AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 25, 2004 among SEMCO ENERGY, INC., VARIOUS FINANCIAL INSTITUTIONS, STANDARD FEDERAL BANK N.A., a National Banking Association, as Agent and Arranger, KEYBANK NATIONAL ASSOCIATION, as Syndication Agent for the Revolving Loan NATIONAL CITY BANK OF THE MIDWEST, A NATIONAL BANKING ASSOCIATION, FORMERLY KNOWN AS NATIONAL CITY BANK OF MICHIGAN/ILLINOIS as Syndication Agent for the Line of Credit and as Documentation Agent for the Revolving Loan U.S. BANK, N.A., as Documentation Agent for the Revolving Loan and the Line of Credit and FIFTH THIRD BANK, EASTERN MICHIGAN, as Documentation Agent for the Line of Credit TABLE OF CONTENTS

9.21.   No Default. No Event of Default or Unmatured Event of Default exists or would result from the incurring by the Company of any Debt hereunder or under any other Loan Document.

9.22.   Compliance With Laws. The nature and transaction of the Company’s business and operations and the use of its properties and assets do not and during the term of the Loans shall not, violate or conflict with any applicable law, statute, ordinance, rule, regulation or order of any kind or nature, including, without limitation, the provisions of the Fair Labor Standards Act or any zoning, land use, building, noise abatement, occupational health and safety or other laws, any building permit or any condition, grant, easement, covenant, condition or restriction, whether recorded or not except such as could not reasonably be expected to have a Material Adverse Effect.

SECTION 10.   COVENANTS.

Until the expiration or termination of the Commitments and thereafter until all obligations of the Company hereunder and under the other Loan Documents are paid in full and all Letters of Credit have been terminated, the Company agrees that, unless at any time the Required Banks shall otherwise expressly consent in writing, it will:

10.1.   Reports, Certificates and Other Information. Furnish to the Agent (with sufficient copies for each Bank):

10.1.1   Annual Report. Promptly when available and in any event within 105 days after the close of each Fiscal Year: (a) a copy of the annual audit report of the Company and its Subsidiaries for such Fiscal Year, including therein consolidated balance sheets and statements of earnings and cash flows of the Company and its Subsidiaries as at the end of such Fiscal Year, certified without qualification by independent auditors of recognized standing selected by the Company and reasonably acceptable to the Required Banks, together with (i) a written statement from such accountants to the effect that in making the examination necessary for the signing of such annual audit report by such accountants, nothing came to their atte ntion that caused them to believe that the Company was not in compliance with any provision of Section 10.6, 10.7 or 10.9 of this Agreement insofar as such provision relates to accounting matters or, if something has come to their attention that caused them to believe that the Company was not in compliance with any such provision, describing such non-compliance in reasonable detail and (ii) a comparison with the budget for such Fiscal Year and a comparison with the previous Fiscal Year; and (b) consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Year and a consolidating statement of earnings for the Company and its Subsidiaries for such Fiscal Year, certified by the Vice President – Accounting or Chief Financial Officer of the Company.

10.1.2   Interim Reports. (a) Promptly when available and in any event within 60 days after the end of each Fiscal Quarter (except the last Fiscal Quarter of each Fiscal Year), consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Quarter, together with consolidated and consolidating statements of earnings and a consolidated statement of cash flows for such Fiscal Quarter and for the period beginning with the first day of such Fiscal Year and ending on the last day of such Fiscal Quarter, together with a comparison with the corresponding period of the previous Fiscal Year and a comparison with the budget for such period of the current Fiscal Year, certified by the V ice President – Accounting or Chief Financial Officer of the Company; and (b) promptly when available and in any event within 45 days after the end of each month (except the last month of each Fiscal Quarter), consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such month, together with consolidated and consolidating statements of earnings for such month, and for the period beginning with the first day of such Fiscal Year and ending on the last day of such month, together with a comparison with the corresponding period of the previous Fiscal Year and a comparison with the budget for such period of the current Fiscal Year, certified by the Vice President – Accounting or Chief Financial Officer of the Company.

10.1.3   Compliance Certificates. Contemporaneously with the furnishing of a copy of each annual audit report pursuant to Section 10.1.1 and each set of quarterly statements pursuant to Section 10.1.2, a duly completed compliance certificate in the form of Exhibit D, with appropriate insertions, dated the date of such annual report or such quarterly statements and signed by the Vice President – Accounting or Chief Financial Officer of the Company, containing a comput ation of each of the financial ratios and restrictions set forth in Section 10.6 and to the effect that such officer has not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing or, if there is any such event, describing it and the steps, if any, being taken to cure it.

10.1.4   Reports to the SEC and to Shareholders. Promptly upon the filing or sending thereof, copies of all regular, periodic or special reports of the Company or any Subsidiary filed with the SEC; copies of all registration statements of the Company or any Subsidiary filed with the SEC (other than on Form S-8); and copies of all proxy statements or other communications made to security holders generally.

