PAGE> 21
"SARA" means the Superfund Amendments and Reauthorization Act of 1986.

"S&P" means Standard & Poor's Corporation.

"Subsidiary" means any corporation (including a business trust),
partnership, joint stock company, trust, unincorporated association, joint
venture or other entity of which more than 50% of the outstanding capital
stock, securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors of such corporation or, in the case
of any other entity, a majority of the Persons performing similar functions
(irrespective of whether or not at the time capital stock, securities or other
ownership interests of any other class or classes of such corporation or such
other entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by the Borrower, by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.

"Subsidiary of a Material Subsidiary" means any corporation (including
a business trust), partnership, joint stock company, trust, unincorporated
association, joint venture or other entity of which more than 50% of the
outstanding capital stock, securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors of such
corporation or, in the case of any other entity, a majority of the Persons
performing similar functions (irrespective of whether or not at the time
capital stock, securities or other ownership interests of any other class or
classes of such corporation or such other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by one or more of the Material Subsidiaries, by one or more of
the Material Subsidiaries and one or more subsidiaries of a Material Subsidiary
or by one or more subsidiaries of a Material Subsidiary.

"Termination Date" means December 31, 1996, or such earlier date of
termination in whole of the Commitments pursuant to Section 2.04, Section 2.13
or Section 6.01.

"Termination Event" means (i) a "reportable event", as such term is
described in Section 4043 of ERISA and the regulations issued thereunder (other
than a "reportable event" not subject to the provision for 30-day notice to the
PBGC), or an event described in Section 4062(e) of ERISA, (ii) the distribution
of a notice of intent to terminate a Plan or the treatment of a Plan amendment
as a termination under Section 4041(c) of ERISA, (iii) the institution of
proceedings to terminate a Plan by the PBGC under Section 4042

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<PAGE> 22
of ERISA, or (iv) any other event or condition which is reasonably expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.

"TGC" means Transco Gas Company, a Delaware corporation.

"TGPL" means Transcontinental Gas Pipe Line Corporation, a Delaware
corporation.

"TGPL Guaranty" means the Amended and Restated Guaranty dated as of
the date hereof duly executed and delivered to the Agent by TGPL in
substantially the form of Exhibit C, as amended from time to time in accordance
with the terms thereof.

"Transco Coal" means Transco Coal Company, a Delaware corporation.

"TXG" means Texas Gas Transmission Corporation, a Delaware corporation.

"TXG Guaranty" means the Amended and Restated Guaranty dated as of the
date hereof duly executed and delivered to the Agent by TXG in substantially
the form of Exhibit D, as amended from time to time in accordance with the
terms thereof.

"Type" has the meaning specified in the definition of Advance.

"Unrated" means that the senior unsecured long-term debt of the
Borrower either is not rated by S&P or is not rated by Moody's.

"Voting Stock" means securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).

Section 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding".

Section 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistent with those applied in the preparation of the Financial Statements.

Section 1.04. Miscellaneous. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this

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<PAGE> 23
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Article, Section, Schedule and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Agreement, unless otherwise specified.

Section 1.05 Ratings. A rating, whether public or private, by S&P
or Moody's shall be deemed to be in effect on the date of announcement or
publication by S&P or Moody's, as the case may be, of such rating or, in the
absence of such announcement or publication, on the effective date of such
rating and will remain in effect until the effective date of any change in such
rating. In the event the standards for the rating "BBB-", "BB+", "B" or "B-",
in the case of a rating by S&P, or the standards for the rating "Baa3", "Ba1",
"B2" or "B3", in the case of a rating by Moody's, are revised, or such ratings
are designated differently (such as by changing letter designations to
numerical designations) and Moody's or S&P, as the case may be, does not state
at the time of the designation what the equivalent ratings are, then the
references herein to "BBB-", "BB+", "B", "B-", "Baa3", "Ba1", "B2" or "B3", as
the case may be, shall be changed to the revised or redesignated rating for
which the standards are closest to, but not lower than, the standards at the
date hereof for the rating which has been revised or redesignated, all as
determined by the Required Banks in good faith. Long-term debt supported by a
letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt. If
either Moody's or S&P has at any time more than one rating applicable to senior
unsecured long-term debt of the Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of the Borrower Ba1 and other such debt of the
Borrower Ba2, the senior unsecured long-term debt of the Borrower shall be
deemed to be rated Ba2 by Moody's.

ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES

Section 2.01. The Advances.

(a) Each Bank severally agrees, on the terms and conditions
hereinafter set forth, to make Advances to the Borrower from time to time on
any Business Day during the period from the date hereof until the Termination
Date in an aggregate amount not to exceed at any time outstanding the amount
set opposite such Bank's name on the signature pages hereof as its Commitment,
or if such Bank has entered into any Assignment and Acceptance, set forth for
such Bank

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<PAGE> 24
as its Commitment in the Register maintained by the Agent pursuant to Section
8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Bank's
"Commitment").

(b) Each Borrowing shall be in an aggregate amount not less than
$5,000,000 and in an integral multiple of $1,000,000 and shall consist of
Advances of the same Type made on the same day by the Banks ratably according
to their respective Commitments. Within the limits of each Bank's Commitment,
the Borrower may from time to time borrow, prepay pursuant to Section 2.08 and
reborrow under this Section 2.01.

Section 2.02. Making the Advances.

(a) Borrowing Procedure. Each Borrowing shall be made on notice,
given not later than 11:00 a.m. (New York City time) on the date (which shall
be a Business Day) of a proposed Borrowing comprised of Base Rate Advances and
not later than 11:00 a.m. (New York City time) on the third Business Day prior
to the date of a proposed Borrowing comprised of Eurodollar Rate Advances, by
the Borrower to the Agent, which shall give to each Bank prompt notice thereof
by telecopier or telex. Each such notice of a Borrowing (a "Notice of
Borrowing") shall be by telephone, telecopier or telex, confirmed immediately
in writing, in substantially the form of Exhibit B, specifying therein the
requested (i) date of such Borrowing, (ii) Type of Advances comprising such
Borrowing (if any Bank has given notice pursuant to clause (b) or clause (d) of
Section 2.13, then until all Banks which have given such notice are paid in
full, the Advances must be Base Rate Advances), (iii) aggregate amount of such
Borrowing, and (iv) if such Borrowing is to be comprised of Eurodollar Rate
Advances, the Interest Period for each such Advance. The Agent shall promptly
notify the Borrower and each Bank of the applicable interest rate determined by
the Agent under Section 2.06. Each Bank (other than Banks which have given
notice pursuant to clause (c) of Section 2.13) shall, before 12:00 noon (New
York City time) on the date of each Borrowing, make available for the account
of its Applicable Lending Office to the Agent at its address referred to in
Section 8.02, in same day funds, such Bank's ratable portion of such Borrowing.
After the Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Agent will make such funds available
to the general deposit account of the Borrower with the Agent.

(b) Certain Limitations. Notwithstanding any other provision in
this Agreement:

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<PAGE> 25
(i) at no time shall there be more than five Interest Periods
applicable to outstanding Eurodollar Rate Advances;

(ii) the Borrower may not select Eurodollar Rate Advances for any
Borrowing if the aggregate amount of such Borrowing is less
than $10,000,000;

(iii) if any Bank shall notify the Agent that the introduction of or
any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or
other governmental authority asserts that it is unlawful, for
such Bank or its Eurodollar Lending Office to perform its
obligations hereunder to make Eurodollar Rate Advances or to
fund or maintain Eurodollar Rate Advances hereunder, (I) the
obligation of the Banks to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Agent
shall notify the Borrower and the Banks that the circumstances
causing such suspension no longer exist and (II) the Borrower
shall forthwith prepay in full all Eurodollar Rate Advances of
all Banks then outstanding, together with interest accrued
thereon, unless the Borrower, within five Business Days of
notice from the Agent, Converts all Eurodollar Rate Advances
of all Banks then outstanding into Base Rate Advances in
accordance with Section 2.14;

(iv) if, with respect to any Eurodollar Rate Advances, the Required
Banks shall notify the Agent either (A) that the Eurodollar
Rate for any Interest Period for such Advances will not
adequately reflect the cost to such Required Banks of making,
funding or maintaining their respective Eurodollar Rate
Advances for such Interest Period, or (B) that after making
all reasonable efforts, Dollar deposits for the relevant
amounts and Interest Period for their respective Advances are
not available to them in the London interbank market, or it is
otherwise impossible to have Eurodollar Rate Advances, the
Agent shall forthwith so notify the Borrower and the Banks,
whereupon (i) each Eurodollar Rate Advance will automatically,
on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance, and (ii) the obligation of
the Banks to make, or to Convert Advances into, Eurodollar
Rate Advances shall be suspended until the Agent shall notify
the Borrower and the Banks that the circumstances causing such
suspension no longer exist;

(v) at least three Business Days prior to the delivery to the
Agent pursuant to Section 2.02(a) of a Notice of Borrow-

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<PAGE> 26
ing requesting any Borrowing comprised of Eurodollar Rate
Advances with an Interest Period having a duration of six
months or pursuant to Section 2.14 of a notice of Conversion
into Eurodollar Rate Advances with an Interest Period having a
duration of six months, the Borrower shall notify the Agent of
such proposed Borrowing or Conversion, as the case may be,
setting forth the information required by Section 2.02(a) or
Section 2.14, as the case may be, with respect thereto, and
the Agent shall promptly notify each Bank of the Borrower's
intention to select such an Interest Period; and if, at least
one Business Day before the day on which a Notice of Borrowing
with respect to the proposed Borrowing is otherwise required
to be delivered to the Agent pursuant to Section 2.02(a) or
four Business Days before the proposed Conversion pursuant to
Section 2.14, as the case may be, any Bank notifies the Agent
that it is not willing to fund or Convert, as the case may be,
its Advance for such Interest Period, the Agent shall so
advise the Borrower and the Borrower shall select an
alternative Interest Period with a duration of one, two or
three months for such Borrowing or, in the case of a proposed
Conversion with a six month Interest Period, either select an
alternative Interest Period with a duration of one, two or
three months or not Convert into Eurodollar Rate Advances;

(vi) if the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance
with the provisions contained in the definition of "Interest
Period" in Section 1.01, or if there shall be a Default or an
Event of Default, the Agent will forthwith so notify the
Borrower and the Banks and such Advances will automatically on
the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances; and

(vii) if the aggregate unpaid principal amount of Eurodollar Rate
Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $10,000,000, such
Advances shall automatically, on the last day of the then
existing Interest Period therefor, Convert into Base Rate
Advances.

(c) Notice Irrevocable. Each Notice of Borrowing shall be
irrevocable and binding on the Borrower. The Borrower shall indemnify each
Bank against any loss, cost or expense incurred by such Bank as a result of (i)
in the case of any Borrowing which the

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<PAGE> 27
related Notice of Borrowing specifies is to be comprised of Eurodollar Rate
Advances, any failure to fulfill on or before the date specified in such Notice
of Borrowing for such Borrowing the applicable conditions set forth in Article
III, or any failure to borrow for any other reason, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by such Bank to fund the Advance to be made by such Bank as part
of such Borrowing when such Advance, as a result of such failure, is not made
on such date, (ii) any notice having been given by a Bank to the Agent as
described in Section 2.02(b)(iii), or (iii) any notice having been given by the
Required Banks to the Agent as described in Section 2.02(b)(iv).

(d) Agent Reliance. Unless the Agent shall have received notice
from a Bank prior to the date of any Borrowing that such Bank will not make
available to the Agent such Bank's ratable portion of such Borrowing, the Agent
may assume that such Bank has made such portion available to the Agent on the
date of such Borrowing in accordance with subsection (a) of this Section 2.02
and the Agent may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the extent that such
Bank shall not have so made such ratable portion available to the Agent, such
Bank and the Borrower severally agree to pay to the Agent forthwith on demand
such corresponding amount together with interest thereon, for each day from the
date such amount is made available to the Borrower until the date such amount
is paid to the Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to Advances comprising such Borrowing and (ii) in the
case of such Bank, the Federal Funds Rate. If such Bank shall pay to the Agent
such corresponding amount, such amount so paid shall constitute such Bank's
Advance as part of such Borrowing for purposes of this Agreement.

(e) Obligations of Banks Several. The failure of any Bank to make
the Advance to be made by it as part of any Borrowing shall not relieve any
other Bank of its obligation hereunder to make its Advance on the date of such
Borrowing, but no Bank shall be responsible for the failure of any other Bank
to make the Advance to be made by such other Bank on the date of any Borrowing.

(f) Notes. The indebtedness of the Borrower to each Bank
resulting from Advances owing to such Bank shall be evidenced by the Note of
the Borrower payable to the order of such Bank in substantially the form of
Exhibit A hereto.

Section 2.03. Fees. (a) Facility Fee. The Borrower agrees to pay
to the Agent for the account of each Bank a facility fee on

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<PAGE> 28
such Bank's Commitment, whether or not used, from the date hereof in the case
of each Bank listed on the signature pages hereof and from the effective date
specified in the Assignment and Acceptance pursuant to which it became a Bank
in the case of each other Bank until the Termination Date, payable quarterly in
arrears on the last day of each March, June, September and December hereafter,
commencing March 31, 1994 and on the Termination Date, at the rates as follows:
(i) if Rating Category One is applicable to Borrower, at 5/16 of one percent
(5/16%) per annum of the aggregate Commitments (regardless of usage of the
facility herein provided), and (ii) if any other Rating Category (other than
Rating Category One) is applicable to Borrower, at 1/2 of one percent (1/2%)
per annum of the aggregate Commitments (regardless of usage of the facility
herein provided).

(b) Participation Fee. The Borrower agrees to pay on the date of
this Agreement to each Bank listed on the signature pages hereof a
participation fee in an amount equal to the amount set forth beside such Bank's
name below:

<TABLE>
<CAPTION>
Participation
Bank Fee Amount
---- -------------
<S> <C>
Citibank, N.A. $300,000
Bank of Montreal $200,000
The Bank of Nova Scotia $187,500
Barclays Bank, PLC $150,000
The Chase Manhattan Bank (National Association) $150,000
Chemical Bank $150,000
Bank of America National Trust
and Savings Association $75,000
The Bank of New York $75,000
The First National Bank of Boston $75,000
NationsBank of Texas, N.A. $75,000
Continental Bank N.A. $60,000
Swiss Bank Corporation, New York Branch $60,000
CIBC Inc. $60,000
The Nippon Credit Bank, Ltd. $40,000
Societe Generale, Southwest Agency $40,000.
</TABLE>

(c) Fees under 1991 Credit Agreement. The Borrower agrees to pay
to each lender party to the 1991 Credit Agreement that is not a party to this
Agreement all interest, fees and other amounts owed through January 10, 1994 to
such lender party under the 1991 Credit Agreement. Except as provided in this
Section 2.03(c), the Borrower shall not incur, as of the date hereof, any
interest, fees or other charges under the 1991 Credit Agreement.

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<PAGE> 29
Section 2.04. Reduction of Commitments. The Borrower shall have
the right at any time and from time to time, upon at least three Business Days'
written notice to the Agent, to terminate in whole or reduce ratably in part
the aggregate Commitments of the Banks; provided that each partial reduction
shall be in the minimum aggregate amount of $25,000,000 and in an integral
multiple of $5,000,000; and provided further that the aggregate amount of the
Commitments of the Banks shall not be reduced to an amount which is less than
the aggregate principal amount of the Advances then outstanding. On the date
that any Commitment of any Bank is terminated (whether pursuant to this Section
2.04, Section 2.13 or otherwise) the amount of such Commitment shall
permanently be reduced to zero. Any termination or reduction of any of the
Commitments shall be permanent.

Section 2.05. Repayment of the Advances. The Borrower shall repay
the outstanding principal amount of each Advance owing to each Bank in
accordance with the Note to the order of such Bank.

Section 2.06. Interest on Advances. The Borrower shall pay
interest on the unpaid principal amount of each Advance made by each Bank from
the date of such Advance until such principal amount shall be paid in full, at
the following rates per annum:

(a) Base Rate Advances. If such Advance is a Base Rate Advance, a
rate per annum equal at all times (subject to Section 2.13 and Section 8.05) to
the sum of the Base Rate in effect from time to time plus the Applicable Margin
in effect from time to time, payable quarterly in arrears on the last day of
each March, June, September and December and on the date such Base Rate Advance
shall be Converted or paid in full; provided that any amount of principal which
is not paid when due (whether at stated maturity, by acceleration or otherwise)
shall bear interest, from the date on which such amount is due until such
amount is paid in full, payable on demand, at a rate per annum equal at all
times (subject to Section 2.13 and Section 8.05) to three percent (3%) per
annum above the Base Rate in effect from time to time.

(b) Eurodollar Rate Advances. If such Advance is a Eurodollar
Rate Advance, a rate per annum equal at all times (subject to Section 2.13 and
Section 8.05) during the Interest Period for such Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Margin in effect
from time to time, payable on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on the day which
occurs during such Interest Period three months from the first day of such
Interest Period; provided that any amount of principal which is not paid when
due (whether at stated maturity,

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<PAGE> 30
by acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times (subject to Section 2.13 and Section 8.05) to the
greater of (x) three percent (3%) per annum above the Base Rate in effect from
time to time and (y) three percent (3%) per annum above the rate per annum
required to be paid on such Advance immediately prior to the date on which such
amount became due.

Section 2.07. Additional Interest on Eurodollar Rate Advances. The
Borrower shall pay to the Agent for the account of each Bank, so long as such
Bank shall be required under regulations of the Federal Reserve Board to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid principal
amount of each Eurodollar Rate Advance of such Bank, from the date of such
Advance until such principal amount is paid in full, at an interest rate per
annum equal at all times to the remainder obtained by subtracting (i) the
Eurodollar Rate for the Interest Period for such Advance from (ii) the rate
obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus
the Eurodollar Rate Reserve Percentage of such Bank for such Interest Period,
payable on each date on which interest is payable on such Advance. Such
additional interest shall be determined by such Bank and notified to the
Borrower through the Agent.

Section 2.08. Prepayments. The Borrower shall have no optional
right to prepay any principal amount of any Advance other than as provided in
this Section 2.08 and Section 2.10(b). The Borrower may, upon notice to the
Agent, given not later than 11:00 a.m. (New York City time) on the date of a
prepayment of Base Rate Advances, and upon at least three Business Days' prior
notice to the Agent in the case of a prepayment of Eurodollar Rate Advances, in
each case stating the proposed date (which shall be a Business Day) and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding principal amounts of the Advances
comprising part of the same Borrowing in whole or ratably in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid; provided, however, that (x) each partial prepayment shall be in an
aggregate principal amount not less than $5,000,000 and an integral multiple
of $1,000,000, and after giving effect thereto no Borrowing then outstanding
shall have a principal amount of less than $5,000,000; and (y) in the case of
any such prepayment of a Eurodollar Rate Advance, the Borrower shall be
obligated to reimburse the Banks in respect thereof pursuant to Section
8.04(b).

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<PAGE> 31
Section 2.09. Payments and Computations.

(a) Procedure for Payments by Borrower. The Borrower shall make
each payment hereunder and under the Notes not later than 12:00 noon (New York
City time) on the day when due in Dollars to the Agent at its address referred
to in Section 8.02 in same day funds. The Agent will promptly thereafter cause
to be distributed like funds relating to the payment of principal, interest or
facility fees ratably (other than amounts payable pursuant to Section 2.07 or
Section 2.13) to the Banks for the account of their respective Applicable
Lending Offices, and like funds relating to the payment of any other amount
payable to any Bank to such Bank for the account of its Applicable Lending
Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording
of the information contained therein in the Register pursuant to Section
8.07(d), from and after the effective date specified in such Assignment and
Acceptance, the Agent shall make all payments hereunder and under the Notes in
respect of the interest assigned thereby to the Bank assignee thereunder, and
the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves. At the time of each payment, the Borrower shall notify the
Agent of the Advances to which such payment shall apply. In the absence of
such notice the Agent may specify the Advances to which such payment shall
apply.

(b) Computation of Interest and Fees. All computations of
interest based on clause (a) of the definition of Base Rate and of facility
fees shall be made by the Agent on the basis of a year of 365 or 366 days, as
the case may be, and all computations of interest based on the Eurodollar Rate,
the secondary market morning offering rates in the United States for
three-month certificates of deposit of major United States money market banks
or the Federal Funds Rate shall be made by the Agent, and all computations of
interest pursuant to Section 2.07 shall be made by a Bank, on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Agent (or, in the case
of Section 2.07, by a Bank) of an interest rate hereunder shall be conclusive
and binding for all purposes, absent manifest error.

(c) Payment on Non-Business Days. Whenever any payment hereunder
or under the Notes shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest or

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<PAGE> 32
facility fee, as the case may be; provided, however, if such extension would
cause payment of interest on or principal of Eurodollar Rate Advances to be
made in the next following calendar month, such payment shall be made on the
next preceding Business Day.

(d) Agent Reliance. Unless the Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the Agent may
assume that the Borrower has made such payment in full to the Agent on such
date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent that the Borrower shall not have so made
such payment in full to the Agent, each Bank shall repay to the Agent forthwith
on demand such amount distributed to such Bank together with interest thereon,
for each day from the date such amount is distributed to such Bank until the
date such Bank repays such amount to the Agent, at the Federal Funds Rate.

(e) Interest on Overdue Amounts. Any overdue interest, fees or
any other amount due hereunder (other than as provided in Section 2.06 hereof)
shall bear interest, from the date on which such amount is due until such
amount is paid in full, at a rate per annum equal at all times (subject to
Section 8.05) to three percent (3%) per annum above the Base Rate in effect
from time to time.

Section 2.10. Increased Costs and Capital Requirements.

(a) Change of Law. If, due to either (i) the introduction of or
any change (other than any change by way of imposition or increase of reserve
requirements included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to any Bank (excluding in the case of each Bank and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Bank or the Agent, as the case may be, is
organized) of agreeing to make or making, funding or maintaining Eurodollar
Rate Advances, then the Borrower shall from time to time, upon demand by such
Bank (with a copy of such demand to the Agent), pay to the Agent for the
account of such Bank additional amounts sufficient to compensate such Bank for
such increased cost. A certificate as to the amount of such increased cost,
submitted to the Borrower and the Agent by such Bank, shall be conclusive and
binding for all purposes, absent manifest error.

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<PAGE> 33
(b) Right to Prepay. The Borrower shall have the right upon
receipt of any notice referred to in subsection (a) above, from any Bank, upon
three Business Days notice to the Banks, to prepay or Convert in full all
Eurodollar Rate Advances that are part of the same Borrowing which includes the
Eurodollar Rate Advances which are the subject of such notice, together with
any accrued interest thereon, provided, however, that any such prepayment or
Conversion shall be accompanied by payment of (x) the amount, accrued to the
date of prepayment or Conversion, required to compensate the Bank which
delivered such notice for increased costs or reduced amounts in accordance with
subsection (a) above, (y) any amounts required to compensate any Bank for any
additional costs or expenses then determinable which it may incur as a result
of such prepayment or Conversion, and (z) any amounts payable pursuant to
Section 8.04(b).

(c) Capital Adequacy. If any Bank determines that either (i) the
introduction of or any change in the interpretation of any law or regulation or
(ii) compliance by such Bank with any law or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Bank or any corporation controlling such
Bank and that the amount of such capital is increased by or based upon the
existence of such Bank's commitment to lend hereunder and other commitments of
this type, then, upon demand by such Bank (with a copy of such demand to the
Agent), the Borrower shall immediately pay to the Agent for the account of such
Bank, from time to time as specified by such Bank, additional amounts
sufficient to compensate such Bank or such corporation in the light of such
circumstances, to the extent that such Bank reasonably determines such increase
in capital to be allocable to the existence of such Bank's commitment to lend
hereunder. A certificate as to such amounts submitted to the Borrower and the
Agent by such Bank shall be conclusive and binding for all purposes, absent
manifest error.

Section 2.11. Taxes.

(a) No Deduction for Certain Taxes. Any and all payments by the
Borrower hereunder or under the Notes shall be made, in accordance with Section
2.09, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the case may
be) is organized or any political subdivision thereof

-28-
<PAGE> 34
and, in the case of each Bank, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder or under any Note to
any Bank or the Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.11) such Bank or the
Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law. Each Bank represents and warrants to the Borrower that on the date hereof
such Bank and its Eurodollar Lending Office are entitled to a reduction of the
United States withholding tax on interest to zero. If such representation and
warranty is untrue as to any Bank, the Borrower shall not be obligated to
reimburse such Bank under this Section 2.11(a) with respect to such withholding
tax on interest for the period from the date hereof until the date such Bank is
entitled to reduction of such withholding tax to zero, and, to the extent, if
any, that such Bank shall have received such reimbursement, it shall repay the
amount thereof to the Borrower.

(b) Other Taxes. In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
under the Notes or the Guaranties or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement, the Guaranties
or the Notes (hereinafter referred to as "Other Taxes").

(c) Indemnification. The Borrower will indemnify each Bank and
the Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.11) paid by such Bank or the Agent (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted. Payments under any indemnification
provided for in this Section 2.11(c) shall be made within 30 days from the date
such Bank or the Agent (as the case may be) makes written demand therefor. If
any Taxes or Other Taxes are asserted to be due from any Bank or the Agent,
such Bank or the Agent (as the case may be) will notify the Borrower (with a
copy to the

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<PAGE> 35
Agent) of such claim. Such Bank or the Agent (as the case may be) may pay such
asserted taxes, and the Borrower will indemnify such Bank or the Agent (as the
case may be) for such payments or any liability (including any interest,
penalties and expenses in connection therewith) arising therefrom or with
respect thereto (whether or not such Taxes or Other Taxes are correctly or
legally asserted), with interest thereon at a rate calculated as if such
payments constituted overdue amounts of principal of Base Rate Advances as of
the date of making such payments, unless within 10 days after its receipt of
such notification, the Borrower pays such asserted taxes (and supplies such
Bank or the Agent (as the case may be) with evidence of such payment) or (i)
the Borrower notifies such Bank or the Agent (as the case may be) that it
intends to contest in good faith and by appropriate proceedings the claim for
such taxes asserted against such Bank or the Agent (as the case may be), (ii)
counsel for such Bank or the Agent (as the case may be) advises such Bank or
the Agent (as the case may be) that it may withhold such payment without
incurring thereby any additional legal liability (other than an obligation to
pay interest thereon) and (iii) the Borrower indemnifies such Bank or the Agent
(as the case may be) for any additional interest, payment, expenses or
liabilities incurred by reason of its failure to make such payment when
originally asserted.

(d) Evidence of Tax Payments. Within 30 days after the date of
any payment of Taxes, the Borrower will furnish to the Agent, at its address
referred to in Section 8.02, the original or a certified copy of a receipt
evidencing payment thereof (and the Agent will forward a copy of such receipt
to any Bank referenced in the receipt).

(e) Foreign Bank Withholding Exemption. Each Bank organized under
the laws of a jurisdiction outside the United States, on or prior to the date
of the initial Borrowing in the case of each such Bank listed on the signature
pages hereof and on the date of the Assignment and Acceptance pursuant to which
it becomes a Bank in the case of each other foreign Bank, and from time to time
thereafter if requested by the Borrower or the Agent, shall (unless otherwise
prohibited by law) provide the Agent and the Borrower with the forms prescribed
by the Internal Revenue Service of the United States certifying as to such
Bank's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Bank
hereunder and under the Notes and the Guaranties or other documents
satisfactory to the Borrower and the Agent indicating that all payments to be
made to such Bank hereunder and under the Notes and the Guaranties are subject
to such taxes at a rate reduced by an applicable tax treaty. Unless the
Borrower and the Agent have received forms or

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<PAGE> 36
other documents reasonably satisfactory to them indicating that payments
hereunder and under the Notes and the Guaranties are not subject to United
States withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the Borrower or the Agent shall withhold taxes from such
payments at the applicable statutory rate in the case of payments to or for any
Bank organized under the laws of a jurisdiction outside the United States.

(f) Bank Obligation to Mitigate. Any Bank claiming additional
amounts payable pursuant to this Section 2.11 shall make reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
change the jurisdiction of its Applicable Lending Office if the making of such
a change would avoid the need for, or reduce the amount of, any such additional
amounts which may thereafter accrue and would not, in the reasonable judgment
of such Bank, be otherwise disadvantageous to such Bank.

(g) Survival of Obligations. Without prejudice to the survival of
any other agreement of the Borrower or the Banks hereunder, the agreements and
obligations of the Borrower and the Banks contained in this Section 2.11 shall
survive the termination of the Commitments and this Agreement and the payment
in full of principal and interest hereunder and under the Notes and the
Guaranties.

Section 2.12. Sharing of Payments, Etc.

(a) If any Bank shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, collection on the
Guaranties or otherwise) on account of the principal of or interest on the
Advances made by it (other than pursuant to Section 2.07) in excess of its
ratable share of payments on account of the principal of or interest on the
Advances obtained by all the Banks, such Bank shall forthwith purchase from the
other Banks such participations in the Advances made by them as shall be
necessary to cause such purchasing Bank to share the excess payment ratably
with each of them, provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Bank, such purchase from
each Bank shall be rescinded and such Bank shall repay to the purchasing Bank
the purchase price to the extent of such recovery together with an amount equal
to such Bank's ratable share (according to the proportion of (i) the amount of
such Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered.

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<PAGE> 37
(b) The Borrower agrees that any Bank purchasing a participation
from another Bank pursuant to this Section 2.12 may, to the fullest extent
permitted by law, exercise all its rights hereunder (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation.

Section 2.13. Optional Termination. Notwithstanding anything to
the contrary in this Agreement, if (i) any Person or two or more Persons acting
in concert shall have acquired beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of securities of the Borrower
(or other securities convertible into such securities) representing 30% or more
of the combined voting power of all securities of the Borrower entitled to vote
in the election of directors, other than securities having such power only by
reason of the happening of a contingency; or (ii) during any period of up to 24
consecutive months, commencing on, before or after the date of this Agreement,
individuals who at the beginning of such 24-month period were directors of the
Borrower (or who were appointed or nominated for election by individuals who at
the beginning of such period were a majority of such directors, but excluding
any such Person originally proposed for election in opposition to the board of
directors of the Borrower in office on the date hereof in an actual or
threatened election contest relating to the election of the directors of the
Borrower (as such terms are used in Rule 14a-11 under the Securities Exchange
Act of 1934, as amended) and whose initial assumption of office resulted from
such contest or the settlement thereof) shall cease for any reason to
constitute a majority of the board of directors of the Borrower; or (iii) any
Person or two or more Persons acting in concert shall have acquired by contract
or otherwise, or shall have entered into a contract or arrangement which upon
consummation will result in its or their acquisition of, the power to exercise,
directly or indirectly, a controlling influence over the management or policies
of the Borrower; or (iv) any condition or event constituting a change of
control of the Borrower for purposes of permitting any holder of Preferred
Stock of the Borrower to exercise a right of redemption or other retirement
(including pursuant to an offer to purchase made by the Borrower) or conversion
(other than conversion to common stock), in whole or in part, of such Preferred
Stock; then, in such event, (a) the rate of interest with respect to each
Advance then outstanding or which thereafter becomes outstanding shall
immediately and automatically increase by one-half of one percent (1/2%), (b)
the Agent shall at the request, or may with the consent, of the Required Banks,
by telephonic, telex or other notice to the Borrower, declare the Notes payable
to the Banks, all

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<PAGE> 38
interest thereon and all other amounts payable under this Agreement to the
Banks to be due and payable, whereupon such Notes, interest and other amounts
shall become immediately due and payable without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or any other notice of
any kind, all of which are hereby expressly waived by the Borrower, and (c) the
Agent shall at the request, or may with the consent, of the Required Banks, by
telephonic, telex or other notice to the Borrower, declare the Commitments and
the obligations of the Banks to make Advances hereunder to be immediately
terminated (whereupon the same shall immediately terminate), in the case of
each of the matters described in clauses (a)-(c) above, without presentment,
demand, protest or further notice (including, without limitation, notice of
intent to accelerate and notice of acceleration) of any kind, all of which are
hereby expressly waived by the Borrower.

Section 2.14. Voluntary Conversion of Advances. The Borrower may
on any Business Day, upon notice given to the Agent no later than 11:00 a.m.
(New York City time) on the third Business Day prior to the date of the
proposed Conversion and subject to the provisions of Section 2.02, Convert all
Advances of one Type comprising the same Borrowing into Advances of the other
Type; provided, however, that (i) any Conversion of any Eurodollar Rate
Advances into Base Rate Advances shall be made on, and only on, the last day of
an Interest Period for such Eurodollar Rate Advances, (ii) no Advances may be
Converted into Eurodollar Rate Advances if any Bank has given notice pursuant
to clause (b) or clause (d) of Section 2.13 until all Banks which have given
such notice are paid in full, (iii) Advances comprising a Borrowing may not be
Converted into Eurodollar Rate Advances if the outstanding principal amount of
such Borrowing is less than $10,000,000, and (iv) no Advances may be Converted
into an Eurodollar Rate Advance if any Default or Event of Default is then
existing. Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Advances to
be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances,
the duration of the Interest Period for each such Advance.

ARTICLE III
CONDITIONS OF LENDING

Section 3.01. Condition Precedent to Initial Advances. The
obligation of each Bank to make its initial Advance is subject to the condition
precedent that the Agent shall have received on or before the day of the
initial Borrowing the following, each dated such day, in form and substance
satisfactory to the Agent and

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(except for the Notes and the Guaranties) in sufficient copies for each Bank:

(a) The Notes payable to the order of the respective Banks, duly
executed by the Borrower.

(b) The TGPL Guaranty duly executed by TGPL and the TXG Guaranty
duly executed by TXG.

(c) A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (i) copies of the resolutions of the Board of Directors
of the Borrower approving this Agreement, the Notes and the other Loan
Documents to be executed by the Borrower and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
this Agreement, the Notes and the other Loan Documents to be executed by the
Borrower; (ii) that attached thereto are true and complete copies of the
certificate of incorporation and by-laws of the Borrower as in effect on such
date; and (iii) the names and true signatures of the officers of the Borrower
authorized to sign this Agreement, the Notes and the other Loan Documents to be
executed by the Borrower.

(d) A certificate of the Secretary or an Assistant Secretary of
TGPL certifying (i) copies of the resolutions of the Board of Directors of TGPL
approving the TGPL Guaranty and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to the TGPL
Guaranty; (ii) that attached thereto are true and complete copies of the
certificate of incorporation and by-laws of TGPL as in effect on such date; and
(iii) the names and true signatures of the officers of TGPL authorized to sign
the TGPL Guaranty.

(e) A certificate of the Secretary or an Assistant Secretary of
TXG certifying (i) copies of the resolutions of the Board of Directors of TXG
approving the TXG Guaranty and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to the TXG
Guaranty; (ii) that attached thereto are true and complete copies of the
certificate of incorporation and by-laws of TXG as in effect on such date; and
(iii) the names and true signatures of the officers of TXG authorized to sign
the TXG Guaranty.

(f) An opinion of Molly S. Williams, Vice President, Associate
General Counsel and Assistant Secretary of the Borrower, substantially in the
form of Exhibit E and as to such other matters as any Bank through the Agent
may reasonably request.

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<PAGE> 40
(g) An opinion of Bracewell & Patterson, L.L.P. special counsel to
the Agent, substantially in the form of Exhibit F.

(h) An opinion of King & Spalding, special New York counsel to the
Agent, substantially in the form of Exhibit G.

(i) A certificate of an officer of the Borrower certifying that
the 1991 Credit Agreement has been amended, restated and replaced by this
Agreement and that all interest, fees and other amounts owed thereunder have
been paid in full. Each Bank hereby waives the requirements of notice, if any,
contemplated by Sections 2.05 and 2.09, respectively, of the 1991 Credit
Agreement.

(j) A certificate of the chief financial officer of TGPL in
substantially the form of Exhibit H.

(k) A certificate of the chief financial officer of TXG in
substantially the form of Exhibit I.

Section 3.02. Conditions Precedent to Each Borrowing. The
obligation of each Bank to make an Advance on the occasion of each Borrowing
(including the initial Borrowing) shall be subject to the further conditions
precedent that on the date of such Borrowing (a) the following statements shall
be true (and each of the giving of the applicable Notice of Borrowing and the
acceptance by the Borrower of the proceeds of such Borrowing shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
such statements are true):

(i) the representations and warranties contained in Section 4.01,
the representations and warranties set forth in Section 5 of
the TGPL Guaranty and the representations and warranties set
forth in Section 5 of the TXG Guaranty are correct on and as
of the date of such Borrowing, before and after giving effect
to such Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date, and

(ii) no event has occurred and is continuing, or would result from
such Borrowing or from the application of the proceeds
therefrom, which constitutes a Default or an Event of Default;

and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.

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<PAGE> 41
ARTICLE IV
REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:

(a) Corporate Existence. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has corporate power and authority to own its Properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in every jurisdiction in which it owns a
material amount of Property or conducts a material amount of business and in
which such qualification is necessary. Each Material Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to own
its Properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in every jurisdiction in which
it owns a material amount of Property or conducts a material amount of business
and in which such qualification is necessary.

(b) Corporate Power. The execution, delivery and performance by
the Borrower of each Loan Document (other than the Guaranties) and the
consummation of the transactions contemplated hereby (i) are within the
Borrower's corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) do not contravene (A) the Borrower's certificate of
incorporation or by-laws, (B) any applicable rule, regulation, order, writ,
injunction or decree, or (C) law or any contractual restriction binding on or
affecting the Borrower, and (iv) will not result in or require the creation or
imposition of any Lien prohibited by this Agreement. At the time of each
Borrowing hereunder, such Borrowing and the use of the proceeds of such
Borrowing will be within the Borrower's corporate powers, will have been duly
authorized by all necessary corporate action, will not contravene (i) the
Borrower's certificate of incorporation or by-laws, (ii) any applicable rule,
regulation, order, writ, injunction or decree, or (iii) law or any contractual
restriction binding on or affecting the Borrower and will not result in or
require the creation or imposition of any Lien prohibited by this Agreement.

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<PAGE> 42
or (C) law or any contractual restriction binding on or affecting TGPL, and
(iv) will not result in or require the creation or imposition of any Lien
prohibited by this Agreement or the TGPL Guaranty.

The execution, delivery and performance by TXG of the TXG Guaranty and
the consummation of the transactions contemplated thereby (i) are within TXG's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) do not contravene (A) TXG's certificate of incorporation or
by-laws, (B) any applicable rule, regulation, order, writ, injunction or
decree, or (C) law or any contractual restriction binding on or affecting TXG,
and (iv) will not result in or require the creation or imposition of any Lien
prohibited by this Agreement or the TXG Guaranty.

(c) Authorization and Approvals. No authorization, approval,
consent, license or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due execution,
delivery and performance by the Borrower of the Loan Documents (other than the
Guaranties), or for the consummation of the transactions contemplated hereby.
At the time of each Borrowing hereunder, no authorization, approval, consent,
license or other action by, and no notice to or filing with, any governmental
authority or regulatory body will be required for such Borrowing or the use of
the proceeds of such Borrowing. All authorizations, licenses, consents,
filings, approvals and certificates which are necessary to enable the Borrower
and each Material Subsidiary to carry on any material aspect of the business in
which it is presently engaged or to enable the Borrower to perform its
obligations under the Loan Documents have been obtained or made and are in full
force and effect (except such authorizations, licenses, consents, filings,
approvals and certificates which are not customarily obtained, made or filed
prior to the time when they are required), and there has been no material
default by the Borrower under any of the terms thereof applicable to it.

No authorization, approval, consent, license or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by TGPL of the TGPL
Guaranty, or for the consummation of the transactions contemplated thereby.
All authorizations, licenses, consents, filings, approvals and certificates
which are necessary to enable TGPL to perform its obligations under the TGPL
Guaranty have been obtained or made and are in full force and effect (except
such authorizations, licenses, consents, filings, approvals and certificates
which are not customarily obtained, made or filed prior to the time when they
are required), and there has

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<PAGE> 43
been no material default by TGPL under any of the terms thereof applicable to
it.

No authorization, approval, consent, license or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by TXG of the TXG
Guaranty, or for the consummation of the transactions contemplated thereby.
All authorizations, licenses, consents, filings, approvals and certificates
which are necessary to enable TXG to perform its obligations under the TXG
Guaranty have been obtained or made and are in full force and effect (except
such authorizations, licenses, consents, filings, approvals and certificates
which are not customarily obtained, made or filed prior to the time when they
are required), and there has been no material default by TXG under any of the
terms thereof applicable to it.

(d) Enforceable Obligations. This Agreement and the Notes have
been duly executed and delivered by the Borrower and constitute, and each other
Loan Document (other than the Guaranties), when executed and delivered in
accordance with this Agreement, will constitute, the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally. The TGPL Guaranty has been duly
executed and delivered by TGPL and constitutes a legal, valid and binding
obligation of TGPL enforceable against TGPL in accordance with its terms,
except as such enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally. The TXG Guaranty has been duly executed and delivered by TXG
and constitutes a legal, valid and binding obligation of TXG enforceable
against TXG in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally.

(e) Financial Statements.

(i) The Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as at September 30, 1993 and the
related Consolidated and consolidating statements of income,
retained earnings, and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with such date, duly certified
by a financial officer (who is the chief financial officer,
the treasurer or the

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<PAGE> 44
principal accounting officer) of the Borrower, copies of which
have been furnished to each Bank, fairly present, subject to
year-end audit adjustments, the Consolidated and consolidating
financial position of the Borrower and its Subsidiaries as at
such date and the Consolidated and consolidating results of
the operations of the Borrower and its Subsidiaries for the
nine months ended on such date, and such balance sheets and
financial statements were prepared in accordance with GAAP
except as specifically noted therein.

(ii) Since September 30, 1993, there has been no material adverse
change in (I) the business, financial position or results of
operations of the Borrower and its Material Subsidiaries,
taken as a whole, (II) the business, financial position or
results of operations of the Borrower and its Subsidiaries,
taken as a whole, or (III) the ability of the Borrower to
perform its obligations under the Loan Documents, the ability
of TGPL to perform its obligations under the TGPL Guaranty or
the ability of TXG to perform its obligations under the TXG
Guaranty; provided, however, that the after-tax charges not
exceeding $100,000,000 in the aggregate taken or to be taken
by the Borrower after September 30, 1993 pursuant to the
Magnolia Charge shall not be taken into consideration in
determining whether a material adverse change has occurred.

(iii) During the period from September 30, 1993 through the date of
this Agreement, no Preferred Stock of the Borrower or any
Subsidiary was issued or became outstanding, except for
Preferred Stock which was issued after September 30, 1993 in
accordance with clause (iii) of the definition herein of
"Consolidated Net Worth."

(f) Litigation. Except as set forth in the Financial Statements,
the Borrower's annual report on Form 10-K for the year ended December 31, 1992,
or in any of the Borrower's quarterly reports on Form 10-Q for the quarters
ended March 31, 1993, June 30, 1993 and September 30, 1993, there are no
actions, suits or proceedings pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower, any of its Subsidiaries or any of
its or their respective rights or Properties before any court or by or before
any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which may reasonably be expected to have
a material adverse effect on the business, financial position or results of
operations or prospects of the Borrower and its Subsidiaries, taken as a whole,
or to impair

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<PAGE> 45
materially the Borrower's ability to perform its obligations under the Loan
Documents, TGPL's ability to perform its obligations under the TGPL Guaranty or
TXG's ability to perform its obligations under the TXG Guaranty; and there are
no such actions, suits or proceedings which in any manner draw into question
the validity of this Agreement or any other Loan Document. Neither the
Borrower nor, to the knowledge of the Borrower, any of its Subsidiaries is in
default in any material respect with respect to any applicable order, writ,
injunction or decree of any court, governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which default may
reasonably be expected to have a material adverse effect on the business,
financial position or results of operations or prospects of the Borrower and
its Subsidiaries, taken as a whole, or to impair materially the Borrower's
ability to perform its obligations under the Loan Documents, TGPL's ability to
perform its obligations under the TGPL Guaranty or TXG's ability to perform its
obligations under the TXG Guaranty, or which in any manner draws into question
the validity of this Agreement or any other Loan Document.

(g) ERISA Compliance. No Termination Event has occurred or is
reasonably expected to occur with respect to any Plan. No employee of the
Borrower or any ERISA Affiliate is covered by any Multiemployer Plan or
Multiple Employer Plan. Neither the Borrower nor any ERISA Affiliate has
received any notification that any Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and the Borrower is not
aware of any reason to expect that any Plan is to be in reorganization or to be
terminated within the meaning of Title IV of ERISA. Schedule B (Actuarial
Information) to the 1992 annual report (Form 5500 Series) with respect to each
Plan, copies of which have been filed with the Internal Revenue Service and
furnished to the Agent, is complete and accurate and fairly presents the
funding status and financial condition of such Plan, and since the date of such
Schedule B there has been no material adverse change in such funding status or
financial condition.

(h) Tax Returns Filed. Consolidated United States Federal income
tax returns of the Borrower and its Subsidiaries have been examined by the
Internal Revenue Service, or the statutory period for such examination has
expired, for all years up to and including the year ended December 31, 1989,
and all assessed deficiencies resulting from such examination have been
discharged or reserved against as required by GAAP. The Borrower and its
Subsidiaries have filed all United States federal, state and local income tax
returns and all other material domestic tax returns which are required to be
filed by them and have paid, or provided for the payment before the same became
delinquent of, all taxes due

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<PAGE> 46
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Subsidiary, other than those taxes contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the books of
the Borrower and its Subsidiaries in respect of taxes are, in the opinion of
the Borrower, adequate. The Borrower and its Subsidiaries have set up such
reserves as are required by GAAP for the payment of additional taxes for years
which have not been audited by the respective tax authorities.

(i) Investment Company Act. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.

(j) Public Utility Holding Company Act. The Borrower is not a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", as such terms are used in the Public
Utility Holding Company Act of 1935, as amended, any rule or regulation
promulgated thereunder or any order or interpretation of the Securities and
Exchange Commission or its staff issued pursuant thereto and is not subject to
any obligations, duties or liabilities thereunder (except Section 9(a)(2)
thereof).

(k) Regulation U. Neither the Borrower nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U). Following the
application of the proceeds of each Advance, not more than 25% of the value of
the assets of the Borrower, or of the Borrower and its Subsidiaries, which are
subject to any arrangement with the Agent or any Bank (herein or otherwise)
whereby the Borrower's or any Subsidiary's right or ability to sell, pledge or
otherwise dispose of assets is in any way restricted will be such margin stock.

(l) Other Defaults. Neither the Borrower nor any Material
Subsidiary is in default under or with respect to any contract, agreement,
lease or other instrument to which the Borrower or such Material Subsidiary is
a party and which could reasonably be expected to cause a material adverse
effect on the business, Properties, Consolidated financial position, results of
operations or prospects of the Borrower and its Subsidiaries, taken as a whole,
and no Default or Event of Default exists.

(m) Ownership of Material Subsidiary Stock. The Borrower is the
record and beneficial owner, free and clear of all Liens, of all of the issued
and outstanding common stock and Voting Stock of TGC, and TGC is the record and
beneficial owner, free and clear of

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<PAGE> 47
all Liens, of all of the issued and outstanding common stock and Voting Stock
of TGPL and TXG. There are no outstanding options, warrants or other rights to
acquire any capital stock of any Material Subsidiary.

(n) Environmental Matters. Except as set forth in the Financial
Statements, the Borrower's annual report on Form 10-K for the year ended
December 31, 1992, or in any of the Borrower's quarterly reports on Form 10-Q
for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993,
the Borrower and each of its Subsidiaries have been and are in compliance in
all material respects with all applicable Environmental Protection Statutes,
except to the extent that failure to comply with such Environmental Protection
Statutes could not reasonably be expected to have a material adverse effect on
the business, Consolidated financial position, results of operations or
prospects of the Borrower and its Subsidiaries, taken as a whole. There is (1)
no presently outstanding allegation by government officials or other third
parties that the Borrower or any of its Subsidiaries or any of their respective
Properties is now or at any time prior to the date hereof was in violation of
any applicable Environmental Protection Statute, (2) no administrative or
judicial proceeding presently pending against the Borrower or any of its
Subsidiaries or against any of their respective Properties pursuant to such
Environmental Protection Statute, and (3) no claim presently outstanding
against the Borrower or any of its Subsidiaries or against any of their
respective Properties, businesses or operations which was asserted pursuant to
any applicable Environmental Protection Statute that, in each case described in
clauses (1), (2) or (3) above could reasonably be expected to result in a
liability to the Borrower or any Subsidiary in excess of $7,000,000 (net of
confirmed insurance coverage or effective indemnification with respect
thereto). There are no facts or conditions or circumstances known to the
Borrower that the Borrower reasonably believes could form the basis for any
action, lawsuit, claim or proceeding (regulatory or otherwise) involving the
Borrower or any of its Subsidiaries or their respective past or present
Properties, businesses or operations relating to Environmental matters,
including without limitation any action, lawsuit, claim or proceeding arising
from past or present Environmental or other practices or operations asserted
under CERCLA, RCRA, or any other Environmental Protection Statute, that in any
case could reasonably be expected to result in a liability to the Borrower or
any Subsidiary in excess of $7,000,000 (net of confirmed insurance coverage or
effective indemnification with respect thereto).

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<PAGE> 48
ARTICLE V
COVENANTS OF THE BORROWER

Section 5.01. Affirmative Covenants. So long as any amount payable
by the Borrower hereunder or under any Note shall remain unpaid or any Bank
shall have any obligation to lend hereunder, and until all of the Commitments
are terminated, the Borrower will, unless the Required Banks shall otherwise
consent in writing:

(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders; provided, however, that this Section 5.01(a)
shall not prevent the Borrower or any of its Subsidiaries from, in good faith
and with reasonable diligence, contesting the validity or application of any
such laws or regulations by appropriate legal proceedings, if appropriate
reserves (to the extent required by GAAP) in conformity with GAAP have been
provided.

(b) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Material Subsidiaries to preserve and maintain,
its corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified, and cause each Material
Subsidiary to qualify and remain qualified, as a foreign corporation in each
jurisdiction in which qualification is necessary or desirable in view of its
business and operations or the ownership of its Properties; provided, however,
that nothing herein contained shall prevent any transaction permitted by
Section 5.02(d).

(c) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as are
usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower or such Subsidiary
operates, provided that the Borrower or such Subsidiary may self-insure to the
extent and in the manner normal for similarly situated companies of like size,
type and financial condition that are part of a group of companies under common
control.

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<PAGE> 49
provided, however, that neither the Borrower nor any Material Subsidiary shall
be required to pay and discharge any such tax, assessment, charge, levy, or
claim which is being contested in good faith and by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided.

(e) Reporting Requirements. Furnish to each Bank:

(i) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of
the Borrower, the Consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as at the end of
such quarter and the Consolidated and consolidating statements
of income, retained earnings, and cash flows of the Borrower
and its Subsidiaries for the period commencing at the end of
the previous fiscal year and ending with the end of such
quarter, setting forth, in the case of the Consolidated
statements, in comparative form, the corresponding figures for
the corresponding period of the preceding fiscal year, all in
reasonable detail and duly certified by a financial officer
(who is the chief financial officer, the treasurer or the
principal accounting officer) of the Borrower as having been
prepared in accordance with GAAP subject, however, to year-end
audit adjustments, together with a certificate of such officer
showing in detail the calculations of the financial covenants
set forth in Sections 5.02(b) and 5.02(m) as at the end of
such quarter and for the four quarter period ending at the end
of such quarter, respectively;

(ii) as soon as available and in any event not later than 120 days
after the end of each fiscal year of the Borrower, (x) copies
of the Consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such fiscal year and
Consolidated statements of income, retained earnings, and cash
flows of the Borrower and its Subsidiaries for such fiscal
year, all certified by Arthur Andersen & Co. or other
independent certified public accountants of recognized
national standing; and (y) copies of the consolidating balance
sheet of the Borrower and its Subsidiaries as of the end of
such fiscal year and consolidating statements of income,
retained earnings, and cash flows of the Borrower and its
Subsidiaries for such year, all certified by a financial
officer (who is the chief financial officer, the treasurer or
the principal accounting officer) of the Borrower, together
with a certificate of such officer

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<PAGE> 50
showing in detail the calculations of the financial covenants
set forth in Sections 5.02(b) and 5.02(m) as at the end of
such year and for the four quarter period ending at the end of
such year, respectively;

(iii) promptly after the same are available, copies of each report
of the Borrower or any of its Subsidiaries on Federal Energy
Regulatory Commission Form 2 (or similar reports), and copies
of each report filed by the Borrower or any of its
Subsidiaries under ERISA with the Internal Revenue Service or
the PBGC or the U.S. Department of Labor, or which the
Borrower or any of its Subsidiaries receives from such entity;

(iv) promptly after the sending or filing thereof, copies of all
reports which the Borrower sends to any of its security
holders, and copies of all regular or periodic reports and
registration statements (other than on Form S-8 or a similar
form) which the Borrower or any of its Subsidiaries files with
the Securities and Exchange Commission, or any governmental
authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange;

(v) as soon as possible, and in any event within ten days after an
Executive Officer has obtained knowledge of the occurrence of
any Default or Event of Default, written notice thereof
setting forth details of such Default or Event of Default and
the actions which the Borrower has taken and proposes to take
with respect thereto (provided that the Borrower shall not be
obligated to give notice of any Default or Event of Default
which is remedied prior to the time such Executive Officer
first acquires such knowledge);

(vi) as soon as possible and in any event (i) within 30 days after
any Executive Officer knows or has reason to know that any
Termination Event described in clause (i) of the definition of
Termination Event with respect to any Plan has occurred and
(ii) within 10 days after any Executive Officer knows or has
reason to know that any other Termination Event with respect
to any Plan has occurred, a statement of a financial officer
who is a Vice President of the Borrower describing such
Termination Event and the action, if any, which the Borrower
or its ERISA Affiliate (as applicable) proposes to take with
respect thereto;

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(vii) promptly and in any event within 30 Business Days after the
filing thereof with the Internal Revenue Service, copies of
each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) of the Borrower or any ERISA Affiliate with
respect to each Plan;

(viii) promptly upon the receipt thereof by the Borrower or any
Subsidiary of the Borrower, a copy of any form of notice,
complaint, request for information under CERCLA or
corresponding state law, summons or citation received from the
EPA, or any other domestic or foreign governmental agency or
instrumentality, federal, state or local, in any way
concerning any action or omission on the part of the Borrower
or any of its present or former Subsidiaries in connection
with Hazardous Materials or the Environment, or concerning the
filing of a Lien upon, against or in connection with the
Borrower, its present or former Subsidiaries, or any of their
leased or owned Property, wherever located;

(ix) promptly after any change in the rating of the senior
unsecured long-term debt of the Borrower by S&P or Moody's,
notice thereof; and

(x) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its
Subsidiaries as any Bank through the Agent may from time to
time reasonably request.

(f) Use of Proceeds. Use the proceeds of each Borrowing only for
general corporate purposes of the Borrower and only in a manner which does not
violate or result in a violation of any law or regulation; provided, however
that no proceeds of any Borrowing will be used (i) to purchase or carry any
margin stock (as defined in Regulation U), or to extend credit to others for
that purpose, in violation of Regulation G, Regulation U or Regulation X, or
(ii) to acquire any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.

Section 5.02. Negative Covenants. So long as any amount payable by
the Borrower hereunder or under any Note shall remain unpaid or any Bank shall
have any obligation to lend hereunder, and until all of the Commitments are
terminated, the Borrower will not, without the written consent of the Required
Banks:

(a) Liens. Create, assume, incur or suffer to exist or permit any
Restricted Subsidiary to create, assume, incur or suffer

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to exist, any Lien on or in respect of any Property, whether now owned or
hereafter acquired, of the Borrower and any Restricted Subsidiary, or assign or
otherwise convey any right to receive income, except that the Borrower and any
Restricted Subsidiary may create, incur, assume or suffer to exist the
following Liens on Property other than capital stock, other securities,
Indebtedness or other obligations of any Restricted Subsidiary:

(i) Liens for taxes, assessments or governmental charges or levies
on Property of the Borrower or a Restricted Subsidiary if the
same shall not at any time be delinquent or thereafter can be
paid without penalty, or are being contested in good faith and
by appropriate proceedings and with respect to which reserves
in conformity with GAAP have been provided on the books of the
Borrower or the relevant Restricted Subsidiary;

(ii) Liens that arise in the ordinary course of business to secure
services rendered to the Borrower or a Restricted Subsidiary
and are imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens;

(iii) Liens arising in the ordinary course of business out of
pledges or deposits under workers' compensation laws,
unemployment insurance, old age pensions or other social
security or retirement benefits, or similar legislation;

(iv) Liens arising in the ordinary course of business securing the
performance by the Borrower or any Restricted Subsidiary of
bids, tenders, contracts (other than for the repayment of
Indebtedness), leases (other than capital leases), statutory
obligations and surety and appeal bonds, Liens arising in the
ordinary course of business to secure progress or partial
payments made to the Borrower or any Restricted Subsidiary and
other Liens of like nature made or incurred in the ordinary
course of business, provided, however, that the aggregate
obligations secured by Liens permitted by this paragraph (iv)
shall not exceed $50,000,000;

(v) any Lien existing on any Property at the time it is purchased
or acquired by the Borrower or any Restricted Subsidiary (and
not created in contemplation of such purchase or acquisition),
whether or not the Indebtedness secured by such Lien is
assumed by the Borrower or any Restricted Subsidiary, or any
Lien placed upon such Property within 90 days of the purchase
or acquisition

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thereof by the Borrower or any Restricted Subsidiary to secure
all or a portion of (or to secure Indebtedness incurred to pay
all or a portion of) the purchase price thereof, provided that
no such Lien encumbers any Property other than such Property
purchased or acquired or secures any Indebtedness other than
the purchase price or Indebtedness incurred to pay all or a
portion of the purchase price of such Property purchased or
acquired;

(vi) Liens on cash or cash equivalents created pursuant to the
terms of the Letter of Credit Facility and securing Borrower's
obligations thereunder; provided that (X) such cash and cash
equivalents have an initial dollar value in an aggregate
amount no greater than the aggregate undrawn face amount of
letters of credit outstanding under the terms of the Letter of
Credit Facility and (Y) the Commitments (as defined in the
Letter of Credit Facility) have been terminated; and

(vii) Liens described in Schedule 5.02(a).

(b) Ratio of Cash Flow to Interest Expense. Permit, for any
period of four consecutive fiscal quarters of the Borrower, the ratio of
Consolidated Cash Flow to Consolidated Interest Expense to be less than the
amount set forth as follows: (i) for the four quarter period ending December
31, 1993, 2.00; and (ii) for each four quarter period ending on the last day of
each March, June, September and December thereafter, 2.25.

(c) Indebtedness. Create, incur, assume, guarantee, otherwise
become liable for or suffer to exist, or permit any Restricted Subsidiary to
create, incur, assume, guarantee, otherwise become liable for or suffer to
exist, any Indebtedness other than:

(i) Indebtedness of the Borrower pursuant to the Letter of Credit
Facility;

(ii) Indebtedness of TGPL in an amount not to exceed $30,000,000
pursuant to its guaranty of the Letter of Credit Facility;

(iii) Indebtedness of TXG in an amount not to exceed $20,000,000
pursuant to its guaranty of the Letter of Credit Facility;

(iv) Indebtedness of the Borrower or a Material Subsidiary existing
as of the date hereof and described on Schedule

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5.02(c) and renewals, refinancings or extensions of such
Indebtedness if the amount of such Indebtedness so renewed,
refinanced or extended is not greater than the amount of such
Indebtedness outstanding immediately prior to such renewal,
refinancing or extension; provided, however, that neither the
Borrower nor any Restricted Subsidiary (other than the
Borrower or any Material Subsidiary, as the case may be, shown
on Schedule 5.02(c) as being liable as of the date hereof for
such Indebtedness) shall incur, assume, guarantee or otherwise
become liable for such Indebtedness;

(v) Indebtedness of the Borrower due on demand or within 364 days
of incurrence (and not subject to renewal, extension or
refinancing pursuant to its terms or the terms of any related
documents) so long as no Restricted Subsidiary is liable
therefor;

(vi) Indebtedness of the Borrower or a Restricted Subsidiary
payable to the Borrower or a Restricted Subsidiary; provided,
however, that any Indebtedness of a Restricted Subsidiary
("Debtor Subsidiary") payable to another Restricted Subsidiary
shall be subordinated on the terms set forth on Exhibit K to
all Indebtedness from time to time owed by such Debtor
Subsidiary (x) to the Borrower, or (y) the Banks and the Agent
under the Loan Documents, and provided, further, that any
Indebtedness of the Borrower payable to a Restricted
Subsidiary shall be subordinated on the terms set forth on
Exhibit K to all Indebtedness from time to time owed by the
Borrower to the Banks and the Agent under the Loan Documents;

(vii) Indebtedness under the Loan Documents; and

(viii) Indebtedness of the Borrower in an aggregate principal amount
not to exceed $125,000,000 if (a) no Restricted Subsidiary is
liable for any such Indebtedness, and (b) none of the
principal of any such Indebtedness is due at the option of the
holder thereof (unless such option may be exercised only after
December 31, 1996 or during the continuance of a default that
is no more restrictive than the Events of Default herein) or
at a fixed or determinable date or dates on or before December
31, 1996.

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Material Subsidiary to convey, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions), (i) any capital stock of
any Material Subsidiary, or (ii) all or substantially all of its assets
(whether now owned or hereafter acquired) to any Person; provided, however that
any Subsidiary (other than TGC, TGPL or TXG) may be merged into a Material
Subsidiary if (1) at the time of such merger, no Default or Event of Default
has occurred which is continuing or would result, (2) a Material Subsidiary is
the surviving corporation following such merger, and (3) the net worth of such
surviving Material Subsidiary immediately after such merger is not less than
its net worth immediately prior to such merger or consolidation.

(e) Restrictions on Dividends, Intercompany Loans, or Investments.
Create or otherwise cause or permit to exist or become effective, or permit any
Material Subsidiary to create or otherwise cause or permit to exist or become
effective, any consensual encumbrance or restriction (other than the Loan
Documents) on the ability of any Material Subsidiary to (i) pay dividends or
make any other distributions on its capital stock or pay any Indebtedness owed
to the Borrower or any Material Subsidiary, (ii) make any loans or advances to
or investments in the Borrower or any Material Subsidiary, or (iii) transfer
any of its property or assets to the Borrower or any Material Subsidiary,
except any encumbrance or restriction in effect on the date of this Agreement
and described on Schedule 5.02(e), copies of which have been delivered to the
Agent and made available to each of the Banks.

(f) Accounting. Change, or permit any Subsidiary to change its
method of accounting (other than immaterial changes in methods, changes
permitted by GAAP in which its auditors concur, and changes required by a
change in GAAP).

(g) Multiemployer Plans or Multiple Employer Plans. Create or
otherwise cause or permit to exist or become effective, or permit any ERISA
Affiliate to create or otherwise cause or permit to exist or become effective,
any Multiemployer Plan or Multiple Employer Plan.

(h) Compliance with ERISA. (i) Terminate, or permit any ERISA
Affiliate to terminate any Plan so as to result in any liability of the
Borrower or any ERISA Affiliate to the PBGC in excess of $5,000,000, or (ii)
permit to exist any occurrence of a Termination Event with respect to any Plan
for which there is an Insufficiency in excess of $5,000,000.

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(i) ERISA Liabilities. Create or suffer to exist, or permit any
ERISA Affiliate to create or suffer to exist, any ERISA Liabilities if
immediately after giving effect to such ERISA Liabilities, the aggregate amount
of ERISA Liabilities of the Borrower and its ERISA Affiliates would exceed
$20,000,000.

(j) Affiliate Transaction. Except as expressly permitted
elsewhere in this Agreement, make or permit any Material Subsidiary to make,
directly or indirectly: (i) any Investment in any Affiliate; (ii) any transfer,
sale, lease or other disposition of any Property to any Affiliate or any
purchase or acquisition of any Property from an Affiliate; or (iii) any
material arrangement or other material transaction directly or indirectly with
or for the benefit of an Affiliate (including without limitation, guaranties
and assumptions of obligations of an Affiliate); provided, that (A) the
Borrower and any Material Subsidiary may enter into any arrangement or other
transaction with an Affiliate providing for the leasing of property, the
rendering or receipt of services or the purchase or sale of inventory and other
assets if the monetary or business consideration arising therefrom would be
substantially as advantageous to the Borrower or such Material Subsidiary as
the monetary or business consideration which would be obtained in a comparable
arm's length transaction with a Person not an Affiliate; (B) the Borrower and
any Material Subsidiary may become liable in connection with performance
guaranties of the obligations of an Affiliate in the ordinary course of
business; and (C) TGPL and TXG may enter into the TGPL Guaranty and the TXG
Guaranty.

(k) Payments on Preferred Stock. Make or agree to make any
payment or other distribution in connection with, or purchase, redeem or
otherwise acquire or retire for value or agree to do so, or convert or agree to
convert (other than a conversion to common stock), in whole or in part, or
permit any Subsidiary to do any of the foregoing, in whole or in part, (i) any
Preferred Stock of the Borrower issued or becoming outstanding after September
30, 1993, except dividends required by the terms of such Preferred Stock if
prior to and immediately after giving effect thereto, no Default or Event of
Default exists or would occur and except any redemption or other retirement at
the option of the holder of such Preferred Stock (including pursuant to an
offer to purchase made by the Borrower) which is conditioned upon the change of
control of the Borrower, or (ii) any Preferred Stock of the Borrower
outstanding on September 30, 1993 except dividends and redemptions required by
the terms of such Preferred Stock as in effect on December 31, 1993 and except
conversions of such Preferred Stock to Preferred Stock of the Borrower that is
not Restricted Preferred Stock and except Preferred Stock of the Borrower
outstanding on September 30, 1993 which is exchanged for, or which is acquired
and retired out of the

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proceeds of, Preferred Stock issued in accordance with clause (iii) of the
definition herein of "Consolidated Net Worth."

(l) Preferred Stock and Options. Issue or cause to become
outstanding any Restricted Preferred Stock, or permit any Subsidiary to issue
or cause to become outstanding, any Preferred Stock or permit any option,
warrant or other right to acquire any capital stock of any Subsidiary to be or
become outstanding.

(m) Net Worth. Permit Consolidated Net Worth to be at any time
less than the sum of (i) $700,000,000 (or $750,000,000 upon the earlier to
occur of (a) the sale by the Borrower of a minimum of $100,000,000 of common
stock of the Borrower after the date of this Agreement, or (b) December 31,
1994), plus (ii) 50% of the aggregate Consolidated Net Income of the Borrower
for each calendar quarter ending after December 31, 1993 during which
Consolidated Net Income was positive, plus (iii) 100% of the after-tax gain on
disposition after the date of this Agreement of any assets of the Borrower or
any Consolidated Subsidiary, plus (iv) 50% of the Net Cash Proceeds from the
sale by the Borrower of any capital stock or other equity securities of the
Borrower after the date of this Agreement in excess of $100,000,000.

(n) Restricted Payments. Directly or indirectly, (i) declare or
pay any dividend, or make any distribution, of any kind or character (whether
in cash, property or securities) in respect of any class of its common stock or
to the holders of any class of its common stock (including pursuant to a merger
or consolidation of the Borrower, but excluding any dividends or distributions
payable solely in its common stock or in options, warrants or other rights to
acquire its common stock), or (ii) purchase, redeem or otherwise acquire or
retire for value, or permit any Subsidiary to purchase, redeem or otherwise
acquire or retire for value, directly or indirectly, (x) any common stock of
the Borrower or any Subsidiary or (y) any options, warrants or rights to
purchase or acquire common stock of the Borrower or any Subsidiary (the
transactions described above in this Section 5.02(n) being referred to herein
as "Restricted Payments"), unless at the time thereof (a) no Default or Event
of Default exists or would result from such Restricted Payment, and (b) either
(I) such Restricted Payment is the regular annual dividend of $0.60 per share
of outstanding common stock of the Borrower (which amount per share shall be
appropriately decreased for increases in the number of such shares outstanding
as a result of stock splits, dividends paid in common stock or similar events)
or (II) such Restricted Payment is the regular annual dividend of greater than
$0.60 per share of outstanding common stock of the Borrower and is made in lieu
of the Restricted Payment permitted by clause (I) of this Section 5.02(n) for
such year and

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cumulative Consolidated Net Income of the Borrower since December 31, 1993 is
equal to or exceeds two times the aggregate amount proposed to be paid in
respect of the annual dividend on the Borrower's common stock (which amount per
share shall be appropriately decreased for increases in the number of such
shares outstanding as a result of stock splits, dividends paid in common stock
or similar events).

(o) Expenditures. Make or incur any Investment or expend any
amount or permit any Subsidiary to make or incur any Investment or expend any
amount except (a) Investments made or incurred and amounts expended directly
related to Borrower's core businesses of gas transportation and gas marketing
(which core businesses shall not include Transco Coal) and (b) Investments made
or incurred and amounts expended outside of the Borrower's core businesses not
exceeding $50,000,000 in the aggregate during any fiscal year of the Borrower
(the aggregate amount of all Investments made or incurred and amounts expended
by or in respect of Transco Coal shall be included in determining compliance
with this clause (b) so long as Transco Coal is a Subsidiary, even if it is
treated as a discontinued operation for purposes of GAAP).

(p) Asset Disposition. Sell, lease, transfer or otherwise dispose
of, or permit any Restricted Subsidiary to sell, lease, transfer or otherwise
dispose of, any capital stock, other securities, Indebtedness or other
obligations of any Restricted Subsidiary or all or any material portion of the
Property of the Borrower or any Restricted Subsidiary, except (i) sales of
Property (other than capital stock, other securities, Indebtedness or other
obligations of any Restricted Subsidiary) in the ordinary course of business
and on reasonable terms, and (ii) sales pursuant to the agreements described on
Schedule 5.02(a).

ARTICLE VI
EVENTS OF DEFAULT

Section 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:

(a) Nonpayment. The Borrower shall fail to pay any principal of,
or interest on, any Note or any fees hereunder, as and when the same becomes
due and payable, whether at the due date thereof or by acceleration thereof or
otherwise; or

(b) Representations and Warranties Untrue. Any representation,
warranty or certification made by the Borrower, TGPL or TXG herein or in any
other Loan Document, or by the Borrower, TGPL or

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TXG (or any officer of the Borrower, TGPL or TXG) in connection with any Loan
Document or in any certificate or document furnished to the Banks pursuant to
any Loan Document, or any representation or warranty deemed to have been made
by the Borrower pursuant to Section 3.02, shall prove to have been incorrect or
misleading in any material respect when made or so deemed to have been made; or

(c) Covenant Violations. The Borrower shall fail to perform or
observe (i) any term, covenant or agreement contained in Section 5.01(e)(v),
(vi), (viii) or (ix), Section 5.01(f), Section 5.02(a), Section 5.02(b),
Section 5.02(c), Section 5.02(d), Section 5.02(e), Section 5.02(j), Section
5.02(k), Section 5.02(l), Section 5.02(m), Section 5.02(n), Section 5.02(o) or
Section 5.02(p) or (ii) any other term, covenant, condition, or agreement
contained in any Loan Document on its part to be performed or observed if the
failure to perform or observe such other term, covenant, condition, or
agreement shall remain unremedied for 10 days after the earlier of (x) the date
written notice thereof has been given to the Borrower by the Agent or any Bank
and (y) the date an Executive Officer has knowledge of such failure; or

(d) Other Defaults. The Borrower or any Material Subsidiary shall
fail to pay any principal of or premium or interest on any Indebtedness which
is outstanding in a principal amount of at least $5,000,000 in the aggregate
(but excluding Indebtedness evidenced by the Notes) of the Borrower or such
Material Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Indebtedness;
or any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Indebtedness and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness (whether or not such default
is waived by the holder of such Indebtedness); or any such Indebtedness shall
be declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
provided, however, that no Event of Default shall occur hereunder by reason of
the Borrower's or a Material Subsidiary's, as the case may be, failure to pay
the deferred purchase price of property or related services to the extent, but
only to the extent, that such failure is being contested in good faith by the
Borrower or such Material Subsidiary, as the case may be; or

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(e) Insolvency, Bankruptcy, Etc. The Borrower or any of its
Subsidiaries shall be adjudicated a bankrupt or insolvent by a court of
competent jurisdiction, or generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 30 days,
or any of the actions sought in such proceeding (including, without limitation,
the entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any substantial
part of its property) shall occur; or the Borrower or any of its Subsidiaries
shall take any corporate action to authorize any of the actions set forth above
in this subsection (e); or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a substantial
part of the property of the Borrower or any Subsidiary and such judgment, writ,
warrant of attachment or execution or similar process shall not be released,
stayed, vacated or fully bonded within 60 days after its issue or levy; or

(f) Judgments. A final judgment or order for the payment of money
in excess of $5,000,000 shall be rendered against the Borrower or any Material
Subsidiary by any court of competent jurisdiction and such judgment or order
shall continue unsatisfied or unstayed (by appeal or otherwise) and shall be in
effect for a period of 60 days after the date any Executive Officer has
acquired knowledge thereof; or

(g) Stock of Material Subsidiaries. The Borrower shall at any
time fail to own, directly or through a Material Subsidiary, 100% of the issued
and outstanding common stock and Voting Stock of each Material Subsidiary, or
any option, warrant or other right to acquire any capital stock of any Material
Subsidiary shall be or become outstanding; or

(h) Termination Event. Any Termination Event with respect to a
Plan shall have occurred and, 30 days after notice thereof shall have been
given to the Borrower by the Agent, (i) such Termination Event shall still
exist and (ii) the sum (determined as of the date

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of occurrence of such Termination Event) of the Insufficiency of such Plan and
the Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case of a Plan
with respect to which a Termination Event described in clause (ii) of the
definition of Termination Event shall have occurred and then exist, the
liability related thereto) is equal to or greater than $5,000,000; or

(i) Guaranties. TGPL or TXG shall fail to perform or observe (i)
any term, covenant or agreement contained in Section 15 of the TGPL Guaranty or
Section 15 of the TXG Guaranty, as the case may be, or (ii) any other term,
covenant, condition, or agreement contained in the TGPL Guaranty or the TXG
Guaranty on its part to be performed or observed if the failure to perform or
observe such other term, covenant, condition, or agreement shall remain
unremedied for 10 days after the earlier of (x) the date written notice thereof
has been given to TGPL or TXG, as the case may be, and the Borrower by the
Agent or any Bank and (y) the date an Executive Officer has knowledge of such
failure; or

(j) Cross Default. The existence of any Event of Default as
defined in the Letter of Credit Facility;

then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the Required Banks, by notice to the Borrower, declare the
obligation of each Bank to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Banks, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or any
other notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, however, that in the event of any Event of Default
described in Section 6.01(e), (A) the obligation of each Bank to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically and immediately become and be due and payable,
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration, or any other notice of any kind, all of which are hereby
expressly waived by the Borrower.

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ARTICLE VII
THE AGENT

Section 7.01. Authorization and Action. Each Bank hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement or collection of the Notes or the Guaranties),
the Agent shall not be required to exercise any discretion or take any action,
but shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Required Banks and such instructions shall be binding upon all Banks and all
holders of Notes; provided, however, that the Agent shall not be required to
take any action which exposes the Agent to personal liability or which is
contrary to this Agreement or applicable law. The Agent agrees to give to each
Bank prompt notice of each notice given to it by the Borrower pursuant to the
terms of this Agreement.

Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may
treat the payee of any Note as the holder thereof until the Agent receives and
accepts an Assignment and Acceptance entered into by the Bank which is the
payee of such Note, as assignor, and an Eligible Assignee, as assignee, as
provided in Section 8.07; (ii) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations (whether written or oral) made in or in connection with any
Loan Document; (iv) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
any Loan Document on the part of the Borrower or any Material Subsidiary or to
inspect the Property (including the books and records) of the Borrower or any
Material Subsidiary; (v) shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant hereto or thereto; and (vi) shall incur no liability under or in
respect of any Loan Document by

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acting upon any notice (including telephonic notice), consent, certificate or
other instrument or writing (which may be by telecopier, telegram or telex)
believed by it to be genuine and signed, given or sent by the proper party or
parties.

Section 7.03. Citibank and Affiliates. With respect to its
Commitment, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under this Agreement as any other Bank and may
exercise the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Citibank in its
individual capacity. Citibank and its affiliates may accept deposits from,
lend money to, act as trustee under indentures of, and generally engage in any
kind of business with, the Borrower, any Subsidiary and any Person who may do
business with or own securities of the Borrower or any Subsidiary, all as if
Citibank were not the Agent and without any duty to account therefor to the
Banks.

Section 7.04. Bank Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank and
based on the Financial Statements and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Bank also acknowledges that it will, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.

Section 7.05. Indemnification. The Banks agree to indemnify the
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Notes then held by each of them (or if no
Advances are at the time outstanding or if any Notes are held by Persons which
are not Banks, ratably according to either (a) the respective amounts of their
Commitments, or (b) if no Commitments are at the time outstanding, the
respective amounts of the Commitments immediately prior to the time the
Commitments ceased to be outstanding), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, reasonable costs, reasonable expenses and reasonable disbursements of
any kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of any Loan Document,
or any action taken or omitted by the Agent under any Loan Document, provided
that no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or willful
misconduct. Without limitation of the

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foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its
ratable share of any reasonable out-of-pocket expenses (including reasonable
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under any Loan Document to the
extent that the Agent is not reimbursed for such expenses by the Borrower. In
the event that the Agent receives reimbursement for such expenses from the
Borrower at any time subsequent to the Agent's receipt of the indemnification
required by the preceding sentence from any Bank, the Agent shall promptly
refund to such Bank its ratable share of such reimbursed amount.

Section 7.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Banks and the Borrower and may be removed
at any time with or without cause by the Required Banks. Upon any such
resignation or removal, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving of notice of resignation or the Required Banks'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Loan
Documents. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article VII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under the Loan
Documents.

ARTICLE VIII
MISCELLANEOUS

Section 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Loan Document, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such amendment, waiver or consent shall,
unless in writing

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and signed by all the Banks, do any of the following: (a) waive any of the
conditions specified in Section 3.01 or 3.02, (b) increase the Commitment of
any Bank or subject any Bank to any additional obligations (each without the
written consent of such Bank), (c) increase the aggregate Commitments
hereunder, (d) reduce the principal of, or interest on, the Notes or any fees
or other amounts payable hereunder, (e) postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (f) take any action which requires the signing of all the Banks
pursuant to the terms of any Loan Document, (g) change the definition of
Required Banks or the provisions herein which require either all Banks or the
Required Banks to take any action hereunder, or (h) amend this Section 8.01;
and provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Banks required above to take
such action, affect the rights or duties of the Agent under any Loan Document.

Section 8.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier or telex
communication) and dispatched by registered or certified mail, telecopied,
telexed, or delivered, (a) if to the Borrower, at its address at 2800 Post Oak
Boulevard, P. O. Box 1396, Houston, Texas 77251, Attention: Treasurer,
Telecopy: (713)439-3648, Telex: 792013, Answerback: TRANSCO HOU A; (b) if to
any Bank listed on the signature pages hereof, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; (c) if to any other Bank, at
its Domestic Lending office specified in the Assignment and Acceptance pursuant
to which it becomes a Bank; and (d) if to the Agent, at its address at 399 Park
Avenue, New York, New York, 10043, Attention: Energy Department, North American
Banking Group, Telecopy: (713) 654-2849, Telex: 127001, Answerback: CITIBANK
NYK B, with a copy to Citicorp North America, Inc., 2100 Citicorp Center, 1200
Smith Street, Houston, Texas 77002, Attention: J. Christopher Lyons, Vice
President, Telecopy: (713) 654-2849, Telex 127001, Answerback: CITIBANK NYK B;
or, as to the Borrower or the Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Agent. Each such notice or
communication shall be effective (i) if mailed, on the fifth Business Day
following the date it is dispatched by registered or certified mail, (ii) if
delivered by hand, upon delivery with written receipt, and (iii) if telecopied
or telexed, when receipt is confirmed by telephone or appropriate answerback,
respectively, except that any notice or communication to the Agent pursuant to
this Agreement shall not be effective until received by the Agent.

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Section 8.03. No Waiver; Remedies. No failure on the part of any
Bank or the Agent to exercise, and no delay in exercising, any right under any
Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided in the Loan
Documents are cumulative and not exclusive of any remedies provided by law.

Section 8.04. Expenses and Taxes; Compensation.

(a) Expenses and Taxes. The Borrower agrees to pay on demand all
reasonable costs and expenses in connection with the preparation, execution,
delivery, administration, modification and amendment of the Loan Documents, and
the other documents to be delivered hereunder, including, without limitation,
the reasonable out-of-pocket expenses of the Agent and the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities under the
Loan Documents, and all costs and expenses of the Agent and each Bank, if any
(including, without limitation, reasonable counsel fees and expenses, which may
include the allocated costs of in-house counsel), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
the Loan Documents and the other documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 8.04(a). In
addition, the Borrower shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and delivery of the
Loan Documents and the other documents to be delivered hereunder, and agrees to
save the Agent and each Bank harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes.

(b) Compensation. If any payment of principal of, or Conversion
of, any Eurodollar Rate Advance is made other than on the last day of the
Interest Period for such Eurodollar Rate Advance, as a result of a payment or
Conversion pursuant to Section 2.02, Section 2.08 or Section 2.10 or
acceleration of the maturity of the Notes pursuant to Section 2.13 or Section
6.01 or for any other reason, the Borrower shall, upon demand by any Bank (with
a copy of such demand to the Agent), pay to the Agent for the account of such
Bank any amounts required to compensate such Bank for any additional losses,
costs or expenses which it may reasonably incur as a result of such payment or
Conversion, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of

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deposits or other funds acquired by any Bank to fund or maintain such Advance.

(c) Indemnification. The Borrower agrees to indemnify and hold
harmless the Agent and each Bank from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation, fees and
disbursements of counsel, which may include the allocated costs of in-house
counsel) for which any of them may become liable or which may be incurred by or
asserted against the Agent or such Bank in connection with or arising out of
any investigation, litigation, or proceeding, whether or not the Agent or such
Bank is a party thereto, related to or in connection with this Agreement,
including, without limitation, any transaction in which any proceeds of any
Borrowing are applied unless such claim, damage, loss, liability or expense is
found to have resulted from the gross negligence or willful misconduct of such
indemnified party.

(d) Survival of Covenants. Without prejudice to the survival of
any other agreement of the Borrower or the Banks hereunder, all obligations of
the Borrower under Section 2.02, Section 2.10, Section 2.11 and this Section
8.04 shall survive the termination of the Commitments and this Agreement and
the payment in full of principal and interest hereunder and under the Notes and
the Guaranties.

Section 8.05. Limitation and Adjustment of Interest.
Notwithstanding anything to the contrary set forth herein, in any Note or any
other document executed in connection herewith, no provision of any Loan
Document or any other document executed in connection herewith is intended or
shall be construed to require the payment or permit the collection of interest
in excess of the maximum non-usurious rate permitted by applicable law.

(a) Maximum Interest Under Texas Law. Without limiting Section
8.09, to the extent that the maximum non-usurious rate permitted by applicable
law is (notwithstanding the intent of the parties hereto as set forth in
Section 8.09) at any time determined by Texas law for a particular Bank, such
rate for such Bank shall be the "indicated rate ceiling" (as defined and
described in Section (a)(1) of Article 1.04 of Chapter 1, Subtitle 1, Title 79,
of the Revised Civil Statutes of Texas, 1925, as amended) at the applicable
time in effect. If the maturity of the Notes payable to such Bank is
accelerated for any reason, or in the event of prepayment of all or any portion
of the Notes payable to such Bank by the Borrower, or in any other event,
earned interest on each Borrowing hereunder shall never exceed the maximum
non-usurious amount permitted by applicable law, computed from the borrowing

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date of each such Borrowing until payment, and any unearned interest otherwise
payable under any Loan Document payable to such Bank which is in excess of the
maximum non-usurious amount permitted by applicable law shall be cancelled
automatically as of the date of such acceleration or prepayment or other such
event and (if theretofore paid to the holder of any Note) shall, at the option
of such holder, be either refunded to the Borrower or credited on the principal
of the Notes owed to such holder in such order as such holder shall elect. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum non-usurious rate permitted by applicable law,
the Borrower and the Banks shall, to the maximum extent permitted by applicable
law, (a) characterize any non-principal payment as an expense, fee or premium
rather than as interest and (b) amortize, prorate, allocate and spread, in
equal parts during the period of the full stated term of the borrowing in
question, all interest at any time contracted for, charged, received or
reserved in connection with such borrowing.

(b) Maximum Interest Under Applicable Law. Without limiting
Section 8.09, if the amount of interest computed without giving effect to this
Section 8.05 and payable on any interest payment date in respect of the
preceding interest computation period would exceed the amount of interest
computed in respect of such period at the maximum rate of interest from time to
time permitted (after taking into account all consideration which constitutes
interest) by laws applicable to any Bank (such maximum rate being such Bank's
"Maximum Permissible Rate"), the amount of interest payable to such Bank on
such date in respect of such period shall be computed at such Bank's Maximum
Permissible Rate, and any interest theretofore paid by the Borrower in excess
of such Bank's Maximum Permissible Rate shall, at the option of such Bank, be
credited by such Bank on the principal amount of the obligations owed to such
Bank by the Borrower or refunded by such Bank to the Borrower.

