UNITED STATES 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 September 30, 1998 OR [ ] 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 1-10042 ATMOS ENERGY CORPORATION (Exact name of registrant as specified in its charter) TEXAS AND VIRGINIA 75-1743247 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Three Lincoln Centre, Suite 1800 5430 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (972) 934-9227 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common stock, No Par Value New York Stock Exchange 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 the 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] "continued" The aggregate market value of the voting stock held by non-affiliates of the registrant was $884,271,000 as of November 25, 1998. On November 25, 1998 the registrant had 30,516,286 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the year ended September 30, 1998 are incorporated by reference into Parts I, II and IV of this report. Portions of the registrant's Definitive Proxy Statement to be filed for the Annual Meeting of Shareholders on February 10, 1999 are incorporated by reference into Part III of this report. Cautionary Statement under the Private Securities Litigation Reform Act of 1995 The matters discussed or incorporated by reference in this Annual Report on Form 10-K may contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this Report regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations, are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report or in any of the Company's other documents or oral presentations, the words "anticipate," "expect," "estimate," "plans," "believes," "objective," "forecast," "goal" or other similar words are intended to identify forward- looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to the Company's operations, markets, services, rates, recovery of costs, availability of gas supply, and other factors. These risks and uncertainties include, but are not limited to, national, regional, and local economic and competitive conditions, regulatory and business trends and decisions, technological developments, Year 2000 issues, inflation rates, weather conditions, and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. Accordingly, while the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will be realized or will approximate actual results. 3 PART I ITEM 1. BUSINESS Atmos Energy Corporation (the "Company") was organized under the laws of the State of Texas in 1983 as a subsidiary of Pioneer Corporation ("Pioneer") for the purposes of owning and operating Pioneer's natural gas distribution business in Texas. Immediately following the transfer of such business, which had been operated by Pioneer and its predecessors since 1906, Pioneer distributed the outstanding stock of the Company, then known as Energas Company, to Pioneer shareholders. In September 1988, the Company changed its name from Energas Company to Atmos Energy Corporation. As a result of its merger with United Cities Gas Company in July 1997, the Company became incorporated in the Commonwealth of Virginia as well as the State of Texas. The Company distributes and sells natural gas and propane to approximately 1,042,000 residential, commercial, industrial, agricultural, and other customers. The Company distributes and sells natural gas through approximately 1,005,000 meters in 802 cities, towns, and communities in service areas located in Texas, Louisiana, Kentucky, Colorado, Kansas, Illinois, Tennessee, Iowa, Virginia, Georgia, South Carolina and Missouri. The Company also transports gas for others through parts of its distribution system. It also distributes propane to approximately 37,000 customers in Kentucky, North Carolina, and Tennessee. The Company's Texas distribution system is operated through its Energas Company division (the "Energas Division") and covers an area having a population of approximately 950,000 people. The economy of the area is based primarily on oil and gas production and agriculture. The principal cities served by the Energas Division include Amarillo, Lubbock, Midland, and Odessa. At September 30, 1998, the Company had 315,000 regulated and non-regulated meters in service in Texas. The Company's Louisiana distribution system is operated through its Trans Louisiana Gas Company division (the "Trans La Division") and covers an area having a population of approximately 250,000 people. The economy of the area is based primarily on oil and gas production, agriculture, and food processing. The principal cities served by the Trans La Division are Lafayette, Pineville, and Natchitoches. At September 30, 1998, the Company had 81,000 meters in service in Louisiana. The Company's Kentucky distribution system is operated through its Western Kentucky Gas Company division (the "Western Kentucky Division") and covers an area having a population of approximately 680,000 people. The economy of the area is based primarily on industry and agriculture. The principal cities served by the Western Kentucky Division include Bowling Green, Owensboro, and Paducah. At September 30, 1998, the Company had 176,000 meters in service in Kentucky. 4 The Company's distribution systems in Colorado and parts of Kansas and Missouri are operated through its Greeley Gas Company division (the "Greeley Division") and covers an area having a combined population of approximately 228,000 people. The economies of the areas served are based on oil and gas production, agriculture and resort business. The principal cities served by the Greeley Division include Greeley, Durango and Lamar, Colorado and Bonner Springs, Herington and Ulysses, Kansas. At September 30, 1998 the Greeley Division had 116,000 meters in service. The Company operates natural gas distribution systems in Georgia, Illinois, Iowa, South Carolina, Tennessee, Virginia, Kansas and Missouri through its United Cities Gas Company division (the "United Cities Division") and covers an area having a combined population of approximately 6.7 million people. The economies of the areas served include customers engaged in the manufacture of asphalt, automobiles, auto parts, chemicals, electronics, food products, metals, textiles and wire, among others. The division also serves several colleges and a major army base. The principal cities and counties served by the United Cities Division include Franklin and Murfreesboro, Tennessee; Wyandotte and Johnson Counties in Kansas; Hannibal, Missouri; and Gainesville and Columbus, Georgia. At September 30, 1998, the United Cities Division had 316,000 meters in service. The Company also operates certain non-utility businesses through various wholly-owned subsidiaries. One subsidiary, United Cities Gas Storage Company ("UCG Storage"), provides natural gas storage services. It owns natural gas storage fields in Kentucky and Kansas to supplement natural gas used by customers in Kansas, Tennessee, and other states. Another subsidiary, UCG Energy Corporation ("UCG Energy"), leases appliances, real estate and equipment, and vehicles to the United Cities Division and others, and owns a small interest in a partnership engaged in exploration and production activities. UCG Energy also owns a 45% interest in Woodward Marketing, L.L.C. ("WMLLC"), a Delaware limited liability company that provides natural gas services. WMLLC provides gas marketing services to industrial customers, municipalities and local distribution companies, including the Trans La, Greeley, and United Cities Divisions. 5 UCG Energy also owns Atmos Propane, Inc., which is engaged primarily in the retail distribution of propane (LP) gas and the wholesale supply of LP gas. It is exiting the transportation of certain products for other companies and the direct merchandising and repair of propane gas appliances. The propane operation has operation and storage centers and store front offices located in Tennessee, Kentucky, and North Carolina, with a total company storage capacity of 2.3 million gallons. As of September 30, 1998, the propane operations served 37,400 customers. During the three-year period ended September 30, 1998, the propane operations added approximately 13,600 customers through acquisitions of eight propane distribution companies and a propane transport company. The natural gas distribution industry is subject to a number of factors, many of which affect the Company from time to time. These include (i) the ongoing need to obtain adequate and timely rate relief from regulatory authorities to recover costs of service and earn a fair return on invested capital; (ii) inherent seasonality of the business; (iii) competition with alternate fuels; (iv) competition with other gas sources for industrial customers, including the ability of some customers to bypass the Company's facilities, which could result in loss of revenues and reduction in the Company's net income; and (v) possible volatility in the supply and price of natural gas and propane. The propane distribution business is also subject to seasonality and competition with alternate fuels and other suppliers. ACQUISITIONS AND MERGERS Since its organization in 1983, the Company has sought to expand its customer base and to diversify the weather patterns, local economic conditions, and regulatory environments to which its operations are subject. As part of this strategy, the Company acquired Trans Louisiana Gas Company, Inc. ("TLG") in January 1986, Western Kentucky Gas Utility Corporation ("WKG") in December 1987, Greeley Gas Company ("GGC") in December 1993, Oceana Heights Gas Company of Thibodaux, Louisiana in November 1995 and United Cities Gas Company ("UCGC") in July 1997. The Company continues to consider and pursue, where appropriate, additional acquisitions of natural gas distribution properties and other business opportunities. For further information regarding the UCGC merger, see Note 2 of notes to consolidated financial statements in the Company's Annual Report to Shareholders. OPERATING STATISTICS The table on the following page reflects the operating statistics of Atmos for fiscal 1998 and 1997 and the restated operating statistics for the previous three years on a pooled basis with UCGC. It is followed by two tables of utility sales and operating statistics by business unit for 1998 and 1997, respectively. 6 ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS Year ended September 30, ----------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ----------- ----------- --------- --------- METERS IN SERVICE, end of year Residential 889,074 870,747 860,229 834,376 825,310 Commercial 94,302 92,703 91,960 90,093 93,250 Industrial(incl. agricultural) 16,322 17,217 19,403 19,762 20,219 Public authority and other 4,834 4,781 4,716 4,982 4,949 ---------- ---------- ---------- -------- -------- Total utility meters 1,004,532 985,448 976,308 949,273 943,728 Propane customers 37,400 29,097 26,108 23,359 21,693 ---------- ---------- ---------- -------- -------- Total 1,041,932 1,014,545 1,002,416 972,572 965,421 ========== ========== ========== ======== ======== HEATING DEGREE DAYS (2) Actual (weighted average) 3,799 3,909 4,043 3,706 3,855 Percent of normal 95% 98% 101% 93% 97% SALES VOLUMES - MMcf (3) Residential 73,472 75,215 77,001 69,666 72,561 Commercial 36,083 37,382 38,247 34,921 35,250 Industrial (incl. agricultural) 24,058 29,452 34,898 35,664 34,249 Public authority and other 4,937 5,195 5,182 4,779 5,242 ---------- ---------- ---------- -------- -------- Total 138,550 147,244 155,328 145,030 147,302 Transportation volumes - MMcf (3) 56,224 48,800 44,146 47,647 47,882 ---------- ---------- ---------- -------- -------- Total utility volumes 194,774 196,044 199,474 192,677 195,184 Storage/energy services volumes 20,823 16,964 22,965 21,626 23,389 ---------- ---------- ---------- -------- -------- TOTAL THROUGHPUT - MMcf (3) 215,597 213,008 222,439 214,303 218,573 ========== ========== ========== ======== ======== PROPANE - Gallons (000's) 33,676 32,975 40,723 28,854 23,175 ========== ========== ========== ======== ======== OPERATING REVENUES (000's) Gas sales revenues Residential $ 410,538 $ 452,864 $ 409,039 $337,768 $375,450 Commercial 184,046 193,302 186,032 150,949 165,883 Industrial (incl. agricultural) 97,472 115,203 128,776 110,437 120,567 Public authority and other 20,504 23,898 21,738 18,185 22,463 ---------- ---------- ---------- -------- -------- Total gas sales revenues 712,560 785,267 745,585 617,339 684,363 Transportation revenues 23,971 19,885 18,872 19,813 21,325 Other gas revenues 8,121 6,385 13,751 9,374 6,879 ---------- ---------- ---------- -------- -------- Total utility revenues 744,652 811,537 778,208 646,526 712,567 Non-utility revenues Propane revenues 29,091 33,194 38,372 24,651 20,788 Leasing/rental revenues 3,977 4,005 4,204 5,959 6,449 Storage/energy services revenues 70,488 58,099 65,907 72,419 86,498 ---------- ---------- ---------- -------- -------- Total non-utility revenues 103,556 95,298 108,483 103,029 113,735 ---------- ---------- ---------- -------- -------- Total operating revenues $ 848,208 $ 906,835 $ 886,691 $749,555 $826,302 ========== ========== ========== ======== ======== AVERAGE SALES PRICE/Mcf $4.87 $5.11 $4.51 $4.07 $4.41 AVERAGE COST OF GAS/Mcf SOLD 3.24 3.51 3.15 2.70 3.10 AVERAGE TRANSPORTATION REVENUES/Mcf .43 .41 .43 .42 .45 See footnotes on page 10. 7 UTILITY SALES AND STATISTICAL DATA BY BUSINESS UNIT - 1998 (1) Year ended September 30, 1998 ---------------------------------------------------------------- Western United Total Energas Trans La Kentucky Greeley Cities Utility --------- --------- --------- --------- --------- --------- METERS IN SERVICE, at end of year Residential 272,190 74,522 156,107 101,532 284,723 889,074 Commercial 25,982 5,526 18,000 13,674 31,120 94,302 Industrial (incl. agricultural) 14,753 123 442 384 620 16,322 Public authority and other 2,278 977 1,579 - - 4,834 -------- ------- -------- -------- -------- --------- Total 315,203 81,148 176,128 115,590 316,463 1,004,532 ======== ======= ======== ======== ======== ========= HEATING DEGREE DAYS(2) Actual 3,669 1,725 3,771 5,937 3,784 3,799 Normal 3,531 1,771 4,333 6,272 4,070 3,989 Percent of normal 104% 97% 87% 95% 93% 95% SALES VOLUMES-MMcf(2) Residential 23,594 3,670 12,413 10,027 23,768 73,472 Commercial 7,754 1,433 5,530 6,893 14,473 36,083 Industrial (incl. agricultural) 2,076 1,801 3,415 1,652 15,114 24,058 Public authority and other 2,559 917 1,461 - - 4,937 -------- ------- -------- -------- -------- --------- Total 35,983 7,821 22,819 18,572 53,355 138,550 TRANSPORTATION VOLUMES-MMcf(3) 5,526 949 25,813 3,555 20,381 56,224 -------- ------- -------- -------- -------- --------- TOTAL THROUGHPUT-MMcf(3) 41,509 8,770 48,632 22,127 73,736 194,774 ======== ======= ======== ======== ======== ========= OTHER STATISTICS Operating revenues (000's) $156,774 $41,928 $123,588 $ 84,955 $337,407 $744,652 Miles of pipe 13,217 2,248 3,647 3,537 7,459 30,108 Employees(4) 401 134 267 193 621 1,616 Communities served 92 41 163 123 383 802 See footnotes on page 10. 8 UTILITY SALES AND STATISTICAL DATA BY BUSINESS UNIT - 1997 (1) Year ended September 30, 1997 ---------------------------------------------------------------- Western United Total Energas Trans La Kentucky Greeley Cities Utility --------- --------- --------- --------- --------- --------- METERS IN SERVICE, at end of year Residential 268,518 73,546 154,219 99,472 274,992 870,747 Commercial 25,234 5,409 17,706 13,328 31,026 92,703 Industrial (incl. agricultural) 15,589 120 460 385 663 17,217 Public authority and other 2,230 978 1,573 - - 4,781 -------- ------- -------- -------- -------- -------- Total 311,571 80,053 173,958 113,185 306,681 985,448 ======== ======= ======== ======== ======== ======== HEATING DEGREE DAYS,(2) Actual 3,553 1,523 4,178 6,195 3,980 3,909 Normal 3,531 1,771 4,333 6,274 4,070 3,990 Percent of normal 101% 86% 96% 99% 98% 98% SALES VOLUMES - MMcf(3) Residential 24,292 3,558 13,543 10,227 23,595 75,215 Commercial 7,912 1,383 6,070 6,731 15,286 37,382 Industrial (incl. agricultural) 2,120 1,872 6,128 1,907 17,425 29,452 Public authority and other 2,689 951 1,555 - - 5,195 -------- ------- -------- -------- -------- -------- Total 37,013 7,764 27,296 18,865 56,306 147,244 TRANSPORTATION VOLUMES - MMcf(3) 4,479 624 22,398 3,275 18,024 48,800 -------- ------- -------- -------- -------- -------- TOTAL THROUGHPUT-MMcf(3) 41,492 8,388 49,694 22,140 74,330 196,044 ======== ======= ======== ======== ======== ======== OTHER STATISTICS Operating revenues(000's) $181,127 $51,866 $144,139 $ 91,341 $343,064 $811,537 Miles of pipe 13,214 2,241 3,638 3,864 7,945 30,902 Employees(4) 534 154 330 250 1,031 2,299 Communities served 92 41 163 123 383 802 See footnotes on page 10. 9 NOTES: ------ (1) These tables present data for Atmos' five utility business units. Their operations include the regulated local distribution companies and certain unregulated gas marketing subsidiaries located in their respective service areas. (2) A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The greater the number of heating degree days, the colder the climate. Heating degree days are used in the natural gas industry to measure the relative coldness of weather experienced and to compare relative temperatures between one geographic area and another. Normal degree days are based on 30-year average National Weather Service data for selected locations. (3) Volumes are reported as metered in million cubic feet ("MMcf"). (4) The number of employees excludes 391 and 218 Atmos shared services employees and 186 and 162 non-utility employees in 1998 and 1997, respectively. 10 UTILITY AND NON-UTILITY DATA The following table summarizes certain information regarding the operation of the utility and non-utility businesses of the Company for each of the three years as of and for the period ended September 30, 1998. Prior periods have been restated to reflect the pooling of interests with UCGC on July 31, 1997. Utility Non-utility Total ---------- ----------- ---------- (In thousands) 1998 Operating revenues $ 744,652 $103,556 $ 848,208 Net income 42,147 13,118 55,265 Identifiable assets 1,041,817 99,573 1,141,390 1997 Operating revenues $ 811,537 $ 95,298 $ 906,835 Net income 16,991 6,847 23,838 Identifiable assets 1,001,455 86,856 1,088,311 1996 Operating revenues $ 778,208 $108,483 $ 886,691 Net income 31,905 9,246 41,151 Identifiable assets 926,935 83,675 1,010,610 The utility business is comprised of the Company's five utility divisions: Energas Division, Greeley Division, Trans La Division, United Cities Division and Western Kentucky Division. It includes regulated as well as certain non- regulated utility businesses such as transportation and gas marketing activities in the utility divisions' respective service areas. The non-utility business includes storage and energy services operations which include UCG Storage, Atmos Energy Services, the non-regulated irrigation and industrial gas sales of EnerMart, Inc. and EGASCO in West Texas and the Company's 45% interest in WMLLC (a provider of natural gas services); the propane operations; and the leasing/rental operations of UCG Energy. 11 The non-utility net income for the years ended September 30, 1998, 1997 and 1996 is recapped below: 1998 1997 1996 ------- ------ ------ (In thousands) Non-utility net income: Propane $ (66) $ (90) $1,276 Leasing/Rental 3,272 1,117 1,237 Storage and Energy Services 9,912 5,820 6,733 ------- ------ ------ Total $13,118 $6,847 $9,246 ======= ====== ====== GAS SALES The Company's natural gas distribution business is seasonal and highly dependent on weather conditions in the Company's service areas. Gas sales to residential and commercial customers are greater during the winter months than during the remainder of the year. The volumes of such sales during the winter months will vary with the temperatures during such months. The seasonal nature of the Company's sales to residential and commercial customers is offset partially by the Company's sales in the spring and summer months to its agricultural customers in Texas, Colorado and Kansas who utilize natural gas to operate irrigation equipment. The Company also has weather normalization adjustments in its rate jurisdictions in Tennessee and Georgia, which serve approximately 170,000 customers. The Company believes that it has lessened its sensitivity to weather risk by diversifying its operations into geographic areas having different weather patterns. In addition to weather, the Company's revenues are affected by the cost of natural gas and economic conditions in the areas that the Company serves. Higher gas costs, which the Company is generally able to pass through to its customers under purchased gas adjustment clauses, may cause customers to conserve, or, in the case of industrial customers, to use alternative energy sources. In recent years, natural gas market conditions have changed. Natural gas prices to distributors have become more volatile and the number of competing marketers of natural gas has increased. The Company's gas marketing subsidiaries purchase gas to address requirements for large volume customers in certain highly competitive markets. In certain instances, customers purchase gas directly from others instead of from the Company and the Company transports such gas through its distribution systems to the customers' facilities for a fee. Although transportation of customer-owned gas reduces the Company's operating revenues and corresponding purchased gas cost, the transportation revenues received by the Company generally offset the loss to gross profit. 12 The Company's distribution systems have experienced aggregate peak day deliveries of approximately 1.5 billion cubic feet ("Bcf") per day. The Company has the ability to curtail deliveries to certain customers under the terms of interruptible contracts and applicable state statutes or regulations which enables it to maintain its deliveries to high priority customers. The Company has not imposed curtailment in its Energas Division since the Company began independent operations in 1983 or in its Trans La Division since the Company acquired TLG in 1986. The Western Kentucky Division curtailed deliveries to certain interruptible customers during exceptionally cold periods in December 1989, January 1994 and during the winter of 1996. Neither the Greeley Division nor its predecessor, GGC, have curtailed deliveries to its sales customers since prior to 1980. The United Cities Division curtails interruptible service customers from time to time each year in accordance with the interruptible contracts and tariffs. GAS SUPPLY The Western Kentucky Division's gas supply is delivered by the following pipelines: Texas Gas, Tennessee Gas, Trunkline and ANR, except that a small percentage of the requirements are being purchased directly from intrastate producers that are connected directly to its distribution system. During 1998, WKG sought and was granted approval by the Kentucky Public Service Commission for a Performance Based Rate (PBR) program. This three-year supply and asset management program commenced in July 1998. Noram Energy Services, a division of Houston Industries, was selected to procure supply and manage WKG's pipeline and storage assets. The United Cities Division is served by thirteen interstate pipelines. The majority of the volumes are transported through East Tennessee Pipeline, Southern Natural Gas and Williams Natural Gas. During 1998, the United Cities Division purchased its supply from various producers and marketers including TransCanada, Texaco Gas Marketing, WMLLC, and Williams Energy Service Company. Colorado Interstate Gas Company, Williams Natural Gas, Public Service Company of Colorado, and Northwest Pipeline are the principal transporters of the Greeley Division's requirements. Additionally, the Greeley Division purchased substantial volumes from producers that are connected directly to its distribution system. During 1998, the Greeley Division's primary suppliers were Union Pacific Fuels, Williams Energy Service Company, Duke Energy, KN Energy and WESTAR. The Energas Division receives sales and transportation service from various KN affiliates. Also, the Energas Division purchases a significant portion of its supply from Pioneer Natural Resources (formerly Mesa) which is connected directly to the Company's Amarillo, Texas distribution system. During 1998, other major suppliers included Texaco Gas Marketing, KN Energy, and Public Service of New Mexico. 13 Louisiana Intrastate Gas Company ("LIG"), Acadian Pipeline, Koch Gateway and Texas Gas Transmission Company pipelines deliver most of the Trans La Division's requirements. The Trans La Division purchased its supply from various producers and marketers including Acadiana Gas Marketing, Koch Gas Marketing, LL&E and WMLLC. The Company also owns and operates numerous natural gas storage facilities in Kentucky and Kansas which are used to help meet customer requirements during peak demand periods and to reduce the need to contract for additional pipeline capacity to meet such peak demand periods. Additionally, the Company operates various propane plants and a liquified natural gas ("LNG") plant for peak shaving purposes. The Company also contracts for storage service in underground storage facilities of many of the interstate pipelines serving it. See "Item 2. Properties" for further information regarding the peak shaving facilities. The United Cities Division normally injects gas into pipeline storage systems and UCG Storage's storage system during the summer months and withdraws it in the winter months. At the present time, the underground storage facilities of UCG Storage have a maximum daily output capability of approximately 45,000 Mcf. The United Cities Division has the ability to serve approximately 60% of its peak day load through the use of company owned storage facilities, storage contracts with its suppliers and peaking facilities throughout the system. This ability provides the operational flexibility and security of supply required to meet the needs of the highly weather sensitive residential and commercial markets. 14 REGULATION AND RATES Regulation ---------- Energas Division In the Energas Division, the governing body of each municipality served by the Company has original jurisdiction over all utility rates, operations, and services within its city limits except with respect to sales of natural gas for vehicle fuel and agricultural use. The Company operates pursuant to non- exclusive franchises granted by the municipalities it serves, which franchises are subject to renewal from time to time. The franchises granted to the Company permit it to conduct natural gas distribution within the municipalities' incorporated limits. The Railroad Commission of Texas has exclusive appellate jurisdiction over all rate and regulatory orders and ordinances of the municipalities and exclusive original jurisdiction over rates and services to customers not located within the limits of a municipality. In Texas, rates for large industrial customers are routinely set by contract negotiation between the Company and its customers pursuant to statutory standards and are filed with and subject to the governmental authority of the municipalities or the Railroad Commission, depending on whether the customer is located inside or outside the limits of a municipality. Historically, the Company's rates for large industrial customers have been accepted as filed. Agricultural sales in Texas are not regulated, except that prices for agricultural sales cannot exceed the prices the Company charges the majority of its commercial or other similar large-volume users in Texas. Trans La Division The Trans La Division is regulated by the Louisiana Public Service Commission, which regulates utility services, rates, and other matters. In most of the parishes and incorporated areas in which the Company operates in Louisiana, it does so pursuant to a non-exclusive franchise granted by the governing authority of each parish or incorporated area. The franchise gives the Company the general privilege to operate its gas distribution business in, as well as the right to install its distribution lines along the roadways of, the parish or the incorporated area. Direct sales of natural gas to industrial customers in Louisiana who utilize the gas for fuel or in manufacturing processes and sales of natural gas for vehicle fuel are exempt from regulation. Western Kentucky Division The Western Kentucky Division is regulated by the Kentucky Public Service Commission, which regulates utility services, rates, issuances of securities, and other matters. The Company operates in the various incorporated cities served by it in Kentucky pursuant to non-exclusive franchises granted by such cities. The franchises grant to the Company the right to operate its gas 15 distribution business in the city and to install its distribution lines and related equipment in and along the city's public rights-of-way. Sales of natural gas for use as vehicle fuel in Kentucky are not subject to regulation. Greeley Division The Greeley Division is regulated by the Colorado Public Utilities Commission, the Kansas Corporation Commission, and the Missouri Public Service Commission with respect to accounting, rates and charges, operating matters, and the issuance of securities. The Company operates in the various incorporated cities served by it in the states of Colorado, Kansas and Missouri under terms of non-exclusive franchises granted by the various cities. The franchises grant to the Company, among other things, the right to install and operate its gas distribution system within the city limits. Most of the Greeley Division's wholesale gas suppliers are regulated by various federal and state commissions. United Cities Division In each state in which the United Cities Division operates, its rates, services and operations as a natural gas distribution company are subject to general regulation by the state public service commission. In addition, the issuance of securities by the Company is subject to approval by the state commissions, except in South Carolina and Iowa. Missouri only regulates the issuance of secured debt. The United Cities Division operates in each community, where necessary, under a franchise granted by the municipality for a fixed term of years. To date, it has been able to renew franchises and expects to continue to do so in the future. The Company is also subject to regulation by the United States Department of Transportation with respect to safety requirements in the operation and maintenance of its gas distribution facilities. The Company's distribution operations are also subject to various state and federal laws regulating environmental matters. From time to time the Company receives inquiries regarding various environmental matters. The Company believes that its properties and operations substantially comply with and are operated in substantial conformity with applicable safety and environmental statutes and regulations. There are no administrative or judicial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which, if adversely determined, would have a material adverse effect on the Company. 16 Rates ----- Approximately 88% of the Company's revenues in fiscal 1998 was derived from sales at rates set by or subject to approval by local or state authorities. The method of determining regulated rates varies among the twelve states in which the Company has utility operations. As a general rule, the regulatory authority reviews the Company's rate request and establishes a rate structure intended to generate revenue sufficient to cover the Company's costs of doing business and provide a reasonable return on invested capital. Substantially all of the sales rates charged by the Company to its customers fluctuate with the cost of gas purchased by the Company. Rates established by regulatory authorities are adjusted for increases and decreases in the Company's purchased gas cost through automatic purchased gas adjustment mechanisms. Therefore, while the Company's operating revenues may fluctuate, gross profit (which is defined as operating revenues less purchased gas cost) is generally not eroded or enhanced because of gas cost increases or decreases. The Georgia Public Service Commission and Tennessee Regulatory Authority have approved Weather Normalization Adjustments ("WNAs") that allow the United Cities Division to increase the base rate portion of customers' bills when weather is warmer than normal and decrease the base rate when weather is colder than normal. The net effect of the WNAs was an increase (decrease) in revenues of $682,000, $2,643,000 and $(2,612,000) in 1998, 1997 and 1996, respectively. 17 The following table sets forth the major rate requests made by the Company or other parties during the most recent five years and the action taken on such requests: Effective Amount Amount Jurisdiction Date Requested Received ------------ --------- ----------- ----------- (In thousands) Texas West Texas System 11/18/94 $2,581 $ 1,702 (a) 11/01/96 7,676 5,800 (a) Louisiana 03/01/93 (b) 730 (b) 03/01/94 (b) 1,058 (b) 03/01/95 (b) 1,071 (b) Kentucky 11/01/95 7,665 2,300 (c) 03/01/96 1,000 (c) Colorado 05/01/94 4,527 3,246 01/21/98 - (1,600) (f) Kansas 12/01/93 2,604 2,088 (d) 09/01/95 4,230 2,700 (e) Missouri 10/14/95 1,100 903 South Carolina 02/07/95 341 253 Tennessee 11/15/95 3,951 2,227 Iowa 05/17/96 750 410 Georgia 12/02/96 5,003 3,160 Illinois 07/09/97 1,234 428 Virginia 09/29/95 810 103 10/01/98 - (248) (g) (a) These increases include $200,000 and $500,000 applicable to areas outside the city limits which became effective in January 1995 and April 1997, respectively. (b) A September 1992 rate order approved a Rate Stabilization Clause ("RSC") for three years which provided for an annual adjustment of rates to reflect changes in expenses and investment. The RSC provided the Company the opportunity to earn a return on common equity between 11.75% and 12.25%. The Trans La Division has a hearing scheduled in April 1999 for the Louisiana Public Service Commission to consider its rate of return. 18 (c) The Kentucky rate order provided an increase of $2,300,000, lowered depreciation rates effective November 1, 1995 and provided an additional $1,000,000 beginning March 1, 1996. The order also included a provision for a pilot demand side management program which could cost up to $450,000 annually. (d) This increase is applicable to the service area of the Greeley Division. (e) This increase is applicable to the service area of the United Cities Division. (f) Rate reduction as a result of settlement in a case initiated by the Colorado Consumer Counsel. (g) Rate reduction as a result of a settlement with the Virginia State Corporation Commission staff regarding investigation of earnings. COMPETITION The Company is not currently in significant direct competition with any other distributors of natural gas to residential and commercial customers within its service areas. However, the Company does compete with other natural gas suppliers and suppliers of alternate fuels for sales to industrial and agricultural customers. The Company competes in all aspects of its business with alternative energy sources, including, in particular, electricity. Competition for the residential and commercial customers is increasing. Promotional incentives, improved equipment efficiencies, and promotional rates all contribute to the acceptability of electric equipment. In the United Cities Division, #2 and #6 fuel oil are the primary competition for industrial customers. In addition, certain customers, primarily industrial, may have the ability to by-pass the Company's distribution system by connecting directly with a pipeline. Beginning in 1985, changes in the federal regulatory environment through FERC orders and conditions related to markets and gas supply in the United States have brought increased competition into the natural gas industry. In 1993, FERC Order 636 was implemented by the interstate pipelines that serve the United Cities and Western Kentucky Divisions, but FERC policies have not had a direct impact upon the Company's Energas, Greeley and Trans La Divisions which are primarily supplied by intrastate pipelines. However, competition for large volume customers in the United Cities and Western Kentucky Divisions and other service areas has increased as a result of FERC Order 636. The Company has sought regulatory approvals for competitive pricing on a case by case basis. The United Cities Division has received approval from all the regulatory authorities in the states in which it operates, except Iowa, to place into effect a negotiated tariff rate which allows the United Cities Division to maintain industrial loads at lower margin rates. Iowa has rules which allow for flexible rates, which are competitive with the price of alternative fuels. In addition, 19 certain industrial customers have changed from firm to interruptible rate schedules in order to obtain natural gas at a lower cost. Additionally, the United Cities Division has received approval from all state regulatory authorities to provide transportation service of customer-owned gas. UCG Energy's propane subsidiary is in competition with other suppliers of propane, natural gas and electricity with respect to price and service. The wholesale cost of propane is subject to fluctuations primarily based on demand, availability of supply and product transportation costs. Through its 45% interest in WMLLC, UCG Energy competes with other natural gas brokers in obtaining natural gas supplies for customers. UCG Energy also competes with other rental companies in the rental of real estate, transportation equipment, office facilities and appliances. UCG Storage charges rates to the United Cities Division that are subject to review by the various commissions in the states within which the storage service is provided. Therefore, UCG Storage's rates must be competitive with other storage facilities. UCG Storage also stores natural gas for WMLLC. As a result, UCG Storage is in competition with other companies that store natural gas as to rates charged and deliverability of natural gas. Storage agreements between UCG Storage and the United Cities Division give it first priority to any storage services. EMPLOYEES At September 30, 1998, the Company employed 2,193 persons. See "Utility Sales and Statistical Data by Business Unit - 1998" for the number of employees by business unit. As discussed in Note 2 of notes to consolidated financial statements in the Company's Annual Report to Shareholders, the Company underwent downsizing and restructuring in 1997 and 1998 in connection with the integration of UCGC and the Company's Customer Service Initiative. ITEM 2. PROPERTIES The Company owns an aggregate of 30,108 miles of underground distribution and transmission mains throughout its gas distribution systems. These mains are located on easements or right-of-ways granted to the Company, which generally provide for perpetual use. The Company maintains its mains through a program of continuous inspection and repair and believes that its system of mains is in good condition. The Company also owns and operates nine propane peak shaving plants with a total capacity of approximately 1,050,000 gallons that can produce an equivalent of 19,459 thousand cubic feet ("Mcf") daily and an LNG storage facility with a capacity of 500,000 Mcf which can inject a daily volume of 30,000 Mcf in the system, as well as underground storage fields which are used to supplement the supply of natural gas in periods of peak demand. It has seven underground gas storage facilities in Kentucky and four in Kansas that have a total storage capacity of approximately 21.1 billion cubic feet ("Bcf"). However, 20 approximately 10.0 Bcf of gas in the storage facilities must be retained as cushion gas to maintain reservoir pressure. The maximum daily delivery capability of the storage facilities is approximately 154 MMcf. Substantially all of the Company's properties in its Greeley Division and United Cities Division with recorded values of approximately $88.3 million and $324.7 million, respectively, are subject to liens under First Mortgage Bonds assumed by the Company in its mergers with GGC and UCGC. At September 30, 1998, the liens secured $17.0 million of outstanding 9.4% Series J First Mortgage Bonds due May 1, 2021, and $108.9 million of outstanding Series N, P, Q, R, T, U and V First Mortgage Bonds due at various dates from 2004 through 2022. In 1996 the Company consolidated its administrative offices in Dallas, Texas under one lease. The Company also maintains field offices throughout its distribution system, the majority of which are located in leased premises. Net non-utility property at September 30, 1998 included approximately $25.8 million for propane equipment, $17.2 million for underground storage facilities, and $7.1 million for rental buildings and equipment. The Company holds franchises granted by the incorporated cities and towns that it serves. At September 30, 1998, the Company held 409 such franchises having terms generally ranging from five to 25 years. The Company believes that each of its franchises will be renewed. ITEM 3. LEGAL PROCEEDINGS Incorporated by reference from the 1998 Annual Report to Shareholders, Note 5 of notes to consolidated financial statements. 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 fiscal 1998. 21 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information as of September 30, 1998, regarding the executive officers of the Company. It is followed by a brief description of the business experience of each executive officer during the past five years. Years of Name Age Service Office Currently Held ------------------ --- -------- ----------------------------- Robert W. Best 52 1 Chairman, President and Chief Executive Officer Larry J. Dagley 50 1 Executive Vice President and Chief Financial Officer J. Charles Goodman 37 14 Executive Vice President, Utility Operations Glen A. Blanscet 41 13 Vice President, General Counsel and Corporate Secretary Wynn D. McGregor 45 10 Vice President, Human Resources Robert W. Best was named Chairman, President and Chief Executive Officer and was appointed to the Board of Directors in March 1997. He previously served as Senior Vice President - Regulated Businesses, for Consolidated Natural Gas Company of Pittsburgh, Pennsylvania, from January 1996 to March 1997, and was responsible for its transmission and distribution companies. He previously served as President of Texas Gas Transmission Company of Owensboro, Kentucky, and Houston, Texas, from 1985 to 1995, and from 1992 to 1995 he was President of Transcontinental Gas Pipe Line Corporation. Larry J. Dagley was named Executive Vice President and Chief Financial Officer effective May 1, 1997. From August 1995 to May 1997, he served as Senior Vice President and Chief Financial Officer of Pacific Enterprises, a Los Angeles, California based utility holding company whose principal subsidiary was Southern California Gas Co., the nation's largest gas distribution utility. From 1985 until joining Pacific Enterprises, he served as Senior Vice President and Controller (1985-1993) and Senior Vice President and Chief Financial Officer (1993-1995) of Transco Energy Company, a Houston, Texas based natural gas pipeline company. Prior to joining Transco, Mr. Dagley was an audit partner with Arthur Andersen & Co., where he supervised audits and financial consulting engagements in the energy industry. J. Charles Goodman was named Executive Vice President, Operations in April 1995. He previously served as President of the Company's Trans La Gas Division from February 1993 until April 1995 and as Chief Engineer from February 1989 until February 1993. Glen A. Blanscet was named Vice President, General Counsel and Corporate Secretary in May 1995. He previously served as Assistant 22 General Counsel and Corporate Secretary from January 1994 to May 1995, and Assistant General Counsel from July 1988 to December 1993. Wynn D. McGregor was named Vice President, Human Resources in January 1994. He previously served the Company as Director of Human Resources from February 1991 to December 1993 and as Manager, Compensation and Employment from December 1987 to January 1991. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is set forth under the caption "Market Price of Common Stock and Related Matters" in the Financial Review section of Atmos' 1998 Annual Report to Shareholders filed as Exhibit 13 to this Annual Report on Form 10-K. Such information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is set forth under the caption "Selected Financial Data" in the Financial Review section of Atmos' 1998 Annual Report to Shareholders filed as Exhibit 13 to this Annual Report on Form 10-K. Such information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Financial Review section of Atmos' 1998 Annual Report to Shareholders filed as Exhibit 13 to this Annual Report on Form 10-K. Such information is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK All of the Company's long-term debt is fixed-rate and, therefore, does not expose the Company to the risk of earnings or cash flow loss due to changes in market interest rates. At September 30, 1998, the Company is not engaged in other contracts which would cause exposure to the risk of material earnings or cash flow loss due to changes in market commodity prices, foreign currency exchange rates, or interest rates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item is submitted as a separate section of this Annual Report on Form 10-K on page 30. 