10.1.5   Reports to Regulatory Bodies. Promptly upon request of the Agent, copies of all regular, periodic or special reports of the Company or any Subsidiary filed with any Regulatory Bodies, and copies of all rate or similar applications of the Company or any Subsidiary filed with any Regulatory Bodies.

10.1.6   Notice of Default, Litigation and ERISA Matters. Promptly upon becoming aware of any of the following, written notice describing the same and the steps being taken by the Company or the Subsidiary affected thereby with respect thereto:

(a)   the occurrence of an Event of Default or an Unmatured Event of Default;

(b)   any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Company to the Banks which has been instituted or, to the best knowledge of the Company, is threatened in writing against the Company or any Subsidiary or to which any of the properties of any thereof is subject which could reasonably be expected to have a Material Adverse Effect;

(c)   the institution of any steps by any member of the Controlled Group or any other Person to terminate any Pension Plan, or the failure of any member of the Controlled Group to make a required contribution to any Pension Plan (if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Company furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan or Multiemployer Pension Plan which could result in the incurrence by any member of the Controlled Group of any material liability, fine or penalty (including any claim or demand f or withdrawal liability or partial withdrawal from any Multiemployer Pension Plan), or any material increase in the contingent liability of the Company with respect to any post-retirement welfare plan benefit, or any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent;

(d)   any cancellation or material change in any insurance maintained by the Company or any Subsidiary not permitted under Section 10.3(b); or

(e)   any other event (including (i) any violation of any Environmental Law or the assertion of any Environmental Claim or (ii) the enactment or effectiveness of any law, rule or regulation) which could reasonably be expected to have a Material Adverse Effect.

10.1.7   Management Reports. Promptly upon the request of the Agent or any Bank, copies of all detailed financial and management reports submitted to the Company by independent auditors in connection with each annual or interim audit made by such auditors of the books of the Company.

10.1.8   Projections. As soon as practicable, and in any event within 105 days after the commencement of each Fiscal Year, financial projections for the Company and its Subsidiaries for such Fiscal Year consisting of an operating budget and a cash flow budget prepared in a manner consistent with the projections delivered by the Company to the Banks prior to the Closing Date or otherwise in a manner reasonably satisfactory to the Agent, accompanied by a certificate of the Vice President – Accounting or Chief Financial Officer of the Company on behalf of the Company to the effect that (i) such projections were prepared by the Company in good faith, (ii) the Company has a reasonable basis for the assumptions contained i n such projections and (iii) such projections have been prepared in accordance with such assumptions.

10.1.9   Subordinated Debt Notices. Promptly from time to time, copies of any material notices (including notices of default or acceleration) received from any holder or trustee of, under or with respect to any Subordinated Debt or Junior Capital.

10.1.10   Other Information. Promptly from time to time, such other information concerning the Company and its Subsidiaries as any Bank or the Agent may reasonably request.

10.2.   Books, Records and Inspections. (a) Keep, and cause each Subsidiary to keep, its books and records in accordance with sound business practices sufficient to allow the preparation of financial statements in accordance with GAAP; (b) permit, and cause each Subsidiary to permit, at any reasonable time and with reasonable notice, taking into account the potential effect on the business operations of the Company and its Subsidiaries (or at any time and without notice if an Event of Default exists), any Bank or any representative thereof to inspect the properties and operations of the Company or such Subsidiary, all such inspections to be at the inspecting Bank’s expense, unless an Event of Default ex ists at the time such inspection is made; (c) permit, and cause each Subsidiary to permit, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), any Bank or the Agent or any representative thereof to visit any or all of its offices, to discuss its financial matters with its officers and its independent auditors (and the Company hereby authorizes such independent auditors to discuss such financial matters with any Bank or the Agent or any representative thereof), and to examine (and, at the expense of the Company or the applicable Subsidiary, photocopy extracts from) any of its books or other records; and (d) not more often than once during each 12-month period (or more frequently if an Event of Default exists), permit, and cause each Subsidiary to permit, at any reasonable time and with reasonable notice (or at any time and without notice if an Event of Default exists), the Agent and its representatives to inspect the properties and operations of the Company or such Subsidiary and other tangible assets of the Company or such Subsidiary. All such inspections by the Agent under clause (d) of this Section 10.2 shall be at the Company’s expense.

10.3.   Maintenance of Property; Insurance. (a) Keep, and cause each Subsidiary to keep, all property useful and necessary in the business of the Company or such Subsidiary in good working order and condition, ordinary wear and tear excepted.

