0000731802-95-000014.txt : 19950810 0000731802-95-000014.hdr.sgml : 19950810 ACCESSION NUMBER: 0000731802-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950809 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATMOS ENERGY CORP CENTRAL INDEX KEY: 0000731802 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 751743247 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10042 FILM NUMBER: 95559982 BUSINESS ADDRESS: STREET 1: 1800 THREE LINCOLN CTR STREET 2: 5430 LBJ FREEWAY CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2149349227 FORMER COMPANY: FORMER CONFORMED NAME: ENERGAS CO DATE OF NAME CHANGE: 19881024 10-Q 1 ATMOS 10-Q FOR QE 06/30/95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 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 75-1743247 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1800 Three Lincoln Centre 5430 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices) (Zip Code) (214) 934-9227 (Registrant's telephone number, including area code) 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 . Number of shares outstanding of each of the issuer's classes of common stock, as of July 27, 1995. Class Shares Outstanding ------------ ------------------ No Par Value 15,498,349 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements ATMOS ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June 30, September 30, 1995 1994 ------------ ------------ ASSETS (Unaudited) Property, plant and equipment $585,388 $543,692 Less accum. depreciation and amort. 233,936 216,285 -------- -------- Net property, plant and equipment 351,452 327,407 Current assets Cash and cash equivalents 2,421 2,766 Accounts receivable, net 20,489 29,678 Inventories 6,782 5,888 Gas stored underground 7,099 12,657 Prepayments 2,179 2,309 -------- -------- Total current assets 38,970 53,298 Deferred charges and other assets 33,771 35,973 -------- -------- $424,193 $416,678 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Common stock outstanding: 15,480,915 shares at 6/30/95 and 15,297,166 shares at 9/30/94 $ 77 $ 77 Additional paid-in capital 105,622 102,456 Retained earnings 56,901 47,023 -------- -------- Total shareholders' equity 162,600 149,556 Long-term debt 131,303 138,303 -------- -------- Total capitalization 293,903 287,859 Current liabilities Current maturities of long-term debt 7,000 4,000 Notes payable to banks 3,500 18,100 Accounts payable 28,029 21,975 Taxes payable 9,763 4,864 Customers' deposits 9,159 8,257 Other current liabilities 8,936 7,038 -------- -------- Total current liabilities 66,387 64,234 Deferred income taxes 29,005 30,184 Deferred credits and other liabilities 34,898 34,401 -------- -------- $424,193 $416,678 ======== ======== See accompanying notes to consolidated financial statements. - 2 - ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Three months ended June 30, ------------------- 1995 1994 -------- -------- Operating revenues $84,685 $ 90,013 Purchased gas cost 50,616 58,223 -------- -------- Gross profit 34,069 31,790 Operating expenses Operation 20,976 20,796 Maintenance 1,072 1,634 Depreciation and amortization 5,177 4,941 Taxes, other than income 3,825 3,673 Income taxes (benefit) 32 (687) ------- ------- Total operating expenses 31,082 30,357 ------- ------- Operating income 2,987 1,433 Other income 473 203 Interest charges 3,378 2,860 ------- ------- Net income (loss) $ 82 $(1,224) ======= ======= Net income (loss) per share $ .01 $ (.08) ======= ======= Atmos dividends declared per share (See Note 2) $ .23 $ .22 ======= ======= Average shares outstanding 15,450 15,233 ======= ======= See accompanying notes to consolidated financial statements. - 3 - ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Nine months ended June 30, ------------------ 1995 1994 -------- -------- Operating revenues $359,827 $422,458 Purchased gas cost 222,699 282,881 -------- -------- Gross profit 137,128 139,577 Operating expenses Operation 63,119 67,815 Maintenance 3,224 4,630 Depreciation and amortization 15,500 14,280 Taxes, other than income 13,290 14,020 Income taxes 11,533 10,752 -------- -------- Total operating expenses 106,666 111,497 -------- -------- Operating income 30,462 28,080 Other income 387 288 Interest charges 10,346 9,262 -------- -------- Net income $ 20,503 $ 19,106 ======== ======== Net income per share $ 1.33 $ 1.26 ======== ======== Atmos dividends declared per share (See Note 2) $ .69 $ .66 ======== ======== Average shares outstanding 15,386 15,168 ======== ======== See accompanying notes to consolidated financial statements. - 4 - ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Twelve months ended June 30, --------------------- 1995 1994 -------- -------- Operating revenues $437,177 $493,942 Purchased gas cost 271,389 326,963 -------- -------- Gross profit 165,788 166,979 Operating expenses Operation 87,436 88,025 Maintenance 4,482 6,370 Depreciation and amortization 20,061 18,246 Taxes, other than income 16,078 17,194 Income taxes 8,883 9,721 -------- -------- Total operating expenses 136,940 139,556 -------- -------- Operating income 28,848 27,423 Other income 602 249 Interest charges 13,374 12,377 -------- -------- Net income $ 16,076 $ 15,295 ======== ======== Net income per share $ 1.05 $ 1.02 ======== ======== Atmos dividends declared per share (See Note 2) $ .91 $ .87 ======== ======== Average shares outstanding 15,358 15,045 ======== ======== See accompanying notes to consolidated financial statements. - 5 - ATMOS ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine months ended June 30, ------------------ 1995 1994 -------- -------- Cash Flows From Operating Activities Net income $ 20,503 $ 19,106 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Charged to depreciation and amortization 15,500 14,280 Charged to other accounts 2,732 2,092 Deferred income taxes (benefit) (1,179) (2,414) Other 1,838 605 -------- -------- 39,394 33,669 Net change in operating assets and liabilities 28,597 15,302 -------- -------- Net cash provided by operating activities 67,991 48,971 Cash Flows From Investing Activities Capital expenditures (44,796) (35,682) Retirements of property, plant and equipment 2,519 (492) -------- -------- Net cash used in investing activities (42,277) (36,174) Cash Flows From Financing Activities Net decrease in notes payable to banks (54,600) (2,100) Issuance of long-term debt 40,000 - Cash dividends and distributions paid (10,625) (9,371) Repayment of long-term debt (4,000) (9,850) Issuance of common stock 3,166 7,199 -------- -------- Net cash used in financing activities (26,059) (14,122) -------- -------- Net decrease in cash and cash equivalents (345) (1,325) Cash and cash equivalents at beginning of period 2,766 2,286 -------- -------- Cash and cash equivalents at end of period $ 2,421 $ 961 ======== ======== See accompanying notes to consolidated financial statements. - 6 - ATMOS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 1995 1. Unaudited interim financial information In the opinion of management, all material adjustments necessary for a fair presentation have been made to the unaudited interim period financial statements. Such adjustments consisted only of normal recurring accruals. Because of seasonal and other fac- tors, the results of operations for the nine month period ended June 30, 1995 are not indicative of expected results of opera- tions for the year ending September 30, 1995. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q, and should be read in conjunction with the audited consolidated financial statements in the 1994 annual report to shareholders of Atmos Energy Corporation ("Atmos" or the "Company"). The condensed consolidated balance sheet of Atmos Energy Corporation, as of June 30, 1995, and the related condensed consolidated statements of income for the three-month, nine-month, and twelve-month periods ended June 30, 1995, and statement of cash flows for the nine-month period ended June 30, 1995, included herein have been subjected to a review by Ernst & Young LLP, the Company's independent accountants, whose report is included herein. Deferred charges and other assets - Deferred charges and other assets at June 30, 1995 and September 30, 1994 include assets of the Company's qualified defined benefit retirement plans in excess of the plans' recorded obligations in the amounts of $10,213,000 and $12,275,000, respectively, and Company assets related to the Company's nonqualified retirement plans at June 30, 1995 and September 30, 1994 of $16,559,000 and $15,735,000, respectively. Common stock - At the annual meeting of shareholders on February 8, 1995, the shareholders approved an increase in the number of authorized shares of common stock from 50,000,000 to 75,000,000. As of June 30, 1995, the Company had 75,000,000 shares of common stock, no par value (stated at $.005 per share), authorized and 15,480,915 shares outstanding. In May 1994, the Company implemented a three-for-two split of its common stock. All share information in this report is adjusted for the 3-for-2 stock split unless otherwise noted. 