(c) Recapture. If at any time and from time to time (i) the
amount of interest payable to any Bank on any interest payment date shall be
computed at such Bank's Maximum Permissible Rate pursuant to this Section 8.05
and (ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Bank would be less than the amount of
interest payable to such Bank computed at such Bank's Maximum Permissible Rate,
then the amount of interest payable to such Bank in respect of such subsequent
interest computation period shall continue to be computed at such Bank's
Maximum Permissible Rate until the total amount of interest payable to such
Bank shall equal the total amount of interest which would have been payable to
such Bank if the total amount of interest had been computed without giving
effect to subsections (a)

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or (b) of this Section 8.05. In the event, upon payment in full of the Notes,
the total amount of interest paid or accrued under the terms of this Agreement
and the Notes is less than the total amount of interest which would have been
paid or accrued if the rates of interest set forth in this Agreement (without
giving effect to subsections (a) or (b) of this Section 8.05) had, at all
times, been in effect, then the Borrower shall, to the extent permitted by
applicable law, pay the Agent for the account of the Banks an amount equal to
the difference between (i) the lesser of (A) the amount of interest which would
have been charged on the Notes if the Maximum Permissible Rate had, at all
times, been in effect and (B) the amount of interest which would have accrued
on the Notes if the stated rates of interest set forth in this Agreement had at
all times been in effect and (ii) the amount of interest actually accrued and
paid on the Notes.

Section 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agent and
when the Agent shall have, as to each Bank, either received a copy of a
signature page hereof executed by such Bank or been notified by such Bank that
such Bank has executed it and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agent and each Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of all of the Banks.

Section 8.07. Assignments and Participations. (a) Each Bank may,
after the date of this Agreement, assign to one or more banks or other entities
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances owing to
it and the Notes held by it); provided, however, that, except as provided in
Section 8.07(g), (i) each such assignment shall be of a constant, and not a
varying, percentage of all of the assigning Bank's rights and obligations under
this Agreement and the Note payable to such Bank, (ii) the amount of the
Commitment of the assigning Bank being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 and
shall be an integral multiple of $1,000,000, (iii) each such assignment shall
be to an Eligible Assignee, and (iv) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with the Notes subject to such
assignment and a processing and recordation fee of $1,000. Upon such
execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, (x) the assignee

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thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder and (y) the
Bank assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this
Agreement; provided, however, that no such partial assignment shall be made if
after giving effect thereto the Commitment of such assigning Bank would be less
than $10,000,000.

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

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

(d) Upon its receipt of an Assignment and Acceptance executed by
an assigning Bank and an assignee representing that it is an Eligible Assignee,
together with the Note subject to such assignment, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form
of Exhibit K hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the
Agent (i) in exchange for the surrendered Note a new Note payable to the order
of such Eligible Assignee in an amount equal to the Commitment assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained a Commitment hereunder, a new Note payable to the order of the
assigning Bank in an amount equal to the Commitment retained by it hereunder
(such new Note shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit A).

(e) Each Bank may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment and the Advances owing to it and some or all of the Note held by
it); provided, however, that (i) such Bank's obligations under this Agreement
(including, without limitation, its Commitment to the Borrower hereunder) shall
remain unchanged, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Bank shall
remain the holder of such Note for all purposes of this Agreement, (iv) each
such participation shall be in a minimum amount of $10,000,000, (v) the
Borrower, the Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this

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Agreement and (vi) such Bank shall retain the sole right to enforce the
obligations of the Borrower hereunder and to approve any amendment,
modification or waiver of any provision of this Agreement or the other Loan
Documents other than amendments or waivers relating to the matters described in
Section 8.01(b) (with respect to the Commitment of such Bank), (c), (d) and (e)
(with respect to any payment that would affect such Bank and its participant).

(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Bank by
or on behalf of the Borrower; provided, that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Bank.

(g) Any Bank may assign, as collateral or otherwise, any of its
rights (including, without limitation, rights to payments of principal of
and/or interest on the Note payable to it) under any Loan Document to any
Federal Reserve Bank without notice to or consent of the Borrower or the Agent.

Section 8.08. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.

Section 8.09. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York. Without limiting the intent of the parties set forth above, Chapter 15,
Subtitle 3, Title 79, of the Revised Civil Statutes of Texas, 1925, as amended
(relating to revolving loans and revolving triparty accounts), shall not apply
to this Agreement, the Notes or the transactions contemplated hereby.

Section 8.10. JURISDICTION. TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, THE BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN, THE CITY OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS,
AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURT. THE BORROWER
HEREBY AGREES THAT SERVICE OF COPIES OF THE

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SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH
ACTION OR PROCEEDING MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH
PROCESS TO THE BORROWER AT ITS ADDRESS SPECIFIED IN SECTION 8.02. THE BORROWER
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHTS
OF ANY BANK OR THE AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR AFFECT THE RIGHT OF ANY BANK OR THE AGENT TO BRING ANY ACTION OR
PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION. THE BORROWER HEREBY FURTHER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY ACTION OR PROCEEDING REFERRED TO IN THIS SECTION 8.10
ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.

Section 8.11. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, EACH OF THE BORROWER, THE AGENT, THE
CO-AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY
OF THE NOTES, ANY OF THE SECURITY DOCUMENTS OR ANY OTHER INSTRUMENT OR DOCUMENT
FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

BORROWER:

TRANSCO ENERGY COMPANY

By: /s/ LARRY J. DAGLEY
Name: Larry J. Dagley
Title:

AGENT:

CITIBANK, N.A.
as Agent

By: /s/ BARBARA A. COHEN
Name: Barbara A. Cohen
Title: Vice President

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CO-AGENT:

BANK OF MONTREAL
as Co-Agent

By: /s/ DONALD G. WARMINGTON
Name: Donald G. Warmington
Title: Director

COMMITMENTS: BANKS:

CITIBANK, N.A.

$60,000,000 By: /s/ BARBARA A. COHEN
Authorized Officer
Barbara A. Cohen
Vice President

BANK OF MONTREAL

$40,000,000 By: /s/ DONALD G. WARMINGTON
Authorized Officer

THE BANK OF NOVA SCOTIA

$37,500,000 By: /s/ A.S. NORSWORTHY
Authorized Officer
A.S. Norsworthy
Assistant Agent

BARCLAYS BANK, PLC

$37,500,000 By: /s/ NANCY L. FORSTER
Authorized Officer
Associate Director
Nancy L. Forster

THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)

$37,500,000 By: /s/ BETTYLOU J. ROBERT
Authorized Officer

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CHEMICAL BANK

$37,500,000 By: /s/ R.C. WILSON III
Authorized Officer

BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION

$25,000,000 By: /s/ JOHN ROBINSON
Authorized Officer

THE BANK OF NEW YORK

$25,000,000 By: /s/ RAYMOND J. PALMER
Authorized Officer

THE FIRST NATIONAL BANK OF
BOSTON

$25,000,000 By: /s/ GEORGE W. PASSELA
Authorized Officer
George W. Passela
Managing Director

NATIONSBANK OF TEXAS, N.A.

$25,000,000 By: /s/ KRISTIN B. PALMER
Authorized Officer

CIBC INC.

$20,000,000 By: /s/ J.P. WESTLAND
Authorized Officer

CONTINENTAL BANK N.A.

$20,000,000 By: /s/ ROBERT W. BOLT
Authorized Officer

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THE NIPPON CREDIT BANK, LTD.

$20,000,000 By: /s/ HIDEAKI MORI
Authorized Officer

SOCIETE GENERALE,
SOUTHWEST AGENCY

$20,000,000 By: /s/ R.T. ERBERT
Authorized Officer

SWISS BANK CORPORATION,
NEW YORK BRANCH

$20,000,000 By: /s/ DENNIS G. BUCHERT
Authorized Officer
Dennis G. Buchert
Executive Director
Merchant Banking

By: /s/ LARRY JONES
Authorized Officer
Larry Jones
Director
Merchant Banking

____________

Total Commitments:

$450,000,000

-71-
<PAGE> 77

SCHEDULE I

NOTICE INFORMATION FOR BANKS

<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Citibank, N.A. Citibank, N.A. Citibank, N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10022 New York, New York 10022
Attention: Carol Rooney Attention: Carol Rooney
Telephone: (713) 654-3590 Telephone: (713) 654-3590
Telecopy: (713) 654-2849 Telecopy: (713) 654-2849
Telex: 127001 Telex: 127001
Answerback: NYK B Answerback: NYK B
(Route address HOU GB) (Route address HOU GB)

with a copy to: with a copy to:

Citibank, N.A. Citibank, N.A.
1200 Smith Street, Suite 2000 1200 Smith Street, Suite 200
Houston, Texas 77002 Houston, Texas 77002
Attention: Carol Rooney Attention: Carol Rooney
Telephone: (713) 654-3590 Telephone: (713) 654-3590
Telecopy: (713) 654-2849 Telecopy: (713) 654-2849
Telex: 127001 Telex: 127001
Answerback: NYK B Answerback: NYK B
(Route address HOU GB) (Route address HOU GB)

Bank of Montreal Bank of Montreal Bank of Montreal
700 Louisiana, Suite 4400 700 Louisiana, Suite 4400
Houston, Texas 77002 Houston, Texas 77002
Attention: Doug Deal Attention: Doug Deal
Telephone: (713) 546-9700 Telephone: (713) 546-9700
Telecopy: (713) 225-1845 Telecopy: (713) 225-1845
Telex: 77-5640 Telex: 77-5640
Answerback: BKMONTREALHOU Answerback: BKMONTREALHOU

The Bank of Nova Scotia The Bank of Nova Scotia The Bank of Nova Scotia
600 Peachtree Street N.E. 600 Peachtree Street N.E.
Suite 2700 Suite 2700
Atlanta, Georgia 30308 Atlanta, Georgia 30308
Attention: Lauren Bianchi Attention: Lauren Bianchi
Telephone: (404) 877-1559 Telephone: (404) 877-1559
Telecopy: (404) 888-8998 Telecopy: (404) 888-8998
Telex: 00542319 Telex: 00542319
Answerback: SCOTIABANK ATL Answerback: SCOTIABANK ATL

with a copy to: with a copy to:

The Bank of Nova Scotia The Bank of Nova Scotia
1100 Louisiana, Suite 3000 1100 Louisiana, Suite 1100
Houston, Texas 77002 Houston, Texas 77002
Attention: D. Matt Harris Attention: D. Matt Harris
Telephone: (713) 752-0900 Telephone: (713) 752-0900
Telecopy: (713) 752-2425 Telecopy: (713) 752-2425

Barclays Bank, PLC Barclays Bank, PLC Barclays Bank, PLC
222 Broadway, 12th Floor 222 Broadway, 12th Floor
New York, New York 10038 New York, New York 10038
Attention: Stephanie Gledhill Attention: Stephanie Gledhill
Telephone: (212) 412-5028 Telephone: (212) 412-5028
Telecopy: (212) 412-5002 Telecopy: (212) 412-5002
Telex: 126195 Telex: 126195
Answerback: BARCLADOM Answerback: BARCLADOM
</TABLE>
<PAGE> 78
<TABLE>
<S> <C> <C>
with a copy to: with a copy to:

Barclays Bank PLC Barclays Bank PLC
222 Broadway, 11th Floor 222 Broadway, 11th Floor
New York, New York 10038 New York, New York 10038
Attention: Martin Falkner Attention: Martin Falkner
Telephone: (212) 412-2637 Telephone: (212) 412-2637
Telecopy: (212) 412-7575 Telecopy: (212) 412-7575
Telex: None Telex: None

The Chase Manhattan Bank The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
(National Association) One Chase Manhattan Plaza, 3rd Floor One Chase Manhattan Plaza, 3rd Floor
New York, New York 10081 New York, New York 10081
Attention: Vito Cipriano Attention: Vito Cipriano
Telephone: (212) 552-6362 Telephone: (212) 552-6362
Telecopy: (212) 552-4455 Telecopy: (212) 552-4455

with a copy to: with a copy to:

Chase Manhattan Southwest Chase Manhattan Southwest
1100 Milam, Suite 2345 1100 Milam, Suite 2345
Houston, TX 77002 Houston, Texas 77002
Attention: Peter Licalzi Attention: Peter Licalzi
Telephone: (713) 751-5661 Telephone: (713) 751-5661
Telecopy: (713) 751-9122 Telecopy: (713) 751-9122

Chemical Bank Chemical Bank Chemical Bank
270 Park Avenue, 9th Floor 270 Park Avenue, 9th Floor
New York, New York 10017 New York, New York 10017
Attention: Douglas Petno Attention: Mr. Douglas Petno
Telephone: (212) 270-7738 Telephone: (212) 270-7738
Telecopy: (212) 270-3841 Telecopy: (212) 270-3841

Bank of America National Trust Bank of America National Trust Bank of America National Trust
and Savings Association and Savings Association and Savings Association
1850 Gateway Blvd., Fourth Floor 1850 Gateway Blvd., Fourth Floor
Concord, California 94520 Concord, California 94520
Attention: Denise Robertson Attention: Denise Robertson
Telephone: (510) 675-7189 Telephone: (510) 675-7189
Telecopy: (511) 675-7531/7532 Telecopy: (510) 675-7531/7532
Telex: 34346 Telex: 34346
Answerback: BANKAMER-FFO Answerback: BANKAMER-FFO

with a copy to: with a copy to:

Bank of America National Trust Bank of America National Trust
and Savings Association and Savings Association
333 Clay Street, Suite 4550 333 Clay Street, Suite 4550
Houston, Texas 77002 Houston, Texas 77002
Attention: John M. Robinson Attention: John M. Robinson
Telephone: (713) 651-4836 Telephone: (713) 651-4836
Telecopy: (713) 651-4841 Telecopy: (713) 651-4841

The Bank of New York The Bank of New York The Bank of New York
One Wall Street, 19th Floor One Wall Street, 19th Floor
New York, New York 10286 New York, New York 10286
Attention: William P. Kenney Attention: William P. Kenney
Telephone: (212) 635-7392 Telephone: (212) 635-7392
Telecopy: (212) 635-7923 Telecopy: (212) 635-7923
Telex: ITT-420268 Telex: ITT-420268
Answerback: RCA 232241 Answerback: RCA 232241

The First National Bank of Boston The First National Bank of Boston The First National Bank of Boston
Energy & Utilities Division Commercial Loan Service
100 Federal Street 100 Rustcraft Road
Boston, Massachusetts 02110 Dedham, Massachusetts 02026
Attention: Steve Schauer Attention: Debra Williams
Telephone: (617) 434-8419 Telephone: (617) 467-2314
Telecopy: (617) 434-3652 Telecopy: (617) 467-2276
Telex: 4996527 Telex: 4996527
Answerback: FNBBVS33 Answerback: FNBBVS33
</TABLE>

-2-
<PAGE> 79

<TABLE>
<S> <C> <C>
NationsBank of Texas, N.A. NationsBank of Texas, N.A. NationsBank of Texas, N.A.
700 Louisiana, 8th Floor 700 Louisiana, 8th Floor
Houston, Texas 77002 Houston, Texas 77002
Attention: Kristin B. Palmer Attention: Kristen B. Palmer
Telephone: (713) 247-6833 Telephone: (713) 247-6833
Telecopy: (713) 247-6568 Telecopy: (713) 247-6568
Telex: 6829317 Telex: 6829317
Answerback: NationsBk DAL Answerback: NationsBk DAL

CIBC Inc. CIBC Inc. CIBC Inc.
2 Paces West 2 Paces West
2727 Paces Ferry Rd., Suite 1200 2727 Paces Ferry Rd., Suite 1200
Atlanta, Georgia 30339 Atlanta, Georgia 30339
Attention: Adrienne Burch Attention: Adrienne Burch
Telephone: (404) 319-4835 Telephone: (404) 319-4835
Telecopy: (404) 319-4950 Telecopy: (404) 319-4950

with a copy to: with a copy to:

Canadian Imperial Bank Canadian Imperial Bank
of Commerce of Commerce
909 Fannin, Suite 1200 909 Fannin, Suite 1200
Two Houston Center Two Houston Center
Houston, Texas 77010 Houston, Texas 77010
Attention: Robert E. Long Attention: Robert E. Long
Telephone: (713) 658-8400 Telephone: (713) 658-8400
Telecopy: (713) 658-9922 Telecopy: (713) 658-9922

Continental Bank N.A. Continental Bank N.A. Continental Bank N.A.
231 S. La Salle 231 S. La Salle
Chicago, Illinois 60697 Chicago, Illinois 60697
Attention: Joan Harwell Attention: Joan Harwell
Telephone: (312) 828-7838 Telephone: (312) 828-7838
Telecopy: (312) 987-5614 Telecopy: (312) 987-5614
Telex: 253412 Telex: 253412
Answerback: CONILLBK CGO Answerback: CONILLBK CGO

The Nippon Credit Bank, Ltd. The Nippon Credit Bank, Ltd. The Nippon Credit Bank, Ltd.
New York Branch New York Branch
245 Park Avenue, 30th Floor 245 Park Avenue, 30th Floor
New York, New York 10167 New York, New York 10167
Attention: Elizabeth S. Tarbell Attention: Elizabeth S. Tarbell
Telephone: (212) 984-1235 Telephone: (212) 984-1235
Telecopy: (212) 490-3895 Telecopy: (212) 490-3895
Telex: 17558 Telex: 17558
Answerback: NCBN UT Answerback: NCBN UT

Societe Generale, Southwest Agency Societe Generale, Southwest Agency Societe Generale, Southwest Agency
2001 Ross Ave., Suite 4800 2001 Ross Ave., Suite 4800
Dallas, Texas 75201 Dallas, Texas 75201
Attention: Gina Lee Attention: Gina Lee
Telephone: (214) 979-2741 Telephone: (214) 979-2741
Telecopy: (214) 754-0171 Telecopy: (214) 754-0171
Telex: 170494 Telex: 170494
Answerback: SOCGEN UT Answerback: SOCGEN UT

Swiss Bank Corporation, New York Branch Swiss Bank Corporation Swiss Bank Corporation
New York Branch New York Branch
10 East 50th Street, SBT 17A 10 East 50th Street, SBT 17A
New York, New York 10022 New York, New York 10022
Attention: Valerie Williams Attention: Valerie Williams
Telephone: (212) 574-3146 Telephone: (212) 574-3146
Telecopy: (212) 574-3852 / 4176 Telecopy: (212) 574-3852 / 4176
</TABLE>

-3-
<PAGE> 80

Schedule 5.02(a)
Existing Liens

Each of TGPL and TXG have sold their monthly trade receivables
from customers.

TGPL's receivables were sold pursuant to a Trade Receivables
Purchase and Sale Agreement dated as of September 29, 1993 among TGPL and
Citibank, N.A., Bank of Montreal and Barclays Bank, PLC and Citicorp North
America, Inc., individually and as agent (collectively the "Purchasers"), as
such Agreements may be amended from time to time in the future. Such agent has
taken a security interest in the receivables.

TXG's receivables were sold pursuant to a Trade Receivables
Purchase and Sale Agreement dated as of September 29, 1993 among TXG and the
Purchasers, as such Agreements may be amended from time to time in the future.
Such agent has taken a security interest in the receivables.
<PAGE> 81
Schedule 5.02(c)

<TABLE>
<CAPTION>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION AMOUNT
------
<S> <C>
9 1/8% due 2017 $ 150,000,000
8 7/8% due 2002 125,000,000
Extendible Notes due 2000 125,000,000
9% due 1996 150,000,000
8 1/8% due 1997 99,000,000
----------------
$ 649,000,000

TEXAS GAS TRANSMISSION CORPORATION

10% due 1994 $ 150,000,000
9 5/8% due 1997 100,000,000
----------------
$ 250,000,000

TRANSCO ENERGY COMPANY

11 1/4% due 1999 $ 300,000,000
9 5/8% due 2000 125,000,000
9 7/8% due 2020 125,000,000
9 1/2% due 1995 150,000,000
9 1/8% due 1998 200,000,000
9 3/8% due 2001 150,000,000
Tran$tock due 1994 9,383,340
----------------
$ 1,059,383,340
</TABLE>
<PAGE> 82
Schedule 5.02(e)
Existing Restrictions on
Dividends, Advances and Investments

The Indenture, dated as of June 1, 1983, between TGPL and NationsBank,
as trustee, as amended, under which $649,000,000 was outstanding as of December
31, 1993, contains the following restrictions on payment of dividends. The
Indenture provides that no dividend whatsoever shall be paid or declared nor
shall any distribution (except in shares of, or warrants or rights to subscribe
for or purchase shares of, capital stock of TGPL) be made on any capital stock
of TGPL, nor shall any payment be made by TGPL or any subsidiary of TGPL to
acquire shares of such stock, except for fixed dividends or mandatory sinking
or purchase fund payments on Preferred Stock of TGPL (other than Preferred
Stock issued as a stock dividend or other distribution with respect to
outstanding capital stock), if, after giving effect to such dividend,
distribution or acquisition, the aggregate payment for all such purposes
(including such fixed dividends or mandatory sinking or purchase fund payments
on Preferred Stock) subsequent to December 31, 1980 would exceed the sum of (a)
the consolidated net earnings earned subsequent to December 31, 1980, (b)
$190,000,000, (c) the aggregate of the net proceeds received by TGPL from the
issuance or sale (other than to a subsidiary of TGPL) for cash or other
property of shares of its capital stock (including treasury stock) subsequent
to December 31, 1980, and (d) the aggregate principal amount of any
indebtedness of TGPL which is converted into shares of its capital stock
subsequent to December 31 1980 (less applicable expenses and cash paid by TGPL
in respect of fractional share interests upon such conversion).
<PAGE> 83
EXHIBIT A

FORM OF PROMISSORY NOTE

U.S. $____________________ _______________, 199__

FOR VALUE RECEIVED, the undersigned, Transco Energy Company, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
____________________ (the "Bank") for the account of its Applicable Lending
Office (as defined in the Credit Agreement referred to below), on the
Termination Date (as defined in the Credit Agreement), the aggregate principal
amount of the Advances (as defined in the Credit Agreement) owing to the Bank
outstanding on such Termination Date.

The Borrower promises to pay interest on the unpaid principal amount
of each Advance from the date of such Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.

Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Agent, at 399 Park Avenue, New York,
New York 10043, in same day funds. Each Advance owing to the Bank by the
Borrower pursuant to the Credit Agreement, and all payments made on account of
principal thereof, shall be recorded by the Bank and, prior to any transfer
hereof, endorsed on the grid attached hereto which is part of this Promissory
Note, but the failure to so record or endorse shall not affect the Borrower's
obligation or the Bank's rights.

This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Amended and Restated Credit Agreement dated as
of December 31, 1993 (the "Credit Agreement") among the Borrower, the Bank and
certain other banks parties thereto, Citibank, N.A., as Agent for the Bank and
such other banks, and Bank of Montreal, as Co-Agent. The Credit Agreement,
among other things (i) provides for the making of advances by the Bank to the
Borrower from time to time pursuant to Section 2.01 thereof in an aggregate
amount not to exceed at any time outstanding the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each advance owing
to the Bank made pursuant to such Section 2.01 being evidenced by this
Promissory Note, and (ii) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events and also

<PAGE> 84
for prepayments on account of principal hereof prior to the maturity hereof
upon the terms and conditions therein specified.

The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.

This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of New York.

TRANSCO ENERGY COMPANY

By: ____________________________
Name: ________________________
Title: _______________________

-2-
<PAGE> 85
ADVANCES AND PAYMENTS OF PRINCIPAL

<TABLE>
<CAPTION>
Amount of
Amount Principal Unpaid
of Type of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
---- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 86
EXHIBIT B

NOTICE OF BORROWING

{Date}

Citibank, N.A., as Agent
for the Banks which are
parties to the Credit
Agreement referred to below
399 Park Avenue
New York, New York 10043

Attention: Energy Department
North American Banking Group

Ladies and Gentlemen:

The undersigned, Transco Energy Company, refers to the Amended and
Restated Credit Agreement dated as of December 31, 1993 (the "Credit
Agreement", the terms defined therein being used herein as therein defined),
among the undersigned, certain Banks parties thereto, Bank of Montreal, as
Co-Agent, and Citibank, N.A., as Agent for such Banks, and hereby gives you
notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement:

(i) The Business Day of the Proposed Borrowing is
____________________, 199__.

(ii) The Type of Advances comprising the Proposed Borrowing is
{Base Rate Advances} {Eurodollar Rate Advances}.

(iii) The aggregate amount of the Proposed Borrowing is
$_______________________.

(iv) The Interest Period for each Eurodollar Rate Advance made as
part of the Proposed Borrowing is _____ months.

The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed
Borrowing:

(a) the representations and warranties contained in Section 4.01
of the Credit Agreement, the representations and warranties

<PAGE> 87
set forth in Section 5 of the TGPL Guaranty and the representations and
warranties set forth in Section 5 of the TXG Guaranty are correct, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date; and

(b) no event has occurred and is continuing, or would result from
such Proposed Borrowing or from the application of the proceeds therefrom,
which constitutes a Default or an Event of Default.

Very truly yours,

TRANSCO ENERGY COMPANY

By: _______________________________
Name: __________________________
Title: _________________________

cc: Citicorp North America, Inc.
2100 Citicorp Center
1200 Smith Street
Houston, Texas 77002
Attention: J. Christopher Lyons
Vice President

-2-
<PAGE> 88
EXHIBIT C

AMENDED AND RESTATED GUARANTY

This AMENDED AND RESTATED GUARANTY dated as of ________, 199__ (this
"Guaranty") is made by Transcontinental Gas Pipe Line Corporation, a Delaware
corporation (the "Guarantor"), in favor of the Banks (as defined in the Credit
Agreement referred to below), and Citibank, N.A., as Agent for the Banks (the
"Agent").

PRELIMINARY STATEMENTS:

(1) The Agent, Bank of Montreal, as Co-Agent, and the Banks
entered into a Credit Agreement dated as of December 31, 1991 (as amended prior
to the date hereof, the "1991 Credit Agreement") with Transco Energy Company, a
Delaware corporation ("Borrower"). The Borrower, the Banks, the Agent and the
Co-Agent agreed to amend and restate the 1991 Credit Agreement, and have
entered into an Amended and Restated Credit Agreement dated as of December 31,
1993 (said Amended and Restated Credit Agreement, as it may hereafter be
amended or otherwise modified from time to time, being herein called the
"Credit Agreement," the terms defined therein and not otherwise defined herein
being used herein as therein defined). The Borrower is the principal financing
entity for all capital requirements of its subsidiaries, and from time to time
the Borrower has made capital contributions and advances to its subsidiaries,
including the Guarantor. The Guarantor is a wholly-owned indirect subsidiary
of the Borrower and will derive substantial direct and indirect benefit from
the transactions contemplated by the Credit Agreement.

(2) As used herein, the term "Obligations" means all obligations
of the Borrower now or hereafter existing under the Credit Agreement, any of
the Notes or any other Loan Document, whether for principal, interest, fees,
expenses, indemnities or otherwise, including, without limitation, all
principal of and interest on the indebtedness evidenced by the Notes and all
principal of and interest on the Advances, whether or not evidenced by the
Notes. The Guarantor intends to guaranty all Obligations, but the amount of
the Guarantor's obligation to pay hereunder is limited as set forth in Section
13 hereof.

(3) Guarantor hereby acknowledges that pursuant to the terms of
the TGPL Guaranty (as defined in the 1991 Credit Agreement), the Guarantor
guarantied up to $350,000,000 of principal of Borrower's Obligations, and
pursuant to this Guaranty, the guarantied amount has decreased to the amount of
$270,000,000 of principal of Borrower's Obligations as set forth in Section 13
hereof.

<PAGE> 89
(4) The Guarantor has irrevocably elected to execute and deliver
this Guaranty (i) intending it to be a legal, valid, binding, enforceable and
continuing obligation of the Guarantor and (ii) to induce the Banks and the
Agent to enter into the Credit Agreement and to induce the Banks to make
Advances thereunder.

NOW, THEREFORE, in consideration of the premises and as contemplated
in the Credit Agreement, the Guarantor hereby agrees as follows:

Section 1. Guaranty. The Guarantor hereby unconditionally guarantees
the punctual payment of the Obligations when due, whether at stated maturity,
by acceleration or otherwise, and agrees to pay any and all expenses (including
counsel fees and expenses) incurred by the Agent or any Bank in enforcing any
rights under this Guaranty. Without limiting the generality of the foregoing,
the Guarantor's liability shall extend to all amounts which constitute part of
the Obligations and would be owed by the Borrower but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Borrower.

Section 2. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the Credit
Agreement and the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Agent or any Bank with respect thereto. The obligations of the
Guarantor under this Guaranty are independent of the Obligations, and a
separate action or actions may be brought and prosecuted against the Guarantor
to enforce this Guaranty, irrespective or whether any action is brought against
the Borrower or any other Person or whether the Borrower or any other Person is
joined in any such action or actions. The liability of the Guarantor under
this Guaranty shall be absolute and unconditional irrespective of:

(i) any lack of validity or enforceability of the
Credit Agreement, the Notes or any other Loan Document;

(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations or
any other liabilities, or any other amendment or waiver of or any
consent to departure from the Credit Agreement, the Notes or any other
Loan Document, including, without limitation, any increase in the
Obligations or any other liabilities resulting from

-2-
<PAGE> 90
the extension of additional credit to the Borrower or any of its
subsidiaries or otherwise;

(iii) any taking, exchange, release or
non-perfection of any collateral, or any taking, release or amendment
or waiver of or consent to departure from any other guaranty
(including, without limitation, the TXG Guaranty), for all or any of
the Obligations or any other liabilities;

(iv) any manner of application of collateral, or
proceeds thereof or of collections on account of any other guaranty
(including, without limitation, the TXG Guaranty), to all or any of
the Obligations or any other liabilities, or any manner of sale or
other disposition of any collateral for all or any of the Obligations
or any other liabilities or any other assets of the Borrower or any of
its subsidiaries;

(v) any change, restructuring or termination of
the corporate structure or existence of the Borrower or any of its
subsidiaries; or

(vi) any other circumstances which might otherwise
constitute a defense available to, or a discharge of, the Borrower or
a guarantor.

This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Agent or any Bank upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment had not been made.

Section 3. Waiver. The Guarantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Agent or any Bank
protect, secure, perfect or insure any security interest or other Lien or any
property subject thereto or exhaust any right to take any action against the
Borrower or any other Person or any collateral.

Section 4. Subrogation. The Guarantor irrevocably waives, until
payment in full of all Obligations and termination of all the Commitments, any
and all rights to which it may be entitled, by operation of law or otherwise,
by making any payment hereunder or otherwise (i) to be subrogated to the rights
of the Agent and the Banks against the Borrower, TXG or any other Person with
respect to such payment or otherwise to

-3-
<PAGE> 91
be reimbursed, indemnified or exonerated by the Borrower, TXG or any other
Person in respect thereof or (ii) to receive any payment, in the nature of
contribution or for any other reason, from any Person who has provided security
for the Obligations or who has also guaranteed or is otherwise liable for the
Obligations with respect to which such payment was made. If any amount shall
be paid to the Guarantor on account of such subrogation or contribution rights
at any time prior to payment in full of all Obligations and termination of all
of the Commitments, such amount shall be held in trust for the benefit of the
Banks and the Agent and shall forthwith be paid to the Agent to be credited
against and applied upon the Obligations, whether matured or unmatured, in such
order as may be determined by the Agent.

Section 5. Representations and Warranties. The Guarantor hereby
represents and warrants to the Agent and each Bank as follows:

(a) The execution, delivery and performance by the
Guarantor of this Guaranty and the consummation of the transactions
contemplated by this Guaranty are within the Guarantor's corporate powers, have
been duly authorized by all necessary corporate action, do not contravene (i)
the Guarantor's charter or by-laws, (ii) any applicable rule, regulation,
order, writ, injunction or decree, or (iii) law or any contractual restriction
binding on or affecting the Guarantor and will not result in or require the
creation or imposition of any Lien prohibited by the Credit Agreement or this
Guaranty.

(b) No authorization, approval, consent, license or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Guarantor of this Guaranty or the consummation of the transactions
contemplated by this Guaranty.

(c) This Guaranty has been duly executed and delivered by
the Guarantor. This Guaranty is a legal, valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally.

(d) There is no pending or, to the best of the
Guarantor's knowledge, threatened action or proceeding before any court,
governmental agency or arbitrator which purports to

-4-
<PAGE> 92
affect the legality, validity, binding effect or enforceability of this
Guaranty.

(e) There are no conditions precedent to the
effectiveness of this Guaranty that have not been satisfied.

(f) The Guarantor has, independently and without reliance
upon the Agent or any Bank and based on documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Guaranty.

(g) All representations and warranties set forth in the
Credit Agreement, insofar as they pertain to this Guaranty or the Guarantor,
are true and correct.

(h) The consolidated and consolidating balance sheets of
the Guarantor and its subsidiaries as at September 30, 1993 and the related
consolidated and consolidating statements of income, retained earnings, and
cash flows of the Guarantor and its subsidiaries for the period commencing at
the end of the previous fiscal year and ending with such date, duly certified
by a financial officer (who is a Vice President, Treasurer, or the principal
accounting officer) of the Guarantor, copies of which have been furnished to
each Bank, fairly present, subject to year-end audit adjustments, the
consolidated and consolidating financial position of the Guarantor and its
subsidiaries as at such date and the consolidated and consolidating results of
the operations of the Guarantor and its subsidiaries for the nine months ended
on such date, and such balance sheets and financial statements were prepared in
accordance with GAAP consistently applied except as specifically noted therein.
Since September 30, 1993, there has been no material adverse change in (I) the
business, financial position or results of operations of the Guarantor and its
subsidiaries, taken as a whole, or (II) the ability of the Guarantor to perform
its obligations under this Guaranty; provided, however, that restructuring
charges not exceeding $100,000,000 in the aggregate taken or to be taken by the
Guarantor during 1994 pursuant to the Magnolia Charge shall not be taken into
consideration in determining whether a material adverse change has occurred.

Section 6. Amendments, Etc. No amendment or waiver of any provision
of this Guaranty, and no consent to any departure by the Guarantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Agent and the Required Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and

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signed by all the Banks, release this Guaranty or otherwise change any
obligation of the Guarantor to pay hereunder.

Section 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier
or telex communication) and dispatched by registered or certified mail,
telecopied, telexed or delivered, (a) if to the Guarantor, at its address at
2800 Post Oak Boulevard, P. O. Box 1396, Houston, Texas 77251, Attention:
Treasurer, Telecopy: (713) 439-2440, Telex: 792013, Answerback: TRANSCO HOU A,
and (b) if to the Agent or any Bank at its respective address from time to time
specified in or pursuant to the Credit Agreement. Each such notice or
communication shall be effective (i) if mailed, on the fifth Business Day
following the date it is dispatched by registered or certified mail, (ii) if
delivered by hand, upon delivery with written receipt, and (iii) if telecopied
or telexed, when receipt is confirmed by telephone or appropriate answer-back,
respectively, except that any notice or communication to the Agent shall not be
effective until received by the Agent.

Section 8. No Waiver; Remedies. No failure on the part of the Agent
or any Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

Section 9. Jurisdiction. To the fullest extent it may effectively do
so under applicable law, the Guarantor hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in the Borough of
Manhattan, the City of New York, in any action or proceeding arising out or
relating to this Guaranty, and the Guarantor hereby irrevocably agrees that all
claims in respect of such action or proceeding may be heard and determined in
such court. The Guarantor hereby irrevocably waives, to the fullest extent it
may effectively do so, any right it may have to trial by jury and the defense
of the inconvenient forum to the maintenance of such action or proceeding. The
Guarantor hereby agrees that service of copies of the summons and complaint and
any other process which may be served in any such action or proceeding may be
made by mailing or delivering a copy of such process to the Guarantor at its
address specified in Section 7. The Guarantor agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing herein shall affect the rights of any Bank or the Agent to serve legal
process in

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any other manner permitted by law or affect the right of any Bank or the Agent
to bring any action or proceeding against the Guarantor or its Property in the
courts of any other jurisdiction.

Section 10. Continuing Guaranty; Assignments under the Credit
Agreement. This Guaranty is a continuing guaranty and shall (i) remain in full
force and effect until the later of (A) the payment in full of the Obligations
and all other amounts payable under this Guaranty and (B) the expiration or
termination of all Commitments, (ii) be binding upon the Guarantor, its
successors and assigns, (iii) inure to the benefit of, and be enforceable by,
the Agent and each of the Banks and their respective successors, transferees
and assigns, and (iv) not be terminated by the Guarantor, the Borrower or any
other Person, except as provided in Section 12 hereof. Without limiting the
generality of the foregoing clause (iii), any Bank may assign or otherwise
transfer all or any portion of its rights and obligations under the Loan
Documents in accordance with the Credit Agreement and the assignee shall
thereupon become vested with all the benefits in respect thereof granted to
such Bank herein or otherwise. Any Bank may, in connection with any assignment
or participation or proposed assignment or participation pursuant to the Credit
Agreement, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Guarantor furnished to such Bank
by or on behalf of the Borrower or the Guarantor; provided, that, prior to any
such disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any confidential
information relating to the Guarantor received by it from such Bank.

Section 11. Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York.

Section 12. Termination. If the senior unsecured long-term debt of
the Borrower is rated BBB- or higher by S&P and is rated Baa3 or higher by
Moody's, and the Agent has received both a certificate of an officer of the
Guarantor certifying that the events described above have occurred and are
continuing and a request that this Guaranty be terminated, then this Guaranty
shall terminate on the date which is twenty Business Days following Agent's
receipt of such request. The provisions of Section 1.05 of the Credit
Agreement shall be applicable to any determination of any rating under this
Section 12.

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Section 13. Limitation on Guaranteed Amount. Notwithstanding
anything herein to the contrary, the maximum amount which the Guarantor shall
be obligated to pay under this Guaranty on account of the Obligations shall be
the lesser of (a) the sum of (i) $270,000,000 in principal of the Borrower's
Obligations constituting Advances plus (ii) any interest accruing pursuant to
the Credit Agreement and the Notes on such amount plus (iii) all expenses
(including counsel fees and expenses, which may include the allocated costs of
in-house counsel) incurred by the Agent or any Bank in enforcing any rights
under this Guaranty or (b) the maximum amount which can be guaranteed by
Guarantor under applicable federal and state laws relating to the insolvency of
debtors. All amounts paid on account of the Obligations shall be deemed to
have not been paid by the Guarantor (and consequently such amounts shall not be
taken into account in determining whether the Guarantor's maximum obligation to
pay under this Guaranty has been satisfied), unless such amounts are paid by
the Guarantor after written demand therefor from the Agent and at the time such
payment is made the Agent receives a notice from the Guarantor referring to
this Section 13 and stating that such payment is being made by the Guarantor.

Section 14. Information. The Guarantor will furnish to each Bank:

(i) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the
Guarantor, the consolidated and consolidating balance sheets of the
Guarantor and its subsidiaries as at the end of such quarter and the
consolidated and consolidating statements of income, retained
earnings, and cash flows of the Guarantor and it subsidiaries for the
period commencing at the end of the previous fiscal year and ending
with the end of such quarter, setting forth, in the case of the
consolidated statements, in comparative form, the corresponding
figures for the corresponding period of the preceding fiscal year, all
in reasonable detail and duly certified by a financial officer (who is
the chief financial officer, the treasurer or the principal accounting
officer) of the Guarantor as having been prepared in accordance with
GAAP subject, however, to year-end audit adjustments; and

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<PAGE> 96
retained earnings, and cash flows of the Guarantor and its
subsidiaries for such fiscal year, all certified by Arthur Andersen &
Co. or other independent certified public accountants of recognized
national standing; and (y) copies of the consolidating balance sheet
of the Guarantor and its subsidiaries as of the end of such fiscal
year and consolidating statements of income, retained earnings, and
cash flows of the Guarantor and its subsidiaries for such year, all
certified by a financial officer (who is the chief financial officer,
the treasurer or the principal accounting officer) of the Guarantor.

Section 15. Covenants. The Guarantor will not on or after the date
hereof (i) issue or cause to become outstanding any of its capital stock to any
Person, other than TGC, (ii) issue or cause to become outstanding any option,
warrant or other right to acquire any of its capital stock, or (iii) otherwise
take any action which would result in any common stock of the Guarantor being
owned, legally or beneficially, by any Person other than TGC. Without limiting
the generality of the foregoing, the Guarantor will comply with all provisions
of Section 5.01(f), Section 5.02(a), Section 5.02(c), Section 5.02(d), Section
5.02(e), Section 5.02(j), Section 5.02(k), Section 5.02(l), Section 5.02(n),
Section 5.02(o) or Section 5.02(p) of the Credit Agreement to the extent those
Sections are applicable to the Guarantor.

Section 16. Affirmative Covenants. The Guarantor will comply with
all provisions of Section 5.01 (other than Section 5.01(f) which is covered in
Section 15 hereof) of the Credit Agreement to the extent such Section 5.01 is
applicable to the Guarantor.

Section 17. No Offsets. The Guarantor will not assert any offset,
defense or counterclaim against any payment to be made by it under this
Guaranty.

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

TRANSCONTINENTAL GAS PIPE LINE
CORPORATION

By: ____________________________
Name: _______________________
Title: ______________________

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EXHIBIT D

AMENDED AND RESTATED GUARANTY

This AMENDED AND RESTATED GUARANTY dated as of ____________, 199_
(this "Guaranty") is made by Texas Gas Transmission Corporation, a Delaware
corporation (the "Guarantor"), in favor of the Banks (as defined in the Credit
Agreement referred to below), and Citibank, N.A., as Agent for the Banks (the
"Agent").

PRELIMINARY STATEMENTS:

(1) The Agent, Bank of Montreal, as Co-Agent, and the Banks
entered into a Credit Agreement dated as of December 31, 1991 (as amended prior
to the date hereof, the "1991 Credit Agreement") with Transco Energy Company, a
Delaware corporation ("Borrower"). The Borrower, the Banks, the Agent and the
Co-Agent agreed to amend and restate the 1991 Credit Agreement, and have
entered into an Amended and Restated Credit Agreement dated as of December 31,
1993 (said Amended and Restated Credit Agreement, as it may hereafter be
amended or otherwise modified from time to time, being herein called the
"Credit Agreement," the terms defined therein and not otherwise defined herein
being used herein as therein defined). The Borrower is the principal financing
entity for all capital requirements of its subsidiaries, and from time to time
the Borrower has made capital contributions and advances to its subsidiaries,
including the Guarantor. The Guarantor is a wholly-owned indirect subsidiary of
the Borrower and will derive substantial direct and indirect benefit from the
transactions contemplated by the Credit Agreement.

(2) As used herein, the term "Obligations" means all obligations
of the Borrower now or hereafter existing under the Credit Agreement, any of
the Notes or any other Loan Document, whether for principal, interest, fees,
expenses, indemnities or otherwise, including, without limitation, all
principal of and interest on the indebtedness evidenced by the Notes and all
principal of and interest on the Advances, whether or not evidenced by the
Notes. The Guarantor intends to guaranty all Obligations, but the amount of the
Guarantor's Obligation to pay hereunder is limited as set forth in Section 13
hereof.

(3) Guarantor hereby acknowledges that pursuant to the terms of
the TXG Guaranty (as defined in the 1991 Credit Agreement), the Guarantor
guarantied up to $250,000,000 of
<PAGE> 98
principal of Borrower's Obligations, and pursuant to this Guaranty, the
guarantied amount has decreased to the amount of $180,000,000 of principal of
Borrower's Obligations as set forth in Section 13 hereof.

(4) The Guarantor has irrevocably elected to execute and deliver
this Guaranty (i) intending it to be a legal, valid, binding, enforceable and
continuing obligation of the Guarantor and (ii) to induce the Banks and the
Agent to enter into the Amended and Restated Credit Agreement and to induce the
Banks to make Advances thereunder.

NOW, THEREFORE, in consideration of the premises and as contemplated
in the Amended and Restated Credit Agreement, the Guarantor hereby agrees as
follows:

Section 1. Guaranty. The Guarantor hereby unconditionally
guarantees the punctual payment of the Obligations when due, whether at stated
maturity, by acceleration or otherwise, and agrees to pay any and all expenses
(including counsel fees and expenses) incurred by the Agent or any Bank in
enforcing any rights under this Guaranty. Without limiting the generality of
the foregoing, the Guarantor's liability shall extend to all amounts which
constitute part of the Obligations and would be owed by the Borrower but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower.

Section 2. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the Credit
Agreement and the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Agent or any Bank with respect thereto. The obligations of the
Guarantor under this Guaranty are independent of the Obligations, and a
separate action or actions may be brought and prosecuted against the Guarantor
to enforce this Guaranty, irrespective or whether any action is brought against
the Borrower or any other Person or whether the Borrower or any other Person is
joined in any such action or actions. The liability of the Guarantor under this
Guaranty shall be absolute and unconditional irrespective of:

(i) any lack of validity or enforceability of the Amended
and Restated Credit Agreement, the Notes or any other Loan Document;

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(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations or any
other liabilities, or any other amendment or waiver of or any consent
to departure from the Credit Agreement, the Notes or any other Loan
Document, including, without limitation, any increase in the
Obligations or any other liabilities resulting from the extension of
additional credit to the Borrower or any of its subsidiaries or
otherwise;

(iii) any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guaranty (including, without
limitation, the TGPL Guaranty), for all or any of the Obligations or
any other liabilities;

(iv) any manner of application of collateral, or proceeds
thereof or of collections on account of any other guaranty (including,
without limitation, the TGPL Guaranty), to all or any of the
Obligations or any other liabilities, or any manner of sale or other
disposition of any collateral for all or any of the Obligations or any
other liabilities or any other assets of the Borrower or any of its
subsidiaries;

(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
subsidiaries; or

(vi) any other circumstances which might otherwise
constitute a defense available to, or a discharge of, the Borrower or
a guarantor.

Section 3. Waiver. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Agent or any Bank
protect, secure, perfect or insure any security interest or other Lien or any
property subject thereto or exhaust any right to take any action against the
Borrower or any other Person or any collateral.

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Section 4. Subrogation. The Guarantor irrevocably waives, until
payment in full of all Obligations and termination of all the Commitments, any
and all rights to which it may be entitled, by operation of law or otherwise,
by making any payment hereunder or otherwise (i) to be subrogated to the rights
of the Agent and the Banks against the Borrower, TGPL or any other Person with
respect to such payment or otherwise to be reimbursed, indemnified or
exonerated by the Borrower, TGPL or any other Person in respect thereof or (ii)
to receive any payment, in the nature of contribution or for any other reason,
from any Person who has provided security for the Obligations or who has also
guaranteed or is otherwise liable for the Obligations with respect to which
such payment was made. If any amount shall be paid to the Guarantor on account
of such subrogation or contribution rights at any time prior to payment in full
of all Obligations and termination of all of the Commitments, such amount shall
be held in trust for the benefit of the Banks and the Agent and shall forthwith
be paid to the Agent to be credited against and applied upon the Obligations,
whether matured or unmatured, in such order as may be determined by the Agent.

Section 5. Representations and Warranties. The Guarantor hereby
represents and warrants to the Agent and each Bank as follows:

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enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally.

(d) There is no pending or, to the best of the
Guarantor's knowledge, threatened action or proceeding before any court,
governmental agency or arbitrator which purports to affect the legality,
validity, binding effect or enforceability of this Guaranty.

(e) There are no conditions precedent to the
effectiveness of this Guaranty that have not been satisfied.

(g) All representations and warranties set forth in the
Credit Agreement, insofar as they pertain to this Guaranty or the Guarantor,
are true and correct.

(h) The consolidated and consolidating balance sheets of
the Guarantor and its subsidiaries as at September 30, 1993 and the related
consolidated and consolidating statements of income, retained earnings, and
cash flows of the Guarantor and its subsidiaries for the period commencing at
the end of the previous fiscal year and ending with such date, duly certified
by a financial officer (who is a Vice President, Treasurer, or the principal
accounting officer) of the Guarantor, copies of which have been furnished to
each Bank, fairly present, subject to year-end audit adjustments, the
consolidated and consolidating financial position of the Guarantor and its
subsidiaries as at such date and the consolidated and consolidating results of
the operations of the Guarantor and its subsidiaries for the nine months ended
on such date, and such balance sheets and financial statements were prepared in
accordance with GAAP consistently applied except as specifically noted therein.
Since September 30, 1993, there has been no material adverse change in (I) the
business, financial position or results of operations of the Guarantor and its
subsidiaries, taken as a whole or (II) the ability of the Guarantor to perform
its obligations under this Guaranty.

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<PAGE> 102
Agent and the Required Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks, release this Guaranty or otherwise change
any obligation of the Guarantor to pay hereunder.

Section 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier
or telex communication) and dispatched by registered or certified mail,
telecopied, telexed or delivered, (a) if to the Guarantor, at its address at
2800 Post Oak Boulevard, P. O. Box 1396, Houston, Texas 77251, Attention:
Treasurer, Telecopy: (713) 439-2440, Telex: 792013, Answerback: TRANSCO HOU A,
and (b) if to the Agent or any Bank at its respective address from time to time
specified in or pursuant to the Amended and Restated Credit Agreement. Each
such notice or communication shall be effective (i) if mailed, on the fifth
Business Day following the date it is dispatched by registered or certified
mail, (ii) if delivered by hand, upon delivery with written receipt, and (iii)
if telecopied or telexed, when receipt is confirmed by telephone or appropriate
answer-back, respectively, except that any notice or communication to the Agent
shall not be effective until received by the Agent.

Section 8. No Waiver; Remedies. No failure on the part of the
Agent or any Bank to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.

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process to the Guarantor at its address specified in Section 7. The Guarantor
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing herein shall affect the rights
of any Bank or the Agent to serve legal process in any other manner permitted
by law or affect the right of any Bank or the Agent to bring any action or
proceeding against the Guarantor or its Property in the courts of any other
jurisdiction.

Section 11. Governing Law. This Guaranty shall be governed by,
and construed in accordance with, the laws of the State of New York.

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then this Guaranty shall terminate on the date which is twenty Business Days
following Agent's receipt of such request. The provisions of Section 1.05 of
the Credit Agreement shall be applicable to any determination of any rating
under this Section 12.

Section 13. Limitation on Guaranteed Amount. Notwithstanding
anything herein to the contrary, the maximum amount which the Guarantor shall
be obligated to pay under this Guaranty on account of the Obligations shall be
the lesser of (a) the sum of (i) $180,000,000 in principal of the Borrower's
Obligations constituting Advances plus (ii) any interest accruing pursuant to
the Credit Agreement and the Notes on such amount plus (iii) all expenses
(including counsel fees and expenses, which may include the allocated costs of
in-house counsel) incurred by the Agent or any Bank in enforcing any rights
under this Guaranty or (b) the maximum amount which can be guaranteed by
Guarantor under applicable federal and state laws relating to the insolvency of
debtors. All amounts paid on account of the Obligations shall be deemed to have
not been paid by the Guarantor (and consequently such amounts shall not be
taken into account in determining whether the Guarantor's maximum obligation to
pay under this Guaranty has been satisfied), unless such amounts are paid by
the Guarantor after written demand therefor from the Agent and at the time such
payment is made the Agent receives a notice from the Guarantor referring to
this Section 13 and stating that such payment is being made by the Guarantor.

Section 14. Information. The Guarantor will furnish to each Bank:

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accordance with GAAP subject, however, to year-end audit adjustments;
and

(ii) as soon as available and in any event not later than 120 days
after the end of each fiscal year of the Guarantor, (x) copies of the
consolidated balance sheet of the Guarantor and its subsidiaries as at
the end of such fiscal year and consolidated statements of income,
retained earnings, and cash flows of the Guarantor and its
subsidiaries for such fiscal year, all certified by Arthur Andersen &
Co. or other independent certified public accountants of recognized
national standing; and (y) copies of the consolidating balance sheet
of the Guarantor and its subsidiaries as of the end of such fiscal
year and consolidating statements of income, retained earnings, and
cash flows of the Guarantor and its subsidiaries for such year, all
certified by a financial officer (who is the chief financial officer,
the treasurer or the principal accounting officer) of the Guarantor.

Section 15. Covenants. The Guarantor will not on or after the
date hereof (i) issue or cause to become outstanding any of its capital stock
to any Person, other than TGC, (ii) issue or cause to become outstanding any
option, warrant or other right to acquire any of its capital stock, or (iii)
otherwise take any action which would result in any common stock of the
Guarantor being owned, legally or beneficially, by any Person other than TGC.
Without limiting the generality of the foregoing, the Guarantor will comply
with all provisions of Section 5.01(f), Section 5.02(a), Section 5.02(c),
Section 5.02(d), Section 5.02(e), Section 5.02(j), Section 5.02(k), Section
5.02(l), Section 5.02(n), Section 5.02(o) or Section 5.02(p) of the Credit
Agreement to the extent those Sections are applicable to the Guarantor.

Section 17. No Offsets. The Guarantor will not assert any offset,
defense or counterclaim against any payment to be made by it under this
Guaranty.

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<PAGE> 106
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.

TEXAS GAS TRANSMISSION
CORPORATION

By: ___________________________
Name: _______________________
Title: ______________________

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EXHIBIT E

FORM OF OPINION OF COUNSEL FOR THE BORROWER

{Date}

To each of the Banks which are
parties to the Amended and Restated
Credit Agreement dated as of
December 31, 1993 among Transco Energy
Company, such Banks, Citibank, N.A.,
as Agent for such Banks and Bank of
Montreal, as Co-Agent, and to
Citibank, N.A., as Agent

Transco Energy Company

Ladies and Gentlemen:

I am Vice President, Associate General Counsel and Assistant Secretary of
Transco Energy Company, a Delaware corporation (the "Borrower"), and have acted
in such capacity as legal counsel to the Borrower and certain of its
subsidiaries in connection with the preparation, execution and delivery of the
Amended and Restated Credit Agreement dated as of December 31, 1993 (the
"Credit Agreement") among the Borrower, each of you, Bank of Montreal, as
Co-Agent, and Citibank, N.A., as Agent, and the other Loan Documents described
therein. This opinion is being delivered pursuant to Section 3.01(g) of the
Credit Agreement.

In connection herewith I have examined the Credit Agreement, the Notes
(consisting of a Note payable to each Bank), the TXG Guaranty and the TGPL
Guaranty, such certificates of public officials, such certificates of officers
of the Borrower and the Material Subsidiaries, originals or reproductions or
certified copies of such corporate documents and records of the Borrower, and
copies of such other documents, records and papers as I have deemed relevant
and necessary as a basis for the opinions hereinafter set forth. I have relied
upon certificates of public officials and certificates of officers of the
Borrower and the Material Subsidiaries with respect to the accuracy of factual
matters contained therein, and I know of no reason why I should not rely
thereon. In rendering the opinions set forth herein, I have assumed the due
authorization, execution and delivery of the Credit Agreement by each of the
Banks and the Agent.

Capitalized terms used herein that are defined in the Credit Agreement shall
have the same meanings herein as are set forth
<PAGE> 108
therein, unless otherwise provided herein, and the term "enforceable" when used
herein with respect to a particular agreement or instrument shall mean that
such agreement or instrument is enforceable in accordance with its terms,
except as its enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws at the time in effect relating
to or affecting the enforcement of creditors' rights generally, and (ii)
principles of equity applicable to the availability of the remedy of specific
performance.

I am qualified to practice law in the State of Texas and I do not purport to be
an expert on any laws other than the laws of the State of Texas, the General
Corporation Law of the State of Delaware and the Federal laws of the United
States and the opinions set forth herein are limited to the laws of the State
of Texas, such General Corporation Law and such Federal laws.

Based upon the foregoing and upon such investigation as I have deemed
appropriate, I am of the following opinion:

1. The Borrower and each Material Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all corporate powers and corporate authority to own
its properties and to carry on its business as now being conducted and is duly
qualified and in good standing in every jurisdiction in which the failure to so
qualify could have a material adverse effect on the business of the Borrower or
such Material Subsidiary.

2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes and the consummation of the transactions
contemplated thereby (i) are within its power and authority (corporate and
otherwise), (ii) have been duly authorized by all necessary corporate action,
(iii) do not require any consent or approval of its stockholders, (iv) do not
contravene its certificate of incorporation or its by-laws, each as amended and
as in effect on the date hereof, and (v) do not contravene, or constitute a
default under, any law, rule or regulation (including, without limitation,
Regulation X) applicable to it or any Material Subsidiary or any agreement,
judgment, injunction, order, decree or other instrument binding upon it or any
Material Subsidiary or result in the creation of imposition of any Lien on any
of its Property or on any Property of its Subsidiaries.

3. A duly authorized officer of the Borrower has executed and
delivered the Credit Agreement and the Notes.

4. In any action or proceeding arising out of or relating to the
Credit Agreement or any Note in any court of the State of Texas

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or in any federal court sitting in the State of Texas, such court would
recognize and give effect to the provisions of Section 8.09 of the Credit
Agreement, wherein the parties thereto agree that the Credit Agreement and the
Notes shall be governed by, and construed in accordance with, the laws of the
State of New York. Without limiting the generality of the foregoing, a court of
the State of Texas or a federal court sitting in the State of Texas would apply
the usury law of the State of New York, and would not apply the usury law of
the State of Texas to the Credit Agreement and the Notes. However, if a court
were to hold that the Credit Agreement and the Notes are governed by, and to be
construed in accordance with, the laws of the State of Texas, the Credit
Agreement and the Notes would, under the laws of the State of Texas, constitute
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms.

5. The execution, delivery and performance by TGPL of the TGPL
Guaranty and the consummation of the transactions contemplated thereby (i) are
within its power and authority (corporate and otherwise), (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any consent
or approval of its stockholders, (iv) do not contravene its certificate of
incorporation or its by-laws, each as amended and as in effect on the date
hereof, and (v) do not contravene, or constitute a default under, any law, rule
or regulation (including, without limitation, Regulation X) applicable to it or
any of its subsidiaries or any agreement, judgment, injunction, order, decree
or other instrument binding upon it or any of its subsidiaries or result in the
creation of imposition of any Lien on any of its Property or on any Property of
its subsidiaries.

6. A duly authorized officer of TGPL has executed and delivered
the TGPL Guaranty.

7. In any action or proceeding arising out of or relating to the
TGPL Guaranty in any court of the State of Texas or in any federal court
sitting in the State of Texas, such court would recognize and give effect to
the provisions of Section 11 of the TGPL Guaranty, wherein TGPL agrees that the
TGPL Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York. Without limiting the generality of the foregoing, a
court of the State of Texas or a federal court sitting in the State of Texas
would apply the usury law of the State of New York, and would not apply the
usury law of the State of Texas to the TGPL Guaranty. However, if a court were
to hold that the TGPL Guaranty is governed by, and to be construed in
accordance with, the laws of the State of Texas, the TGPL Guaranty would, under
the laws of the State of Texas, constitute legal, valid and binding

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<PAGE> 110
obligations of TGPL enforceable against TGPL in accordance with its terms.

8. The execution, delivery and performance by TXG of the TXG
Guaranty and the consummation of the transactions contemplated thereby (i) are
within its power and authority (corporate and otherwise), (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any consent
or approval of its stockholders, (iv) do not contravene its certificate of
incorporation or its by-laws, each as amended and as in effect on the date
hereof, and (v) do not contravene, or constitute a default under, any law, rule
or regulation (including, without limitation, Regulation X) applicable to it or
any of its subsidiaries or any agreement, judgment, injunction, order, decree
or other instrument binding upon it or any of its subsidiaries or result in the
creation of imposition of any Lien on any of its Property or on any Property of
its subsidiaries.

9. A duly authorized officer of TXG has executed and delivered
the TXG Guaranty.

10. In any action or proceeding arising out of or relating to the
TXG Guaranty in any court of the State of Texas or in any federal court sitting
in the State of Texas, such court would recognize and give effect to the
provisions of Section 11 of the TXG Guaranty, wherein TXG agrees that the TXG
Guaranty shall be governed by, and construed in accordance with, the laws of
the State of New York. Without limiting the generality of the foregoing, a
court of the State of Texas or a federal court sitting in the State of Texas
would apply the usury law of the State of New York, and would not apply the
usury law of the State of Texas to the TXG Guaranty. However, if a court were
to hold that the TXG Guaranty is governed by, and to be construed in accordance
with, the laws of the State of Texas, the TXG Guaranty would, under the laws of
the State of Texas, constitute legal, valid and binding obligations of TXG
enforceable against TXG in accordance with its terms.

11. Except as set forth in the Financial Statements, the
Borrower's annual report on Form 10-K for the year ended December 31, 1992, the
Borrower's quarterly reports on Form 10-Q for the quarters ended March 31,
1993, June 30, 1993 and September 30, 1993, there are no actions, suits or
proceedings pending or, to the best of my knowledge (after making due inquiry
with respect thereto), threatened against or affecting the Borrower, any of its
Subsidiaries or any of its or their respective rights or Properties before any
court or by or before any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which may reasonably be

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<PAGE> 111
expected to have a material adverse effect on the business, financial position
or results of operations or prospects of the Borrower and its Subsidiaries,
taken as a whole, or to impair materially the Borrower's ability to perform its
obligations under the Credit Agreement and the Notes, TGPL's ability to perform
its obligations under the TGPL Guaranty or TXG's ability to perform its
obligations under the TXG Guaranty, or which in any manner draws into question
the validity of the Credit Agreement, the Notes, the TGPL Guaranty or the TXG
Guaranty.

12. To the best of my knowledge (after making due inquiry with
respect thereto) neither the Borrower nor any of its Subsidiaries is in default
in any material respect with respect to any applicable order, writ, injunction
or decree of any court, governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which default may reasonably be
expected to have a material adverse effect on the business, financial position
or results of operations or prospects of the Borrower and its Subsidiaries,
taken as a whole, or to impair materially the Borrower's ability to perform its
obligations under the Credit Agreement and the Notes, TGPL's ability to perform
its obligations under the TGPL Guaranty or TXG's ability to perform its
obligations under the TXG Guaranty, or which in any manner draws into question
the validity of the Credit Agreement, the Notes, the TGPL Guaranty or the TXG
Guaranty.

13. Neither the Borrower nor any Material Subsidiary is an
"investment company" or a person "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.

14. Neither the Borrower nor any Material Subsidiary is a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate"
of a "holding company" as such terms are used in the Public Utility Holding
Company Act of 1935, as amended, any rule or regulation promulgated thereunder
or any order or interpretation of the Securities and Exchange Commission or its
staff issued pursuant thereto, and neither the Borrower nor any Material
Subsidiary is subject to any obligations, duties or liabilities thereunder
(except Section 9(a)(2) thereof).

15. It is not necessary in connection with the execution and
delivery of the Notes under the circumstances contemplated by the Credit
Agreement to register the Notes under the Securities Act of 1933 or to qualify
an indenture in respect thereof under the Trust Indenture Act of 1939.

16. Neither the Borrower nor any Material Subsidiary is engaged
in the business of extending credit for the purpose of

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<PAGE> 112
purchasing or carrying margin stock (within the meaning of Regulation U).

17. No authorization, approval, consent, license, or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the
Borrower of the Credit Agreement and the Notes, by TGPL of the TGPL Guaranty or
by TXG of the TXG Guaranty or for the consummation of the transactions
contemplated thereby.

18. All authorizations, licenses, consents, filings, approvals and
certificates which are necessary to enable the Borrower and each Material
Subsidiary to carry on any material aspect of the business in which it is
presently engaged or to enable the Borrower to perform its obligations under
the Credit Agreement and the Notes have been obtained or made and are in full
force and effect (except such authorizations, licenses, consents, filings,
approvals and certificates which are not customarily obtained, made or filed
prior to the time when they are required), and there has been no material
default by the Borrower or any Material Subsidiary under any of the terms
thereof.

19. All authorizations, licenses, consents, filings, approvals and
certificates which are necessary to enable TGPL and each of its subsidiaries to
carry on any material aspect of the business in which it is presently engaged
or to enable TGPL to perform its obligations under the TGPL Guaranty have been
obtained or made and are in full force and effect (except such authorizations,
licenses, consents, filings, approvals and certificates which are not
customarily obtained, made or filed prior to the time when they are required),
and there has been no material default by TGPL or any of its subsidiaries under
any of the terms thereof.

20. All authorizations, licenses, consents, filings, approvals and
certificates which are necessary to enable TXG and each of its subsidiaries to
carry on any material aspect of the business in which it is presently engaged
or to enable TXG to perform its obligations under the TXG Guaranty have been
obtained or made and are in full force and effect (except such authorizations,
licenses, consents, filings, approvals and certificates which are not
customarily obtained, made or filed prior to the time when they are required),
and there has been no material default by TXG or any of its subsidiaries under
any of the terms thereof.

21. The Borrower is the record and beneficial owner of all of the
issued and outstanding common stock and Voting Stock of TGC, and TGC is the
record and beneficial owner of all of the issued and outstanding common stock
and Voting Stock of TGPL and TXG, in each

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<PAGE> 113
case free and clear of all Liens. There are no outstanding options, warrants or
other rights to acquire any capital stock of any Material Subsidiary.

I am aware that Messrs. Bracewell & Patterson, L.L.P. and Messrs. King &
Spalding may rely upon the opinions set forth herein in rendering their
respective opinions furnished pursuant to the Credit Agreement. This opinion is
solely for your benefit and the benefit of your respective successors, assigns,
participants and other transferees and may not be relied upon by any other
Person, except to the extent set forth in this paragraph.

Very truly yours,

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<PAGE> 114

EXHIBIT F

FORM OF OPINION OF
SPECIAL COUNSEL TO THE AGENT

{Date}

To Citibank, N.A., as Agent,
and to each of the Banks party
to the Credit Agreement
described below

Ladies and Gentlemen:

We have acted as special counsel to Citibank, N.A., acting for itself and as
Agent, in connection with the preparation, execution and delivery of the
Amended and Restated Credit Agreement, dated as of December 31, 1993 (the
"Credit Agreement"), among Transco Energy Company, a Delaware corporation (the
"Borrower"), Bank of Montreal, as Co-Agent, and each of you. Capitalized terms
defined in the Credit Agreement are used herein as therein defined.

In that connection, we have examined the following documents:

(1) Counterparts of the Credit Agreement, executed by the Agent
and the Borrower, respectively.

(2) The documents furnished by the Borrower, TGPL and TXG pursuant
to Section 3.01 of the Credit Agreement and listed on Annex A hereto, including
the opinion of Molly S. Williams, Vice President, Associate General Counsel and
Assistant Secretary of the Borrower (the "Opinion of Borrower's Counsel") and
the opinion of King & Spalding, special New York counsel to the Agent ("New
York Counsel Opinion").

In our examination of the documents referred to above, we have assumed the
authenticity of all such documents submitted to us as originals, the
genuineness of all signatures and the conformity to the originals of all such
documents submitted to us as copies. We have also assumed the accuracy of all
matters set forth in the certificates referred to on Annex A hereto and assumed
that each of the Borrower, the Banks and the Agent has duly executed and
delivered, with all necessary power and authority (corporate and otherwise),
the Credit Agreement, that the Borrower has duly executed and delivered, with
all necessary power and authority (corporate and otherwise), the respective
Notes, that TGPL has duly executed and delivered, with all necessary power and
authority (corporate and otherwise), the TGPL Guaranty and that TXG has duly
executed and delivered, with all necessary power and authority
<PAGE> 115
(corporate and otherwise), the TXG Guaranty. We have also assumed that no Bank
has requested that the opinion required by Section 3.01(g) of the Credit
Agreement contain any other matters not contained in the form of opinion set
forth as Exhibit E to the Credit Agreement.

Based upon the foregoing examination of documents and assumptions and upon such
other investigation as we have deemed necessary, we are of the opinion that the
Opinion of Borrower's Counsel, the New York Counsel Opinion and the other
documents referred to in item (2) above, are substantially responsive to the
requirements of the Credit Agreement.

This opinion is solely for the benefit of the Banks, the Agent, their
respective successors, assigns, participants and other transferees and may be
relied upon only by such Persons in connection with the transactions
contemplated by the Credit Agreement.

Very truly yours,

Bracewell & Patterson, L.L.P.

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<PAGE> 116

Annex A
<TABLE>
<S> <C>
(1) The Notes dated as of December 31, 1993 of the Borrower payable to the order of the respective Banks.

(2) The TGPL Guaranty executed by TGPL in favor of the Banks and the Agent.

(3) The TXG Guaranty executed by TXG in favor of the Banks and the Agent.

(4) The certificate of the Secretary or an Assistant Secretary of the Borrower contemplated by Section 3.01(d) of the Credit
Agreement.

(5) The certificate of the Secretary or an Assistant Secretary of TGPL contemplated by Section 3.01(e) of the Credit
Agreement.

(6) The certificate of the Secretary or an Assistant Secretary of TXG contemplated by Section 3.01(f) of the Credit Agreement.

(7) The opinion of Molly S. Williams, substantially in the form of Exhibit E to the Credit Agreement.

(8) The opinion of King & Spalding, special New York counsel to the Agent, substantially in the form of Exhibit G to the
Credit Agreement.

(9) The certificate of an officer of the Borrower contemplated by Section 3.01(j) of the Credit Agreement.

(10) The certificate of the chief financial officer of TGPL substantially in the form of Exhibit H to the Credit Agreement.

(11) The certificate of the chief financial officer of TXG substantially in the form of Exhibit I to the Credit Agreement.
</TABLE>
<PAGE> 117

EXHIBIT G

FORM OF OPINION OF SPECIAL NEW YORK
COUNSEL TO THE AGENT

{Letterhead of King & Spalding}

{Date}

To Citibank, N.A. as
Agent, and to each of the
Banks party to the Amended
and Restated Credit
Agreement described below

Transco Energy Company

Ladies and Gentlemen:

We have acted as special New York counsel for Citibank, N.A., acting for itself
and as Agent, in connection with the execution and delivery of the Amended and
Restated Credit Agreement dated as of December 31, 1993 (the "Credit
Agreement") among Transco Energy Company, a Delaware corporation (the
"Borrower"), each of you, Bank of Montreal, as Co-Agent and Citibank, N.A., as
Agent. This opinion is being delivered pursuant to Section 3.01(i) of the
Credit Agreement. Capitalized terms used herein and not otherwise defined
herein shall have the meaning given to such terms in the Credit Agreement.

In that capacity, our engagement has been limited to the review of:

(1) A proposed execution copy of the Credit Agreement, distributed
under cover of a memorandum from Bracewell & Patterson, L.L.P., dated January
__, 1994.

(2) The form of Note attached as Exhibit A to such proposed
execution copy of the Credit Agreement.

(3) The forms of Guaranties attached as Exhibits C and D to such
proposed execution copy of the Credit Agreement.

(4) The opinion of Molly S. Williams, Vice President, Associate
General Counsel and Assistant Secretary for the Borrower, dated January __,
1994, delivered pursuant to Section 3.01(g) of the Credit Agreement (the
"Opinion of Borrower's Counsel").
<PAGE> 118
We have not been involved in the preparation or negotiation of the documents we
have reviewed, and are not familiar with the transactions evidenced thereby or
with the Borrower, TGPL or TXG, except to the extent described in such
documents. With respect to questions of fact material to our opinions expressed
below, we have, with your consent, relied solely upon the documents we have
examined without independent investigation or verification. We have also
assumed that the Credit Agreement, the Guaranties and the Notes issued by the
Borrower to the Banks on the date hereof (the "Initial Notes") have been duly
executed, delivered and, in the case of the Notes, completed, with all
necessary power and authority (corporate or otherwise), by all parties thereto
in form and substance identical (in all material respects) to, respectively,
the proposed execution copy of the Credit Agreement referred to above, the
forms of Guaranties attached as Exhibits C and D to such proposed execution
copy of the Credit Agreement and the form of Note attached as Exhibit A to such
proposed execution copy of the Credit Agreement.

Insofar as the opinions expressed in paragraphs 1 and 2, below, involve
conclusions as to the matters set forth in paragraphs 1, 2, 3, 5, 6, 8, 9, 17,
18, 19 and 20 of the Opinion of Borrower's Counsel, we have assumed, with your
permission and without independent investigation, the correctness of the
matters set forth therein, and our opinions as to such matters are subject to
the assumption, qualifications and limitations set forth in the Opinion of
Borrower's Counsel with respect thereto. Our opinions expressed herein are
limited to the laws of the State of New York, and we express no opinion as to
any other law. In that regard, as to matters governed by Federal law, we
understand that you are relying solely on the Opinion of Borrower's Counsel and
the opinion of Bracewell & Patterson, L.L.P. special counsel to the Agent,
delivered to you on this date pursuant to Sections 3.01(g) and (h),
respectively, of the Credit Agreement.

Based on the foregoing, we are of the following opinion:

1. The Credit Agreement and each Initial Note is the legal, valid
and binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms.

2. The TGPL Guaranty and the TXG Guaranty are the legal, valid
and binding obligations of TGPL and TXG, respectively, enforceable against TGPL
and TXG in accordance with their respective terms.

The opinions set forth above, are subject to the following qualifications:

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<PAGE> 119
(a) The enforceability of the Borrower's obligations under the
Credit Agreement and the Notes, and the enforceability of TGPL's and TXG's
respective obligations under the Guaranties, are subject to the effect of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar law affecting creditors' rights generally.

(b) We express no opinion herein as to the enforceability of
Section 8.05 of the Credit Agreement.

(c) The enforceability of the Borrower's obligations under the
Credit Agreement and the Notes, and the enforceability of TGPL's and TXG's
respective obligations under the Guaranties, are subject to general principles
of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered
in a proceeding in equity or at law). Such principles of equity are of general
application and, in applying such principles, a court, among other things,
might not allow a contracting party to exercise remedies in respect of a
default deemed immaterial, or might decline to order an obligor to perform
covenants. Such principles might be applied, for example, to provisions that
purport to grant a party the authority to exercise sole discretion or make
conclusive determinations. Further, pursuant to such equitable principles, the
provisions of each Guaranty providing for TGPL's or TXG's obligations to be
unaffected by certain activities relating to, and alterations of underlying
agreements, might be enforceable only to the extent that such activities and
alterations are not so material as to constitute a new contract among the
parties.

(d) We note further that, in addition to the application of
equitable principles described above, courts have imposed an obligation on
contracting parties to act reasonably and in good faith in the exercise of
their contractual rights and remedies, and may also apply public policy
considerations in limiting the right of parties seeking to obtain
indemnification under circumstances where the conduct of such parties in the
circumstances in question is determined to have constituted negligence.

(e) We express no opinion herein concerning the enforceability of
any indemnification provision of the Credit Agreement to the extent requiring
indemnification of a party for actions or inactions constituting violations of
securities laws of the State of New York.

Very truly yours

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<PAGE> 120

EXHIBIT H

SOLVENCY CERTIFICATE

SENIOR VICE PRESIDENT
TRANSCONTINENTAL GAS PIPE LINE CORPORATION

This certificate is delivered pursuant to Section 3.01(k) of the
Amended and Restated Credit Agreement (the "Credit Agreement") dated as of
December 31, 1993 among Transco Energy Company, a Delaware corporation ("TEC"),
various lenders parties thereto ("Lenders"), Bank of Montreal, as Co-Agent, and
Citibank, N.A., as Agent for such Lenders.

Capitalized terms used herein which are not defined herein shall have
the meanings assigned to them by or pursuant to the terms of the Credit
Agreement.

1. I am, and at all times since December 31, 1992 have been, a
Senior Vice President and the chief financial officer of Transcontinental Gas
Pipe Line Corporation, a Delaware corporation ("Company"), and in such capacity
have responsibility for the management of the financial affairs of the Company
and the preparation of the financial statements of the Company. I have been
principally responsible for acting on behalf of the Company in connection with
the negotiation and consummation of the Amended and Restated Guaranty dated as
of December 31, 1993 executed by the Company in favor of the Banks and the
Agent ("Guaranty"), including review of the affairs of the Company, meeting and
conferring with legal counsel to the Company, and the Agent and its special
counsel, and in furnishing information to the Banks and the Agent to be used in
the analyses prepared by them.

2. I have carefully reviewed the contents of this Certificate,
and I have conferred with legal counsel for the purposes of discussing the
meaning of its contents.

3. In connection with the preparation for consummation of the
transactions contemplated by the Guaranty and the other Loan Documents, I have
reviewed income projections, balance sheet projections and cash flow
projections for the Company (collectively, the "Projections") for each of the
next three fiscal years of the Company, commencing with the fiscal year ending
December 31, 1993 and finishing with the fiscal year ending December 31, 1996.
The Projections give effect to the consummation of the transactions
contemplated by the Guaranty and the other Loan Documents, and were prepared on
the basis of information available at September 30, 1993. The Projections have
been prepared in a manner consistent
<PAGE> 121
with the Company's past practices in its internal planning. I know of no facts
which have occurred since September 30, 1993 which would lead me to believe
that the Projections have not been prepared on a reasonable basis.

4. I have reviewed a pro forma summary balance sheet of the
Company (the "Balance Sheet") as of October 31, 1993, which gives effect to the
consummation of the transactions contemplated by the Guaranty and the other
Loan Documents. The Balance Sheet includes the liabilities of the Company
determined in accordance with generally accepted accounting principles, except
for pro forma adjustments, and the net book value of the assets of the Company.
I know of no facts which have occurred since October 31, 1993 which would lead
me to believe that the Balance Sheet is a materially incorrect statement of the
financial condition of the Company as of the date hereof.

5. In connection with the preparation, review and examination of
the Projections and the Balance Sheet, I have made such investigation and
inquiries as I deem necessary and prudent therefor. The assumptions upon which
the Projections and Balance Sheet are based are stated therein, which
assumptions I have no reason to believe are not reasonable. Based thereon, I
believe that the Projections for the Company provide a reasonable estimation of
future performance.

Based on the foregoing I have reached the following conclusions:

A. The execution and delivery of the Guaranty and the performance
of the Guaranty by the Company (including, without limitation, payment
thereunder) will not render the Company "insolvent" nor will the aggregate
liabilities of the Company (assuming that the Company pays its entire liability
under the Guaranty) exceed the fair saleable value of the assets of the
Company. In this context "insolvent" means that the present fair saleable value
of assets is less than the amount that will be required to pay the probable
liability (assuming, however, that the Company is required to pay on the date
hereof its entire liability under the Guaranty, even though such payment is not
probable) on existing debts as they become absolute and matured. I also
understand that the term "debts" as used in this Certificate includes any legal
liability, whether matured or unmatured, liquidated or unliquidated, absolute,
fixed or contingent.

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<PAGE> 122
constitute unreasonably small capital. In reaching this conclusion, I
understand that "unreasonably small capital" depends upon the nature of the
particular business or businesses conducted or to be conducted, and I have
reached my conclusion based on the present and anticipated needs for capital of
the businesses anticipated to be conducted by the Company and based upon the
Projections and other information described above.

C. The execution and delivery of the Guaranty and the other Loan
Documents and the performance of the Guaranty by the Company (including,
without limitation, payment thereunder) will not cause the Company to incur
debts beyond its ability to pay as they mature. I have based my conclusion in
part on the Projections, which demonstrate that the Company will have positive
cash flow after paying all of its scheduled anticipated debt. I have concluded
that the realization of current assets by the Company in the ordinary course of
business will be sufficient to pay recurring current debt, short-term debt and
long-term debt service as such debts mature, and that the cash flow of the
Company will be sufficient to provide cash necessary to repay sums owing under
the Guaranty and other debts as such debts mature.

D. To the best of my knowledge, the Company has not executed the
Guaranty or any documents mentioned therein, or made any transfer or incurred
any obligations thereunder, with intent to hinder, delay or defraud either
present or future creditors.

I understand that the Lenders and the Agent are relying on the truth
and accuracy of the foregoing in connection with the extension of credit to TEC
and in deciding to accept the Guaranty.

I hereby represent and certify, in my capacity as Senior Vice
President and chief financial officer of the Company, that the foregoing
information is true and correct and execute this Certificate as of the 31st day
of December, 1993.

By: _____________________________
Name: ___________________________
Title: __________________________

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<PAGE> 123

EXHIBIT I

SOLVENCY CERTIFICATE

SENIOR VICE PRESIDENT
TEXAS GAS TRANSMISSION CORPORATION

This certificate is delivered pursuant to Section 3.01(1) of the
Amended and Restated Credit Agreement (the "Credit Agreement") dated as of
December 31, 1993 among Transco Energy Company, a Delaware corporation ("TEC"),
various lenders parties thereto ("Lenders"), Bank of Montreal, as Co-Agent, and
Citibank, N.A., as Agent for such Lenders.

Capitalized terms used herein which are not defined herein shall have
the meanings assigned to them by or pursuant to the terms of the Credit
Agreement.

1. I am, and at all times since December 31, 1992 have been, a
Senior Vice President and the chief financial officer of Texas Gas Transmission
Corporation, a Delaware corporation ("Company"), and in such capacity have
responsibility for the management of the financial affairs of the Company and
the preparation of the financial statements of the Company. I have been
principally responsible for acting on behalf of the Company in connection with
the negotiation and consummation of the Amended and Restated Guaranty dated as
of December 31, 1993 executed by the Company in favor of the Banks and the
Agent ("Guaranty"), including review of the affairs of the Company, meeting and
conferring with legal counsel to the Company, and the Agent and its special
counsel, and in furnishing information to the Banks and the Agent to be used in
the analyses prepared by them.

2. I have carefully reviewed the contents of this Certificate,
and I have conferred with legal counsel for the purposes of discussing the
meaning of its contents.

3. In connection with the preparation for consummation of the
transactions contemplated by the Guaranty and the other Loan Documents, I have
reviewed income projections, balance sheet projections and cash flow
projections for the Company (collectively, the "Projections") for each of the
next three fiscal years of the Company, commencing with the fiscal year ending
December 31, 1993 and finishing with the fiscal year ending December 31, 1996.
The Projections give effect to the consummation of the transactions
contemplated by the Guaranty and the other Loan Documents, and were prepared on
the basis of information available at September 30, 1993. The Projections have
been prepared in a manner consistent with the Company's past practices in its
internal
<PAGE> 124
planning. I know of no facts which have occurred since September 30, 1993 which
would lead me to believe that the Projections have not been prepared on a
reasonable basis.

5. I have examined unaudited financial statements for the Company
for the fiscal year ended December 31, 1990 and for nine months ended September
30, 1991. The above described financial statements were prepared by officers
and employees of the Company responsible for financial and accounting matters
in accordance with generally accepted accounting principles.

6. In connection with the preparation, review and examination of
the Projections and the Balance Sheet, I have made such investigation and
inquiries as I deem necessary and prudent therefor. The assumptions upon which
the Projections and Balance Sheet are based are stated therein, which
assumptions I have no reason to believe are not reasonable. Based thereon, I
believe that the Projections for the Company provide a reasonable estimation of
future performance.

Based on the foregoing I have reached the following conclusions:

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<PAGE> 125
B. The execution and delivery of the Guaranty and the other Loan
Documents and the performance of the Guaranty by the Company (including,
without limitation, payment thereunder) will not leave the Company with
Property remaining in its hands which would constitute unreasonably small
capital. In reaching this conclusion, I understand that "unreasonably small
capital" depends upon the nature of the particular business or businesses
conducted or to be conducted, and I have reached my conclusion based on the
present and anticipated needs for capital of the businesses anticipated to be
conducted by the Company and based upon the Projections and other information
described above.

I understand that the Lenders and the Agent are relying on the truth
and accuracy of the foregoing in connection with the extension of credit to TEC
and in deciding to accept the Guaranty.

By: _____________________________
Name: ___________________________
Title: __________________________

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<PAGE> 126

EXHIBIT J

ASSIGNMENT AND ACCEPTANCE

Dated ______________, 199__

Reference is made to the Amended and Restated Credit Agreement dated
as of December 31, 1993 (the "Credit Agreement") among Transco Energy Company,
a Delaware corporation (the "Borrower"), the Banks (as defined in the Credit
Agreement), Bank of Montreal, as Co-Agent, and Citibank, N.A., as Agent for the
Banks (the "Agent"). Terms defined in the Credit Agreement are used herein
with the same meaning.

_______________________ (the "Assignor") and ______________________
___________________________________ (the "Assignee") agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and
to all of the Assignor's rights and obligations under the Credit Agreement as
of the date hereof which represents the percentage interest specified on
Schedule 1 of all outstanding rights and obligations under the Credit
Agreement, including, without limitation, such interest in the Assignor's
Commitment, the Advances owing to the Assignor, and the Note held by the
Assignor. After giving effect to such sale and assignment, the Assignee's and
Assignor's respective Commitments and the respective amounts of the Advances
owing to the Assignee and Assignor will be as set forth in Section 2 of
Schedule 1.

2. The Assignor (i) represents and warrants that it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with any
Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, any other Loan
Document or any other instrument or document furnished pursuant thereto; (iii)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower, TGPL, TXG or any other Person or
the performance or observance by the Borrower, TGPL, TXG or any other Person of
any of its obligations under the Credit Agreement, any other Loan Document or
any other instrument or document furnished pursuant thereto; and (iv) attaches
the Note referred to in paragraph 1 above and requests that the Agent exchange
such Note for a new Note payable to the order of the Assignee in an amount
equal to the Commitment
<PAGE> 127
assumed by the Assignee pursuant hereto or new Notes payable to the order of
the Assignee in an amount equal to the Commitment assumed by the Assignee
pursuant hereto and the Assignor in an amount equal to the Commitment retained
by the Assignor under the Credit Agreement, respectively, as specified on
Schedule 1 hereto.

3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement and the Guaranties, together with copies of the financial
statements referred to in Section 4.01 thereof and financial statements of TGPL
and TXG and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Agent, the Assignor or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Documents; (iii)
confirms that it is an Eligible Assignee; (iv) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Loan Documents are required to be performed by it as a Bank;
and (vi) specifies as its Domestic Lending Office (and address for notices) and
Eurodollar Lending Office the offices set forth beneath its name on the
signature pages hereof {and (vii) attaches the forms prescribed by the Internal
Revenue Service of the United States certifying as to the Assignee's status
for purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to the Assignee under the Credit Agreement,
the Guaranties and the Note or such other documents as are necessary to
indicate that all such payments are subject to such rates at a rate reduced by
an applicable tax treaty.}(1)

4. Following the execution of this Assignment and Acceptance by
the Assignor and the Assignee, it will be delivered to the Agent for acceptance
and recording by the Agent. The effective date of this Assignment and
Acceptance shall be the date of acceptance thereof by the Agent, unless
otherwise specified on Schedule 1 hereto (the "Effective Date").