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 10, 1999. Information regarding executive officers is included in Part I of this Form 10-K ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 10, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 10, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference from the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on February 10, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. and 2. Financial statements and financial statement schedules. The response to this portion of Item 14 is submitted as a separate section of this Annual Report on Form 10-K on page 30. 3. Exhibits The exhibits listed in the accompanying Exhibits Index are filed as part of this Annual Report on Form 10-K. The exhibits numbered 10.21(a) through 10.33 are management contracts or compensatory plans or arrangements. 24 (b) Reports on Form 8-K (1) The Company filed a Form 8-K Current Report dated July 22, 1998 reporting under Item 5, Other Events the following: On July 22, 1998, Atmos, and Merrill Lynch & Co., NationsBanc Montgomery Securities LLC and Edward D. Jones & Co., LP (collectively the "Underwriters") executed a purchase agreement in connection with the sale by Atmos to the Underwriters of a total of $150 million of Atmos' debentures. On July 27, 1998, Atmos executed the global debenture certificate representing a total of $150 million in 6 3/4% debentures due July 15, 2028. (2) The Company also filed a Form 8-K Current Report dated July 23, 1998 reporting under Item 5, Other Events the following: On July 23, 1998 Atmos announced in a news release its earnings and other related financial information for the quarter ended June 30, 1998. It also announced in another news release its pricing of a $150 million debt offering together with other information related to the offering. 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To United Cities Gas Company: We have audited the consolidated statements of income and cash flows of United Cities Gas Company (an Illinois corporation) and subsidiaries for the year ended December 31, 1996. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above presented fairly, in all material respects, the results of the operations of United Cities Gas Company and subsidiaries and their cash flows for the year ended December 31, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP Nashville, Tennessee February 14, 1997 26 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. ATMOS ENERGY CORPORATION (Registrant) By /s/ LARRY J. DAGLEY ---------------------------- Larry J. Dagley Executive Vice President and Chief Financial Officer Date: December 22, 1998 27 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert W. Best and Larry J. Dagley, or either of them acting alone or together, as his true and lawful attorney-in-fact and agent with full power to act alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/ ROBERT W. BEST Chairman, President December 22, 1998 ------------------------- and Chief Executive Robert W. Best Officer /s/ LARRY J. DAGLEY Executive Vice December 22, 1998 ------------------------- President and Chief Larry J. Dagley Financial Officer /s/ TOM S. HAWKINS, JR. Vice President, December 22, 1998 ------------------------- Planning and Budgeting Tom S. Hawkins, Jr. and Interim Controller (Principal Accounting Officer) 28 /s/ TRAVIS W. BAIN, II Director December 22, 1998 ------------------------- Travis W. Bain, II /s/ DAN BUSBEE Director December 22, 1998 ------------------------- Dan Busbee /s/ RICHARD W. CARDIN Director December 22, 1998 ------------------------- Richard W. Cardin /s/ THOMAS J. GARLAND Director December 22, 1998 ------------------------- Thomas J. Garland /s/ GENE C. KOONCE Director December 22, 1998 ------------------------- Gene C. Koonce /s/ VINCENT J. LEWIS Director December 22, 1998 ------------------------- Vincent J. Lewis /s/ THOMAS C. MEREDITH Director December 22, 1998 ------------------------- Thomas C. Meredith /s/ PHILLIP E. NICHOL Director December 22, 1998 ------------------------- Phillip E. Nichol /s/ CARL S. QUINN Director December 22, 1998 ------------------------- Carl S. Quinn /s/ CHARLES K. VAUGHAN Director December 22, 1998 ------------------------- Charles K. Vaughan /s/ RICHARD WARE II Director December 22, 1998 ------------------------- Richard Ware II 29 INDEX TO FINANCIAL STATEMENTS (Item 8, 14(a) 1 and 2) Form 10-K Page no. --------- Financial statements: Consolidated balance sheets at September 30, 1998 and 1997 (Contained in Exhibit 13) Consolidated statements of income for the years ended September 30, 1998, 1997 and 1996 (Contained in Exhibit 13) Consolidated statements of shareholders' equity for the years ended September 30, 1998, 1997 and 1996 (Contained in Exhibit 13) Consolidated statements of cash flows for the years ended September 30, 1998, 1997 and 1996 (Contained in Exhibit 13) Notes to consolidated financial statements (Contained in Exhibit 13) Supplementary Quarterly Financial Data (unaudited) (Contained in Exhibit 13) Independent Auditors' Reports Ernst & Young LLP (Contained in Exhibit 13) Arthur Andersen LLP 26 Consents of Independent Auditors Ernst & Young LLP 27 Arthur Andersen LLP 28 All financial statement schedules are omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and accompanying notes thereto. The financial statements and the independent auditors' report of Ernst & Young LLP listed in the above index, which are included in the Financial Review section of the Annual Report to Shareholders of Atmos Energy Corporation for the year ended September 30, 1998, are incorporated herein by reference. 30 Page Number or Exhibit Incorporation by Reference Number Description to ------- ------------------------------------- --------------------------- Plan of Reorganization ---------------------- 2.1 Agreement and Plan of Reorganization Exhibit 2.1 to Registration dated July 19, 1996, by and between Statement on Form S-4 the Registrant and United Cities Gas filed October 4, 1996 Company (File No. 333-13429) 2.2 Amendment No. 1 to Agreement and Plan Exhibit 2.1(a) to of Reorganization dated October 3, Registration Statement on 1996 Form S-4 filed October 4, 1996 (File No. 333-13429) Articles of Incorporation and Bylaws ------------------------------------- 3.1 Restated Articles of Incorporation of Exhibit 3.1 of Form 10-K for the Company, as Amended (as of July fiscal year ended September 31, 1997) 30, 1997 (File No. 1-10042) 3.2 Bylaws of the Company (Amended and Exhibit 3.2 of Form 10-K for Restated as of November 12, 1997) fiscal year ended September 30, 1997 (File No. 1-10042) Instruments Defining Rights of Security Holders ------------------------------------ 4.1 Specimen Common Stock Certificate Exhibit (4)(b) of Form 10- (Atmos Energy Corporation) K for fiscal year ended September 30, 1988 (File No. 1-10042) 4.2 Rights Agreement, dated as of Exhibit 4.1 of Form 8-K November 12, 1997, between the dated November 12, 1997 Company and BankBoston, N.A. (File No. 1-10042) 9 Not Applicable 31 Page Number or Exhibit Incorporation by Reference Number Description to ------- ------------------------------------- --------------------------- Material Contracts ------------------ 10.1(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 8-K December 21, 1987, by and between the filed January 7, 1988 Company and John Hancock Mutual Life (File No. 0-11249) Insurance Company Note Purchase Agreement, dated as of December 21, 1987, by and between the Company and John Hancock Charitable Trust I (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) Note Purchase Agreement dated as of December 21, 1987, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement (Agreement is identical to Hancock Agreement listed above except as to the parties thereto.) 10.1(b) Amendment to Note Purchase Agreement, Exhibit (10)(b)(ii) of dated October 11, 1989, by and Form 10-K for fiscal year between the Company and John Hancock ended September 30, 1989 Mutual Life Insurance Company (File No. 1-10042) revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) 32 Page Number or Exhibit Incorporation by Reference Number Description to ------- ------------------------------------- --------------------------- Amendment to Note Purchase Agreement, dated October 11, 1989, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) 10.1(c) Amendment to Note Purchase Agreement, Exhibit 10(b)(iii) of Form dated November 12, 1991, by and 10-K for fiscal year ended between the Company and John Hancock September 30, 1991 (File Mutual Life Insurance Company No. 1-10042) revising Note Purchase Agreement dated December 21, 1987 Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and John Hancock Charitable Trust I revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment listed above except as to the parties thereto.) Amendment to Note Purchase Agreement, dated November 12, 1991, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987. (Amendment is identical to Hancock amendment above except as to the parties thereto.) 10.1(d) Amendment to Note Purchase Agreement Exhibit 4.3(d) to dated December 22, 1993, by and Registration Statement between the Company and John Hancock on Form S-3 filed April Mutual Life Insurance Company revising 20, 1998 (File No. 333- Note Purchase Agreement dated December 50477) 21, 1987. Amendment to Note Purchase Agreement, dated December 22, 1993, by and between the Company and Mellon Bank, N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1982, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto and the amounts thereof). 10.1(e) Amendment to Note Purchase Agreement, Exhibit 4.3(e) to dated December 20, 1994, by and Registration Statement between the Company and John Hancock on Form S-3 filed April Mutual Life Insurance Company 20, 1998 (File No. 333- revising Note Purchase Agreement 50477) dated December 21, 1987 Amendment to Note Purchase Agreement, dated December 20, 1994, by and between the Company and Mellon Bank N.A. Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above). 10.1(f) Amendment to Note Purchase Agreement, Exhibit 4.3(f) to dated July 29, 1997, by and between Registration Statement the Company and John Hancock Mutual on Form S-3 filed April Life Insurance Company revising Note 20, 1998 (File No. 333- Purchase Agreement dated December 21, 50477) 1987 Amendment to Note Purchase Agreement, dated July 29, 1997, by and between the Company and Mellon Bank N.A., Trustee under Master Trust Agreement of AT&T Corporation, dated January 1, 1984, for Employee Pension Plans - AT&T - John Hancock - Private Placement revising Note Purchase Agreement dated December 21, 1987 (Amendment is identical to Hancock amendment listed above except as to the parties thereto and the amounts thereof). 10.2(a) Note Purchase Agreement, dated as of Exhibit 10(c) of Form 10-K October 11, 1989, by and between the for fiscal year ended Company and John Hancock Mutual Life September 30, 1989 (File Insurance Company No. 1-10042) 33 Page Number or Exhibit Incorporation by Reference Number Description to -------- -------------------------------------- --------------------------- 10.2(b) Amendment to Note Purchase Agreement, Exhibit 10(c)(ii) of Form dated as of November 12, 1991, by and 10-K for fiscal year ended between the Company and John Hancock September 30, 1991 (File Mutual Life Insurance Company No. 1-10042) revising Note Purchase Agreement dated October 11, 1989 10.2(c) Amendment to Note Purchase Agreement, Exhibit 4.4(c) to dated December 22, 1993, by and Registration Statement on between the Company and John Hancock Form S-3 filed April 20, Mutual Life Insurance Company revising 1998 (File No. 333-50477) Note Purchase Agreement dated October 11, 1989 10.2(d) Amendment to Note Purchase Agreement, Exhibit 4.4(d) to dated December 20, 1994, by and Registration Statement on between the Company and John Hancock Form S-3 filed April 20, 1998 Mutual Life Insurance Company revising (File No. 333-50477) Note Purchase Agreement dated October 11, 1989 10.2(e) Amendment to Note Purchase Agreement, Exhibit 4.4(e) to dated July 29, 1997, by and between Registration Statement on the Company and John Hancock Mutual Form S-3 filed April 20, 1998 Life Insurance Company revising Note (File No. 333-50477) Purchase Agreement dated October 11, 1989 10.3(a) Note Purchase Agreement, dated as of Exhibit 10(f)(i) of Form August 29, 1991, by and between the 10-K for fiscal year ended Company and The Variable Annuity Life September 30, 1991 (File No. Insurance Company 1-10042) 10.3(b) Amendment to Note Purchase Agreement, Exhibit 10(f)(ii) of Form dated November 26, 1991, by and 10-K for fiscal year ended between the Company and The Variable September 30, 1991 Annuity Life Insurance Company (File No. 1-10042) revising Note Purchase Agreement dated August 29, 1991 10.3(c) Amendment to Note Purchase Agreement, Exhibit 4.5(c) to dated December 22, 1993, by and Registration Statement on between the Company and The Variable Form S-3 filed April 20, 1998 Annuity Life Insurance Company revising (File No. 333-50477) Note Purchase Agreement dated August 29, 1991 10.3(d) Amendment to Note Purchase Agreement, Exhibit 4.5(d) to dated July 29, 1997, by and between Registration Statement on the Company and The Variable Annuity Form S-3 filed April 20, Life Insurance Company revising Note 1998 (File No. 333- Purchase Agreement dated August 29, 50477) 1991 10.4(a) Note Purchase Agreement, dated as of Exhibit (10)(f) of Form 10-K August 31, 1992, by and between the for fiscal year ended Company and The Variable Annuity Life September 30, 1992 (File No. Insurance Company 1-10042) 10.4(b) Amendment to Note Purchase Agreement, Exhibit 4.6(b) to dated December 22, 1993, by and between Registration Statement on the Company and The Variable Annuity Form S-3 filed April 20, 1998 Life Insurance Company revising Note (File No. 333-50477) Purchase Agreement dated August 31, 1992 10.4(c) Amendment to Note Purchase Agreement, Exhibit 4.6(c) to dated July 29, 1997, by and between Registration Statement on the Company and The Variable Annuity Form S-3 filed April 20, 1998 Life Insurance Company revising Note (File No. 333-50477) Purchase Agreement dated August 31, 1992 10.5(a) Note Purchase Agreement, dated November Exhibit 10.1 of Form 10-Q for 14, 1994, by and among the Company and quarter ended December 31, New York Life Insurance Company, New 1994 (File No. 1-10042) York Life Insurance and Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company, and Merit Life Insurance Company 10.5(b) Amendment to Note Purchase Agreement, Exhibit 4.7(b) to dated July 29, 1997, by and among the Registration Statement on Company and New York Life Insurance Form S-3 filed April 20, 1998 Company, New York Life Insurance and (File No. 333-50477) Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company and Merit Life Insurance Company revising Note Purchase Agreement dated November 14, 1994 10.6(a) Indenture of Mortgage, dated as of Exhibit to Registration July 15, 1959, from United Cities Statement of United Cities Gas Company to First Trust of Gas Company on Form S-3 Illinois, National Association, and (File No. 33-56983) M.J. Kruger, as Trustees, as amended and supplemented through December 1, 1992 (the Indenture of Mortgage through the 20th Supplemental Indenture) 34 Page Number or Exhibit Incorporation by Reference Number Description to ------- -------------------------------------- ----------------------------- 10.6(b) Twenty-First Supplemental Indenture Exhibit 10.7(a) of Form dated as of February 5, 1997 by and 10-K for fiscal year among United Cities Gas Company and ended September 30, Bank of America Illinois and First 1997 (File No. 1- Trust National Association and Russell 10042) C. Bergman supplementing Indenture of Mortgage dated as of July 15, 1959 10.6(c) Twenty-Second Supplemental Indenture Exhibit 10.7(b) of Form dated as of July 29, 1997 by and among 10-K for fiscal year the Company and First Trust National ended September 30, Association and Russell C. Bergman 1997 (File No. 1- supplementing Indenture of Mortgage 10042) dated as of July 15, 1959 10.7(a) Form of Indenture between United Cities Exhibit to Registration Gas Company and First Trust of Illinois, Statement of United National Association, as Trustee dated Cities Gas Company on as of November 15, 1995 Form S-3 (File No. 33- 56983) 10.7(b) First Supplemental Indenture between Exhibit 10.8(a) of Form the Company and First Trust of Illinois, 10-K for fiscal year National Association, as Trustee ended September 30, dated as of July 29, 1997 1997 (File No. 1-10042) 10.8(a) Seventh Supplemental Indenture, dated Exhibit 10.1 of Form 10-Q as of October 1, 1983 between Greeley for quarter ended Gas Company ("Greeley Division") and June 30, 1994 (File No. the Central Bank of Denver, N.A. 1-10042) ("Central Bank") 10.8(b) Ninth Supplemental Indenture, dated as Exhibit 10.2 of Form 10-Q of April 1, 1991, between the Greeley for quarter ended Division and Central Bank June 30, 1994 (File No. 1-10042) 10.8(c) Bond Purchase Agreement, dated as of Exhibit 10.3 of Form 10-Q April 1, 1991, between the Greeley for quarter ended June 30, Division and Central Bank 1994 (File No. 1-10042) 10.8(d) Tenth Supplemental Indenture, dated as Exhibit 10.4 of Form 10-Q of December 1, 1993, between the for quarter ended Company and Colorado National Bank, June 30, 1994 (File No. formerly Central Bank 1-10042) 35 Page Number or Exhibit Incorporation by Reference Number Description to ------- -------------------------------------- ----------------------------- 10.9(a) Purchase Agreement for 6-3/4% Exhibit 99.1 of Debentures due 2028 by and among Form 8-K dated July 22, 1998 Merrill Lynch Co., NationsBanc (File No. 1-10042) Montgomery Securities LLC, Edward D. Jones & Co., L.P. and Atmos Energy Corporation dated July 22, 1998 10.9(b) Form of Indenture between Atmos Exhibit 4.1 to Registration Energy Corporation and U.S. Bank Statement on Form S-3 filed Trust National Association, April 20, 1998 Trustee (File No. 333-50477) Gas Supply Contracts -------------------- 10.10(a) Firm Gas Transportation Agreement Exhibit 10.10(a) of Form No. 123535 dated November 1, 1995 10-K for fiscal year ended between Greeley Gas and Public September 30, 1997 Service Company of Colorado (File No. 1-10042) 10.10(b) Transportation Storage Service Exhibit 10.6(b) of Form 10-K Agreement No. TA-0544 between Greeley for fiscal year ended Gas and Williams Natural Gas September 30, 1994 (File Company dated October 1, 1993 No. 1-10042) 10.10(c) No-Notice Storage and Transportion Exhibit 10.6(c) of Form 10-K Service Agreement No. 31013, Rate for fiscal year ended Schedule NNT-1, between Greeley Gas September 30, 1994 and Colorado Interstate Gas Company, (File No. 1-10042) as amended, dated October 1, 1993 (term extended to April 30, 2000 by letter dated January 2, 1996) 10.10(d) Firm Transportation Service Agreement, Rate Schedule TF-1, between Colorado Interstate Gas Company and Greeley Gas dated July 1, 1998 10.10(e) No-Notice Storage and Transporation Delivery Service Agreement, Rate Schedule NNT-1, between Colorado Interstate Gas Company and Greeley Gas dated October 1, 1996 10.11 Amarillo Supply Agreement dated Exhibit 10.7(a) of January 2, 1993 between Energas Form 10-K for fiscal and Pioneer Natural Resources, year ended September 30, 1994 USA, Inc. (formerly Mesa Operating (File No. 1-10042) Company) 10.12(a) Agreement for Firm Intrastate Exhibit 10.1 of Form 10-Q for Transporation of Natural Gas in quarter ended March 31, 1998 the State of Louisiana between (File No. 1-10042) Trans La and Louisiana Intrastate Gas Company L.L.C. (LIG) dated December 22, 1997, and effective July 1, 1997 10.12(b) Agreement for Firm 311(a)(2) Exhibit 10.2 of Form 10-Q for Transporation of Natural Gas in the quarter ended March 31, 1998 State of Louisiana between Trans La (File No. 1-10042) and Louisiana Intrastate Gas Company L.L.C. (LIG) dated December 22, 1997 and effective July 1, 1997 36 Page Number or Exhibit Incorporation by Reference Number Description to ------- ------------------------------------- --------------------------- 10.13(a) Gas Transportation Agreement between Exhibit 10.3 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended December dated November 1, 1993 (Contract no. 31, 1993 (File No. 1- T3355, zone 3) 10042) 10.13(b) Gas Transportation Agreement between Exhibit 10.4 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended December dated November 1, 1993 (Contract no. 31, 1993 (File No. 1- T3819, zone 4) 10042) 10.13(c) Gas Transportation Agreement between Exhibit 10.5 of Form 10-Q Texas Gas and Western Kentucky Gas for quarter ended December dated November 1, 1993 (Contract no. 30, 1993 (File No. 1- N0210, zone 2, Contract no. N0340, 10042) zone 3, Contract no. N0435, zone 4) 10.14(a) Gas Transportation Agreement, Exhibit 10.17(a) of Form Contract No. 2550, dated September 1, 10-K for fiscal year ended 1993, between Tennessee Gas Pipeline September 30, 1993 (File Company, a division of Tenneco, Inc. No. 1-10042) ("Tennessee Gas") and Western Kentucky, Campbellsville Service Area 10.14(b) Gas Transportation Agreement, Exhibit 10.17(b) of Form Contract No. 2546, dated September 1, 10-K for fiscal year ended 1993, between Tennessee Gas and September 30, 1993 (File Western Kentucky, Danville Service No. 1-10042) Area 10.14(c) Gas Transportation Agreement, Exhibit 10.17(c) of Form Contract No. 2385, dated September 1, 10-K for fiscal year ended 1993, between Tennessee Gas and September 30, 1993 (File Western Kentucky, Greensburg et al No. 1-10042) Service Area 10.14(d) Gas Transportation Agreement, Exhibit 10.17(d) of Form Contract No. 2551, dated September 1, 10-K for fiscal year ended 1993, between Tennessee Gas and September 30, 1993 (File Western Kentucky, Harrodsburg Service No. 1-10042) Area 37 Page Number or Exhibit Incorporation by Reference Number Description to ------- ------------------------------------- --------------------------- 10.14(e) Gas Transportation Agreement, Exhibit 10.17(e) of Form Contract No. 2548, dated September 1, 10-K for fiscal year ended 1993, between Tennessee Gas and September 30, 1993 (File Western Kentucky, Lebanon Service No. 1-10042) Area 10.15 Gas Service Agreement (Service for Exhibit 10.5 of Form 10-Q Firm Transportation) between Energas for quarter ended December and Westar Transmission Company dated 31, 1996 (File No. 1- January 1, 1996 10042) 10.16 Gas Service Agreement (Service for Exhibit 10.7 of Form 10-Q Firm Transportation) between Westar for quarter ended December Transmission Company and EnerMart 31, 1996 (File No. 1- dated January 1, 1996 (Irrigation) 10042) 10.17 Gas Service Agreement (Service for Exhibit 10.8 of Form 10-Q Firm Transportation) between KN for quarter ended December Westex and Enermart Trust dated 31, 1996 (File No. 1- January 1, 1996 10042) 10.18 Gas Sales Agreement (Irrigation) Exhibit 10.11 of Form 10-Q between KN Marketing and EnerMart for quarter ended December Trust dated March 1, 1996 31, 1996 (File No. 1- 10042) 10.19 Gas Sales Agreement (Swing) between Exhibit 10.13 of Form 10-Q Energas and KN Marketing, dated for quarter ended December January 1, 1996 31, 1996 (File No. 1- 10042) 10.20(a) Operating Agreement between Energas Exhibit 10.15 of Form 10-Q and Westar Transmission Company, for quarter ended December effective December 1, 1996 31, 1996 (File No. 1-10042) 10.20(b) Gas Transportation Agreement Service Exhibit 10.4 of Form 10-Q Package No. 4272 between United for quarter ended March Cities Gas Company and East 31, 1998 (File No. 1-10042) Tennessee Natural Gas Company dated November 1, 1993 10.20(c) Gas Transportation Agreement Service Exhibit 10.5 of Form 10-Q Package No. 4219 between United for quarter ended March Cities Gas Company and Tennessee Gas 31, 1998 (File No. 1-10042) Pipeline Company dated November 1, 1993 10.20(d) Transportation-Storage Contract Exhibit 10.6 of Form 10-Q (Request 0180) between United Cities for quarter ended March Gas Company and Williams Natural Gas 31, 1998 (File No. 1-10042) Company dated October 1, 1993 10.20(e) Transportation-Storage Contract Exhibit 10.7 of Form 10-Q (Request 0002) between United Cities for quarter ended March Gas Company and Williams Natural Gas 31, 1998 (File No. 1-10042) Company dated October 1, 1993 10.20(f) Service Agreement No. 867760 under Exhibit 10.8 of Form 10-Q Rate Schedule FT between United for quarter ended March Cities Gas Company and Southern 31, 1998 (File No. 1-10042) Natural Gas Company dated November 1, 1993 10.20(g) Service Agreement No. 867761 under Exhibit 10.9 of Form 10-Q for Rate Schedule FT-NN between United quarter ended March 31, 1998 Cities Gas Company and Southern (File No. 1-10042) Natural Gas Company dated November 1, 1993 Executive Compensation Plans and Arrangements ------------------------------------- 10.21(a) *Severance Agreement dated April 1, Exhibit 10.3 of Form 10-Q 1995 between the Company and J. for quarter ended June 30, Charles Goodman 1995 (File No. 1-10042) 10.21(b) *Form of Atmos Energy Corporation Change in Control Severance Agreement--Tier I 10.21(c) *Form of Atmos Energy Corporation Change in Control Severance Agreement--Tier II 38 Page Number or Exhibit Incorporation by Reference Number Description to ------- ------------------------------------- --------------------------- 10.22(a) *Atmos Energy Corporation Mini-Med Exhibit 10.22 of Form 10-K Plan, as restated effective July 1, for fiscal year ended 1996 September 30, 1996 (File No. 1-10042) 10.22(b) *Amendment No. One to the Atmos Energy Corporation Mini-Med Plan 10.23 *Atmos Energy Corporation Deferred Exhibit 10(x) of Form 10-K Compensation Plan for Outside for fiscal year ended Directors September 30, 1992 (File No. 1-10042). 10.24(a) *Atmos Energy Corporation Retirement Exhibit 10(y) of Form 10-K Plan for Outside Directors for fiscal year ended September 30, 1992 (File No. 1-10042) 10.24(b) *Amendment No. 1 to the Atmos Energy Exhibit 10.2 of Form 10-Q Corporation Retirement Plan for for quarter ended December Outside Directors 31, 1996 (File No. 1- 10042) 10.25(a) *Description of Car Allowance Exhibit 10.26(a) of Form Payments 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 10.25(b) *Description of Financial and Estate Exhibit 10.25(b) of Form Planning Program 10-K for fiscal year ended September 30, 1997 (File No. 1-10042) 10.25(c) *Description of Sporting Events Exhibit 10.26(c) of Form Program 10-K for fiscal year ended September 30, 1993 (File No. 1-10042) 39 Page Number or Exhibit Incorporation by Reference Number Description to ------- -------------------------------------- ----------------------------- 10.26 *Atmos Energy Corporation Supplemental Executive Benefits Plan, Amended and Restated in its Entirety August 12, 1998 10.27 *Atmos Energy Corporation Exhibit 10.27 of Form 10-K Restricted Stock Grant Plan for fiscal year ended (Amended and Restated as of September 30, 1997 (File November 12, 1997) No. 1-10042) 10.28 *Atmos Energy Corporation Outside Exhibit 10.28 of Form 10-K Directors Stock-for-Fee Plan fiscal year ended (Amended and Restated as of September 30, 1997 (File November 12, 1997) No. 1-10042) 10.29 *Atmos Energy Corporation Exhibit 10.4 of Form 10-Q Executive Annual Performance for quarter ended Bonus Plan (Amended and Restated December 31, 1996 as of November 13, 1996) (File No. 1-10042) 10.30(a) *Consulting Agreement between the Exhibit 10.2 of Form 10-Q Company and Charles K. Vaughan, for quarter ended June 30, effective October 1, 1994 1997 (File No. 1-10042) 10.30(b) *Amendment No. 1 to Consulting Exhibit 10.3 of Form Agreement between the Company and 10-Q for quarter ended Charles K. Vaughan, dated May 14, June 30, 1997 (File No. 1997 1-10042) 10.30(c) *Amendment No. 2 to Consulting Agreement between the Company and Charles K. Vaughn, dated August 12, 1998 10.31(a) *Atmos Energy Corporation Exhibit 10.31 of Form Executive Retiree Life Plan 10-K for fiscal year ended September 30, 1997 (File No. 1-10042) 40 Page Number or Exhibit Incorporation by Reference Number Description to ------- ------------------------------------- --------------------------- 10.31(b) *Amendment No. 1 to The Atmos Energy Exhibit 10.31(a) of Form Corporation Executive Retiree Life 10-K for fiscal year ended Plan September 30, 1997 (File No. 1-10042) 10.32 *Atmos Energy Corporation Performance- Based Supplemental Executive Benefits Plan, Effective Date August 12, 1998. 10.33 *Atmos Energy Corporation Executive Nonqualified Deferred Compensation Plan. 11 Not applicable 12 Not applicable 13 Financial Review section of the Company's 1998 Annual Report to Shareholders (with exception of the information incorporated by reference included in Part I and Part II hereof, the 1998 Annual Report to Shareholders is not deemed filed or part of this Form 10-K) 16 Not applicable 18 Not applicable Other Exhibits, as indicated ---------------------------- 21 Subsidiaries of the registrant 22 Not applicable 23.1 Consent of independent auditor, Ernst & Young LLP 23.2 Consent of independent public accountants, Arthur Andersen LLP 24 Power of Attorney Signature page of Form 10-K for fiscal year ended September 30, 1998 27 Financial Data Schedule for Atmos for year ended September 30, 1998 ------------------------------------- *This exhibit constitutes a "management contract or compensatory plan, contract, or arrangement." 41 Exhibit 10.10(d) Firm Transportation Service Agreement Rate Schedule TF-1 between COLORADO INTERSTATE GAS COMPANY and GREELEY GAS COMPANY, a division of Atmos Energy Corporation Dated: JULY 1, 1998 FIRM TRANSPORTATION SERVICE AGREEMENT RATE SCHEDULE TF-1 -------------------------------------------------------------------------------- The Parties identified below, in consideration of their mutual promises, agree as follows: 1. TRANSPORTER: COLORADO INTERSTATE GAS COMPANY 2. SHIPPER: GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION 3. APPLICABLE TARIFF: Transporter's FERC Gas Tariff, First Revised Volume No. 1, as the same may be amended or superseded from time to time ("the Tariff"). 4. CHANGES IN RATES AND TERMS: Transporter shall have the right to propose to the FERC changes in its rates and terms of service, and this Agreement shall be deemed to include any changes which are made effective pursuant to FERC Order or regulation or provisions of law, without prejudice to Shipper's right to protest the same. 5. TRANSPORTATION SERVICE: Transportation Service at and between Primary Point(s) of Receipt and Primary Point(s) of Delivery shall be on a firm basis. Receipt and Delivery of quantities at Secondary Point(s) of Receipt and/or Secondary Point(s) of Delivery shall be in accordance with the Tariff. 6. POINTS OF RECEIPT AND DELIVERY: Shipper agrees to Tender gas for Transportation Service, and Transporter agrees to accept Receipt Quantities at the Primary Point(s) of Receipt identified in Exhibit "A." Transporter agrees to provide Transportation Service and Deliver gas to Shipper (or for Shipper's account) at the Primary Point(s) of Delivery identified in Exhibit "A." 7. RATES AND SURCHARGES: As set forth in Exhibit "B." 8. NEGOTIATED RATE AGREEMENT: N/A 9. PEAK MONTH MDQ: 6,121 Dth per Day. 10. TERM OF AGREEMENT: Beginning: July 1, 1998 Extending through: September 30, 2000 11. NOTICES, STATEMENTS, AND BILLS: TO SHIPPER: INVOICES FOR TRANSPORTATION: Greeley Gas Company, a division of Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 Attention: Gas Supply Department ALL NOTICES: Greeley Gas Company, a division of Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 Attention: John Hack TO TRANSPORTER: See Payments, Notices, Nominations, and Points of Contact sheets in the Tariff. 12. SUPERSEDES AND CANCELS PRIOR AGREEMENT: When this Agreement becomes effective, it shall supersede and cancel the following agreement between the Parties: The Firm Transportation Service Agreement between Transporter and Shipper dated October 1, 1996, referred to as Transporter's Agreement No. 33180000. 13. ADJUSTMENT TO RATE SCHEDULE TF-1 AND/OR GENERAL TERMS AND CONDITIONS: N/A 14. INCORPORATION BY REFERENCE: This Agreement in all respects shall be subject to the provisions of Rate Schedule TF-1 and to the applicable provisions of the General Terms and Conditions of the Tariff as filed with, and made effective by, the FERC as same may change from time to time (and as they may be amended pursuant to Section 13 of the Agreement). IN WITNESS WHEREOF, the parties hereto have executed this Agreement. TRANSPORTER: SHIPPER: COLORADO INTERSTATE GAS COMPANY GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION By /s/Thomas L. Price By /s/Gordon J. Roy ------------------------ ------------------------ Thomas L. Price Vice President Gordon J. Roy --------------------------- (Print or type name) Vice President --------------------------- (Print or type title) 2 Page 1 of 3 EXHIBIT "A" Firm Transportation Service Agreement between COLORADO INTERSTATE GAS COMPANY and GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION Dated: JULY 1, 1998 1. Shipper's Maximum Delivery Quantity ("MDQ") for the following months shall be as follows: November - March (Peak Month MDQ)......6,121 Dth per Day April, May, September, October........4,285 Dth per Day June - August.........................2,142 Dth per Day PRIMARY POINT(S) OF RECEIPT QUANTITY (DTH PER DAY) (NOTE 2) ---------------------------------------- PRIMARY POINT(S) OF RECEIPT NOVEMBER APRIL, MAY, JUNE MAXIMUM RECEIPT (NOTE 1) THROUGH SEPTEMBER, THROUGH PRESSURE MARCH OCTOBER AUGUST P.S.I.G. --------------------------------------------------------------------------------------------------- NORTHERN SYSTEM Echo Springs Master Meter 300 300 300 850 Lost Cabin 1,200 1,200 1,200 1,100 Uintah 593 593 593 300 --------------------------------------- TOTAL NORTHERN SYSTEM 2,093 2,093 2,093 --------------------------------------- CENTRAL SYSTEM Lakin Master Meter 2,277 1,240 49 220 --------------------------------------- SOUTHERN SYSTEM Big Canyon 491 267 0 955(4) Mocane 1,260 685 0 65 --------------------------------------- TOTAL SOUTHERN SYSTEM 1,751 952 0 --------------------------------------- TOTAL................... 6,121 4,285 2,142 ======================================= Page 2 of 3 EXHIBIT "A" PRIMARY POINT(S) OF DELIVERY QUANTITY (DTH PER DAY) (NOTE 3) ---------------------------------------- PRIMARY POINT(S) OF DELIVERY NOVEMBER APRIL, MAY, JUNE MAXIMUM DELIVERY (NOTE 1) THROUGH SEPTEMBER, THROUGH PRESSURE MARCH OCTOBER AUGUST P.S.I.G. --------------------------------------------------------------------------------------------------- CANON CITY GROUP (NOTE 5) Canon City 4,231 2,962 1,481 (Note 6) Colorado State Penintentiary 298 209 104 100 Engineering Station 476+78 5 4 2 Line Pressure Florence City Gate 989 692 346 60 Fremont County Industrial Park 9 6 3 Line Pressure Penrose City Gate 135 95 47 60 Penrose PBS-2 129 90 45 Line Pressure Portland City Gate 35 25 12 100 Pritchett City Gate 35 25 12 150 --------------------------------------- Total Canon City Group 5,866 4,108 2,052 --------------------------------------- TOTAL CAPACITY RELEASE 4,814 3,369 1,684 --------------------------------------- EADS GROUP Brandon Station 28 20 10 350 Eads City Gate 207 145 72 60 Highline Taps: Neoplan (Bent County) 3 2 1 Line Pressure Penrose South (Fremont County) 11 8 4 Line Pressure The Piggery (Fremont County) 3 2 1 Line Pressure L.J. Stafford (Baca County) 5 4 2 Line Pressure --------------------------------------- TOTAL EADS GROUP 257 181 90 --------------------------------------- MCCLAVE DELIVERY 350 245 123 500 --------------------------------------- SPRINGFIELD 700 490 245 Line Pressure --------------------------------------- TOTAL 6,121 4,285 2,142 ======================================= STORAGE INJECTION 2,814 2,015 1,714 N/A Page 3 of 3 NOTES: (1) Information regarding Point(s) of Receipt and Point(s) of Delivery, including legal descriptions, measuring parties, and interconnecting parties, shall be posted on Transporter's electronic bulletin board. Transporter shall update such information from time to time to include additions, deletions, or any other revisions deemed appropriate by Transporter. (2) Each Point of Receipt Quantity may be increased by an amount equal to Transporter's Fuel Reimbursement percentage. Shipper shall be responsible for providing such Fuel Reimbursement at each Point of Receipt on a pro rata basis based on the quantities received on any Day at a Point of Receipt divided by the total quantity Delivered at all Point(s) of Delivery under this Transportation Service Agreement. (3) The sum of the Delivery Quantities at Point(s) of Delivery shall be equal to or less than Shipper's MDQ. (4) Minimum pressure Shipper will deliver gas to Transporter is 350 p.s.i.g. (5) For Capacity Release purposes, the aggregate of the Canon City Group Point of Delivery Quantities is as designated (e.g., 4,814 Dth per Day for the Peak Month MDQ). To the extent that Shipper is not utilizing a portion of its remaining Point of Delivery Quantities at non-Canon City Group Points of Delivery, Shipper may nominate up to the Canon City Group total (e.g., 5,866 Dth per Day November through March), provided that total deliveries under this Agreement do not exceed the monthly MDQ (e.g., 6,121 Dth per Day November through March) unless an Authorized Overrun has been granted to Shipper by Transporter. (6) Line pressure but not less than 100 p.s.i.g. Page 1 of 2 EXHIBIT "B" Firm Transportation Service Agreement between COLORADO INTERSTATE GAS COMPANY and GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION Dated: JULY 1, 1998 PRIMARY PRIMARY POINT(S) POINT(S) OF R1 RESERVATION COMMODITY FUEL OF RECEIPT DELIVERY RATE RATE TERM OF RATE REIMBURSEMENT SURCHARGES ------------------------------------------------------------------------------------------------------------------- As listed on As listed on (Note 1) (Notes 1 and 4) Through (Note 2) (Note 3) Exhibit "A" Exhibit "A" 9/30/00 SECONDARY SECONDARY POINT(S) OF POINT(S) OF R1 RESERVATION COMMODITY FUEL RECEIPT DELIVERY RATE RATE TERM OF RATE REIMBURSEMENT SURCHARGES ------------------------------------------------------------------------------------------------------------------- All All (Note 1) (Note 1) Through (Note 2) (Note 3) 9/30/00 NOTES: (1) Unless otherwise agreed by the Parties in writing, the rates for service hereunder shall be Transporter's maximum rates for service under Rate Schedule TF-1 or other superseding Rate Schedules, as such rates may be changed from time to time. (2) Fuel Reimbursement shall be as stated on Transporter's Schedule of Surcharges and Fees in the Tariff, as they may be changed from time to time, unless otherwise agreed between the Parties. Page 2 of 2 EXHIBIT "B" NOTES: (3) Surcharges, If Applicable: All applicable surcharges, unless otherwise specified, shall be the maximum surcharge rate as stated in the Schedule of Surcharges and Fees in The Tariff, as such surcharges may be changed from time to time. GQC: The Gas Quality Control Surcharge shall be assessed pursuant to Article 20 of the General Terms and Conditions as set forth in The Tariff. GRI: The GRI Surcharge shall be assessed pursuant to Article 18 of the General Terms and Conditions as set forth in The Tariff. HFS: The Hourly Flexibility Surcharge shall be assessed pursuant to Article 20 of the General Terms and Conditions as set forth in The Tariff . ORDER NO. 636 TRANSITION COST MECHANISM: Surcharge(s) shall be assessed pursuant to Article 21 of the General Terms and Conditions as set forth in The Tariff. ACA: The ACA Surcharge shall be assessed pursuant to Article 19 of the General Terms and Conditions as set forth in The Tariff. (4) The Authorized Overrun Rate charged by Transporter shall be determined pursuant to the Stipulation and Agreement in Docket No. RP96-190, when applicable, while such Settlement is in effect. Exhibit 10.10(e) No-Notice Storage and Transportation Delivery Service Agreement Rate Schedule NNT-1 between COLORADO INTERSTATE GAS COMPANY and GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION Dated: OCTOBER 1, 1996, OR THE EFFECTIVE DATE AUTHORIZED BY THE FERC FOR CIG'S SERVICE CHANGES FILED IN DOCKET NO. RP96-190, WHICHEVER IS LATER. NO-NOTICE STORAGE AND TRANSPORTATION DELIVERY SERVICE AGREEMENT RATE SCHEDULE NNT-1 -------------------------------------------------------------------------------- The Parties identified below, in consideration of their mutual promises, agree as follows: 1. TRANSPORTER: COLORADO INTERSTATE GAS COMPANY 2. SHIPPER: GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION 3. APPLICABLE TARIFF: Transporter's FERC Gas Tariff First Revised Volume No. 1, as the same may be amended or superseded from time to time ("the Tariff"). 4. CHANGES IN RATES AND TERMS: Transporter shall have the right to propose to the FERC changes in its rates and terms of service and this Agreement shall be deemed to include any changes which are made effective pursuant to FERC Order or regulation or provisions of law, without prejudice to Shipper's right to protest the same. 5. TRANSPORTATION SERVICE: Transportation Service at and between Point of Withdrawal and Primary Point(s) of Delivery shall be on a firm basis. Delivery of quantities at Secondary Point(s) shall be in accordance with the Tariff. 6. DELIVERY: Transporter agrees to transport and deliver Delivery Quantities to Shipper (or for Shipper's account) at the Point(s) of Delivery identified in the attached Exhibit "A." 7. RATES AND SURCHARGES: As set forth in Exhibit "B." 8. PEAK MONTH MDQ: 11,292 Dth per Day. MAXIMUM AVAILABLE CAPACITY ("MAC"): 422,142 Dth. MAXIMUM DAILY INJECTION QUANTITY ("MDIQ"): 2,814 Dth per Day. MAXIMUM DAILY WITHDRAWAL QUANTITY ("MDWQ"): 11,292 Dth per Day. Available Daily Withdrawal Quantity ("ADWQ") shall be subject to the General Terms and Conditions of the Tariff and stated on CIG's Xpress(R) system. 9. TERM OF AGREEMENT: Beginning: October 1, 1996, or the effective date authorized by the FERC for Transporter's service changes filed in Docket No. RP96- 190, whichever is later. Extending through: April 30, 2000 10. NOTICES, STATEMENTS, AND BILLS: TO SHIPPER: INVOICES FOR TRANSPORTATION: Greeley Gas Company, a division of Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 Attention: Gas Supply Department ALL NOTICES: Greeley Gas Company, a division of Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265-0205 Attention: John Hack TO TRANSPORTER: See Payments, Notices, Nominations, and Points of Contact sheets in the Tariff. 11. SUPERSEDES AND CANCELS PRIOR AGREEMENT: When this Agreement becomes effective, it shall supersede and cancel the following contract(s) between the Parties: The No-Notice Transportation Service Agreement between Transporter and Shipper dated October 1, 1996, and any amendments thereto, and referred to as Transporter's Agreement No. 31028000. 12. ADJUSTMENT TO RATE SCHEDULE NNT-1 AND/OR GENERAL TERMS AND CONDITIONS: N/A. 13. INCORPORATION BY REFERENCE: This Agreement in all respects shall be subject to the provisions of Rate Schedule NNT-1 and to the applicable provisions of the General Terms and Conditions of the Tariff as filed with, and made effective by, the FERC as same may change from time to time (and as they may be amended pursuant to Section 12 of the Agreement). IN WITNESS WHEREOF, the parties hereto have executed this Agreement. TRANSPORTER: SHIPPER: COLORADO INTERSTATE GAS COMPANY GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION By /s/ Thomas L. Price By /s/ Gordon J. Roy --------------------------------- ----------------------------- Thomas L. Price Gordon J. Roy Vice President --------------------------------- (Print or type name) Vice President --------------------------------- (Print or type title) 2 Page 1 of 2 EXHIBIT "A" No-Notice Storage and Transportation Delivery Service Agreement between COLORADO INTERSTATE GAS COMPANY and GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION Dated: OCTOBER 1, 1996, OR THE EFFECTIVE DATE AUTHORIZED BY THE FERC FOR CIG'S SERVICE CHANGES FILED IN DOCKET NO. RP96-190, WHICHEVER IS LATER. 