2. Business Combination On December 22, 1993, Atmos acquired by means of a merger all of the assets and liabilities of Greeley Gas Company ("GGC") in accordance with the terms and provisions of an Agreement and Plan of Reorganization dated July 2, 1993. Subsequent to the merger, - 7 - the business of GGC has been operated through the Company's Greeley Gas Company division (the "Greeley Gas Division"). The Atmos dividends declared per share for the prior periods presented below and on the consolidated statements of income reflect Atmos' dividends declared per share as adjusted for the 3-for-2 stock split in May 1994. The restated cash dividends and distributions per share presented below reflect the total amounts paid by Atmos and GGC to their shareholders in each of those periods, divided by the total number of weighted average shares outstanding in those periods as restated for the shares issued to effect the merger between Atmos and GGC and the 3-for-2 stock split in May 1994. For the periods ended June 30, 1994 ----------------------------------- Three Nine Twelve months months months ------ ------ ------ Atmos dividends declared per share $.22 $.66 $.87 Restated cash dividends and distributions per share, including GGC $.22 $.62 $.80 3. Postemployment Benefits Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers Accounting for Postemployment Benefits" ("SFAS No. 112"). SFAS No. 112 requires that certain benefits provided to former or inactive employees, after employment but before retirement, such as workers' compensation, disability benefits and health care continuation coverage be accrued if attributable to the employees' prior service. Prior to October 1, 1994, postemployment benefit costs were recorded and recovered in rates on the pay-as-you-go basis. Both the cumulative effect of adopting SFAS No. 112, as well as the effect of the new standard upon the recurring expense being recognized for these benefits, were not material. 4. Contingencies 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 the Trans La Division, Trans Louisiana Industrial Gas Company, Inc. ("TLIG"), 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 - 8 - 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 defendants brought an appeal to the Louisiana Supreme Court of rulings by the trial court and the Third Circuit Court of Appeal which denied defendants' exceptions to the jurisdiction of the trial court. It was the position of the defendants that the plaintiffs' claims amount to complaints about the level of gas rates and should be within the exclusive jurisdiction of the Louisiana Commission. On January 19, 1993 the Louisiana Supreme Court issued a decision reversing in part the lower courts' rulings, dismissing all of plaintiffs' claims against the defendants which seek damages due to alleged overcharges and further ruling that all such claims are within the exclusive jurisdiction of the Louisiana Commission. Any claims which seek damages other than overcharges were remanded to the trial court but were stayed pending the completion of the Louisiana Commission proceeding referred to below. The Company has reached a tentative settlement with the plaintiffs in the context of the Louisiana Commission proceeding referred to below, which settlement will resolve all outstanding issues relating to the Company, subject to certain procedural conditions. On July 14, 1995, the Louisiana Commission entered an order approving a settlement with the Company and TLIG in connection with its investigation of the costs included in the Trans La Division's purchased gas adjustment component in its rates. The order exonerated the Company of any wrongdoing or manipulation of the cost of gas component of its gas rate to residential and commercial customers. In the settlement, the Company agreed to refund approximately $541,000 plus interest to the Trans La Division's customers over a two-year period due to certain issues related to the calculation of the weighted average cost of gas. The refund totalling approximately $1,016,000, which includes interest calculated through October 1, 1995, will begin in September 1995 and will be credited to customer bills along with interest that accrues after October 1, 1995. Most of the issues that generated the refunds arose before Trans Louisiana Gas Company was acquired by the Company in 1986. The Greeley Gas Company Division of the Company 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. The Company believes that the evidence shows that any damage to the line was caused by a third party or parties and occurred prior to the Company's - 9 - acquisition of Greeley Gas Company in 1993. The Company has adequate insurance and/or reserves to cover any potential damages that may be awarded against the Company in this matter except for any punitive damages due to prior Colorado court rulings that the insuring of punitive damages violates public policy in Colorado. It is not possible, at this time, to estimate the extent of the exposure to the Company. The Company believes that the allega- tions against it are without merit and that the chances of an award of punitive damages against the Company are remote. The Company will vigorously protect its interest in this matter. From time to time, 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 actions are either covered by insurance, ade- quately reserved for by the Company or would not have a material adverse effect on the financial condition of the Company. 5. Long-term and short-term debt In November 1994, the Company entered into note purchase agree- ments with two insurance companies and issued at par $20,000,000 of unsecured Senior Notes at 8.07% payable in annual installments of $4,000,000 beginning October 31, 2002 through October 31, 2006 with semiannual interest payments and $20,000,000 of unsecured Senior Notes at 8.26% payable in annual installments of $1,818,182 beginning October 31, 2004 through October 31, 2014 with semiannual interest payments. During the quarter ended December 31, 1994, the Company paid installments due of $2,000,000 on its 9.75% Senior Notes and $2,000,000 on its 11.2% Senior Notes. At June 30, 1995, the Company had committed, short-term, unsecured bank credit facilities totaling $70,000,000, all of which was unused. The Company also had aggregate uncommitted lines of $140,000,000, of which $136,500,000 was unused. - 10 - 6. Statements of cash flows Supplemental disclosures of cash flow information for the nine month periods ended June 30, 1995 and 1994 are presented below. Nine months ended June 30, ----------------- 1995 1994 ------ ------- (In thousands) Cash paid for Interest $10,983 $10,806 Income taxes 7,184 6,370 - 11 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Atmos Energy Corporation We have reviewed the accompanying condensed consolidated balance sheets of Atmos Energy Corporation as of June 30, 1995 and 1994, and the related condensed consolidated statements of income for the three-month, nine-month and twelve-month periods ended June 30, 1995 and 1994 and the statements of cash flows for the nine- month period ended June 30, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit con- ducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifi- cations that should be made to the accompanying condensed con- solidated financial statements at June 30, 1995 and 1994, and for the three-month, nine-month, and twelve-month periods then ended for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Atmos Energy Corporation as of September 30, 1994, and the related con- solidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated November 9, 1994, we expressed an unqualified opin- ion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consoli- dated balance sheet as of September 30, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ERNST & YOUNG LLP Dallas, Texas August 2, 1995 - 12 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The Company distributes and sells natural gas to residential, commercial, industrial and agricultural customers in six states. Such business is subject to regulation by state and/or local authorities in each of the states in which the Company operates. In addition, the Company's business