5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Credit

____________________

(1) If the Assignee is organized under the laws of a jurisdiction outside
the United States.

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<PAGE> 128
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.

6. Upon such acceptance and recording by the Agent, from and
after the Effective Date, the Agent shall make all payments under the Credit
Agreement, the Guaranties and the Note in respect of the interest assigned
hereby (including, without limitation, all payments of principal, interest and
facility fees with respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
and the Note for periods prior to the Effective Date directly between
themselves.

7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.

{NAME OF ASSIGNOR:}

By: _____________________________
Name: _________________________
Title: ________________________

{NAME OF ASSIGNEE:}

By: ___________________________
Name: ________________________
Title: _______________________

Domestic Lending Office (and address
for notices):

{Address}

Eurodollar Lending Office:

{Address}

-3-
<PAGE> 129
Accepted this __ day of
____________, 199__:

Citibank, N.A., as Agent

By: _______________________
Name: ____________________
Title: ___________________

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<PAGE> 130
SCHEDULE 1
TO
ASSIGNMENT AND ACCEPTANCE
Dated ____________, 199__

Section 1.

Percentage Interest: __________%

Section 2.

Assignee's Commitment $__________
Aggregate Outstanding Principal owing to the Assignee $__________
Assignor's Commitment $__________
Aggregate Outstanding Principal owing to the Assignor $__________
Note payable to the order of the Assignee $__________
Dated: _________________, 19___
Principal Amount: __________
Note payable to the order of the Assignor
Dated: _________________, 19___
Principal Amount: __________

Section 3.

Effective Date(2):

____________________

(2) This date should be no earlier than the date of acceptance by the
Agent.

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<PAGE> 131

EXHIBIT K

SUBORDINATION AGREEMENT

This Subordination Agreement (this "Agreement") is entered into by and
among Transco Energy Company, a Delaware corporation ("TEC") and each of the
subsidiaries of TEC listed on the signature page hereto (each individually a
"Subsidiary," and collectively, the "Subsidiaries").

W I T N E S S E T H:

WHEREAS, from time to time, TEC and the Subsidiaries have lent and/or
may in the future lend money to each other; and

WHEREAS, TEC is a party to that certain Amended and Restated Credit
Agreement dated December 31, 1993 among TEC, the lenders parties thereto, Bank
of Montreal, as Co-Agent, and Citibank, N.A., as Agent for such lenders (as it
may be amended or modified from time to time, the "Credit Agreement", the terms
defined therein and not otherwise defined herein are used herein as therein
defined); and

WHEREAS, Section 5.02(c) of the Credit Agreement requires that any
debt of a Subsidiary to another Subsidiary be subordinated on specified terms
to all debt from time to time owed to TEC by the debtor Subsidiary and any debt
of TEC to a Subsidiary be subordinated on specified terms to all debt from time
to time owed to the Banks pursuant to the Loan Documents; and

WHEREAS, the ability of TEC to borrow under the Credit Agreement is
expected to be of material benefit to each of the Subsidiaries; and

WHEREAS, each Subsidiary has determined, reasonably and in good faith,
that it has adequate capital to conduct its business as presently conducted and
as proposed to be conducted and that it will be able to meet its obligations in
respect of its existing and future indebtedness and liabilities as and when the
same shall become due and payable; and

WHEREAS, each Subsidiary has determined that the execution and
delivery of this Agreement is in furtherance of its corporate purposes and in
its best interests, having regard to all relevant facts and circumstances;

NOW, THEREFORE, as contemplated by Section 5.02(c) of the Credit
Agreement, TEC and each Subsidiary hereby agree with the Banks as hereinafter
set forth.
<PAGE> 132
Section 1. Definitions. As used in this Agreement:

(a) "Senior Debt" means the Subsidiary Senior Debt and the TEC
Senior Debt.

(b) "Subordinated Debt" means the Subsidiary Subordinated Debt and
the TEC Subordinated Debt.

(c) "Subsidiary Senior Debt" means all of the obligations,
liabilities and indebtedness of every kind, nature and description, direct or
indirect, secured or unsecured, absolute or contingent, due or to become due,
now or hereafter owed to TEC or the Banks by any Subsidiary.

(d) "Subsidiary Subordinated Debt" means all obligations,
liabilities and indebtedness of every kind, nature and description, direct or
indirect, secured or unsecured, absolute or contingent, due or to become due,
now or hereafter owed by any Subsidiary to any other Subsidiary.

(e) "TEC Senior Debt" means all obligations, liabilities and
indebtedness of every kind, nature and description, direct or indirect, secured
or unsecured, absolute or contingent, due or to become due, now or hereafter
owed to the Banks by TEC.

(f) "TEC Subordinated Debt" means all obligations, liabilities and
indebtedness of every kind, nature and description, direct or indirect, secured
or unsecured, absolute or contingent, due or to become due, now or hereafter
owed by TEC to any Subsidiary.

Section 2. TEC Subordination.

(a) TEC and each Subsidiary hereby agree that the TEC Subordinated
Debt shall hereafter be subordinated in right of payment to any and all of the
TEC Senior Debt such that upon any distribution, division, or application,
partial or complete, voluntary or involuntary, by operation of law or
otherwise, of all or any part of the assets of TEC or the proceeds thereof to
the creditors of TEC, or readjustment of the obligations and indebtedness of
TEC, whether by reason of liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding
involving the readjustment of all or any part of the TEC Subordinated Debt, or
the application of the assets of TEC to the payment or liquidation thereof, or
upon the dissolution, liquidation, cessation or other winding up of TEC's
business, or upon the sale of all or substantially all of TEC's assets, then,
and in any such event, the Banks shall be entitled to receive payment in full
of any and all of the proceeds of any such transaction until such time as the
TEC Senior Debt shall have been

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<PAGE> 133
fully paid and satisfied and all financing arrangements between the Banks and
TEC have been terminated.

(b) So long as any Default or any Event of Default exists, TEC
shall not make any payment of principal or interest on any TEC Subordinated
Debt, and the payment of any such principal or interest shall be subordinated
to any and all of the TEC Senior Debt.

(c) If TEC makes any payment of any character in contravention of
this Agreement, such payment shall be received in trust for the benefit of, and
upon demand shall be promptly paid over or delivered and transferred to, the
Agent for the account of the Banks for application to the payment of all TEC
Senior Debt.

Section 3. Subsidiary Subordination.

(a) TEC and each Subsidiary hereby agree that the Subsidiary
Subordinated Debt shall hereafter be subordinated in right of payment to any
and all of the Subsidiary Senior Debt such that upon any distribution,
division, or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the assets of any
Subsidiary or the proceeds thereof to the creditors of any Subsidiary, or
readjustment of the obligations and indebtedness of any Subsidiary, whether by
reason of liquidation, bankruptcy, arrangement, receivership, assignment for
the benefit of creditors or any other action or proceeding involving the
readjustment of all or any part of the Subsidiary Subordinated Debt, or the
application of the assets of any Subsidiary to the payment or liquidation
thereof, or upon the dissolution, liquidation, cessation or other winding up of
any Subsidiary's business, or upon the sale of all or substantially all of any
Subsidiary's assets, then, and in any such event, TEC or the Banks, as the case
may be, shall be entitled to receive payment in full of any and all of the
proceeds of any such transaction until such time as the Subsidiary Senior Debt
shall have been fully paid and satisfied and all financing arrangements between
TEC or the Banks, as the case may be, and each Subsidiary have been terminated.

(b) So long as any Default or any Event of Default exists, no
Subsidiary shall make any payment of principal or interest on any Subsidiary
Subordinated Debt, and the payment of any such principal or interest shall be
subordinated to any and all of the Subsidiary Senior Debt.

(c) If any Subsidiary makes any payment of any character in
contravention of this Agreement, such payment shall be received in trust for
the benefit of, and upon demand shall be promptly paid

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<PAGE> 134
over or delivered and transferred to, TEC or the Agent for the account of the
Banks, as the case may be, for application to the payment of all Subsidiary
Senior Debt.

Section 4. Representations. TEC and each Subsidiary warrants and
represents that (a) it has the right, power and authority to enter into this
Agreement, (b) the Banks are entitled to rely on the representations,
warranties and covenants of it contained in this Agreement, (c) it has not
previously assigned any of its interest in the Subordinated Debt, and (d) the
Subordinated Debt is unsecured as of the date hereof, and shall remain
unsecured until such time as the Senior Debt shall have been fully paid and
satisfied and all financing arrangements between the Banks and TEC under the
Credit Agreement have terminated.

Section 5. No Liens. Each of TEC and the Subsidiaries hereby agrees that
it shall have no Lien to secure any Subordinated Debt.

Section 6. Continuing Nature of Subordination. This Agreement shall be
irrevocable and shall continue in effect until the Senior Debt and all
obligations under the Credit Agreement shall have been paid in full and all
financing arrangements between TEC and the Banks under the Credit Agreement
have been terminated. This is a continuing agreement of subordination and the
Banks may continue, at any time and without notice to any Subsidiary, to extend
credit or other financial accommodations and loan monies to or for the benefit
of TEC on the faith hereof.

Section 7. Additional Agreements Between the Banks, TEC and Subsidiaries.
The Banks, at any time and from time to time, may enter into such agreement or
agreements with TEC and the Subsidiaries as the Banks may deem proper,
extending the time of payment of or renewing or otherwise altering the terms of
any debt or affecting any collateral underlying any debt, and may exchange,
sell, release, surrender or otherwise deal with any such security without in
any way thereby impairing or affecting this Agreement.

Section 8. TEC's and Subsidiaries' Waivers. TEC and each Subsidiary agree
that the Agent and the Banks have made no warranties or representations with
respect to the due execution, legality, validity, completeness or
enforceability of the Credit Agreement, the collectability of the Senior Debt
or otherwise and that the Banks shall be entitled to manage and supervise their
loans to TEC in their discretion.

Section 9. Amendments and Waivers. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
is signed by TEC, each of the Subsidiaries and the Required Banks, and each
waiver, if any, shall

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<PAGE> 135
be a waiver only with respect to the specific instance involved and shall in no
way impair the rights of the Agent or any Bank or the obligations of TEC to the
Agent or any Bank in any other respect at any other time.

Section 10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.

Section 11. Titles. The section titles contained in this agreement are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.

Section 12. Notices. All notices and other communications provided for
hereunder shall be in writing (including telecopier or telex communication) and
dispatched by registered or certified mail, telecopied, telexed or delivered,
(a) if to TEC or any Subsidiary at its address at 2800 Post Oak Boulevard, P.
O. Box 1396, Houston, Texas 77251, Attention: Treasurer, Telecopy:
(713)439-3648, Telex: 792013, Answerback: TRANSCO HOU A, and (b) if to the
Agent or any Bank at its respective address from time to time specified in or
pursuant to the Credit Agreement. Each such notice or communication shall be
effective (i) if mailed, on the fifth Business Day following the date it is
dispatched by registered or certified mail, (ii) if delivered by hand, upon
delivery with written receipt, and (iii) if telecopied or telexed, when receipt
is confirmed by telephone or appropriate answer-back, respectively, except that
any notice or communication to the Agent shall not be effective until received
by the Agent.

Section 13. Third Party Beneficiaries. This Agreement is specifically
intended to be for the benefit of the Agent and the Banks and their respective
successors and assigns, but shall not be for the benefit of any other third
party, including but not limited to any other creditor of TEC or any
Subsidiary, any taxing authority, or any trustee or receiver. Notwithstanding
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.

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<PAGE> 136
IN WITNESS WHEREOF, this Agreement has been signed as of the 31st day
of December, 1993.

TRANSCO ENERGY COMPANY

By: __________________________
Name: _______________________
Title: ______________________

SUBSIDIARIES:

TRANSCO GAS COMPANY

By: _________________________
Name: ______________________
Title: _____________________

TRANSCONTINENTAL GAS PIPE LINE
CORPORATION

By: ________________________
Name: _____________________
Title: ____________________

TEXAS GAS TRANSMISSION CORPORATION

By: _______________________
Name: ____________________
Title: ___________________

-6-

<PAGE> 1
EXHIBIT 4.6(a)

================================================================================

TRANSCO ENERGY COMPANY,
Issuer

THE BANK OF NEW YORK,
Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of October 15, 1993

______________________________

$300,000,000

11-1/4% Notes
Due 1999

===============================================================================
<PAGE> 2
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of the 15th day of
October, 1993, made by and between TRANSCO ENERGY COMPANY, a corporation duly
organized and existing under the laws of the State of Delaware (hereinafter
sometimes referred to as the "Company"), and THE BANK OF NEW YORK, a banking
corporation organized and existing under the laws of the State of New York
(hereinafter sometimes referred to as the "Trustee"), as Trustee.

RECITALS

The Company and the Trustee entered into an Indenture dated as
of July 1, 1992 (the "Indenture"), providing for the issuance of $300,000,000
aggregate principal amount of the Company's 11-1/4 Notes due 1999.

The Company desires to execute and deliver this First
Supplemental Indenture, in accordance with the provisions of the Indenture, for
the purpose of modifying Section 1010 of the Indenture.

The execution and delivery of this First Supplemental
Indenture by the Company and the Trustee has been duly authorized by the
Company and a Certified Resolution authorizing the execution of this First
Supplemental Indenture has been received by and filed with the Trustee.

The execution and delivery of this First Supplemental
Indenture by the Company and the Trustee has been consented to by the Holders
of at least 51% of the aggregate principal amount of the Outstanding Notes in
accordance with Section 902 of the Indenture, which consent was received by the
Company pursuant to the terms of a Solicitation Statement dated September 27,
1993 (the "Solicitation Statement").

NOW, THEREFORE, WITNESSETH:

For and in consideration of the premises and other good and
valuable consideration herein contained, the receipt, adequacy and sufficiency
of which are hereby acknowledged by the parties hereto by their execution
hereof, it is mutually agreed, for the equal and proportionate benefit of all
Holders of the Notes, as follows:

ARTICLE ONE

INCORPORATION OF PREVIOUS DOCUMENTS

Section 101. Incorporation of Previous Documents.

This First Supplemental Indenture is a supplemental indenture
within the meaning of the Indenture and shall be read together and shall have
the same effect as though all the

<PAGE> 3
provisions thereof and hereof were contained in one instrument. Unless
otherwise expressly provided, the provisions of the Indenture are incorporated
herein by reference.

Section 102. Definitions.

Unless otherwise provided herein, the terms used herein shall
have the meanings ascribed to such terms in the Indenture.

ARTICLE TWO

AMENDMENT TO INDENTURE

Section 201. Limitation on Restricted Payments.

The first paragraph of Section 1010 of the Indenture is hereby
amended by inserting the following sentence at the end of such first paragraph
and before the beginning of the second paragraph:

"Notwithstanding anything to the contrary contained herein,
"Restricted Payment" shall not mean or include Preferred Stock
(or any options, warrants or rights related thereto) which is
exchanged for, or the proceeds of which are used to refinance
or refund, any Preferred Stock outstanding on the date of this
Indenture (or any extension or renewal thereof), in an
aggregate liquidation preference not to exceed the liquidation
preference of such Preferred Stock so exchanged, refinanced or
refunded and provided such refinancing or refunding Preferred
Stock by its terms, or by the terms of any agreement or
instrument pursuant to which such Preferred Stock is issued,
(x) does not provide for payments of liquidation value at the
stated maturity of such Preferred Stock or by way of a sinking
fund applicable to such Preferred Stock or by way of any
mandatory redemption, retirement or repurchase of such
Preferred Stock by the Company (including any redemption,
retirement or repurchase which is contingent upon events or
circumstances) prior to the Stated Maturity of the Notes and
(y) does not permit redemption or other retirement of such
Preferred Stock at the option of the holder thereof prior to
the Stated Maturity of the Notes, other than a redemption or
other retirement at the option of the holder of such Preferred
Stock (including pursuant to an offer to purchase made by the
Company) which is conditioned upon the change of control of
the Company."

Section 202. Effectiveness.

This First Supplemental Indenture shall not become effective
unless the Company has made all Consent Payments (as defined in the
Solicitation Statement) to Holders entitled to such payments within 30 days
following the execution of this First Supplemental Indenture, in accordance
with the Solicitation Statement.

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<PAGE> 4
ARTICLE THREE

MISCELLANEOUS

Section 301. Further Assurances.

The parties hereto will execute and deliver such further
instruments and do such further acts and things as may be reasonably required
to carry out the intent and purpose of this First Supplemental Indenture and
the Indenture.

Section 302. Counterparts.

This First Supplemental Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

Section 303. Effect of Headings.

The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.

Section 304. Governing Law.

This First Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York.

Section 305. Successors and Assigns.

All covenants and agreements of the Company in this First
Supplemental Indenture shall bind its successors and assigns, whether so
expressed or not. All covenants and agreements of the Trustee in this First
Supplemental Indenture shall bind its successor and assigns, whether so
expressed or not.

Section 306. Separability Clause.

In case any provision of this First Supplemental Indenture
should be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

Section 307. Indenture Remains in Full Force and Effect.

Except to the extent amended hereby or in connection herewith,
all terms, provisions and conditions of the Indenture and all documents
executed in connection therewith shall continue in full force and effect and
shall remain enforceable and binding in accordance

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<PAGE> 5
with their respective terms. Except as specifically modified herein, the
Indenture remains unchanged and in full force and effect.

Section 308. Conflict with Trust Indenture Act.

If any provision of this First Supplemental Indenture limits,
qualifies or conflicts with a provision of the Trust Indenture Act that is
required under such Act to be a part of and govern this First Supplemental
Indenture, the latter provision shall control. If any provision of this First
Supplemental Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall
be deemed to apply to this First Supplemental Indenture as so modified or to be
excluded, as the case may be.

IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and year first
above written.

TRANSCO ENERGY COMPANY

By: /s/ R. SCOTT AMANN
Name: R. Scott Amann
Title: Vice President - Finance

(Corporate Seal)

ATTEST:

/S/ MOLLY S. WILLIAMS
Name: Molly S. Williams
Title: Assistant Secretary

THE BANK OF NEW YORK, as Trustee

By: /s/ ROBERT F. MCINTYRE
Name: Robert F. McIntyre
Title: Assistant Vice President
(Corporate Seal)

ATTEST:

/s/ MARIE E. TRIMBOLI
Name: Marie E. Trimboli
Title: Assistant Treasurer

-5-
<PAGE> 6
STATE OF TEXAS )
) ss.:
COUNTY OF HARRIS )

On the 27th day of October, 1993, before me personally came R. Scott
Amann, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of TRANSCO ENERGY COMPANY, one of the corporations described in
and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.

/s/ C. ANANKA KOHNITZ
Notary Public

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the 29th day of October, 1993, before me personally came Robert F.
McIntyre, to me known, who being by me duly sworn, did depose and say that he
is an Assistant Vice President of THE BANK OF NEW YORK, one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation, and that he signed his name thereto by like authority.

/s/ EDWARD SOUTER
Notary Public

-6-

<PAGE> 1

EXHIBIT 4.7

U.S. $ 50,000,000

REIMBURSEMENT AGREEMENT

Dated as of December 31, 1993

Among

TRANSCO ENERGY COMPANY

as Borrower

and

THE BANKS
NAMED HEREIN

as Banks

and

BANK OF MONTREAL

as Agent and Issuing Bank
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE II
STANDBY LETTERS OF CREDIT

Section 2.01. Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.02. Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.03. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.04. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Facility Fees . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Participation Fee . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Issuance Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Letter of Credit Fronting Fees . . . . . . . . . . . . . . . . . 19
Section 2.05. Increased Costs and Capital Requirements . . . . . . . . . . . . . . . 19
(a) Change of Law. . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.06. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.07. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.08. Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.09. Optional Termination of the Commitments . . . . . . . . . . . . . . . . 22
Section 2.10. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.11. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Procedure for Payments by Borrower . . . . . . . . . . . . . . . 24
(b) Computation of Interest and Fees . . . . . . . . . . . . . . . 25
(c) Payment on Non-Business Days . . . . . . . . . . . . . . . . . . 25
(d) Agent Reliance . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Interest on Overdue Amounts. . . . . . . . . . . . . . . . . . . 26
Section 2.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) No Deduction for Certain Taxes . . . . . . . . . . . . . . . . . 26
(b) Other Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Evidence of Tax Payments . . . . . . . . . . . . . . . . . . . . 27
(e) Foreign Bank Withholding Exemption . . . . . . . . . . . . . . . 27
(f) Bank Obligation to Mitigate. . . . . . . . . . . . . . . . . . . 28
(g) Survival of Obligations. . . . . . . . . . . . . . . . . . . . . 28

ARTICLE III
CONDITIONS PRECEDENT

Section 3.01. Conditions Precedent to Initial Letter of Credit . . . . . . . . . . . 28
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.02. Conditions Precedent to Each Letter of Credit . . . . . . . . . . . . . 30

ARTICLE IV
REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties of Borrower . . . . . . . . . . . . . . 30
(a) Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . 30
(b) Corporate Power. . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Authorization and Approvals. . . . . . . . . . . . . . . . . . . 31
(d) Enforceable Obligations. . . . . . . . . . . . . . . . . . . . . 32
(e) Financial Statements . . . . . . . . . . . . . . . . . . . . . . 33
(f) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(g) ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . 34
(h) Tax Returns Filed. . . . . . . . . . . . . . . . . . . . . . . . 35
(i) Investment Company Act . . . . . . . . . . . . . . . . . . . . . 35
(j) Public Utility Holding Company Act . . . . . . . . . . . . . . . 35
(k) Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(l) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 35
(m) Ownership of Material Subsidiary Stock . . . . . . . . . . . . . 35
(n) Environmental Matters. . . . . . . . . . . . . . . . . . . . . . 36

ARTICLE V
COVENANTS OF BORROWER

Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . 37
(b) Preservation of Corporate Existence, Etc . . . . . . . . . . . . 37
(c) Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . 37
(d) Payment of Taxes, Etc . . . . . . . . . . . . . . . . . . . . . 37
(e) Reporting Requirements . . . . . . . . . . . . . . . . . . . . . 38
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(a) Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(b) Ratio of Cash Flow to Interest Expense . . . . . . . . . . . . . 42
(c) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(d) Mergers, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(e) Restrictions on Dividends, Intercompany
Loans or Investments . . . . . . . . . . . . . . . . . . . . . . 44
(f) Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(g) Multiemployer Plans or Multiple Employer Plans . . . . . . . . . 44
(h) Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . 44
(i) ERISA Liabilities . . . . . . . . . . . . . . . . . . . . . . . 44
(j) Affiliate Transaction . . . . . . . . . . . . . . . . . . . . . 44
(k) Payments on Preferred Stock . . . . . . . . . . . . . . . . . . 45
(l) Preferred Stock and Options . . . . . . . . . . . . . . . . . . 45
(m) Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(n) Restricted Payments . . . . . . . . . . . . . . . . . . . . . . 46
(o) Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(p) Asset Disposition . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VI
EVENTS OF DEFAULT AND CASH COLLATERAL

Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(a) Nonpayment . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(b) Representations and Warranties Untrue. . . . . . . . . . . . . . 47
(c) Covenant Violations. . . . . . . . . . . . . . . . . . . . . . . 47
(d) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 48
(e) Insolvency, Bankruptcy, Etc. . . . . . . . . . . . . . . . . . . 48
(f) Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(g) Stock of Material Subsidiaries . . . . . . . . . . . . . . . . . 49
(h) Termination Event. . . . . . . . . . . . . . . . . . . . . . . . 49
(i) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(j) Cross Default. . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 6.02. Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . 50
(a) Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(b) Application against Letter of Credit Obligations;
Release of Funds . . . . . . . . . . . . . . . . . . . . . . . . 50
(c) Duty of Care . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE VII
THE AGENT

Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.02. Agent's Reliance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.03. Bank of Montreal and Affiliates . . . . . . . . . . . . . . . . . . . . 52
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

ARTICLE VIII
ISSUING BANK

Section 8.01. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.02. Successor Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . 54

ARTICLE IX
MISCELLANEOUS

Section 9.01. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.02. Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.04. Expenses and Taxes; Indemnification . . . . . . . . . . . . . . . . . . 56
(a) Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . 56
(b) Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 57
(c) Survival of Covenants. . . . . . . . . . . . . . . . . . . . . . 57
Section 9.05. Limitation and Adjustment of Interest . . . . . . . . . . . . . . . . . 57
(a) Maximum Interest Under Texas Law . . . . . . . . . . . . . . . . 57
(b) Maximum Interest Under Applicable Law. . . . . . . . . . . . . . 58
(c) Recapture. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.06. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.07. Assignments and Participations . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.08. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 9.10. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 9.11. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>

SCHEDULES:
- ---------

Schedule I -- Notice Information for Banks
Schedule 5.02(a) -- Existing Liens
Schedule 5.02(c) -- Existing Indebtedness of Material
Subsidiaries
Schedule 5.02(e) -- Existing Restrictions on Dividends,
Advances and Investments

EXHIBITS:
- --------

Exhibit A --Form of TGPL Guaranty
Exhibit B --Form of TXG Guaranty
Exhibit C --Form of Opinion of Counsel to Borrower
Exhibit D --Form of Opinion of Special Counsel to the Agent
Exhibit E --Form of Opinion of Special New York Counsel
to the Agent
Exhibit F --Form of TGPL Solvency Certificate
Exhibit G --Form of TXG Solvency Certificate
Exhibit H --Form of Assignment and Acceptance
Exhibit I --Subordination Terms
<PAGE> 6
REIMBURSEMENT AGREEMENT
Dated as of December 31, 1993

Transco Energy Company, a Delaware corporation (the "Borrower"), the
lenders party hereto, and Bank of Montreal, as Agent hereunder, agree as
follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

Section 1.01 Certain Defined Terms. As used in this Agreement,
the term "Borrower" shall have the meaning set forth above and the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):

"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person or any Subsidiary of such Person.
The term "control" (including the terms "controlled by" or "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of Voting Stock, by contract or otherwise.

"Agent" means Bank of Montreal in its capacity as agent pursuant to
Article VII and any successor in such capacity pursuant to Section 7.06.

"Agreement" means this Reimbursement Agreement dated as of December
31, 1993 among Borrower, the Banks, and the Agent, as amended from time to time
in accordance with the terms hereof.

"Applicable Issuance Fee" means as to any Letter of Credit, for any
period, the product of (i) the original face amount of such Letter of Credit,
multiplied by (ii) the rate per annum set forth in the following table for the
relevant Rating Category applicable to Borrower at the time of issuance of such
Letter of Credit.

(a) If at the time of issuance of such Letter of Credit, the total
outstanding Advances (as such term is defined in the Revolver Credit Agreement)
pursuant to the Revolver Credit Agreement are equal to or less than fifty
percent (50%) of the Commitments (as such term is defined in the Revolver
Credit Agreement), then:
<PAGE> 7
<TABLE>
<CAPTION>
Rating Letter of Credit
Category Fee Rate
-------- --------
<S> <C>
One 7/16%
Two 7/8%
Three 1-3/8%
Four 1-7/8%.
</TABLE>

(b) If at the time of issuance of such Letter of Credit, the total
outstanding Advances (as such term is defined in the Revolver Credit Agreement)
pursuant to the Revolver Credit Agreement are greater than fifty percent (50%)
of the Commitments (as such term is defined in the Revolver Credit Agreement),
then:

<TABLE>
<CAPTION>
Rating Letter of Credit
Category Fee Rate
-------- --------
<S> <C>
One 9/16%
Two 1-1/8%
Three 1-5/8%
Four 2-1/2%.
</TABLE>

With the consent of Required Banks, the rate otherwise applicable to
any Letter of Credit may be reduced by fifty percent (50%) if such Letter of
Credit is deemed to be "performance-based" as such term is used in the risk
based capital guidelines of the Bank for International Settlements.

"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and an Eligible Assignee, and accepted by the Agent, in
substantially the form of Exhibit H.

"Banks" means the lenders listed on the signature pages hereof and
each Eligible Assignee that becomes a party hereto pursuant to Section 9.07.

"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at all
times be equal to the highest of:

(a) the rate of interest announced publicly by Bank of Montreal in
its Chicago office from time to time, as Bank of Montreal's prime rate, it
being understood that the prime rate is not necessarily the lowest or best rate
of interest determined by Bank of Montreal in connection with extensions of
credit and other financing transactions; or

-2-
<PAGE> 8
moving average being determined weekly on each Monday (or, if any such date is
not a Business Day, on the next succeeding Business Day) for the three-week
period ending on the previous Friday by Bank of Montreal on the basis of such
rates reported by certificate of deposit dealers to and published by the
Federal Reserve Bank of New York or, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received by Bank of
Montreal from three New York certificate of deposit dealers of recognized
standing selected by Bank of Montreal, in either case adjusted to the nearest
1/8 of one percent of if there is no nearest 1/8 of one percent, to the next
higher 1/8 of one percent; or

"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City or Houston, Texas.

"Cash Collateral Account" means a special cash collateral account
containing cash deposited pursuant to this Agreement, to be maintained at the
Agent's office in accordance with Section 6.02.

"Cash Collateral Amount" means the aggregate undrawn face amount of
all issued and outstanding Letters of Credit.

"Commitment" means, with respect to each Bank, the amount set forth in
the first column opposite such Bank's name on the signature pages hereof, or in
the case of a Bank which has entered into any Assignment and Acceptance, set
forth for such

-3-
<PAGE> 9
Bank as its Commitment in the Register maintained by the Agent pursuant to
Section 9.07(c), as such amount may be reduced pursuant to Sections 2.08, 2.09
or 6.01.

"Consolidated" refers to the consolidation of the accounts of Borrower
and its Consolidated Subsidiaries in accordance with GAAP, including principles
of consolidation consistent with those applied in the preparation of the
Financial Statements.

"Consolidated Cash Flow" of Borrower means for any period the
Consolidated Operating Income of Borrower and its Consolidated Subsidiaries for
such period plus (i) the Consolidated depreciation and amortization expense
included in calculating Consolidated Operating Income of Borrower and its
Consolidated Subsidiaries for such period, plus (ii) any other non-cash charges
included in calculating Consolidated Operating Income of Borrower and its
Consolidated Subsidiaries for such period reducing such Consolidated Operating
Income, minus (iii) non-cash items included in calculating Consolidated
Operating Income of Borrower and its Consolidated Subsidiaries for such period
increasing such Consolidated Operating Income.

"Consolidated Interest Expense" for Borrower means for any period the
amount (net of interest income) which, in conformity with GAAP, would be set
forth opposite the caption "interest expense" or any like caption as reflected
in Borrower's Consolidated income statement for such period prepared on
substantially the same basis as Borrower's Consolidated income statement for
its fiscal year ended December 31, 1992, or as set forth in Borrower's Form
10-K for its fiscal year 1992.

"Consolidated Net Income" of Borrower means for any period the
Consolidated net income (or loss) of Borrower and its Consolidated Subsidiaries
for such period determined in accordance with GAAP; provided, however, that
there shall be (a) excluded therefrom (i) the net income (or loss) of any
Person acquired by Borrower or a Subsidiary in a pooling-of-interest
transaction for any period prior to the date of such transaction, (ii) the net
income (but not net loss) of any Person which is subject to any restriction
which prevents the payment of dividends or the making of distributions to
Borrower or any Subsidiary to the extent of such restrictions, (iii) after-tax
gains or losses on the sale, transfer or other disposition of any Property by
Borrower or its Consolidated Subsidiaries not in the ordinary course of
business, (iv) all extraordinary gains and extraordinary losses, net of
applicable income taxes, and (v) any item constituting the cumulative effect of
a change in accounting principles, net of applicable income taxes, and (b)
included therein (to the extent not otherwise included therein, and subject to
the limitation set forth in clause (a)(ii) of this definition)

-4-
<PAGE> 10
Borrower's interest, determined in accordance with GAAP, in the net income (or
loss) of any Person in which Borrower or any Subsidiary owns an interest and
which is not a Consolidated Subsidiary, as set forth opposite the caption
"equity in earnings of unconsolidated affiliates" or any like caption as
reflected in Borrower's Consolidated income statement for such period prepared
on substantially the same basis as Borrower's Consolidated income statement for
its fiscal year ended December 31, 1992, or as set forth in Borrower's Form
10-K for its fiscal year 1992.

"Consolidated Net Worth" means the sum of, without duplication, (i)
the Consolidated common stockholders' equity of Borrower and its Consolidated
Subsidiaries plus (ii) the aggregate stated value of all Preferred Stock of
Borrower and Material Subsidiaries issued prior to September 30, 1993 and held
by Persons other than Borrower or any Subsidiary plus (iii) Preferred Stock of
the Borrower ("New Preferred Stock") held by Persons other than the Borrower or
any Subsidiary which is exchanged for, or substantially all of the proceeds of
which are used to acquire and retire, any Preferred Stock outstanding on
September 30, 1993 (or any extension or renewal thereof), in an aggregate
liquidation preference not to exceed the liquidation preference of such
Preferred Stock so exchanged, or acquired and retired and provided that the New
Preferred Stock by its terms, or by the terms of any agreement or instrument
pursuant to which such New Preferred Stock is issued, (x) does not provide for
payments of liquidation value at the stated maturity of such New Preferred
Stock or by way of a sinking fund applicable to such New Preferred Stock or by
way of any mandatory redemption, retirement or repurchase of such New Preferred
Stock (including any redemption, retirement or repurchase which is contingent
upon events or circumstances) prior to December 31, 1996 and (y) does not
permit redemption or other retirement of such New Preferred Stock at the option
of the holder thereof prior to December 31, 1996, other than a redemption or
other retirement at the option of the holder of such New Preferred Stock
(including pursuant to an offer to purchase made by the Borrower) which is
conditioned upon the change of control of the Borrower plus (iv) 100% of the
aggregate after-tax loss on disposition after the date of this Agreement of any
asset of Borrower or any Consolidated Subsidiary not in the ordinary course of
business plus (v) the cumulative after-tax amount not exceeding $100,000,000 of
the Magnolia Charge to be taken by Borrower, provided, however, if the Magnolia
Charge exceeds $100,000,000, then the amount of such excess over $100,000,000
shall be included in the calculation of Consolidated Net Worth until the
earlier to occur of (a) the sale by Borrower of a minimum of $100,000,000 in
the aggregate of common stock of Borrower after the date of this Agreement, or
(b) December 31, 1994, all as determined in accordance with GAAP.

-5-
<PAGE> 11
"Consolidated Operating Income" of Borrower means for any period the
Consolidated operating income (or loss) of Borrower and its Consolidated
Subsidiaries for such period determined in accordance with GAAP and set forth
opposite the caption "Operating Income (Loss)" or any like caption on a
Consolidated income statement of Borrower and its Consolidated Subsidiaries for
such period prepared on substantially the same basis as Borrower's and its
Consolidated Subsidiaries' income statement for its fiscal year ended December
31, 1992, or as set forth in the Borrower's Form 10-K for its fiscal year 1992;
provided, however, that there shall be (a) excluded therefrom (to the extent
otherwise included therein) (i) the operating income (or loss) of any Person
acquired by Borrower or a Subsidiary in a pooling-of-interest transaction for
any period prior to the date of such transaction, (ii) the operating income
(but not loss) of any Person which is subject to any restriction which prevents
the payment of dividends or the making of such distributions to Borrower or any
Subsidiary to the extent of such restrictions, (iii) pre-tax gains or losses on
the sale, transfer or other disposition of any Property by Borrower or its
Consolidated Subsidiaries not in the ordinary course of business, (iv) all
extraordinary gains and extraordinary losses, prior to applicable income taxes,
and (v) any item constituting the cumulative effect of a change in accounting
principles, prior to applicable income taxes, and (b) included therein (to the
extent not otherwise included therein, and subject to the limitation set forth
in clause (a)(ii) of this definition) Borrower's interest, determined in
accordance with GAAP, in the income (or loss) of any Person in which Borrower
or any Subsidiary owns an interest and which is not a Consolidated Subsidiary,
as set forth opposite the caption "equity in earnings of unconsolidated
affiliates" or any like caption as reflected in Borrower's Consolidated income
statement for such period prepared on substantially the same basis as
Borrower's Consolidated income statement for its fiscal year ended December 31,
1992, or as set forth in Borrower's Form 10-K for its fiscal year 1992.

"Consolidated Subsidiaries" of Borrower means all Persons that would
be accounted for as consolidated Persons in Borrower's financial statements in
accordance with GAAP.

"Default" means any event or condition which with notice or lapse of
time or both would, unless cured or waived, become an Event of Default.

"Dollars" and "$" means lawful money of the United States of America.

"Eligible Assignee" means, with the consent of the Agent and Issuing
Bank, any Bank and, with the consent of the Agent, Issuing Bank and Borrower,
any other Person.

-6-
<PAGE> 12
"Environment" or "Environmental" shall have the meanings set forth in
42 U.S.C. Section 9601(8) (1988).

"EPA" means the United States Environmental Protection Agency, or any
successor thereto.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a group of which Borrower is a member and
which is under common control within the meaning of the regulations under
Section 414 of the Code.

"ERISA Liabilities" means at any time the minimum liability with
respect to Plans which would be required to be reflected at such time as a
liability on the Consolidated balance sheet of Borrower and its Subsidiaries
under paragraphs 36 and 70 of Statement of Financial Accounting Standards No.
87 as such Statement may from time to time be amended, modified or
supplemented, or under any successor statement issued in replacement thereof.

"Event of Default" has the meaning specified in Section 6.01.

"Executive Officer" (whether or not capitalized) means the president,
secretary, treasurer, principal financial officer, principal accounting officer
and each vice-president of Borrower or any Material Subsidiary and each other
person

-7-
<PAGE> 13
who performs similar policy making functions for Borrower or any Material
Subsidiary.

"Federal Funds Rate" means, for any day, a fluctuating interest rate
per annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Agent from three Federal funds brokers of recognized standing
selected by it.

"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereof.

"Financial Statements" means the Consolidated and consolidating
balance sheets and other financial statements of Borrower and its Subsidiaries
dated September 30, 1993 referred to in Section 4.01(e), copies of which have
been delivered to the Agent and the Banks listed on the signature pages hereof.

"Guaranties" mean the TGPL Guaranty and the TXG Guaranty.

-8-
<PAGE> 14
of such Person, and (d) all Indebtedness of others (i) which is secured by any
Lien on Property owned by such Person, whether or not such Person has assumed
or become liable for the payment of such Indebtedness or (ii) the payment,
purchase or other acquisition or obligation of which such Person has assumed,
or for the payment, purchase or other acquisition or obligation of which such
Person has otherwise become directly or contingently liable.

"Issuing Bank" means Bank of Montreal acting in its capacity as issuer
of Letters of Credit hereunder, or any bank acting as a successor issuing bank
pursuant to Section 8.02.

"L/C Application" has the meaning specified in Section 2.01(a).

"Letter(s) of Credit" means any standby letter of credit issued
pursuant to the terms of this Agreement by Issuing Bank for the account of
Borrower.

"Letter of Credit Exposure" means, at any time, the sum of (a) the
aggregate undrawn maximum face amount of each Letter of Credit at such time and
(b) the aggregate unpaid amount of all Reimbursement Obligations at such time.

"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind.

"Loan Documents" means this Agreement, each L/C Application, the
Guaranties and each other agreement, instrument or document executed at any
time in connection with this Agreement.

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<PAGE> 15
"Magnolia Charge" means any charge to be taken by Borrower after
September 30, 1993 with respect to Borrower's Investment in the coal bed
methane properties held by Magnolia Methane Company and the natural gas
pipeline held by Magnolia Pipeline Company.

"Material Subsidiary" means each of TGC, TGPL and TXG.

"Moody's" means Moody's Investors Service.

"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate is making
or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.

"Multiple Employer Plan" means an employee benefit plan, other than a
Multiemployer Plan, subject to Title IV of ERISA to which Borrower or any ERISA
Affiliate, and more than one employer other than Borrower or an ERISA
Affiliate, is making or accruing an obligation to make contributions or, in the
event that any such plan has been terminated, to which Borrower or any ERISA
Affiliate made or accrued an obligation to make contributions during any of the
five plan years preceding the date of termination of such plan.

"Net Cash Proceeds" means all consideration (valued at fair market
value if other than cash) received by Borrower or any Subsidiary at any time as
a result of or in connection with any sale of capital stock or other equity
securities of Borrower or such Subsidiary, as the case may be, net of all
reasonable fees, commissions, underwriting discounts and expenses incurred by
Borrower in such sale.

"Obligations" means all Reimbursement Obligations, all fees payable by
Borrower hereunder and all other amounts payable by Borrower to the Agent or
the Banks under any of the Loan Documents.

"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

"Plan" means an employee benefit plan (other than a Multiemployer
Plan) which is (or, in the event that any such plan has been terminated within
five years after a transaction

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<PAGE> 16
described in Section 4069 of ERISA, was) maintained for employees of Borrower
or any ERISA Affiliate and covered by Title IV of ERISA.

"Preferred Stock" means, (i) as applied to any partnership,
partnership interests in such partnership which shall be entitled to preference
or priority over any other partnership interest in such partnership in respect
of any distribution of cash, property or other assets and (ii) as applied to
any corporation, shares of capital stock of such corporation which shall be
entitled to preference or priority over any other shares of capital stock of
such corporation in respect of either the payment of dividends or the
distribution of assets upon liquidation.

"Pro Rata Share" means, at any time with respect to any Bank, either
(a) the ratio (expressed as a percentage) of such Bank's Commitment at such
time to the aggregate Commitments at such time or (b) if the Commitments have
been terminated, the ratio (expressed as a percentage) of such Bank's
Commitment immediately prior to such termination to the aggregate Commitments
immediately prior to such termination.

"Property" or "asset" (in each case, whether or not capitalized) means
any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible.

"Rating Category" means any of Rating Category One, Rating Category
Two, Rating Category Three or Rating Category Four.

"Rating Category One" is applicable to Borrower at such times as the
senior unsecured long-term debt of Borrower is rated BBB- or better by S&P and
Baa3 or better by Moody's.

"Rating Category Two" is applicable to Borrower at such times as (a)
Rating Category One is not applicable to Borrower and (b) the senior unsecured
long-term debt of Borrower is rated BB+ or better by S&P and Ba1 or better by
Moody's.

"Rating Category Three" is applicable to Borrower at such times as (a)
neither Rating Category One nor Rating Category Two is applicable to Borrower
and (b) the senior unsecured long-term debt of Borrower is rated B or better by
S&P and B2 or better by Moody's.

"Rating Category Four" is applicable to Borrower at such times as (a)
the senior unsecured long-term debt of Borrower is rated B- or lower by S&P or
B3 or lower by Moody's or (b) Borrower is Unrated.

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<PAGE> 17
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended from time to time, set forth at 42 U.S.C. Section Section 6901 et seq
(1988), state and local analogs and all rules and regulations promulgated
thereunder, in each case as now or hereafter in effect.

"Register" has the meaning specified in Section 9.07(c).

"Regulation G" means Regulation G of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.

"Regulation U" means Regulation U of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.

"Regulation X" means Regulation X of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.

"Reimbursement Obligations" means all of the obligations of Borrower
set forth in Section 2.03(a)(i).

"Required Banks" means at any time Banks whose Commitments equal at
least 60% of the aggregate Commitments, or, if the Commitments have been
terminated, Banks holding a Pro Rata Share of at least 60% of the Letter of
Credit Exposure (provided, however, that, for purposes hereof, neither
Borrower, nor any of its Affiliates, if a Bank, shall be included in (i) the
Banks having such amount of the Commitments or holding such amount of the
Letter of Credit Exposure or (ii) determining the aggregate amount of the
Commitments or the total Letter of Credit Exposure.

"Restricted Preferred Stock" means (a) Preferred Stock of Borrower
which (i) was issued on or after September 30, 1993 and (ii) is subject to
redemption or other retirement or to conversion (other than conversion to
common stock), in whole or in part, at the option of the holder thereof (unless
such option may only be exercised on a fixed or determinable date or dates
after December 31, 1996) or at a fixed or determinable date or dates prior to
or on December 31, 1996, except any redemption or other retirement at the
option of the holder of such Preferred Stock (including pursuant to an offer to
purchase made by Borrower) which is conditioned upon the change of control of
Borrower and (b) Preferred Stock of Borrower which (i) was issued prior to
September 30, 1993, (ii) became outstanding on or after September 30, 1993, and
(iii) is subject to redemption or other retirement or to conversion (other than
conversion to common stock), in whole or in part, at the option of the holder
thereof (unless such option may only be exercised on a fixed or determinable
date or dates after December 31, 1996) or at a fixed or determin-

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<PAGE> 18
able date or dates prior to or on December 31, 1996, except any redemption or
other retirement at the option of the holder of such Preferred Stock
(including, pursuant to an offer to purchase made by Borrower) which is
conditioned upon the change of control of Borrower.

"Revolver Credit Agreement" means the Amended and Restated Credit
Agreement dated December 31, 1993 among Borrower, the lenders parties thereto,
Citibank, N.A. as agent thereunder, and Bank of Montreal as co-agent
thereunder, as amended from time to time in accordance with the terms thereof,
which provides for advances to Borrower up to an aggregate principal amount
outstanding at any time of $450,000,000.

"SARA" means the Superfund Amendments and Reauthorization Act of 1986.

"S&P" means Standard & Poor's Corporation.

"Subsidiary" means any corporation (including a business trust),
partnership, joint stock company, trust, unincorporated association, joint
venture or other entity of which more than 50% of the outstanding capital
stock, securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors of such corporation or, in the case
of any other entity, a majority of the Persons performing similar functions
(irrespective of whether or not at the time capital stock, securities or other
ownership interests of any other class or classes of such corporation or such
other entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by Borrower, by
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.

"subsidiary of a Material Subsidiary" means any corporation (including
a business trust), partnership, joint stock company, trust, unincorporated
association, joint venture or other entity of which more than 50% of the
outstanding capital stock, securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors of such
corporation or, in the case of any other entity, a majority of the Persons
performing similar functions (irrespective of whether or not at the time
capital stock, securities or other ownership interests of any other class or
classes of such corporation or such other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by one or

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<PAGE> 19
more of the Material Subsidiaries, by one or more of the Material Subsidiaries
and one or more Subsidiaries of a Material Subsidiary or by one or more
Subsidiaries of a Material Subsidiary.

"Termination Date" means December 31, 1996, or such earlier date of
termination in whole of the aggregate Commitments pursuant to Section 2.08,
Section 2.09 or Section 6.01.

"TGC" means Transco Gas Company, a Delaware corporation.

"TGPL" means Transcontinental Gas Pipe Line Corporation, a Delaware
corporation.

"TGPL Guaranty" means the Guaranty dated as of the date hereof duly
executed and delivered to the Agent by TGPL in substantially the form of
Exhibit A, as amended from time to time in accordance with the terms thereof.

"Transco Coal" means Transco Coal Company, a Delaware corporation.

"TXG" means Texas Gas Transmission Corporation, a Delaware corporation.

"TXG Guaranty" means the Guaranty dated as of the date hereof duly
executed and delivered to the Agent by TXG in substantially the form of Exhibit
B, as amended from time to time in accordance with the terms thereof.

"Unrated" means that the senior unsecured long-term debt of Borrower
either is not rated by S&P or is not rated by Moody's.

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<PAGE> 20
Section 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding".

Section 1.04. Miscellaneous. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.

Section 1.05 Ratings. A rating, whether public or private, by S&P
or Moody's shall be deemed to be in effect on the date of announcement or
publication by S&P or Moody's, as the case may be, of such rating or, in the
absence of such announcement or publication, on the effective date of such
rating and will remain in effect until the effective date of any change in such
rating. In the event the standards for the rating "BBB-", "BB+, "B" or "B-",
in the case of a rating by S&P, or the standards for the rating "Baa3", "Ba1",
"B2" or "B3", in the case of a rating by Moody's, are revised, or such ratings
are designated differently (such as by changing letter designations to
numerical designations) and Moody's or S&P, as the case may be, does not state
at the time of the designation what the equivalent ratings are, then the
references herein to "BBB-", "BB+", "B" "B-", "Baa3", "Ba1", "B2" or "B3", as
the case may be, shall be changed to the revised or redesignated rating for
which the standards are closest to, but not lower than, the standards at the
date hereof for the rating which has been revised or redesignated, all as
determined by the Required Banks in good faith. Long-term debt supported by a
letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt. If
either Moody's or S&P has at any time more than one rating applicable to senior
unsecured long-term debt of Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of Borrower Ba1 and other such debt of Borrower Ba2,
the senior unsecured long- term debt of Borrower shall be deemed to be rated
Ba2 by Moody's.

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<PAGE> 21
ARTICLE II
STANDBY LETTERS OF CREDIT

Section 2.01 Issuance. (a) Borrower may from time to time, prior
to the Termination Date request Issuing Bank to issue, increase, decrease,
amend or extend the expiration date of a Letter of Credit for the account of
Borrower by delivering to Issuing Bank by 10:00 a.m. (New York City time) at
least one Business Day prior to the proposed date of such action, with a copy
to the Agent at its address specified in Section 9.02, a letter of credit
application in Issuing Bank's then customary form (an "L/C Application")
completed to the satisfaction of Issuing Bank and the Agent, together with the
proposed form of such Letter of Credit or amendment thereof (which shall comply
with the applicable requirements of paragraph (b) below) and such other
certificates, documents and other papers and information as Issuing Bank may
reasonably request; provided, however, that if the terms of the L/C Application
shall conflict with the terms of this Agreement, the terms of this Agreement
shall control.

(b) Each Letter of Credit issued hereunder shall, among
other things, (i) be in such form requested by Borrower as shall be acceptable
to Issuing Bank (and the Agent, if such form has not been previously reviewed
by the Agent) in Issuing Bank's reasonable discretion, (ii) have an expiration
date occurring not later than (a) one year after the date of issuance thereof
and (b) the Termination Date, (iii) not support the repayment of indebtedness
for borrowed money of any Person and (iv) be governed by the Uniform Customs
and Practice for Documentary Credits (1983 Revision), International Chamber of
Commerce Publication No. 400 ("UCP") or any successor to the UCP, provided,
that after giving effect to the issuance of any Letter of Credit, in no event
shall the Letter of Credit Exposure exceed the aggregate Commitments.

(c) On the date any Letter of Credit is issued or amended, Issuing
Bank shall forward a copy thereof via telecopy to the Agent.

Section 2.02 Participations. (a) On the date of issuance of each
Letter of Credit, Issuing Bank shall be deemed to have sold to each other Bank
and each other Bank shall have been deemed to have purchased from Issuing Bank
a participation in such Letter of Credit and the related Obligations equal to
such other Bank's Pro Rata Share at such date, and such sale and purchase shall
otherwise be in accordance with the terms of this Agreement. Issuing Bank
shall promptly notify each participant Bank by telex, telephone or telecopy of
each Letter of Credit issued, increased, decreased or otherwise amended, and
the actual dollar amount of such Bank's participation in such Letter of Credit.

(b) Each Bank's obligation to purchase participation interests
pursuant to this Section 2.02 and to reimburse Issuing Bank for such Bank's Pro
Rata Share of any Reimburse-

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<PAGE> 22
ment Obligations not paid by Borrower in full (whether before or after
termination of the Commitments) shall be absolute and unconditional and shall
not be affected by any circumstance, including, without limitation, (i) any
lack of validity or enforceability of any Loan Document; (ii) the existence of
any claim, set-off, recoupment, defense or other right which such Bank may have
against Issuing Bank, Borrower or any other Person for any reason whatsoever;
(iii) any statement or any other document presented under any Letter of Credit
proves to be forged, fraudulent or invalid or any statement therein is untrue
or inaccurate in any respect; (iv) payment by Issuing Bank under any Letter of
Credit against presentation of a draft or certificate which does not comply
with the terms of such Letter of Credit or is insufficient in any respect,
except where such payment constitutes gross negligence or wilful misconduct on
the part of Issuing Bank; (v) the occurrence or continuance of any Default or
Event of Default; (vi) any adverse change in the condition (financial or
otherwise) of Borrower or any of its Subsidiaries; (vii) any breach of this
Agreement by Borrower or any other Bank; or (viii) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing,
except for any such circumstance, happening or event constituting or arising
from gross negligence or willful misconduct on the part of Issuing Bank.

Section 2.03 Reimbursement. (a) Borrower agrees to pay to Agent
for the account of Issuing Bank on demand by Issuing Bank and otherwise in
accordance with the terms of the L/C Application executed by Borrower relating
thereto, (i) an amount equal to the amount of any payment made by Issuing Bank
under any Letter of Credit, such amount due by 12:00 noon on the same Business
Day payment is made by Issuing Bank under such Letter of Credit, and (ii)
interest on any unreimbursed portion of any such payment from the date of such
payment until reimbursement in full thereof at a rate per annum equal to the
Base Rate plus three percent (3%) per annum.

(b) In the event that Issuing Bank makes a payment under any
Letter of Credit and is not promptly reimbursed in full by Borrower therefor
upon demand of Issuing Bank as set forth in paragraph (a) above, and otherwise
in accordance with the terms hereof and of the L/C Application relating to such
Letter of Credit, Issuing Bank will promptly notify Agent, and Agent will
notify each other Bank of Borrower's failure to make such payment. Each other
Bank will, by 3:00 p.m. (New York City time) on the same Business Day of
receipt of such notice from Agent, if notice is received by 1:00 p.m. on such
day, or by 12:00 noon on the next succeeding Business Day if notice is received
after 1:00 p.m. on such day, transfer to Agent for the account of Issuing Bank,
in immediately available funds, an amount equal to such Bank's Pro Rata Share
of the Reimbursement Obligation arising from such unreimbursed

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<PAGE> 23
payment. If a Bank does not make available such Bank's Pro Rata Share of such
Reimbursement Obligation as provided in the foregoing sentence, such Bank shall
be required to pay interest on its Pro Rata Share of such Reimbursement
Obligation at the Federal Funds Rate from the date Issuing Bank made payment
under such Letter of Credit until the date it is received by Issuing Bank,
provided, however, that if such Bank shall not have paid its Pro Rata Share of
such Reimbursement Obligation to Issuing Bank within five Business Days, then
from and after such fifth Business Day until the date such amount is received
by Issuing Bank, such Bank shall be required to pay interest to Issuing Bank on
its Pro Rata Share of such Reimbursement Obligation at the Federal Funds Rate
plus three percent (3%) per annum. If Issuing Bank receives a Bank's Pro Rata
Share of any Reimbursement Obligation on the date such payment is due, or if
Issuing Bank receives such Pro Rata Share within five Business Days of such due
date together with interest on such late payment in accordance with the
provisions of the preceding sentence, such Bank shall receive interest on its
Pro Rata Share of such Reimbursement Obligation in accordance with paragraph
(c) of this Section 2.03 from such due date. If Issuing Bank does not receive
a Bank's Pro Rata Share of any Reimbursement Obligation when due or within five
Business Days thereafter and does not receive interest on any late payment from
such Bank in accordance with the provisions of this paragraph, such Bank shall
receive interest on its Pro Rata Share of such Reimbursement Obligation in
accordance with paragraph (c) of this Section 2.03 from the date on which such
Bank's payment is received by Issuing Bank.

(c) Whenever, at any time after Issuing Bank has made a payment
under any Letter of Credit and has received from any other Bank such other
Bank's Pro Rata Share of the Reimbursement Obligation arising therefrom,
Issuing Bank receives any reimbursement from Borrower on account of such
Reimbursement Obligation or any payment of interest on account thereof, Issuing
Bank will distribute to such other Banks their Pro Rata Share thereof in like
funds as received (provided that such Banks have made payment of such Banks'
share of the Reimbursement Obligation in accordance with paragraph (b) above);
provided, however, that in the event that the receipt by Issuing Bank of such
reimbursement or such payment of interest (as the case may be) is required to
be returned, such other Banks will return to Issuing Bank any portion thereof
previously distributed by Issuing Bank to them in like funds as such
reimbursement or payment is required to be returned by Issuing Bank.

Section 2.04 Fees. (a) Facility Fees. Borrower agrees to pay to
the Agent for the ratable account of the Banks (including Issuing Bank with
respect to its own Commitment), a facility fee from the date hereof until the
Termination

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<PAGE> 24
Date, payable quarterly in arrears on the last day of each March, June,
September and December hereafter, commencing March 31, 1994 and on the
Termination Date, at the rates as follows: (i) if Rating Category One is
applicable to Borrower, at 5/16 of one percent (5/16%) per annum of the
aggregate Commitments (regardless of usage of the facility herein provided),
and (ii) if any other Rating Category (other than Rating Category One) is
applicable to Borrower, at 1/2 of one percent (1/2%) per annum of the aggregate
Commitments (regardless of the usage of the facility herein provided).

(b) Participation Fee. Borrower agrees to pay on the date of this
Agreement to the Agent for the ratable account of each Bank listed on the
signature pages hereof a participation fee in an amount equal to the amount set
forth beside such Bank's name below:
<TABLE>
<CAPTION>
Participation
Bank Fee Amount
---- -------------
<S> <C>
Bank of Montreal $ 50,000
The Bank of Nova Scotia $ 50,000
CIBC Inc. $ 30,000
Continental Bank N.A. $ 30,000
Swiss Bank Corporation, New York Branch $ 30,000
</TABLE>

(c) Issuance Fee. Borrower agrees to pay to the Agent for the
account of the Issuing Bank and each other Bank on the date of issuance of each
Letter of Credit and on the last day of each March, June, September and
December hereafter, an issuance fee in the amount of the Applicable Issuance
Fee with respect to such Letter of Credit for the period commencing on such day
and ending on the earlier of the last day of the next March, June, September or
December thereafter or the Termination Date; provided, however, that the
issuance fee payable to the Issuing Bank shall in no event be less than $100.

(d) Letter of Credit Fronting Fees. Borrower agrees to pay to the
Agent, for the account of the Issuing Bank, a fee on the average daily undrawn
face amount of outstanding Letters of Credit from the date hereof until the
Termination Date, payable quarterly in arrears on the last day of each March,
June, September and December hereafter, commencing March 31, 1994 and on the
Termination Date, at the rate of 1/8 of 1% per annum.

Section 2.05 Increased Costs and Capital Requirements.

(a) Change of Law. If any change in any law or regulation or in
the interpretation thereof by any court or administrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify, or deem applicable any reserve, special deposit, or similar requirement
against letters of credit issued by, or assets held by, or deposits in or for
the account of, Issuing Bank or

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<PAGE> 25
any Bank or (ii) impose on Issuing Bank or any Bank any other condition
regarding the provisions of this Agreement relating to the Letters of Credit or
any Letter of Credit Exposure, and the result of any event referred to in the
preceding clause (i) or (ii) shall be to increase the cost to Issuing Bank of
issuing or maintaining the Commitments or any Letter of Credit, or increase the
cost to such Bank of its risk participation in any Letter of Credit (which
increase in cost shall be determined by Issuing Bank's or such Bank's
reasonable allocation of the aggregate of such cost increases resulting from
such event), then, upon demand by Issuing Bank or such Bank, as the case may
be, Borrower shall pay to Issuing Bank or such Bank, as the case may be, from
time to time as specified by Issuing Bank or such Bank, additional amounts
which shall be sufficient to compensate Issuing Bank or such Bank for such
increased cost. Issuing Bank and each Bank agrees to use commercially
reasonable efforts (consistent with internal policy and legal and regulatory
restrictions) to designate a different office for the booking of its Letters of
Credit or risk participations if the making of such designation would avoid the
effect of this paragraph and would not, in the reasonable judgment of the
Issuing Bank or such Bank, be otherwise disadvantageous to Issuing Bank or such
Bank, as the case may be. A certificate as to such increased cost incurred by
Issuing Bank or such Bank, as the case may be, as a result of any event
mentioned in clause (i) or (ii) above, and detailing the calculation of such
increased costs submitted by Issuing Bank or such Bank to Borrower, shall be
conclusive and binding for all purposes, absent manifest error.

(b) Capital. If any Bank or Issuing Bank determines in good faith
that the applicability of any law, rule, regulation or guideline adopted
pursuant to or arising out of the July 1988 report of the Basle Committee on
Banking Regulations and Supervisory Practices entitled "International
Convergence of Capital, Measurement and Capital Standards," or that compliance
with any law or regulation or any guideline or request from any central bank or
other governmental authority (whether or not having the force of law)
implemented or effective after the date of this Agreement, affects or would
effect the amount of capital required or expected to be maintained by such Bank
or Issuing Bank and that the amount of such capital is increased by or based
upon the existence of Issuing Bank's commitment to issue the Letters of Credit
or any Bank's Commitment to risk participate in Letters of Credit and other
commitments of this type, then, upon 10 days prior written notice by such Bank
or Issuing Bank (with a copy of any such demand to the Agent), Borrower shall
immediately pay to the Agent for the account of such Bank or to Issuing Bank,
as the case may be, from time to time as specified by such Bank or Issuing
Bank, additional amounts (without duplication of any other amounts payable in
respect of increased costs) suffi-

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<PAGE> 26
cient to compensate such Bank or Issuing Bank, in light of such circumstances,
(i) with respect to such Bank, to the extent that such Bank reasonably
determines such increase in capital to be allocable to the existence of such
Bank's commitment to risk participate in Letters of Credit and (ii) with
respect to the Issuing Bank, to the extent that Issuing Bank reasonably
determines such increase in capital to be allocable to the issuance or
maintenance of the Letters of Credit. A certificate as to such amounts and
detailing the calculation of such amounts submitted to Borrower by such Bank or
Issuing Bank shall be conclusive and binding for all purposes, absent manifest
error.

Section 2.06 Further Assurances. Borrower hereby agrees, from time to
time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by Issuing Bank or Agent more fully to effect
the purposes of this Agreement and the issuance of Letters of Credit hereunder.

Section 2.07 Obligations Absolute. The payment obligations of
Borrower under this Agreement with respect to the Obligations shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:

(a) any lack of validity or enforceability of any Loan
Documents;

(b) any amendment or waiver of or any consent to
departure from any Loan Documents;

(c) the use which may be made of any Letter of Credit or
any acts or omissions of any beneficiary or transferor in connection
therewith;

(d) the existence of any claim, set-off, defense or other
right which Borrower or any of its Subsidiaries or any other Person
may have at any time against any beneficiary, or any transferee, of
any Letter of Credit (or any Persons for whom any such beneficiary or
any such transferee may be acting), Issuing Bank, the Agent or any
Bank, or any other Person, whether in connection with this Agreement,
the Loan Documents, the transactions contemplated herein, or any
unrelated transaction;

(d) any statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent or invalid or
any statement therein being untrue or inaccurate in any respect;

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<PAGE> 27
(e) payment by Issuing Bank under any Letter of Credit
against presentation of a draft or certificate which does not comply
with the terms of such Letter of Credit or is insufficient in any
respect, except where such payment constitutes gross negligence or
wilful misconduct on the part of Issuing Bank; or

(f) any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing, except for any such
circumstances or happening constituting gross negligence or wilful
misconduct on the part of Issuing Bank.

Section 2.08 Reduction of Commitments. Borrower shall have the
right at any time and from time to time, upon at least three Business Days
written notice to the Agent, to terminate in whole or reduce ratably in part
the aggregate Commitments; provided that each partial reduction shall be in the
minimum aggregate amount of $10,000,000 and in the integral multiple of
$1,000,000; and provided further that the aggregate amount of the Commitments
of the Banks shall not be reduced to an amount which is less than the Letter of
Credit Exposure at such time. On the date that any Commitment of any Bank is
terminated (whether pursuant to this Section 2.08, Section 2.09 or otherwise)
the amount of such Commitment shall be reduced to zero. Any termination or
reduction of the Commitments shall be permanent. Borrower shall pay to the
Agent for the account of the Banks, on the date of each termination or
reduction, the fees on the amount of the Commitments so terminated or reduced
accrued through the date of such termination or reduction.

Section 2.09 Optional Termination of the Commitments.
Notwithstanding anything to the contrary in this Agreement, if (i) any Person
or two or more Persons acting in concert shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of securities of the Borrower (or other securities convertible into
such securities) representing 30% or more of the combined voting power of all
securities of the Borrower entitled to vote in the election of directors, other
than securities having such power only by reason of the happening of a
contingency; or (ii) during any period of up to 24 consecutive months,
commencing on, before or after the date of this Agreement, individuals who at
the beginning of such 24-month period were directors of the Borrower (or who
were appointed or nominated for election by individuals who at the beginning of
such period were a majority of such directors, but excluding any such Person
originally proposed for election in opposition to the board of directors of the
Borrower in office on the date hereof in an actual or threatened election

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context relating to the election of the directors of the Borrower (as such
terms are used in Rule 14a-11 under the Securities Exchange Act of 1934, as
amended) and whose initial assumption of office resulted from such contest or
the settlement thereof) shall cease for any reason to constitute a majority of
the board of directors of the Borrower; or (iii) any Person or two or more
Persons acting in concert shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement which upon consummation will
result in its or their acquisition of, the power to exercise, directly or
indirectly, a controlling influence over the management or policies of the
Borrower; (iv) any condition or event constituting a change of control of the
Borrower for purposes of permitting any holder of Preferred Stock of the
Borrower to exercise a right of redemption or other retirement (including
pursuant to an offer to purchase made by the Borrower) or conversion (other
than conversion to common stock), in whole or in part, of such Preferred Stock;
or (v) the commitments of the lenders party to the Revolver Credit Agreement to
make Advances (as defined in the Revolver Credit Agreement) shall be reduced to
an amount less than $225,000,000 or totally terminated; then, in any such
event, (a) all fees payable hereunder pursuant to Section 2.04 shall
immediately and automatically increase by one-half of one percent (1/2%), (b)
the Issuing Bank may (without the consent of any Bank), or shall at the request
of the Required Banks, by telephonic, telex or other notice to the Borrower,
declare the Commitments and the obligation of Issuing Bank to issue Letters of
Credit to be immediately terminated (whereupon the same shall immediately
terminate), without presentment, demand, protest or further notice (including,
without limitation, notice of intent to accelerate and notice of acceleration)
of any kind, all of which are hereby expressly waived by Borrower, (c) the
Issuing Bank may (without the consent of any Bank), or shall at the request of
the Required Banks, by telephonic, telex or other notice to Borrower, declare
all Obligations (whether contingent or otherwise) due and payable, whereupon
such Obligations shall become immediately due and payable, without presentment,
demand, protest or further notice (including, without limitation, notice of
intent to accelerate and notice of acceleration) of any kind, all of which are
hereby expressly waived by Borrower, and (d) the Issuing Bank may (without the
consent of any Bank), or shall at the request of the Required Banks, by
telephonic, telex or other notice to Borrower, demand that Borrower deposit
with the Agent into the Cash Collateral Account the Cash Collateral Amount as
security for the Obligations.

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<PAGE> 29
Section 2.10. Sharing of Payments, Etc.

(a) If any Bank shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, collection on the
Guaranties or otherwise) on account of any Obligations of Borrower in excess of
its ratable share of payments on account of the Obligations obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in the Obligations owing to them as shall be necessary to cause
such purchasing Bank to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the
purchase price to the extent of such recovery together with an amount equal to
such Bank's share (according to the proportion of (i) the amount of such Bank's
required repayment to (ii) the total amount so recovered from the purchasing
Bank) of any interest or other amount paid or payable by the purchasing Bank in
respect of the total amount so recovered.

(b) Borrower agrees that any Bank purchasing a participation from
another Bank pursuant to this Section 2.10 may, to the fullest extent permitted
by law, exercise all its rights hereunder (including the right of set-off) with
respect to such participation as fully as if such Bank were the direct creditor
of Borrower in the amount of such participation.

(c) If at any time a Bank's senior unsecured long-term debt rating
falls below BBB- by S&P or Baa3 by Moody's or is Unrated, Issuing Bank may, in
its sole discretion, replace such Bank with another commercial bank in
accordance with the provisions of Section 9.07 (including execution of an
appropriate Assignment and Acceptance), and such Bank shall consent to being
replaced provided that (i) all obligations of such Bank hereunder shall be
terminated and all other obligations owed to such Bank hereunder shall be
purchased in full without recourse at par plus accrued interest at or prior to
such replacement, (ii) such replacement bank shall be reasonably satisfactory
to the Issuing Bank and Borrower, and shall be an Eligible Assignee, (iii) such
replacement bank shall, from and after such replacement, be deemed for all
purposes to be a "Bank" hereunder with a Commitment in the amount of the
respective Commitment of such Bank immediately prior to such replacement (plus,
if such replacement bank is already a Bank prior to such replacement the
respective Commitment of such Bank prior to such replacement), as such amount
may be changed from time to time pursuant hereto, and shall have all of the
rights, duties and obligations hereunder of the Bank being replaced, and (iv)
such other actions shall be taken by Borrower, such Bank and such replacement
bank as may be appropriate to effect the replacement of such Bank with such

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<PAGE> 30
replacement bank on terms such that such replacement bank has all of the
rights, duties and obligations hereunder as such Bank (including, without
limitation, execution and delivery of any reasonably necessary Loan Document
and specification of the information contemplated by Schedule I as to such
replacement bank).

Section 2.11. Payments and Computations.

(a) Procedure for Payments by Borrower. Borrower shall make each
payment hereunder not later than 12:00 noon (New York City time) on the day
when due in Dollars to the Agent at its address referred to in Section 9.02 in
same day funds. The Agent will promptly thereafter cause to be distributed
like funds relating to the payment of principal, interest or fees to Issuing
Bank or ratably to the Banks as applicable hereunder, and like funds relating
to the payment of any other amount payable to any Bank to such Bank, in each
case to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 9.07, form and after the
effective date specified in such Assignment and Acceptance, the Agent shall
make all payments hereunder in respect of the interest assigned thereby to the
Bank assignee thereunder, an the parties to such Assignment and Acceptance
shall make all appropriate adjustments in such payments for periods prior to
such effective date directly between themselves. At the time of each payment,
Borrower shall notify the Agency of the Letter of Credit to which such payment
shall apply. In the absence of such notice the Agent may specify the Letter of
Credit to which such payment shall apply.

(b) Computation of Interest and Fees. All computations of
interest and of fees shall be made by the Agent on the basis of a year of 365
or 366 days, as the case may be, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest or fees are payable. Each determination by the Agent
of an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.

(c) Payment on Non-Business Days. Whenever any payment hereunder
shall be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest or
fees, as the case may be.

(d) Agent Reliance. Unless the Agent shall have received notice
from Borrower prior to the date on which any payment is due to the Issuing Bank
or the Banks as applicable hereunder that Borrower will not make such payment
in full,

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<PAGE> 31
the Agent may assume that Borrower has made such payment in full to the Agent
on such date and the Agent may, in reliance upon such assumption, cause to be
distributed to Issuing Bank or each Bank as applicable hereunder on such due
date an amount equal to the amount then due to Issuing Bank or such Bank. If
and to the extent that Borrower shall not have so made such payment in full to
the Agent, Issuing Bank or each Bank as applicable hereunder shall repay to the
Agent forthwith on demand such amount distributed to Issuing Bank or such Bank
together with interest thereon, for each day from the date such amount is
distributed to Issuing Bank or such Bank until the date Issuing Bank or such
Bank repays such amount to the Agent, at the Federal Funds Rate.

(e) Interest on Overdue Amounts. Any overdue interest, fees or
any other amount due hereunder (other than as provided in Section 2.03 hereof)
shall bear interest, from the date on which such amount is due until such
amount is paid in full, at a rate per annum equal at all times (subject to
Section 9.05) to three percent (3%) per annum above the Base Rate in effect
from time to time.

Section 2.12. Taxes.

(a) No Deduction for Certain Taxes. Any and all payments by
Borrower hereunder shall be made, in accordance with Section 2.11, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank, the Agent and Issuing Bank, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Bank, the Agent or Issuing Bank (as the case may
be) is organized or any political subdivision thereof and, in the case of each
Bank, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's applicable lending office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If Borrower shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to any Bank, the Agent or Issuing Bank,
(i) the sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.12) such Bank, the Agent or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.

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<PAGE> 32
(b) Other Taxes. In addition, Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or the
Guaranties or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement or the Guaranties (hereinafter referred to as
"Other Taxes").

(c) Indemnification. Borrower will indemnify each Bank, the Agent
and Issuing Bank for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.12) paid by such Bank, the Agent or
Issuing Bank (as the case may be) and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted. Payments
under any indemnification provided for in this Section 2.12(c) shall be made
within 30 days from the date such Bank, the Agent or Issuing Bank (as the case
may be) makes written demand therefor. If any Taxes or Other Taxes are
asserted to be due from any Bank, the Agent or Issuing Bank, such Bank, the
Agent or Issuing Bank (as the case may be) will notify Borrower (with a copy to
the Agent) of such claim. Such Bank, the Agent or Issuing Bank (as the case
may be) may pay such asserted taxes, and Borrower will indemnify such Bank, the
Agent or Issuing Agent (as the case may be) for such payments or any liability
(including any interest, penalties and expenses in connection therewith)
arising therefrom or with respect thereto (whether or not such Taxes or Other
Taxes are correctly or legally asserted), with interest thereon at a rate
calculated as if such payments constituted overdue amounts hereunder as of the
date of making such payments unless within 10 days after its receipt of such
notification, Borrower pays such asserted taxes (and supplies such Bank, the
Agent or Issuing Bank (as the case may be) with evidence of such payment) or
(i) Borrower notifies such Bank, the Agent or Issuing Banks (as the case may
be) that it intends to contest in good faith and by appropriate proceedings the
claim for such taxes asserted against such Bank, the Agent or Issuing Bank (as
the case may be), (ii) counsel for such Bank, the Agent or Issuing Bank (as the
case may be) advises such Bank, the Agent or Issuing Bank (as the case may be)
that it may withhold such payment without incurring thereby any additional
legal liability (other than an obligation to pay interest thereon) and (iii)
Borrower indemnifies such Bank, the Agent or Issuing Bank (as the case may be)
for any additional interest, payment, expenses or liabilities incurred by
reason of its failure to make such payment when originally asserted.

(d) Evidence of Tax Payments. Within 30 days after the date of
any payment of Taxes, Borrower will furnish to the Agent, at its address
referred to in Section 9.02, the

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<PAGE> 33
original or a certified copy of a receipt evidencing payment thereof (and the
Agent will forward a copy of such receipt to any Bank referenced in the
receipt).

(e) Foreign Bank Withholding Exemption. Each Bank organized under
the laws of a jurisdiction outside the United States, on or prior to the date
hereof in the case of each such Bank listed on the signature pages hereof and
on the date of the Assignment and Acceptance pursuant to which it becomes a
Bank in the case of each other foreign Bank, and from time to time thereafter
if requested by Borrower or the Agent, shall (unless otherwise prohibited by
law) provide the Agent and Borrower with the forms prescribed by the Internal
Revenue Service of the United States certifying as to such Bank's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to such Bank hereunder and under the
Guaranties or other documents satisfactory to Borrower and the Agent indicating
that all payments to be made to such Bank hereunder and under the Guaranties
are subject to such taxes at a rate reduced by an applicable tax treaty.
Unless Borrower and the Agent have received forms or other documents reasonably
satisfactory to them indicating that payments hereunder and under the
Guaranties are not subject to United States withholding tax or are subject to
such tax at a rate reduced by an applicable tax treaty, Borrower or the Agent
shall withhold taxes from such payments at the applicable statutory rate in the
case of payments to or for any Bank organized under the laws of a jurisdiction
outside the United States.

(f) Bank Obligation to Mitigate. Any Bank claiming additional
amounts payable pursuant to this Section 2.12 shall make reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
change the jurisdiction of its applicable lending office if the making of such
a change would avoid the need for, or reduce the amount of, any such additional
amounts which may thereafter accrue and would not, in the reasonable judgment
of such Bank, be otherwise disadvantageous to such Bank.

(g) Survival of Obligations. Without prejudice to the survival of
any other agreement of the Borrower or the Banks hereunder, the agreements and
obligations of the Borrower and the Banks contained in this Section 2.12 shall
survive the termination of the Commitments and this Agreement and the payment
in full of all Obligations and all amounts payable under the Guaranties.

ARTICLE III
CONDITIONS PRECEDENT

Section 3.01. Conditions Precedent to Initial Letter of Credit.
The obligation of Issuing Bank to issue the initial

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<PAGE> 34
Letter of Credit is subject to the condition precedent that the Agent shall
have received on or before the day of such issuance the following, each dated
such day, in form and substance satisfactory to the Agent and (except for and
the Guaranties) in sufficient copies for each Bank:

(a) This Agreement duly executed by Borrower and the Banks.

(b) The TGPL Guaranty duly executed by TGPL and the TXG Guaranty
duly executed by TXG.

(c) A certificate of the Secretary or an Assistant Secretary of
Borrower certifying (i) copies of the resolutions of the Board of Directors of
Borrower approving this Agreement and the other Loan Documents to be executed
by Borrower and of all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to this Agreement and the
other Loan Documents to be executed by Borrower; (ii) that attached thereto are
true and complete copies of the certificate of incorporation and by-laws of
Borrower as in effect on such date; and (iii) the names and true signatures of
the officers of Borrower authorized to sign this Agreement and the other Loan
Documents to be executed by Borrower.

(f) An opinion of Molly S. Williams, Vice President, Associate
General Counsel and Assistant Secretary of Borrower, substantially in the form
of Exhibit C and as to such other matters as any Bank through the Agent may
reasonably request.

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<PAGE> 35
(g) An opinion of Bracewell & Patterson, L.L.P. special counsel to
the Agent, substantially in the form of Exhibit D.

(h) An opinion of King & Spalding, special New York counsel to the
Agent, substantially in the form of Exhibit E.

(i) Evidence satisfactory to the Agent that the Revolver Credit
Agreement is in full force and effect and all conditions precedent to the
initial Borrowing thereunder have been satisfied.

(j) A certificate of the chief financial officer of TGPL in
substantially the form of Exhibit F.

(k) A certificate of the chief financial officer of TXG in
substantially the form of Exhibit G.

Section 3.02. Conditions Precedent to Each Letter of Credit. The
obligation of Issuing Bank to issue each Letter of Credit (including the
initial Letter of Credit) shall be subject to the further conditions precedent
that on the date of such Letter of Credit (a) the following statements shall be
true (and each of the giving of the applicable L/C Application and the issuance
by Issuing Bank of such Letter of Credit shall constitute a representation and
warranty by Borrower that on the date of such Letter of Credit such statements
are true):

(i) receipt by Issuing Bank of the L/C Application, and approval
by Issuing Bank of the form of such Letter of Credit;

(ii) the representations and warranties contained in Section 4.01,
the representations and warranties set forth in Section 5 of
the TGPL Guaranty and the representations and warranties set
forth in Section 5 of the TXG Guaranty are correct on and as
of the date of such Letter of Credit, before and after issuing
such Letter of Credit, as though made on and as of such date,
and

(iii) no event has occurred and is continuing, or would result from
the issuance such Letter of Credit which constitutes a Default
or an Event of Default;

and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.

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<PAGE> 36
ARTICLE IV
REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties of Borrower. Borrower
represents and warrants as follows:

(a) Corporate Existence. Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has corporate power and authority to own its Properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in every jurisdiction in which it owns a
material amount of Property or conducts a material amount of business and in
which such qualification is necessary. Each Material Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to own
its Properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in every jurisdiction in which
it owns a material amount of Property or conducts a material amount of business
and in which such qualification is necessary.

(b) Corporate Power. The execution, delivery and performance by
Borrower of this Agreement and each Loan Document to which it is a party and
the consummation of the transactions contemplated hereby and thereby (i) are
within Borrower's corporate powers, (ii) have been duly authorized by all
necessary corporate action, (iii) do not contravene (A) Borrower's certificate
of incorporation or by-laws, (B) any applicable rule, regulation, order, writ,
injunction or decree, or (C) law or any contractual restriction binding on or
affecting Borrower, and (iv) will not result in or require the creation or
imposition of any Lien prohibited by this Agreement.

The execution, delivery and performance by TGPL of the TGPL Guaranty
and the consummation of the transactions contemplated thereby (i) are within
TGPL's corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) do not contravene (A) TGPL's certificate of
incorporation or by-laws, (B) any applicable rule, regulation, order, writ,
injunction or decree, or (C) law or any contractual restriction binding on or
affecting TGPL, and (iv) will not result in or require the creation or
imposition of any Lien prohibited by this Agreement or the TGPL Guaranty.

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<PAGE> 37
or require the creation or imposition of any Lien prohibited by this Agreement
or the TXG Guaranty.

(c) Authorization and Approvals. No authorization, approval,
consent, license or other action by, and no notice to or filing with, any
governmental authority or regulatory body is or will be required for the due
execution, delivery and performance by Borrower of this Agreement and the Loan
Documents to which it is a party, or for the consummation of the transactions
contemplated hereby and thereby. All authorizations, licenses, consents,
filings, approvals and certificates which are necessary to enable Borrower and
each Material Subsidiary to carry on any material aspect of the business in
which it is presently engaged or to enable Borrower to perform its obligations
under the Loan Documents have been obtained or made and are in full force and
effect (except such authorizations, licenses, consents, filings, approvals and
certificates which are not customarily obtained, made or filed prior to the
time when they are required), and there has been no material default by
Borrower under any of the terms thereof applicable to it.

No authorization, approval, consent, license or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by TXG of the TXG
Guaranty, or for the consummation of the transactions contemplated thereby.
All authorizations, licenses, consents, filings, approvals and certificates
which are necessary to enable TXG to perform its obligations under the TXG
Guaranty have been obtained or made and are in full force and effect (except
such authorizations, licenses, consents, filings, approvals and certificates
which are not customarily obtained, made or filed prior to the time when they
are required), and there has been no material default by TXG under any of the
terms thereof applicable to it.

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<PAGE> 38
(d) Enforceable Obligations. Borrower has duly executed and
delivered this Agreement and the Loan Documents to which it is a party, and
such documents constitute, and each L/C Application, when executed and
delivered by Borrower, will constitute, the legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally. The TGPL Guaranty has been duly
executed and delivered by TGPL and constitutes a legal, valid and binding
obligation of TGPL enforceable against TGPL in accordance with its terms,
except as such enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally. The TXG Guaranty has been duly executed and delivered by TXG
and constitutes a legal, valid and binding obligation of TXG enforceable
against TXG in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally.

(e) Financial Statements.

(i) The Consolidated and consolidating balance sheets of Borrower
and its Subsidiaries as at September 30, 1993 and the related
Consolidated and consolidating statements of income, retained
earnings, and cash flows of Borrower and its Subsidiaries for
the period commencing at the end of the previous fiscal year
and ending with such date, duly certified by a financial
officer (who is the chief financial officer, the treasurer or
the principal accounting officer) of Borrower, copies of which
have been furnished to each Bank, fairly present, subject to
year-end audit adjustments, the Consolidated and consolidating
financial position of Borrower and its Subsidiaries as at such
date and the Consolidated and consolidating results of the
operations of Borrower and its Subsidiaries for the nine
months ended on such date, and such balance sheets and
financial statements were prepared in accordance with GAAP
except as specifically noted therein.

(ii) Since September 30, 1993, there has been no material adverse
change in (I) the business, financial position or results of
operations of Borrower and its Material Subsidiaries, taken as
a whole, (II) the business, financial position or results of
operations of Borrower and its Subsidiaries, taken as a whole,
or (III) the ability of Borrower to perform its obligations
under the Loan Documents,

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<PAGE> 39
the ability of TGPL to perform its obligations under the TGPL
Guaranty or the ability of TXG to perform its obligations
under the TXG Guaranty; provided, however, that the after-tax
charges not exceeding $100,000,000 in the aggregate taken or to
be taken by Borrower after September 30, 1993 pursuant to the
Magnolia Charge shall not be taken into consideration in
determining whether a material adverse change has occurred.

(iii) During the period from September 30, 1993 through the date of
this Agreement, no Preferred Stock of Borrower or any
Subsidiary was issued or became outstanding, except for
Preferred Stock which was issued after September 30, 1993 in
accordance with clause (iii) of the definition herein of
"Consolidated Net Worth".

(f) Litigation. Except as set forth in the Financial Statements,
Borrower's annual report on Form 10-K for the year ended December 31, 1992, or
in any of Borrower's quarterly reports on Form 10-Q for the quarters ended
March 31, 1993, June 30, 1993 and September 30, 1993, there are no actions,
suits or proceedings pending or, to the knowledge of Borrower, threatened
against or affecting Borrower, any of its Subsidiaries or any of its or their
respective rights or Properties before any court or by or before any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which may reasonably be expected to have a material
adverse effect on the business, financial position or results of operations or
prospects of Borrower and its Subsidiaries, taken as a whole, or to impair
materially Borrower's ability to perform its obligations under the Loan
Documents, TGPL's ability to perform its obligations under the TGPL Guaranty or
TXG's ability to perform its obligations under the TXG Guaranty; and there are
no such actions, suits or proceedings which in any manner draw into question
the validity of this Agreement or any other Loan Document. Neither Borrower
nor, to the knowledge of Borrower, any of its Subsidiaries is in default in any
material respect with respect to any applicable order, writ, injunction or
decree of any court, governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which default may reasonably be
expected to have a material adverse effect on the business, financial position
or results of operations or prospects of Borrower and its Subsidiaries, taken
as a whole, or to impair materially Borrower's ability to perform its
obligations under the Loan Documents, TGPL's ability to perform its obligations
under the TGPL Guaranty or TXG's ability to perform its obligations under the
TXG Guaranty, or which in any manner draws into question the validity of this
Agreement or any other Loan Document.