(b)   Maintain, and cause each Subsidiary to maintain, with responsible insurance companies, such insurance as may be required by any law or governmental regulation or court decree or order applicable to it and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated, but which shall insure against all risks and liabilities of the type identified on Schedule 9.16 and shall have insured amounts no less than, and deductibles no higher than, those set forth on such schedule except for any change which could not reasonably be expected to have a Material Adverse Effect; and, upon request of the Agent or any Bank, furnish to the Agent or such Bank a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by the Company and its Subsidiaries.

10.4.   Compliance with Laws; Payment of Taxes and Liabilities. (a) Comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, rules, regulations, decrees, orders, judgments, licenses and permits, except where failure to comply could not reasonably be expected to have a Material Adverse Effect; and (b) pay, and cause each Subsidiary to pay, prior to delinquency, all taxes and other governmental charges against it or any of its property, as well as claims of any kind which, if unpaid, might become a Lien on any of its property; provided that the foregoing shall not require the Company or a ny Subsidiary to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP.

10.5.   Maintenance of Existence, etc. (a) Continue to engage in the business or businesses as substantially now conducted by the Company and its Subsidiaries and businesses reasonably related thereto; (b) maintain and preserve, and (subject to Section 10.11) cause each Subsidiary to maintain and preserve, (i) its existence and good standing in the jurisdiction of its organization and (ii) its qualification to do business and good standing in each jurisdiction where the nature of its business makes such qualification necessary (except in those instances in which the failure to be qualified or in good standing does not have a Material Adverse Effect); and (c) take all reasonable action it deems necessary in its reasonable business judgment to maintain all rights, privileges and franchises necessary in the normal conduct of its business except as otherwise permitted pursuant to Section 10.11 or where the failure to so maintain its rights, privileges and franchises could not reasonably be expected to have a Material Adverse Effect.

10.6.   Financial Covenants.

10.6.1   Minimum Interest Coverage Ratio. Maintain an Interest Coverage Ratio for any period of four consecutive Fiscal Quarters ending on the last day of a Fiscal Quarter of not less than 1.25 to 1.00.

10.6.2   Maximum Leverage Ratio. Maintain on the last day of each Fiscal Quarter a ratio of (i) Consolidated Adjusted Funded Debt to (ii) Consolidated Adjusted Total Capitalization plus Junior Capital of 65% or less.

10.6.3   Minimum Consolidated Net Worth. Maintain Consolidated Net Worth, tested on the last day of each Fiscal Quarter, of at least the Net Worth Base Amount plus, through the date of determination, the New Capital Adjustment.

Net Worth Base Amount means $163,049,000, plus 20% of Consolidated Net Income (if positive) earned commencing with the Fiscal Year ending December 31, 2004, together with the Consolidated Net Income (if positive) earned in each subsequent Fiscal Year.

10.7.   Limitations on Debt. Not, and not permit any Subsidiary to, create, incur, assume or suffer to exist any Debt, except:

(a)   obligations under this Agreement and the other Loan Documents;

(b)   Debt secured by Liens permitted by Section 10.8(a) and (b) and Debt secured by the Liens permitted by Section 10.8(d), and extensions, renewals and refinancings thereof; provided that the aggregate amount of all such Debt in respect of Section 10.8(d) at any time outstanding shall not exceed $5,000,000;

(c)   Debt of any Subsidiary to the Company or to another Subsidiary to the extent permitted under Section 10.21(b); and provided, further, that the Company will not permit any Subsidiary to cancel any Debt or other claim owing to it, except for reasonable consideration or in the ordinary course of business, and except for the cancellation of Debts or other claims not to exceed $1,000,000 in any Fiscal Year.

(d)   unsecured Debt of the Company to Subsidiaries, provided that such Debt shall be subordinated to the indebtedness under this Agreement on terms acceptable to the Agent;

(e)   the Feline Prides and Subordinated Debt;

(f)   Hedging Obligations incurred for bona fide hedging purposes and not for speculation;

(g)   Debt described on Schedule 10.7 and any extension, renewal or refinancing thereof so long as the principal amount thereof is not increased;

(h)   intentionally omitted; and

(i)   Debt consisting of the Refinancing Bonds; and

(j)   other Debt, in addition to the Debt listed above, in an aggregate amount not at any time exceeding Three Million Dollars ($3,000,000).

10.8.   Liens. Not, and not permit any Subsidiary to, create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except:

(a)   Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves;

(b)   Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law and (ii) Liens incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services and, in each case, for which it maintains adequate reserves;

(c)   Liens described on Schedule 10.8 the replacement, extension or renewal of any such Lien permitted upon or in the same and property previously subject thereto arising out of the extension, renewal or replacement of the Debt secured thereby (without increase in the amount thereof).