is affected by seasonal weather patterns, competition within the energy industry, and economic conditions in the areas that the Company serves. Revenues and sales volume statistics for the three-month, nine- month, and twelve-month periods ended June 30, 1995 and 1994 appear on pages 20-22. Meters in service are as follows: June 30, ------------------- 1995 1994 ------- ------- Meters in Service Residential 571,760 564,149 Commercial 60,151 59,683 Industrial (including agricultural) 19,397 19,718 Public authority and other 4,978 4,954 ------- ------- Total 656,286 648,504 ======= ======= Rate Activity In September 1994, the Company filed to increase revenues by ap- proximately $2.6 million for a portion of its Energas Company service area ("Energas Division"), which affects approximately 217,000 customers and reflects recovery of accrual accounting of postretirement benefits in accordance with SFAS No. 106. In November 1994, the Company implemented an annual revenue increase of approximately $1.5 million affecting approximately 195,000 customers located inside the city limits of towns in this portion of its Energas Division. Upon approval of the Railroad Commis- sion of Texas in January 1995, the Company implemented an annual increase of approximately $.2 million relating to the 22,000 remaining rural customers. GGC filed a request for an increase in annual revenues of $4.5 million with the Colorado Public Utility Commission ("Colorado Commission") in September, 1993. On May 1, 1994, the Company implemented an annual increase of $3.2 million or 6.9% in Phase I of this proceeding. The Phase I rates reflect recovery of SFAS No. 106 expenses with external funding. In October 1994, the Colorado Commission issued its order affirming the increase as - 13 - set forth in Phase I. In March 1995, the Greeley Gas Division filed Phase II in the rate proceeding, which will address rate structure. Effective December 1, 1993, GGC received an annual rate increase of approximately $2.1 million or 10.6% in its Kansas service area. The increase reflects SFAS No. 106 expenses with external funding and a moratorium on rate requests in Kansas until December 1, 1996. In September 1992, the Louisiana Public Service Commission ("Louisiana Commission") issued a rate order to the Company's Trans La Division which included a rate stabilization clause ("RSC") for three years that provides for an annual adjustment to the Company's rates to reflect changes in expenses, revenues and invested capital following an annual review. The RSC provides an opportunity for a return on jurisdictional common equity of between 11.75% and 12.25%. As a result of the Company's filings under the RSC, an increase of $730,000 annually or 2% went into effect on March 1, 1993, an increase of $1.1 million annually or 2.7% went into effect on March 1, 1994 and the third increase of $1.0 million annually or 2.0% went into effect on March 6, 1995. The Company expects to have a hearing before the Louisiana Commission on extending the rate stabilization mechanism. In September 1990, the Kentucky Public Service Commission (the "Kentucky Commission") issued an order that increased annual revenues approximately $1.0 million for the Company's Kentucky service area. In May 1991, the Kentucky Commission issued an Order on Rehearing increasing allowed revenues an additional $2.6 million. The Attorney General and the Company separately pursued unsuccessful appeals of the Rehearing Order. On February 10, 1995, the Company filed with the Kentucky Commis- sion for a rate increase for its Western Kentucky Gas Company Division. The filing requested an annual revenue increase of approximately $7.7 million, or 5.5 percent. The Kentucky Commis- sion has suspended the increase until August 12, 1995, and stat- utes provide that they act on the filing within 10 months of the filing date. In July 1995 a settlement agreement was filed with the Kentucky Commission for a total operating income increase of approximately $4.0 million for the Company, of which a portion becomes effective in August 1996. The settlement includes recovery of expenses related to adoption of SFAS No. 106. The Kentucky Commission is expected to take action on the rate settlement in August. The Company provides natural gas service to approximately 168,000 customers in Kentucky. On February 11, 1992, the Company filed a rate case with the city of Amarillo, Texas seeking to increase annual revenues by approx- imately $4.4 million, or 12%. In November 1992, the Railroad Commission issued its decision resulting in a total annual in- crease of $2.1 million. The Company and the city requested a - 14 - rehearing of the Order. On January 11, 1993, the Railroad Commission denied rehearing to both parties. In February 1993, the city appealed the Railroad Commission's rate order to the District Court of Travis County, Texas. In January 1994, the District Court denied the city's appeal. The city appealed to the Court of Appeals. On March 1, 1995 the Austin Court of Appeals issued its decision affirming the Railroad Commission's 1993 Amarillo Rate Order in all respects. FINANCIAL CONDITION For the nine months ended June 30, 1995, net cash provided by operating activities totaled $68.0 million compared with $49.0 million for the nine months ended June 30, 1994. The net change in operating assets and liabilities was $28.6 million for the nine months ended June 30, 1995 compared with $15.3 million for the nine months ended June 30, 1994. Due to the seasonal nature of the natural gas distribution business, large swings in accounts receivable, accounts payable and inventories of gas in underground storage will occur when entering and leaving the winter or heating season. Major cash flows used for investing activities for the nine months ended June 30, 1995 included capital expenditures of $44.8 million compared with $35.7 million for the nine months ended June 30, 1994. The capital expenditures budget for fiscal year 1995 is currently $56.1 million, as compared with actual capital expenditures of $50.4 million in fiscal 1994. Capital projects planned for 1995 include major expenditures for mains, services, meters, and vehicles. These expenditures will be financed from internally generated funds and financing activities. For the nine months ended June 30, 1995, cash used in financing activities amounted to $26.1 million compared with $14.1 million for the nine months ended June 30, 1994. During November 1994 the Company issued $40 million of unsecured Senior Notes. The proceeds were used to repay short-term borrowings. During the nine months ended June 30, 1995, notes payable to banks was reduced $54.6 million, as compared with $2.1 million for the nine months ended June 30, 1994. Payments of long-term debt decreased $5.85 million to $4.0 million for the nine months ended June 30, 1995. Payments of long-term debt consisted of a $2.0 million installment on the Company's 9.75% Senior Notes due in 1996 and a $2.0 million installment on its 11.2% Senior Notes. The Company paid $10.6 million in cash dividends during the nine months ended June 30, 1995, compared with $9.4 million in cash dividends and distributions paid during the nine months ended June 30, 1994. This reflects a $.01 per share increase in the quarterly dividend rate and an increase in the number of shares outstanding. In the quarter ended December 31, 1993, the Company issued 3,849,294 shares of common stock as adjusted for the 3-for-2 stock split in May 1994 (2,566,196 shares on a pre-split basis). This included 3,493,995 shares (2,329,330 pre-split shares) issued in - 15 - connection with the merger with Greeley Gas Company and 355,299 shares (236,866 pre-split shares) issued under its Employee Stock Ownership Plan ("ESOP"), its Restricted Stock Grant Plan and its Dividend Reinvestment and Stock Purchase Plan ("DRSPP") prior to the merger on December 22, 1993. In the nine month period ended June 30, 1995, the Company issued 183,749 shares under its plans compared with 381,052 shares issued during the nine months ended June 30, 1994. In May 1994 the Company implemented a three-for-two split of its common stock in the form of a stock dividend, which resulted in shareholders receiving one new share for every two shares pre- viously held. Fractional shares were paid in cash or credited to DRSPP or ESOP accounts. In January 1995, the Company amended its DRSPP to a Direct Stock Purchase Plan ("DSPP") allowing customers and other investors to purchase common stock directly from the Company with a $200 minimum initial investment. The Company believes that internally generated funds, its short- term credit facilities and access to the debt and equity capital markets will provide necessary working capital and liquidity for capital expenditures and other cash needs for the remainder of fiscal 1995. At June 30, 1995 the Company had $70.0 million of committed, short-term credit facilities, all of which was avail- able for additional borrowing. The committed lines are renewed or renegotiated at least annually. At June 30, 1995, the Company also had $140.0 million of uncommitted short-term lines, $136.5 million of which was unused. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1995, COMPARED WITH THREE MONTHS ENDED JUNE 30, 1994 Operating revenues decreased by approximately 6% to $84.7 million for the three months ended June 30, 1995 from $90.0 million for the three months ended June 30, 1994. The primary factors con- tributing to the decrease in operating revenues were decreased sales to irrigation customers and lower cost of gas, which is reflected in sales price. During the quarter ended June 30, 1995, temperatures averaged 24% colder than in the corresponding quarter of the prior year, and approximately 11% colder than normal. However, the impact of colder weather in the quarter ended June 30, 1995 was more than offset by decreased irrigation sales and lower gas costs. The total volume of gas sold and transported for the three months ended June 30, 1995 was 27.7 billion cubic feet ("Bcf") compared with 28.9 Bcf for the three months ended June 30, 1994. Reasons for the decreased volumes include lower transportation volumes and decreased irrigation sales. Rainfall in Lubbock County, Texas was 2.3 inches in June 1995 compared with .5 inch in June 1994. The average sales price - 16 - per Mcf sold decreased $.15 to $3.90 as a result of a $.30 decrease in the average cost of gas. Lower gas costs are passed on to customers, but do not affect the Company's margins. Gross profit increased by approximately 7% to $34.1 million for the three months ended June 30, 1995, from $31.8 million for the three months ended June 30, 1994. Contributing to the improved margins were rate increases implemented in Texas, Louisiana and Colorado since May 1, 1994. Operating expenses, excluding income taxes, increased less than .4% from $31.0 million for the three months ended June 30, 1994 to $31.1 million for the three months ended June 30, 1995. Operating income increased for the three months ended June 30, 1995 to $3.0 million from $1.4 million for the three months ended June 30, 1994. The increase in operating income primarily resulted from increased gross profit. Net income increased from a loss of $1.2 million for the three months ended June 30, 1994 to a gain of $.1 million for the three months ended June 30, 1995. This increase in net income primari- ly resulted from the increase in operating income, partially off- set by an increase in interest expense as a result of $40 million of Senior Notes issued in November 1994 and higher short-term interest rates in the nine months ended June 30, 1995. NINE MONTHS ENDED JUNE 30, 1995, COMPARED WITH NINE MONTHS ENDED JUNE 30, 1994 Operating revenues decreased by approximately 15% to $359.8 mil- lion for the nine months ended June 30, 1995 from $422.5 million for the nine months ended June 30, 1994. Factors contributing to the lower operating revenues were the lower average cost of gas, which is reflected in the sales price, warmer weather in most service areas and decreased demand in the irrigation market. Weather in the Company's service areas was 11% warmer than normal and 10% warmer than weather in the corresponding nine-month period of the prior fiscal year. Volumes sold to irrigation cus- tomers decreased from the corresponding period of the prior year by 7%. The average sales price per Mcf decreased from $4.19 for the nine months ended June 30, 1994 to $3.87 for the nine months ended June 30, 1995. The decrease in the average sales price re- flects decreased cost of gas. The average cost of gas per Mcf sold decreased from $2.91 for the nine months ended June 30, 1994 to $2.49 for the nine months ended June 30, 1995. Gross profit decreased to $137.1 million for the nine months ended June 30, 1995, compared with $139.6 million for the nine months ended June 30, 1994. The decrease in gross profit was primarily due to an 8% decrease in sales volumes which resulted from warmer weather than experienced in the nine months ended June 30, 1994. The impact of 10% warmer weather in the nine months ended June 30, 1995 more than offset the impact of rate increases implemented in Texas, Louisiana, Colorado and Kansas subsequent to October 1, 1993. Operating expenses, excluding - 17 - income taxes, decreased from $100.7 million in the nine months ended June 30, 1994, to $95.1 million in the nine months ended June 30, 1995. The principal factors contributing to the de- crease in operating expenses were decreases in all major expense categories except depreciation. The completion of the assimila- tion of Greeley Gas Company into Atmos, realization of operating efficiencies, and cost control measures all contributed to lower operating expenses in fiscal 1995. Operating income increased for the nine months ended June 30, 1995 to $30.5 million from $28.1 million for the nine months ended June 30, 1994. The increase in operating income primarily resulted from decreased operating expenses. Interest expense increased approximately $1.1 million for the nine months ended June 30, 1995 compared with the nine months ended June 30, 1994, because of the $40 million of Senior Notes issued in November 1994 and higher short-term interest rates in the nine months ended June 30, 1995. Net income increased for the nine months ended June 30, 1995, by approximately 7% to $20.5 million from $19.1 million for the nine months ended June 30, 1994. The increase in net income resulted from the increase in operating income, partially offset by the increase in interest expense. Earnings per share increased to $1.33 for the nine months ended June 30, 1995 from $1.26 for the nine months ended June 30, 1994, while average shares outstanding increased approximately 1%. Dividends per share increased 5% to $.69 for the nine months ended June 30, 1995. All per share information is adjusted for the 3-for-2 stock split in May 1994. The Company estimates that the impact of the weather being 11% warmer than normal for the nine months ended June 30, 1995 caused net income to be approximately $4.3 million less that it would have been had the Company experienced normal temperatures in its respective service areas. Weather was approximately 1% warmer than normal for the nine months ended June 30, 1994. TWELVE MONTHS ENDED JUNE 30, 1995, COMPARED WITH TWELVE MONTHS ENDED JUNE 30, 1994 Operating revenues decreased by approximately 11% to $437.2 million for the 12 months ended June 30, 1995 from $493.9 million for the 12 months ended June 30, 1994. The decreased revenues for the 12 months ended June 30, 1995 were caused by decreased sales volumes and lower gas costs as a result of warmer winter weather and decreased demand. Sales and transportation volumes decreased to 143.3 Bcf for the 12 months ended June 30, 1995 compared with 149.8 Bcf for the corresponding prior 12-month period. The average sales price per Mcf decreased from $4.16 to $3.87. The average cost of gas per Mcf sold decreased from $2.86 to $2.50 for the 12 months ended June 30, 1995, reflecting a general decline in gas supply costs over the last two years. The - 18 - average sales price reflects the decreased cost of gas and rate increases implemented in Texas, Louisiana, Colorado and Kansas subsequent to July 1, 1993. Gross profit decreased by approximately 1% to $165.8 million for the 12 months ended June 30, 1995, from $167.0 million for the 12 months ended June 30, 1994. Operating expenses, excluding income taxes, decreased from $129.8 million for the 12 months ended June 30, 1994, to $128.1 million for the 12 months ended June 30, 1995. Factors contributing to the decrease in operating expenses included decreases in all major categories of expense except depreciation. Income taxes decreased $.8 million for the 12 months ended June 30, 1995, as compared with the 12 months ended June 30, 1994. Operating income increased in the 12 months ended June 30, 1995 by approximately 5% to $28.8 million. The primary reason for the increase in operating income was the decrease in operating expenses discussed above. Interest charges increased $1.0 million to $13.4 million, com- pared with $12.4 million for the prior year. This was caused by the issuance of $40 million of Senior Notes in November 1994 and higher