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<PAGE> 40
(g) ERISA Compliance. No Termination Event has occurred or is
reasonably expected to occur with respect to any Plan. No employee of Borrower
or any ERISA Affiliate is covered by any Multiemployer Plan or Multiple
Employer Plan. Neither Borrower nor any ERISA Affiliate has received any
notification that any Plan is in reorganization or has been terminated, within
the meaning of Title IV of ERISA, and Borrower is not aware of any reason to
expect that any Plan is to be in reorganization or to be terminated within the
meaning of Title IV of ERISA. Schedule B (Actuarial Information) to the 1992
annual report (Form 5500 Series) with respect to each Plan, copies of which
have been filed with the Internal Revenue Service and furnished to the Agent,
is complete and accurate and fairly presents the funding status and financial
condition of such Plan, and since the date of such Schedule B there has been no
material adverse change in such funding status or financial condition.

(h) Tax Returns Filed. Consolidated United States Federal income
tax returns of Borrower and its Subsidiaries have been examined by the Internal
Revenue Service, or the statutory period for such examination has expired, for
all years up to and including the year ended December 31, 1989, and all
assessed deficiencies resulting from such examination have been discharged or
reserved against as required by GAAP. Borrower and its Subsidiaries have filed
all United States federal, state and local income tax returns and all other
material domestic tax returns which are required to be filed by them and have
paid, or provided for the payment before the same became delinquent of, all
taxes due pursuant to such returns or pursuant to any assessment received by
Borrower or any Subsidiary, other than those taxes contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the books of
Borrower and its Subsidiaries in respect of taxes are, in the opinion of
Borrower, adequate. Borrower and its Subsidiaries have set up such reserves as
are required by GAAP for the payment of additional taxes for years which have
not been audited by the respective tax authorities.

(i) Investment Company Act. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.

(j) Public Utility Holding Company Act. Borrower is not a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", as such terms are used in the Public
Utility Holding Company Act of 1935, as amended, any rule or regulation
promulgated thereunder or any order or interpretation of the Securities and
Exchange Commission or its staff issued pursuant thereto and is not subject to
any obligations, duties or liabilities thereunder (except Section 9(a)(2)
thereof).

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<PAGE> 41
(k) Regulation U. Neither Borrower nor any Subsidiary is engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U).

(l) Other Defaults. Neither Borrower nor any Material Subsidiary
is in default under or with respect to any contract, agreement, lease or other
instrument to which Borrower or such Material Subsidiary is a party and which
could reasonably be expected to cause a material adverse effect on the
business, Properties, Consolidated financial position, results of operations or
prospects of Borrower and its Subsidiaries, taken as a whole, and no Default or
Event of Default exists.

(m) Ownership of Material Subsidiary Stock. Borrower is the
record and beneficial owner, free and clear of all Liens, of all of the issued
and outstanding common stock and Voting Stock of TGC, and TGC is the record and
beneficial owner, free and clear of all Liens, of all of the issued and
outstanding common stock and Voting Stock of TGPL and TXG. There are no
outstanding options, warrants or other rights to acquire any capital stock of
any Material Subsidiary.

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There are no facts or conditions or circumstances known to Borrower that
Borrower reasonably believes could form the basis for any action, lawsuit,
claim or proceeding (regulatory or otherwise) involving Borrower or any of its
Subsidiaries or their respective past or present Properties, businesses or
operations relating to Environmental matters, including without limitation any
action, lawsuit, claim or proceeding arising from past or present Environmental
or other practices or operations asserted under CERCLA, RCRA, or any other
Environmental Protection Statute, that in any case could reasonably be expected
to result in a liability to Borrower or any Subsidiary in excess of $7,000,000
(net of confirmed insurance coverage or effective indemnification with respect
thereto).

ARTICLE V
COVENANTS OF BORROWER

Section 5.01. Affirmative Covenants. So long as any Obligation of
Borrower hereunder shall remain unpaid or any Letter of Credit Exposure shall
continue to exist and until the commitment of Issuing Bank to issue Letters of
Credit is terminated, Borrower will, unless the Required Banks shall otherwise
consent in writing:

(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders; provided, however, that this Section 5.01(a)
shall not prevent Borrower or any of its Subsidiaries from, in good faith and
with reasonable diligence, contesting the validity or application of any such
laws or regulations by appropriate legal proceedings, if appropriate reserves
(to the extent required by GAAP) in conformity with GAAP have been provided.

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<PAGE> 43
properties in the same general areas in which Borrower or such Subsidiary
operates, provided that Borrower or such Subsidiary may self-insure to the
extent and in the manner normal for similarly situated companies of like size,
type and financial condition that are part of a group of companies under common
control.

(d) Payment of Taxes, Etc. Pay and discharge and cause each
Material Subsidiary to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and charges and like levies imposed upon
it or upon its income, profits or Property that are material in amount, prior
to the date on which penalties attach thereto, and (ii) all lawful claims that
are material in amount which, if unpaid, might by law become a Lien upon its
Property; provided, however, that neither Borrower nor any Material Subsidiary
shall be required to pay and discharge any such tax, assessment, charge, levy,
or claim which is being contested in good faith and by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided.

(e) Reporting Requirements. Furnish to each Bank:

(i) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of
Borrower, the Consolidated and consolidating balance sheets of
Borrower and its Subsidiaries as at the end of such quarter
and the Consolidated and consolidating statements of income,
retained earnings, and cash flows of Borrower and its
Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter,
setting forth, in the case of the Consolidated statements, in
comparative form, the corresponding figures for the
corresponding period of the preceding fiscal year, all in
reasonable detail and duly certified by a financial officer
(who is the chief financial officer, the treasurer or the
principal accounting officer) of Borrower as having been
prepared in accordance with GAAP subject, however, to year-end
audit adjustments, together with a certificate of such officer
showing in detail the calculations of the financial covenants
set forth in Sections 5.02(b) and 5.02(m) as at the end of such
quarter and for the four quarter period ending at the end of
such quarter, respectively;

(ii) as soon as available and in any event not later than 120 days
after the end of each fiscal year of Borrower, (x) copies of
the Consolidated balance sheet of Borrower and its
Subsidiaries as at the end of such fiscal year and Consolidated
statements

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<PAGE> 44
of income, retained earnings, and cash flows of Borrower
and its Subsidiaries for such fiscal year, all certified by
Arthur Andersen & Co. or other independent certified public
accountants of recognized national standing; and (y) copies of
the consolidating balance sheet of Borrower and its
Subsidiaries as of the end of such fiscal year and
consolidating statements of income, retained earnings, and cash
flows of Borrower and its Subsidiaries for such year, all
certified by a financial officer (who is the chief financial
officer, the treasurer or the principal accounting officer) of
Borrower, together with a certificate of such officer showing
in detail the calculations of the financial covenants set forth
in Sections 5.02(b) and 5.02(m) as at the end of such year and
for the four quarter period ending at the end of such year,
respectively;

(iii) promptly after the same are available, copies of each report
of Borrower or any of its Subsidiaries on Federal Energy
Regulatory Commission ("FERC") Form 2 (or similar reports),
and copies of each report filed by Borrower or any of its
Subsidiaries under ERISA with the Internal Revenue Service
or the PBGC or the U.S. Department of Labor, or which Borrower
or any of its Subsidiaries receives from such entity;

(iv) promptly after the sending or filing thereof, copies of all
reports which Borrower sends to any of its security holders,
and copies of all regular or periodic reports and registration
statements (other than on Form S-8 or a similar form) which
Borrower or any of its Subsidiaries files with the Securities
and Exchange Commission, or any governmental authority
succeeding to any or all of the functions of said Commission,
or with any national securities exchange;

(v) as soon as possible, and in any event within ten days after an
Executive Officer has obtained knowledge of the occurrence of
any Default or Event of Default, written notice thereof
setting forth details of such Default or Event of Default and
the actions which Borrower has taken and proposes to take with
respect thereto (provided that Borrower shall not be obligated
to give notice of any Default or Event of Default which is
remedied prior to the time such Executive Officer first
acquires such knowledge);

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<PAGE> 45
(vi) as soon as possible and in any event (i) within 30 days after
any Executive Officer knows or has reason to know that any
Termination Event described in clause (i) of the definition of
Termination Event with respect to any Plan has occurred and
(ii) within 10 days after any Executive Officer knows or has
reason to know that any other Termination Event with respect
to any Plan has occurred, a statement of a financial officer
who is a Vice President of Borrower describing such
Termination Event and the action, if any, which Borrower or
its ERISA Affiliate (as applicable) proposes to take with
respect thereto;

(vii) promptly and in any event within 30 Business Days after the
filing thereof with the Internal Revenue Service, copies of
each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) of Borrower or any ERISA Affiliate with
respect to each Plan;

(viii) promptly upon the receipt thereof by Borrower or any
Subsidiary of Borrower, a copy of any form of notice,
complaint, request for information under CERCLA or
corresponding state law, summons or citation received from the
EPA, or any other domestic or foreign governmental agency or
instrumentality, federal, state or local, in any way
concerning any action or omission on the part of Borrower or
any of its present or former Subsidiaries in connection with
Hazardous Materials or the Environment, or concerning the
filing of a Lien upon, against or in connection with Borrower,
its present or former Subsidiaries, or any of their leased or
owned Property, wherever located;

(ix) promptly after any change in the rating of the senior unsecured
long-term debt of Borrower by S&P or Moody's, notice thereof;

(x) promptly and in any event within five days after the
occurrence thereof, written notice if the commitments of the
lenders that are party to the Revolver Credit Agreement to make
Advances (as defined in the Revolver Credit Agreement) shall be
reduced to an amount less than $225,000,000 or totally
terminated; and

(xi) such other information respecting the condition or operations,
financial or otherwise, of Borrower or any of its Subsidiaries
as any Bank through the Agent may from time to time reasonably
request.

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<PAGE> 46
Section 5.02. Negative Covenants. So long as any Obligation of
Borrower hereunder shall remain unpaid or any Letter of Credit Exposure shall
continue to exist and until the commitment of Issuing Bank to issue Letters of
Credit is terminated, Borrower will not, unless the Required Banks shall
otherwise consent in writing:

(a) Liens. Create, assume, incur or suffer to exist or permit any
Restricted Subsidiary to create, assume, incur or suffer to exist, any Lien on
or in respect of any Property, whether now owned or hereafter acquired, of
Borrower and any Restricted Subsidiary, or assign or otherwise convey any right
to receive income, except that Borrower and any Restricted Subsidiary may
create, incur, assume or suffer to exist the following Liens on Property other
than capital stock, other securities, Indebtedness or other obligations of any
Restricted Subsidiary:

(i) Liens for taxes, assessments or governmental charges or levies
on Property of Borrower or a Restricted Subsidiary if the same
shall not at any time be delinquent or thereafter can be paid
without penalty, or are being contested in good faith and by
appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of
Borrower or the relevant Restricted Subsidiary;

(ii) Liens that arise in the ordinary course of business to secure
services rendered to Borrower or a Restricted Subsidiary and
are imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens;

(iv) Liens arising in the ordinary course of business securing the
performance by Borrower or any Restricted Subsidiary of bids,
tenders, contracts (other than for the repayment of
Indebtedness), leases (other than capital leases), statutory
obligations and surety and appeal bonds, Liens arising in the
ordinary course of business to secure progress or partial
payments made to Borrower or any Restricted Subsidiary and
other Liens of like nature made or incurred in the ordinary
course of business, provided, however, that the aggregate
obligations secured by Liens permitted by this paragraph (iv)
shall not exceed $50,000,000;

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<PAGE> 47
(v) any Lien existing on any Property at the time it is purchased
or acquired by Borrower or any Restricted Subsidiary (and not
created in contemplation of such purchase or acquisition),
whether or not the Indebtedness secured by such Lien is
assumed by Borrower or any Restricted Subsidiary or any Lien
placed upon such Property within 90 days of the purchase or
acquisition thereof by Borrower or any Restricted Subsidiary
to secure all or a portion of (or to secure Indebtedness
incurred to pay all or a portion of) the purchase price
thereof, provided that no such Lien encumbers any Property
other than such Property purchased or acquired or secures any
Indebtedness other than the purchase price or Indebtedness
incurred to pay all or a portion of the purchase price of such
Property purchased or acquired;

(vi) Liens arising in the Cash Collateral Account pursuant to the
terms of this Agreement and securing Borrower's Obligations
hereunder; and

(vii) Liens described in Schedule 5.02(a).

(b) Ratio of Cash Flow to Interest Expense. Permit, for any
period of four consecutive fiscal quarters of Borrower, the ratio of
Consolidated Cash Flow to Consolidated Interest Expense to be less than the
amount set forth as follows: (i) for the four quarter period ending December
31, 1993, 2.00; and (ii) for each four quarter period ending on the last day of
each March, June, September and December thereafter, 2.25.

(i) Indebtedness of Borrower not to exceed the principal amount of
$450,000,000 pursuant to the Revolver Credit Agreement;

(ii) Indebtedness of TGPL pursuant to its guaranty of the Revolver
Credit Agreement; provided that the principal amount of
Advances (as defined in the Revolver Credit Agreement)
guaranteed by TGPL shall not exceed $270,000,000;

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<PAGE> 48
(iii) Indebtedness of TXG pursuant to its guaranty of the Revolver
Credit Agreement; provided that the principal amount of
Advances (as defined in the Revolver Credit Agreement)
guaranteed by TXG shall not exceed $180,000,000;

(iv) Indebtedness of Borrower or a Material Subsidiary existing as
of the date hereof and described on Schedule 5.02(c) and
renewals, refinancings or extensions of such Indebtedness if
the amount of such Indebtedness so renewed, refinanced or
extended is not greater than the amount of such Indebtedness
outstanding immediately prior to such renewal, refinancing or
extension; provided, however, that neither Borrower nor any
Restricted Subsidiary (other than Borrower or Material
Subsidiary, as the case may be, shown on Schedule 5.02(c) as
being liable as of the date hereof for such Indebtedness)
shall incur, assume, guarantee or otherwise become liable for
such Indebtedness;

(vi) Indebtedness of Borrower or a Restricted Subsidiary payable to
Borrower or a Restricted Subsidiary; provided, however, that
any Indebtedness of a Restricted Subsidiary ("Debtor
Subsidiary") payable to another Restricted Subsidiary shall be
subordinated on the terms set forth on Exhibit I to all
Indebtedness from time to time owed by such Debtor Subsidiary
(x) to Borrower or to (y) the Banks, the Agent and Issuing
Bank under the Loan Documents and provided further, that any
Indebtedness of Borrower payable to a Restricted Subsidiary
shall be subordinate on the terms set forth on Exhibit I to
all Indebtedness from time to time owed by Borrower to the
Banks, the Agent and Issuing Bank under the Loan Documents;

(vii) Indebtedness under the Loan Documents; and

(viii) Indebtedness of Borrower in an aggregate principal amount not
to exceed $125,000,000 if (a) no Restricted Subsidiary is
liable for any such Indebtedness, and (b) none of the
principal of any such Indebtedness is due at the option of the
holder thereof (unless such option may be exercised only after
December 31, 1996 or during the

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<PAGE> 49
continuance of a default that is no more restrictive
than the Events of Default herein) or at a fixed or
determinable date or dates on or before December 31, 1996.

(d) Mergers, Etc. Merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions), or permit any Material Subsidiary to merge or
consolidate with or into, or permit any Material Subsidiary to convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions), (i) any capital stock of any Material Subsidiary, or
(ii) all or substantially all of its assets (whether now owned or hereafter
acquired) to any Person; provided, however that any Subsidiary (other than TGC,
TGPL or TXG) may be merged into a Material Subsidiary if (1) at the time of
such merger, no Default or Event of Default has occurred which is continuing or
would result, (2) a Material Subsidiary is the surviving corporation following
such merger, and (3) the net worth of such surviving Material Subsidiary
immediately after such merger is not less than its net worth immediately prior
to such merger or consolidation.

(e) Restrictions on Dividends, Intercompany Loans, or Investments.
Create or otherwise cause or permit to exist or become effective, or permit any
Material Subsidiary to create or otherwise cause or permit to exist or become
effective, any consensual encumbrance or restriction (other than the Loan
Documents) on the ability of any Material Subsidiary to (i) pay dividends or
make any other distributions on its capital stock or pay any Indebtedness owed
to Borrower or any Material Subsidiary, (ii) make any loans or advances to or
investments in Borrower or any Material Subsidiary, or (iii) transfer any of
its property or assets to Borrower or any Material Subsidiary, except any
encumbrance or restriction in effect on the date of this Agreement and
described on Schedule 5.02(e), copies of which have been delivered to the Agent
and made available to each of the Banks.

(h) Compliance with ERISA. (i) Terminate, or permit any ERISA
Affiliate to terminate any Plan so as to result in any liability of Borrower or
any ERISA Affiliate to the PBGC in

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<PAGE> 50
excess of $5,000,000, or (ii) permit to exist any occurrence of a Termination
Event with respect to any Plan for which there is an Insufficiency in excess of
$5,000,000.

(i) ERISA Liabilities. Create or suffer to exist, or permit any
ERISA Affiliate to create or suffer to exist, any ERISA Liabilities if
immediately after giving effect to such ERISA Liabilities, the aggregate amount
of ERISA Liabilities of Borrower and its ERISA Affiliates would exceed
$20,000,000.

(j) Affiliate Transaction. Except as expressly permitted
elsewhere in this Agreement, make or permit any Restricted Subsidiary to make,
directly or indirectly: (i) any Investment in any Affiliate; (ii) any transfer,
sale, lease or other disposition of any Property to any Affiliate or any
purchase or acquisition of any Property from an Affiliate; or (iii) any
material arrangement or other material transaction directly or indirectly with
or for the benefit of an Affiliate (including without limitation, guaranties
and assumptions of obligations of an Affiliate); provided, that (A) Borrower
and any Material Subsidiary may enter into any arrangement or other transaction
with an Affiliate providing for the leasing of property, the rendering or
receipt of services or the purchase or sale of inventory and other assets if
the monetary or business consideration arising therefrom would be substantially
as advantageous to Borrower or such Material Subsidiary as the monetary or
business consideration which would be obtained in a comparable arm's length
transaction with a Person not an Affiliate; (B) Borrower and any Material
Subsidiary may become liable in connection with performance guaranties of the
obligations of an Affiliate in the ordinary course of business; and (C) TGPL
and TXG may enter into the TGPL Guaranty and the TXG Guaranty.

(k) Payments on Preferred Stock. Make or agree to make any
payment or other distribution in connection with, or purchase, redeem or
otherwise acquire or retire for value or agree to do so, or convert or agree to
convert (other than a conversion to common stock), in whole or in part, or
permit any Subsidiary to do any of the foregoing, in whole or in part, (i) any
Preferred Stock of Borrower issued or becoming outstanding after September 30,
1993, except dividends required by the terms of such Preferred Stock if prior
to and immediately after giving effect thereto, no Default or Event of Default
exists or would occur and except any redemption or other retirement at the
option of the holder of such Preferred Stock (including pursuant to an offer to
purchase made by Borrower) which is conditioned upon the change of control of
Borrower, or (ii) any Preferred Stock of Borrower outstanding on September 30,
1993 except dividends and redemptions required by the terms of such Preferred
Stock as in effect on December 31, 1993 and except conversions of such
Preferred Stock to Preferred Stock of Borrower that is not Restricted

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<PAGE> 51
Preferred Stock and except Preferred Stock of Borrower outstanding on September
30, 1993 which is exchanged for, or which is acquired and retired out of the
proceeds of, Preferred Stock issued in accordance with clause (iii) of the
definition herein of "Consolidated Net Worth."

(m) Net Worth. Permit Consolidated Net Worth to be at any time
less than the sum of (i) $700,000,000 (or $750,000,000 upon the earlier to
occur of (a) the sale by Borrower of a minimum of $100,000,000 of common stock
of Borrower after the date of this Agreement, or (b) December 31, 1994), plus
(ii) 50% of the aggregate Consolidated Net Income of Borrower for each calendar
quarter ending after December 31, 1993 during which Consolidated Net Income was
positive, plus (iii) 100% of the after-tax gain on disposition after the date
of this Agreement of any assets of Borrower or any Consolidated Subsidiary,
plus (iv) 50% of the Net Cash Proceeds from the sale by Borrower of any capital
stock or other equity securities of Borrower after the date of this Agreement
in excess of $100,000,000.

(n) Restricted Payments. Directly or indirectly, (i) declare or
pay any dividend, or make any distribution, of any kind or character (whether
in cash, property or securities) in respect of any class of its common stock or
to the holders of any class of its common stock (including pursuant to a merger
or consolidation of Borrower, but excluding any dividends or distributions
payable solely in its common stock or in options, warrants or other rights to
acquire its common stock), or (ii) purchase, redeem or otherwise acquire or
retire for value, or permit any Subsidiary to purchase, redeem or otherwise
acquire or retire for value, directly or indirectly, (x) any common stock of
Borrower or any Subsidiary or (y) any options, warrants or rights to purchase
or acquire common stock of Borrower or any Subsidiary (the transactions
described above in this Section 5.02(n) being referred to herein as "Restricted
Payments"), unless at the time thereof (a) no Default or Event of Default
exists or would result from such Restricted Payment, and (b) either (I) such
Restricted Payment is the regular annual dividend of $0.60 per share of
outstanding common stock of Borrower (which amount per share shall be
appropriately decreased for increases in the number of such shares outstanding
as a result of stock splits, dividends paid in common stock or similar events)
or (II) such Restricted Payment is the regular annual dividend of greater than
$0.60 per share of outstanding common stock of Borrower

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<PAGE> 52
and is made in lieu of the Restricted Payment permitted by clause (I) of this
Section 5.02(n) for such year and cumulative Consolidated Net Income of
Borrower since December 31, 1993 is equal to or exceeds two times the aggregate
amount proposed to be paid in respect of the annual dividend on Borrower's
common stock (which amount per share shall be appropriately decreased for
increases in the number of such shares outstanding as a result of stock splits,
dividends paid in common stock or similar events).

(o) Expenditures. Make or incur any Investment or expend any
amount or permit any Subsidiary to make or incur any Investment or expend any
amount except (a) Investments made or incurred and amounts expended directly
related to Borrower's core businesses of gas transportation and gas marketing
(which core businesses shall not include Transco Coal) and (b) Investments made
or incurred and amounts expended outside of Borrower's core businesses not
exceeding $50,000,000 in the aggregate during any fiscal year of Borrower (the
aggregate amount of all Investments made or incurred and amounts expended by or
in respect of Transco Coal shall be included in determining compliance with
this clause (b) so long as Transco Coal is a Subsidiary, even if it is treated
as a discontinued operation for purposes of GAAP).

(p) Asset Disposition. Sell, lease, transfer or otherwise dispose
of, or permit any Restricted Subsidiary to sell, lease, transfer or otherwise
dispose of, any capital stock, other securities, Indebtedness or other
obligations of any Restricted Subsidiary or all or any material portion of the
Property of Borrower or any Restricted Subsidiary, except (i) sales of Property
(other than capital stock, other securities, Indebtedness or other obligations
of any Restricted Subsidiary) in the ordinary course of business and on
reasonable terms, and (ii) sales pursuant to the agreements described on
Schedule 5.02(a).

ARTICLE VI
EVENTS OF DEFAULT AND CASH COLLATERAL

Section 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:

(a) Nonpayment. Borrower shall fail to pay any Obligation, as and
when the same becomes due and payable, whether at the due date thereof or by
acceleration thereof or otherwise; or

(b) Representations and Warranties Untrue. Any representation,
warranty or certification made by Borrower, TGPL or TXG herein or in any other
Loan Document, or by Borrower, TGPL

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<PAGE> 53
or TXG (or any officer of Borrower, TGPL or TXG) in connection with any Loan
Document or in any certificate or document furnished to the Banks pursuant to
any Loan Document, or any representation or warranty deemed to have been made
by Borrower pursuant to Section 3.02, shall prove to have been incorrect or
misleading in any material respect when made or so deemed to have been made; or

(c) Covenant Violations. Borrower shall fail to perform or
observe (i) any term, covenant or agreement contained in Section 5.01 (e)(v),
(vi), (viii), (ix) or (x), Section 5.01(f), Section 5.02(a), Section 5.02(b),
Section 5.02(c), Section 5.02(d), Section 5.02(e), Section 5.02(j), Section
5.02(k), Section 5.02(l), Section 5.02(m), Section 5.02(n), Section 5.02(o) or
Section 5.02(p) or (ii) any other term, covenant, condition, or agreement
contained in any Loan Document on its part to be performed or observed if the
failure to perform or observe such other term, covenant, condition, or
agreement shall remain unremedied for 10 days after the earlier of (x) the date
written notice thereof has been given to Borrower by the Agent or any Bank and
(y) the date an Executive Officer has knowledge of such failure; or

(d) Other Defaults. Borrower or any Material Subsidiary shall
fail to pay any principal of or premium or interest on any Indebtedness which
is outstanding in a principal amount of at least $5,000,000 in the aggregate
(but excluding Indebtedness arising pursuant to this Agreement) of Borrower or
such Material Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument relating to such
Indebtedness; or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Indebtedness and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Indebtedness (whether or not
such default is waived by the holder of such Indebtedness); or any such
Indebtedness shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; provided, however, that no Event of Default shall occur
hereunder by reason of Borrower's or a Material Subsidiary's, as the case may
be, failure to pay the deferred purchase price of property or related services
to the extent, but only to the extent, that such failure is being contested in
good faith by Borrower or such Material Subsidiary, as the case may be; or

(e) Insolvency, Bankruptcy, Etc. Borrower or any of its
Subsidiaries shall be adjudicated a bankrupt or insolvent by

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<PAGE> 54
a court of competent jurisdiction, or generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against Borrower or any of its
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of 30
days, or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or Borrower or any of its
Subsidiaries shall take any corporate action to authorize any of the actions
set forth above in this subsection (e); or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied against a
substantial part of the property of Borrower or any Subsidiary and such
judgment, writ, warrant of attachment or execution or similar process shall not
be released, stayed, vacated or fully bonded within 60 days after its issue or
levy; or

(f) Judgments. A final judgment or order for the payment of money
in excess of $5,000,000 shall be rendered against Borrower or any Material
Subsidiary by any court of competent jurisdiction and such judgment or order
shall continue unsatisfied or unstayed (by appeal or otherwise) and shall be in
effect for a period of 60 days after the date any Executive Officer has
acquired knowledge thereof; or

(g) Stock of Material Subsidiaries. Borrower shall at any time
fail to own, directly or through a Material Subsidiary, 100% of the issued and
outstanding common stock and Voting Stock of each Material Subsidiary, or any
option, warrant or other right to acquire any capital stock of any Material
Subsidiary shall be or become outstanding; or

(h) Termination Event. Any Termination Event with respect to a
Plan shall have occurred and, 30 days after notice thereof shall have been
given to Borrower by the Agent, (i) such Termination Event shall still exist
and (ii) the sum (determined as of the date of occurrence of such Termination
Event) of the Insufficiency of such Plan and the Insufficiency of any and all
other Plans with respect to which a Termination Event shall have occurred and
then exist (or in the case of a Plan with respect to which a Termination Event
described in

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clause (ii) of the definition of Termination Event shall have occurred and then
exist, the liability related thereto) is equal to or greater than $5,000,000;
or

(i) Guaranties. TGPL or TXG shall fail to perform or observe (i)
any term, covenant or agreement contained in Section 15 of the TGPL Guaranty or
Section 15 of the TXG Guaranty, as the case may be, or (ii) any other term,
covenant, condition, or agreement contained in the TGPL Guaranty or the TXG
Guaranty on its part to be performed or observed if the failure to perform or
observe such other term, covenant, condition, or agreement shall remain
unremedied for 10 days after the earlier of (x) the date written notice thereof
has been given to TGPL or TXG, as the case may be, and Borrower by the Agent or
any Bank and (y) the date an Executive Officer has knowledge of such failure;
or

(j) Cross Default. The existence of any Event of Default as
defined in the Revolver Credit Agreement;

then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the Required Banks, by notice to Borrower, declare the
Commitments and the obligation of Issuing Bank to issue Letters of Credit to be
terminated, whereupon the same shall forthwith terminate, (ii) shall at the
request, or may with the consent, of the Required Banks, by notice to Borrower,
declare the Obligations (whether contingent or otherwise) to be forthwith due
and payable, whereupon such Obligations shall become and be forthwith due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or any other notice of any kind, all of which are hereby
expressly waived by Borrower and (iii) shall at the request, or may with the
consent, of the Required Banks, by notice to Borrower, demand that Borrower
deposit with the Agent into the Cash Collateral Account the Cash Collateral
Amount as security for the Obligations; provided, however, that in the event of
any Event of Default described in Section 6.01(e) (with respect to Borrower or
any Material Subsidiary), (A) the Commitments and the obligation of Issuing
Bank to issue Letters of Credit shall automatically be terminated, (B) the
Obligations (whether contingent or otherwise) shall automatically and
immediately become and be due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration, or any other
notice of any kind, all of which are hereby expressly waived by Borrower, and
(C) to the extent permitted by law or court order, Borrower shall deposit with
the Agent into the Cash Collateral Account the Cash Collateral Amount as
security for the Obligations.

Section 6.02 Cash Collateral Account. (a) Pledge. Borrower
hereby pledges, and grants to the Agent for the benefit of the Banks, a
security interest in all funds held in

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the Cash Collateral Account from time to time, and all proceeds thereof, as
security for the payment of the Obligations. Nothing in this Section 6.02,
however, shall either obligate the Agent to require any funds to be deposited
in the Cash Collateral Account or limit the right of the Agent, which it may
exercise at any time and from time to time, to release to Borrower any funds
held in the Cash Collateral Account pursuant to the other provisions of this
Section 6.02.

(b) Application against Letter of Credit Obligations; Release of
Funds. The Agent may, at any time or from time to time, apply funds then held
in the Cash Collateral Account to the payment of any Obligations, in such order
as the Agent may elect, as shall have become or shall become due and payable by
Borrower to Issuing Bank and the Banks under this Agreement in connection with
the Letters of Credit.

(c) Duty of Care. The Agent shall exercise reasonable care in the
custody and preservation of any funds held in the Cash Collateral Account and
shall be deemed to have exercised such care if such funds are accorded
treatment substantially equivalent to that which the Agent accords its own
property, it being understood that the Agent shall not have any responsibility
for taking any necessary steps to preserve rights against any parties with
respect to any such funds.

ARTICLE VII
THE AGENT

Section 7.01. Authorization and Action. Each Bank hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto.
As to any matters not expressly provided for by this Agreement (including,
without limitation, enforcement or collection of the Guaranties), the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of the Required
Banks and such instructions shall be binding upon all Banks; provided, however,
that the Agent shall not be required to take any action which exposes the Agent
to personal liability or which is contrary to this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice given to it
by Borrower pursuant to the terms of this Agreement.

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its or their own gross negligence or willful misconduct. Neither the Agent nor
any of its directors, officers, agents or employees shall be liable for the
failure of or delay in performance or breach by the Issuing Bank or any Bank of
any of its obligations hereunder or to the Issuing Bank or any Bank on account
of the failure of or delay in performance or breach by any other Bank, the
Issuing Bank or Borrower of any of their respective obligations hereunder or
under any other Loan Documents or in connection herewith or therewith. Without
limitation of the generality of the foregoing, the Agent: (i) may treat each
Bank as the payee of its Pro Rata Share of any Reimbursement Obligation until
the Agent receives and accepts an Assignment and Acceptance entered into by
such Bank, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 9.07; (ii) may consult with legal counsel (including counsel for
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith
by it in accordance with the advice of such counsel, accountants or experts;
(iii) makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any statements, warranties or representations
(whether written or oral) made in or in connection with any Loan Document; (iv)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of any Loan Document on
the part of Borrower or any Restricted Subsidiary or to inspect the Property
(including the books and records) of Borrower or any Restricted Subsidiary; (v)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or any
other instrument or document furnished pursuant hereto or thereto; and (vi)
shall incur no liability under or in respect of any Loan Document by acting
upon any notice (including telephonic notice), consent, certificate or other
instrument or writing (which may be by telecopier, telegram or telex) believed
by it to be genuine and signed, given or sent by the proper party or parties.

Section 7.03. Bank of Montreal and Affiliates. With respect to its
Commitment, Bank of Montreal shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though it were not the
Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly
indicated, include Bank of Montreal in its individual capacity. Bank of
Montreal and its affiliates may accept deposits from, lend money to, act as
trustee under indentures of, and generally engage in any kind of business with,
Borrower, any Subsidiary and any Person who may do business with or own
securities of Borrower or any Subsidiary, all as if Bank of Montreal were not
the Agent or Issuing Bank and without any duty to account therefor to the
Banks.

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Section 7.04. Bank Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank and
based on the Financial Statements and such other documents and information as
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Bank also acknowledges that it will, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.

Section 7.05. Indemnification. The Banks agree to indemnify the
Agent (to the extent not reimbursed by Borrower), ratably according to their
respective Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, reasonable
costs, reasonable expenses and reasonable disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the Agent
in any way relating to or arising out of any Loan Document, or any action taken
or omitted by the Agent under any Loan Document, provided that no Bank shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its Pro Rata Share of any reasonable out-of-pocket expenses
(including reasonable counsel fees) incurred by the Agent in connection with
the preparation, execution, delivery, administration, modification, amendment
or enforcement (whether through negotiations, legal proceedings or otherwise)
of, or legal advice in respect of rights or responsibilities under any Loan
Document to the extent that the Agent is not reimbursed for such expenses by
Borrower. In the event that the Agent receives reimbursement for such expenses
from Borrower at any time subsequent to the Agent's receipt of the
indemnification required by the preceding sentence from any Bank, the Agent
shall promptly refund to such Bank its Pro Rata Share of such reimbursed
amount.

Section 7.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Banks and Borrower and may be removed at
any time with or without cause by the Required Banks. Upon any such
resignation or removal, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving of notice of resignation or the Required Banks'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, which shall be a commercial bank

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organized or licensed under the laws of the United States of America or of any
State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this Article VII shall inure
to its benefit as to any actions taken or omitted to be taken by it while it
was Agent under the Loan Documents.

ARTICLE VIII
ISSUING BANK

Section 8.01. Indemnification. The Banks agree to indemnify
Issuing Bank (to the extent not reimbursed by Borrower), ratably according to
their respective Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, reasonable
costs, reasonable expenses and reasonable disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against Issuing
Bank in any way relating to or arising out of any Letter of Credit, any Loan
Document, or any action taken or omitted by Issuing Bank under any Letter of
Credit or any Loan Document, provided that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Issuing
Bank's gross negligence or willful misconduct. Without limitation of the
foregoing, each Bank agrees to reimburse Issuing Bank promptly upon demand for
its Pro Rata Share of any reasonable out-of-pocket expenses (including
reasonable counsel fees) incurred by Issuing Bank in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under any Letter of
Credit or any Loan Document to the extent that Issuing Bank is not reimbursed
for such expenses by Borrower. In the event that Issuing Bank receives
reimbursement for such expenses from Borrower at any time subsequent to Issuing
Bank's receipt of the indemnification required by the preceding sentence from
any Bank, Issuing Bank shall promptly refund to such Bank its Pro Rata Share of
such reimbursed amount.

Section 8.02. Successor Issuing Bank. Issuing Bank may resign at
any time by giving written notice thereof to the Banks and Borrower and may be
removed at any time with or without cause by the Required Banks. Upon any such
resignation or removal, the Required Banks shall have the right to appoint a
successor Issuing Bank. If no successor Issuing

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Bank shall have been so appointed by the Required Banks, and shall have
accepted such appointment, within 30 days after the retiring Issuing Bank's
giving of notice of resignation or the Required Banks' removal of the retiring
Issuing Bank, then the retiring Issuing Bank may, on behalf of the Banks,
appoint a successor Issuing Bank, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Issuing Bank hereunder by a successor Issuing
Bank, such successor Issuing Bank shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Issuing
Bank, and the retiring Issuing Bank shall be discharged from its duties and
obligations under the Loan Documents, except that the retiring Issuing Bank
shall remain Issuing Bank with respect to any Letters of Credit outstanding on
the effective date of its resignation or removal and the provisions affecting
Issuing Bank with respect to such Letter of Credit shall inure to the benefit
of the retiring Issuing Bank until termination of all such Letters of Credit.
After any retiring Issuing Bank's resignation or removal hereunder as Issuing
Bank, the provisions of this Article VIII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Issuing Bank under the
Loan Documents.

ARTICLE IX
MISCELLANEOUS

Section 9.01. Amendments, Etc. No amendment or waiver of any
provision of any Loan Document (other than any L/C Application), nor consent to
any departure by Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Banks (any L/C Application
may be amended or waived by Borrower and Issuing Bank), and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such amendment, waiver or
consent shall, unless in writing and signed by all the Banks, do any of the
following: (a) waive any of the conditions specified in Section 3.01 or 3.02,
(b) increase the Commitment of any Bank or subject any Bank to any additional
obligations (each without the consent of such Bank), (c) increase the aggregate
Commitments hereunder (d) reduce any Reimbursement Obligations or interest
thereon, or any fees or other amounts payable hereunder, (e) postpone any date
fixed for any payment of Reimbursement Obligations or interest thereon, or any
fees or other amounts payable hereunder, (f) take any action which requires the
signing of all the Banks pursuant to the terms of any Loan Document, (g) change
the definition of Required Banks or the provisions herein which require either
all Banks or the Required Banks to take any action hereunder, or (h) amend this
Section 9.01; and pro-

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vided, further, that no amendment, waiver or consent shall, unless in writing
and signed by the Agent in addition to the Banks required above to take such
action, affect the rights or duties of the Agent under any Loan Document, and
no amendment, waiver or consent shall, unless in writing and signed by Issuing
Bank in addition to the Banks required above to take such action, affect the
rights or duties of Issuing Bank under any Loan Document.

Section 9.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier or telex
communication) and dispatched by registered or certified mail, telecopied,
telexed, or delivered, (a) if to Borrower, at its address at 2800 Post Oak
Boulevard, P. O. Box 1396, Houston, Texas 77251, Attention: Treasurer,
Telecopy: (713) 439-3648, Telex: 792013, Answerback: TRANSCO HOU A; (b) if to
any Bank listed on the signature pages hereof, at its office specified opposite
its name on Schedule I hereto; (c) if to any other Bank, at its office
specified in the Assignment and Acceptance pursuant to which it becomes a Bank;
and (d) if to the Agent, at its address at Bank of Montreal, c/o Harris Trust
and Services Bank, 311 West Monroe, 13th Floor, Chicago, Illinois 60603,
Attention: Frank Petrassi, Telecopy: (312) 461-7394, with a copy to Bank of
Montreal, 700 Louisiana, 44th Floor, Houston, Texas 77002, Attention: Douglas
S. Deal, Telecopy: (713) 225-1845; or, as to Borrower or the Agent, at such
other address as shall be designated by such party in a written notice to the
other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to Borrower and the Agent. Each
such notice or communication shall be effective (i) if mailed, on the fifth
Business Day following the date it is dispatched by registered or certified
mail, (ii) if delivered by hand, upon delivery with written receipt, and (iii)
if telecopied or telexed, when receipt is confirmed by telephone or appropriate
answerback, respectively, except that any notice or communication to the Agent
pursuant to this Agreement shall not be effective until received by the Agent.

Section 9.03. No Waiver; Remedies. No failure on the part of any
Bank or the Agent to exercise, and no delay in exercising, any right under any
Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided in the Loan
Documents are cumulative and not exclusive of any remedies provided by law.

Section 9.04. Expenses and Taxes; Indemnification.

(a) Expenses and Taxes. Borrower agrees to pay on demand (i) all
reasonable costs and expenses of the Agent and

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Issuing Bank in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents, and the other
documents to be delivered hereunder, including, without limitation, the
reasonable out-of-pocket expenses of the Agent and Issuing Bank and the
reasonable fees and out-of-pocket expenses of counsel for the Agent and Issuing
Bank with respect thereto and with respect to advising the Agent or Issuing
Bank as to its or their respective rights and responsibilities under the Loan
Documents, and (ii) all costs and expenses of the Agent, Issuing Bank and each
Bank, if any (including, without limitation, reasonable counsel fees and
expenses, which may include the allocated costs of in-house counsel), in
connection with the enforcement (whether through negotiations, legal
proceedings or otherwise) of the Loan Documents and the other documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this Section
9.04(a).

(b) Indemnification. Borrower agrees to indemnify and hold
harmless the Agent, Issuing Bank and each Bank from and against any and all
claims, damages, losses, liabilities and expenses (including, without
limitation, fees and disbursements of counsel, which may include the allocated
costs of in-house counsel) for which any of them may become liable or which may
be incurred by or asserted against the Agent, Issuing Bank or such Bank in
connection with or arising out of any investigation, litigation, or proceeding,
whether or not the Agent, Issuing Bank or such Bank is a party thereto, related
to or in connection with this Agreement, any other Loan Document or any Letter
of Credit unless such claim, damage, loss, liability or expense is found to
have resulted from the gross negligence or willful misconduct of such
indemnified party.

(c) Survival of Covenants. Without prejudice to the survival of
any other agreement of Borrower or the Banks hereunder, all obligations of
Borrower under Section 2.03, Section 2.05, Section 2.12 and this Section 9.04
shall survive the termination of the Commitments and this Agreement and the
payment in full of all Obligations hereunder and the Guaranties.

Section 9.05. Limitation and Adjustment of Interest.
Notwithstanding anything to the contrary set forth herein, in any Loan Document
or any other document executed in connection herewith, no provision of any Loan
Document or any other document executed in connection herewith is intended or
shall be construed to require the payment or permit the collection of interest
in excess of the maximum non-usurious rate permitted by applicable law.

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(a) Maximum Interest Under Texas Law. Without limiting Section
9.09, to the extent that the maximum non-usurious rate permitted by applicable
law is (notwithstanding the intent of the parties hereto as set forth in
Section 9.09) at any time determined by Texas law for a particular Bank, such
rate for such Bank shall be the "indicated rate ceiling" (as defined and
described in Section (a)(1) of Article 1.04 of Chapter 1, Subtitle 1, Title 79,
of the Revised Civil Statutes of Texas, 1925, as amended) at the applicable
time in effect. If the maturity of any Obligation payable to such Bank is
accelerated for any reason, or in the event of prepayment of all or any portion
of any Obligation payable to such Bank by Borrower, or in any other event,
earned interest on each Obligation hereunder shall never exceed the maximum
non-usurious amount permitted by applicable law, computed in accordance with
the terms hereof until payment, and any unearned interest otherwise payable
under any Loan Document payable to such Bank which is in excess of the maximum
non-usurious amount permitted by applicable law shall be cancelled
automatically as of the date of such acceleration or prepayment or other such
event and (if theretofore paid to any such Bank) shall, at the option of such
Bank, be either refunded to Borrower or credited on the principal of the
Obligations owed to such Bank in such order as such Bank shall elect. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum non- usurious rate permitted by applicable
law, Borrower and the Banks shall, to the maximum extent permitted by
applicable law, (a) characterize any non-principal payment as an expense, fee
or premium rather than as interest and (b) amortize, prorate, allocate and
spread, in equal parts during the period of the full stated term of the
Obligation in question, all interest at any time contracted for, charged,
received or reserved in connection with such Obligation.

(b) Maximum Interest Under Applicable Law. Without limiting
Section 9.09, if the amount of interest computed without giving effect to this
Section 9.05 and payable on any interest payment date in respect of the
preceding interest computation period would exceed the amount of interest
computed in respect of such period at the maximum rate of interest from time to
time permitted (after taking into account all consideration which constitutes
interest) by laws applicable to any Bank (such maximum rate being such Bank's
"Maximum Permissible Rate"), the amount of interest payable to such Bank on
such date in respect of such period shall be computed at such Bank's Maximum
Permissible Rate, and any interest theretofore paid by Borrower in excess of
such Bank's Maximum Permissible Rate shall, at the option of such Bank, be
credited by such Bank on the principal amount of the Obligations owed to such
Bank by Borrower or refunded by such Bank to Borrower.

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(c) Recapture. If at any time and from time to time (i) the
amount of interest payable to any Bank on any interest payment date shall be
computed at such Bank's Maximum Permissible Rate pursuant to this Section 9.05
and (ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Bank would be less than the amount of
interest payable to such Bank computed at such Bank's Maximum Permissible Rate,
then the amount of interest payable to such Bank in respect of such subsequent
interest computation period shall continue to be computed at such Bank's
Maximum Permissible Rate until the total amount of interest payable to such
Bank shall equal the total amount of interest which would have been payable to
such Bank if the total amount of interest had been computed without giving
effect to subsections (a) or (b) of this Section 9.05. In the event, upon
payment in full of the Obligations, the total amount of interest paid or
accrued under the terms of this Agreement is less than the total amount of
interest which would have been paid or accrued if the rates of interest set
forth in this Agreement (without giving effect to subsections (a) or (b) of
this Section 9.05) had, at all times, been in effect, then Borrower shall, to
the extent permitted by applicable law, pay the Agent for the account of the
Issuing Bank or the Banks an amount equal to the difference between (i) the
lesser of (A) the amount of interest which would have been charged on the
Obligations if the Maximum Permissible Rate had, at all times, been in effect
and (B) the amount of interest which would have accrued on the Obligations if
the stated rates of interest set forth in this Agreement had at all times been
in effect and (ii) the amount of interest actually accrued and paid on the
Obligations.

Section 9.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by Borrower and the Agent and when
the Agent shall have, as to each Bank, either received a copy of a signature
page hereof executed by such Bank or been notified by such Bank that such Bank
has executed it and thereafter shall be binding upon and inure to the benefit
of Borrower, the Agent and each Bank and their respective successors and
assigns, except that Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of all of
the Banks.

Section 9.07. Assignments and Participations. (a) Each Bank may,
after the date of this Agreement, assign to one or more banks or other entities
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment and the Obligations
owing to it); provided, however, that, except as provided in Section 9.07(g),
(i) each such assignment shall be of a constant, and not a varying, percentage
of all of the assigning Bank's rights and obligations under this Agreement,

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(ii) the amount of the Commitment of the assigning Bank being assigned pursuant
to each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$5,000,000 and shall be an integral multiple of $1,000,000, (iii) each such
assignment shall be to an Eligible Assignee, and (iv) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance and a processing and
recordation fee of $1,000. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and (y) the Bank assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its obligations
under this Agreement; provided, however, that no such partial assignment shall
be made if after giving effect thereto the Commitment of such assigning Bank
would be less than $2,000,000.

(b) By executing and delivering an Assignment and Acceptance, the
Bank assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Bank makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any Loan Document
or any other instrument or document furnished pursuant thereto or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document, or any other instrument or document furnished
pursuant hereto; (ii) such assigning Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower, TGPL, TXG or any other Person or the performance or observance by
Borrower, TGPL, TXG or any other Person of any of its respective obligations
under any Loan Document or any other instrument or document furnished pursuant
hereto; (iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the Financial Statements, the respective
financial statements of TGPL and TXG and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such assigning Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms

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<PAGE> 66
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (vii) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed
by it as a Bank.

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

(d) Upon its receipt of an Assignment and Acceptance executed by
an assigning Bank and an assignee representing that it is an Eligible Assignee,
the Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit H hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to Borrower.

(e) Each Bank may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment and the Obligations owing to it); provided, however, that (i) such
Bank's obligations under this Agreement (including, without limitation, its
Commitment to Borrower hereunder) shall remain unchanged, (ii) such Bank shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) each such participation shall be in a minimum amount of
$5,000,000, and (iv) Borrower, the Agent, Issuing Bank and the other Banks
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement.

(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to Borrower furnished to such Bank by or
on behalf of Borrower; provided, that, prior to any such disclosure, the

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<PAGE> 67
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to
Borrower received by it from such Bank.

(g) Any Bank may assign, as collateral or otherwise, any of its
rights under any Loan Document to any Federal Reserve Bank with notice to, but
without the consent of, Borrower, the Agent and Issuing Bank.

Section 9.08. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.

Section 9.09. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York. Without
limiting the intent of the parties set forth above, Chapter 15, Subtitle 3,
Title 79, of the Revised Civil Statutes of Texas, 1925, as amended (relating to
revolving loans and revolving triparty accounts), shall not apply to this
Agreement or the transactions contemplated hereby.

Section 9.10. JURISDICTION. TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, THE BORROWER HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN, THE CITY OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THE
BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURT. THE BORROWER HEREBY
AGREES THAT SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER
PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING MAY BE MADE BY
MAILING OR DELIVERING A COPY OF SUCH PROCESS TO BORROWER AT ITS ADDRESS
SPECIFIED IN SECTION 9.02. THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING HEREIN SHALL AFFECT THE RIGHTS OF ANY BANK OR THE AGENT TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY BANK OR
THE AGENT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION. THE BORROWER HEREBY FURTHER IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY ACTION OR PROCEEDING REFERRED
TO IN THIS SECTION 9.10 ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES.

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<PAGE> 68
Section 9.11. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, EACH OF THE BORROWER, THE AGENT, AND
THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE
LETTERS OF CREDIT, ANY OF THE SECURITY DOCUMENTS OR ANY OTHER INSTRUMENT OR
DOCUMENT FURNISHED PURSUANT HERETO OR IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

BORROWER:

TRANSCO ENERGY COMPANY

By: /s/ LARRY J. DAGLEY
Name: Larry J. Dagley
Title:

AGENT:

BANK OF MONTREAL
as Agent

By: /s/ DONALD G. WARMINGTON
Name: Donald G. Warmington
Title: Director

COMMITMENT: BANKS:

BANK OF MONTREAL

$10,000,000 By: /s/ DONALD G. WARMINGTON
Authorized Officer

THE BANK OF NOVA SCOTIA

$10,000,000 By: /s/ A. S. NORSWORTHY
Authorized Officer
A.S. Norsworthy
Assistant Agent

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<PAGE> 69
CIBC INC.

$10,000,000 By: /s/ J. P. WESTLAND
Authorized Officer

CONTINENTAL BANK N.A.

$10,000,000 By: /s/ ROBERT W. BOLT
Authorized Officer

SWISS BANK CORPORATION,
NEW YORK BRANCH

$10,000,000 By: /s/ DENNIS G. BUCHERT
Authorized Officer
Dennis G. Buchert
Exective Director
Merchant Banking

By: /s/ LARRY JONES
Authorized Officer
Larry Jones
Director
Merchant Banking
____________

Total Commitments:

$50,000,000

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<PAGE> 70
SCHEDULE I

NOTICE INFORMATION FOR BANKS

<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- ------------ -------------- --------------
<S> <C> <C>
Bank of Montreal Bank of Montreal Bank of Montreal
700 Louisiana, Suite 4400 700 Louisiana, Suite 4400
Houston, Texas 77002 Houston, Texas 77002
Attention: Doug Deal Attention: Doug Deal
Telephone: (713) 546-9700 Telephone: (713) 546-9700
Telecopy: (713) 225-1845 Telecopy: (713) 225-1845
Telex: 77-5640 Telex: 77-5640
Answerback: BKMONTREALHOU Answerback: BKMONTREALHOU

with a copy to: with a copy to:

The Bank of Nova Scotia The Bank of Nova Scotia
1100 Louisiana, Suite 3000 1100 Louisiana, Suite 3000
Houston, Texas 77002 Houston, Texas 77002
Attention: D. Matt Harris Attention: D. Matt Harris
Telephone: (713) 752-0900 Telephone: (713) 752-0900
Telecopy: (713) 752-2425 Telecopy: (713) 752-2425

with a copy to: with a copy to:

-65-
<PAGE> 71
<TABLE>
<S> <C> <C>
Continental Bank N.A. Continental Bank N.A. Continental Bank N.A.
231 S. La Salle 231 S. La Salle
Chicago, Illinois 60697 Chicago, Illinois 60697
Attention: Joan Harwell Attention: Joan Harwell
Telephone: (312) 828-7838 Telephone: (312) 828-7838
Telecopy: (312) 987-5614 Telecopy: (312) 987-5614
Telex: 253412 Telex: 253412
Answerback: CONILLBK CGO Answerback: CONILLBK CGO

-66-
<PAGE> 72

Schedule 5.02(a)
Existing Liens

Each of TGPL and TXG have sold their monthly trade receivables
from customers.

TEXAS GAS TRANSMISSION CORPORATION

10% due 1994 $ 150,000,000
9 5/8% due 1997 100,000,000
----------------
$ 250,000,000

TRANSCO ENERGY COMPANY

11 1/4% due 1999 $ 300,000,000
9 5/8% due 2000 125,000,000
9 7/8% due 2020 125,000,000
9 1/2% due 1995 150,000,000
9 1/8% due 1998 200,000,000
9 3/8% due 2001 150,000,000
Tran$tock due 1994 9,383,340
----------------
$ 1,059,383,340
</TABLE>
<PAGE> 74
Schedule 5.02(e)
Existing Restrictions on
Dividends, Advances and Investments

EXHIBIT A

GUARANTY

This GUARANTY dated as of December 31, 1993 (this "Guaranty"), is made
by Transcontinental Gas Pipe Line Corporation, a Delaware corporation (the
"Guarantor"), in favor of the Banks, Issuing Bank (each as defined in the
Reimbursement Agreement referred to below), and Bank of Montreal, as Agent for
the Banks (the "Agent").

PRELIMINARY STATEMENTS:

(1) The Agent, Issuing Bank and the Banks have entered into a
Reimbursement Agreement dated as of December 31, 1993 (said Reimbursement
Agreement, as it may hereafter be amended or otherwise modified from time to
time, being herein called the "Reimbursement Agreement", the terms defined
therein and not otherwise defined herein being used herein as therein defined)
with Transco Energy Company, a Delaware corporation ("Borrower"). The Borrower
is the principal financing entity for all capital requirements of its
subsidiaries, and from time to time the Borrower has made capital contributions
and advances to its subsidiaries, including the Guarantor. The Guarantor is a
wholly-owned indirect subsidiary of the Borrower and will derive substantial
direct and indirect benefit from the transactions contemplated by the
Reimbursement Agreement.

(2) As used herein, the term "Obligations" means all obligations
of the Borrower now or hereafter existing under the Reimbursement Agreement, or
any other Loan Document, whether for Reimbursement Obligations, interest, fees,
expenses, indemnities or otherwise. The Guarantor intends to guaranty all
Obligations, but the amount of the Guarantor's obligation to pay hereunder is
limited as set forth in Section 13 hereof.

(3) The Guarantor has irrevocably elected to execute and deliver
this Guaranty (i) intending it to be a legal, valid, binding, enforceable and
continuing obligation of the Guarantor and (ii) to induce the Banks and the
Agent to enter into the Reimbursement Agreement and to induce the Banks to
issue Letters of Credit thereunder.

NOW, THEREFORE, in consideration of the premises and as contemplated
in the Reimbursement Agreement, the Guarantor hereby agrees as follows:
<PAGE> 76
Section 1. Guaranty. The Guarantor hereby unconditionally
guarantees the punctual payment of the Obligations when due, whether at stated
maturity, by acceleration or otherwise, and agrees to pay any and all expenses
(including counsel fees and expenses) incurred by the Agent or any Bank in
enforcing any rights under this Guaranty. Without limiting the generality of
the foregoing, the Guarantor's liability shall extend to all amounts which
constitute part of the Obligations and would be owed by the Borrower but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower.

Section 2. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the
Reimbursement Agreement, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Agent or any Bank with respect thereto. The obligations of the
Guarantor under this Guaranty are independent of the Obligations, and a
separate action or actions may be brought and prosecuted against the Guarantor
to enforce this Guaranty, irrespective or whether any action is brought against
the Borrower or any other Person or whether the Borrower or any other Person is
joined in any such action or actions. The liability of the Guarantor under
this Guaranty shall be absolute and unconditional irrespective of:

(i) any lack of validity or enforceability of the
Reimbursement Agreement or any other Loan Document;

(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations or any
other liabilities, or any other amendment or waiver of or any consent
to departure from the Reimbursement Agreement or any other Loan
Document, including, without limitation, any increase in the
Obligations or any other liabilities resulting from the extension of
additional credit to the Borrower or any of its subsidiaries or
otherwise;

(iii) any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guaranty (including, without
limitation, the TXG Guaranty), for all or any of the Obligations or
any other liabilities;

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<PAGE> 77
(iv) any manner of application of collateral, or proceeds
thereof or of collections on account of any other guaranty (including,
without limitation, the TXG Guaranty), to all or any of the
Obligations or any other liabilities, or any manner of sale or other
disposition of any collateral for all or any of the Obligations or any
other liabilities or any other assets of the Borrower or any of its
subsidiaries;

(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
subsidiaries; or

(vi) any other circumstances which might otherwise
constitute a defense available to, or a discharge of, the Borrower or
a guarantor.

Section 3. Waiver. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Agent or any Bank
protect, secure, perfect or insure any security interest or other Lien or any
property subject thereto or exhaust any right to take any action against the
Borrower or any other Person or any collateral.

Section 4. Subrogation. The Guarantor irrevocably waives, until
payment in full of all Obligations and termination of the Commitments and
Issuing Bank's obligations to issue Letters of Credit, any and all rights to
which it may be entitled, by operation of law or otherwise, by making any
payment hereunder or otherwise (i) to be subrogated to the rights of the Agent
and the Banks against the Borrower, TXG or any other Person with respect to
such payment or otherwise to be reimbursed, indemnified or exonerated by the
Borrower, TXG or any other Person in respect thereof or (ii) to receive any
payment, in the nature of contribution or for any other reason, from any Person
who has provided security for the Obligations or who has also guaranteed or is
otherwise liable for the Obligations with respect to which such payment was
made. If any amount shall be paid to the Guarantor on account of such
subrogation or contribution rights at any time prior

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<PAGE> 78
to payment in full of all Obligations and termination of all of the
Commitments, such amount shall be held in trust for the benefit of the Banks
and the Agent and shall forthwith be paid to the Agent to be credited against
and applied upon the Obligations, whether matured or unmatured, in such order
as may be determined by the Agent.

Section 5. Representations and Warranties. The Guarantor hereby
represents and warrants to the Agent and each Bank as follows:

(e) There are no conditions precedent to the
effectiveness of this Guaranty that have not been satisfied.

(f) The Guarantor has, independently and without reliance
upon the Agent or any Bank and based on documents and

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<PAGE> 79
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Guaranty.

(g) All representations and warranties set forth in the
Reimbursement Agreement, insofar as they pertain to this Guaranty or the
Guarantor, are true and correct.

Section 6. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty, and no consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, Issuing Bank, and the Required Banks, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Banks, release this
Guaranty or otherwise change any obligation of the Guarantor to pay hereunder.

Section 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing

-5-
<PAGE> 80
(including telecopier or telex communication) and dispatched by registered or
certified mail, telecopied, telexed or delivered, (a) if to the Guarantor, at
its address at 2800 Post Oak Boulevard, P. O. Box 1396, Houston, Texas 77251,
Attention: Treasurer, Telecopy: (713) 439-2440, Telex: 792013, Answerback:
TRANSCO HOU A, and (b) if to the Agent or any Bank at its respective address
from time to time specified in or pursuant to the Reimbursement Agreement.
Each such notice or communication shall be effective (i) if mailed, on the
fifth Business Day following the date it is dispatched by registered or
certified mail, (ii) if delivered by hand, upon delivery with written receipt,
and (iii) if telecopied or telexed, when receipt is confirmed by telephone or
appropriate answer-back, respectively, except that any notice or communication
to the Agent shall not be effective until received by the Agent.

Section 8. No Waiver; Remedies. No failure on the part of the
Agent or any Bank to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.

Section 9. Jurisdiction. To the fullest extent it may
effectively do so under applicable law, the Guarantor hereby irrevocably
submits to the jurisdiction of any New York State or federal court sitting in
the Borough of Manhattan, the City of New York, in any action or proceeding
arising out or relating to this Guaranty, and the Guarantor hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such court. The Guarantor hereby irrevocably waives, to the
fullest extent it may effectively do so, any right it may have to trial by jury
and the defense of the inconvenient forum to the maintenance of such action or
proceeding. The Guarantor hereby agrees that service of copies of the summons
and complaint and any other process which may be served in any such action or
proceeding may be made by mailing or delivering a copy of such process to the
Guarantor at its address specified in Section 7. The Guarantor agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing herein shall affect the rights of any Bank or the
Agent to serve legal process in any other manner permitted by law or affect the
right of any Bank or the Agent to bring any action or proceeding against the

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<PAGE> 81
Guarantor or its Property in the courts of any other jurisdiction.

Section 10. Continuing Guaranty; Assignments under Reimbursement
Agreement. This Guaranty is a continuing guaranty and shall (i) remain in full
force and effect until the later of (A) the payment in full of the Obligations
and all other amounts payable under this Guaranty and (B) the expiration or
termination of all Commitments and the obligation of Issuing Bank to issue
Letters of Credit, (ii) be binding upon the Guarantor, its successors and
assigns, (iii) inure to the benefit of, and be enforceable by, the Agent and
each of the Banks and their respective successors, transferees and assigns, and
(iv) not be terminated by the Guarantor, the Borrower or any other Person,
except as provided in Section 12 hereof. Without limiting the generality of
the foregoing clause (iii), any Bank may assign or otherwise transfer all or
any portion of its rights and obligations under the Loan Documents in
accordance with the Reimbursement Agreement and the assignee shall thereupon
become vested with all the benefits in respect thereof granted to such Bank
herein or otherwise. Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to the
Reimbursement Agreement, disclose to the assignee or participant or proposed
assignee or participant, any information relating to the Guarantor furnished to
such Bank by or on behalf of the Borrower or the Guarantor; provided, that,
prior to any such disclosure, the assignee or participant or proposed assignee
or participant shall agree to preserve the confidentiality of any confidential
information relating to the Guarantor received by it from such Bank.

Section 11. Governing Law. This Guaranty shall be governed by,
and construed in accordance with, the laws of the State of New York.

Section 12. Termination. If the senior unsecured long-term debt
of the Borrower is rated BBB- or higher by S&P and is rated Baa3 or higher by
Moody's, and the Agent has received both a certificate of an officer of the
Guarantor certifying that all of the events described above have occurred and
are continuing and a request that this Guaranty be terminated, then this
Guaranty shall terminate on the date which is twenty Business Days following
Agent's receipt of such request. The provisions of Section 1.05 of the
Reimbursement Agreement shall be applicable to any determination of any rating
under this Section 12.

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<PAGE> 82
Section 13. Limitation on Guaranteed Amount. Notwithstanding
anything herein to the contrary, the maximum amount which the Guarantor shall
be obligated to pay under this Guaranty on account of the Obligations shall be
the lesser of (a) the sum of (i) $30,000,000 in principal of the Borrower's
Reimbursement Obligations plus (ii) any interest accruing pursuant to the
Reimbursement Agreement on such amount plus (iii) all expenses (including
counsel fees and expenses, which may include the allocated costs of in-house
counsel) incurred by the Agent or any Bank in enforcing any rights under this
Guaranty, or (b) the maximum amount which can be guaranteed by Guarantor under
applicable federal and state laws relating to the insolvency of debtors. All
amounts paid on account of the Obligations shall be deemed to have not been
paid by the Guarantor (and consequently such amounts shall not be taken into
account in determining whether the Guarantor's maximum obligation to pay under
this Guaranty has been satisfied), unless such amounts are paid by the
Guarantor after written demand therefor from the Agent and at the time such
payment is made the Agent receives a notice from the Guarantor referring to
this Section 13 and stating that such payment is being made by the Guarantor.

Section 14. Information. The Guarantor will furnish to each Bank:

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<PAGE> 83
such fiscal year and consolidated statements of income, retained
earnings, and cash flows of the Guarantor and its subsidiaries for
such fiscal year, all certified by Arthur Andersen & Co. or other
independent certified public accountants of recognized national
standing; and (y) copies of the consolidating balance sheet of the
Guarantor and its subsidiaries as of the end of such fiscal year and
consolidating statements of income, retained earnings, and cash flows
of the Guarantor and its subsidiaries for such year, all certified by
a financial officer (who is the chief financial officer, the treasurer
or the principal accounting officer) of the Guarantor.

Section 15. Covenants. The Guarantor will not on or after the
date hereof (i) issue or cause to become outstanding any of its capital stock
to any Person, other than TGC, (ii) issue or cause to become outstanding any
option, warrant or other right to acquire any of its capital stock, or (iii)
otherwise take any action which would result in any common stock of the
Guarantor being owned, legally or beneficially, by any Person other than TGC.
Without limiting the generality of the foregoing, the Guarantor will comply
with all provisions of Section 5.02(a), Section 5.02(c), Section 5.02(d),
Section 5.02(e), Section 5.02(j), Section 5.02(k), Section 5.02(l), Section
5.02(n), Section 5.02(o) or Section 5.02(p) of the Reimbursement Agreement to
the extent those Sections are applicable to the Guarantor.

Section 16. Affirmative Covenants. The Guarantor will comply
with all provisions of Section 5.01 of the Reimbursement Agreement to the
extent such Section 5.01 is applicable to the Guarantor.

Section 17. No Offsets. The Guarantor will not assert any
offset, defense or counterclaim against any payment to be made by it under this
Guaranty.

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

TRANSCONTINENTAL GAS PIPE LINE
CORPORATION

By:____________________________
Name: ________________________
Title: _______________________

-9-
<PAGE> 84

EXHIBIT B

GUARANTY

This GUARANTY dated as of December 31, 1993 (this "Guaranty"), is made
by Texas Gas Transmission Corporation, a Delaware corporation (the
"Guarantor"), in favor of the Banks, Issuing Bank (each as defined in the
Reimbursement Agreement referred to below), and Bank of Montreal, as Agent for
the Banks (the "Agent").

PRELIMINARY STATEMENTS:

(2) As used herein, the term "Obligations" means all obligations
of the Borrower now or hereafter existing under the Reimbursement Agreement or
any other Loan Document, whether Reimbursement Obligations, interest, fees,
expenses, indemnities or otherwise. The Guarantor intends to guaranty all
Obligations, but the amount of the Guarantor's obligation to pay hereunder is
limited as set forth in Section 13 hereof.

NOW, THEREFORE, in consideration of the premises and as contemplated
in the Reimbursement Agreement, the Guarantor hereby agrees as follows:
<PAGE> 85
Section 1. Guaranty. The Guarantor hereby unconditionally
guarantees the punctual payment of the Obligations when due, whether at stated
maturity, by acceleration or otherwise, and agrees to pay any and all expenses
(including counsel fees and expenses) incurred by the Agent or any Bank in
enforcing any rights under this Guaranty. Without limiting the generality of
the foregoing, the Guarantor's liability shall extend to all amounts which
constitute part of the Obligations and would be owed by the Borrower but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower.

(i) any lack of validity or enforceability of the
Reimbursement Agreement or any other Loan Document;

(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations or any
other liabilities, or any other amendment or waiver of or any consent
to departure from the Reimbursement Agreement or any other Loan
Document, including, without limitation, any increase in the
Obligations or any other liabilities resulting from the extension of
additional credit to the Borrower or any of its subsidiaries or
otherwise;

(iii) any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guaranty (including, without
limitation, the TGPL Guaranty), for all or any of the Obligations or
any other liabilities;

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<PAGE> 86
(iv) any manner of application of collateral, or proceeds
thereof or of collections on account of any other guaranty (including,
without limitation, the TGPL Guaranty), to all or any of the
Obligations or any other liabilities, or any manner of sale or other
disposition of any collateral for all or any of the Obligations or any
other liabilities or any other assets of the Borrower or any of its
subsidiaries;

(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
subsidiaries; or

(vi) any other circumstances which might otherwise
constitute a defense available to, or a discharge of, the Borrower or
a guarantor.

Section 3. Waiver. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Agent or any Bank
protect, secure, perfect or insure any security interest or other Lien or any
property subject thereto or exhaust any right to take any action against the
Borrower or any other Person or any collateral.

Section 4. Subrogation. The Guarantor irrevocably waives, until
payment in full of all Obligations and termination of the Commitments and
Issuing Bank's obligations to issue Letters of Credit, any and all rights to
which it may be entitled, by operation of law or otherwise, by making any
payment hereunder or otherwise (i) to be subrogated to the rights of the Agent
and the Banks against the Borrower, TGPL or any other Person with respect to
such payment or otherwise to be reimbursed, indemnified or exonerated by the
Borrower, TGPL or any other Person in respect thereof or (ii) to receive any
payment, in the nature of contribution or for any other reason, from any Person
who has provided security for the Obligations or who has also guaranteed or is
otherwise liable for the Obligations with respect to which such payment was
made. If any amount shall be paid to the Guarantor on account of such
subrogation or contribution rights at any time prior

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<PAGE> 87
to payment in full of all Obligations and termination of all of the
Commitments, such amount shall be held in trust for the benefit of the Banks
and the Agent and shall forthwith be paid to the Agent to be credited against
and applied upon the Obligations, whether matured or unmatured, in such order
as may be determined by the Agent.

Section 5. Representations and Warranties. The Guarantor hereby
represents and warrants to the Agent and each Bank as follows:

(e) There are no conditions precedent to the
effectiveness of this Guaranty that have not been satisfied.

(f) The Guarantor has, independently and without reliance
upon the Agent or any Bank and based on documents and

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<PAGE> 88
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Guaranty.

(g) All representations and warranties set forth in the
Reimbursement Agreement, insofar as they pertain to this Guaranty or the
Guarantor, are true and correct.

(h) The consolidated and consolidating balance sheets of
the Guarantor and its subsidiaries as at September 30, 1991 and the related
consolidated and consolidating statements of income, retained earnings, and
cash flows of the Guarantor and its subsidiaries for the period commencing at
the end of the previous fiscal year and ending with such date, duly certified
by a financial officer (who is a Vice President, Treasurer, or the principal
accounting officer) of the Guarantor, copies of which have been furnished to
each Bank, fairly present, subject to year-end audit adjustments, the
consolidated and consolidating financial position of the Guarantor and its
subsidiaries as at such date and the consolidated and consolidating results of
the operations of the Guarantor and its subsidiaries for the nine months ended
on such date, and such balance sheets and financial statements were prepared in
accordance with GAAP consistently applied except as specifically noted therein.
Since September 30, 1991, there has been no material adverse change in (I) the
business, financial position or results of operations of the Guarantor and its
subsidiaries, taken as a whole or (II) the ability of the Guarantor to perform
its obligations under this Guaranty.

Section 6. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty, and no consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, Issuing Bank, and the Required Banks, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Banks, release this
Guaranty or otherwise change any obligation of the Guarantor to pay hereunder.

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<PAGE> 89
792013, Answerback: TRANSCO HOU A, and (b) if to the Agent or any Bank at its
respective address from time to time specified in or pursuant to the
Reimbursement Agreement. Each such notice or communication shall be effective
(i) if mailed, on the fifth Business Day following the date it is dispatched by
registered or certified mail, (ii) if delivered by hand, upon delivery with
written receipt, and (iii) if telecopied or telexed, when receipt is confirmed
by telephone or appropriate answer-back, respectively, except that any notice
or communication to the Agent shall not be effective until received by the
Agent.

Section 8. No Waiver; Remedies. No failure on the part of the
Agent or any Bank to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.

Section 9. Jurisdiction. To the fullest extent it may
effectively do so under applicable law, the Guarantor hereby irrevocably
submits to the jurisdiction of any New York State or federal court sitting in
the Borough of Manhattan, the City of New York, in any action or proceeding
arising out or relating to this Guaranty, and the Guarantor hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such court. The Guarantor hereby irrevocably waives, to the
fullest extent it may effectively do so, any right it may have to trial by jury
and the defense of the inconvenient forum to the maintenance of such action or
proceeding. The Guarantor hereby agrees that service of copies of the summons
and complaint and any other process which may be served in any such action or
proceeding may be made by mailing or delivering a copy of such process to the
Guarantor at its address specified in Section 7. The Guarantor agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing herein shall affect the rights of any Bank or the
Agent to serve legal process in any other manner permitted by law or affect the
right of any Bank or the Agent to bring any action or proceeding against the
Guarantor or its Property in the courts of any other jurisdiction.

Section 10. Continuing Guaranty; Assignments under Reimbursement
Agreement. This Guaranty is a continuing

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<PAGE> 90
guaranty and shall (i) remain in full force and effect until the later of (A)
the payment in full of the Obligations and all other amounts payable under this
Guaranty and (B) the expiration or termination of all Commitments and the
obligations of Issuing Bank to issue Letters of Credit, (ii) be binding upon
the Guarantor, its successors and assigns, (iii) inure to the benefit of, and
be enforceable by, the Agent and each of the Banks and their respective
successors, transferees and assigns, and (iv) not be terminated by the
Guarantor, the Borrower or any other Person, except as provided in Section 12
hereof. Without limiting the generality of the foregoing clause (iii), any
Bank may assign or otherwise transfer all or any portion of its rights and
obligations under the Loan Documents in accordance with the Reimbursement
Agreement and the assignee shall thereupon become vested with all the benefits
in respect thereof granted to such Bank herein or otherwise. Any Bank may, in
connection with any assignment or participation or proposed assignment or
participation pursuant to the Reimbursement Agreement, disclose to the assignee
or participant or proposed assignee or participant, any information relating to
the Guarantor furnished to such Bank by or on behalf of the Borrower or the
Guarantor; provided, that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any confidential information relating to the Guarantor
received by it from such Bank.

Section 11. Governing Law. This Guaranty shall be governed by,
and construed in accordance with, the laws of the State of New York.

Section 12. Termination. If the senior unsecured long-term debt
of the Borrower is rated BBB- or higher by S&P and is rated Baa3 or higher by
Moody's, and the Agent has received both a certificate of an officer of the
Guarantor certifying that all of the events described above have occurred and
are continuing and a request that this Guaranty be terminated, then this
Guaranty shall terminate on the date which is twenty Business Days following
Agent's receipt of such request. The provisions of Section 1.05 of the
Reimbursement Agreement shall be applicable to any determination of any rating
under this Section 12.

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<PAGE> 91
Borrower's Reimbursement Obligations plus (ii) any interest accruing pursuant
to the Reimbursement Agreement on such amount plus (iii) all expenses
(including counsel fees and expenses, which may include the allocated costs of
in-house counsel) incurred by the Agent or any Bank in enforcing any rights
under this Guaranty, or (b) the maximum amount which can be guaranteed by
Guarantor under applicable federal and state laws relating to the insolvency of
debtors. All amounts paid on account of the Obligations shall be deemed to
have not been paid by the Guarantor (and consequently such amounts shall not be
taken into account in determining whether the Guarantor's maximum obligation to
pay under this Guaranty has been satisfied), unless such amounts are paid by
the Guarantor after written demand therefor from the Agent and at the time such
payment is made the Agent receives a notice from the Guarantor referring to
this Section 13 and stating that such payment is being made by the Guarantor.

Section 14. Information. The Guarantor will furnish to each Bank:

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<PAGE> 92
(y) copies of the consolidating balance sheet of the Guarantor and its
subsidiaries as of the end of such fiscal year and consolidating
statements of income, retained earnings, and cash flows of the
Guarantor and its subsidiaries for such year, all certified by a
financial officer (who is the chief financial officer, the treasurer
or the principal accounting officer) of the Guarantor.

Section 15. Covenants. The Guarantor will not on or after the
date hereof (i) issue or cause to become outstanding any of its capital stock
to any Person, other than TGC, (ii) issue or cause to become outstanding any
option, warrant or other right to acquire any of its capital stock, or (iii)
otherwise take any action which would result in any common stock of the
Guarantor being owned, legally or beneficially, by any Person other than TGC.
Without limiting the generality of the foregoing, the Guarantor will comply
with all provisions of Section 5.02(a), Section 5.02(c), Section 5.02(d),
Section 5.02(e), Section 5.02(j), Section 5.02(k), Section 5.02(l), Section
5.02(n), Section 5.02(o) or Section 5.02(p) of the Reimbursement Agreement to
the extent those Sections are applicable to the Guarantor.

Section 16. Affirmative Covenants. The Guarantor will comply
with all provisions of Section 5.01 of the Reimbursement Agreement to the
extent such Section 5.01 is applicable to the Guarantor.

Section 17. No Offsets. The Guarantor will not assert any
offset, defense or counterclaim against any payment to be made by it under this
Guaranty.

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

TEXAS GAS TRANSMISSION CORPORATION

By:___________________________
Name: _______________________
Title: ______________________

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<PAGE> 93

EXHIBIT C

FORM OF OPINION OF COUNSEL FOR THE BORROWER

[Date]

To each of the Banks which are
parties to the Reimbursement Agreement
dated as of December 31, 1993
among Transco Energy Company,
such Banks and Bank of Montreal
as Issuing Bank and as Agent for
such Banks

Transco Energy Company

Ladies and Gentlemen:

I am Vice President, Associate General Counsel and Assistant Secretary of
Transco Energy Company, a Delaware corporation (the "Borrower"), and have acted
in such capacity as legal counsel to the Borrower and certain of its
subsidiaries in connection with the preparation, execution and delivery of the
Reimbursement Agreement dated as of December 31, 1993 (the "Reimbursement
Agreement") among the Borrower, each of you, Bank of Montreal, as Issuing Bank
and as Agent, and the other Loan Documents described therein. This opinion is
being delivered pursuant to Section 3.01(f) of the Reimbursement Agreement.

In connection herewith I have examined the Reimbursement Agreement, the TXG
Guaranty and the TGPL Guaranty, such certificates of public officials, such
certificates of officers of the Borrower and the Material Subsidiaries,
originals or reproductions or certified copies of such corporate documents and
records of the Borrower, and copies of such other documents, records and papers
as I have deemed relevant and necessary as a basis for the opinions hereinafter
set forth. I have relied upon certificates of public officials and
certificates of officers of the Borrower and the Material Subsidiaries with
respect to the accuracy of factual matters contained therein, and I know of no
reason why I should not rely thereon. In rendering the opinions set forth
herein, I have assumed the due authorization, execution and delivery of the
Reimbursement Agreement by each of the Banks, Issuing Bank and the Agent.

Capitalized terms used herein that are defined in the Reimbursement Agreement
shall have the same meanings herein as are set forth therein, unless otherwise
provided herein, and the term
<PAGE> 94
"enforceable" when used herein with respect to a particular agreement or
instrument shall mean that such agreement or instrument is enforceable in
accordance with its terms, except as its enforceability may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws at the
time in effect relating to or affecting the enforcement of creditors' rights
generally, and (ii) principles of equity applicable to the availability of the
remedy of specific performance.

Based upon the foregoing and upon such investigation as I have deemed
appropriate, I am of the following opinion:

2. The execution, delivery and performance by the Borrower of the
Reimbursement Agreement and the consummation of the transactions contemplated
thereby (i) are within its power and authority (corporate and otherwise), (ii)
have been duly authorized by all necessary corporate action, (iii) do not
require any consent or approval of its stockholders, (iv) do not contravene its
certificate of incorporation or its by-laws, each as amended and as in effect
on the date hereof, and (v) do not contravene, or constitute a default under,
any law, rule or regulation (including, without limitation, Regulation X)
applicable to it or any Material Subsidiary or any agreement, judgment,
injunction, order, decree or other instrument binding upon it or any Material
Subsidiary or result in the creation of imposition of any Lien on any of its
Property or on any Property of its Subsidiaries.

3. A duly authorized officer of the Borrower has executed and
delivered the Reimbursement Agreement.

4. In any action or proceeding arising out of or relating to the
Reimbursement Agreement in any court of the State of Texas or in any federal
court sitting in the State of Texas, such court

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<PAGE> 95
would recognize and give effect to the provisions of Section 9.09 of the
Reimbursement Agreement, wherein the parties thereto agree that the
Reimbursement Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York. Without limiting the generality of the
foregoing, a court of the State of Texas or a federal court sitting in the
State of Texas would apply the usury law of the State of New York, and would
not apply the usury law of the State of Texas to the Reimbursement Agreement.
However, if a court were to hold that the Reimbursement Agreement are governed
by, and to be construed in accordance with, the laws of the State of Texas, the
Reimbursement Agreement would, under the laws of the State of Texas, constitute
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with its terms.

6. A duly authorized officer of TGPL has executed and delivered
the TGPL Guaranty.

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<PAGE> 96
8. The execution, delivery and performance by TXG of the TXG
Guaranty and the consummation of the transactions contemplated thereby (i) are
within its power and authority (corporate and otherwise), (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any consent
or approval of its stockholders, (iv) do not contravene its certificate of
incorporation or its by-laws, each as amended and as in effect on the date
hereof, and (v) do not contravene, or constitute a default under, any law, rule
or regulation (including, without limitation, Regulation X) applicable to it or
any of its subsidiaries or any agreement, judgment, injunction, order, decree
or other instrument binding upon it or any of its subsidiaries or result in the
creation of imposition of any Lien on any of its Property or on any Property of
its subsidiaries.

9. A duly authorized officer of TXG has executed and delivered
the TXG Guaranty.

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<PAGE> 97
perform its obligations under the Reimbursement Agreement, TGPL's ability to
perform its obligations under the TGPL Guaranty or TXG's ability to perform its
obligations under the TXG Guaranty, or which in any manner draws into question
the validity of the Reimbursement Agreement, the TGPL Guaranty or the TXG
Guaranty.

12. To the best of my knowledge (after making due inquiry with
respect thereto) neither the Borrower nor any of its Subsidiaries is in default
in any material respect with respect to any applicable order, writ, injunction
or decree of any court, governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which default may reasonably be
expected to have a material adverse effect on the business, financial position
or results of operations or prospects of the Borrower and its Subsidiaries,
taken as a whole, or to impair materially the Borrower's ability to perform its
obligations under the Reimbursement Agreement, TGPL's ability to perform its
obligations under the TGPL Guaranty or TXG's ability to perform its obligations
under the TXG Guaranty, or which in any manner draws into question the validity
of the Reimbursement Agreement, the TGPL Guaranty or the TXG Guaranty.

15. Neither the Borrower nor any Material Subsidiary is engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U).

16. No authorization, approval, consent, license, or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the
Borrower of the Reimbursement Agreement, by TGPL of the TGPL Guaranty or by TXG
of the TXG Guaranty or for the consummation of the transactions contemplated
thereby.

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<PAGE> 98
17. All authorizations, licenses, consents, filings, approvals and
certificates which are necessary to enable the Borrower and each Material
Subsidiary to carry on any material aspect of the business in which it is
presently engaged or to enable the Borrower to perform its obligations under
the Reimbursement Agreement have been obtained or made and are in full force
and effect (except such authorizations, licenses, consents, filings, approvals
and certificates which are not customarily obtained, made or filed prior to the
time when they are required), and there has been no material default by the
Borrower or any Material Subsidiary under any of the terms thereof.

18. All authorizations, licenses, consents, filings, approvals and
certificates which are necessary to enable TGPL and each of its subsidiaries to
carry on any material aspect of the business in which it is presently engaged
or to enable TGPL to perform its obligations under the TGPL Guaranty have been
obtained or made and are in full force and effect (except such authorizations,
licenses, consents, filings, approvals and certificates which are not
customarily obtained, made or filed prior to the time when they are required),
and there has been no material default by TGPL or any of its subsidiaries under
any of the terms thereof.

19. All authorizations, licenses, consents, filings, approvals and
certificates which are necessary to enable TXG and each of its subsidiaries to
carry on any material aspect of the business in which it is presently engaged
or to enable TXG to perform its obligations under the TXG Guaranty have been
obtained or made and are in full force and effect (except such authorizations,
licenses, consents, filings, approvals and certificates which are not
customarily obtained, made or filed prior to the time when they are required),
and there has been no material default by TXG or any of its subsidiaries under
any of the terms thereof.

20. The Borrower is the record and beneficial owner of all of the
issued and outstanding common stock and Voting Stock of TGC, and TGC is the
record and beneficial owner of all of the issued and outstanding common stock
and Voting Stock of TGPL and TXG, in each case free and clear of all Liens.
There are no outstanding options, warrants or other rights to acquire any
capital stock of any Material Subsidiary.

I am aware that Messrs. Bracewell & Patterson, L.L.P. and Messrs. King &
Spalding may rely upon the opinions set forth herein in rendering their
respective opinions furnished pursuant to the Reimbursement Agreement. This
opinion is solely for your benefit and the benefit of your respective
successors, assigns,

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<PAGE> 99
participants and other transferees and may not be relied upon by any other
Person, except to the extent set forth in this paragraph.

Very truly yours,

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<PAGE> 100

EXHIBIT D

FORM OF OPINION OF SPECIAL COUNSEL TO THE AGENT

[Date]

To Bank of Montreal, as Agent and
as Issuing Bank, and to each of
the Banks party to the Reimbursement
Agreement described below

Ladies and Gentlemen:

We have acted as special counsel to Bank of Montreal, acting for itself, as
Agent and as Issuing Bank, in connection with the preparation, execution and
delivery of the Reimbursement Agreement, dated as of December 31, 1993 (the
"Reimbursement Agreement"), among Transco Energy Company, a Delaware
corporation (the "Borrower"), the Agent, the Issuing Bank and each of you.
Capitalized terms defined in the Reimbursement Agreement are used herein as
therein defined.

In that connection, we have examined the following documents:

(1) Counterparts of the Reimbursement Agreement, executed by the
Agent, Issuing Bank and the Borrower, respectively.

(2) The documents furnished by the Borrower, TGPL and TXG pursuant
to Section 3.01 of the Reimbursement Agreement and listed on Annex A hereto,
including the opinion of Molly S. Williams, Vice President, Associate General
Counsel and Assistant Secretary of the Borrower (the "Opinion of Borrower's
Counsel") and the opinion of King & Spalding, special New York counsel to the
Agent ("New York Counsel Opinion").

In our examination of the documents referred to above, we have assumed the
authenticity of all such documents submitted to us as originals, the
genuineness of all signatures and the conformity to the originals of all such
documents submitted to us as copies. We have also assumed the accuracy of all
matters set forth in the certificates referred to on Annex A hereto and assumed
that each of the Borrower, the Banks, Issuing Bank and the Agent has duly
executed and delivered, with all necessary power and authority (corporate and
otherwise), the Reimbursement Agreement, that TGPL has duly executed and
delivered, with all necessary power and authority (corporate and otherwise),
the TGPL Guaranty and that TXG has duly executed and delivered, with all
necessary power and
<PAGE> 101
authority (corporate and otherwise), the TXG Guaranty. We have also assumed
that no Bank has requested that the opinion required by Section 3.01(g) of the
Reimbursement Agreement contain any other matters not contained in the form of
opinion set forth as Exhibit D to the Reimbursement Agreement.