1. Shipper's Maximum Delivery Quantity ("MDQ") for the following months shall be as follows: January, December (Peak Month MDQ)......11,292 Dth per Day February................................8,243 Dth per Day March...................................4,856 Dth per Day April...................................3,388 Dth per Day May - October...........................0 Dth per Day November................................7,904 Dth per Day 2. Shipper's Maximum Available Capacity ("MAC"): 422,142 Dth. 3. Shipper's Maximum Daily Injection Quantity ("MDIQ"): 2,814 Dth per Day. 4. Shipper's Maximum Daily Withdrawal Quantity ("MDWQ"): 11,292 Dth per Day. PRIMARY POINT(S) OF DELIVERY QUANTITY (DTH PER DAY) (NOTE 1) ----------------------------------------------------------------------- PRIMARY MAY DELIVERY POINT(S) OF JANUARY THROUGH PRESSURE DELIVERY DECEMBER FEBRUARY MARCH APRIL OCTOBER NOVEMBER P.S.I.G. ------------------------------------------------------------------------------------------------------------------- CANON CITY GROUP (NOTE 3) Canon City 7,799 5,639 3,354 2,340 0 5,459 (Note 2) Colorado State Penitentiary 552 403 237 166 0 386 100 Engineer's Station 476+78 10 7 4 3 0 7 Line Pressure Florence City Gate 1,823 1,331 10 547 0 1,276 60 Fremont County Industrial 16 12 7 5 0 11 Line Pressure Park Penrose City Gate 248 181 107 74 0 174 60 Penrose PBS-2 238 174 102 71 0 167 Line Pressure Portland City Gate 65 47 28 20 0 46 100 Pritchett City Gate 65 47 28 20 0 46 150 ----------------------------------------------------------------- Total Canon City Group 10,816 7,841 3,877 3,246 0 7,572 ================================================================= CAPACITY RELEASE TOTAL 8,866 6,471 3,812 2,646 0 6,206 ================================================================= Page 2 of 2 EXHIBIT "A" EADS GROUP Brandon Station 52 38 22 15 0 36 350 Eads City Gate 383 280 165 130 0 268 60 Highline Taps: 7 5 3 2 0 5 Line Pressure Nepolan (Bent County) Penrose (Fremont County) 20 15 9 6 0 14 Line Pressure Piggery (Fremont County) 7 5 3 2 0 5 Line Pressure L.J. Stafford (Baca County) 7 5 3 2 0 5 Line Pressure ----------------------------------------------------------------- TOTAL EADS GROUP 476 348 205 157 0 333 ================================================================= McClave Delivery 650 475 280 195 0 455 500 ================================================================= SPRINGFIELD 1,300 949 559 390 0 910 Line Pressure ================================================================= TOTAL 11,292 8,243 4,856 3,388 0 7,904 ================================================================= NOTES: (1) The sum of the Delivery Quantities at Point(s) of Delivery shall not be greater than Shipper's MDQ. (2) Line pressure but not less than 100 p.s.i.g. (3) For Capacity Release purposes, the aggregate of the Canon City Group Point of Delivery Quantities is as designated (e.g., 8,866 Dth per Day for the Peak Month MDQ). To the extent that Shipper is not utilizing a portion of its remaining Point of Delivery Quantities at non-Canyon City Group Points of Delivery, Shipper may take up to the Canon City Group total (e.g., 10,816 Dth per Day for January and December) provided that total deliveries under this Agreement do not exceed the monthly MDQ (e.g., 11,292 Dth per Day Peak Month MDQ) unless an Authorized Overrun has been granted to Shipper by Transporter. Page 1 of 2 EXHIBIT "B" No-Notice Storage and Transportation Delivery Service Agreement between COLORADO INTERSTATE GAS COMPANY and GREELEY GAS COMPANY, A DIVISION OF ATMOS ENERGY CORPORATION Dated: OCTOBER 1, 1996, OR THE EFFECTIVE DATE AUTHORIZED BY THE FERC FOR CIG'S SERVICE CHANGES FILED IN DOCKET NO. RP96-190, WHICHEVER IS LATER. COMMODITY INJECTION RATE FUEL REIMBURSEMENT SURCHARGES ----------------------------------------------------------------------------------------------- Storage Injection.................. (Note 1) (Note 2) (Note 3) PRIMARY POINT(S) R1 RESERVATION COMMODITY OF DELIVERY RATE DELIVERY RATE TERM OF RATE SURCHARGES ----------------------------------------------------------------------------------------------- As listed on (Notes 1 (Notes 1 and 5) Through 4/30/2000 (Note 3) Exhibit "A" and 4) NOTES: (1) Unless otherwise agreed by the Parties in writing, the rates for service hereunder shall be Transporter's maximum rates for service under Rate Schedule NNT-1 or other superseding Rate Schedule, as such rates may be changed from time to time. (2) Fuel Reimbursement shall be as stated on Transporter's Schedule of Surcharges and Fees in The Tariff, as they may be changed from time to time, unless otherwise agreed between the Parties. Page 2 of 2 EXHIBIT "B" NOTES: (3) Applicable Surcharges: All applicable surcharges, unless otherwise specified, shall be the maximum surcharge rate as stated in the Schedule of Surcharges and Fees in The Tariff, as such surcharges may be changed from time to time. GQC: The Gas Quality Control Surcharge shall be assessed pursuant to Article 20 of the General Terms and Conditions as set forth in The Tariff. GRI: The GRI Surcharge shall be assessed pursuant to Article 18 of the General Terms and Conditions as set forth in The Tariff. HFS: The Hourly Flexibility Surcharge shall be assessed pursuant to Article 20 of the General Terms and Conditions as set forth in The Tariff. ORDER NO. 636 TRANSITION COST MECHANISM: Surcharge(s) shall be assessed pursuant to Article 21 of the General Terms and Conditions as set forth in The Tariff. ACA: The ACA Surcharge shall be assessed pursuant to Article 19 of the General Terms and Conditions as set forth in The Tariff. (4) If Shipper releases any of its capacity (i.e., becomes a Releasing Shipper under Transporter's Capacity Release Program) and the Replacement Shipper is paying more than the Releasing Shipper, Transporter shall be entitled to the difference, if any, between the reservation charge(s), including all applicable surcharges, being paid by the Replacement Shipper, and the reservation charges, including all applicable surcharges, being paid by the Releasing Shipper. (5) The Authorized Overrun Rate charged by Transporter shall be determined pursuant to the Stipulation and Agreement in Docket No. RP96-190, when applicable, while such Settlement is in effect. EXHIBIT 10.21(b) ATMOS ENERGY CORPORATION CHANGE IN CONTROL SEVERANCE AGREEMENT TIER I THIS AGREEMENT made and entered into as of ____________, 199___, by and between ATMOS ENERGY CORPORATION, a Texas and Virginia corporation (the "Company"), and _______________________("Executive"). W I T N E S S E T H: WHEREAS, the Company recognizes that the current business environment makes it difficult to attract and retain highly qualified executives unless a certain degree of security can be offered to such individuals against organizational and personnel changes which frequently follow Changes in Control (as defined below) of a corporation; and WHEREAS, even rumors of acquisitions or mergers may cause executives to consider major career changes in an effort to assure financial security for themselves and their families; and WHEREAS, the Company desires to assure fair treatment of its key executives in the event of a Change in Control and to allow them to make critical career decisions without undue time pressure and financial uncertainty, thereby increasing their willingness to remain with the Company notwithstanding the outcome of a possible Change in Control transaction; and WHEREAS, the Company recognizes that its key executives will be involved in evaluating or negotiating any offers, proposals or other transactions which could result in Changes in Control of the Company and believes that it is in the best interest of the Company and its stockholders for such key executives to be in a position, free from personal financial and employment considerations, to be able to assess objectively and pursue aggressively the interests of the Company and its stockholders in making these evaluations and carrying on such negotiations; and WHEREAS, the Board of Directors of the Company (the "Board") believes it is essential to provide the Executive with compensation arrangements upon a Change in Control which provide the Executive with individual financial security and which are competitive with those of other corporations, and in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: 1. TERM. This Agreement shall be effective immediately upon its execution, but, anything in this Agreement to the contrary notwithstanding, neither this Agreement nor any of its provisions shall be operative unless and until there has been a Change in Control of the Company, as such term is defined below. The term of this Agreement shall end on the third anniversary of the date of execution of this Agreement; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least thirty (30) days prior to the Renewal Date the Company shall give written notice that the term of the Agreement shall not be so extended; and provided, further, that after a Change in Control of the Company during the term of this Agreement, this Agreement shall remain in effect until three years after the Change in Control or until all of the obligations of the parties hereunder are satisfied, whichever occurs later. 2. CHANGE IN CONTROL. 2.1 Change of Control Events. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to have occurred if: (a) Any "Person" (as defined in Section 2.2(a) below), other than (1) the Company or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Section 2.2(b) below), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Company's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Company, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (c)(1) below. (b) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Company and any "new director" (as defined in Section 2.2(c) below) cease for any reason to constitute a majority of the Board of Directors. (c) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, except if: 2 (1) the merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (2) the merger or consolidation is effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 60% or more of the combined voting power of the Company's then outstanding securities; (d) The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 2.2 Definitions. For purposes of Section 2.1 above, (a) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d) of the Exchange Act. (b) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (c) "New director" shall mean an individual whose election by the Company's Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (d) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 3 3. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. If any of the events described in Section 2.1 constituting a Change in Control of the Company shall have occurred, the Executive shall be entitled to the benefits provided in Section 4 upon the subsequent termination of his employment, provided that such termination occurs within three years after a Change in Control of the Company, unless such termination is (a) because of his death, his "Disability," or "Retirement" (as defined in Section 3.1), (b) by the Company for "Cause" (as defined in Section 3.2), or (c) by Executive other than for "Constructive Termination" (as defined in Section 3.3) (any such termination qualifying for benefits under Section 4 hereof being sometimes referred to herein as "CIC Termination"). If Executive's employment with the Company is terminated by the Company for any reason other than for "Cause" prior to the date on which a Change in Control occurs (whether or not the Change in Control ever occurs), and such termination either (1) was at the request or direction of a person who has entered into an agreement with the Company, the consummation of which would constitute a Change in Control, or (2) was otherwise in connection with or in anticipation of a Change in Control (whether or not the Change in Control ever occurs), then for all purposes hereof, such termination shall be deemed to have occurred immediately following a Change in Control. 3.1 Disability; Retirement. The Executive's employment shall be terminated due to "Disability" if the Executive is qualified for disability benefits under the Atmos Energy Corporation Long-Term Disability Plan, as in effect from time to time, or, if no such Long-Term Disability Plan is then in existence, if because of ill health, physical or mental disability or any other reason beyond his control, the Executive is unable to perform his duties of employment for a period of six (6) continuous months, as determined in good faith by the Company. Termination by the Executive of his employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy generally applicable to its salaried employees, or in accordance with any retirement arrangement established with Executive's consent with respect to him. 3.2 Cause. For the purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment hereunder upon (1) the willful and continued failure by Executive to substantially perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that he has not substantially performed his duties, or (2) the willful engaging by Executive in conduct materially and demonstrably injurious to the Company, monetarily or otherwise. For purposes of this Section 3.2, no act, or failure to act, on Executive's part shall be considered "willful" if, in the Executive's sole judgment, his action or omission was done, or omitted to be done, in good faith and with a reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until 4 there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire authorized membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board Executive was guilty of conduct set forth above in clause (1) or (2) of the first sentence of this Section 3.2, and specifying the particulars thereof in detail. 3.3 Constructive Termination. For purposes of this Agreement, "Constructive Termination" shall mean: (a) Without his express written consent, the assignment to Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company immediately prior to a Change in Control, or a change in his reporting responsibilities, titles or offices as in effect immediately prior to a Change in Control, or any removal of Executive from or any failure to re-elect Executive to any of such positions, except in connection with the termination of his employment for Cause, death, Disability or Retirement or termination of employment by Executive for reasons other than Constructive Termination; (b) A reduction by the Company in Executive's base salary as in effect on the date of a Change in Control or as the same may be increased from time to time thereafter; (c) A reduction by the Company in the bonus payable to Executive in any year below a percentage of Executive's then base salary equal to the average percentage of Executive's base salary represented by the bonuses received by Executive for the three (3) years (or, if shorter, the years of Executive's employment by the Company) immediately preceding the year in which a Change in Control occurs as percentages of his base salaries in each of such three (3) years (or shorter number of years). By way of example, but not in limitation of the provisions of this paragraph (c), assume a Change in Control occurs in 1998, and Executive received bonuses for each of 1995, 1996 and 1997 as follows: 30% of his base salary for 1995; 50% of his base salary for 1996; and 50% of his base salary for 1997. If Executive receives a bonus for 1998 which is less than 43.33% of his 1998 base salary, Executive may terminate his employment for "Constructive Termination" under this Section 3.3. If Executive was only employed during 1996 and 1997, using the same facts as recited herein, Executive may terminate his employment for "Constructive Termination" if his 1998 bonus was less than 50% of his 1998 base salary; (d) The Company's requiring Executive to be based anywhere other than either the Company's offices at which he was based immediately prior to a 5 Change in Control or the Company's offices which are no more than seventy- five (75) miles from the offices at which the Executive was based immediately prior to a Change in Control, except for required travel on the Company's business to an extent substantially consistent with his business travel obligations immediately prior to the Change in Control (excluding, however, any travel obligations prior to the Change in Control that are associated with or caused by the Change in Control events or circumstances), or, in the event Executive consents to any relocation beyond such seventy-five-mile radius, the failure by the Company to pay (or reimburse Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by Executive and reasonably satisfactory to the Company) realized on the sale of Executive's principal residence in connection with any such change of residence; (e) The failure by the Company to continue in effect any benefit or compensation plan (including but not limited to any stock option plan, pension plan, deferred compensation plan, life insurance plan, health and accident plan or disability plan) in which Executive is participating at the time of a Change in Control of the Company (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect Executive's participation in, payment from, or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Company to provide Executive with the number of days of paid time off to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal paid time off or vacation policy in effect immediately prior to the Change in Control; (f) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 5; (g) Any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.4 (and, if applicable, Section 3.2); and for purposes hereof, no such purported termination shall be effective; or (h) The failure of the Company otherwise to honor all the terms and provisions of this Agreement. 6 For purposes of this Section 3.3, any good faith determination of "Constructive Termination" made by the Executive shall be conclusive and binding on the parties. 3.4 Notice of Termination. Any termination pursuant to the foregoing provisions of this Section (including termination due to Executive's death) shall be communicated by written Notice of Termination to the other party hereto. For purposes hereof, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision herein relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. In the event that Executive seeks to terminate his employment with the Company pursuant to Section 3.3, he must communicate his written Notice of Termination to the Company within sixty (60) days of being notified of such action or actions by the Company which constitute Constructive Termination. 3.5 Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30)-day period); (ii) if Executive's employment is terminated pursuant to Section 3.3, the date specified in the Notice of Termination; and (iii) if Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given. 4. COMPENSATION UPON TERMINATION. 4.1 Termination Without Cause or for Constructive Termination. If Executive suffers a CIC Termination, then, subject to Section 4.2, Executive shall be entitled, if such CIC Termination occurred within three (3) years of a Change in Control, to the following benefits: (a) The Company shall pay to Executive as severance pay in one lump sum not later than the tenth (10th) day following the Date of Termination, an amount equal to the product of (i) the Executive's Total Compensation (as defined below) multiplied by (ii) the number two and one-half (2.5). For purposes of this Section 4.1(a), the Executive's "Total Compensation" shall mean the annual base salary being paid to the Executive at the Date of Termination plus the Executive's "Average Bonus." The Executive's "Average Bonus" shall mean the greater of (i) the bonus or incentive award pursuant to any annual performance bonus or incentive compensation plan of the Company (the "Bonus") last paid or awarded to Executive immediately prior to his Date of Termination, or (ii) the average of the highest three Bonuses (whether or not consecutive) paid or awarded to Executive. 7 (b) The Company shall continue to provide Executive with (i) all medical, dental, vision, accident, and other health benefits, (ii) life insurance benefits, and (iii) disability benefits equal to or economically equivalent to the benefits in effect for Executive at the time of the Change in Control, and the Company shall provide such benefits at the same cost to Executive as the cost, if any, charged to Executive for those benefits prior to termination of employment. The Company shall provide the foregoing benefits until three (3) years from Executive's Date of Termination. 4.2 Gross-Up Payment. In the event it shall be determined that any payment, distribution, or benefits of any type by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including additional excise taxes under said Section 4999, and any interest and penalties imposed with respect to any taxes) imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. The Company shall pay the Gross-Up Payment to Executive within thirty (30) business days after Executive's termination of employment. 4.3 Determination By Accountant. All determinations required to be made under this Section 4, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the independent accounting firm retained by the Company on the date of Change in Control (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the Termination Date, if applicable, or such earlier time as is requested by the Company. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and Executive. 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. In the event that the Company exhausts its remedies pursuant to Section 4.4 and Executive thereafter is required to make a payment of any 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 Executive. 4.4 Notification Required. The Executive 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 ten (10) business days after Executive knows of such claim and 8 shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which it 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 Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive 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, (c) cooperate with the Company in good faith in order to effectively contest such claim, (d) permit the Company to participate in any proceedings relating to such claim, 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 Executive 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 4.4, 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 Executive to pay the tax claimed and sue for a refund, or contest the claim in any permissible manner, and Executive 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 the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive 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 Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, 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 Executive 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. 9 4.5 Repayment. If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 4.4, Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 4.4) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 4.4, a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (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. 4.6 Mitigation or Set-off of Amounts Payable Hereunder. Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer after the Date of Termination, or otherwise. The Company's obligations hereunder also shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive. 5. SUCCESSORS; BINDING AGREEMENT. 5.1 Successors of the Company. 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, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if there had been a Change in Control but 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 hereof. As used herein, the "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions hereof by operation of law. 5.2 Executive's Heirs, etc. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms hereof to his designee or, if there be no such designee, to his estate. 6. NOTICE. For the purposes hereof, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when 10 delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company at its principal place of business and to Executive at his address as shown on the records of the Company, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. No provisions hereof may be amended, modified, waived or discharged unless such amendment, waiver, modification or discharge is agreed to in writing signed by Executive and such officer as may be specifically designated by the Board (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision hereof 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. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly herein. 8. VALIDITY. The invalidity or unenforceability of any provisions hereof shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 9. NON-EXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, practices, policies or programs provided by the Company and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, practice, policy or program of the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, practice, policy or program. Notwithstanding the foregoing provisions of this Section 9, this Agreement contains the entire agreement of the parties regarding the change in control severance benefits provided for herein and shall supersede and replace any change in control severance agreements previously entered into by the parties, and by execution of this Agreement, the parties understand and agree that any other such agreement shall be and become null and void. 10. LEGAL EXPENSES. The Company agrees to pay, upon written demand therefor by Executive, all legal fees and expenses which Executive may reasonably incur as a result of any dispute or contest (regardless of the outcome thereof) by or with the Company or others regarding the validity or enforceability of, or liability under, any provision hereof (including as a result of any contest about the amount of any payment pursuant to Section 4.2), plus in each case interest at the "applicable Federal rate" (as defined in Section 1274(d) of the Code). In any such action brought by Executive for damages or to enforce any provisions hereof, he shall be entitled to seek both legal and equitable relief and remedies, 11 including, without limitation, specific performance of the Company's obligations hereunder, in his sole discretion. 11. 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 will constitute one and the same instrument. 12. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Texas. 13. CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any provisions contained herein. Similarly, the use of the masculine gender with respect to pronouns herein is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day and year first above written. ATMOS ENERGY CORPORATION By: -------------------------------- Name: Title: EXECUTIVE ------------------------------------ 12 EXHIBIT 10.21(c) ATMOS ENERGY CORPORATION CHANGE IN CONTROL SEVERANCE AGREEMENT TIER II THIS AGREEMENT made and entered into as of ________________, 199___, by and between ATMOS ENERGY CORPORATION, a Texas and Virginia corporation (the "Company"), and ________________________________________________________________ ("Executive"). W I T N E S S E T H: WHEREAS, the Company recognizes that the current business environment makes it difficult to attract and retain highly qualified executives unless a certain degree of security can be offered to such individuals against organizational and personnel changes which frequently follow Changes in Control (as defined below) of a corporation; and WHEREAS, even rumors of acquisitions or mergers may cause executives to consider major career changes in an effort to assure financial security for themselves and their families; and WHEREAS, the Company desires to assure fair treatment of its key executives in the event of a Change in Control and to allow them to make critical career decisions without undue time pressure and financial uncertainty, thereby increasing their willingness to remain with the Company notwithstanding the outcome of a possible Change in Control transaction; and WHEREAS, the Company recognizes that its key executives will be involved in evaluating or negotiating any offers, proposals or other transactions which could result in Changes in Control of the Company and believes that it is in the best interest of the Company and its stockholders for such key executives to be in a position, free from personal financial and employment considerations, to be able to assess objectively and pursue aggressively the interests of the Company and its stockholders in making these evaluations and carrying on such negotiations; and WHEREAS, the Board of Directors of the Company (the "Board") believes it is essential to provide the Executive with compensation arrangements upon a Change in Control which provide the Executive with individual financial security and which are competitive with those of other corporations, and in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual premises and conditions contained herein, the parties hereto agree as follows: 1. TERM. This Agreement shall be effective immediately upon its execution, but, anything in this Agreement to the contrary notwithstanding, neither this Agreement nor any of its provisions shall be operative unless and until there has been a Change in Control of the Company, as such term is defined below. The term of this Agreement shall end on the third anniversary of the date of execution of this Agreement; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least thirty (30) days prior to the Renewal Date the Company shall give written notice that the term of the Agreement shall not be so extended; and provided, further, that after a Change in Control of the Company during the term of this Agreement, this Agreement shall remain in effect until three years after the Change in Control or until all of the obligations of the parties hereunder are satisfied, whichever occurs later. 2. CHANGE IN CONTROL. 2.1 Change of Control Events. For purposes of this Agreement, a "Change in Control" of the Company shall be deemed to have occurred if: (a) Any "Person" (as defined in Section 2.2(a) below), other than (1) the Company or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Section 2.2(b) below), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Company's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Company, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (c)(1) below. (b) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Company and any "new director" (as defined in Section 2.2(c) below) cease for any reason to constitute a majority of the Board of Directors. (c) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, except if: 2 (1) the merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (2) the merger or consolidation is effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 60% or more of the combined voting power of the Company's then outstanding securities; (d) The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 2.2 Definitions. For purposes of Section 2.1 above, (a) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d) of the Exchange Act. (b) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (c) "New director" shall mean an individual whose election by the Company's Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (d) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 3 3. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. If any of the events described in Section 2.1 constituting a Change in Control of the Company shall have occurred, the Executive shall be entitled to the benefits provided in Section 4 upon the subsequent termination of his employment, provided that such termination occurs within three years after a Change in Control of the Company, unless such termination is (a) because of his death, his "Disability," or "Retirement" (as defined in Section 3.1), (b) by the Company for "Cause" (as defined in Section 3.2), or (c) by Executive other than for "Constructive Termination" (as defined in Section 3.3) (any such termination qualifying for benefits under Section 4 hereof being sometimes referred to herein as "CIC Termination"). If Executive's employment with the Company is terminated by the Company for any reason other than for "Cause" prior to the date on which a Change in Control occurs (whether or not the Change in Control ever occurs), and such termination either (1) was at the request or direction of a person who has entered into an agreement with the Company, the consummation of which would constitute a Change in Control, or (2) was otherwise in connection with or in anticipation of a Change in Control (whether or not the Change in Control ever occurs), then for all purposes hereof, such termination shall be deemed to have occurred immediately following a Change in Control. 3.1 Disability; Retirement. The Executive's employment shall be terminated due to "Disability" if the Executive is qualified for disability benefits under the Atmos Energy Corporation Long-Term Disability Plan, as in effect from time to time, or, if no such Long-Term Disability Plan is then in existence, if because of ill health, physical or mental disability or any other reason beyond his control, the Executive is unable to perform his duties of employment for a period of six (6) continuous months, as determined in good faith by the Company. Termination by the Executive of his employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy generally applicable to its salaried employees, or in accordance with any retirement arrangement established with Executive's consent with respect to him. 3.2 Cause. For the purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment hereunder upon (1) the willful and continued failure by Executive to substantially perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that he has not substantially performed his duties, or (2) the willful engaging by Executive in conduct materially and demonstrably injurious to the Company, monetarily or otherwise. For purposes of this Section 3.2, no act, or failure to act, on Executive's part shall be considered "willful" if, in the Executive's sole judgment, his action or omission was done, or omitted to be done, in good faith and with a reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until 4 there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire authorized membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board Executive was guilty of conduct set forth above in clause (1) or (2) of the first sentence of this Section 3.2, and specifying the particulars thereof in detail. 3.3 Constructive Termination. For purposes of this Agreement, "Constructive Termination" shall mean: (a) Without his express written consent, the assignment to Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company immediately prior to a Change in Control, or a change in his reporting responsibilities, titles or offices as in effect immediately prior to a Change in Control, or any removal of Executive from or any failure to re-elect Executive to any of such positions, except in connection with the termination of his employment for Cause, death, Disability or Retirement or termination of employment by Executive for reasons other than Constructive Termination; (b) A reduction by the Company in Executive's base salary as in effect on the date of a Change in Control or as the same may be increased from time to time thereafter; (c) A reduction by the Company in the bonus payable to Executive in any year below a percentage of Executive's then base salary equal to the average percentage of Executive's base salary represented by the bonuses received by Executive for the three (3) years (or, if shorter, the years of Executive's employment by the Company) immediately preceding the year in which a Change in Control occurs as percentages of his base salaries in each of such three (3) years (or shorter number of years). By way of example, but not in limitation of the provisions of this paragraph (c), assume a Change in Control occurs in 1998, and Executive received bonuses for each of 1995, 1996 and 1997 as follows: 30% of his base salary for 1995; 50% of his base salary for 1996; and 50% of his base salary for 1997. If Executive receives a bonus for 1998 which is less than 43.33% of his 1998 base salary, Executive may terminate his employment for "Constructive Termination" under this Section 3.3. If Executive was only employed during 1996 and 1997, using the same facts as recited herein, Executive may terminate his employment for "Constructive Termination" if his 1998 bonus was less than 50% of his 1998 base salary; (d) The Company's requiring Executive to be based anywhere other than either the Company's offices at which he was based immediately prior to a 5 Change in Control or the Company's offices which are no more than seventy- five (75) miles from the offices at which the Executive was based immediately prior to a Change in Control, except for required travel on the Company's business to an extent substantially consistent with his business travel obligations immediately prior to the Change in Control (excluding, however, any travel obligations prior to the Change in Control that are associated with or caused by the Change in Control events or circumstances), or, in the event Executive consents to any relocation beyond such seventy-five-mile radius, the failure by the Company to pay (or reimburse Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by Executive and reasonably satisfactory to the Company) realized on the sale of Executive's principal residence in connection with any such change of residence; (e) The failure by the Company to continue in effect any benefit or compensation plan (including but not limited to any stock option plan, pension plan, deferred compensation plan, life insurance plan, health and accident plan or disability plan) in which Executive is participating at the time of a Change in Control of the Company (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect Executive's participation in, payment from, or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Company to provide Executive with the number of days of paid time off to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal paid time off or vacation policy in effect immediately prior to the Change in Control; (f) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 5; (g) Any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.4 (and, if applicable, Section 3.2); and for purposes hereof, no such purported termination shall be effective; or (h) The failure of the Company otherwise to honor all the terms and provisions of this Agreement. 6 For purposes of this Section 3.3, any good faith determination of "Constructive Termination" made by the Executive shall be conclusive and binding on the parties. 3.4 Notice of Termination. Any termination pursuant to the foregoing provisions of this Section (including termination due to Executive's death) shall be communicated by written Notice of Termination to the other party hereto. For purposes hereof, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision herein relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. In the event that Executive seeks to terminate his employment with the Company pursuant to Section 3.3, he must communicate his written Notice of Termination to the Company within sixty (60) days of being notified of such action or actions by the Company which constitute Constructive Termination. 3.5 Date of Termination. "Date of Termination" shall mean (i) if this Agreement is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30)-day period); (ii) if Executive's employment is terminated pursuant to Section 3.3, the date specified in the Notice of Termination; and (iii) if Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given. 4. COMPENSATION UPON TERMINATION. 4.1 Termination Without Cause or for Constructive Termination. If Executive suffers a CIC Termination, then, subject to Section 4.2, Executive shall be entitled, if such CIC Termination occurred within three (3) years of a Change in Control, to the following benefits: (a) The Company shall pay to Executive as severance pay in one lump sum not later than the tenth (10th) day following the Date of Termination, an amount equal to the product of (i) the Executive's Total Compensation (as defined below) multiplied by (ii) the number one and one-half (1.5). For purposes of this Section 4.1(a), the Executive's "Total Compensation" shall mean the annual base salary being paid to the Executive at the Date of Termination plus the Executive's "Average Bonus." The Executive's "Average Bonus" shall mean the greater of (i) the bonus or incentive awards pursuant to any annual performance bonus or incentive compensation plan of the Company (the "Bonus") last paid or awarded to Executive immediately prior to his Date of Termination, or (ii) the average of the highest three Bonuses (whether or not consecutive) paid or awarded to Executive. 7 (b) The Company shall continue to provide Executive with (i) all medical, dental, vision, accident, and other health benefits, (ii) life insurance benefits, and (iii) disability benefits equal to or economically equivalent to the benefits in effect for Executive at the time of the Change in Control, and the Company shall provide such benefits at the same cost to Executive as the cost, if any, charged to Executive for those benefits prior to termination of employment. The Company shall provide the foregoing benefits for the period from Executive's termination of employment until eighteen (18) months from the Executive's Date of Termination. 4.2 Limitation on Payments. (a) Anything in Section 4.1 to the contrary notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable or provided pursuant to the terms hereof or otherwise) would constitute a "parachute payment" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the lump sum severance payment payable pursuant to Section 4.1(a) shall be reduced so that the aggregate present value of all payments in the nature of compensation to (or for the benefit of) Executive which are contingent on a change in control (as defined in Code Section 280G(b)(2)(A)) is one dollar ($1.00) less than the amount which Executive could receive without being considered to have received any parachute payment (the amount of this reduction in the lump sum severance payment is referred to herein as the "Excess Amount"). The determination of the amount of any reduction required by this Section 4.2 shall be made by an independent accounting firm (other than the Company's independent accounting firm) selected by the Company and acceptable to Executive, and such determination shall be conclusive and binding on the parties hereto. 8 (b) Notwithstanding the provisions of Section 4.2(a), if it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding which has been finally and conclusively resolved, that an Excess Amount was received by Executive from the Company, then such Excess Amount shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Amount and Executive shall repay the Excess Amount to the Company on demand (but no less than ten (10) days after written demand is received by Executive) together with interest on the Excess Amount at the "applicable Federal rate" (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Amount until the date of such repayment. 4.3 Mitigation or Set-off of Amounts Payable Hereunder. Executive shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 4 be reduced by any compensation earned by Executive as the result of employment by another employer after the Date of Termination, or otherwise. The Company's obligations hereunder also shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive. 9 5. SUCCESSORS; BINDING AGREEMENT. 5.1 Successors of the Company. 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, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if there had been a Change in Control but 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 hereof. As used herein, "the Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 5 or which otherwise becomes bound by all the terms and provisions hereof by operation of law. 5.2 Executive's Heirs, etc. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms hereof to his designee or, if there be no such designee, to his estate. 10 6. NOTICE. For the purposes hereof, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company at its principal place of business and to Executive at his address as shown on the records of the Company, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7. MISCELLANEOUS. No provisions hereof may be amended, modified, waived or discharged unless such amendment, waiver, modification or discharge is agreed to in writing signed by Executive and such officer as may be specifically designated by the Board (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision hereof 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. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly herein. 8. VALIDITY. The invalidity or unenforceability of any provisions hereof shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. 9. NON-EXCLUSIVITY OF RIGHTS. Nothing herein shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, practices, policies or programs provided by the Company and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, practice, policy or program of the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, practice, policy or program. 10. LEGAL EXPENSES. The Company agrees to pay, upon written demand therefor by Executive, all legal fees and expenses which Executive may reasonably incur as a result of any dispute or contest (regardless of the outcome thereof) by or with the Company or others regarding the validity or enforceability of, or liability under, any provision hereof (including as a result of any contest about the amount of any payment pursuant to Section 4), plus in each case interest at the "applicable Federal rate" (as defined in Section 1274(d) of the Code). In any such action brought by Executive for damages or to enforce any provisions hereof, he shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder, in his sole discretion. 11 11. 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 will constitute one and the same instrument. 12. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Texas. 13. CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any provisions contained herein. Similarly, the use of the masculine gender with respect to pronouns herein is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day and year first above written. ATMOS ENERGY CORPORATION By: --------------------------------- Name: Title: EXECUTIVE ------------------------------------ 12 Exhibit 10.22(b) AMENDMENT NO. ONE TO THE ATMOS ENERGY CORPORATION MINI-MED PLAN WHEREAS, Atmos Energy Corporation (the "Company") adopted the Atmos Energy Corporation Mini-Med Plan (as restated effective July 1, 1995) (the "Plan"), and thereafter amended the Plan; and WHEREAS, in accordance with Section 6.1 of the Plan, the Company desires to amend the Plan further as hereinafter set forth; NOW, THEREFORE, the Plan shall be and the same hereby is amended, effective as of August 12, 1998, as follows: 1. Section 2.1(c) is amended by adding the following at the end of said Section: Notwithstanding the foregoing provisions of this paragraph (c), effective from and after January 1, 1999, all Employees, and all former Employees who were not designated as participants in the Plan on August 12, 1998 (and their dependents), shall be removed from the list of designated participants, and no new Employees or former Employees may be designated by the President/Chief Executive Officer as participants in the Plan; any former Employees designated as participants on August 12, 1998 (and their dependents) shall remain as participants in the Plan until such time as their participation would otherwise end. 2. Section 2.1(k) is amended by adding the following at the end of said Section: Effective for the Plan Year commencing April 1, 1998, the nine (9)-month period ending December 31, 1998, and thereafter the calendar year. IN WITNESS WHEREOF, the Company has caused this Amendment No. One to the Atmos Energy Corporation Mini-Med Plan to be executed in its name and on its behalf as of the 12th day of August, 1998. ATMOS ENERGY CORPORATION By: /s/ Robert W. Best ------------------------------ Robert W. Best Chairman of the Board, President and Chief Executive Officer Exhibit 10.26 ATMOS ENERGY CORPORATION ------------------------ SUPPLEMENTAL EXECUTIVE BENEFITS PLAN ------------------------------------ Amended and Restated in its Entirety: August 12, 1998 ------------------------------------------------------ TABLE OF CONTENTS ----------------- Page ---- ARTICLE I Purpose and Effective Date -------------------------- Section 1.1. Purpose 1 ------- Section 1.2. Effective Date 1 -------------- ARTICLE II Definitions and Construction 1 ---------------------------- Section 2.1. Definitions 1 ----------- Section 2.2. Construction 8 ------------ Section 2.3. Governing Law 8 ------------- ARTICLE III Eligibility and Participation 8 ----------------------------- Section 3.1. Employees Eligible to Participate 8 --------------------------------- ARTICLE IV Assets Used for Benefits 8 ------------------------ Section 4.1. Amounts Provided by the Employer 8 -------------------------------- Section 4.2. Funding 9 ------- ARTICLE V Supplemental Pension Benefits 10 ----------------------------- Section 5.1. Eligibility for Supplemental Pension 10 ------------------------------------- Section 5.2. Amount of Supplemental Pension 11 ------------------------------ Section 5.3. Form of Payment of Supplemental Pension 13 --------------------------------------- Section 5.4. Commencement of Supplemental Pension 13 ------------------------------------ Section 5.5. Supplemental Pensions After a Change in Control 13 ----------------------------------------------- ARTICLE VI Disability Benefits 15 ------------------ Section 6.1. Eligibility For Disability Benefits 15 ----------------------------------- Section 6.2. Amount of Disability Benefits 15 ----------------------------- Section 6.3. Payment of Disability Benefits 16 ------------------------------ Section 6.4. Payment of Supplemental Pension to Disabled Participants 16 -------------------------------------------------------- ARTICLE VII Death Benefits 17 -------------- Section 7.1. Eligibility For Death Benefits 17 ------------------------------ Section 7.2. Amount of Death Benefit 17 ----------------------- Section 7.3. Form of Payment of Death Benefit 18 -------------------------------- Section 7.4. Commencement of Death Benefits 19 ------------------------------ ARTICLE VIII Administration 20 -------------- Section 8.1. Plan Administration 20 ------------------- Section 8.2. Powers of Plan Administrator 20 ---------------------------- Section 8.3. Calculation of Funding Obligations 20 ---------------------------------- Section 8.4. Annual Statements 21 ----------------- i ARTICLE IX Miscellaneous Provisions 21 ------------------------ Section 9.1. Amendment or Termination of the Plan 21 ------------------------------------ Section 9.2. Nonguarantee of Employment 24 -------------------------- Section 9.3. Nonalienation of Benefits 24 ------------------------- Section 9.4. Liability 24 --------- Section 9.5. Noncompetition Agreement 24 ------------------------ Section 9.6. Participation Agreement 25 ----------------------- Section 9.7. Successors to the Employer 25 -------------------------- ii ARTICLE I --------- Purpose and Effective Date -------------------------- Section 1.1. Purpose: The purpose of this Plan is to provide supplemental ------- retirement income, death and disability benefits to certain executive employees of Atmos Energy Corporation. Section 1.2. Effective Date: The Plan initially became effective on -------------- October 1, 1987, was amended and restated as of November 11, 1992, was amended as of November 8, 1995, was amended as of May 8, 1996, was amended and restated as of November 13, 1996, was amended and restated as of May 14, 1997, and has been amended and restated as of August 12, 1998. ARTICLE II ---------- Definitions and Construction ---------------------------- Section 2.1. Definitions: The following words and phrases used in this ----------- Plan shall have the respective meanings set forth below, unless the context in which they are used clearly indicates a contrary meaning: (a) Beneficiary: The individual or individuals described in ----------- Section 7.3 of this Plan who are receiving any benefit payments hereunder. (b) Board of Directors: The Board of Directors of the Employer. ------------------ (c) Cause: The termination of employment by the Employer upon the ----- happening of either (i) or (ii) as follows: (i) The willful and continued failure by the Participant to substantially perform his duties with the Employer (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Employer that specifically identifies the manner in which the Employer believes that the Participant has not substantially performed his duties. 1 (ii) The Participant's willful engagement in conduct that is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on the Participant's part shall be deemed "willful" if done, or omitted to be done, by the Participant in good faith and with a reasonable belief that the action or omission was in the best interests of the Employer. Notwithstanding the foregoing, Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board of Directors of the Employer at a meeting of such Board of Directors called and held for such purpose (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors that Participant was guilty of conduct set forth above in clauses (i) or (ii) of this Paragraph and specifying the particulars thereof in detail. (d) Change in Control: ----------------- (i) For periods prior to November 13, 1996, the occurrence of any of the following: (A) Any "person" (as defined in subparagraph (ii) below), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Employer, is or becomes the "beneficial owner" (as defined in subparagraph (ii) below), directly or indirectly, of securities of the Employer representing 33-1/3% or more of the combined voting power of the Employer's then outstanding securities. (B) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Employer and any "new director" (as defined in subparagraph (ii) below) cease for any reason to constitute a majority of the Board of Directors. (C) The shareholders of the Employer approve a merger or consolidation of the Employer with any other corporation, except if: (1) the merger or consolidation would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting 2 securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity outstanding immediately after such merger or consolidation; or (2) the merger or consolidation occurs in connection with the approval by the shareholders of the Employer of a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets. (ii) For purposes of subparagraph (i) above, (A) "Person" shall have the meaning provided in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (B) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (C) "New director" shall mean an individual whose election by the Employer's Board of Directors or nomination for election by the Employer's shareholders was approved by a vote of at least 2/3's of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved. However, "new director" shall not include a director designated by a person who has entered into an agreement with the Employer to effect a transaction described in subparagraphs (i)(A) or (B) above. (iii) For periods from and after November 13, 1996, except as provided herein, the occurrence of any of the following: (A) Any "Person" (as defined in subparagraph (iv) below), other than (1) the Employer or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Employer or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Employer in substantially the same proportions as their ownership of stock of the Employer, is or becomes the "beneficial owner" (as defined in subparagraph (iv) below), directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the 3 Employer's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Employer, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (C)(1) below. (B) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Employer and any "new director" (as defined in subparagraph (iv) below) cease for any reason to constitute a majority of the Board of Directors. (C) There is consummated a merger or consolidation of the Employer or any direct or indirect subsidiary of the Employer with any other corporation, except if: (1) the merger or consolidation would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (2) the merger or consolidation is effected to implement a recapitalization of the Employer (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such Person any securities acquired directly from the Employer or its Affiliates other than in connection with the acquisition by the Employer or its Affiliates of a business) representing 60% or more of the combined voting power of the Employer's then outstanding securities. (D) The shareholders of the Employer approve a plan of complete liquidation or dissolution of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets, other than a sale or disposition by the Employer of all or substantially all of the Employer's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Employer in substantially the same proportions as their ownership of the Employer immediately prior to such sale. 4 Notwithstanding the foregoing provisions of this subparagraph (iii), no actions or events related to the merger of United Cities Gas Company ("United Cities") with or into the Employer as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities (the "Merger"), including the consummation of the Merger, shall constitute a Change in Control of the Employer for any of the purposes in this Plan that a Change in Control as defined under this subparagraph (iii) applies. (iv) For purposes of subparagraph (iii) above, (A) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d) of the Exchange Act. (B) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (C) "New director" shall mean an individual whose election by the Employer's Board of Directors or nomination for election by the Employer's shareholders was approved by a vote of at least 2/3's of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (D) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (e) Compensation: Except as otherwise provided in the Participant's ------------ Participation Agreement, the sum of (i), (ii) and (iii) as follows: (i) The greater of (A) the Participant's annual base salary at the date of his termination of employment, or (B) the average of the Participant's annual base salary for the highest three (3) calendar years (whether or not consecutive) of the Participant's employment with the Employer. (ii) The greater of (A) the Participant's last Performance Award, or (B) the average of the highest three (3) Performance Awards (whether or not consecutive). 5 (iii) The Participant's annual car allowance amount at the date of his termination of employment, or in the event the Participant is provided a Company car in lieu of an annual car allowance, that amount equivalent to the annual car allowance provided by the Company to a person who is a Vice President of the Company at the time of the Participant's termination of employment. (f) Death Benefit: The total benefit provided under this Plan upon ------------- the death of a Participant, which benefit is calculated in this Plan on a pre-tax basis. (g) Disability: The termination of a Participant's employment with ---------- the Employer on account of disability as determined under the Group Long- Term Disability Plan. (h) Disability Benefit: The monthly benefit provided under this Plan ------------------ to a Participant who suffers a Disability, which benefit is calculated in this Plan on a pre-tax basis. (i) Eligible Employee: An employee who is a Participant in the Plan ----------------- on August 12, 1998. From and after August 12, 1998, no employee who is not a Participant in the Plan on August 12, 1998 shall be or become an Eligible Employee. From and after January 1, 1999, any Participant who elected in writing to cease his participation in the Plan and to become an eligible employee under the Atmos Energy Corporation Performance-Based Supplemental Executive Benefits Plan as of January 1, 1999 shall no longer be an Eligible Employee (and shall cease to be a Participant). (j) Employer: Atmos Energy Corporation. -------- (k) Group Long-Term Disability Plan: The Atmos Energy Corporation ------------------------------- Group Long-Term Disability Plan, as amended from time to time. (l) Involuntary Termination: The termination of a Participant's ----------------------- participation in the Plan due to either (i) or (ii) as follows: (i) The Participant's employment with the Employer is terminated involuntarily by the Employer for any reason other than Cause or Disability. (ii) Any reason other than for Cause by the Employer prior to his termination of employment with the Employer. 6 Notwithstanding the foregoing provisions of subparagraph (ii) hereof, any Participant who terminates his participation in the Plan on January 1, 1999 as provided for in Section 2.1(i) above shall not be deemed to have suffered an Involuntary Termination. (m) Operating Division: Energas Company, Greeley Gas Company, Trans ------------------ Louisiana Gas Company, Western Kentucky Gas Company, and any other division of the Employer that the Employer may hereafter establish. (n) Participant: An Eligible Employee of the Employer who meets the ----------- requirements to participate in the Plan in accordance with the provisions of Article III hereof. (o) Participation Agreement: The agreement between the Employer and a ----------------------- Participant described in Section 9.6 of this Plan, executed in the form attached hereto as Exhibit C-1 in the case of Participants who commenced participation in the Plan prior to November 13, 1996 and Exhibit C-2 in the case of all other Participants in the Plan, or in such other form as the Board of Directors, in its sole discretion, may establish from time to time. (p) Plan: The Atmos Energy Corporation Supplemental Executive ---- Benefits Plan, as set forth herein and as amended from time to time. (q) Pension Plan: Any defined benefit pension plan adopted, ------------ established or maintained by the Employer, whichever is applicable, as amended from time to time. Any amount payable to or with respect to a Participant from any group annuity contract maintained in connection with the Pension Plan shall be deemed part of the benefit applicable to the Participant under the Pension Plan. (r) Performance Awards: Except as otherwise provided in the ------------------ Participant's Participation Agreement, any amount paid, or authorized to be paid, to a Participant pursuant to any annual performance bonus or incentive compensation plan adopted or established by the Employer, or, upon and after a Change in Control, any amount paid, or authorized to be paid, to a Participant as a performance related cash bonus in addition to his base cash compensation. (s) Plan Administrator: The Board of Directors. ------------------ (t) Plan Year: Each twelve (12) month period beginning on January 1 --------- and ending on December 31. (u) Retired Participant: A Retired employee of the Employer who ------------------- receives benefits under this Plan. 7 (v) Retirement or Retire: A Participant's voluntary termination from -------------------- employment with the Employer after he is vested in his retirement benefits under the Pension Plan and (i) prior to January 1, 1999, has reached the age when he is eligible for the immediate commencement of those benefits from the Pension Plan, and (ii) from and after January 1, 1999, has met the age and service requirements to be eligible to commence retirement benefit under the Pension Plan. (w) Supplemental Pension: A Participant's monthly pension benefit -------------------- provided under this Plan, which benefit is calculated in this Plan on a pre-tax basis. Section 2.2. Construction: The masculine gender, whenever appearing in ------------ this Plan, shall be deemed to include the feminine gender; the singular may include the plural; and vice versa, unless the context clearly indicates to the contrary. Section 2.3. Governing Law: This Plan shall be construed in accordance ------------- with and governed by the laws of the State of Texas, except to the extent otherwise preempted by the Employee Retirement Income Security Act of 1974, as amended, or any other Federal law. ARTICLE III ----------- Eligibility and Participation ----------------------------- Section 3.1. Employees Eligible to Participate: Each Eligible Employee --------------------------------- shall participate in this Plan, provided he complies with the provisions of Sections 9.5 and 9.6 hereof. Any Participant who ceases being an Eligible Employee during his employment with the Employer shall immediately cease participation in this Plan and shall no longer be a Participant, except as otherwise set forth herein. ARTICLE IV ---------- Assets Used for Benefits ------------------------ Section 4.1. Amounts Provided by the Employer: Benefits payable under -------------------------------- this Plan shall constitute general obligations of the Employer in accordance with the terms of 8 this Plan. The Employer may, in its sole discretion, establish a trust or other funding arrangement that is subject to the claims of the Employer's general creditors for the purpose of funding a Participant's accrued benefit payable under this Plan. Any such trust or other funding arrangement may also provide for the distribution to the Participant of an amount equal to any federal or state income taxes that are incurred by the Participant in the event the establishment of such trust or other funding arrangement constitutes the constructive receipt by the Participant of any benefits payable hereunder prior to the actual receipt of such benefits. The Employer shall make appropriate adjustments to the amount of the Participant's Supplemental Pension payable each month in order to reflect the effect upon such Supplemental Pension of the distribution described in the foregoing sentence. The Employer also may, but shall not be obligated to, purchase one or more life insurance policies or contracts to provide for the payment of the Death Benefits. Any such policies or contracts purchased hereunder shall remain a general asset of the Employer or of any trust established hereunder. Section 4.2. Funding: Not later than the time each Participant Retires or ------- becomes eligible to receive an unreduced Supplemental Pension under this Plan, whichever occurs first, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of such Participant's accrued Supplemental Pension. The amount required to be funded by this Section 4.2 shall be calculated in accordance with Section 8.3 hereof. Notwithstanding the foregoing, immediately upon a Change in Control, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of all Supplemental Pension benefits (vested and unvested) payable hereunder to each 9 Participant and Retired Participant, regardless of whether any such person is then eligible to Retire or to receive an unreduced Supplemental Pension. The Employer shall review the funding status of each such trust or other funding arrangement required to be established under this Section 4.2 on an annual basis and shall make such contributions thereto as may be required to maintain the value of the assets thereof at no less than 100% of the then-present value of all such Supplemental Pension benefits. For purposes of this Section 4.2 only, notwithstanding the foregoing, no actions or events related to the merger of United Cities Gas Company ("United Cities") with and into the Employer, as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities (the "Merger"), including shareholder approval of the Merger or the consummation of the Merger, shall constitute a Change in Control of the Employer that requires the Employer to make any contributions pursuant to this Section 4.2. ARTICLE V --------- Supplemental Pension Benefits ----------------------------- Section 5.1. Eligibility for Supplemental Pension: ------------------------------------ (a) Upon Retirement. Except as otherwise provided elsewhere in this --------------- Plan or in a Participation Agreement, a Participant who has been an Eligible Employee for at least two years and Retires shall be entitled to receive a Supplemental Pension. (b) Upon Involuntary Termination Prior to a Change in Control. A --------------------------------------------------------- Participant who suffers an Involuntary Termination prior to a Change in Control shall be entitled to receive a Supplemental Pension, subject to the provisions of Section 5.1(c) of this Plan, so long as he is vested in his retirement benefits under the Pension Plan at the 10 time of his Involuntary Termination and has been an Eligible Employee for at least two years prior to the Involuntary Termination. (c) Upon Voluntary Termination Prior to a Change in Control or ---------------------------------------------------------- Termination For Cause. A Participant who voluntarily resigns from employment --------------------- with the Employer prior to being eligible for Retirement and prior to a Change in Control or who is terminated from employment with the Employer for Cause shall not be entitled to receive a Supplemental Pension. (d) Upon Disability. A Participant who suffers a Disability shall be --------------- entitled to a Supplemental Pension as provided in Section 6.4. Section 5.2. Amount of Supplemental Pension: ------------------------------ (a) Upon Retirement. Except as otherwise provided in the --------------- Participant's Participation Agreement, the Supplemental Pension payable to a Participant who Retires, and who has been an Eligible Employee for at least two years shall, unless reduced as provided in paragraph (b) below, equal (i) minus ----- (ii) as follows: (i) One-twelfth (1/12th) of seventy-five percent (75%) of the Participant's Compensation, reduced if the Participant has fewer than ten (10) years of vesting service under the Pension Plan by one-tenth (1/10th) for each year of his vesting service less than ten (10); (ii) The monthly amount of pension payable to the Participant under the Pension Plan as of the date that his Supplemental Pension commences, assuming payment in the automatic form applicable to him under the Pension Plan; provided, however, in no event shall the combined annual payment from this Plan and the Pension Plan to any Participant listed on the Minimum Benefit Schedule attached to this Plan as Exhibit A be less than the minimum Annual Amount for such Participant listed on the Minimum Benefit Schedule. 11 (b) Reduction for Early Commencement of Supplemental Pensions. If a --------------------------------------------------------- Participant's Supplemental Pension commences before the Participant attains age 62, his Supplemental Pension shall, unless otherwise provided in Exhibit A or in a Participation Agreement, be reduced for each year (or fraction thereof, based on full months) that the date of commencement precedes age 62. Prior to January 1, 1999, the reduction shall be made in the same manner as reductions are made for early commencement under the Pension Plan. On and after January 1, 1999, the reduction shall be 2% per year for the first two years (or fractional years thereof, based on full months) that the date of commencement precedes age 62, and 4% per year for the next five years (or fractional years thereof, based on full months) that the date of commencement precedes age 60. (c) Cost of Living and Other Adjustments. A Participant who has begun ------------------------------------ to receive his Supplemental Pension shall be entitled to receive any cost of living or other adjustments to which he is otherwise entitled pursuant to the Pension Plan, and his Supplemental Pension shall not be reduced by such adjustments. If a Participant would not be entitled to receive a cost of living or other adjustment due to statutory or regulatory limitations on Pension Plan benefits, the Supplemental Pension shall be increased by the amount of such adjustment for the time the limitations are in effect. (d) Upon Involuntary Termination Prior to a Change in Control. The --------------------------------------------------------- Supplemental Pension payable to a Participant who suffers an Involuntary Termination prior to a Change in Control shall be determined in accordance with paragraph (a) above, but, except as otherwise provided in the Participant's Participation Agreement, for purposes of subparagraph (a)(i) shall be based upon his Compensation and years of vesting service under the Pension Plan as of the date of his Involuntary Termination. 12 Section 5.3. Form of Payment of Supplemental Pension: --------------------------------------- (a) Married Participants. Except as otherwise provided in the -------------------- Participant's Participation Agreement, if a Participant is married when his Supplemental Pension commences, it shall be paid in the form of a joint and 50% survivor annuity, with the Participant's spouse on the date payment commences as the joint annuitant. (b) Unmarried Participants. Except as otherwise provided in the ---------------------- Participant's Participation Agreement, if a Participant is not married when his Supplemental Pension commences, it shall be paid in the form of a ten year certain and life annuity payable to the Participant or the Participant's named beneficiary. Section 5.4. Commencement of Supplemental Pension: ------------------------------------ (a) Upon Retirement. The Supplemental Pension of a Participant who --------------- Retires shall commence at the time he begins receiving retirement benefits from the Pension Plan. (b) Upon Involuntary Termination Prior to a Change in Control. The --------------------------------------------------------- Supplemental Pension of a Participant who suffers an Involuntary Termination prior to a Change in Control shall commence (i) prior to January 1, 1999, at the time he begins receiving retirement benefits from the Pension Plan, and (ii) from and after January 1, 1999, at such time as elected by the Participant on or after he attains age 55. Section 5.5. Supplemental Pensions After a Change in Control: ----------------------------------------------- (a) Eligibility For Supplemental Pension. Notwithstanding anything to ------------------------------------ the contrary in this Plan, a Participant shall be entitled to a Supplemental Pension, regardless of whether he has been an Eligible Employee for at least two years or is vested in his 13 retirement benefits under the Pension Plan, if following a Change in Control of the Employer which occurs at a time when he is an Eligible Employee, either (i) or (ii) occurs: (i) The Participant's employment is terminated (A) on account of disability; (B) if the Change in Control occurred prior to November 13, 1996, either (I) voluntarily, or (II) involuntarily by the Employer for any reason other than for Cause; or (C) if the Change in Control occurred on or after November 13, 1996, involuntarily by the Employer for any reason other than for Cause. (ii) The Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause prior to his termination of employment with the Employer. In the case of any employee of the Employer who becomes an Eligible Employee on or after May 14, 1997, other than any such employee who becomes an Eligible Employee in accordance with the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities Gas Company, in order for the provisions of this Section 5.5 to apply, the involuntary termination of employment referred to in subparagraph (i)(C) above or the termination of participation referred to in subparagraph (ii) above must occur within three (3) years after the Change in Control. From and after May 14, 1997, for purposes of this Section 5.5, if a Participant's employment is involuntarily terminated by the Employer for any reason other than for Cause, or his participation in the Plan is terminated by the Employer for any reason other than for Cause, prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination either (A) was at the request or direction of a person who has entered into an agreement with the Employer, the consummation of which would constitute a Change in Control, or (B) was otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs), then such 14 Participant's termination of employment or participation shall be deemed to have followed a Change in Control of the Employer, and such Participant shall be one who is described in this paragraph (a). (b) Amount of Supplemental Pension. The Supplemental Pension payable ------------------------------ to a Participant described in paragraph (a) above shall be calculated in the same manner as set forth in Section 9.1(c) for benefits payable in the event of a termination of the Plan, but based on his Compensation as of the date of his employment termination or the date his participation in the Plan is terminated, whichever is applicable. (c) Commencement of Supplemental Pension. The Supplemental Pension ------------------------------------ payable to a Participant described in paragraph (a) above shall commence, (i) if prior to January 1, 1999, at the time such Participant begins receiving retirement benefits from the Pension Plan, or if he is not entitled to benefits from the Pension Plan when his employment is terminated, at the time he would otherwise be entitled to begin receiving retirement benefits under the Pension Plan if he were so entitled, and (ii) from and after January 1, 1999, on the later of (A) the date his employment terminates, or (B) the date he elects payment on or after he attains age 55. ARTICLE VI ---------- Disability Benefits ------------------- Section 6.1. Eligibility For Disability Benefits: A Participant shall be ----------------------------------- entitled to a Disability Benefit if he suffers a Disability prior to his Retirement. Section 6.2. Amount of Disability Benefits: The Disability Benefit ----------------------------- payable to an eligible Participant shall equal (a) minus (b) as follows: (a) One-twelfth (1/12th) of sixty percent (60%) of the Participant's Compensation calculated as of the date of his Disability. 15 (b) The total monthly amount of disability benefit payable to the Participant under the Group Long-Term Disability Plan (before any offsets) as of the date that his employment terminates due to Disability. Section 6.3. Payment of Disability Benefits: A Participant's Disability ------------------------------ Benefits shall commence at the same time such Participant begins receiving benefits from the Group Long-Term Disability Plan and shall continue for so long as benefits are paid under the Group Long-Term Disability Plan. Section 6.4. Payment of Supplemental Pension to Disabled Participants: -------------------------------------------------------- (a) Upon Reaching Normal Retirement Age. If a Participant who ----------------------------------- has suffered a Disability reaches his normal retirement age under the Pension Plan while still receiving Disability Benefits, such Participant shall be entitled to a Supplemental Pension commencing at the time Participant begins receiving retirement benefits from the Pension Plan regardless of whether the Participant has been an Eligible Employee for at least two years. The Supplemental Pension payable to such Participant shall be in the form provided in Section 5.3 and determined in accordance with Subsection 5.2(a). Upon commencement of a Participant's Supplemental Pension under this Section 6.4(a), such Participant's Disability Benefit under Section 6.3 hereof shall cease. (b) Prior to Reaching Normal Retirement Age. Notwithstanding the --------------------------------------- provisions of paragraph (a) above, a Participant receiving a Disability Benefit may elect to receive a Supplemental Pension at any time after becoming eligible to Retire and prior to his normal retirement age under the Pension Plan. If such an election is made, the Participant's Disability Benefits shall cease and the Participant shall commence receiving a Supplemental Pension in the form provided in Section 5.3 at the same time he begins receiving retirement benefits from the Pension Plan. The Supplemental Pension payable to such Participant shall be determined in accordance with Subsections 5.2(a) and (b), and shall be determined based on the Participant's Compensation as of the date that such individual terminated employment on account of disability. 16 ARTICLE VII ----------- Death Benefits -------------- Section 7.1. Eligibility For Death Benefits: A Participant shall be ------------------------------ entitled to a Death Benefit if he meets the requirements of either (a) or (b) or (c) as follows: (a) He dies before his employment with the Employer terminates or while receiving a Disability Benefit under this Plan. (b) He Retires but dies before the commencement of his Supplemental Pension. (c) He is entitled to a Supplemental Pension pursuant to the provisions of Subsection 5.1(b) or Subsection 5.5(a) of this Plan, but dies before the commencement of his Supplemental Pension. Section 7.2. Amount of Death Benefit: ----------------------- (a) In-Service Death: In the case of a Participant who dies as ---------------- provided in Subsection 7.1(a), the Death Benefit will be the total of the following (i), (ii), and (iii): (i) A lump sum payment equal to two times the Participant's Compensation minus any amount payable under the Employer's Group Basic Life Insurance Plan (the "Lump Sum Death Benefit"). (ii) A monthly benefit equal to one-twelfth of an amount equal to fifty percent of the Participant's Compensation at the time of his death (the "Monthly Death Benefit"). (iii) If the Participant leaves a child or children to whom payments are to be made under Section 7.3 hereof, a monthly benefit equal to one-twelfth of an amount equal to twenty-five percent of the Participant's Compensation at the time of his death (the "Dependent Death Benefit"). (b) Post Retirement Death: In the case of a Participant who dies --------------------- as provided in Subsection 7.1(b), a Death Benefit will be paid in the amount and to the beneficiary that would have been applicable had the Participant's Supplemental Pension commenced in the month of his death. 17 (c) Deferred Retirement Death. In the case of a Participant who dies ------------------------- as provided in Subsection 7.1(c), a Death Benefit will be paid as provided in (i) or (ii) as follows: (i) In the case of a Participant who dies prior to reaching age 55, to the beneficiary (determined as of the Participant's date of death) and in the amount that would have been applicable had the Participant lived to age 55, commenced his Supplemental Pension in the month immediately following the month in which he reached age 55 and died immediately after his Supplemental Pension commenced. (ii) In the case of a Participant who dies after reaching age 55, in the amount and to the beneficiary that would have been applicable had the Participant's Supplemental Pension commenced in the month of his death. Section 7.3. Form of Payment of Death Benefit: -------------------------------- (a) Lump Sum and Monthly Death Benefits: The Lump Sum and Monthly ----------------------------------- Death Benefits are payable to the Participant's surviving spouse. If the Participant does not have a surviving spouse, the Lump Sum and Monthly Death Benefits are payable to the Participant's surviving children in equal shares (regardless of dependent status) or, if there are no surviving children, to the Participant's surviving parents or siblings as designated by the Participant for this purpose and in the manner specified by the Participant on a form supplied by the Employer. Payment of the Monthly Death Benefit shall be as a single life annuity if payable to Participant's surviving spouse or a 120-month term certain annuity if payable to a child, parent, or sibling. (b) Dependent Death Benefit: The Dependent Death Benefit is payable ----------------------- to the Participant's dependent children in equal shares until there cease to be any dependent children remaining. As each child loses his or her dependent status, the child's share of the Dependent Death Benefit shall be paid to the remaining dependent child or children in equal shares. A child of the Participant is deemed to be a dependent until the 18 child reaches age eighteen or, if a full-time student (i.e. enrolled in twelve hours or more of courses of higher education), age 25, or until the child's death if earlier. At the discretion of the Plan Administrator, any dependent child's share of the Dependent Death Benefit may be paid to the Participant's surviving spouse or other guardian of such child if applicable and shall constitute full settlement of the Plan's obligation to such child with respect to such payment. If the Participant's surviving spouse dies while receiving the Monthly Death Benefit and while any dependent child or children of the Participant remain, then the Monthly Death Benefit shall be added to the Dependent Death Benefit and shall be payable in equal shares to the dependent children in the same manner and for the same time period as the Dependent Death Benefit. Section 7.4. Commencement of Death Benefits: ------------------------------ (a) The Death Benefits payable pursuant to Subsection 7.2(a) shall be paid, with respect to the Lump Sum Death Benefit, or shall commence, with respect to the Monthly and Dependent Death Benefits, as of the first day of the month next following the Participant's death (b) The Death Benefits payable pursuant to Subsections 7.2(b) and (c) shall commence as of the first day of the month next following the Participant's death, except in the case of the Death Benefit payable pursuant to Subsection 7.2(c)(i) which, unless earlier commencement is elected as provided below, shall commence as of the first day of the month following the month in which the Participant would have reached age 55. At the beneficiary's option, the Death Benefit payable under Subsection 7.2(c)(i) may commence on the first day of any month following the Participant's death. The earlier benefit to be paid shall be the actuarial equivalent of the benefit that would have been payable at the Participant's attainment of age 55, as determined under Subsection 7.2(c)(i). For purposes of this paragraph, an "actuarial equivalent" benefit shall be determined based upon an interest rate of 8.0% per annum and the "IRS Applicable Table" as prescribed under Internal Revenue Code Section 417(e)(3)(A)(ii)(I). (c) If the beneficiary entitled to receive the Death Benefits payable pursuant to Sections 7.2(b) or (c) is the Participant's surviving spouse and such spouse dies before commencement of the payment of these Death Benefits as provided in paragraph (b) above, then no Death Benefits shall be payable under Subsection 7.2(b) or (c). 