(d)   subject to the limitation set forth in Section 10.7(b), (i) Liens arising in connection with Capitalized Leases (and attaching only to the property being leased), (ii) Liens existing on property at the time of the acquisition thereof by the Company or any Subsidiary (and not created in contemplation of such acquisition) and (iii) Liens that constitute purchase money security interests on any property securing debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien attaches to such property within 60 days of the acquisition t hereof and attaches solely to the property so acquired;

(e)   attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding $1,000,000 arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings;

(f)   easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Company or any Subsidiary; and

(g)   any escrow, cash collateral account or other trust arrangement established for the purpose of holding a sufficient portion of proceeds of the Refinancing Bonds for the Refinancing until the application of such proceeds in accordance with the terms of the Refinancing Bond Documents and this Agreement, to the extent constituting a Lien, and other Liens securing Debt, if any, in an aggregate amount at any time outstanding not to exceed $1,000,000, provided that at the time such Lien was granted (both before and after giving effect thereto), no Event of Default or Unmatured Event of Default has occurred and is continuing.

10.9.   Operating Leases; Sale and Leasebacks. Not permit the aggregate amount of all rental payments under Operating Leases made (or scheduled to be made) by the Company and its Subsidiaries (on a consolidated basis) to exceed $6,000,000 in any Fiscal Year; or, except for the Port Huron Leases, enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary, as the case may be.

10.10.   Restricted Payments. Not, and not permit any Subsidiary to, (a) make any distribution to any of its shareholders, (b) purchase or redeem any of its capital stock or other equity interests or any warrants, options or other rights in respect thereof, (c) issue any Disqualified Stock, or (d) set aside funds for any of the foregoing. Notwithstanding the foregoing, (i) any Subsidiary may pay dividends or make other distributions to the Company or to a Wholly-Owned Subsidiary; (ii) so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, the Company may make, pay, declare or authorize any dividend, payment or other distribution in respect of any class of its capital s tock or any dividend, payment or distribution in connection with the redemption, purchase, retirement or other acquisition, directly or indirectly, of any shares of its capital stock, to the extent in each case payable solely in shares of capital stock of the Company, and (iii) the Company may make, pay, declare or authorize any dividend, payment or other distribution in respect of any class of its capital stock or any dividend, payment or distribution in connection with the redemption, purchase, retirement or other acquisition, directly or indirectly, of any shares of its capital stock, subject to the satisfaction of each of the following conditions: (x) the aggregate amount of such dividends, payments or other distributions covered by this clause (iii) made during the period from and after March 31, 2004 to and including the date of the making of the dividend, payment or other distribution in question shall not exceed the sum of $12,000,000 plus, commencing on September 30, 2004, 80% of Consolidated Net In come for such period, such Consolidated Net Income to be calculated in each case for this purpose by adding back an amount equal to 65% of interest on the Subordinated Notes and 100% of the payable-in-kind dividends on the Company’s Series B Preference Stock, in each case to the extent deducted from the Consolidated Net Income and to be computed on a cumulative basis for said entire period (or if such Consolidated Net Income is a deficit figure, then minus 80% of such deficit) and (y) immediately before and after giving effect to such dividend, payment or other distribution, no Event of Default or Unmatured Event of Default shall exist or shall have occurred and be continuing and that the Company, both before and after giving effect (on a pro forma basis) to the payment of such dividends or distributions shall be in compliance with the financial covenants set forth in Section 10.6 of this Agreement. Dividend payments on the Junior Capital are subject to the provisions of this Section 10.10.