This opinion is solely for the benefit of the Banks, the Issuing Bank, the
Agent, their respective successors, assigns, participants and other transferees
and may be relied upon only by such Persons in connection with the transactions
contemplated by the Reimbursement Agreement.

Very truly yours,

Bracewell & Patterson, L.L.P.

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<PAGE> 102
ANNEX A

<TABLE>
<S> <C>
(1) The TGPL Guaranty executed by TGPL in favor of the Banks, Issuing Bank and the Agent.

(2) The TXG Guaranty executed by TXG in favor of the Banks, Issuing Bank and the Agent.

(3) The certificate of the Secretary or an Assistant Secretary of the Borrower contemplated by Section 3.01(c) of the
Reimbursement Agreement.

(4) The certificate of the Secretary or an Assistant Secretary of TGPL contemplated by Section 3.01(d) of the Reimbursement
Agreement.

(5) The certificate of the Secretary or an Assistant Secretary of TXG contemplated by Section 3.01(e) of the Reimbursement
Agreement.

(6) The opinion of Molly S. Williams, substantially in the form of Exhibit C to the Reimbursement Agreement.

(7) The opinion of King & Spalding, special New York counsel to Issuing Bank and the Agent, substantially in the form of
Exhibit E to the Reimbursement Agreement.

(8) The certificate of an officer of the Borrower contemplated by Section 3.01(i) of the Reimbursement Agreement.

(9) The certificate of the chief financial officer of TGPL substantially in the form of Exhibit F to the Reimbursement
Agreement.

(10) The certificate of the chief financial officer of TXG substantially in the form of Exhibit G to the Reimbursement
Agreement.
</TABLE>
<PAGE> 103

EXHIBIT E

FORM OF OPINION OF SPECIAL NEW YORK
COUNSEL TO THE AGENT

{Letterhead of King & Spalding}

January __, 1994

To Bank of Montreal, as
Agent and Issuing Bank,
and to each of the Banks
party to the Reimbursement
Agreement described below

Transco Energy Company

Ladies and Gentlemen:

We have acted as special New York counsel for Bank of Montreal, acting for
itself, as Agent and as Issuing Bank, in connection with the execution and
delivery of the Reimbursement Agreement dated as of December 31, 1993 (the
"Reimbursement Agreement") among Transco Energy Company, a Delaware corporation
(the "Borrower"), each of you, Bank of Montreal, as Agent and as Issuing Bank.
This opinion is being delivered pursuant to Section 3.01(h) of the
Reimbursement Agreement. Capitalized terms used herein and not otherwise
defined herein shall have the meaning given to such terms in the Reimbursement
Agreement.

In that capacity, our engagement has been limited to the review of:

(1) A proposed execution copy of the Reimbursement Agreement,
distributed under cover of a memorandum from Bracewell & Patterson, L.L.P.,
dated January __, 1994.

(2) The forms of Guaranties attached as Exhibits A and B to such
proposed execution copy of the Reimbursement Agreement.

(3) The opinion of Molly S. Williams, Vice President, Associate
General Counsel and Assistant Secretary for the Borrower, dated January __,
1994, delivered pursuant to Section 3.01(f) of the Reimbursement Agreement (the
"Opinion of Borrower's Counsel").

We have not been involved in the preparation or negotiation of the documents we
have reviewed, and are not familiar with the transactions evidenced thereby or
with the Borrower, TGPL or TXG,
<PAGE> 104
except to the extent described in such documents. With respect to questions of
fact material to our opinions expressed below, we have, with your consent,
relied solely upon the documents we have examined without independent
investigation or verification. We have also assumed that the Reimbursement
Agreement and the Guaranties have been duly executed, delivered and completed,
with all necessary power and authority (corporate or otherwise), by all parties
thereto in form and substance identical (in all material respects) to,
respectively, the proposed execution copy of the Reimbursement Agreement
referred to above and the forms of Guaranties attached as Exhibits A and B to
such proposed execution copy of the Reimbursement Agreement.

Based on the foregoing, we are of the following opinion:

1. The Reimbursement Agreement is the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
its terms.

2. The TGPL Guaranty and the TXG Guaranty are the legal, valid
and binding obligations of TGPL and TXG, respectively, enforceable against TGPL
and TXG in accordance with their respective terms.

The opinions set forth above, are subject to the following qualifications:

(a) The enforceability of the Borrower's obligations under the
Reimbursement Agreement and the enforceability of TGPL's and TXG's respective
obligations under the Guaranties, are subject to the effect of any applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar law affecting creditors' rights generally.

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<PAGE> 105
(b) We express no opinion herein as to the enforceability of
Section 9.05 of the Reimbursement Agreement.

(c) The enforceability of the Borrower's obligations under the
Reimbursement Agreement and the enforceability of TGPL's and TXG's respective
obligations under the Guaranties, are subject to general principles of equity,
including (without limitation) concepts of materiality, reasonableness, good
faith and fair dealing (regardless of whether considered in a proceeding in
equity or at law). Such principles of equity are of general application and,
in applying such principles, a court, among other things, might not allow a
contracting party to exercise remedies in respect of a default deemed
immaterial, or might decline to order an obligor to perform covenants. Such
principles might be applied, for example, to provisions that purport to grant a
party the authority to exercise sole discretion or make conclusive
determinations. Further, pursuant to such equitable principles, the provisions
of each Guaranty providing for TGPL's or TXG's obligations to be unaffected by
certain activities relating to, and alterations of underlying agreements, might
be enforceable only to the extent that such activities and alterations are not
so material as to constitute a new contract among the parties.

(e) We express no opinion herein concerning the enforceability of
any indemnification provision of the Reimbursement Agreement to the extent
requiring indemnification of a party for actions or inactions constituting
violations of securities laws of the State of New York.

(f) We express no opinion herein concerning the creation,
validity, perfection or priority of any lien or security interest purported to
be granted pursuant to Section 6.02 of the Reimbursement Agreement.

Very truly yours

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<PAGE> 106

EXHIBIT F

SOLVENCY CERTIFICATE

SENIOR VICE PRESIDENT
TRANSCONTINENTAL GAS PIPE LINE CORPORATION

This certificate is delivered pursuant to Section 3.01(j) of the
Reimbursement Agreement (the "Reimbursement Agreement") dated as of December
31, 1993 among Transco Energy Company, a Delaware corporation ("TEC"), various
lenders parties thereto ("Lenders"), and Bank of Montreal, as Agent for such
Lenders and as Issuing Bank.

Capitalized terms used herein which are not defined herein shall have
the meanings assigned to them by or pursuant to the terms of the Reimbursement
Agreement.

1. I am, and at all times since December 31, 1992 have been, a
Senior Vice President and the chief financial officer of Transcontinental Gas
Pipe Line Corporation, a Delaware corporation ("Company"), and in such capacity
have responsibility for the management of the financial affairs of the Company
and the preparation of the financial statements of the Company. I have been
principally responsible for acting on behalf of the Company in connection with
the negotiation and consummation of the Guaranty dated as of December 31, 1993
executed by the Company in favor of the Lenders, the Issuing Bank and the Agent
("Guaranty"), including review of the affairs of the Company, meeting and
conferring with legal counsel to the Company, the Issuing Bank and the Agent
and its special counsel, and in furnishing information to the Lenders, the
Issuing Bank, and the Agent to be used in the analyses prepared by them.

2. I have carefully reviewed the contents of this Certificate,
and I have conferred with legal counsel for the purposes of discussing the
meaning of its contents.

3. In connection with the preparation for consummation of the
transactions contemplated by the Guaranty and the other Loan Documents, I have
reviewed income projections, balance sheet projections and cash flow
projections for the Company (collectively, the "Projections") for each of the
next three fiscal years of the Company, commencing with the fiscal year ending
December 31, 1994 and finishing with the fiscal year ending December 31, 1996.
The Projections give effect to the consummation of the transactions
contemplated by the Guaranty and the other Loan Documents, and were prepared on
the basis of information available at September 30, 1993. The Projections have
been prepared in a manner consistent with the Company's past practices in its
internal planning. I know
<PAGE> 107
of no facts which have occurred since September 30, 1993 which would lead me to
believe that the Projections have not been prepared on a reasonable basis.

Based on the foregoing, I have reached the following conclusions:

A. The execution and delivery of the Guaranty and the performance
of the Guaranty by the Company (including, without limitation, payment
thereunder) will not render the Company "insolvent" nor will the aggregate
liabilities of the Company (assuming that the Company pays its entire liability
under the Guaranty) exceed the fair saleable value of the assets of the
Company. In this context "insolvent" means that the present fair saleable
value of assets is less than the amount that will be required to pay the
probable liability (assuming, however, that the Company is required to pay on
the date hereof its entire liability under the Guaranty, even though such
payment is not probable) on existing debts as they become absolute and matured.
I also understand that the term "debts" as used in this Certificate includes
any legal liability, whether matured or unmatured, liquidated or unliquidated,
absolute, fixed or contingent.

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<PAGE> 108
conclusion, I understand that "unreasonably small capital" depends upon the
nature of the particular business or businesses conducted or to be conducted,
and I have reached my conclusion based on the present and anticipated needs for
capital of the businesses anticipated to be conducted by the Company and based
upon the Projections and other information described above.

I understand that the Lenders, the Issuing Bank and the Agent are
relying on the truth and accuracy of the foregoing in connection with the
extension of credit to TEC and in deciding to accept the Guaranty.

By: __________________________
Name: ________________________
Title: _______________________

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<PAGE> 109

EXHIBIT G

SOLVENCY CERTIFICATE

SENIOR VICE PRESIDENT
TEXAS GAS TRANSMISSION CORPORATION

This certificate is delivered pursuant to Section 3.01(k) of the
Reimbursement Agreement (the "Reimbursement Agreement") dated as of December
31, 1993 among Transco Energy Company, a Delaware corporation ("TEC"), various
lenders parties thereto ("Lenders"), and Bank of Montreal, as Agent for such
Lenders and as Issuing Bank.

Capitalized terms used herein which are not defined herein shall have
the meanings assigned to them by or pursuant to the terms of the Reimbursement
Agreement.

1. I am, and at all times since December 31, 1992 have been, a
Senior Vice President and the chief financial officer of Texas Gas Transmission
Corporation, a Delaware corporation ("Company"), and in such capacity have
responsibility for the management of the financial affairs of the Company and
the preparation of the financial statements of the Company. I have been
principally responsible for acting on behalf of the Company in connection with
the negotiation and consummation of the Guaranty dated as of December 31, 1993
executed by the Company in favor of the Lenders, the Issuing Bank and the Agent
("Guaranty"), including review of the affairs of the Company, meeting and
conferring with legal counsel to the Company, the Issuing Bank and the Agent
and its special counsel, and in furnishing information to the Lenders, the
Issuing Bank and the Agent to be used in the analyses prepared by them.

2. I have carefully reviewed the contents of this Certificate,
and I have conferred with legal counsel for the purposes of discussing the
meaning of its contents.

3. In connection with the preparation for consummation of the
transactions contemplated by the Guaranty and the other Loan Documents, I have
reviewed income projections, balance sheet projections and cash flow
projections for the Company (collectively, the "Projections") for each of the
next three fiscal years of the Company, commencing with the fiscal year ending
December 31, 1994 and finishing with the fiscal year ending December 31, 1996.
The Projections give effect to the consummation of the transactions
contemplated by the Guaranty and the other Loan Documents, and were prepared on
the basis of information available at September 30, 1993. The Projections have
been prepared in a manner consistent with the Company's past practices in its
internal planning. I know
<PAGE> 110
of no facts which have occurred since September 30, 1993 which would lead me to
believe that the Projections have not been prepared on a reasonable basis.

Based on the foregoing, I have reached the following conclusions:

A. The execution and delivery of the Guaranty and the performance
of the Guaranty by the Company (including, without limitation, payment
thereunder) will not render the Company "insolvent" nor will the aggregate
liabilities of the Company (assuming that the Company pays its entire liability
under the Guaranty) exceed the fair saleable value of the assets of the
Company. In this context "insolvent" means that the present fair saleable
value of assets is less than the amount that will be required to pay the
probable liability (assuming, however, that the Company is required to pay on
the date hereof its entire liability under the Guaranty, even though such
payment is not probable) on existing debts as they become absolute and matured.
I also understand that the term "debts" as used in this Certificate

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<PAGE> 111
includes any legal liability, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent.

B. The execution and delivery of the Guaranty and the other Loan
Documents and the performance of the Guaranty by the Company (including,
without limitation, payment thereunder) will not leave the Company with
Property remaining in its hands which would constitute unreasonably small
capital. In reaching this conclusion, I understand that "unreasonably small
capital" depends upon the nature of the particular business or businesses
conducted or to be conducted, and I have reached my conclusion based on the
present and anticipated needs for capital of the businesses anticipated to be
conducted by the Company and based upon the Projections and other information
described above.

By: ____________________________
Name: __________________________
Title: _________________________

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<PAGE> 112

EXHIBIT H

ASSIGNMENT AND ACCEPTANCE

Dated ______________, 199__

Reference is made to the Reimbursement Agreement dated as of December
31, 1993 (the "Reimbursement Agreement") among Transco Energy Company, a
Delaware corporation (the "Borrower"), the Banks (as defined in the
Reimbursement Agreement), and Bank of Montreal, as Agent for the Banks (the
"Agent") and as Issuing Bank. Terms defined in the Reimbursement Agreement are
used herein with the same meaning.

_______________________ (the "Assignor") and _________________________
__________ (the "Assignee") agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and
to all of the Assignor's rights and obligations under the Reimbursement
Agreement as of the date hereof which represents the percentage interest
specified on Schedule 1 of all outstanding rights and obligations under the
Reimbursement Agreement, including, without limitation, such interest in the
Assignor's Commitment and the Obligations owing to Assignor. After giving
effect to such sale and assignment, the Assignee's and Assignor's respective
Commitments and the respective Obligations owing to the Assignee and Assignor
will be as set forth in Section 2 of Schedule 1.

3. The Assignee (i) confirms that it has received a copy of the
Reimbursement Agreement and the Guaranties, together with copies of the
financial statements referred to in Section 4.01
<PAGE> 113
thereof and financial statements of TGPL and TXG and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (ii) agrees that it
will, independently and without reliance upon the Agent, the Issuing Bank, the
Assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Loan Documents; (iii) confirms that it
is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; (v) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Loan Documents are required to be performed by it as a Bank; {and
(vi) attaches the forms prescribed by the Internal Revenue Service of the
United States certifying as to the Assignee's status for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be made to the Assignee under the Reimbursement Agreement and the
Guaranties or such other documents as are necessary to indicate that all such
payments are subject to such rates at a rate reduced by an applicable tax
treaty.}(1)

5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Reimbursement
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Reimbursement Agreement.

6. Upon such acceptance and recording by the Agent, from and
after the Effective Date, the Agent shall make all payments under the
Reimbursement Agreement and the Guaranties in respect of the interest assigned
hereby to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under

____________________

(1) If the Assignee is organized under the laws of a jurisdiction
outside the United States.

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<PAGE> 114
the Reimbursement Agreement for periods prior to the Effective Date directly
between themselves.

7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.

{NAME OF ASSIGNOR:}

By: ____________________________
Name: _______________________
Title: ______________________

{NAME OF ASSIGNEE:}

By: ____________________________
Name: _______________________
Title: ______________________

Domestic Lending Office (and
address for notices):

{Address}

Eurodollar Lending Office:

{Address}

Accepted this ______ day of
__________________, 199__:

Bank of Montreal, as Agent

By: _________________________
Name: ____________________
Title: ___________________

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<PAGE> 115
SCHEDULE 1
TO
ASSIGNMENT AND ACCEPTANCE
Dated _____________, 199__

Section 1.

Percentage Interest: ________%

Section 2.

Assignee's Commitment $________

Aggregate Obligations owing to the Assignee $________

Assignor's Commitment $________

Aggregate Obligations owing to the Assignor $________

Section 3.

Effective Date(2):

____________________

(2) This date should be no earlier than the date of acceptance by the
Agent.
<PAGE> 116

EXHIBIT I

SUBORDINATION AGREEMENT

W I T N E S S E T H:

WHEREAS, from time to time, TEC and the Subsidiaries have lent and/or
may in the future lend money to each other; and

WHEREAS, TEC is a party to that certain Reimbursement Agreement dated
December 31, 1993 among TEC, the lenders parties thereto, and Bank of Montreal,
as Agent and as Issuing Bank (as it may be amended or modified from time to
time, the "Reimbursement Agreement", the terms defined therein and not
otherwise defined herein are used herein as therein defined); and

WHEREAS, Section 5.02(c) of the Reimbursement Agreement requires that
any debt of a Subsidiary to another Subsidiary be subordinated on specified
terms to all debt from time to time owed to TEC by the debtor Subsidiary and
any debt of TEC to a Subsidiary be subordinated on specified terms to all debt
from time to time owed to the Banks pursuant to the Loan Documents; and

WHEREAS, the ability of TEC to request Letter of Credit under the
Reimbursement Agreement is expected to be of material benefit to each of the
Subsidiaries; and

NOW, THEREFORE, as contemplated by Section 5.02(c) of the
Reimbursement Agreement, TEC and each Subsidiary hereby agree with the Banks as
hereinafter set forth.
<PAGE> 117
Section 1. Definitions. As used in this Agreement.

(a) "Senior Debt" means the Subsidiary Senior Debt and the TEC
Senior Debt.

(b) "Subordinated Debt" means the Subsidiary Subordinated Debt and
the TEC Subordinated Debt.

Section 2. TEC Subordination.

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<PAGE> 118
fully paid and satisfied and all financing arrangements between the Banks and
TEC have been terminated.

Section 3. Subsidiary Subordination.

(c) If any Subsidiary makes any payment of any character in
contravention of this Agreement, such payment shall be received in trust for
the benefit of, and upon demand shall be promptly paid

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<PAGE> 119
over or delivered and transferred to, TEC or the Agent for the account of the
Banks, as the case may be, for application to the payment of all Subsidiary
Senior Debt.

Section 5. No Liens. Each of TEC and the Subsidiaries hereby agrees that
it shall have no Lien to secure any Subordinated Debt.

Section 6. Continuing Nature of Subordination. This Agreement shall be
irrevocable and shall continue in effect until the Senior Debt and all
obligations under the Reimbursement Agreement shall have been paid in full and
all financing arrangements between TEC and the Banks under the Reimbursement
Agreement have been terminated. This is a continuing agreement of
subordination and the Banks may continue, at any time and without notice to any
Subsidiary, to extend credit or other financial accommodations and loan monies
to or for the benefit of TEC on the faith hereof.

Section 8. TEC's and Subsidiaries' Waivers. TEC and each Subsidiary agree
that the Agent and the Banks have made no warranties or representations with
respect to the due execution, legality, validity, completeness or
enforceability of the Reimbursement Agreement, the collectability of the Senior
Debt or otherwise and that the Banks shall be entitled to manage and supervise
their loans to TEC in their discretion.

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<PAGE> 120
waiver only with respect to the specific instance involved and shall in no way
impair the rights of the Agent or any Bank or the obligations of TEC to the
Agent or any Bank in any other respect at any other time.

Section 10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.

Section 12. Notices. All notices and other communications provided for
hereunder shall be in writing (including telecopier or telex communication) and
dispatched by registered or certified mail, telecopied, telexed or delivered,
(a) if to TEC or any Subsidiary at its address at 2800 Post Oak Boulevard, P.
O. Box 1396, Houston, Texas 77251, Attention: Treasurer, Telecopy:
(713)439-3648, Telex: 792013, Answerback: TRANSCO HOU A, and (b) if to the
Agent or any Bank at its respective address from time to time specified in or
pursuant to the Reimbursement Agreement. Each such notice or communication
shall be effective (i) if mailed, on the fifth Business Day following the date
it is dispatched by registered or certified mail, (ii) if delivered by hand,
upon delivery with written receipt, and (iii) if telecopied or telexed, when
receipt is confirmed by telephone or appropriate answer-back, respectively,
except that any notice or communication to the Agent shall not be effective
until received by the Agent.

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<PAGE> 121
IN WITNESS WHEREOF, this Agreement has been signed as of the 31st day
of December, 1993.

TRANSCO ENERGY COMPANY

By: ____________________________
Name: _______________________
Title: ______________________

SUBSIDIARIES:

TRANSCO GAS COMPANY

By: ____________________________
Name: _______________________
Title: ______________________

TRANSCONTINENTAL GAS PIPE LINE
CORPORATION

By: ____________________________
Name: _______________________
Title: ______________________

TEXAS GAS TRANSMISSION CORPORATION

By: ____________________________
Name: _______________________
Title: ______________________

-6-

<PAGE> 1
EXHIBIT 10.10

TEVCO SALES INCENTIVE PLAN

ARTICLE I
ESTABLISHMENT AND PURPOSE

1.1 Establishment of the Plan. Transco Energy Ventures Company
(the "Company") hereby establishes the TEVCO Sales Incentive Plan (the "Plan")
as of May 1, 1993, the terms and provisions of which are set forth below.

1.2 Purposes. The purposes of the Plan are to:

(a) Focus Participants, both as a team and individually, on
achieving the maximum value for Transco on the Sale of
the Company, thus benefiting Transco's shareholders; and

(b) Enhance the Company's ability to retain its key employees
through the Sale of the Company.

ARTICLE II
DEFINITIONS

2.1 Definitions. Whenever used herein, the following capitalized
terms shall have the meanings set forth below, unless expressly otherwise
provided.

(a) "AWARD PERCENTAGE" refers to a Participant's designated
percentage of the Sales Pool.

(b) "CAUSE" refers to the termination of an employee's employment
by Transco or an Affiliate due to (i) the willful and continued failure for
a period of 30 days by the employee to perform substantially all of the
employee's duties with his employer, following a demand by Transco or his
employer for substantial performance of his duties, which demand specifies
the manner in which the employee has not performed his duties, other than
any such failure resulting from the employee's incapacity due to physical
or mental illness, or (ii) the willful engaging by the employee in gross
misconduct materially and demonstrably injurious to his employer. For
purposes of this subparagraph, an act or failure to act on the employee's
part shall be considered "willful" if done or omitted to be done by the
employee other than in good faith and without reasonable belief that the
employee's action or omission was in the best interest of his employer.

(d) "COMPANY" refers to Transco Energy Ventures Company, a
Delaware corporation, and any successor thereto.

(e) "EMPLOYEE" refers to a regular or part-time regular employee
of the Company or a Subsidiary.
<PAGE> 2
(f) "FINAL AWARD" refers to (i) the amount payable to the
Participant with respect to the Sales Pool, which amount shall include his
Retention Bonus, or (ii) if a Sales Pool is not created by the Sale of the
Company (or the Sale of the Company has not occurred and the Plan is
terminated), the Participant's Retention Bonus amount, whichever is
applicable.

(g) "NET PROCEEDS" refers to the excess, if any, of (i) the cash
and the fair market value of any property other than cash, as determined by
the investment bankers retained by Transco, received on the Sale of the
Company (together, the "Gross Proceeds") over (ii) the sum of (1) $120
million, (2) the accounting, legal and investment bankers fees and expenses
and the costs of any environmental audits, base line studies or similar
environmental matters incurred in connection with the Sale of the Company,
as determined by Transco in good faith, and (3) all applicable taxes
(federal, state and other) that are anticipated to be payable with respect
to the Adjusted Sales Proceeds, as estimated by Transco in good faith, and,
where appropriate, determined as part of Transco's consolidated federal
income tax return. The Adjusted Sales Proceeds shall be the excess, if any,
of the Gross Proceeds over the sum of items (ii)(1) and (2) above.

(h) "PARTICIPANT" refers to an Employee whose participation in the
Plan is approved by the Committee.

(i) "PRESIDENT OF THE COMPANY" refers to the person who held that
position on April 1, 1993.

(j) "RETENTION BONUS" refers to the bonus established for a
Participant by Transco pursuant to Section 4.1, if he or she remains a
Participant through the Sale of the Company.

(k) "SALE OF THE COMPANY" refers to the closing date of the sale
or other disposition of (i) more than 50% of the total combined voting
power of all classes of Company stock, if, on such sale or disposition,
Transco ceases to have effective control of the Company's daily
operations; or (ii) substantially all of the power projects of the Company
and its Subsidiaries and substantially all of the other assets of the
Company (which includes the stock of the Subsidiaries) and its
Subsidiaries ("Asset Sale"). Whether and when, an Asset Sale has occurred
shall be determined in good faith by Transco.

(l) "SALES POOL" refers to 6% of the Net Proceeds.

(m) "SUBSIDIARY" refers to any subsidiary of the Company within
the meaning of Section 424(f) of the Code.

(n) "TRANSCO" refers to Transco Energy Company, a Delaware
corporation, and any successor thereto.

ARTICLE III
ELIGIBILITY AND PARTICIPATION

3.1 Participation. The President of the Company shall designate in
writing the Employees who are to be Participants, subject to the approval of
the Committee.

-2-
<PAGE> 3
ARTICLE IV
AWARD DETERMINATION

4.1 Awards. The President of the Company shall establish an Award
Percentage and a Retention Bonus amount for each Participant, subject to the
approval of the Committee, which shall be furnished in writing to the
Participant upon his or her designation as a Participant in the Plan. The Award
Percentage shall be coordinated with the Retention Bonus so that the Retention
Bonus amount is a "floor" payment, but it is not to be paid in addition to the
Award Percentage amount. The total of all Award Percentages shall not exceed
100%.

4.2 Decision Not to Sell. If Transco gives written notice to the
Participants that it has abandoned its efforts to effect the Sale of the
Company, each Employee who is a Participant on that date shall be automatically
100% vested in his Retention Bonus amount on that date.

4.3 Form and Timing of Payments. Payment of the Final Awards shall
be made by Transco by cheek as soon as is reasonably practicable following the
termination of the Plan.

ARTICLE V
TERMINATION OF EMPLOYMENT

5.1 Termination For Cause. In the event that a Participant's
employment with Transco and its Affiliates is terminated for Cause on or prior
to the Sale of the Company, the Participant shall not receive a Final Award.

5.2 Involuntary Termination. In the event that a Participant's
employment with Transco and its Affiliates is involuntarily terminated by
Transco or an Affiliate prior to the termination of the Plan, the Participant
shall be entitled to receive a Final Award upon the termination of the Plan.

5.3 Other Terminations. In the event that a Participant's
employment with Transco and its Affiliates terminates prior to the Sale of the
Company for any reason not covered in Section 5.1 or 5.2 above, including,
without limitation, due to death, retirement or disability, the Participant
shall not be entitled to receive a Final Award, unless, and to the extent,
Transco in its sole discretion waives this provision with respect to the
Participant.

ARTICLE VI
OTHER PROVISIONS

6.1 Plan Termination. The Plan shall automatically terminate on
the Sale of the Company, the date the Company gives written notice to the
Participants that it has abandoned its efforts to effect the Sale of the
Company, or December 31, 1994, whichever occurs first; however, such
termination shall not alter the rights, if any, of the Participants existing at
the date of such Plan termination.

6.2 Governing Law. The Plan shall be construed in accordance with
and governed by the laws of the State of Texas, without regard for principles
of conflict of laws.

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<PAGE> 4
6.3 Withholding Taxes. Transco shall have the right to deduct from
all payments under this Plan any federal, state, local or other taxes required
by law to be withheld with respect to such payments.

6.4 Designation of Beneficiaries. A Participant may designate a
beneficiary or beneficiaries who are to receive any Final Awards in the event
of the Participant's death prior to the payment of the same. All designations
shall be in writing and shall be effective only if and when delivered to
Transco during the lifetime of the Participant. A Participant may, from time to
time during his lifetime, change his beneficiary or beneficiaries by a written
instrument delivered to Transco.

In the event a Participant shall not designate a beneficiary or
beneficiaries as discussed above, or if for any reason such designation shall
be ineffective, the payment that otherwise would have been paid to such
Participant shall be paid to the Participant's contingent beneficiary or
contingent beneficiaries, if such be effectively designated, or if not so
designated, to the Participant's estate.

6.5 Employment. Nothing in this Plan nor any action taken by the
Company, Transco, or the Committee under the provisions hereof shall be
construed as a contract of employment between the Company or a Subsidiary and
an Employee or interfere with or limit in any way the right of the Company or a
Subsidiary to terminate any such Employee's employment at any time, nor confer
upon any such Employee any right to continue in the employ of the Company or a
Subsidiary.

6.6 Nontransferability. Except for the designation of
beneficiaries pursuant to Section 6.4 hereof, no right or interest of any
Participant under this Plan shall be assignable or transferable, pledged or
encumbered in any manner, or subject to any lien, directly, by operation of
law, or otherwise, including execution, levy, garnishment, attachment, pledge
and bankruptcy.

6.7 Plan Amendment. Transco may, in its sole discretion, amend
this Plan in whole or in part at any time, but no such amendment may adversely
reduce the rights of the Participants under the Plan.

ARTICLE VII
ADMINISTRATION OF THE PLAN

7.1 Administration. The good faith determination of the Committee
or Transco as to any disputed question arising under this Plan, including,
without limitation, questions of construction and interpretation, shall be
final, binding and conclusive upon all persons. Any person who accepts
participation in the Plan hereby agrees to be bound by all of the terms of the
Plan and to accept as final, binding and conclusive the determinations of the
Committee or Transco made in good faith.

7.2 Limitation of Liability. The Committee, Transco, and any other
person acting under the direction of either of the foregoing, shall not be
liable for any act or failure to act hereunder, except for gross negligence or
fraud, and the Company shall indemnify the Committee, Transco and such other
persons against all expenses, fines, judgments, and/or penalties incurred in
connection with any claim or proceeding seeking to impose such liability;
provided, however, nothing herein shall limit the ability of any person to
enforce the other provisions of this plan.

-4-

<PAGE> 1
EXHIBIT 10.11

TEVCO INCENTIVE PLAN
(as amended and restated)

ARTICLE I
ESTABLISHMENT AND PURPOSE

1.1 Restatement of the Plan. Transco Energy Ventures Company (the
"Company") hereby amends and restates the TEVCO Incentive Plan dated August 20,
1992 (the "Plan"), effective, subject to Article VIII, as of May 1, 1993. The
terms and provisions of the Plan, as hereby amended and restated, are set forth
below and shall supersede all provisions of the TEVCO Incentive Plan as in
existence immediately prior to the adoption of this Plan restatement (the
"Prior Plan").

1.2 Purposes. The purposes of the Plan are to:

(a) Focus Participants, both as a team and individually, on
achieving key strategic and financial objectives of
Transco and the Company, thus enhancing the value of the
Company and benefiting Transco shareholders;

(b) Encourage an entrepreneurial spirit on the part of
Participants by offering them a competitive bonus award
opportunity commensurate with individual contribution and
the Company's performance; and

ARTICLE II
DEFINITIONS

2.1 Definitions. Whenever used herein, the following capitalized
terms shall have the meanings set forth below, unless expressly otherwise
provided.

(a) "ADMINISTRATIVE GUIDELINES" refers to such term as defined in
Section 7.1 hereof.

(b) "AFFILIATE" means any "subsidiary" of Transco within the
meaning of Section 424(f) of the Code.

(c) "AWARD PERCENTAGE TARGET" refers to a Participant's targeted
percentages of the Incentive Pool and of the Prior Plan Pool, as provided
by the Administrative Guidelines for the Plan Year.

(d) "BOARD" refers to the Board of Directors of Transco.
<PAGE> 2
(e) "CAUSE" refers to the termination of an employee's employment
by Transco or an Affiliate due to (i) the willful and continued failure for
a period of 30 days by the employee to perform substantially all of the
employee's duties with his employer, following a demand by Transco or his
employer for substantial performance of his duties, which demand specifies
the manner in which the employee has not performed his duties, other than
any such failure resulting from the employee's incapacity due to physical
or mental illness, or (ii) the willful engaging by the employee in gross
misconduct materially and demonstrably injurious to his employer. For
purposes of this subparagraph, an act or failure to act on the employee's
part shall be considered "willful" if done or omitted to be done by the
employee otherwise than in good faith and without reasonable belief that
the employee's action or omission was in the best interest of his employer.

(f) "CHANGE IN CONTROL" refers to such term as defined in the
Prior Plan.

(g) "COMMITTEE" refers to the Compensation Committee of the Board
of Directors of Transco.

(h) "DISABILITY" refers to disability as defined in the Transco
Energy Company Long-Term Disability Plan as amended from time to time.

(i) "DEFERRAL ACCOUNT" refers to such term as defined in the Prior
Plan.

(j) "EARLY RETIREMENT" refers to early retirement pursuant to the
Transco Energy Company Retirement Plan, as amended from time to time.

(k) "EMPLOYEE" refers to a regular or part-time regular, salaried
employee of the Company or a Subsidiary.

(l) "FINAL AWARD" refers to the total amount payable to a
Participant with respect to the Incentive Pool and the Prior Plan Pool as
provided in the Plan.

(m) "FINAL AWARD PERCENTAGE" refers to such term as defined in
Section 4.2.

(n) "INCENTIVE POOL" refers to $1,030,080.

(o) "NORMAL RETIREMENT" refers to Normal Retirement as defined in
the Transco Energy Company Retirement Plan as amended from time to time.

(p) "PARTICIPANT" refers to an Employee who is selected by the
Committee to participate in the Plan for the Plan Year.

(q) "PLAN YEAR" refers to the period beginning on January 1, 1993
and ending the earlier of (i) the date that immediately precedes the Sale
of the Company or (ii) December 31, 1993.

(r) "PRIOR PLAN" refers to such term as defined in Section 1.1.

(s) "PRIOR PLAN POOL" refers to $728,772.

(t) "PRESIDENT OF THE COMPANY" refers to the person who held that
position on April 1, 1993.

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<PAGE> 3
(u) "SALE OF THE COMPANY" refers to the closing date of the sale
or other disposition of (i) more than 50% of the total combined voting
power of all classes of Company stock, if, on such sale or disposition,
Transco ceases to have effective control of the Company's daily
operations; or (ii) substantially all of the power projects of the Company
and its Subsidiaries and substantially all of the other assets of the
Company (which includes the stock of its Subsidiaries) and its
Subsidiaries ("Asset Sale"). Whether, and when, an Asset Sale has occurred
shall be determined in good faith by Transco.

(v) "SUBSIDIARY" refers to any subsidiary of the Company within
the meaning of Section 424(f) of the Code.

(w) "TRANSCO" refers to Transco Energy Company, a Delaware
corporation, and any successor thereto.

ARTICLE III
ELIGIBILITY AND PARTICIPATION

3.1 Participation. As soon as reasonably practicable after the
beginning of the Plan Year, the President of the Company shall designate in
writing (individually or by position) the Employees who are to be Participants
with respect to the Plan Year, subject to the approval of the Committee;
provided, however, the President of the Company may determine at any time prior
to the making of Final Awards with respect to the Plan Year to add such
additional Participant(s), subject to the approval of the Committee.

ARTICLE IV
AWARD DETERMINATION

4.1 Target Award Percentages. As soon as reasonably practicable
after the beginning of the Plan Year, the President of the Company shall
establish an Award Percentage Target for each Participant (other than for
himself) for the Incentive Pool and the Prior Plan Pool, which, upon approval
by the Committee, shall be stated in the Administrative Guidelines for the Plan
Year. The President of the Company shall have awarded to him an Award
Percentage Target for each pool equal to that percentage established for him
with respect to such pools in the Administrative Guidelines for the 1992 year.

4.2 Participants' Final Awards. On or as soon as reasonably
practicable after the end of the Plan Year, the President of the Company shall
determine each Participant's (other than his own) Final Award Percentage, if
any, that will be applicable to the Incentive Payments Pool and the Prior Plan
Pool, and shall submit such determination to the Committee for its approval.
The Committee shall act upon (accept or reject) the recommendation of the
President of the Company within 30 days of the end of the Plan Year. The Final
Award Percentage for the President of the Company shall be his Award Percentage
Target. The total of all Final Award Percentages, including the President of
the Company's, applicable to the Incentive Pool and the Prior Plan Pool shall
not exceed 100%, respectively.

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<PAGE> 4
4.3 Payments From Deferral Accounts. As soon as reasonably
practicable following the end of the Plan Year, and in no event later than 30
days after the end of the Plan Year, a Participant's Deferral Account, with
interest thereon as provided in the Prior Plan, shall be paid to the
Participant by Transco in a lump sum by check.

4.4 Form and Timing of Final Award Payments. Subject to Article V
below, payment of the Final Awards shall be made by Transco by check as soon as
is reasonably practicable following the approval of the Final Awards by the
Committee and in no event later than 30 days after the end of the Plan Year.

ARTICLE V
TERMINATION OF EMPLOYMENT

5.1 Transfers Within Transco. If during the Plan Year a
Participant transfers from the Company or its Subsidiaries but remains an
employee of Transco or any Affiliate at the end of the Plan Year, any Final
Award for such Plan Year shall be paid to such Participant on a prorated basis
based on the number of days the Participant was employed on a full-time basis
by the Company and its Subsidiaries during the Plan Year, unless, and to the
extent, the Committee in its discretion waives such proration.

5.2 Termination of Employment due to Disability, Death, Retirement
or Involuntary Termination. In the event a Participant's employment with
Transco and its Affiliates is terminated prior to the end of the Plan Year by
reason of Disability (a Participant who incurs a Disability shall be treated as
terminated for purposes of this Plan, whether or not such Participant is
treated as terminated for other Company purposes), death, Early Retirement or
Normal Retirement or is terminated involuntarily by Transco or an Affiliate
other than for Cause, any Final Award for such Plan Year shall be paid to such
Participant on a prorated basis based on the number of days the Participant was
employed on a full-time basis by the Company and its Subsidiaries in the Plan
Year, unless, and to the extent, the Committee in its discretion waives such
proration.

5.3 Termination for Cause. In the event that a Participant's
employment with Transco and its Affiliates is terminated for Cause prior to the
end of the Plan Year, the Participant shall not receive any Final Award for the
Plan Year and shall forfeit any amounts in the Deferral Account established for
such Participant's benefit.

5.4 Other Terminations. In the event that a Participant's
employment with Transco and its Affiliates terminates prior to the end of the
Plan Year for any reason not covered in Section 5.2 or 5.3 above; including,
without limitation, a voluntary termination by the Participant, the Participant
shall not be entitled to receive a Final Award for the Plan Year, unless, and
to the extent, the Committee in its discretion waives this provision with
respect to the Participant. However, the Participant shall be entitled to
receive his or her Deferral Account, if any.

ARTICLE VI
OTHER PROVISIONS

6.1 Plan Termination. The Plan shall automatically terminate on
the Sale of the Company; however, such termination shall not alter the rights
of the Participants existing at the date of such termination.

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<PAGE> 5
6.2 Governing Law. The Plan shall be construed in accordance with
and governed by the laws of the State of Texas, without regard for principles
of conflict of laws.

6.3 Withholding Taxes. Transco and the Company shall have the
right to deduct from all payments under this Plan any federal, state, local or
other taxes required by law to be withheld with respect to such payments.

6.4 Designation of Beneficiaries. A Participant may designate a
beneficiary or beneficiaries who are to receive any Final Awards and amounts
held any Deferral Account established by the Company for such Participant in
the event of the Participant's death prior to the payment of the same. All
designations shall be in writing and shall be effective only if and when
delivered to Transco during the lifetime of the Participant. A Participant may,
from time to time during his lifetime, change his beneficiary or beneficiaries
by a written instrument delivered to Transco.

6.5 Employment. Nothing in this Plan nor any action taken by the
Company, the Board or the Committee under the provisions hereof shall be
construed as a contract of employment between the Company or a Subsidiary and
an Employee or interfere with or limit in any way the right of the Company or a
Subsidiary to terminate any such Employee's employment at any time, nor confer
upon any such Employee any right to continue in the employ of the Company or a
Subsidiary.

6.7 Plan Amendment. Transco may, in its sole discretion, amend
this Plan in whole or in part at any time, except that no amendment may
materially reduce the benefits under the Plan.

ARTICLE VII
ADMINISTRATION OF THE PLAN

7.1 Administrative Guidelines. The Plan shall be implemented and
administered in accordance with a set of guidelines ("Administrative
Guidelines") that are not inconsistent with the provisions hereof as may be
established by the Committee or Transco. The Administrative Guidelines in
effect for the Plan Year shall be attached hereto as Appendix A and may not be
changed in a manner that would materially reduce the benefits under the Plan.

7.2 Administration. The good faith determination of the Committee
or Transco as to any disputed question arising under this Plan, including,
without limitation, questions of construction and interpretation, shall be
final, binding and conclusive upon all persons. Any person who accepts
participation in the Plan hereby agrees to be bound

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<PAGE> 6
by all of the terms of the Plan and the Administrative Guidelines, and to
accept as final, binding and conclusive the determinations of the Committee or
Transco made in good faith.

7.3 Limitation of Liability. The Board, the Committee, and
Transco, and any other person acting under the direction of any of the
foregoing, shall not be liable for any act or failure to act hereunder, except
for gross negligence or fraud, and the Company shall indemnify the Board, the
Committee, Transco and such other persons against all expenses, fines,
judgments, and/or penalties incurred in connection with any claim or proceeding
seeking to impose such liability; provided, however, nothing herein shall limit
the ability of any person to enforce the other provisions of this plan.

ARTICLE VIII
EFFECTIVENESS OF RESTATEMENT

8.1 Plan Restatement. Notwithstanding anything herein to the
contrary, unless the Sale of the Company occurs prior to January 1, 1994, or
Transco, by action of its Chief Executive Officer, amends this Section 8.1
prior to that date, this amendment and restatement of the Plan shall be deemed
void ab initio, and the terms of the Prior Plan shall be deemed to have
continued in full force and effect without change or interruption.

-6-

<PAGE> 1

EXHIBIT 10.12

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT, made and entered into effective as of March
25, 1992 (the "Agreement"), is by and between TRANSCO ENERGY COMPANY, a Delaware
corporation (the "Company"), and Robert W. Best (the "Employee").

W I T N E S S E T H:

WHEREAS, Employee has rendered outstanding service to the Company and
Employee's experience and knowledge of the affairs of the Company, and his
reputation and contacts are extremely valuable to the Company; and

WHEREAS, in recognition of Employee's service to the Company and as an
inducement to Employee to continue in the employ of the Company, the Company
has offered Employee, among other things, this Agreement, and Employee has
accepted the Company's offer;

NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and Employee
hereby agree as follows:

1. Term. This Agreement shall commence on the date hereof and shall
continue until December 31, 1994; provided, however, that commencing on January
1, 1994 and on each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 90 days prior
to such January 1st date, the Company shall have given written notice to
Employee of the Company's election that this Agreement shall terminate on the
December 31 next following the January 1st in respect of which such notice is
given; and provided further, that this Agreement shall automatically terminate
in all events on the earlier of Employee's death or 65th birthday if it has not
been earlier terminated as provided above. Notwithstanding the foregoing
however, termination of this Agreement pursuant to the preceding sentence
during the Agreement Period (as defined below in Section 2), whether or not the
Employee's employment shall have been terminated prior to the termination of
this Agreement, shall not alter or impair the rights of Employee arising
hereunder as a consequence of a Change in Control (as defined below in Section
8) or the termination of the Employee's employment.

2. Termination of Employment. Employee shall be entitled to the
benefits specified in Sections 3(iii) and 4
<PAGE> 2
hereof if during the Agreement Period Employee's employment is terminated,
unless such termination is (a) due to Employee's death, (b) by the Company for
Cause or Employee's Disability or (c) by Employee for other than Good Reason
and without the consent of the Company's Board of Directors, in which event
Employee shall not be entitled to any benefits under this Agreement except as
specified in Sections 3(i) and 3(ii) hereof. For purposes of this Agreement,
the "Agreement Period" shall mean, with respect to termination of Employee's
employment prior to a Change in Control, the period of time this Agreement is
in effect until its termination pursuant to Section 1 above and, with respect
to termination of Employee's employment on or after a Change in Control, the
period of time beginning with the Change in Control and ending on the earlier
to occur of Employee's 65th birthday or the third anniversary of such Change in
Control. If the Employee's employment with the Company terminates prior to the
date on which a Change in Control occurs, and if it is reasonably demonstrated
by the Employee (i) that such termination of employment by the Company was at
the request of a third party who has taken steps reasonably calculated to
effect a Change in Control (a "Third Party") or otherwise arose in connection
with or anticipation of a Change in Control or (ii) that such termination of
employment by the Employee was under circumstances which would have constituted
Good Reason if the circumstances arose after a Change in Control and either
such circumstances were created at the request of a Third Party or such
circumstances arose in connection with or anticipation of a Change in Control,
then for all purposes of this Agreement the Change in Control shall be deemed
to have occurred, and thus the Agreement Period shall be deemed to have
commenced, on the date immediately prior to the date of such termination of
employment.

(i) DISABILITY. If, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have been absent from
Employee's duties with the Company on a full-time basis for 150
consecutive calendar days, and within 30 days after written Notice of
Termination (as defined hereinafter) Employee shall not have returned
to the full-time performance of Employee's duties, the Company may
terminate Employee's employment for "Disability"; provided, however, a
termination of Employee's employment for Disability for purposes of
this Agreement shall not alter or impair Employee's rights as a
"disabled employee" under any of the Company's employee benefit plans.

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<PAGE> 3
(ii) CAUSE. The Company may terminate Employee's employment
for Cause. For the purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder only upon (A) the
willful and continued failure by Employee to perform substantially
Employee's duties with the Company, other than any such failure
resulting from Employee's incapacity due to physical or mental
illness, which failure continues unabated after a demand for
substantial performance is delivered to Employee by the Company's
Board of Directors that specifically identifies the manner in which
such Board of Directors believes that Employee has not substantially
performed Employee's duties or (B) Employee willfully engages in gross
misconduct materially and demonstrably injurious to the Company. For
purposes of this paragraph, an act or failure to act on the Employee's
part shall be considered "willful" if done or omitted to be done by
Employee otherwise than in good faith and without reasonable belief
that Employee's action or omission was in the best interest of the
Company. Notwithstanding the foregoing, Employee shall not be deemed
to have been terminated by the Company for Cause unless and until the
Company shall have delivered to Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Company's Board of Directors, at a meeting of
the Company's Board of Directors called and held for the purpose
(after reasonable notice to Employee and an opportunity for Employee,
together with Employee's counsel, to be heard before the Company's
Board of Directors) finding that in the good faith opinion of the
Company's Board of Directors Employee was guilty of conduct set forth
in clauses (A) or (B) of the second sentence of this subsection (ii)
and specifying the particulars thereof in reasonable detail.

(iii) GOOD REASON. Employee may terminate Employee's
employment for Good Reason. For purposes of this Agreement "Good
Reason" shall mean any of the following:

(A) Employee is assigned any duties inconsistent
with Employee's positions, duties, responsibilities and status
with the Company immediately prior to such assignment, or
Employee's

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<PAGE> 4
reporting responsibilities, titles or offices are changed from
those in effect immediately prior to such change, or Employee
is removed from or is not re-elected or appointed to any of
such responsibilities, titles, offices or positions, except in
each case in connection with the termination of Employee's
employment for Cause, or Disability, or as a result of
Employee's death, or by Employee for other than Good Reason
and excluding an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the
Company promptly after receipt of the notice thereof given by
Employee;

(B) Employee's annual rate of base salary is
reduced from that in effect immediately prior to such
reduction (such annual rate of base salary, prior to such
reduction, is referred to hereinafter as the "Base Salary");

(C) the Company fails to continue the Company's
Incentive Compensation Plan as the same may be modified from
time to time, but substantially in the form in effect as of
the date of this Agreement (the "Incentive Compensation
Plan"), or fails to continue Employee as a participant in the
Incentive Compensation Plan, or reduces Employee's annual
grant guideline of his Base Salary ("Incentive Percentage")
under the Incentive Compensation Plan from that in effect
immediately prior to this Agreement or as increased thereafter
with respect to Employee after the date of this Agreement;

(D) the Company's principal executive offices are
relocated to a location outside the greater Houston area, or
the Company requires Employee to relocate anywhere other than
the location of the Company's principal executive offices
except for required travel on the Company's business to an
extent substantially consistent with Employee's past business
travel obligations to the Company, or, in the event Employee
consents to any such relocation of the Company's principal
executive offices, the Company fails to pay or reimburse
Employee for all reasonable moving expenses incurred by
Employee relating to a change of Employee's principal
residence in connection with such relocation and to indemnify
Employee against any loss (defined as the difference between
the actual sale price of such residence and the fair market
value

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<PAGE> 5
of such residence as determined by a member of the Society of
Real Estate Appraisers designated by Employee and reasonably
satisfactory to the Company) realized on the sale of
Employee's principal residence in connection with any such
change of residence;

(E) the Company fails to continue in effect any
benefit or compensation plan, including, but not limited to,
the Company's 1991 Incentive Plan, retirement plan,
supplemental retirement plan, thrift plan, life insurance
plan, health and accident plan, sick leave policy and/or
disability plan, in which Employee is participating
immediately prior to such discontinuation (provided,
however, a failure to continue the Tran$tock plan after all
shares in the suspense account thereunder have been released
shall not be a failure to continue a plan for purposes of this
subparagraph (E)), or plans providing Employee with
substantially similar benefits, the Company takes any action
that would adversely affect Employee's participation in or
reduce Employee's benefits under any of such plans or deprive
Employee of any fringe benefit enjoyed by Employee immediately
prior to such action (excluding any such action by the Company
which is required by law, or if made prior to a Change in
Control but not in connection therewith or in anticipation
thereof, amendments to benefit plans or benefits having a
broad-based effect), or the Company fails to provide Employee
with the number of paid vacation days to which Employee is
then entitled in accordance with the Company's normal vacation
policy in effect immediately prior to a change in such policy;

(F) the Company fails to obtain the assumption of
the obligation to perform this Agreement by any successor as
contemplated in Section 6 hereof;

(G) any purported termination of Employee's
employment by the Company that is not effected pursuant to a
Notice of Termination satisfying the requirement of
subparagraph (iv) below and, if applicable, the procedures
described in subparagraph (ii) above; and for purposes of this
Agreement, no such purported termination shall be effective;

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<PAGE> 6
(H) the amendment, modification or repeal of any
provision of the Articles of Incorporation or Bylaws of the
Company that was in effect immediately prior thereto, if such
amendment, modification or repeal would materially adversely
affect Employee's rights to indemnification by the Company; or

(I) the Company shall violate or breach any
obligation of the Company, regardless whether such obligation
be set forth in the Bylaws of the Company and/or in a separate
agreement entered into between the Company and Employee, to
indemnify Employee against any claim, loss, expense or
liability sustained or incurred by Employee by reason, in
whole or in part, of the fact that Employee is or was an
officer or director of the Company.

(iv) NOTICE OF TERMINATION. Any termination by the the Company
pursuant to subparagraphs (i) or (ii) above or by Employee pursuant to
subparagraph (iii) above shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.

(v) DATE OF TERMINATION. "Date of Termination" shall mean
(A) if Employee is terminated for Disability, 30 days after Notice of
Termination is given, provided that Employee shall not have returned
to the performance of Employee's duties on a full-time basis during
such 30-day period, (B) if Employee's employment is terminated
pursuant to subparagraph (iii) above, the date specified in the Notice
of Termination and (C) if Employee's employment is terminated for any
other reason, the date on which a Notice of Termination is given.

3. Compensation During Disability or Upon Termination.

(i) If during the Agreement Period Employee fails
to perform Employee's normal duties as a result of

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<PAGE> 7
incapacity due to physical or mental illness, Employee shall continue
during the period of disability to receive Employee's full Base Salary
at the rate then in effect and any awards, deferred and non-deferred,
payable during such period of disability under the Incentive
Compensation Plan, less any amounts paid to Employee during such
period of disability pursuant to the Company's sick-leave program
until Employee's employment is terminated for Disability pursuant to
Section 2(i) hereof. This Section 3(i) shall not reduce or impair
Employee's rights to terminate his employment for Good Reason or with
the consent of the Board of Directors of the Company as otherwise
provided herein.

(ii) If during the Agreement Period Employee's
employment shall be terminated for Cause, the Company shall pay
Employee Employee's earned but unpaid Base Salary through the Date of
Termination at the rate in effect at the time of Notice of Termination
is given and the Company shall have no further obligations to Employee
under this Agreement except those arising hereunder prior to the Date
of Termination.

(iii) If during the Agreement Period the Company
shall terminate Employee other than pursuant to Section 2(i) or 2(ii)
hereof, or if during the Agreement Period Employee shall terminate
Employee's employment either for Good Reason or with the consent of
the Board of Directors of the Company, then, subject to Section 4, the
Company shall pay to Employee, in a single lump sum by certified or
bank cashier's check, the aggregate sum of the following amounts
specified in subparagraphs (A) through (F) below and shall provide
Employee the continued welfare benefits as provided in subparagraph
(G) below:

(A) an amount equal to the present value of
the aggregate amount of Base Salary that would have been paid
Employee, if such Base Salary were paid monthly for the period
beginning immediately following the Date of Termination and
continued through the last day of the Agreement Period (such
deemed period being the "Employment Period"), with such
present value being determined using an interest rate equal to
120% of the Pension Benefit Guaranty Corporation interest rate
in effect for the month preceding the Date of Termination for
an immediate lump sum upon a plan termination;

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<PAGE> 8
(B) the sum of (x) an amount equal to the
product of (i) the amount determined under subparagraph (A)
above and (ii) Employee's Incentive Percentage under the
Incentive Compensation Plan and (y) an amount equal to the
product of (i) Employee's Base Salary, (ii) Employee's
Incentive Percentage under the Incentive Compensation Plan and
(iii) the quotient obtained by dividing (I) the number of days
in the current plan year under the Incentive Compensation Plan
which have elapsed on the Date of Termination by (II) 365;

(C) an amount equal to that portion of
Employee's Base Salary earned, and vacation pay vested for the
prior year and accrued for the current year, in each case, to
the Date of Termination but not paid, and all other amounts
previously deferred by Employee or earned but not paid as of
such date under all Company incentive or pay plans or
programs;

(D) an amount equal to the product of (a) the
value of all outstanding Performance Units previously awarded
Employee, with the value of such Performance Units being
determined on the basis that (i) all Performance Periods
relating to such Performance Units ended on the Date of
Termination and (ii) all performance objectives, including
individual percentages, if any, for all such Performance
Periods were 100% achieved and (b) a fraction, the numerator
of which is equal to the number of days that have elapsed
during the applicable Performance Period as of the Date of
Termination and the denominator of which is equal to the total
number of days in such applicable Performance Period;

(E) an amount equal to the sum of (i) the
product of (x) the sum of (I) the Employment Period (expressed
in years and fractional parts thereof in calendar months,
rounded up to the next full month) and (II) the number of full
months in the current plan year which have elapsed on the Date
of Termination, divided by 12 and (y) the employer-derived
benefits allocated to Employee under the Company's qualified
and nonqualified

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<PAGE> 9
individual account balance plans, programs, or arrangements
(collectively, the "DC Plans"), including, without limitation,
the Thrift Plan, Tran$tock and Benefits Restoration Plan (or
any successor DC Plans in effect on the Date of Termination),
for the plan year ending immediately prior to or with Date of
Termination, determined, if necessary, on the assumptions that
Employee was a participant in each such DC Plan for the entire
period of such prior plan year and participated to the maximum
extent permitted under each such DC Plan, and (ii) the amount
of any employer-derived benefits allocated to Employee under
such DC Plans that are forfeited by Employee upon the Date of
Termination pursuant to the terms of such DC Plans;

(F) an amount equal to the difference
between the present value on the Date of Termination of (i)
the retirement benefit that would have been payable to
Employee for his life under the Company's qualified and
nonqualified defined benefit plans, programs or arrangements
(collectively, the "DB Plans"), including, without limitation,
the Retirement Plan and Supplemental Retirement Agreement (or
any successor DB Plans in effect on the Date of Termination)
in the form of a Normal Retirement Annuity (as such terms are
defined in the Company's Retirement Plan) beginning at age 65,
had Employee been a fully vested participant under each such
DB Plan and remained a covered participant through the end of
the Employment Period and received his Base Salary and full
Incentive Compensation under the Incentive Compensation Plan
for such period calculated using the Incentive Percentage, and
(ii) Employee's vested retirement benefit (payable in the form
of a Normal Retirement Annuity beginning at age 65) accrued as
of such date under the DB Plans; the determination of such
present value amounts shall be based on the methods and
assumptions, including interest rate, set forth in the
Retirement Plan and in effect on the Date of Termination or,
if none are set forth therein, utilized thereunder by such
plan's actuary in the most recent valuation report for said
plan; and

(G) the Company shall at all times maintain
in full force and effect for the continued benefit of Employee
and his eligible dependents

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<PAGE> 10
during the Employment Period all group life, accidental death
and dismemberment, long-term disability and medical insurance
benefits available to Employee and his eligible dependents by
virtue of being an employee of the Company as of the Date of
Termination, provided that Employee's continued participation
is possible under the general terms and provisions of such
plans and programs (or any successor thereto), and provided
further, that Employee pays the regular active employee
contribution, if any, required by such programs in excess of
the allowance therefor under the Company's Beneflex Plan (or
any successor thereto). In the event that participation by
Employee in any such plan or program after the Date of
Termination is barred pursuant to the terms thereof, the
Company shall obtain comparable coverage under individual
policies with Employee paying an amount of the premium in
excess of the allowance therefor under the Company's Beneflex
Plan (or any successor thereto) not greater than that which he
would have paid under the Company's group program for active
employees and in any event at the end of the Employment Period
(except as provided below with respect to COBRA benefits, if
elected by Employee), the Company shall arrange to make
available to Employee and his eligible dependents comparable
insurance coverage by enabling Employee to convert his
coverage under the group plans or programs to an individual
policy for the benefit of Employee and his eligible
dependents, or to assume any individual policies, with
Employee paying the full premiums after the end of the
Employment Period; provided, however, if Employee retires on
the Date of Termination, Employee's participation shall
continue in such group plans and programs to the extent such
group plans and programs provide benefits for retirees;
provided further, however, nothing in this subparagraph (G)
shall operate reduce, or be construed as reducing, Employee's,
(or a beneficiary's) group health plan continuation rights
under COBRA in any manner and upon the end of the Employment
Period Employee (or his beneficiary(ies)) will be entitled to
elect COBRA continuation coverage for the full 18-, 29- or
36-month period, whichever may be applicable, and at the end
of such COBRA continuation period, if elected, the Company
shall arrange to make available to Employee and his eligible
dependents comparable health insurance coverage by enabling
Employee to convert

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<PAGE> 11
his coverage under the group plans or programs to an
individual policy for the benefit of Employee and his eligible
dependents, or to assume any individual policies, with
Employee paying the full premiums after the end of the COBRA
continuation period. Notwithstanding anything therein to the
contrary, in the event Employee is taxable on any health
benefits received under a Company plan, the Company provided
coverage for Employee or his dependents under any such health
plan or the Company-paid premium for coverage under an
individual policy obtained by the Company, the Company shall
"gross-up" the payments hereunder to Employee in the same
manner as provided in Section 4 below with respect to excess
parachute payments so that Employee's "net" benefit received
under this subparagraph (G) is not diminished by any such
taxes that are imposed with respect to the same or the
Company's gross-up hereunder with respect to such taxes. In
the event Employee becomes covered by another employer's group
plan or programs during the Employment Period, the Company's
plans or programs shall be liable for benefits only to the
extent such benefits are not covered by the subsequent
employer's plans or programs.

4. Gross-Up of Parachute Payments. (i) To provide Employee
with adequate protection in connection with his ongoing employment
with the Company, this Agreement provides Employee with various
benefits in the event of termination of Employee's employment with the
Company during the Agreement Period. If Employee's employment is
terminated following a change in control of the Company within the
meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), a portion of those benefits could be
characterized as "excess parachute payments" within the meaning of
Section 280G of the Code. The parties hereto acknowledge that the
protections set forth in this Section 4 are important, whether or not
a change in control of the Company occurs, and it is agreed that
Employee should not have to bear the burden of any excise tax that
might be levied under Section 4999 of the Code, in the event that a
portion of his benefits payable to Employee pursuant to this Agreement
are treated as an excess parachute payment. The parties, therefore,
have agreed as set forth in this Section 4.

(ii) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that

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<PAGE> 12
any payment or distribution by the Company to or for the benefit of
Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section
4) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the
Employee with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall pay an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

(iii) Subject to the provisions of Section 4(iv),
all determinations required to be made under this Section 4, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by an independent public accounting firm
with a national reputation that is selected by Employee (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and to Employee within 15 business
days after the receipt of notice from Employee that there has been a
Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the change in control of
the Company, Employee shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 4, shall be paid by the Company to Employee
within five days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is payable by
Employee, it shall furnish Employee with a written opinion that
failure to report the Excise Tax on Employee's applicable federal
income tax return would not result in the imposition of a negligence
or similar penalty. Any

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<PAGE> 13
determination by the Accounting Firm shall be binding upon the Company
and Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. If the Company exhausts its remedies pursuant to Section
4(iv) and Employee thereafter is required to make a payment of an
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Employee.

(iv) Employee shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
10 business days after Employee is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. Employee shall not pay
such claim prior to the expiration of the 30-day period following the
date on which Employee gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies Employee in
writing prior to the expiration of such period that it desires to
contest such claim, Employee shall:

(A) give the Company any information
reasonably requested by the Company relating to such claim;

(B) take such action in connection with
contesting such claim as the Company shall reasonably request
in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company;

(D) permit the Company to participate in
any proceedings relating to such claim;

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<PAGE> 14
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, for any Excise Tax or income
tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 4(iv),
the Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as Employee shall determine; provided, further, that
if the Company directs Employee to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
Employee, on an interest-free basis, and shall indemnify and hold
Employee harmless on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income
with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the
taxable year of Employee with respect to which such contested amount
is claimed to be due is limited solely to such contested amount. In
addition, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and Employee shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.

(v) If, after the receipt by Employee of an amount
advanced by the Company pursuant to Section 4(iv), Employee becomes
entitled to receive any refund with respect to such claim, Employee
shall (subject to the Company's complying with the requirements of
Section 4(iv)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited

-14-
<PAGE> 15
thereon after taxes applicable thereto). If after the receipt by
Employee of an amount advanced by the Company pursuant to Section
4(iv), a determination is made that Employee shall not be entitled to
any refund with respect to such claim and the Company does not notify
Employee in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.

5. Full Settlement; Mitigation of Damages and Expenses. (i)
Employee hereby undertakes and agrees that if Section 3(iii) shall be
applicable and during the Employment Period Employee accepts employment with
another employer, Employee shall pay to the Company in respect of each month
during which Employee is so employed during the Employment Period an amount
equal to the monthly "net base salary" payable to Employee by such other
employer for that month (or part thereof), provided that the maximum amount
payable by Employee in respect of any month (or portion thereof) for which a
payment is due hereunder shall not exceed 1/12 of Employee's Base Salary (or,
if for less than a full calendar month, a pro rata portion of 1/12 of such Base
Salary). The "net base salary" shall be the amount of monthly base salary
payable to Employee by such other employer; provided, however, that if in the
opinion of the Accounting Firm, Employee will not receive a full tax deduction
for any amounts payable to the Company hereunder, the amount payable to the
Company shall be decreased so that, on an after-tax basis Employee retains an
amount equal to the amount he would have received if he received a monthly
salary equal to the monthly salary paid to him by the other employer (or, if
higher, 1/12 of the Base Salary), in each case, net of all applicable taxes.
The payments to be made by Employee hereunder shall be due and payable to the
Company on or prior to the fifth business day of the month next following the
month in respect of which the payment is to be made and shall only be
payable by Employee pursuant to this Section 5(i) if and to the extent that the
Employee (a) is employed by another employer during the Employment Period and
(b) is paid a salary in respect of services performed for such other employer
during the Employment Period. The amounts payable by the Employee pursuant to
this Section 5(i) may be paid in cash or by check payable to the Company's
order.

(ii) The provisions of this Agreement, including Section
5(i), are not intended to, nor shall they be construed to, require that
Employee seek or accept other

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<PAGE> 16
employment during the Employment Period and, except to the extent provided in
Sections 3(iii)(G) and 5(i) of this Agreement, amounts payable under this
Agreement shall not be reduced by Employee's acceptance of employment with
another person after the Date of Termination. The Company's obligations to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set off, counterclaim,
recoupment, defense or other claim, rights or action that the Company may have
against the Employee or others.

(iii) If any contest or dispute (including, without
limitation, in accordance with Section 18) shall arise under this Agreement
involving termination of Employee's employment with the Company or involving
the validity or enforceability of, or liability under, any provision of this
Agreement, then (regardless of the outcome thereof, unless it shall be
determined by a court of competent jurisdiction in a final, non-appealable
decision that Employee's employment was properly terminated for Cause within
the meaning of and in accordance with Section 2(ii) hereof), the Company shall
reimburse Employee, on a current basis, for all legal fees and expenses, if
any, incurred by Employee in connection with such contest or dispute, together
with interest in an amount equal to the base rate of Citibank, N.A., from time
to time in effect but in no event higher than the maximum legal rate
permissible under applicable law, such interest to accrue from the date such
payment(s) become due through the date of payment thereof.

6. Successors; Binding Agreement.

(i) The Company will require any successor, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Company would have been required if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from the Company in the same amount and
on the same terms as Employee would be entitled hereunder if Employee
terminated Employee's employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid that executes and delivers the
agreement

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<PAGE> 17
provided for in this Section 6 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.

(ii) This Agreement shall inure to the benefit of
and be enforceable by Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees devisees and legatees. If
Employee should die while any amounts would still be payable to Employee
hereunder if Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to Employee's beneficiary.

7. Notice. For the purpose of this Agreement, notices and
all other communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, registered and return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the last page of this
Agreement, provided that all notices to the Company shall be directed to the
office of corporate secretary of the Company, with a copy to the Secretary of
the Company, or to such other address as either party shall have furnished to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

8. Change in Control. For purposes of this Agreement, a
Change in Control shall be deemed to have occurred upon, and shall mean:

(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person"), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of either (i)
the then outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change in Control: (w) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (x) any
acquisition by the Company, (y) any acquisition by any employee
benefit plan(s) (or related trust(s)) sponsored or maintained by

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<PAGE> 18
the Company or any corporation controlled by the Company or (z) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, immediately following such reorganization, merger
or consolidation, the conditions described in clauses (i), (ii) and
(iii) of subsection (c) of this Section 8 are satisfied;

(b) Individuals who, as of the date hereof,
constitute the Company's Board of Directors (the "Incumbent Board"),
cease for any reason to constitute at least a majority of the
Company's Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of either (i) an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act), or an actual threatened solicitation of proxies or
consents by or on behalf of a Person other than the Company's Board of
Directors or (ii) a plan or agreement to replace a majority of the
members of the Company's Board of Directors then comprising the
Incumbent Board; or

(c) Approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case unless,
immediately following such reorganization, merger or consolidation,
(i) more than 60% of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation (including, without limitation, a corporation
which as a result of such transaction owns the Company through one or
more subsidiaries) and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and
Outstanding Company

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<PAGE> 19
Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan(s) (or related trust(s)) of the
Company and/or its subsidiaries or such corporation resulting from
such reorganization, merger or consolidation or any Person
beneficially owning, immediately prior to such reorganization, merger
or consolidation, directly or indirectly, 25% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a majority
of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or

(d) Approval by the stockholders of the Company of
(i) a complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of
the Company, other than to a corporation, with respect to which
immediately following such sale or other disposition, (A) more than
60% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (B) no person (excluding the Company, any employee benefit
plan (or related trust(s)) of the Company and/or its subsidiaries of
such corporation or any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 25% or
more of the Outstanding Company Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding
shares of

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<PAGE> 20
common stock of such corporation or the combined voting power of the
then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the Company's Board of Directors
providing for such sale or other disposition of assets of the Company.

9. Employment with Subsidiaries. Employment with the
Company for purposes of this Agreement includes employment with any corporation
in which the Company has a direct or indirect ownership interest of fifty
percent (50%) or more of the total combined voting power of all outstanding
classes of stock; it being understood that for purposes of Section 2(iii)(A)
hereof, "Good Reason" shall be construed to refer to each of the Employee's
positions, duties, responsibilities (reporting and other), status, titles and
offices with the Company and each of its subsidiaries.

10. Acceleration of Incentive Plan Awards. The Company and
Employee hereby agree that notwithstanding the terms of any award agreement to
the contrary, immediately upon a Change in Control, or if the Date of
Termination shall occur pursuant to Section 3(iii) hereof prior to any Change
in Control, on such Date of Termination, all Options, SARS, Restricted Stock
(but not Restricted Stock Units or contingent shares), and other awards (except
Performance Units) (collectively, "Awards") granted to Employee pursuant to the
Transco Energy Company 1983 Incentive Plan, the Transco Energy Company 1991
Incentive Plan, or any successor or similar incentive award plan that are
outstanding and not fully vested, earned and/or payable on the Date of
Termination pursuant to the terms of the applicable award agreement or plan
will vest in full and be immediately exercisable by and/or payable to Employee,
and any other restrictions on such awards, including, without limitation,
requirements concerning the achievement of specific goals shall terminate;
provided, however, that any such awards that as of the Change in Control or the
Date of Termination, whichever shall be applicable, have been held for less
than six months by Employee shall vest in full, be earned and/or payable, as
the case may be, as of the date that they have been held for six months and any
other restrictions on such Awards shall lapse as of such date. This Section 10
shall be deemed to be an amendment to each award agreement now existing or
hereafter entered into between the Company and Employee with respect to such
plans, but a provision in this Section 10 shall be given effect only to the
extent such provision is not contrary to

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<PAGE> 21
or prohibited by the terms of the applicable plan and giving effect to such
provision does not result in Employee incurring any liability pursuant to
Section 16 of the Securities Exchange Act of 1934, as amended.

11. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Employee and by the Chief Executive Officer or
other authorized officer of the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provisions of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.

12. Validity. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.

13. Amendment and Restatement of Prior Severance Agreement.
The Company and Employee hereby agree that concurrently with the execution and
delivery of this Agreement, this Agreement shall operate and be construed as an
amendment and restatement of that certain Severance Agreement, dated April 3,
1989 between Texas Gas Transmission Corporation and Employee (the "Prior
Agreement"), and effective with such delivery the terms and provisions of the
Prior Agreement shall be superseded by the terms and provisions of this
Agreement.

14. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.

15. Certification of Amounts. The Company shall furnish
Employee with a written certification from the Company's independent certified
public accountants as to the accuracy of all computations, including the facts,
methods and assumptions associated with such computation, made or required to
be made in determining the amount of any payment hereunder.

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<PAGE> 22
16. Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.

17. Corporate Approval. This Agreement has been approved by
the Company's Board of Directors, and has been duly executed and delivered by
Employee and on behalf of the Company by its duly authorized representative.

18. Arbitration. Any dispute or controversy arising out of
or in connection with this Agreement as to the existence, construction,
validity, interpretation or meaning, performance, non-performance, enforcement,
operation, breach, continuance or termination thereof shall be submitted to
arbitration pursuant to the following procedure:

(a) Either party may demand such arbitration in writing
after the controversy arises, which demand shall include the name of
the arbitrator appointed by the party demanding arbitration, together
with a statement of the matter in controversy.

(b) Within 15 days after such demand, the other party shall
name an arbitrator, or in default thereof, such arbitrator shall be
named by the Arbitration Committee of the American Arbitration
Association, and the two arbitrators so selected shall name a third
arbitrator within 15 days or, in lieu of such agreement on a third
arbitrator by the two arbitrators so appointed, a third arbitrator
shall be appointed by the Arbitration Committee of the American
Arbitration Association.

(d) The arbitration hearing shall be held at a site in
Houston, Texas, to be agreed to by a majority of the arbitrators on 10
days' written notice to the parties.

(e) The arbitration hearing shall be concluded within 10 days
unless otherwise ordered by a majority of the arbitrators, and the
award thereon shall be made within 10 days after the close of the
submission of evidence. An award rendered by a majority of the
arbitrators appointed pursuant to this Agreement shall be final and
binding on all parties to the proceeding during the period of this
Agreement, and judgment on such award may be entered by either party
in the highest court, state or federal, having jurisdiction; provided,
however, that

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<PAGE> 23
Employee shall be entitled to specific performance of Employee's right
to be paid during the pendency of any dispute or controversy arising
under or in connection with this Agreement.

The parties stipulate that the provisions hereof shall be a
complete defense to any suit, action, or proceeding instituted in any federal,
state, or local court or before any administrative tribunal with respect to any
controversy or dispute arising during the period of this Agreement and which is
arbitrable as herein set forth. The arbitration provisions hereof shall, with
respect to such controversy or dispute, survive the termination of this
Agreement.

Notwithstanding the pendency of any dispute or controversy
pursuant to this Section 18, the Company will continue to pay Employee
Employee's full compensation in effect when the notice giving rise to the
dispute was given and continue Employee as a participant in all compensation,
benefit and insurance plans in which Employee was participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved.
Amounts paid under this Section 18 are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.

19. Termination of Employment Before Change in Control.
If, after a public announcement by any Person of an intention to
effectuate a Change in Control and prior to the earlier of (i) the abandonment
by such Person of such intention to effectuate a Change in Control and (ii) the
date a Change in Control is effected by such Person, Employee terminates his
employment without the consent of the Board of Directors of the Company, then
during the three-year period following his termination of employment, Employee
shall not, without the written consent of the Board, directly or indirectly
participate in the management, or act as a consultant for or become an
employee, of any business that engages in substantial, direct competition with
any material business activity conducted by the Company or any of its
subsidiaries at the time of Employee's termination of employment with the
Company. An abandonment of an intention to effectuate a Change in Control
shall be deemed to have occurred on the earliest to occur of the following
dates, assuming no Change in Control has been then effected: (i) the date of
abandonment, (ii) the date of a public announcement of abandonment, (iii) the
date the Company's Board of Directors determines that such intention has been
abandoned and (iv) the date of the first anniversary of the public announcement
of an intention to effectuate a Change in Control. If any

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<PAGE> 24
restriction contained in this Section 19 is held to be unenforceable by an
arbitrator pursuant to Section 18 hereof, the arbitrator shall be free to
enforce a lesser restriction in its place, and the remaining restrictions
contained in this Section 19 shall remain fully in effect, and shall be
enforceable independently of each other.

IN WITNESS WHEREOF, the Company and Employee have entered into
this Agreement as of the day and year first above written.

TRANSCO ENERGY COMPANY

By: /s/ JOHN P. DESBARRES
Name: John P. DesBarres
Title: President & Chief Executive Officer

EMPLOYEE

/s/ ROBERT W. BEST
Robert W. Best

Addresses:

If to the Company:

Transco Energy Company
2800 Post Oak Boulevard
Houston, Texas 77056
Attention: General Counsel

If to the Employee:

Robert W. Best
1212 Woodbridge Trail
Owensboro, Kentucky 42301

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<PAGE> 1
EXHIBIT 10.13

SEVERANCE AGREEMENT

THIS AGREEMENT is made and entered into as of the 17th day of March,
1993 by and between Transco Energy Company, a Delaware corporation (the
"Company"), and David E. Varner (the "Employee").

WITNESSETH:

WHEREAS, the Employee has rendered outstanding service to the Company
and the Employee's experience and knowledge of the affairs of the Company, and
his reputation and contacts are extremely valuable to the Company; and

WHEREAS, in recognition of the Employee's service to the Company and
as an inducement to the Employee to continue in the employ of the Company, the
Company has offered the Employee, among other things, this Agreement and the
Employee has accepted the Company's offer;

NOW THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Employee hereby
agree as follows:

1. Term. This Agreement shall commence on the date hereof and shall
continue until December 31, 1994; provided however, that commencing January 1,
1994 and on each January 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 90 days prior
to such January 1st date, the Company shall have given written notice to the
Employee of the Company's election that this Agreement shall terminate on the
December 31 next following the January 1st in respect of which such notice is
given; and provided further, that this Agreement shall automatically terminate
in all events on the earlier of the Employee's death or 65th birthday if it has
not been earlier terminated as provided above.

2. Termination of Employment. The Employee shall be entitled to the
benefits provided in Section 3 hereof upon the termination of his employment
with the Company occurring during the Agreement Period (as hereinafter defined)
unless such termination is (a) by the Company for Cause (as hereinafter
defined), (b) by the Employee without the written consent of the Board of
Directors of the Company or for other than Good Reason (as hereinafter
defined), or (c) due to the Employee's death. For the purposes of this
Agreement the "Agreement Period" shall mean the period of time this Agreement
is in effect until its termination pursuant to Section 1 above.

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<PAGE> 2
Company, which failure continues unabated for thirty (30) days after a
demand for substantial performance is delivered to the Employee by the
Company's Board of Directors that specifically identifies the manner
in which such Board of Directors believes that the Employee has not
substantially performed the Employee's duties, excluding, however, any
such failure resulting from the Employee's incapacity due to physical
or mental illness, or (B) the willful engaging by the Employee in
gross misconduct materially and demonstrably injurious to the Company
or its affiliates. For purposes of this subparagraph, an act or
failure to act on the Employee's part shall be considered "willful" if
done or omitted to be done by the Employee otherwise than in good
faith and without reasonable belief that the Employee's action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated by
the Company for Cause unless and until the Company shall have
delivered to the Employee a copy of a resolution duly adopted by the
Company's Board of Directors (after reasonable notice to the Employee
and an opportunity for the Employee, together with the Employee's
counsel, to be heard before the Company's Board of Directors) finding
that in the good faith opinion of the Company's Board of Directors the
Employee was guilty of conduct set forth in clauses (A) or (B) of the
second sentence of this subsection (i) and specifying the particulars
thereof in reasonable detail.

(ii) Good Reason. For purposes of this Agreement "Good Reason"
shall mean any of the following, unless waived in writing by the
Employee (which waiver shall specifically refer to this Agreement):

(A) the assignment to the Employee of any duties inconsistent
with the Employee's positions, duties, responsibilities and
status with the Company on the date hereof or a change in the
Employee's reporting responsibilities, titles or offices as in
effect on the date hereof (excluding for this purpose any
isolated, insubstantial or inadvertent action not taken in bad
faith and which is remedied by the Company promptly after
receipt of written notice thereof given by the Employee), or
any removal of the Employee from or any failure to re-elect or
appoint the Employee to any such responsibilities, titles,
offices or positions, except in connection with the
termination of the Employee's employment for Cause or death;
or

(B) an involuntary reduction by the Company in the Employee's
annual rate of base salary as in effect on the date hereof or
as the same may be increased from time to time hereafter
(referred to hereinafter as "Annual Base Salary"), except for
such reductions in salary not to exceed 10% in the aggregate
which affect all of the

2
<PAGE> 3
Company's senior executive officers, including the Chief
Executive Officer, on a comparable basis; or

(C) the relocation of the Company's principal executive
offices to a location outside of Houston, Texas, or the
Company's requiring the Employee to relocate anywhere other
than the location of the Company's principal executive
offices, except for required travel on the Company's business
to the extent substantially consistent with the Employee's
business travel obligations immediately prior to the date
hereof; or, in the event the Employee consents to any
relocation of the Company's principal executive offices, the
failure by the Company to (i) pay or reimburse the Employee,
in accordance with the Company's policies in effect on the
date hereof, for all reasonable moving expenses incurred by
the Employee relating to a change of the Employee's principal
residence in connection with such relocation, and (ii)
indemnify the Employee, in accordance with the Company's
policies in effect on the date hereof, against any loss
(defined as the difference between the actual sale price of
such residence and the fair market value of such residence as
determined by a member of the Society of Real Estate
Appraisers designated by the Employee and reasonably
satisfactory to the Company) realized on the sale of the
Employee's principal residence in connection with any such
change of residence; or

(D) the failure by the Company to continue in effect any
benefit or compensation plan, including but not limited to the
Company's 1991 Incentive Plan, Incentive Compensation Plan,
Retirement Plan, Benefit Restoration Plan, Thrift Plan,
Supplemental Retirement Plan, life insurance plan, health and
accident plan and/or disability plan, in which the Employee is
participating on the date hereof (unless replaced by a plan or
program providing the Employee with substantially similar
benefits), or the failure by the Company to permit the
Employee to participate in any benefit or compensation plan
offered to all employees or the senior executive officers, or
the taking of any action by the Company that would adversely
affect the Employee's participation in or reduce the
Employee's benefits under any of such plans or that would
deprive the Employee of any fringe benefit enjoyed by the
Employee, or the failure by the Company to provide the
Employee with the number of paid vacation days and sick pay
days to which the Employee is then entitled in accordance with
the Company's normal vacation and sick pay policy in effect on
the date hereof (excluding for the purpose of this subsection
(i) any isolated,

3
<PAGE> 4
insubstantial or inadvertent action not taken in bad faith
which does not have a material adverse effect on the
Employee's total benefit package as of the date hereof or (ii)
any action relating to any of above described employee plans
or benefits which action affects all employees on a comparable
basis or the senior executive officers on a comparable basis,
including the Chief Executive Officer); or

(E) the failure of a successor of the Company to assume and
agree to perform this Agreement as provided in Section 8(i) of
this Agreement; or

(F) the termination of this Agreement by the Company other
than upon the Employee's death or 65th birthday.

Neither the Employee's physical or mental disability nor any action by the
Company in connection therewith pursuant to the Transco Energy Company
Disability Plan, as amended from time to time, or any other Company plans or
programs relating to disabled employees, shall constitute "Good Reason."

(iii) Notice of Termination. Any termination by the Company
for Cause or by the Employee for Good Reason or upon consent of the
Board of Directors of the Company shall be communicated by written
Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the Date of Termination and the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision
so indicated.

(iv) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination; provided, however, that
if within 30 days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination
shall be the date as finally determined, either by mutual written
agreement of the parties or by a binding and final arbitration award
or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected); and provided further, that for purposes
of this Section 2, notwithstanding a final determination of the Date
of Termination occurring beyond the Agreement Period, such termination
shall be deemed to have occurred within the Agreement Period as of the
initial date of the Notice of Termination.

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<PAGE> 5
3. Compensation Upon Termination.

(i) If, during the Agreement Period, the Employee's employment
with the Company shall be terminated or death or Cause or the
Employee shall terminate his employment with the Company without the
consent of the Board or other than for Good Reason, the Company shall
have no further obligations to the Employee under this Agreement.

(ii) If, during the Agreement Period, the Company shall
terminate the Employee other than for death or Cause or the Employee
shall terminate the Employee's employment with the Company with the
consent of the Board of Directors of the Company (which consent shall
specifically refer to this Agreement) or for Good Reason, then the
Company shall:

(A) pay to the Employee in cash (by check) on the fifteenth
and last day of each month (beginning with the fifteenth or
last day of the month next following the Date of Termination)
for a period of twelve consecutive months following the Date
of Termination an amount equal to 1/24 of the Employee's
Annual Base Salary; and

(B) pay to the Employee in a lump sum in cash (by check) as
soon as practicable after the Date of Termination an amount
equal to that portion of the Employee's Annual Base Salary
earned, and vacation pay vested for the prior year and accrued
for the current year, in each case, to the Date of Termination
but not paid; and

(C) waive, on each date or dates when due, the premium charged
by the Company to the Employee for continuation coverage under
the Company's group health plan pursuant to the provisions of
Part 6, Subtitle B of Title 1 of the Employee Retirement
Income Security Act of 1974 ("COBRA"), during the first 12
months of such coverage, if, during the Agreement Period, the
Employee is eligible for and timely elects such continuation
coverage for himself and/or any qualifying beneficiary (as
defined in COBRA); or any qualifying beneficiary so elects;
and

(D) pay to the Employee in a lump sum in cash (by check) as
soon as practicable after the Date of Termination an amount
equal to the amount that would be payable to the employee
under that certain Executive Supplemental Retirement Agreement
(the "Supplemental Retirement Agreement"), dated December 10,
1990 between the Employee and the Company, the Employee being
deemed, for the purposes of this Section 3(i)(D), to have met
one or more of the qualifications for benefits set forth in
Section 1.1

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<PAGE> 6
of the Supplemental Retirement Agreement on the Employee's
Date of Termination, provided, however, that the benefit
payable under this Section 3(i)(D) shall be "offset" or
reduced by any amounts, if any, that are paid pursuant to the
Supplemental Retirement Agreement; and

(E) reimburse the Employee for tax planning and preparation
services under the Company's then existing program until the
tax return to the year in which the Agreement Period ends is
filed; and

(F) continue to provide financial planning services under the
Company's existing program through the first anniversary of
the Date of Termination; and

(G) except in the case where the Employee terminates for the
Good Reason described in Section 2(ii)(F) hereof, provide the
services of a professional outplacement firm to the Employee
until he commences new employment and reimburse the Employee,
up to an aggregate of $10,000, for reasonable employment
search, travel and lodging expenses, not otherwise
reimbursable under this Agreement and not reimbursable by any
other party; and

In addition, in such event:

(H) all unvested stock options held by the Employee for more
than six months which have been granted under the Company's
1983 Incentive Plan, 1991 Incentive Plan or any similar plan
providing for the grant of employee stock options shall vest
as of the Employee's Date of Termination; and

(I) the post-termination exercise period for stock options
held by the Employee which have been granted under the
Company's 1983 Incentive Plan, 1991 Incentive Plan or any
similar plan providing for the grant of employee stock options
shall be extended for the lesser of 36 months or the number of
months (including any fraction of a month) between the
Employee's Date of Termination and the expiration date of the
stock option; and

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<PAGE> 7
practicable after the Date of Termination an amount equal to
the market value of restricted stock, restricted stock units
or equity awards which would have vested or been awarded, as
applicable, had (i) as to restricted stock and restricted
stock units, the performance period for such restricted stock
and restricted stock units ended as of the Employee's Date of
Termination and a final award made based upon the Company's
actual performance to the Date of Termination, and (ii) as to
equity awards, the terms and conditions of such equity award
been met.