19 ARTICLE VIII ------------ Administration -------------- Section 8.1. Plan Administration: The Plan shall be administered by the ------------------- Board of Directors. The Board of Directors may, in its sole discretion, establish a committee to carry out the day-to-day administration of the Plan and may delegate any portion of its authority and responsibilities as Plan Administrator to such committee. Section 8.2. Powers of Plan Administrator: The Plan Administrator shall ---------------------------- have the discretionary power and authority to interpret and administer the Plan according to its terms, including the power to construe and interpret the Plan, to supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any questions in the administration and application of the Plan, and to make equitable adjustments for any mistakes or errors in the administration and application of the Plan. The Plan Administrator shall have such additional powers as may be necessary to discharge its duties and responsibilities hereunder. Section 8.3. Calculation of Funding Obligations: The Employer shall ---------------------------------- calculate its funding obligations hereunder solely by using the actuarial assumptions and methodology set forth in Exhibit D hereto. In its discretion, at any time prior to a Change in Control of the Employer, the Employer may amend Exhibit D to change such actuarial assumptions and methodology, provided that such changes are communicated promptly in writing to all Participants, Retired Participants, and Beneficiaries. Upon and after a Change in Control of the Employer, the actuarial assumptions and methodology set forth in Exhibit D may be changed with respect to any Participant, Retired Participant, or Beneficiary who was a Participant, Retired Participant, or Beneficiary at the time of such Change in Control, only with the written consent of such affected Participant, Retired 20 Participant, or Beneficiary. For purposes of this Section 8.3 only, and notwithstanding the foregoing, no actions or events related to the merger of United Cities Gas Company ("United Cities") with and into the Employer, as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities, including shareholder approval of the Merger or the consummation of the Merger, shall constitute a Change in Control of the Employer that requires any consent be obtained pursuant to this Section 8.3. Section 8.4. Annual Statements: As soon as practicable after the end of ----------------- each Plan Year, the Employer shall deliver to each Participant, Retired Participant, and Beneficiary a statement containing (i) the present value of the Employer's future benefit obligations to the Participant, Retired Participant, or Beneficiary; (ii) the actuarial assumptions used to calculate the present value of the Employer's future benefit obligations hereunder; and (iii) the current value of the assets, if any, held in a trust or other funding arrangement for the benefit of the Participant, Retired Participant, or Beneficiary. ARTICLE IX ---------- Miscellaneous Provisions ------------------------ Section 9.1. Amendment or Termination of the Plan: ------------------------------------ (a) In General. Subject to the remaining provisions of this ---------- Section 9.1, the Board of Directors may by resolution, in its absolute discretion, from time to time, amend, suspend, or terminate any or all of the provisions of the Plan; provided, however, that no amendment, suspension, or termination may apply so as to decrease the payment to any Participant or beneficiary of any benefit under the Plan that he accrued prior to the 21 effective date of such amendment, suspension, or termination unless the Participant has engaged in dishonest or competitive activities as described in Section 9.5 hereof. (b) Amendment That Decreases Benefits. If the Board of Directors --------------------------------- amends the Plan and such amendment results in a decrease in the Supplemental Pension, Death Benefit or Disability Benefit that otherwise would be paid under this Plan but for the amendment, except as provided in subparagraphs (iii) and (iv) below, the Participant's Supplemental Pension, Death Benefit or Disability Benefit shall equal the sum of (i) and (ii) as follows: (i) The amount derived by multiplying the Participant's benefit calculated pursuant to the terms of the Plan in effect immediately prior to the amendment and based upon the Participant's Compensation used to calculate the appropriate benefit by the following fraction: The numerator is the number of years of vesting service the Participant has under the Pension Plan prior to the effective date of the amendment, and the denominator is the total number of years of vesting service the Participant has under the Pension Plan; however, neither the numerator nor the denominator shall exceed 10. (ii) The amount derived by multiplying the Participant's benefit as calculated pursuant to the terms of the Plan as amended based upon the Participant's Compensation used to calculate the appropriate benefit by the following fraction: The numerator is the number of years that the Participant participated in the Pension Plan after the effective date of the amendment (but this number when added to the numerator of the fraction in subparagraph (i) above, shall not exceed 10) and the denominator is the total number of years of vesting service the Participant has under the Pension Plan (but this number shall not exceed 10). (iii) Notwithstanding the foregoing provisions of this paragraph (b), if the Plan is so amended before a Participant has five years of vesting service under the Pension Plan, the Participant's Supplemental Pension, Death Benefit or Disability Benefit shall be calculated solely in accordance with the terms of the Plan as amended. (iv) Notwithstanding the foregoing provisions of this paragraph (b), if any such amendment occurs upon or after a Change in Control, the Participant's Supplemental Pension shall at least equal the benefits which 22 would be paid under paragraph (c) below if there was a termination of the Plan at the time of such amendment. Notwithstanding the foregoing provisions of this paragraph (b), the Amendment and Restatement of the Plan effective May 14, 1997 shall not for any purposes be treated as resulting in a decrease in the Supplemental Pension, Death Benefit or Disability Benefit otherwise payable under this Plan. (c) Termination of the Plan. ----------------------- (i) If the Board of Directors terminates all or any portion of the Plan and such termination adversely affects a Participant's Supplemental Pension, such Participant shall be entitled to receive a Supplemental Pension whether or not such Participant has been an Eligible Employee for at least two years or has five years of vesting service under the Pension Plan at the time of such Plan termination. (A) It shall be based upon the Participant's Compensation as of the date of the termination of the Plan; (B) If payment of the Supplemental Pension begins before the Participant has ten years of vesting service in the Pension Plan, the reduction referred to in Section 5.2(a)(i) shall not apply; (C) If payment of the Supplemental Pension begins before the Participant attains age 62, the reductions referred to in Section 5.2(b) shall not apply; and (D) If the Participant is not otherwise vested under the Pension Plan, the calculation made under Subsection 5.2(a)(ii) above shall be made as if he were so vested. The Supplemental Pension determined under this paragraph (c) shall commence (i) prior to January 1, 1999, at the time the Participant begins receiving retirement benefits from the Pension Plan, or if he is not entitled to benefits from the Pension Plan when his employment is terminated, at the time he would otherwise be entitled to begin receiving retirement benefits under the Pension Plan if he were so entitled, and (ii) if on or after January 1, 1999, on the later of (A) the date his employment terminates, or (B) the date he elects payment on or after he attains age 55. (ii) If the Board of Directors terminates all or any portion of the Plan and such termination adversely affects the Disability Benefits or Death 23 Benefits described in the Plan, a Participant shall continue to be entitled to the Disability Benefits or Death Benefits described in the Plan if he thereafter dies or suffers a Disability. Any such Death Benefit or Disability Benefit, however, shall be calculated as of the date of termination of such benefit or the Plan as if such date of termination was the date the Participant died or suffered a Disability. Payment of any such Death Benefit or Disability Benefit shall be made in accordance with the terms of the Plan as in effect immediately prior to the date of termination of such benefit or the Plan. Section 9.2. Nonguarantee of Employment: Nothing contained in this Plan -------------------------- shall be construed as a contract of employment between the Employer and any employee, as a right of any employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its employees, with or without Cause. Section 9.3. Nonalienation of Benefits: To the extent permitted by law, ------------------------- benefits payable under this Plan shall not, without the Plan Administrator's consent, be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Any unauthorized attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to benefits payable hereunder shall be void. No part of the assets of the Employer shall be subject to seizure by legal process resulting from any attempt by creditors of or claimants against any Participant or beneficiary or any person claiming under or through the foregoing to attach his interest under the Plan. Section 9.4. Liability: No director, officer, or employee of the Employer --------- shall be liable for any act or action, whether of commission or omission, taken by any other director, officer, employee, or agent of the Employer under the terms of the Plan or, except in circumstances involving his bad faith, for anything done or omitted to be done by him under the terms of the Plan. Section 9.5. Noncompetition Agreement: All Participants in the Plan shall ------------------------ have entered into Noncompetition Agreements in the form attached hereto as Exhibit B as a 24 condition to their participation in the Plan. Notwithstanding any other provisions of this Plan to the contrary, no benefits shall be payable under the Plan, and payment of benefits will cease, if a Participant is in breach of such agreement at any time during the term of such agreement. Section 9.6. Participation Agreement: Each Participant shall enter into a ----------------------- Participation Agreement as a condition to his participation in the Plan. Such Participation Agreement shall constitute a separate and enforceable agreement between the Employer and the Participant regarding the Participant's rights in the Plan. Section 9.7. Successors to the Employer: Any successor to the Employer -------------------------- hereunder, which successor continues or acquires any of the business of the Employer, shall be bound by the terms of this Plan in the same manner and to the same extent as the Employer. IN WITNESS WHEREOF, and as conclusive evidence of its adoption of this Amended and Restated Supplemental Executive Benefits Plan, the Employer has caused this Plan to be duly executed effective as of the 12th day of August, 1998. ATMOS ENERGY CORPORATION By: /s/ Robert W. Best ---------------------------------- Robert W. Best, Chairman of the Board, President and Chief Executive Officer 25 EXHIBIT A MINIMUM BENEFIT SCHEDULE One twelfth (1/12th) of the Annual Amount set forth below for a Participant is the minimum total monthly pension amount payable from this Plan and the Pension Plan to the Participant so long as payment commences no earlier than the specified Earliest Commencement Age. Earlier commencement will result in reduction under Section 5.2 of this Plan, except in the case of Mr. Vaughan, whose benefits under this Plan (including the minimum Annual Amount stated below) are payable upon his retirement at any time after he has reached age fifty-five (55). -------------------------------------------------------------------------------- Participant Name Annual Amount Earliest Commencement Age -------------------------------------------------------------------------------- E. G. Carter $ 84,503 62 -------------------------------------------------------------------------------- J. A. Enloe 76,924 62 -------------------------------------------------------------------------------- N. V. Fariss 84,060 62 -------------------------------------------------------------------------------- D. E. James 104,668 62 -------------------------------------------------------------------------------- W. P. McKee, Jr. 79,851 62 -------------------------------------------------------------------------------- H. E. Neel 100,259 62 -------------------------------------------------------------------------------- J. F. Purser 124,625 62 -------------------------------------------------------------------------------- C. G. Shaffer 69,499 62 ------------------------------------------------------------------------------- R. F. Stephens 143,028 62 ------------------------------------------------------------------------------- C. K. Vaughan 277,103 55 ------------------------------------------------------------------------------- EXHIBIT B NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT is entered into as of the___________ day of ______________, 199___, by and between ATMOS ENERGY CORPORATION, a Texas corporation (the "Employer"), and ____________________________________________ ("Participant"). W I T N E S S E T H: WHEREAS, the Employer has adopted the Atmos Energy Corporation Supplemental Executive Benefits Plan (the "Plan"), pursuant to which certain executive or management employees of the Employer are eligible to receive supplemental retirement, disability, and death benefits; and WHEREAS, in accordance with the requirements of the Plan and as an inducement to the Employer to allow Participant's participation in the Plan, Participant has agreed to execute and enter into this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Participant agrees that, during the term of this Agreement, Participant shall not (a) participate, directly or indirectly, as an employee, agent, representative, officer, director, stockholder, partner, joint venturer, or otherwise or (b) have any direct or indirect financial interest in any form in any business that sells or offers for sale, directly or indirectly, any products or services that are competitive with the products or services sold or offered for sale by the Employer in any geographic location in which the Employer shall be doing business during such period of time as Participant is a participant in the Plan; provided, however, that the ownership by Participant of any stock listed on a national securities exchange of any corporation conducting a competing business shall not be deemed a violation of this Agreement if the aggregate amount of such stock owned by Participant does not exceed one percent (1%) of the total outstanding stock of such corporation. 2. In the event of a breach or threatened breach of the provisions of this Agreement by Participant, the Employer shall be entitled (as an absolute right and without the necessity of proving irreparable injury or damages and in addition to any other remedies available under the Plan or otherwise) to an injunction restraining Participant from such violation. 3. If any provision of this Agreement shall, for any reason, be adjudged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair, or invalidate the remainder of this Agreement but shall be confined in its operation to the provisions of this Agreement directly involved in the controversy in which such judgment shall have been rendered. To the extent that the provisions of this Agreement are adjudged to be invalid or unenforceable, this Agreement shall be construed and (in the absence of such construction) reformed so as to allow the maximum benefit of the provisions of this Agreement permitted by law. If, however, this Agreement shall for any reason be held by a court of competent jurisdiction to be excessively broad as to time, duration, geographical scope, activity, or subject matter, it shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable laws as they shall then appear. 4. This Agreement shall become effective as of the commencement of Supplemental Pension or Disability Benefits from the Plan and shall terminate upon the earliest to occur of (i) five (5) years from the date Participant begins receiving Supplemental Pension or Disability Benefits from the Plan, (ii) the attainment of age 67 by Participant, or (iii) Participant's death. 5. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition Agreement as of the date first written above. PARTICIPANT ATMOS ENERGY CORPORATION By: --------------------------------- ------------------------------------- 2 EXHIBIT C-1 PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT is entered into as of the _________ day of _______________, 19____ by and between ATMOS ENERGY CORPORATION, a Texas corporation (the "Employer"), and __________________________________________ ("Participant"). W I T N E S S E T H: WHEREAS, the Employer adopted and has been maintaining the Atmos Energy Corporation Supplemental Executive Benefits Plan (the "Plan"), pursuant to which certain executive or management employees of the Employer may receive supplemental retirement, disability, and death benefits; and WHEREAS, Participant has been a participant in the Plan; and WHEREAS, effective as of May 14, 1997 (the "Effective Date"), the Employer amended and restated the Plan; and WHEREAS, the parties desire to enter into a new participation agreement in order for Participant to continue participation in the amended and restated Plan; and WHEREAS, in accordance with Section 9.6 of the Plan, the Employer and Participant have agreed to execute and enter into this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement. The Employer hereby agrees to provide to Participant the benefits described in the Plan pursuant to the terms and conditions set forth in the Plan and in this Agreement. 2. Amendment or Termination of the Plan; Termination of Employment or Participation Without Cause. The Employer hereby agrees that, if (i) the Employer amends or terminates the Plan after May 14, 1997 in such a manner that results in a decrease in the amount of the benefits to be paid under the Plan to Participant, or (ii) Participant's employment is terminated voluntarily or involuntarily by the Employer for any reason other than for Cause (as defined in Subparagraph 2(e) below), or (iii) Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause prior to the Participant's termination of employment with the Employer, Participant shall have the right to, and the Employer agrees to pay to Participant, any benefits accrued prior to the effective date of such amendment or termination of the Plan or of such termination of Participant's employment with the Employer or participation in the Plan. The amount of benefits that shall be paid under this Paragraph 2 shall be calculated as follows: (a) In the event the Employer amends the Plan after May 14, 1997 and such amendment results in a decrease in the amount of the Supplemental Pension, Disability Pension, or Death Benefit that would be paid under the Plan but for the amendment thereof, the amount of Participant's benefit shall be the sum of: (i) Participant's benefit as calculated pursuant to the terms of the Plan in effect immediately prior to the amendment thereof, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years of vesting service by Participant in the Pension Plan prior to the effective date of the amendment (which number shall not be less than 5 nor greater than 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number, for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); plus (ii) Participant's benefit as calculated pursuant to the terms of the Plan as amended, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years that Participant participated in the Pension Plan after the effective date of the amendment (which number, for purposes of calculating Participant's Supplemental Pension, when added to the numerator of the fraction in clause (i) above, may not exceed 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); provided, however, that if the Plan is so amended prior to Participant's fifth year of vesting service in the Pension Plan, Participant's Supplemental 2 Pension payable hereunder shall be calculated solely in accordance with the terms of the Plan as amended; provided, further, that, Participant's Supplemental Pension must at least equal the benefits which would be paid under Section 9.1(c) of the Plan if there was a termination of the Plan at the time of such amendment. (b) In the event the Employer terminates the Plan or any portion thereof after May 14, 1997 and such termination affects the Disability Pension or Death Benefit described in the Plan, Participant's Disability Pension and Death Benefit shall be calculated as of the date of termination of such benefit as though the date of such termination was the date that Participant became disabled or died. Such Disability Pension and Death Benefit shall become payable, however, only upon Participant's disability or death occurring in accordance with the terms of the Plan or any portion thereof in effect immediately prior to the date of its termination. (c) In the event the Employer terminates the Plan or any portion thereof after May 14, 1997 and such termination affects the Supplemental Pension described in the Plan, Participant's Supplemental Pension shall be the amount determined in accordance with Section 5.2 of the Plan except that (i) It shall be based upon the Participant's Compensation as of the date of the termination of the Plan; (ii) If payment of the Supplemental Pension begins before the Participant has ten years of vesting service in the Pension Plan, the reduction referred to in Section 5.2(a)(i) of the Plan shall not apply; (iii) If payment of the Supplemental Pension begins before the Participant attains age 62, the reductions referred to in Section 5.2(b) of the Plan shall not apply; and (iv) If the Participant is not otherwise vested under the Pension Plan, the calculation made under Subsection 5.2(a)(ii) of the Plan shall be made as if he were so vested. (d) If Participant's employment with the Employer is terminated voluntarily or involuntarily by the Employer for any reason other than for Cause (as defined in Subparagraph 2(e) below) or if Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause, Participant shall be entitled to receive a Supplemental 3 Pension at such time as he becomes entitled to receive a benefit under the Pension Plan. Such Supplemental Pension shall be calculated in the same manner as set forth in Subparagraph 2(c) above for benefits payable in the event of a termination of the Plan. (e) As used in this Agreement, "Cause" for termination of employment shall mean termination upon (i) the willful and continued failure by Participant to substantially perform his duties with the Employer (other than any such failure resulting from Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Participant by the Employer that specifically identifies the manner in which the Employer believes that Participant has not substantially performed his duties, or (ii) Participant's willful engagement in conduct that is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes of this Subparagraph, no act, or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without a reasonable belief that the action or omission was in the best interests of the Employer. Notwithstanding the foregoing, Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board of Directors of the Employer at a meeting of such Board of Directors called and held for such purpose (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors that Participant was guilty of conduct set forth above in clauses (i) or (ii) of this Subparagraph 2(e) and specifying the particulars thereof in detail. 3. Limitations. Participant agrees that nothing in this Agreement or the Plan shall entitle him, or be deemed to entitle him, to receive a Supplemental Pension under the Plan if (i) he has not met the requirements for a Supplemental Pension as set forth in the Plan, or 4 (ii) his employment with the Employer or participation in the Plan is terminated for Cause (as defined in Subparagraph 2(e) above). 4. Amendment. No amendment or termination of the Plan by the Employer shall constitute an amendment or termination of this Agreement. This Agreement may be amended or modified only by the written agreement of the parties hereto, and will terminate only upon the occurrence of the earlier of the following events: (i) the execution of a written agreement to terminate this Agreement signed by all of the parties hereto, (ii) the satisfaction of all of the Employer's obligations to Participant under the Plan and this Agreement, (iii) the termination for Cause of Participant's employment with the Employer or participation in the Plan, or (iv) the breach by Participant of any of the terms or provisions of the Noncompetition Agreement executed by Participant in accordance with the Plan. 5. Funding. (a) Not later than the time the Participant Retires or becomes eligible to receive an unreduced Supplemental Pension under the Plan, whichever occurs first, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of the Participant's accrued Supplemental Pension. Notwithstanding the foregoing, immediately upon a Change in Control, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of all Supplemental Pension benefits (vested and unvested) payable under this Agreement and/or the Plan to the Participant, regardless of whether the Participant is then eligible to Retire. The amount required to be funded by this Paragraph 5 shall be calculated in accordance with Paragraph 6 hereof. The Employer shall review the funding status of the trust or other funding arrangement established under this Paragraph 5 on an annual basis and shall make contributions thereto as may be required to maintain the value of the assets thereof at no less than 100% of the then-present value of all such Supplemental Pension benefits. (b) (i) As used in this Paragraph 5 and Paragraph 6, except as provided herein, a "Change in Control" of the Employer shall be deemed to have occurred if: (A) Any "Person" (as defined in subparagraph (ii) below), other than (1) the Employer or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Employer or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the 5 shareholders of the Employer in substantially the same proportions as their ownership of stock of the Employer, is or becomes the "beneficial owner" (as defined in subparagraph (ii) below), directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Employer's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Employer, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (C)(1) below. (B) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Employer and any "new director" (as defined in subparagraph (ii) below) cease for any reason to constitute a majority of the Board of Directors. (C) There is consummated a merger or consolidation of the Employer or any direct or indirect subsidiary of the Employer with any other corporation, except if: (1) the merger or consolidation would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (2) the merger or consolidation is effected to implement a recapitalization of the Employer (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such Person any securities acquired directly from the Employer or its Affiliates other than in connection with the acquisition by the Employer or its Affiliates 6 of a business) representing 60% or more of the combined voting power of the Employer's then outstanding securities; (D) The shareholders of the Employer approve a plan of complete liquidation or dissolution of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets, other than a sale or disposition by the Employer of all or substantially all of the Employer's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Employer in substantially the same proportions as their ownership of the Employer immediately prior to such sale. Notwithstanding the foregoing provisions of this subparagraph (b)(i), no actions or events related to the merger of United Cities Gas Company ("United Cities") with and into the Employer, as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities (the "Merger"), including the consummation of the Merger, shall constitute a Change in Control of the Employer for purposes of this Agreement. (ii) For purposes of subparagraph (i) above, (A) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d) of the Exchange Act. (B) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (C) "New director" shall mean an individual whose election by the Employer's Board of Directors or nomination for election by the Employer's shareholders was approved by a vote of at least 2/3's of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. 7 (D) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 6. Calculation of Funding Obligations. The Employer shall calculate its funding obligations under this Agreement and the Plan solely by using the actuarial assumptions and methodology set forth in Exhibit D to the Plan. Upon and after a Change in Control of the Employer, the actuarial assumptions and methodology set forth in Exhibit D may be changed with respect to the Participant or, if applicable, his Beneficiary, only with the Participant's, or, if applicable, his Beneficiary's, written consent. 7. Annual Statements: As soon as practicable after the end of each Plan Year, the Employer shall deliver to the Participant or, if applicable, his Beneficiary, a statement containing (i) the present value of the Employer's future benefit obligations to the Participant, or, if applicable, his Beneficiary; (ii) the actuarial assumptions used to calculate the present value of the Employer's future benefit obligations under the Plan; and (iii) the current value of the assets, if any, held in any trust or other funding arrangement for the benefit of the Participant, or, if applicable, his Beneficiary. 8. No Guarantee of Employment. Nothing contained in this Agreement shall be construed as a contract of employment between the Employer and Participant, or as a right of Participant to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge Participant with or without cause. 9. Legal Fees and Expenses. The Employer agrees to pay any and all legal fees and expenses incurred by Participant in seeking to obtain or enforce any right or benefit provided by this Agreement. 10. Capitalized Terms. Each capitalized term used in this Agreement that is not otherwise defined herein shall have the same meaning attributed to it in the Plan. 11. Agreement Binding on Successors to the Employer. Any successor to the Employer hereunder, which successor continues or acquires any of the business of the Employer, shall be bound by the terms of this Agreement in the same manner and to the same extent as the Employer. 12. Prior Agreements Superseded. The terms of this Agreement supersede the terms of all prior Participation Agreements between Participant and the Employer. 13. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. 8 IN WITNESS WHEREOF, the parties hereto have executed this Participation Agreement as of the date first written above. PARTICIPANT: ATMOS ENERGY CORPORATION: By: ------------------------------ ------------------------------------------- 9 EXHIBIT C-2 PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT is entered into as of the ____ day of _____________, 19____ by and between ATMOS ENERGY CORPORATION, a Texas corporation (the "Employer"), and _____________________________________ ("Participant"). W I T N E S S E T H: WHEREAS, the Employer has adopted the Atmos Energy Corporation Supplemental Executive Benefits Plan (the "Plan"), pursuant to which certain executive or management employees of the Employer may receive supplemental retirement, disability, and death benefits; and WHEREAS, in accordance with Section 9.6 of the Plan, the Employer and Participant have agreed to execute and enter into this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement. The Employer hereby agrees to provide to Participant the benefits described in the Plan pursuant to the terms and conditions set forth in the Plan and in this Agreement. 2. Amendment or Termination of the Plan; Termination of Employment or Participation Without Cause. The Employer hereby agrees that, if (i) the Employer amends or terminates the Plan in such a manner that results in a decrease in the amount of the benefits to be paid under the Plan to Participant, or (ii) Participant's employment is terminated involuntarily by the Employer for any reason other than for Cause (as defined in Subparagraph 2(e) below), or (iii) Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause prior to the Participant's termination of employment with the Employer, Participant shall have the right to, and the Employer agrees to pay to Participant, any benefits accrued prior to the effective date of such amendment or termination of the Plan or of such termination of Participant's employment with the Employer or participation in the Plan. The amount of benefits that shall be paid under this Paragraph 2 shall be calculated as follows: (a) In the event the Employer amends the Plan and such amendment results in a decrease in the amount of the Supplemental Pension, Disability Pension, or Death Benefit that would be paid under the Plan but for the amendment thereof, the amount of Participant's benefit shall be the sum of: (i) Participant's benefit as calculated pursuant to the terms of the Plan in effect immediately prior to the amendment thereof, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years of vesting service by Participant in the Pension Plan prior to the effective date of the amendment (which number shall not be less than 5 nor greater than 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number, for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); plus (ii) Participant's benefit as calculated pursuant to the terms of the Plan as amended, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years that Participant participated in the Pension Plan after the effective date of the amendment (which number, for purposes of calculating Participant's Supplemental Pension, when added to the numerator of the fraction in clause (i) above, may not exceed 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); provided, however, that if the Plan is so amended prior to Participant's fifth year of vesting service in the Pension Plan, Participant's Supplemental Pension payable hereunder shall be calculated solely in accordance with the terms of the Plan as amended; provided, further, that, if such amendment occurs upon or after a "Change in Control" (as defined in Subparagraph 3(b) below), Participant's Supplemental Pension must be at least equal the benefits which would be paid under Section 9.1(c) of the Plan if there was a termination of the Plan at the time of such amendment. 2 (b) In the event the Employer terminates the Plan or any portion thereof and such termination affects the Disability Pension or Death Benefit described in the Plan, Participant's Disability Pension and Death Benefit shall be calculated as of the date of termination of such benefit as though the date of such termination was the date that Participant became disabled or died. Such Disability Pension and Death Benefit shall become payable, however, only upon Participant's disability or death occurring in accordance with the terms of the Plan or any portion thereof in effect immediately prior to the date of its termination. (c) In the event the Employer terminates the Plan or any portion thereof and such termination affects the Supplemental Pension described in the Plan, Participant's Supplemental Pension shall be the amount determined in accordance with Section 5.2 of the Plan except that (i) It shall be based upon the Participant's Compensation as of the date of the termination of the Plan; (ii) If payment of the Supplemental Pension begins before the Participant has ten years of vesting service in the Pension Plan, the reduction referred to in Section 5.2(a)(i) of the Plan shall not apply; (iii) If payment of the Supplemental Pension begins before the Participant attains age 62, the reductions referred to in Section 5.2(b) of the Plan shall not apply; and (iv) If the Participant is not otherwise vested under the Pension Plan, the calculation made under Subsection 5.2(a)(ii) of the Plan shall be made as if he were so vested. (d) If, at any time prior to a "Change in Control" (as defined in Subparagraph 3(b) hereof), Participant's employment with the Employer is terminated involuntarily by the Employer for any reason other than for Cause (as defined in Subparagraph 2(e) below) or if Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause, Participant shall nevertheless be entitled to the benefits payable under the Plan that have accrued prior to the termination of Participant's employment or Plan participation, the amount of such benefits to be calculated in the manner set forth in Section 5.2 of the Plan; provided, however, that Participant's right to a Supplemental Pension shall vest only if Participant has been an Eligible Employee for at least two years and has at least five years of vesting service under the Pension Plan as of the date of such termination. 3 (e) As used in this Agreement, "Cause" for termination of employment shall mean termination upon (i) the willful and continued failure by Participant to substantially perform his duties with the Employer (other than any such failure resulting from Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Participant by the Employer that specifically identifies the manner in which the Employer believes that Participant has not substantially performed his duties, or (ii) Participant's willful engagement in conduct that is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes of this Subparagraph, no act, or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without a reasonable belief that the action or omission was in the best interests of the Employer. Notwithstanding the foregoing, Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board of Directors of the Employer at a meeting of such Board of Directors called and held for such purpose (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors that Participant was guilty of conduct set forth above in clauses (i) or (ii) of this Subparagraph 2(e) and specifying the particulars thereof in detail. 3. Change in Control. (a) Notwithstanding anything expressly or impliedly to the contrary contained in this Agreement or the Plan, if, [TO BE INSERTED WHERE APPROPRIATE: AT ANY TIME DURING THE THREE (3)-YEAR PERIOD IMMEDIATELY] following a Change in Control of the Employer, Participant's employment is involuntarily terminated by the Employer, or he is demoted or reassigned to a position that causes him to cease to be an Eligible Employee, for any reason other than for Cause (as defined in Subparagraph 2(e) above), Participant shall nevertheless be entitled to receive a Supplemental Pension at such time as he becomes entitled to receive a benefit under the Pension Plan regardless of whether Participant has been an Eligible Employee for at least two years or has five years of vesting service under the Pension Plan at the time of such termination, demotion, or reassignment. If a 4 Participant's employment is involuntarily terminated by the Employer for any reason other than for Cause, or his participation in the Plan is terminated by the Employer for any reason other than for Cause, prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination either (A) was at the request or direction of a person who has entered into an agreement with the Employer, the consummation of which would constitute a Change in Control, or (B) was otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs), then such Participant's termination of employment or participation shall be deemed to have followed a Change in Control of the Employer. Such Supplemental Pension shall be calculated in the same manner as set forth in Subparagraph 2(c) above for benefits payable in the event of a termination of the Plan. (b) (i) As used in this Agreement, except as provided herein, a "Change in Control" of the Employer shall be deemed to have occurred if: (A) Any "Person" (as defined in subparagraph (ii) below), other than (1) the Employer or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Employer or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Employer in substantially the same proportions as their ownership of stock of the Employer, is or becomes the "beneficial owner" (as defined in subparagraph (ii) below), directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33- 1/3% or more of the combined voting power of the Employer's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Employer, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (C)(1) below. (B) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Employer and any "new director" (as defined in subparagraph (ii) below) cease for any reason to constitute a majority of the Board of Directors. 5 (C) There is consummated a merger or consolidation of the Employer or any direct or indirect subsidiary of the Employer with any other corporation, except if: (1) the merger or consolidation would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (2) the merger or consolidation is effected to implement a recapitalization of the Employer (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such Person any securities acquired directly from the Employer or its Affiliates other than in connection with the acquisition by the Employer or its Affiliates of a business) representing 60% or more of the combined voting power of the Employer's then outstanding securities; (D) The shareholders of the Employer approve a plan of complete liquidation or dissolution of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets, other than a sale or disposition by the Employer of all or substantially all of the Employer's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Employer in substantially the same proportions as their ownership of the Employer immediately prior to such sale. [CAN BE DROPPED FOR ANY PERSON WHO BECOMES AN ELIGIBLE EMPLOYEE FOLLOWING CONSUMMATION OF THE UNITED CITIES MERGER: NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SUBPARAGRAPH (B)(I), NO ACTIONS OR EVENTS RELATED TO THE MERGER OF UNITED CITIES GAS COMPANY ("UNITED CITIES") WITH AND INTO THE EMPLOYER, AS 6 CONTEMPLATED BY THE AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF JULY 19, 1996, BETWEEN THE EMPLOYER AND UNITED CITIES (THE "MERGER"), INCLUDING THE CONSUMMATION OF THE MERGER, SHALL CONSTITUTE A CHANGE IN CONTROL OF THE EMPLOYER FOR PURPOSES OF THIS AGREEMENT.] (ii) For purposes of subparagraph (i) above, (A) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d) of the Exchange Act. (B) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (C) "New director" shall mean an individual whose election by the Employer's Board of Directors or nomination for election by the Employer's shareholders was approved by a vote of at least 2/3's of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (D) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 4. Limitations. Except as otherwise provided in Paragraph 3 of this Agreement, Participant agrees that nothing in this Agreement or the Plan shall entitle him, or be deemed to entitle him, to receive a Supplemental Pension under the Plan if (i) he has not met the requirements for a Supplemental Pension as set forth in the Plan, (ii) his employment with the Employer is terminated prior to his reaching the age of eligibility for the immediate commencement of his Pension Plan benefit due to resignation, or 7 (iii) his employment with the Employer or participation in the Plan is terminated for Cause (as defined in Subparagraph 2(e) above). 5. Amendment or Termination. No amendment or termination of the Plan by the Employer shall constitute an amendment or termination of this Agreement. This Agreement may be amended or modified only by the written agreement of the parties hereto, and will terminate only upon the occurrence of the earlier of the following events: (i) the execution of a written agreement to terminate this Agreement signed by all of the parties hereto, (ii) the satisfaction of all of the Employer's obligations to Participant under the Plan and this Agreement, (iii) the termination by Participant of Participant's employment with the Employer by resignation effective prior to Participant reaching age 55, unless such resignation occurs after a Change in Control, (iv) the termination for Cause of Participant's employment with the Employer, or (v) the breach by Participant of any of the terms or provisions of the Noncompetition Agreement executed by Participant in accordance with the Plan. 6. Funding. Not later than the time the Participant Retires or becomes eligible to receive an unreduced Supplemental Pension under the Plan, whichever occurs first, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of the Participant's accrued Supplemental Pension. Notwithstanding the foregoing, immediately upon a Change in Control, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then- present value of all Supplemental Pension benefits (vested and unvested) payable under this Agreement and/or the Plan to the Participant, regardless of whether the Participant is then eligible to Retire or to receive an unreduced Supplemental Pension. The amount required to be funded by this Paragraph 6 shall be calculated in accordance with Paragraph 7 hereof. The Employer shall review the funding status of the trust or other funding arrangement established under this Paragraph 6 on an annual basis and shall make contributions thereto as may be required to maintain the value of the assets thereof at no less than 100% of the then-present value of all such Supplemental Pension benefits. 7. Calculation of Funding Obligations. The Employer shall calculate its funding obligations under this Agreement and the Plan solely by using the actuarial assumptions and methodology set forth in Exhibit D to the Plan. Upon and after a Change in Control of the Employer which occurs at a time when the Participant is an Eligible Employee, the actuarial assumptions and methodology set forth in Exhibit D may be changed with respect to the Participant or, if applicable, his Beneficiary, only with the Participant's, or, if applicable, his Beneficiary's, written consent. 8. Annual Statements: As soon as practicable after the end of each Plan Year, the Employer shall deliver to the Participant or, if applicable, his Beneficiary, a statement containing (i) the present value of the Employer's future benefit obligations to the Participant, or, if applicable, his Beneficiary; (ii) the actuarial assumptions used to calculate the present value of the Employer's future benefit obligations under the Plan; 8 and (iii) the current value of the assets, if any, held in any trust or other funding arrangement for the benefit of the Participant, or, if applicable, his Beneficiary. 9. No Guarantee of Employment. Nothing contained in this Agreement shall be construed as a contract of employment between the Employer and Participant, or as a right of Participant to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge Participant with or without cause. 10. Legal Fees and Expenses. The Employer agrees to pay any and all legal fees and expenses incurred by Participant in seeking to obtain or enforce any right or benefit provided by this Agreement. 11. Capitalized Terms. Each capitalized term used in this Agreement that is not otherwise defined herein shall have the same meaning attributed to it in the Plan. 12. Agreement Binding on Successors to the Employer. Any successor to the Employer hereunder, which successor continues or acquires any of the business of the Employer, shall be bound by the terms of this Agreement in the same manner and to the same extent as the Employer. 13. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Participation Agreement as of the date first written above. PARTICIPANT: ATMOS ENERGY CORPORATION: By: ------------------------------- ------------------------------- 9 EXHIBIT D ATMOS ENERGY CORPORATION SUMMARY OF ACTUARIAL ASSUMPTIONS AND METHODS FOR DETERMINING ANNUAL SEBP TRUST FUNDING LIABILITIES ACTUARIAL ASSUMPTIONS --------------------- Discount Rate 8% Mortality Prior to Age 62 None After Age 62 IRS Applicable Table (50/50 GAM83) Salary Scale 0% METHOD FOR DETERMINING LIABILITIES ---------------------------------- The liability determined is the present value as of the valuation date of the projected age 62 SEBP benefit. The projected age 62 benefit is based on SEBP compensation determined as the sum of (1), (2) and (3) as follows: (1) The greater of (A) the Participant's annual base salary at the date of his termination of employment, or (B) the average of the Participant's annual base salary for the highest three (3) calendar years (whether or not consecutive) of the Participant's employment with the Employer. (2) The greater of (A) the Participant's last Performance Award or (B) the average of the highest three (3) Performance Awards (whether or not consecutive). (3) The Participant's annual car allowance amount at the date of his termination of employment. The qualified plan offset is the projected age 62 qualified plan benefit with no salary scale or wage base projections. EXHIBIT 10.30(c) AMENDMENT NO. 2 TO CONSULTING AGREEMENT THIS AMENDMENT NO. 2 TO CONSULTING AGREEMENT (the "Amendment") is made and entered into this 12th day of August, 1998, by and between ATMOS ENERGY CORPORATION, a Texas and Virginia corporation (the "Company"), and CHARLES K. VAUGHAN ("Consultant"). WHEREAS, the Company and Consultant entered into that certain Consulting Agreement dated October 1, 1994, as amended by Amendment No. 1 to Consulting Agreement dated May 14, 1997 (the "Agreement"); and WHEREAS, the Company and Consultant desire to amend the Agreement to extend the term thereof for an additional one-year period; NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Extension of Term. In accordance with Subparagraph 4(a) of the Agreement, the Company and the Consultant hereby agree to extend the term of the Agreement for an additional one-year period commencing on October 1, 1999 and ending September 30, 2000. The Consultant's annual compensation during such year shall be $130,000, to be paid in equal semi-annual installments on October 1, 1999 and April 1, 2000. 2. No Other Amendment. Except as expressly amended hereby, all of the other terms, provisions, and conditions of the Agreement are hereby ratified and confirmed and shall remain unchanged and in full force and effect. To the extent any terms or provisions of this Amendment conflict with those of the Agreement, the terms and provisions of the Agreement shall control. This Amendment shall be deemed a part of, and is hereby incorporated into the Agreement. The Agreement and any and all other documents heretofore, now, or hereafter executed and delivered pursuant to the terms of the Agreement are hereby amended so that any reference to the Agreement shall mean a reference to the Agreement as amended hereby. 3. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Texas. 4. Counterparts. This Amendment may be executed in counterparts, each of which will be an original, but all of which together will constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of the date and year first above written. COMPANY ATMOS ENERGY CORPORATION By: /s/ Robert W. Best -------------------------- Robert W. Best Chairman, President and Chief Executive Officer CONSULTANT /s/ Charles K Vaughan ------------------------- CHARLES K. VAUGHAN 2 Exhibit 10.32 ATMOS ENERGY CORPORATION ------------------------ PERFORMANCE-BASED ----------------- SUPPLEMENTAL EXECUTIVE BENEFITS PLAN ------------------------------------ Effective Date: August 12, 1998 ------------------------------- ARTICLE I --------- Purpose and Effective Date -------------------------- Section 1.1. Purpose: The purpose of this Plan is to provide supplemental ------- retirement income, death and disability benefits to certain executive employees of Atmos Energy Corporation. Section 1.2. Effective Date: The Plan is effective on August 12, 1998. -------------- ARTICLE II ---------- Definitions and Construction ---------------------------- Section 2.1. Definitions: The following words and phrases used in this ----------- Plan shall have the respective meanings set forth below, unless the context in which they are used clearly indicates a contrary meaning: (a) Beneficiary: The individual or individuals described in ----------- Section 7.3 of this Plan who are receiving any benefit payments hereunder. (b) Board of Directors: The Board of Directors of the Employer. ------------------ (c) Cause: The termination of employment by the Employer upon the ----- happening of either (i) or (ii) as follows: (i) The willful and continued failure by the Participant to substantially perform his duties with the Employer (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Employer that specifically identifies the manner in which the Employer believes that the Participant has not substantially performed his duties. (ii) The Participant's willful engagement in conduct that is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on the Participant's part shall be deemed "willful" if done, or omitted to be done, by the Participant in good faith and with a reasonable belief that the action or omission was in the best 1 interests of the Employer. Notwithstanding the foregoing, Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board of Directors of the Employer at a meeting of such Board of Directors called and held for such purpose (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors that Participant was guilty of conduct set forth above in clauses (i) or (ii) of this Paragraph and specifying the particulars thereof in detail. (d) Change in Control: ----------------- (i) The occurrence of any of the following: (A) Any "Person" (as defined in subparagraph (ii) below), other than (1) the Employer or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Employer or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Employer in substantially the same proportions as their ownership of stock of the Employer, is or becomes the "beneficial owner" (as defined in subparagraph (ii) below), directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Employer's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Employer, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (C)(1) below. (B) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Employer and any "new director" (as defined in subparagraph (ii) below) cease for any reason to constitute a majority of the Board of Directors. (C) There is consummated a merger or consolidation of the Employer or any direct or indirect subsidiary of the Employer with any other corporation, except if: (1) the merger or consolidation would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by 2 remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (2) the merger or consolidation is effected to implement a recapitalization of the Employer (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such Person any securities acquired directly from the Employer or its Affiliates other than in connection with the acquisition by the Employer or its Affiliates of a business) representing 60% or more of the combined voting power of the Employer's then outstanding securities. (D) The shareholders of the Employer approve a plan of complete liquidation or dissolution of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets, other than a sale or disposition by the Employer of all or substantially all of the Employer's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Employer in substantially the same proportions as their ownership of the Employer immediately prior to such sale. (ii) For purposes of subparagraph (i) above, (A) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d) of the Exchange Act. (B) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (C) "New director" shall mean an individual whose election by the Employer's Board of Directors or nomination for election by the Employer's shareholders was approved by a vote of at least 2/3's of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an 3 actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (D) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (e) Compensation: Except as otherwise provided in the Participant's ------------ Participation Agreement, the sum of (i) and (ii) as follows: (i) The greater of (A) the Participant's annual base salary at the date of his termination of employment, or (B) the average of the Participant's annual base salary for the highest three (3) calendar years (whether or not consecutive) of the Participant's employment with the Employer. (ii) The greater of (A) the Participant's last Performance Award, or (B) the average of the highest three (3) Performance Awards (whether or not consecutive). (f) Death Benefit: The total benefit provided under this Plan upon ------------- the death of a Participant, which benefit is calculated in this Plan on a pre-tax basis. (g) Disability: The termination of a Participant's employment with ---------- the Employer on account of disability as determined under the Group Long- Term Disability Plan, or, if the Group Long-Term Disability Plan is not then in existence, on account of ill health, physical or mental disability or any other reason beyond the Participant's control, which prevents him from performing his duties of employment for a period of six (6) continuous months, as determined in good faith by the Employer. (h) Disability Benefit: The monthly benefit provided under this Plan ------------------ to a Participant who suffers a Disability, which benefit is calculated in this Plan on a pre-tax basis. (i) Eligible Employee: An employee (i) who is not a participant in ----------------- the Supplemental Executive Benefits Plan ("SEBP") as of August 12, 1998 and is either a corporate officer of the Employer elected by the Board of Directors (excluding any assistant officers that may be elected from time to time) or the president of an Operating Division; or (ii) who was a participant in the SEBP prior to January 1, 1999, but who as of January 1, 1999 elected in writing to cease his participation in the SEBP and become an Eligible Employee hereunder as of that date. Any employee who elects to become an Eligible Employee pursuant to clause (ii) of the preceding sentence shall receive credit as an Eligible Employee hereunder for the period of time he was an eligible employee under the SEBP. 4 (j) Employer: Atmos Energy Corporation. -------- (k) Group Long-Term Disability Plan: The Atmos Energy Corporation ------------------------------- Group Long-Term Disability Plan, as amended from time to time. (l) Industry Peer Group: The peer group of companies identified in ------------------- Exhibit D which will serve as the Employer's benchmark in setting its executive compensation programs. The Board of Directors may from time to time change the peer group set forth on Exhibit D, but any such change shall be applied prospectively in accordance with the principles set forth in Exhibit D. (m) Involuntary Termination: The termination of a Participant's ----------------------- participation in the Plan due to either (i) or (ii) as follows: (i) The Participant's employment with the Employer is terminated involuntarily by the Employer for any reason other than Cause or Disability. (ii) Any reason other than for Cause by the Employer prior to his termination of employment with the Employer. (n) Operating Division: Energas Company, Greeley Gas Company, Trans ------------------ Louisiana Gas Company, Western Kentucky Gas Company, United Cities Gas Company and any other division of the Employer that the Employer may hereafter establish. (o) Participant: An Eligible Employee of the Employer who meets the ----------- requirements to participate in the Plan in accordance with the provisions of Article III hereof. (p) Participation Agreement: The agreement between the Employer and a ----------------------- Participant described in Section 9.6 of this Plan, executed in the form attached hereto as Exhibit A, or in such other form as the Board of Directors, in its sole discretion, may establish from time to time. (q) Plan: The Atmos Energy Corporation Performance-Based Supplemental ---- Executive Benefits Plan, as set forth herein and as amended from time to time. (r) Pension Plan: Any defined benefit pension plan adopted, ------------ established or maintained by the Employer, whichever is applicable, as amended from time to time. Any amount payable to or with respect to a Participant from any group annuity contract maintained in connection with the Pension Plan shall be deemed part of the benefit applicable to the Participant under the Pension Plan. 5 (s) Performance Awards: Except as otherwise provided in the ------------------ Participant's Participation Agreement, any amount paid, or authorized to be paid, to a Participant pursuant to any annual performance bonus or incentive compensation plan adopted or established by the Employer, or, upon and after a Change in Control, any amount paid, or authorized to be paid, to a Participant as a performance related cash bonus in addition to his base cash compensation. (t) Performance Ranking: The Employer's percentile ranking in Total ------------------- Shareholder Return compared to the Industry Peer Group for the lesser of (i) the ten (10)-year period, or (ii) the most recent period of the Participant's continuous employment with the Employer, preceding the Participant's Retirement or Involuntary Termination. (u) Plan Administrator: The Board of Directors. ------------------ (v) Plan Year: Each twelve (12) month period beginning on January 1 --------- and ending on December 31, except the first Plan Year shall be for the period beginning August 12, 1998 and ending December 31, 1998. (w) Retired Participant: A Retired employee of the Employer who ------------------- receives benefits under this Plan. (x) Retirement or Retire: A Participant's voluntary termination from -------------------- employment with the Employer after he is vested in his retirement benefits under the Pension Plan and has met the age and service requirements to be eligible to commence an early retirement benefit under the Pension Plan. (y) Supplemental Pension: A Participant's monthly pension benefit -------------------- provided under this Plan, which benefit is calculated in this Plan on a pre-tax basis. (z) Total Shareholder Return: As of any determination date (the ------------------------ "Determination Date"), shall mean the change, stated as a percentage, in the price of one share of the Employer's or Industry Peer Group's Common Stock, as reported on the applicable stock exchange ("Price of One Share") from a prior point in time (the "Beginning Date") to the Determination Date. In calculating the Price of One Share as of the Determination Date, (i) there shall be added to such Price the value of any shares or fractional shares which would result from the reinvestment, on the last day of the month in which declared, of any dividends paid on such One Share during the period between the Beginning Date and the Determination Date, with the value of such shares or fractional shares being calculated on the basis of the Price of One Share as of the Determination Date; and (ii) appropriate adjustment shall be made in such Price for other increases or decreases in the number of issued and outstanding shares resulting from events such as stock split-ups, combinations or exchanges of shares. 6 Section 2.2. Construction: The masculine gender, whenever appearing in ------------ this Plan, shall be deemed to include the feminine gender; the singular may include the plural; and vice versa, unless the context clearly indicates to the contrary. Section 2.3. Governing Law: This Plan shall be construed in accordance ------------- with and governed by the laws of the State of Texas, except to the extent otherwise preempted by the Employee Retirement Income Security Act of 1974, as amended, or any other Federal law. ARTICLE III ----------- Eligibility and Participation ----------------------------- Section 3.1. Employees Eligible to Participate: Each Eligible Employee --------------------------------- shall participate in this Plan, provided he complies with the provisions of Sections 9.5 and 9.6 hereof. Any Participant who ceases being an Eligible Employee during his employment with the Employer shall immediately cease participation in this Plan and shall no longer be a Participant, except as otherwise set forth herein. ARTICLE IV ---------- Assets Used for Benefits ------------------------ Section 4.1. Amounts Provided by the Employer: Benefits payable under -------------------------------- this Plan shall constitute general obligations of the Employer in accordance with the terms of this Plan. The Employer may, in its sole discretion, establish a trust or other funding arrangement that is subject to the claims of the Employer's general creditors for the purpose of funding a Participant's accrued benefit payable under this Plan. Any such trust or other funding arrangement may also provide for the distribution to the Participant of an 7 amount equal to any federal or state income taxes that are incurred by the Participant in the event the establishment of such trust or other funding arrangement constitutes the constructive receipt by the Participant of any benefits payable hereunder prior to the actual receipt of such benefits. The Employer shall make appropriate adjustments to the amount of the Participant's Supplemental Pension payable each month in order to reflect the effect upon such Supplemental Pension of the distribution described in the foregoing sentence. The Employer also may, but shall not be obligated to, purchase one or more life insurance policies or contracts to provide for the payment of the Death Benefits. Any such policies or contracts purchased hereunder shall remain a general asset of the Employer or of any trust established hereunder. Section 4.2. Funding: Not later than the time each Participant Retires or ------- becomes eligible to receive an unreduced Supplemental Pension under this Plan, whichever occurs first, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of such Participant's accrued Supplemental Pension. The amount required to be funded by this Section 4.2 shall be calculated in accordance with Section 8.3 hereof. Notwithstanding the foregoing, immediately upon a Change in Control, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of all Supplemental Pension benefits (vested and unvested) payable hereunder to each Participant and Retired Participant, regardless of whether any such person is then eligible to Retire or to receive an unreduced Supplemental Pension. The Employer shall review the funding status of each such trust or other funding arrangement required to be established under this Section 4.2 on an annual basis and shall make such contributions 8 thereto as may be required to maintain the value of the assets thereof at no less than 100% of the then-present value of all such Supplemental Pension benefits. ARTICLE V --------- Supplemental Pension Benefits ----------------------------- Section 5.1. Eligibility for Supplemental Pension: ------------------------------------ (a) Upon Retirement. Except as otherwise provided elsewhere in this Plan --------------- or in a Participation Agreement, a Participant who has been an Eligible Employee for at least two years and Retires shall be entitled to receive a Supplemental Pension. (b) Upon Involuntary Termination Prior to a Change in Control. A --------------------------------------------------------- Participant who suffers an Involuntary Termination prior to a Change in Control shall be entitled to receive a Supplemental Pension, subject to the provisions of Section 5.1(c) of this Plan, so long as he is vested in his retirement benefits under the Pension Plan at the time of his Involuntary Termination and has been an Eligible Employee for at least two years prior to the Involuntary Termination. (c) Upon Voluntary Termination Prior to a Change in Control or Termination ---------------------------------------------------------------------- For Cause. A Participant who voluntarily resigns from employment with the --------- Employer prior to being eligible for Retirement and prior to a Change in Control or who is terminated from employment with the Employer for Cause shall not be entitled to receive a Supplemental Pension. (d) Upon Disability. A Participant who suffers a Disability shall be --------------- entitled to a Supplemental Pension as provided in Section 6.4. Section 5.2. Amount of Supplemental Pension: ------------------------------ (a) Upon Retirement. Except as otherwise provided in the Participant's --------------- Participation Agreement, the Supplemental Pension payable to a Participant who Retires, 9 and who has been an Eligible Employee for at least two years shall, unless reduced as provided in paragraph (c) below, equal (i) minus (ii) as follows: ----- (i) One-twelfth (1/12th) of the Target Percentage (as defined in paragraph (b) below) of the Participant's Compensation, reduced if the Participant has fewer than ten (10) years of vesting service under the Pension Plan by one-tenth (1/10th) for each year of his vesting service less than ten (10); (ii) The monthly amount of pension payable to the Participant under the Pension Plan as of the date that his Supplemental Pension commences, assuming payment in the automatic form applicable to him under the Pension Plan. (b) Target Percentage: The Target Percentage shall mean the percentage set ----------------- forth in the following table based on the Performance Ranking (to the nearest 5%) calculated as of the last day of the plan year preceding or coincident with the date such Participant Retires: ------------------------------------------------------------------------------------------------------------------------------------ Performance Target Performance Target Ranking Percentage Ranking Percentage ------------------------------------------------------------------------------------------------------------------------------------ 50% 50% 75% 70% ------------------------------------------------------------------------------------------------------------------------------------ 55% 60% 80% 77.5% ------------------------------------------------------------------------------------------------------------------------------------ 60% 62.5% 85% 85% ------------------------------------------------------------------------------------------------------------------------------------ 65% 65% 90% 92.5% ------------------------------------------------------------------------------------------------------------------------------------ 70% 67.5% 95% 100% ------------------------------------------------------------------------------------------------------------------------------------ In no event can the target percentage exceed 100%. (c) Reduction for Early Commencement of Supplemental Pensions. If a --------------------------------------------------------- Participant's Supplemental Pension commences before the Participant attains age 62, the amount determined under subparagraph (a)(i) above shall, unless otherwise provided in a Participation Agreement, be reduced by 2% per year for the first two (2) years (or fractional years thereof, based on full months) that the date of commencement precedes 10 age 62, and by 4% per year for the next five (5) years (or fractional years thereof, based on full months) that the date of commencement precedes age 60. (d) Cost of Living and Other Adjustments. A Participant who has begun to ------------------------------------ receive his Supplemental Pension shall be entitled to receive any cost of living or other adjustments to which he is otherwise entitled pursuant to the Pension Plan, and his Supplemental Pension shall not be reduced by such adjustments. If a Participant would not be entitled to receive a cost of living or other adjustment due to statutory or regulatory limitations on Pension Plan benefits, the Supplemental Pension shall be increased by the amount of such adjustment for the time the limitations are in effect. (e) Upon Involuntary Termination Prior to a Change in Control. The --------------------------------------------------------- Supplemental Pension payable to a Participant who suffers an Involuntary Termination prior to a Change in Control shall be determined in accordance with paragraph (a) above, but, except as otherwise provided in the Participant's Participation Agreement, for purposes of subparagraph (a)(i) and (b) shall be based upon his Compensation and years of vesting service under the Pension Plan and his Target Percentage calculated as of the date of his Involuntary Termination. Section 5.3. Form of Payment of Supplemental Pension: --------------------------------------- (a) Married Participants. Except as otherwise provided in the -------------------- Participant's Participation Agreement, if a Participant is married when his Supplemental Pension commences, it shall be paid in the form of a joint and 50% survivor annuity, with the Participant's spouse on the date payment commences as the joint annuitant. (b) Unmarried Participants. Except as otherwise provided in the ---------------------- Participant's Participation Agreement, if a Participant is not married when his Supplemental Pension 11 commences, it shall be paid in the form of a ten year certain and life annuity payable to the Participant or the Participant's named beneficiary. Section 5.4. Commencement of Supplemental Pension: ------------------------------------ (a) Upon Retirement. The Supplemental Pension of a Participant who Retires --------------- shall commence at the time he begins receiving retirement benefits from the Pension Plan. (b) Upon Involuntary Termination Prior to a Change in Control. The --------------------------------------------------------- Supplemental Pension of a Participant who suffers an Involuntary Termination prior to a Change in Control shall commence at such time as elected by the Participant on or after he attains age 55. Section 5.5. Supplemental Pensions After a Change in Control: ----------------------------------------------- (a) Eligibility For Supplemental Pension. Notwithstanding anything to the ------------------------------------ contrary in this Plan, a Participant shall be entitled to a Supplemental Pension, regardless of whether he has been an Eligible Employee for at least two years or is vested in his retirement benefits under the Pension Plan, if following a Change in Control of the Employer which occurs at a time when he is an Eligible Employee, either (i) or (ii) occurs: (i) The Participant's employment is terminated involuntarily by the Employer for any reason other than for Cause. (ii) The Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause prior to his termination of employment with the Employer. In order for the provisions of this Section 5.5 to apply, the involuntary termination of employment referred to in subparagraph (i) above or the termination of participation referred to in subparagraph (ii) above must occur within three (3) years after the Change in Control. 12 If a Participant's employment is involuntarily terminated by the Employer for any reason other than for Cause, or his participation in the Plan is terminated by the Employer for any reason other than for Cause, prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination either (A) was at the request or direction of a person who has entered into an agreement with the Employer, the consummation of which would constitute a Change in Control, or (B) was otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs), then such Participant's termination of employment or participation shall be deemed to have followed a Change in Control of the Employer, and such Participant shall be one who is described in this paragraph (a). (b) Amount of Supplemental Pension. The Supplemental Pension payable to a ------------------------------ Participant described in paragraph (a) above shall be calculated in the same manner as set forth in Section 9.1(c) for benefits payable in the event of a termination of the Plan, but based on a Target Percentage of not less than 75% and his Compensation as of the date of his employment termination or the date his participation in the Plan is terminated, whichever is applicable. (c) Commencement of Supplemental Pension. The Supplemental Pension payable ------------------------------------ to a Participant described in paragraph (a) above shall commence on the later of (i) the date his employment terminates, or (ii) the date he elects payment on or after he attains age 55. 13 ARTICLE VI ---------- Disability Benefits ------------------- Section 6.1. Eligibility For Disability Benefits: A Participant shall be ----------------------------------- entitled to a Disability Benefit if he suffers a Disability prior to his Retirement. Section 6.2. Amount of Disability Benefits: The Disability Benefit ----------------------------- payable to an eligible Participant shall equal (a) minus (b) as follows: (a) One-twelfth (1/12th) of sixty percent (60%) of the Participant's Compensation calculated as of the date of his Disability. (b) The total monthly amount of disability benefit payable to the Participant under the Group Long-Term Disability Plan (before any offsets) as of the date that his employment terminates due to Disability. Section 6.3. Payment of Disability Benefits: A Participant's Disability ------------------------------ Benefits shall commence at the same time such Participant begins receiving benefits from the Group Long-Term Disability Plan and shall continue for so long as benefits are paid under the Group Long-Term Disability Plan. Section 6.4. Payment of Supplemental Pension to Disabled Participants: -------------------------------------------------------- (a) Upon Reaching Normal Retirement Age. If a Participant who has suffered ----------------------------------- a Disability reaches his normal retirement age under the Pension Plan while still receiving Disability Benefits, such Participant shall be entitled to a Supplemental Pension commencing at the time Participant begins receiving retirement benefits from the Pension Plan regardless of whether the Participant has been an Eligible Employee for at least two years. The Supplemental Pension payable to such Participant shall be in the form provided in Section 5.3 and determined in accordance with Subsection 5.2(a). Upon commencement of a Participant's Supplemental Pension under this Section 6.4(a), such Participant's Disability Benefit under Section 6.3 hereof shall cease. 14 (b) Prior to Reaching Normal Retirement Age. Notwithstanding the --------------------------------------- provisions of paragraph (a) above, a Participant receiving a Disability Benefit may elect to receive a Supplemental Pension at any time after becoming eligible to Retire and prior to his normal retirement age under the Pension Plan. If such an election is made, the Participant's Disability Benefits shall cease and the Participant shall commence receiving a Supplemental Pension in the form provided in Section 5.3 at the same time he begins receiving retirement benefits from the Pension Plan. The Supplemental Pension payable to such Participant shall be determined in accordance with Subsections 5.2(a), (b) and (c), and shall be determined based on the Participant's Compensation as of the date that such individual terminated employment on account of disability. ARTICLE VII ----------- Death Benefits -------------- Section 7.1. Eligibility For Death Benefits: A Participant shall be ------------------------------ entitled to a Death Benefit if he meets the requirements of either (a) or (b) or (c) as follows: (a) He dies before his employment with the Employer terminates or while receiving a Disability Benefit under this Plan. (b) He Retires but dies before the commencement of his Supplemental Pension. (c) He is entitled to a Supplemental Pension pursuant to the provisions of Subsection 5.1(b) or Subsection 5.5(a) of this Plan, but dies before the commencement of his Supplemental Pension. 15 Section 7.2. Amount of Death Benefit: ----------------------- (a) In-Service Death: In the case of a Participant who dies as provided in ---------------- Subsection 7.1(a), the Death Benefit will be the total of the following (i), (ii), and (iii): (i) A lump sum payment equal to two times the Participant's Compensation minus any amount payable under the Employer's Group Basic Life Insurance Plan (the "Lump Sum Death Benefit"). (ii) A monthly benefit equal to one-twelfth of an amount equal to fifty percent of the Participant's Compensation at the time of his death (the "Monthly Death Benefit"). (iii) If the Participant leaves a child or children to whom payments are to be made under Section 7.3 hereof, a monthly benefit equal to one- twelfth of an amount equal to twenty-five percent of the Participant's Compensation at the time of his death (the "Dependent Death Benefit"). (b) Post Retirement Death: In the case of a Participant who dies as --------------------- provided in Subsection 7.1(b), a Death Benefit will be paid in the amount and to the beneficiary that would have been applicable had the Participant's Supplemental Pension commenced in the month of his death. (c) Deferred Retirement Death. In the case of a Participant who dies as ------------------------- provided in Subsection 7.1(c), a Death Benefit will be paid as provided in (i) or (ii) as follows: (i) In the case of a Participant who dies prior to reaching age 55, to the beneficiary (determined as of the Participant's date of death) and in the amount that would have been applicable had the Participant lived to age 55, commenced his Supplemental Pension in the month immediately following the month in which he reached age 55 and died immediately after his Supplemental Pension commenced. (ii) In the case of a Participant who dies after reaching age 55, in the amount and to the beneficiary that would have been applicable had the Participant's Supplemental Pension commenced in the month of his death. 16 Section 7.3. Form of Payment of Death Benefit: -------------------------------- (a) Lump Sum and Monthly Death Benefits: The Lump Sum and Monthly Death ----------------------------------- Benefits are payable to the Participant's surviving spouse. If the Participant does not have a surviving spouse, the Lump Sum and Monthly Death Benefits are payable to the Participant's surviving children in equal shares (regardless of dependent status) or, if there are no surviving children, to the Participant's surviving parents or siblings as designated by the Participant for this purpose and in the manner specified by the Participant on a form supplied by the Employer. Payment of the Monthly Death Benefit shall be as a single life annuity if payable to Participant's surviving spouse or a 120-month term certain annuity if payable to a child, parent, or sibling. (b) Dependent Death Benefit: The Dependent Death Benefit is payable to the ----------------------- Participant's dependent children in equal shares until there cease to be any dependent children remaining. As each child loses his or her dependent status, the child's share of the Dependent Death Benefit shall be paid to the remaining dependent child or children in equal shares. A child of the Participant is deemed to be a dependent until the child reaches age eighteen or, if a full-time student (i.e. enrolled in twelve hours or more of courses of higher education), age 25, or until the child's death if earlier. At the discretion of the Plan Administrator, any dependent child's share of the Dependent Death Benefit may be paid to the Participant's surviving spouse or other guardian of such child if applicable and shall constitute full settlement of the Plan's obligation to such child with respect to such payment. If the Participant's surviving spouse dies while receiving the Monthly Death Benefit and while any dependent child or children of the Participant remain, then the 17 Monthly Death Benefit shall be added to the Dependent Death Benefit and shall be payable in equal shares to the dependent children in the same manner and for the same time period as the Dependent Death Benefit. Section 7.4. Commencement of Death Benefits: ------------------------------ (a) The Death Benefits payable pursuant to Subsection 7.2(a) shall be paid, with respect to the Lump Sum Death Benefit, or shall commence, with respect to the Monthly and Dependent Death Benefits, as of the first day of the month next following the Participant's death (b) The Death Benefits payable pursuant to Subsections 7.2(b) and (c) shall commence as of the first day of the month next following the Participant's death, except in the case of the Death Benefit payable pursuant to Subsection 7.2(c)(i) which, unless earlier commencement is elected as provided below, shall commence as of the first day of the month following the month in which the Participant would have reached age 55. At the beneficiary's option, the Death Benefit payable under Subsection 7.2(c)(i) may commence on the first day of any month following the Participant's death. The earlier benefit to be paid shall be the actuarial equivalent of the benefit that would have been payable at the Participant's attainment of age 55, as determined under Subsection 7.2(c)(i). For purposes of this paragraph, an "actuarial equivalent" benefit shall be determined based upon an interest rate of 8.0% per annum and the "IRS Applicable Table" as prescribed under Internal Revenue Code Section 417(e)(3)(A)(ii)(I). (c) If the beneficiary entitled to receive the Death Benefits payable pursuant to Sections 7.2(b) or (c) is the Participant's surviving spouse and such spouse dies before 18 commencement of the payment of these Death Benefits as provided in paragraph (b) above, then no Death Benefits shall be payable under Subsection 7.2(b) or (c). ARTICLE VIII ------------ Administration -------------- Section 8.1. Plan Administration: The Plan shall be administered by the ------------------- Board of Directors. The Board of Directors may, in its sole discretion, establish a committee to carry out the day-to-day administration of the Plan and may delegate any portion of its authority and responsibilities as Plan Administrator to such committee. Section 8.2. Powers of Plan Administrator: The Plan Administrator shall ---------------------------- have the discretionary power and authority to interpret and administer the Plan according to its terms, including the power to construe and interpret the Plan, to supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any questions in the administration and application of the Plan, and to make equitable adjustments for any mistakes or errors in the administration and application of the Plan. The Plan Administrator shall have such additional powers as may be necessary to discharge its duties and responsibilities hereunder. Section 8.3. Calculation of Funding Obligations: The Employer shall ---------------------------------- calculate its funding obligations hereunder solely by using the actuarial assumptions and methodology set forth in Exhibit B hereto. In its discretion, at any time prior to a Change in Control of the Employer, the Employer may amend Exhibit B to change such actuarial assumptions and methodology, provided that such changes are communicated promptly in writing to all Participants, Retired Participants, and Beneficiaries. Upon and after a Change in Control of the Employer, the actuarial assumptions and methodology set forth in Exhibit B may be changed with respect to any Participant, Retired Participant, or Beneficiary who was a Participant, Retired Participant, or Beneficiary at the time of such 19 Change in Control, only with the written consent of such affected Participant, Retired Participant, or Beneficiary. Section 8.4. Annual Statements: As soon as practicable after the end of ----------------- each Plan Year, the Employer shall deliver to each Participant, Retired Participant, and Beneficiary a statement containing (i) the present value of the Employer's future benefit obligations to the Participant, Retired Participant, or Beneficiary; (ii) the actuarial assumptions used to calculate the present value of the Employer's future benefit obligations hereunder; and (iii) the current value of the assets, if any, held in a trust or other funding arrangement for the benefit of the Participant, Retired Participant, or Beneficiary. ARTICLE IX ---------- Miscellaneous Provisions ------------------------ Section 9.1. Amendment or Termination of the Plan: ------------------------------------ (a) In General. Subject to the remaining provisions of this Section 9.1, ---------- the Board of Directors may by resolution, in its absolute discretion, from time to time, amend, suspend, or terminate any or all of the provisions of the Plan; provided, however, that no amendment, suspension, or termination may apply so as to decrease the payment to any Participant or beneficiary of any benefit under the Plan that he accrued prior to the effective date of such amendment, suspension, or termination unless the Participant has engaged in dishonest or competitive activities as described in Section 9.5 hereof. (b) Amendment That Decreases Benefits. If the Board of Directors amends --------------------------------- the Plan and such amendment results in a decrease in the Supplemental Pension, Death 20 Benefit or Disability Benefit that otherwise would be paid under this Plan but for the amendment, except as provided in subparagraphs (iii) and (iv) below, the Participant's Supplemental Pension, Death Benefit or Disability Benefit shall equal the sum of (i) and (ii) as follows: (i) The amount derived by multiplying the Participant's benefit calculated pursuant to the terms of the Plan in effect immediately prior to the amendment and based upon the Participant's Compensation used to calculate the appropriate benefit by the following fraction: The numerator is the number of years of vesting service the Participant has under the Pension Plan prior to the effective date of the amendment, and the denominator is the total number of years of vesting service the Participant has under the Pension Plan; however, neither the numerator nor the denominator shall exceed 10. (ii) The amount derived by multiplying the Participant's benefit as calculated pursuant to the terms of the Plan as amended based upon the Participant's Compensation used to calculate the appropriate benefit by the following fraction: The numerator is the number of years that the Participant participated in the Pension Plan after the effective date of the amendment (but this number when added to the numerator of the fraction in subparagraph (i) above, shall not exceed 10) and the denominator is the total number of years of vesting service the Participant has under the Pension Plan (but this number shall not exceed 10). (iii) Notwithstanding the foregoing provisions of this paragraph (b), if the Plan is so amended before a Participant has five years of vesting service under the Pension Plan, the Participant's Supplemental Pension, Death Benefit or Disability Benefit shall be calculated solely in accordance with the terms of the Plan as amended. (iv) Notwithstanding the foregoing provisions of this paragraph (b), if any such amendment occurs upon or after a Change in Control, the Participant's Supplemental Pension shall at least equal the benefits which would be paid under paragraph (c) below if there was a termination of the Plan at the time of such amendment. (c) Termination of the Plan. ----------------------- (i) If the Board of Directors terminates all or any portion of the Plan and such termination adversely affects a Participant's Supplemental Pension, such Participant shall be entitled to receive a Supplemental Pension whether or not such Participant has been an Eligible Employee for at least two years or has five years of vesting service under the Pension Plan at the time of such Plan termination. 21 (A) It shall be based upon the Participant's Compensation as of the date of the termination of the Plan; (B) If payment of the Supplemental Pension begins before the Participant has ten years of vesting service in the Pension Plan, the reduction referred to in Section 5.2(a)(i) shall not apply; (C) If payment of the Supplemental Pension begins before the Participant attains age 62, the reductions referred to in Section 5.2(c) shall not apply; and (D) If the Participant is not otherwise vested under the Pension Plan, the calculation made under Subsection 5.2(a)(ii) above shall be made as if he were so vested. The Supplemental Pension determined under this paragraph (c) shall commence on the later of (i) the date his employment terminates, or (ii) the date he elects payment on or after he attains age 55. (ii) If the Board of Directors terminates all or any portion of the Plan and such termination adversely affects the Disability Benefits or Death Benefits described in the Plan, a Participant shall continue to be entitled to the Disability Benefits or Death Benefits described in the Plan if he thereafter dies or suffers a Disability. Any such Death Benefit or Disability Benefit, however, shall be calculated as of the date of termination of such benefit or the Plan as if such date of termination was the date the Participant died or suffered a Disability. Payment of any such Death Benefit or Disability Benefit shall be made in accordance with the terms of the Plan as in effect immediately prior to the date of termination of such benefit or the Plan. Section 9.2. Nonguarantee of Employment: Nothing contained in this Plan -------------------------- shall be construed as a contract of employment between the Employer and any employee, as a right of any employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its employees, with or without Cause. Section 9.3. Nonalienation of Benefits: To the extent permitted by law, ------------------------- benefits payable under this Plan shall not, without the Plan Administrator's consent, be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Any 22 unauthorized attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to benefits payable hereunder shall be void. No part of the assets of the Employer shall be subject to seizure by legal process resulting from any attempt by creditors of or claimants against any Participant or beneficiary or any person claiming under or through the foregoing to attach his interest under the Plan. Section 9.4. Liability: No director, officer, or employee of the Employer --------- shall be liable for any act or action, whether of commission or omission, taken by any other director, officer, employee, or agent of the Employer under the terms of the Plan or, except in circumstances involving his bad faith, for anything done or omitted to be done by him under the terms of the Plan. Section 9.5. Noncompetition Agreement: All Participants in the Plan shall ------------------------ have entered into Noncompetition Agreements in the form attached hereto as Exhibit C as a condition to their participation in the Plan. Notwithstanding any other provisions of this Plan to the contrary, no benefits shall be payable under the Plan, and payment of benefits will cease, if a Participant is in breach of such agreement at any time during the term of such agreement. Section 9.6. Participation Agreement: Each Participant shall enter into a ----------------------- Participation Agreement as a condition to his participation in the Plan. Such Participation Agreement shall constitute a separate and enforceable agreement between the Employer and the Participant regarding the Participant's rights in the Plan. Section 9.7. Successors to the Employer: Any successor to the Employer -------------------------- hereunder, which successor continues or acquires any of the business of the Employer, shall be bound by the terms of this Plan in the same manner and to the same extent as the Employer. 