short-term borrowing rates for the twelve months ended June 30, 1995. Net income for the 12 months ended June 30, 1995 was $16.1 million compared with $15.3 million for the 12 months ended June 30, 1994. The increase in net income resulted primarily from the increase in operating income discussed above. Earnings per share increased by 3% to $1.05. Average shares outstanding increased approximately 2% as compared with the prior year. Dividends per share increased approximately 5% to $.91. All per share information is adjusted for the 3-for-2 stock split in May 1994. The Company estimates that the impact of the weather being 11% warmer than normal for the twelve months ended June 30, 1995 caused net income to be approximately $4.3 million less than it would have been had the Company experienced normal temperatures in its respective service areas. Weather was approximately normal for the 12 months ended June 30, 1994. - 19 - ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS (1) Three months ended June 30, 1995 1994 ------- ------- Sales Volumes -- MMcf (2) Residential 6,885 6,160 Commercial 3,037 2,713 Industrial (including agricultural) 10,143 11,768 Public authority and other 582 522 ------- ------- Total 20,647 21,163 Transportation Volumes -- MMcf (2) 7,026 7,720 ------- ------- Total Volumes Handled - MMcf (2) 27,673 28,883 ======= ======= Operating Revenues (000's) Gas Sales Revenues Residential $35,552 $ 34,709 Commercial 13,373 12,998 Industrial (including agricultural) 29,188 35,705 Public authority and other 2,433 2,402 ------- -------- Total Gas Revenues 80,546 85,814 Transportation Revenues 2,773 2,859 Other Revenues 1,366 1,340 ------- -------- Total Operating Revenues $84,685 $ 90,013 ======= ======== Average Gas Sales Revenues per Mcf $ 3.90 $ 4.05 Average Transportation Revenue per Mcf $ .39 $ .37 Cost of Gas per Mcf Sold $ 2.45 $ 2.75 HEATING DEGREE DAYS Weather Three months ended June 30, Service Sensitive --------------------------- Area Customers % 1995 1994 Normal -------------- ----------- ---- ---- ------ Texas 47% 288 250 237 Kentucky 26% 266 287 349 Louisiana 11% 51 71 37 Colorado, Kansas and Missouri 16% 978 599 768 ---- System Average 100% 365 295 328 Percent of Normal 111% 90% 1. Consolidated operating statistics have been restated to include Greeley operations for all periods presented. 2. Volumes are reported as metered in million cubic feet("MMcf"). - 20 - ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS (1) Nine months ended June 30, 1995 1994 -------- -------- Sales Volumes -- MMcf (2) Residential 42,641 47,552 Commercial 17,544 19,102 Industrial (including agricultural) 25,059 25,701 Public authority and other 4,343 4,853 -------- -------- Total 89,587 97,208 Transportation Volumes -- MMcf (2) 24,449 24,944 -------- -------- Total Volumes Handled - MMcf (2) 114,036 122,152 ======== ======== Operating Revenues (000's) Gas Sales Revenues Residential $185,361 $222,431 Commercial 69,785 82,601 Industrial (including agricultural) 75,071 81,975 Public authority and other 16,353 20,746 -------- -------- Total Gas Revenues 346,570 407,753 Transportation Revenues 9,444 10,854 Other Revenues 3,813 3,851 -------- -------- Total Operating Revenues $359,827 $422,458 ======== ======== Average Gas Sales Revenues per Mcf $ 3.87 $ 4.19 Average Transportation Revenue per Mcf $ .39 $ .44 Cost of Gas per Mcf Sold $ 2.49 $ 2.91 HEATING DEGREE DAYS Weather Nine months ended June 30, Service Sensitive ----------------------------- Area Customers % 1995 1994 Normal -------------- ----------- ------ ------ ------ Texas 47% 3,090 3,546 3,512 Kentucky 26% 3,738 4,290 4,341 Louisiana 11% 1,443 1,922 1,760 Colorado, Kansas and Missouri 16% 5,800 5,793 6,060 ---- System Average 100% 3,507 3,917 3,939 Percent of Normal 89% 99% See footnotes on page 20. - 21 - ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS (1) Twelve months ended June 30, 1995 1994 -------- -------- Sales Volumes -- MMcf (2) Residential 46,298 51,616 Commercial 19,576 21,164 Industrial (including agricultural) 37,860 36,130 Public authority and other 4,732 5,226 -------- -------- Total 108,466 114,136 Transportation Volumes -- MMcf (2) 34,813 35,654 -------- -------- Total Volumes Handled - MMcf (2) 143,279 149,790 ======== ======== Operating Revenues (000's) Gas Sales Revenues Residential $208,861 $247,629 Commercial 79,691 92,573 Industrial (including agricultural) 112,818 111,605 Public authority and other 18,070 22,508 -------- -------- Total Gas Sales Revenues 419,440 474,315 Transportation Revenues 12,708 14,730 Other Revenues 5,029 4,897 -------- -------- Total Operating Revenues $437,177 $493,942 ======== ======== Average Gas Sales Revenues per Mcf $ 3.87 $ 4.16 Average Transportation Revenue per Mcf $ .37 $ .41 Cost of Gas per Mcf Sold $ 2.50 $ 2.86 HEATING DEGREE DAYS Weather Twelve months ended June 30, Service Sensitive ---------------------------- Area Customers % 1995 1994 Normal -------------- ----------- ------ ------ ------ Texas 47% 3,105 3,569 3,528 Kentucky 26% 3,790 4,338 4,376 Louisiana 11% 1,443 1,924 1,760 Colorado, Kansas and Missouri 16% 5,890 6,001 6,234 ---- System Average 100% 3,543 3,974 3,983 Percent of Normal 89% 100% See footnotes on page 20. - 22 - PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 4 of notes to consolidated financial statements on pages 8 and 9 herein for a description of legal proceedings. Item 5. Other Information On May 3, 1995 Mary Lovell was named senior vice president of utility services, responsible for all gas supply, rates and regulatory affairs, and marketing functions. Ms. Lovell, 43, previously was vice president, rates and regulatory affairs. Don James was named senior vice president of public affairs, responsible for investor relations, corporate and employee communications, and governmental affairs functions. Mr. James, 47, previously was senior vice president and general counsel. Glen Blanscet was named vice president, general counsel and corporate secretary, replacing Mr. James. Mr. Blanscet, 37, previously was assistant general counsel and corporate secretary. Lee Everett was named vice president, rates and regulatory af- fairs, replacing Ms. Lovell. Mr. Everett, 42, was previously director of regulatory affairs. Gene Mattingly was named vice president of marketing, responsible for large volume sales as well as residential and commercial mar- keting. Mr. Mattingly, 47, previously was director of large volume services. Also on May 3, 1995, the Company named B.J. Hackler to the posi- tion of president of its Trans Louisiana Gas Company division. Mr. Hackler, 51, was previously director of operations services for Atmos. He joined the Company in 1966 and has held a variety of management positions, including senior vice president of Texas operations for Energas Company. In June 1995, the Company signed a letter of intent to acquire privately held Oceana Heights Gas Company of Thibodaux, La., which is located near the Trans La Division service area and serves approximately 9,200 customers. The Company expects to account for the merger as a pooling of interests, with outstand- ing shares of Oceana Heights capital stock to be converted to Atmos stock having a market value equal to approximately $6.4 million. The merger is subject to certain conditions, including the execution of a definitive agreement and the approval of various regulatory authorities on terms acceptable to the Company. The transaction is not expected to have a material effect on the Company's financial condition or results of operations. - 23 - On August 9, 1995 Dewey G. Williams, 70, retired from the Company's Board of Directors, in accordance with its policy on retirement of Board members. Mr. Williams, president of Protective Assurance General Agency in Dallas, Texas, has served on the Atmos Board since 1987. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits A list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Exhibits Index, which immediately precedes such exhibits. (b) Reports on Form 8-K None - 24 - SIGNATURES Pursuant to the requirements 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) Date: August 9, 1995 By: /s/ James F. Purser ------------------------------ James F. Purser Executive Vice President and Chief Financial Officer Date: August 9, 1995 By: /s/ David L. Bickerstaff ------------------------------ David L. Bickerstaff Vice President and Controller (Principal Accounting Officer) - 25 - EXHIBITS INDEX Item 6. (a) Page Number or Exhibit Incorporation Number Description by Reference to ------- -------------------------------------- --------------- 10.1 Letter dated May 3, 1995 amending the employment agreement between the Company and Robert F. Stephens 10.2 Employment Agreement dated May 3, 1995 between the Company and Mary S. Lovell 10.3 Employment Agreement dated April 1, 1995 between the Company and J. Charles Goodman 15 Letter regarding unaudited interim financial information 27 Financial Data Schedule for Atmos Energy Corporation for the nine months ended June 30, 1995 - 26 - EX-15 2 AUDITORS' LETTER RE INCORP BY REFERENCE EXHIBIT 15 ---------- August 9, 1995 Board of Directors Atmos Energy Corporation We are aware of the incorporation by reference in the Registra- tion Statements (Form S-8 No. 33-57687, Form S-8 No. 33-68852, Form S-8 No. 33-57695, Form S-3 No. 33-58220, and Form S-3 No. 33-56915) of Atmos Energy Corporation of our report dated August 2, 1995, relating to the unaudited condensed consolidated interim financial statements of Atmos Energy Corporation which are included in its Form 10-Q for the quarter ended June 30, 1995. Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. ERNST & YOUNG LLP Dallas, Texas EX-27 3 FDS FOR ATMOS FOR 9 MONTHS ENDED 6/30/95