The above provided benefits shall be in addition to the benefits which may be
provided to the Employee under the Transco Energy Company Retirement Plan,
Benefit Restoration Plan, Tran$tock Plan or any other Transco Energy Company
employee benefit plan or program of which the Employee may be a participant,
except that this Agreement shall be in lieu of any benefits under the Company's
Employee Severance Pay Plan. The Employee will also be eligible for
consideration of, but shall not be automatically entitled to, an award under
the Transco Incentive Compensation Plan (the "TICP") or any successor annual
incentive compensation plan in effect on the Employee's Date of Termination in
which the Employee is a participant, in the manner provided for in the TICP or
such successor plan, provided, however, that if awards are paid to the
Company's senior executive management, the Executive shall be eligible for such
an award under the TICP or such successor plan on a comparable basis; and
provided further, that for the purpose of calculating any benefit thereunder
the Employee shall be deemed to have taken Early Retirement on the Date of
Termination.

(iii) If a Date of Termination occurs and the Employee
subsequently becomes reemployed by the Company or its affiliates in
any position (it being understood that neither the Company nor its
affiliates has an obligation to offer any position to the Employee),
the payments pursuant to Section 3(ii)(A) hereof shall cease for the
period the Employee is reemployed; provided, however, that if the
Employee is subsequently reemployed by the Company in any position
with an annual base salary which is less than the Annual Base Salary
the Employee was receiving prior to his Date of Termination, then the
difference in pay will be paid to the Employee for the remainder of
the twelve month period described and at such times as stated in
Section 3(ii)(A) hereof.

(iv) During the period in which the Employee is receiving
payments hereunder, (except in the case when the Employee has been
reemployed by the Company and is receiving payments provided for in
Subsection 3(iii) hereof), the Employee (i) shall not be or be deemed
an employee, agent or representative of the Company for any purpose
and shall have no authority to assume or create any commitment or
obligation on behalf of the Company, and (ii) shall not be entitled to
any benefits to which employees of the Company may be entitled, such
as

7
<PAGE> 8
to any benefits to which employees of the Company may be entitled,
such as group life, health, dental or similar medical plans (except
for COBRA continuation coverage), retirement plans, incentive
compensation plans, vacations, sick pay or similar benefits, except
for such benefits under any such plans or programs to which the
Employee may be entitled to as a terminated or retired employee.

4. Notice. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or five days after deposit in the United
States mail, registered and return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the last page of this
Agreement, provided that all notices to the Company shall be directed to the
Chief Administrative Officer of the Company, with a copy to the Secretary of
the Company, or to such other address as either party shall have furnished to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

5. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Employee and by the Chief Executive Officer or other
authorized officer of the Company. No waiver by either party hereto at the time
of any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time.

6. Arbitration. Any dispute or controversy arising out of or in
connection with this Agreement relating to the existence, construction,
validity, interpretation, meaning, performance, non-performance, enforcement,
operation, breach, continuance or termination of this Agreement shall be
submitted to arbitration pursuant to the following procedure:

(i) Either party may demand such arbitration in writing after
the controversy arises, which demand shall include the name of the
arbitrator appointed by the party demanding arbitration, together with
a statement of the matter in controversy.

(ii) Within 15 days after such demand, the other party shall
name an arbitrator, or in default thereof, such arbitrator shall be
named by the Arbitration Committee of the American Arbitration
Association, and the two arbitrators so selected shall name a third
arbitrator within 15 days or, in the absence of such agreement on a
third arbitrator by the two arbitrators so appointed, a third
arbitrator shall be appointed by the Arbitration Committee of the
American Arbitration Association.

(iii) The Company shall bear all arbitration costs and
expenses, including reasonable attorneys fees of the Employee, except
that if the arbitrators

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<PAGE> 9
determine, in the case where arbitration is initiated by the Employee,
that the Employee's claims were frivolous or not made in good faith,
then the Employee shall bear his attorney's fees.

(iv) The arbitration hearing shall be held at a site in
Houston, Texas to be agreed to by a majority of the arbitrators on 10
days' written notice to the parties.

(v) The arbitration hearing shall be concluded within 10 days
unless otherwise ordered by a majority of the arbitrators, and the
award thereon shall be made within 10 days after the close of the
submission of evidence. An award rendered by a majority of the
arbitrators appointed pursuant to this Agreement shall be final and
binding on the Employee and the Company, and judgment on such award
may be entered by either such party in the highest court, state or
federal, having jurisdiction.

The parties stipulate that the provisions hereof shall be a complete
defense to any suit, action, or proceeding instituted in any federal, state, or
local court or before any administrative tribunal with respect to any
controversy or dispute arising during the period of this Agreement and which is
arbitrable as herein set forth. The arbitration provisions hereof shall, with
respect to such controversy or dispute, survive the termination of this
Agreement.

7. Acknowledgment of Employee. The Employee acknowledges that the
Company has encouraged the Employee to seek legal counsel in connection with
this Agreement and that counsel to the Company, both in-house and outside
counsel, if any, represent only the interest of the Company and not the
interest of the Employee.

8. Successors; Binding Agreement.

(i) The Company will require any successor, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company,
expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Company would have been required
if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid that executes and
delivers the agreement provided for in this Section 8(i) or which
otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law. The Employee's sole remedy for failure
of a successor of the Company to agree to perform this Agreement shall
be termination of employment for Good Reason pursuant to Section 2(ii)
of this Agreement and the receipt of the benefits arising from such
termination hereunder.

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<PAGE> 10
(ii) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Employee's personal or legal
representatives, beneficiaries, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Employee should die
while any amounts would still be payable to the Employee hereunder if
the Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's beneficiary or beneficiaries or, if there
be no such beneficiary or beneficiaries, to the Employee's estate. As
used herein the term beneficiary or beneficiaries shall mean the
Employee's beneficiary or beneficiaries designated on Exhibit 8(ii)
attached hereto. The Employee may change his beneficiary or
beneficiaries by completing a new beneficiary designation form.

9. Employment With Subsidiaries. Employment with the Company for
purposes of this Agreement includes employment with any entity in which the
Company has a direct or indirect ownership interest of fifty percent (50%) or
more of the total combined voting power of all outstanding classes of stock or
interests.

10. Validity. The interpretation, construction and performance of this
Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of Texas without regard to principles of conflicts of
laws. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, each of which shall remain in full force and effect.

11. Descriptive Headings. Descriptive headings are used for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.

12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

13. Termination Agreement. The amounts payable under Sections
3(ii)(A), (B) and (D) hereof shall be "offset" or reduced by any amounts, if
any, that are paid under Sections 3(iii)(A), (C) and (F) of that certain
Termination Agreement dated March 25, 1992, by and between the Employee and the
Company.

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<PAGE> 11
IN WITNESS WHEREOF. the Company and Employee have entered into this
Agreement as of the day and year first above written.

TRANSCO ENERGY COMPANY

By: /s/ JOHN P. DESBARRES
Name: John P. DesBarres
Title: Chairman, President and
Chief Executive Officer
ADDRESS: P.O. Box 1396
Houston, Texas 77251
Attention: President

/s/ DAVID E. VARNER
David E. Varner

ADDRESS:

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<PAGE> 12
SEVERANCE AGREEMENT SCHEDULE

The Company has entered into identical Severance Agreements, dated as
of March 17, 1993, with Larry J. Dagley and dated as of June 15, 1993, with
Nicholas J. Neuhausel.

<PAGE> 1
EXHIBIT 10.14

SEVERANCE AGREEMENT

THIS AGREEMENT is made and entered into as of the 17th day of March,
1993 by and between Transco Energy Company, a Delaware corporation (the
"Company"), and Thomas W. Spencer (the "Employee").

WITNESSETH:

NOW THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Employee hereby
agree as follows:

2. Termination of Employment. The Employee shall be entitled to the
benefits provided in Section 3(ii) hereof upon the termination of his
employment with the Company occurring during the Agreement Period (as
hereinafter defined) unless such termination is (a) by the Company for Cause
(as hereinafter defined), (b) by the Employee without the written consent of
the Board of Directors of the Company or for other than Good Reason (as
hereinafter defined), or (c) due to the Employee's death. The Employee or his
beneficiary, if applicable, shall be entitled to the benefits provided in
Section 3(iii) hereof upon the Employee's death, or the Employee's election to
retire (x) prior to his Normal Retirement Date (as defined in the Company's
Retirement Plan) with the consent of the Chief Executive Officer of the Company
or the Compensation Committee of the Company's Board of Directors, which
consent

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<PAGE> 2
specifically refers to this Agreement, (y) prior to his Normal Retirement Date
if the effective date of such retirement is on or after December 31, 1993, or
(z) on or after his Normal Retirement Date (such termination pursuant to the
provisions of (x), (y) or (z) above shall hereafter be referred to in this
Agreement as termination upon "Retirement"). For the purposes of this Agreement
the "Agreement Period" shall mean the period of time this Agreement is in
effect until its termination pursuant to Section 1 above.

(i) Cause. The Company may terminate the Employee's employment for
Cause. For the purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment only upon (A) the willful
and continued failure by the Employee to perform substantially all of
the Employee's duties with the Company, which failure continues
unabated for thirty (30) days after a demand for substantial
performance is delivered to the Employee by the Company's Board of
Directors that specifically identifies the manner in which such Board
of Directors believes that the Employee has not substantially
performed the Employee's duties, excluding, however, any such failure
resulting from the Employee's incapacity due to physical or mental
illness, or (B) the willful engaging by the Employee in gross
misconduct materially and demonstrably injurious to the Company or its
affiliates. For purposes of this subparagraph, an act or failure to
act on the Employee's part shall be considered "willful" if done or
omitted to be done by the Employee otherwise than in good faith and
without reasonable belief that the Employee's action or omission was
in the best interest of the Company. Notwithstanding the foregoing,
the Employee shall not be deemed to have been terminated by the
Company for Cause unless and until the Company shall have delivered to
the Employee a copy of a resolution duly adopted by the Company's
Board of Directors (after reasonable notice to the Employee and an
opportunity for the Employee, together with the Employee's counsel, to
be heard before the Company's Board of Directors) finding that in the
good faith opinion of the Company's Board of Directors the Employee
was guilty of conduct set forth in clauses (A) or (B) of the second
sentence of this subsection (i) and specifying the particulars thereof
in reasonable detail.

(ii) Good Reason. For purposes of this Agreement "Good Reason"
shall mean any of the following, unless waived in writing by the
Employee (which waiver shall specifically refer to this Agreement):

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<PAGE> 3
Employee from or any failure to re-elect or appoint
the Employee to any such responsibilities, titles,
offices or positions, except in connection with the
termination of the Employee's employment for Cause
or death; or

(B) an involuntary reduction by the Company in the
Employee's annual rate of base salary as in effect on
the date hereof or as the same may be increased from
time to time hereafter (referred to hereinafter as
"Annual Base Salary"), except for such reductions in
salary not to exceed 10% in the aggregate which
affect all of the Company's senior executive
officers, including the Chief Executive Officer, on a
comparable basis; or

(C) the relocation of the Company's principal
executive offices to a location outside of Houston,
Texas, or the Company's requiring the Employee to
relocate anywhere other than the location of the
Company's principal executive offices, except for
required travel on the Company's business to the
extent substantially consistent with the Employee's
business travel obligations immediately prior to the
date hereof; or, in the event the Employee consents
to any relocation of the Company's principal
executive offices, the failure by the Company to (i)
pay or reimburse the Employee, in accordance with the
Company's policies in effect on the date hereof, for
all reasonable moving expenses incurred by the
Employee relating to a change of the Employee's
principal residence in connection with such
relocation, and (ii) indemnify the Employee, in
accordance with the Company's policies in effect on
the date hereof, against any loss (defined as the
difference between the actual sale price of such
residence and the fair market value of such residence
as determined by a member of the Society of Real
Estate Appraisers designated by the Employee and
reasonably satisfactory to the Company) realized on
the sale of the Employee's principal residence in
connection with any such change of residence; or

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<PAGE> 4
or compensation plan offered to all employees or the
senior executive officers, or the taking of any
action by the Company that would adversely affect the
Employee's participation in or reduce the Employee's
benefits under any of such plans or that would
deprive the Employee of any fringe benefit enjoyed by
the Employee, or the failure by the Company to
provide the Employee with the number of paid vacation
days and sick pay days to which the Employee is then
entitled in accordance with the Company's normal
vacation and sick pay policy in effect on the date
hereof (excluding for the purpose of this subsection
(i) any isolated, insubstantial or inadvertent action
not taken in bad faith which does not have a material
adverse effect on the Employee's total benefit
package as of the date hereof or (ii) any action
relating to any of above described employee plans or
benefits which action affects all employees on a
comparable basis or the senior executive officers on
a comparable basis, including the Chief Executive
Officer); or

(E) the failure of a successor of the Company to
assume and agree to perform this Agreement as
provided in Section 8(i) of this Agreement; or

(F) the termination of this Agreement by the Company
other than upon the Employee's death or 65th
birthday.

(iii) Notice of Termination. Any termination by the
Company for Cause or by the Employee for Good Reason or upon consent
of the Board of Directors of the Company shall be communicated by
written Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice that
shall indicate the Date of Termination and the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision
so indicated.

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<PAGE> 5
either by mutual written agreement of the parties or by a binding and
final arbitration award or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected); and provided further,
that for purposes of this Section 2, notwithstanding a final
determination of the Date of Termination occurring beyond the
Agreement Period, such termination shall be deemed to have occurred
within the Agreement Period as of the initial date of the Notice of
Termination.

3. Compensation Upon Termination.

(i) If, during the Agreement Period, the Employee's employment
with the Company shall be terminated for Cause or the Employee shall
terminate his employment with the Company without the consent of the
Board or other than for Good Reason or Retirement or death, the
Company shall have no further obligations to the Employee under this
Agreement.

(B) pay to the Employee in a lump sum in cash (by check) as
soon as practicable after the Date of Termination an amount
equal to that portion of the Employee's Annual Base Salary
earned, and vacation pay vested for the prior year and
accrued for the current year, in each case, to the Date of
Termination but not paid; and

(C) waive, on each date or dates when due, the premium
charged by the Company to the Employee for continuation
coverage under the Company's group health plan pursuant to
the provisions of Part 6, Subtitle B of Title 1 of the
Employee Retirement Income Security Act of 1974 ("COBRA"),
during the first 12 months of such coverage, if, during the
Agreement Period, the Employee is eligible for and timely
elects such continuation coverage for himself and/or any
qualifying beneficiary (as defined in COBRA), or any
qualifying beneficiary so elects; and

5
<PAGE> 6
(D) pay to the Employee in a lump sum in cash (by
check) as soon as practicable after the Date of
Termination an amount equal to the amount that would
be payable to the employee under that certain
Executive Supplemental Retirement Agreement (the
"Supplemental Retirement Agreement"), dated December
10, 1990, between the Employee and the Company, the
Employee being deemed, for the purposes of this
Section 3(i)(D), to have met one or more of the
qualifications for benefits set forth in Section 1.1
of the Supplemental Retirement Agreement on the
Employee's Date of Termination, provided, however,
that the benefit payable under this Section 3(i)(D)
shall be "offset" or reduced by any amounts, if any,
that are paid pursuant to the Supplemental Retirement
Agreement; and

(E) reimburse the Employee for tax planning and
preparation services under the Company's then
existing program until the tax return to the year in
which the Agreement Period ends is filed; and

(F) continue to provide financial planning services
under the Company's existing program through the
first anniversary of the Date of Termination; and

(G) except in the case where the Employee terminates
for the Good Reason described in Section 2(ii)(F)
hereof, provide the services of a professional
outplacement firm to the Employee until he commences
new employment and reimburse the Employee, up to an
aggregate of $10,000, for reasonable employment
search, travel and lodging expenses, not otherwise
reimbursable under this Agreement and not
reimbursable by any other party; and

In addition, in such event:

(H) all unvested stock options held by the Employee
for more than six months which have been granted
under the Company's 1983 Incentive Plan, 1991
Incentive Plan or any similar plan providing for the
grant of employee stock options shall vest as of the
Employee's Date of Termination; and

(I) the post-termination exercise period for stock
options held by the Employee which have been granted
under the Company's 1983 Incentive Plan, 1991
Incentive Plan or any similar plan providing for the
grant of employee stock options shall be extended for
the lesser of 36 months or the number of months
(including any

6
<PAGE> 7
fraction of a month) between the Employee's Date of
Termination and the expiration date of the stock
option; and

(J) any restricted stock, restricted stock units or
equity awards, granted under the Company's 1983
Incentive Plan, 1991 Incentive Plan or any similar
plan providing for the grant of restricted stock,
restricted stock units or equity awards, held by
the Employee for more than six months shall be
forfeited and the Company shall pay to the Employee
in a lump sum in cash (by check) as soon as
practicable after the Date of Termination an amount
equal to the market value of restricted stock,
restricted stock units or equity awards which would
have vested or been awarded, as applicable, had (i)
as to restricted stock and restricted stock units,
the performance period for such restricted stock and
restricted stock units ended as of the Employee's
Date of Termination and a final award made based upon
the Company's actual performance to the Date of
Termination, and (ii) as to equity awards, the terms
and conditions of such equity award been met.

(iii) If, during the Agreement Period, the Employee
shall die or terminate his employment with the Company upon Retirement, then
the Company shall:

(A) pay to the Employee or his beneficiary, as
applicable, on the fifteenth and last day of each
month (beginning with the fifteenth or last day of
the month next following the Date of Termination)
during the one-year period following the Employee's
Date of Termination an amount equal to 1/24 of the
Employee's Annual Base Salary; and

(B) provide to the Employee the benefits set forth in
Sections 3(ii)(D), (H)(I) and (J) hereof.

(iv) The benefits provided in Subsection 3(ii) and 3(iii)
above shall be in addition to the benefits which may be provided to
the Employee under the Transco Energy Company Retirement Plan, Benefit
Restoration Plan, Tran$tock Plan or any other Transco Energy Company
employee benefit plan or program of which the Employee may be a
participant, except that, unless otherwise agreed to in writing, the
Employee shall not be entitled to any benefit under the Company's
Employee Severance Pay Plan or any other Company severance plan or
program. The Employee will also be eligible for consideration of, but
shall not be automatically entitled to, an award under the Transco
Incentive Compensation Plan (the "TICP") or any successor annual
incentive compensation plan in effect on the Employee's Date of
Termination in which the Employee is a participant, in the manner
provided for in the TICP or such successor plan, provided,

7
<PAGE> 8
however, that if awards are paid to the Company's senior executive
management, the Executive shall be eligible for such an award under
the TICP or such successor plan on a comparable basis; and provided
further, that for the purpose of calculating any benefit thereunder
the Employee shall be deemed to have taken Early Retirement on the
Date of Termination.

(v) If a Date of Termination occurs and the Employee
subsequently becomes reemployed by the Company or its affiliates in
any position (it being understood that neither the Company nor its
affiliates has an obligation to offer any position to the Employee),
the payments pursuant to Sections 3(ii)(A) hereof shall cease for the
period the Employee is reemployed; provided, however, that if the
Employee is subsequently reemployed by the Company in any position
with an annual base salary which is less than the Annual Base Salary
the Employee was receiving prior to his Date of Termination, then the
difference in pay will be paid to the Employee for the remainder of
the twelve month period described and at such times as stated in
Section 3(ii)(A) hereof.

(vi) During the period in which the Employee is receiving
payments hereunder, (except in the case when the Employee has been
reemployed by the Company and is receiving payments provided for in
Section 3(v) hereof), the Employee (i) shall not be or be deemed an
employee, agent or representative of the Company for any purpose and
shall have no authority to assume or create any commitment or
obligation on behalf of the Company, and (ii) shall not be entitled to
any benefits to which employees of the Company may be entitled, such
as group life, health, dental or similar medical plans (except for
COBRA continuation coverage), retirement plans, incentive compensation
plans, vacations, sick pay or similar benefits, except for such
benefits under any such plans or programs to which the Employee may be
entitled to as a terminated or retired employee.

8
<PAGE> 9

party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

(iii) The Company shall bear all arbitration costs and
expenses, including reasonable attorneys fees of the Employee, except
that if the arbitrators determine, in the case where arbitration is
initiated by the Employee, that the Employee's claims were frivolous
or not made in good faith, then the Employee shall bear his attorney's
fees.

(iv) The arbitration hearing shall be held at a site in
Houston, Texas to be agreed to by a majority of the arbitrators on 10
days' written notice to the parties.

The parties stipulate that the provisions hereof shall be a complete
defense to any suit, action, or proceeding instituted in any federal, state, or
local court or before any administrative tribunal with respect to any
controversy or dispute arising during the period of this Agreement and which is
arbitrable as herein set forth. The arbitration provisions hereof shall, with
respect to such controversy or dispute, survive the termination of this
Agreement.

9
<PAGE> 10

8. Successors; Binding Agreement.

(i) The Company will require any successor, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company,
expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Company would have been required
if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid that executes and
delivers the agreement provided for in this Section 8(i) or which
otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law. The Employee's sole remedy for failure
of a successor of the Company to agree to perform this Agreement shall
be termination of employment for Good Reason pursuant to Section 2(ii)
of this Agreement and the receipt of the benefits arising from such
termination hereunder.

(ii) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Employee's personal or legal
representatives, beneficiaries, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Employee should die
while any amounts would still be payable to the Employee hereunder if
the Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's beneficiary or beneficiaries or, if there
be no such beneficiary or beneficiaries, to the Employee's estate. As
used herein the term beneficiary or beneficiaries shall mean the
Employee's beneficiary or beneficiaries designated on Exhibit 8(ii)
attached hereto. The Employee may change his beneficiary or
beneficiaries by completing a new beneficiary designation form.

10
<PAGE> 11
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.

11. Descriptive Headings. Descriptive headings are used for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.

12. Counterparts. This Agreement may be executed in one or more
counterparts, each which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Company and Employee have entered into this
Agreement as of the day and year first above written.

TRANSCO ENERGY COMPANY

By: /s/ JOHN P. DESBARRES
Name: John P. DesBarres
Title: Chairman, President and Chief
Executive Officer

ADDRESS: P.O. Box 1396
Houston, Texas 77251
Attention: President

/s/ THOMAS W. SPENCER
Thomas W. Spencer

ADDRESS: 835 Chevy Chase Circle
Sugar Land, Texas 77478

<PAGE> 1

EXHIBIT 10.15
INCENTIVE SEVERANCE AGREEMENT

THIS INCENTIVE SEVERANCE AGREEMENT, made and entered into effective as
of July 20, 1993 (the "Agreement"), is by and between TRANSCO ENERGY COMPANY, a
Delaware corporation (the "Company"), and Robert M. Chiste (the "Employee").

WITNESSETH:

WHEREAS, Employee presently serves the Company as a senior executive
officer of Transco Energy Ventures Company ("TEVCO"); and

WHEREAS, the Company desires to sell TEVCO and its subsidiaries, and,
therefore, the Company considers it prudent to enter into this Agreement with
Employee in order to encourage Employee's continued services and managerial
guidance, to receive the benefits of Employee's business knowledge and
experience and to define the nature and terms of Employee's benefits upon a
Qualified Termination (as defined below);

NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements herein contained, the Company and Employee hereby
agree as follows:

1. Term. This Agreement shall commence on the date hereof and shall
continue (the "Agreement Period") until the earliest of (1) a Qualified
Termination (as defined below), (2) the date Employee's employment with the
Company is terminated for any reason other than a Qualified Termination, (3)
the date the Company gives written notice to Employee that the Company has
abandoned its efforts to effect the Sale of TEVCO, or (4) December 31, 1994.
Notwithstanding the foregoing, however, termination of this Agreement on a
Qualified Termination shall not alter or impair the rights of Employee arising
hereunder as a consequence of such Qualified Termination.

2. Qualified Termination of Employment. If Employee's employment with
the Company is terminated due to a Qualified Termination, Employee shall be
entitled to the benefits specified in Section 3(ii) hereof.

(i) Qualified Termination. For purposes of this Agreement, a
"Qualified Termination" shall mean any of the following:

(A) Employee terminates Employee's employment with the Company
for Good Reason (as defined below);

(B) The Company terminates Employee's employment with the
Company other than for Cause; or

(C) Employee terminates Employee's employment with the Company
with the consent of the Board of Directors of the Company.

(ii) Cause. The Company may terminate Employee's employment for Cause.
For the purposes of this Agreement, the Company shall have "Cause" to
terminate Employee's employment only upon (A) the willful and continued
failure by Employee to perform substantially Employee's duties with the
Company, other than any such failure resulting from Employee's incapacity
due to physical or

<PAGE> 2
mental illness, which failure continues unabated for 30 days after a
demand for substantial performance is delivered to Employee by the
Company's Board of Directors that specifically identifies the manner
in which such Board of Directors believes that Employee has not
substantially performed Employee's duties or (B) Employee willfully
engages in gross misconduct materially and demonstrably injurious to
the Company. For purposes of this paragraph, an act or failure to act
on Employee's part shell be considered "willful" if done or omitted to
be done by Employee otherwise than in good faith and without
reasonable belief that Employee's action or omission was in the best
interest of the Company; provided, however, a failure of Employee to
continue (or to agree to continue) employment with TEVCO after the
Sale of TEVCO shall not constitute "misconduct". Notwithstanding the
foregoing, Employee shall not be deemed to have been terminated by the
Company for Cause unless and until the Company shall have delivered to
Employee a copy of a resolution duly adopted by the unanimous
affirmative vote of the entire membership of the Company's Board of
Directors, at a meeting of the Company's Board of Directors called and
held for the purpose (after reasonable notice to Employee and an
opportunity for Employee, together with Employee's counsel, to be
heard before the Company's Board of Directors), finding that in the
good faith opinion of the Company's Board of Directors Employee was
guilty of conduct set forth in clauses (A) or (B) of the second
sentence of this subsection (ii) and specifying the particulars
thereof in reasonable detail.

(iii) Good Reason. Employee may terminate Employee's
employment for Good Reason. For purposes of this Agreement "Good
Reason" shall mean any of the following:

(A) Prior to the Sale of TEVCO, Employee is assigned,
without Employee's consent, any duties inconsistent with
Employee's positions, duties, responsibilities and status with
the Company immediately prior to the effective date of this
Agreement; provided, however, it is understood that the
Company may reassign Employee in anticipation of or in
conjunction with the Sale of TEVCO or any transaction with a
third party concerning all or part of TEVCO and/or its
subsidiaries, including, but not limited to, the formation of
a joint venture, and any such reassignment shall not be
construed as a Good Reason provided Employee's duties and
compensation following such reassignment remain substantially
similar to either Employee's duties and compensation before
such reassignment or the duties and compensation are as set
forth in subparagraph (B) below;

(B) After the Sale of TEVCO, Employee is assigned,
without Employee's consent, any duties and compensation
inconsistent with those of a senior executive reporting
directly to the Chief Executive Officer of the Company with
responsibilities relating to, and the position of, chief
operating officer of one or more of the Company's principal
operating units;

(C) Employee's annual rate of base salary is reduced
from $215,000 or such greater amount, if any, as may be in
effect at any time after the effective date of this Agreement
(such annual rate of base salary, as so increased, if
applicable, is referred to hereinafter as the "Base Salary")
or Employee's participation in the Transco incentive
Compensation Plan is terminated by the Company;

-2-
<PAGE> 3
(D) the principal executive offices of the Company
are relocated to a location outside the greater Houston area,
or the Company requires Employee to relocate anywhere other
than the location of the Company's principal executive offices
except for required travel on the Company's business to an
extent substantially consistent with Employee's past business
travel obligations to the Company;

(E) the Company fails to obtain the assumption of the
obligation to perform this Agreement by any successor as
contemplated in Section 4 hereof; or

(F) the Company shall violate or breach any material
obligation of the Company to indemnify Employee against any
claim, loss, expense or liability sustained or incurred by
Employee by reason, in whole or in part, of the fact that
Employee is or was an officer or director of the Company.

(iv) Sale of TEVCO. For purposes of this Agreement, the "Sale
of TEVCO" shall mean the closing date on which either of the
following shall occur:

(A) the Company sells or otherwise disposes of more
than 50% of the total combined voting power of all classes of
TEVCO stock, if, upon such sale or disposition, the Company
ceases to have effective control of TEVCO's daily operations;
or

(B) the Company causes the sale or other disposition
of substantially all of the power projects and substantially
all of the other assets of TEVCO (which includes the stock of
its subsidiaries) and its subsidiaries ("Asset Sale").
Whether, and when, an Asset Sale has occurred shall be
determined in good faith by the Company.

(v) Notice of Termination. Any termination by the Company
pursuant to subparagraph (ii) above or by Employee pursuant to
subparagraph (iii) above shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Employee's employment under the
provision so indicated.

(vi) Date of Termination. "Date of Termination" shall mean if
EmpIoyee's employment is terminated pursuant to subparagraph (iii)
above, the date specified in the Notice of Termination and if
Employees's employment is terminated for any other reason, the date of
which a Notice of Termination is given.

3. Compensation Upon Termination.

(i) if, during or coincident with the end of the Agreement
Period, Employee's employment terminates for any reason other than a
Qualified Termination, the Company shall pay Employee the amount of
Employee's earned but unpaid (the semi-monthly amount of) Base Salary
and vacation pay through the Date of Termination and the Company shall
have no further obligations to Employee under this Agreement; however,
Employee shall continue to possess such rights, if any, that may arise
other than under this Agreement.

-3-
<PAGE> 4
(ii) If, during or coincident with the end of the Agreement
Period, Employee's employment terminates by reason of a Qualified
Termination, the Company

(A) shall pay to Employee, in a single lump sum by
check, the sum of $404,000, which shall be in complete payment
and satisfaction of all rights and claims Employee may have
against the Company for (i) Base Salary (except any earned,
but unpaid, Base Salary through the Date of Termination), (ii)
benefits under any severance plan or policy of the Company for
employees, and (iii) all amounts payable under the Transco
Incentive Compensation Plan and any other bonus plan,
agreement or arrangement of the Company other than (X) the
TEVCO Incentive Plan, but excluding any claims relating to
unallocated or carryover amounts thereunder, which are
acknowledged to be included in the $404,000 payment above, or
(Y) the TEVCO Sales Incentive Plan;

(B) shall waive the payment of the premiums required
for the first 12 months of continued coverage under a group
health plan of the Company, if Employee is eligible for and
elects continuation coverage under COBRA, as set forth in Part
6, Subtitle B of Title I of ERISA, for Employee and/or his
qualifying beneficiaries under COBRA; and

(C) shall pay to Employee, in satisfaction of
Employee's vacation rights, an amount equal to (i) Employee's
vacation accrued for 1991 and 1992, but unpaid or not taken,
as the case may be, as of the date of the Qualified
Termination, plus (ii) Employee's vacation accrued, but not
vested, for 1993 through the date of the Qualified
Termination, rounded up to a full day, if necessary. The
amount of accrued, but not vested, 1993 vacation shall be the
product of (1) the number of vacation days Employee would have
earned for 1993 had Employee remained employed with the
Company through December 31, 1993 and (2) a fraction, the
numerator of which is the number of days Employee is employed
with the Company during 1993, and the denominator of which is
365.

(iii) If, prior to the end of the Agreement Period, the
Company effects a sale of TEVCO and Employee is entitled to receive a
payment under the TEVCO Sales Incentive Plan, then, and only in such
event, the Company shall pay Employee the bonus amount, if any,
determined from the table below, at the same time as payment is made
to Employee under the TEVCO Sales Incentive Plan:

<TABLE>
<CAPTION>
TEVCO Gross Sales Proceeds Bonus Amount
- -------------------------- ------------
<S> <C>
Less than $125,000,000 $ 0
$125,000,001 - $129,999,999 $ 50,000
$130,000,000 - $134,999,999 $ 75,000
$135,000,000 - $139,999,999 $ 100,000
$140,000,000 - $144,999,999 $ 125,000
$145,000,000 or more $ 150,000
</TABLE>

-4-
<PAGE> 5
The "TEVCO Gross Sales Proceeds" means the sum of the cash and the
fair market value of any property other than cash, as determined by
the investment bankers retained by the Company, received by the
Company on the Sale of TEVCO.

4. Successors: Binding Agreement.

(ii) This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If Employee should die while any amounts would still be
payable to Employee hereunder if Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's estate.

5. Notice. For the purpose of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, registered and return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the last page of this
Agreement, provided that all notices to the Company shall be directed to the
General Counsel of the Company, with a copy to the Secretary of the Company, or
to such other address as either party shall have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.

6. Employment with Subsidiaries. Employment with the Company
for purposes of this Agreement includes employment with any entity in which the
Company has a direct or indirect ownership interest of fifty percent (50%) or
more of the total combined voting power of all outstanding classes of stock or
interests.

7. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Employee and by the Chief Executive Officer or
other authorized officer of the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provisions of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.

8. Validity. The interpretation, construction and performance
of this Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Texas without regard to the principle of
conflicts of laws. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.

-5-
<PAGE> 6
9. Arbitration. Any dispute or controversy arising out of or
in connection with this Agreement as to whether Employee's employment with the
Company has terminated due to either Cause or Good Reason shall be submitted to
arbitration pursuant to the following procedure:

(ii) Within 15 days after such demand, the other party shall
name an arbitrator, or in default thereof, such arbitrator shall be
named by the Arbitration Committee of the American Arbitration
Association, and the two arbitrators so selected shall name a third
arbitrator within 15 days or, in lieu of such agreement on a third
arbitrator by the two arbitrators so appointed, a third arbitrator
shall be appointed by the Arbitration Committee of the American
Arbitration Association.

(iii) The Company shall pay 50% of Employee's reasonable
costs and expenses of arbitration; however, if the Company loses the
arbitration, the Company shall reimburse Employee for the other 50% of
Employee's reasonable costs and expenses of the arbitration

(iv) The arbitration hearing shall be held at a site in
Houston, Texas, to be agreed to by a majority of the arbitrators on
10 days' written notice to the parties.

(v) The arbitration hearing shall be concluded within 10 days
unless otherwise ordered by a majority of the arbitrators, and the
award thereon shall be made within 10 days after the close of the
submission of evidence. An award rendered by a majority of the
arbitrators appointed pursuant to this Agreement shall be final and
binding on all parties to the proceeding during the period of this
Agreement, and judgment on such award may be entered by either party
in the highest court, state or federal, having jurisdiction.

Except as specifically provided above, no other dispute or
controversy arising out of or in connection with this Agreement may be
submitted to arbitration without the mutual consent of both parties.

The parties stipulate that the provisions hereof shall be a
complete defense to any suit, action or proceeding instituted in any federal,
state, or local court or before any administrative tribunal with respect to any
controversy or dispute arising during the Agreement Period and which is
arbitrable as herein set forth. The arbitration provisions hereof shall, with
respect to such controversy or dispute, survive the termination of this
Agreement.

10. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.

11. Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.

-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company and Employee have entered into this
Agreement as of the day and year first above written.

TRANSCO ENERGY COMPANY

By:/s/ JOHN P. DESBARRES
John P. DesBarres
Chairman, President &
Chief Executive Officer

EMPLOYEE
/s/ ROBERT M. CHISTE
Robert M. Chiste

Addresses:

If to the Company:

Transco Energy Company
2800 Post Oak Boulevard
Houston, Texas 77056
Attention: General Counsel

If to the Employee:

Robert M. Chiste
15834 Hidden Cove
Houston, Texas 77079

-7-

<PAGE> 1
EXHIBIT 10.16

TRANSCO ENERGY COMPANY

AGREEMENT

This Agreement, made and entered into this 10th day of June, 1987
("Agreement"), by and between Transco Energy Company, a Delaware corporation
("Company"), and David E. Varner ("Indemnitee"):

WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of
their service to and activities on behalf of the corporation; and

WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons;

WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the inability to attract and retain such persons is detrimental
to the best interests of the Company's stockholders and that the Company should
act to assure such persons that there will be increased certainty of such
protection in the future; and

WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to serve
the Company free from undue concern that they will not be so indemnified; and

WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;

NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:

Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
director, officer, employee, agent or fiduciary of the Company. Indemnitee may
at any time and for any reason resign from such position (subject to any other
contractual obligation or any obligation imposed by operation of law), in which
event the Company shall have no obligation under this Agreement to continue
Indemnitee in any such position.

Section 2. Indemnification - General. The Company shall indemnify, and
advance Expenses (as hereinafter defined), to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on
the date hereof and to such greater extent as applicable law may thereafter
from time to time permit. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in
the other Sections of this Agreement.
<PAGE> 2
Section 3. Proceedings Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section
3, Indemnitee shall be indemnified against Expenses, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such Proceeding or any claim, issue or matter
therein, 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 Company, and, with respect to
any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.

Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
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 Company. Notwithstanding the
foregoing, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine.

Section 5. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to
and is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or
more but less than all claims, issues or matters in such Proceeding, the
Company shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this Section and without limitation,
the termination of any claim, issue or matter in such a Proceeding by
dismissal, with or without prejudice, shall be deemed to be a successful result
as to such claim, issue or matter.

Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.

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<PAGE> 3
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or accompanied
by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced
if it shall ultimately be determined that Indemnitee is not entitled to be
indemnified against such Expenses.

Section 8. Procedure for Determination of Entitlement to
Indemnification.

(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.

(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent counsel (as hereinafter defined)
(unless Indemnitee shall request that such determination be made by the Board
of Directors or the stockholders, in which case by the person or persons or in
the manner provided for in clauses (ii) or (iii) of this Section 8(b)) in a
written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of
Directors consisting of Disinterested Directors is not obtainable or, even if
obtainable, such quorum of Disinterested Directors so directs, by Independent
Counsel in a written opinion to the Board of Directors, a copy of which shall
be delivered to Indemnitee or (C) if so directed by the Board of Directors, by
the stockholders of the Company; or (iii) as provided in Section 9(b) of this
Agreement; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys, fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.

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<PAGE> 4
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent Counsel
shall be selected by the Board of Directors, and the Company shall give written
notice to Indemnitee advising him of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may, within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 8(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 8(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the
due commencement of any judicial proceeding or arbitration pursuant to Section
10(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).

Section 9. Presumptions and Effect of Certain Proceedings.

(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee
has submitted a request for indemnification in accordance with Section 8(a) of
this Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.

-4-
<PAGE> 5
(b) If the person, persons or entity empowered or selected
under Section 8 of this Agreement to determine whether Indemnitee is entitled
to indemnification shall not have made a determination within 60 days after
receipt by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification
under applicable law; provided, however, that such 60-day period may be
extended for a reasonable time, not to exceed an additional 30 days, if the
person, persons or entity making the determination with respect to entitlement
to indemnification in good faith requires such additional time for the
obtaining or evaluating of documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 9(b) shall
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 8(b) of this Agreement and if (A)
within 15 days after receipt by the Company of the request for such
determination the Board of Directors has resolved to submit such determination
to the stockholders for their consideration at an annual meeting thereof to be
held within 75 days after such receipt and such determination is made thereat,
or (B) a special meeting of stockholders is called within 15 days after such
receipt for the purpose of making such determination, such meeting is held for
such purpose within 60 days after having been so called and such determination
is made thereat, or (ii) if the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b) of this
Agreement.

(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 10. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 7 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
of this Agreement and such determination shall not have been made and delivered
in a written opinion within 90 days after receipt by the Company of the request
for indemnification, or (iv) payment of indemnification is not made pursuant to
Section 6 of this Agreement within ten (10) days after receipt by the Company
of a written request therefor, or (v) payment of indemnification is not made
within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification or such determination is deemed to have been made
pursuant to Sections 8 or 9 of this Agreement, Indemnitee shall be entitled to
an adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration

-5-
<PAGE> 6
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by an Indemnitee to enforce his rights under
Section 5 of the Agreement.

(b) In the event that a determination shall have been made
pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.

(c) If a determination shall have been made or deemed to have
been made pursuant to Section 8 or 9 of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination
in any judicial proceeding or arbitration commenced pursuant to this Section
10, absent (i) a misstatement by Indemnitee of a material fact, or an omission
of a material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 10 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.

(e) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 17 of this Agreement) actually and reasonably incurred
by him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be
appropriately prorated.

Section 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.

-6-
<PAGE> 7
(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, agents or fiduciaries of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
Which such person serves at the request of the Company, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.

(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents
as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.

Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 1 years after the date that Indemnitee
shall have ceased to serve as a director, officer, employee, agent or fiduciary
of the Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which Indemnitee served at the
request of the Company; or (b) the final termination of all pending Proceedings
in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Section 10 of this Agreement relating thereto. This Agreement shall
be binding upon the Company and its successors and assigns and shall inure to
the benefit of Indemnitee and his heirs, executors and administrators.

Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.

Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein, brought or made
by him against the Company.

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<PAGE> 8
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.

Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.

Section 17. Definitions. For purposes of this Agreement:

(a) "Change in Control" means a change in control of the
Company occurring after the Effective Date of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or
in response to any similar item on any similar schedule or form) promulgated
under the Securities Exchange Act of 1934 (the "Act"), whether or not the
Company is then subject to such reporting requirement; provided, however, that,
without limitation, such a Change in Control shall be deemed to have occurred
if after the Effective Date (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.

(b) "Corporate Status" describes the status of a person who is
or was a director, officer, employee, agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Company.

(c) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.

(d) "Effective Date" means May 20, 1987.

(e) "Expenses" shall include all reasonable attorneys, fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.

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<PAGE> 9
(f) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company or Indemnitee in any matter material to either such party, or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.

(g) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing
or any other proceeding whether civil, criminal, administrative or
investigative, except one initiated by an Indemnitee pursuant to Section 10 of
this Agreement to enforce his rights under this Agreement.

Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.

Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:

(a) If to Indemnitee, to:

2800 Post Oak Boulevard
P.O. Box 1396
Houston, Texas 77251

(b) If to the Company to:

2800 Post Oak Boulevard
P.O. Box 1396
Houston, Texas 77251

or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.

Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.

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<PAGE> 10
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.

ATTEST: TRANSCO ENERGY COMPANY

By: /s/ GRACE L. BELLINGER By: /s/ GEORGE S. SLOCUM
Grace L. Bellinger George S. Slocum

INDEMNITEE

By: /s/ DAVID E. VARNER
David E. Varner

Address: 2800 Post Oak Boulevard
P.O. Box 1396
Houston, Texas 77251

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<PAGE> 11
IDENTIFICATION AGREEMENT SCHEDULE

The Company has entered into identical Indemnity Agreements with
Robert W. Best, Robert M. Chiste, Larry J. Dagley, John P. DesBarres, Nicholas
J. Neuhausel and Thomas W. Spencer.

<PAGE> 1
EXHIBIT 10.17(a)

CERTIFICATE OF AMENDMENT

DATED JULY 30, 1992

OF SECOND RESTATED

CERTIFICATE OF INCORPORATION

Transcontinental Gas Pipe Line Corporation (the "Company"), a
corporation organized and existing under and by virtue of the General
Corporation Law or the State of Delaware, DOES HEREBY CERTIFY:

FIRST: That the Board of Directors and the Sole Stockholder of the
Company on July 1, 1992, unanimously consented to a resolution setting forth a
proposed amendment to the Second Restated Certificate of Incorporation, as
amended, declaring said amendment to be advisable for consideration thereof.
The resolution setting forth the proposed amendment is as follows:

RESOLVED, That the Second Restated Certificate of Incorporation be
amended (such amendment having been declared advisable by the Board of
Directors of the Company) so that, as amended, said Article "Tenth"
shall be and read as follows:

"Tenth: The number of directors of the Company shall be fixed as
provided in the By-laws of the Company (the "By-laws"). The directors
of the Company are elected to serve until the next annual meeting of
stockholders of the Company (or written consent in lieu thereof), and
until his successor is elected and qualified or until his earlier
resignation or removal"

SECOND: That the Board of Directors and the Sole Stockholder of the
Company unanimously consented to the adoption of such amendment pursuant to
unanimous consents of the Board of Directors and Sole Stockholder dated July 1,
1992.
<PAGE> 2
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.

FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.

IN WITNESS WHEREOF, Transcontinental Gas Pipe Line Corporation has
caused this certificate to be signed by David E. Varner, its Senior Vice
President and Secretary and attested by Grace L. Hughes, its Assistant
Secretary, this 30th day of July, 1992.

TRANSCONTINENTAL GAS PIPE LINE
CORPORATION

By: /s/ DAVID E. VARNER
David E. Varner
Senior Vice President & Secretary

ATTEST:

/s/ GRACE L. HUGHES
Grace L. Hughes
Assistant Secretary

CertAmend

<PAGE> 1
EXHIBIT 10.17(b)

CERTIFICATE OF AMENDMENT

DATED DECEMBER 22, 1987

SECOND RESTATED CERTIFICATE OF INCORPORATION

* * * * * * *

Transcontinental Gas Pipe Line Corporation (the "Company"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

FIRST: That the Second Restated Certificate of Incorporation of said
Company has been amended by changing the third paragraph of Subdivision 4 of
Part 1 of Article FOURTH and Article FOURTEENTH and renumbering Article
FIFTEENTH so that, as amended, said Articles shall be and read as follows:

In case of the redemption of only part of the Preferred Stock
of any series at the time outstanding, the Corporation shall select
by lot the shares so to be redeemed unless otherwise fixed by the
Board of Directors in the resolution or resolutions providing for
the issue of Preferred Stock of a given series referred to in
Subdivision 1 of this Part 1. The Board of Directors shall have
full power and authority to prescribe the manner in which the
drawings by lot shall be conducted.

FOURTEENTH: (a) No director of the Corporation shall be liable to
the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper
personal benefit.
<PAGE> 2
(b) The Corporation shall indemnify any person who is or
was a witness or a party, or is threatened to be made a party, to
any threatened, pending or completed action, suit or proceeding,
whether civil criminal, administrative or investigative (other than
an action by or in the right of the Corporation), by reason of the
fact that he is or was, at any time prior to or during which this
Article FOURTEENTH is in effect, a director or officer of the
Corporation, or is or was, at any time prior to or during which
this Article FOURTEENTH is in effect, serving at the request of the
Corporation as a director or officer or in any similar capacity of
another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan, whether or not involving
action in such person's official capacity as director or officer,
against reasonable expenses, including attorneys' fees, judgments,
fines, penalties, amounts paid in settlement and other liabilities
actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person 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. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not of itself
create a presumption that the person did not act 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, that such person had reasonable
cause to believe that his conduct was unlawful.

(c) The Corporation shall indemnify any person who was or
is a witness or a party, or is threatened to be made a party, to
any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, at any time prior to or
during which this Article FOURTEENTH is in effect, a director or
officer of the Corporation, or is or was, at any time prior to or
during which this Article FOURTEENTH is in effect, serving at the
request of the Corporation as a director or officer or in any
similar capacity of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan, whether
or not involving action in his official capacity as director or
officer, against reasonable expenses, including attorneys' fees,
<PAGE> 3
and amounts paid in settlement actually and reasonably incurred by
him in connection with the defense or settlement of such action or
suit, if such person 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 amounts paid in
settlement, the settlement is determined to be in the best
interests of the Corporation; provided, that no indemnification
shall be made under this sub-section (b) in respect of any claim,
issue or matter as to which such person shall have been adjudged to
be liable to the Corporation unless the Delaware Court of Chancery,
or other court of appropriate jurisdiction, shall determine that,
despite the adjudication of liability but in view of all of the
circumstances of the case, such person is entitled to
indemnification, and only to the extent of expenses and settlement
amounts determined by such court to be proper.

(d) Any indemnification under sub-section (b) or (c),
unless ordered by the Delaware Court of Chancery or other court of
appropriate jurisdiction, shall be made by the Corporation only
upon a determination that such director or officer has met the
applicable standard of conduct set forth in subsection (b) or (e),
as the case may be. Such determination shall be made (1) by the
Board of Directors by majority vote of a quorum consisting of
directors not parties to such action, suit or proceeding; or (2) if
such quorum cannot be obtained, then by a majority vote of a
Committee of the Board duly designated to act in the matter by a
majority vote of all members of the Board of Directors in which
designated directors who are parties may participate, such
Committee to consist solely of three or more directors not parties
to such proceeding at the time such Committee is constituted; or
(3) by special legal counsel selected by the Board of Directors or
the Committee provided for in (2) above, or, if the requisite
quorum of the Board of Directors cannot be obtained and such
Committee cannot be or is not established, by a majority vote of
the full Board of Directors, in which selection directors who are
parties may participate. In the event a determination is made under
this sub-section (d) that the director or officer has met the
applicable standard of conduct as to some matters but not as to
others, indemnification amounts may be reasonably prorated.
<PAGE> 4
(e) Expenses incurred in appearing at, participating in
or defending any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such action, suit
or proceeding upon receipt by the Corporation of a written
undertaking by or on behalf of the director or officer to repay
such amount if it ultimately shall be determined that he is not
entitled to be indemnified by the Corporation as authorized by this
Article FOURTEENTH.

(f) It is the intent of the Corporation to indemnify the
persons referred to in this Article FOURTEENTH to the fullest
extent permitted by law with respect to any action, suit or
proceeding arising from events that occur prior to or during the
time in which this Article FOURTEENTH is in effect. The
indemnification provided by this Article FOURTEENTH shall not be
deemed exclusive of any other rights to which those seeking
indemnification may be or become entitled under any law, By-law,
agreement, vote of stockholders or disinterested directors, or
otherwise, or under any policy or policies of insurance purchased
and maintained by the Corporation on behalf of any such director or
officer, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and
administrators of such director or officer.

(g) The indemnification and advancement of expenses
provided by this Article FOURTEENTH shall be subject to all valid
and applicable laws, and, in the event this Article FOURTEENTH or
any of the provisions hereof or the indemnification contemplated
hereby are found to be inconsistent with or contrary to any such
valid laws, the latter shall be deemed to control and this Article
FOURTEENTH shall be regarded as modified accordingly, and, as so
modified, shall continue in full force and effect.

FIFTEENTH: Subject to the terms of Article THIRTEENTH hereof, the
Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Second Restated Certificate of
Incorporation in the manner now or hereafter prescribed by statute
or this Second Restated Certificate of Incorporation, and all
rights conferred
<PAGE> 5
upon stockholders herein are granted subject to this reservation.

SECOND: That the Board of Directors and the Sole Stockholder of the
Company unanimously consented to the adoption of such amendments pursuant to
unanimous consent of the Board of Directors and Sole Stockholder dated December
19, 1986.

THIRD: That said amendments were duly adopted in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.

FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.

IN WITNESS WHEREOF, Transcontinental Gas Pipe Line Corporation has
caused this certificate to be signed by David E. Varner, its Senior Vice
President & Secretary, and attested by Grace L. Bellinger, its Assistant
Secretary, this 22nd day of December, 1986.

TRANSCONTINENTAL GAS PIPE LINE
CORPORATION

By: /s/ DAVID E. VARNER
David E. Varner
Senior Vice President & Secretary

ATTEST:

/s/ GRACE L. BELLINGER
Grace L. Bellinger
Assistant Secretary

RECEIVED FOR RECORD
DEC 30 1986
Leo J. Dugan, Jr., Recorder

<PAGE> 1
EXHIBIT 10.17(c)

CERTIFICATE OF AMENDMENT

DATED AUGUST 5, 1987

OF SECOND RESTATED

CERTIFICATE OF INCORPORATION

* * * * * *

Transcontinental Gas Pipe Line Corporation (the "Company"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

FIRST: That the Board of Directors and the Sole Stockholder of the
Company on August 5, 1987, unanimously consented to resolutions setting forth
proposed amendments to the Second Restated Certificate of Incorporation, as
amended, declaring said amendments to be advisable for consideration thereof.
The resolutions setting forth the proposed amendments are as follows:

RESOLVED, That the Second Restated Certificate of Incorporation,
as amended, be amended by adding an Article numbered "Sixteenth" so
that, as amended, said Article shall be and read as follows:

"SIXTEENTH: A Director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware
General Corporation Law as the same exists or may hereafter be
amended.

Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission
occurring prior to such repeal or modification.
<PAGE> 2
In addition to any requirements of law or of any other provisions
of this Second Restated Certificate of Incorporation, the affirmative
vote of the holders of 80% or more of the voting power of the then
outstanding stock of the Corporation entitled to vote thereon shall be
required to amend, alter or repeal this Article."

SECOND: That the Board of Directors and the Sole Stockholder of the
Company unanimously consented to the adoption of such amendments pursuant to
unanimous consents of the Board of Directors and Sole Stockholder dated August
5, 1987.

THIRD: That said amendments were duly adopted in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.

FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.

TRANSCONTINENTAL GAS PIPE LINE
CORPORATION

By: /s/ DAVID E. VARNER
David E. Varner
Senior Vice President & Secretary

ATTEST:

/s/ GRACE L. BELLINGER
Grace L. Bellinger
Assistant Secretary

RECEIVED FOR RECORD
AUG 14 1987
William M. Honey, Recorder

<PAGE> 1
EXHIBIT 10-26
Composite Copy
Thru 1st Amendment

TEXAS GAS

SUPPLEMENTAL BENEFIT PLAN

Effective as of
October 1, 1976
<PAGE> 2
TEXAS GAS

SUPPLEMENTAL BENEFIT PLAN

WHEREAS, Texas Gas Transmission Corporation, a Delaware corporation
(the "Corporation"), has adopted the Texas Gas Retirement Plan, which was
amended and restated in its entirety effective October 1, 1976 (the "Retirement
Plan"), and

WHEREAS, pursuant to the terms of the Retirement Plan, the benefits of
certain employees of the Corporation will be reduced because of the provisions
of Section 415 of the Internal Revenue Code, and

WHEREAS, the Corporation desires to provide a supplemental benefit to
such persons in the amount of the reduction of benefits under the Retirement
Plan, and

WHEREAS, the Board of Directors of the Corporation has approved the
adoption of this Plan for such purpose.

NOW, THEREFORE, the Corporation hereby adopts the following Plan:

ARTICLE I

PURPOSE AND DEFINITIONS

1.1 Purpose of Supplemental Plan. The purpose of this
Supplemental Plan is to provide supplemental benefits to employees whose
benefits under the Retirement Plan are reduced because of the application of
Section 415 of the Internal Revenue Code of 1954, as amended (the "Code"), such
supplemental benefits to be equal to the reduction of benefits under the
Retirement Plan.

1.2 Definitions.

(a) Supplemental Benefit - The benefit described in
Section 3.1.

(b) Supplemental Plan - The Texas Gas Supplemental
Benefit Plan provided for herein, as it may be amended from time to time.

(c) Other Definitions - All definitions in the
Retirement Plan, when used herein, shall have the meaning given in the
Retirement Plan, unless the context requires, or specifically provides,
otherwise.

-2-
<PAGE> 3
ARTICLE II

PARTICIPATION

2.1 Eligible Employees. Each employee of the Corporation who is a
Member of the Retirement Plan after September 30, 1976, shall participate in
this Supplemental Plan to the extent of the benefits stated herein; provided
that, if he is employed partially by the Corporation and partially by another
Employer who has adopted the Retirement Plan, such person shall not fully
participate herein unless his Employer has agreed to bear its proportionate
share of the cost of this Supplemental Plan with respect to its Employees.

2.2 Termination of Participation. An Employee's participation
under this Supplemental Plan shall terminate coincident with the termination of
his Membership under the Retirement Plan.

-3-
<PAGE> 4
ARTICLE III

Supplemental Benefits

3.1 Amount of Supplemental Benefits. The Member shall receive a
Supplemental Benefit under this Supplemental Plan in an amount equal to the
difference, if any, between (a) his standard form of Monthly Retirement Income
computed under Articles IV or V of the Retirement Plan, as the case may be, and
(b) his standard form of Monthly Retirement Income computed under such Articles
IV or V of the Retirement Plan, reduced as provided in Sections 16.11 through
16.13 of the Retirement Plan.

3.2 Payment of Supplemental Benefit. The Supplemental Benefit
shall be distributed to the Member as a monthly income commencing on his actual
retirement date and continuing for 120 months certain and for his lifetime
thereafter and shall be the Actuarial Equivalent of the Supplemental Benefit
determined under the provisions of Section 3.1. In the event the Supplemental
Benefit is not paid to a Member because of his death, such benefit shall be
payable to the same Beneficiary, Contingent Beneficiary, or Spouse receiving
his Monthly Retirement Income or Death Benefit under the Retirement Plan.

3.3 Source of Supplemental Benefit. The Supplemental Benefit
shall be paid exclusively from the general assets of the Corporation and no
Member or other person shall have any right or claim to the payment of a
Supplemental Benefit which in any manner whatsoever is superior to or different
from the right or claim of a general and unsecured creditor of the Corporation.

-4-
<PAGE> 5
ARTICLE IV

ADMINISTRATION OF SUPPLEMENTAL PLAN

4.1 Duties and Powers of Retirement Board. The Retirement Board
appointed pursuant to Article VI of the Retirement Plan shall be responsible
for the operation and administration of this Supplemental Plan and in the
performance of such duties shall have the power to make, amend, interpret, and
enforce all appropriate rules and regulations for the operation and
administration of this Supplemental Plan. The Retirement Board shall interpret
this Supplemental Plan and shall determine all questions that may arise in the
operation and administration of this Supplemental Plan.

4.2 Finality of Decisions of Retirement Board. The decisions or
actions of the Retirement Board with respect to any question or matter arising
out of or in connection with the operation and administration of this
Supplemental Plan shall be final and conclusive upon all persons having any
interest in this Supplemental Plan.

-5-
<PAGE> 6
ARTICLE V

AMENDMENT, SUSPENSION, OR TERMINATION

5.1 Right to Amend, Suspend, or Terminate. The Board of Directors
may, in its sole discretion, amend, suspend, or terminate this Supplemental
Plan at any time or from time to time, in whole or in part.

5.2 Conditions to Amendment, Suspension, or Termination.
Notwithstanding the provisions of Section 5.1, no amendment, suspension, or
termination shall adversely affect (a) the Supplemental Benefit of any Member,
or the Beneficiary, Contingent Beneficiary, or Spouse of any Member, who has
retired prior thereto, or (b) the right of any Member then employed by the
Corporation to receive upon retirement, or his Beneficiary, Contingent
Beneficiary, or Spouse to receive upon his death, the Supplemental Benefit to
which such person would have been entitled under this Supplemental Plan prior
to its amendment, suspension, or termination.

-6-
<PAGE> 7
ARTICLE VI

LIMITATIONS ON RIGHTS OF PARTICIPANTS

6.1 Prohibition Against Assignment. No interest of a Member or any
other person, and no Supplemental Benefit payable hereunder, may be commuted,
sold, assigned, transferred, or otherwise conveyed, whether directly or by
operation of law or legal process, and all such payments and rights thereto are
expressly declared to be nonassignable and nontransferrable; and, in the event
of any attempt of assignment or transfer, the Corporation shall have no further
liability hereunder.

6.2 Limitation on Rights. This Supplemental Plan shall not be
deemed to constitute a contract between any Member and the Corporation or to be
a consideration or an inducement for the employment of any Member by the
Corporation. Nothing contained in this Supplemental Plan shall be deemed to
give any Member the right to be retained in the service of the Employer or to
interfere with the right of the Employer to discharge any Member at any time
regardless of the effect which such discharge might have upon such Member in
this Supplemental Plan.

-7-
<PAGE> 8
ARTICLE VII

MISCELLANEOUS

7.1 Construction.

(a) This supplemental Plan shall be construed and
enforced according to the laws of the Commonwealth of Kentucky, and all
provisions hereunder shall be administered according to such laws thereof. it
is intended that this Supplemental Plan be exempt from Title I of the Employee
Retirement Income Security Act of 1974, as amended, under Section 4(b)(5)
thereof, as an excess benefit plan which is unfunded, and any ambiguities in
construction shall be resolved in favor of interpretations which will
effectuate such intentions.

(b) Any words herein used in the masculine or neuter
shall read and be construed in the feminine, masculine, or neuter where they
would so apply, words in the singular shall be read and construed as though
used in the plural in all cases where they would so apply.

7.2 Titles and Headings. Titles of articles and headings of
sections are inserted for convenience of reference only and, in the event of
any conflict, the text of this Supplemental Plan, rather than such titles and
headings, shall control.

7.3 Effective Date. The effective date of this Supplemental Plan
shall be October 1, 1976.

IN WITNESS WHEREOF, the Corporation has, on the 15th day of August,
1977, caused this Supplemental Plan to be duly executed.

TEXAS GAS TRANSMISSION CORPORATION

By /s/ DENNIS HENDRIX
Title President

-8-

<PAGE> 1
31

EXHIBIT 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (This discussion should
be read in conjunction with the Consolidated Financial
Statements and Selected Financial Data included elsewhere in
this report.)

INTRODUCTION

In October 1991 Transco's Board of Directors approved a comprehensive strategic
and financial plan (Plan) designed to stabilize Transco's financial position,
improve its financial flexibility and restore its earnings. Since the Plan's
adoption, Transco has made significant progress in the implementation of the
Plan, including the sale of certain non-core and non-strategic businesses,
reduction in capital expenditures, resolution of certain material litigation
and improvement in its results of operations and financial flexibility.

The Company remains committed to deleveraging its balance sheet, further
eliminating or mitigating the potentially adverse impact from the resolution of
remaining litigation and contingencies and improving financial results.

In order to further improve financial results, in conjunction with efforts to
reduce debt and related interest expense, the Company will continue efforts to
ensure the solid financial performance of TGPL and Texas Gas, while working to
eliminate operating losses from Gas Marketing and Gas Gathering.

CAPITAL RESOURCES AND LIQUIDITY

FINANCINGS

Transco funds its capital requirements, including its working capital
requirements, with cash flows from operating activities, including the sale of
trade receivables, supplemented, when required, with borrowings under its $450
million working capital line. In 1993, the Company also received the benefits
of the proceeds from the TEVCO sale and the transfer of the coalbed methane
properties. At December 31, 1993, the Company had $142 million in short-term
investments and no outstanding borrowings under its $450 million working
capital line.

As discussed in Notes E and M of the Notes to Consolidated Financial
Statements, during 1993 and January 1994 Transco:

- entered into new trade receivables programs for TGPL and Texas Gas to
provide for the sale of up to $140 million of trade receivables;
- amended and extended the $450 million working capital line of the
Transco Bank Credit Facility through 1996;
- repriced the interest rate on TGPL's Extendible Notes due May 15, 2000
to a rate of 6.21% until May 14, 1996; and
- executed five-year interest rate swap agreements with a group of banks to
convert an additional $150 million of fixed-rate debt to floating-rate
debt.

With the completion of these steps, Transco expects to reduce its interest
expense and provide sources to fund its capital requirements.

As discussed in Note F of the Notes to Consolidated Financial Statements, in
November 1993 Transco sold a new $3.50 series Preferred Stock and redeemed the
9.25% Preferred Stock. The redemption of the 9.25% Preferred Stock will improve
the Company's financial results by reducing its fixed charges and by
eliminating the obligation to redeem the 9.25% Preferred Stock upon maturity in
April 1999.

Texas Gas has $150 million of 10% debentures that mature November 1, 1994,
which Texas Gas intends to refinance.

PROCEEDS FROM ASSET SALES

As discussed in Notes J and L of the Notes to Consolidated Financial
Statements, Transco closed the sale of the common stock of TEVCO for $150
million in cash and completed the transfer of Magnolia's interest in the
coalbed methane properties for initial proceeds of $15.5 million in cash. The
sale of TEVCO allowed Transco to exit a business that it saw growing
increasingly more international. The exit is consistent with the Company's
strategic focus and near-term funding abilities if Transco is to continue
expanding its natural gas businesses and improve its balance sheet. In
addition, the Company completed the transfer of its coalbed methane properties
in order to eliminate the need for future capital investments by the Company
and to eliminate losses incurred in the operations of these properties. The net
cash proceeds from these transactions were used for general corporate purposes
and short-term investments.
<PAGE> 2
32

CAPITALIZATION AND CASH FLOWS

As shown in the following table, at December 31, 1993, the percentage of total
debt to total invested capital was 72.7% compared to 71.7% at December 31,
1992. Although total debt decreased by $63 million from December 31, 1992, the
charges in 1993, including the writedown of the Company's investment in the
coalbed methane properties, the settlement of the Corpus Christi litigation and
the write-off of a note receivable, as discussed in Notes L, C and K of the
Notes to Consolidated Financial Statements, had the effect of increasing the
percentage of total debt to total invested capital.

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(IN MILLIONS)

<S> <C> <C> <C>
Common Stockholders' Equity $ 391.3 $ 429.9 $ 386.8
Preferred Stock 340.6 362.7 367.7
Long-term Debt, less Current Maturities 1,786.6 1,819.9 1,721.8
-------------- -------------- ------------
Total Capitalization 2,518.5 2,612.5 2,476.3
Short-term Debt and Current Maturities of Long-term Debt 159.5 188.8 398.0
-------------- -------------- ------------
Total Invested Capital $ 2,678.0 $ 2,801.3 $ 2,874.3
============== ============== ============

Long-term Debt, less Current Maturities as a Percentage
of Total Capitalization 70.9% 69.7% 69.5%
Common Stockholders' Equity as a Percentage of
Total Capitalization 15.5% 16.5% 15.6%
Total Debt as a Percentage of
Total Invested Capital 72.7% 71.7% 73.8%
</TABLE>

Short-term investments of $142 million at December 31, 1993 were the result of
the TEVCO sale proceeds. The Company expects to use a substantial portion of
these short-term investments in 1994 to fund TGPL's rate refund obligation to
non-affiliated companies.

As shown in the accompanying Consolidated Statement of Cash Flows, for the year
ended December 31, 1993, Transco had net positive cash flows primarily from the
operations of TGPL and Texas Gas, the sale of assets and recoveries of producer
settlements. This positive cash flow provided sufficient funding for Transco's
capital requirements and repayment of $63 million of long-term debt.

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In millions)
<S> <C> <C> <C>
Cash Flows Provided By Operating Activities $276.2 $29.2 $ 254.9
====== ===== =======
</TABLE>

For the year ended December 31, 1993, consolidated net cash flows from
operating activities were $247 million greater than for the year ended December
31, 1992. This improvement in cash flows is primarily the result of TGPL's cash
refunds of approximately $176 million paid to customers in 1992 in connection
with the Transition Cost proceeding and its Rate Settlement, as discussed in
Note B of the Notes to the Consolidated Financial Statements, combined with
TGPL's higher collection in 1993 of revenues subject to refund and lower
payments in 1993 for producer settlements.

For the year ended December 31, 1992, as compared to 1991, Transco had lower
consolidated net cash flows from operating activities of $226 million resulting
primarily from refunds made to customers in connection with TGPL's Transition
Cost proceeding and its Rate Settlement.

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In millions)
<S> <C> <C> <C>
Cash Flows Provided By (Used In)
Financing Activities $(162.3) $(89.9) $133.7
======= ====== ======
</TABLE>

Consolidated net cash flows used in financing activities for the year ended
December 31, 1993, included cash outflows for the redemption of the 9.25%
Preferred Stock for $133 million, primarily with the net proceeds from the sale
of the $3.50 series Preferred Stock of $121 million, cash outflows for the
retirement of $26 million of TGPL preferred stock and $63 million of long-term
debt by Transco, TGPL and Coal and dividends of $59 million on common and
preferred stock.
<PAGE> 3
33

The consolidated net cash flows used in financing activities for the year ended
December 31, 1992, included net cash inflows of $293 million from the sale of
Transco's 11 1/4% notes, offset by cash outflows of $103 million for the
retirement of other long-term debt by TGPL and Coal and $320 million for the
retirement of short-term debt. Also included were dividends of $55 million on
common and preferred stock.

The consolidated net cash flows from financing activities in 1991 included cash
inflows of $346 million from Transco's issuance of 9 3/8% ten-year notes and
9 1/8% seven-year notes, partly offset by cash outflows of $104 million for the
retirement of long-term debt by TGPL, Coal and Transco and $34 million for the
retirement of short-term debt. Also included were dividends of $71 million on
common and preferred stock.

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In millions)
<S> <C> <C> <C>
Cash Flows Provided By (Used In)
Investing Activities $ 37.1 $ 43.4 $(386.9)
======= ====== =======
</TABLE>

For the year ended December 31, 1993, consolidated net cash flows from
investing activities included net proceeds from the sale of the TEVCO common
stock and the transfer of Transco's interest in the coalbed methane properties
and the recovery of producer settlement costs by TGPL and Texas Gas. Cash
outflows included expenditures for property, plant and equipment and
investments in unconsolidated affiliates, as shown in the table below.

For the year ended December 31, 1992, consolidated net cash flows from
investing activities included net proceeds from the sales of assets, the
receipt of the final liquidating distribution from Transco Exploration
Partners, Ltd. (TXP) and TGPL's and Texas Gas' recovery of producer settlement
costs. Cash outflows included capital expenditures for property, plant and
equipment and investments in unconsolidated affiliates, as shown in the table
below, and deposits of approximately $45 million for future equity
contributions to be made by TEVCO in connection with certain cogeneration
projects.

For the year ended December 31, 1991, consolidated cash flows used in investing
activities included capital expenditures and investments in unconsolidated
affiliates, as shown in the table below, partly offset by cash inflows from
TGPL and Texas Gas' sale of producer settlement receivables and recovery of
producer settlement costs, net of recoverable producer settlement payments.

Budget Actual
Capital Expenditures and ------ ------------------------------------
Investments in Unconsolidated Affiliates 1994 1993 1992 1991
- ---------------------------------------- ------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C>
Pipelines
TGPL
Market-Area Projects $ 50.3 $ 13.1 $ 54.6 $ 128.3
Supply-Area Projects 10.4 27.3 16.1 43.1
Maintenance of Existing Facilities
and Other Projects 109.0 69.8 45.0 70.7
Texas Gas
Market-Area Projects 4.9 6.5 19.8 30.8
Maintenance of Existing Facilities
and Other Projects 36.3 26.5 18.4 26.4
Other 7.0 2.4 1.7 12.2
------- ------- -------- --------
Total Pipelines 217.9 145.6 155.6 311.5
Gas Marketing 2.9 1.5 2.1 7.1
Coal 9.9 14.7 9.0 10.4
Gas Gathering 0.6 0.3 0.3 13.2
Oil and Gas
Conventional -- -- 4.9 29.5
Coalbed Methane -- 7.9 15.5 88.2
Power Generation -- 8.9 8.1 7.9
Intersegment Eliminations (TGPL Expenditures) -- (5.6) (17.1) --
------- ------- --------- ---------
Total Capital Expenditures and Investments
in Unconsolidated Affiliates $ 231.3 $ 173.3 $ 178.4 $ 467.8
======= ======= ========= =========
</TABLE>
<PAGE> 4
34

FUTURE CAPITAL EXPENDITURES

As shown in the table above, the Company has budgeted $231 million for 1994
capital expenditures and investment in affiliates, of which approximately 95
percent is planned for its pipeline business. The increase in expected capital
expenditures in 1994 over 1993 and 1992 levels is generally related to pipeline
expansion projects, primarily TGPL's Southeast Expansion Projects.

In November 1993 TGPL filed for FERC approval of its Southeast Expansion
Projects. These new expansion projects will provide additional firm
transportation capacity to growing southeastern markets in Alabama, Georgia,
South and North Carolina, and Virginia.

The proposed Southeast Expansion Projects are expected to be phased into
service beginning in 1994, and, upon completion, will provide a total of 200
MMcf/d of firm transportation capacity to TGPL's southeast customers by the
1996-1997 winter heating season. The new firm transportation capacity will
extend from TGPL's Mobile Bay lateral interconnect, near Butler, Alabama, to
delivery points upstream of TGPL's Compressor Station 165 near Chatham,
Virginia. The expansion projects will include approximately 25 miles of
pipeline replacement and looping and the installation of additional compression
totaling approximately 70,000 horsepower. TGPL estimates the cost of the
expansion to be $125 million and has proposed rates based on the straight
fixed-variable (SFV) rate design methodology.

The 1994 Southeast Expansion Project (SE94) will provide 35 MMcf/d of
incremental firm capacity by the 1994-1995 winter heating season. The 1995-1996
Southeast Expansion Project (SE95-96) will be constructed in two phases: Phase
I will add 115 MMcf/d of incremental firm capacity for the 1995-1996 winter
heating season, and Phase II will add the remaining 50 MMcf/d for the 1996-1997
winter heating season.

Construction on SE94 is scheduled to begin in June 1994. TGPL expects to invest
approximately $45 million in these projects in 1994.
In 1992 Liberty Pipeline Company, a partnership of interstate pipelines and
local distribution companies, filed for FERC approval to construct and operate
a natural gas pipeline to provide 500 MMcf/d in firm transportation service to
the greater New York City area. The partnership is comprised of subsidiaries of
Transco and two other interstate pipelines and subsidiaries of three Transco
customers in New York.

The pipeline is expected to cost approximately $162 million and is proposed to
be in service by the 1995-96 winter heating season, subject to timely FERC
approval. The pipeline will offer a new firm transportation route from TGPL and
another interstate pipeline to a proposed new delivery point on Long Island
near the John F. Kennedy Airport.

Transco Liberty Pipeline Company, an affiliate of TGPL, owns a 35 percent
interest in the pipeline, which will be project-financed. Transco Liberty
Pipeline Company expects its equity contribution to be approximately $14
million. In addition, TGPL anticipates investing approximately $78 million on
existing TGPL facilities upstream of Liberty Pipeline to provide additional
transportation capacity for subsequent delivery to the Liberty Pipeline. The
expenditures involve looping existing facilities and adding compression in
Pennsylvania and New Jersey. Texas Gas plans to spend approximately $80 million
on expansion projects to provide upstream transportation capacity to the
Liberty Pipeline. The expenditures involve constructing approximately 51 miles
of pipeline looping from Kentucky to Ohio. The expansion will permit delivery
of an additional 135 MMcf/d to Lebanon, Ohio, for subsequent delivery to
Liberty customers. The expenditures for the equity contribution as well as the
majority of the expenditures for the TGPL and Texas Gas upstream expansion are
expected to be made in 1995 and 1996.
<PAGE> 5
35

OTHER CAPITAL REQUIREMENTS AND CONTINGENCIES

INVESTMENT IN NONOPERATING INTEREST IN COALBED METHANE PROPERTIES

As discussed in Note L of the Notes to Consolidated Financial Statements, at
December 31, 1993, Transco's nonoperating interest in the coalbed methane
properties totaled $131 million (after the effects of the $97 million charge in
1991, the $70 million charge in 1993 and the $15.5 million of cash proceeds
received from TECO). Of the total $131 million net investment, approximately
$93 million relates to unproved properties. Transco will continue to monitor
the status of the unproved properties as well as TECO's future plans for
development of the unproved properties.

Transco has been advised by TECO that TECO's initial plans for the coalbed
methane properties transferred from Magnolia include the completion of shallow
zones in an area with 75 producing wells because TECO believes that such
development provides the best immediate opportunity for increases in production
and favorable economic results from the required investment. Through December
31, 1993, TECO has made completions in shallow zones in five wells, four of
which have been judged successful. During 1994 TECO expects to make shallow
zone completions in additional wells that currently have completions in the
deeper zones.

In another area, as of December 31, 1993, 145 wells have been drilled, of which
72 wells have been completed with 64 wells producing and 8 wells capable of
production, but shut-in by TECO pending evaluation of these wells. Although no
comprehensive evaluation plan has been prepared, in 1994 TECO expects to begin
completing those wells that appear to provide the best opportunity for
increased production. These wells may include nonproducing wells that have not
been completed previously and/or producing wells with shallow zones that have
not been completed. There are a number of shallow zones in this area that have
not been completed. TECO expects to have its evaluation of this second area
completed by the end of 1994.

INVESTMENT IN MAGNOLIA PIPELINE

At December 31, 1993, Transco's investment in the Magnolia Pipeline totaled $68
million. The ultimate recovery of Transco's investment in the Magnolia Pipeline
is dependent on transportation of gas produced in the Black Warrior Basin,
including the properties transferred to TECO, as well as transportation of gas
from other sources.

ORDER 636 TRANSITION COSTS

As discussed in Note B of the Notes to Consolidated Financial Statements, TGPL
and Texas Gas implemented Order 636 services effective November 1, 1993.

As a result of the implementation of Order 636, Texas Gas expects to incur
transition costs, primarily related to gas supply realignment (GSR) costs,
which are not currently expected to exceed approximately $90 million. Order 636
provides that pipelines should be allowed the opportunity to recover all
prudently incurred transition costs. TGPL does not expect to incur GSR costs
associated with its firm sales service. TGPL's non-GSR transition costs are
anticipated to be in a range of $5 million to $10 million. Texas Gas and TGPL
expect that any transition costs incurred should be recovered from their
customers, subject only to the costs and other risks associated with the
difference between the time such costs are incurred and the time when those
costs may be recovered from customers. On January 28, 1994, Texas Gas submitted
its first filing to recover $11.5 million of GSR costs pursuant to the
transition cost recovery provisions of Order 636 and Texas Gas' approved Gas
Tariff.

Transco does not believe that Order 636 transition costs to be incurred by
Texas Gas and TGPL will have a material adverse effect on its financial
position or results of operations.
<PAGE> 6
36

RATE REFUNDS

As discussed in Note B of the Notes to Consolidated Financial Statements, TGPL
received a FERC order accepting an Offer of Settlement (the Settlement) in
connection with its general rate case (Docket No. RP92-137) on November 4,
1993. In early 1994 TGPL will make the initial refunds (approximately $100
million, including interest) under the Settlement. TGPL has previously provided
a reserve for that refund. TGPL has also provided a reserve which it believes
is sufficient for any additional refunds that may be required under Docket No.
RP92-137. Texas Gas has a pending rate case (Docket No. RP93-106) under which
it is currently collecting rates subject to refund. If the pending rate case is
settled in 1994, refunds may be required during 1994. Texas Gas has provided a
reserve which it believes is adequate for any refunds that may be required.

REGULATORY AND LEGAL PROCEEDINGS

As discussed in Notes B and C of the Notes to Consolidated Financial
Statements, Transco, TGPL, Texas Gas and other Transco subsidiaries are
involved in several pending regulatory and legal proceedings. Because of the
complexities of the issues involved in these proceedings, Transco cannot
predict the actual timing of resolution or the ultimate amounts which might
have to be refunded or paid in connection with the resolution of these pending
regulatory and legal proceedings.

Although no assurances can be given, Transco does not believe that the ultimate
resolution of these pending regulatory and legal proceedings will have a
material adverse effect on its financial position or results of operations.

LONG-TERM GAS PURCHASE CONTRACTS

As discussed in Note M of the Notes to Consolidated Financial Statements,
certain of Transco's subsidiaries have long-term gas purchase contracts
containing take-or-pay provisions and prices which are not variable market
based. Future changes in market conditions affecting the volumes of gas sold
and prices of natural gas may expose the Company to financial risks pursuant to
these provisions.

TGPL

Following is a summary of TGPL's estimated purchase commitments for the next
five years and cumulative thereafter under gas purchase contracts that contain
either fixed prices or variable prices that are at a significant premium to the
estimated market price.

Total Dollar
Estimated Purchase Commitments(1) Commitment
- --------------------------------- --------------
(In millions)
1994 $119.6
1995 70.5
1996 33.6
1997 32.0
1998 5.8
Cumulative thereafter 68.5
_______________
(1) The declines in estimated purchase commitments over future periods
reflect contract expirations and, to a lesser extent, estimated
deliverability declines. There are inherent risks in estimating gas
reserves and gas deliverability. To the extent actual reserves and
actual deliverability are different than those estimated in
determining future purchase obligations or to the extent additional
reserves are added under contracts or as a result of future drilling,
TGPL's future purchase obligations could be increased or decreased
from the amounts shown above. The total dollar commitment in the table
reflects gross dollar amounts to be paid under the gas purchase
contracts. The market price is based on an estimate of future market
prices issued by Petroleum Industry Research Associates, Inc.

TGPL's supply purchase contracts are structured in a variety of ways. While
many contracts still contain minimum purchase take-or-pay volume provisions,
others stipulate the availability of gas for purchase but contain no minimum
purchase requirements. Currently, approximately 80% of TGPL's portfolio is
variable priced relative to the spot market which results in a price that is
competitive in the natural gas market. Less than 1% of the portfolio is tied to
the fuel oil market.

Pursuant to a settlement that TGPL has with all its customers, TGPL has in
place a Gas Inventory Charge (GIC) designed to allow TGPL to recover its
above-spot-market gas costs through March 31, 2001. TGPL believes that the GIC
agreed to with its customers will be adequate to enable full recovery of its
above-spot-market gas costs. However, TGPL is at risk for any above-spot-market
gas costs it may incur in excess of the amounts recovered under the GIC.
<PAGE> 7
37

Texas Gas

During 1993, as part of Texas Gas' restructuring under Order 636, Texas Gas
engaged in negotiations with suppliers which have resulted in the successful
termination of approximately 90% of Texas Gas' deliverability under its gas
purchase contracts with pricing provisions that are not variable market based.
Gas purchased under its remaining contracts with pricing provisions that are
not variable market based is being resold at a monthly auction pursuant to
Order 636. Texas Gas continues to pay the actual contract price to the supplier
and is entitled to file for full recovery of the difference between the
contract price and the amount received for sales at auction as GSR costs under
Order 636.

Through December 31, 1993, Texas Gas had paid or committed to pay a total of
$38 million for GSR costs, primarily as a result of the contract terminations.
As of December 31, 1993, Texas Gas had paid $13 million of such costs; the
remaining $25 million was recorded as a current liability in the accompanying
Consolidated Balance Sheet. Pursuant to Order 636, Texas Gas may file to
recover 100% of these costs as GSR costs.

Transco Energy Marketing Company (TEMCO)

At December 31, 1993, TEMCO had no minimum purchase commitments under long-term
gas purchase contracts with pricing provisions that are not variable market
based or at a significant premium to market prices. During 1993, the
termination of certain contracts and the realignment of Gas Marketing
eliminated those purchase commitments that had been at fixed prices or at
variable prices at a significant premium to market price.

TEMCO has entered into sales agreements with customers that provide for
above-spot-market gas sales prices and expects such sales agreements will be
adequate to permit TEMCO to recover its gas purchase costs. However, because
certain of its gas purchase contracts contain floor price provisions, a low
spot market price environment of $1.50 or less may expose TEMCO to financial
risks of not fully recovering its gas costs.

Further, TEMCO has entered into firm transportation agreements to assure its
delivery capability related to certain gas sales contracts. During 1993 TEMCO
incurred costs for firm transportation capacity that was not fully used during
1993. Such costs negatively impacted Gas Marketing's operating income (see
Results of Operations--Gas Marketing).

Consolidated

Transco does not believe that the financial risk associated with long-term gas
purchase contracts will have a material adverse effect on the Company's
consolidated financial position or results of operations.

ENVIRONMENTAL MATTERS

As discussed in Note D of the Notes to Consolidated Financial Statements,
Transco and certain of its subsidiaries are subject to extensive federal, state
and local environmental laws and regulations which affect Transco's operations
related to the construction and operation of pipeline facilities, oil and gas
exploration, development and production and coal mining.

TGPL and Texas Gas consider environmental assessment and remediation costs and
costs associated with compliance with environmental standards to be recoverable
through rates, since they are prudent costs incurred in the ordinary course of
business. To date, TGPL and Texas Gas have been permitted recovery of
environmental costs incurred and it is their intent to continue seeking
recovery of such costs, as incurred, through rate filings.

RESTRICTIVE COVENANTS

Transco's ability to incur debt, pay dividends on its common and preferred
stock and to make certain investments is governed by certain restrictive
covenants of various debt instruments, as described in Note E of the Notes to
Consolidated Financial Statements.

CONCLUSION

Although no assurances can be given, the Company currently believes that the
aggregate of cash flows from operating activities, supplemented by borrowings
under the working capital line of the Amended Transco Bank Credit Facility,
will provide sufficient liquidity to meet its capital requirements.
<PAGE> 8
38

RESULTS OF OPERATIONS

CONSOLIDATED

The table below shows the consolidated results of operations for the periods
presented and the effects of certain selected items that have impacted those
results.

<TABLE>
<CAPTION>
1993 1992 1991
----------------- ------------------- -----------------
Per Per Per
Amount Share Amount Share Amount Share
------ ----- ------ ----- ------ -----
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED NET INCOME BEFORE SELECTED ITEMS $ 32.3 $ 0.82 $ 9.0 $ 0.29 $ 25.0 $ 0.85
Gain on sale of TEVCO 31.6 0.81 -- -- -- --
Corpus Christi settlement (32.7) (0.84) -- -- -- --
Capitalized costs in excess of ceiling limitation (45.5) (1.16) (23.2) (0.73) -- --
Write-off of note receivable (12.5) (0.32) -- -- -- --
Gains (losses) on sales of assets, net (0.5) (0.01) (55.7) (1.74) -- --
Federal tax rate increase (1.6) (0.04) -- -- -- --
Income (loss) from operations
of discontinued segment (0.1) -- 2.6 0.08 (4.7) (0.16)
Gain on final liquidating distribution from TXP -- -- 11.7 0.36 -- --
Provision for producer settlements, legal and
regulatory issues -- -- (19.5) (0.61) (54.8) (1.87)
Provision for Transition Cost proceeding -- -- -- -- (47.6) (1.62)
Provision for asset impairments -- -- -- -- (87.0) (2.97)
Provision for restructuring -- -- -- -- (28.6) (0.97)
Benefits of resolution of certain TGPL and
Texas Gas rate issues -- -- -- -- 4.6 0.16
------- ------- ------- ------- ------- -------
CONSOLIDATED NET INCOME (LOSS) $ (29.0) $ (0.74) $ (75.1) $ (2.35) $(193.1) $ (6.58)
======= ======= ======= ======= ======= =======
</TABLE>

1993 COMPARED TO 1992

Excluding the net income impact of the selected items in 1993 and 1992 shown
above, Transco's consolidated results for 1993 were $23.3 million, or $0.53 per
share, higher than the results for 1992, primarily because of continued growth
in earnings in Pipelines, improved financial results from Coal and lower net
interest expense, partially offset by greater losses in Gas Gathering. The
financial results of Power Generation have been classified as discontinued
operations in the accompanying Consolidated Statement of Operations.

As shown in the table below, pre-tax consolidated net interest expense for 1993
was $13.2 million less than 1992, primarily due to the reduction of debt with
the net proceeds from asset sales, a common stock offering and the final TXP
liquidating distribution in 1992, the net proceeds from the TEVCO sale and
improved cash flows from operating activities in 1993. The prior years' net
interest expense associated with Power Generation has been reclassified to
conform to the 1993 presentation in the Consolidated Statement of Operations.

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In millions)
<S> <C> <C> <C>
Consolidated interest expense relating to:
Long-term debt $ 179.3 $ 180.4 $ 152.8
Short-term debt 1.6 11.2 29.0
Transition Cost proceeding -- 0.8 22.6
Rate refunds 5.1 5.2 13.8
Other 4.3 7.9 16.7
---------- ---------- ----------
Total interest expense 190.3 205.5 234.9
Interest income (8.6) (9.9) (22.8)
Capitalized interest (4.0) (4.7) (28.1)
---------- ---------- ----------
Consolidated net interest expense $ 177.7 $ 190.9 $ 184.0
========== ========== ==========
</TABLE>
<PAGE> 9
39

Excluding the pre-tax effects of the selected items shown above for 1993 and
1992, consolidated operating income for 1993 was $36.8 million higher than that
of 1992. This increase was primarily the result of higher operating income in
Pipelines and improved operating results in Coal and Gas Marketing, partially
offset by an increased operating loss in Gas Gathering.

Each segment's results of operations are discussed in more detail below and
comparative selected financial information by segment is presented elsewhere in
this report.

1992 COMPARED TO 1991

Excluding the net income impact of the selected items shown above for 1992 and
1991, Transco's consolidated net income for 1992 was $16.0 million, or $0.56
per share, less than the net income for 1991. Pipelines showed improved
operating results for 1992 when compared to 1991; however, the operating losses
in Gas Marketing, Gas Gathering and Coal and increased consolidated net
interest expense offset the improved results of Pipelines.

As shown in the table above, pre-tax consolidated net interest expense for 1992
was $6.9 million higher than 1991, primarily due to the lower amount of
capitalized interest as a result of placing capital projects into service in
1991 and 1992 and the lower level of capital spending in 1992 than in 1991
through the capital conservation steps of the strategic and financial plan.

Excluding the pre-tax effects of the selected items shown above for 1992 and
1991, consolidated operating income for 1992 was $19.1 million higher than that
of 1991. This increase was primarily the result of higher operating income in
Pipelines, partially offset by operating losses in Gas Marketing, Gas Gathering
and Coal.

PIPELINES

The table below shows the results of operations of Pipelines by company for the
years 1993, 1992 and 1991.

Net Income (Loss) 1993 1992 1991
- ----------------- ------- ------- --------
(In millions)
TGPL $ 86.9 $ 64.9 $ (68.6)
Texas Gas 39.1 40.9 21.4
Other Companies (0.3) (5.5) 1.0
------- ------- --------
Total Pipelines Segment $ 125.7 $ 100.3 $ (46.2)
======= ======= ========

The losses in 1992 from Other Companies were primarily the result of the sale
of Transco's interest in the High Island Offshore System, the U-T Offshore
System and Green Canyon Pipeline Company (see Note J of the Notes to
Consolidated Financial Statements).

The table below shows the results of operations of Pipelines for the years
1993, 1992 and 1991 and the effects of certain selected items that have
impacted those results.

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(In millions)
<S> <C> <C> <C>
PIPELINES NET INCOME BEFORE SELECTED ITEMS $ 138.4 $ 121.5 $ 91.4
Provision for producer settlements, legal and regulatory issues -- (19.5) (54.8)
TGPL write-off of note receivable (12.5) -- --
TGPL provision for Transition Cost proceeding -- -- (47.6)
TGPL and Texas Gas provision for asset impairments -- -- (21.1)
TGPL and Texas Gas provision for restructuring -- -- (18.7)
Other selected items (0.2) (1.7) 4.6
--------- --------- ---------
PIPELINES NET INCOME (LOSS) $ 125.7 $ 100.3 $ (46.2)
========= ========= =========
</TABLE>

The two major operating companies in this segment, TGPL and Texas Gas, provide
substantially all of the segment's revenues, operating income and net income.
In December 1992, TGPL and Texas Gas filed plans with the FERC for Transco to
realign Gas Marketing under the management of TGMC. In January 1993 the FERC,
subject to conditions, accepted tariff sheets filed by TGPL and Texas Gas,
effectively allowing the Company to proceed with the realignment. TGMC, through
agency management agreements with TGPL and Texas Gas, manages all gas sales
made by TGPL and all gas sales
<PAGE> 10
40

made by Texas Gas except for monthly gas purchases under gas purchase contracts
with pricing provisions that are not variable market based which Texas Gas
sells at auction. Accordingly, effective January 1, 1993 for TGPL and November
1, 1993 for Texas Gas, substantially all sales revenues and the related costs,
including gas costs applicable to TGPL and Texas Gas' sales service, are
reported by Transco in Gas Marketing. The financial performance of TGPL
(excluding its 1993 sales service) and Texas Gas (excluding its November 1,
1993 through December 31, 1993 variable-market-based sales service) is
discussed below.

1993 COMPARED TO 1992

TGPL
Net and Operating Income

TGPL's net income for 1993 was $22.0 million higher than 1992. However,
excluding the net income impact of the selected items related to TGPL shown in
the table above, TGPL's positive net income variance for 1993 compared to 1992
was $16.0 million. This increase was primarily due to cost control programs
that resulted in maintaining operating expenses at levels provided in the new
general rate case effective September 1, 1992, new pipeline projects being
placed in service, lower interest expense and higher allowance for funds used
during construction. Excluding the pre-tax effects of the selected items shown
above, TGPL's positive operating income variance of $15.8 million was primarily
due to the cost control programs discussed above. Although TGPL implemented
Order 636 effective November 1, 1993, TGPL experienced no significant
operational changes as a result of the implementation, because TGPL's prior
settlement with its customers complied with many of the requirements of Order
636. Therefore, TGPL believes its operating income is representative of its
expected operating income during 1994 under Order 636.

Operating Revenues

TGPL's operating revenues decreased $340 million to $917 million in 1993 when
compared to 1992, due primarily to the realignment of TGPL's gas sales under
TGMC upon approval by the FERC in January 1993, as discussed above, offset in
part by higher revenues from Phase II of the TGPL/Texas Gas/CNG project being
placed in service and increased revenues related to certain increased costs as
provided by TGPL's rate filings. TGPL sales revenues for 1992 were $522
million. Effective September 1, 1992, TGPL placed new rates into effect,
subject to refund, under its general rate case, Docket No. RP92-137. The rates
for firm transportation service are based on a SFV rate design, under which all
fixed costs allocated to firm transportation service, including return on
equity and taxes, are included in a demand charge to customers. All variable
costs are recovered through commodity rates. The pre-September 1, 1992 revenues
were collected on rates under Docket No. RP90-8, which were based on the
modified fixed-variable (MFV) rate design. Under the MFV rate design, all fixed
costs, with the exception of equity return and income taxes, were included in
the demand charge to customers and the equity return and income tax component
were included as part of the volumetric charge to customers. The new rates in
RP92-137 are also based on a different mix and level of volumes than the RP90-8
rates. In early 1994 TGPL will make the initial refunds (approximately $100
million, including interest) under RP92-137. TGPL has previously provided a
reserve for that refund. TGPL has also provided a reserve which it believes is
sufficient for any additional refunds that may be required under RP92-137.

Operating Costs and Expenses

Excluding the pre-tax effects of TGPL's selected items in the table above and
the cost of sales and transportation of $219 million in 1993 and $604 million
in 1992, TGPL's operating expenses for 1993 were approximately $29 million
higher when compared to 1992. This increase in operating expenses for the year
was primarily a result of the adoption, effective January 1, 1993, of the
accrual basis of accounting for postretirement benefits other than pensions
under Statement of Financial Accounting Standards (SFAS) No. 106, and higher
depreciation. However, these increases in operating expenses were fully
recovered through increases in revenues in the new rates previously discussed.
TGPL's other operating expenses were controlled to levels contained in its new
general rate case effective September 1, 1992.
<PAGE> 11
41

System Deliveries

As shown in the table below, TGPL's total market-area deliveries for 1993 were
comparable to those in 1992. Production-area deliveries decreased 28.1 Bcf, or
14 percent for 1993 compared to 1992, primarily due to increased competition
for production-area transportation. However, as a result of the new rate
structure that went into effect September 1, 1992, subject to refund, these
decreased deliveries had no significant impact on TGPL's operating income.

<TABLE>
<CAPTION>
TGPL System Deliveries (Bcf) 1993 1992 1991
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Market-area deliveries:
Sales -- -- 0.4
Long-haul transportation 823.9 821.8 873.5
Market-area transportation 374.4 379.8 250.3
------- ------- -------
Total market-area deliveries 1,198.3 1,201.6 1,124.2
Production-area transportation 171.2 199.3 255.3
------- ------- -------
Total system deliveries 1,369.5 1,400.9 1,379.5
======= ======= =======
</TABLE>

TGPL's facilities are divided into six rate zones. Three are located in the
production area and three are located in the market area. Long-haul
transportation is gas that is received in one of the production-area zones and
delivered in a market-area zone. Market-area transportation is gas that is both
received and delivered within market-area zones. Production area-transportation
is gas that is both received and delivered within production-area zones.

Rates

As previously discussed, prior to September 1, 1992, TGPL's rates were designed
on the MFV method of rate design. Accordingly, overall throughput had a
significant impact on operating income. However, effective September 1, 1992,
TGPL began collecting new rates, subject to refund, under the SFV rate design.
Accordingly, with SFV rate design, throughput has less of an impact on
operating income than in prior periods.

TGPL has expressed to the FERC concerns that inconsistent treatment under Order
636 of TGPL and its competitor pipelines with regard to rate design and cost
allocation issues in the production-area may result in rates which could make
TGPL less competitive, both in terms of production-area and long-haul
transportation. A hearing before a FERC Administrative Law Judge (ALJ) dealing
with, among other things, TGPL's production-area rate design has been set for
April 1994. TGPL is unable at this time to fully assess the competitive effect
and resulting financial impact on TGPL of having to maintain its current
production-area rate design which is different than that of its competitors.
For a discussion of TGPL's Order 636 compliance filing, see Note B of the Notes
to Consolidated Financial Statements.

TEXAS GAS
Net and Operating Income

Excluding the $4.4 million after-tax gain on the sale of its subsidiary in
1992, Texas Gas' net income for the year ended December 31, 1993 was $2.6
million higher than for the year ended December 31, 1992. The increase in net
income was primarily due to higher gas transportation revenues partially offset
by lower net gas sales revenues and increased operating costs and expenses.
Each of these factors is discussed below. Operating income was $7.1 million
higher for the year ended December 31, 1993 than for the year ended December
31, 1992 for the same reasons that resulted in higher net income.

Texas Gas' November 1, 1993 implementation of Order 636 included a change in
its rate design method from MFV to SFV. Under the MFV method, all fixed costs,
with the exception of equity return and income taxes, were included in the
demand component of the charge to customers; the equity return and income tax
components of cost of service were included as part of the volumetric charge to
customers. Under the SFV method, all fixed costs, including equity return and
income taxes, are included in the demand charge to customers. Accordingly,
overall throughput has a less significant impact on Texas Gas' operating income
than under the MFV method.

Operating Revenues

Total operating revenues decreased $19 million primarily as a result of $66
million lower gas sales revenues, partly offset by $48 million higher gas
transportation revenues. Gas sales revenues decreased, primarily as a result of
the conversion of customers' firm sales service to firm transportation service
due to the implementation of Order 636 and decreased commodity volumes. The
increase in gas transportation revenues was primarily due to higher firm
transportation demand revenues, primarily as a result of the conversion of
customers' sales service, and higher long-haul transportation volumes.
<PAGE> 12
42

Operating Costs and Expenses

Cost of gas sold decreased $42 million from the prior year. This decrease was
primarily due to implementation of Order 636 and the resultant decrease in gas
sales volumes. Texas Gas' administrative and general expenses increased $16
million. This increase was primarily due to higher labor and employee benefits
costs of $6 million and a $5 million provision for uncollectible accounts,
which includes $2 million in claims filed under customer bankruptcy
proceedings.

System Deliveries

As shown in the table below, Texas Gas' total mainline deliveries for the year
ended December 31, 1993 increased 88.5 Bcf, or 18%, compared to the year ended
December 31, 1992, primarily due to increased throughput in connection with
Texas Gas' 1992 mainline expansion project and, during the winter months of
1993, 13% colder weather on a degree-day basis in Texas Gas' primary market
area compared to the winter months of 1992. The revenues associated with
short-haul transportation volumes are not material to Texas Gas.

<TABLE>
<CAPTION>
Texas Gas System Deliveries (Bcf) 1993 1992 1991
- --------------------------------- ---- ---- ----
<S> <C> <C> <C>
Sales 51.5 80.4 89.9
Long-haul transportation 519.6 402.2 382.1
----- ----- -----
Total mainline deliveries 571.1 482.6 472.0
Short-haul transportation 204.0 244.2 225.6
----- ----- -----
Total system deliveries 775.1 726.8 697.6
===== ===== =====
</TABLE>

Texas Gas' facilities are divided into five rate zones. Receipts and deliveries
are made in four rate zones to service sales and long-haul transportation
markets. Receipts and deliveries in the remaining zone are made to serve sales
and short-haul transportation markets in southern Louisiana.

Rates

Effective November 1, 1993, Texas Gas placed rates into effect, subject to
refund, under a new general rate case as discussed in Note B of the Notes to
Consolidated Financial Statements. Certain parties to the rate case proceeding
are seeking to change the capital structure and reduce Texas Gas' return on
equity included in rates.

Texas Gas' earnings may be impacted by competition from other pipelines, its
rate design structure, cost management, and, to a lesser extent, fluctuations
in its throughput which may result from a number of factors, including weather.
Texas Gas believes that under Order 636, with SFV rates and its anticipated
transition cost recovery, its rate structure will remain competitive. However,
the resolution of pending rate case issues discussed above could negatively
impact Texas Gas' results of operations under the pending rate case.
Furthermore, while the use of SFV rate design limits Texas Gas' opportunity to
earn incremental revenues through increased throughput, it also minimizes Texas
Gas' risk associated with fluctuations in throughput.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash flows provided by operating activities during 1993 for Pipelines
totaled $302 million, compared to $83 million in 1992. The net increase was
primarily due to:

- Higher cash receipts of $109 million in 1993 from collection of revenues
subject to refund;
- Higher cash payments of $102 million in 1992 due to rate refunds made by
TGPL under its RP90-8 general rate case;
- Lower cash payments of $33 million in 1993 for non-recoverable producer
settlements;
- Cash payments of $74 million in 1992 made in connection with TGPL's
Transition Cost Proceeding;

Offset by:

- Higher cash payments of $36 million in 1993 due to rate refunds made by
Texas Gas under its RP90-104 general rate case;
- Higher cash payments of $55 million in 1993 due to the amount and timing of
collections of receivables and disbursements for payables.
<PAGE> 13
43

1992 COMPARED TO 1991

TGPL

TGPL's net income for 1992 was $133.5 million higher than 1991. However,
excluding the net income impact of the selected items related to TGPL shown in
the table above, TGPL's net income for 1992 was $18.2 million higher than 1991.
The increase in net income for 1992 is primarily the result of higher market
area transportation volumes and revenues from incremental projects, including
the TGPL/Texas Gas/CNG project, the South Virginia Lateral expansion, the first
phase of the TGPL System Expansion project and the IEC Cogen project, which
went into service in November 1991. Excluding the pre-tax effects of the
selected items, TGPL's operating income variances are reflective of the net
income variances, showing an increase of $29.2 million in 1992 compared to
1991.

TGPL's operating revenues, exclusive of the effects of settlements of certain
rate issues in 1991, increased $116 million in 1992 when compared to 1991. This
increase in revenues is the result of revenues from incremental projects placed
in service in late 1991. Effective September 1, 1992, TGPL placed increased
rates into effect, subject to refund, in Docket No. RP92-137. TGPL has provided
a reserve it considers adequate to provide for any refunds that may be required
upon final settlement of this rate case.

Excluding the pre-tax effects of the selected items and the cost of sales and
transportation of $604 million in 1992 and $510 million in 1991, TGPL's
operating expenses in 1992 were approximately $7 million lower for 1992
compared to the same period in 1991. This variance resulted primarily from
lower operation and maintenance expenses due to lower underground storage costs
and lower administrative and general expenses.

TEXAS GAS

Texas Gas' net income for 1992 was $19.5 million higher than 1991. Excluding
the net income impact of the selected items related to Texas Gas shown on the
selected items table above, Texas Gas' net income for 1992 was $13.0 million
higher than in 1991. The higher earnings were primarily due to higher mainline
revenues, net of cost of natural gas sold and transported, and lower labor and
related benefits costs as a result of Texas Gas' early retirement program
offered during the fourth quarter of 1991, partially offset by lower interest
income due to lower rates on intercompany advances. Excluding the operating
income impact of the selected items, Texas Gas' operating income was $24.7
million higher for 1992 than in 1991 for primarily the same reasons that
resulted in higher net income, excluding interest income.

Texas Gas' operating revenues declined to $464 million during 1992 from $468
million during 1991 primarily due to lower gas sales revenues resulting from
lower demand revenues, decreased sales volumes and lower average rates. The
lower gas sales revenues were partly offset by higher transportation revenues,
which were due primarily to higher firm transportation demand revenues and
increased long-haul transportation volumes.

Excluding costs of gas sold and transportation of gas by others of $237 million
in 1992 and $252 million in 1991 and the pre-tax effect of the selected items
in 1991, Texas Gas' operating expenses decreased $14 million. The decrease in
other operating expenses was primarily due to lower labor and related benefits
costs in 1992 as a result of Texas Gas' early retirement program offered during
the fourth quarter of 1991.

Costs of gas sold and transportation of gas by others decreased $15 million
from the prior year. This decrease was primarily the result of lower cost of
gas sold due to lower gas sales volumes, partially offset by an increase in
expense for transportation of gas by others due to higher gas transportation
volumes.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash provided by operating activities for Pipelines during 1992 totaled $83
million compared to $244 million in 1991. The net decrease was primarily due
to:
- Cash payments of $74 million in 1992 made in connection with TGPL's
Transition Cost proceeding;
- Higher cash payments of $102 million in 1992 due to rate refunds made by
TGPL;
- Higher cash payments of $31 million in 1992 for gas costs incurred in
current or prior periods;
- Higher cash payments of $20 million by TGPL for non-recoverable producer
settlements;
- Higher cash payments of $47 million in 1992 for net purchases of gas for
injection into storage;

Offset by:
- Lower cash payments of $98 million due to the amount and timing of
disbursements for payables and collections of receivables due primarily to
payments for gas purchases in prior periods.
<PAGE> 14
44

COMPETITION

TGPL

TGPL and its primary market area competitors (Texas Eastern Transmission
Corporation (Texas Eastern), Columbia Gas Transmission Corporation (Columbia),
Southern Natural Gas Company, Tennessee Gas Pipeline Company (Tennessee) and
Iroquois Gas Transmission System) implemented Order 636 on their respective
systems during the period June 1993 to November 1993. TGPL and its major
competitors all employ SFV rate design for firm transportation as mandated by
Order 636. However, TGPL has previously expressed to the FERC concerns that
inconsistent treatment under Order 636 of TGPL and its competitor pipelines
with regard to rate design and cost allocation issues in TGPL's production area
may result in rates which could make TGPL less competitive, both in terms of
production area and long-haul transportation rates. A hearing before a FERC ALJ
dealing with, among other things, TGPL's production area rate design has been
set for April 1994. TGPL is unable at this time to fully assess the competitive
effect and resulting financial impact on TGPL of having to maintain its current
production area rate design which is different than that of its competitors.

TGPL does not expect to incur GSR costs associated with its firm sales service.
TGPL's non-GSR transition costs are anticipated to be in a range of $5 million
to $10 million; therefore, TGPL believes the demand charges to recover these
costs will not make its rates noncompetitive in its markets.

Although a significant portion of TGPL's firm customers have relatively secure
residential and commercial end-users, virtually all of TGPL's local
distribution customers (LDCs) have some price-sensitive end-users that could
switch to alternate fuels. Approximately one-third of TGPL's customer
deliveries are at risk to such fuel switching; however, a recent survey of
TGPL's largest customers suggests that end-users will pay a premium to burn
natural gas and that LDCs will aggressively price their system transportation
to stay competitive in alternate-fuel markets.

TEXAS GAS

Texas Gas and its primary market area competitors (ANR Pipeline Company,
Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Texas Eastern,
Columbia, Tennessee and Midwestern Gas Transmission Company) implemented Order
636 on their respective systems during the period May 1993 to November 1993.
Texas Gas and its major competitors all employ SFV rate design for firm
transportation as mandated by Order 636.

Future utilization of Texas Gas' pipeline capacity will depend on competition
from other pipelines and alternative fuels, the general level of natural gas
demand and weather conditions. Although some of Texas Gas' major competitors
implemented Order 636 and SFV rates prior to Texas Gas' implementation, the
impact on Texas Gas' throughput was minimal. Texas Gas believes that under
Order 636, with SFV rates, its rate structure will remain competitive and
surcharges for recovery of its total transition costs will not make its rates
noncompetitive in its market as competitor pipelines are believed to have
transition costs also to be recovered in their rates.

The end-use markets of several of Texas Gas' customers have the ability to
switch to alternate fuels. To date, however, such losses from fuel switching
have not been significant.
<PAGE> 15
45

GAS MARKETING

As previously discussed, TGMC, through agency management agreements with TGPL
and Texas Gas, has assumed operation of TGPL and Texas Gas' sales service.
Accordingly, effective January 1, 1993 for TGPL and November 1, 1993 for Texas
Gas, sales service is being reported in Gas Marketing.

The tables below show the results of operations and sales volumes for Gas
Marketing for the years 1993, 1992 and 1991.

<TABLE>
<CAPTION>
Net Income (Loss) 1993 1992 1991
- ----------------- ---- ---- ----
(In millions)
<S> <C> <C> <C>
Gas marketing $ (3.2) $ (8.0) $ (1.0)
Liquids marketing (4.1) 1.3 6.8
-------- ------- ------
Total Gas Marketing $ (7.3) $ (6.7) $ 5.8
======== ======= ======
</TABLE>

<TABLE>
<CAPTION>
Sales Volumes 1993 1992 1991
- ------------- ---- ---- ----
<S> <C> <C> <C>
Gas sales (Bcf)
Long-term 352.7 148.6 158.3
Short-term 226.2 193.8 244.8
----- ----- -----
Total gas sales 578.9 342.4 403.1
----- ----- -----
Liquids sales (thousand gallons) 130.6 234.9 303.1
===== ===== =====
</TABLE>

Gas sales volumes increased due primarily to inclusion in 1993 of TGPL's sales
service volumes of 234.5 Bcf and Texas Gas' sales service volumes of 6.9 Bcf.
TGPL's sales service volumes included in Pipelines' 1992 and 1991 results were
221.1 Bcf and 241.6 Bcf, respectively. Liquids sales volumes decreased due to
processing curtailments beginning in May 1993 and the discontinuation of
naphtha processing in August 1992 due to product-price economics, which are
largely dictated by crude oil prices.

1993 COMPARED TO 1992

Net and Operating Income
Transco's Gas Marketing operations recorded a net loss in 1993 of $7.3 million,
compared to a net loss of $6.7 million in 1992. The 1993 net loss includes a
charge to earnings for a reserve established to restructure a gas sales
contract as part of the Corpus Christi settlement and a reserve for the
revaluation of certain gas imbalances owed by TEMCO and TXG Gas Marketing
Company. Excluding the pre-tax effect of the above-mentioned charges, Gas
Marketing recorded an operating loss of $4.0 million in 1993, compared to an
operating loss of $11.1 million in 1992. The improvement in 1993 over 1992,
excluding the effect of the above-mentioned charges, is due to improved results
from gas marketing, partially offset by a decline in results from natural gas
liquids (NGL) and lower equity in earnings of affiliates.

Gas marketing

The operating loss from gas marketing was $6.0 million less for 1993 as
compared to 1992, primarily due to the inclusion of TGPL's sales service in
1993, partially offset by underutilization of firm transportation capacity on
pipeline systems that adopted the SFV rate design. Gas marketing's results
continued in 1993 to be negatively impacted by certain long-term gas purchase
contracts with prices at a premium to market prices and by underutilized firm
transportation capacity. Successful efforts to mitigate a portion of the
negative effects of such purchase contracts and underutilized firm
transportation capacity during 1993 helped reduce Gas Marketing's operating
loss. Efforts will continue in 1994 to mitigate the negative effects of the
remaining underutilized firm transportation capacity.

Liquids marketing

Operating income from liquids marketing declined $5.6 million in 1993 as
compared to 1992, primarily due to lower NGL margins and lower volumes. The NGL
margins decreased primarily due to higher gas prices combined with lower
product prices. The price of NGL rises and falls in tandem with world oil
prices because oil products, particularly naphtha and gas oil, directly compete
in the petrochemical market with NGL. Oil prices are affected by political and
economic events, worldwide economic growth trends and the production targets
established by the major oil producing nations. Natural gas prices are affected
by environmental policy, seasonal demand and regulatory pronouncements. All of
these factors
<PAGE> 16
46

are beyond the control of Transco and future price movements for natural gas
and oil, and therefore NGL, are impossible to predict. Beginning in May 1993,
processing was curtailed for economic reasons due to the high cost of natural
gas in relation to NGL sales prices. In addition, liquids marketing results
were affected by the reduction of the carrying value of inventories to reflect
the decline in market prices of such inventories. The lower equity in earnings
of affiliates was also attributable to reduced gas processing levels due to the
higher cost of natural gas in relation to product prices and higher operating
costs.

Operating Revenues

Gas Marketing's operating revenues increased to $1,448 million in 1993 from
$800 million in 1992. The higher revenues were due to the inclusion of TGPL's
sales service revenues of $604 million in Gas Marketing in 1993, the inclusion
of Texas Gas' sales service revenues of $21 million in Gas Marketing for
November and December 1993 and higher prices for natural gas sales, partly
offset by lower NGL prices and volumes.

Operating Costs and Expenses

Excluding the costs of sales and transportation of $1,427 million in 1993 and
$791 million in 1992, Gas Marketing's operating expenses in 1993 of $31 million
increased from $20 million in 1992 primarily due to the $3.0 million pre-tax
charge for the reserve related to the Corpus Christi settlement and the
administrative and operating costs related to TGPL's and Texas Gas' sales
service included in 1993.

For a discussion of TGPL, Texas Gas and TEMCO's long-term gas purchase
commitments, see "Other Capital Requirements and Contingencies-Long-term gas
purchase contracts."

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash used in operating activities for Gas Marketing decreased $17 million
in 1993. This decrease in cash used in operating activities was primarily due
to the amount and timing of net collections of receivables and disbursements of
payables.

1992 COMPARED TO 1991

Excluding an after-tax charge of $0.8 million for a loss on the sale of assets
in 1992 and a $1.1 million after-tax charge for restructuring costs in 1991,
Gas Marketing incurred a net loss of $5.9 million in 1992, compared to net
income of $6.9 million in 1991. The poorer results were due to lower gas and
NGL sales margins and lower liquids fractionation margins and lower gas and
liquids sales volumes.

Further, 1992 results were affected by reduced administrative and general
expenses partially offset by lower net interest income and equity in earnings
of affiliates. Gas Marketing reported an operating loss of $11.1 million in
1992, compared to operating income of $4.8 million in 1991, excluding the 1991
pre-tax charge for restructuring costs of $1.7 million. The decrease was due to
the same reasons described for the net income variance above, excluding
interest income and equity in earnings of affiliates.

The gas sales margin for Gas Marketing was $12.6 million lower for 1992
compared to 1991. A majority of this variance resulted from long-term firm gas
sales contracts and related firm transportation agreements that resulted in
underutilized firm transportation capacity and purchases of gas volumes under
gas purchase contracts, some of which were resold at lower prices in the spot
market for a substantial portion of the year. The implementation of SFV rate
design effective September 1, 1992 further exacerbated the underutilization of
firm transportation capacity.
<PAGE> 17
47

The NGL margin for 1992 compared to 1991 was $4.6 million less due to higher
costs of securing processing rights in 1992, lower volumes in 1992 attributable
to plant downtime caused by Hurricane Andrew and a temporary shutdown of the
Cameron Meadows Gas Processing Plant, coupled with the unusually high liquids
sales prices in the beginning of 1991 which were influenced by events in the
Middle East.

The liquids fractionation margin was $3.6 million less for 1992 compared to
1991 due primarily to lower naphtha prices and higher transportation costs.
Effective August 1992, naphtha processing was discontinued due to the lower
prices.

Gas Marketing's lower administrative and general expenses were primarily
attributable to decreased labor and related costs and office rent, and the
lower net interest income was due to lower interest rates and lower revenues
which provided less cash to invest.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash used in operating activities for Gas Marketing decreased $2 million in
1992. This decrease in cash used in operating activities was primarily due to
the amount and timing of net collections of receivables and disbursements of
payables.

COMPETITION

Changes in the natural gas industry over the past several years have
substantially increased competition for gas sales. TGMC's competitors include
other natural gas marketers and producers.

COAL
1993 COMPARED TO 1992

Coal reported net income of $5.6 million for 1993, compared to a net loss of
$3.4 million for 1992. Excluding an after-tax loss on the sale of a coal
loading and storage facility and a charge for additional income tax expense due
to the corporate federal income tax rate increase, Coal reported net income of
$7.2 million for 1993. The 1993 results reflect an improvement in Coal's unit
margins due to lower average operating costs and favorable price adjustments in
a long-term sales contract, lower administrative and general expenses and lower
interest expense as a result of lower debt when compared to 1992. The lower
operating costs reflect the implementation of a new mining plan in early 1993,
which concentrated on supplying coal from mines with lower production costs.
Total sales volumes decreased slightly to 8.9 million tons in 1993 from 9.0
million tons in 1992. Coal's operating income improved to $7.0 million for 1993
from an operating loss of $3.5 million in 1992 due to the same reasons as the
net income variances described above, excluding interest expense.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash flows provided by operating activities increased $2 million in 1993.
The increase in cash flows was primarily due to increased cash income in 1993
compared to 1992 as discussed above.

1992 COMPARED TO 1991

Coal reported a net loss of $3.4 million for 1992 compared to net income of
$4.8 million in 1991. The lower results for 1992 were primarily due to a 67
percent lower unit margin, resulting from a lower average sales price partially
offset by a lower average operating cost, and a 15 percent decrease in contract
sales volumes. Total sales volumes decreased to 9.0 million tons in 1992 from
9.3 million tons in 1991. The lower operating results were partially offset by
lower interest expense on a reduced level of debt. Coal's operating results
decreased to an operating loss of $3.5 million for 1992 from operating income
of $9.9 million for 1991 due to the lower margin and volumes described above.

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash flows provided by operating activities decreased $6 million in 1992.
The decrease in cash flows was primarily due to reduced cash income in 1992
compared to 1991 as discussed above.
<PAGE> 18
48

OTHER BUSINESSES

GAS GATHERING
1993 COMPARED TO 1992

Gas Gathering's net loss for 1993 was $39.5 million compared to a $23.4 million
net loss for 1992. Excluding a $30.7 million after-tax charge in 1993 related
to an agreement with Corpus Christi Gas Gathering, Inc. and certain affiliates
to resolve litigation and acquire Corpus Christi's interest in jointly owned
gas gathering and intrastate pipeline partnerships and a $16.3 million
after-tax charge for losses on the sales of assets in 1992, Gas Gathering
recorded a net loss of $8.8 million for 1993 and a $7.1 million net loss for
1992. The increased loss was due primarily to reduced transportation earnings
as a result of lower volumes in 1993 due to the sale of certain facilities in
1992 and lower equity in earnings of affiliates.

1992 COMPARED TO 1991
Gas Gathering incurred a net loss of $23.4 million for 1992 compared to a net
loss of $0.2 million for 1991. Excluding a $16.3 million after-tax charge to
earnings for losses on the sales of assets, Gas Gathering recorded a $7.1
million net loss in 1992. The decreased results were primarily due to reduced
transportation earnings as a result of lower volumes from fewer gathering lines
in 1992 as a result of the sale of certain facilities and due to higher
interest expense as a result of interest capitalization in 1991 on gathering
projects now in service. Partially offsetting the decreased results was
improved equity in earnings of affiliates due to adjustments made in 1991 to
prior estimates of losses from certain partnerships during start-up operations
in 1990.
POWER GENERATION

As discussed in Note J of the Notes to Consolidated Financial Statements,
Transco closed the sale of TEVCO in September 1993, received $150 million in
cash and recorded a gain on the sale of $50.5 million pre-tax ($31.6 million
after-tax) in the third quarter of 1993. Accordingly, Power Generation has been
classified as discontinued operations in the accompanying Consolidated
Statement of Operations.
<PAGE> 19
49

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors,
Transco Energy Company:

We have audited the accompanying consolidated balance sheet of Transco Energy
Company (a Delaware corporation) and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of operations, common
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 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. Those 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 financial position of Transco Energy
Company and subsidiaries as of December 31, 1993 and 1992, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN & CO.
Houston, Texas
February 18, 1994

MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated financial statements have been prepared by management in
conformity with generally accepted accounting principles. Management is
responsible for the fairness and reliability of the financial statements and
other financial data included in this report. In the preparation of the
financial statements, it is necessary to make informed estimates and judgments
of the effects of certain events and transactions based on currently available
information.

Transco maintains accounting and other controls that management believes
provide reasonable assurance that financial records are reliable, assets are
safeguarded, and that transactions are properly recorded in accordance with
management's authorizations. However, limitations exist in any system of
internal control based upon the recognition that the cost of the system should
not exceed benefits derived.

Transco's independent auditors, Arthur Andersen & Co., are engaged to audit the
financial statements and to express an opinion thereon. Their audit is
conducted in accordance with generally accepted auditing standards to enable
them to report that the financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows of the
Company in conformity with generally accepted accounting principles.

The Audit Committee of the Board of Directors, composed of three directors who
are not employees of Transco, meets regularly with the independent auditors and
management. The independent auditors have full and free access to the Audit
Committee and meet with them, with and without management being present, to
discuss the results of their audits and the quality of financial reporting.
<PAGE> 20
50

CONSOLIDATED BALANCE SHEET
(Notes A and M)

<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1992
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $ 163,488 $ 12,528
Deposits 34,133 28,734
Receivables--
Trade (Note E) 195,306 191,386
Notes (Note K) -- 8,947
Federal income tax benefits 1,392 10,593
Other 21,355 12,425
Transportation and exchange gas receivable (Note A) 50,635 54,293
Producer settlement costs recoverable from customers (Notes B and E) 1,067 37,122
Inventories--
Gas in storage, at LIFO 37,095 112,616
Coal, at average cost 7,388 9,863
Materials, supplies and other, at average cost 74,067 77,354
Deferred income tax benefits (Note I) 21,330 49,634
Other 59,465 36,249
--------- ---------
Total current assets 666,721 641,744
--------- ---------
INVESTMENTS, AT COST PLUS EQUITY IN UNDISTRIBUTED EARNINGS (NOTE K) 31,454 81,629
--------- ---------

PROPERTY, PLANT AND EQUIPMENT, AT COST:
Natural gas transmission plant-jurisdictional 5,058,546 4,947,649
Less-Accumulated depreciation and amortization 2,653,534 2,509,214
--------- ---------
Natural gas transmission plant-jurisdictional, net 2,405,012 2,438,435
--------- ---------
Natural gas gathering and liquids separation and fractionation plant 213,114 141,693
Less-Accumulated depreciation and amortization 11,412 9,545
--------- ---------
Natural gas gathering and liquids separation and fractionation plant, net 201,702 132,148
--------- ---------
Coal properties 409,695 435,044
Less-Accumulated depreciation, depletion and amortization 138,280 153,081
--------- ---------
Coal properties, net 271,415 281,963
--------- ---------
Other property, plant and equipment 5,280 8,846
Less-Accumulated depreciation and amortization 3,217 3,458
--------- ---------
Other property, plant and equipment, net 2,063 5,388
--------- ---------
Total property, plant and equipment, net 2,880,192 2,857,934
--------- ---------

OTHER ASSETS:
Nonoperating interest in coalbed methane properties, net (Note L) 131,287 210,901
Notes receivable (Note K) 14,929 94,484
Transportation and exchange gas receivable (Note A) 106,395 169,911
Other 249,507 201,960
---------- ----------
Total other assets 502,118 677,256
---------- ----------
$4,080,485 $4,258,563
========== ==========
</TABLE>

The accompanying notes and schedule of segment information are an integral part
of these consolidated financial statements.
<PAGE> 21
51

CONSOLIDATED BALANCE SHEET
(Notes A and M)

<TABLE>
<CAPTION>
December 31,
-----------------------------
1993 1992
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note E) $ 159,479 $ 188,787
Payables--
Trade 284,469 281,926
Other 88,123 90,707
Transportation and exchange gas payable (Note A) 16,258 25,262
Accrued liabilities--
Other taxes 28,517 20,169
Interest 46,139 47,582
Employee benefits (Note H) 64,388 61,466
Other 75,077 94,382
Reserve for producer settlements, legal and regulatory issues (Notes B and C) 7,583 56,660
Reserve for rate refunds (Note B) 161,991 52,913
Other 54,550 41,629
---------- ----------
Total current liabilities 986,574 961,483
---------- ----------
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE E) 1,786,571 1,819,915
---------- ----------

OTHER LIABILITIES AND DEFERRED CREDITS:
Income taxes (Note I) 284,130 319,157
Income taxes refundable to customers 26,364 55,140
Transportation and exchange gas payable (Note A) 78,411 133,189
Accrued pension cost (Note H) 31,958 29,796
Other 154,585 147,203
---------- ----------
Total other liabilities and deferred credits 575,448 684,485
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES B, C, D AND E)

PREFERRED STOCK OF SUBSIDIARY-REDEEMABLE (NOTE F) 75,743 101,741
Less-Issue expense 552 735
---------- ----------
75,191 101,006
---------- ----------
CONVERTIBLE PREFERRED STOCK-REDEEMABLE (NOTE F) -- 125,000
Less-Issue expense -- 7,260
---------- ----------
-- 117,740
---------- ----------
CONVERTIBLE PREFERRED STOCK-NON-REDEEMABLE (NOTE F) 273,995 148,995
Less-Issue expense 8,577 5,000
---------- ----------
265,418 143,995
---------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock $0.50 par value: authorized 150,000,000 shares;
issued and outstanding 41,386,861 and 40,330,470 shares in 1993
and 1992, respectively (Note G) 20,693 20,165
Premium on capital stock and other paid-in capital 511,797 522,739
Retained earnings (deficit) (115,447) (62,471)
---------- ----------
417,043 480,433
Less-Treasury stock, at cost, 15,156 and 33,322 shares in 1993
and 1992, respectively 207 955
Common stock held by Tran$tock, 524,045 and 1,045,601 shares in 1993 and 1992,
respectively (Note H)-
Deferred compensation 14,395 29,220
Receivable from Tran$tock 9,383 18,224
Restricted stock, 91,964 and 105,372 shares in 1993 and 1992,
respectively (Note G)-
Deferred compensation 1,775 2,095
---------- ----------
Total common stockholders' equity 391,283 429,939
---------- ----------
$4,080,485 $4,258,563
========== ==========
</TABLE>

The accompanying notes and schedule of segment information are an integral part
of these consolidated financial statements.
<PAGE> 22
52

CONSOLIDATED STATEMENT OF OPERATIONS
(Note A)

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES:
Natural gas sales $ 1,660,203 $ 1,513,888 $ 1,534,902
Natural gas transportation 826,201 703,390 633,393
Natural gas storage 146,416 137,292 142,060
Coal sales 234,618 234,471 261,225
Other sales 54,488 103,298 143,247
----------- ----------- -----------
Total operating revenues 2,921,926 2,692,339 2,714,827
----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of natural gas sales 1,486,400 1,281,613 1,261,597
Cost of natural gas transportation 186,621 185,508 145,267
Cost of coal sales 195,312 202,352 211,505
Cost of other sales 40,398 81,349 98,319
Operation and maintenance 239,281 247,228 263,332
Administrative and general 248,765 205,219 238,781
Depreciation, depletion and amortization 187,337 192,498 210,761
Taxes-other than income taxes 51,136 46,713 47,201
Corpus Christi settlement (Note C) 50,269 -- --
Write-off of note receivable (Note K) 20,125 -- --
Capitalized costs in excess of ceiling limitation (Note L) 70,000 35,200 --
Provision for producer settlements, legal and regulatory issues (Notes B and C) -- 31,000 83,152
Provision for asset impairments (Note L) -- -- 130,445
Provision for Transition Cost proceeding (Note B) -- -- 52,996
Provision for restructuring (Note H) -- -- 34,704
----------- ----------- -----------
Total operating costs and expenses 2,775,644 2,508,680 2,778,060
----------- ----------- -----------
OPERATING INCOME (LOSS) 146,282 183,659 (63,233)
----------- ----------- -----------
OTHER (INCOME) AND OTHER DEDUCTIONS:
Interest expense 190,281 205,514 212,412
Interest expense-Transition Cost proceeding -- -- 22,559
Interest income (8,602) (9,883) (22,826)
Capitalized interest and allowance for funds used during construction (7,259) (7,966) (38,537)
Dividends on preferred stock of subsidiaries 8,107 8,654 8,973
Equity in earnings of unconsolidated affiliates (Note K) (235) (5,427) (6,290)
Losses on sales of assets (Note J) 924 84,406 --
Gain on final liquidating distribution from TXP (Note J) -- (17,666) --
Miscellaneous other (income) and deductions, net 16,562 5,955 17,950
----------- ----------- -----------
Total other (income) and other deductions 199,778 263,587 194,241
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (53,496) (79,928) (257,474)
BENEFIT OF INCOME TAXES (NOTE I) (18,081) (27,935) (94,771)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (35,415) (51,993) (162,703)
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS OF DISCONTINUED SEGMENT,
NET OF INCOME TAXES (93) 2,649 (4,710)
GAIN ON SALE OF DISCONTINUED SEGMENT, NET OF INCOME TAXES 31,572 -- --
----------- ----------- -----------
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS (NOTE J) 31,479 2,649 (4,710)
----------- ----------- -----------
NET INCOME (LOSS) (3,936) (49,344) (167,413)
DIVIDENDS ON CONVERTIBLE PREFERRED STOCK 25,047 25,730 25,730
----------- ----------- -----------
COMMON STOCK EQUITY IN NET INCOME (LOSS) $ (28,983) $ (75,074) $ (193,143)
=========== =========== ===========
PRIMARY EARNINGS (LOSS) PER SHARE OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS:
Continuing Operations $ (1.54) $ (2.43) $ (6.42)
Discontinued Operations 0.80 0.08 (0.16)
----------- ----------- -----------
$ (0.74) $ (2.35) $ (6.58)
=========== =========== ===========
AVERAGE SHARES OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING 39,202 31,946 29,335
=========== =========== ===========

SHARES OF COMMON STOCK OUTSTANDING 41,372 40,297 30,701
=========== =========== ===========

</TABLE>

The accompanying notes and schedule of segment information are an integral part
of these consolidated financial statements.
<PAGE> 23
53

CONSOLIDATED STATEMENT OF CASH FLOWS
(Note A)

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,936) $ (49,344) $ (167,413)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization 205,497 210,710 227,066
Deferred income taxes (Note I) (30,478) (13,966) (138,754)
Allowance for equity funds used during construction (3,262) (3,185) (10,378)
Equity in earnings of unconsolidated affiliates (Note K) (3,607) (7,688) (7,108)
Dividends and distributions from unconsolidated affiliates 7,748 9,746 13,686
Tran$tock compensation expense (Note H) 2,768 2,727 5,006
Losses (gains) on sales of assets (Note J) (49,556) 84,406 --
Corpus Christi settlement (Note C) 50,269 -- --
Write-off of note receivable (Note K) 20,125 -- --
Capitalized costs in excess of ceiling limitation (Note L) 70,000 35,200 --
Provision for producer settlements, legal and regulatory issues (Notes B and C) -- 31,000 83,152
Gain on final liquidating distribution from TXP (Note J) -- (17,666) --
Provision for asset impairments (Note L) -- -- 133,445
Provision for Transition Cost proceeding (Note B) -- -- 75,555
Provision for restructuring (Note H) -- -- 34,704
---------- ---------- -----------
265,568 281,940 248,961

Transition Cost refund (Note B) -- (74,104) --
Nonrecoverable producer settlements (Note B) (33,514) (51,160) (45,681)
Changes in operating assets and liabilities:
Deposits (6,479) (26,374) 742
Receivables 212 27,610 10,676
Transportation and exchange gas receivable (Note A) 67,174 (40,087) 9,469
Inventories (12,055) (18,829) 6,579
Payables (6,781) (11,263) (95,298)
Transportation and exchange gas payable (Note A) (63,782) 14,020 15,221
Accrued liabilities (24,236) (34,812) 27,803
Reserve for rate refunds 108,863 (45,556) 66,313
Other, net (18,728) 7,859 10,154
---------- ---------- -----------
Net cash provided by operating activities 276,242 29,244 254,939
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES (NOTES E, F AND G):
Net additions to long-term debt -- 661,480 346,412
Retirement of long-term debt and capital lease obligations (63,787) (483,714) (103,816)
Sale of preferred stock, net of issue expense 121,423 -- --
Retirement of preferred stock (158,656) (5,032) (5,404)
Net decrease in short-term debt -- (320,000) (33,612)
Sale of common stock, net of issue expense 218 111,573 194
Dividends on common stock (24,374) (20,112) (35,858)
Dividends on preferred stock (34,310) (34,433) (34,738)
Other, net (2,864) 310 531
---------- ---------- -----------
Net cash provided by (used in) financing activities (162,350) (89,928) 133,709
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment and investment in unconsolidated affiliates (173,270) (178,434) (467,830)
Final liquidating distribution from TXP (Note J) -- 61,639 --
Recoverable producer settlements (Note B) (5,743) -- (30,089)
Recovery of producer settlements (Note B) 34,242 69,291 82,221
Net proceeds from sales of assets (Note J) 144,874 143,704 16,269
Notes receivable (Note K) (1,905) (20,114) (34,187)
Repayment of notes receivable (Note K) 1,982 1,398 31,756
Equity contribution deposits -- (44,724) --
Other, net 36,888 10,600 14,931
---------- ---------- -----------
Net cash provided by (used in) investing activities 37,068 43,360 (386,929)
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 150,960 (17,324) 1,719
Cash and cash equivalents at beginning of period 12,528 29,852 28,133
----------- ---------- -----------
Cash and cash equivalents at end of period $ 163,488 $ 12,528 $ 29,852
=========== ========== ===========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 191,131 $ 226,751 $ 159,339
Income taxes, net 19,253 10,588 41,193
</TABLE>

The accompanying notes and schedule of segment information are an integral part
of these consolidated financial statements.
<PAGE> 24
54

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------
1993 1992 1991
------------------------- ----------------------- -------------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
(Thousands, except per share amounts)
COMMON STOCK:
Balance at beginning of period 40,330 $ 20,165 30,730 $ 15,365 30,598 $ 15,299
Corpus Christi settlement 1,000 500 -- -- -- --
Public equity offering -- -- 8,050 4,025 -- --
Challenger litigation settlement -- -- 1,500 750 -- --
Exercise of stock options and stock
appreciation rights 18 9 -- -- 8 4
Issued under restricted stock plan 39 19 50 25 124 62
------ ---------- ------ ---------- ------ ---------
Balance at end of period 41,387 20,693 40,330 20,165 30,730 15,365
====== ---------- ====== ---------- ====== ---------
PREMIUM ON CAPITAL STOCK AND OTHER PAID-IN CAPITAL:
Balance at beginning of period 522,739 414,339 421,259
Corpus Christi settlement 17,375 -- --
Redemption of 9.25% preferred stock (16,371) -- --
Public equity offering 5 107,548 --
Challenger litigation settlement -- 14,250 --
Tran$tock market value adjustment (12,057) (11,902) (11,011)
Restricted stock market value adjustment 57 (2,951) 48
Exercise of stock options and stock
appreciation rights 204 -- 190
Loss on reacquired preferred stock of
subsidiary, net (183) (70) (92)
Issued under restricted stock plan 28 1,525 3,945
---------- ---------- ---------
Balance at end of period 511,797 522,739 414,339
---------- ---------- ---------
RETAINED EARNINGS (DEFICIT):
Balance at beginning of period (62,471) 32,125 259,587
Net income (loss) (3,936) (49,344) (167,413)
Dividends on common stock at $0.60,
$0.60 and $1.17 per share, respectively (23,993) (19,522) (34,319)
Dividends on convertible preferred stock at
required amounts (25,047) (25,730) (25,730)
---------- ---------- ---------
Balance at end of period (115,447) (62,471) 32,125
---------- ---------- ---------
LESS TREASURY STOCK:
Balance at beginning of period 33 955 29 996 14 679
Forfeitures from restricted stock plan 36 510 41 572 15 321
Issued under restricted stock plan (43) (1,079) (37) (612) -- --
Issued under stock option plan (22) (336) -- -- -- --
Other purchases and sales 11 157 -- (1) -- (4)
------ ---------- ------ ---------- ------ ---------
Balance at end of period 15 207 33 955 29 996
====== ---------- ====== ---------- ====== ---------
LESS COMMON STOCK HELD BY TRAN$TOCK:
Deferred compensation
Balance at beginning of period 644 29,220 967 43,884 1,322 60,000
Compensation expense (327) (2,768) (323) (2,762) (355) (5,105)
Market value adjustment -- (12,057) -- (11,902) -- (11,011)
------ ---------- ------ ---------- ------ ---------
Balance at end of period 317 14,395 644 29,220 967 43,884
====== ---------- ====== ---------- ====== ---------
Receivable from Tran$tock
Balance at beginning of period 402 18,224 585 26,554 758 34,402
Repayment (195) (8,841) (183) (8,330) (173) (7,848)
------ ---------- ------ ---------- ------ ---------
Balance at end of period 207 9,383 402 18,224 585 26,554
====== ---------- ====== ---------- ====== ---------
LESS RESTRICTED STOCK:
Deferred compensation
Balance at beginning of period 105 2,095 103 3,600 18 577
Awarded, earned or forfeited, net (3) 938 35 2,328 109 3,904

Compensation expense and market value
adjustment (10) (1,258) (33) (3,833) (24) (881)
------ ---------- ------ ---------- ------ ---------
Balance at end of period 92 1,775 105 2,095 103 3,600
====== ---------- ====== ---------- ====== ---------
TOTAL COMMON STOCKHOLDERS' EQUITY $ 391,283 $ 429,939 $ 386,795
========== ========== =========
</TABLE>

The accompanying notes and schedule of segment information are an integral part
of these consolidated financial statements.
<PAGE> 25
55

SCHEDULE OF SEGMENT INFORMATION
(Note A)

<TABLE>
<CAPTION>
Gas Gas
Description Pipelines Marketing Gathering Coal Other Eliminations Consolidated
- ----------- ---------- --------- --------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Thousands of Dollars)
YEAR ENDED DECEMBER 31, 1993:
Revenues:
Unaffiliated companies $1,281,191 $1,388,262 $ 6,910 $234,618 $ 10,945 $ -- $2,921,926
Affiliated companies 47,620 59,353 117 -- 2,693 (109,783) --
---------- ---------- -------- -------- --------- -------- ----------
Total revenues 1,328,811 1,447,615 7,027 234,618 13,638 (109,783) 2,921,926
---------- ---------- -------- -------- --------- -------- ----------
Operating Costs and Expenses:
Cost of sales and transportation 378,701 1,427,267 5,255 195,312 10,549 (108,353) 1,908,731
Depreciation, depletion and
amortization 158,524 1,177 2,945 23,377 1,314 -- 187,337
Corpus Christi settlement -- 3,000 47,269 -- -- -- 50,269
Write-off of note receivable 20,125 -- -- -- -- -- 20,125
Capitalized costs in excess of
ceiling limitation -- -- -- -- 70,000 -- 70,000
Other operating costs and expenses 484,315 26,941 3,875 8,949 16,614 (1,512) 539,182
---------- ---------- -------- -------- --------- -------- ----------
Total operating costs and expenses 1,041,665 1,458,385 59,344 227,638 98,477 (109,865) 2,775,644
---------- ---------- -------- -------- --------- -------- ----------
Operating Income (Loss) $ 287,146 $ (10,770) $(52,317) $ 6,980 $ (84,839) $ 82 $ 146,282
========== ========== ======== ======== ========= ======== ==========
Equity in Earnings (Loss) of
Unconsolidated Affiliates $ 320 $ (884) $ (2,219) $ -- $ 3,018 $ -- $ 235
========== ========== ======== ======== ========= ======== ==========

Assets:
Identifiable assets at year-end $3,043,919 $ 156,854 $174,704 $310,452 $196,690 $ -- $3,882,619
========== ========== ======== ======== ========= ========

Equity in net assets of
unconsolidated affiliates $ 6,360 $ 16,347 $ 6,541 $ -- $ 2,206 $ -- 31,454
========== ========== ======== ======== ========= ========

Other corporate assets 166,412
----------
Total Assets $4,080,485
==========

Capital Expenditures and Investment
in Unconsolidated Affiliates $ 139,975 $ 1,509 $ 282 $ 14,650 $ 16,854 $ -- $ 173,270
========== ========== ======== ======== ========= ======== ==========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this schedule.
<PAGE> 26
56

SCHEDULE OF SEGMENT INFORMATION (continued)
(Note A)

<TABLE>
<CAPTION>
Gas Gas
Description Pipelines Marketing Gathering Coal Other Eliminations Consolidated
- ----------- ---------- ---------- ---------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Thousands of Dollars)
YEAR ENDED DECEMBER 31, 1992:
Revenues:
Unaffiliated companies $1,655,787 $ 790,950 $ 9,689 $ 234,471 $ 1,442 $ -- $2,692,339
Affiliated companies 47,084 9,335 1,139 -- 8,954 (66,512) --
---------- ---------- ---------- ---------- --------- ---------- ----------
Total revenues 1,702,871 800,285 10,828 234,471 10,396 (66,512) 2,692,339
---------- ---------- ---------- ---------- --------- ---------- ----------
Operating Costs and Expenses:
Cost of sales and transportation 820,399 791,044 3,532 202,352 8 (66,513) 1,750,822
Depreciation, depletion and amortization 152,996 1,771 4,540 25,310 7,881 -- 192,498
Capitalized costs in excess of
ceiling limitation -- -- -- -- 35,200 -- 35,200
Provision for producer settlements,
legal and regulatory issues 31,000 -- -- -- -- -- 31,000
Other operating costs and expenses 444,346 18,603 5,732 10,297 20,372 (190) 499,160
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating costs and expenses 1,448,741 811,418 13,804 237,959 63,461 (66,703) 2,508,680
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Income (Loss) $ 254,130 $ (11,133) $ (2,976) $ (3,488) $ (53,065) $ 191 $ 183,659
========== ========== ========== ========== ========== ========== ==========
Equity in Earnings (Loss) of
Unconsolidated Affiliates $ 1,667 $ 930 $ (124) $ -- $ 2,954 $ -- $ 5,427
========== ========== ========== ========== ========== ========== ==========

Assets:
Identifiable assets at year-end $3,165,239 $ 164,485 $ 148,050 $ 316,483 $ 351,928 $ -- $4,146,185
========== ========== ========== ========== ========== ==========

Equity in net assets of
unconsolidated affiliates $ 6,722 $ 15,345 $ 47,095 $ -- $ 12,467 $ -- 81,629
========== ========== ========== ========== ========== ==========

Other corporate assets 30,749
----------
Total Assets $4,258,563
==========

Capital Expenditures and Investment
in Unconsolidated Affiliates $ 138,496 $ 2,150 $ 318 $ 8,982 $ 28,488 $ -- $ 178,434
========== ========== ========== ========== ========== ========== ==========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this schedule.
<PAGE> 27
57

SCHEDULE OF SEGMENT INFORMATION (continued)
(Note A)

<TABLE>
<CAPTION>
Gas Gas Elimi-
Description Pipelines Marketing Gathering Coal Other nations Consolidated
- ----------- ----------- --------- --------- --------- --------- ---------- ------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1991:
Revenues:
Unaffiliated companies $1,576,521 $ 841,265 $ 25,134 $ 269,209 $ 2,698 $ -- $2,714,827
Affiliated companies 40,305 42 2,252 -- 27,137 (69,736) --
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total revenues 1,616,826 841,307 27,386 269,209 29,835 (69,736) 2,714,827
---------- ---------- ----------- ---------- ---------- ---------- ----------
Operating Costs and Expenses:
Cost of sales and transportation 760,375 811,128 3,143 211,505 274 (69,737) 1,716,688
Depreciation, depletion and amortization 147,947 2,156 9,282 29,131 22,245 -- 210,761
Provision for producer
settlements, legal, regulatory
issues and other restructuring 199,388 1,709 -- 200 100,000 -- 301,297
Other operating costs and expenses 467,989 23,249 6,631 18,522 33,182 (259) 549,314
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total operating costs and expenses 1,575,699 838,242 19,056 259,358 155,701 (69,996) 2,778,060
---------- ---------- ----------- ---------- ---------- ---------- ----------
Operating Income (Loss) $ 41,127 $ 3,065 $ 8,330 $ 9,851 $ (125,866) $ 260 $ (63,233)
========== ========== =========== ========== ========== ========== ==========
Equity in Earnings (Loss) of
Unconsolidated Affiliates $ 4,867 $ 1,570 $ (2,990) $ -- $ 2,843 $ -- $ 6,290
========== ========== =========== ========== ========== ========== ==========

Assets:
Identifiable assets at year-end $3,282,734 $ 199,736 $ 238,786 $ 347,179 $ 444,288 $ -- $4,512,723
========== ========== =========== ========== ========== ==========

Equity in net assets of
unconsolidated affiliates $ 17,839 $ 18,587 $ 50,643 $ -- $ 6,591 $ -- 93,660
========== ========== =========== ========== ========== ==========

Other corporate assets 2,812
----------
Total Assets $4,609,195
==========

Capital Expenditures and Investment
in Unconsolidated Affiliates $ 311,529 $ 7,165 $ 13,189 $ 10,355 $ 125,592 $ -- $ 467,830
========== ========== =========== ========== ========== ========== ==========
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this schedule.
<PAGE> 28
58

HEADLINE
<PAGE> 29
59

HEADLINE

<PAGE> 30
60

HEADLINE

<PAGE> 31
58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----
A. Summary of Significant Accounting Policies 59
B. Regulatory Matters 61
C. Legal Proceedings 65
D. Environmental Matters 67
E. Financing 69
F. Preferred Stock 72
G. Common Stock 73
H. Employee Benefit Plans 75
I. Income Taxes 79
J. Discontinued Operations and Sales of Assets 80
K. Investment in Unconsolidated Affiliates and
Notes Receivable 81
L. Investment in Nonoperating Interest in
Coalbed Methane Properties 82
M. Commitments and Contingencies 83
N. Fair Value of Financial Instruments 86
O. Quarterly Information (Unaudited) 87

<PAGE> 32
59

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Transco Energy
Company and its wholly-owned subsidiaries. As used herein, the terms "Transco"
or the "Company" refer to Transco Energy Company and its wholly-owned
subsidiaries unless the context otherwise requires. Intercompany sales are at
market prices and all significant intercompany accounts and transactions have
been eliminated. The equity method of accounting is used for investments in
affiliates in which 50 percent or less of the voting interest is owned.

As a result of its sale described in Note J, the Power Generation segment has
been classified in the Consolidated Statement of Operations as discontinued
operations; and, as such, revenues and expenses have been excluded from the
results for continuing operations. Prior years' results of the Power Generation
segment have been reclassified to conform with this presentation. Certain other
reclassifications have been made in the 1992 and 1991 financial statements to
conform to the 1993 presentation.

BUSINESS SEGMENTS

In December 1992, Transcontinental Gas Pipe Line Corporation (TGPL) and Texas
Gas Transmission Corporation (Texas Gas) filed plans with the Federal Energy
Regulatory Commission (FERC) for Transco to realign the Gas Marketing segment
of its business under the common management of a newly formed subsidiary,
Transco Gas Marketing Company (TGMC). In January 1993, the FERC, subject to
conditions, accepted tariff sheets filed by TGPL and Texas Gas, effectively
allowing the Company to proceed with the realignment. TGMC, through agency
management agreements with TGPL and Texas Gas, manages all gas sales made by
TGPL and all gas sales made by Texas Gas except for monthly gas purchases under
gas purchase contracts with pricing provisions that are not variable market
based which Texas Gas sells at auction. Accordingly, effective January 1, 1993
for TGPL and November 1, 1993 for Texas Gas, substantially all sales revenues
and the related costs, including gas costs applicable to TGPL and Texas Gas'
sales service, are reported by Transco in its Gas Marketing segment.

DEPRECIATION, DEPLETION AND AMORTIZATION

NATURAL GAS TRANSMISSION PLANT Depreciation rates used for major regulated gas
plant facilities at year-end 1993, 1992 and 1991 were:

<TABLE>
<CAPTION>
TGPL Texas Gas
---------------------------------------- ----------------------------------------
Category of Property 1993 1992 1991 1993 1992 1991
- -------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gathering facilities 6.22% 6.22% 6.22% 0.75%-1.20% 0.75%-1.20% 0.75%-1.20%
Storage facilities 2.50% 2.50% 2.50% 2.30% 2.30% 2.30%
Onshore transmission facilities 2.50%-2.65% 2.50% 2.50% 2.00% 2.00% 2.00%
Offshore transmission facilities 3.75%-7.78% 3.75%-7.78% 3.75%-7.78% 6.00% 6.00% 6.00%
</TABLE>

Depreciation of general plant is provided at straight-line rates.

NATURAL GAS GATHERING AND LIQUIDS SEPARATION AND FRACTIONATION PLANT
Depreciation of natural gas gathering facilities is based on the units-of-
production method over the estimated life of the reserves associated with the
facility or at straight-line rates over a twenty to thirty-eight-year life.
Depreciation of liquids separation and fractionation plant is primarily based
on the straight-line method over a sixteen to twenty-two-year life.

COAL PROPERTIES Mineral rights often are acquired through royalty payments.
Royalty payments representing prepayments recoupable against future production
are included in other assets in the accompanying Consolidated Balance Sheet,
with amounts expected to be recouped within one year classified as a current
asset. As mining occurs on these leases, the prepayment is amortized and
included in the cost of coal mined. Amounts determined to be nonrecoupable are
charged to expense.

Cost of coal lease rights, including costs related to the purchase of the coal
properties by Transco and mine development costs, are capitalized and amortized
by the units-of-production method over the estimated recoverable reserves. Coal
production machinery and equipment are depreciated principally by the
straight-line method over a three to five-year life.

COALBED METHANE PROPERTIES As described in Note L, Transco has an investment in
a nonoperating interest in certain coalbed methane properties. The properties
are operated by TECO Coalbed Methane, Inc. (TECO). All future development
<PAGE> 33
60

costs will be borne by TECO. Transco's remaining investment will be amortized
using the future gross revenue method based on future revenues to be received
through Transco's nonoperating interest in the underlying proved coalbed
methane properties. Transco's capitalized costs associated with its remaining
investment are subject to a ceiling test that limits the investment to the
aggregate of the present value of future net revenues of proved reserves and
the lower of cost or fair value of unproved properties.

FEDERAL INCOME TAXES

TAX POLICY Transco and its wholly-owned subsidiaries file a consolidated
federal income tax return. It is Transco's policy to charge or credit each
subsidiary with an amount equivalent to its federal income tax expense or
benefit computed as if each subsidiary had a separate return, but including
benefits from each subsidiary's losses and tax credits that may be utilized
only on a consolidated basis.

ACCOUNTING FOR INCOME TAXES Transco uses the liability method of accounting for
deferred taxes, which requires, among other things, adjustments to the existing
deferred tax balances for changes in tax rates, whereby such balances will more
closely approximate the actual taxes to be paid. Net tax rate reductions
related to regulated operations and subject to refund to customers over the
average remaining life of natural gas transmission plant have been shown in the
accompanying Consolidated Balance Sheet as income taxes refundable to
customers, the current portion of which is included in other current
liabilities.

In the first quarter of 1993, Transco adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, which supersedes SFAS
No. 96, Accounting for Income Taxes. Due to Transco's prior adoption of SFAS
No. 96 in 1987, the adoption of SFAS No. 109 in 1993 did not have a material
effect on the Company's financial position or results of operations.

REVENUE RECOGNITION

Transco's subsidiaries recognize revenues for the sale of their respective
commodities in the period of delivery. Transco's pipelines recognize revenue
for the transportation of gas in the period the service is provided. TGPL and
Texas Gas are subject to FERC regulations and, accordingly, certain revenues
are collected subject to possible refunds pending final FERC orders. Transco
establishes reserves, where required, for such revenues collected subject to
refund.

CASH FLOWS FROM OPERATING ACTIVITIES
Transco uses the indirect method to report cash flows from operating
activities, which requires adjustments to net income to reconcile to net cash
flows provided by operating activities. The Company includes short-term,
highly-liquid investments that have a maturity of three months or less as cash
equivalents.

RESTRICTED DEPOSITS

At December 31, 1993, the Company had approximately $31 million of restricted
deposits that are included in the accompanying Consolidated Balance Sheet in
current assets as deposits. These restricted deposits serve as collateral for
various standby letters of credit, regulatory trusts and legal proceedings.

CAPITALIZED INTEREST

The allowance for funds used during construction represents the cost of funds
applicable to regulated natural gas transmission plant under construction as
permitted by FERC regulatory practices. Interest is capitalized on major
capital projects of non-regulated subsidiary companies. The allowance for
borrowed funds used during construction and capitalized interest was $4.0
million, $4.8 million and $28.2 million for 1993, 1992 and 1991, respectively.
The allowance for equity funds was $3.3 million, $3.2 million and $10.4 million
for 1993, 1992 and 1991, respectively.

GAS IN STORAGE

The Company utilizes the last-in, first-out (LIFO) method of accounting for
inventory gas in storage. The current replacement cost of the inventory gas in
storage at December 31, 1993 and 1992 was $62 million and $156 million,
respectively. As part of Texas Gas' implementation of Order 636, Texas Gas has
been allowed to retain its storage gas, in part to meet operational balancing
needs on its system, and in part to meet the requirements of Texas Gas'
"no-notice" transportation service, which allows customers to temporarily draw
from Texas Gas' storage gas to be repaid in-kind during the following summer
season. As a result, Texas Gas' gas stored underground has been reclassified
from current assets to other assets in the accompanying Consolidated Balance
Sheet.
<PAGE> 34
61

GAS IMBALANCES

In the course of providing transportation services to customers, TGPL and Texas
Gas may receive different quantities of gas from shippers than the quantities
delivered on behalf of those shippers. Additionally, Transco's gas marketing
subsidiaries transport gas on various pipeline systems which may deliver
different quantities of gas on behalf of Transco than the quantities of gas
received from Transco. These transactions result in gas transportation and
exchange imbalance receivables and payables which are recovered or repaid in
cash or through the receipt or delivery of gas in the future and are recorded
in the accompanying Consolidated Balance Sheet. Imbalances have become of
greater significance to the pipeline industry generally, since the
implementation of open access transportation by the FERC in 1985, as a result
of the substantial increase in the number of shippers on pipeline systems.
Settlement of imbalances requires agreement between the pipelines and shippers
as to allocations of volumes to specific transportation contracts and timing of
delivery of gas based on operational conditions. TGPL and Texas Gas' rate
structures include a method whereby most imbalances generated after August 1,
1991 and November 1, 1993, respectively, are settled on a monthly basis. TGPL's
imbalances predating August 1, 1991 are being recovered or repaid in cash or
through the receipt or delivery of gas upon agreements of allocation and as
permitted by operating conditions. Texas Gas anticipates filing with the FERC
for a similar method of recovery or repayment of imbalances predating November
1, 1993. These imbalances have been classified as current assets or current
liabilities to the extent the Company believes this will occur during 1994.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

POSTEMPLOYMENT BENEFITS

In November 1992, the FASB issued SFAS No. 112, Employers' Accounting for
Postemployment Benefits, which requires Transco, effective January 1994, to
accrue the estimated cost of providing postemployment benefits to former or
inactive employees after employment but before retirement if the obligation is
attributable to employees' services previously rendered, employees' rights to
those benefits accumulate or vest, payment of the benefits is probable and the
amount of the benefits can be reasonably estimated. The Company does not expect
adoption of SFAS No. 112 to have a material effect on its financial position or
results of operations.

EARNINGS (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS

Primary earnings (loss) per share is computed by dividing common stock equity
in net income (loss) by the weighted average number of shares adjusted for
common stock equivalents where applicable. The $4.75 series, 9.25% series and
$3.50 series cumulative convertible preferred stock were determined at the time
of issuance not to be common stock equivalents. The unallocated portion of
non-leveraged Tran$tock shares is excluded in the computation of primary
earnings per share.

Fully diluted earnings (loss) per share is not presented because such
difference would not be material from amounts computed for primary earnings
(loss) per share.

B. REGULATORY MATTERS
TGPL MATTERS
RATE MATTERS On June 4, 1992, the FERC issued its final order on rehearing in
TGPL's Rate Settlement and Gas Inventory Charge (GIC) Settlement (Docket No.
RP90-8). This order became effective in July 1992. As a result, in August 1992,
TGPL made refunds of approximately $102 million, including interest, for
differences between filed rates and settlement rates. Certain parties appealed
the FERC's June 4, 1992 order to the United States Court of Appeals for the
D.C. Circuit (D.C. Circuit Court). On December 17, 1993, the D.C. Circuit Court
issued its opinion affirming the FERC's orders, except for one issue not
material to TGPL which was remanded to the FERC for further consideration.

On March 2, 1992, TGPL filed with the FERC a general rate case (Docket No.
RP92-137). The general rate filing proposed an increase in transportation
rates, based primarily on increases in operating and maintenance costs,
including those associated with additional services provided to TGPL's markets
since its last general rate filing, and increased cost of capital. The filing
also included a change to straight fixed-variable (SFV) rate design and an
increase in rate base resulting from
<PAGE> 35
62

additional plant and equipment costs and higher working capital requirements.
On September 1, 1992, the increased rates went into effect subject to refund.

On September 17, 1992, the FERC issued a decision addressing the single issue
of the appropriate rate of return in Docket No. RP92-137. The FERC, using a
hypothetical capital structure based on the average capital structure of a
group of seven publicly-traded companies with pipeline subsidiaries, determined
TGPL's appropriate after-tax rate of return on equity to be 14.45%. The FERC
did not determine TGPL's cost of debt and preferred stock, suggesting that this
issue should be the subject of further proceedings in the context of the
general rate case. Consequently, TGPL's current rates reflect an after-tax rate
of return on equity of 14.45% but, consistent with the FERC order, the rates
continue to reflect the cost of debt and preferred stock originally filed in
the general rate case. The issue of the appropriate rate of return for TGPL is
currently on appeal before the D.C. Circuit Court. TGPL appealed, seeking to
increase the rate of return, and certain other parties have appealed, seeking
to lower the rate of return.

On May 3, 1993, TGPL filed with the FERC an Offer of Settlement (the
Settlement) with regard to Docket No. RP92-137. On November 4, 1993, the FERC
issued an order accepting the Settlement. The Settlement resolves all issues in
Docket No. RP92-137 except (i) issues relating to TGPL's rate of return, which
is on appeal before the D.C. Circuit Court (see discussion above), and (ii) the
issue of the appropriate load factor for the design of TGPL's interruptible
rates, which the FERC referred to a hearing in Docket No. RP92-137, for
prospective effect only (see Order 636 discussion for additional issues
referred to this hearing). On December 16, 1993, TGPL filed a request to
accelerate partial refunds under the Settlement on the ground that those
refunds could be made without prejudice to the pending requests for rehearing
or clarification. TGPL's request was granted by order of the FERC dated
February 14, 1994. In early 1994, TGPL will make the initial refunds
(approximately $100 million, including interest) under RP92-137. TGPL has
previously provided a reserve for that refund. TGPL has also provided a reserve
which it believes is sufficient for any additional refunds that may be required
under RP92-137.

TRANSITION COST PROCEEDING In 1986, TGPL filed to recover from its customers
$82 million of specific gas supply costs incurred during prior periods (the
Transition Cost proceeding). The FERC ordered a hearing regarding the recovery
of such costs but permitted TGPL to begin collecting such costs subject to
refund. Through April 1989 when TGPL ceased collecting these costs,
approximately $51 million had been collected. On January 15, 1992, the FERC
issued a final order on the Transition Cost proceeding which required TGPL to
pay cash refunds within thirty days of issuance of the order totaling
approximately $51 million, plus interest of approximately $23 million, to its
customers and forego recovery of an additional $26 million in gas costs
incurred by TGPL during 1985 and 1986. TGPL made the cash refunds in 1992.
TGPL appealed the FERC's decision to the United States Court of Appeals for the
Fifth Circuit (the Fifth Circuit Court). Several customers also filed petitions
for review. On August 27, 1993, the Fifth Circuit Court issued its opinion
affirming the FERC's order in all respects.

FUEL RETENTION PROCEEDINGS On February 23, 1989, the FERC issued an order which
found, among other things, that TGPL had overcollected for fuel from
transportation customers during the period April 1, 1984 to April 1, 1987. The
order required TGPL to refund the difference between the amount collected and
the rate allowed for fuel retention. Accordingly, TGPL made refunds to
customers of approximately $35 million, including interest. In response to
subsequent FERC orders, TGPL recalculated the refund and on November 30, 1993,
under this revised calculation, TGPL made additional refunds of approximately
$11.6 million, including interest. TGPL had previously provided a reserve that
was sufficient for these refunds. On February 9, 1994, the FERC issued an order
accepting TGPL's refund report stating that TGPL made the refunds in accordance
with the FERC's orders.

TEXAS GAS MATTERS

RATE MATTERS On April 29, 1993, Texas Gas filed a general rate case (Docket No.
RP93-106), which, pursuant to the FERC's Suspension Order issued May 28, 1993,
became effective November 1, 1993, subject to refund. The new rate case was
filed to satisfy the three-year filing requirement of the FERC's regulations,
to recover increased operating costs, to provide a return on increased capital
investment in pipeline facilities, to implement the SFV rate design methodology
and to facilitate resolution of various rate-related issues in Texas Gas' Order
636 restructuring proceeding. Texas Gas is currently engaged in settlement
proceedings regarding this case. Texas Gas has established a reserve, which it
believes to be adequate, to reflect the difference between the rates currently
being collected and the rates expected to ultimately be effective upon
settlement of the rate case.
<PAGE> 36
63

OTHER REGULATORY MATTERS

ORDER 94-A In 1983, the FERC issued Order 94-A, which permitted producers to
collect certain production-related gas costs from pipelines on a retroactive
basis. The FERC subsequently issued orders allowing several pipelines,
including TGPL and Texas Gas, to bill their customers for such
production-related costs through fixed monthly charges based on a customer's
historical purchases. In February 1990, the D.C. Circuit Court overturned the
FERC's authorization for pipelines to bill production-related costs to
customers based on gas purchased in prior periods and remanded the matter to
the FERC to determine an appropriate recovery mechanism.

TGPL's GIC Settlement contains a provision pursuant to which TGPL's customers,
with the exception of Columbia Gas Transmission Corporation (Columbia), have
agreed not to contest the Order 94-A payments previously made to TGPL by them.
TGPL had billed to and recovered from Columbia approximately $7 million of
Order 94-A costs. On October 26, 1993, TGPL and Columbia executed a letter
agreement by which the parties resolved the amount of refunds to be made to
Columbia in this proceeding. Pursuant to the letter agreement, TGPL and
Columbia agreed that TGPL shall refund $1.4 million to Columbia, which amount
is inclusive of principal and interest, in full and final settlement of all
issues in this proceeding. The letter agreement is subject to approval by the
FERC. TGPL has provided a reserve which is sufficient to cover the refund
provided for by the letter agreement. On January 26, 1994, Columbia filed a
letter with the FERC stating that, due to developments in other pipeline
company proceedings involving settlements of the issue of recovery of Order
94-A costs from Columbia, Columbia could no longer support, pending rehearing
in those proceedings, the settlement between TGPL and Columbia filed on October
26, 1993. Columbia requested that the FERC hold any action on the settlement in
abeyance pending action on rehearing in the other proceedings. On February 4,
1994, TGPL filed a response opposing Columbia's January 26 letter, stating that
the October 26 settlement constitutes a valid and binding agreement between
TGPL and Columbia and requesting that the FERC approve that settlement without
delay. This matter is pending before the FERC.

On April 28, 1992, Texas Gas filed a settlement with the FERC providing for a
reallocation of the Order 94-A payments previously collected from customers.
The settlement provided for net refunds of $8.1 million to certain customers
and direct bill recovery of $2.7 million from other customers. The remaining
$5.4 million would be recovered through Texas Gas' PGA mechanism. On February
11, 1993, the FERC issued an order approving the settlement. Certain parties
filed for rehearing of the settlement. On January 12, 1994, the FERC issued its
"Order Granting Rehearing" which found that the FERC had committed a legal
error in allowing the previously mentioned direct bill of Order 94-A costs. The
effect of this order as issued would be to require Texas Gas to make refunds to
certain customers of $13.5 million, recover $2.7 million through direct billing
of other customers, recover $5.4 million as part of the direct billing of its
unrecovered purchase gas costs and absorb the remaining $5.4 million. Texas
Gas believes it is entitled to full recovery of these FERC-ordered costs. Texas
Gas has filed for rehearing of this order and has received an extension staying
the effectiveness of this order until 30 days after the FERC rules on
rehearing. Texas Gas has provided a reserve which it believes is adequate to
provide for any costs which it may ultimately be required to absorb.

Although no assurances can be given, Transco believes that the final resolution
of the recovery of production-related costs will not have a material adverse
effect on its financial position or results of operations.

ORDER 636

TGPL

On November 1, 1993, TGPL implemented Order 636. Prior to its implementation of
Order 636, TGPL received orders from the FERC which, among other things, (i)
required TGPL to revise its throughput projection for rate purposes to reflect
a mix of throughput that includes a higher level of interruptible
transportation, (ii) accepted TGPL's proposal for rolled-in rate treatment of
its Mobile Bay facilities and exempted TGPL from having to reflect Mobile Bay
transportation volumes and related revenues in a separate interruptible revenue
crediting mechanism, (iii) approved a Stipulation and Agreement filed with the
FERC by TGPL and its sales customers resolving certain sales service issues and
mooting potential issues regarding TGPL's recovery of gas supply realignment
(GSR) costs associated with TGPL's firm sales service, and (iv) referred to the
hearing in Docket No. RP92-137 the following issues: TGPL's limited Section 4
filing with the FERC relating to TGPL's production area rate design, the
allocation of certain costs to TGPL's sales service, TGPL's use of a
system-wide cost of service, the level of TGPL's gathering rates and
aggregation/pooling services in TGPL's production area. Any changes in TGPL's
rates or services resulting from this hearing would have a prospective effect
only. Order 636 provides that pipelines should be allowed the opportunity to
recover all prudently incurred transition costs. TGPL does not expect to incur
GSR costs associated with its firm sales service. TGPL's non-GSR transition
costs are anticipated to be in a range of $5 million to $10 million.
<PAGE> 37
64

TGPL and certain other parties have filed appeals of certain of the FERC's
orders to the D.C. Circuit Court. These appeals have been held in abeyance
pending completion of the FERC's rehearing process and the expiration of the
time to seek judicial review.

TGPL has previously expressed to the FERC concerns that inconsistent treatment
under Order 636 of TGPL and its competitor pipelines with regard to rate design
and cost allocation issues in the production area may result in rates which
could make TGPL less competitive, both in terms of production-area and
long-haul transportation. TGPL is unable at this time to fully assess the
competitive effect and resulting financial impact on TGPL of having to maintain
its current production-area rate design which is different than that of its
competitors.

TEXAS GAS

Texas Gas has restructured its business to implement the provisions of Order
636. On October 1, 1993, the FERC issued its "Order on Compliance Filing and
Granting, In Part, and Denying, In Part, Rehearing and Clarification," which
essentially approved the major aspects of Texas Gas' Order 636 compliance plan.
Texas Gas filed revised tariff sheets and other changes pursuant to the October
1, 1993 order on October 18, 1993, which permitted implementation of Order 636
restructured services on November 1, 1993. On December 16, 1993, the FERC
issued another order which required minor tariff modifications. Texas Gas
submitted a filing in compliance with this order on January 7, 1994. This
filing was accepted by an order issued on February 10, 1994. Texas Gas'
analysis of Order 636 indicates that Texas Gas' transition costs are not
currently expected to exceed $90 million, primarily related to GSR contract
termination costs, GSR pricing differential costs incurred pursuant to the
auction process, as discussed below, and unrecovered purchased gas costs.

During 1993, as part of Texas Gas' restructuring under Order 636, Texas Gas
engaged in negotiations which have resulted in the successful termination of
approximately 90% of Texas Gas' deliverability under its gas purchase contracts
with pricing provisions that are not variable market based. Gas purchased under
its remaining gas purchase contracts with pricing provisions that are not
variable market based is being resold at a monthly auction pursuant to Order
636. Texas Gas continues to pay to the supplier the actual contract price and
is entitled to file for full recovery of the difference between the contract
price and the amount received for sales at auction as GSR costs under Order
636.

Through December 31, 1993, Texas Gas had paid or committed to pay a total of
$38.2 million for GSR costs, primarily as a result of the contract
terminations. As of December 31, 1993, Texas Gas had paid $13.4 million of such
costs; the remaining $24.8 million was recorded as a current liability in the
accompanying Consolidated Balance Sheet. Pursuant to Order 636, Texas Gas may
file to recover 100% of these costs as GSR costs.

On January 28, 1994, Texas Gas submitted its first filing to recover $11.5
million of GSR costs pursuant to the transition cost recovery provisions of
Order 636 and Texas Gas' approved FERC Gas Tariff. This amount represents 90%
of the total GSR costs paid through November 30, 1993, which are expected to be
recovered over a 12-month period by application of a surcharge to its firm
transportation demand rates. The remaining 10% is expected to be recovered from
interruptible transportation service. Texas Gas plans to make quarterly filings
to allow recovery of its GSR costs as such costs are paid.

CONSOLIDATED

Transco expects that any Order 636 transition costs incurred should be
recovered from TGPL and Texas Gas' customers, subject only to the costs and
other risks associated with the difference between the time such costs are
incurred and the time when those costs may be recovered from customers.
Although no assurances can be given, Transco does not believe that the
implementation of Order 636 by TGPL and Texas Gas will have a material adverse
effect on its financial position or results of operations.

ORDER 500 AND ORDER 528 Pursuant to Order 500, certain other pipelines from
which Texas Gas made gas purchases (upstream pipelines) have received approval
from the FERC to bill customers for their producer settlement costs. Texas Gas
had, in turn, received FERC approval to flow these costs through to its
customers under the Order 500 purchase deficiency-based direct bill
methodology. Following the issuance of Order 528, which replaced the purchase
deficiency-based recovery methodology, Texas Gas, in 1991, made a series of
filings which reallocated these costs among customers. Pursuant to these
filings, Texas Gas proposed to ultimately flow through to its customers
approximately $64 million of costs billed from upstream pipelines. The FERC has
issued orders accepting these filings, subject to the ultimate outcome of the
<PAGE> 38
65

underlying filings of the upstream pipelines and future settlement by Texas
Gas. Although the total billings to Texas Gas are unresolved and Texas Gas may
be required to refund certain amounts previously collected, Texas Gas believes
that it will be entitled to ultimately collect all amounts that are billed by
the upstream pipelines.

Under Order 528, Texas Gas may file to recover 75% of its producer settlement
costs, including amounts it may be required to pay producers pursuant to
indemnifications for royalties. On September 2, 1993, Texas Gas filed to
recover 75% of $3.4 million of such producer settlement costs. A FERC order,
accepting the filing subject to refund and certain conditions, was issued on
October 1, 1993, allowing for recovery of $0.9 million through direct bill and
$1.7 million through a volumetric surcharge, both to be collected over a
12-month period which began October 3, 1993. (See Note C. Legal
Proceedings--Other Litigation and Claims).

C. LEGAL PROCEEDINGS

PRODUCER CONTRACT LITIGATION

TGPL has one remaining proceeding involving take-or-pay and other producer
contract claims. In this lawsuit, a producer filed in federal district court in
Texas claiming that it should have received more favorable terms for settlement
of its contract claims and asserting federal antitrust claims. Such producer is
seeking damages of approximately $30 million, of which approximately $10
million represents claims for punitive damages. In October 1992, the court
issued an order granting TGPL's motion for summary judgment on the antitrust
claims and in June 1993, the court issued an order granting TGPL's motion for
summary judgment on all remaining claims. The producer has filed an appeal.
Although no assurances can be given, Transco does not believe that the ultimate
resolution of this litigation will have a material adverse effect on its
financial position or results of operations.