23 IN WITNESS WHEREOF, and as conclusive evidence of its adoption of this Performance-Based Supplemental Executive Benefits Plan, the Employer has caused this Plan to be duly executed effective as of the 12th day of August, 1998. ATMOS ENERGY CORPORATION /s/ Robert W. Best By: ________________________________ Robert W. Best Chairman of the Board, President and Chief Executive Officer 24 EXHIBIT A PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT is entered into as of the _____ day of ___________________, 19____ by and between ATMOS ENERGY CORPORATION, a Texas and Virginia corporation (the "Employer"), and ____________________________ _______________________________________________ ("Participant"). W I T N E S S E T H: WHEREAS, the Employer has adopted the Atmos Energy Corporation Performance- Based Supplemental Executive Benefits Plan (the "Plan"), pursuant to which certain executive or management employees of the Employer may receive supple mental retirement, disability, and death benefits; and [ TO BE INSERTED FOR THOSE PARTICIPANTS IN THE SEBP WHO ELECT TO PARTICIPATE IN THIS PLAN: WHEREAS, EFFECTIVE JANUARY 1, 1999, THE PARTICIPANT HAS ELECTED TO PARTICIPATE IN THIS PLAN IN LIEU OF CONTINUED PARTICIPATION IN THE ATMOS ENERGY CORPORATION SUPPLEMENTAL EXECUTIVE BENEFITS PLAN ("SEBP").] WHEREAS, in accordance with Section 9.6 of the Plan, the Employer and Participant have agreed to execute and enter into this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement. The Employer hereby agrees to provide to Participant the --------- benefits described in the Plan pursuant to the terms and conditions set forth in the Plan and in this Agreement. [ TO BE INSERTED FOR THOSE PARTICIPANTS IN THE SEBP WHO ELECT TO PARTICIPATE IN THIS PLAN: PARTICIPANT UNDERSTANDS AND AGREES THAT BY ELECTING TO PARTICIPATE IN THIS PLAN, HE IS VOLUNTARILY TERMINATING HIS PARTICIPATION IN THE SEBP AND ACKNOWLEDGES THAT FROM AND AFTER THE EFFECTIVE DATE OF HIS PARTICIPATION IN THIS PLAN HE SHALL HAVE NO FURTHER RIGHTS TO BENEFITS UNDER THE SEBP AND IS NOT CONSIDERED TO HAVE SUFFERED AN INVOLUNTARY TERMINATION AS DEFINED IN THE SEBP. ] 2. Amendment or Termination of the Plan; Termination of Employment or ------------------------------------------------------------------ Participation Without Cause. The Employer hereby agrees that, if --------------------------- (i) the Employer amends or terminates the Plan in such a manner that results in a decrease in the amount of the benefits to be paid under the Plan to Participant, or (ii) Participant's employment is terminated involuntarily by the Employer for any reason other than for Cause (as defined in Subparagraph 2(e) below), or (iii) Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause prior to the Participant's termination of employment with the Employer, Participant shall have the right to, and the Employer agrees to pay to Participant, any benefits accrued prior to the effective date of such amendment or termination of the Plan or of such termination of Participant's employment with the Employer or participation in the Plan. The amount of benefits that shall be paid under this Paragraph 2 shall be calculated as follows: (a) In the event the Employer amends the Plan and such amendment results in a decrease in the amount of the Supplemental Pension, Disability Pension, or Death Benefit that would be paid under the Plan but for the amendment thereof, the amount of Participant's benefit shall be the sum of: (i) Participant's benefit as calculated pursuant to the terms of the Plan in effect immediately prior to the amendment thereof, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years of vesting service by Participant in the Pension Plan prior to the effective date of the amendment (which number shall not be less than 5 nor greater than 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number, for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); plus (ii) Participant's benefit as calculated pursuant to the terms of the Plan as amended, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years that Participant participated in the Pension Plan after the effective date of the amendment (which number, for purposes of calculating Participant's Supplemental Pension, when added to the numerator of the fraction in clause (i) above, may not exceed 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); provided, however, that if the Plan is so amended prior to Participant's fifth -------- ------- year of vesting service in the Pension Plan, Participant's Supplemental Pension payable hereunder shall be calculated solely in accordance with the terms of the Plan as 2 amended; provided, further, that, if such amendment occurs upon or after a -------- ------- "Change in Control" (as defined in Subparagraph 3(b) below), Participant's Supplemental Pension must be at least equal the benefits which would be paid under Section 9.1(c) of the Plan if there was a termination of the Plan at the time of such amendment. (b) In the event the Employer terminates the Plan or any portion thereof and such termination affects the Disability Pension or Death Benefit described in the Plan, Participant's Disability Pension and Death Benefit shall be calculated as of the date of termination of such benefit as though the date of such termination was the date that Participant became disabled or died. Such Disability Pension and Death Benefit shall become payable, however, only upon Participant's disability or death occurring in accordance with the terms of the Plan or any portion thereof in effect immediately prior to the date of its termination. (c) In the event the Employer terminates the Plan or any portion thereof and such termination affects the Supplemental Pension described in the Plan, Participant's Supplemental Pension shall be the amount determined in accordance with Section 5.2 of the Plan except that (i) It shall be based upon the Participant's Compensation as of the date of the termination of the Plan; (ii) If payment of the Supplemental Pension begins before the Participant has ten years of vesting service in the Pension Plan, the reduction referred to in Section 5.2(a)(i) of the Plan shall not apply; (iii) If payment of the Supplemental Pension begins before the Participant attains age 62, the reductions referred to in Section 5.2(c) of the Plan shall not apply; and (iv) If the Participant is not otherwise vested under the Pension Plan, the calculation made under Subsection 5.2(a)(ii) of the Plan shall be made as if he were so vested. (d) If, at any time prior to a "Change in Control" (as defined in Subparagraph 3(b) hereof), Participant's employment with the Employer is terminated involuntarily by the Employer for any reason other than for Cause (as defined in Subparagraph 2(e) below) or if Participant's participation in the Plan is terminated by the Employer for any reason other than for Cause, Participant shall nevertheless be entitled to the benefits payable under the Plan that have accrued prior to the termination of Participant's employment or Plan participation, the amount of such benefits to be calculated in the manner set forth in Section 5.2 of the Plan; provided, however, that Participant's -------- ------- right to a Supplemental Pension shall vest only if Participant has been an Eligible Employee for at least two years 3 and has at least five years of vesting service under the Pension Plan as of the date of such termination. (e) As used in this Agreement, "Cause" for termination of employment shall mean termination upon (i) the willful and continued failure by Participant to substantially perform his duties with the Employer (other than any such failure resulting from Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Participant by the Employer that specifically identifies the manner in which the Employer believes that Participant has not substantially performed his duties, or (ii) Participant's willful engagement in conduct that is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes of this Subparagraph, no act, or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without a reasonable belief that the action or omission was in the best interests of the Employer. Notwithstanding the foregoing, Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board of Directors of the Employer at a meeting of such Board of Directors called and held for such purpose (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors that Participant was guilty of conduct set forth above in clauses (i) or (ii) of this Subparagraph 2(e) and specifying the particulars thereof in detail. 3. Change in Control. ----------------- (a) Notwithstanding anything expressly or impliedly to the contrary contained in this Agreement or the Plan, if, at any time during the three (3)-year period immediately following a Change in Control of the Employer, Participant's employment is involuntarily terminated by the Employer, or he is demoted or reassigned to a position that causes him to cease to be an Eligible Employee, for any reason other than for Cause (as defined in Subparagraph 2(e) above), Participant shall nevertheless be entitled to receive a Supplemental Pension at such time as he becomes entitled to receive a benefit under the Pension Plan regardless of whether Participant has been an Eligible Employee for at least two years or has five years of vesting service under the Pension Plan at the time of such termination, demotion, or reassignment. If a Participant's employment is involuntarily terminated by the Employer for any reason other than for 4 Cause, or his participation in the Plan is terminated by the Employer for any reason other than for Cause, prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination either (A) was at the request or direction of a person who has entered into an agreement with the Employer, the consummation of which would constitute a Change in Control, or (B) was otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs), then such Participant's termination of employment or participation shall be deemed to have followed a Change in Control of the Employer. Such Supplemental Pension shall be calculated in the same manner as set forth in Subparagraph 2(c) above for benefits payable in the event of a termination of the Plan. (b) (i) As used in this Agreement, except as provided herein, a "Change in Control" of the Employer shall be deemed to have occurred if: (A) Any "Person" (as defined in subparagraph (ii) below), other than (1) the Employer or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Employer or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Employer in substantially the same proportions as their ownership of stock of the Employer, is or becomes the "beneficial owner" (as defined in subparagraph (ii) below), directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Employer's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Employer, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (C)(1) below. (B) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Employer and any "new director" (as defined in subparagraph (ii) below) cease for any reason to constitute a majority of the Board of Directors. (C) There is consummated a merger or consolidation of the Employer or any direct or indirect 5 subsidiary of the Employer with any other corporation, except if: (1) the merger or consolidation would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (2) the merger or consolidation is effected to implement a recapitalization of the Employer (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Employer (not including in the securities beneficially owned by such Person any securities acquired directly from the Employer or its Affiliates other than in connection with the acquisition by the Employer or its Affiliates of a business) representing 60% or more of the combined voting power of the Employer's then outstanding securities; (D) The shareholders of the Employer approve a plan of complete liquidation or dissolution of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets, other than a sale or disposition by the Employer of all or substantially all of the Employer's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Employer in substantially the same proportions as their ownership of the Employer immediately prior to such sale. (ii) For purposes of subparagraph (i) above, (A) "Person" shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as modified and used in Sections 13(d) and 14(d) of the Exchange Act. (B) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. 6 (C) "New director" shall mean an individual whose election by the Employer's Board of Directors or nomination for election by the Employer's shareholders was approved by a vote of at least 2/3's of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (D) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 4. Limitations. Except as otherwise provided in Paragraph 3 of this ----------- Agreement, Participant agrees that nothing in this Agreement or the Plan shall entitle him, or be deemed to entitle him, to receive a Supplemental Pension under the Plan if (i) he has not met the requirements for a Supplemental Pension as set forth in the Plan, (ii) his employment with the Employer is terminated prior to his reaching the age of eligibility for the immediate commencement of his Pension Plan benefit due to resignation, or (iii) his employment with the Employer or participation in the Plan is terminated for Cause (as defined in Subparagraph 2(e) above). 5. Amendment or Termination. No amendment or termination of the Plan by ------------------------ the Employer shall constitute an amendment or termination of this Agreement. This Agreement may be amended or modified only by the written agreement of the parties hereto, and will terminate only upon the occurrence of the earlier of the following events: (i) the execution of a written agreement to terminate this Agreement signed by all of the parties hereto, (ii) the satisfaction of all of the Employer's obligations to Participant under the Plan and this Agreement, (iii) the termination by Participant of Participant's employment with the Employer by resignation effective prior to Participant reaching age 55, unless such resignation occurs after a Change in Control, (iv) the termination for Cause of Participant's employment with the Employer, or (v) the breach by Participant of any of the terms or provisions of the Noncompetition Agreement executed by Participant in accordance with the Plan. 6. Funding. Not later than the time the Participant Retires or becomes ------- eligible to receive an unreduced Supplemental Pension under the Plan, whichever occurs 7 first, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of the Participant's accrued Supplemental Pension. Notwithstanding the foregoing, immediately upon a Change in Control, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of all Supplemental Pension benefits (vested and unvested) payable under this Agreement and/or the Plan to the Participant, regardless of whether the Participant is then eligible to Retire or to receive an unreduced Supplemental Pension. The amount required to be funded by this Paragraph 6 shall be calculated in accordance with Paragraph 7 hereof. The Employer shall review the funding status of the trust or other funding arrangement established under this Paragraph 6 on an annual basis and shall make contributions thereto as may be required to maintain the value of the assets thereof at no less than 100% of the then- present value of all such Supplemental Pension benefits. 7. Calculation of Funding Obligations. The Employer shall calculate its ---------------------------------- funding obligations under this Agreement and the Plan solely by using the actuarial assumptions and methodology set forth in Exhibit B to the Plan. Upon and after a Change in Control of the Employer which occurs at a time when the Participant is an Eligible Employee, the actuarial assumptions and methodology set forth in Exhibit B may be changed with respect to the Participant or, if applicable, his Beneficiary, only with the Participant's, or, if applicable, his Beneficiary's, written consent. 8. Annual Statements: As soon as practicable after the end of each Plan ----------------- Year, the Employer shall deliver to the Participant or, if applicable, his Beneficiary, a statement containing (i) the present value of the Employer's future benefit obligations to the Participant, or, if applicable, his Beneficiary; (ii) the actuarial assumptions used to calculate the present value of the Employer's future benefit obligations under the Plan; and (iii) the current value of the assets, if any, held in any trust or other funding arrangement for the benefit of the Participant, or, if applicable, his Beneficiary. 9. No Guarantee of Employment. Nothing contained in this Agreement shall -------------------------- be construed as a contract of employment between the Employer and Participant, or as a right of Participant to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge Participant with or without cause. 10. Legal Fees and Expenses. The Employer agrees to pay any and all legal ----------------------- fees and expenses incurred by Participant in seeking to obtain or enforce any right or benefit provided by this Agreement. 11. Capitalized Terms. Each capitalized term used in this Agreement that ----------------- is not otherwise defined herein shall have the same meaning attributed to it in the Plan. 12. Agreement Binding on Successors to the Employer. Any successor to the ----------------------------------------------- Employer hereunder, which successor continues or acquires any of the business of the Employer, shall be bound by the terms of this Agreement in the same manner and to the same extent as the Employer. 8 13. Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Participation Agreement as of the date first written above. PARTICIPANT: ATMOS ENERGY CORPORATION: _______________________________________ By: ________________________________ 9 EXHIBIT B ATMOS ENERGY CORPORATION SUMMARY OF ACTUARIAL ASSUMPTIONS AND METHODS FOR DETERMINING ANNUAL PERFORMANCE-BASED SEBP TRUST FUNDING LIABILITIES ACTUARIAL ASSUMPTIONS Discount Rate 8% Mortality Prior to Age 62 None After Age 62 IRS Applicable Table (50/50 GAM83) Salary Scale 0% Target Percentage 75% METHOD FOR DETERMINING LIABILITIES The liability determined is the present value as of the valuation date of the projected age 62 Performance-Based SEBP benefit. The projected age 62 benefit is based on Performance-Based SEBP compensation determined as the sum of (1) and (2) as follows: (1) The greater of (A) the Participant's annual base salary at the date of his termination of employment, or (B) the average of the Participant's annual base salary for the highest three (3) calendar years (whether or not consecutive) of the Participant's employment with the Employer. (2) The greater of (A) the Participant's last Performance Award or (B) the average of the highest three (3) Performance Awards (whether or not consecutive). The qualified plan offset is the projected age 62 qualified plan benefit with no salary scale or wage base projections. EXHIBIT C NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is entered into as of the ____ day of ____________, 19___, by and between ATMOS ENERGY CORPORATION, a Texas and Virginia corporation, on behalf of itself and its affiliates, divisions, parent corporations, and subsidiaries (collectively the "Employer"), and ______________ ("Participant"). RECITALS A. Contemporaneously with the execution of this Agreement, Participant will become employed with Employer in the position of [INSERT: PARTICIPANT'S TITLE]. As a result of his position as [INSERT: PARTICIPANT'S TITLE] and the execution of this Agreement, Employer will provide Participant with initial and ongoing confidential information and trade secrets of Employer. For purposes of this Agreement, confidential information and/or trade secrets includes, but is not limited to: customer information, pricing information, sales procedures, operating procedures, marketing plans or information, financial information of Employer and/or Employer's customers, and other technical, marketing, or business information. In return, Participant agrees to hold such information in trust and confidence pursuant to Paragraph 2 below. B. As a result of becoming [INSERT: PARTICIPANT'S TITLE] and as further consideration for the promises and covenants herein, Participant is eligible to participant in the Atmos Energy Corporation Performance-Based Supplemental Executive Benefits Plan (the "Plan"), pursuant to which certain executive or management employees of the Employer are eligible to receive supplemental retirement, disability, and death benefits. NOW THEREFORE, in consideration of Participant's right to participate in the Plan the receipt of confidential information and trade secrets of the Employer, and the mutual promises contained herein, the parties agree as follows: 1. Restrictions. Participant acknowledges that in order to effectuate the ------------ promises to hold confidential information and trade secrets in trust for the Employer pursuant to Paragraph 2 below, it is necessary to enter into the following restrictive covenant, which is ancillary to the agreement between Employer and Participant herein. Without the prior written consent of Employer, Participant shall not, during the term of his employment or for two (2) years following the termination of employment with Employer. a. Participate, engage in, or render services similar or related to the services performed by Participant for Employer for any business that sells or offers for sale any products or services in competition with the products or services sold by [INSERT: "EMPLOYER" OR NAME OF APPLICABLE BUSINESS UNIT] in the geographic area [INSERT: DESCRIPTION OF GEOGRAPHIC AREA]. b. Have any direct or indirect financial interest in any business that sells or offers for sale any products or services in competition with the products or services sold by [INSERT: "EMPLOYER" OR NAME OF APPLICABLE BUSINESS UNIT] [INSERT: DESCRIPTION OF GEOGRAPHIC AREA IN PARAGRAPH 1.A]; provided, however, that the ownership by Participant of any stock listed on a national securities exchange of any corporation conducting a competing business shall not be deemed a violation of this Agreement if the aggregate amount of such stock owned by Participant does not exceed one percent (1%) of the total outstanding stock of such corporation; or c. Solicit or attempt to solicit, on behalf of himself or any other person or entity, business from any person or entity that was a customer of Employer during Participant's employment if such business is in the scope of services or products provided by employer. 2. Solicitation/Disclosure of Confidential Information and Trade Secrets. --------------------------------------------------------------------- In further consideration for the mutual promises made herein, Participant agrees that without the prior written consent of Employer, Participant shall not at any time: a. Solicit, induce, or attempt to induce, on behalf of himself or any other person or entity, any employee of Employer to terminate their employment with Employer; or a. Use or disclose to any person or entity any confidential information or trade secrets of Employer except as necessary during the term of his employment with Employer to perform services on behalf of Employer. 3. Breach of Agreement by Participant. In the event of a breach of this ---------------------------------- Agreement by Participant, Employer shall be entitled to all appropriate equitable and legal relief including, but not limited to: a. Injunction to prevent conduct in violation of this Agreement; b. Damages incurred by Employer as a result of the breach; and c. Attorneys' fees and costs incurred by Employer in enforcing the terms of this Agreement. Additionally, any period or periods of breach of Paragraph 1 above shall not count toward the two-year restrictive period, but shall instead be added to the two-year restrictive period. 4. Partial Validity. In the event any Court of any competent jurisdiction ---------------- holds any provision of this Agreement to be invalid, the remaining provisions shall not be affected or invalidated and shall remain in full force and effect. 2 5. Reformation. In the event any Court of competent jurisdiction holds ----------- any restrictions in this Agreement to be unreasonable or unenforceable as written, the Court may reform the Agreement to make it enforceable, and this Agreement shall remain in full force and affect as reformed by the Court. 6. Controlling Law. This Agreement shall be construed and enforced --------------- according to [INSERT: APPROPRIATE STATE] LAW. IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition Agreement as of the date first written above. PARTICIPANT ATMOS ENERGY CORPORATION ______________________________ By:________________________________ 3 EXHIBIT D INDUSTRY PEER GROUP INDUSTRY PEER GROUP DESIGNATED BY THE BOARD OF DIRECTORS: the companies constituting the Merrill Lynch Mid-Cap LDCs. EXAMPLE OF THE CALCULATION OF THE PERFORMANCE RANKING IN THE EVENT OF A CHANGE IN THE INDUSTRY PEER GROUP DURING AN EXECUTIVE'S ACTIVE EMPLOYMENT WITH THE COMPANY: Assumptions: 1. Executive retires December 31, 2004 with more than ten years service with the Company. 2. The Board of Directors changed the Industry Peer Group effective January 1, 2000. 3. The Company's Performance Ranking under the first Industry Peer Group was the 80/th/ percentile, covering the period from January 1, 1995 through December 31, 1999. 4. The Company's Performance Ranking under the second Industry Peer Group was the 50/th/ percentile, covering the period from January 1, 2000 through December 31, 2004. Calculation: 1. .50 weight (first 5 years of the Executive's final 10 years of employment with the Company) x 80% = 40% relative to first Industry Peer Group. 2. .50 weight (second 5 years of the Executive's final 10 years of employment with the Company) x 50% = 25% relative to second Industry Peer Group. 3. 40% + 25% = 65% total Performance Ranking. Exhibit 10.33 ATMOS ENERGY CORPORATION ------------------------ EXECUTIVE NONQUALIFIED DEFERRED COMPENSATION PLAN ------------------------------------------------- The Atmos Energy Corporation Executive Nonqualified Deferred Compensation Plan (hereinafter called the "Plan") was adopted by the Board of Directors of Atmos Energy Corporation, a Texas and Virginia corporation (hereinafter called the "Company"), on August 12, 1998 to be effective October 1, 1998. ARTICLE 1 PURPOSE ------- The purpose of the Plan is to provide certain unfunded benefits for a select group of the Company's key management personnel and their beneficiaries. It is the intention of the Company that the Plan meet all of the requirements necessary or appropriate to qualify it as a non-qualified, unfunded, unsecured plan of deferred compensation under the Code for a select group of management or highly compensated Employees within the meaning of ERISA Sections 201(2), 301(a)(3), and 401(a)(1), and all provisions hereof shall be interpreted accordingly. ARTICLE 2 DEFINITIONS ----------- The following are defined terms wherever they appear in the Plan: 2.1 "Award" means any annual incentive award made under the Atmos Energy Corporation Annual Incentive Plan for Management. 2.2 "Board of Directors" or "Board" shall mean Board of Directors of Atmos Energy Corporation. 2.3 (a) "Change in Control" of the Company shall be deemed to have occurred if: (i) Any "Person" (as defined in Section 2.3(b)(i) below), other than (1) the Company or any of its Subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Section 2.3(b)(ii) below), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Company's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Company, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (iii)(A) below. (ii) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Company and any "new director" (as defined in Section 2.3(b)(iii) below) cease for any reason to constitute a majority of the Board of Directors. (iii) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, except if: (A) the merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) the merger or consolidation is effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly, or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 60% or more of the combined voting power of the Company's then outstanding securities; (iv) The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. (b) Definitions. For purposes of Section 2.3(a) above, ----------- (i) "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act as modified and used in Sections 13(d) and 14(d) of the 1934 Act. (ii) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the 1934 Act. (iii) "New director" shall mean an individual whose election by the Company's Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the Period or 2 whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (iv) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act. 2.4 "Committee" shall mean the committee appointed or designated by the Board to administer the Plan. 2.5 "Company" shall mean Atmos Energy Corporation, a Texas and Virginia corporation, and any successor entity. 2.6 "Deferred Compensation Account" or "Account" shall mean the separate account established under the Plan for each Participant, as described in Section 4.1. 2.7 "Employee" means common law Employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company and any Subsidiary of the Company. 2.8 "Participant" shall mean each individual who, as a key executive Employee of the Company, elects to participate in the Plan in accordance with the terms and conditions of the Plan. 2.9 "Plan" shall mean the Atmos Energy Corporation Executive Nonqualified Deferred Compensation Plan, as amended from time to time. 2.10 "Subsidiary" shall mean (i) any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (iii) any partnership or limited liability company, if the partners or members thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. "Subsidiaries" means more than one of any such corporations, limited partnerships, partnerships or limited liability companies. 2.11 "Termination of Employment" shall mean the termination of the employee-employer relationship between a Participant and the Company and any of its Subsidiaries. A transfer among the Company and any of its Subsidiaries will not be a Termination of Employment. 3 ARTICLE 3 PARTICIPATION ------------- 3.1 Eligibility. The individuals who are eligible to participate in the ----------- Plan are those key Employees of the Company who either: (a) occupy a position with the Company which has been designated by the Committee as an eligible position for participation in the Plan; or (b) who have been authorized by the Committee to participate in the Plan. 3.2 Participation in the Plan. ------------------------- (a) A Participant may elect to defer receipt of all or a specified portion of his compensation for services as an Employee of the Company that would otherwise be payable to the Participant in the form of base salary or Awards. (b) The election to defer a portion of an Award must be made in 25 percent increments; that is, the Participant may elect to defer 0%, 25%, 50%, 75%, or 100% of his Award for any given performance period under the Annual Incentive Plan for Management. (c) The election to defer is made by delivering a properly executed election form to the Committee. The election shall specify: (i) the type of compensation to be deferred; (ii) the amount of such compensation to be deferred; (iii) the method that such deferred compensation is to be paid; (iv) the date or dates for payment of such deferred compensation and (v) the recipient and manner of payment of such deferred compensation in the event of his death before complete distribution of the deferred compensation. (d) An election to defer base salary or Awards must be filed by the Participant prior to the commencement of the calendar year during which such compensation will be earned in the case of base salary and prior to the commencement of the performance period under the Annual Incentive Plan for Management in the case of Awards; provided, however, that an election to defer salary or Awards by an individual who subsequently begins active employment with the Company (by reason of initial employment or reemployment), may be filed prior to the date such active employment begins. (e) The deferral of a Participant's base salary shall begin as of the first day of the first full pay period of the calendar year next following the filing of his election described in Paragraph (c) above; or the first day of the first full pay period of active employment, if applicable. 3.3 Elections Pertaining to Payments. At the time of the election to -------------------------------- defer, the Participant shall elect any method of payment of the amounts in his Accounts over a specified period of years or in a lump sum distribution, provided that: (a) If the payout provides for installment payments, the payments shall be made at least annually and no more frequently than monthly and shall be payable for a period not to exceed 10 years; and 4 (b) If the payments are to commence after Termination of Employment, no payments may be made prior to the first day of the calendar year following the calendar year during which the Participant so terminates. 3.4 Modification of Elections Pertaining to Payments. If the payments are ------------------------------------------------ to commence after Termination of Employment, a Participant may at any time prior to the date that he terminates such employment request that the Committee modify his previous elections pertaining to: (i) the method that the balance of his Deferred Compensation Account is to be paid; (ii) the dates of payment of the balance of his Account; or (iii) the manner of payment of the balance of his Account in the event of his death. In determining whether the request should be allowed, the Committee should consider the Participant's financial needs, including any changed circumstances, as well as the projected financial needs of the Company or a Subsidiary that is liable for such future payments. If the Committee determines that the request should be allowed, the requested modifications shall be made. 3.5 Reduction or Termination of Future Deferral. ------------------------------------------- (a) A Participant may elect at any time to terminate the amount of base salary that will be deferred in the future. Such termination shall only apply to compensation that has not yet been earned and shall not accelerate the payment of any amounts previously deferred. (b) The election to terminate future base salary deferrals shall be made by delivering a properly executed form to the Committee. (c) The termination of the deferral of future base salary shall be effective as of the first day of the first payroll period following the receipt of the form by the Committee, or if later, the effective date of such termination as specified on the Participant's election form, and shall continue throughout the remainder of the calendar year in which such election to terminate occurred. (d) On or prior to December 31 preceding a calendar year, a Participant may elect to resume, change or reduce the amount of base salary that will be deferred for the next calendar year. In the absence of any such election, the Participant's current calendar year election regarding deferral of base salary shall remain effective. (e) The election provided for in subparagraph (d) above shall be made by delivering a properly executed form to the Committee and shall be effective as of the first day of the first payroll period beginning in the applicable calendar year. 3.6 Deferral of Awards Pursuant to the Annual Incentive Plan for ------------------------------------------------------------ Management. A new voluntary election to defer any portion of an Award must be ---------- made prior to the commencement of each performance period under the Annual Incentive Plan for Management. Once a voluntary election has been made for a performance period and the performance period has begun, the election may not be modified, but may be terminated in the same manner as termination of a base salary deferral election under Section 3.5 above. 5 ARTICLE 4 COMPENSATION DEFERRED --------------------- 4.1 Deferred Compensation Account. A Deferred Compensation Account shall ----------------------------- be established for each Employee when the Employee becomes a Participant. Compensation deferred by a Participant under this Plan shall be credited to this Account on the date such compensation would have otherwise been payable to the Participant. Hypothetical income on this deferred compensation shall also be credited to the Account as provided in Section 4.2. 4.2 Interest Credited. ----------------- (a) The balance in the Participant's Deferred Compensation Account as of the last day of a month prior to any additional allocations or credits of compensation for such month, if any, shall be credited with interest equal to one-twelfth of the Annual Interest Rate. (b) The Annual Interest Rate for each applicable calendar year, beginning on January 1 of the calendar year, will be equal to the sum of (i) 2.0 percent, plus (ii) the annual yield reported on a 30-year Treasury Bond for the first business day of January for each calendar year, as reported in the Wall Street Journal. ARTICLE 5 PAYMENT OF DEFERRED COMPENSATION -------------------------------- 5.1 Payment of Deferred Compensation. Upon the date specified in the -------------------------------- election form filed pursuant to Section 3.2 and 3.3 (as modified by Section 3.4, if applicable), the balance of the Participant's Deferred Compensation Account shall be paid to him according to the method, and at the time, previously selected by the Participant. 5.2 Financial Necessity Payment. Notwithstanding any other provisions of --------------------------- this Plan, if the Committee determines, after consideration of a Participant's application, that the Participant has a Financial Necessity which is beyond the Participant's control of such a substantial nature that a contemporaneous payment of compensation deferred under this Plan is warranted, the Committee may in its sole and absolute discretion direct that all or a portion of the balance of the Participant's Deferred Compensation Account, be paid to him in cash as may be specified by the Committee. The expression "Financial Necessity," as used in this Subsection means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of a Participant or of a dependent (as defined in Code Section 152(a)) of the Participant, loss of the Participant's property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant (but specifically not including the need to send a child of the Participant to college or the desire to purchase a home). The amount of any such distribution shall be limited to the amount deemed necessary by the Committee to alleviate or remedy the hardship. The payment shall be made in the manner and at the time specified by the Committee. 5.3 Payments of a Deceased Participant's Account. In the event of a -------------------------------------------- Participant's death before the balance of his Deferred Compensation Account has been fully paid to him, payment of the balance of the Participant's Account shall be made in accordance with the terms 6 selected by the Participant. If the balance of the Account is to be paid in installments, the Committee may, upon consideration of the application of the designated beneficiary or the duly appointed Committee or Executor of the Participant's estate as appropriate, determine that there exists a Financial Necessity which warrants the payment of the balance in the Participant's Account. In such event, the Committee will direct that the balance of the Participant's Account be paid in a single payment. The payment shall be made at the time specified by the Committee. 5.4 Incapacity of Recipient. If the Committee shall find that any person ----------------------- to whom any amount is payable under this Plan is unable to carry on his or her own affairs because of illness, or accident, or is a minor, any distribution or payment due hereunder (unless a prior claim therefore shall have been made by a duly appointed guardian, committee, or any legal representative) may be distributed or paid to the spouse, child, parent, brother or sister, or to any person determined by the Committee to have incurred expenses for the support of such person otherwise entitled to distribution or payment in accordance with the applicable provisions of Sections 5.1, 5.2 or 5.3 above. Any such distribution or payment shall completely discharge any obligations or liabilities of the Company under the Plan with respect to such distribution or payment. ARTICLE 6 DEFERRED COMPENSATION AS AN UNSECURED PROMISE --------------------------------------------- 6.1 Grantor Trust. The Company will create a grantor trust (within the ------------- meaning of Section 671 of the Internal Revenue Code of 1986, as amended) (the "Trust") pursuant to a trust agreement by and between the Company and such trustee as the Committee may from time to time select (the "Trust Agreement"), to which it will make contributions in an amount equal to the deferred amounts to be credited to each Participant's Deferred Compensation Account plus the amount of interest credit required under Section 4.2, to the extent each year the Trust does not earn sufficient amounts to meet the interest crediting obligation. If the Trust's earnings for any year exceed the interest required to be credited for that year, then the excess earnings shall reduce the Company's contribution obligation hereunder for that year. Notwithstanding any creation of such a Trust, the benefits hereunder shall be general obligations of the Company. Payment of benefits from such Trust shall, to that extent, discharge the Company's obligations under this Plan. All payments provided for under this Plan not so discharged shall be paid in cash from general assets of the Company. 6.2 Absence of Escrow Account or Fiduciary Relationship. Nothing in this --------------------------------------------------- Plan, and no action taken pursuant to its terms, shall create or be construed to create a trust or escrow account of any kind, or a fiduciary relationship between the Committee or the Company and any Participant, such Participant's beneficiary, or any other person other than pursuant to the Trust Agreement. The Participants and their beneficiaries and any other person entitled to payment hereunder shall rely solely on the unsecured promise of the Company to make the payments required hereunder, but shall have the right to enforce such a claim in the same manner as any general unsecured creditor of the Company. 7 ARTICLE 7 ADMINISTRATION -------------- The Plan shall be administered by the Human Resources Committee of the Board (the "Committee") unless otherwise determined by the Board. If said Human Resources Committee does not so serve, the Committee shall consist of not fewer than two persons; any member of the Committee may be removed at any time, with or without cause, by resolution of the Board; and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. The Committee shall determine and designate from time to time the eligible persons to participate in the Plan. The Committee, in its discretion, shall (i) interpret the Plan, (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and (iii) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. The Committee may appoint a Secretary who may, but need not, be a member of the Committee, and may employ such agents and such clerical and other administrative personnel as reasonably may be required for the purpose of administering the Plan. Such administrative personnel shall carry out the duties and responsibilities assigned to them by the Committee. ARTICLE 8 GENERAL PROVISIONS ------------------ 8.1 Change in Control. In the event of an occurrence of a Change in ----------------- Control, as defined herein, the Company or its successor organization shall be required to fully pay the Deferred Compensation Account of the Participant through the grantor trust arrangement as specified in Article 6 above. Such financing of the grantor trust shall occur within 20 days following the date of the Change in Control and within 10 days following any subsequent increase in the amount owing to the Deferred Compensation Account of any Participant. 8.2 Nonassignment. The right of the Participant or his Beneficiary to the ------------- payment of any amounts under the Plan may not be assigned, transferred, pledged, or encumbered nor shall such right or other interests be subject to attachment, garnishment, execution, or other legal process. 8.3 No Right to Continued Employment. Nothing in the Plan shall be -------------------------------- construed to confer upon any Participant any right to continued employment with the Company or a Subsidiary nor interfere in any way with the right of the Company or a Subsidiary to terminate the employment of such Participant at any time without assigning any reason therefor. 8.4 Withholding Taxes. Appropriate payroll taxes shall be withheld from ----------------- cash payments made to Participants pursuant to this Plan as required by applicable law. 8 8.5 Termination and Amendment. The Committee may from time to time amend, ------------------------- suspend, or terminate the Plan, in whole or in part, and if the Plan is suspended or terminated, the Committee may reinstate any or all of its provisions. No amendment, suspension, or termination may, however, impair the right of a Participant or his or her Beneficiary to the amounts in the Deferred Compensation Account on the effective date of such amendment, suspension, or termination, including any additional credits of interest to be earned on such amounts. If the Plan is terminated, Participants and Beneficiaries who have Deferred Compensation Accounts under the Plan as of the date of termination will receive payment of such amounts of those Accounts as specified in the Plan. 8.6 Successors and Assigns. The Company will require any successor ---------------------- (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business an/or assets of the Company, expressly to assume and agree to perform the Company's obligation under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. As used herein, the "Company" shall mean the Company as hereinbefore defined and any aforesaid successor to its business and/or assets. 8.7 Indemnification. No member of the Board or the Committee, nor any --------------- officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or Employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation. 8.8 Governing Law. The validity, construction and effect of the Plan and ------------- any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Texas and applicable Federal law. * * * * * IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of August 12, 1998, by its President pursuant to prior action taken by the Board. ATMOS ENERGY CORPORATION By:/s/ Robert W. Best ------------------- Robert W. Best Chairman of the Board, President and Chief Executive Officer Attest: /s/ Glen A. Blanscet --------------------------------- Secretary 9 Exhibit 13 ---------- ATMOS ENERGY CORPORATION 1998 ANNUAL REPORT FINANCIAL REVIEW Page no. Consolidated balance sheets 2 Consolidated statements of income 3 Consolidated statements of shareholders' equity 4 Consolidated statements of cash flows 6 Notes to consolidated financial statements 8 Management's responsibility for financial statements 42 Report of independent auditors 43 Management's Discussion and Analysis of Financial Condition and Results of Operations 44 Selected quarterly financial data (unaudited) 72 Market price of common stock and related matters 73 Selected financial data 74 ATMOS ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS September 30, ------------------------ 1998 1997 ----------- ----------- (In thousands, except share data) ASSETS Property, plant and equipment $1,333,556 $1,301,004 Construction in progress 112,864 31,668 ---------- ---------- 1,446,420 1,332,672 Less accumulated depreciation and amort. 528,560 483,545 ---------- ---------- Net property, plant and equipment 917,860 849,127 Current assets Cash and cash equivalents 4,735 6,016 Accounts receivable, less allowance for doubtful accounts of $1,969 in 1998 and $2,188 in 1997 34,887 71,217 Inventories 15,219 12,333 Gas in storage 48,909 48,122 Prepayments 3,630 6,017 ---------- ---------- Total current assets 107,380 143,705 Deferred charges and other assets 116,150 95,479 ---------- ---------- $1,141,390 $1,088,311 ========== ========== CAPITALIZATION AND LIABILITIES Shareholders' equity Common stock, no par value (stated at $.005 per share); 75,000,000 shares authorized; issued and outstanding 1998 - 30,398,319 shares, 1997 - 29,642,437 shares $ 152 $ 148 Additional paid-in capital 271,637 251,174 Retained earnings 99,369 75,938 ---------- ---------- Total shareholders' equity 371,158 327,260 Long-term debt 398,548 302,981 ---------- ---------- Total capitalization 769,706 630,241 Current liabilities Current maturities of long-term debt 57,783 15,201 Notes payable to banks 66,400 167,300 Accounts payable 44,742 62,626 Taxes payable 12,736 416 Customers' deposits 12,029 15,098 Other current liabilities 30,369 52,582 ---------- ---------- Total current liabilities 224,059 313,223 Deferred income taxes 80,213 87,828 Deferred credits and other liabilities 67,412 57,019 ---------- ---------- $1,141,390 $1,088,311 ========== ========== See accompanying notes to consolidated financial statements. 2 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year ended September 30, --------------------------------- 1998 1997 1996 -------- ---------- ---------- (In thousands, except per share data) Operating revenues $848,208 $906,835 $886,691 Purchased gas cost 516,372 577,181 562,279 -------- -------- -------- Gross profit 331,836 329,654 324,412 Operating expenses Operation 131,336 173,683 148,196 Maintenance 10,278 11,974 11,719 Depreciation and amortization 47,555 45,257 41,666 Taxes, other than income 29,788 32,131 30,254 Income taxes 31,806 14,298 23,316 -------- -------- -------- Total operating expenses 250,763 277,343 255,151 -------- -------- -------- Operating income 81,073 52,311 69,261 Other income (expense) Interest and investment income 5,430 5,410 3,867 Other, net 4,341 (288) (300) -------- -------- -------- Total other income 9,771 5,122 3,567 Interest charges 35,579 33,595 31,677 -------- -------- -------- Net income $ 55,265 $ 23,838 $ 41,151 ======== ======== ======== Basic net income per share $ 1.85 $ .81 $ 1.42 ======== ======== ======== Diluted net income per share $ 1.84 $ .81 $ 1.42 ======== ======== ======== Cash dividends per share $ 1.06 $ 1.01 $ .98 ======== ======== ======== Weighted average shares outstanding Basic 29,822 29,409 28,978 ======== ======== ======== Diluted 30,031 29,422 28,994 ======== ======== ======== See accompanying notes to consolidated financial statements. 3 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common stock --------------------- Add'l Number of Stated paid-in Retained shares value capital earnings ---------- ------- --------- ---------- (In thousands, except share data) Balance, September 30, 1995 28,246,392 $141 $230,630 $ 73,578 Net income - - - 41,151 Cash dividends ($.98 per share) - - - (28,478) Common stock issued: Restricted stock grant plan 41,700 1 733 - Direct stock purchase plans 251,224 1 4,322 - ESOP 161,477 1 3,641 - Long-term stock plan for United Cities Division 16,900 - 241 - Outside directors stock- for-fee plan 3,389 - 76 - Monarch Gas Co. acq. 207,366 1 1,499 933 Oceana Heights acq. 313,411 1 304 594 Other - - 212 - ---------- ---- -------- -------- Balance, September 30, 1996 29,241,859 146 241,658 87,778 Net income - - - 23,838 Cash dividends ($1.01 per share) - - - (26,415) Common stock issued: Restricted stock grant plan 100,000 1 2,443 - Direct stock purchase plans 85,243 - 1,888 - Outside directors stock-for-fee plan 3,008 - 72 - ESOP/401(k) plans 212,327 1 5,113 - Less: UCGC net income for the quarter ended December 31, 1996 - - - (9,263) ---------- ---- -------- -------- Balance, September 30, 1997 29,642,437 148 251,174 75,938 (continued) 4 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued) Common stock -------------------- Add'l Number of Stated paid-in Retained shares value capital earnings ---------- -------- -------- --------- (In thousands, except share data) Balance, September 30, 1997 29,642,437 $148 $251,174 $ 75,938 Net income - - - 55,265 Cash dividends ($1.06 per share) - - - (31,834) Common stock issued: Restricted stock grant plan 114,250 1 2,898 - Direct stock purchase plan 531,353 3 14,482 - ESOP/401(k) plans 52,473 - 1,485 - Long-term stock plan for United Cities Division 55,500 - 1,533 - Outside directors stock-for-fee plan 2,306 - 65 - ---------- -------- -------- -------- Balance, September 30, 1998 30,398,319 $152 $271,637 $ 99,369 ========== ======== ======== ======== See accompanying notes to consolidated financial statements. 5 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, ------------------------------------- 1998 1997 1996 ------------ ----------- ----------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 55,265 $ 14,575 $ 41,151 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization: Charged to depreciation and amortization 47,555 39,970 41,666 Charged to other accounts 5,861 2,237 3,580 Deferred income taxes (3,968) 5,807 7,585 Gain on sales of non-utility assets (3,335) - - Other - - (1,866) Changes in assets and liabilities: (Increase) decrease in accounts receivable 36,330 32,198 (12,697) (Increase) decrease in inventories (2,886) 1,562 (1,238) Increase in gas in storage (787) (4,772) (15,949) (Increase) decrease in prepayments 2,387 (3,208) 1,966 Increase in deferred charges and other assets (20,671) (29,683) (4,623) Increase (decrease) in accounts payable (17,884) (17,695) 23,796 Increase (decrease) in taxes payable 8,673 (837) 7,099 Increase (decrease) in customers' deposits (3,069) (1,714) 592 Increase (decrease) in other current liabilities (22,213) 28,716 (4,165) Increase in deferred credits and other liabilities 10,393 1,593 4,836 -------- -------- -------- Net cash provided by operating activities 91,651 68,749 91,733 6 ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Year ended September 30, ---------------------------------------- 1998 1997 1996 ------------ ---------- ------------ (In thousands) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures $(134,989) $(122,312) $(117,589) Retirements of property, plant and equipment, net 178 1,189 5,708 Proceeds from sales of assets 15,997 - - --------- --------- --------- Net cash used in investing activities (118,814) (121,123) (111,881) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in notes payable (100,900) 38,812 62,675 Proceeds from issuance of long-term debt 154,445 40,000 - Repayment of long-term debt (16,296) (14,659) (20,734) Cash dividends paid (31,834) (26,415) (28,478) Issuance of common stock 20,467 9,518 8,523 --------- --------- --------- Net cash provided by financing activities 25,882 47,256 21,986 --------- --------- --------- Net increase (decrease) in cash and cash equivalents (1,281) (5,118) 1,838 Cash and cash equivalents at beginning of year 6,016 11,134 9,296 --------- --------- --------- Cash and cash equivalents at end of year $ 4,735 $ 6,016 $ 11,134 ========= ========= ========= See accompanying notes to consolidated financial statements. 7 ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contents of Notes to Consolidated Financial Statements 1. Summary of significant accounting policies 8 2. Business combinations 14 3. Rates 16 4. Income taxes 18 5. Contingencies 20 6. Leases 25 7. Long-term debt and notes payable 26 8. Statement of cash flows supplemental disclosures 28 9. Common stock and stock options 29 10. Employee retirement and stock ownership plans 32 11. Other postretirement benefits 37 12. Earnings per share 41 13. Related party transactions 41 1. Summary of significant accounting policies Forward-looking statements These notes to consolidated financial statements, particularly notes 2, 5, 9, and 11 may contain "forward-looking statements" as discussed herein in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading, "Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995" and should be read in conjunction with such discussion. Description of business - Atmos Energy Corporation and its subsidiaries ("Atmos" or the "Company") are engaged primarily in 8 the natural gas utility business as well as certain non-utility businesses. The Company distributes through sales and transportation arrangements natural gas to approximately 1.0 million residential, commercial, industrial and agricultural customers through its five regulated utility divisions: Energas Company ("Energas Division") in Texas; Trans Louisiana Gas Company ("Trans La Division")in Louisiana; Western Kentucky Gas Company ("Western Kentucky Division") in Kentucky; Greeley Gas Company ("Greeley Division") in Colorado and Kansas; and United Cities Gas Company ("United Cities Division") in Illinois, Tennessee, Iowa, Virginia, Georgia, South Carolina, Kansas and Missouri. Such business is subject to federal and state regulation and/or regulation by local authorities in each of the twelve states in which the utility divisions operate. Through United Cities Gas Storage Company ("Storage"), a non-regulated utility business, the Company also owns and operates natural gas storage fields in Kentucky and Kansas to supplement natural gas used by regulated customers in Tennessee, Kansas and Illinois and to provide storage services to other customers that may be in other states. Through Atmos Propane, Inc. ("Propane"), a non-regulated utility business and a wholly-owned subsidiary of UCG Energy Corporation ("UCG Energy"), which is a wholly-owned subsidiary of Atmos, the Company is engaged in the retail distribution of propane (LP) gas, the wholesale supply and the transportation of LP gas, the transportation of certain products for other companies and the direct merchandising and repair of propane gas appliances. Propane currently has operation and storage centers and store front offices located in Tennessee, Kentucky, and North Carolina with a total company storage capacity of approximately 2.3 million gallons. As of September 30, 1998, Propane served approximately 37,400 customers. Through UCG Energy's 45% interest in Woodward Marketing, L.L.C. ("WMLLC"), a limited liability company formed in Delaware and headquartered in Houston, Texas, the Company is engaged in gas marketing and energy management services. WMLLC provides gas marketing services to industrial customers, municipalities and local distribution companies, including the United Cities, Energas, Greeley, and Trans La Divisions. The Company utilizes equity accounting for its investment in WMLLC. Finally, the Company, through UCG Energy, leases and rents appliances, real estate, equipment, and vehicles to the United Cities Division and others, and owns a small interest in a partnership engaged in exploration and production activities. 9 Principles of consolidation - The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its subsidiaries. Each subsidiary is wholly owned and all material intercompany transactions have been eliminated. Accounting for unconsolidated investments - The Company accounts for its 45% interest in WMLLC, using the equity method of accounting for investments. Equity in pre-tax earnings of WMLLC included in the interest and investment income caption in the consolidated statement of income were $3.9 million, $3.3 million and $2.0 million in 1998, 1997 and 1996, respectively. Restatement for pooling of interests - The consolidated financial statements for all periods prior to July 31, 1997 have been restated for the pooling of interests of the Company with United Cities Gas Company. Certain changes in account classifications have been made to conform United Cities Gas Company's classifications to Atmos' presentation. Regulation - The Company's utility operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which it operates. Atmos' accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Regulated utility operations are accounted for in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." This statement requires cost-based rate regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. The Company records regulatory assets which represent assets which are being recovered through customer rates or are probable of being recovered through customer rates. Significant regulatory assets as of September 30, 1998 included the following: unamortized debt expense of $5.6 million, merger and integration costs of $59.8 million, environmental costs of $4.0 million, and deferred cost of purchased gas proceeding of $1.1 million. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. As of September 30, 1998, the Company had recorded a regulatory liability of $2.2 million for deferred income taxes. Revenue recognition - Sales of natural gas are billed on a monthly cycle basis; however, the billing cycle periods for 10 certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes. The Company follows the revenue accrual method of accounting for natural gas revenues whereby revenues applicable to gas delivered to customers but not yet billed under the cycle billing method are estimated and accrued and the related costs are charged to expense. Estimated losses due to credit risk are reserved at the time revenue is recognized. Utility property, plant and equipment - Utility property, plant and equipment is stated at original cost net of contributions in aid of construction. The cost of additions includes direct construction costs, payroll related costs (taxes, pensions and other fringe benefits), administrative and general costs, and the estimated cost of an allowance for funds used during construction (See AFUDC below). Major renewals and betterments are capitalized, while the costs of maintenance and repairs are charged to expense as incurred. The costs of large projects are accumulated in construction in progress until the project is completed. When the project is completed, tested and placed in service, the balance is transferred to the utility plant in service account, included in rate base and depreciation begins. As of September 30, 1998, the Company has invested approximately $80 million in its Customer Service Initiative ("CSI"). The CSI investment is currently recorded in construction in progress. CSI is a group of projects that are reorganizing processes throughout the Company to leverage technology and implement industry best practices. It is expected to be fully placed in service in 1999. Property, plant and equipment is depreciated at various rates on a straight-line basis over the estimated useful lives of the assets. The composite rates were 4.0% and 3.9% for the years ended September 30, 1998 and 1997, respectively. At the time property, plant and equipment is retired, the cost, plus removal expenses and less salvage, is charged to accumulated depreciation. Allowance for funds used during utility construction ("AFUDC") - AFUDC represents the estimated cost of funds used to finance the construction of major projects. Under regulatory practices, the costs are capitalized and included in rate base for ratemaking purposes when the completed projects are placed in service. Interest expense of $4.1 million, $1.2 million and $.4 million was capitalized in 1998, 1997 and 1996, respectively. The increased amounts in 1998 and 1997 were related to CSI. Non-utility property, plant and equipment - Balances are stated at cost and depreciation is computed generally on the straight-line method for financial reporting purposes. 11 Inventories - Inventories consist primarily of materials and supplies and merchandise held for resale. These inventories are stated at the lower of average cost or market. Inventories also include propane inventories of $979,000 and $722,000 at September 30, 1998 and 1997, respectively. Propane is priced at average cost. Gas in storage - Net additions of inventory gas to storage and withdrawals of inventory gas from storage are priced using the average cost method for all Atmos utility divisions, except for the United Cities Division, where it is priced on the first-in first-out method. Gas stored underground and owned by Storage is priced on the last-in first-out ("LIFO") method. In accordance with the United Cities Division's purchased gas adjustment ("PGA") clause, the liquidation of a LIFO layer would be reflected in subsequent gas adjustments in customer rates and does not affect the results of operations. Noncurrent gas in storage is classified as property, plant and equipment and is priced at cost. Income taxes - The Company provides deferred income taxes for significant temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes. Cash and cash equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Deferred charges and other assets - Deferred charges and other assets at September 30, 1998 and 1997 include merger and integration costs of $59.8 million and $49.0 million in 1998 and 1997, respectively; the related reserve for merger and integration costs of $20.3 million in both 1998 and 1997; and the investment in WMLLC of $11.9 million and $10.0 million in 1998 and 1997, respectively. Also included in deferred charges and other assets are assets of the Company's qualified defined benefit retirement plans in excess of the plans' obligations, Company assets related to the nonqualified retirement plans, unamortized debt expense, and deferred compensation expense related to non- vested restricted stock grants. Deferred credits and other liabilities - Deferred credits and other liabilities include customer advances for construction, obligations under capital leases, obligations under other postretirement benefits, and obligations under the Company's nonqualified retirement plans. 12 Earnings per share - The calculation of basic earnings per share is based on income available to common stockholders divided by weighted average common shares outstanding. The calculation of diluted earnings per share is based on net income available to common stockholders divided by weighted average shares outstanding plus the dilutive shares related to the United Cities Division's Long-term Stock Plan and Atmos' Restricted Stock Grant Plan. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Standards Not Yet Adopted The Company has not yet adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income." The Statement will be effective for the Company's 1999 fiscal year. It establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company has not yet adopted Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information." The Statement will be effective for the Company's 1999 fiscal year. It establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. In the initial year of application, comparative information for earlier years is to be restated. In addition, the Company has not yet adopted Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." The Statement will be effective for the Company's fiscal year 2000. It establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This Statement 13 does not allow retroactive application to financial statements of prior periods. The Company believes that adoption of these Statements will not have a material impact on its reported financial condition, results of operations, or cash flows. 2. Business combinations On July 31, 1997, Atmos acquired by means of a merger all of the assets and liabilities of United Cities Gas Company ("UCGC") in accordance with the terms and provisions of an Agreement and Plan of Reorganization dated July 19, 1996 and amended October 3, 1996. A total of 13,320,221 shares of Atmos common stock were issued in a one-for-one exchange for all outstanding shares of UCGC common stock. UCGC was a natural gas utility company engaged in the distribution and sale of natural gas. At the time of the merger, UCGC served approximately 306,000 utility customers in Georgia, Illinois, Iowa, Kansas, Missouri, South Carolina, Tennessee, and Virginia, and approximately 29,000 propane customers in Kentucky, North Carolina, Tennessee, and Virginia. Its assets consisted of the property, plant and equipment used in its natural gas and propane sales and distribution businesses. UCGC was merged with and into Atmos by means of a tax-free reorganization. The transaction was accounted for as a pooling of interests; therefore, historical financial statements for periods prior to the merger have been restated. UCGC prepared its financial statements on a December 31 fiscal year- end. UCGC's fiscal year has been changed to September 30 to conform to the Company's year end. The restated consolidated statements of income and cash flows for the year ended September 30, 1996 include Atmos operations for the year then ended and UCGC operations for the year ended December 31, 1996. The consolidated statement of income for the year ended September 30, 1997 includes Atmos and UCGC operations for the twelve months then ended. As a result, UCGC's operations for the three months ended December 31, 1996 (operating revenues of approximately $123.0 million and net income of $9.3 million) are included in both the 1997 and 1996 consolidated statements of income, and the UCGC net income for this period has been deducted in calculating the shareholders' equity balances at September 30, 1997 and cash flows for the year then ended. Certain account reclassifications were made to conform UCGC's classifications to Atmos' presentation. Following the merger, UCGC's business began operating as United Cities Gas Company, a division of Atmos ("United Cities 14 Division") and integration of the companies began. The United Cities Division is structured like other divisions of Atmos. To achieve this structure, approximately 560 utility positions in the United Cities Division were eliminated by September 1998. An additional 75 Atmos positions were eliminated as part of the integration, resulting in approximately 635 total position reductions in the combined Company by September 1998. Atmos also has initiated plans to enhance its customer service in Texas, Louisiana, Kentucky, Colorado, Kansas and Missouri through business process changes which resulted in a net reduction of approximately 240 positions. These changes include restructuring business office operations, establishing a network of payment centers and creating a customer support center, all part of the CSI project. The Company has recorded as regulatory assets through September 30, 1998 the costs of the merger and integration of the United Cities Division, which amounted to $59.8 million. The Company believes there are substantial long term benefits to its customers and shareholders from the merger of the two companies, which are expected to result in operating cost savings over the next 10 years totaling approximately $375 million. The Company believes a significant amount of the costs to achieve these benefits will be recovered through rates and future operating efficiencies of the combined operations. Therefore, the merger and integration costs will be charged to operations concurrent with the benefits received. However, in the fourth quarter of fiscal 1997 the Company established a general reserve of approximately $20.3 million ($12.6 million after-tax), to account for costs that may not be recovered through rates. The statements above concerning anticipated cost savings in the future constitute "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements should be read in conjunction with the Company's disclosures under the heading "Cautionary Statement for the Purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995" at the beginning of Management's Discussion and Analysis. 15 Results of operations and net income for the previously separate companies for the periods prior to the merger are as follows: 10 Months ended Year ended July 31, 1997 September 30, (Unaudited) 1996 --------------- ------------- (In thousands) Operating revenues: Atmos $474,069 $483,744 UCGC 356,325 402,947 -------- -------- $830,394 $886,691 ======== ======== Net income: Atmos $ 23,079 $ 23,949 UCGC 19,434 17,202 -------- -------- $ 42,513 $ 41,151 ======== ======== Dividends per share: Atmos $ .75 $ .96 UCGC $ .76 $ 1.02 3. Rates As of September 30, 1998, the Company did not have any general rate cases currently pending. The Trans La Division does have a hearing scheduled before the Louisiana Public Service Commission in April 1999 for the Louisiana Commission to consider the Trans La Division rate of return. Rate proceedings completed during the three years ended September 30, 1998 are summarized below. In September 1998, the Company and the staff of the Virginia State Corporation Commission presented a Stipulation and Settlement of issues to the Virginia State Corporation Commission. It was adopted effective October 1, 1998. The Stipulation and Settlement provided for a reduction of approximately $249,000 in annual gross revenues of the United Cities Division. This represents approximately a .2% reduction in the gross profit of the United Cities Division and less than .08% reduction in the consolidated gross profit of the Company. In fiscal 1997, the Colorado Office of Consumer Counsel filed a complaint with the Colorado Public Utilities Commission ("Colorado Commission")requesting a $3.5 million reduction in the annual revenues in Colorado of the Greeley Division. On December 17, 1997, a hearing was held at the Colorado Commission presenting a Stipulation and Agreement reached by the Greeley Division and the Colorado Office of Consumer Counsel. It settled 16 the Consumer Counsel's complaint against the Greeley Division for a $1.6 million reduction in annual revenues. The Stipulation and Agreement became effective in January 1998. The reduction decreased the annual gross profit of the Greeley Division by approximately 4% and the gross profit of the Company by approximately .5%. On June 9, 1998, the Kentucky Public Service Commission issued an Order approving an Experimental Performance-Based Ratemaking ("PBR") mechanism related to gas procurement and gas transportation activities filed by the Western Kentucky Division. The PBR mechanism is incorporated into the Western Kentucky Division's Gas Cost Adjustment Clause. The Georgia Public Service Commission and the Tennessee Regulatory Authority have approved Weather Normalization Adjustments ("WNA"). The WNAs, effective October through May each year in Georgia and November through April each year in Tennessee, allow the United Cities Division to increase the base rate portion of customers' bills when weather is warmer than normal and decrease the base rate when weather is colder than normal. The net effect of the WNA was an increase/(decrease) in revenues of $.7 million, $2.6 million and $(2.6) million in 1998, 1997 and 1996, respectively. In May 1996, the Company filed to increase revenues by approximately $7.7 million for a portion of its Energas Division service area, which includes approximately 200,000 customers inside the city limits of 67 cities in West Texas. All cities either approved, or took no action to reject, a settlement allowing a $5.3 million increase in annual revenues to be effective for bills rendered on or after November 1, 1996. In October 1996, the Company filed a rate request with the Railroad Commission of Texas to increase revenues by approximately $.5 million for the remaining 22,000 rural customers in West Texas. The rate request was approved and became effective in April 1997. 17 4. Income taxes The components of income tax expense for 1998, 1997 and 1996 are as follows: 1998 1997 1996 -------- -------- -------- (In thousands) Current Federal $31,694 $ 7,917 $13,641 State 4,503 1,000 2,515 Deferred Federal (3,352) 4,807 7,024 State (616) 1,000 561 Investment tax credits (423) (426) (425) ------- ------- ------- $31,806 $14,298 $23,316 ======= ======= ======= Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that give rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 1998 and 1997 are presented below: 18 1998 1997 ---------- ---------- (In thousands) Deferred tax assets: Costs expensed for book purposes and capitalized for tax purposes $ 1,049 $ 641 Accruals not currently deductible for tax purposes 7,189 12,398 Customer advances 3,730 3,160 Nonqualified benefit plans 11,297 9,118 Postretirement benefits 10,093 5,757 Unamortized investment tax credit 1,427 1,723 Regulatory liabilities 3,175 3,117 Other, net 2,838 3,758 --------- --------- Total deferred tax assets 40,798 39,672 Deferred tax liabilities: Difference in net book value and net tax value of assets (114,229) (102,038) Pension funding (4,120) (4,190) Gas cost adjustment 8,943 (6,568) Regulatory assets (4,941) (8,673) Other, net (6,664) (6,031) --------- --------- Total deferred tax liabilities (121,011) (127,500) --------- --------- Net deferred tax liabilities $ (80,213) $ (87,828) ========= ========= SFAS No. 109 deferred accounts for rate regulated entities (included in other deferred credits) $ 13,475 $ 15,072 ========= ========= 19 Reconciliations of the provisions for income taxes computed at the statutory rate to the reported provisions for income taxes for 1998, 1997 and 1996 are set forth below: 1998 1997 1996 -------- -------- -------- (In thousands) Tax at statutory rate of 35% $30,474 $13,348 $22,564 Common stock dividends deductible for tax reporting (695) (706) (684) State taxes 2,526 1,300 2,000 Other, net (499) 356 (564) ------- ------- ------- Provision for income taxes $31,806 $14,298 $23,316 ======= ======= ======= 5. Contingencies Litigation Trans La Division In November 1997, a jury in Plaquemine, Louisiana awarded Brian L. Heard General Contractor, Inc., ("Heard") a total of $177,929 in actual damages and $15 million in punitive damages resulting from a lawsuit by Heard against the Trans La Division, the successor in interest to Oceana Heights Gas Company, which the Company acquired in November 1995. The trial judge also awarded interest on the total judgment amount. The claims are for events that occurred prior to the time Atmos acquired Oceana Heights Gas Company. Heard claimed damages associated with delays he allegedly incurred in constructing a sewer system in Iberville Parish, Louisiana. Heard filed the suit against the Trans La Division and two other defendants, alleging that gas leaks had caused delays in Heard's completion of a sewer project, resulting in lost business opportunities for the contractor during 1994. The jury awarded punitive damages under a prior Louisiana statute that allowed punitive damages to be awarded in cases involving hazardous substances, which, as defined in the statute, included natural gas. Although not retroactive, the Louisiana legislature repealed the statute in 1996. The Company has appealed the verdict and intends to aggressively pursue obtaining reversal of the judgment. However, the Company cannot assess, at this time, the likelihood of the judgment being reversed on appeal. The Company is in the process of reviewing its insurance coverage with respect to this case. To date, the insurance companies have denied coverage and one company has filed a declaratory action to determine its obligations under the policy. The Company does not expect the final outcome of 20 this case to have a material adverse effect on the financial condition, the results of operations or the cash flows of the Company, because in the Company's opinion, it is more likely than not that the amount of punitive damages ultimately awarded will be substantially reduced. On March 15, 1991, suit was filed in the 15th Judicial District Court of Lafayette Parish, Louisiana, by the "Lafayette Daily Advertiser" and others against Trans Louisiana Gas Company ("Trans La Division"), Trans Louisiana Industrial Gas Company, Inc., a wholly owned subsidiary of the Company, and Louisiana Intrastate Gas Corporation and certain of its affiliates ("LIG"). LIG is the Company's primary supplier of natural gas in Louisiana and is not otherwise affiliated with the Company. The plaintiffs purported to represent a class consisting of all residential and commercial gas customers in the Trans La Division's service area. Among other things, the lawsuit alleged that the defendants violated antitrust laws of the state of Louisiana by manipulating the cost-of-gas component of the Trans La Division's gas rate to the purported customer class, thereby causing such purported class members to pay a higher rate. The plaintiffs made no specific allegation of an amount of damages. The case was concluded on December 15, 1997 when the Court entered its final approval of the settlement whereby LIG made a payment of $10.3 million to the Trans La Division for the benefit of its customers in the form of credits to customers' bills during the period November 1997 through March 1998. The suit was dismissed with prejudice at the same fairness hearing on December 15, 1997. Greeley Division In Colorado, the Greeley Division is a defendant in several lawsuits filed as a result of a fire in a building in Steamboat Springs, Colorado on February 3, 1994. The plaintiffs claim that the fire resulted from a leak in a severed gas service line owned by the Greeley Division. On January 12, 1996, the jury awarded the plaintiffs approximately $2.5 million in compensatory damages and approximately $2.5 million in punitive damages. The jury assessed the Company with liability for all of the damages awarded. The Company appealed the judgment to the Colorado Court of Appeals. On June 11, 1998, the Colorado Court of Appeals reversed the trial court verdict and ordered a new trial. The plaintiffs have appealed the case to the Colorado Supreme Court. The Company does not expect the final outcome of this case to have a material adverse effect on the financial condition, the results of operations or the cash flows of the Company because the Company believes it has adequate 21 insurance and reserves to cover any damages that may ultimately be awarded. Western Kentucky Division In March 1997, Western Kentucky Gas Company ("Western Kentucky Division") was named as a defendant in a lawsuit in the District Court in Danville, Kentucky, as a result of an explosion and fire at a residence in Danville, Kentucky on March 4, 1997. The plaintiffs, Lisa Benedict, et al, who were leasing the residence, suffered serious burns in the accident and alleged that the Western Kentucky Division was negligent in installing and servicing gas lines at the residence. In September 1998, the Company and the plaintiffs entered into a confidential settlement of all claims in this case and the case was dismissed. The majority of the settlement was paid by the Company's insurance carriers with the remainder being borne by the Company and charged to the reserve for litigation losses. From time to time, other claims are made and lawsuits are filed against the Company arising out of the ordinary business of the Company. In the opinion of the Company's management, liabilities, if any, arising from these other claims and lawsuits are either covered by insurance, adequately reserved for by the Company or would not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. Guarantees The Company's wholly-owned subsidiary, UCG Energy, and Woodward Marketing, Inc. ("WMI"), sole members of WMLLC, act as guarantors of up to $12.5 million of balances outstanding under a $30 million bank credit facility for WMLLC. UCG Energy guarantees the payment of up to $5.6 million of borrowings under this facility. No balance was outstanding under this credit facility at September 30, 1998. UCG Energy and WMI also act as joint and several guarantors on certain accounts payable for gas purchases. UCG Energy has agreed to guarantee payables of WMLLC up to $40.0 million of natural gas purchases and transportation services from suppliers. WMLLC payable balances outstanding that were subject to these guarantees amounted to $8.5 million at September 30, 1998. Environmental matters Atmos is the owner or previous owner of manufactured gas plant sites which were used to supply gas prior to availability of natural gas. The gas manufacturing process resulted in 22 certain by-products and residual materials including coal tar. It was an acceptable and satisfactory process at the time such operations were being conducted. Under current environmental protection laws and regulations, the Company may be responsible for response actions with respect to such materials, if response actions are necessary. The United Cities Division owns or owned former manufactured gas plant sites in Johnson City and Bristol, Tennessee, Hannibal, Missouri and Americus, Georgia. UCGC and the Tennessee Department of Environment and Conservation entered into a consent order effective January 23, 1997, for the purpose of facilitating the investigation, removal and remediation of the Johnson City site. UCGC began the implementation of the consent order in the first quarter of 1997. The Company is unaware of any information which suggests that the Bristol site gives rise to a present health or environmental risk as a result of the manufactured gas process or that any response action will be necessary. The Tennessee Regulatory Authority granted UCGC permission to defer, until its next rate case, all costs incurred in Tennessee in connection with state and federally mandated environmental control requirements. On July 22, 1998, Atmos entered into an Abatement Order on Consent with the Missouri Department of Natural Resources addressing the former manufactured gas plant located in Hannibal, Missouri. Atmos, through its United Cities Division, agreed in the order to perform a removal action, a subsequent site evaluation and to reimburse the response costs incurred by the state of Missouri in connection with the property. The removal action was conducted and completed in August 1998 and the site evaluation will be completed in 1999. The Company has requested an Accounting Authority Order from the Missouri Public Service Commission ("MSPC") that would authorize it to defer its response costs related to the Hannibal site. On July 7, 1998, the MPSC Staff recommended that the MPSC approve the application. As of September 30, 1998, the Company had incurred and deferred for recovery $1.1 million including $258,000 related to an insurance recoverability study, and accrued and deferred for recovery an additional $750,000 associated with the preliminary survey and invasive study of the Johnson City, Hannibal and Bristol sites. On December 16, 1997, the Company, through its United Cities Division, entered into a Settlement Agreement with two 23 other responsible parties at the Americus, Georgia former manufactured gas plant site. UCGC was a former owner of the property. In the Settlement Agreement, the Company agreed to pay $250,000 to resolve its liability for response costs and property damages associated with the site. The Company has paid the $250,000. The agreement contains a covenant not to sue, an indemnification provision from the other parties and gives the other parties all responsibility for investigation and response actions at the site. On October 20, 1998, the Company filed a proposal with the Georgia Public Service Commission for recovery of this amount through a rate rider. In November 1998, the Commission approved recovery through the rate rider which will take affect December 1, 1998. Atmos is currently conducting an investigation pursuant to a Consent Order between the Kansas Department of Health and Environment and UCGC. The Order provides for the investigation, and a possible response action, for mercury contamination at gas pipeline sites which utilize or formerly utilized mercury meter equipment in Kansas. As of September 30, 1998, the Company had identified approximately 720 sites where mercury may have been used and had incurred and deferred for recovery $100,000. In addition, based upon available current information, the Company accrued and deferred for recovery an additional $280,000 for the investigation of these sites. The Kansas Corporation Commission has authorized the Company to defer these costs and seek recovery in a future rate case. The Company addresses other environmental matters from time to time in the regular and ordinary course of its business. Management expects that future expenditures related to response action at any site will be recovered through rates or insurance, or shared among other potentially responsible parties. Therefore, the costs of responding to these sites are not expected to materially affect the results of operations, financial condition or cash flows of the Company. 24 6. Leases The Company has entered into noncancelable operating leases for office and warehouse space used in its operations. The remaining lease terms range from one to 20 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. The Company has also entered into capital leases for division offices and operating facilities. Net property, plant and equipment included amounts for capital leases of $3.2 million and $2.3 million at September 30, 1998 and 1997, respectively. The related future minimum lease payments at September 30, 1998 were as follows: Capital Operating leases leases -------- --------- (In thousands) 1999 $ 735 $ 9,633 2000 735 9,199 2001 735 8,810 2002 735 8,679 2003 735 8,172 Thereafter 4,119 52,564 ------- ------- Total minimum lease payments 7,794 $97,057 ======= Less amount representing interest (4,215) ------- Present value of net minimum lease payments $ 3,579 ======= Consolidated lease and rental expense amounted to $9.2 million, $10.5 million and $9.7 million for fiscal 1998, 1997 and 1996, respectively. Rents for the regulated business are expensed and the Company receives rate treatment as a cost of service on a pay-as-you-go basis. 25 7. Long-term debt and notes payable Long-term debt at September 30, 1998 and 1997 consisted of the following: 1998 1997 ----------- --------- Unsecured 7.95% Senior Notes, (In thousands) due 2006, payable in annual installments of $1,000 $ 8,000 $ 9,000 Unsecured 9.57% Senior Notes, due 2006, payable in annual installments of $2,000 16,000 18,000 Unsecured 9.76% Senior Notes, due 2004, payable in annual installments of $3,000 21,000 24,000 Unsecured 11.2% Senior Notes, due 2002, payable in annual installments of $2,000 10,000 12,000 Unsecured 10% Notes, due 2011 2,303 2,303 Unsecured 6.09% Note, due November 1998 40,000 40,000 Unsecured 8.07% Senior Notes, due 2006, payable in annual installments of $4,000 beginning 2002 20,000 20,000 Unsecured 8.26% Senior Notes, due 2014, payable in annual installments of $1,818 beginning 2004 20,000 20,000 Unsecured 6.75% Debentures, due 2028 150,000 - First Mortgage Bonds Series J, 9.40% due 2021 17,000 17,000 Series N, 8.69% due 2000 3,000 5,000 Series P, 10.43% due 2017 25,000 25,000 Series Q, 9.75% due 2020 20,000 20,000 Series R, 11.32% due 2004 12,860 15,000 Series T, 9.32% due 2021 18,000 18,000 Series U, 8.77% due 2022 20,000 20,000 Series V, 7.50% due 2007 10,000 10,000 Medium term notes Series A, 1995-1, 6.67%, due 2025 10,000 10,000 Series A, 1995-2, 6.27%, due 2010 10,000 10,000 Series A, 1995-3, 6.20%, due 2000 2,000 2,000 Rental property, propane and other term notes due in installments through 2013 21,168 20,879 -------- -------- Total long-term debt 456,331 318,182 Less current maturities (57,783) (15,201) -------- -------- $398,548 $302,981 ======== ========