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL SATEMENTS OF ATMOS ENERGY CORPORATION FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1995 JUN-30-1995 PER-BOOK 351,452 0 38,970 33,771 0 424,193 77 105,622 56,901 162,600 0 0 131,303 3,500 0 0 7,000 0 2,716 191 116,883 424,193 359,827 11,533 317,832 329,365 30,462 387 30,849 10,346 20,503 0 20,503 10,626 1,215 67,991 1.33 1.33
EX-10 4 EX 10.1 EMPLOY. AGRMT - R. STEPHENS EXHIBIT 10.1 ------------ May 3, 1995 Mr. Robert F. Stephens Atmos Energy Corporation P.O. Box 650205 Dallas, TX 75265 RE: Amendment to August 8, 1991 Letter Agreement Regarding Severance Benefits Dear Mr. Stephens: Reference is hereby made to that certain letter agreement amended and restated as of August 8, 1991 from Atmos Energy Corporation (the "Company") to you (the "Severance Agreement"), pursuant to which the Company agreed to provide certain severance benefits to you in the event your employment with the Company is terminated after a change in control of the Company as described in the Severance Agreement. The Company and you now desire to amend the Severance Agreement and do, by execution hereof, agree to amend, and do hereby amend, the Severance Agreement by modifying the provisions contained in the first paragraph of Section 3 of the Severance Agreement to read in its entirety as follows: If your employment by the Company is terminated by the Company other than for cause or if you voluntarily terminate your employment within one hundred and eighty (180) days following the occurrence of any change in control as defined in Subsection 2(i) hereof (the "Evaluation Period"), you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon such termination, unless such termination is because of death, Disability or Retirement. If your employment by the Company is terminated after the Evaluation Period but during the term of this Agreement, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon such termination, unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. Except as expressly modified herein, the Severance Agreement is and shall remain in full force and effect in accordance with its terms and provisions. If this letter sets forth our agreement on the subject matter hereof, please sign and return the enclosed copy of this letter to the undersigned. Sincerely, ATMOS ENERGY CORPORATION By: /s/ James F. Purser ---------------------------- James F. Purser Executive Vice President and Chief Financial Officer AGREED TO: /s/ Robert F. Stephens ----------------------------- Robert F. Stephens Date: 5/30/95 ------------------------ - 2 - EX-10 5 EX 10.2 EMPLOYMENT AGRMT - M. LOVELL EXHIBIT 10.2 ------------ May 3, 1995 Ms. Mary S. Lovell Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265 Dear Ms. Lovell: Atmos Energy Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is now contemplated. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1995; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than July 1 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement; provided, further, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of thirty-six (36) months beyond the month in which such change in control occurred. 2. Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of - 2 - the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 33 1/3% or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this Subsection) whose election by the Board 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, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which 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) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or - 3 - substantially all the Company's assets. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months after the occurrence of such potential change in control of the Company, (ii) the termination by you of your employment by reason of Disability or Retirement (at your normal retirement age), as defined in Subsection 3(i), or (iii) the occurrence of a change in control of the Company. 3. Termination Following Change in Control. If any of the - 4 - events described in Subsection 2(i) hereof constituting a change of control shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for twelve (12) consecutive months, and within thirty (30) days after written Notice of Termination (as defined in Subsection (iv) below) is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by you for Good Reason, as defined in Subsections - 5 - 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you 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 at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless, in the case of Paragraphs (A), (E), (F), (G), or (H), such circumstances are fully - 6 - corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as a senior executive officer of the Company or a substantial and adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any person in control of the Company; (C) the Company's requiring you to be based anywhere other than the offices at which you were based immediately prior to the change in control of the Company except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all senior executives of the Company and all senior executives of any person in control of the Company, or to pay to you any portion of an installment of - 7 - deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) the failure by the Company to continue in effect any compensation plan, in which you participate immediately prior to the change in control of the Company which is material to your total compensation, including, but not limited to, the Company's Retirement Plan, Employee Stock Ownership Plan, Supplemental Executive Benefits Plan and Excess Medical Expense Insurance Plan or any substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit - 8 - enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and, if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail - 9 - the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated for any reason other than Disability, thirty (30) days after Notice of Termination is given. 4. Compensation Upon Termination or During Disability. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment or during a period of disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full- time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under any disability plan of the Company until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Retirement, or by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Company - 10 - for Cause or by you other than for Good Reason, Disability, death or Retirement, the Company shall pay you your full base salary, and continue to provide you with life, disability, accident, health insurance and other benefits, through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, death or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) the Company shall pay you your full base salary, and continue to provide you with life, disability, accident, health insurance and other benefits, through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due, except as otherwise provided below; (B) in lieu of any further salary payments to you for period subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "Base Amount", as defined in Section 280G of the Internal Revenue Code of 1986 as amended (the "Code"). - 11 - (C) Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by you in connection with a change in control of the Company (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with (i) the Company, (ii) any