10.11.   Mergers, Consolidations, Sales. Not, and not permit any Subsidiary to, be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, or, except in the ordinary course of its business, sell, transfer, convey or lease all or any substantial part of its assets, or sell or assign with or without recourse any receivables, except for (a) any such merger, consolidation, sale, transfer, conveyance, lease or assignment of or by any Wholly-Owned Subsidiary into the Company or into, with or to any other Wholly-Owned Subsidiary; (b) any such purchase or other acqu isition by the Company or any Wholly-Owned Subsidiary of the assets or stock of any Wholly-Owned Subsidiary; (c) any Acquisition by the Company or any Wholly-Owned Subsidiary of a Gas Related Business where (1) the assets acquired (in the case of an asset purchase) are for use, or the Person acquired (in the case of any other Acquisition) is engaged, solely in the businesses permitted under Section 10.5(a); (2) immediately before and after giving effect to such Acquisition, no Event of Default or Unmatured Event of Default shall exist; (3) the aggregate consideration paid (or to be paid) by the Company and its Subsidiaries (including any Debt assumed or issued in connection therewith, the amount thereof to be calculated in accordance with GAAP) in connection with each Acquisition (or any series of related Acquisitions) shall not exceed $15,000,000, and shall not exceed $50,000,000 in total for all Acquisitions from the Closi ng Date until the Line of Credit Termination Date, provided, however, that the limitations on such consideration specified under this Section 10.11 shall increase to $25,000,000 and $100,000,000, respectively, upon the Company receiving senior unsecured debt ratings of BBB- and Baa3 or better from S&P and Moody’s, respectively; (4) immediately after giving effect to such Acquisition, the Company is in pro forma compliance with all the financial ratios and restrictions set forth in Section 10.6; (5) in the case of the Acquisition of any Person, the Board of Directors of such Person has approved such Acquisition; and (6) the Company has delivered to Agent and the Banks, as soon as possible, but no later than Five Business Days prior to the consummation of the Acquisition, copies of the proposed draft acquisition documents, the lien se arches, the acquisition summary, pro forma operating income calculations and such other information as Agent and any Bank may reasonably request, acceptable, in each case, to Agent and the Required Banks; and (d) sales and dispositions of assets (including the stock of Subsidiaries) for at least fair market value (as reasonably determined by the Board of Directors of the Company), so long as the net book value of all assets sold or otherwise disposed of in any Fiscal Year does not exceed 5% of the net book value of the consolidated assets of the Company and its Subsidiaries as of the last day of the preceding Fiscal Year, except to the extent the proceeds of such sales or dispositions are used to purchase comparable replacement assets within 180 days following the date of such sale or disposition (or in the event within 180 days following the date of such sale or disposition the Company has entered into a binding purchase order or contract for such purchase, within 360 days); provided, however, (x) that the APC Sale is permitted subject to compliance with the following conditions: (1) the proceeds of the APC Sale shall be at least $90,000,000 (net of all reasonable, usual and ordinary transaction costs), (2) at least $60,000,000 of the proceeds of the APC Sale shall be used, by March 31, 2005, to prepay Funded Debt of the Company, such that the aggregate amount of Funded Debt prepaid from the proceeds of the issuance of both tranches of the Series B Preference Stock of the Company and the APC Sale shall total at least $90,000,000, and (3) no Default or Event of Default shall have occurred and be continuing at the time of the consummation of the APC Sale and (y) the EnStructure Sale is permitted subject to compliance with the requirements relating to the EnStructure Sale proceeds as specified in Section 10.30 of this Agreement.

10.12.   Modification of Organizational Documents. Not permit the Certificate or Articles of Incorporation, By-Laws or other organizational documents of the Company or any Subsidiary to be amended or modified in any way which could reasonably be expected to have a Material Adverse Effect.

10.13.   Use of Proceeds. Use the proceeds of the Loans, and the Letters of Credit, solely to refinance outstanding indebtedness of the Company, for working capital, and for other general corporate purposes and to finance Acquisitions permitted hereunder; and not use or permit any proceeds of any Loan to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of “purchasing or carrying” any Margin Stock or to refinance any Funded Debt of the Company or any of its Subsidiaries, provided, however, that proceeds of the EnStructure Sale may be used to repay the Loans hereunder, and an equivalent amount to such repayment (subject to the other limitations conta ined in this Agreement) may be drawn on the Loans at a future date to refinance Funded Debt of the Company.

10.14.   Further Assurances. Execute and cause to be delivered or cause to be executed and delivered to the Agent within a reasonable time following the Agent’s request, and at the Company’s expense, such other documents or instruments as the Agent may reasonably require to effectuate more fully the purpose of this Agreement or the other Loan Documents.

10.15.   Transactions with Affiliates. Not, and not permit any Subsidiary to, enter into, or cause, suffer or permit to exist any transaction, arrangement or contract with any of its other Affiliates (other than the Company and its Subsidiaries) which is on terms which are less favorable than are obtainable from any Person which is not one of its Affiliates.

10.16.   Employee Benefit Plans. Maintain, and cause each Subsidiary to maintain, each Pension Plan in substantial compliance with all applicable requirements of law and regulations.

10.17.   Environmental Matters. (a) If any Release or Disposal of Hazardous Substances shall occur or shall have occurred on any real property or any other assets of the Company or any Subsidiary, the Company shall, or shall cause the applicable Subsidiary to, cause the prompt containment and removal of such Hazardous Substances and the remediation of such real property or other assets as necessary to comply with all Environmental Laws and to preserve the value of such real property or other assets. Without limiting the generality of the foregoing, the Company shall, and shall cause each Subsidiary to, comply with any valid Federal or state judicial or administrative order requiring the performance at any re al property of the Company or any Subsidiary of activities in response to the Release or threatened Release of a Hazardous Substance.

(b)   To the extent that the transportation of “hazardous waste” as defined by RCRA is permitted by this Agreement, the Company shall, and shall cause its Subsidiaries to, dispose of such hazardous waste only at licensed disposal facilities which to the best knowledge of the Company are operating in compliance with Environmental Laws.

10.18.   Unconditional Purchase Obligations. Not, and not permit any Subsidiary to, enter into or be a party to, except in the ordinary course of business, any contract for the purchase of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether delivery is ever made of such materials, supplies or other property or services.