In 1993, TGPL resolved another case involving producer contract claims in which
a pipeline company filed suit against TGPL in a federal district court in Texas
claiming that TGPL failed to pay amounts due under a FERC-certificated
contract. The FERC issued a final order authorizing TGPL retroactively to
abandon its purchase of gas from the plaintiff, and TGPL filed a motion for
summary judgment asking the court to absolve it from liability under the
contract. The court issued orders granting TGPL's motion for summary judgment
on all counts.

On May 7, 1992, TGPL and Challenger Minerals, Inc. (Challenger) entered into a
Settlement Agreement to settle all matters in controversy between them,
including, but not limited to, all claims and causes of action which were
asserted or which might have been asserted in the lawsuit. In settling this
litigation, TGPL agreed to provide shares of Transco common stock with a market
value of $15 million to Challenger in 1994 and, in connection with such
agreement, placed 1,500,000 shares of Transco common stock in escrow. The
number of shares ultimately released to Challenger was to be determined by
dividing $15 million by Transco's average common stock price during January
1994, subject to certain adjustments, with Challenger receiving a minimum of
750,000 shares. In February 1994, 1,017,771 shares of Transco common stock were
released to Challenger from escrow and the remainder of the shares were
returned to Transco.

OTHER LITIGATION AND CLAIMS

DAKOTA GASIFICATION LITIGATION In October 1990, Dakota Gasification Company
(Dakota), the owner of the Great Plains Coal Gasification Plant (Plant), filed
suit in the United States District Court in North Dakota against TGPL and three
other pipeline companies alleging that TGPL and the other pipelines had not
complied with their respective obligations under certain gas purchase and gas
transportation contracts. Specifically at issue is the proper price to be paid
by TGPL and the other pipelines for synthetic gas since August 1989, the proper
rate to be charged by Dakota for transportation through the Great Plains
pipeline since October 1987, and the proper quantity of synthetic gas required
to be taken-or-paid for by TGPL and the other pipelines.

On September 8, 1992, Dakota and the United States Department of Justice on
behalf of the Department of Energy (DOJ) filed a Third Amended Complaint in the
U.S. District Court in North Dakota naming as defendants in the suit, in
addition to TGPL and the other pipelines, Transco and Transco Coal Gas Company,
the subsidiary of Transco that was the partner in Great Plains Gasification
Associates (Partnership), the partnership that originally constructed the
Plant. In addition, Dakota and DOJ named as defendants all of the other
partners in the Partnership and each of the parent companies of these entities.
In the Third Amended Complaint, Dakota and DOJ charged: (i) the pipeline
defendants with breach of contract for failure to pay for volumes of gas
tendered but not taken, for underpayment for gas purchased and for failure to
pay for transportation services; (ii) all defendants with breach of
representations and warranties, misrepresentation and breach of an implied
covenant of good faith and fair dealing; and (iii) all parent company
defendants and the affiliated partner defendants of each of the pipeline
defendants with intentional interference with contractual relations. Dakota and
DOJ
<PAGE> 39
66

are seeking declaratory and injunctive relief; the recovery of damages,
alleging that the four pipeline defendants have underpaid for gas,
collectively, as of June 30, 1992, by more than $232 million plus interest and
for additional damages for transportation services; and costs and expenses,
including attorneys' fees. On October 30, 1992, Dakota invoiced TGPL $70.5
million for "all synthetic gas costs" Dakota claims are due from TGPL. Because
the proper gas price under TGPL's gas purchase contract with Dakota is derived
from a formula involving the weighted average prices paid for certain natural
gas purchased by TGPL, and is further the average of each of such prices
calculated for each of the four pipeline purchasers, it is not feasible at this
time for TGPL to determine if it in fact has underpaid for gas.

Recent settlement negotiations between all of the parties to this litigation
have resulted in the execution of a nonbinding settlement term sheet. The
parties are currently working toward the execution of definitive agreements
which would settle the litigation subject to final nonappealable regulatory
approvals. The proposed settlement is also subject to a FERC ruling that TGPL's
existing authority to recover in rates certain costs related to the purchase
and transportation of gas produced by Dakota will pertain to gas purchase and
transportation costs TGPL will pay Dakota under the terms of the settlement. In
the event that the settlement agreement is not consummated or if the necessary
regulatory approvals are not obtained, TGPL, Transco and Transco Coal Gas
Company intend to vigorously defend the suit.

Although no assurances can be given, TGPL and Transco believe that TGPL has
substantially complied with its obligation under the contracts with Dakota and
that Transco and Transco Coal Gas Company have not breached representations,
warranties or implied covenants and have not intentionally interfered with the
parties' contractual relations. Although no assurances can be given, Transco
does not believe that the ultimate resolution of this litigation, whether
settled or not, will have a material adverse effect on its financial position
or results of operations.

CORPUS CHRISTI LITIGATION In April 1992, Corpus Christi Gas Gathering, Inc. and
certain affiliates (Corpus Christi) filed suit in the 117th District Court in
Nueces County, Texas against Transco and certain of its gas gathering
subsidiaries claiming breach of fiduciary duty. The original complaint did not
specify monetary damages. The case involved certain partnerships between
Transco subsidiaries and Corpus Christi entities that jointly owned certain gas
gathering lines and intrastate pipeline assets. In December 1992, Corpus
Christi amended its petition to add allegations of failure to share business
opportunities, fraud and a claim for usury associated with certain loans made
by Transco subsidiaries to Corpus Christi. In its amended petition, Corpus
Christi alleged damages of $890 million in usury claims, unspecified actual and
punitive damages for certain other claims and attorneys' fees. On January 12,
1993, Transco filed an answer denying the claims made by Corpus Christi in the
amended petition and filed a counterclaim against Corpus Christi and certain
related individuals alleging actual and punitive damages in excess of $250
million.

On October 19, 1993, the parties settled the litigation on terms whereby
Transco acquired Corpus Christi's interest in the jointly owned gas gathering
and intrastate pipeline assets, terminated the existing business relationships
with Corpus Christi, and then leased certain of the assets to Corpus Christi.
The Company paid Corpus Christi $5.5 million, plus accrued interest, in cash
and executed a non-interest bearing note for $4 million due April 1, 1994. In
addition, the acquisition of Corpus Christi's interest in the assets was
accomplished by exchanging stock in certain of their companies for one million
shares of Transco common stock valued at $177/8 per share (the closing price of
the stock on October 18, 1993). The litigation was dismissed with prejudice.
The payments and non-cash charges related to the settlement of the litigation
and restructuring of these business relationships totaled $50.3 million
pre-tax, $32.7 million after-tax, or $0.84 per share, and was recorded in the
third quarter of 1993.

ROYALTY CLAIMS In connection with TGPL and Texas Gas' renegotiations with
producers to resolve take-or-pay and other contract claims and to amend gas
purchase contracts, TGPL and Texas Gas have each entered into certain
settlements which may require the indemnification by TGPL or Texas Gas of
certain claims for "excess royalties" which the producer may be required to pay
as a result of such settlements. On October 15, 1992, the United States Court
of Appeals for the Fifth Circuit and the Louisiana Supreme Court, with respect
to the same litigation in applying Louisiana law, determined that royalties are
due on take-or-pay payments under the royalty clauses of the specific mineral
leases reviewed by the Courts. Furthermore, the State Mineral Board of
Louisiana has passed a resolution directing the State's lessees to pay to the
State royalties on gas contract settlement payments. As a result of these and
related developments, TGPL and Texas Gas have been made aware of demands on
producers for additional royalties and such producers may receive other demands
which could result in claims against TGPL and Texas Gas pursuant to the
indemnification provisions in their respective settlements. Indemnification for
excess royalties will depend on, among other things, the specific lease
provisions between the producer and the lessor and the terms of the settlement
between the producer and either TGPL or Texas Gas.
<PAGE> 40
67

TGPL

TGPL has been notified by two producers that they believe TGPL is obligated to
reimburse each of them for approximately $16.0 million and $3.6 million,
respectively, in settlement payments made by such producers to certain royalty
owners in East Texas. TGPL has denied liability to the two producers and
believes that it has meritorious defenses to these claims which it intends to
pursue vigorously. One of the producers filed a lawsuit against TGPL in a
state court on January 14, 1994.

TGPL has been named as a defendant in three other lawsuits involving claims by
producers and/or royalty owners, two in South Texas and one in Louisiana. In
one of the Texas lawsuits, the royalty owners have made allegations against the
producer for breach of express obligations under the leases; breach of the
covenant to reasonably market gas; breach of the covenant to reasonably
develop; breach of the covenant to protect against drainage; and failure to
deal in good faith. In the other Texas suit, the royalty owners did not claim
that the producer breached any covenant to develop or protect against drainage.
However, except for this omission, the royalty owners' claims in the second
suit are virtually identical to the ones made in the first. In addition, the
royalty owners have sued the parent and an affiliate of the producer and TGPL
for allegedly conspiring to tortiously interfere with their lease. The producer
defendant in the Texas cases has cross-claimed against TGPL pursuant to the
excess royalty provision in the Omnibus Contract Amendment and Settlement
Agreement between TGPL and the producer. While the complaints have not
specified monetary damages, the royalty owners have verbally alleged that their
claims against the producers could approximate $100 million. One of the Texas
lawsuits is set for trial on December 2, 1994. In the Louisiana case, the
royalty owners have alleged that they were third party beneficiaries to the
original gas purchase contract between TGPL and the producers and that the
settlement agreement entered into between TGPL and such producers is not valid
without the royalty owners' consent. Additionally, in a separate lawsuit
consolidated with the TGPL lawsuit allegations have been made that Transco
Exploration Company (TXC) and TXP Operating Company (TXPO) and other
defendant-producers were entitled to make claims for breach of gas purchase
contracts but failed to either make claim or receive compensation for such
breaches. The royalty owners make a number of allegations with respect to
breach of the leases and breach of implied covenants similar to those alleged
in the South Texas cases. The royalty owners have not specified an amount of
monetary damages in their complaints. Trial is set for September 1994.
Each of the royalty cases is in the discovery process. TGPL, TXC and TXPO have
each denied liability in the litigation and each believes that it has
meritorious defenses to the claims which it intends to pursue vigorously. TGPL
believes at this time that its exposure, if any, under the excess royalty
provisions of its settlements with the producers is substantially less than the
amounts claimed by the royalty owners. Although no assurances can be given,
Transco believes that the ultimate resolution of these royalty claims and
litigation will not have a material adverse effect on Transco's financial
position or results of operations.

TEXAS GAS

Two lawsuits have been filed against Texas Gas in Louisiana, seeking
reimbursement for royalties allegedly incurred by the producers on amounts
previously paid to the producers by Texas Gas to settle past take-or-pay
disputes and to reform the gas purchase contract, pursuant to an "excess
royalty" clause in a gas purchase contract. The amount in dispute is estimated
to be less than $10 million. Texas Gas disputes the application of the "excess
royalty" clause to the particular royalties in question; however, to the extent
any obligation to reimburse the producers exists, it is subject to Texas Gas'
ability to include such payments in its rates or cost of service. (See Note B.
Regulatory Matters--Order 500 and Order 528). Texas Gas has provided a reserve
which it believes is adequate to provide for the ultimate resolution of Texas
Gas' royalty claims and litigation. Although no assurances can be given,
Transco believes that the ultimate resolution of Texas Gas' royalty claims and
litigation will not have a material adverse effect on Transco's financial
position or results of operations.

D. ENVIRONMENTAL MATTERS

whether remediation is required. Since 1989, TGPL and Texas Gas have had
studies underway to test their facilities for the presence of toxic and
hazardous substances to determine to what extent, if any, remediation may be
necessary. On the basis of the findings to date, TGPL and Texas Gas estimate
that environmental assessment and remediation costs that will be incurred over
the next five years under TSCA, RCRA, CERCLA and comparable state statutes will
total approximately $60 million to $75 million. This estimate depends upon a
number of assumptions concerning the scope of remediation that will be required
at certain locations and the cost of remedial measures to be undertaken. TGPL
and Texas Gas are continuing to conduct environmental assessments and are
implementing a variety of remedial measures that may result in increases or
decreases in the total estimated costs. At December 31, 1993, Transco had a
reserve of approximately $60 million for these estimated costs.

TGPL and Texas Gas consider environmental assessment and remediation costs and
costs associated with compliance with environmental standards to be recoverable
through rates, since they are prudent costs incurred in the ordinary course of
business. To date, TGPL and Texas Gas have been permitted recovery of
environmental costs incurred, and it is their intent to continue seeking
recovery of such costs, as incurred, through rate filings. Therefore, these
estimated costs of environmental assessment and remediation have been recorded
as regulatory assets in the accompanying Consolidated Balance Sheet.

Since 1989, TGPL has been involved in discussions with the Pennsylvania
Department of Environmental Resources (PADER) concerning environmental
conditions at TGPL's operating sites in Pennsylvania. These discussions have
resulted in the execution of a consent order and agreement in 1992 between
PADER and TGPL. TGPL agreed to conduct an environmental assessment and
remediation program at its Pennsylvania sites, fund certain beneficial
environmental projects, pay oversight costs and pay a $425,000 civil penalty.
Of such penalty $142,000 remains to be paid in May 1994. The estimated costs of
the environmental assessment and remediation program are included in the $60
million to $75 million range discussed above.

TGPL and Texas Gas have both used lubricating oils containing polychlorinated
biphenyls (PCBs) and, although the use of such oils was discontinued in the
1970s, have discovered residual PCB contamination in equipment and soils at
certain gas compressor station sites. TGPL and Texas Gas have worked closely
with the Environmental Protection Agency (EPA) and state regulatory authorities
regarding PCB issues, and both have programs to assess and remediate such
conditions where they exist, the costs of which are a significant portion of
the $60 million to $75 million range discussed above. Proposed civil penalties
have been assessed by the EPA against another major pipeline company for the
alleged improper use and disposal of PCBs. Although similar penalties have not
been asserted against TGPL or Texas Gas to date, no assurance can be given that
the EPA may not seek such penalties in the future.

TGPL has been named as a potentially responsible party (PRP) in one Superfund
waste disposal site, the Combustion Inc. site, and in two state sites. Texas
Gas has either been named as a PRP or received an information request regarding
its potential involvement in four Superfund sites and one state site; while
TXC, for itself and as managing general partner of TXP, has been named as PRP
in three Superfund sites and in two state sites. Based on present volumetric
estimates, TGPL's exposure for remediation of the Combustion Inc. site is
estimated to be $500,000; Texas Gas' estimated aggregate exposure is
approximately $500,000; and TXC's estimated exposure at two of the Superfund
sites where it has been named as a PRP is less than $100,000. TXC's estimated
exposure at the third Superfund site, based on a 1993 reallocation by the EPA,
is approximately $300,000. TXC and TGPL's estimated individual exposure at each
of the two state sites where they have been named as PRPs is less than $100,000
per site. The estimated remediation costs for all such sites have been included
in Transco's environmental reserve discussed above. Liability under CERCLA (and
applicable state law) can be joint and several with other PRPs. Although
volumetric allocation is a factor in assessing liability, it is not necessarily
determinative; thus, the ultimate liability could be substantially greater than
the amounts described above. Although no assurances can be given, Transco does
not believe that the PRP status of TGPL, Texas Gas nor TXC will have a material
adverse effect on its financial position or results of operations.

Transco and certain of its subsidiaries are also subject to the Federal Clean
Air Act and to the Federal Clean Air Act Amendments of 1990 (1990 Amendments),
which added significantly to the existing requirements established by the
Federal Clean Air Act. The 1990 Amendments required that the EPA issue new
regulations, mainly related to mobile sources, air toxics, ozone non-attainment
areas and acid rain. Transco is installing new emission control devices where
required and conducting certain emission testing programs to comply with the
Federal Clean Air Act standards and the 1990 Amendments. In addition, pursuant
to the 1990 Amendments the EPA has issued regulations under which states must
implement new air pollution controls to achieve attainment of national ambient
air quality standards in areas where they are not currently achieved. Both TGPL
and Texas Gas have compressor stations in ozone non-attainment areas that could
require substantial additional air pollution reduction expenditures, depending
on the requirements imposed. While it will not be
<PAGE> 43
69

possible to estimate the ultimate costs of compliance with these new
requirements until states approve TGPL's proposed plans for modifications,
Transco expects that significant capital spending may be required to modify
Transco's facilities, particularly the compressor engines along TGPL's pipeline
system. Additions to facilities for compliance with currently known Federal
Clean Air Act standards and the 1990 Amendments are expected to cost in the
range of $20 million to $35 million over the next five years and will be
recorded as assets as the facilities are added.

E. FINANCING

LONG-TERM DEBT At December 31, 1993 and 1992, long-term debt issues were
outstanding as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Transco Energy Company:
Credit Agreement variable rate due
1994 (Secured by Tran$tock shares) $ 9,383 $ 18,224
---------- ----------
Debentures:
9 7/8% due 2020 125,000 125,000
---------- ----------
Notes:
9 1/2% due 1995 150,000 150,000
9 1/8% due 1998 200,000 200,000
11 1/4% due 1999 300,000 300,000
9 5/8% due 2000 125,000 125,000
9 3/8% due 2001 150,000 150,000
---------- ----------
Total notes 925,000 925,000
---------- ----------
Total 1,059,383 1,068,224
---------- ----------
Transcontinental Gas Pipe Line Corporation:
Debentures:
9 1/8% due 2017 150,000 150,000
---------- ----------
Notes:
9% due 1996 150,000 150,000
8 1/8% due 1997 99,000 99,000
6.21% due 2000 (subject to remarketing in 1996) 125,000 125,000
8 7/8% due 2002 125,000 125,000
---------- ----------
Total notes 499,000 499,000
---------- ----------
Other:
Unguaranteed portion of producer settlement
costs sold -- 29,856
---------- ----------
Total 649,000 678,856
---------- ----------
Texas Gas Transmission Corporation:
Debentures:
10% due 1994 150,000 150,000
Notes:
9 5/8% due 1997 100,000 100,000
---------- ----------
Total 250,000 250,000
---------- ----------
Transco Coal Company:
Term Loan variable rate -- 25,000
Other due 1994-2000 347 436
---------- ----------
Total 347 25,436
---------- ----------
Total long-term debt issues 1,958,730 2,022,516
Less: Unamortized debt premium and discount 12,680 13,814
Current maturities 159,479 188,787
---------- ----------
Total long-term debt, less current maturities $1,786,571 $1,819,915
========== ==========
</TABLE>
<PAGE> 44
70

Sinking fund or prepayment requirements applicable to long-term debt
outstanding at December 31, 1993, are as follows (in thousands):
<TABLE>
<CAPTION>
Required
Company Debt Issue Amount
------- ---------- ------------
<S> <C> <C>
1994
Transco Energy Company Credit Agreement $ 9,383
Texas Gas Transmission Corporation 10% Debentures 150,000
Transco Coal Company Other 96
------------
Total $ 159,479
============

1995
Transco Energy Company 9 1/2% Notes $ 150,000
Transco Coal Company Other 102
------------
Total $ 150,102
============
1996
Transcontinental Gas Pipe Line Corporation 9% Notes $ 150,000
Transcontinental Gas Pipe Line Corporation 6.21% Notes 125,000
Transco Coal Company Other 109
------------
Total $ 275,109
============

1997
Transcontinental Gas Pipe Line Corporation 8 1/8% Notes $ 99,000
Texas Gas Transmission Corporation 9 5/8% Notes 100,000
Transco Coal Company Other 10
------------
Total $ 199,010
============

1998
Transco Energy Company 9 1/8% Notes $ 200,000
Transco Coal Company Other 10
------------
Total $ 200,010
============
</TABLE>

No property is pledged as collateral under any of the long-term debt issues.

SHORT-TERM debt As of December 31, 1993 and 1992 no short-term debt was
outstanding. The weighted average interest rate on short-term debt during 1993
and 1992 was as follows:

1993 1992
---- ----
Credit Facilities:
Banks -- 4.7%
Transco Bank Credit Facility 5.9% 5.7%

Effective December 31, 1993, Transco amended its existing 1991 Credit Agreement
(Amended Transco Bank Credit Facility) with a group of banks and extended the
$450 million working capital line through December 31, 1996. Under the
three-year amended facility, interest on advances is paid at a rate based on,
depending on the interest period selected, the base rate of Citibank N.A., or
the latest three-week moving average of secondary market morning offering rates
in the United States for three-month certificates of deposit of major United
States money market banks plus 1/2%, or the Federal Funds Rate in effect plus
1/2%, or the London Interbank Offer Rate (LIBOR). In addition to interest,
there is an applicable fee to be paid on each advance. This fee fluctuates in
relation to Transco's total outstanding advances as a percentage of the total
commitments from the fifteen participating banks and Transco's senior unsecured
long-term debt rating category as determined by Standard & Poor's Corporation
(S&P) or Moody's Investors Service, Inc. (Moody's). The amended agreement also
requires a quarterly facility fee as determined by Transco's S&P and/or Moody's
ratings. The Amended Transco Bank Credit Facility is guaranteed in part by each
TGPL and Texas Gas.

Also effective December 31, 1993, Transco and a group of banks entered into a
$50 million reimbursement facility (Reimbursement Facility). This facility
provides Transco the opportunity to obtain standby letters of credit under
certain circumstances from the banks. The obligations that arise under the
facility are guaranteed in part by each TGPL and Texas Gas.
<PAGE> 45
71

REFINANCING In May 1993, TGPL repriced the interest rate on its Extendible
Notes due May 15, 2000. The interest rate for the interest period beginning May
15, 1993 and ending May 14, 1996 is 6.21%. The Extendible Notes are equal in
rank with all existing indebtedness of TGPL and senior in right of payment to
any future subordinated indebtedness. The Extendible Notes are redeemable at
the option of TGPL, in whole or in part, at their principal amount plus accrued
interest thereon on May 15, 1996. This was a refinancing and TGPL did not
receive any proceeds from the resale of the Extendible Notes.
RESTRICTIVE COVENANTS The Amended Transco Bank Credit Facility and the
Reimbursement Facility restrict the amount of investments made or incurred and
amounts expended outside of Transco's gas transportation and gas marketing
businesses (which does not include Transco Coal Company) to an amount not to
exceed $50 million during any fiscal year; and require that Transco maintain a
minimum level of consolidated net worth (as defined in the facilities). The
Amended Transco Bank Credit Facility and the Reimbursement Facility also
require the maintenance of a specified ratio of consolidated cash flow to
consolidated interest expense (as defined in the facilities) at December 31,
1993 of 2.00 to 1.00, which ratio increases to 2.25 to 1.00 beginning in March
1994.

The Amended Transco Bank Credit Facility and the Reimbursement Facility also
restrict Transco, TGPL and Texas Gas from placing a lien on any of the property
or assets owned by the companies. All three companies are prohibited from
incurring any additional long-term debt other than long- term debt incurred to
refinance existing long-term debt, except that Transco is permitted to borrow
an additional $125 million with maturities after December 31, 1996. Both
facilities also require that annual dividends paid on common stock not exceed
$0.60 per share until such time as cumulative consolidated net income (as
defined in the facilities) since December 31, 1993 is equal to or exceeds two
times the annualized common stock dividend rate proposed to be paid at the time
such declaration is made. Transco is restricted from declaring or paying any
dividend on its common stock if a default or event of default exists or would
exist from such dividend.

The Transco Credit Agreement due 1994, which is secured by Transco common stock
held in the Tran$tock plan, has been amended to include the terms of the
Amended Transco Bank Credit Facility.

The Indenture dated as of July 1, 1992 (Indenture), under which the Company's
$300 million 11 1/4% Notes are outstanding, includes restrictive covenants which
limit, among other things, the incurrence of debt by the Company and the
Company's ability to make Restricted Payments, as defined in the Indenture,
including dividends and certain investments subsequent to the date of the
Indenture.

Under the Indenture, the Company may not incur any debt unless after giving
effect to the incurrence of such debt and the receipt and application of the
proceeds thereof, the Consolidated Interest Coverage Ratio, as defined, on a
pro forma basis, adjusted for such debt, for any 12 consecutive months during
the prior 15-month period would be equal to or greater than 2.0 to 1.0.

Transco has amended the Indenture, to permit the Company to exchange or
refinance any existing shares of the Company's preferred stock with shares of a
new preferred stock without requiring the Company to reduce the amount of
Restricted Payments that the Company may make under the Indenture.

SALE OF RECEIVABLES Transco has sold trade and producer settlement receivables
and continues to sell trade receivables of TGPL and Texas Gas. The sale of
trade receivables is made without recourse.

In September 1993, TGPL and Texas Gas entered into new programs to sell monthly
trade receivables to replace similar programs which expired. The new trade
receivables programs, which expire in September 1995, provide for the sale of
up to $100 million of trade receivables by TGPL and up to $40 million by Texas
Gas on substantially the same terms as the prior programs.

To maintain the level of trade receivables sold at approximately $100 million
to $140 million, new trade receivables are sold as collections reduce
previously sold trade receivables. At December 31, 1993 and 1992, approximately
$134 million and $151 million, respectively, of trade receivables were held by
an investor.
<PAGE> 46
72

F. PREFERRED STOCK

CONVERTIBLE PREFERRED STOCK OF TRANSCO Transco has authorized 15,000,000 shares
of cumulative first preferred stock and 2,000,000 shares of cumulative second
preferred stock, both without par value. There are two issues of cumulative
first preferred stock outstanding at December 31, 1993, the non-redeemable
$3.50 series and the non-redeemable $4.75 series. None of the second preferred
had been issued at December 31, 1993.

NON-REDEEMABLE $4.75 SERIES At December 31, 1993 and 1992, 2,979,900 shares of
Transco's $4.75 series Cumulative Convertible Preferred Stock were issued and
outstanding. The $4.75 series provides for no sinking fund or mandatory
redemption and the stated value is $50 per share.

The stock is redeemable, in whole, at any time or from time to time, in part,
at the option of the Company, at $50.95 per share if redeemed on or prior to
November 1, 1994, and thereafter at prices declining annually to $50 per share
after November 1, 1995, plus accrued and unpaid dividends. In the event of any
change in control of the Company (as defined in the Certificate of Designation,
Preferences and Rights), each holder of the stock shall have the right, at the
holder's option, to require the Company to redeem all or any part of the
holder's shares out of funds lawfully available.

The $4.75 series has no voting rights except in cases of (i) amending the
Certificate of Incorporation so as to affect adversely the rights, powers or
preferences of the preferred stock, (ii) the merger or consolidation by Transco
with any other corporation, (iii) the sale of all or substantially all of its
assets, or (iv) whenever dividends payable on the preferred stock are in
arrears in an aggregate amount equivalent to six full quarterly dividends, in
which case the outstanding preferred stock shall have the exclusive right,
voting separately and as a class, to elect two directors of Transco until all
past dividends have been paid. The holders of the $4.75 series are entitled to
receive the sum of $50 per share in the event of an involuntary liquidation.

The $4.75 series is convertible into common stock of the Company, at the option
of the holder at any time, at the conversion rate of .894 share of common stock
for each share of preferred stock.

NON-REDEEMABLE $3.50 SERIES In November 1993, Transco issued 2,500,000 shares
of $3.50 series Cumulative Convertible Preferred Stock, all of which were
outstanding at December 31, 1993. The net proceeds from the sale were
approximately $121.4 million. The $3.50 series provides for no sinking fund or
mandatory redemption and the stated value is $50 per share.

Beginning November 1, 1999, the stock is redeemable, in whole or in part, at
the option of the Company, at $51.40 per share if redeemed prior to November
1, 2000, and thereafter at prices declining annually to $50.00 per share on
November 1, 2003, plus accrued and unpaid dividends. In the event of any
change in control of the Company (as defined in the Certificate of Designation,
Preferences and Rights), each holder of the stock shall have the right, at the
holder's option, to require the Company to redeem all or any part of the
holder's shares out of funds lawfully available.

The $3.50 series has no voting rights except in cases of (i) amending the
Certificate of Incorporation so as to affect adversely the rights, powers or
preferences of the preferred stock, (ii) the merger or consolidation by Transco
with any other corporation, (iii) the sale of all or substantially all of its
assets, or (iv) whenever dividends payable on the preferred stock are in
arrears in an aggregate amount equivalent to six full quarterly dividends, in
which case the outstanding preferred stock shall have the exclusive right,
voting separately and as a class, to elect two directors of Transco until all
past dividends have been paid. The holders of the $3.50 series are entitled to
receive the sum of $50 per share in the event of any liquidation.

The $3.50 series is convertible into common stock of the Company, at the option
of the holder at any time, at the conversion rate of 2.5 shares of common stock
for each share of preferred stock.

REDEEMABLE In November 1993, Transco redeemed all the outstanding shares of
9.25% series Cumulative Convertible Preferred Stock for an aggregate purchase
price of approximately $133.2 million. At December 31, 1992, 3,030,302 shares
of the 9.25% series were issued and outstanding.
<PAGE> 47
73

PREFERRED STOCK OF SUBSIDIARY TGPL has authorized 10,000,000 shares of
cumulative first preferred stock without par value, of which 757,427 shares and
1,017,410 shares were outstanding at December 31, 1993 and 1992, respectively.
TGPL has authorized 2,000,000 shares of cumulative second preferred stock
without par value. None of the second preferred had been issued at December 31,
1993. The first preferred stock issued and outstanding at December 31, 1993 and
1992, included the following series:

<TABLE>
<CAPTION>
Amount
Shares (in thousands)
Stated Value ----------------------- ------------------------
Per Share 1993 1992 1993 1992
------------ -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$5.00 Series $ 100 12,500 25,000 $ 1,250 $ 2,500
4.80 Series 100 20,000 30,000 2,000 3,000
6.65 Series 100 49,927 62,410 4,993 6,241
8.75 Series 100 675,000 900,000 67,500 90,000
------- --------- ---------- ----------
Total TGPL preferred stock outstanding 757,427 1,017,410 $ 75,743 $ 101,741
======= ========= ========== ==========
</TABLE>

The preference in involuntary liquidation is the stated value of each issue.
The sinking fund redemption price for each series is the stated value per share
plus accrued and unpaid dividends.

The shares of each series are redeemable by various annual sinking fund
requirements in each of the years 1994 through 1997. TGPL may redeem in whole
or in part the preferred shares of each series at the stated value of each
series. Sinking fund requirements applicable to preferred stock outstanding at
December 31, 1993, are (in thousands):

1994 $ 25,998
1995 24,748
1996 23,748
1997 1,249

TGPL may not declare any common stock dividends if the sinking fund provisions
of the preferred stock of TGPL are not met. The preferred stock of TGPL,
excluding the $8.75 series, has no voting rights except in cases of (i)
amending the Certificate of Incorporation so as to affect adversely the rights,
powers or preferences of the preferred stock, (ii) the merger or consolidation
by TGPL with any other corporation, (iii) the sale of all or substantially all
of its assets, or (iv) whenever dividends payable on the preferred stock are in
arrears in an aggregate amount equivalent to six full quarterly dividends, in
which case the outstanding preferred stock shall have the exclusive right,
voting separately and as a class, to elect two directors of TGPL until all past
dividends have been paid. The $8.75 series has no voting rights except in cases
of (i) and (ii) above. The changes in the total TGPL preferred stock in each of
the years 1993, 1992 and 1991 are (in thousands):

<TABLE>
<CAPTION>
1993 1992 1991
------------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ---------- ------ ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 1,017 $ 101,741 1,061 $ 106,059 1,115 $ 111,473
Retirements 260 25,998 44 4,318 54 5,414
----- ---------- ----- ---------- ----- -----------
Balance at end of year 757 $ 75,743 1,017 $ 101,741 1,061 $ 106,059
===== ========== ===== ========== ===== ===========
</TABLE>

G. COMMON STOCK

At December 31, 1993, there were 15,478,858 shares of common stock of Transco
reserved for issuance under various employee incentive and benefit plans and
for conversion of Transco's convertible securities.

PUBLIC EQUITY OFFERING In October 1992, Transco sold 8,050,000 shares of common
stock in a public offering. The offering provided net proceeds to the Company
of approximately $112 million which were used to retire existing indebtedness.
<PAGE> 48
74

CHALLENGER LITIGATION SETTLEMENT In May 1992, TGPL and Challenger Minerals,
Inc. entered into a Settlement Agreement to settle all matters in Challenger's
lawsuit (see Note C. Legal Proceedings--Other Litigation and Claims). Part of
the settlement included issuing Transco common stock with a market value of $15
million to Challenger in 1994. TGPL had placed 1,500,000 shares of Transco
common stock in escrow. The number of shares ultimately released to Challenger
was to be determined by dividing $15 million by Transco's average stock price
during January 1994, subject to certain adjustments, with Challenger receiving
a minimum of 750,000 shares. In February 1994, 1,017,771 shares of Transco
common stock were released to Challenger from escrow and the remainder of the
shares were returned to Transco.

CORPUS CHRISTI LITIGATION In October 1993, Transco and Corpus Christi entered
into an agreement to settle all matters in litigation (see Note C. Legal
Proceedings--Other Litigation and Claims). Part of the settlement included
issuing one million shares of Transco common stock.

PURCHASE RIGHTS In January 1986, the Company declared a dividend distribution
of one common share purchase right on each outstanding share of common stock.
When exercisable, each right will entitle its holder to buy one share of the
Company's common stock at a price of $150 per share. The rights will become
exercisable 10 days after a person or group acquires 20% or more of the
Company's voting stock (an Acquiring Person) or makes an offer, the
consummation of which would result in such person or group owning 30% or more
of the Company's common stock. In the event the Company is acquired in a merger
in which (i) the Company is not the surviving corporation, or (ii) the Company
is the surviving corporation but its common stock is exchanged for other stock,
cash or property, or (iii) more than 50% of the Company's consolidated assets
or earning power is transferred, each right (except those owned by such
Acquiring Person) entitles the holder to purchase common stock of the Acquiring
Person having a market value of twice the exercise price of the right. In the
event (A) the Company is the surviving corporation in a merger with an
Acquiring Person, (B) an Acquiring Person engages in one of a number of
self-dealing transactions, (C) that during such time as there is an Acquiring
Person, any transaction occurs involving the Company which has the effect of
increasing by more than 1% the proportional share of any class of capital stock
of the Company owned by an Acquiring Person, or (D) any person (with certain
exceptions) shall become an Acquiring Person, unless the event by which such
person becomes an Acquiring Person is an acquisition of the Company's voting
stock pursuant to a Qualifying Offer (as hereinafter defined), each right
(except those owned by the Acquiring Person) entitles the holder to purchase
common stock of the Company having a market value of twice the exercise price
of the right. A Qualifying Offer is a cash tender offer (i) which is made
pursuant to the requirements of the Securities Exchange Act of 1934 by a person
who at the time of such offer is not an Acquiring Person, (ii) which is for all
of the outstanding shares of voting stock of the Company not owned by such
person, (iii) that which remains open for a minimum of 50 days, (iv) which is
accompanied by a fairness opinion from a nationally recognized investment
banking firm, and (v) pursuant to which such person acquires beneficial
ownership of not less than 80% of the outstanding shares of common stock of the
Company. The rights, which will expire on January 20, 1996, may be redeemed by
the Company at a price of $.05 per right at any time prior to the tenth day
following an announcement that 20% or more of the Company's voting stock has
been acquired by a person or group. At December 31, 1993, the Company had
reserved 56,850,563 shares of common stock for issuance in the event the rights
are exercised.

INCENTIVE PLANS A total of 3,250,000 shares of common stock has been authorized
for grants of stock options, awards of restricted stock and awards of other
stock compensation. Shares available for future grants at December 31, 1993,
1992 and 1991 were 135,776; 323,332 and 864,877, respectively.

STOCK OPTIONS Stock options under Transco's stock option plans entitle
employees to purchase shares of common stock directly from the Company. Each
option becomes exercisable in such amounts and at such intervals as the
Compensation Committee of the Board of Directors may determine in granting such
option, but cannot be exercisable until at least six
<PAGE> 49
75

months after the date of grant. The expiration date of an option is determined
by the Compensation Committee at the time of grant, but cannot be later than 10
years from the date of grant. The following table summarizes the activity that
occurred in the plans during 1993, 1992 and 1991(in thousands, except per share
amounts):

<TABLE>
<CAPTION>
1993 1992 1991
------------------------- ------------------------ ------------------------
Option Number Option Number Option Number
Price of Shares Price of Shares Price of Shares
Per Share Under Per Share Under Per Share Under
Range Option Range Option Range Option
-------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $13.125-56.375 2,425 $18.375-56.375 2,020 $22.000-56.375 1,699
Granted 13.625-17.375 300 13.125-18.750 587 18.375-34.000 473
Exercised 13.125-14.000 (40) -- 22.875-26.625 (10)
Cancelled 13.125-52.000 (231) 13.125-52.000 (182) 24.375-53.375 (142)
----- ----- -----
Balance at end of year 13.125-56.375 2,454 13.125-56.375 2,425 18.375-56.375 2,020
===== ===== =====
Total shares exercisable at year=end 1,642 1,498 1,151
===== ===== =====
</TABLE>

RESTRICTED STOCK Awards of restricted shares of common stock to certain
employees are based on terms and conditions established by the Compensation
Committee of the Board of Directors, but cannot be exercisable until at least
six months after the date of grant. The restricted stock may not be sold,
exchanged, transferred or assigned or otherwise encumbered by the recipient
until such terms and conditions have been met to the satisfaction of the
Compensation Committee. The number of shares of common stock issued upon
completion of the terms and conditions may also be adjusted at the discretion
of the Compensation Committee.

The following table summarizes the activity in restricted stock shares during
1993, 1992 and 1991 (in thousands):

1993 1992 1991
---- ---- ----
Balance at beginning of year 171 136 27
Awarded 82 87 124
Earned (49) (11) --
Forfeited (36) (41) (15)
---- ---- ----
Balance at end of year 168 171 136
==== ==== ====

Of the 168,201 shares outstanding at December 31, 1993, 48,525 shares, 85,575
shares and 14,325 shares are applicable to performance measurement periods
ending December 31, 1994, 1995 and 1996, respectively. In January 1994, 7,910
shares were earned and 11,866 shares were forfeited that were applicable to the
performance measurement period ending December 31, 1993. Differences between
the restricted stock share balances above and the balances included in Common
Stockholders' Equity in the accompanying Consolidated Balance Sheet reflect the
proportional number of restricted shares for which compensation expense has
been recognized.

In conjunction with certain of the restricted stock shares described above,
restricted stock units were issued to holders of restricted stock. A
restricted stock unit represents one share of common stock to be issued in the
future upon the determination by the Compensation Committee that the Company
had achieved specified performance goals in excess of the goals set for a
corresponding grant of restricted stock. At December 31, 1993 and 1992, 67,614
and 41,118 restricted stock units were outstanding.

H. EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS Substantially all of Transco's employees are covered under a
retirement plan offered by either Transco (Transco Retirement Plan), Transco
Coal Company (TCC Retirement Plan) or Texas Gas (Texas Gas Retirement Plan).

The benefits under the Transco Retirement Plan are determined by a formula
based on the employee's highest 36 consecutive months of earnings out of the
last 60 months of service prior to actual retirement date and years of
participation in the plan. The TCC Retirement Plan benefit formula considers
the employee's earnings for the last 60 months of service. The benefits under
the Texas Gas Retirement Plan are determined by a formula based upon years of
service and the employee's highest average base compensation during any five
consecutive years within the last ten years of employment. All three plans
provide for the vesting of employees after five years of credited service.
Transco's funding policy is to contribute an amount at least equal to the
minimum funding requirements actuarially determined by an independent actuary
in accordance with the Employee Retirement Income Security Act of 1974. The
plans' assets, which are managed by external investment organizations, include
cash and cash equivalents, corporate and government debt instruments, preferred
and common stocks, commingled funds, international equity funds and venture
capital limited partnership interests.
<PAGE> 50
76

The following table sets forth the funded status of the plans at October 1,
1993 and 1992, and the amount of prepaid (accrued) pension costs as of December
31, 1993 and 1992 (in thousands):

<TABLE>
<CAPTION>
1993 1992
--------------------- ----------------------
Transco Texas Transco Texas
and TCC Gas and TCC Gas
Plans Plan Plans Plan
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit obligation, including vested
benefits of $115,134 for the Transco and TCC Retirement Plans and
$46,750 for the Texas Gas Retirement Plan at October 1, 1993 and
$99,335 for the Transco and TCC Retirement Plans and $35,748 for the
Texas Gas Retirement Plan at October 1, 1992 $(125,715) $(47,542) $(110,641) $(36,319)
========= ======== ========= ========
Actuarial present value of projected benefit obligation $(168,252) $(83,557) $(148,686) $(63,269)
Plan assets at fair value 123,109 101,089 111,175 88,517
--------- -------- --------- --------
Projected benefit obligation less than (in excess of) plan assets (45,143) 17,532 (37,511) 25,248
Unrecognized net loss 9,425 15,254 1,573 7,317
Unrecognized net asset:
Transco Retirement Plan at October 1, 1984 being recognized
over 15 years (6,299) -- (7,350) --
Texas Gas Retirement Plan at January 1, 1986 being recognized
over 19 years -- (12,733) -- (13,883)
Unrecognized prior service cost (1,813) 4,369 (1,769) 4,652
Activity subsequent to measurement date 161 -- 986 --
--------- -------- --------- --------
Prepaid (accrued) pension cost $ (43,669) $ 24,422 $ (44,071) $ 23,334
========= ======== ========= ========
</TABLE>

Of the $43.7 million accrued pension cost related to the Transco and TCC
Retirement Plans at December 31, 1993, $32.0 million has been classified as a
non-current liability and $11.7 million, representing the plans' remaining 1993
plan year contributions and a portion of the plans' 1994 plan year
contributions, has been classified as a current liability in the accompanying
Consolidated Balance Sheet. The $24.4 million of prepaid pension cost related
to the Texas Gas Retirement Plan has been classified as an Other Asset in the
accompanying Consolidated Balance Sheet.

The following table sets forth the components of pension cost for all plans,
which is included in the accompanying consolidated financial statements, for
the years ended December 31, 1993, 1992 and 1991 (in thousands):

<TABLE>
<CAPTION>
1993 1992 1991
----------- --------- ----------
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 11,461 $ 11,440 $ 11,668
Interest cost on projected benefit obligation 15,366 16,452 16,467
Actual return on plan assets (29,321) (23,153) (50,983)
Net amortization and deferral 8,047 (766) 31,723
Early retirement termination benefits -- -- 5,861
----------- --------- -----------
Pension cost $ 5,553 $ 3,973 $ 14,736
=========== ========= ===========
</TABLE>

The projected unit credit method is used to determine the actuarial present
value of the accumulated benefit obligation and the projected benefit
obligation. The following table summarizes the various assumptions used to
determine the projected benefit obligation for the plans for the years 1993,
1992 and 1991(1):

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7.75%
Rate of increase in future compensation levels 5.0% 5.0% 5.0%
Expected long-term rate of return on assets 10% 10% 10%
</TABLE>

(1) Pension costs are determined using the assumptions as of the beginning of
the year. The funded status is determined using the assumptions as of the
end of the year.

Effective November 15, 1991, an amendment to the Transco Retirement Plan was
adopted to allow the lump sum payment of benefits to all current active and
terminated vested participants. A lump sum distribution is the discounted
<PAGE> 51
77

present value of a participant's vested benefit. The effect of this amendment
was to reduce unrecognized prior service cost by $6.1 million.

During 1991, Transco and its subsidiaries offered a special voluntary
retirement program (SVRP) to a certain group of employees. The SVRP included an
incentive in the form of increased pension benefits to be paid out of the
Transco and Texas Gas Retirement Plans. Approximately 320 employees elected to
retire under the SVRP. The net cost of the SVRP to the plans was approximately
$5.9 million ($3.7 million, after-tax). In connection with Transco's plans to
reduce its work force by a total of 500 employee positions, an additional
charge of $18.1 million ($11.4 million, after-tax) was recorded for estimated
severance costs.

TRAN$TOCK In January 1987, the Board of Directors approved the establishment of
a new employee stock ownership plan called Tran$tock, which subsequently
purchased 3,966,942 shares of newly issued Transco common stock at $45 3/8 per
share. The Tran$tock plan was funded by a $180 million loan at an interest rate
of 7.39% due in 1994. Tran$tock subsequently used $120 million of the funds
received from the restructuring of Transco's retirement plan to reduce the
outstanding loan balance. Interest and principal on the remaining loan balance
of $9 million at December 31, 1993, is being serviced by tax-deductible
dividends paid on the common stock held by Tran$tock and contributions by
Transco.

Compensation expense of $10.7 million, $11.0 million and $12.1 million related
to Tran$tock has been recognized in 1993, 1992 and 1991, respectively. As a
result of reductions in dividends on the Company's common stock in 1987 and
1991, the Company is required to make tax-deductible contributions to the plan
to service interest and principal on the remaining loan balance. Included in
compensation expense above is $7.6 million, $7.7 million and $5.5 million,
respectively, related to these contributions and $0.4 million, $0.6 million and
$1.5 million, respectively, in tax-deductible dividends on unallocated,
unleveraged Tran$tock shares.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Transco has three plans that
provide certain health care and life insurance benefits for retired employees
of Texas Gas (Texas Gas Plan), Transco Coal Company (TCC Plan) and Transco and
all other subsidiaries (Transco Plan).

The Transco Plan provides medical and life insurance benefits to Transco
employees who retire under the Transco Retirement Plan with at least ten years
of participation in Transco's group insurance plans and the retirement plan
immediately preceding retirement. Effective January 1, 1994, the Transco Plan
was amended to require monthly contributions by retirees and to increase annual
deductibles, out-of-pocket limits and lifetime maximum benefits per individual.

The Texas Gas Plan provides medical and life insurance benefits to Texas Gas
employees who retire under the Texas Gas Retirement Plan with at least five
years of service. The Texas Gas Plan is contributory for medical benefits and
for life insurance benefits in excess of specified limits.
The TCC Plan provides medical and dental benefits to TCC employees who retire
under the TCC Retirement Plan with at least ten years of service and ceases
such coverage when retirees attain age 70. Life insurance benefits are not
provided to TCC retirees. The TCC Plan is contributory whereby TCC retirees pay
premiums to TCC to continue their benefits. Effective July 1, 1993, TCC
implemented annual deductibles and out-of-pocket limits for retirees which
were further increased effective January 1, 1994.

The medical benefits for all retired Transco employees are currently funded at
a specified amount per month and for all retired Texas Gas employees at a
specified amount per quarter through trusts established under the provisions of
section 501(c)(9) of the Internal Revenue Code. The benefits for retired TCC
employees are currently funded on a pay-as-you-go basis.

Prior to 1993, Transco accounted for postretirement benefits other than
pensions (primarily health care) on a cash basis, which had been the accounting
method followed by most employers. In the first quarter of 1993, Transco
adopted SFAS No. 106, Employer's Accounting for Postretirement Benefits Other
Than Pensions, which requires Transco to accrue, during the years that
employees render the necessary service, the estimated cost of providing
postretirement benefits other than pensions to those employees. At the January
1, 1993 date of adoption of SFAS No. 106, Transco's postretirement benefits
obligation (transition obligation) was $193 million of which $173 million was
related to jurisdictional pipeline operations and $20 million was related to
non-jurisdictional operations. The transition obligation was reduced by
approximately $14 million by the Transco Plan and TCC Plan amendments discussed
above. The transition obligation is being amortized over the remaining life of
active participants for the Texas Gas Plan and twenty years for the Transco and
TCC Plans.
<PAGE> 52
78

The following table sets forth the three plans' combined funded status at
December 31, 1993 reconciled with the accrued postretirement benefits cost
included in Transco's Consolidated Balance Sheet at December 31, 1993 (in
thousands):

<TABLE>
<CAPTION>
1993
---------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $(121,367)
Fully eligible active plan participants (43,650)
Other active plan participants (47,802)
---------
(212,819)
Plans assets at fair value 36,336
---------
Accumulated postretirement benefit obligation in excess of plan assets (176,483)
Unrecognized net gain (2,776)
Unrecognized transition obligation 169,488
---------
Accrued postretirement benefit cost $ (9,771)
=========
</TABLE>

The following table sets forth the components of the net periodic
postretirement benefit cost, which is included in the accompanying consolidated
financial statements for the year ended December 31, 1993 (in thousands):

1993
--------
Service cost--benefits earned during the period $ 5,514
Interest cost on accumulated postretirement benefit obligation 16,127
Actual return on plan assets (2,976)
Amortization of transition obligation 9,480
Net amortization and deferral 1,329
--------
Net periodic postretirement benefit cost 29,474
Less deferral of costs not included in jurisdictional rates 5,013
--------
Net periodic postretirement benefit cost, net of deferred costs $ 24,461
========

The cost of providing these benefits for retirees and survivors during 1992 and
1991 on a pay-as-you-go-basis were $10.1 million and $9.4 million,
respectively.

The annual expense is subject to change in future periods as a result of, among
other things, the passage of time, changes in participants, changes in plan
benefits and changes in assumptions upon which the estimates are made.

For measurement purposes as of December 31, 1993, the initial annual rate of
increase in the per capita cost of covered health care benefits was assumed to
be 12%. The rate was assumed to decrease gradually to 6% for the year 2005 and
remain at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rate by one percentage point in each year would
increase the accumulated postretirement benefit obligation for health care
benefits as of January 1, 1994 by 13% and the aggregate of the service and
interest cost components of the net periodic postretirement health care benefit
cost for 1994 by 16%.

To determine the accumulated postretirement benefit obligation, all three plans
used a discount rate of 7.25% and a salary growth assumption of 5.0% per annum.
Plan assets are managed by external investment organizations and include cash
and cash equivalents, commingled funds, preferred and common stocks and
government and corporate debt instruments. The expected long-term rate of
return on plan assets was 7% after taxes. Realized returns on plan assets are
subject to federal income taxes at a sliding scale that reaches a 39.6% tax
rate.

In January and November 1993, TGPL and Texas Gas, respectively, began
recovering in rates their postretirement benefits costs accrued under SFAS No.
106. For the period January 1993 through October 1993, Texas Gas deferred the
difference between its postretirement benefits expense accrued under SFAS No.
106 and the amount it collected in rates and recorded a regulatory asset of $5
million as of November 1, 1993. Texas Gas has proposed to recover this amount
in rates over a 36-month period beginning November 1, 1993.
<PAGE> 53
79

Transco believes that all costs of providing postretirement benefits to its
employees are necessary and prudent operating expenses and that such costs
associated with its jurisdictional natural gas pipeline operations will be
recoverable in rates. Since most of Transco's current employees are associated
with its regulated operations, adoption of SFAS No. 106 did not have a material
adverse effect on Transco's financial position or results of operations.

I. INCOME TAXES

Following is a summary of the benefit of income taxes for 1993, 1992 and 1991
(in thousands):

1993 1992 1991
--------- ---------- ---------
Federal:
Current $ 6,808 $ (20,983) $ 40,708
Deferred (37,349) (18,526) (137,489)
--------- ---------- ---------
(30,541) (39,509) (96,781)
State and municipal 12,460 11,574 2,010
--------- ---------- ---------
Benefit of income taxes $ (18,081) $ (27,935) $ (94,771)
========= ========== =========

On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was signed
into law. Among its provisions was an overall increase in corporate federal
income tax rates from 34% to 35% effective January 1, 1993. As a result,
Transco recognized additional income tax expense of $1.6 million in 1993
related to the increase in corporate federal income tax rates.

Following is a reconciliation of the statutory federal income tax rate to the
effective tax rate (in thousands):

<TABLE>
<CAPTION>
1993 1992 1991
--------------------- --------------------- ---------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Taxes computed by applying statutory rate $ (20,247) (35.0)% $ (28,168) (34.0)% $ (85,174) (34.0)%
TGPL's amortization of over funded tax liabilities (7,675) (13.3) (7,675) (9.3) (7,675) (3.1)
Statutory depletion in excess of cost depletion
on coal properties (3,585) (6.2) (1,744) (2.1) (3,469) (1.4)
Adjustment of deferred taxes for effects of
federal income tax rate increase 1,648 2.8 -- -- -- --
Section 29 credits (2,163) (3.7) (2,811) (3.4) (1,896) (0.8)
Tran$tock compensation 913 1.6 911 1.1 1,655 0.7
Other, net 568 1.0 (22) -- (222) --
--------- ----- --------- ----- --------- -----
Benefit of federal income taxes $ (30,541) (52.8)% $ (39,509) (47.7)% $ (96,781) (38.6)%
========= ===== ========= ===== ========= =====
</TABLE>

Deferred income taxes result from temporary differences between the tax basis
of an asset or liability and its reported amount in the financial statements
that will result in taxable or deductible amounts in future years, or temporary
differences resulting from events that have been recognized in the financial
statements that will result in taxable or deductible amounts in future years.
The tax effect of each type of temporary difference and carryforward reflected
in deferred income tax benefits and liabilities as of December 31, 1993 and
1992 are as follows (in thousands):

<TABLE>
<CAPTION>
(Assets) Liabilities 1993 1992
- -------------------- --------- ----------
<S> <C> <C>
Unused alternative minimum tax credits $ (87,255) $ (88,471)
Federal income tax benefit for state income taxes (12,334) (9,325)
Oil and gas exploration and development costs capitalized for financial
purposes but expensed for tax purposes, net (1,839) (32,381)
Producer settlements, legal and regulatory issues expensed for financial
purposes but deferred for tax purposes, net (19,395) (20,155)
Restructuring costs expensed for financial purposes but deferred for tax purposes until paid (15,413) (5,572)
Other, net (10,934) (3,723)
Depreciation differences on gas transmission plant, net 320,837 296,558
Depreciation differences on gas gathering and liquids separation and fractionation plant, net 9,919 10,422
Depreciation, depletion and amortization differences related to coal operations, net 42,201 42,984
Allowance for funds used during construction 14,331 12,730
Differences between tax and book basis of partnership interests 14,525 68,359
Gas costs expensed for tax purposes but deferred for financial purposes until recovered through
future rates, net 8,157 (1,903)
--------- ---------
Net deferred income tax liability $ 262,800 $ 269,523
========= =========
</TABLE>
<PAGE> 54
80

At December 31, 1993, Transco had, for federal income tax purposes, estimated
alternative minimum tax credits of $87.3 million with no expiration date. These
credits have been recognized for financial statement purposes as a reduction of
its deferred tax liability.

J. DISCONTINUED OPERATIONS AND SALES OF ASSETS

SALE OF POWER GENERATION SUBSIDIARY On June 30, 1993, Transco entered into a
definitive agreement to sell the common stock of Transco Energy Ventures
Company (TEVCO) to National Power America, Inc., a subsidiary of National Power
PLC, for $160 million in cash, subject to certain adjustments. The sale closed
on September 13, 1993. Transco received adjusted cash proceeds of $150 million
and recorded a gain on the sale of $50.5 million pre-tax, $31.6 million
after-tax, in the third quarter of 1993. The sales agreement provides for a net
worth adjustment (including advances) to the purchase price subsequent to
closing to reflect the net increase or decrease in the net worth of TEVCO
between March 31, 1993 and September 13, 1993. The sales agreement also
provides for a Transco indemnity to National Power in the event that National
Power elects to resell certain assets of TEVCO and such assets are sold for
less than specified amounts.

The Power Generation segment has been classified in the Consolidated Statement
of Operations as discontinued operations; and, as such, revenues and expenses
have been excluded from the results of continuing operations. Prior year
results of the Power Generation segment have been reclassified to conform with
this presentation.

Operating results of the discontinued operations were as follows (in
thousands):

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 16,167 $ 35,275 $ 26,766
Costs and expenses 15,824 31,001 32,638
--------- --------- ---------
Income (loss) before income taxes 343 4,274 (5,872)
Provision for (benefit of) income taxes 436 1,625 (1,162)
--------- --------- ---------
Net income (loss) from operations of discontinued segment $ (93) $ 2,649 $ (4,710)
========= ========= =========
</TABLE>

SALE OF OIL AND GAS SUBSIDIARY On July 8, 1992, the Company entered into a
definitive agreement to sell its wholly-owned oil and gas subsidiary, Transco
Exploration and Production Company (TEPCO), for $45 million, subject to certain
adjustments. This transaction was closed on July 31, 1992. The Company
recognized a $56.3 million loss, $36.9 million after-tax, in 1992 in connection
with this sale.

SALE OF GAS GATHERING AND PIPELINE ASSETS On June 5, 1992, the Company and
certain of its subsidiaries entered into a definitive agreement to sell their
interests in certain gas gathering and pipeline assets, including the High
Island Offshore System, the U-T Offshore System, the Green Canyon Pipe Line
Company and the Louisiana Offshore Pipeline System, for $65 million, subject to
certain adjustments. This transaction was closed on July 20, 1992. The Company
recognized a $6.6 million loss, $4.6 million after-tax, in 1992 in connection
with the sale of these assets.

SALE OF TXP'S ASSETS In June 1992, TXP entered into a definitive agreement to
sell its interest in the West Chalkley property, the most significant asset
remaining to be sold under TXP's plan of liquidation, for $82 million, subject
to certain adjustments. On September 30, 1992, TXP paid a final liquidating
distribution of $1.06 per unit to unitholders of record on September 21, 1992.
Transco received $61.6 million in cash distributions as a result of the
liquidation of TXP and recorded a $17.7 million gain, $11.7 million after-tax.

SALE OF GAS GATHERING ASSETS AND A LIQUIDS SEPARATION PLANT On May 12, 1992,
the Company entered into a definitive agreement to sell its interests in
certain non-jurisdictional gas gathering assets and a liquids separation plant
known as the TOMCAT facilities for $24.9 million. This transaction was closed
on July 31, 1992. The Company recognized an $18.5 million loss, $12.2 million
after-tax, in 1992 in connection with the sale of its interests in these
assets.

SALE OF COAL FACILITIES In 1993, Transco Coal Company (TCC) sold a coal loading
and storage facility for $0.5 million. The Company recognized a $0.9 million
loss, $0.5 million after-tax, in 1993 in connection with this sale. In 1991,
TCC completed the sale of its barge terminal and railroad facilities to
subsidiaries of CSX Corporation for approximately $16 million.
<PAGE> 55
81

SALE OF OTHER ASSETS In 1993, the Company sold a miscellaneous non-essential
asset for $0.7 million. In 1992, the Company sold miscellaneous non-essential
assets for aggregate proceeds of approximately $13 million. The Company
recognized a $3.0 million loss, $2.0 million after-tax, during 1992 in
connection with these sales.

K. INVESTMENT IN UNCONSOLIDATED AFFILIATES AND NOTES RECEIVABLE

INVESTMENT IN UNCONSOLIDATED AFFILIATES As of December 31, 1993, Transco had
investments in various companies that are constructing and operating natural
gas gathering and processing facilities, liquids separation facilities,
intrastate pipelines located onshore and offshore Texas and Louisiana and an
interstate pipeline in the states of New York and New Jersey. Of these
investments, $12 million are in partnerships in which Transco is a general
partner. Transco's credit risk exposure in the event of nonperformance by the
investees is the book value of the investment and the obligations that may be
incurred as a general partner. The remaining investments are in joint ventures
in which Transco's credit risk exposure in the event of nonperformance by the
investees is limited to the book value of the investment. As discussed in Note
C, Transco settled litigation with Corpus Christi on terms whereby Transco
acquired Corpus Christi's 50% interest in the Corpus Christi General
Partnerships in October 1993. Also, as discussed in Note J, Transco sold the
common stock of TEVCO, Transco's subsidiary in the Power Generation segment, in
September 1993. Following is a summary of Transco's investment in
unconsolidated affiliates (amounts in thousands):

<TABLE>
<CAPTION>
Investment Equity in Earnings (Losses)
-------------------- ---------------------------------------
December 31, Years ended December 31,
Percent -------------------- ---------------------------------------
Segment/Investment Ownership 1993 1992 1993 1992 1991
- ------------------ --------- -------- -------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pipelines
Liberty Pipeline Company 35.00% $ 3,374 $ 2,073 $ 309 $ 13 $ --
High Island Offshore System (sold in 1992) 40.00% -- -- -- 1,343 4,461
U-T Offshore System (sold in 1992) 33.33% -- -- -- 252 255
Other various 2,986 4,649 11 59 151
-------- -------- ------ --------- ----------
6,360 6,722 320 1,667 4,867
-------- -------- ------ --------- ----------
Gas Marketing
Corpus Christi General Partnerships 50.00% -- 1,648 (185) (173) (261)
Cameron Meadows Processing Plant 50.00% 9,804 10,493 (544) 1,110 1,414
Other various 6,543 3,204 (155) (7) 417
-------- -------- ------ --------- ----------
16,347 15,345 (884) 930 1,570
-------- -------- ------ --------- ----------
Power Generation (sold in 1993)
Hopewell Cogeneration, Inc. 25.00% -- 4,971 -- -- --
Oyster Creek Limited Partnership 50.00% -- 3,058 -- -- --
Other various -- 4,438 -- -- --
-------- -------- ------ --------- ----------
-- 12,467 -- -- --
-------- -------- ------ --------- ----------
Gas Gathering
Corpus Christi General Partnerships 50.00% -- 39,215 (2,126) (963) (3,406)
Other various 6,541 7,880 (93) 839 416
-------- -------- ------ --------- ----------
6,541 47,095 (2,219) (124) (2,990)
-------- -------- ------ --------- ----------
Other various 2,206 -- 3,018 2,954 2,843
-------- -------- ------ --------- ----------
Consolidated $ 31,454 $ 81,629 $ 235 $ 5,427 $ 6,290
======== ======== ====== ========= ==========
</TABLE>

NOTES RECEIVABLE In April 1991, TGPL accepted a note receivable in
consideration for the conveyance of certain interests in a gas field and
related processing plant to a producer. The note was to be repaid out of
proceeds from the field production and plant revenues. However, in October
1993, the producers sold the gas field and related processing plant. TGPL's
portion of the sales proceeds was used to reduce the outstanding note
receivable. The remaining balance plus certain associated costs were written
off in September 1993 resulting in an after-tax non-cash charge of $12.5
million.

As discussed in Note C, Transco settled litigation with Corpus Christi on terms
whereby Transco acquired Corpus Christi's interest in the Corpus Christi
General Partnerships, which resulted in the termination of the notes receivable
from Corpus Christi General Partnerships in October 1993.
<PAGE> 56
82

As discussed in Note J, Transco sold the common stock of TEVCO, Transco's
subsidiary in the Power Generation segment, in September 1993.

In connection with the sale of TEPCO in July 1992, Transco received an
unsecured promissory note of $2 million due in 1997 from Forest Oil
Corporation.

In connection with the sale of Petro Source Corporation (Petro Source) in
September 1988, Transco received subordinated notes of $15 million due in 1995
from Petro Source and its parent, Petro Source Investments, Inc. Petro Source
is based in Texas and markets crude oil, natural gas liquids and petroleum
products throughout the Gulf Coast states, East Coast states and Nevada. Of the
remaining outstanding $15 million subordinated notes, $11 million is secured by
the common stock of Petro Source and $1.9 million is secured by the assets of
Petro Source. Subsequent to the original issuance of the $11 million note, the
maturity date was extended to 1998.

Transco's credit risk exposure in the event of nonperformance by the borrowers
is limited to the book value of the notes. Transco's policy for collateral on
these notes is to take a mortgage if the note is related to real property or
to take a security interest if the note is related to personal property.

Following is a summary of Transco's notes receivable as of December 31, 1993
and 1992 (in thousands):

Notes Receivable
--------------------------
December 31,
--------------------------
Segment/Receivable From 1993 1992
- ----------------------- -------- ---------
Pipelines $ -- $ 15,723
-------- ---------
Gas Marketing
Corpus Christi General Partnerships -- 2,194
-------- ---------
Power Generation (sold in 1993)
Hartwell Energy Limited Partnership -- 18,200
Other -- 8,947
-------- ---------
-- 27,147
-------- ---------
Gas Gathering
Corpus Christi General Partnerships -- 43,053
-------- ---------
Other
Petro Source Investments, Inc. 11,000 11,000
Petro Source Corporation 1,929 2,314
Forest Oil Corporation 2,000 2,000
-------- ---------
14,929 15,314
-------- ---------
Consolidated $ 14,929 $ 103,431
======== =========

L. INVESTMENT IN NONOPERATING INTEREST IN COALBED METHANE PROPERTIES
The coalbed methane project, to date, has not performed up to the original
expectations and the project encountered higher-than-originally-anticipated
costs. Commencing in October 1991, a comprehensive study was undertaken to
reevaluate the performance and economic viability of the coalbed methane
project. This study included, among other things, a review of both the
developed and undeveloped properties, applied technologies and procedures and
the causes for the higher-than-anticipated costs. As a result of the study,
Transco recorded in the fourth quarter of 1991 a charge to earnings of $97.0
million, $64.0 million after-tax, $2.18 per share, attributable to a reduction
in the book value of the coalbed methane properties.

Transco, through its subsidiary Magnolia Methane Corp. (Magnolia), assumed
operatorship of the coalbed methane project in February 1992. On July 9, 1993,
Magnolia and TECO Coalbed Methane, Inc. (TECO), a subsidiary of TECO Energy
Inc., agreed to transfer Magnolia's interest in 500 wells in the Black Warrior
Basin of Alabama to TECO. In exchange for the transfer of its interest,
Magnolia received $15.5 million in cash plus future production payments based
on various percentages of net proceeds, as defined, generated from gas
production from the properties and tax credits under Section 29 of the Internal
Revenue Code of 1986. The transaction was completed on August 6, 1993. The
$15.5 million of proceeds were treated as a recovery of capitalized costs with
no gain or loss recognized. Under the terms of the agreement, before Magnolia
begins to receive payments for its nonoperating interest, TECO is entitled to
recover its initial cash
<PAGE> 57
83

investment and a return thereon. Magnolia is entitled to receive production
payments until the termination date which is the earlier of (i) December 31,
2005, or (ii) such date as it is determined that 85% of the economically
recoverable reserves existing at July 1, 1993 have been recovered from the
transferred properties. As of December 31, 1993, Transco had not received any
payments pursuant to the agreement. Although all future development costs will
be borne by TECO, TECO is under no obligation to invest in or develop any gas
production from the coalbed methane properties. Magnolia has agreed to
indemnify TECO from certain liabilities (including environmental liabilities)
relating to Magnolia's coalbed methane properties. Transco has guaranteed
performance of Magnolia's obligations under the agreement and Transco Energy
Marketing Company's (TEMCO) obligation to purchase gas from certain of the
coalbed methane properties.

Transco's remaining investment is subject to a ceiling test that limits the
investment to the aggregate of the present value of future net revenues of
proved properties and the lower of cost or fair value of unproved properties.
Transco's limitation at December 31, 1993, was calculated using estimated
future production payments to be received from TECO based on year-end gas
prices and the cost of currently unevaluated properties. Based on that
calculation, Transco recorded a non-cash charge of $70.0 million, $45.5 million
after-tax, $1.16 per share, to reduce the book value of its nonoperating
interest in the coalbed methane properties.

At December 31, 1993, Transco's investment totalled $131 million (after the
effects of the $97 million charge in 1991, the $70 million charge in 1993 and
the $15.5 million of cash proceeds received from TECO). Of the total $131
million investment, approximately $93 million relates to Transco's investment
in unproved properties and was incurred primarily during 1991 and prior years.
These unproved properties are excluded from amortization until a determination
has been made as to the existence of proved reserves or that an impairment has
occurred. Transco will continue to monitor the status of the unproved
properties as well as TECO's future plans for development of the unproved
properties. TECO has advised Transco that it expects to have an evaluation of
the unproved properties completed by the end of 1995.

At December 31, 1993, 500 wells had been drilled on the coalbed methane
properties transferred to TECO, of which 322 were completed and 139 were
producing gas at a combined rate of approximately 12 to 13 million cubic feet
per day (MMcf/d) (unaudited). Based on reserve engineering studies prepared by
Ryder Scott Company and H. J. Gruy and Company, proved gas reserves net to TECO
and the Company's interest are estimated to be approximately 75 billion cubic
feet (Bcf) as of January 1, 1994 (unaudited). There are significant
uncertainties inherent in estimating quantities of proved reserves and in
projecting rates of production and the timing and amount of future costs. Oil
and gas reserve engineering must be recognized as a subjective process of
estimating underground accumulations of oil and gas that cannot be measured in
an exact way and estimates of other engineers might differ materially from
those of Ryder Scott Company and H. J. Gruy and Company. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify
revision of such estimate, and, as a general rule, reserve estimates based upon
volumetric analysis are inherently less reliable than those based on lengthy
production history. Accordingly, reserve estimates are often different from the
quantities of oil and gas that ultimately are recovered.

The ultimate recovery of Transco's remaining investment depends on production
from the properties and future gas prices. The Company cannot predict at this
time the ultimate results of these operations or the amounts of reserves that
may ultimately be recoverable. If future development operations do not result
in establishing sufficient reserves to recover the Company's remaining coalbed
methane investment, or if other factors cause the Company's evaluation of its
investment to diminish, additional reductions in the book value of the
Company's investment would be required in future periods through non-cash
charges to earnings. Any resulting non-cash charge to earnings could reduce the
Company's financial flexibility, including its ability to remain in compliance
with certain restrictive provisions in various debt instruments and to pay
dividends on its capital stock.

At December 31, 1993, Transco's investment in the Magnolia Pipeline totalled
$68 million. The ultimate recovery of Transco's investment in the Magnolia
Pipeline is dependent on transportation of gas produced in the Black Warrior
Basin, including production from the properties transferred to TECO, as well as
transportation of gas from other sources.

M. COMMITMENTS AND CONTINGENCIES

LEASE OBLIGATIONS

TGPL has a 20-year lease agreement for its headquarters building which expires
in 2004. The lease is with Transco Tower Limited, a partnership in which
Transco has an indirect 12.5% interest. TGPL has an option to renew and extend
the existing lease term under the same provisions for three successive renewal
terms of five years each.
<PAGE> 58
84

The future minimum lease payments under the Company's various operating leases
are as follows (in thousands):

Operating Leases
-------------------------------------------
Transco Tower Other Leases Total
------------- ------------ ----------
1994 $ 27,250 $ 5,875 $ 33,125
1995 27,250 5,132 32,382
1996 27,250 1,869 29,119
1997 27,250 -- 27,250
1998 27,250 -- 27,250
Thereafter 143,061 -- 143,061
----------- -------- ----------
Total minimum obligations $ 279,311 $ 12,876 $ 292,187
=========== ======== ==========

Total consolidated lease expense is as follows (in thousands):

1993 1992 1991
--------- --------- ---------
Transco Tower lease expense $ 24,810 $ 23,791 $ 22,321
Other lease expense 13,236 15,462 16,346
--------- --------- ---------
Total $ 38,046 $ 39,253 $ 38,667
========= ========= =========

LONG-TERM GAS PURCHASE CONTRACTS

Certain of Transco's subsidiaries have long-term gas purchase contracts
containing take-or-pay provisions and prices which are not variable market
based. Future changes in market conditions affecting the volumes of gas sold
and prices of natural gas may expose the Company to financial risks pursuant to
these provisions.

Pursuant to a settlement that TGPL has with all its customers, TGPL has in
place a gas inventory charge (GIC) designed to allow TGPL to recover its
above-spot-market gas costs through March 31, 2001. TGPL believes that the GIC
agreed to with its customers will be adequate to enable full recovery of its
above-spot-market gas costs. However, TGPL is at risk for any above-spot-market
gas costs it may incur in excess of the amounts recovered under the GIC.

During 1993, as part of Texas Gas' restructuring under Order 636, Texas Gas
engaged in negotiations with suppliers which have resulted in the successful
termination of approximately 90% of Texas Gas' deliverability under its gas
purchase contracts with pricing provisions that are not variable market based.
Gas purchased under its remaining contracts with pricing provisions that are
not variable market based is being resold at a monthly auction pursuant to
Order 636. Texas Gas continues to pay to the supplier the actual contract price
and is entitled to file for full recovery of the difference between the
contract price and the amount received for sales at auction as GSR costs under
Order 636.

Transco's basic business policy is to perform under the terms and conditions of
its contractual obligations. To achieve this objective, an operating plan is
utilized to monitor the current status of contractual obligations under each
gas purchase agreement, whereby the obligation- to-date is matched against the
performance-to-date. Any overperformance or underperformance is corrected by
appropriate adjustments to the operating plan over the remainder of the period
of the agreement. Deliverability tests, actual takes and prices paid are some
of the factors reviewed at least monthly, and in most cases weekly, in order to
ensure that performance is proceeding according to plan. Since Transco has been
and expects to
<PAGE> 59
85

continue to be able to perform in accordance with its contract terms, no
provision has been recorded for future loss. Transco does not believe that
financial risks associated with its long-term gas purchase contracts are
material to the Company's consolidated financial position or results of
operations.

ROYALTY COMMITMENTS

TCC has various coal lease agreements which require minimum annual royalty
payments. Royalties on actual production from these leases are available to
offset the minimum annual obligation. These minimum royalties total $6.1
million, $6.0 million, $5.6 million, $5.4 million and $5.0 million for the
years 1994 through 1998, respectively, and $26.7 million for all years
thereafter.

In connection with TGPL and Texas Gas' renegotiations of supply contracts with
producers to resolve take-or-pay and other contract claims and to amend gas
purchase contracts, TGPL and Texas Gas have each entered into certain
settlements which may require the indemnification by TGPL or Texas Gas of
certain claims for royalties which the producer may be required to pay as a
result of such settlements (see Note C. Legal Proceedings--Other Litigation and
Claims).

WORKERS' COMPENSATION RESERVES

Coal mining subsidiary companies of TCC are liable under the Federal Coal Mine
Health and Safety Act of 1969, as amended, to pay pneumoconiosis (black lung)
benefits to eligible employees and former employees, and their dependents. The
subsidiaries also are liable under various state statutes for black lung and
for other types of workers' compensation claims (traumatic claims). A
self-insurance program is maintained for all black lung claims. Traumatic
claims are self-insured up to certain limits and independent insurance carriers
cover those claims not self- insured.

SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

TRADE RECEIVABLES As of December 31, 1993, approximately $160 million or 82% of
Transco's trade receivables was associated with the operations of the Pipelines
and Gas Marketing segments. These trade receivables primarily are due from
local distribution companies and other pipeline companies predominantly located
in the eastern and midwestern United States. Approximately $18 million or 9% of
Transco's trade receivables was associated with the operations of the Coal
segment and primarily is due from electric utilities and industrial customers
throughout the eastern United States. An additional $16 million or 8% of
Transco's trade receivables was associated with fuel sales to the operator of a
cogeneration plant located in the eastern United States. Transco's credit risk
exposure in the event of nonperformance by the other parties is limited to the
face value of the receivables. No collateral is required on these receivables.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

INTEREST RATE SWAPS Under its liability management program, in July 1992,
Transco executed five-year interest rate swap agreements with a group of banks
that effectively converted $300 million of Transco's fixed-rate debt into
floating-rate debt. Under the swap agreements, Transco will pay a floating rate
of interest that is tied to the six-month LIBOR. In exchange for the floating
rate of interest paid by Transco, the banks will pay Transco fixed rates of
interest that average 6.37%. The difference paid or received under the interest
rate swap arrangements is charged or credited to interest expense over the life
of the agreements. The estimated market value of the interest rate swap
agreements is approximately $10 million at December 31, 1993. The market value
is determined by taking the present value of the difference between the
contracted fixed rate received and the December 31, 1993 market rates for fixed
rate/LIBOR swaps with maturities equal to the time remaining. The present
value is calculated using an implied forward six-month rate curve.

Also under its liability management program, in January 1994, Transco executed
five-year interest rate swap agreements with this same group of banks to
convert another $150 million of fixed-rate debt into floating-rate debt.
Transco will pay a floating rate of interest tied to the six-month LIBOR and
receive interest from the banks at an average fixed rate of interest of 5.23%.

Transco is exposed to interest rate risk in the event that the floating rates
to be paid by Transco rise above the fixed rates to be paid to Transco.
<PAGE> 60
86

FUTURES CONTRACTS Transco has been a party to various futures contracts in the
management of its interest rate exposure and its natural gas and natural gas
liquids marketing activities. Gains and losses on interest rate forward
contracts designated as hedges of interest rate exposure are deferred and
recognized as interest income or interest expense over the lives of the hedged
liabilities. Futures contracts used in marketing activities and designated as
speculative transactions are carried at market value with gains and losses
recognized currently. Futures contracts designated as hedges are carried at
market value with gains and losses deferred until the hedged marketing activity
is included in current net income or loss. As of December 31, 1993, open
contracts on gas and liquids marketing activity designated as speculative
transactions had an immaterial market value. These contracts are expected to be
closed from January 1994 through December 1994. The market value of the open
contracts designated as speculative transactions is calculated using the
difference between the contract prices and the applicable New York Mercantile
Exchange (NYMEX) closing prices at December 31, 1993. As of December 31, 1993,
in connection with open contracts on gas and liquids marketing activity
designated as hedges, Transco recorded a deferred gain of approximately $0.5
million. These contracts are expected to be closed from February 1994 through
October 1994. The market value of the open contracts designated as hedged
transactions is calculated using the applicable NYMEX prices at December 31,
1993. Transco is exposed to market risk on these contracts to the extent of
changes in the market prices for natural gas and liquids between December 31,
1993, and the date the contracts are closed. However, market risk exposure on
hedged transactions is offset by the gain or loss recognized upon the sale of
the products that are hedged. While market values are used to express the
amounts of futures contracts, the amounts potentially subject to credit risks,
in the event of nonperformance by third parties, are substantially smaller.

N. FAIR VALUE OF FINANCIAL INSTRUMENTS

CASH AND SHORT-TERM FINANCIAL ASSETS AND LIABILITIES

For short-term instruments, the carrying amount is a reasonable estimate of
fair value due to the short maturity of those instruments. For current
maturities of long-term debt which is publicly traded, the fair value is
estimated based on quoted market prices at year end, less accrued interest.

LONG-TERM NOTES RECEIVABLE

The carrying amount for all long-term notes receivable is a reasonable estimate
of fair value since these notes earn an appropriate rate of interest for the
risk involved.

LONG-TERM DEBT

Effectively all of the Company's debt is publicly traded, therefore fair value
is estimated based on quoted market prices at year end, less accrued interest.

The carrying amount and estimated fair values of the Company's financial
instruments as of December 31, 1993 and 1992 are as follows (in thousands):

<TABLE>
<CAPTION>
Carrying Amount Fair Value
-------------------------- ---------------------------
1993 1992 1993 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term financial assets $ 251,498 $ 64,800 $ 251,498 $ 64,800
Long-term notes receivable 14,929 78,984 14,929 78,984
Financial liabilities:
Short-term financial liabilities 461,166 393,294 459,776 393,294
Long-term debt, less current maturities 1,799,251 1,833,729 1,850,349 1,769,034
</TABLE>
<PAGE> 61
87

O. QUARTERLY INFORMATION (UNAUDITED)

The following summarizes selected quarterly financial data for 1993 and 1992
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993
Operating revenues $ 779,674 $ 679,920 $ 674,960 $ 787,372
Operating expenses 692,471 618,408 687,556 (1) 777,209 (2)
----------- ----------- ----------- -----------
Operating income (loss) 87,203 61,512 (12,596) 10,163
----------- ----------- ----------- -----------
Other (income) deductions:
Interest expense 48,662 47,543 47,114 46,962
Other (income) and deductions, net 1,423 1,611 2,055 4,408
----------- ----------- ----------- -----------
Total other deductions 50,085 49,154 49,169 51,370
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes 37,118 12,358 (61,765) (41,207)
Provision for (benefit of) income taxes 14,111 4,274 (18,600) (17,866)
----------- ----------- ----------- -----------
Income (loss) from continuing operations 23,007 8,084 (43,165) (23,341)
----------- ----------- ----------- -----------
Income (loss) from operations of discontinued
segment, net of income taxes 113 (206) -- --
Gain on sale of discontinued segment, net of
income taxes -- -- 31,572 --
----------- ----------- ----------- -----------
Net income (loss) from discontinued operations 113 (206) 31,572 --
----------- ----------- ----------- -----------
Net income (loss) 23,120 7,878 (11,593) (23,341)
Dividends on convertible preferred stock 6,433 6,432 6,433 5,749
----------- ----------- ----------- -----------
Common stock equity in net income (loss) $ 16,687 $ 1,446 $ (18,026) $ (29,090)
=========== =========== =========== ===========
Primary earnings (loss) per share of common
stock and common stock equivalents $ 0.42 $ 0.04 $ (0.46) $ (0.73)
=========== =========== =========== ===========
Average shares of common stock and common stock
equivalents outstanding 39,300 39,306 38,990 39,850
=========== =========== =========== ===========

1992
Operating revenues $ 653,431 $ 610,770 $ 642,696 $ 785,442
Operating expenses 643,799(3) 554,597 595,780 714,504
----------- ----------- ----------- -----------
Operating income 9,632 56,173 46,916 70,938
----------- ----------- ----------- -----------
Other (income) deductions:
Interest expense 52,811 51,032 53,333 48,338
Other (income) and deductions, net 14,761(4) 63,316(5) (17,536)(6) (2,468)(7)
----------- ----------- ----------- -----------
Total other deductions 67,572 114,348 35,797 45,870
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (57,940) (58,175) 11,119 25,068
Provision for (benefit of) income taxes (19,042) (18,982) 3,698 6,391
----------- ----------- ----------- -----------
Income (loss) from continuing operations (38,898) (39,193) 7,421 18,677
----------- ----------- ----------- -----------
Income (loss) from operations of discontinued
segment, net of income taxes 56 (178) (670) 3,441
----------- ----------- ----------- -----------
Net income (loss) from discontinued operations 56 (178) (670) 3,441
----------- ----------- ----------- -----------
Net income (loss) (38,842) (39,371) 6,751 22,118
Dividends on convertible preferred stock 6,433 6,432 6,433 6,432
----------- ----------- ----------- -----------
Common stock equity in net income (loss) $ (45,275) $ (45,803) $ 318 $ 15,686
=========== =========== =========== ===========
Primary earnings (loss) per share of common
stock and common stock equivalents $ (1.52) $ (1.52) $ 0.01 $ 0.42
=========== =========== =========== ===========
Average shares of common stock and common stock
equivalents outstanding 29,777 30,087 30,788 37,730
=========== =========== =========== ===========
</TABLE>

(1) Includes $20,125 charge for write-off of note receivable and $50,269 charge
for Corpus Christi settlement.
(2) Includes $70,000 charge to reduce book value of coalbed methane properties.
(3) Includes $35,200 charge to reduce book value of oil and gas properties and
$31,000 provision for producer settlements.
(4) Includes $19,524 provision for losses on sales of assets.
(5) Includes $66,047 provision for losses on sales of assets.
(6) Includes $17,666 gain on final liquidating distribution from TXP.
(7) Includes $1,165 reduction to provision for losses on sales of assets.

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES OF TRANSCO ENERGY COMPANY

<TABLE>
<CAPTION>
Percent
Subsidiaries Ownership
- ------------ ---------
<S> <C>
Energy Tech, Inc. 100.00
Gasco Insurance Company Limited 100.00
Hazleton Fuel Management Company 100.00
Hazleton Pipeline Company 100.00
TM Cogeneration Company 100.00
TXG Energy Services Company 100.00
Transco Coal Company 100.00
Cross Mtn. Coal, Inc 100.00
Farmer Coal Company, Inc. 100.00
Highland Coal, Inc 100.00
Interstate Coal Company, Inc. 100.00
Beech Grove Processing Company 100.00
Bledsoe Coal Leasing Company 100.00
Inland Ports, Inc. 100.00
Leeco, Inc. 100.00
Mountain Clay, Inc 100.00
Randall Fuel Company, Inc. 100.00
Stansbury & Company, Inc. 100.00
Typo Mining, Inc. 100.00
Aceco, Inc. 100.00
Bituminous-Laurel Mining, Inc. 100.00
New Brush Creek Mining, Inc. 100.00
Polls Creek Coal Co., Inc. 100.00
Oswayo Mining, Inc. 100.00
Sizemore Trucking, Inc. 100.00
Pro-Land, Inc. 100.00
River Coal Company, Inc. 100.00
Valley View Coal, Inc. 100.00
Transco Coal Gas Company 100.00
Transco Energy Investment Company 100.00
Transco Exploration Company 100.00
Transco Exploration Projects Company 100.00
Transco Gas Company 100.00
Border Gas, Inc. 10.00
Liberty Operating Company 100.00
NESP Supply Corp. 33.33
TXG Engineering, Inc. 100.00
TXG Gas Storage Company 100.00
Texas Gas Transmission Corporation 100.00
Trans-Jeff Chemical Corporation 50.00
Transco Blue Ridge Pipeline Company 100.00
Transco Gas Gathering Company 100.00
Magnolia Pipeline Corporation 100.00
Nuval Intrastate Transmission Company 100.00
Transco Brine Services Company 100.00
Transco Industrial Pipeline Company 100.00
Transco Matagorda Pipeline Company 100.00
Transco Offshore Gathering Company 100.00
Transco Terminal Company 100.00
Transco-Louisiana Intrastate Pipeline Company 100.00
Transco-Texas Intrastate Pipeline Company 100.00
Transco Gas Marketing Company 100.00
TXG Energy Services Company 100.00
TXG Gas Marketing Company 100.00
TXG Intrastate Pipeline Company 100.00
Transco Energy Marketing Company 100.00
Transco Liquids Company 100.00
HI-BOL Pipeline Company 100.00

</TABLE>
<PAGE> 2
EXHIBIT (21)

SUBSIDIARIES OF TRANSCO ENERGY COMPANY

<TABLE>
<CAPTION>
Percent
Subsidiaries Ownership
- ------------ ---------
<S> <C>
Transco Liberty Pipeline Company 100.00
Transco Production Services Company 100.00
Transcontinental Gas Pipe Line Corporation 100.00
Transeastern Gas Pipeline Company, Inc. 100.00
Transco P-S Company 100.00
Transco Resources, Inc. 100.00
ForTran Exploration Company 100.00
Magnolia Methane Corp 100.00
Transco Transportation Company 100.00
Tubexpress, Inc. 50.00
Transco Tower Realty, Inc. 100.00
</TABLE>