person whose actions result in a change in control of the Company, or (iii) any person affiliated with the Company or such person) (all such payments and benefits including the Severance Payment, being hereinafter called "Total Payments") would be subject (in whole or part), to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Severance Payment shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax if, and only in the event that, the amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) is greater than the excess of (i) the amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which you would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which you shall have effectively waived in writing prior to the date of payment of the - 12 - Severance Payment shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (including by reason of section 280G(b)(4)(A) of the Code); (iii) in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of your base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company in accordance with the principles of sections 280G(d)(3) and (4) of the Code; and (D) the Company also shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder) except to the extent that the payment of such fees and expenses would not be, or would cause any other - 13 - portion of the Total Payments not to be, deductible by reason of Section 280G of the Code. (iv) You 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 or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise except as specifically provided in this Section 4. (v) In addition to all other amounts payable to you under this Section 4, you shall be entitled to all rights and benefits provided to you under the terms of any other plan or agreement between you and the Company. 5. Letter of Credit Preceding Termination. In the event a potential change in control of the Company shall have occurred, the Company will promptly (and in no event more than seven (7) days thereafter) establish an irrevocable letter of credit (the "Letter of Credit") in your favor in an amount equal to the amount which would be payable to you pursuant to Subsection 4(iii) hereof as if you were immediately entitled to payment pursuant thereto, such Letter of Credit to be issued by a commercial bank which is not an affiliate of the Company, but which is a national banking association or established under the laws of one of the states of the United States, and which has equity in excess of $100 million (the "Bank"). The Letter of Credit shall be in form and substance reasonably satisfactory to - 14 - you and the Company and will provide that the Bank shall pay you the amount of your draft, at sight, on presentation to the Bank of a statement, signed by you or your authorized representative, setting forth (i) a statement that pursuant to Subsection 4(iii) of this Agreement, you are entitled to payments of not less than the amount of such draft, and (ii) the Date of Termination of your employment. Each time you shall draw on the Letter of Credit, you shall provide the Company with a copy of such draft and the accompanying statement referred to above. The Company shall maintain the Letter of Credit in effect for a period of two years from the date on which it is issued; provided, however, that (i) if during any such two-year period any event shall occur which, pursuant to this Section 5, would have required the Company to establish a Letter of Credit had none then existed, then the Company shall maintain the Letter of Credit in effect for a period of two years following such event, unless further extended pursuant to this provision, and (ii) if a change in control of the Company shall occur, then the Company shall maintain the Letter of Credit in effect for a period of three years following such change in control. During the period in which a Letter of Credit is required to be maintained, the Company shall, at six-month intervals commencing with the date the Letter of Credit is established, calculate the amount which would be payable to you pursuant to Subsection 4(iii) hereof as if you were immediately entitled to payment pursuant thereto. If the amount exceeds the amount available to be drawn upon under the Letter of Credit then in effect, the Company shall promptly - 15 - (and in no event later than seven (7) days thereafter) cause the amount payable under the Letter of Credit to be increased by the amount of such excess. The payment by the Bank of the amount of your draft in accordance with the terms hereof and of the Letter of Credit shall not constitute a waiver by the Company of, or in any way preclude the Company from asserting, any claim against you that you are not entitled to some or all of such payment. In addition, your drawing upon the Letter of Credit shall not constitute a waiver by you, or in any way preclude you from asserting, any claim against the Company that you are entitled to amounts pursuant to this Agreement which were not paid by amounts received under the Letter of Credit. 6. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly 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 no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any - 16 - such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that a notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be - 17 - modified, waived, or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. 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 of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 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 expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an - 18 - original but all of which together will constitute one and the same instrument. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas, Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, ATMOS ENERGY CORPORATION By: /s/ Robert F. Stephens ------------------------ Robert F. Stephens President and COO Agreed to this 25th ------ day of May, 1995 /s/ Mary S. Lovell ------------------------- Mary S. Lovell - 19 - EX-10 6 EX 10.3 EMPLOYMENT AGRMT - J. GOODMAN EXHIBIT 10.3 ------------ April 1, 1995 Mr. J. Charles Goodman Atmos Energy Corporation P.O. Box 650205 Dallas, Texas 75265 Dear Mr. Goodman: Atmos Energy Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is now contemplated. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company isterminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1995; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than July 1 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement; provided, further, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of thirty-six (36) months beyond the month in which such change in control occurred. 2. Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other - 2 - fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 33 1/3% or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this Subsection) whose election by the Board 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, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which 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) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an - 3 - agreement for the sale or disposition by the Company of all or substantially all the Company's assets. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months after the occurrence of such potential change in control of the Company, (ii) the termination by you of your employment by reason of Disability or Retirement (at your normal retirement age), as defined in Subsection 3(i), or (iii) the occurrence of a change in control of the Company. - 4 - 3. Termination Following Change in Control. If any of the events described in Subsection 2(i) hereof constituting a change of control shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for twelve (12) consecutive months, and within thirty (30) days after written Notice of Termination (as defined in Subsection (iv) below) is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of - 5 - Termination by you for Good Reason, as defined in Subsections 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you 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 at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless, in the case of Paragraphs - 6 - (A), (E), (F), (G), or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as a senior executive officer of the Company or a substantial and adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any person in control of the Company; (C) the Company's requiring you to be based anywhere other than the offices at which you were based immediately prior to the change in control of the Company except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all senior executives of the Company and all senior executives of any person in control of the - 7 - Company, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) the failure by the Company to continue in effect any compensation plan, in which you participate immediately prior to the change in control of the Company which is material to your total compensation, including, but not limited to, the Company's Retirement Plan, Employee Stock Ownership Plan, Incentive Stock Option Plan, Supplemental Executive Benefits Plan and Excess Medical Expense Insurance Plan or any substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company - 8 - which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and, if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which - 9 - shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated for any reason other than Disability, thirty (30) days after Notice of Termination is given. 4. Compensation Upon Termination or During Disability. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment or during a period of disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full- time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under any disability plan of the Company until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Retirement, or by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other - 10 - compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Disability, death or Retirement, the Company shall pay you your full base salary, and continue to provide you with life, disability, accident, health insurance and other benefits, through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, death or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) the Company shall pay you your full base salary, and continue to provide you with life, disability, accident, health insurance and other benefits, through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due, except as otherwise provided below; (B) in lieu of any further salary payments to you for period subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance - 11 - payment (the "Severance Payment") equal to 2.99 times your "Base Amount", as defined in Section 280G of the Internal Revenue Code of 1986 as amended (the "Code"). (C) Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by you in connection with a change in control of the Company (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with (i) the Company, (ii) any person whose actions result in a change in control, or (iii) any person affiliated with the Company or such person) (all such payments and benefits including the Severance Payment, being hereinafter called "Total Payments") would be subject (in whole or part), to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the Severance Payment shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax if, and only in the event that, the amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) is greater than the excess of (i) the amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which you would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no - 12 - portion of the Total Payments the receipt or enjoyment of which you shall have effectively waived in writing prior to the date of payment of the Severance Payment shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (including by reason of section 280G(b)(4)(A) of the Code); (iii) in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of your base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company in accordance with the principles of sections 280G(d)(3) and (4) of the Code; and (D) the Company also shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided - 13 - hereunder) except to the extent that the payment of such fees and expenses would not be, or would cause any other portion of the Total Payments not to be, deductible by reason of Section 280G of the Code. (iv) You 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 or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise except as specifically provided in this Section 4. (v) In addition to all other amounts payable to you under this Section 4, you shall be entitled to all rights and benefits provided to you under the terms of any other plan or agreement between you and the Company. 5. Letter of Credit Preceding Termination. In the event a potential change in control of the Company shall have occurred, the Company will promptly (and in no event more than seven (7) days thereafter) establish an irrevocable letter of credit (the "Letter of Credit") in your favor in an amount equal to the amount which would be payable to you pursuant to Subsection 4(iii) hereof as if you were immediately entitled to payment pursuant thereto, such Letter of Credit to be issued by a commercial bank which is not an affiliate of the Company, but which is a national banking association or established under the laws of one of the states of the United States, and which has - 14 - equity in excess of $100 million (the "Bank"). The Letter of Credit shall be in form and substance reasonably satisfactory to you and the Company and will provide that the Bank shall pay you the amount of your draft, at sight, on presentation to the Bank of a statement, signed by you or your authorized representative, setting forth (i) a statement that pursuant to Subsection 4(iii) of this Agreement, you are entitled to payments of not less than the amount of such draft, and (ii) the Date of Termination of your employment. Each time you shall draw on the Letter of Credit, you shall provide the Company with a copy of such draft and the accompanying statement referred to above. The Company shall maintain the Letter of Credit in effect for a period of two years from the date on which it is issued; provided, however, that (i) if during any such two-year period any event shall occur which, pursuant to this Section 5, would have required the Company to establish a Letter of Credit had none then existed, then the Company shall maintain the Letter of Credit in effect for a period of two years following such event, unless further extended pursuant to this provision, and (ii) if a change in control of the Company shall occur, then the Company shall maintain the Letter of Credit in effect for a period of three years following such change in control. During the period in which a Letter of Credit is required to be maintained, the Company shall, at six-month intervals commencing with the date the Letter of Credit is established, calculate the amount which would be payable to you pursuant to Subsection 4(iii) hereof as if you were immediately entitled to payment pursuant thereto. If - 15 - the amount exceeds the amount available to be drawn upon under the Letter of Credit then in effect, the Company shall promptly (and in no event later than seven (7) days thereafter) cause the amount payable under the Letter of Credit to be increased by the amount of such excess. The payment by the Bank of the amount of your draft in accordance with the terms hereof and of the Letter of Credit shall not constitute a waiver by the Company of, or in any way preclude the Company from asserting, any claim against you that you are not entitled to some or all of such payment. In addition, your drawing upon the Letter of Credit shall not constitute a waiver by you, or in any way preclude you from asserting, any claim against the Company that you are entitled to amounts pursuant to this Agreement which were not paid by amounts received under the Letter of Credit. 6. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly 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 no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason - 16 - following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein- before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. - 17 - 8. Miscellaneous. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. 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 of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 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 expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an - 18 - original but all of which together will constitute one and the same instrument. 11. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas, Texas in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, ATMOS ENERGY CORPORATION By /s/ Robert F. Stephens ------------------------ Robert F. Stephens, President & Chief Operating Officer Agreed to this 23rd ------ day of May , 1995. ------ /s/ J. Charles Goodman ------------------------- J. Charles Goodman - 19 -