10.19.   Inconsistent Agreements. Not, and not permit any Subsidiary to, enter into any agreement containing any provision which would (a) be violated or breached by any borrowing by the Company hereunder or by the performance by the Company or any Subsidiary of any of its obligations hereunder or under any other Loan Document, or the execution and delivery thereof, or (b) create or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make other distributions to the Company or any other applicable Subsidiary, or pay any Debt owed to the Company or any other Subsidiary, (ii) make loans or advances to the Company or (iii) transfer any of it s assets or properties to the Company.

10.20.   Business Activities. Not, and not permit any Subsidiary to, engage in any line of business other than the businesses engaged in on the date hereof and businesses reasonably related thereto.

10.21.   Investments. Not, and not permit any Subsidiary to, make or permit to exist any Investment in any other Person, except (without duplication) the following:

(a)   existing Investments by the Company in any of its Subsidiaries, or by any such Subsidiary in any of its Subsidiaries as shown on Schedule 10.21;

(b)   in the ordinary course of business, additional Investments from and after the date hereof by the Company in any Subsidiary or by a Subsidiary in another Subsidiary, provided, however, that the aggregate amount of such additional Investments to or in EnStructure Corporation shall not exceed at any time outstanding $12,000,000 and (ii) the aggregate amount of such additional Investments to or in any Subsidiary other than EnStructure Corporation shall not exceed at any time outstanding $13,000,000;

(c)   Suretyship Liabilities permitted by Section 10.7;

(d)   Cash Equivalent Investments and Hedging Agreements to the extent constituting Investments;

(e)   bank deposits in the ordinary course of business;

(f)   Investments in securities of account debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors;

(g)   Investments to consummate Acquisitions permitted by Section 10.11; and

(h)   other Investments listed on Schedule 10.21; and

(i)   other Investments not described above in an amount not to exceed $5,000,000 during the period from the closing date of the Prior Credit Agreement to the payment in full in cash of the Loans and the termination of any obligation on the part of any Bank to extend credit to the Company;

provided that (x) any Investment which when made complies with the requirements of the definition of the term “Cash Equivalent Investment” may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; (y) no Investment otherwise permitted by clause (b), (c), (g) or (i) shall be permitted to be made if, immediately before or after giving effect thereto, any Event of Default or Unmatured Event of Default exists. In valuing any Investments for the purpose of applying the limitations set forth in t his Section 10.21 (except as otherwise expressly provided herein), such Investment shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation, but less any amount repaid or recovered on account of capital or principal.

10.22.   Restriction of Amendments to Certain Documents. Not amend or otherwise modify, or waive any rights under, any document or instrument evidencing or otherwise related to any Subordinated Debt or the Feline Prides if, in any case, such amendment, modification or waiver could be adverse to the interests of the Banks or could reasonably be expected to have a Material Adverse Effect.

10.23.   Capital Expenditures. Not permit the aggregate amount of all Capital Expenditures made by the Company and its Subsidiaries in any Fiscal Year to exceed:

(a)   for Capital Expenditures made in respect of Gas Related Businesses, the amounts set forth below during the periods specified below:

       Period                           Amount

       Fiscal Year ending December 31, 2004
       $44,000,000
           Fiscal Year ending December 31, 2005
       $47,000,000
           

       and

(b)   for Capital Expenditures made in respect of Non-Gas Related Businesses, the amounts set forth below during the periods specified below:

       Period                           Amount

       Fiscal Year ending December 31, 2004
       $3,000,000
           Fiscal Year ending December 31, 2005
       $3,000,000
       

but without carryover of any unused portion.

10.24.   Fiscal Year. Not change its Fiscal Year.

10.25.   Operating Accounts. Maintain the primary operating accounts of the Company and its Subsidiaries (excluding ENSTAR Natural Gas Company and Alaska Pipeline Company) with any Bank or a domestic bank affiliate of any Bank.

10.26.   Guaranties. Not guarantee, endorse or otherwise become secondarily liable for or upon the obligations of others, except by endorsement for deposit in the ordinary course of business, and except for other guarantees and similar obligations not otherwise permitted under this Section in respect of Debt incurred by any Person (subject to Section 10.21), provided that the aggregate amount of such debt at any time outstanding does not exceed $5,000,000.

10.27.   Limitation on Negative Pledge Clauses. Not enter into any agreement, document or instrument which would restrict or prevent the Company and its Subsidiaries from granting the Agent on behalf of the Banks liens upon, security interests in and pledges of their respective assets which are senior in priority to all other Liens, other than the Liens permitted pursuant to Section 10.8, except for (i) those agreements, documents or instruments evidencing existing Debt permitted hereunder identified on Schedule 10.7, and Debt arising pursua nt to the Refinancing Bonds, and the additional $50,000,000 in original aggregate principal amount of Refinancing Bonds issued under and pursuant to the terms of the Refinancing Bond Documents and any replacement or refinancing of such Debt, in amounts equal to or less than the amounts outstanding on the date of such replacement or refinancing, and (ii) any other agreements, documents or instruments pursuant to which Liens not prohibited by the terms of this Agreement are created, entered into, or allowed to exist, but only to the extent of the property encumbered by such Liens, as applicable.

10.28.   Maintain Debt Rating. Use reasonable commercial efforts to cause the Rating Agencies to maintain, on an ongoing basis, a debt rating of the Company’s long term, publicly traded, non-credit enhanced senior unsecured Indebtedness (whether or not such Indebtedness is then outstanding).

10.29.   Prepayment of Subordinated Debt and Feline Prides. Not (a) prepay, purchase, redeem or defease any Subordinated Debt or Feline Prides (except with the proceeds of a New Capital Offering or of Subordinated Debt issued in accordance with the terms of this Agreement), or (b) make any payment of regularly scheduled interest or of principal at maturity under any the Trust Preferred Securities or Feline Prides, unless the Company has provided not less than five (5) Business Days prior written notice to the Agent of its intent to make such payment, accompanied by a certification (which is true and correct when given) that both before and after giving effect to such payment (and taking into account the maki ng thereof), no Unmatured Event of Default or Event of Default has occurred and is continuing (or will occur as of the last day of the next succeeding reporting period) and that such payment would be permitted under the terms of this Agreement.

10.30.   Prepayment of Funded Debt. Use the proceeds (net of reasonable, usual and ordinary costs of sale) of the EnStructure Sale, which sale must be completed by the Company by December 31, 2004, to prepay Funded Debt of the Company (except as otherwise permitted under Section 10.13 of this Agreement), and, by December 31, 2004, use the proceeds (net of reasonable, usual and ordinary costs of issuance) of the Capital Stock Issuance to prepay Funded Debt of the Company.

10.31.   More Favorable Terms. Not enter into any amendment or modification of the Refinancing Bonds if such amendment or modification shall include, or be issued pursuant to any amendment or other agreement which includes financial or other covenants or default provisions which are not substantially identical to the covenants and default provisions set forth in this Agreement unless, prior to entering into any such amendment, the Company notifies the Agent and the Banks of its intent to enter into any such amendment and, if the Required Banks determine that some or all of the covenants or default provisions set forth in such amendment are more favorable to the lender thereunder than the covenants or default provisions set forth in this Agreement (“More Favorable Terms”), and that the Required Banks desire that this Agreement be further amended to incorporate the More Favorable Terms, the Company shall, within thirty days following receipt from Agent of notice that the Required Banks have made the foregoing determination, enter into an amendment to this Agreement incorporating, on terms and conditions acceptable to the Required Banks, the More Favorable Terms.

SECTION 11.   EVENTS OF DEFAULT.

11.1.   Events of Default. Each of the following shall constitute an Event of Default under this Agreement:

11.1.1   Non-Payment of the Loans, etc. Default in the payment when due of the principal of any Loan; or default, and continuance thereof for five days, in the payment when due of any interest, fee, reimbursement obligation with respect to any Letter of Credit or other amount payable by the Company hereunder or under any other Loan Document.

11.1.2   Non-Payment of Other Debt. Any default shall occur under the terms applicable to any Debt of the Company or any Subsidiary (other than any indebtedness hereunder) in an aggregate amount (for all such Debt so affected) exceeding $10,000,000 and such default shall (a) consist of the failure to pay such Debt when due, whether by acceleration or otherwise, or (b) accelerate the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to accelerate or otherwise cause such Debt to become due and payable (or require the Company or any Subsidiary to purchase or redeem such Debt) prior to its expressed maturity.

11.1.3   Other Material Obligations. Default in the payment when due, or in the performance or observance of, any material obligation of, or condition agreed to by, the Company or any Subsidiary with respect to any material purchase or lease of goods or services where such default, singly or in the aggregate with all other such defaults, could reasonably be expected to have a Material Adverse Effect.

11.1.4   Bankruptcy, Insolvency, etc. The Company or any Subsidiary becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Company or any Subsidiary applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for the Company or such Subsidiary or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Company or any Subsidiary or for a substantial part of the property of any thereof and is not discharged within 60 days; or any bankruptcy, reorganization, deb t arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of the Company or any Subsidiary, and if such case or proceeding is not commenced by the Company or such Subsidiary, it is consented to or acquiesced in by the Company or such Subsidiary, or remains for 30 days undismissed; or the Company or any Subsidiary takes any action to authorize, or in furtherance of, any of the foregoing.

11.1.5   Non-Compliance with Specified Covenants. Failure by the Company to comply with or to perform any covenant set forth in Sections 10.1.6(a), 10.5 through 10.15, and 10.20 through 10.22 provided that an Event of Def ault arising from a breach of Sections 10.1.1 through 10.1.5 or 10.1.10 shall be deemed to have been cured upon delivery of the required item; and provided, further, that the Event of Default arising solely due to a breach of Section 10.1.6(a) shall be deemed cured upon the earlier of (i) the giving of notice required by Section 10.1.6(a) and (ii) the date upon which the Event of Default or Unmatured Event of Default giving rise to the notice obligation has been cured or waived.

11.1.6   Non-Compliance with Loan Documents. Failure by the Company to comply with or to perform any other provision of this Agreement or any other Loan Document (and not constituting an Event of Default under any other provision of this Section 11) and continuance of such failure described in this Section 11.1.6 for 30 consecutive days following the earlier to occur of (i) the obtaining of actual knowledge by the Company or any subsidiary of such default or (ii) the receipt of written notice by Company or any subsidiary of such default.

11.1.7   Warranties. Any warranty made by the Company or any Subsidiary herein or any other Loan Document is breached or is false or misleading in any material respect, or any schedule, certificate, financial statement, report, notice or other writing furnished by the Company or any Subsidiary to the Agent or any Bank in connection herewith is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified.

11.1.8   Pension Plans. (i) Institution of any steps by the Company or any other Person to terminate a Pension Plan if as a result of such termination the Company could be required to make a contribution to such Pension Plan, or could incur a liability or obligation to such Pension Plan, in excess of $5,000,000; (ii) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; or (iii) there shall occur any withdrawal or partial withdrawal from a Multiemployer Pension Plan and the withdrawal liability (without unaccrued interest) to Multiemployer Pension Plans as a result of such withdrawal (including any outstanding withdrawal liability that the Company a nd the Controlled Group have incurred on the date of such withdrawal) exceeds $5,000,000.

11.1.9   Judgments. Final judgments which exceed an aggregate of $5,000,000 shall be rendered against the Company or any Subsidiary and shall not have been paid, discharged or vacated or had execution thereof stayed pending appeal within 30 days after entry or filing of such judgments.

11.1.10   Invalidity of Subordination Provisions, etc. (a)(i) Any subordination provision in any document or instrument governing Subordinated Debt aggregating $5,000,000 or more shall cease to be in full force and effect, or (ii) the Company or any other Person (including the holder of any applicable Subordinated Debt) shall contest in writing the validity, binding nature or enforceability of any such provision or (b) any purchase contract relating to the Feline Prides shall cease to be in full force and effect (except, in the case of such purchase contract, if satisfied in accordance with its terms).

11.1.11   Change of Control. (a) Any Person or group of Persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934) shall acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 35% of the outstanding securities (on a fully diluted basis and taking into account any securities or contract rights exercisable, exchangeable or convertible into equity securities) of the Company having voting rights in the election of directors under normal circumstances; or (b) a majority of the members of the Board of Directors of the Company shall cease to be Continuing Members. For purposes of the foregoing; “Continuing Member” means a member of the Board of Directors of the Company who either (i) was a member of the Company’s Board of Directors on the day before the Closing Date and has been such continuously thereafter or (ii) became a member of such Board of Directors after the day before the Closing Date and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Company’s Board of Directors.

11.2.   Effect of Event of Default. If any Event of Default described in Section 11.1.4 shall occur, the Commitments (if they have not theretofore terminated) shall immediately terminate and the Loans and all other obligations hereunder shall become immediately due and payable and the Company shall become immediately obligated to Cash Collateralize all Letters of Credit, all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, the Agent (upon written request of the Required Banks) shall declare the Commitments (if they have not theretofore terminated) t o be terminated and/or declare all Loans and all other obligations hereunder to be due and payable and/or demand that the Company immediately Cash Collateralize all Letters of Credit, whereupon the Commitments (if they have not theretofore terminated) shall immediately terminate and/or all Loans and all other obligations hereunder shall become immediately due and payable and/or the Company shall immediately become obligated to Cash Collateralize all Letters of Credit, all without presentment, demand, protest or notice of any kind. The Agent shall promptly advise the Company of any such declaration, but failure to do so shall not impair the effect of such declaration. Notwithstanding the foregoing, the effect as an Event of Default of any event described in Section 11.1.1 or Section 11.1.4 may be waived by the written concurrence of all of th e Banks, and the effect as an Event of Default of any other event described in this Section 11 may be waived by the written concurrence of the Required Banks. Any cash collateral delivered hereunder shall be held by the Agent (without liability for interest thereon) and applied to obligations arising in connection with any drawing under a Letter of Credit. After the expiration or termination of all Letters of Credit, such cash collateral shall be applied by the Agent to any remaining obligations hereunder and any excess shall be delivered to the Company or as a court of competent jurisdiction may elect.

SECTION 12.   THE AGENT.

12.1.   Appointment and Authorization. (a) Each Bank hereby irrevocably (subject to Section 12.9) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duty or responsibility except thos e expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent.