-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GI/PjrCnuS9Mc1T8zPN/GP8zua1oW4iUNfsh2AMzbL3TD0UJQcWtY4tv/xXpIpFU 6XosRPMkuTg5eZV1q3pazQ== 0000950109-97-001002.txt : 19970222 0000950109-97-001002.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950109-97-001002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970212 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: 97526450 BUSINESS ADDRESS: STREET 1: 1800 THREE LINCOLN CTR STREET 2: 5430 LBJ FREEWAY CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2149349227 MAIL ADDRESS: STREET 1: 1800 THREE LINCOLN CTR STREET 2: 5430 LBJ FREEWAY CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: ENERGAS CO DATE OF NAME CHANGE: 19881024 10-Q 1 FORM 10-Q 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 December 31, 1996 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) (972) 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 February 3, 1997. Class Shares Outstanding ----- ------------------ No Par Value 16,135,496 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data)
December 31, September 30, 1996 1996 ------------ ------------- ASSETS Property, plant and equipment $682,943 $666,438 Less accum. depreciation and amort. 260,752 252,871 -------- -------- Net property, plant and equipment 422,191 413,567 Current assets Cash and cash equivalents 5,694 3,726 Accounts receivable, net 89,869 25,284 Inventories 7,296 7,174 Gas stored underground 13,085 14,652 Prepayments 2,150 1,489 -------- -------- Total current assets 118,094 52,325 Deferred charges and other assets 37,849 35,969 -------- -------- $578,134 $501,861 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Common stock outstanding: 16,118,336 shares at 12/31/96 and 16,021,321 shares at 9/30/96 $ 80 $ 80 Additional paid-in capital 113,493 111,206 Retained earnings 65,892 61,012 -------- -------- Total shareholders' equity 179,465 172,298 Long-term debt 157,303 122,303 -------- -------- Total capitalization 336,768 294,601 Current liabilities Current maturities of long-term debt 8,000 9,000 Notes payable to banks 52,300 62,800 Accounts payable 67,710 31,640 Taxes payable 7,729 3,584 Customers' deposits 10,257 9,858 Other current liabilities 14,229 10,674 -------- -------- Total current liabilities 160,225 127,556 Deferred income taxes 39,866 39,056 Deferred credits and other liabilities 41,275 40,648 -------- -------- $578,134 $501,861 ======== ========
See accompanying notes to condensed consolidated financial statements. - 2 - ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)
Three months ended Twelve months ended December 31, December 31, ------------------- -------------------- 1996 1995 1996 1995 -------- -------- --------- -------- Operating revenues $157,653 $130,468 $510,929 $448,440 Purchased gas cost 105,977 79,743 332,978 274,187 -------- -------- -------- -------- Gross profit 51,676 50,725 177,951 174,253 Operating expenses Operation 21,417 21,721 82,503 85,344 Maintenance 908 1,075 4,045 4,347 Depreciation and amortization 6,225 5,591 21,483 21,172 Taxes, other than income 4,882 4,198 17,563 16,731 Income taxes 5,225 5,195 13,340 11,123 -------- -------- -------- -------- Total operating expenses 38,657 37,780 138,934 138,717 -------- -------- -------- -------- Operating income 13,019 12,945 39,017 35,536 Other income (expense) 89 160 (367) 238 Interest charges, net 4,216 3,872 15,042 14,144 -------- -------- -------- -------- Net income $ 8,892 $ 9,233 $ 23,608 $ 21,630 ======== ======== ======== ======== Net income per share $. 55 $ .59 $ 1.48 $ 1.40 ======== ======== ======== ======== Cash dividends per share $ .25 $ .24 $ .97 $ .93 ======== ======== ======== ======== Average shares outstanding 16,055 15,674 15,988 15,503 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. - 3 - ATMOS ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Three months ended December 31, 1996 1995 -------- -------- Cash Flows From Operating Activities Net income $ 8,892 $ 9,233 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Charged to depreciation and amortization 6,225 5,591 Charged to other accounts 966 120 Deferred income taxes (benefit) 810 793 Other 83 98 -------- -------- 16,976 15,835 Net change in operating assets and liabilities (20,968) (4,221) -------- -------- Net cash provided (used) by operating activities (3,992) 11,614 Cash Flows From Investing Activities Retirements of property, plant and equipment (90) 4,064 Capital expenditures (15,725) (19,161) -------- -------- Net cash used in investing activities (15,815) (15,097) Cash Flows From Financing Activities Net increase (decrease) in notes payable to banks (10,500) 7,200 Cash dividends paid (4,012) (3,739) Issuance of long-term debt 40,000 - Repayment of long-term debt (6,000) - Issuance of common stock 2,287 2,352 -------- -------- Net cash provided by financing activities 21,775 5,813 -------- -------- Net increase in cash and cash equivalents 1,968 2,330 Cash and cash equivalents at beginning of period 3,726 2,294 -------- -------- Cash and cash equivalents at end of period $ 5,694 $ 4,624 ======== ========
See accompanying notes to condensed consolidated financial statements. - 4 - ATMOS ENERGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) December 31, 1996 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 three month period ended December 31, 1996 are not indicative of expected results of operations for the year ending September 30, 1997. 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 of Atmos Energy Corporation ("Atmos" or the "Company") in its 1996 annual report to shareholders. The condensed consolidated balance sheet of Atmos, as of December 31, 1996, and the related condensed consolidated statements of income for the three-month and twelve-month periods ended December 31, 1996 and 1995, and condensed consolidated statements of cash flows for the three-month periods ended December 31, 1996 and 1995, included herein have been subjected to a review by Ernst & Young LLP, the Company's independent accountants, whose report is included herein. Common stock - As of December 31, 1996, the Company had 75,000,000 shares of common stock, no par value (stated at $.005 per share), authorized and 16,118,336 shares outstanding. 2. Business Combination Agreement to Merge with United Cities Gas Company In July 1996, the Company announced that it had reached a definitive agreement with United Cities Gas Company ("United Cities") of Brentwood, Tennessee, wherein United Cities will be merged with and into Atmos, by means of a tax-free reorganization. The Company will exchange approximately 13.4 million shares of its common stock for all of the issued and outstanding common stock of United Cities. Atmos will be the surviving corporation. Atmos has agreed to increase the indicated annual dividend to not less than $1.02 per share, for no less than four quarters, at the first Board meeting following the closing of the transaction. The transaction is expected to be accounted for by the pooling of interests method. The merger was approved by both the United Cities and Atmos shareholders in November 1996. As of February 5, 1997, the companies have obtained the required regulatory approvals for the merger from all states except Illinois, Missouri, Kansas, South Carolina and Virginia. Stipulations are being prepared for presentation to the utility commissions in Missouri and Kansas which could result in approvals in February 1997. The Company presented testimony - 5 - to the Illinois Commission on February 4, 1997. Some issues must be resolved before the Illinois Commission will approve the merger. The South Carolina Commission voted to approve the merger on January 15, 1997, and the Company is awaiting the issuance of an order. A hearing is scheduled in Virginia on February 11, 1997. The Company is not aware of any opposition to the merger in Virginia. United Cities is a natural gas utility company engaged in the distribution and sale of natural gas to approximately 314,000 customers in Tennessee, Illinois, Virginia, Kansas, Missouri, South Carolina, Georgia, and Iowa, and in the sale of propane to approximately 27,000 customers in Tennessee, Virginia and North Carolina. United Cities' assets primarily consist of the property, plant and equipment used in its natural gas and propane sales and distribution businesses. Following consummation of the merger, Atmos intends to continue to operate the United Cities business as a division of Atmos, along with Atmos' Energas, Trans La, Western Kentucky, and Greeley divisions. The accompanying consolidated financial statements of the Company do not include the assets, liabilities, or operating results of United Cities. 3. 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 of the Company, 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 Division's service area. Among other allegations, the plaintiffs alleged that the defendants violated the 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 made by the trial court and the Third Circuit Court of Appeals 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 relating to 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 sought - 6 - 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 settlement with the plaintiffs in the context of the Louisiana Commission proceeding referred to below, which settlement resolves 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 with respect to the 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 totaling approximately $1,016,000, which includes interest calculated through October 1, 1995, began in September 1995 and will be credited to customer bills along with interest that accrues after October 1, 1995. The Company refunded approximately $533,000 under the settlement in fiscal 1996 and an additional $151,000 to date in fiscal 1997. 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. On January 12, 1996, the jury awarded the plaintiffs approximately $2.5 million in compensatory damages and approximately $2.5 million in punitive damages. The jury assessed the Company with liability for all of the damages awarded. The Company has filed a Notice of Appeal with the Colorado Court of Appeals with respect to this case. The Company has adequate insurance to cover the compensatory damages awarded. However, the Company's insurance carrier informed the Company that, based upon a recent Colorado Court ruling, the punitive damages awarded against the Company cannot be covered by the Company's insurance policy. The Company is continuing to review the position of the insurance carrier with respect to coverage of punitive damages. The Company believes it has meritorious issues for an appeal but cannot assess, at this time, the likelihood of success in the appeal. 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, - 7 - adequately reserved for by the Company or would not have a material adverse effect on the financial condition of the Company. 4. Long-term and short-term debt In November 1996 the Company issued $40,000,000 of 6.09% term notes, payable in November 1998. The proceeds from the term notes were used primarily to refinance a portion of notes payable to banks and for working capital, capital expenditures and general corporate purposes. At December 31, 1996, the Company had committed, short-term, unsecured bank credit facilities totaling $90,000,000, of which $80,000,000 was unused. The Company also had aggregate uncommitted lines of credit totaling $165,000,000, of which $122,700,000 was unused at December 31, 1996. 5. Statements of cash flows Supplemental disclosures of cash flow information for the three month periods ended December 31, 1996 and 1995 are presented below.
Three months ended December 31, 1996 1995 ------ ------ (In thousands) Cash paid for Interest $5,876 $3,987 Income taxes 5 98
- 8 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Atmos Energy Corporation We have reviewed the accompanying condensed consolidated balance sheet of Atmos Energy Corporation as of December 31, 1996, and the related condensed consolidated statements of income for the three-month and twelve-month periods ended December 31, 1996 and 1995 and the condensed consolidated statements of cash flows for the three-month periods ended December 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews 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 conducted 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 state ments taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements at December 31, 1996, and for the three-month and twelve-month periods ended December 31, 1996 and 1995 for them to be in conformity with generally accepted ac counting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Atmos Energy Corporation as of September 30, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated November 4, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1996, 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 February 5, 1997 - 9 - 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, competitive factors within the energy industry, and economic conditions in the areas that the Company serves. Revenues and sales volume statistics for the three-month and twelve-month periods ended December 31, 1996 and 1995 appear on pages 15 and 16. Average meters in service are as follows:
Quarter ended December 31, 1996 1995 ------- ------- Average Meters in Service Residential 593,273 582,705 Commercial 61,669 61,086 Industrial (including agricultural) 18,694 19,062 Public authority and other 4,761 5,026 ------- ------- Total 678,397 667,879
Agreement to Merge with United Cities Gas Company In July 1996, the Company announced that it had reached a definitive agreement with United Cities Gas Company ("United Cities") of Brentwood, Tennessee, wherein United Cities will be merged with and into Atmos by means of a tax-free reorganization. In November 1996 the shareholders of both companies approved the merger. As of February 5, 1997, the companies were seeking the required approvals of various regulators in order to complete the merger. For further information, please see Note 2 of the notes to consolidated financial statements. Rate Activity In May 1996, the Company filed to increase revenues by approximately $7.7 million for a portion of its Energas Company service area, which includes approximately 200,000 customers inside the city limits of 67 cities in West Texas. All cities either approved, or took no action to reject, a settlement allowing a $5.3 million increase in annual revenues to be effective for bills rendered on or after November 1, 1996. In October 1996, the Company filed a rate request with the Railroad Commission of Texas to increase revenues by approximately $.5 million for the remaining rural customers in West Texas. - 10 - In February 1995, the Company filed with the Kentucky Commission for a rate increase for its Western Kentucky Division, which includes approximately 171,000 customers. In October 1995, the Kentucky Commission issued an order authorizing the Company to increase its rates by $2.3 million annually effective November 1, 1995, and by an additional $1.0 million annually beginning in March 1996. The settlement included a decrease in depreciation rates, recovery of expenses related to adoption of Statement of Financial Accounting Standards No. 106 and included a provision for the Company to begin a three-year demand-side management pilot program for the 1996-97 heating season, which could cost up to $450,000 annually, resulting in a total annual operating in come increase of approximately $4.0 million. FINANCIAL CONDITION For the three months ended December 31, 1996 net cash used by operating activities totaled $4.0 million compared with $11.6 million net cash provided by operating activities for the three months ended December 31, 1995. Net operating assets and liabilities increased $21.0 million for the three months ended December 31, 1996 compared with an increase of $4.2 million for the three months ended December 31, 1995. This increase in operating assets and liabilities resulted primarily from large swings in accounts receivable, accounts payable and inventories of gas in underground storage which occur when entering and leaving the winter or heating season. Major cash flows from investing activities for the three months ended December 31, 1996 included capital expenditures of $15.7 million compared with $19.2 million for the three months ended December 31, 1995. The capital expenditures budget for fiscal 1997 is currently $92.1 million, as compared with actual capital expenditures of $77.6 million in fiscal 1996. Budgeted capital projects include major expenditures for mains, services, meters, vehicles and computer software and equipment. In November 1996 the Board of Directors approved an additional $24 million in the 1997 capital budget for a new Customer Information System (CIS) and related business process and infrastructure changes in 1997. These expenditures will be financed from internally generated funds and financing activities. For the three months ended December 31, 1996, cash flows provided by financing activities amounted to $21.8 million as compared with $5.8 million for the three months ended December 31, 1995. During the quarter, notes payable to banks decreased $10.5 million, as compared with an increase of $7.2 million in the quarter ended December 31, 1995, due to seasonal factors and the refinancing of short-term debt with proceeds from the issuance of $40.0 million of long-term debt in the quarter ended December 31, 1996. The debt issued consisted of $40.0 million of 6.09% term notes, payable in November 1998. Payments of long-term debt totaled $6.0 million for the quarter ended December 31, 1996. Such payments consisted of a $3.0 million installment on the Company's 9.76% Senior Notes, a $2.0 million installment on the - 11 - Company's 11.2% Senior Notes and the final installment of $1.0 million on the Company's 9.75% Senior Notes. The Company paid $4.0 million in cash dividends during the three months ended December 31, 1996, compared with dividends of $3.7 million paid during the three months ended December 31, 1995. This reflects increases in the quarterly dividend rate and in the number of shares outstanding. In the quarter ended December 31, 1996, the Company issued 97,015 shares of common stock, including 96,161 shares issued in connection with the Employee Stock Ownership Plan and 854 shares under the Outside Director's Stock- for-Fee Plan. In the quarter ended December 31, 1995, 386,458 shares of common stock were issued including 313,411 shares issued in connection with the acquisition of Oceana Heights Gas Company. 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 1997. At December 31, 1996 the Company had $90.0 million in committed short-term credit facilities, of which $80.0 million was available for additional borrowing. The committed lines of credit are renewed or renegotiated at least annually. At December 31, 1996, the Company also had $165.0 million of uncommitted short-term lines of credit, of which $122.7 million was unused. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1995 Operating revenues increased to $157.7 million for the three months ended December 31, 1996 compared with $130.5 million for the three months ended December 31, 1995. The increase in operating revenues was due to increased cost of natural gas, which is reflected in revenues, and rate increases implemented in Texas and Kentucky. The weather for the three months ended December 31, 1996 was 5% warmer than the 30-year normal and 3% warmer than the weather for the corresponding quarter of the prior year. Volumes sold decreased to 32.0 billion cubic feet ("Bcf") from 33.0 Bcf. Changes in cost of gas are reflected in regulated sales prices through purchased gas adjustment mechanisms. The average sales price per thousand cubic feet ("Mcf") sold increased $.96 to $4.82 while the average cost of gas per Mcf sold increased $.89 to $3.31. The increase in the average sales price reflects the increased cost of natural gas and rate increases implemented during the past year. Recent rate increases include a $2.3 million annual rate increase in Kentucky effective in November 1995, with an additional $1.0 million annually in March 1996, and a $5.3 million annual increase in West Texas effective in November 1996. Transportation revenues increased slightly due to an increase from $.30 to $.31 in the average transportation revenue per Mcf. Volumes transported were unchanged at approximately 7.2 Bcf for the first quarter. - 12 - Gross profit increased by 1.9% to $51.7 million for the three months ended December 31, 1996, from $50.7 million for the three months ended December 31, 1995. The primary factor contributing to the increased gross profit was the rate increases discussed above. Operating expenses, excluding income taxes, increased approximately 3% to $33.4 million for the three months ended December 31, 1996 from $32.6 million for the three months ended December 31, 1995. Factors contributing to the increase were higher depreciation and amortization and taxes other than income taxes. Income taxes increased slightly due to higher pre-tax profits. Operating income increased for the three months ended December 31, 1996 by .6% to $13.0 million from $12.9 million for the three months ended December 31, 1995. The increase in operating income resulted from increased gross profit. Interest charges increased due to increased average short-term debt outstanding in the three months ended December 31, 1996, which more than offset a decrease in the Company's weighted average short-term interest rate, as compared with the quarter ended December 31, 1995. Net income decreased for the three months ended December 31, 1996 by approximately 4% to $8.9 million from $9.2 million for the three months ended December 31, 1995. This decrease primarily resulted from increases in operating expenses and interest charges. Earnings per share decreased by 7% to $.55. Average shares outstanding increased 2.4% as compared with the first quarter of fiscal 1996. Dividends per share increased 4.2% to $.25 due to a $.01 per share increase in the quarterly dividend rate beginning with the dividend paid in December 1996. TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH TWELVE MONTHS ENDED DECEMBER 31, 1995 Operating revenues increased to $510.9 million for the 12 months ended December 31, 1996 from $448.4 million for the 12 months ended December 31, 1995 due to increased revenues from all classes of customers, increased cost of natural gas which is reflected in revenues, increased sales volumes to weather sensitive customers due to colder weather, and rate increases implemented in Texas and Kentucky, as discussed above. Transpor tation volumes decreased to 26.5 Bcf from 28.0 Bcf and average transportation revenue per Mcf decreased from $.38 to $.32, resulting in a $2.2 million decrease in transportation revenues. Total sales and transportation volumes increased 1% to 143.5 Bcf for the 12 months ended December 31, 1996 from 142.2 Bcf for the 12 months ended December 31, 1995. The company-wide weather for calendar year 1996 was 4% colder than for calendar year 1995 but 3% warmer than normal. The Company experienced increased sales volumes with all weather-sensitive customer classes in the 12 months ended December 31, 1996. The average sales price per Mcf sold increased $.46 to $4.25. The average cost of gas per Mcf sold increased $.45 to $2.85. Changes in cost of gas are reflected in regulated sales prices through purchased gas adjustment mechanisms. - 13 - Gross profit increased by 2% to $178.0 million from $174.3 million for the 12 months ended December 31, 1995. The increase in gross profit for the 12 months ended December 31, 1996 was due to colder weather, increased sales volumes, and rate increases. Operating expenses exclusive of income taxes decreased to $125.6 million for the 12 months ended December 31, 1996 from $127.6 million for the 12 months ended December 31, 1995. Factors contributing to the decrease in operating expenses were decreased employee welfare, outside services, injuries and damages, and labor expenses. Income taxes increased $2.2 million for the 12 months ended December 31, 1996, compared with the 12 months ended December 31, 1995 due primarily to higher pre-tax income. Operating income increased from the 12 months ended December 31, 1995 by 10% to $39.0 million for the 12 months ended December 31, 1996, due to increased gross profit. Interest charges increased due to an increase in average short-term debt outstanding in the 12 months ended December 31, 1996, which more than offset the decrease in the Company's weighted average short-term interest rate for the 12 months ended December 31, 1996, as compared with the 12 months ended December 31, 1995. Net income for the 12 months ended December 31, 1996 was $23.6 million compared with $21.6 million for the 12 months ended December 31, 1995. The increase in net income resulted primarily from the increase in operating income. Earnings per share increased by 6% to $1.48. Average shares outstanding increased approximately 3% as compared with the prior year. Dividends per share increased 4.3% to $.97. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 The matters discussed or incorporated by reference in this report contain both historical and forward-looking statements. The forward-looking statements involve risks and uncertainties that affect the Company's operations, markets, services, rates, recovery of costs, availability of gas supply, and other factors as discussed in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, governmental, weather, and technological factors. - 14 - ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS
Quarter ended 12 Months ended December 31, December 31, ------------------ ------------------ 1996 1995 1996 1995 -------- -------- -------- -------- Sales Volumes -- MMcf (1) Residential 16,871 16,856 51,558 49,416 Commercial 7,265 6,970 21,836 20,629 Industrial (including agricultural) 6,026 7,272 38,410 39,044 Public authority and other 1,836 1,876 5,142 5,090 -------- -------- -------- -------- Total 31,998 32,974 116,946 114,179 Transportation Volumes -- MMcf (1) 7,205 7,210 26,529 28,033 -------- -------- -------- -------- Total Volumes Handled 39,203 40,184 143,475 142,212 ======== ======== ======== ======== Operating Revenues (000's) Gas Revenues Residential $ 89,630 $ 71,553 $261,195 $218,834 Commercial 34,807 27,061 98,095 82,369 Industrial (including agricultural) 20,652 21,448 114,096 112,323 Public authority and other 9,165 7,123 23,780 19,296 -------- -------- -------- -------- Total gas revenues 154,254 127,185 497,166 432,822 Transportation Revenues 2,240 2,165 8,382 10,544 Other Revenues 1,159 1,118 5,381 5,074 -------- -------- -------- -------- Total Operating Revenues $157,653 $130,468 $510,929 $448,440 ======== ======== ======== ======== Average Gas Sales Revenues per Mcf $ 4.82 $ 3.86 $ 4.25 $ 3.79 Average Transportation Revenue per Mcf $ .31 $ .30 $ .32 $ .38 Cost of Gas per Mcf Sold $ 3.31 $ 2.42 $ 2.85 $ 2.40
(1) Volumes are reported as metered in million cubic feet ("MMcf"). - 15 - ATMOS ENERGY CORPORATION CONSOLIDATED OPERATING STATISTICS (Continued) HEATING DEGREE DAYS (2)
Weather Quarter ended December 31, 12 Months ended December 31, Service Sensitive -------------------------- ---------------------------- Area Customers % 1996 1995 Normal (3) 1996 1995 Normal (3) - ------- ----------- ----- ----- ------ ----- ----- ------ Texas (Energas) 45 1,289 1,249 1,402 3,371 3,216 3,548 Kentucky (WKG) 26 1,613 1,769 1,613 4,454 4,210 4,413 Louisiana (Trans La) 13 540 735 661 1,785 1,683 1,745 Colorado, Kansas and Missouri (GGC) 16 2,292 2,162 2,350 6,042 5,929 6,245 --- System Average 100% 1,436 1,473 1,512 3,888 3,737 3,988
(2) A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The greater the number of heating degree days, the colder the climate. Heating degree days are used in the natural gas industry to measure the coldness of weather experienced and to compare relative temperatures between one geographic area and another. Normal heating degree days are derived from a 30-year average of actual heating degree days compiled by the National Weather Service. (3) The calculations for normal degree days for each of Atmos' service areas were updated effective October 1, 1996 to reflect more recent data. The system average weighting for each service area was also updated to more accurately reflect the current portion of total customers located in each service area. The impact of the change was to increase the system average normal heating degree days for the quarter from 1,507 to 1,512 and for the year from 3,983 to 3,988. - 16 - PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 3 of notes to consolidated financial statements on pages 6 and 7 herein for a description of legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders Atmos Energy Corporation, a Texas corporation ("Atmos"), and United Cities Gas Company, an Illinois and Virginia corporation ("United Cities"), entered into an Agreement and Plan of Reorganization dated July 19, 1996, as amended by Amendment No. 1 to Agreement and Plan of Reorganization dated October 3, 1996 (the "Reorganization Agreement"). Pursuant to the Reorganization United Cities will be merged with and into Atmos, with Atmos as the surviving corporation (the "Merger"). A proposal to ratify and approve the Reorganization Agreement and to approve the Plan of Merger and Merger was approved by the holders of 84.9% of the outstanding shares of Atmos common stock entitled to vote and 71.7% of the outstanding shares of United Cities common stock entitled to vote at special meetings of the respective shareholders held on November 12, 1996. The affirmative vote of the holders of two-thirds of the outstanding shares of Atmos common stock entitled to vote at the Atmos special meeting was required for approval of the proposal. The affirmative vote of the holders of a majority of the outstanding shares of United Cities common stock entitled to vote at the United Cities special meeting was required for approval of the proposal. The results of the respective shareholder groups' votes on November 12, 1996 for the proposal to ratify and approve the Reorganization Agreement and approve the Plan of Merger and the merger were as follows:
Shareholder VOTES VOTES BROKER Group FOR AGAINST ABSTAINED NON-VOTE - ----------- ---------- ------- --------- -------- Atmos 13,618,535 129,859 105,672 - United Cities 9,445,280 64,096 76,290 -
- 17 - 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 The Company filed a Form 8-K Current Report, Item 5, Other Events, dated November 2, 1996, disclosing that it had entered into an agreement with Southern Union Company with respect to the resolution of a dispute with Southern Union in connection with the United Cities/Atmos merger. The Company also filed a Form 8-K Current Report dated November 12, 1996. Under Item 5, Other Events, it disclosed the approvals of the merger by the United Cities shareholders and Atmos shareholders at special meetings of the respective shareholders held on November 12, 1996. The results of the shareholder votes at the special meetings are disclosed under Item 4, Submission of Matters to a Vote of Security Holders included herein. - 18 - 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: February 12, 1997 By: /s/ James F. Purser --------------------------------------------- James F. Purser Executive Vice President and Chief Financial Officer Date: February 12, 1997 By: /s/ David L. Bickerstaff --------------------------------------------- David L. Bickerstaff Vice President and Controller (Principal Accounting Officer) - 19 - EXHIBITS INDEX Item 6(a) Exhibit Page Number Description Number - ------- ----------- ------ 10.1 Loan Agreement by and between the Company and NationsBank of Texas, N.A. dated as of November 26, 1996 10.2 Amendment No. 1 to the Atmos Energy Corporation Retirement Plan for Outside Directors 10.3 Atmos Energy Corporation Supplemental Executive Benefits Plan (Amended and Restated in its Entirety: November 13, 1996) 10.4 Atmos Energy Corporation Executive Annual Performance Bonus Plan (Amended and Restated as of November 13, 1996) 10.5 Gas Service Agreement (Service for Firm Transportation) between the Company and Westar Transmission Company dated January 1, 1996 10.6 Gas Service Agreement (Service for Firm Transportation) between KN Westex Gas Services Company ("KN Westex") and EnerMart Trust dated January 1, 1996 (Irrigation) 10.7 Gas Service Agreement (Service for Firm Transportation) between Westar Transmission Company and EnerMart Trust dated January 1, 1996 (Irrigation) 10.8 Gas Service Agreement (Service for Firm Transportation) between KN Westex and EnerMart Trust dated January 1, 1996 (Large Volume Industrials) 10.9 Amendment dated January 1, 1996 to Gas Sales Agreement dated January 1, 1992 between KN Marketing, L.P. (Formerly Anthem Energy Company, L.P.) and EnerMart Trust relating to industrial customers. - 20 - Exhibit Page Number Description Number - ------- ----------- ------ 10.10 Gas Sales Agreement (Baseload) between the Company and KN Marketing, L.P. ("KN Marketing") dated January 1, 1996. 10.11 Gas Sales Agreement (Irrigation) between KN Marketing and EnerMart Trust dated March 1, 1996. 10.12 Gas Sales Agreement between the Company and Westar Transmission Company dated January 1, 1986, as amended by Letter Agreement dated November 21, 1986, the Agreement dated December 9, 1988, revising the pricing formula for city gate sales and the Amendment dated January 1, 1996 addressing a backup gas supply and operational matters. 10.13 Gas Sales Agreement (Swing) between the Company and KN Marketing dated January 1, 1996 10.14 Gas Service Agreement (Service for Firm Transportation) between the Company and KN Westex dated January 1, 1996 10.15 Gas Service Agreement (Service for Firm Transportation) between EnerMart Trust and Westar Transmission Company dated January 1, 1996 (Large Volume Industrials) 10.16 Operating Agreement between the Company and Westar Transmission Company, effective December 1, 1996 15 Letter regarding unaudited interim financial information 27 Financial Data Schedule for Atmos for the quarter ended December 31, 1996 - 21 - EX-10.1 2 LOAN AGREEMENT EXHIBIT 10.1 LOAN AGREEMENT BY AND BETWEEN ATMOS ENERGY CORPORATION AND NATIONSBANK OF TEXAS, N.A. DATED AS OF NOVEMBER 26, 1996 INDEX Page Section 1. Definitions 1 (a) Breakage Amount 1 (b) Business Day 1 (c) Change of Control 1 (d) Consolidated Capitalization 2 (e) Consolidated Funded Indebtedness 2 (f) Consolidated Indebtedness 2 (g) Consolidated Net Property 2 (h) Debt 2 (i) Environmental Laws 3 (j) Environmental Liability 3 (k) Environmental Lien 3 (l) ERISA 3 (m) Event of Default 3 (n) Financial Statements 3 (o) Fixed Assets 3 (p) GAAP 4 (q) Guaranty or Guaranties 4 (r) Lien 4 (s) Loan 4 (t) Maturity Date 4 (u) Maximum Rate 4 (v) Minority Interests in Subsidiaries 4 (w) 1959 Indenture 4 (x) 1986 Note Purchase Agreements 5 (y) 1987 Note Purchase Agreements 5 (z) 1989 Note Purchase Agreement 5 (aa) 1991 Note Purchase Agreement 5 (ab) 1992 Note Purchase Agreement 5 (ac) 1993 Indenture 5 (ad) 1994 Note Purchase Agreement 5 (ae) Person 6 (af) Plan 6 (ag) Shareholders' Equity 6 (ah) Subsidiary 6 (ai) Wholly-Owned Subsidiary 6 Section 2. Amount and Terms of Credit 6 (a) The Loan 6 (b) Promissory Note 6 (c) Computations, Etc 6 Section 3. Use of Proceeds 7 Section 4. Prepayment Prior to the Maturity Date 7 Section 5. Capital Adequacy and Increased Costs 7 (a) Reserve Requirements 7 (b) Taxes 8 (i) (c) Change in Laws 8 (d) Breakage Amount 9 Section 6. Closing 9 Section 7. Representations and Warranties 9 (a) Corporate Existence 9 (b) Corporate Power and Authorization 9 (c) Binding Obligations 9 (d) No Legal Bar or Resultant Lien 10 (e) No Consent 10 (f) Financial Condition 10 (g) Litigation 10 (h) Liabilities 10 (i) Taxes; Governmental Charges 11 (j) Titles, Etc 11 (k) Defaults 11 (l) Casualties; Taking of Properties 11 (m) Margin Stock 12 (n) Location of Business and Offices 12 (o) Compliance with the Law 12 (p) No Material Misstatements 12 (q) ERISA 12 (r) Subsidiaries 13 (s) Environmental Matters 13 (t) Investment Company Act 13 Section 8. Conditions of Lending 13 (a) Conditions 14 (i) Execution and Delivery 14 (ii) Legal Opinion 14 (iii) Corporate Resolutions 14 (iv) Incumbency 14 (v) Articles of Incorporation and Bylaws 14 (vi) Other Documents 14 (vii) Legal Matters Satisfactory 14 (viii) Representations and Warranties 14 (ix) No Event of Default 15 (b) Failure to Satisfy 15 Section 9. Covenants 15 (a) Financial Statements and Reports 15 (i) Annual Audited Financial Statements 15 (ii) Quarterly Financial Statements 15 (iii) Securities and Exchange Commission Filings 15 (b) Certificates of Compliance 16 (c) Accountants' Certificate 16 (d) Taxes and Other Liens 16 (e) Compliance with Laws 16 (f) Further Assurances 17 (g) Performance of Obligations 17 (h) Insurance 17 (i) Accounts and Records 17 (ii) (j) Right of Inspection 17 (k) Notice of Certain Events 17 (l) ERISA Information and Compliance 18 (m) Environmental Reports and Notices 18 (n) Liens 19 (o) Consolidations, Mergers, and Sales of Assets 20 (p) Change of Control 21 (q) Dividends 21 (r) Leverage 21 (s) Consolidated Net Property 21 (t) Operating Cash Flow 21 (u) Investments 22 (v) Corporate Existence and Due Qualification 24 (w) Maintenance of Properties 24 (x) Transactions with Affiliates 25 (y) Downstream Transfers 25 Section 10. Events of Default 25 (a) Events 25 (b) Remedies 27 (c) Right of Set-Off 27 Section 11. Exercise of Rights; Waivers 27 Section 12. Notices 28 Section 13. Expenses; Indemnification 28 (a) Expenses 28 (b) Indemnification 28 Section 14. Governing Law 29 Section 15. Invalid Provisions 29 Section 16. Maximum Interest Rate 29 Section 17. Multiple Counterparts 30 Section 18. Survival 30 Section 19. Parties Bound 30 Section 20. Participations 30 Section 21. Option to Fund 31 Section 22. Accounting Terms 31 Section 23. No Control 31 Section 24. Other Agreements 31 (iii) LOAN AGREEMENT THIS LOAN AGREEMENT (the "Agreement") is made and entered into as of the 26th day of November, 1996, by and between ATMOS ENERGY CORPORATION, a Texas corporation ("Borrower"), and NATIONSBANK OF TEXAS, N.A., a national banking association ("Bank"). W I T N E S S E T H: WHEREAS, Borrower has requested Bank to extend credit to it for the purposes hereinafter described, and Bank is willing to do so on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. When used herein, the terms "Agreement," --------- ----------- "Borrower" and "Bank" shall have the meanings indicated above, and the following terms shall have the following meanings: (a) Breakage Amount - "Breakage Amount" is the amount of any cost or --------------- expense incurred by Lender (as determined in a commercially reasonable manner) as a result of its termination of any interest rate swap or other hedging arrangement entered into by Lender in connection with the Loan. If the Breakage Amount calculated by Lender is a negative number, then such amount shall be subtracted from the Prepayment Amount. If the Breakage Amount calculated by Lender is a positive number, then such amount shall be added to the Prepayment Amount. In the event that (i) the Loan is accelerated as a result of any default by Borrower, or (ii) Borrower fails to borrow the full amount of the Loan, then Borrower shall pay to Lender on demand the Breakage Amount as calculated by Lender except that in no event shall Lender pay any Breakage Amount to Borrower. (b) Business Day - The normal banking hours during any day (other than ------------ Saturdays or Sundays) that banks are legally open for business in Dallas, Texas. (c) Change of Control - A "Change of Control" shall occur if any ----------------- Person or group of Persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under such Act) of (i) 40% or more of the outstanding voting stock of Borrower or (ii) 10% or more of the outstanding voting stock of Borrower if at any time following such acquisition of 10% or more of the outstanding voting stock a majority of the Persons serving on the Board of Directors of Borrower are Persons -1- proposed directly or indirectly by the Person or group of Persons who acquired such 10% or more of outstanding voting stock. (d) Consolidated Capitalization - At any date, the sum (without --------------------------- duplication) of Consolidated Funded Indebtedness plus Shareholders' Equity plus ---- ---- Minority Interests in Subsidiaries, all determined as of such date. (e) Consolidated Funded Indebtedness - For any period: -------------------------------- (i) all Consolidated Indebtedness in respect of borrowed money, whether secured or unsecured, which by its terms matures more than one (1) year after the date as of which the calculation of Consolidated Funded Indebtedness is made (other than sinking fund, serial maturity, periodic installment, and amortization payments on account of such Consolidated Indebtedness that are required to be made within such year), and (ii) Consolidated Indebtedness in respect of borrowed money maturing within one (1) year from such date that is renewable or extendable at the option of the obligor to a date beyond one (1) year from such date, including any such Consolidated Indebtedness renewable or extendable (regardless of whether theretofore renewed or extended) under, or payable from the proceeds of other Consolidated Indebtedness that may be incurred pursuant to the provisions of, any revolving credit agreement or other similar agreement (provided that there shall be excluded from Consolidated Funded Indebtedness described in this clause (ii) Consolidated Indebtedness that has been outstanding for one year or less and that has been incurred under a revolving credit agreement or other similar agreement entered into to support commercial paper or similar short term working capital credit facilities). (f) Consolidated Indebtedness - At any date, all Debt of Borrower and ------------------------- its Subsidiaries, determined on a consolidated basis. (g) Consolidated Net Property - The aggregate amount of assets of ------------------------- Borrower and its Subsidiaries properly includable under GAAP under the categories "property, plant and equipment" on the consolidated balance sheet of Borrower and its Subsidiaries, less the amount of accumulated depreciation and amortization attributable thereto. (h) Debt - At any date, without duplication and determined in ---- accordance with GAAP, (i) all obligations of a Person, contingent or otherwise, that should be reflected as liabilities on such Person's balance sheet (including, without limitation, obligations of such Person as lessee under capital leases, but excluding common stock, preferred stock, surplus, retained -2- earnings, reserves for taxes in respect of income deferred to the future, and other deferred credits and reserves), (ii) all obligations that are secured by any Lien existing on property owned by such Person regardless of whether the obligations secured thereby shall have been assumed by such Person, and (iii) all Guaranties by such Person. (i) Environmental Laws - The Comprehensive Environmental Response, ------------------ Compensation and Liability Act of 1980, as amended by the Super Fund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. (S)9601, et seq.; the Resource -- ---- Conservation and Recovery Act, as amended by the Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A. (S)6901, et seq.; the Clean Air Act, 42 U.S.C.A. (S)7401, -- ---- et seq.; the Clean Water Act of 1977, 33 U.S.C.A. (S)1251 et seq.; the Toxic - -- ---- -- ---- Substances Control Act, 15 U.S.C.A. (S)2601, et seq.; and all other laws -- ---- relating to or imposing liability or standards of conduct concerning environmental protection matters, including without limitation, air pollution, water pollution, noise control, or the handling, discharge, disposal, or recovery of on-site or off-site hazardous substances or materials, as each of the foregoing may be amended from time to time. (j) Environmental Liability - Any claim, demand, obligation, cause of ----------------------- action, accusation, allegation, order, violation, damage, injury, judgment, penalty or fine, cost of enforcement, cost of remedial action, or any other costs or expense whatsoever, including reasonable attorneys' fees and disbursements, resulting from the violation or alleged violation of any Environmental Law or the imposition of any Environmental Lien. (k) Environmental Lien - A Lien in favor of any court, governmental ------------------ agency or instrumentality, or any other Person (i) for any liability under any Environmental Law or (ii) for damages arising from or cost incurred by such court, governmental agency or instrumentality, or other Person in response to a release or threatened release of a hazardous or toxic waste, substance, or constituent into the environment. (l) ERISA - The Employee Retirement Income Security Act of 1974, as ----- amended, and the regulations promulgated thereunder, as in effect as of the date hereof and any subsequent provisions that are amendatory thereof, supplemental thereto, or substituted therefor. In addition, the terms "Commonly Controlled Entity," "Multiemployer Plan," "PBGC," "Plan," "Prohibited Transaction," and "Reportable Event" have the same meanings as provided therefor in ERISA. (m) Event of Default - The events described in Section 10 of this ---------------- Agreement. (n) Financial Statements - Consolidated and consolidating balance -------------------- sheets and income statements and consolidated statements -3- of cash flows, together with appropriate footnotes and schedules, prepared in accordance with GAAP. (o) Fixed Assets - The assets of Borrower and its Subsidiaries ------------ constituting "net property, plant and equipment" as defined by GAAP on the consolidated balance sheet of Borrower and its Subsidiaries. (p) GAAP - Generally accepted accounting principles, consistently ---- applied throughout the period involved. In the event of a change in GAAP after the date of this Agreement, this Agreement and the Note, to the extent GAAP applies, shall continue to be construed in accordance with GAAP as in existence on the date hereof. (q) Guaranty or Guaranties - Guaranty or Guaranties by any Person -------- ---------- shall mean (a) all guaranties, sales with recourse, endorsements (other than for collection or deposit in the ordinary course of business), and other obligations (contingent or otherwise) to pay, purchase, repurchase, or otherwise acquire or become liable upon or in respect of any Debt of others and (b) without limiting the generality of the foregoing, all obligations (contingent or otherwise) to purchase products, supplies, or other property or services from others under agreements requiring payment therefor regardless of the non-delivery or non- furnishing thereof, or to make investments in others, or to maintain the capital, working capital, solvency, or the general financial conditions of others, or to indemnify others against and hold them harmless from damages, losses and liabilities, all under circumstances intended by such Person to enable others to incur or discharge any of their Debt or to comply with agreements relating to their Debt or otherwise to assure or protect their creditors against loss in respect of such Debt. (r) Lien - Any mortgage, deed of trust, pledge, security interest, ---- assignment, encumbrance, or lien (statutory or otherwise) of every kind and character. (s) Loan - The $40,000,000 which Bank has loaned to Borrower on a term ---- basis pursuant to the terms and provisions of this Agreement. (t) Maturity Date - November 25, 1998, the day which is one (1) day ------------- less than two (2) years from the Closing Date. (u) Maximum Rate - The highest rate of nonusurious interest permitted ------------ from day to day by applicable law, including Tex. Rev. Civ. Stat. Ann. art. 5069-1.04 (and as the same may be incorporated by reference in other Texas statutes), but, otherwise, without limitation, the rate based upon the "indicated rate ceiling." -4- (v) Minority Interests in Subsidiaries - Interests held by others in ---------------------------------- any subsidiary of Borrower in which less than 100% of the voting securities are owned directly or indirectly by Borrower. (w) 1959 Indenture - That certain Indenture of Mortgage and Deed of -------------- Trust dated as of July 15, 1959, between United Cities Gas Company and City National Bank and Trust Company of Chicago and R. Emmett Hanley, Trustees, together with those First through Twentieth Supplemental Indentures dated from November 1, 1960, through December 1, 1992, respectively, amending such Indenture. (x) 1986 Note Purchase Agreements - Those certain Note Purchase ----------------------------- Agreements, dated as of December 30, 1986, by and between (i) Borrower and John Hancock Mutual Life Insurance Company and (ii) Borrower and Mellon Bank, N.A., together with those certain letter agreements dated November 13, 1987 and Amendments to Note Purchase Agreements, dated as of October 11, 1989 and November 12, 1991, respectively, amending each of the foregoing Note Purchase Agreements. (y) 1987 Note Purchase Agreements - Those certain Note Purchase ----------------------------- Agreements, dated as of December 21, 1987, by and between (i) Borrower and John Hancock Mutual Life Insurance Company, (ii) Borrower and John Hancock Charitable Trust I (which was subsequently assigned to John Hancock Mutual Life Insurance Company), and (iii) Borrower and Mellon Bank, N.A., together with those certain Amendments to Note Purchase Agreements, dated as of October 11, 1989 and November 12, 1991, respectively, amending each of the foregoing Note Purchase Agreements. (z) 1989 Note Purchase Agreement - That certain Note Purchase ---------------------------- Agreement, dated as of October 11, 1989, by and between Borrower and John Hancock Mutual Life Insurance Company, together with that certain Amendment to Note Purchase Agreement, dated as of November 12, 1991, amending such Note Purchase Agreement. (aa) 1991 Note Purchase Agreement - That certain Note Purchase ---------------------------- Agreement, dated as of August 29, 1991, by and between Borrower and The Variable Annuity Life Insurance Company, together with that certain Amendment to Note Purchase Agreement, dated as of November 26, 1991, amending such Note Purchase Agreement. (bb) 1992 Note Purchase Agreement - That certain Note Purchase ---------------------------- Agreement dated as of August 31, 1992, between Borrower and The Variable Annuity Life Insurance Company, together with that certain Amendment to Note Purchase Agreement, dated as of December 22, 1993, amending such Note Purchase Agreement. (cc) 1993 Indenture - That certain Tenth Supplemental Indenture, dated -------------- as of December 1, 1993, to Indenture of Mortgage and Deed of Trust dated as of March 1, 1957, between Borrower and -5- Colorado National Bank (Formerly Central Bank Denver, N.A.), as Trustee, and First Amendment, dated as of December 1, 1993, between Borrower and First Colony Life Insurance Company, to Bond Purchase Agreement dated as of April 1, 1991, between First Colony Life Insurance Company and Greeley Gas Company (dd) 1994 Note Purchase Agreement - That certain Note Purchase ---------------------------- Agreement dated November 14, 1994, among Borrower and New York Life Insurance Company, New York Life Insurance and Annuity Corporation, The Variable Annuity Life Insurance Company, American General Life Insurance Company, and Merit Life Insurance Company. (ee) Person - An individual, corporation, partnership, association, ------ trust, or any other entity or organization, including a government or political subdivision, agency, or instrumentality thereof. (ff) Plan - Any plan subject to Title IV of ERISA and maintained by ---- Borrower or any such plan to which Borrower is required to contribute on behalf of its employees. (gg) Shareholders' Equity - The sum (determined in accordance with -------------------- GAAP) of Borrower's (i) common stock, (ii) retained earnings, (iii) capital surplus, and (iv) paid in capital. (hh) Subsidiary - Any corporation or other entity of which securities ---------- or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by Borrower or another Subsidiary. (ii) Wholly-Owned Subsidiary - Any Subsidiary in which Borrower owns, ----------------------- either directly or indirectly, 100% of the voting securities. SECTION 2. AMOUNT AND TERMS OF CREDIT. --------- -------------------------- (a) The Loan. Subject to and upon the terms and conditions herein set -------- forth, Bank agrees to lend to Borrower the sum of $40,000,000 on a term basis. Bank will credit the proceeds of the Loan to Borrower's deposit account with Bank. (b) Promissory Note. The Loan shall be evidenced by a promissory note --------------- (the "Note") of Borrower, which Note shall (i) be dated November 26, 1996; (ii) bear interest at the rate of 6.09% per annum; (iii) be payable as to interest in consecutive quarterly installments as it accrues on the last day of each calendar quarter commencing December 31, 1996, and continuing through and including September 30, 1998, and on the Maturity Date; (iv) be payable as to principal in one installment on the Maturity Date; (v) be entitled to the benefits of this Agreement; -6- and (vi) be in the form of EXHIBIT A annexed hereto, with blanks completed in --------- conformity herewith. A Breakage Amount determined as per Section 5(d) hereof may be payable in the event Borrower fails to borrow the full amount of the Loan. (c) Computations, Etc. All payments made to Bank or the holder of the ----------------- Note under this Agreement shall be made without setoff or counterclaim and free and clear of, and exempt from, and without deduction for or account of, any taxes not later than 2 p.m. (Dallas time) on the date when due and shall be in lawful money of the United States of America in immediately available funds at the payment office of Bank. Borrower hereby authorizes Bank, if and to the extent payment is not made when due under the Note, to charge from time to time against any account of Borrower with Bank any amount so due. Interest shall be computed on Bank basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless such calculation would result in a usurious rate, in which case interest shall be calculated on a per annum basis of a year of 365 or 366 days, as the case may be. If the Note, or any payment required to be made thereon, becomes due and payable on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding full Business Day and interest shall be payable at the then applicable rate per annum during such extension. SECTION 3. USE OF PROCEEDS. Borrower agrees that the proceeds of the --------- --------------- Loan hereunder will be used solely for working capital, capital expenditures and other lawful corporate purposes. SECTION 4. PREPAYMENT PRIOR TO THE MATURITY DATE. Borrower may prepay --------- ------------------------------------- the Loan in full, but not in part, on any Business Day selected by Borrower (the "Prepayment Date") following at least ten (10) Business Days' prior written notice thereof to Bank. As of the close of business on the second Business Day prior to the Prepayment Date, Bank shall determine the aggregate amount which Borrower shall pay to Bank in satisfaction of Borrower's obligations under the Loan (the "Prepayment Amount"). The Prepayment Amount shall be equal to (i) the sum of (a) the total principal amount of the Loan outstanding on the Prepayment Date (the "Principal"), plus (b) the total amount of interest accruing up to but not including the Prepayment Date, plus or minus (ii) the Breakage Amount. If the Breakage Amount calculated by Bank is a negative number, then such amount shall be subtracted from the Prepayment Amount; if the Breakage Amount calculated by Bank is a positive number, then such amount shall be added to the Prepayment Amount. SECTION 5. CAPITAL ADEQUACY AND INCREASED COSTS. --------- ------------------------------------ -7- (a) Reserve Requirements. In the event of any change in any applicable -------------------- law, treaty, or regulation or in the interpretation or administration thereof or in the event any central bank or other fiscal monetary or other authority having jurisdiction over Bank or the Loan imposes, modifies, or deems applicable to the Loan any reserve requirement of the Board of Governors of the Federal Reserve System or any other reserve, special deposit, compulsory loan, assessment, increased cost, or similar requirements against assets of, deposits with or for the account of, or credit extended by, Bank, or imposes on Bank any other condition affecting this Agreement or the Loan and the result of any of the foregoing is to increase the cost to Bank in maintaining the Loan or to reduce any amount (or the effective return on any amount) received by Bank hereunder, then Borrower shall pay to Bank upon demand of Bank as additional interest on the Note such additional amount or amounts as will reimburse Bank for such additional cost or such reduction. Upon becoming aware of any such change or imposition that may result in any such increase or reduction, Bank shall give written notice to Borrower thereof together with a certificate of Bank setting forth the amount necessary to compensate Bank as aforesaid and the basis for the determination of such amount. Determinations made by Bank for purposes of this Section 5(a) of the effect of any such change in its costs of maintaining the Loan or on amounts receivable by it in respect of the Loan and of the additional amounts required to compensate Bank in respect thereof shall be conclusive, provided that such determinations are made on a reasonable basis and are absent manifest error. (b) Taxes. Both principal and interest on the Note are payable without ----- withholding or deduction for or on account of any taxes. If any taxes are levied or imposed on or with respect to the Note or on any payment on the Note, then, and in any such event, Borrower shall pay to Bank upon demand of Bank such additional amounts as may be necessary so that every net payment of principal and interest on the Note, after withholding or deduction for or on account of any such taxes, will not be less than any amount provided for herein. In addition, if at any time when the Loan is outstanding any laws are enacted or promulgated, or any court of law or governmental agency interprets or administers any law, which, in any such case, materially changes the basis of taxation of payments to Bank of principal of or interest on the Note by subjecting such payment to double taxation or otherwise (except through an increase in the rate of tax on the overall net income of Bank) then Borrower will pay the amount of loss to the extent that such loss is caused by such a change. Bank shall give notice to Borrower upon becoming aware of the amount of any loss incurred by it through enactment or promulgation of any such law that materially changes the basis of taxation of payments to Bank or of any such enactment or promulgation that may result in such payments becoming subject to double taxation or otherwise. Bank shall also deliver to Borrower a certificate of Bank setting forth the basis for the determination of such loss and the computation of such amounts. -8- Determinations made by Bank for purposes of this Section 5(b) of the effect of such taxes on its costs of maintaining the Loan or on amounts receivable by it and of the additional amounts required to compensate Bank in respect thereof shall be conclusive, provided that such determinations are made on a reasonable basis and are absent manifest error. (c) Change in Laws. If at any time the adoption of any new law or -------------- regulation, change in existing laws or regulations, or interpretation of any new or existing laws or regulations shall make it unlawful or impossible for Bank to maintain or fund the Loan hereunder or any interest rate swap or other hedging arrangement entered into by Bank in connection with the funding of the Loan, then Bank shall promptly notify Borrower in writing and Borrower shall do one of the following at its option: (i) repay the outstanding Loan owed to Bank on the next interest payment date, without penalty and without paying a Breakage Amount (or immediately if Bank may not lawfully continue to maintain and fund such Loan); or (ii) if such change in laws relates to the interest rate swap or other hedging arrangement entered into by Bank in connection with the funding of the Loan, become a direct party to the interest rate swap or hedging arrangement; or (iii) convert such Loan to bear interest at the Bank's current prime rate. (d) Breakage Amount. A Breakage Amount may be payable should the Loan --------------- be prepaid or should Borrower fail to borrow the full amount of the Loan. When Bank determines a Breakage Amount is payable, it shall deliver to Borrower a certificate as to the computation of the Breakage Amount and the basis for determining such amount, which shall be determined in a commercially reasonable manner. Determinations by Bank of the Breakage Amount shall be conclusive, provided such determinations are made on a reasonable basis and are absent manifest error. SECTION 6. CLOSING. The closing of the transactions contemplated by --------- ------- this Agreement shall take place at the office of Bank (or other mutually agreeable location) on or before December 31, 1996, as the parties shall agree (the "Closing Date"). The obligations of Bank set forth herein are subject to the satisfaction (in the opinion of Bank) on or before the Closing Date, unless waived in writing by Bank, of the conditions specified in Section 8 hereof. SECTION 7. REPRESENTATIONS AND WARRANTIES. In order to induce Bank to --------- ------------------------------ enter into this Agreement, Borrower hereby represents and warrants to Bank (which representations and warranties shall survive the delivery of the Note) as follows: (a) Corporate Existence. Borrower and each Subsidiary (other than ------------------- Enermart Trust, a Pennsylvania business trust) is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it was incorporated, has the corporate power and authority to own its -9- assets and to transact the business in which it is now engaged or proposes to be engaged in, and is duly qualified as a foreign corporation in all jurisdictions wherein the failure to qualify would have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole. Enermart Trust is a Pennsylvania business trust, has the power and authority to own its assets and to transact the business in which it is now engaged or proposes to be engaged in, and is duly qualified in all jurisdictions where the failure to so qualify would have a material adverse affect on the business, assets or financial condition of Borrower and its Subsidiaries taken as a whole. (b) Corporate Power and Authorization. Borrower is duly authorized and --------------------------------- empowered to create and issue the Note, to execute, deliver, and perform this Agreement, and to incur the obligations provided for herein and therein; and all corporate and other action on Borrower's part requisite for the due creation and issuance of the Note and for the due execution, delivery, and performance of this Agreement and to make the borrowings hereunder has been duly and effectively taken. (c) Binding Obligations. This Agreement and the Note constitute valid ------------------- and binding obligations of Borrower, enforceable in accordance with their respective terms (except that enforcement may be subject to any applicable bankruptcy, insolvency, or similar laws generally affecting the enforcement of creditors rights and to the availability of equitable remedies). (d) No Legal Bar or Resultant Lien. The Note and this Agreement do not ------------------------------ and will not violate, contravene, or conflict with any provisions of any contract, agreement, law, regulation, order, injunction, judgment, decree, or writ to which Borrower is subject or result in the creation or imposition of any lien or other encumbrance of any nature upon any assets or properties of Borrower now owned or hereafter acquired other than those contemplated by this Agreement. (e) No Consent. Except for regulatory approvals from the states of ---------- Colorado and Missouri which have been obtained, the execution, delivery, and performance by Borrower of the Note and this Agreement do not require the consent or approval of any other person or entity, including without limitation any consent of shareholders required by law or by its articles of incorporation or bylaws or any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof. (f) Financial Condition. All Financial Statements of Borrower and the ------------------- Subsidiaries (or of any Subsidiary) that have been delivered to Bank as of the date hereof are complete and -10- correct in all material respects (subject, in the case of any Financial Statements that are unaudited, to year-end audit adjustments) and have been prepared in accordance with GAAP. Such financial statements (together with the pertinent notes thereto) fairly present the financial condition of Borrower and the Subsidiaries at the respective dates indicated, all in accordance with GAAP. No change has occurred in the condition (financial or otherwise), business, or operations of Borrower or any Subsidiary since the date of the last Financial Statement delivered to Bank prior to the date hereof that has a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole, except as disclosed in EXHIBIT B attached hereto. --------- (g) Litigation. Except as described in the Financial Statements or as ---------- otherwise disclosed in EXHIBIT B attached hereto, there is no litigation, legal --------- or administrative proceeding, investigation, or other action of any nature pending or, to the knowledge of the officers of Borrower, threatened against or affecting Borrower or any Subsidiary which, if adversely determined, would have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole or the ability of Borrower to perform its obligations under this Agreement or the Note. (h) Liabilities. Neither Borrower nor any Subsidiary has any material ----------- (as determined in the aggregate) liability, fixed or contingent, except as disclosed to Bank in the Financial Statements or in EXHIBIT C attached hereto. --------- No unusual or unduly burdensome restrictions, restraint, or hazard exists by contract, law, or governmental regulation or otherwise relative to the business, assets, or properties of Borrower or any Subsidiary that would have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole. (i) Taxes; Governmental Charges. Each of Borrower and the Subsidiaries --------------------------- has filed all tax returns and reports required to be filed and has paid all taxes, assessments, fees, and other governmental charges levied upon its assets, properties, or income that are due and payable, including interest and penalties, or has provided adequate reserves, if required, in accordance with GAAP for the payment thereof, except such as are being contested in good faith by appropriate proceedings and for which adequate reserves for the payment thereof as required by GAAP have been provided and except for certain county, city, school district, or similar ad valorem taxes for which the failure to pay would not have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole. (j) Titles, Etc. Each of Borrower and the Subsidiaries has good and ----------- marketable title to, or a valid leasehold interest in, -11- all of its assets and properties, real or personal, including the properties and assets and leasehold interests reflected in the Financial Statements referred to in Section 7(f) hereof (other than any properties or assets disposed of in the ordinary course of business), necessary or appropriate for the operation of its respective businesses, free and clear of all liens, mortgages, pledges, security interests, or other encumbrances, except the liens described in Section 9(n) hereof and except for such other liens or encumbrances that, if present, would not have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole. (k) Defaults. Borrower is not a party to any indenture, loan, or -------- credit agreement, or to any lease or other agreement or instrument, which could have a material adverse effect on the ability of Borrower to carry out its obligations under this Agreement or the Note. Neither Borrower nor any Subsidiary is in default and no event or circumstance has occurred which, but for the passage of time or the giving of notice or both, would constitute a default under any loan or credit agreement, indenture, mortgage, deed of trust, security agreement, or other agreement or instrument to which Borrower or any Subsidiary is a party in any respect that would have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole. No Event of Default hereunder has occurred and is continuing nor has any event occurred or failed to occur which, with the passage of time or service of notice or both, would constitute an Event of Default. (l) Casualties; Taking of Properties. Neither the business nor the -------------------------------- assets or properties of Borrower and its Subsidiaries taken as a whole has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of property or cancellation of contracts, permits or concessions by any domestic or foreign government or any agency thereof, riot, activities of armed forces, or acts of God or of any public enemy. (m) Margin Stock. Borrower is not engaged in the business of extending ------------ credit for the purpose of purchasing or carrying any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221) or for the purpose of reducing or retiring any indebtedness that was originally incurred to purchase or carry a margin stock or for any other purpose that might cause this transaction to be considered a "purpose credit" within the meaning of Regulation U. Borrower is not engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying margin stock. Neither Borrower nor any person or entity acting on behalf of Borrower has taken or will take any action that might cause the loans hereunder or this Agreement to violate Regulation U or any other regulation of the -12- Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereafter be in effect. (n) Location of Business and Offices. The principal place of business -------------------------------- and chief executive offices of Borrower is located at the address stated on the signature page hereof. (o) Compliance with the Law. Neither Borrower nor any Subsidiary (i) ----------------------- is in violation of any law, judgment, decree, order, ordinance, or governmental rule or regulation to which Borrower or any of its assets or properties are subject, or (ii) has failed to obtain any license, permit, franchise, or other governmental authorization necessary to the ownership of any of its assets or properties or the conduct or proposed conduct of its business; which violation or failure would have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole. (p) No Material Misstatements. No information, exhibit, or report ------------------------- furnished by Borrower or any Subsidiary to Bank in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not misleading. (q) ERISA. Each of Borrower and the Subsidiaries is in compliance in ----- all material respects with the applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction that would have a material adverse effect on the financial condition of Borrower has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed, nor has any Plan been terminated; no circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted such proceedings; no Plan currently maintained by Borrower or any of the Subsidiaries is a Multiemployer Plan; neither Borrower nor any Commonly Controlled Entity has completely or partially withdrawn from a Multiemployer Plan; Borrower and each Commonly Controlled Entity have met their minimum funding requirements under ERISA with respect to all of their Plans and the present value of all vested benefits under each Plan exceeds the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of such Plan in accordance with the provisions of ERISA; and neither Borrower nor any Commonly Controlled Entity has incurred any liability to the PBGC under ERISA. (r) Subsidiaries. All of Borrower's subsidiaries are listed in EXHIBIT ------------ ------- D attached hereto. All of the outstanding capital stock of each Subsidiary has - - been validly issued, is -13- fully paid and nonassessable, and is owned by Borrower free and clear of all mortgages, deeds of trust, pledges, liens, security interests, and other charges or encumbrances. (s) Environmental Matters. Except as disclosed on EXHIBIT E attached --------------------- --------- hereto, neither Borrower nor any Subsidiary (i) has received notice or otherwise learned of any Environmental Liability that could reasonably be expected to have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole or the ability of Borrower to pay and perform its obligations under this Agreement and the Note arising in connection with (A) any noncompliance with or violation of the requirements of any Environmental Law or (B) the release or threatened release of any toxic or hazardous waste, substance, constituent, or other substance into the environment, (ii) has threatened or actual liability in connection with the release or threatened release of any toxic or hazardous waste, substance, constituent, or other substance into the environment that could reasonably be expected to have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole or the ability of Borrower to pay and perform its obligations under this Agreement and the Note, or (iii) has received notice or otherwise learned of any federal or state investigation evaluating whether any remedial action is needed to respond to a release or threatened release of any toxic or hazardous waste, substance, or constituent into the environment for which Borrower or any Subsidiary is or may be liable and which could reasonably be expected to have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole. Except as disclosed in EXHIBIT E, the operations --------- of Borrower and the Subsidiaries comply in all material respects with all applicable laws relating to hazardous materials. (t) Investment Company Act. Neither Borrower nor any Subsidiary is an ---------------------- "investment company" or a company directly or indirectly "controlled" by or "acting on behalf of" an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. SECTION 8. CONDITIONS OF LENDING. --------- ---------------------- (a) Conditions. The obligation of Bank to make the Loan shall be ---------- subject to the following conditions precedent: (i) Execution and Delivery. Borrower shall have executed and ---------------------- delivered to Bank the Note and other required documents, all in form and substance satisfactory to Bank. (ii) Legal Opinion. Bank shall have received from Borrower's ------------- general counsel a favorable legal opinion in form and substance satisfactory to Bank (i) as to the matters (as -14- of the date of such opinion) set forth in Subsections 7(a), (b), (c), (d), (e) and (g) hereof, and (ii) as to such other matters as Bank or its counsel may reasonably request. (iii) Corporate Resolutions. Bank shall have received appropriate --------------------- certified corporate resolutions and evidence of existence and good standing for Borrower. (iv) Incumbency. Bank shall have received a signed certificate ---------- of the Secretary of Borrower, certifying the names of each of the officers of Borrower authorized to sign loan documents on behalf of Borrower, together with the true signatures of each such officer. Bank may conclusively rely on such certificate until Bank receives a further certificate of the Secretary of Borrower canceling or amending the prior certificate and submitting signatures of the officers named in such further certificate. (v) Articles of Incorporation and Bylaws. Bank shall have ------------------------------------ received copies of the Articles of Incorporation of Borrower and all amendments thereto, certified by the Secretary of State of the State of Texas, and a copy of the bylaws of Borrower and all amendments thereto, certified by the Secretary of Borrower as being true, correct, and complete. (vi) Other Documents. Bank shall have received such other --------------- instruments and documents incidental and appropriate to the transaction provided for herein as Bank or its counsel may reasonably request, and all such documents shall be in form and substance satisfactory to Bank. (vii) Legal Matters Satisfactory. All legal matters incident to -------------------------- the consummation of the transactions contemplated hereby shall be satisfactory to special counsel for Bank retained at the expense of Borrower. (viii) Representations and Warranties. The representations and ------------------------------ warranties of Borrower under this Agreement (excluding, however, the representations and warranties set forth in Sections 7(g), (h), and (s) and the last sentence of Section 7(f) as to any matter referred to in such provisions to the extent that it has theretofore been disclosed in writing by Borrower to Bank) are true and correct in all material respects. (ix) No Event of Default. No Event of Default shall have ------------------- occurred and be continuing nor shall any event have occurred or failed to occur which, with the passage of time or service of notice or both, would constitute an Event of Default. -15- (b) Failure to Satisfy. If, notwithstanding Borrower's failure to ------------------ satisfy all conditions precedent to the obtaining of the Loan, Bank nevertheless makes the Loan, the making of the Loan shall not constitute a waiver of the unfulfilled condition or conditions nor any Event of Default caused by such failure. SECTION 9. COVENANTS. A deviation from the provisions of this --------- --------- Section 9 shall not constitute an Event of Default under this Agreement if such deviation is consented to in writing by Bank. Without the prior written consent of Bank, Borrower will at all times comply with the covenants contained in this Section 9 from the date hereof and for so long as any part of the Note is outstanding. (a) Financial Statements and Reports. Borrower shall promptly furnish -------------------------------- to Bank from time to time upon request such information regarding the business, affairs, and financial condition of Borrower, as Bank may reasonably request, and will furnish to Bank the following Financial Statements and other documents and information: (i) Annual Audited Financial Statements. Within one hundred ----------------------------------- (100) days after the close of each fiscal year of Borrower, Borrower shall deliver to Bank the annual audited Financial Statements of Borrower and its Subsidiaries as of the end of such fiscal year. (ii) Quarterly Financial Statements. Within sixty-five (65) days ------------------------------ after the end of each of the first three fiscal quarters of Borrower, Borrower shall deliver to Bank the quarterly Financial Statements of Borrower and its Subsidiaries as of the end of such quarter. (iii) Securities and Exchange Commission Filings. Promptly after ------------------------------------------ the filing thereof, Borrower shall deliver to Bank a copy of any report, proxy statement, financial statement, or other filing made by Borrower or any Subsidiary with the Securities and Exchange Commission, any state securities agency, or any national stock exchange or quotation service; and promptly upon receipt thereof, copies of any notices received from the Securities and Exchange Commission or any state securities agency relating to any order, rule, statute, or other laws or information that would have a material adverse effect on the financial condition, properties, or operations of Borrower and its Subsidiaries taken as a whole. (b) Certificates of Compliance. Concurrently with the furnishing of -------------------------- the annual audited Financial Statements pursuant to Subsection 9(a)(i) above and each of the quarterly unaudited Financial Statements pursuant to Subsection 9(a)(ii) above, Borrower will furnish or cause to be furnished to Bank a certificate signed by the chief financial officer of Borrower (i) -16- stating that Borrower has fulfilled in all material respects its obligations under the Note and this Agreement and that all representations and warranties made herein and therein continue to be true and correct in all material respects (or specifying the nature of any change) or, if an Event of Default has occurred, specifying the Event of Default and the nature and status thereof and the action that is proposed to be taken with respect thereto; (ii) setting forth the computation, in reasonable detail as of the end of each period covered by such certificate, of compliance with Sections 9(q), (r), (s) and (t) of this Agreement; and (iii) containing or accompanied by such financial or other details, information, and material as Bank may reasonably request to evidence such compliance. (c) Accountants' Certificate. Concurrently with the furnishing of the ------------------------ annual audited Financial Statements pursuant to Subsection 9(a)(i) above, Borrower will furnish a statement from the firm of independent public accountants who audited such statements (i) to the effect that nothing has come to their attention to cause them to believe that there existed on the date of such statements any Event of Default or any condition or event which with notice or lapse of time or both would become an Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof. (d) Taxes and Other Liens. Borrower and each Subsidiary will pay and --------------------- discharge promptly all taxes, assessments, and governmental charges or levies imposed upon Borrower or any Subsidiary or upon the income or any assets or property of Borrower or any Subsidiary as well as all claims of any kind (including claims for labor, materials, supplies, and rent) that, if unpaid, might become a lien or other encumbrance upon any or all of the assets or property of Borrower or any Subsidiary; provided, however, that Borrower and the Subsidiaries shall not be required to pay any such tax, assessment, charge, levy, or claim if the amount, applicability, or validity thereof is contested in good faith by appropriate proceedings diligently conducted and if Borrower and such Subsidiaries shall have set up adequate reserves therefor, if required, under GAAP. (e) Compliance with Laws. Borrower will observe and comply, and cause -------------------- each Subsidiary to comply, in all material respects, with all applicable laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, orders, and restrictions relating to environmental standards or controls or to energy regulations of all federal, state, county, municipal, and other governments, departments, commissions, boards, agencies, courts, authorities, officials, and officers, whether domestic or foreign. -17- (f) Further Assurances. Borrower will cure promptly any defects in the ------------------ creation and issuance of the Note and the execution and delivery of the Note and this Agreement. Borrower at its sole expense will promptly execute and deliver to Bank upon request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the covenants and agreements in this Agreement or to correct any omissions in the Note or more fully to state the obligations set out herein. (g) Performance of Obligations. Borrower will pay the Note and other -------------------------- obligations incurred by it hereunder according to the reading, tenor, and effect thereof and hereof, and Borrower will do and perform every act and discharge all of the obligations provided to be performed and discharged by Borrower under this Agreement at the time or times and in the manner specified. (h) Insurance. Borrower now maintains and will continue to maintain, --------- and each Subsidiary now maintains and Borrower will cause each Subsidiary to continue to maintain, insurance with respect to its assets against such liabilities, casualties, risks, and contingencies and in such types and amounts as are usually carried by companies engaged in the same or similar businesses and similarly situated. Upon request of Bank, Borrower and the Subsidiaries will furnish or cause to be furnished to Bank from time to time a summary of the respective insurance coverage of Borrower and the Subsidiaries in form and substance satisfactory to Bank and if requested will furnish Bank copies of the applicable policies. (i) Accounts and Records. Borrower will keep, and will cause each -------------------- Subsidiary to keep, adequate books, records, and accounts in which full, true, and correct entries will be made of all dealings or transactions in relation to their business and activities, prepared in a manner consistent with prior years. (j) Right of Inspection. Borrower will permit, and will cause each ------------------- Subsidiary to permit, upon reasonable notice, any officer, employee, or agent of Bank to examine Borrower's and the Subsidiaries' books, records, and accounts, and take copies and extracts therefrom, all at such reasonable times as Bank may request. (k) Notice of Certain Events. Borrower shall promptly notify, and ------------------------ Borrower shall promptly cause each Subsidiary to notify, Bank if Borrower or the Subsidiaries learn of the occurrence of any of the following: (i) any Event of Default, or any fact, condition, or event that, with the giving of notice or passage of time or both, would become an Event of Default, or the failure of Borrower to observe any of its undertakings hereunder, together with a detailed statement by Borrower or the -18- appropriate Subsidiary of the steps being taken to cure such default; (ii) any legal, judicial, or regulatory proceedings affecting Borrower or any Subsidiary or any of the assets or properties of Borrower or any Subsidiary that, if adversely determined, could reasonably be expected to have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole; (iii) any dispute between Borrower or any Subsidiary and any governmental or regulatory body or any other person or entity that, if adversely determined, might reasonably be expected to have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole; (iv) any other matter that in Borrower's reasonable opinion could have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole; or (v) the occurrence of an "Event of Default" under the 1986, 1987, 1989, 1991, 1992 or 1994 Note Purchase Agreements or the 1993 Indenture or any event that, with notice or the lapse of time or both, would become an "Event of Default" thereunder. (l) ERISA Information and Compliance. Borrower will promptly furnish -------------------------------- to Bank, and Borrower will cause each Subsidiary to promptly furnish to Bank, upon becoming aware of or having reason to know of the occurrence of a Reportable Event or a Prohibited Transaction under ERISA that would have a material adverse effect on the financial condition of Borrower or of any circumstances existing that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan subject to ERISA with respect to Borrower or any Commonly Controlled Entity, and promptly but in any event within two Business Days of receipt of notice by Borrower or any Commonly Controlled Entity of notice that PBGC intends to terminate a Plan or appoint a trustee to administer same, a written notice signed by the President or the chief financial officer of Borrower or the appropriate Subsidiary specifying the nature thereof, what action Borrower or the appropriate Subsidiary is taking or proposes to take with respect thereto, and, when known, any action taken by the Internal Revenue Service with respect thereto. Borrower will not create a Multiemployer Plan. (m) Environmental Reports and Notices. Borrower will deliver, and --------------------------------- cause each Subsidiary to deliver, to Bank written notice promptly upon Borrower's or any Subsidiary's learning that it has received notice or otherwise learned of any claim, demand, action, event, condition, report, or investigation indicating any -19- potential or actual liability arising in connection with (A) the non-compliance with or violation of the requirements of any Environmental Law that reasonably could be expected to have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole; (B) the release or threatened release of any toxic or hazardous waste, substance, or constituent into the environment that reasonably could be expected to have a material adverse effect on the business, assets, or financial condition of Borrower and its Subsidiaries taken as a whole or which release Borrower or the appropriate Subsidiary would have a duty to report to any court or government agency or instrumentality; or (C) the existence of any Environmental Lien on any properties or assets of Borrower or any Subsidiary. (n) Liens. Without the prior written consent of Bank, Borrower will ----- not create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any mortgage, deed of trust, pledge, lien, security interest, hypothecation, assignment, deposit agreement, or other preferential arrangement, charge, or encumbrance (including without limitation any conditional sale or other title retention agreement or finance lease) of any nature, upon or with respect to any of its properties, now owned or hereafter acquired, or sign or file, or permit any Subsidiary to sign or file, under the Uniform Commercial Code of any jurisdiction a financing statement that names Borrower or any Subsidiary as debtor, or sign or permit any Subsidiary to sign, any security agreement authorizing any secured party thereunder to file such financing statement; provided, however, that Borrower may grant any of the following described Liens without Bank's consent: (i) any Lien existing on any asset of Borrower or of a Subsidiary that, if material, is identified on EXHIBIT F; --------- (ii) any Lien on any assets securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such assets, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (iii) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into Borrower or a consolidated Subsidiary and not created in contemplation of such event; (iv) any Lien existing on any asset prior to the acquisition thereof by Borrower or a Subsidiary and not created in contemplation of such acquisition; (v) any Lien on any Fixed Assets of Borrower created pursuant to or under Section 4.08 of each of the 1986 Note Purchase Agreements, the 1987 Note Purchase Agreements, and -20- the 1989 Note Purchase Agreement, or under Section 4.8 of the 1991 Note Purchase Agreement, or under Section 4.8 of the 1992 Note Purchase Agreement, or under Section 4.10 of the 1994 Note Purchase Agreement, or under Section 6.06 of the 1993 Indenture, or pursuant to or under a similar provision, utilizing the same or a similar cash flow-to-debt test, contained in any other loan agreement that Borrower may enter into after the date hereof, which agreement grants a loan or extends credit to Borrower with a maturity date in excess of one year, and Liens securing obligations arising out of the extension or refinancing of the obligations referred to above, provided that such obligations are not increased and are not secured by any additional property; (vi) Liens arising against after-acquired property located in the states of Colorado, Kansas and Missouri pursuant to and under the 1993 Indenture, and all supplements and amendments thereto; and liens arising against after-acquired property pursuant to and under the 1959 Indenture of United Cities Gas Company, and all supplements and amendments thereto; and Liens securing obligations arising out of the extension or refinancing of the obligations referred to above, provided that such obligations are not increased and are not secured by any additional property; (vii) Liens for taxes or assessments or other governmental charges or levies if not yet due and payable; (viii) Liens imposed by law, such as operators', mechanics', materialmen's, landlords', warehousemen's and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due; (ix) Liens, pledges, or deposits under workers' compensation, unemployment insurance, Social Security, or similar legislation; (x) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases permitted by the terms of this Agreement, public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business and in each case payment with respect to which is not yet past due; and (xi) Liens on Fixed Assets not otherwise permitted by this Agreement securing Debt in the aggregate (at the time such Liens are created) not in excess of two percent (2%) of Consolidated Net Property. -21- (o) Consolidations, Mergers, and Sales of Assets. -------------------------------------------- (i) Borrower will not (A) consolidate or merge with or into any other Person or (B) sell, lease, or otherwise transfer, directly or indirectly, all or substantially all of its assets; provided, however, that Borrower may merge with another Person if Borrower is the corporation surviving such merger and if, after giving effect thereto, no event shall occur and be continuing which constitutes an Event of Default or a condition, event, or act that, with the giving of notice or lapse of time or both, would constitute an Event of Default. (ii) Borrower will not permit any Subsidiary (A) to consolidate or merge with or into, (B) transfer all or any substantial part of its assets to, or (C) issue any shares of capital stock to, any person other than Borrower or a wholly-owned Subsidiary. (p) Change of Control. If a Change of Control shall occur, Borrower ----------------- shall, within ten (10) days after the occurrence thereof, give Bank notice thereof and shall describe in reasonable detail the facts and circumstances giving rise thereto. Bank may, upon three (3) Business Days' notice to Borrower given not later than sixty (60) days after such Change of Control, declare the Note (together with accrued interest thereon) and any other amounts payable hereunder (including without limitation the Breakage Amount if applicable) immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration, or other notice of any kind, all of which are hereby waived by Borrower. (q) Dividends. The aggregate cash dividends paid on the stock of --------- Borrower and the Subsidiaries (other than, in the case of any Subsidiary, dividends paid to Borrower or a Subsidiary that is wholly owned, directly or indirectly, by Borrower) after the date hereof shall not exceed the sum of (i) 75% of the aggregate consolidated net income of Borrower and the Subsidiaries for periods after September 30, 1990, plus (ii) $20,000,000, plus (iii) 100% of ---- ---- the net cash proceeds to Borrower from any issuance of its capital stock subsequent to September 30, 1990, minus (iv) dividends paid since September 30, ----- 1991; provided that immediately before and after giving effect thereto no event shall occur and be continuing which constitutes an Event of Default or a condition, event or act that, with the giving of notice or lapse of time or both, would constitute an Event of Default. (r) Leverage. -------- (i) Consolidated Funded Indebtedness shall not exceed 65% of Consolidated Capitalization. -22- (ii) Consolidated Indebtedness (excluding trade accounts payable and other current and accrued liabilities other than liabilities for borrowed money) shall not exceed 70% of the sum of (A) Consolidated Indebtedness (excluding trade accounts payable and other current and accrued liabilities other than liabilities for borrowed money), plus (B) Shareholder's Equity, plus (C) Minority Interests in Subsidiaries. (s) Consolidated Net Property. At no time shall Borrower's ------------------------- Consolidated Net Property be less than 150% of Borrower's Consolidated Funded Indebtedness. (t) Operating Cash Flow. Borrower shall use its best efforts to cause, ------------------- for each consecutive four fiscal quarter period, the sum of Borrower and the Subsidiaries consolidated net incomes plus the aggregate amount of depreciation ---- deducted in calculating such net incomes plus the aggregate amount of deferred ---- taxes deducted in calculating such net incomes plus the aggregate amount of all other noncash charges deducted in calculating such net incomes, to be equal to or greater than 12.5% of Consolidated Indebtedness (excluding trade accounts payable and other current and accrued liabilities other than liabilities for borrowed money) as of the end of the last fiscal quarter. In the event that, at the end of any fiscal quarter, the standards set forth in the immediately preceding sentence shall not be met with respect to the latest four consecutive fiscal quarters (including such fiscal quarter), Borrower shall cause valid and perfected first-priority Liens to be created and maintained at all times thereafter pursuant to documentation satisfactory to Bank, securing the repayment of the Note, against properties of Borrower (and/or Subsidiaries, if necessary) reasonably acceptable to Bank and having a book value as of the end of such fiscal quarter equal to at least one and one-half times the aggregate principal balance outstanding under the Note as of the end of such fiscal quarter. (u) Investments. Neither Borrower nor any Subsidiary, directly or ----------- indirectly, shall (a) purchase or otherwise acquire or own any stock or other securities of any other Person; (b) make or permit to be outstanding any loan, advance or capital contribution to, or any Guaranties of the obligations of, any other Person (other than receivables in the ordinary course of business); (c) enter into any agreements for the purchase or other acquisition of any product, materials, or supplies, or for transportation or for the payment for services, if in any such case payment therefor is to be made regardless of the nondelivery of the product, materials, or supplies or the nonfurnishing of the transportation or services for reasons other than the failure or refusal of the purchaser to accept the same; provided, however, that the following (herein called "Permitted Investments") shall be permitted: -23- (i) marketable direct obligations of the United States of America and obligations guaranteed by the United States of America, which have the full faith and credit of the United States of America, including repurchase agreements involving United States government securities if such repurchase agreements are with a bank or trust company that is organized under the laws of the United States or any State thereof; (ii) commercial paper issued by any corporation organized under the laws of the United States or any state thereof maturing within one year or less from the date of investment and rated at least A-2, P-2 or Duff 2 by Standard & Poor's Corporation, Moody's Investors Service, or Duff & Phelps, Inc., respectively; (iii) tax exempt securities maturing within one year or less rated at least AA- by Standard & Poor's Corporation, Aa3 by Moody's Investors Service, or AA-by Duff & Phelps, Inc.; (iv) cash surrender value of life insurance policies carried by and for the benefit of Borrower on the lives of key employees, in amounts that the Board of Directors of Borrower determines in good faith are customary in Borrower's industry and are necessary and appropriate for the protection of the business, operations and financial condition of Borrower; (v) investments by Borrower or a Subsidiary in the capital stock or other equity securities of any other Subsidiary or any corporation which concurrently with such investment becomes a Subsidiary, and loans and advances by Borrower or a Subsidiary to any such other Subsidiary (but excluding Guaranties of the obligations of any such other Subsidiary except for Guaranties of the obligations of any Wholly-Owned Subsidiary, which may be included if the Guaranty reasonably may be expected to benefit, directly or indirectly, the guarantor corporation); provided, however, that the Subsidiary in which the investment is made or to which the loan or advance is made pursuant to this clause (v) is engaged in the business of gas, electric, water or other utilities (including, where relevant to the particular utility involved, the generation, transportation, transmission, or distribution thereof) or a related business; (vi) investments, loans, or advances which would be permitted under the immediately preceding clause (v) except that the entity in which such investment is made or to which such loan or advance is made is not (and does not as a -24- result of such investment become) a Subsidiary, provided that at no time shall the aggregate of all investments, loans, or advances outstanding pursuant to this clause (vi) exceed 50% of Borrower's Shareholders' Equity; (vii) investments, loans or advances which would be permitted under the preceding clause (v) except that the entity in which such investment is made or to which such loan or advance is made is not a utility and is not (and does not as a result of such investment become) a Subsidiary, provided that at no time shall the aggregate of all investments, loans or advances outstanding pursuant to this clause (vii) exceed 25% of Borrower's Shareholders' Equity; (viii) other investments, loans or advances by Borrower which would not be permitted under the preceding clauses (v), (vi) or (vii), provided that immediately after the making of such investment, and if the amount of such investment and all other outstanding investments pursuant to this clause (viii) were treated as cash dividends paid on the stock of Borrower and the Subsidiaries for purposes of Section 9(q), Borrower would be permitted to pay at least one additional dollar in cash dividends under Section 9(q) (investments made pursuant to this clause (viii) are herein called "Limited Investments"); (ix) loans or advances to officers, directors and employees of Borrower or any Subsidiary for home ownership or consumer or similar purposes, but not for commercial or investment purposes, provided that such loans reasonably may be expected to benefit, directly or indirectly, Borrower, and provided further that the aggregate amount of all such loans or advances at any time outstanding shall not exceed 2-1/2% of Borrower's Shareholders' Equity; (x) time and demand deposits of any bank or trust company organized under the laws of the United States of America or any State thereof that are fully insured as to payment by the Federal Deposit Insurance Corporation, provided however, that such deposits need not be so insured if the deposits are made in the ordinary course of the collection process for Borrower or any Subsidiary; (xi) security deposits and notes receivable from customers arising in the ordinary course of Borrower's business; (xii) certificates of deposit or similar instruments evidencing Eurodollar deposits maturing within one year or less issued by a bank or trust company with -25- combined capital and surplus not less than $100,000,000 and whose unsecured certificates of deposit are rated at least AA by Standard & Poor's Corporation or Duff & Phelps, Inc., or at least Aa2 by Moody's Investors Service; and (xiii) the guaranty by Borrower of indebtedness of and tha making of loans to Woodward Marketing, L.L.C., to the extent the aggregate amount of such indebtedness and loans are less than $5,625,000 at any time outstanding. The preceding notwithstanding, in no event shall Borrower or any Subsidiary make or incur any Permitted Investment listed in clauses (v), (vi), (vii), (viii) and (ix) of this Section 9(u) at any time following the occurrence of an Event of Default or an event or condition which, upon the passing of time or the giving of notice or both, would constitute an Event of Default or if the incurrence of such Investment would result in the violation of any other provision of this Agreement. (v) Corporate Existence and Due Qualification. Borrower shall preserve ----------------------------------------- and maintain, and cause each Subsidiary to preserve and maintain, its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required; provided, however, that nothing herein shall prevent any merger or consolidation otherwise permitted under Section 9(o) of this Agreement. (w) Maintenance of Properties. Borrower shall maintain, keep, and ------------------------- preserve, and cause each Subsidiary to maintain, keep and preserve, all of its properties (tangible and intangible) necessary or usable in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. (x) Transactions with Affiliates. Neither Borrower nor any Subsidiary ---------------------------- shall enter into any transaction with an Affiliate of Borrower or of such Subsidiary except in the ordinary course of, and pursuant to the reasonable requirements of, Borrower's or such Subsidiary's operations and business and upon terms found in good faith by the Board of Directors of Borrower or such Subsidiary to be fair and reasonable and no less favorable than those Borrower or such Subsidiary could obtain in a comparable arm's-length transaction with a Person other than an Affiliate. For purposes hereof, an "Affiliate" of any Person shall mean any other Person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such Person (the term "control" meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise). -26- (y) Downstream Transfers. Notwithstanding any other provision hereof -------------------- to the contrary, Borrower shall not at any time transfer, sell assign or contribute any substantial portion of its assets that would properly be included in the determination of Consolidated Net Property to any Subsidiary regardless of the consideration received in exchange therefor. SECTION 10. EVENTS OF DEFAULT. ---------- ----------------- (a) Events. Any one or more of the following events shall be ------ considered an Event of Default as that term is used herein: (i) Borrower shall fail to pay when due or declared due the principal of or interest on the Note or any fee or any other indebtedness of Borrower incurred pursuant to this Agreement and such failure shall continue for a period of one (1) Business Day after the same shall become due; (ii) Any representation or warranty made by Borrower under this Agreement or in any certificate or statement furnished at any time or made to Bank pursuant hereto, or in connection herewith, or in connection with any document furnished hereunder, shall prove to be incomplete, incorrect, misleading, or untrue in any material respect as of the date on which such representation or warranty is made or deemed made; (iii) Default shall be made in the due observance or performance of any of the covenants or agreements of Borrower contained in Sections 9(g), (k), (n), (o), (p), or (q) of this Agreement, or default shall be made in the due observance or performance of any of the covenants or agreements contained in any other section of this Agreement and such default shall continue for more than thirty (30) days after notice thereof has been given to Borrower by Bank or Bank is notified of such default, or should have been so notified, pursuant to the provisions of Section 9(k) hereof, whichever is earlier; (iv) Borrower or any Subsidiary shall fail to make any payment of principal, premium, if any, or interest with respect to any Debt (other than Debt owing Bank) in an aggregate principal amount in excess of $5,000,000 when due or within any applicable grace period; (v) Any event or condition shall occur which results in the acceleration of the maturity of any Debt of Borrower or any Subsidiary (other than Debt owing Bank) in an aggregate principal amount in excess of $5,000,000 or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person -27- acting on such holder's behalf to accelerate the maturity thereof; (vi) Borrower or any Subsidiary shall (A) commence a voluntary case or other proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking an appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or any substantial part of its property, (B) consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, (C) make a general assignment for the benefit of creditors, (D) fail generally to pay its debts as they become due, or (E) take any corporate action authorizing any of the foregoing; (vii) An involuntary case or other proceeding shall be commenced against Borrower or any Subsidiary seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, or similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of thirty (30) days; or an order for relief shall be entered against Borrower or any Subsidiary under the federal bankruptcy laws as now or hereinafter in effect; or (viii) A judgment or order for the payment of money in excess of $5,000,000 (or judgments or orders aggregating in excess of $5,000,000) shall be rendered against Borrower or any Subsidiary and such judgments or orders shall continue unsatisfied and unstayed for a period of thirty (30) days. (b) Remedies. Upon the occurrence of any Event of Default specified in -------- Subsections 10(a)(vi) and (vii) above, the entire principal amount due under the Note and all interest then accrued thereon and any other liabilities of Borrower hereunder (including, without limitation, the Breakage Amount if applicable) shall become immediately due and payable all without notice and without presentment, demand, protest, notice of protest or dishonor, notice of intent to accelerate, notice of acceleration, or any other notice of default of any kind, all of which are hereby expressly waived by Borrower. In the case of any other Event of Default, Bank may, by notice to Borrower, declare the principal of, and all interest then accrued on, the Note and any other liabilities hereunder (including, without limitation, the Breakage Amount if applicable) to be forthwith -28- due and payable, whereupon the same shall forthwith become due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration, or other notice of any kind, all of which Borrower hereby expressly waives, anything contained herein or in the Note to the contrary notwithstanding. Nothing contained in this Section 10 shall be construed to limit or amend in any way the Events of Default enumerated in the Note or any other document executed in connection with the transaction contemplated herein. If the Note is accelerated, then Bank shall determine the Breakage Amount, and Borrower shall pay to Bank upon its demand the Breakage Amount, provided that in no event shall Bank pay Borrower or shall Borrower otherwise be entitled to a credit for any Breakage Amount. (c) Right of Set-Off. Upon the occurrence and during the continuance ---------------- of any Event of Default, Bank is hereby authorized at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower), to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Bank to or for the credit or the account of Borrower against any and all of the indebtedness of Borrower now or hereafter existing under the Note and this Agreement, irrespective of whether Bank shall have made any demand under this Agreement or the Note and although such indebtedness may be unmatured. Bank agrees promptly (and in any event within five (5) Business Days) to notify Borrower after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of Bank under this Section 10 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Bank may have. None of the rights granted to Bank in this Section 10 shall apply to any deposits held by it constituting trust funds and so identified to it at the time the applicable deposit account is created. SECTION 11. EXERCISE OF RIGHTS; WAIVERS. No failure to exercise, and ---------- --------------------------- no delay in exercising, on the part of Bank, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. The rights of Bank hereunder are cumulative and are not exclusive of any other rights, powers, privileges, or remedies now or hereafter existing, at law or in equity or otherwise. No modification or waiver of any provision of this Agreement or the Note nor consent to departure therefrom shall be effective unless in writing, and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other -29- action in the same, similar, or other circumstances without such notice or demand. SECTION 12. NOTICES. Any notices or other communications required or ---------- ------- permitted to be given by this Agreement or any other documents and instruments referred to herein must be given in writing (including telegraphic, telex and facsimile transmission) and must be personally delivered or mailed first class postage paid addressed to the party to be notified at its address on the signature page hereof. Any such notice or other communication shall be deemed to have been given (whether actually received or not) on the day it is personally delivered as aforesaid or, if mailed, on the third Business Day after it is mailed as aforesaid. Either party may change its address for purposes of this Agreement by giving notice of such change to the other party pursuant to this Section 12. SECTION 13. EXPENSES; INDEMNIFICATION. ---------- ------------------------- (a) Expenses. Borrower shall pay (i) all reasonable and necessary out- -------- of-pocket expenses of Bank (including the reasonable fees and disbursements of special counsel for Bank) in connection with the preparation of this Agreement and the documents described or referred to herein, any waiver or consent hereunder or any amendment hereof, or any default or Event of Default or alleged default or Event of Default hereunder, and (ii) all reasonable and necessary out-of-pocket expenses incurred by Bank (including the reasonable fees and disbursements of counsel for Bank) in connection with any Event of Default or any condition, event, or act that, with the giving of notice or lapse of time or both, would constitute an Event of Default, and collection and other enforcement proceedings resulting therefrom. Borrower shall indemnify Bank against any transfer taxes, document taxes, assessments, or charges made by any governmental authority by reason of the execution and delivery of this Agreement or the Note. The provisions of this Section 13(a) shall survive the termination of this Agreement. (b) Indemnification. Borrower agrees to indemnify and hold harmless --------------- Bank from and against any loss, cost, liability, damage, or expense (including the reasonable fees and out-of-pocket expenses of counsel to Bank, including all necessary local counsel hired by such counsel) incurred by Bank in investigating or preparing for, defending against, or providing evidence, producing documents, or taking any other action with respect to any commenced or threatened litigation, administrative proceeding, or investigation under any federal securities law or any other statute of any jurisdiction, or any regulation, or at common law or otherwise that arises out of or is based upon any acts, practices, or omissions or alleged acts, practices, or -30- omissions of Borrower or its agents relating to (i) the use of the proceeds of the Loan or (ii) the acquisition by Borrower of all or any part of the stock or property of any Person, regardless of whether Borrower shall have borrowed hereunder to finance all or any part of such acquisition. The indemnity set forth herein shall be in addition to any other obligations or liabilities of Borrower to Bank hereunder or at common law or otherwise and shall survive any termination of this Agreement and the payment of all indebtedness of Borrower to Bank hereunder and under the Note, provided that Borrower shall have no obligation under this Section 13 to Bank with respect to any of the foregoing arising out of the negligence or willful misconduct of Bank. SECTION 14. GOVERNING LAW. This Agreement is being executed and ---------- ------------- delivered, and is intended to be performed, in Dallas, Texas, and the substantive laws of Texas shall govern the validity, construction, enforcement, and interpretation of this Agreement and all other documents and instruments referred to herein, unless otherwise specified therein or unless the laws of another state require the application of the laws of such state. SECTION 15. INVALID PROVISIONS. If any provision of this Agreement ---------- ------------------ is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provisions shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of the Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. SECTION 16. MAXIMUM INTEREST RATE. Regardless of any provisions ---------- --------------------- contained in this Agreement or in any other documents and instruments referred to herein, Bank shall never be deemed to have contracted for or be entitled to receive, collect, charge, or apply as interest on the Note any amount in excess of the maximum rate of interest permitted to be charged by applicable law. In the event Bank ever receives, collects, charges, or applies as interest any such excess or if an acceleration of the maturities of the Note or any prepayment by Borrower results in Borrower having paid any interest in excess of the maximum rate, such amount that would constitute excessive interest shall be applied to the reduction of the unpaid principal balance of the Note for which such excess was received, collected, or applied. If the principal balance of such Note is paid in full, any such remaining excess shall forthwith be paid to Borrower. All sums paid or agreed to be paid to Bank for the use, forbearance, or detention of the indebtedness evidenced by the Note or this -31- Agreement shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until paid in full so that the rate or amount of interest on account of such indebtedness does not exceed the maximum lawful rate permitted under applicable law. In determining whether the interest paid or payable under any specific contingency exceeds the maximum rate of interest permitted by law, Borrower and Bank shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee, or premium, rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) compare the total amount of interest contracted for, charged, or received with the total amount of interest that could be contracted for, charged, or received throughout the entire contemplated term of the Note at issue at the maximum lawful rate under applicable law. SECTION 17. MULTIPLE COUNTERPARTS. This Agreement may be executed in ---------- --------------------- identical separate counterparts, each of which for all purposes is to be deemed an original, but all of which shall constitute, collectively, one agreement. No party to this Agreement shall be bound hereby until a counterpart of this Agreement has been executed by all parties hereto. SECTION 18. SURVIVAL. All covenants, agreements, undertakings, ---------- -------- representations, and warranties made in this Agreement, the Note, or other documents and instruments referred to herein shall survive all closings hereunder and shall not be affected by any investigation made by any party. SECTION 19. PARTIES BOUND. This Agreement shall be binding upon and ---------- ------------- inure to the benefit of the parties hereto and their respective successors, assigns, heirs, legal representatives, and estates, provided, however, that Borrower may not, without the prior written consent of Bank, assign any rights, powers, duties, or obligations hereunder. SECTION 20. PARTICIPATIONS. ---------- -------------- (a) Bank shall have the right at any time and from time to time to sell one or more participations in the Note. Bank's obligations hereunder shall remain unchanged, and no participant shall have the right to consent to or restrict Bank's ability to agree to the modification, waiver or amendment of any of the terms of this Agreement or the Note or to consent to any action or failure to act of any party to this Agreement or the Note or to excuse or refrain from exercising any power or rights which Bank may have under this Agreement and the Note. To the extent of any such participation, the provisions of this Agreement shall inure to the benefit of, and be binding on, each participant, -32- including, but not limited to, any indemnity from Borrower to Bank. Borrower shall have no obligation or liability to and no obligation to negotiate or confer with, any participant, and Borrower shall be entitled to treat Bank as the sole owner of the Note without regard to notice or actual knowledge of any such participation. Upon the occurrence of an Event of Default, each participant will have and is hereby granted the right to setoff against and to appropriate and apply from time to time, without prior notice to Borrower or any other party, any such notice being hereby expressly waived, any and all deposits (general or special) or other indebtedness or claims, direct or indirect, contingent or otherwise, at any time held or owing by the participant to or for the credit or account of Borrower against the payment of the Note and any other obligations of Borrower hereunder, provided, however, none of the rights granted in this Section 20 shall apply to any deposits held by any participant constituting trust funds and so identified to such participant at the time the applicable deposit account is created. Within five (5) Business Days after such setoff or appropriation by a participant, that participant shall give Borrower and Bank written notice thereof; provided, however, a failure to give such notice shall not affect the validity of the setoff or appropriation. (b) Bank may furnish any information concerning Borrower in the possession of Bank from time to time to participants (including prospective participants), provided that the Person to whom such information shall be disclosed shall have agreed in writing, subject to normal exceptions and to the extent that the same is not in the public domain, to keep such information confidential. SECTION 21. OPTION TO FUND. Bank shall be entitled to fund and ---------- -------------- maintain its funding of all or any part of the principal balance of its Note in any manner it sees fit. SECTION 22. ACCOUNTING TERMS. Unless specified elsewhere herein or ---------- ---------------- otherwise required or permitted by any federal or state regulatory authority or agency to which Borrower is subject, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements to be delivered hereunder shall be prepared in accordance with, GAAP. SECTION 23. NO CONTROL. None of the terms of this Agreement or of ---------- ---------- any other document executed in conjunction herewith or related hereto shall be deemed to give Bank the rights and powers to exercise control over the business or affairs of Borrower. The relationship between Borrower and Bank created by this Agreement is only that of a debtor/creditor, and -33- the powers of Bank hereunder are limited to the right to receive payment on the Note and to exercise the remedies provided herein and in any other document executed in conjunction herewith or related hereto. SECTION 24. OTHER AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS ---------- ---------------- THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed as of the day and year first above written. ATMOS ENERGY CORPORATION ATMOS ENERGY CORPORATION, 5430 LBJ Freeway a Texas corporation Three Lincoln Centre, Suite 160 Dallas, Texas 75240 By: Attention: Carl Weller --------------------------------- Treasurer James F. Purser Telephone: (214) 450-9755 Executive Vice President and Fax: (214) 455-3085 Chief Financial Officer NATIONSBANK OF TEXAS, N.A. NATIONSBANK OF TEXAS, N.A., 901 Main Street, 64th Floor a national banking association Dallas, Texas 75202 Attention: Curtis L. Anderson Senior Vice President By: Utility Finance Division --------------------------------- Telephone: (214) 508-1290 Curtis L. Anderson Fax: (214) 508-3943 Senior Vice President LIST OF EXHIBITS A Form of Promissory Note (S) 2(b) B Change in Condition (S) 7(f) C Material Liabilities (S) 7(h) D List of Subsidiaries (S) 7(r) -34- E Environmental Matters (S) 7(s) F Existing Liens (S) 9(n) -35- EXHIBIT A TERM NOTE $40,000,000 Dallas, Texas November 26, 1996 FOR VALUE RECEIVED, ATMOS ENERGY CORPORATION, a Texas corporation having its principal place of business at Three Lincoln Centre, Suite 160, 5430 LBJ Freeway, Dallas, Texas 75240, referred to herein as "Borrower," promises to pay to the order of NATIONSBANK OF TEXAS, N.A., a national banking association referred to herein as the "Lender," the principal sum of Forty Million Dollars ($40,000,000), or, if less, such amount as may have been advanced and be outstanding hereunder, together with interest on the unpaid principal balance as set forth below. All sums hereunder are payable to the Lender at its principal office at 901 Main Street, Dallas, Texas 75202. 1. DEFINITIONS. Unless the context hereof otherwise requires or ----------- provides, the terms used herein have the same meanings as defined in that certain Loan Agreement between the Borrower and the Lender of even date herewith, as the same has been or may be amended or supplemented from time to time (the "Agreement"). The definitions of "Maturity Date" and "Maximum Rate" are reproduced below for purposes of clarity: Maturity Date - November 25, 1998, the day which is one (1) day less ------------- than two (2) years from the Closing Date. Maximum Rate - The highest rate of nonusurious interest permitted from ------------ day to day by applicable law, including Tex. Rev. Civ. Stat. Ann. art. 5069-1.04 (and as the same may be incorporated by reference in other Texas statutes), but, otherwise, without limitation, the rate based upon the "indicated rate ceiling." 2. INTEREST RATE. The unpaid principal balance from the date hereof ------------- until maturity (whether by acceleration or otherwise) shall bear interest at 6.09% per annum. All past-due payments of principal and interest under this Note shall bear interest at the Maximum Rate from maturity until paid. 3. PAYMENT OF PRINCIPAL AND INTEREST. Interest only on the unpaid --------------------------------- principal balance hereof shall be due and payable in seven (7) consecutive quarterly installments commencing December 31, 1996, and continuing through and including September 30, 1998. Then, the unpaid principal balance of this Note together with accrued interest thereon, shall be due and EXHIBIT A - Page 1 - --------- payable on the Maturity Date. The principal and interest due hereunder shall be evidenced by the Lender's records which, absent manifest error, shall be conclusive evidence of the computation of principal and interest balances owed by the Borrower to the Lender. 4. DEFAULT. Upon the occurrence of an Event of Default described in ------- Section 10(a)(vi) or Section 10(a)(vii) of the Agreement, the entire principal of and accrued interest on this Note shall forthwith be due and payable without demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices and further actions of any kind, all of which are hereby expressly waived by the Borrower. Should any other Event of Default occur and be continuing, the holder of this Note may, without demand or notice of its election declare the entire unpaid balance of this Note, or any part thereof, immediately due and payable, whereupon the principal of and accrued interest on such Note shall be forthwith due and payable without demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices and further actions of any kind, all of which are hereby expressly waived by the Borrower. 5. PREPAYMENT. The Borrower may at any time prepay in whole but not in ---------- part the unpaid principal of this Note in the manner and to the extent specified in Section 4 of the Agreement. 6. WAIVER. Each surety, endorser, guarantor and any other party now or ------ hereafter liable for the payment of this Note in whole or in part ("Surety") and the Borrower hereby severally (a) waive grace, demand, presentment for payment, notice of nonpayment, protest, notice of protest, non-payment or dishonor, notice of intent to accelerate, notice of acceleration and all other notices (except as provided in the Agreement), filing of suit and diligence in collecting this Note or enforcing any other security with respect to same, (b) agree to any substitution, surrender, subordination, waiver, modification, change, exchange or release of any security or the release of the liability of any parties primarily or secondarily liable hereon, (c) agree that the Lender is not required first to institute suit or exhaust its remedies hereon against the Borrower, any Surety or others liable or to become liable hereon or to enforce its rights against them or any security with respect to same or to join any of them in any suit against any others of them, and (d) consent to any extension or postponement of time of payment of this Note and to any other indulgence with respect hereto without notice thereof to any of them. No failure or delay on the part of the Lender in EXHIBIT A - Page 2 - --------- exercising any right, power or privilege hereunder shall operate as a waiver thereof. 7. ATTORNEYS' FEES. If this Note is not paid at maturity, regardless of --------------- how such maturity may be brought about, or is collected or attempted to be collected through the initiation or prosecution of any suit or through any probate, bankruptcy or any other judicial proceedings, or is placed in the hands of an attorney for collection, the Borrower shall pay, in addition to all other amounts owing hereunder, all actual expenses of collection, all court costs and reasonable attorney's fees incurred by the holder hereof. 8. LIMITATION ON AGREEMENTS. Regardless of any provisions contained in ------------------------ the Agreement or in any other documents and instruments referred to herein, the Lender shall never be deemed to have contracted for or be entitled to receive, collect, charge, or apply as interest on this Note any amount in excess of the Maximum Rate. In the event the Lender ever receives, collects, charges, or applies as interest any such excess or if an acceleration of the maturities of this Note or any prepayment by the Borrower results in the Borrower having paid any interest in excess of the Maximum Rate, such amount that would constitute excessive interest shall be applied to the reduction of the unpaid principal balance of this Note for which such excess was received, collected, or applied. If the principal balance of this Note is paid in full, any such remaining excess shall forthwith be paid to the Borrower. All sums paid or agreed to be paid to the Lender for the use, forbearance, or detention of the indebtedness evidenced by this Note or the Agreement shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until paid in full so that the rate or amount of interest on account of such indebtedness does not exceed the maximum lawful rate permitted under applicable law. In determining whether the interest paid or payable under any specific contingency exceeds the Maximum Rate, the Borrower and the Lender shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee, or premium, rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) compare the total amount of interest contracted for, charged, or received with the total amount of interest that could be contracted for, charged, or received throughout the entire contemplated term of this Note at the maximum lawful rate under applicable law. The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between the Lender and the Borrower in conflict herewith. EXHIBIT A- Page 3 - --------- 9. GOVERNING LAW AND VENUE. This Note and the rights and obligations of ----------------------- the parties hereunder shall be governed by the laws of the United States of America and by the laws of the State of Texas, and is performable in Dallas County, Texas. Chapter 15 of the Texas Credit Code (Tex. Rev. Civ. Stat. Ann. art 5069.15.01 et seq.) which regulates certain revolving credit loans and -- ---- revolving tri-party accounts does not apply to this Note. 10. BUSINESS DAY. If any action is required or permitted to be taken ------------ hereunder on a Sunday, legal holiday or other day on which banking institutions in the State of Texas are authorized or required to close, such action shall be taken on the next succeeding day which is a Business Day, and, to the extent applicable, interest on the unpaid principal balance shall continue to accrue at the applicable rate. 11. AGREEMENT. This Note is the Note referred to in the Agreement, and is --------- entitled to the benefits thereof and the security as provided for therein. Reference is made to the Agreement and the Loan Documents for a statement of the rights and obligations of the Borrower, a description of the nature and extent of the security and the rights of the parties in respect to such security, and a statement of the terms and conditions under which the due date of this Note may be accelerated. ATMOS ENERGY CORPORATION By ------------------------------- James F. Purser Executive Vice President and Chief Financial Officer EXHIBIT A - Page 4 - --------- EXHIBIT B CHANGE IN CONDITION 1. Material Adverse Changes: NONE 2. Litigation: The Borrower has filed a Notice of Appeal with the Colorado Court of Appeals with respect to the Steamboat Springs case described in the Borrower's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. The Borrower has adequate insurance to cover the compensatory damages awarded. The Borrower's insurance carrier recently informed the Borrower that, based upon a recent Colorado Court ruling, it no longer believes that the punitive damages awarded against the Borrower can be covered by the Borrower's insurance policy. The Borrower is currently reviewing the position of the insurance carrier with respect to coverage of punitive damages. See also Financial Statements. EXHIBIT B - Page Solo - --------- EXHIBIT C MATERIAL LIABILITIES See Financial Statements EXHIBIT C - Page Solo - --------- EXHIBIT D LIST OF SUBSIDIARIES Jurisdiction Percentage Name of Subsidiary of of Voting Incorporation Stock Owned - --------------------------------------------------------------------- Atmos Energy Services, Inc. Delaware 100% EGASCO, Inc. Texas 100% EnerMart, Inc. Delaware 100% EnerMart Trust Pennsylvania (1) Trans Louisiana Industrial Gas Louisiana 100% Company, Inc. Western Kentucky Gas Resources Delaware 100% Company (1) Stock owned 100% by EnerMart, Inc. EXHIBIT D - Page Solo - --------- EXHIBIT E ENVIRONMENTAL MATTERS None EXHIBIT E - Page Solo - --------- EXHIBIT F EXISTING LIENS Certain assets of Greeley Gas Company, a division of Atmos Energy Corporation, are pledged to secure certain indebtedness under the Tenth Supplemental Indenture, dated as of December 1, 1993, between Atmos Energy Corporation and Colorado National Bank, formerly Central Bank. The Tenth Supplemental Indenture relates to certain First Mortgage Bonds with First Colony Life, Series J, issued April 1, 1991. The Tenth Supplemental Indenture includes an "after-acquired property" clause. EXHIBIT F - Page Solo - --------- EX-10.2 3 AMENDMENT NO. 1 TO RETIREMENT PLAN EXHIBIT 10.2 AMENDMENT NO. 1 TO THE ATMOS ENERGY CORPORATION RETIREMENT PLAN FOR OUTSIDE DIRECTORS WHEREAS, effective November 8, 1989, ATMOS ENERGY CORPORATION (the "Company") adopted THE ATMOS ENERGY CORPORATION RETIREMENT PLAN FOR OUTSIDE DIRECTORS (the "Plan"); and WHEREAS, pursuant to Article VII of the Plan, the Board of Directors of the Company desires to amend the Plan as hereinafter set forth; NOW, THEREFORE, the Plan shall be, and hereby is, amended in the following respects: Section 2.08 of the Plan shall be, and hereby is, amended and revised to read in its entirey as follows: " 'Years of Service' means 365-day periods of service as an Outside Director or, for periods prior to January 1, 1994, as a director of Greeley Gas Company, whether or not interrupted or consecutive." IN WITNESS WHEREOF, the Company has executed this Amendment No. 1 to The Atmos Energy Corporation Retirement Plan for Outside Directors this 13th day of November, 1996 to be effective as of this date. ATMOS ENERGY CORPORATION By: /s/ Robert F. Stephens -------------------------------- Robert F. Stephens President and Chief Operating Officer EX-10.3 4 SUPPLEMENTAL EXECUTIVE BENEFITS PLAN EXHIBIT 10.3 THE ATMOS ENERGY CORPORATION SUPPLEMENTAL EXECUTIVE BENEFITS PLAN Effective Date: October 1, 1987 Amended and Restated in its Entirety: November 13, 1996 TABLE OF CONTENTS Article Page I Purpose and Effective Date............................... 1 Section 1.1. Purpose.................................................. 1 Section 1.2. Effective Date........................................... 1 II Definitions and Construction............................. 1 Section 2.1. Definitions.............................................. 1 Section 2.2. Construction............................................. 5 Section 2.3. Governing Law............................................ 5 III Eligibility and Participation............................ 6 Section 3.1. Employees Eligible to Participate........................ 6 IV Assets Used for Benefits................................. 6 Section 4.1. Amounts Provided by the Employer......................... 6 Section 4.2. Funding.................................................. 7 V Supplemental Pension Benefits............................ 8 Section 5.1. Eligibility for Supplemental Pension..................... 8 Section 5.2. Amount of Supplemental Pension........................... 9 Section 5.3. Form of Payment of Supplemental Pension.................. 11 Section 5.4. Commencement of Supplemental Pension..................... 11 Section 5.5. Supplemental Pensions After a Change in Control.......... 11 VI Disability Benefits...................................... 12 Section 6.1. Eligibility For Disability Benefits...................... 12 Section 6.2. Amount of Disability Benefits............................ 12 Section 6.3. Payment of Disability Benefits........................... 13 Section 6.4. Payment of Supplemental Pension to Disabled Participants............................................. 13 VII Death Benefits........................................... 14 Section 7.1. Eligibility For Death Benefits........................... 14 Section 7.2. Amount of Death Benefit.................................. 14 Section 7.3. Form of Payment of Death Benefit......................... 15 Section 7.4. Commencement of Death Benefits........................... 16 VIII Administration........................................... 17 Section 8.1. Plan Administration...................................... 17 i Section 8.2. Powers of Plan Administrator............................. 17 Section 8.3. Calculation of Funding Obligations....................... 18 Section 8.4. Annual Statements........................................ 18 IX Miscellaneous Provisions................................. 19 Section 9.1. Amendment or Termination of the Plan..................... 19 Section 9.2. Nonguarantee of Employment............................... 21 Section 9.3. Nonalienation of Benefits................................ 23 Section 9.4. Liability................................................ 23 Section 9.5. Noncompetition Agreement................................. 23 Section 9.6. Participation Agreement.................................. 24 Section 9.7. Successors to the Employer............................... 24 ii ARTICLE I Purpose and Effective Date Section 1.1. Purpose: The purpose of this Plan is to provide supplemental retirement income, death and disability benefits to certain executive employees of Atmos Energy Corporation. Section 1.2. Effective Date: The Plan initially became effective on October 1, 1987, was amended and restated as of November 11, 1992, was amended as of November 8, 1995, was amended as of May 8, 1996, and has been amended and restated as of November 13, 1996. ARTICLE II Definitions and Construction Section 2.1. Definitions: The following words and phrases used in this Plan shall have the respective meanings set forth below, unless the context in which they are used clearly indicates a contrary meaning: (a) Beneficiary: The individual or individuals described in Section 7.3 of this Plan who are receiving any benefit payments hereunder. (b) Board of Directors: The Board of Directors of the Employer. (c) Cause: The termination of employment by the Employer upon the happening of either (i) or (ii) as follows: (i) The willful and continued failure by the Participant to substantially perform his duties with the Employer (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Employer that specifically identifies the manner in which the Employer believes that the Participant has not substantially performed his duties. (ii) The Participant's willful engagement in conduct that is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on the Participant's part shall be deemed "willful" if done, or omitted to be done, by the Participant in good faith and with a reasonable belief that the action or omission was in the best interests of the Employer. (d) Change in Control: (i) The occurrence of any of the following: (A) Any "person" (as defined in subparagraph (ii) below), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Employer, is or becomes the "beneficial owner" (as defined in subparagraph (ii) below), directly or indirectly, of securities of the Employer representing 33-1/3% or more of the combined voting power of the Employer's then outstanding securities. (B) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Employer and any "new director" (as defined in subparagraph (ii) below) cease for any reason to constitute a majority of the Board of Directors. (C) The shareholders of the Employer approve a merger or consolidation of the Employer with any other corporation, except if: (1) the merger or consolidation would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity outstanding immediately after such merger or consolidation; or (2) the merger or consolidation occurs 2 in connection with the approval by the shareholders of the Employer of a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets. (ii) For purposes of subparagraph (i) above, (A) "Person" shall have the meaning provided in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (B) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the Exchange Act. (C) "New director" shall mean an individual whose election by the Employer's Board of Directors or nomination for election by the Employer's shareholders was approved by a vote of at least 2/3's of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved. However, "new director" shall not include a director designated by a person who has entered into an agreement with the Employer to effect a transaction described in subparagraphs (i)(A) or (B) above. (e) Compensation: The sum of (i), (ii) and (iii) as follows: (i) The greater of (A) the Participant's annual base salary at the date of his termination of employment, or (B) the average of the Participant's annual base salary for the highest three (3) calendar years (whether or not consecutive) of the Participant's employment with the Employer. (ii) The greater of (A) the Participant's last Performance Award, or (B) the average of the highest three (3) Performance Awards (whether or not consecutive). (iii) The Participant's annual car allowance amount at the date of his termination of employment. (f) Death Benefit: The total benefit provided under 3 this Plan upon the death of a Participant, which benefit is calculated in this Plan on a pre-tax basis. (g) Disability: The termination of a Participant's employment with the Employer on account of disability as determined under the Group Long- Term Disability Plan. (h) Disability Benefit: The monthly benefit provided under this Plan to a Participant who suffers a Disability, which benefit is calculated in this Plan on a pre-tax basis. (i) Eligible Employee: An employee who is either a corporate officer of the Employer elected by the Board of Directors (excluding any assistant officers that may be elected from time to time) or the president of an Operating Division. (j) Employer: Atmos Energy Corporation. (k) Group Long-Term Disability Plan: The Atmos Energy Corporation Group Long-Term Disability Plan, as amended from time to time. (l) Involuntary Termination: The termination of a Participant's participation in the Plan due to either (i) or (ii) as follows: (i) The Participant's employment with the Employer is terminated involuntarily by the Employer for any reason other than Cause or Disability. (ii) Any reason prior to his termination of employment with the Employer. (m) Operating Division: Energas Company, Greeley Gas Company, Trans Louisiana Gas Company, Western Kentucky Gas Company, and any other division of the Employer that the Employer may hereafter establish. (n) Participant: An Eligible Employee of the Employer who meets the requirements to participate in the Plan in accordance with the provisions of Article III hereof. (o) Participation Agreement: The agreement between the Employer and a Participant described in Section 9.6 of this Plan, executed in the form attached hereto as Exhibit C or in such other form as the Board of Directors, in its sole discretion, may establish from time to time. (o) Plan: The Atmos Energy Corporation Supplemental Executive Benefits Plan, as set forth herein and as amended 4 from time to time. (p) Pension Plan: The Employees' Retirement Plan of Atmos Energy Corporation, the Western Kentucky Gas Retirement Plan, the Greeley Gas Company Employees' Pension Plan, or any other defined benefit pension plan subsequently adopted or established by the Employer, whichever is applicable, as amended from time to time. Any amount payable to or with respect to a Participant from any group annuity contract maintained in connection with the Pension Plan shall be deemed part of the benefit applicable to the Participant under the Pension Plan. (q) Performance Awards: Any amount paid, or authorized to be paid, to a Participant pursuant to any annual performance bonus plan adopted or established by the Employer, or, upon and after a Change in Control, any amount paid, or authorized to be paid, to a Participant as a performance related cash bonus in addition to his base cash compensation. (r) Plan Administrator: The Board of Directors. (s) Plan Year: Each twelve (12) month period beginning on January 1 and ending on December 31. (t) Retired Participant: A Retired employee of the Employer who receives benefits under this Plan. (u) Retirement or Retire: A Participant's voluntary resignation from employment with the Employer after he is vested in his retirement benefits under the Pension Plan and has reached the age when he is eligible for the immediate commencement of those benefits from the Pension Plan. (v) Supplemental Pension: A Participant's monthly pension benefit provided under this Plan, which benefit is calculated in this Plan on a pre-tax basis. Section 2.2. Construction: The masculine gender, whenever appearing in this Plan, shall be deemed to include the feminine gender; the singular may include the plural; and vice versa, unless the context clearly indicates to the contrary. Section 2.3. Governing Law: This Plan shall be construed in accordance with and governed by the laws of the State of 5 Texas, except to the extent otherwise preempted by the Employee Retirement Income Security Act of 1974, as amended, or any other Federal law. ARTICLE III Eligibility and Participation Section 3.1. Employees Eligible to Participate: Each Eligible Employee shall participate in this Plan, provided he complies with the provisions of Sections 9.5 and 9.6 hereof. Any Participant who ceases being an Eligible Employee during his employment with the Employer shall immediately cease participation in this Plan, except as otherwise set forth herein. ARTICLE IV Assets Used for Benefits Section 4.1. Amounts Provided by the Employer: Benefits payable under this Plan shall constitute general obligations of the Employer in accordance with the terms of this Plan. The Employer may, in its sole discretion, establish a trust or other funding arrangement that is subject to the claims of the Employer's general creditors for the purpose of funding a Participant's accrued benefit payable under this Plan. Any such trust or other funding arrangement may also provide for the distribution to the Participant of an amount equal to any federal or state income taxes that are incurred by the Participant in the event the establishment of such trust or other funding arrangement constitutes the constructive receipt by the Participant of any benefits payable hereunder prior to the actual 6 receipt of such benefits. The Employer shall make appropriate adjustments to the amount of the Participant's Supplemental Pension payable each month in order to reflect the effect upon such Supplemental Pension of the distribution described in the foregoing sentence. Section 4.2. Funding: Not later than the time each Participant Retires or becomes eligible to receive an unreduced Supplemental Pension under this Plan, whichever occurs first, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of such Participant's accrued Supplemental Pension. The amount required to be funded by this Section 4.2 shall be calculated in accordance with Section 8.3 hereof. Notwithstanding the foregoing, immediately upon a Change in Control, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of all Supplemental Pension benefits (vested and unvested) payable hereunder to each Participant and Retired Participant, regardless of whether any such person is then eligible to Retire or to receive an unreduced Supplemental Pension. The Employer shall review the funding status of each such trust or other funding arrangement required to be established under this Section 4.2 on an annual basis and shall make such contributions thereto as may be required to maintain the value of the assets thereof at no less than 100% of the then-present value of all such Supplemental Pension benefits. For purposes of this Section 4.2 only, 7 notwithstanding the foregoing, no actions or events related to the merger of United Cities Gas Company ("United Cities") with and into the Employer, as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities (the "Merger"), including shareholder approval of the Merger or the consummation of the Merger, shall constitute a Change in Control of the Employer that requires the Employer to make any contributions pursuant to this Section 4.2. ARTICLE V Supplemental Pension Benefits Section 5.1. Eligibility for Supplemental Pension: (a) Upon Retirement. Except as otherwise provided elsewhere in this Plan or in a Participant Agreement, a Participant who has been an Eligible Employee for at least two years and Retires shall be entitled to receive a Supplemental Pension. (b) Upon Involuntary Termination Prior to a Change in Control. A Participant who suffers an Involuntary Termination prior to a Change in Control shall be entitled to receive a Supplemental Pension, subject to the provisions of Section 5.1(c) of this Plan, so long as he is vested in his retirement benefits under the Pension Plan at the time of his Involuntary Termination and has been an Eligible Employee for at least two years prior to the Involuntary Termination. (c) Upon Voluntary Termination Prior to a Change in Control or Termination For Cause. A Participant who voluntarily resigns 8 from employment with the Employer prior to being eligible for Retirement and prior to a Change in Control or who is terminated from employment with the Employer for Cause shall not be entitled to receive a Supplemental Pension. (d) Upon Disability. A Participant who suffers a Disability shall be entitled to a Supplemental Pension as provided in Section 6.4. Section 5.2. Amount of Supplemental Pension: (a) Upon Retirement. The Supplemental Pension payable to a Participant who Retires, and who has been an Eligible Employee for at least two years shall, unless reduced as provided in paragraph (b) below, equal (i) minus (ii) as follows: (i) One-twelfth (1/12th) of seventy-five percent (75%) of the Participant's Compensation, reduced if the Participant has fewer than ten (10) years of vesting service under the Pension Plan by one-tenth (1/10th) for each year of his vesting service less than ten (10); (ii) The monthly amount of pension payable to the Participant under the Pension Plan as of the date that his employment terminates assuming payment in the normal form applicable to him under the Pension Plan; provided, however, in no event shall the combined annual payment from this Plan and the Pension Plan to any Participant listed on the Minimum Benefit Schedule attached to this Plan as Exhibit A be less than the minimum Annual Amount for such Participant listed on the Minimum Benefit Schedule. 9 (b) Reduction for Early Commencement of Supplemental Pensions. If a Participant's Supplemental Pension commences before the Participant attains age 62, his Supplemental Pension shall, unless otherwise provided in Exhibit A or in a Participation Agreement, be reduced for each year (or fraction thereof, based on full months) that the date of commencement precedes age 62. The reduction shall be made in the same manner as reductions are made for early commencement under the Pension Plan. (c) Cost of Living and Other Adjustments. A Participant who has begun to receive his Supplemental Pension shall be entitled to receive any cost of living or other adjustments to which he is otherwise entitled pursuant to the Pension Plan, and his Supplemental Pension shall not be reduced by such adjustments. If a Participant would not be entitled to receive a cost of living or other adjustment due to statutory or regulatory limitations on Pension Plan benefits, the Supplemental Pension shall be increased by the amount of such adjustment for the time the limitations are in effect. (d) Upon Involuntary Termination Prior to a Change in Control. The Supplemental Pension payable to a Participant who suffers an Involuntary Termination prior to a Change in Control shall be determined in accordance with paragraph (a) above, but for purposes of subparagraph (a)(i) shall be based upon his Compensation and years of vesting service under the Pension Plan as of the date of his Involuntary Termination. 10 Section 5.3. Form of Payment of Supplemental Pension: (a) Married Participants. If a Participant is married when his Supplemental Pension commences, it shall be paid in the form of a joint and 50% survivor annuity, with the Participant's spouse on the date payment commences as the joint annuitant. (b) Unmarried Participants. If a Participant is not married when his Supplemental Pension commences, it shall be paid in the form of a ten year certain and life annuity payable to the Participant or the Participant's named beneficiary. Section 5.4. Commencement of Supplemental Pension: (a) Upon Retirement. The Supplemental Pension of a Participant who Retires shall commence at the time he begins receiving retirement benefits from the Pension Plan. (b) Upon Involuntary Termination Prior to a Change in Control. The Supplemental Pension of a Participant who suffers an Involuntary Termination prior to a Change in Control shall commence at the time he begins receiving retirement benefits from the Pension Plan. Section 5.5. Supplemental Pensions After a Change in Control: (a) Eligibility For Supplemental Pension. Notwithstanding anything to the contrary in this Plan, a Participant shall be entitled to a Supplemental Pension, regardless of whether he has been an Eligible Employee for at least two years or is vested in his retirement benefits under the Pension Plan, if following a Change in Control of the Employer either (i) or (ii) occurs: 11 (i) A Participant's employment is terminated on account of Disability or by the Employer for any reason other than for Cause. (ii) The Participant's participation in the Plan is terminated by the Employer prior to his termination of employment with the Employer for any reason other than for Cause. (b) Amount of Supplemental Pension. The Supplemental Pension payable to a Participant described in paragraph (a) above shall be calculated in the same manner as set forth in Section 9.1(c) for benefits payable in the event of a termination of the Plan, but based on his Compensation as of the date his participation in the Plan is terminated. (c) Commencement of Supplemental Pension. The Supplemental Pension payable to a Participant described in paragraph (a) above shall commence at the time the Participant begins receiving retirement benefits from the Pension Plan, or if he is not entitled to benefits from the Pension Plan when his employment is terminated, at the time he would otherwise be entitled to begin receiving retirement benefits under the Pension Plan if he were so entitled. ARTICLE VI Disability Benefits Section 6.1. Eligibility For Disability Benefits: A Participant shall be entitled to a Disability Benefit if he suffers a Disability prior to his Retirement. Section 6.2. Amount of Disability Benefits: The Disability Benefit payable to an eligible Participant shall equal (a) minus 12 (b) as follows: (a) One-twelfth (1/12th) of sixty percent (60%) of the Participant's Compensation calculated as of the date of his Disability. (b) The monthly amount of disability benefit payable to the Participant under the Group Long-Term Disability Plan as of the date that his employment terminates due to Disability. Section 6.3. Payment of Disability Benefits: A Participant's Disability Benefits shall commence at the same time such Participant begins receiving benefits from the Group Long-Term Disability Plan and shall continue for so long as benefits are paid under the Group Long-Term Disability Plan. Section 6.4. Payment of Supplemental Pension to Disabled Participants: (a) Upon Reaching Normal Retirement Age. If a Participant who has suffered a Disability reaches his normal retirement age under the Pension Plan while still receiving Disability Benefits, such Participant shall be entitled to a Supplemental Pension commencing at the time Participant begins receiving retirement benefits from the Pension Plan regardless of whether the Participant has been an Eligible Employee for at least two years. The Supplemental Pension payable to such Participant shall be in the form provided in Section 5.3 and determined in accordance with Subsection 5.2(a). Upon commencement of a Participant's Supplemental Pension under this Section 6.4(a), such Participant's Disability Benefit under Section 6.3 hereof shall cease. 13 (b) Prior to Reaching Normal Retirement Age. Notwithstanding the provisions of paragraph (a) above, a Participant receiving a Disability Benefit may elect to receive a Supplemental Pension at any time after becoming eligible to Retire and prior to his normal retirement age under the Pension Plan. If such an election is made, the Participant's Disability Benefits shall cease and the Participant shall commence receiving a Supplemental Pension in the form provided in Section 5.3 at the same time he begins receiving retirement benefits from the Pension Plan. The Supplemental Pension payable to such Participant shall be determined in accordance with Subsections 5.2(a) and (b), and shall be determined based on the Participant's Compensation as of the date that such individual terminated employment on account of disability. ARTICLE VII Death Benefits Section 7.1. Eligibility For Death Benefits: A Participant shall be entitled to a Death Benefit if he meets the requirements of either (a) or (b) as follows: (a) He dies before his employment with the Employer terminates or while receiving a Disability Benefit under this Plan. (b) He Retires, but dies before the commencement of his Supplemental Pension. Section 7.2. Amount of Death Benefit: (a) In-Service Death: In the case of a Participant who dies as provided in Subsection 7.1(a), the Death Benefit will be 14 the total of the following (i), (ii), and (iii): (i) A lump sum payment equal to two times the Participant's Compensation minus any amount payable under the Employer's Group Basic Life Insurance Plan (the "Lump Sum Death Benefit"). (ii) A monthly benefit equal to one-twelfth of an amount equal to fifty percent of the Participant's Compensation at the time of his death (the "Monthly Death Benefit"). (iii) If the Participant leaves a child or children to whom payments are to be made under Section 7.3 hereof, a monthly benefit equal to one-twelfth of an amount equal to twenty-five percent of the Participant's Compensation at the time of his death (the "Dependent Death Benefit"). (b) Post Retirement Death: In the case of a Participant who dies as provided in Subsection 7.1(b), a Death Benefit will be paid in the amount and to the beneficiary that would have been applicable had the Participant's Supplemental Pension commenced in the month of his death. Section 7.3. Form of Payment of Death Benefit: (a) Lump Sum and Monthly Death Benefits: The Lump Sum and Monthly Death Benefits are payable to the Participant's surviving spouse. If the Participant does not have a surviving spouse, the Lump Sum and Monthly Death Benefits are payable to the Participant's surviving children in equal shares (regardless of dependent status) or, if there are no surviving children, to the Participant's surviving parents or siblings as designated by the Participant for this purpose and in the manner specified by the Participant on a form supplied by the Employer. Payment of the Monthly Death Benefit shall be as a single life annuity if 15 payable to Participant's surviving spouse or a 120-month term certain annuity if payable to a child, parent, or sibling. (b) Dependent Death Benefit: The Dependent Death Benefit is payable to the Participant's dependent children in equal shares until there cease to be any dependent children remaining. As each child loses his or her dependent status, the child's share of the Dependent Death Benefit shall be paid to the remaining dependent child or children in equal shares. A child of the Participant is deemed to be a dependent until the child reaches age eighteen or, if a full-time student (i.e. enrolled in twelve hours or more of courses of higher education), age 25, or until the child's death if earlier. At the discretion of the Plan Administrator, any dependent child's share of the Dependent Death Benefit may be paid to the Participant's surviving spouse or other guardian of such child if applicable and shall constitute full settlement of the Plan's obligation to such child with respect to such payment. If the Participant's surviving spouse dies while receiving the Monthly Death Benefit and while any dependent child or children of the Participant remain, then the Monthly Death Benefit shall be added to the Dependent Death Benefit and shall be payable in equal shares to the dependent children in the same manner and for the same time period as the Dependent Death Benefit. Section 7.4. Commencement of Death Benefits: The Death Benefits shall be paid, with respect to the Lump Sum Death Benefit, or shall commence, with respect to the Monthly and 16 Dependent Death Benefits, as of the first day of the month next following the Participant's death. ARTICLE VIII Administration Section 8.1. Plan Administration: The Plan shall be administered by the Board of Directors. The Board of Directors may, in its sole discretion, establish a committee to carry out the day-to-day administration of the Plan and may delegate any portion of its authority and responsibilities as Plan Administrator to such committee. Section 8.2. Powers of Plan Administrator: The Plan Administrator shall have the discretionary power and authority to interpret and administer the Plan according to its terms, including the power to construe and interpret the Plan, to supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any questions in the administration and application of the Plan, and to make equitable adjustments for any mistakes or errors in the administration and application of the Plan. The Plan Administrator shall have such additional powers as may be necessary to discharge its duties and 17 responsibilities hereunder. Section 8.3. Calculation of Funding Obligations: The Employer shall calculate its funding obligations hereunder solely by using the actuarial assumptions and methodology set forth in Exhibit D hereto. In its discretion, at any time prior to a Change in Control of the Employer, the Employer may amend Exhibit D to change such actuarial assumptions and methodology, provided that such changes are communicated promptly in writing to all Participants, Retired Participants, and Beneficiaries. Upon and after a Change in Control of the Employer, the actuarial assumptions and methodology set forth in Exhibit D may be changed with respect to any Participant, Retired Participant, or Beneficiary only with the written consent of such affected Participant, Retired Participant, or Beneficiary. For purposes of this Section 8.3 only, and notwithstanding the foregoing, no actions or events related to the merger of United Cities Gas Company ("United Cities") with and into the Employer, as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities, including shareholder approval of the Merger or the consummation of the Merger, shall constitute a Change in Control of the Employer that requires any consent be obtained pursuant to this Section 8.3. Section 8.4. Annual Statements: As soon as practicable after the end of each Plan Year, the Employer shall deliver to each Participant, Retired Participant, and Beneficiary 18 a statement containing (i) the present value of the Employer's future benefit obligations to the Participant, Retired Participant, or Beneficiary; (ii) the actuarial assumptions used to calculate the present value of the Employer's future benefit obligations hereunder; and (iii) the current value of the assets, if any, held in a trust or other funding arrangement for the benefit of the Participant, Retired Participant, or Beneficiary. ARTICLE IX Miscellaneous Provisions Section 9.1. Amendment or Termination of the Plan: (a) In General. Subject to the remaining provisions of this Section 9.1, the Board of Directors may by resolution, in its absolute discretion, from time to time, amend, suspend, or terminate any or all of the provisions of the Plan; provided, however, that no amendment, suspension, or termination may apply so as to decrease the payment to any Participant or beneficiary of any benefit under the Plan that he accrued prior to the effective date of such amendment, suspension, or termination unless the Participant has engaged in dishonest or competitive activities as described in Section 9.5 hereof. (b) Amendment That Decreases Benefits. If the Board of Directors amends the Plan and such amendment results in a decrease in the Supplemental Pension, Death Benefit or Disability Benefit that otherwise would be paid under this Plan but for the amendment, except as provided in subparagraphs (iii) and (iv) below, the Participant's Supplemental Pension, Death Benefit or 19 Disability Benefit shall equal the sum of (i) and (ii) as follows: (i) The amount derived by multiplying the Participant's benefit calculated pursuant to the terms of the Plan in effect immediately prior to the amendment and based upon the Participant's Compensation used to calculate the appropriate benefit by the following fraction: The numerator is the number of years of vesting service the Participant has under the Pension Plan prior to the effective date of the amendment, and the denominator is the total number of years of vesting service the Participant has under the Pension Plan; however, neither the numerator nor the denominator shall exceed 10. (ii) The amount derived by multiplying the Participant's benefit as calculated pursuant to the terms of the Plan as amended based upon the Participant's Compensation used to calculate the appropriate benefit by the following fraction: The numerator is the number of years that the Participant participated in the Pension Plan after the effective date of the amendment (but this number when added to the numerator of the fraction in subparagraph (i) above, shall not exceed 10) and the denominator is the total number of years of vesting service the Participant has under the Pension Plan (but this number shall not exceed 10). (iii) Notwithstanding the foregoing provisions of this paragraph (b), if the Plan is so amended before a Participant has five years of vesting service under the Pension Plan, the Participant's Supplemental Pension, Death Benefit or Disability Benefit shall be calculated solely in accordance with the terms of the Plan as amended. (iv) Notwithstanding the foregoing provisions of this paragraph (b), if any such amendment occurs upon or after a Change in Control, the Participant's Supplemental Pension shall at least equal the benefits which would be paid under paragraph (c) below if there was a termination of the Plan at the time of such amendment. (c) Termination of the Plan. (i) If the Board of Directors terminates all or any portion of the Plan and such termination adversely affects a Participant's Supplemental Pension, such Participant shall be entitled to receive a Supplemental Pension whether or not such Participant has been an Eligible Employee for at least two years or has five years of vesting service under the 20 Pension Plan at the time of such Plan termination. (A) It shall be based upon the Participant's Compensation as of the date of the termination of the Plan; (B) If payment of the Supplemental Pension begins before the Participant has ten years of vesting service in the Pension Plan, the reduction referred to in Section 5.2(a)(i) shall not apply; (C) If payment of the Supplemental Pension begins before the Participant attains age 62, the reductions referred to in Section 5.2(b) shall not apply; and (D) If the Participant is not otherwise vested under the Pension Plan, the calculation made under Subsection 5.2(a)(ii) above shall be made as if he were so vested. The Supplemental Pension determined under this paragraph (c) shall commence at the time the Participant begins receiving retirement benefits from the Pension Plan, or if he is not entitled to benefits from the Pension Plan when his employment is terminated, at the time he would otherwise be entitled to begin receiving retirement benefits under the Pension Plan if he were so entitled. (ii) If the Board of Directors terminates all or any portion of the Plan and such termination adversely affects the Disability Benefits or Death Benefits described in the Plan, a Participant shall continue to be entitled to the Disability Benefits or Death Benefits described in the Plan if he thereafter dies or suffers a Disability. Any such Death Benefit or Disability Benefit, however, shall be calculated as of the date of termination of such benefit or the Plan as if such date of termination was the date the Participant died or suffered a Disability. Payment of any such Death Benefit or Disability Benefit shall be made in accordance with the terms of the Plan as in effect immediately prior to the date of termination of such benefit or the Plan. Section 9.2. Nonguarantee of Employment: Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any employee, as a right of any employee to be continued in the employment of the Employer, or as a 21 limitation of the right of the Employer to discharge any of its employees, with or without Cause. If a Participant's employment with the Employer is terminated without Cause or if the Participant's participation in the Plan is terminated for any reason other than resignation or termination of employment for Cause (except as otherwise provided in a Participation Agreement) the Participant shall be entitled to the benefits payable under this Plan that have accrued prior to the termination of employment or Plan participation. If such termination occurs upon or after a Change in Control, the Participant's right to a Supplemental Pension shall immediately vest regardless of whether the Participant has been an Eligible Employee for at least two years or has five years of vesting service under the Pension Plan as of the date of such termination. The amount of the benefits payable under this Plan to such a Participant (except as otherwise provided in a Participation Agreement) shall, if such termination occurs upon or after a Change of Control, be calculated in the same manner as set forth in Section 9.1 above for benefits payable in the event of a termination of the Plan. Notwithstanding any provision to the contrary herein contained, if, prior to a Change of Control, a Participant's employment with the Employer is terminated without Cause or if the Participant's participation in the Plan is terminated for any reason other than resignation or termination of employment for Cause, then, except as otherwise provided in a Participation Agreement, the amount of the benefits payable under this Plan to such Participant shall be 22 calculated in the manner set forth in Section 5.2 above and the Participant's right to a Supplemental Pension shall vest only if the Participant has been an Eligible Employee for at least two years and has five years of vesting service under the Pension Plan as of the date of such termination. Section 9.3. Nonalienation of Benefits: To the extent permitted by law, benefits payable under this Plan shall not, without the Plan Administrator's consent, be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Any unauthorized attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to benefits payable hereunder shall be void. No part of the assets of the Employer shall be subject to seizure by legal process resulting from any attempt by creditors of or claimants against any Participant or beneficiary or any person claiming under or through the foregoing to attach his interest under the Plan. Section 9.4. Liability: No director, officer, or employee of the Employer shall be liable for any act or action, whether of commission or omission, taken by any other director, officer, employee, or agent of the Employer under the terms of the Plan or, except in circumstances involving his bad faith, for anything done or omitted to be done by him under the terms of the Plan. Section 9.5. Noncompetition Agreement: All Participants in the Plan shall have entered into Noncompetition Agreements in the 23 form attached hereto as Exhibit B as a condition to their participation in the Plan. Notwithstanding any other provisions of this Plan to the contrary, no benefits shall be payable under the Plan, and payment of benefits will cease, if a Participant is in breach of such agreement at any time during the term of such agreement. Section 9.6. Participation Agreement: Each Participant shall enter into a Participation Agreement as a condition to his participation in the Plan. Such Participation Agreement shall constitute a separate and enforceable agreement between the Employer and the Participant regarding the Participant's rights in the Plan. Section 9.7. Successors to the Employer: Any successor to the Employer hereunder, which successor continues or acquires any of the business of the Employer, shall be bound by the terms of this Plan in the same manner and to the same extent as the Employer. IN WITNESS WHEREOF, and as conclusive evidence of its adoption of this Amended and Restated Supplemental Executive Benefits Plan, the Employer has caused this Plan to be duly executed on this 13th day of November, 1996, to be effective as of the date set forth in Section 1.2 above. ATMOS ENERGY CORPORATION By: /s/ ROBERT F. STEPHENS ----------------------------------- Robert F. Stephens President and Chief Operating Officer 24 EXHIBIT A MINIMUM BENEFIT SCHEDULE One twelfth (1/12th) of the Annual Amount set forth below for a Participant is the minimum total monthly pension amount payable from this Plan and the Pension Plan to the Participant so long as payment commences no earlier than the specified Earliest Commencement Age. Earlier commencement will result in reduction under Section 5.2 of this Plan, except in the case of Mr. Vaughan, whose benefits under this Plan (including the minimum Annual Amount stated below) are payable upon his retirement at any time after he has reached age fifty-five (55). Participant Name Annual Amount Earliest Commencement Age E. G. Carter $ 84,503 62 J. A. Enloe 76,924 62 N. V. Fariss 84,060 62 D. E. James 104,668 62 W. P. McKee, Jr. 79,851 62 H. E. Neel 100,259 62 J. F. Purser 124,625 62 C. G. Shaffer 69,499 62 R. F. Stephens 143,028 62 C. K. Vaughan 277,103 55 EXHIBIT A-1 CALCULATION OF SUPPLEMENTAL PENSION The monthly Supplemental Pension paid under the Plan shall be equal to the amount provided in paragraph (a) below minus the amount provided in paragraph (b) below as follows: a. One-twelfth (1/12th) of an amount equal to ninety percent (90%) of Compensation with respect to C. K. Vaughan and seventy-five percent (75%) of Compensation with respect to all other Participants; provided, however, that if the Participant has fewer than ten (10) years of vesting service under the Pension Plan, the above amount shall be reduced by one-tenth (1/10th) for each year by which his vesting service is fewer than ten (10). b. The monthly amount of pension payable to the Participant under the Pension Plan as of the date that his employment terminates assuming payment in the normal form applicable to him under Section 7.1 or 7.2 of the Pension Plan. EXHIBIT B NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT is entered into as of the ____________ day of _______________________, 199_, by and between ATMOS ENERGY CORPORATION, a Texas corporation (the "Employer"), and ______________________ ("Participant"). W I T N E S S E T H: WHEREAS, the Employer has adopted the Atmos Energy Corporation Supplemental Executive Benefits Plan (the "Plan"), pursuant to which certain executive or management employees of the Employer are eligible to receive supplemental retirement, disability, and death benefits; and WHEREAS, in accordance with the requirements of the Plan and as an inducement to the Employer to allow Participant's participation in the Plan, Participant has agreed to execute and enter into this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Participant agrees that, during the term of this Agreement, Participant shall not (a) participate, directly or indirectly, as an employee, agent, representative, officer, director, stockholder, partner, joint venturer, or otherwise or (b) have any direct or indirect financial interest in any form in any business that sells or offers for sale, directly or indirectly, any products or services that are competitive with the products or services sold or offered for sale by the Employer in any geographic location in which the Employer shall be doing business during such period of time as Participant is a participant in the Plan; provided, however, that the ownership by Participant of any stock listed on a national securities exchange of any corporation conducting a competing business shall not be deemed a violation of this Agreement if the aggregate amount of such stock owned by Participant does not exceed one percent (1%) of the total outstanding stock of such corporation. 2. In the event of a breach or threatened breach of the provisions of this Agreement by Participant, the Employer shall be entitled (as an absolute right and without the necessity of proving irreparable injury or damages and in addition to any other remedies available under the Plan or otherwise) to an injunction restraining Participant from such violation. 3. If any provision of this Agreement shall, for any 1 reason, be adjudged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair, or invalidate the remainder of this Agreement but shall be confined in its operation to the provisions of this Agreement directly involved in the controversy in which such judgment shall have been rendered. To the extent that the provisions of this Agreement are adjudged to be invalid or unenforceable, this Agreement shall be construed and (in the absence of such construction) reformed so as to allow the maximum benefit of the provisions of this Agreement permitted by law. If, however, this Agreement shall for any reason be held by a court of competent jurisdiction to be excessively broad as to time, duration, geographical scope, activity, or subject matter, it shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable laws as they shall then appear. 4. This Agreement shall become effective as of the commencement of Supplemental Pension or Disability Benefits from the Plan and shall terminate upon the earliest to occur of (i) five (5) years from the date Participant begins receiving Supplemental Pension or Disability Benefits from the Plan, (ii) the attainment of age 67 by Participant, or (iii) Participant's death. 5. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition Agreement as of the date first written above. PARTICIPANT ATMOS ENERGY CORPORATION By: - ------------------------------------ ---------------------------------- 2 EXHIBIT C PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT is entered into as of the ___________ day of ___________________, 19__ by and between ATMOS ENERGY CORPORATION, a Texas corporation (the "Employer"), and ___________________ ("Participant"). W I T N E S S E T H: WHEREAS, the Employer has adopted the Atmos Energy Corporation Supplemental Executive Benefits Plan (the "Plan"), pursuant to which certain executive or management employees of the Employer may receive supplemental retirement, disability, and death benefits; and WHEREAS, in accordance with Section 9.6 of the Plan, the Employer and Participant have agreed to execute and enter into this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement. The Employer hereby agrees to provide to Participant the benefits described in the Plan pursuant to the terms and conditions set forth in the Plan and in this Agreement. 2. Amendment or Termination of the Plan; Termination of Participant Without Cause. The Employer hereby agrees that, if it (i) amends or terminates the Plan in such a manner that results in a decrease in the amount of the benefits to be paid under the Plan to Participant, or (ii) terminates Participant's employment without Cause, or (iii) terminates Participant's participation in the Plan for any reason other than Participant's resignation or termination of Participant's employment for Cause, Participant shall have the right to, and the Employer agrees to pay to Participant, any benefits accrued prior to the effective date of such amendment or termination of the Plan or of such termination of Participant's employment with the Employer or participation in the Plan. The amount of benefits that shall be paid under this Paragraph 2 shall be calculated as follows: 1 (a) In the event the Employer amends the Plan and such amendment results in a decrease in the amount of the Supplemental Pension, Disability Pension, or Death Benefit that would be paid under the Plan but for the amendment thereof, the amount of Participant's benefit shall be the sum of: (i) Participant's benefit as calculated pursuant to the terms of the Plan in effect immediately prior to the amendment thereof, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years of vesting service by Participant in the Pension Plan prior to the effective date of the amendment (which number shall not be less than 5 nor greater than 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number, for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); plus (ii) Participant's benefit as calculated pursuant to the terms of the Plan as amended, based upon Participant's Compensation as of the date of his retirement, disability, or death, multiplied by a fraction, the numerator of which shall be the number of years that Participant participated in the Pension Plan after the effective date of the amendment (which number, for purposes of calculating Participant's Supplemental Pension, when added to the numerator of the fraction in clause (i) above, may not exceed 10) and the denominator of which shall be the total number of years of vesting service by Participant in the Pension Plan (which number for purposes of calculating Participant's Supplemental Pension, shall not be greater than 10); provided, however, that if the Plan is so amended prior to Participant's fifth year of vesting service in the Pension Plan, Participant's Supplemental Pension payable hereunder shall be calculated solely in accordance with the terms of the Plan as amended; provided, further, that, if such amendment occurs upon or after a "Change in Control" (as defined in Subparagraph 3(b) below), Participant's Supplemental Pension must be at least equal to that calculated pursuant to the provisions of Section 9.1 of the Plan for benefits payable in the event of a termination of the Plan. (b) In the event the Employer terminates the Plan or any portion thereof and such termination affects the Disability Pension or Death Benefit described in the Plan, Participant's Disability Pension and Death Benefit shall be calculated as of the date of termination of such benefit as though the date of such termination was the date that 2 Participant became disabled or died. Such Disability Pension and Death Benefit shall become payable, however, only upon Participant's disability or death occurring in accordance with the terms of the Plan or any portion thereof in effect immediately prior to the date of its termination. (c) In the event the Employer terminates the Plan or any portion thereof and such termination affects the Supplemental Pension described in the Plan, Participant's right to a Supplemental Pension shall immediately vest regardless of whether Participant has been a corporate officer of the Employer or the president of an Operating Division (hereafter an "Eligible Employee") for at least two years or has five years of vesting service under the Pension Plan. In such event, Participant's Supplemental Pension shall be the amount determined in accordance with Section 5.2 of the Plan except that (i) it shall be based upon Participant's Compensation as of the date of the termination of the Plan, (ii) the Participant shall be treated as having the number of years of benefits service under the Pension Plan as he would have if he remains in the Pension Plan until he reaches his Earliest Commencement Age as set forth in the Minimum Benefit Schedule attached to the Plan as Exhibit A or, if Participant is not listed on the Minimum Benefit Schedule, age 62, and (iii) if Participant is not fully vested under the Pension Plan, the calculation made under paragraph (b) of Exhibit A-1 to the Plan shall be made on the basis of the monthly amount of pension that would be payable to Participant if he were so fully vested. (d) If, at any time prior to a "Change in Control" (as defined in Subparagraph 3(b) hereof), Participant's employment with the Employer is terminated without Cause (as defined in Subparagraph 2(e) below) or if Participant's participation in the Plan is terminated for any reason other than resignation or termination of employment for Cause, Participant shall nevertheless be entitled to the benefits payable under the Plan that have accrued prior to the termination of Participant's employment or Plan participation, the amount of such benefits to be calculated in the manner set forth in Section 5.2 of the Plan; provided, however, that Participant's right to a Supplemental Pension shall vest only if Participant has been an Eligible Employee for at least two years and has at least five years of vesting service under the Pension Plan as of the date of such termination. The amount of the benefits payable under the Plan to Participant in such event shall be calculated in the same manner as set forth in Subparagraph 2(c) above for benefits payable in the event of a termination of the Plan. 3 (e) As used in this Agreement, "Cause" for termination of employment shall mean termination upon (i) the willful and continued failure by Participant to substantially perform his duties with the Employer (other than any such failure resulting from Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Participant by the Employer that specifically identifies the manner in which the Employer believes that Participant has not substantially performed his duties, or (ii) Participant's willful engagement in conduct that is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes of this Subparagraph, no act, or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without a reasonable belief that the action or omission was in the best interests of the Employer. Notwithstanding the foregoing, Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board of Directors of the Employer at a meeting of such Board of Directors called and held for such purpose (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board of Directors), finding that in the good faith opinion of the Board of Directors that Participant was guilty of conduct set forth above in clauses (i) or (ii) of this Subparagraph 2(e) and specifying the particulars thereof in detail. 3. Change in Control. (a) Notwithstanding anything expressly or impliedly to the contrary contained in this Agreement or the Plan, if, following a Change in Control of the Employer, Participant's employment is terminated by the Employer, or he is demoted or reassigned to a position that causes him to cease to be an Eligible Employee, for any reason other than for Cause (as defined in Subparagraph 2(e) above), Participant shall nevertheless be entitled to receive a Supplemental Pension at such time as he becomes entitled to receive a benefit under the Pension Plan regardless of whether Participant has been an Eligible Employee for at least two years or has five years of vesting service under the Pension Plan at the time of such termination, demotion, or reassignment. Such Supplemental Pension shall be calculated in the same manner as set forth in Subparagraph 2(c) above for benefits payable in the event of a termination of the Plan. 4 (b) As used in this Paragraph 3, a "Change in Control" of the Employer shall be deemed to have occurred if: (i) 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 the Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing 33-1/3% or more of the combined voting power of the Employer's then outstanding securities; or (ii) during any period of two consecutive years individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Employer to effect a transaction described in clauses (i) or (ii) of this Paragraph) whose election by the Board or nomination for election by the Employer'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 (iii) the shareholders of the Employer approve a merger or consolidation of the Employer with any other corporation, other than a merger or consolidation which would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Employer or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the shareholders of the Employer approve a plan of complete liquidation of the Employer or an agreement for the sale or disposition by the Employer of all or substantially all the Employer's assets. 4. Limitations. Except as otherwise provided in Paragraph 3 of this Agreement, Participant agrees that nothing in this Agreement or the Plan shall entitle him, or be deemed to entitle him, to receive a Supplemental Pension under the Plan if (i) he has not met the requirements for a Supplemental Pension as set forth in the Plan, (ii) his employment with the Employer is terminated prior to his reaching the age of eligibility for the 5 immediate commencement of his Pension Plan benefit due to resignation, or (iii) his employment with the Employer is terminated for Cause (as defined in Subparagraph 2(e) above). 5. Amendment. No amendment or termination of the Plan by the Employer shall constitute an amendment or termination of this Agreement. This Agreement may be amended or modified only by the written agreement of the parties hereto, and will terminate only upon the occurrence of the earlier of the following events: (i) the execution of a written agreement to terminate this Agreement signed by all of the parties hereto, (ii) the satisfaction of all of the Employer's obligations to Participant under the Plan and this Agreement, (iii) the termination by Participant of Participant's employment with the Employer by resignation effective prior to Participant reaching age 55, unless such resignation occurs after a Change in Control, (iv) the termination for Cause of Participant's employment with the Employer, or (v) the breach by Participant of any of the terms or provisions of the Noncompetition Agreement executed by Participant in accordance with the Plan. 6. Funding. Not later than the time the Participant Retires or becomes eligible to receive an unreduced Supplemental Pension under the Plan, whichever occurs first, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then-present value of the Participant's accrued Supplemental Pension. Notwithstanding the foregoing, immediately upon a Change in Control, the Employer shall contribute to a trust or other funding arrangement an amount necessary to fund 100% of the then- present value of all Supplemental Pension benefits (vested and unvested) payable under this Agreement and/or the Plan to the Participant, regardless of whether the Participant is then eligible to Retire or to receive an unreduced Supplemental Pension. The amount required to be funded by this Paragraph 6 shall be calculated in accordance with Paragraph 7 hereof. The Employer shall review the funding status of the trust or other funding arrangement established under this Paragraph 6 on an annual basis and shall make contributions thereto as may be required to maintain the value of the assets thereof at no less than 100% of the then-present value of all such Supplemental Pension benefits. For purposes of this Paragraph 6 only, notwithstanding the foregoing, no actions or events related to the merger of United Cities Gas Company ("United Cities") with and into the Employer, as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities (the "Merger"), including shareholder approval of the Merger or the consummation of the merger, shall constitute a Change in Control of the Employer that requires the Employer to make any contributions pursuant to this Paragraph 6. 7. Calculation of Funding Obligations. The Employer shall calculate its funding obligations under this Agreement and the Plan solely by using the actuarial assumptions and methodology 6 set forth in Exhibit D to the Plan. Upon and after a Change in Control of the Employer, the actuarial assumptions and methodology set forth in Exhibit D may be changed with respect to the Participant or, if applicable, his Beneficiary, only with the Participant's, or, if applicable, his Beneficiary's, written consent. For purposes of this Paragraph 7 only, and notwithstanding the foregoing, no actions or events related to the merger of United Cities Gas Company ("United Cities") with and into the Employer, as contemplated by the Agreement and Plan of Reorganization, dated as of July 19, 1996, between the Employer and United Cities, including shareholder approval of the Merger or the consummation of the merger, shall constitute a Change in Control of the Employer that requires any consent be obtained pursuant to this Paragraph 7. 8. Annual Statements: As soon as practicable after the end of each Plan Year, the Employer shall deliver to the Participant or, if applicable, his Beneficiary, a statement containing (i) the present value of the Employer's future benefit obligations to the Participant, or, if applicable, his Beneficiary; (ii) the actuarial assumptions used to calculate the present value of the Employer's future benefit obligations under the Plan; and (iii) the current value of the assets, if any, held in any trust or other funding arrangement for the benefit of the Participant, or, if applicable, his Beneficiary. 9. No Guarantee of Employment. Nothing contained in this Agreement shall be construed as a contract of employment between the Employer and Participant, or as a right of Participant to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge Participant with or without cause. 10. Legal Fees and Expenses. The Employer agrees to pay any and all legal fees and expenses incurred by Participant in seeking to obtain or enforce any right or benefit provided by this Agreement. 11. Capitalized Terms. Each capitalized term used in this Agreement that is not otherwise defined herein shall have the same meaning attributed to it in the Plan. 12. Agreement Binding on Successors to the Employer. Any successor to the Employer hereunder, which successor continues or acquires any of the business of the Employer, shall be bound by the terms of this Agreement in the same manner and to the same extent as the Employer. 13. Prior Agreements Superseded. The terms of this Agreement supersede the terms of all prior Participation Agreements between Participant and the Employer. 14. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. 7 IN WITNESS WHEREOF, the parties hereto have executed this Participation Agreement as of the date first written above. PARTICIPANT: ATMOS ENERGY CORPORATION: By: - ------------------------------------ --------------------------------- 8 EXHIBIT D ATMOS ENERGY CORPORATION SUMMARY OF ACTUARIAL ASSUMPTIONS AND METHODS FOR DETERMINING ANNUAL SEBP TRUST FUNDING LIABILITIES Actuarial Assumptions Discount Rate 8% Mortality Prior to Age 62 None After Age 62 IRS Applicable Table (50/50 GAM83) Salary Scale 0% Method for Determining Liabilities The liability determined is the present value as of the valuation date of the projected age 62 SEBP benefit. The projected age 62 benefit is based on SEBP compensation determined as the sum of (1), (2) and (3) as follows: 1. The greater of (A) the Participant's annual base salary at the date of his termination of employment, or (B) the average of the Participant's annual base salary for the highest three (3) calendar years (whether or not consecutive) of the Participant's employment with the Employer. 2. The greater of (A) the Participant's last Performance Award or (B) the average of the highest three (3) Performance Awards (whether or not consecutive). 3. The Participant's annual car allowance amount at the date of his termination of employment. The qualified plan offset is the projected age 62 qualified plan benefit with no salary scale or wage base projections. This summary is hereby approved effective November 13, 1996 by: ------------------------ Robert F. Stephens President and Chief Operating Officer Atmos Energy Corporation Date: November 13, 1996 EX-10.4 5 EXECUTIVE ANNUAL PERFORMANCE BONUS PLAN EXHIBIT 10.4 ATMOS ENERGY CORPORATION EXECUTIVE ANNUAL PERFORMANCE BONUS PLAN (Amended and Restated as of November 13, 1996 I. PURPOSE OF THE PLAN The purpose of this Plan is to aid Atmos Energy Corporation in attracting and retaining high quality executive employees and to encourage significant contributions to the success of the Company by providing additional compensation to those executive employees who contribute conspicuously to the successful and profitable operation of the affairs of the Company. II. DEFINITIONS Unless the meaning is clearly different when used in context, these terms shall have the following meanings: A. "Bonus" or "Award" shall mean an award of cash which is made pursuant to this Plan; B. "Board of Directors" or "Board" shall mean the duly elected and serving Board of Directors of the Company; C. "Company" shall mean Atmos Energy Corporation; D. "Participant" shall mean an eligible employee of the Company who meets the participation requirements set forth in Section IV of this Plan; E. "Plan Year" shall be any consecutive twelve month period designated by the Board of Directors. Unless otherwise so specified, such period shall commence October 1 of each year and expire on the following September 30; F. "Plan" shall mean this Executive Annual Performance Bonus Plan. III. ADMINISTRATION AND INTERPRETATION This Plan shall be administered by the Board of Directors. The Board shall have full power and authority to interpret and administer this Plan and, to prescribe, amend, and rescind rules and regulations and make all other determinations necessary or desirable for this Plan's administration. The decision of the Board relating to any question concerning or involving the interpretation or administration of this Plan shall be final and conclusive, and nothing in 1 this Plan shall be deemed to give any employee, his legal representatives or assigns, any right to participate in this Plan except to such extent, if any, as the Board may have determined or approved pursuant to the provisions of this Plan. IV. PARTICIPATION All duly elected officers of the Company and all operating company presidents of the Company shall be Participants in this Plan. V. DETERMINATION OF PLAN STANDARDS As soon as practicable after the end of a Plan Year, the Board of Directors will establish the corporate and individual performance standards by which this Plan will be administered for the ensuing Plan Year. VI. PAYMENT OF BONUSES As soon as practicable after the end of a Plan Year, the Board of Directors will assess the performance of the Company for such Plan Year and will determine if and to what extent the performance standards applicable to such Plan Year have been attained, the amount of Bonus payments, if any, to be made to Plan Participants, and the date of payment of such Awards. VII. DISCRETIONARY NATURE OF AWARDS Notwithstanding anything contained herein to the contrary, the payment of any Bonuses contemplated by this Plan as well as, the amounts and time of payment thereof, are and shall remain totally and completely within the discretion of the Board of Directors. Included within the discretionary power of the Board is the right to award bonuses if Plan standards are not met and to refuse to award bonuses if Plan standards are met. VIII. LIMITATIONS No Participant or any other person shall have any right to or interest in any fund or specific asset or assets of the Company by virtue of this Plan or by reason of a Bonus that has been awarded to him, but has not yet been paid. IX. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN The Board of Directors may at any time amend, suspend or terminate this Plan, in whole or in part, except that no such amendment, suspension or termination shall alter or reduce any Participant's award which has been approved by the Board prior to such amendment, suspension or termination, but not yet paid to the Participant. 2 X. NO EMPLOYMENT RIGHTS Neither the adoption or existence of this Plan nor the award of any Bonus hereunder confers or will confer to any employee of the Company any right to continued employment with the Company, nor does it interfere in any way with the right of the Company to terminate the employment of any of its employees at any time. XI. REPLACEMENT OF PRIOR PLAN This Plan is intended to and does replace and supersede, in all respects, the Annual Performance Bonus Plan for Corporate Officers, as adopted and restated by the Board of Directors of the Company as of November 8, 1989. ATMOS ENERGY CORPORATION By: ----------------------------- Date: --------------------------- 3 EX-10.5 6 GAS SERVICE AGR. B/T THE COMPANY AND WESTAR Exhibit 10.5 GAS SERVICE AGREEMENT (Service for Firm Transportation) between WESTAR TRANSMISSION COMPANY "COMPANY" and ENERGAS COMPANY, a division of Atmos Energy Corporation "CUSTOMER" Dated: January 1, 1996 INDEX SECTION TITLE PAGE I Definitions.................................................. 1 II Customer Order............................................... 4 III Representation, Warranties Title and Indemnities................. ............................ 5 IV Force Majeure................................................ 6 V Nominations and Scheduling................................... 7 VI Quality of Gas............................................... 12 VII Term......................................................... 12 VIII Remedies Upon Material Default............................... 13 IX Measurement and Pressure..................................... 13 X Billings, Payments and Audit................................. 14 XI Communications............................................... 15 XII Miscellaneous................................................ 17 Signatures................................................... 19 Customer Order 2 GAS SERVICE AGREEMENT (ENERGAS) THIS AGREEMENT, effective on January 1, 1996, between WESTAR TRANSMISSION COMPANY, (Company), and ENERGAS COMPANY, a division of Atmos Energy Corporation (Customer), and for the consideration stated, the parties agree as follows: RECITALS 1. Customer and Company from time to time will enter into certain arrangements whereby Company will provide Customer firm transportation service as set forth in a "Customer Order". 2. Company has entered into contracts with various transporters, marketing companies, and other companies (Entity(ies)) in order to effectuate the services which will be performed under any Customer Order. 3. Customer understands and agrees that any services provided under this Agreement are subject to the various governmental filings by each Entity, including, without limitation, compliance statements filed in accordance with Part 284 of the Federal Energy Regulatory Commission's (FERC) regulations under the Natural Gas Policy Act of 1978, as amended from time-to-time. SECTION I DEFINITIONS 1. "Firm Transportation" means, subject to force majeure, transportation service on a non-interruptible basis. 2. "Day" means the period of twenty-four (24) consecutive hours, commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the next day. The reference date for any day is the calendar date when the twenty-four (24) 1 hour period began. "Business day" means a day consisting of Monday through Friday, excluding federal holidays. 3. "Delivery Point(s)" means the outlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee described in a Customer Order. 4. "Gas" means natural gas with or without the removal of any hydrocarbon or inert constituents after it is produced from a well, and includes gas produced from a well producing gas only, from a well producing gas with condensate, or from a well producing gas in association with oil. 5. "Customer Order" means a form described in general which is attached as Exhibit A, and which evidences the agreement as to the terms of a particular transaction for the service(s) provided under this Agreement. 6. "MCQ" or "Maximum Contract Quantity" means the maximum total contract quantity of gas that may be received and delivered by Company during the term in a Customer Order. 7. "MDQ" or "Maximum Daily Quantity" means during the term of a Customer Order, the maximum daily quantity of gas that may be received and delivered by Company during any day. 8. "Measuring Party" means a mutually agreeable party who will measure the gas under an executed Customer Order. If no Measuring Party is designated, then the Transporter immediately downstream of the Receipt Point(s) or upstream of the Delivery Point(s) will be the Measuring Party. 9. "Month" means a period beginning at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the next month. 2 10. "Overrun" means any quantity of gas that exceeds the MDQ, and/or MCQ, as agreed to between Company and Customer, and described in a Customer Order. 11. "Underdelivered" means a quantity of gas delivered by the Company to the Delivery Point(s) for the Customer's account that is in excess of the amount of gas received by the Company from the Customer at the Receipt Point(s). 12. "Overdelivered" means a quantity of gas delivered by the Customer at the Receipt Point(s) for the Customer's account that is in excess of the amount of gas delivered by the Company for the Customer's account at the Delivery Point(s). 13. "Receipt Point(s)" means the inlet flange of Company's or Transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee, described in a Customer Order. 14. "Transporter(s)" means any pipeline on which any gas under this Agreement is transported. 15. For payment purposes, the quantity and measurement of gas delivered and received hereunder will be stated in Mcf. For balancing purposes the quantity of gas will be stated in MMBtu. For measurement purposes, the quantity of gas delivered and received hereunder will be stated in Mcf and in MMBtu. The MMBtu quantity will be derived by taking the measured volumes of gas in cubic feet multiplied by their Gross Heating Value divided by one million (1,000,000). The pertinent terms are as follows: (a) "Cubic foot of gas" means the volume of gas which occupies one (1) cubic foot of space at a temperature of sixty degrees (60 degrees) Fahrenheit and the referenced pressure base as set forth by the Measuring Party. 3 (b) "Mcf" means one thousand (1,000) cubic feet of gas and "Bcf" means one billion (1,000,000,000) cubic feet of gas. (c) "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5 degrees) Fahrenheit to fifty-nine and five tenths degrees (59.5 degrees) Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. (d) "MMBtu" means one million (1,000,000) Btu. (e) "Gross Heating Value" means the number of Btu liberated by the complete combustion, at constant pressure, of one (1) cubic foot of gas, at a base temperature of sixty degrees (60 degrees) Fahrenheit and a referenced pressure base as set forth by the Measuring Party, with air of the same temperature and pressure of the gas, after the products of combustion are cooled to the initial temperature of the gas, and after the water resulting from combustion is condensed to the liquid state. The Gross Heating Value of the gas is to be corrected for the water vapor content of the gas being delivered; provided, that if the water vapor content of the gas is seven (7) pounds or less per one million (1,000,000) cubic feet, the gas will be assumed to be dry and no correction will be made. (f) "Referenced pressure base" for measurement and determination of gas volume and Gross Heating Value will be established by the Measuring Party; however, the referenced pressure base is always to be the same for gas volume and Gross Heating Value. 4 16. "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. 17. "Imbalance" means the difference between the confirmed gas volumes received at the Receipt Point(s) and the confirmed gas volumes delivered at the Delivery Point(s). SECTION II CUSTOMER ORDER 1. Customer Order. The parties may enter into one or more agreements for firm transportation service hereunder from time to time, and each such agreement will be reflected in a Customer Order executed by both parties which will constitute a supplement to and form a part of this Agreement, so that each transaction involving this Agreement and a Customer Order constitutes a single, entire agreement between Customer and Company. Each Customer Order will contain provisions regarding Term, Type of Service, Rate, Receipt Point(s), Delivery Point(s), Quantity and any other obligations of Customer and Company. 2. Conflict. If a conflict exists between a Customer Order and this Agreement, the terms of the Customer Order will govern the applicable transaction. If a conflict exists between two or more Customer Orders under this Agreement, the Customer Order with the latest effective date will govern the applicable transaction period. SECTION III REPRESENTATIONS, WARRANTIES, TITLE AND INDEMNITIES 1. Company. Company represents that it has, or will have, all contracts in place necessary to provide the services 5 described in each Customer Order, subject to Paragraph 3 of the RECITALS and Paragraph 10. Operating Conditions and Agreements. of Section XI MISCELLANEOUS. 2. Customer. Customer warrants that it has good title to or good right to the gas delivered to Company under each applicable Customer Order, and that the gas is free and clear of all liens, encumbrances, or adverse claims of any kind. Customer indemnifies, saves and holds harmless, Company from all claims, losses, causes of action, damages and expenses (including, but not limited to attorney's fees and court costs) due to any adverse claims against the Company for the gas delivered to Company by Customer. Customer warrants that all gas delivered to Company for transportation hereunder is eligible for transportation under any governmental authority having jurisdiction. 3. Control and Possession. Customer is in control and possession of the gas and is responsible for and indemnifies Company against any injury or any damage caused thereby until the gas is delivered to Company or its designee at the Receipt Point(s), except for any injury or damage caused by Company. Responsibility for the gas passes to Company at the Receipt Point(s), and then Company is in control and possession of the gas and is responsible for, and indemnifies Customer against injury or damage caused thereby, except for injury or damage caused by Customer. Likewise, responsibility for the gas passes to Customer at the Delivery Point(s), and then Customer is in control and possession of the gas. 4. Damages. Notwithstanding anything in this Agreement to the contrary, neither party will be responsible to the other party for any incidental, consequential, lost profit, punitive or exemplary damages for a breach of this Agreement. SECTION IV 6 FORCE MAJEURE 1. Force Majeure. In the event that either Company or Customer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such party has given notice and full particulars of such force majeure in writing to the other party as soon as possible after the occurrence of the cause relied on, then the obligations of the parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" in this Agreement means, without limitation; acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of the government, either federal or state, civil or military, civil disturbances, explosions, breakage, breakdown or accident to machinery, equipment or lines of pipe, the necessity of repairing, altering, maintaining, inspecting, replacing, changing the size of, substituting or removing machinery, equipment, pipelines, storage or plant facilities, and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension. Such term likewise includes (i) in those instances where Customer or Transporter is required to obtain servitudes, right-of-way grants, permits, exceptions or licenses to enable such party to fulfill its obligations, the inability of such party to acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits, exceptions or licenses, and (ii) in those instances where Customer or Transporter is required to furnish materials and supplies for the 7 purpose of constructing or maintaining facilities or is required to secure permits or permission from any governmental agency (federal, state or municipal, civil or military) to enable such party to fulfill its obligations hereunder, the inability of such party to acquire or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such material and supplies, permits and permissions. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party or a Transporter having the difficulty and that the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. SECTION V NOMINATIONS AND SCHEDULING 1. Nomination. For all quantities of gas that are to be scheduled beginning on the first day of any month, Customer will provide written notice, in a form to be provided by Company, either via the Company's electronic bulletin board or via facsimile, no later than eleven (11:00) am CT three (3) business days prior to the month of delivery. For all quantities that are to be scheduled or changed any day after the first day of any month, Customer will provide either via the Company's electronic bulletin board or via facsimile, notice by eleven (11:00) am CT on the day prior to the day of the proposed change. Company may waive any part of the notice requirement upon request if, in Company's sole judgment, operating conditions permit such waiver. In addition to the information required on the nomination form, Customer will specify whether the gas scheduled is current month deliveries or Imbalance Payback Quantities (defined below). The volumes will be allocated through the meters in the following order: (i) Imbalance Payback Quantity, (ii) Base Load 8 Requirements- Energas transportation, (iii) Base Load Requirements - Energas/KN Marketing, L.P. sales, (iv) Swing Load Requirements - Energas/KN Marketing, L.P. sales. 2. Confirmation Notice. Company shall provide Customer notice, by Company's electronic bulletin board or by telefacsimile, of all quantities of gas requested by Customer that Company has confirmed for flow. Such notice shall be provided not later than 4:00 p.m. CT on the day prior to the day of flow. Company shall also provide Customer notice by Company's electronic bulletin board or by telefacsimile, of all quantities of gas received by Company for Customer's account. Such notices shall be provided not later than 4:00 p.m. CT on the day after the day of flow for only gas received at those Receipt Points that are electronically monitored by Company. 3. Rate of Flow. The gas to be received by Company's Transporter hereunder shall be delivered by Customer at uniform hourly and daily rates of flow as nearly as practicable, but it is recognized that due to operating conditions the quantities of gas received and delivered may not be in balance on any one particular day. However, the Company reserves the right to reduce the confirmed nomination at the Delivery Point(s) in the event Customer's nominated gas at the Receipt Point(s) is not concurrently made available to Company or its Transporter. Furthermore, in addition to the notices required under Section V, paragraph 2 above, Company and Customer shall immediately inform each other of any changes to deliveries at the Delivery Point(s) and the Company reserves the right to reduce the confirmed nomination at the Receipt Point(s) to a quantity that is ratable to the then current volumes being delivered at the Delivery Point(s), provided that the Customer can nominate volumes at the Receipt Point(s) as Imbalance Payback Quantity. 4. Imbalances. In any given month, any quantities of gas received by Company from Customer (or its designee) at the 9 Receipt Point(s) or delivered to Customer by Company at the Delivery Point(s) that is less than or equal to a ten percent (10%) variance with the confirmed quantities at the Receipt Point(s) and/or Delivery Point(s) is an "Imbalance Quantity". Company shall provide a monthly statement to Customer showing the previous month's volume activity confirmed at the Receipt Point(s) and the Delivery Point(s) and the resulting Imbalance Quantity. Customer will then have until forty-five (45) days following the receipt of such notification (Payback Period) to schedule with Company the volumes necessary to reduce the Imbalance Quantity to zero (Imbalance Payback Quantity). 5. Imbalance Exchanges. In the event Company establishes an imbalance exchange service program in conjunction with the transportation services provided under this Agreement, Customer will be eligible to participate in the program under the terms thereof. 6. Cash Out. In the event there remains an Imbalance Quantity after the Payback Period has expired, Company will cash out the remaining imbalance from that transaction month for Underdelivered imbalances as set forth in Section 6A), and for Overdelivered imbalances as set forth in Section 6B). If Customer's confirmed quantities of gas at the Delivery Point(s) are in excess of ten percent (10%) of the confirmed quantities of gas at the Receipt Point(s) (Underdelivery Quantities), or Customer's confirmed quantities of gas at the Delivery Point(s) are less than ninety percent (90%) of the confirmed quantities of gas at the Receipt Point(s) (Overdelivery Quantities), Company will invoice and Customer will pay a cash out invoice as follows: A) for Underdelivered imbalances or Underdelivery Quantities the Cash Out invoice shall be equal to the Underdelivered quantity times the "Index Basket" plus: 10 (a) for 1996- $0.6742 per MMBtu plus the Westar Transmission Company (Westar) transportation rate of $0.2858 per Mcf. (b) for 1997- $0.6342 per MMBtu plus the Westar transportation rate of $0.2858 per Mcf. (c) for 1998- $0.6042 per MMBtu plus the Westar transportation rate of $0.2858 per Mcf. (d) for 1999 through 2001- $0.3042 per MMBtu plus the Westar transportation rate of $0.2858 per Mcf. (e) In the event the approved rate for transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by The Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. B) for Overdelivered imbalances or Overdelivery Quantities the cash out invoice shall be equal to the Overdelivered quantity times ninety percent (90%) of the "Index Basket". The "Index Basket" referred to above shall be equal to the sum of the "prices" stated in dollars per MMBtu of: (i) fifty percent (50%) of the arithmetic average of the index prices listed in each edition of "Natural Gas Week", published during the applicable calendar month by Oil Daily Company in the table titled "Gas Price Report", under the column labeled "Delivered to Pipeline", "This Week" for Texas West Spot, and (ii) twenty five percent (25%) of the first publication in the applicable month of "Inside 11 F.E.R.C.'s Gas Market Report", published by McGraw-Hill, Inc. for Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" under the category labeled "Index", and (iii) twenty five percent (25%) of the index price published in the first edition of the month in "Natural Gas Intelligence Gas Price Index" for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract Index", the "Intrastate Avg." for the "West Texas/Permian" gas. C) Should any of the indices or publications above become unavailable, Customer and Company will use their best efforts to locate another source of this information, or in the event that the information cannot be obtained through another source, Customer and Company shall agree upon another index to replace the index which has become unavailable. 7. Upstream and Downstream Transporters. Customer shall make, or cause to be made, all necessary arrangements with other pipelines or parties upstream of the Receipt Point(s) or downstream of the Delivery Point(s) in order to effectuate Company's receipt or delivery of Customer's gas. Company's obligations are subject to Customer making such necessary arrangements set forth in the immediately preceding sentence, and such arrangements must be coordinated with Company. 8. Third Party Imbalance Penalties. If on any day Customer or Company's Transporter receives or delivers, or causes to be received or delivered, a quantity or Btu content of gas that is greater or less than that nominated and scheduled for receipt or delivery at the Receipt or Delivery Point(s), and such deliveries cause Customer or Company to incur a penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) as levied by any transporter or Transporter(s), upstream or downstream of the 12 respective Receipt and Delivery Point(s), the responsible party agrees to bear and pay such penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s). Customer and Company agree to provide one another all information necessary to determine what event, or which party caused the imbalance resulting in the imposition of penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) by a transporter or Transporter(s) at the Receipt or Delivery Point(s). SECTION VI QUALITY OF GAS 1. Specification. All natural gas delivered by Customer to Company at the Receipt Point(s) shall conform to the quality specifications imposed from time to time by the most restrictive of the Transporter(s). All natural gas redelivered by Company to Customer at the Deliver Point(s) shall be governed by the Operating Agreement. 2. Failure to Conform. If the gas tendered for receipt by Company from Customer fails at any time to conform to the quality specifications set forth in the Section titled "Specification", then Company may refuse to accept the receipt of the gas and will notify Customer. Customer shall make a diligent effort to correct such failure within twenty-four (24) hours following any such notice, and if Customer is not successful then Company in its sole discretion may (i) request its Transporter to accept delivery of any non-conforming gas, or (ii) continue to refuse to accept the non-conforming gas and Company's obligations regarding such gas will be suspended. Non-conforming gas tendered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement, 3. Odorization. Odorization shall be governed by the Operating Agreement. 13 SECTION VII TERM This Agreement is in effect on the Effective Date and will continue through December 31, 2001 and provided, that this Agreement and any Customer Order will continue in effect until the later of (i) the expiration of any outstanding Customer Order, or (ii) for so long as it takes to change any nominations to any transporter or Transporter(s) reflecting the cessation of the receipt and delivery of gas under any Customer Order and iii) to resolve any outstanding Imbalance Quantities. SECTION VIII REMEDIES UPON MATERIAL DEFAULT 1. If either party hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, than in such event the non- defaulting party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non- defaulting party shall cause a written notice to be served on the defaulting party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting party to terminate this Agreement if the default is not cured. The defaulting party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and if within such ten-day period, the defaulting party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting party fails to remedy or remove the cause or causes or to indemnify the non-defaulting party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no 14 further force or effect from and after the expiration of such ten-day period. 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Company to collect any amounts then due Company for gas delivered prior to the time of termination (ii) without prejudice to the rights of Customer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting party may be entitled. SECTION IX MEASUREMENT AND PRESSURE 1. Measurement. Unless specified in a Customer Order to the contrary, the measurement of gas and testing of measurement facilities will be governed by the applicable measurement and testing provisions and procedures of the Measuring Party. The parties agree to rely on correct information provided by the Measuring Party as to the quantity of gas measured at the Receipt and Delivery Point(s). 2. Pressure. The gas delivered by Customer at the Receipt Point(s) shall be delivered at a pressure sufficient to overcome the operating pressure existing in Company's or its Transporter's facility from time to time; however, in no event shall such delivery pressure exceed the maximum operating pressure of the system receiving the gas. The gas delivered at the Delivery Point(s) shall be delivered by Company or its Transporter at the pressure existing from time-to-time in Company's or Transporter's pipeline. Company or Transporter shall not be obligated to install or operate compression facilities in order to effect receipt or delivery of gas. Customer (or Customer's designee), any transporter and Company and Transporter are completely and solely responsible for the installation and maintenance of 15 overpressure protection equipment on their own pipeline(s), valve(s) and any other interconnection equipment. SECTION X BILLINGS, PAYMENTS AND AUDIT 1. On or before the fifteenth (15th) day of each Month, Company shall render a statement to Customer giving the total quantity of gas, expressed in Mcf and in MMBtu, received and delivered by Company's Transporter hereunder during the preceding Month , any imbalances, and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Company cannot be determined on or before the fifteenth (15th) day of the Month, Company shall nevertheless invoice Customer for the amounts that are known and/or nominated by Customer, and when the information is available Company shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. 2. Ten (10) days after the statement is received by Customer, Customer shall make payment to Company by wire transfer per the instructions set forth in the Article titled "COMMUNICATIONS". If Customer disputes the amount of any statement for any reason, Customer shall notify Company of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Customer shall pay the disputed portion of the statement which is determined to be owing to Company within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Paragraph 4 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Company shall refund such amount to Customer, together with interest at 16 the rate hereinafter set forth below over the period that Company had possession of the money, within fifteen (15) days after resolution of the dispute. 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected party. 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%) until paid. 5. Each party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other party which relate to gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. SECTION XI COMMUNICATIONS 1. Notices and Addresses. Unless otherwise provided in this Agreement, any notice (other than a Customer Order which may be sent by telefacsimile or other electronic means), statement, demand, or payment called for is to be in writing and shall be considered delivered when deposited in the U.S. Mail, postage prepaid, telecopied/telefacsimilied or hand delivered to either party at the address designated. Unless changed in writing, the addresses are: 17 Company: Payments: Wire Transfer WESTAR TRANSMISSION COMPANY Norwest Banks Colorado, N.A. Denver, CO ABA# 102 00 076 Acct: # 101-0918-554 Notices and Correspondence: WESTAR TRANSMISSION COMPANY 333 Clay Street, Suite 2000 Houston, TX 77002-9817 Attn: Transportation and Exchange Telecopier No. (713) 739-6695 Telephone No. (713) 739-2900 Customer: Notices and Correspondence: ENERGAS COMPANY, a division of Atmos Energy Corporation PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Statements: ENERGAS COMPANY, a division of Atmos Energy Corporation PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Telecopier No. (214)788-3773 Telephone No. (214)788-3746 2. Operating Communications. Operating communications by telefacsimile will be considered as duly delivered the day after transmittal. 3. Telefacsimile/Telecopy Transmission. All communications, including Customer Orders, may be sent by telefacsimile/telecopy, and signatures appearing on the telefacsimile/telecopy are binding on the signatory party. 18 SECTION XII MISCELLANEOUS 1. Waiver of Default. No waiver by Company or Customer of any default of the other under this Agreement or a Customer Order shall operate as a waiver of any future default, whether of a like or different character. 2. Assignment. This Agreement may not be assigned by either party without consent of the other party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a party. Such assignment shall not relieve the assigning party of any of its obligations under this Agreement. 3. Joint Preparation. This Agreement is deemed to be drafted and prepared equally and jointly, regardless of which party prepared or submitted the document to the other, and shall not be construed against one party or the other as a result of the preparation, submittal or execution. 4. No Third-Party Beneficiary. Except for the parties, their successors and assigns, no person, including without limitation, any joint operating agreement party, any owner of a royalty interest, overriding royalty interest or production right, any Transporter or Storer, shall have any rights as a third- party beneficiary or otherwise under this Agreement or any Customer Order. 5. Severability. If any part of this Agreement or a Customer Order is held to be void or unenforceable by any court or under any law, that part shall be deemed stricken and all remaining provisions shall continue to be valid and binding upon the parties. 19 6. Laws, Rules and Regulations. This Agreement and all Customer Orders are subject to all valid applicable federal, state and local laws, rules and regulations of any governmental body or official having jurisdiction. The parties are entitled to treat all laws, orders, rules and regulations issued by any federal or state regulatory body as valid and may act in accordance therewith until such time the same may be invalidated by final judgment in a court of competent jurisdiction. 7. Modification. Any modification of terms or amendment of provisions of this Agreement or a Customer Order will become effective only by written agreement between the parties. 8. Minimal Creditworthiness. Company or Customer shall not be required to perform, or continue to perform under this Agreement or a Customer Order in the event (i) either party applies or has applied for bankruptcy, or (ii) one party fails, in the good faith opinion of the other party, to demonstrate minimal creditworthiness. 9. Taxes and Fees. To the extent permitted by law, Customer shall reimburse Company for; (a) any natural gas gathering, occupation, production, inventory, severance or sales taxes, first use tax, gross receipt tax, or taxes similar in nature or equivalent in effect which are now or hereafter imposed or assessed against Company or any transporting entities by any lawful authority as a result of the transportation of natural gas under this Agreement or the production or gathering of such natural gas. (b) any fees or charges by any Governmental agency which Company incurs that are related to any service rendered to Customer under this Agreement. 20 10. Operating Conditions and Agreements. The services provided by Company to Customer under this Agreement are subject to the various tariffs, statements of compliance, statements of operating conditions, general terms and conditions, transportation agreements, exchange agreements, and general operating conditions of the various Entities at and between the Receipt Point(s) and the Delivery Point(s). 11. Choice of Law and Venue. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. 21 12. Confidentiality. The terms of this Agreement, including but not limited to, price, rates or fees, the identified transporting pipelines, Transporter(s), and cost of transportation, the quantities of gas, and all other material terms shall be kept confidential by the parties, except to the extent that any information must be disclosed to a third party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either party of its obligations hereunder, ceases to be confidential. COMPANY CUSTOMER WESTAR TRANSMISSION COMPANY ENERGAS COMPANY, a division of Atmos Energy Corporation By: By: -------------------------- --------------------------- Name: Name: ------------------------- ------------------------- Title: Title: ------------------------ ------------------------ Date: Date: ------------------------- ------------------------- 22 CUSTOMER ORDER COMPANY SHALL CAUSE THE FIRM TRANSPORTATION OF GAS AS FOLLOWS: (BASE LOAD) This Customer Order entered into on January 1, 1996, between WESTAR TRANSMISSION COMPANY (Company), and ENERGAS COMPANY, a division of Atmos Energy Corporation (Customer) is subject to, made a part of and is incorporated by reference into the Gas Service Agreement dated January 1, 1996, between Company and Customer (Agreement). Term: January 1, 1996 through December 31, 2001 Type of Service: Firm transportation service. Receipt Point(s): Interconnection facilities with Westar Transmission Company, "Westar" and other mutually agreed to points on Red River Pipeline, L.P., and AOG Gas Transmission Company L.P., subject to the operating limitations of these receipt facilities. Delivery Point(s): All points of interconnection between Westar Transmission Company and Customer where Customer receives gas as of the date of the Agreement, for resale through certain of Customer's distribution facilities. Maximum Daily Quantity: A. For the period beginning January 1, 1996 through December 31, 1996 - 13,661 MMBtu per day. B. For the period beginning January 1, 1997 through December 31, 1997 - 75,000 MMBtu per day. C. For the remainder of the Term under this Customer Order 100,000 MMBtu per day D. Such Maximum Daily Quantities will not apply to confirmed Imbalance Payback Quantities Maximum Contract Quantity: A. For the period beginning January 1, 1996 through December 31, 1996 5,000,000 MMBtu. B. For the period beginning January 1, 1997 through December 31, 1997 up to 9,000,000 MMBtu. C. For the remainder of the Term of this Customer Order - up to 13,500,000 MMBtu per calendar year thereafter. 23 Rate (as delivered): $0.2858 per Mcf Special Provisions: A. In the event the approved rate for transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by The Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. B. If the City of Odessa elects, not to supply the gas requirements of the City and certain of its environs, then the Maximum Contract Quantity for 1997 shall become 10,000,000 MMBtu, and for the remaining term of the Agreement the Maximum Contract Quantity shall become 15,000,000 MMBtu per calendar year. COMPANY CUSTOMER WESTAR TRANSMISSION COMPANY ENERGAS COMPANY, a division of Atmos Energy Corporation By: By: ------------------------ ----------------------- Name: Name: ------------------------ ----------------------- Title: Title: ------------------------ ----------------------- Date: Date: ------------------------ ----------------------- 24 EX-10.6 7 GAS SERVICE AGR. B/T KN WESTEX AND ENERMART TRUST EXHIBIT 10.6 GAS SERVICE AGREEMENT (Service for Firm Transportation) between K N WESTEX GAS SERVICES COMPANY "COMPANY" and ENERMART TRUST (EnerMart Irrigation) "CUSTOMER" Dated: January 1, 1996 INDEX SECTION TITLE PAGE I Definitions 1 II Customer Order 4 III Representation, Warranties Title and Indemnities 5 IV Force Majeure 6 V Nominations and Scheduling 7 VI Quality of Gas 9 VII Term 10 VIII Remedies Upon Material Default 10 IX Measurement and Pressure 11 X Billings, Payments and Audit 12 XI Communications 13 XII Miscellaneous 14 Signatures 17 Customer Order 18 GAS SERVICE AGREEMENT (ENERMART-IRRIGATION) THIS AGREEMENT, effective on January 1, 1996, between K N WESTEX GAS SERVICES COMPANY, (Company), and ENERMART TRUST, (Customer), and for the consideration stated, the parties agree as follows: RECITALS 1. Customer and Company from time to time will enter into certain arrangements whereby Company will provide Customer firm transportation service as set forth in a "Customer Order". 2. Company has entered into contracts with various transporters, marketing companies, storers, and other companies (Entity(ies)) in order to effectuate the services which will be performed under any Customer Order. 3. Customer understands and agrees that any services provided under this Agreement are subject to the various governmental filings by each Entity, including, without limitation, compliance statements filed in accordance with Part 284 of the Federal Energy Regulatory Commission's (FERC) regulations under the Natural Gas Policy Act of 1978, as amended from time-to-time. SECTION I DEFINITIONS 1. "Firm Transportation" means, subject to force majeure, transportation service on a non-interruptible basis. 2. "Day" means the period of twenty-four (24) consecutive hours, commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the next day. The reference date for any day is the calendar date when the twenty-four (24) hour period began. "Business day" means a day consisting of Monday through Friday, excluding federal holidays. 1 3. "Delivery Point(s)" means the outlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee described in a Customer Order. 4. "Gas" means natural gas with or without the removal of any hydrocarbon or inert constituents after it is produced from a well, and includes gas produced from a well producing gas only, from a well producing gas with condensate, or from a well producing gas in association with oil. 5. "Customer Order" means a form described in general which is attached as Exhibit A, and which evidences the agreement as to the terms of a particular transaction for the service(s) provided under this Agreement. 6. "MCQ" or "Maximum Contract Quantity" means the maximum total contract quantity of gas that may be received and delivered by Company during the term in a Customer Order. 7. "MDQ" or "Maximum Daily Quantity" means during the term of a Customer Order, the maximum daily quantity of gas that may be received and delivered by Company during any day. 8. "Measuring Party" means a mutually agreeable party who will measure the gas under an executed Customer Order. If no Measuring Party is designated, then the Transporter immediately downstream of the Receipt Point(s) or upstream of the Delivery Point(s) will be the Measuring Party. 9. "Month" means a period beginning at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the next month. 2 10. "Overrun" means any quantity of gas that exceeds the MDQ, and/or MCQ, as agreed to between Company and Customer, and described in a Customer Order. 11. "Receipt Point(s)" means the inlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee, described in a Customer Order. 12. "Transporter(s)" means any pipeline on which any gas under this Agreement is transported. 13. For payment purposes, the quantity of gas delivered and received hereunder will be stated in Mcf. For balancing purposes, the quantity of gas will be stated in MMBtu. For measurement purposes, the quantity of gas delivered and received hereunder will be stated in Mcf and in MMBtu. The MMBtu quantity will be derived by taking the measured volumes of gas in cubic feet multiplied by their Gross Heating Value divided by one million (1,000,000). The pertinent terms are as follows: a) "Cubic foot of gas" means the volume of gas which occupies one (1) cubic foot of space at a temperature of sixty degrees (60 degrees) Fahrenheit and the referenced pressure base as set forth by the Measuring Party. b) "Mcf" means one thousand (1,000) cubic feet of gas and "Bcf" means one billion (1,000,000,000) cubic feet of gas. c) "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5 degrees) Fahrenheit to fifty-nine and five tenths degrees (59.5 degrees) Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. d) "MMBtu" means one million (1,000,000) Btu. e) "Gross Heating Value" means the number of Btu liberated by the complete combustion, at constant pressure, of 3 one (1) cubic foot of gas, at a base temperature of sixty degrees (60 degrees) Fahrenheit and a referenced pressure base as set forth by the Measuring Party, with air of the same temperature and pressure of the gas, after the products of combustion are cooled to the initial temperature of the gas, and after the water resulting from combustion is condensed to the liquid state. The Gross Heating Value of the gas is to be corrected for the water vapor content of the gas being delivered; provided, that if the water vapor content of the gas is seven (7) pounds or less per one million (1,000,000) cubic feet, the gas will be assumed to be dry and no correction will be made. f) "Referenced pressure base" for measurement and determination of gas volume and Gross Heating Value will be established by the Measuring Party; however, the referenced pressure base is always to be the same for gas volume and Gross Heating Value. 14. "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. 15. "Imbalance" means the difference between the confirmed gas volumes received at the Receipt Point(s) and the confirmed gas volumes delivered at the Delivery Point(s). SECTION II CUSTOMER ORDER 1. Customer Order. The parties may enter into one or more agreements for firm transportation service hereunder from time to time, and each such agreement will be reflected in a Customer Order executed by both parties which will constitute a supplement to and form a part of this Agreement, so that each transaction involving this Agreement and a Customer Order 4 constitutes a single, entire agreement between Customer and Company. Each Customer Order will contain provisions regarding Term, Type of Service, Rate, Receipt Point(s), Delivery Point(s), Quantity and any other obligations of Customer and Company. 2. Conflict. If a conflict exists between a Customer Order and this Agreement, the terms of the Customer Order will govern the applicable transaction. If a conflict exists between two or more Customer Orders under this Agreement, the Customer Order with the latest effective date will govern the applicable transaction period. SECTION III REPRESENTATIONS, WARRANTIES, TITLE AND INDEMNITIES 1. Company. Company represents that it has, or will have, all contracts in place necessary to provide the services described in each Customer Order, subject to Paragraph 3 of the RECITALS and Paragraph 10. Operating Conditions and Agreements. of Section XI MISCELLANEOUS . 2. Customer. Customer warrants that it has good title to or good right to the gas delivered to Company under each applicable Customer Order, and that the gas is free and clear of all liens, encumbrances, or adverse claims of any kind. Customer indemnifies, saves and holds harmless, Company from all claims, losses, causes of action, damages and expenses (including, but not limited to attorney's fees and court costs) due to any adverse claims against the Company for the gas delivered to Company by Customer. Customer warrants that all gas delivered to Company for transportation hereunder is eligible for transportation under any governmental authority having jurisdiction. 3. Control and Possession. Customer is in control and possession of the gas and is responsible for and indemnifies Company 5 against any injury or any damage caused thereby until the gas is delivered to Company or its designee at the Receipt Point(s), except for any injury or damage caused by Company. Responsibility for the gas passes to Company at the Receipt Point(s), and then Company is in control and possession of the gas and is responsible for, and indemnifies Customer against injury or damage caused thereby, except for injury or damage caused by Customer. Likewise, responsibility for the gas passes to Customer at the Delivery Point(s), and then Customer is in control and possession of the gas. 4. Damages. Notwithstanding anything in this Agreement to the contrary, neither party will be responsible to the other party for any incidental, consequential, lost profit, punitive or exemplary damages for a breach of this Agreement. SECTION IV FORCE MAJEURE 1. Force Majeure. In the event that either Company or Customer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such party has given notice and full particulars of such force majeure in writing to the other party as soon as possible after the occurrence of the cause relied on, then the obligations of the parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" in this Agreement means, without limitation; acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of the government, either federal or state, civil or 6 military, civil disturbances, explosions, breakage, breakdown or accident to machinery, equipment or lines of pipe, the necessity of repairing, altering, maintaining, inspecting, replacing, changing the size of, substituting or removing machinery, equipment, pipelines, storage or plant facilities, and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension. Such term likewise includes (i) in those instances where Customer or Transporter is required to obtain servitudes, right-of-way grants, permits, exceptions or licenses to enable such party to fulfill its obligations, the inability of such party to acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits, exceptions or licenses, and (ii) in those instances where Customer or Transporter is required to furnish materials and supplies for the purpose of constructing or maintaining facilities or is required to secure permits or permission from any governmental agency (federal, state or municipal, civil or military) to enable such party to fulfill its obligations hereunder, the inability of such party to acquire or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such material and supplies, permits and permissions. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party or a Transporter having the difficulty and that the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. SECTION V NOMINATIONS AND SCHEDULING 1. Nomination. For all quantities of gas that are to be scheduled beginning on the first day of any month, Customer will 7 provide written notice, in a form to be provided by Company, either via the Company's electronic bulletin board or via telefacsimile, no later than eleven (11:00) am CT three (3) business days prior to the month of delivery. For all quantities that are to be scheduled or changed any day after the first day of any month, Customer will provide either via the Company's electronic bulletin board or via telefacsimile, notice by eleven (11:00) am CT on the day prior to the day of the proposed change. Company may waive any part of the notice requirement upon request if, in Company's sole judgment, operating conditions permit such waiver. In addition to the information required on the nomination form, Customer will specify whether the gas scheduled is current month deliveries or imbalance payback quantities. 2. Confirmation Notice. Company shall provide Customer notice, by Company's. electronic bulletin board or by telefacsimile, of all quantities of gas requested by Customer that Company has confirmed for flow. Such notice shall be provided not later than 4:00 p.m. CT on the day prior to the day of flow. Company shall also provide Customer notice by Company's electronic bulletin board or by telefacsimile, of all quantities of gas received by Company for Customer's account. Such notice shall be provided not later than 4:00 p.m. CT on the day after the day of flow only for gas received at those Receipt Points that are electronically monitored by Company. 3. Rate of Flow. The gas to be received by Company's Transporter hereunder shall be delivered by Customer at uniform hourly and daily rates of flow as nearly as practicable, but it is recognized that due to operating conditions the quantities of gas received and delivered may not be in balance on any one particular day. However, the Company reserves the right to reduce the confirmed nomination at the Delivery Point(s) in the event Customer's nominated gas at the Receipt Point(s) is not concurrently made available to Company's Transporter. Furthermore, in addition to the notices required under Section V, 8 paragraph 2 above, Company and Customer shall immediately inform each other of any changes to deliveries at the Delivery Point(s) and the Company reserves the right to reduce the confirmed nomination at the Receipt Point(s) to a quantity that is ratable to the then current volumes being delivered at the Delivery Point(s). 4. Imbalances. In recognition that there may be an imbalance from time to time the parties agree that prior to deliveries of gas hereunder, Company and Customer shall agree on the balancing provisions of the transportation of gas delivered hereunder at least sixty (60) days prior to January 1, 1999. The parties shall first attempt to negotiate a "balancing service" to be provided by the Company as mutually agreed by both parties. If the parties are unable to agree on a "balancing service" provided by the Company, then Customer or Customer's agent shall provide the "balancing service", in which case such "balancing service" and all balancing of gas transported under a Customer Order shall in accordance with the terms mutually agreed to by Company and Customer or Customer's agent. In the event the parties are unable to agree on the terms for balancing then, all balancing of gas transported under a Customer Order shall be subject to the applicable balancing service rules of the Entity - Westar Transmission Company as may be filed and in effect with a Regulatory Agency, or in accordance with the filed compliance statement under Section 311 (a) (2) of the Natural Gas Policy Act of 1978 ("NGPA") and the applicable regulations of the Federal Energy Regulatory Commission. Nothing stated herein shall prevent Customer from challenging or seeking to modify any such balancing service rules filed with any such regulatory agency. 5. Imbalance Exchanges. In the event Company establishes an imbalance exchange service program in conjunction with the transportation services provided under this Agreement, Customer will be eligible to participate in the program under the terms thereof. 9 6. Upstream and Downstream Transporters. Customer shall make, or cause to be made, all necessary arrangements with other pipelines or parties upstream of the Receipt Point(s) or downstream of the Delivery Point(s) in order to effectuate Company's receipt or delivery of Customer's gas. Company's obligations are subject to Customer making such necessary arrangements set forth in the immediately preceding sentence, and such arrangements must be coordinated with Compa ny . 7. Third Party Imbalance Penalties. If on any day Customer or Company's Transporter receives or delivers, or causes to be received or delivered, a quantity or Btu content of gas that is greater or less than that nominated and scheduled for receipt or delivery at the Receipt or Delivery Point(s), and such deliveries cause Customer or Company to incur a penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) as levied by any transporter or Transporter(s), upstream or downstream of the respective Receipt and Delivery Point(s), the responsible party agrees to bear and pay such penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s). Customer and Company agree to provide one another all information necessary to determine what event, or which party caused the imbalance resulting in the imposition of penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) by a transporter or Transporter(s) at the Receipt or Delivery Point(s). SECTION VI QUALITY OF GAS 1. Specification. All natural gas delivered by Customer to Company(s) Transporter at the Receipt Point(s) shall conform to the quality specifications imposed from time to time by the most restrictive of the Transporter(s). All natural gas redelivered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 10 2. Failure to Conform. If the gas tendered for receipt by Company from Customer fails at any time to conform to the quality specifications set forth in the Section titled Specification, then Company may refuse to accept the receipt of the gas and will notify Customer. Customer shall make a diligent effort to correct such failure within twenty-four (24) hours following any such notice, and if Customer is not successful then Company in its sole discretion may (i) request its Transporter to accept delivery of any non-conforming gas, or (ii) continue to refuse to accept the non-conforming gas and Company's obligations regarding such gas will be suspended. Non-conforming gas tendered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 3. Odorization. Odorization shall be governed by the Operating Agreement. SECTION VII TERM This Agreement is in effect on the Effective Date and will continue through December 31, 2001 and provided, that this Agreement and any Customer Order will continue in effect until the later of (i) the expiration of any outstanding Customer Order, or (ii) for so long as it takes to change any nominations to any transporter or Transporter(s) reflecting the cessation of the receipt and delivery of gas under any Customer Order and iii) to resolve any outstanding Imbalance Quantities. SECTION VIII REMEDIES UPON MATERIAL DEFAULT 1. If either party hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, than in such event the non- defaulting party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The 11 non-defaulting party shall cause a written notice to be served on the defaulting party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting party to terminate this Agreement if the default is not cured. The defaulting party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and if within such ten-day period, the defaulting party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting party fails to remedy or remove the cause or causes or to indemnify the non-defaulting party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no further force or effect from and after the expiration of such ten-day period. 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Company to collect any amounts then due Company for gas delivered prior to the time of termination (ii) without prejudice to the rights of Customer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting party may be entitled. SECTION IX MEASUREMENT AND PRESSURE 1. Measurement. Unless specified in a Customer Order to the contrary, the measurement of gas and testing of measurement facilities will be governed by the applicable measurement and testing provisions and procedures of the Measuring Party. The parties agree to rely on correct information provided by the 12 Measuring Party as to the quantity of gas measured at the Receipt and Delivery Point(s). 2. Pressure. The gas delivered by Customer at the Receipt Point(s) shall be delivered at a pressure sufficient to overcome the operating pressure existing in Company's or its Transporter's facility from time to time; however, in no event shall such delivery pressure exceed the maximum operating pressure of the system receiving the gas. The gas delivered at the Delivery Point(s) shall be delivered by Company's Transporter at the pressure existing from time- to-time in Company's or Transporter's pipeline. Company's Transporter shall not be obligated to install or operate compression facilities in order to effect receipt or delivery of gas. Customer (or Customer's designee), any transporter and Company's Transporter are completely and solely responsible for the installation and maintenance of overpressure protection equipment on their own pipeline(s), valve(s) and any other interconnection equipment. SECTION X BILLINGS, PAYMENTS AND AUDIT 1. On or before the fifteenth (15th) day of each Month, Company shall render a statement to Customer giving the total quantity of gas, expressed in Mcf and in MMBtu, received and delivered by Company's Transporter hereunder during the preceding Month, any imbalances, and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Company cannot be determined on or before the fifteenth (15th) day of the Month, Company shall nevertheless invoice Customer for the amounts that are known and/or nominated by Customer, and when the information is available Company shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. 13 2. Ten (10) days after the statement is received by Customer, Customer shall make payment to Company by wire transfer per the instructions set forth in the Article titled COMMUNICATIONS. If Customer disputes the amount of any statement for any reason, Customer shall notify Company of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Customer shall pay the disputed portion of the statement which is determined to be owing to Company within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Paragraph 4 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Company shall refund such amount to Customer, together with interest at the rate hereinafter set forth below over the period that Company had possession of the money, within fifteen (15) days after resolution of the dispute. 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected party. 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%) until paid. 5. Each party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other party which relate to gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. 14 SECTION XI COMMUNICATIONS 1. Notices and Addresses. Unless otherwise provided in this Agreement, any notice (other than a Customer Order which may be sent by telefacsimile or other electronic means), statement, demand, or payment called for is to be in writing and shall be considered delivered when deposited in the U.S. Mail, postage prepaid, telecopied/telefacsimilied or hand delivered to either party at the address designated. Unless changed in writing, the addresses are: Company: Payments: Wire Transfer K N WESTEX GAS SERVICES COMPANY Norwest Banks Colorado, N.A. Denver, CO ABA# 102 00 076 Acct.: # 101-0918-554 Notices and Correspondence: K N WESTEX GAS SERVICES COMPANY 333 Clay Street, Suite 2000 Houston, TX 77002-9817 Attn.: Transportation and Exchange Telecopier No. (713) 739-6695 Telephone No. (713) 739-2900 Customer: Notices and Correspondence: ENERMART TRUST PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Statements: ENERMART TRUST, PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Telecopier No. (214)788-3773 Telephone No. (214)788-3746 15 2. Operating Communications. Operating communications by telefacsimile will be considered as duly delivered the day after transmittal. 3. Telefacsimile/Telecopy Transmission. All communications, including Customer Orders, may be sent by telefacsimile/telecopy, and signatures appearing on the telefacsimile/telecopy are binding on the signatory party. SECTION XII MISCELLANEOUS 1. Waiver of Default. No waiver by Company or Customer of any default of the other under this Agreement or a Customer Order shall operate as a waiver of any future default, whether of a like or different character. 2. Assignment. This Agreement may not be assigned by either party without consent of the other party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a party. Such assignment shall not relieve the assigning party of any of its obligations under this Agreement. 3. Joint Preparation. This Agreement is deemed to be drafted and prepared equally and jointly, regardless of which party prepared or submitted the document to the other, and shall not be construed against one party or the other as a result of the preparation, submittal or execution. 4. No Third-Party Beneficiary. Except for the parties, their successors and assigns, no person, including without limitation, any joint operating agreement party, any owner of a royalty interest, overriding royalty interest or production right, any Transporter or Storer, shall have any rights as a third- party beneficiary or otherwise under this Agreement or any Customer Order. 16 5. Severability. If any part of this Agreement or a Customer Order is held to be void or unenforceable by any court or under any law, that part shall be deemed stricken and all remaining provisions shall continue to be valid and binding upon the parties. 6. Laws, Rules and Regulations. This Agreement and all Customer Orders are subject to all valid applicable federal, state and local laws, rules and regulations of any governmental body or official having jurisdiction. The parties are entitled to treat all laws, orders, rules and regulations issued by any federal or state regulatory body as valid and may act in accordance therewith until such time the same may be invalidated by final judgment in a court of competent jurisdiction. 7. Modification. Any modification of terms or amendment of provisions of this Agreement or a Customer Order will become effective only by written agreement between the parties. 8. Minimal Creditworthiness. Company or Customer shall not be required to perform, or continue to perform, any service under this Agreement or a Customer Order in the event either party (i) applies or has applied for bankruptcy, or (ii) one party fails, in the good faith opinion of the other party, to demonstrate minimal creditworthiness. 9. Taxes and Fees. To the extent permitted by law, Customer shall reimburse Company for; (a) any natural gas gathering, occupation, production, inventory, severance or sales taxes, first use tax, gross receipt tax, or taxes similar in nature or equivalent in effect which are now or hereafter imposed or assessed against Company or any transporting entities by any lawful authority as a result of the transportation of natural gas under this Agreement or the production or gathering of such natural gas. 17 (b) any fees or charges by any Governmental agency which Company incurs that are related to any service rendered to Customer under this Agreement. 10. Operating Conditions and Agreements. The services provided by Company to Customer under this Agreement are subject to the various tariffs, statements of compliance, statements of operating conditions, general terms and conditions, transportation agreements, exchange agreements, and general operating conditions of the various Entities at and between the Receipt Point(s) and the Delivery Point(s). 11. Choice of Law and Venue. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. 18 12. Confidentiality. The terms of this Agreement, including but not limited to, price, rates or fees, the identified transporting pipelines, Transporter(s), and cost of transportation, the quantities of gas, and all other material terms shall be kept confidential by the parties, except to the extent that any information must be disclosed to a third party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either party of its obligations hereunder, ceases to be confidential. COMPANY CUSTOMER K N WESTEX GAS SERVICES ENERMART TRUST, a division of COMPANY Atmos Energy Corporation By: By: ----------------------------- ----------------------------- Name: Name: ----------------------------- ----------------------------- Title: Title: ----------------------------- ----------------------------- Date: Date: ----------------------------- ----------------------------- 19 CUSTOMER ORDER COMPANY SHALL CAUSE THE TRANSPORTATION OF GAS AS FOLLOWS: (ENERMART-IRRIGATION) This Customer Order entered into on January 1, 1996 between K N WESTEX GAS SERVICES COMPANY (Company), and ENERMART TRUST (Customer) is subject to, made a part of and is incorporated by reference into the Gas Service Agreement dated January 1, 1996, between Company and Customer. Term: January 1, 1999 through December 31, 2001 Type of Service: Company shall arrange for firm transportation service as required under the Gas Sales Agreement dated March 1, 1996 between K N Marketing , L.P. and ENERMART TRUST. Receipt Point(s): Interconnection facilities with K N Energy, Inc.'s Buffalo Wallow facilities, subject to the operating limitations of these receipt facilities. Delivery Point(s): All Points of Interconnection between Westar Transmission Company and Customer where Customer receives gas for resale through certain of its facilities Maximum Daily Quantity: Requirements to supply Customer's irrigation needs. Not to exceed 30,000 MMBtu's per day. Maximum Contract Quantity: For the term of this Customer Order the Maximum Contract Quantity shall be limited by the Maximum Contract Quantity set forth in the Customer Order entered into between EnerMart Trust (EnerMart) and Westar Transmission Company (Westar), and volumes transported hereunder shall be included in the determination of the Maximum Contract Quantity of the EnerMart and Westar Customer Order. Rate (as delivered): $0.2858 per Mcf Special Provisions: In the event that the approved rate for firm transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by the Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. 20 COMPANY CUSTOMER K N WESTEX GAS SERVICES ENERMART TRUST, a division of Atmos COMPANY Energy Corporation By: By: ----------------------------- ----------------------------- Name: Name: ----------------------------- ----------------------------- Title: Title: ----------------------------- ----------------------------- Date: Date: ----------------------------- ----------------------------- 21 EX-10.7 8 GAS SERVICE AGR. B/T WESTAR AND ENERMART TRUST Exhibit 10.7 GAS SERVICE AGREEMENT (Service for Firm Transportation) between WESTAR TRANSMISSION COMPANY "COMPANY" and ENERMART TRUST (Enermart Irrigation) "CUSTOMER" Dated: January 1, 1996 INDEX SECTION TITLE PAGE I Definitions 1 II Customer Order 4 III Representation, Warranties Title and Indemnities 5 IV Force Majeure 6 V Nominations and Scheduling 7 VI Quality of Gas 9 VII Term 10 VIII Remedies Upon Material Default 10 IX Measurement and Pressure 11 X Billings, Payments and Audit 12 XI Communications 13 XII Miscellaneous 14 Signatures 17 Customer Order 18 GAS SERVICE AGREEMENT (ENERMART-IRRIGATION) THIS AGREEMENT, effective on January 1, 1996, between WESTAR TRANSMISSION COMPANY, (Company), and ENERMART TRUST, (Customer), and for the consideration stated, the parties agree as follows: RECITALS 1. Customer and Company from time to time will enter into certain arrangements whereby Company will provide Customer firm transportation service as set forth in a "Customer Order". 2. Company has entered into contracts with various transporters, marketing companies, storers, and other companies (Entity(ies)) in order to effectuate the services which will be performed under any Customer Order. 3. Customer understands and agrees that any services provided under this Agreement are subject to the various governmental filings by each Entity, including, without limitation, compliance statements filed in accordance with Part 284 of the Federal Energy Regulatory Commission's (FERC) regulations under the Natural Gas Policy Act of 1978, as amended from time-to-time. SECTION I DEFINITIONS 1. "Firm Transportation" means, subject to force majeure, transportation service on a non-interruptible basis. 2. "Day" means the period of twenty-four (24) consecutive hours, commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the next day. The reference date for any day is the calendar date when the twenty-four (24) hour period began. "Business day" means a day consisting of Monday through Friday, excluding federal holidays. 1 3. "Delivery Point(s)" means the outlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee described in a Customer Order. 4. "Gas" means natural gas with or without the removal of any hydrocarbon or inert constituents after it is produced from a well, and includes gas produced from a well producing gas only, from a well producing gas with condensate, or from a well producing gas in association with oil. 5. "Customer Order" means a form described in general which is attached as Exhibit A, and which evidences the agreement as to the terms of a particular transaction for the service(s) provided under this Agreement. 6. "MCQ" or "Maximum Contract Quantity" means the maximum total contract quantity of gas that may be received and delivered by Company during the term in a Customer Order. 7. "MDQ" or "Maximum Daily Quantity" means during the term of a Customer Order, the maximum daily quantity of gas that may be received and delivered by Company during any day. 8. "Measuring Party" means a mutually agreeable party who will measure the gas under an executed Customer Order. If no Measuring Party is designated, then the Transporter immediately downstream of the Receipt Point(s) or upstream of the Delivery Point(s) will be the Measuring Party. 9. "Month" means a period beginning at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the next month. 2 10. "Overrun" means any quantity of gas that exceeds the MDQ, and/or MCQ, as agreed to between Company and Customer, and described in a Customer Order. 11. "Receipt Point(s)" means the inlet flange of Company's or Transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee, described in a Customer Order. 12. "Transporter(s)" means any pipeline on which any gas under this Agreement is transported. 13. For payment purposes the quantity of gas delivered and received hereunder will be stated in Mcf. For balancing purposes the quantity of gas will be stated in MMBtu. For measurement purposes, the quantity of gas delivered and received hereunder will be stated in Mcf and in MMBtu. The MMBtu quantity will be derived by taking the measured volumes of gas in cubic feet multiplied by their Gross Heating Value divided by one million (1,000,000). The pertinent terms are as follows: (a) "Cubic foot of gas" means the volume of gas which occupies one (1) cubic foot of space at a temperature of sixty degrees (60 degrees) Fahrenheit and the referenced pressure base as set forth by the Measuring Party. (b) "Mcf" means one thousand (1,000) cubic feet of gas and "Bcf" means one billion (1,000,000,000) cubic feet of gas. (c) "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5 degrees) Fahrenheit to fifty-nine and five tenths degrees (59.5 degrees) Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. (d) "MMBtu" means one million (1,000,000) Btu. (e) "Gross Heating Value" means the number of Btu liberated by the complete combustion, at constant pressure, of one (1) cubic foot of gas, at a base temperature of sixty 3 degrees (60 degrees) Fahrenheit and a referenced pressure base as set forth by the Measuring Party, with air of the same temperature and pressure of the gas, after the products of combustion are cooled to the initial temperature of the gas, and after the water resulting from combustion is condensed to the liquid state. The Gross Heating Value of the gas is to be corrected for the water vapor content of the gas being delivered; provided, that if the water vapor content of the gas is seven (7) pounds or less per one million (1,000,000) cubic feet, the gas will be assumed to be dry and no correction will be made. (f) "Referenced pressure base" for measurement and determination of gas volume and Gross Heating Value will be established by the Measuring Party; however, the referenced pressure base is always to be the same for gas volume and Gross Heating Value. 14. "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. 15. "Imbalance" means the difference between the confirmed gas volumes received at the Receipt Point(s) and the confirmed gas volumes delivered at the Delivery Point(s). SECTION II CUSTOMER ORDER 1. Customer Order. The parties may enter into one or more agreements for firm transportation service hereunder from time to time, and each such agreement will be reflected in a Customer Order executed by both parties which will constitute a supplement to and form a part of this Agreement, so that each transaction involving this Agreement and a Customer Order constitutes a single, entire agreement between Customer and Company. Each 4 Customer Order will contain provisions regarding Term, Type of Service, Rate, Receipt Point(s), Delivery Point(s), Quantity and any other obligations of Customer and Company. 2. Conflict. If a conflict exists between a Customer Order and this Agreement, the terms of the Customer Order will govern the applicable transaction. If a conflict exists between two or more Customer Orders under this Agreement, the Customer Order with the latest effective date will govern the applicable transaction period. SECTION III REPRESENTATIONS, WARRANTIES, TITLE AND INDEMNITIES 1. Company. Company represents that it has, or will have, all contracts in place necessary to provide the services described in each Customer Order, subject to Paragraph 3 of the RECITALS and Paragraph 10. Operating Conditions and Agreements. of Section XI MISCELLANEOUS. 2. Customer. Customer warrants that it has good title to or good right to the gas delivered to Company under each applicable Customer Order, and that the gas is free and clear of all liens, encumbrances, or adverse claims of any kind. Customer indemnifies, saves and holds harmless, Company from all claims, losses, causes of action, damages and expenses (including, but not limited to attorney's fees and court costs) due to any adverse claims against the Company for the gas delivered to Company by Customer. Customer warrants that all gas delivered to Company for transportation hereunder is eligible for transportation under any governmental authority having jurisdiction. 3. Control and Possession. Customer is in control and possession of the gas and is responsible for and indemnifies Company against any injury or any damage caused thereby until the gas is delivered to Company or its designee at the Receipt 5 Point(s), except for any injury or damage caused by Company. Responsibility for the gas passes to Company at the Receipt Point(s), and then Company is in control and possession of the gas and is responsible for, and indemnifies Customer against injury or damage caused thereby, except for injury or damage caused by Customer. Likewise, responsibility for the gas passes to Customer at the Delivery Point(s), and then Customer is in control and possession of the gas. 4. Damages. Notwithstanding anything in this Agreement to the contrary, neither party will be responsible to the other party for any incidental, consequential, lost profit, punitive or exemplary damages for a breach of this Agreement. SECTION IV FORCE MAJEURE 1. Force Majeure. In the event that either Company or Customer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such party has given notice and full particulars of such force majeure in writing to the other party as soon as possible after the occurrence of the cause relied on, then the obligations of the parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" in this Agreement means, without limitation; acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of the government, either federal or state, civil or military, civil disturbances, explosions, breakage, breakdown or accident to machinery, equipment or lines of pipe, the necessity 6 of repairing, altering, maintaining, inspecting, replacing, changing the size of, substituting or removing machinery, equipment, pipelines, storage or plant facilities, and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension. Such term likewise includes (i) in those instances where Customer or Transporter is required to obtain servitudes, right-of-way grants, permits, exceptions or licenses to enable such party to fulfill its obligations, the inability of such party to acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits, exceptions or licenses, and (ii) in those instances where Customer or Transporter is required to furnish materials and supplies for the purpose of constructing or maintaining facilities or is required to secure permits or permission from any governmental agency (federal, state or municipal, civil or military) to enable such party to fulfill its obligations hereunder, the inability of such party to acquire or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such material and supplies, permits and permissions. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party or a Transporter having the difficulty and that the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. SECTION V NOMINATIONS AND SCHEDULING 1. Nomination. For all quantities of gas that are to be scheduled beginning on the first day of any month, Customer will provide written notice, in a form to be provided by Company, either via the Company's electronic bulletin board or via 7 telefacsimile, no later than eleven (11:00) am CT three (3) business days prior to the month of delivery. For all quantities that are to be scheduled or changed any day after the first day of any month, Customer will provide either via the Company's electronic bulletin board or via telefacsimile, notice by eleven (11:00) am CT on the day prior to the day of the proposed change. Company may waive any part of the notice requirement upon request if, in Company's sole judgment, operating conditions permit such waiver. In addition to the information required on the nomination form, Customer will specify whether the gas scheduled is current month deliveries or imbalance payback quantities. 2. Confirmation Notice. Company shall provide Customer notice, by Company's electronic bulletin board or by telefacsimile, of all quantities of gas requested by Customer that Company has confirmed for flow. Such notice shall be provided not later than 4:00 p.m. CT on the day prior to the day of flow. Company shall also provide Customer notice by Company's electronic bulletin board or by telefacsimile of all quantities of gas received by Company for Customer's account. Such notice shall be provided not later than 4:00 p.m. CT on the day after the day of flow only for gas received at those Receipt Points that are electronically monitored by Company 3. Rate of Flow. The gas to be received by Company's Transporter hereunder shall be delivered by Customer at uniform hourly and daily rates of flow as nearly as practicable, but it is recognized that due to operating conditions the quantities of gas received and delivered may not be in balance on any one particular day. However, the Company reserves the right to reduce the confirmed nomination at the Delivery Point(s) in the event Customer's nominated gas at the Receipt Point(s) is not concurrently made available to Company or its Transporter. Furthermore, in addition to the notices required under Section V, paragraph 2 above, Company and Customer shall immediately inform each other of any changes to deliveries at the Delivery Point(s) and the Company reserves the right to reduce the confirmed 8 nomination at the Receipt Point(s) to a quantity that is ratable to the then current volumes being delivered at the Delivery Point(s). 4. Imbalances. In recognition that there may be an imbalance from time to time the parties agree that prior to deliveries of gas hereunder, Company and Customer shall agree on the balancing provisions of the transportation of gas delivered hereunder at least sixty (60) days prior to January 1, 1999. The parties shall first attempt to negotiate a "balancing service" to be provided by the Company as mutually agreed by both parties. If the parties are unable to agree on a "balancing service" provided by the Company, then Customer or Customer's agent shall provide the "balancing service", in which case such "balancing service" and all balancing of gas transported under a Customer Order shall in accordance with the terms mutually agreed to by Company and Customer or Customer's agent. In the event the parties are unable to agree on the terms for balancing then, all balancing of gas transported under a Customer Order shall be subject to the applicable balancing service rules of the Entity - Westar Transmission Company as may be filed and in effect with a Regulatory Agency, or in accordance with the filed compliance statement under Section 311 (a) (2) of the Natural Gas Policy Act of 1978 ("NGPA") and the applicable regulations of the Federal Energy Regulatory Commission. Nothing stated herein shall prevent Customer from challenging or seeking to modify any such balancing service rules filed with any such regulatory agency. 5. Imbalance Exchanges. In the event Company establishes an imbalance exchange service program in conjunction with the transportation services provided under this Agreement, Customer will be eligible to participate in the program under the terms thereof. 6. Upstream and Downstream Transporters. Customer shall make, or cause to be made, all necessary arrangements with other pipelines or parties upstream of the Receipt Point(s) or downstream of the Delivery Point(s) in order to effectuate 9 Company's receipt or delivery of Customer's gas. Company's obligations are subject to Customer making such necessary arrangements set forth in the immediately preceding sentence, and such arrangements must be coordinated with Company. 7. Third Party Imbalance Penalties. If on any day Customer or Company's Transporter receives or delivers, or causes to be received or delivered, a quantity or Btu content of gas that is greater or less than that nominated and scheduled for receipt or delivery at the Receipt or Delivery Point(s), and such deliveries cause Customer or Company to incur a penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) as levied by any transporter or Transporter(s), upstream or downstream of the respective Receipt and Delivery Point(s), the responsible party agrees to bear and pay such penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s). Customer and Company agree to provide one another all information necessary to determine what event, or which party caused the imbalance resulting in the imposition of penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) by a transporter or Transporter(s) at the Receipt or Delivery Point(s). SECTION VI QUALITY OF GAS 1. Specification. All natural gas delivered by Customer to Company(s) Transporter at the Receipt Point(s) shall conform to the quality specifications imposed from time to time by the most restrictive of the Transporter(s). All natural gas redelivered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 2. Failure to Conform. If the gas tendered for receipt by Company from Customer fails at any time to conform to the quality specifications set forth in the Section titled Specification, then Company may refuse to accept the receipt of the gas and will notify Customer. Customer shall make a diligent effort to 10 correct such failure within twenty-four (24) hours following any such notice, and if Customer is not successful then Company in its sole discretion may (i) request its Transporter to accept delivery of any non-conforming gas, or (ii) continue to refuse to accept the non-conforming gas and Company's obligations regarding such gas will be suspended. Non-conforming gas tendered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 3. Odorization. Odorization shall be governed by the Operating Agreement. SECTION VII TERM This Agreement is in effect on the Effective Date and will continue through December 31, 2001 and provided, that this Agreement and any Customer Order will continue in effect until the later of (i) the expiration of any outstanding Customer Order, or (ii) for so long as it takes to change any nominations to any transporter or Transporter(s) reflecting the cessation of the receipt and delivery of gas under any Customer Order and iii) to resolve any outstanding Imbalance Quantities. SECTION VIII REMEDIES UPON MATERIAL DEFAULT 1. If either party hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, than in such event the non- defaulting party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non- defaulting party shall cause a written notice to be served on the defaulting party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting party to terminate this Agreement if the default is not cured. The defaulting party 11 shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and if within such ten-day period, the defaulting party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting party fails to remedy or remove the cause or causes or to indemnify the non-defaulting party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no further force or effect from and after the expiration of such ten-day period. 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Company to collect any amounts then due Company for gas delivered prior to the time of termination (ii) without prejudice to the rights of Customer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting party may be entitled. SECTION IX MEASUREMENT AND PRESSURE 1. Measurement. Unless specified in a Customer Order to the contrary, the measurement of gas and testing of measurement facilities will be governed by the applicable measurement and testing provisions and procedures of the Measuring Party. The parties agree to rely on correct information provided by the Measuring Party as to the quantity of gas measured at the Receipt and Delivery Point(s). 2. Pressure. The gas delivered by Customer at the Receipt Point(s) shall be delivered at a pressure sufficient to overcome the operating pressure existing in Company's or its Transporter's 12 facility from time to time; however, in no event shall such delivery pressure exceed the maximum operating pressure of the system receiving the gas. The gas delivered at the Delivery Point(s) shall be delivered by Company or its Transporter at the pressure existing from time-to-time in Company's or Transporter's pipeline. Company or Transporter shall not be obligated to install or operate compression facilities in order to effect receipt or delivery of gas. Customer (or Customer's designee), any transporter and Company and Transporter are completely and solely responsible for the installation and maintenance of overpressure protection equipment on their own pipeline(s), valve(s) and any other interconnection equipment. SECTION X BILLINGS, PAYMENTS AND AUDIT 1. On or before the fifteenth (15th) day of each Month, Company shall render a statement to Customer giving the total quantity of gas, expressed in Mcf and in MMBtu, received and delivered by Company's Transporter hereunder during the preceding Month, any imbalances, and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Company cannot be determined on or before the fifteenth (15th) day of the Month, Company shall nevertheless invoice Customer for the amounts that are known and/or nominated by Customer, and when the information is available Company shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. 2. Ten (10) days after the statement is received by Customer, Customer shall make payment to Company by wire transfer per the instructions set forth in the Article titled COMMUNICATIONS. If Customer disputes the amount of any statement for any reason, Customer shall notify Company of such dispute and shall be obligated to pay only the undisputed portion of such 13 statement on the due date. Customer shall pay the disputed portion of the statement which is determined to be owing to Company within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Paragraph 4 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Company shall refund such amount to Customer, together with interest at the rate hereinafter set forth below over the period that Company had possession of the money, within fifteen (15) days after resolution of the dispute. 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected party. 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%) until paid. 5. Each party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other party which relate to gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. SECTION XI COMMUNICATIONS 1. Notices and Addresses. Unless otherwise provided in this Agreement, any notice (other than a Customer Order which may be sent by telefacsimile or other electronic means), statement, 14 demand, or payment called for is to be in writing and shall be considered delivered when deposited in the U.S. Mail, postage prepaid, telecopied/ telefacsimilied or hand delivered to either party at the address designated. Unless changed in writing, the addresses are: Company: Payments: Wire Transfer WESTAR TRANSMISSION COMPANY Norwest Banks Colorado, N.A. Denver, CO ABA# 102 00 076 Acct.: # 101-0918-554 Notices and Correspondence: WESTAR TRANSMISSION COMPANY 333 Clay Street, Suite 2000 Houston, TX 77002-9817 Attn.: Transportation and Exchange Telecopier No. (713) 739-6695 Telephone No. (713) 739-2900 Customer: Notices and Correspondence: ENERMART TRUST PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Statements: ENERMART TRUST, PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Telecopier No. (214)788-3773 Telephone No. (214)788-3746 2. Operating Communications. Operating communications by telefacsimile will be considered as duly delivered the day after transmittal. 3. Telefacsimile/Telecopy Transmission. All communications, including Customer Orders, may be sent by telefacsimile/telecopy, and signatures appearing on the telefacsimile/telecopy are binding on the signatory party. 15 SECTION XII MISCELLANEOUS 1. Waiver of Default. No waiver by Company or Customer of any default of the other under this Agreement or a Customer Order shall operate as a waiver of any future default, whether of a like or different character. 2. Assignment. This Agreement may not be assigned by either party without consent of the other party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a party. Such assignment shall not relieve the assigning party of any of its obligations under this Agreement. 3. Joint Preparation. This Agreement is deemed to be drafted and prepared equally and jointly, regardless of which party prepared or submitted the document to the other, and shall not be construed against one party or the other as a result of the preparation, submittal or execution. 4. No Third-Party Beneficiary. Except for the parties, their successors and assigns, no person, including without limitation, any joint operating agreement party, any owner of a royalty interest, overriding royalty interest or production right, any Transporter or Storer, shall have any rights as a third- party beneficiary or otherwise under this Agreement or any Customer Order. 5. Severability. If any part of this Agreement or a Customer Order is held to be void or unenforceable by any court or under any law, that part shall be deemed stricken and all remaining provisions shall continue to be valid and binding upon the parties. 6. Laws, Rules and Regulations. This Agreement and all Customer Orders are subject to all valid applicable federal, 16 state and local laws, rules and regulations of any governmental body or official having jurisdiction. The parties are entitled to treat all laws, orders, rules and regulations issued by any federal or state regulatory body as valid and may act in accordance therewith until such time the same may be invalidated by final judgment in a court of competent jurisdiction. 7. Modification. Any modification of terms or amendment of provisions of this Agreement or a Customer Order will become effective only by written agreement between the parties. 8. Minimal Creditworthiness. Company or Customer shall not be required to perform, or continue to perform, any service under this Agreement or a Customer Order in the event either party (i) applies or has applied for bankruptcy, or (ii) one party fails, in the good faith opinion of the other party, to demonstrate minimal creditworthiness. 9. Taxes and Fees. To the extent permitted by law, Customer shall reimburse Company for; (a) any natural gas gathering, occupation, production, inventory, severance or sales taxes, first use tax, gross receipt tax, or taxes similar in nature or equivalent in effect which are now or hereafter imposed or assessed against Company or any transporting entities by any lawful authority as a result of the transportation of natural gas under this Agreement or the production or gathering of such natural gas. (b) any fees or charges by any Governmental agency which Company incurs that are related to any service rendered to Customer under this Agreement. 10. Operating Conditions and Agreements. The services provided by Company to Customer under this Agreement are subject to the various tariffs, statements of compliance, statements of operating conditions, general terms and conditions, transportation agreements, exchange agreements, and general 17 operating conditions of the various Entities at and between the Receipt Point(s) and the Delivery Point(s). 11. Choice of Law and Venue. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. 12. Confidentiality. The terms of this Agreement, including but not limited to, price, rates or fees, the identified transporting pipelines, Transporter(s), and cost of transportation, the quantities of gas, and all other material terms shall be kept confidential by the parties, except to the extent that any information must be disclosed to a third party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either party of its obligations hereunder, ceases to be confidential. COMPANY CUSTOMER WESTAR TRANSMISSION COMPANY ENERMART TRUST, a division of Atmos Energy Corporation By: By: ------------------------ -------------------------- Name: Name: ---------------------- ------------------------ Title: Title: --------------------- ----------------------- Date: Date: ---------------------- ------------------------ 18 CUSTOMER ORDER COMPANY SHALL CAUSE THE TRANSPORTATION OF GAS AS FOLLOWS: (ENERMART-IRRIGATION) This Customer Order entered into on January 1, 1996 between WESTAR TRANSMISSION COMPANY (Company), and ENERMART TRUST (Customer) is subject to, made a part of and is incorporated by reference into the Gas Service Agreement dated January 1, 1996, between Company and Customer. Term: January 1, 1999 through December 31, 2001 Type of Service: Firm transportation service as required under the Gas Sales Agreement dated March 1, 1996 between K N Marketing , L.P. and ENERMART TRUST Receipt Point(s): Interconnection facilities with Westar Transmission Company, "Westar" and other mutually agreed to points on Red River Pipeline, L.P. and AOG Gas Transmission Company, L.P., subject to the operating limitations of these receipt facilities. Delivery Point(s): All Points of Interconnection between Westar Transmission Company and Customer where Customer receives gas for resale through certain of its facilities Maximum Daily Quantity: Requirements to supply Customer's irrigation needs. Not to exceed 225,000 MMBtu per day. Maximum Contract Quantity: Requirements to supply Customer's irrigation needs as set forth in the Gas Sales Agreement effective March 1, 1996 between K N Marketing, L.P. and ENERMART TRUST Rate (as delivered): $0.2858 per Mcf Special Provisions: In the event that the approved rate for firm transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by the Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. 19 COMPANY CUSTOMER WESTAR TRANSMISSION COMPANY ENERMART TRUST By: By: Name: Name: Title: Title: Date: Date: 20 EX-10.8 9 GAS SERVICE AGR. B/T KN WESTEX AND ENERMART TRUST EXHIBIT 10.8 GAS SERVICE AGREEMENT (Service for Firm Transportation) between K N WESTEX GAS SERVICES COMPANY "COMPANY" and ENERMART TRUST (Large Volume Industrials) "CUSTOMER" Dated: January 1, 1996 INDEX SECTION TITLE PAGE I Definitions 1 II Customer Order 3 III Representation, Warranties, Title and Indemnities 3 IV Force Majeure 4 V Nominations and Scheduling 4 VI Quality of Gas 7 VII Term 7 VIII Remedies Upon Material Default 8 IX Measurement and Pressure 8 X Billings, Payments and Audit 9 XI Communications 9 XII Miscellaneous 11 GAS SERVICE AGREEMENT (ENERMART) THIS AGREEMENT, effective on January 1, 1996, between K N WESTEX GAS SERVICES COMPANY, (Company), and ENERMART TRUST, a Pennsylvania Business Trust, (Customer), and for the consideration stated, the parties agree as follows: RECITALS 1. Customer and Company from time to time will enter into certain arrangements whereby Company will provide Customer firm transportation service as set forth in a "Customer Order". 2. Company has entered into contracts with various transporters, marketing companies, storers, and other companies (Entity(ies)) in order to effectuate the services which will be performed under any Customer Order. 3. Customer understands and agrees that any services provided by Company are subject to the various governmental filings by each Entity, including, without limitation, compliance statements filed in accordance with Part 284 of the Federal Energy Regulatory Commission's (FERC) regulations under the Natural Gas Policy Act of 1978, as amended from time-to-time. SECTION I DEFINITIONS 1. "Firm Transportation" means, subject to force majeure, transportation service on a non-interruptible basis. 2. "Day" means the period of twenty-four (24) consecutive hours, commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the next day. The reference date for any day is the calendar date when the twenty-four (24) hour period began. "Business day" means a day consisting of Monday through Friday. 3. "Delivery Point(s)" means the outlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee described in a Customer Order. 4. "Gas" means natural gas with or without the removal of any hydrocarbon or inert constituents after it is produced from a well, and includes gas produced from a well producing gas only, from a well producing gas with condensate, or from a well producing gas in association with oil. 5. "Customer Order" means a form described in general which is attached as Exhibit A, and which evidences the agreement 1 as to the terms of a particular transaction for the service(s) provided under this Agreement. 6. "MCQ" or "Maximum Contract Quantity" means the maximum total contract quantity of gas that may be received and delivered by Company during the term in a Customer Order. 7. "MDQ" or "Maximum Daily Quantity" means during the term of a Customer Order, the maximum daily quantity of gas that may be received and delivered by Company during any day. 8. "Measuring Party" means a mutually agreeable party who will measure the gas under an executed Customer Order. If no Measuring Party is designated, then the Transporter immediately downstream of the Receipt Point(s) or upstream of the Delivery Point(s) will be the Measuring Party. 9. "Month" means a period beginning at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the next month. 10. "Overrun" means any quantity of gas that exceeds the MDQ, MSQ and/or MCQ, as agreed to between Company and Customer, and described in a Customer Order. 11. "Receipt Point(s)" means the inlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee, described in a Customer Order. 12. "Transporter(s)" means any pipeline on which any gas under this Agreement is transported. 13. For payment purposes, the quantity of gas delivered and received hereunder will be stated in Mcf. For balancing purposes the quantity of gas will be stated in MMBtu. For measurement purposes, the quantity of gas delivered and received hereunder stated in MMBtu and Mcf, is derived by taking the measured volumes of gas in cubic feet multiplied by their Gross Heating Value divided by one million (1,000,000). The pertinent terms are as follows: (a) "Cubic foot of gas" means the volume of gas which occupies one (1) cubic foot of space at a temperature of sixty degrees (60 degrees) Fahrenheit and the referenced pressure base as set forth by the Measuring Party. (b) "Mcf" means one thousand (1,000) cubic feet of gas and "Bcf" means one billion (1,000,000,000) cubic feet of gas. (c) "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5 degrees) Fahrenheit to fifty-nine and five tenths degrees (59.5 degrees) Fahrenheit at a constant 2 pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. (d) "MMBtu" means one million (1,000,000) Btu. (e) "Gross Heating Value" means the number of Btu liberated by the complete combustion, at constant pressure, of one (1) cubic foot of gas, at a base temperature of sixty (60) degrees Fahrenheit and a referenced pressure base as set forth by the Measuring Party, with air of the same temperature and pressure of the gas, after the products of combustion are cooled to the initial temperature of the gas, and after the water resulting from combustion is condensed to the liquid state. The Gross Heating Value of the gas is to be corrected for the water vapor content of the gas being delivered; provided, that if the water vapor content of the gas is seven (7) pounds or less per one million (1,000,000) cubic feet, the gas will be assumed to be dry and no correction will be made. (f) "Referenced pressure base" for measurement and determination of gas volume and Gross Heating Value will be established by the Measuring Party; however, the referenced pressure base is always to be the same for gas volume and Gross Heating Value. 14. "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. SECTION II CUSTOMER ORDER 1. Customer Order. The parties may enter into one or more agreements for firm transportation service hereunder from time to time, and each such agreement will be reflected in a Customer Order executed by both parties which will constitute a supplement to and form a part of this Agreement, so that each transaction involving this Agreement and a Customer Order constitutes a single, entire agreement between Customer and Company. Each Customer Order will contain provisions regarding price, Receipt Point(s), Delivery Point(s), quantity, term and any other obligations of Customer and Company. 2. Conflict. If a conflict exists between a Customer Order and this Agreement, the terms of the Customer Order will govern the applicable transaction. If a conflict exists between two or more Customer Orders under this Agreement, the Customer Order with the latest effective date will govern the applicable transaction period. 3 SECTION III REPRESENTATIONS, WARRANTIES, TITLE AND INDEMNITIES 1. Company. Company represents that it has, or will have, all contracts in place necessary to provide the services described in each Customer Order, subject to Paragraph 3 of the RECITALS and Paragraph 10. Operating Conditions and Agreements. of Section XI MISCELLANEOUS. 2. Customer. Customer warrants that it has good title to or good right to the gas delivered to Company under each applicable Customer Order, and that the gas is free and clear of all liens, encumbrances, or adverse claims of any kind. Customer indemnifies, saves and holds harmless, Company from all claims, losses, causes of action, damages and expenses (including, but not limited to attorney's fees and court costs) due to any adverse claims against the Company for the gas delivered to Company by Customer. Customer warrants that all gas delivered to Company for transportation hereunder is eligible for transportation under any governmental authority having jurisdiction. 3. Control and Possession. Customer is in control and possession of the gas and is responsible for and indemnifies Company against any injury or any damage caused thereby until the gas is delivered to Company or its designee at the Receipt Point(s), except for any injury or damage caused by Company. Responsibility for the gas passes to Company at the Receipt Point(s), and then Company is in control and possession of the gas and is responsible for, and indemnifies Customer against injury or damage caused thereby, except for injury or damage caused by Customer. Likewise, responsibility for the gas passes to Customer at the Delivery Point(s), and then Customer is in control and possession of the gas. 4. Damages. Notwithstanding anything in this Agreement to the contrary, neither party will be responsible to the other party for any incidental, consequential, lost profit, punitive or exemplary damages for a breach of this Agreement. 4 SECTION IV FORCE MAJEURE 1. Force Majeure. In the event that either Company or Customer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such party has given notice and full particulars of such force majeure in writing to the other party as soon as possible after the occurrence of the cause relied on, then the obligations of the parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" in this Agreement means, without limitation, acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of the government, either federal or state, civil or military, civil disturbances, explosions, breakage, breakdown or accident to machinery, equipment or lines of pipe, the necessity of repairing, altering, maintaining, inspecting, replacing, changing the size of, substituting or removing machinery, equipment, pipelines, storage or plant facilities, and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension. Such term likewise includes (i) in those instances where Customer or Transporter is required to obtain servitudes, right-of-way grants, permits, exceptions or licenses to enable such party to fulfill its obligations, the inability of such party to acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits, exceptions or licenses, and (ii) in those instances where Customer or Transporter is required to furnish materials and supplies for the purpose of constructing or maintaining facilities or is required to secure permits or permission from any governmental agency (federal, state or municipal, civil or military) to enable such party to fulfill its obligations hereunder, the inability of such party to acquire or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such material and supplies, permits and permissions. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party or a Transporter having the difficulty and that the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. 5 SECTION V NOMINATIONS AND SCHEDULING 1. Nomination. For all quantities of gas that are to be scheduled beginning on the first day of any month, Customer will provide written notice, in a form to be provided by Company, either via the Company's electronic bulletin board or via telefacsimile, no later than eleven (11:00) am CT three (3) business days prior to the month of delivery. For all quantities that are to be scheduled or changed any day after the first day of any month, Customer will provide either via the Company's electronic bulletin board or via telefacsimile, notice by eleven (11:00) am CT on the day prior to the day of the proposed change. Company may waive any part of the notice requirement upon request if, in Company's sole judgment, operating conditions permit such waiver. In addition to the information required on the nomination form, Customer will specify whether the gas scheduled is current month deliveries or imbalance payback quantities. 2. Confirmation Notice. Company shall provide Customer notice, by Company's electronic bulletin board or by telefacsimile, of all quantities of gas requested by Customer that Company has "confirmed" with Customer's suppliers, designees, and/or other transporters for flow. Such notice shall be provided not later than 4:00 p.m. CT on the day prior to the day of flow. Company shall also provide Customer notice, by Company's electronic bulletin board or by telefacsimile, of all quantities of gas received by Company for Customer's account. Such notice shall be provided not later than 4:00 p.m. CT on the day after the day of flow for only gas received at those Receipt Points that are electronically monitored by Company. 3. Monthly Balancing Requirements. The balancing provisions herein have been established and are provided to Customer by Company in recognition that the gas being transported by Customer will be delivered to markets that typically have a uniform consumption of gas. In any given month, any quantities of gas received by Company from Customer (or its designee) at the Receipt Point(s) or delivered to Customer by Company at the Delivery Point(s) that is not equal to the "confirmed" quantities at the respective Receipt Point(s) and Delivery Point(s) is an "Imbalance Quantity". Company shall provide a monthly statement to Customer showing the previous month's volume activity "confirmed" at both the Receipt Point(s) and the Delivery Point(s) and the resulting Imbalance Quantity. Customer will then have forty five (45) days following such statement (Payback Period) to schedule with Company the quantities of gas necessary to reduce the Imbalance Quantity to zero. Any imbalance remaining after the Payback Period, will be cashed out as follows: 6 For such remaining monthly Imbalance Quantity where receipts of gas at the Receipt Point(s) are less than deliveries taken by Customer at the Delivery Point(s), Company will invoice Customer and Customer shall pay for the extra gas delivered to Customer one hundred and ten percent (110%) of the "Index Basket", for the respective month of delivery, on a per MMBtu basis. For such remaining monthly Imbalance Quantity where deliveries of gas at the Delivery Point(s) are less than receipts of gas at the Receipt Point(s), Company will pay Customer for the extra gas delivered by Customer to Company ninety percent (90%) of the "Index Basket" for the month of delivery, on a per MMBtu basis. The "Index Basket" referred to in above shall be equal to the sum of the "prices" stated in dollars per MMBtu of: (i) fifty percent (50%) of the arithmetic average of the index prices listed in each edition of Natural Gas Week, published during the applicable calendar month by Oil Daily Company in the table titled "Gas Price Report", under the column labeled "Delivered to Pipeline", "This Week" for Texas West Spot, and (ii) twenty-five percent (25%) of the first publication in the applicable month of Inside F.E.R.C.'s Gas Market Report, published by McGraw-Hill, Inc. for Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" under the category labeled "Index", and (iii) twenty-five percent (25%) of the index price published in the first edition of the month in Natural Gas Intelligence Gas Price Index for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract Index", the "Intrastate Avg." for the "West Texas/Permian" gas. 4. Rate of Flow. The gas to be received by Company's transporter hereunder shall be delivered by Customer at uniform daily rates of flow as nearly as practicable, but it is recognized that due to operating conditions the quantities of gas received and delivered may not be in balance on any one particular day. On days when the quoted price from Enron Capital and Trade, Texas Intrastate desk, for gas delivered to Company's system the same day in the Waha supply area exceeds the price of the of the index price published in the first edition of the month in Natural Gas Intelligence Gas Price Index for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract Index", the "Intrastate Avg." for the "West Texas/Permian" by more than $0.50 per MMBtu, and there is a difference in the quantity of MMBtu between the nominated and confirmed Receipt Point(s) daily quantities and the actual quantities being delivered by Customer or its designee at the Receipt Point(s), Company shall notify Customer by telephone and telefacsimile of such difference, and Company shall have the right to request Customer to correct the 7 difference within twenty four (24) hours of notification. Customer may correct such situation by adjusting its nominations to match actual Receipt Point(s) daily quantities. If Customer fails to correct the situation within twenty four (24) hours of such notification, then Company shall have the right to charge Customer up to $0.50 per MMBtu on any remaining and continuing difference in the quantity of MMBtu between the nominated and confirmed Receipt Point(s) daily quantities and the actual quantities being delivered by Customer or its designee at the Receipt Point(s), until such time that the difference is corrected. 5. Imbalance Exchanges. In the event Company establishes an imbalance exchange service program in conjunction with the transportation services provided under this Agreement, Customer will be eligible to participate in the program under the terms thereof. 6. Upstream and Downstream Transporters. Customer shall make, or cause to be made, all necessary arrangements with other pipelines or parties upstream of the Receipt Point(s) or downstream of the Delivery Point(s) in order to effectuate Company's receipt or delivery of Customer's gas. Company's obligations are subject to Customer making such necessary arrangements set forth in the immediately preceding sentence, and such arrangements must be coordinated with Company. 7. Third Party Imbalance Penalties. If on any day Customer or Company's Transporter receives or delivers, or causes to be received or delivered, a quantity or Btu content of gas that is greater or less than that nominated and scheduled for receipt or delivery at the Receipt or Delivery Point(s), and such deliveries cause Customer or Company to incur a penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) as levied by any transporter or Transporter(s), upstream or downstream of the respective receipt and Delivery Point(s), the responsible party agrees to bear and pay such penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s). Customer and Company agree to provide one another all information necessary to determine what event, or which party caused the imbalance resulting in the imposition of penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) by a transporter or Transporter(s) at the Receipt or Delivery Point(s). SECTION VI QUALITY OF GAS 1. Specification. All natural gas delivered by Customer to Company(s) Transporter at the Receipt Point(s) shall conform to the quality specifications imposed from time to time by the most restrictive of the Transporter(s). All natural gas 8 redelivered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 2. Failure to Conform. If the gas tendered for receipt by Company from Customer fails at any time to conform to the quality specifications set forth in the Section titled Specifications, then Company may refuse to accept the receipt of the gas and will notify Customer. Customer shall make a diligent effort to correct such failure within twenty-four (24) hours following any such notice, and if Customer is not successful then Company in its sole discretion may (i) request its Transporter to accept delivery of any non-conforming gas, or (ii) continue to refuse to accept the non-conforming gas and Company's obligations regarding such gas will be suspended. Non-conforming gas tendered by Company to Customer at the Delivery Point(s) shall governed by the Operating Agreement. 3. Odorization. Odorization shall be governed by the Operating Agreement. SECTION VII TERM This Agreement is in effect on the effective date and will continue through December 31, 2001; provided, that this Agreement and any Customer Order will continue in effect until the later of (i) the expiration of any outstanding Customer Order, or (ii) for so long as it takes to change any nominations to any transporter or Transporter(s) reflecting the cessation of the receipt and delivery of gas under any Customer Order. SECTION VIII REMEDIES UPON MATERIAL DEFAULT 1. If either party hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, than in such event the non- defaulting party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non- defaulting party shall cause a written notice to be served on the defaulting party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting party to terminate this Agreement if the default is not cured. The defaulting party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and if within such ten-day period, the defaulting party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and 9 effect. In the event that the defaulting party fails to remedy or remove the cause or causes or to indemnify the non-defaulting party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no further force or effect from and after the expiration of such ten-day period. 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Company to collect any amounts then due Company for gas delivered prior to the time of termination (ii) without prejudice to the rights of Customer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting party may be entitled. SECTION IX MEASUREMENT AND PRESSURE 1. Measurement. Unless specified in a Customer Order to the contrary, the measurement of gas and testing of measurement facilities will be governed by the applicable measurement and testing provisions and procedures of the Measuring Party. The parties agree to rely on correct information provided by the Measuring Party as to the quantity of gas measured at the Receipt and Delivery Point(s). 2. Pressure. The gas delivered by Customer at the Receipt Point(s) shall be delivered at a pressure sufficient to overcome the operating pressure existing in Company's or its Transporter's facility from time to time; however, in no event shall such delivery pressure exceed the maximum operating pressure of the system receiving the gas. The gas delivered at the Delivery Point(s) shall be delivered by Company's Transporter at the pressure existing from time- to-time in Company's or Transporter's pipeline. Company's Transporter shall not be obligated to install or operate compression facilities in order to effect receipt or delivery of gas. Customer (or Customer's designee), any transporter and Company's Transporter are completely and solely responsible for the installation and maintenance of overpressure protection equipment on their own pipeline(s), valve(s) and any other interconnection equipment. SECTION X BILLINGS, PAYMENTS AND AUDIT 1. On or before the fifteenth (15th) day of each Month, Company shall render a statement to Customer giving the total quantity of gas, expressed in Mcf and in MMBtu's, received and delivered by Company's Transporter hereunder during the preceding Month and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any 10 amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Company cannot be determined on or before the fifteenth (15th) day of the Month, Company shall nevertheless invoice Customer for the amounts that are known and/or are nominated by Customer, and when the information is available Company shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. 2. Ten (10) days after the statement is received by Customer, Customer shall make payment to Company by wire transfer per the instructions set forth in the Article titled "COMMUNICATIONS". If Customer disputes the amount of any statement for any reason, Customer shall notify Company of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Customer shall pay the disputed portion of the statement which is determined to be owing to Company within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Paragraph 4 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Company shall refund such amount to Customer, together with interest at the rate hereinafter set forth below over the period that Company had possession of the money, within fifteen (15) days after resolution of the dispute. 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected party. 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%) until paid. 5. Each party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other party which relate to gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. SECTION XI COMMUNICATIONS 1. Notices and Addresses. Unless otherwise provided in this Agreement, any notice (other than a Customer Order which may be sent by telefacsimile or other electronic means), statement, 11 demand, or payment called for is to be in writing and shall be considered delivered when deposited in the U.S. Mail, postage prepaid, telecopied/telefacsimilied or hand delivered to either party at the address designated. Unless changed in writing, the addresses are: Company: Payments: Wire Transfer K N WESTEX GAS SERVICES COMPANY Norwest Banks Colorado, N.A. Denver, CO ABA# 102 00 076 Acct: # 101-0918-554 Notices and Correspondence: K N WESTEX GAS SERVICES COMPANY 333 Clay Street, Suite 2000 Houston, TX 77002-9817 Attn: Contract Administration Telecopier No. (713) 739-6695 Telephone No. (713) 739-2900 Customer: Notices and Correspondence: ENERMART TRUST PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Statements: ENERMART TRUST PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Telecopier No. (214)788-3773 Telephone No. (214)788-3746 2. Operating Communications. Operating communications by telefacsimile will be considered as duly delivered the day after transmittal. 3. Telefacsimile/Telecopy Transmission. All communications, including Customer Orders, may be sent by telefacsimile/telecopy, and signatures appearing on the telefacsimile/telecopy are binding on the signatory party. 12 SECTION XII MISCELLANEOUS 1. Waiver of Default. No waiver by Company or Customer of any default of the other under this Agreement or a Customer Order shall operate as a waiver of any future default, whether of a like or different character. Company shall not be required to perform any service on behalf of Customer, if Customer fails to comply with all of the terms of this Agreement. 2. Assignment. This Agreement may not be assigned by either party without consent of the other party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a party. Such assignment shall not relieve the assigning party of any of its obligations under this Agreement. 3. Joint Preparation. This Agreement is deemed to be drafted and prepared equally and jointly, regardless of which party prepared or submitted the document to the other, and shall not be construed against one party or the other as a result of the preparation, submittal or execution. 4. No Third-Party Beneficiary. Except for the parties, their successors and assigns, no person, including without limitation, any joint operating agreement party, any owner of a royalty interest, overriding royalty interest or production right, any Transporter or Storer, shall have any rights as a third- party beneficiary or otherwise under this Agreement or any Customer Order. 5. Severability. If any part of this Agreement or a Customer Order is held to be void or unenforceable by any court or under any law, that part shall be deemed stricken and all remaining provisions shall continue to be valid and binding upon the parties. 6. Laws, Rules and Regulations. This Agreement and all Customer Orders are subject to all valid applicable federal, state and local laws, rules and regulations of any governmental body or official having jurisdiction. The parties are entitled to treat all laws, orders, rules and regulations issued by any federal or state regulatory body as valid and may act in accordance therewith until such time the same may be invalidated by final judgment in a court of competent jurisdiction. 7. Modification. Any modification of terms or amendment of provisions of this Agreement or a Customer Order will become effective only by written agreement between the parties. 8. Release of Dedication. Each of Customer's markets shall be released from any requirement or dedication to transport gas on Company's system as defined in the Amendment dated January 1, 1996 to the Gas Sales Agreement dated January 1, 1992 between K N Marketing L.P. and Enermart Trust ninety (90) days prior to the expiration date of that market's Gas Sales Order as defined in 13 Exhibit A of the Amendment. Such release shall only apply to those expiration dates which occur after January 1,1997. 9. Minimal Creditworthiness. Company or Customer shall not be required to perform, or continue to perform, any service under this Agreement or a Customer Order in the event either party (i) applies or has applied for bankruptcy, or (ii) one party fails, in the good faith opinion of the other party, to demonstrate minimal creditworthiness. 10. Taxes and Fees. To the extent permitted by law, Customer shall reimburse Company for: (a) any natural gas gathering, occupation, production, inventory, severance or sales taxes, first use tax, gross receipt tax, or taxes similar in nature or equivalent in effect which are now or hereafter imposed or assessed against Company or any transporting entities by any lawful authority as a result of the transportation of natural gas under this Agreement or the production or gathering of such natural gas. (b) any fees or charges by any Governmental agency which Company incurs that are related to any service rendered to Customer under this Agreement. 11. Operating Conditions and Agreements. The services provided by Company to Customer under this Agreement are subject to the various tariffs, statements of compliance, statements of operating conditions, general terms and conditions, transportation agreements, exchange, agreement and general operating conditions of the various Entities at and between the Receipt Point(s) and the Delivery Point(s). 12. Choice of Law and Venue. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. 13. Confidentiality. The terms of this Agreement, including but not limited to, price, rates or fees, the identified transporting pipelines, Transporter(s), and cost of transportation, the quantities of gas, and all other material terms shall be kept confidential by the parties, except to the extent that any information must be disclosed to a third party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either party of its obligations hereunder, ceases to be confidential. 14 COMPANY CUSTOMER K N WESTEX GAS SERVICES COMPANY ENERMART TRUST, a division of Atmos Energy Corporation By: By: ------------------------ ------------------------ Name: Name: ------------------------ ------------------------ Title: Title: ------------------------ ------------------------ Date: Date: ------------------------ ------------------------ 15 CUSTOMER ORDER COMPANY SHALL CAUSE THE TRANSPORTATION OF GAS AS FOLLOWS: (ENERMART-LARGE VOLUME INDUSTRIALS) This Customer Order entered into on January 1, 1996 between K N WESTEX GAS SERVICES COMPANY (Company), and ENERMART TRUST (Customer) is subject to, made a part of and is incorporated by reference into the Gas Service Agreement dated January 1, 1996, between Company and Customer. Term: January 1, 1999 through December 31, 2001 Type of Service: Company shall arrange for firm transportation service as required under the Gas Sales Agreement dated January 1, 1992, but effective August 1, 1991 between K N Marketing , L.P. (formerly Anthem Energy Company, L.P.) and ENERMART TRUST. Receipt Point(s): Interconnection facilities with K N Energy, Inc.'s Buffalo Wallow facilities, subject to the operating limitations of these receipt facilities. Delivery Point(s): All Points of Interconnection between Westar Transmission Company and Customer where Customer receives gas for resale through certain of its facilities Maximum Daily Quantity: Requirements to supply Customer's industrial sales needs. Not to exceed 5,000 MMBtu's per day. Maximum Contract Quantity: For the term of this Customer Order the Maximum Contract Quantity shall be limited by the Maximum Contract Quantity set forth in the Customer Order entered into between EnerMart Trust (EnerMart) and Westar Transmission Company (Westar), and volumes transported hereunder shall be included in the determination of the Maximum Contract Quantity of the EnerMart and Westar Customer Order. Rate (as delivered): $0.2858 per Mcf Special Provisions: In the event that the approved rate for firm transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by the Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service 1 rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. COMPANY CUSTOMER K N WESTEX GAS SERVICES COMPANY ENERMART TRUST, a division of Atmos Energy Corporation By: By: ------------------------ ------------------------ Name: Name: ------------------------ ------------------------ Title: Title: ------------------------ ------------------------ Date: Date: ------------------------ ------------------------ 2 EX-10.9 10 AMENMENT TO GAS SALES AGREEMENT EXHIBIT 10.9 AMENDMENT TO GAS SALES AGREEMENT (Industrials) THIS AMENDMENT, entered into this 1st day of January, 1996, by and between K N MARKETING, L.P. a Texas Limited Partnership (Seller - formerly Anthem Energy Company, L.P.) and EnerMart Trust, a Texas Corporation (Buyer). W I T N E S S E T H WHEREAS, Seller and Buyer have entered into that certain Gas Sales Agreement, dated January 1, 1992, but effective August 1, 1991, covering the gas requirements for certain commercial and industrial EnerMart customers, and WHEREAS, Seller and Buyer desire to amend the Agreement: NOW, THEREFORE, for and in consideration of the mutual covenant and agreement herein contained, Seller and Buyer do hereby mutually agree as follows: I. Article V Price shall be deleted in its entirety and shall be replaced as follows: Buyer shall pay Seller the price(s) specified in each of the Gas Sales Order(s) listed on the attached Exhibit A for the remaining term(s) of each such Gas Sales Order. At least ninety (90) days prior to the expiration of any Gas Sales Order(s), the parties will meet to redetermine the price and other applicable terms. Should the parties not reach an agreement on such price and term then Buyer will transport a quantity of gas to supply Buyer's gas requirements which had previously been supplied under such Gas Sales Order(s) to the respective Delivery Point(s) thereunder. Any such transportation will be under either one of those certain Gas Services Agreements between K N Westex Gas Services Company and EnerMart Trust, dated January 1, 1996, or between Westar Transmission Company and EnerMart Trust dated January 1, 1996. 1 II. The provisions under Article VI TERM shall be deleted in their entirety and shall be replaced as follows: This Agreement shall become effective August 1, 1991 and continue through December 31, 2001; provided, however, that the provisions hereof shall continue to apply to any Gas Sales Order entered into between Seller and Buyer prior to the date of termination of this Agreement until any and all such Gas Sales Orders terminate. III. The Parties hereby agree that all provisions under this Agreement, including, but not limited to Article VII, governing quality, measurement, testing, equipment, pressure, and any other operational matters shall be replaced and superseded by the respective provisions of the Operating Agreement. The "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996 covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. Except as modified by this Amendment, all terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the month, day, and year first above written. BUYER: SELLER: ENERMART TRUST K N MARKETING, L. P. by its General Partner, American Pipeline Company By: By: ------------------------------- ------------------------------- Signature Signature Name: Name: ----------------------------- ----------------------------- Typed/Printed Typed/Printed Title: Title: ---------------------------- ---------------------------- 2 EX-10.10 11 GAS SALES AGR. B/T THE COMPANY AND KN MARKETING EXHIBIT 10.10 GAS SALES AGREEMENT (Base Load) between K N MARKETING, L.P. as "Seller" and ENERGAS COMPANY, a division of Atmos Energy Corporation as "Buyer" Dated: January 1, 1996 State of TEXAS INDEX ARTICLE TITLE PAGE I Definitions.................................... 1 II Quantity....................................... 2 III Delivery Points................................ 3 IV Price and Taxes................................ 4 V Term........................................... 6 VI Notices........................................ 6 VII Measuring Equipment and Testing................ 7 VIII Measurement Specifications..................... 7 IX Quality........................................ 7 X Delivery Pressure.............................. 8 XI Billing, Payment and Audit..................... 8 XII Notification of Curtailment.................... 9 XIII Possession and Responsibility for Gas.......... 9 XIV Title.......................................... 10 XV Force Majeure.................................. 10 XVI Financial Responsibility....................... 11 XVII Governmental Regulations....................... 12 XVIII Entire Agreement............................... 13 XIX Confidentiality................................ 13 XX Successors and Assigns......................... 14 XXI Maintenance of Facilities...................... 14 XXII Indemnification................................ 14 XXIII Third Party Transportation..................... 15 XXIV Headings....................................... 15 XXV Waiver......................................... 15 XXVI Amendments..................................... 15 XXVII Remedies Upon Material Default................. 16 XXVIII Miscellaneous.................................. 16 Signatures..................................... 17 Exhibit "A" - Exemption Certificate............ A-1 GAS SALES AGREEMENT (Base Load) THIS AGREEMENT, dated and effective this 1st day of January, 1996, (the "Effective Date") by and between K N MARKETING, L.P., a Texas Limited Partnership, hereinafter called "Seller", and ENERGAS COMPANY, a division of Atmos Energy Corporation, a Texas Corporation, hereinafter called "Buyer"; W I T N E S S E T H WHEREAS, Seller is the owner of a firm supply of natural gas from which Seller will have available for sale certain volumes of natural gas and Seller desires to sell such firm supplies of gas to Buyer; and WHEREAS, Seller has made certain transportation arrangements with pipeline companies which operate natural gas transmission systems ("Transporter(s)"); and WHEREAS, Buyer desires to purchase from Seller volumes of firm natural gas for resale through Buyer's natural gas distribution facilities in the state of Texas where Seller sells gas to Buyer as of December 31, 1995 ("Buyer's Facilities") in accordance with the terms and conditions of this Agreement; and NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Parties agree as follows: ARTICLE I DEFINITIONS Section 1. "Buyer" means the Party who is purchasing and receiving gas volumes under this Agreement. Section 2. "Seller" means the Party who is selling and delivering gas volumes under this Agreement. Section 3. "Party" or "Parties" means Buyer and/or Seller hereunder, acting by and through duly authorized representatives. 1 Section 4. "Day" means the period of twenty-four consecutive hours commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the following calendar day. The reference date for any day should be the calendar date upon which such twenty-four (24) hour period began. Section 5. "Month" means the period commencing at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the following calendar month. Section 6. "Mcf" means the quantity of gas occupying a volume of one thousand (1000) cubic feet at a temperature of sixty degrees (60 degrees) Fahrenheit and an absolute pressure of fourteen and sixty-five hundredths pounds per square inch (14.65 psia). Section 7. "Base Load Requirements" means the firm gas purchase or firm transportation requirements of Buyer up to and including a total quantity of fifteen (15) million MMBtu per calendar year to serve Buyer's customers through Buyer's Facilities during each calendar year of this Agreement. Section 8. "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5 degrees) Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute ("psia"). Section 9. "MMBtu" means one million (1,000,000) Btu. Section 10. "Operating Agreement" means the agreement between Westar Transmission Company ("Westar") and Energas Company, dated December 1, 1996 covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. ARTICLE II QUANTITY Section 1. Seller will sell and deliver and Buyer will purchase and/or transport Buyer's Base Load Requirements during 2 each calendar year of this Agreement as set forth below. Quantities of gas comprising the Base Load Requirements will be counted as the first gas quantities delivered by Seller through each of the Delivery Point(s) to Buyer each month. Buyer shall purchase under this Agreement a minimum quantity of natural gas of ten (10) million MMBtu during 1996. In the event the City of Odessa elects to supply the requirements for the City of Odessa and part of the Odessa environs for the months of November and December of 1996, then Buyer's purchase requirements of the Base Load Requirements shall be reduced in the month of November, 1996 by an amount of one hundred and thirty-five thousand (135,000) MMBtu and in the month of December, 1996 by an amount of two hundred and twenty-five thousand (225,000) MMBtu. Buyer shall purchase under this Agreement a minimum quantity of natural gas of four and one half (4.5) million MMBtu during 1997. In the event any other of Buyer's municipality markets during 1997 elect to supply the natural gas requirements for such municipality markets, then Buyer's purchase requirements of the Base Load Requirements will be reduced by an amount equal to the amount supplied by such municipality markets. If Buyer does not take the quantity of gas Buyer elected to purchase during any month(s) in 1996 and 1997, then the quantity which Buyer has the right to transport in the next calendar year under this Agreement will be reduced by a quantity equal to the difference in the quantity nominated and the quantity actually taken during the applicable month. Buyer shall transport under either one of those certain Gas Service Agreements between Buyer and KN Westex Gas Services Company dated January 1, 1996 or between Buyer and Westar Transmission Company dated January 1 , 1996 (collectively referred to hereafter as "Service Agreement"), that portion of Buyer's Base Load Requirements that Buyer elects not to purchase from Seller hereunder. Section 2. It is expressly understood and agreed that all gas sold to Buyer is to be used by Buyer to serve only those end use customers who are served by Buyer's Facilities, and any other use of the gas ("Other Use Gas") by Buyer will constitute a 3 material breach of this Agreement, in which case, without limiting any other remedies available to Seller, Seller may immediately cease delivering Other Use Gas to Buyer at the Delivery Point(s). ARTICLE III DELIVERY POINT(S) Section 1. The delivery of gas hereunder shall be subject to the Operating Agreement and shall be at the outlet flange of Transporter(s)' Facilities, at all points of interconnection between Transporter(s) facilities and Buyer, where Buyer receives natural gas from Seller as of December 31, 1995, or subsequently at any other mutually agreed to point(s) to be agreed to in writing by the Parties ("Delivery Point(s)"). ARTICLE IV PRICE AND TAXES Section 1. The price of gas purchased and sold under this Agreement, delivered to Buyer at the Delivery Point(s), shall be as follows: A. 1. For the period January 1, 1996 through July 31, 1996, the price shall be calculated on an Mcf basis and for each Mcf of gas will be equal to the "First Index Basket" (defined below), plus $0.59 per Mcf. 2. The "First Index Basket" referred to in subsection A.1) shall be equal to the arithmetic average of the "prices" stated in dollars per MMBtu in each publication for the delivery month as reported in (i) Natural Gas Week, published by Oil Daily Company in the table titled "Gas Price Report", in the column labeled "Delivered to Pipeline", "This Week" for Texas West Spot, and 4 (ii) Inside F.E.R.C.'s Gas Market Report, published by McGraw-Hill, Inc. for Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" (per MMBtu) under the category labeled "Index". B. For the period August 1, 1996 through December 31, 1996, the price shall be calculated on an MMBtu basis and for each MMBtu will be equal to the "Index Basket" (defined below), plus $0.3042 per MMBtu, plus Westar's transportation rate of $0.2858 per Mcf. C. For 1997, the price for each MMBtu will be equal to the "Index Basket", plus (i) if Buyer elects to purchase less than ten (10) million MMBtu, $0.3042 per MMBtu, plus $0.2858 per Mcf (or the rate described in subsection D below), (ii) if Buyer elects to purchase ten (10) million MMBtu or more, but less than fifteen (15) million MMBtu, $0.1842 per MMBtu, plus $0.2858 per Mcf (or the rate described in subsection D below), or (iii) if Buyer elects to purchase fifteen (15) million MMBtu, $0.1342 per MMBtu, plus $0.2858 per Mcf (or the rate described in subsection D below). D. In the event the approved rate for transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by The Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. E. Commencing January 1, 1998, and each January 1 thereafter for the remaining term of this Agreement, Buyer shall have the option to purchase at a mutually agreeable price from Seller all or any portion of 5 Buyer's Base Load Requirements, and Buyer shall transport that portion of Buyer's Base Load Requirements that Buyer elects not to purchase from Seller hereunder during each calendar year under the Service Agreement. F. The "Index Basket" referred to in B. and C. above shall be equal to the sum of the "prices" stated in dollars per MMBtu of: (i) fifty percent (50%) of the arithmetic average of the index prices listed in each edition of Natural Gas Week, published during the applicable calendar month by Oil Daily Company in the table titled "Gas Price Report", under the column labeled "Delivered to Pipeline", "This Week" for Texas West Spot, and (ii) twenty-five percent (25%) of the first publication in the applicable month of Inside F.E.R.C.'s Gas Market Report, published by McGraw-Hill, Inc. for Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" under the category labeled "Index", and (iii) twenty-five percent (25%) of the index price published in the first edition of the month in Natural Gas Intelligence Gas Price Index for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract Index", the "Intrastate Avg." for the "West Texas/Permian" gas. G. Should any of the indices or publications above become unavailable, Buyer and Seller will use their best efforts to locate another source of this information, or in the event that the information cannot be obtained through another source, Buyer and Seller shall agree upon another index to replace the index which has become unavailable. H. For the months of October, November and December of 1996 only, in addition to the prices specified above, Buyer shall pay Seller for the first gas through the 6 meter at the Delivery Point(s) hereunder an additional amount for the specified volumes, as follows: For October 1996 - 500,000 MMBtu - $0.82 per MMBtu For November 1996 - 1, 365,000 MMBtu - $0.82 per MMBtu For December 1996 - 1,775,000 MMBtu - $0.82 per MMBtu Section 2. In addition to the price to be paid for gas delivered hereunder, Buyer agrees to reimburse Seller for gross receipts taxes, sales taxes, and other similar taxes, which are lawfully imposed on Seller because of the sale or delivery of gas to Buyer hereunder or the gas itself. Statements for such tax reimbursement shall be rendered and paid as provided in accordance with the billing and payments provisions of this Agreement. All taxes levied on such gas after delivery and lawfully imposed on Buyer shall be paid by Buyer. If Buyer claims an exemption from state sales taxes or desires to pay any applicable sales taxes directly to the taxing authority, Buyer will execute the "Exemption Certificate" attached hereto as Exhibit "A" or such other evidence of exemption as may be required by Seller. Applicable rulings or orders of governmental representatives in charge of the administration of any law or ordinance increasing, decreasing or creating any tax shall be binding and conclusive upon Buyer until such time as the invalidity thereof has been finally established by the decision of a court of competent jurisdiction. Buyer shall be entitled to reimbursement from Seller to the extent of any payments made by it to Seller for taxes pursuant to this Article which may subsequently be refunded to Seller by the taxing authority. Buyer shall not be obligated to reimburse Seller for any ad valorem taxes on properties or for taxes which are based upon or measured by the natural gasoline or other liquefied hydrocarbon content extracted from the gas before delivery to Buyer. 7 ARTICLE V TERM Section 1. This Agreement, regardless of when executed, is effective as of the Effective Date, and shall continue thereafter, unless earlier terminated pursuant to the provisions in other Sections of this Agreement, for a term ending on December 31, 2001. ARTICLE VI NOTICES Section 1. Any notice or statement (other than notices to be given under the Price and Taxes Article of this Agreement which shall be by certified mail, return receipt requested), to be given hereunder, unless otherwise specified herein, shall be in writing and shall be deemed delivered as of the postmarked date when deposited in the United States mail, postage prepaid, and addressed to the respective Party at the following addresses or at such other addresses as a Party may designate to the other in writing: SELLER: Notices: K N Marketing, L.P. 333 Clay Street, Suite 2000 Houston, TX 77002 Attention: Gas Sales & T&E Administration Wire Transfer: K N Marketing, L.P. Norwest Banks Colorado, N.A. Denver, Colorado ABA# 102 000 076 A/c# 101-0918-554 BUYER: Notices: ENERGAS COMPANY P.O. Box 650205 Dallas, TX 75265-0205 Attn: Intrastate Gas Supply Statements: ENERGAS COMPANY P.O. Box 650205 Dallas, TX 75265-0205 Attn: Intrastate Gas Supply 8 ARTICLE VII MEASURING EQUIPMENT AND TESTING Section 1. Measuring equipment and testing shall be governed by the Operating Agreement. ARTICLE VIII MEASUREMENT SPECIFICATIONS Section 1. Measurement specifications shall be governed by the Operating Agreement. ARTICLE IX QUALITY Section 1. Quality shall be governed by the Operating Agreement. ARTICLE X DELIVERY PRESSURE Section 1. Delivery pressure shall be governed by the Operating Agreement. ARTICLE XI BILLING, PAYMENT AND AUDIT Section 1. On or before the fifteenth (15th) day of each Month, Seller shall render a statement to Buyer giving the total quantity of gas, expressed in MMBtu and Mcf, delivered and sold hereunder during the preceding Month and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Seller cannot be determined on or before the fifteenth (15th) day of the Month, Seller shall 9 nevertheless invoice Buyer for the amounts that are known and/or are nominated by Buyer, and when the information is available Seller shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. Section 2. Ten (10) days after the statement is received by Buyer, Buyer shall make payment to Seller by wire transfer per the instructions set forth in the Article titled NOTICES. If Buyer disputes the amount of any statement for any reason, Buyer shall notify Seller of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Buyer shall pay the disputed portion of the statement which is determined to be owing to Seller within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Section 4. below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Seller shall refund such amount to Buyer, together with interest at the rate hereinafter set forth below over the period that Seller had possession of the money, within fifteen (15) days after resolution of the dispute. Section 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected Party. Section 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest, at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%), until paid. Section 5. Each Party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other Party which relate to the 10 gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. ARTICLE XII NOTIFICATION OF CURTAILMENT Section 1. Seller and Buyer agree to provide each other with as early a notice as is reasonably practical of any curtailment or cessation of deliveries or receipts due to force majeure or pursuant to this Article. Section 2. Gas delivered under this Agreement shall be subject to curtailment when necessary to protect public health and safety. Such curtailment shall be performed by Seller and/or Transporter in accordance with Seller's and/or Transporter(s)' applicable procedures from time to time in effect and/or on file with the appropriate regulatory agency, and shall not be the basis for any claim for damages sustained by any Party. Section 3. In the event a curtailment of deliveries shall become necessary or advisable, Seller shall notify or cause Transporter(s) to notify Buyer as soon as possible before actual curtailment, if possible, by telephone or other means, of the nature, extent and probable duration of such curtailment. Buyer shall resume the taking of gas within a reasonable length of time following notification that gas is again available. ARTICLE XIII POSSESSION AND RESPONSIBILITY FOR GAS Section 1. As between the Parties hereto, Seller shall be in exclusive control and possession of the gas delivered hereunder and responsible for any damage or injuries caused thereby until the same shall have been delivered to Buyer at the Delivery Point(s) (except to the extent such damages or injuries shall have been caused by the act or omission of Buyer), after which Buyer shall be deemed to be in exclusive control and 11 possession thereof and responsible for any such damages or injuries (except to the extent such damages or injuries shall have been caused by the act or omission of Seller). Each of the Parties hereto agree to indemnify, defend, and hold the other Party harmless from and against any and all claims, liabilities, damage, losses, costs, and expenses (including attorneys' fees) incurred by the indemnified Party arising from or relating to any damages, losses, or injuries for which the indemnifying Party is responsible pursuant to the foregoing sentence. ARTICLE XIV TITLE Section 1. Seller hereby warrants that (i) it has good title to all gas delivered to Buyer hereunder, (ii) it has the right to sell such gas, and (iii) all such gas is free from any and all liens, encumbrances, and adverse claims. Seller agrees to indemnify, defend, and hold Buyer harmless from and against any adverse claims asserted with respect to any gas delivered hereunder. Section 2. Title to the gas shall pass from Seller to Buyer, upon the delivery thereof, at the Delivery Point(s). ARTICLE XV FORCE MAJEURE Section 1. In the event that either Seller or Buyer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such Party has given notice and full particulars of such force majeure in writing to the other Party as soon as possible after the occurrence of the cause relied on, then the obligations of the Parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, 12 be remedied with all reasonable dispatch. The term "force majeure" as employed herein and for all purposes relating hereto shall mean acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, hurricane warnings, crevasses, floods, washouts, arrests and restraints of governments and people, civil disturbances, explosions, breakages or accident to machinery or lines of pipe, the necessity for making repairs or alterations to machinery or lines of pipe, freezing of wells or lines of pipe, partial or entire failure of wells, inability of any Party hereto to obtain necessary materials, supplies, or permits due to existing or future rules, regulations, orders, laws or proclamations of governmental authorities (both federal and state), including both civil and military, any failure due to force majeure by any transporter(s) to deliver Seller's gas to Buyer's facilities or thereafter to transport gas for Buyer, partial or entire failure of Seller's source of supply, and any other causes whether of the kind herein enumerated or otherwise, not within the control of the Party claiming suspension and which by the exercise of due diligence such Party is unable to prevent or overcome; such term shall likewise include (a) the inability of such Party to acquire, or the delays on the part of such Party in acquiring, at reasonable cost and after the exercise of due diligence, any necessary servitudes, right-of-way grants, permits or licenses, and (b) the inability of each Party to acquire, or the delays on the part of such Party in acquiring at reasonable cost and after the exercise of due diligence, any necessary materials and supplies (excluding inability due to the cost of gas or the cost of transportation of gas), permits and permissions. It is understood and agreed that the settlement of strikes, lockouts or other industrial disturbances shall be entirely within the discretion of the Party or Transporter having the difficulty and that the above requirement that any force majeure shall be remedied by the exercise of due diligence shall not require the settlement of strikes or lockouts by acceding to 13 the demands of the opposing party when such course is inadvisable in the discretion of the Party having the difficulty. ARTICLE XVI FINANCIAL RESPONSIBILITY Section 1. If, during the term of this Agreement, Seller, in good faith, determines that the financial responsibility of Buyer has become impaired or unsatisfactory, advance cash payment or other satisfactory security will be given by Buyer upon demand by Seller, and delivery of gas may be withheld until such payment or assurance is received. If such payment or assurance is not received within fifteen (15) days of demand, Seller may terminate this Agreement at any time effective upon the dispatch of written notice. Additionally, if there are instituted by or against either Party hereunder proceedings in bankruptcy or under any insolvency law, the other Party may terminate this Agreement at any time. Section 2. If, during the term of this Agreement, Buyer, in good faith, determines that the financial responsibility of Seller has become impaired or unsatisfactory, a corporate warranty or other satisfactory security will be given by Seller upon demand by Buyer. If such assurance is not received within fifteen (15) days of demand, Buyer may terminate this Agreement at any time effective upon the dispatch of written notice. ARTICLE XVII GOVERNMENTAL REGULATIONS Section 1. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, EXCEPT ANY RULE OR PRINCIPLE OF THE LAWS OF THE STATE OF TEXAS WHICH WOULD REFER THE CONSTRUCTION OF THIS AGREEMENT TO THE LAWS OF ANOTHER STATE. This Agreement shall be subject to all valid laws, regulations or orders of duly constituted governmental authorities having jurisdiction which are applicable 14 to the subject matter hereof and effective from time to time. Seller and Buyer agree to obtain, if possible, whatever authority is necessary, if any, to effectuate the purchase or sale of gas hereunder in the event this Agreement and the purchase or sale of gas hereunder for any reason becomes subject to the jurisdiction of any governmental authority, which at the present time does not have such jurisdiction. Section 2. Notwithstanding any other provision of this Agreement, if at any time during the term of this Agreement, any federal or state law or any rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents Buyer from including in its cost of service for ratemaking purposes to its customers the full amount of any cost incurred under this Agreement which Buyer has agreed to pay Seller hereunder, Buyer shall immediately notify Seller in writing of the price that it is allowed to include in its cost of service for ratemaking purposes for gas purchased under this Agreement. Upon receiving such notification, Seller, at its sole discretion, may choose to either amend the Agreement so that the Buyer can include in its cost of service for ratemaking purposes the full price for gas sold under the Agreement or terminate the Agreement. Seller shall notify Buyer of its choice in writing within twenty-four (24) hours of receiving Buyer's notice. Section 3. Notwithstanding any other provision of this Agreement, if at any time during the term of this Agreement, any federal or state law or any rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents Seller from recovering from Buyer the full price for gas, which Buyer has agreed to pay Seller hereunder, inclusive of any charges assessed as a result of Buyer's failure to take gas, as set forth herein, then Seller shall be excused from delivering gas, effective prospectively from the date that Buyer receives written notice from Seller of the pertinent rule, order, opinion, enactment or regulation. Each time that Seller invokes this right to be excused from taking or delivering gas pursuant to this paragraph, the Parties may renegotiate an acceptable price, or, 15 at any time during renegotiation or in lieu of renegotiation, terminate this Agreement immediately. Section 4. In addition, if any federal or state law, rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents either Party from receiving the full benefits as bargained for under this Agreement and in any way prevents either Party from exercising its right to terminate or cease deliveries under this Agreement, this Agreement shall be deemed to have terminated one (1) day prior to the attempted implementation of such governmental action unless the Party whose benefit is diminished agrees to waive this clause in writing in which case the Agreement shall be deemed to be reinstated. ARTICLE XVIII ENTIRE AGREEMENT Section 1. This Agreement contains the entire agreement of the Parties with respect to the matters covered. No other agreement, statement or promise not contained herein shall be binding or valid. ARTICLE XIX CONFIDENTIALITY Section 1. The terms of this Agreement, including but not limited to the price paid for gas, the identified transporting pipelines and cost of transportation, the quantities of gas purchased and sold and all other material terms shall be kept confidential by the Parties, except to the extent that any information must be disclosed to a third Party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information 16 is in the public domain, or which, through no breach by either Party of its obligations herein, ceases to be confidential. ARTICLE XX SUCCESSORS AND ASSIGNS Section 1. This Agreement may not be assigned by either Party without the consent of the other Party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a Party. Such assignment shall not relieve the assigning Party of its obligations under this Agreement. Section 2. Either Party may assign its rights, title, and interest in, to, and under this Agreement to a trustee or trustees, individual or corporate, as security for bonds or other obligations or securities, without such trustee or trustees assuming or becoming in any respect obligated to perform the obligations of the assignor under this Agreement, and, if any such trustee be a corporation, without its being required to qualify to do business in any state in which any performance of this Agreement may occur. However, such assignment for security purposes shall not relieve the assigning Party of any of its obligations under this Agreement. Section 3. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns, and is intended solely for the benefit of Seller and Buyer and their respective successors and assigns, and not for the benefit of any other person or entity not a Party hereto. ARTICLE XXI MAINTENANCE OF FACILITIES Section 1. Maintenance of facilities shall be governed by the Operating Agreement. 17 ARTICLE XXII INDEMNIFICATION Section 1. Buyer and Seller shall each indemnify, defend, and save harmless the other including their employees and agents from and against any and all loss, damage, injury, liability, and claims for injury to or death of persons (including any employee of Buyer or Seller), or for loss or damage to property (including the property of Buyer or Seller), to the extent that such losses, damages, injuries, or claims result from the negligence of the indemnifying Party in its performance of its obligations arising pursuant to this Agreement (including the installation, maintenance, and operation of property, equipment, and facilities) or any other operations under this Agreement. ARTICLE XXIII THIRD-PARTY TRANSPORTATION Section 1. Buyer and Seller acknowledge that Seller will be obtaining transportation from third parties in order to have the gas covered hereby delivered to the Delivery Point(s). In the event such transportation is interrupted or terminated by an event of force majeure as defined in Article XV, Seller shall be fully excused for its failure to deliver gas hereunder. ARTICLE XXIV HEADINGS Section 1. The descriptive headings of the provisions of this Agreement are formulated and used for convenience only and shall not be deemed to affect the meaning or construction of any such provisions. 18 ARTICLE XXV WAIVER Section 1. No waiver by either Party of any one or more defaults by the other in the performance of the provisions of this Agreement shall operate or be construed as a waiver of any other default or defaults, whether of a like or a different character. ARTICLE XXVI AMENDMENTS Section 1. The terms and conditions of this Agreement may not be amended except by the written agreement of the Parties. ARTICLE XXVII REMEDIES UPON MATERIAL DEFAULT Section 1. If either Party hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, then in such event the non-defaulting Party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non-defaulting Party shall cause a written notice to be served on the defaulting Party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting Party to terminate this Agreement if the default is not cured. The defaulting Party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and, if within such ten-day period, the defaulting Party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting Party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting Party fails to remedy or remove the cause or causes or to indemnify the non-defaulting Party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no 19 further force or effect from and after the expiration of such ten-day period. Section 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Seller to collect any amounts then due Seller for gas delivered prior to the time of termination, (ii) without prejudice to the rights of Buyer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting Party may be entitled. ARTICLE XXVIII MISCELLANEOUS Section 1. This Agreement shall be deemed drafted and prepared equally and jointly regardless of which Party prepared or submitted the Agreement to the other. Section 2. Buyer and Seller hereby cancel, supersede, and replace any and all previous agreements between Buyer and Seller which include, cover, or pertain in any manner to the delivery of gas to Buyer at the Delivery Points. Section 3. Except for the Parties hereto and their successors and assigns, no person, including without limitation any owner of a royalty or overriding royalty interest, shall have any rights as a third Party beneficiary or otherwise under this Agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed. "BUYER" "SELLER ENERGAS Company, a division of K N MARKETING, L.P. Atmos Energy Corporation By its Managing General Partner, American Pipeline Company By: By: ----------------------- ----------------------- 20 Name: Name: ----------------------- ----------------------- Title: Title: ----------------------- ----------------------- 21 EXHIBIT "A" to Gas Sales Agreement dated January 1, 1996 between K N Marketing, L.P. ("Seller") and ENERGAS COMPANY, a division of Atmos Energy Corporation ("Buyer") EXEMPTION CERTIFICATE For Natural Gas Delivered By K N Marketing, L.P. To ENERGAS COMPANY Buyer's Direct Payment Permit Number: ---------------------- Buyer's Address: P.O. Box 650205, Dallas, Texas 75265-0205 The undersigned hereby claims an exemption from payment of taxes under Tax Code, Vernon Texas Code Annotated, Chapter 151, for the purchase and delivery of natural gas from Seller. The reason that Buyer is claiming this exemption is: - ------------------------------------------------------------- - ------------------------------------------------------------- - ------------------------------------------------------------- Buyer will be liable for payment of the Limited Sales and Use Tax if Buyer uses the natural gas in some manner other than the reason listed above, and shall pay the tax based on the price paid for the natural gas. This exemption is claimed for, and this exemption certificate shall apply to, all gas delivered to Buyer by Seller on and after the date hereof, and shall be effective until revoked by written notice to Seller by Buyer. If this exemption is disallowed for any reason by the State for any part or all of the gas delivered, Buyer will accrue and pay direct to the State any tax and penalty due. Executed this the day of , 19 . -------- ------------------ --- By: ----------------------------- Signature Name: ----------------------------- Type /Print Title: ----------------------------- EX-10.11 12 GAS SALES AGR. B/T KN MARKETING AND ENERMART TRUST EXHIBIT 10.11 GAS SALES AGREEMENT (Irrigation) between K N MARKETING, L.P. as "Seller" and ENERMART TRUST as "Buyer" Dated: March 1, 1996 State of TEXAS I N D E X ARTICLE TITLE PAGE I Definitions 1 II Quantity 2 III Delivery Points 3 IV Price and Taxes 3 V Term 4 VI Notices 4 VII Measuring Equipment and Testing 5 VIII Measurement Specifications 5 IX Quality 5 X Delivery Pressure 6 XI Billing, Payment and Audit 6 XII Notification of Curtailment 7 XIII Possession and Responsibility for Gas 7 XIV Title 8 XV Force Majeure 8 XVI Financial Responsibility 9 XVII Governmental Regulations 10 XVIII Entire Agreement 11 XIX Confidentiality 11 XX Successors and Assigns 12 XXI Maintenance of Facilities 12 XXII Indemnification 13 XXIII Third Party Transportation 13 XXIV Headings 13 XXV Waiver 13 XXVI Amendments 14 XXVII Remedies Upon Material Default 14 XXVIII Miscellaneous 15 Signatures 15 Exhibit "A" - Exemption Certificate A-1 GAS SALES AGREEMENT (Irrigation) THIS AGREEMENT, dated and effective this 1st day of March, 1996, (the "Effective Date") by and between K N MARKETING, L.P., a Texas Limited Partnership, hereinafter called "Seller", and ENERMART TRUST, a Pennsylvania Business Trust, hereinafter called "Buyer"; W I T N E S S E T H WHEREAS, Seller is the owner of a supply of firm natural gas from which Seller will have available for sale certain volumes of natural gas; and WHEREAS, Seller has made certain transportation arrangements with pipeline companies which operate natural gas transmission systems ("Transporter(s)") ; and WHEREAS, Buyer desires to purchase volumes of firm natural gas to use as fuel gas for its irrigation customers in accordance with the terms and conditions of this Agreement; and NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Parties agree as follows: ARTICLE I DEFINITIONS Section 1. "Buyer" means the Party who is purchasing and receiving gas volumes under this Agreement. Section 2. "Seller" means the Party who is selling gas volumes under this Agreement. Section 3. "Party" or "Parties" means Buyer and/or Seller hereunder, acting by and through duly authorized representatives. Section 4. "Day" means the period of twenty-four consecutive hours commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the following calendar day. The reference date for any day should be the calendar date upon which such twenty-four (24) hour period began. Section 5. "Month" means the period commencing at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the following calendar month. Section 6. "Mcf" means the quantity of gas occupying a volume of one thousand (1000) cubic feet at a temperature of sixty (60) degrees Fahrenheit and an absolute pressure of fourteen and sixty-five hundredths pounds per square inch (14.65 psia). Section 7. "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5 degrees) Fahrenheit to fifty-nine and five tenths (59.5 degrees) Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute ("psia"). Section 8. "MMBtu" means one million (1,000,000) Btu. Section 9. "Operating Agreement" means the agreement between Energas Company, and Westar Transmission Company dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. ARTICLE II QUANTITY Section 1. A. During the period March 1, 1996 through December 31, 1998, Seller will sell and deliver and Buyer will purchase and receive all of Buyer's requirements from Seller hereunder to serve all of Buyer's irrigation fuel gas markets existing as of December 31, 1995. B. Beginning January 1, 1999 and continuing through the remaining term of this Agreement, Buyer shall have the option to either (i) purchase from Seller all or any portion of Buyer's irrigation fuel gas requirements, or (ii) transport any such portion of Buyer's irrigation fuel gas requirements not purchased from Seller hereunder, under either one of those certain Gas Service Agreements between EnerMart Trust and KN Westex Gas Services Company dated January 1, 1996 or between EnerMart Trust and Westar Transmission Company dated January 1, 1996. Section 2. It is expressly understood and agreed that all gas sold to Buyer is to be used by Buyer solely for Buyer's 2 irrigation fuel gas markets, and any other use of the gas ("Other Use Gas") by Buyer will constitute a material breach of this Agreement, in which case, without limiting any other remedies available to Seller, Seller may immediately cease delivering Other Use Gas to Buyer at the Delivery Point(s). ARTICLE III DELIVERY POINT(S) Section 1. The delivery of gas hereunder shall be subject to the Operating Agreement and shall be at the outlet flange of Transporter(s) facilities at all points of interconnection between Transporter(s) facilities and Buyer where Buyer receives irrigation fuel gas from Seller as of December 31, 1995, or subsequently at any other mutually agreeable point(s) to be agreed to in writing by the Parties ("Delivery Point(s)"). ARTICLE IV PRICE AND TAXES Section 1. For the period beginning March 1, 1996 through February 28, 1997, the price of each Mcf of gas purchased and sold hereunder, delivered to Buyer at the Delivery Point(s), shall be $2.117. Section 2. At least ninety (90) days prior to each of the periods of (i) March 1, 1997 through February 28, 1998, and (ii) March 1, 1998 through December 31, 1998, the Parties shall meet and negotiate in good faith to establish a price on an MMBtu basis for gas purchased and sold hereunder, taking into consideration the type and level of services provided by Seller and the prevailing market conditions. Such mutually agreed to price shall be effective on the applicable March 1. Section 3. Beginning January 1, 1999, and for the remaining term of this Agreement, the price payable by Buyer to Seller may be renegotiated for all or any portion of Buyer's irrigation fuel gas requirements. Any portion of Buyer's irrigation fuel gas requirements not purchased from Seller hereunder will be transported under either one of those certain Gas Service Agreements between the EnerMart Trust and KN Westex 3 Gas Services Company dated January 1, 1996 or Westar Transmission Company. Section 4. In addition to the price to be paid for gas delivered hereunder, Buyer agrees to reimburse Seller for gross receipts taxes, sales taxes, and other similar taxes, which are lawfully imposed on Seller because of the sale or delivery of gas to Buyer hereunder or the gas itself. Statements for such tax reimbursement shall be rendered and paid as provided in accordance with the billing and payment provisions of this Agreement. All taxes levied on such gas after delivery and lawfully imposed on Buyer shall be paid by Buyer. If Buyer claims an exemption from state sales taxes or desires to pay any applicable sales taxes directly to the taxing authority, Buyer will execute the "Exemption Certificate" attached hereto as Exhibit "A" or such other evidence of exemption as may be required by Seller. Applicable rulings or orders of governmental representatives in charge of the administration of any law or ordinance increasing, decreasing, or creating any tax shall be binding and conclusive upon Buyer and Seller until such time as the invalidity thereof has been finally established by the decision of a court of competent jurisdiction. Buyer shall be entitled to reimbursement from Seller to the extent of any payments made by it to Seller for taxes pursuant to this Article which may subsequently be refunded to Seller by the taxing authority. Buyer shall not be obligated to reimburse Seller for any ad valorem taxes on properties or for taxes which are based upon or measured by the natural gasoline or other liquefied hydrocarbon content extracted from the gas before delivery to Buyer. ARTICLE V TERM Section 1. This Agreement, regardless of when executed, is effective as of the Effective Date, and shall continue thereafter, unless earlier terminated pursuant to the provisions in other Sections of this Agreement, for a term ending on December 31, 2001. 4 ARTICLE VI NOTICES Section 1. Any notice or statement (other than notices to be given under the Price and Taxes Article of this Agreement which shall be by certified mail, return receipt requested) to be given hereunder, unless otherwise specified herein, shall be in writing and shall be deemed delivered as of the postmarked date when deposited in the United States mail, postage prepaid, and addressed to the respective Party at the following addresses or at such other addresses as a Party may designate to the other in writing: SELLER: Notices: K N Marketing, L.P. 333 Clay Street, Suite 2000 Houston, TX 77002 Attention: Gas Sales & T&E Administration Wire Transfer: K N Marketing, L.P. Norwest Banks Colorado, N.A. Denver, Co ABA# 102 000 076 A/C# 101-0918-554 BUYER: Notices: ENERMART TRUST P.O. Box 650205 Dallas, TX 75265-0205 Attn: Intrastate Gas Supply Statements: ENERMART TRUST P.O. Box 650205 Dallas, TX 75265-0205 Attn: Intrastate Gas Supply ARTICLE VII MEASURING EQUIPMENT AND TESTING Section 1. Measuring equipment and testing shall be governed by the Operating Agreement. 5 ARTICLE VIII MEASUREMENT SPECIFICATIONS Section 1. Measurement specifications shall be governed by the Operating Agreement. ARTICLE IX QUALITY Section 1. Quality shall be governed by the Operating Agreement. ARTICLE X DELIVERY PRESSURE Section 1. Delivery Pressure shall be governed by the Operating Agreement. ARTICLE XI BILLING, PAYMENT AND AUDIT Section 1. On or before the fifteenth (15th) day of each Month, Seller shall render a statement to Buyer giving the total quantity of gas, expressed in Mcf's or MMBtu's, as the case may be, delivered and sold hereunder during the preceding Month and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Seller cannot be determined on or before the fifteenth (15th) day of the Month, Seller shall nevertheless invoice Buyer for the amounts that are known and/or are nominated by Buyer, and when the information is available Seller shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. Section 2. Ten (10) days after the statement is received by Buyer, Buyer shall make payment to Seller by wire transfer per the instructions set forth in the Article titled NOTICES. If Buyer disputes the amount of any statement for any reason, Buyer shall notify Seller of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Buyer shall pay the disputed portion of the statement which is 6 determined to be owing to Seller within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Section 4. below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Seller shall refund such amount to Buyer, together with interest at the rate hereinafter set forth below over the period that Seller had possession of the money, within fifteen (15) days after resolution of the dispute. Section 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected Party. Section 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest, at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%), until paid. Section 5. Each Party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other Party which relate to the gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. ARTICLE XII NOTIFICATION OF CURTAILMENT Section 1. Seller and Buyer agree to provide each other with as early a notice as is reasonably practical of any curtailment or cessation of deliveries or receipts due to Force Majeure or pursuant to this Article. Section 2. Gas delivered under this Agreement shall be subject to curtailment when necessary to protect public health 7 and safety. Such curtailment shall be performed by Seller and/or Transporter(s) in accordance with Seller's and/or Transporter(s)' applicable procedures from time to time in effect and/or on file with the appropriate regulatory agency, and shall not be the basis for any claim for damages sustained by any Party. Section 3. In the event a curtailment of deliveries shall become necessary or advisable, Seller shall notify, or cause Transporter(s) to notify, Buyer as soon as possible before actual curtailment, if possible, by telephone, or other means, of the nature, extent and probable duration of such curtailment. Buyer shall resume the taking of gas within a reasonable length of time following notification that gas is again available. ARTICLE XIII POSSESSION AND RESPONSIBILITY FOR GAS Section 1. As between the Parties hereto, Seller shall be in exclusive control and possession of the gas delivered hereunder and responsible for any damage or injuries caused thereby until the same shall have been delivered to Buyer at the Delivery Point(s) (except to the extent such damages or injuries shall have been caused by the act or omission of Buyer), after which Buyer shall be deemed to be in exclusive control and possession thereof and responsible for any such damages or injuries (except to the extent such damages or injuries shall have been caused by the act or omission of Seller). Each of the Parties hereto agree to indemnify, defend and hold the other Party harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses (including attorneys' fees) incurred by the indemnified Party arising from or relating to any damages, losses, or injuries for which the indemnifying Party is responsible pursuant to the foregoing sentence. ARTICLE XIV TITLE Section 1. Seller hereby warrants that (i) it has good title to all gas delivered to Buyer hereunder, (ii) it has the right to sell such gas, and (iii) all such gas is free from any 8 and all liens, encumbrances, and adverse claims. Seller agrees to hold Buyer harmless from and against any adverse claims asserted with respect to any gas delivered hereunder. Section 2. Title to the gas shall pass from Seller to Buyer, upon the delivery thereof, at the Delivery Point(s). ARTICLE XV FORCE MAJEURE Section 1. In the event that either Seller or Buyer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such Party has given notice and full particulars of such force majeure in writing to the other Party as soon as possible after the occurrence of the cause relied on, then the obligation of the Parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" as employed herein and for all purposes relating hereto shall mean acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, hurricane warnings, crevasses, floods, washouts, arrests and restraints of governments and people, civil disturbances, explosions, breakages or accident to machinery or lines of pipe, the necessity for making repairs or alterations to machinery or lines of pipe, freezing of wells or lines of pipe, partial or entire failure of wells, inability of any Party hereto to obtain necessary materials, supplies (excluding inability due to the cost of gas or the cost of transportation of gas), or permits due to existing or future rules, regulations, orders, laws or proclamations of governmental authorities (both federal and state), including both civil and military, any failure due to force majeure by any transporter(s) to deliver Seller's gas to Buyer's facilities or thereafter to transport gas for Buyer, partial or entire failure of Seller's 9 source of supply, and any other causes whether of the kind herein enumerated or otherwise, not within the control of the Party claiming suspension and which by the exercise of due diligence such Party is unable to prevent or overcome; such term shall likewise include (a) the inability of such Party to acquire, or the delays on the part of such Party in acquiring, at reasonable cost and after the exercise of due diligence, any necessary servitudes, right-of-way grants, permits or licenses, and (b) the inability of each Party to acquire, or the delays on the part of such Party in acquiring at reasonable cost and after the exercise of due diligence, any necessary materials and supplies, permits and permissions. It is understood and agreed that the settlement of strikes, lockouts or other industrial disturbances shall be entirely within the discretion of the Party or a transporter having the difficulty and that the above requirement that any force majeure shall be remedied by the exercise of due diligence shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing Party when such course is inadvisable in the discretion of the Party having the difficulty. ARTICLE XVI FINANCIAL RESPONSIBILITY Section 1. If, during the term of this Agreement, Seller, in good faith, determines that the financial responsibility of Buyer has become impaired or unsatisfactory, advance cash payment or other satisfactory security will be given by Buyer upon demand by Seller, and delivery of gas may be withheld until such payment or assurance is received. If such payment or assurance is not received within fifteen (15) days of demand, Seller may terminate this Agreement at any time effective upon the dispatch of written notice. Additionally, if there are instituted by or against either Party hereunder; proceedings in bankruptcy or under any insolvency law, the other Party may terminate this Agreement at any time. Section 2. If, during the term of this Agreement, Buyer, in good faith, determines that the financial responsibility of 10 Seller has become impaired or unsatisfactory, a corporate warranty or other satisfactory security will be given by Seller upon demand by Buyer. If such assurance is not received within fifteen (15) days of demand, Buyer may terminate this Agreement at any time effective upon the dispatch of written notice. ARTICLE XVII GOVERNMENTAL REGULATIONS Section 1. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, EXCEPT ANY RULE OR PRINCIPLE OF THE LAWS OF THE STATE OF TEXAS WHICH WOULD REFER THE CONSTRUCTION OF THIS AGREEMENT TO THE LAWS OF ANOTHER STATE. This Agreement shall be subject to all valid laws, regulations or orders of duly constituted governmental authorities having jurisdiction which are applicable to the subject matter hereof and effective from time to time. Seller and Buyer agree to obtain, if possible, whatever authority is necessary, if any, to effectuate the purchase, sale or transportation of gas hereunder in the event this Agreement and the purchase, sale or transportation of gas hereunder for any reason become subject to the jurisdiction of any governmental authority, which at the present time does not have such jurisdiction. Section 2. Notwithstanding any other provision of this Agreement, if at any time during the term of this Agreement, any federal or state law or any rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents Buyer from including in its cost of service for ratemaking purposes to its customers the full amount of any cost incurred under this Agreement which Buyer has agreed to pay Seller hereunder, Buyer shall immediately notify Seller in writing of the price that it is allowed to include in its cost of service for ratemaking purposes for gas purchased under this Agreement. Upon receiving such notification, Seller, at its sole discretion, may choose to either amend the Agreement so that the Buyer can include in its cost of service for ratemaking purposes the full price for gas sold under the Agreement or terminate the 11 Agreement. Seller shall notify Buyer of its choice in writing within twenty-four (24) hours of receiving Buyer's notice. Section 3. Notwithstanding any other provision of this Agreement, if at any time during the term of this Agreement, any federal or state law or any rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents Seller from recovering from Buyer the full price for gas, which Buyer has agreed to pay Seller hereunder, inclusive of any charges assessed as a result of Buyer's failure to take gas, as set forth herein, then Seller shall be excused from delivering gas, effective prospectively from the date that Buyer receives written notice from Seller of the pertinent rule, order, opinion, enactment or regulation. Each time that Seller invokes this right to be excused from taking or delivering gas pursuant to this paragraph, the Parties may renegotiate an acceptable price, or, at any time during renegotiation or in lieu of renegotiation, terminate this Agreement immediately. Section 4. In addition, if any federal or state law, rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents either Party from receiving the full benefits as bargained for under this Agreement and in any way prevents either Party from exercising its right to terminate or cease deliveries under this Agreement, this Agreement shall be deemed to have terminated one (1) day prior to the attempted implementation of such governmental action unless the Party whose benefit is diminished agrees to waive this clause in writing in which case the Agreement shall be deemed to be reinstated. ARTICLE XVIII ENTIRE AGREEMENT Section 1. This Agreement contains the entire agreement of the Parties with respect to the matters covered. No other agreement, statement or promise not contained herein shall be binding or valid. 12 ARTICLE XIX CONFIDENTIALITY Section 1. The terms of this Agreement, including but not limited to the price paid for gas, the identified transporting pipelines and cost of transportation, the quantities of gas purchased and sold and all other material terms shall be kept confidential by the Parties, except to the extent that any information must be disclosed to a third Party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either Party of its obligations herein, ceases to be confidential. ARTICLE XX SUCCESSORS AND ASSIGNS Section 1. This Agreement may not be assigned by either Party without the consent of the other Party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a Party. Such assignment shall not relieve the assigning Party of any of its obligations under this Agreement. Section 2. Either Party may assign its rights, title, and interest in, to, and under this Agreement to a trustee or trustees, individual or corporate, as security for bonds or other obligations or securities, without such trustee or trustees assuming or becoming in any respect obligated to perform the obligations of the assignor under this Agreement, and, if any such trustee be a corporation, without its being required to qualify to do business in any state in which any performance of this Agreement may occur. However, such assignment for security purposes shall not relieve the assigning Party of any of its obligations under this Agreement. Section 3. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns, and is intended solely for the benefit of Seller and Buyer and their respective 13 successors and assigns, and not for the benefit of any other person or entity not a Party hereto. ARTICLE XXI MAINTENANCE OF FACILITIES Section 1. Maintenance of facilities shall be governed by the Operating Agreement. ARTICLE XXII INDEMNIFICATION Section 1. Buyer and Seller shall each indemnify, defend, and save harmless the other including their employees and agents from and against any and all loss, damage, injury, liability, and claims for injury to or death of persons (including any employee of Buyer or Seller), or for loss or damage to property (including the property of Buyer or Seller), to the extent that such losses, damages, injuries or claims result from the negligence of the indemnifying Party in its performance of its obligations arising pursuant to this Agreement (including the installation, maintenance, and operation of property, equipment, and facilities) or any other operations under this Agreement. ARTICLE XXIII THIRD-PARTY TRANSPORTATION Section 1. Buyer and Seller acknowledge that Seller will be obtaining transportation from third Parties in order to have the gas covered hereby delivered to the Delivery Point(s). In the event such transportation is interrupted or terminated by an event of force majeure as defined in Article XV, Seller shall be fully excused for its failure to deliver gas hereunder. ARTICLE XXIV HEADINGS Section 1. The descriptive headings of the provisions of this Agreement are formulated and used for convenience only and shall not be deemed to affect the meaning or construction of any such provisions. 14 ARTICLE XXV WAIVER Section 1. No waiver by either Party of any one or more defaults by the other in the performance of the provisions of this Agreement shall operate or be construed as a waiver of any other default or defaults, whether of a like or a different character. ARTICLE XXVI AMENDMENTS Section 1. The terms and conditions of this Agreement may not be amended except by the written agreement of the Parties. ARTICLE XXVII REMEDIES UPON MATERIAL DEFAULT Section 1. If either Party hereto shall fail to perform any material covenant or obligation imposed upon under this Agreement, then in such event the non-defaulting Party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non- defaulting Party shall cause a written notice to be served on the defaulting Party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting Party to terminate this Agreement if the default is not cured. The defaulting Party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and, if within such ten-day period, the defaulting Party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting Party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting Party fails to remedy or remove the cause or causes or to indemnify the non-defaulting Party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no 15 further force or effect from and after the expiration of such ten-day period. Section 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Seller to collect any amounts then due Seller for gas delivered prior to the time of termination, (ii) without prejudice to the rights of Buyer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting Party may be entitled. ARTICLE XXVIII MISCELLANEOUS Section 1. This Agreement shall be deemed drafted and prepared equally and jointly regardless of which Party prepared or submitted the Agreement to the other. Section 2. Buyer and Seller hereby cancel, supersede, and replace any and all previous agreements which include, cover, or pertain in any manner to the delivery of gas to Buyer at the Delivery Points. Section 3. Except for the Parties hereto and their successors and assigns, no person, including without limitation any owner of a royalty or overriding royalty interest, shall have any rights as a third Party beneficiary or otherwise under this Agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed. "BUYER" ENERMART TRUST By: --------------------------- Signature Name: --------------------------- Type / Print 16 Title: --------------------------- "SELLER" K N MARKETING, L.P. By its Managing General Partner, American Pipeline Company By: --------------------------- Signature Name: --------------------------- Type / Print Title: --------------------------- 17 EXHIBIT "A" to Gas Sales Agreement dated March 1, 1996 between K N Marketing, L.P. ("Seller") and EnerMart Trust ("Buyer") EXEMPTION CERTIFICATE For Natural Gas Delivered By K N Marketing, L.P. ("Seller") To EnerMart Trust ("Buyer") Buyer's Direct Payment Permit Number: ----------------------------------------- Buyer's Address: P.O. Box 650205, Dallas, Texas 75265-0205 -------------------------------------------------------------- The undersigned hereby claims an exemption from payment of taxes under Tax Code, Vernon Texas Code Annotated, Chapter 151, for the purchase and delivery of natural gas from Seller. The reason that Buyer is claiming this exemption is: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Buyer will be liable for payment of the Limited Sales and Use Tax if Buyer uses the natural gas in some manner other than the reason listed above, and shall pay the tax based on the price paid for the natural gas. This exemption is claimed for, and this exemption certificate shall apply to, all gas delivered to Buyer by Seller on and after the date hereof, and shall be effective until revoked by written notice to Seller by Buyer. If this exemption is disallowed for any reason by the State for any part or all of the gas delivered, Buyer will accrue and pay direct to the State any tax and penalty due. Executed this the day of , 19 . -------- ------------------ ---- By: --------------------------------- Signature Name: --------------------------------- Type /Print Title: -------------------------------- A-1 EX-10.12 13 GAS SALES AGREEMENT B/T THE COMPANY AND WESTAR EXHIBIT 10.12 AMENDMENT TO GAS SALES AGREEMENT THIS AMENDMENT, made and entered into as of the 1st day of January, 1996 (Effective Date), by and between WESTAR TRANSMISSION COMPANY, a Delaware Corporation (Seller), and ENERGAS COMPANY, a division of Atmos Energy Corporation, a Texas Corporation (Buyer); W I T N E S S E T H WHEREAS, Seller and Buyer are successors in interest to a Gas Sales Agreement dated January 1, 1986, as amended (Agreement), between Westar Transmission Company, and Energas Company; and WHEREAS, Seller and Buyer now desire to make certain changes and modifications to the Agreement which are more fully described below. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, Seller and Buyer do hereby mutually agree to amend the Agreement on the Effective Date as follows: I. DEFINITIONS All Sections of Article I shall be deleted in their entirety and replaced with the following: Section 1. "Buyer" means the party who is purchasing and receiving gas volumes under this Agreement. Section 2. "Seller" means the party who is selling and delivering gas volumes under this Agreement. Section 3. "Party" or "Parties" means Buyer and/or Seller hereunder, acting by and through duly authorized representatives. Section 4. "Day" means the period of twenty-four consecutive hours commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the following calendar day. The reference date for any day should be the calendar date upon which such twenty-four (24) hour period began. Section 5. "Month" means the period commencing at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the following calendar month. 1 Section 6. "Mcf" means the quantity of gas occupying a volume of one thousand (1000) cubic feet at a temperature of sixty (60) degrees Fahrenheit and an absolute pressure of fourteen and sixty-five hundredths pounds per square inch (14.65 psia). Section 7. "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths (58.5) degrees Fahrenheit to fifty-nine and five tenths (59.5) degrees Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute (psia). Section 8. "MMBtu" means one million (1,000,000) Btu. Section 9. "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. Section 10. "Buyer's West Texas System" means Energas' West Texas System, excluding Energas' Dalhart/Channing System and Energas' Fritch/Sanford System. II. QUANTITY Sections 1, 2 and 3 of Article II shall be deleted in their entirety and replaced with the following: Section 1. If and to the extent any of Buyer's other suppliers of natural gas fail to deliver any volumes of natural gas that such other suppliers are obligated to deliver for Buyer's West Texas System requirements, Seller shall sell to Buyer hereunder all of the natural gas requirements of Buyer on Buyer's West Texas System. III. DELIVERY POINT(S) Section 1 of Article III shall be deleted and replaced with the following: Section 1. The delivery of gas hereunder shall be subject to the Operating Agreement and shall be at the outlet flange of Seller's facilities, at all points of interconnection between Seller's facilities and Buyer, where Seller sells gas to Buyer as of December 31, 1995, or subsequently at any other mutually agreed to point(s) to be agreed to in writing by the parties ("Delivery Point(s)"). 2 IV. DELIVERY PRESSURE Section 1 of Article IV shall be deleted and replaced with the following: Section 1. The delivery pressure shall be governed by Article V and related provisions of the Operating Agreement. V. METERING All Sections under Article V shall be deleted in their entirety and be replaced with the following: Section 1. Metering shall be governed by Article II and related provisions of the Operating Agreement. VI. UNITS OF VOLUME Section 1 of Article VI shall be deleted in its entirety and replaced with the following: Section 1. Units of volume shall be governed by Article III and related provisions of the Operating Agreement. VII. MEASUREMENT All Sections of Article VII are deleted in their entirety and replaced with the following: Section 1. All measurement of gas hereunder shall be governed by Article III and related provisions of the Operating Agreement. VIII. PRICE All Sections under Article VIII shall be deleted in their entirety and be replaced with the following: Section 1. The price per Mcf during the term of this Agreement shall equal Seller's margin in effect on the date of delivery as approved by the appropriate regulatory authority plus the Weighted Average Cost of Gas as defined in Article VIII, Section 2, below. 3 Section 2. The Weighted Average Cost of Gas for any month shall be calculated by dividing the Available Gas Volume into the Gas Acquisition Cost. The "Gas Acquisition Cost" shall be composed of: A) Third Party (Non-affiliate) Purchases. Amounts paid for the volumes delivered into the Seller's Transmission System during such month at wellheads, at field lines, at plant outlets, and at transmission lines under the provisions of the applicable contract involved. "Amounts paid" shall also include the amortization of prepayments based on actual gas deliveries of the gas related to that prepayment; and B) Affiliate Purchases. Each purchase from an affiliate shall be priced at the lower of: 1) What the Seller actually paid the affiliate; 2) The AWACOG for such month calculated without consideration of affiliate purchases; 3) The price for the same item or class of items which the supplying affiliate sold to another affiliate or to a third party; 4) The Weighted Average Cost of Purchases (WACOP) from third parties (non-affiliates) for such month; and C) Exchange Receipts. An amount calculated by multiplying the net gas received into Seller's Transmission system during such month by the previous month's AWACOG. The "Exchange Receipts" component shall be deleted from "Gas Acquisition Cost" at the earlier of: 1) September 30, 1989 or 2) When the cumulative exchange receipts dollars used in the AWACOG calculation for the period beginning October 1, 1988 equals the value of the net exchange balance on September 30, 1988. D) Storage Withdrawals. An amount calculated by multiplying the total volume of 4 gas withdrawn from storage during the month by the AWACOG for the month that the gas was injected into storage. This is in accordance with the first-in first-out methodology for valuing working gas in storage. E) Delivery Costs. The "Delivery Costs" shall be composed of the amounts paid for delivery of gas into Seller's Transmission System for resale to Buyer in situations where the supplier cannot make delivery into such system, thus reflecting the cost of delivery to the initial point of receipt into Seller's Transmission System. The "Delivery Cost" shall also include amounts paid for transportation between points on Seller's Transmission System when such off-system transportation is required by: 1) Operational necessity and efficiency or 2) An emergency situation. The "Available Gas Volumes" shall be composed of the following gas volumes delivered into the Seller's Transmission System during such month: AA) Third Party (Non-affiliate) Purchase Volumes. Volumes delivered at wellheads, at field lines, at plant outlets and at transmission lines under the provisions of the applicable contracts involved; and BB) Affiliate Purchase Volumes. Volumes purchased by Seller from affiliates; and CC) Exchange Receipts Volumes. Volumes representing net gas received under gas exchange agreements. The exchange receipts volumes shall be eliminated from the AWACOG calculation simultaneously with the deletion of "Exchange Receipts" as provided in "C)" above; and DD) Storage Withdrawal Volumes. Total storage gas volumes withdrawn. 5 IX. BILLING AND PAYMENT All Sections under Article IX shall be deleted in their entirety and replaced with the following: Section 1. On or before the fifteenth(15th) day of each Month, Seller shall render a statement to Buyer giving the total quantity of gas, expressed in Mcf, delivered and sold hereunder during the preceding Month and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the amount due Seller cannot be determined on or before the fifteenth (15th) day of the Month, Seller shall nevertheless invoice Buyer for the amounts that are known and/or are nominated by Buyer, and when the information is available Seller shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. Section 2. Ten (10) days after the statement is received by Buyer, Buyer shall make payment to Seller by wire transfer per the instruction set forth in the Article titled "NOTICES". If Buyer disputes the amount of any statement for any reason, Buyer shall notify Seller of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Buyer shall pay the disputed portion of the statement which is determined to be owing to Seller within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Section 4 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Seller shall refund such amount to Buyer, together with interest at the rate hereinafter set forth below over the period that Seller had possession of the money, within fifteen (15) days after resolution of the dispute. Section 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected party. Section 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest, at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%), until paid. Section 5. Each party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other party which relate to the gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. 6 X. QUALITY All Sections under Article X shall be deleted in their entirety and be replaced with the following: Section 1. Quality shall be governed by Article IV and related provisions of the Operating Agreement. XI. FORCE MAJEURE Section 2 of Article XII shall be amended by deleting the word "telegraph" and replacing it with the words "telefacsimile or other electronic means". XII. NOTICES Under Section 1 of Article XIII, everything following the word "addresses:" shall be deleted, and the following shall be substituted therefor: SELLER: Notices: Westar Transmission Company 333 Clay Street, Suite 2000 Houston, Texas 77002 Attention: Gas Sales and T&E Administration Wire Transfer: Westar Transmission Company Norwest Banks Colorado, N.A. Denver, Colorado ABA # 102 000 076 A/c # 101-0918-554 BUYER: Notices: ENERGAS COMPANY P.O. Box 650205 Dallas, Texas 75265-0205 Attn: Intrastate Gas Supply Statements: ENERGAS COMPANY P.O. Box 650205 Dallas, Texas 75265-0205 Attn: Intrastate Gas Supply 7 XIII. MAINTENANCE OF FACILITIES Section 1 of Article XV shall be deleted in its entirety and be replaced with the following: Section 1. Maintenance of facilities shall be governed by Article VII and related provisions of the Operating Agreement. XIV. DURATION OF AGREEMENT Section 1 of Article XVI shall be deleted in its entirety and be replaced with the following: Section 1. This Agreement shall be effective as of the date hereof for deliveries on and after January 1, 1986, and shall continue in full force and effect until December 31, 2001; provided, that the term shall continue until December 31, 2003 to provide backup gas service to that certain Gas Sales Agreement entered into between KN Marketing L.P. and Energas on July 1, 1995 for Energas' gas requirements for the Sanford/Fritch systems. XV. INDEMNIFICATION Seller and Buyer hereby agree to add the following language to Article XVII: Section 2. In the event that deliveries to Buyer hereunder are interrupted for any reason other than force majeure, as defined in Article XII, Section 1, or pursuant to priority of service and curtailment standards promulgated by the Railroad Commission of Texas, Seller shall reimburse Buyer for any out-of-pocket expenses related to such interruption of deliveries. XVI. MISCELLANEOUS Sections 3 and 5 of Article XVIII shall be deleted in their entirety and be replaced with the following: Section 3. [THIS SECTION LEFT INTENTIONALLY BLANK] Section 5. [THIS SECTION LEFT INTENTIONALLY BLANK] 8 XVII. GOVERNMENTAL REGULATIONS A new Section 3 shall be added to Article XIX as follows: Section 3. Deliveries by Seller hereunder are subject to the curtailment standards from time to time promulgated by the Railroad Commission of Texas (or any successor regulatory agency) and which are applicable to Seller's operations. XVIII. Buyer and Seller agree that all amendments to the Agreement entered into between the parties between the dates January 1, 1986 and December 31, 1995, are hereby deleted in their entirety and are no longer effective as of January 1, 1996; except for that certain amendment entitled "AGREEMENT" between Cabot Gas Supply Corporation (CGSC) and Energas Company (Energas) dated December 9, 1988 wherein CGSC and Energas amended Section 3 of the "City Gate Rate Supply Contract", which shall remain in full force and effect and be fully incorporated into the Agreement. It is the intent of the parties that the Agreement, the amendment dated December 9, 1988 entitled "Agreement", and this Amendment To Gas Sales Agreement shall be the only three (3) documents as of the Effective Date which reflect the agreement of the parties with respect to the matters described herein. Except as herein amended, the Agreement shall remain in full force and effect in accordance with the terms thereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the Effective Date. BUYER: SELLER: ENERGAS COMPANY WESTAR TRANSMISSION COMPANY a division of Atmos Energy Corporation By: By: --------------------------------- ------------------------------- Signature Signature Name: Name: ------------------------------- ----------------------------- Typed/Printed Typed/Printed Title: Title: ------------------------------ ---------------------------- 9 EX-10.13 14 GAS SALES AGR. B/T THE COMPANY AND KN MARKETING EXHIBIT 10.13 GAS SALES AGREEMENT (Swing) between K N MARKETING, L.P. as "Seller" and ENERGAS COMPANY, a division of Atmos Energy Corporation as "Buyer" Dated: January 1, 1996 State of TEXAS INDEX ARTICLE TITLE PAGE 1 Definitions......................................... 1 II Quantity............................................ 3 III Delivery Points..................................... 3 IV Price and Taxes..................................... 3 V Term................................................ 6 VI Notices............................................. 8 VII Measuring Equipment and Testing..................... 8 VIII Measuring Specifications............................ 8 IX Quality............................................. 9 X Delivery Pressure................................... 9 XI Billing, Payment and Audit.......................... 9 XII Notification of Curtailment......................... 10 XIII Possession and Responsibility for Gas............... 10 XIV Title............................................... 11 XV Force Majeure....................................... 11 XVI Financial Responsibility............................ 12 XVII Government Regulations.............................. 12 XVIII Entire Agreement.................................... 14 XIX Confidentiality..................................... 15 XX Successors and Assigns.............................. 15 XXI Maintenance of Facilities........................... 15 XXII Indemnification..................................... 16 XXIII Third Party Transportation.......................... 16 XXIV Headings............................................ 16 XXV Waiver.............................................. 16 XXVI Amendments.......................................... 16 XXVII Remedies Upon Material Default...................... 17 XXVIII Miscellaneous....................................... 17 Signatures.......................................... 18 Exhibit "A" - Exemption Certificate................. A-1 GAS SALES AGREEMENT (Swing) THIS AGREEMENT, dated and effective this 1st day of January, 1996, (the "Effective Date") by and between K N MARKETING, a Texas Limited Partnership, hereinafter called "Seller", and ENERGAS COMPANY, a division of Atmos Energy Corporation, a Texas Corporation, hereinafter called "Buyer"; WITNESSETH WHEREAS, Seller is the owner of a supply of firm natural gas from which Seller will have available for sale certain volumes of natural gas and Seller desires to sell such firm supplies of gas to Buyer; and WHEREAS, Seller has made certain transportation arrangements with pipeline companies which operate natural gas transmission systems ("Transporter(s)"); and WHEREAS, Buyer desires to purchase from Seller volumes of firm natural gas for resale through certain of its distribution facilities in the state of Texas where Seller sells gas to Buyer as of December 31, 1995, including Amarillo Supplemental Requirements ("Buyer's Facilities") in accordance with the terms and conditions of this Agreement; and NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Parties agree as follows: ARTICLE I DEFINITIONS Section 1. "Buyer" means the Party who is purchasing and receiving gas volumes under this Agreement. Section 2. "Seller means the Party who is selling and delivering gas volumes under this Agreement. Section 3. "Party" or "Parties" means Buyer and/or Seller hereunder, acting by and through duly authorized representatives. Section 4. "Day" means the period of twenty-four consecutive hours commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the following calendar day. The reference date for any day should be the calendar date upon which such twenty-four (24) hour period began. Section 5. "Month" means the period commencing at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the following calendar month. Section 6. "Mcf" means the quantity of gas occupying a volume of one thousand (1000) cubic feet at a temperature of sixty (60) degrees Fahrenheit and an absolute pressure of fourteen and sixty-five hundredths pounds per square inch (14.65 psia). 1 Section 7. "Base Load Requirements" means the firm gas purchase or firm transportation requirements of Buyer up to and including a total quantity of fifteen (153 million MMBtu per calendar year as set forth in the Base Load Agreement between the Parties dated January 1, 1996. Section 8. "Swing Load Requirements" means the quantity of gas required by Buyer in excess of Buyer's Base Load Requirements' up to Buyer's total system requirements. Section 9. "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths (58.5) degrees Fahrenheit to fifty-nine and five tenths (59.5) degrees Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. Section 10. "MMBtu" means one million (1,000,000) Btu. Section 11. "Operating Agreement" means the agreement between Westar Transmission Company ("Westar") and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. Section 12. "No-Notice Load Requirements' means Swing Load Requirements required by Buyer which exceeds a daily "Threshold Level". The Threshold Lever is 135,000 MMBtu per day. The Threshold Level may be reviewed annually by both Parties and adjusted upward or downward by mutual agreement to compensate for changes in Buyer's Swing Load Requirements. Seller will estimate the No-Notice Load Requirements on a daily basis by subtracting the Threshold Level from Buyer's total estimated Swing Load Requirements sales. At the end of each month Buyer's estimated No-Notice Load Requirements will be actualized by adjusting the daily estimated volumes proportionally to Buyer's measured monthly Swing Load Requirements sales. Buyer's estimated Swing Load Requirements volume will be calculated daily by deducting from Seller's estimate of the combined total daily sales and transported volumes for Buyer and Buyer's affiliates EnerMart Trust (Enermart), and Egasco, Inc., (Egasco) in the following manner: A. The daily average volume of Buyer's Baseload Requirements purchased from Seller. B. Enermart industrial volumes will be deducted as an average daily volume of the total monthly sales by Seller to or transportation for Enermart for the applicable month; plus C. Enermart's and Egasco's irrigation volumes will be deducted as follows: 1. For the months of November through February, irrigation volumes be deducted as an average daily volume of the actual total sales made by Seller to Enermart and Egasco for the applicable month; 2. For the months of March through October, irrigation volumes will be deducted according to Enermart's and Egasco's daily irrigation forecasted volumes, which will be adjusted proportionally, so that the sum of the daily forecast will be equal to the total actual 2 irrigation sales made by Seller for the month. D. Buyer's and Enermart's and Egasco's transportation volumes will be deducted according to the confirmed volumes nominated at the Delivery Point(s) on Westar Transmission Company's pipeline system. Section 13. "Amarillo Supplemental Requirements" means requirements of Buyer's Amarillo distribution system, less the quantity of gas purchased by Buyer from the Fain Plant, or other suppliers for resale in the Amarillo distribution system and less the quantity of supplemental supplies purchased from others. ARTICLE II QUANTITY Section 1. Commencing on the Effective Date of this Agreement Seller agrees to sell and deliver to Buyer and Buyer agrees to purchase and receive firm quantities of natural gas on a Swing Load Requirements and a No-Notice Load Requirements basis to satisfy all of Buyer's natural gas requirements in Buyer's West Texas Service area and any of Buyer's Amarillo Supplemental Requirements in excess of Buyer's Base Load Requirements. Section 2. It is expressly understood and agreed that all gas sold to Buyer is to be used by Buyer to serve its end use customers solely within Buyer's Facilities, and any other use of the gas ("Other Use Gas") by Buyer will constitute a material breach of this Agreement, in which case, without limiting any other remedies available to Seller, Seller may immediately cease delivering Other Use Gas to Buyer at the Delivery Point(s). ARTICLE III DELIVERY POINT(S) Section 1. The delivery of gas hereunder shall be subject to the Operating Agreement and shall be at the outlet flange of Transporter(s)' facilities at all points of interconnection between Transporter(s) facilities and Buyer, where Buyer receives gas from Seller as of December 31, 1995, or subsequently at any other mutually agreeable point(s) to be agreed to in writing by the Parties ("Delivery Point(s)"). ARTICLE IV PRICE AND TAXES Section 1. The price of gas purchased and sold hereunder as Swing Load Requirements, delivered to Buyer at the Delivery Point(s), shall be determined as follows: A. 1. For the period January 1, 1996 through July 31, 1996, the price shall be calculated on an Mcf 3 basis and for each Mcf of gas will be equal to the "First Index Basket" (defined below), plus $0.96 per Mcf. 2. The "First Index Basket" referred to in subsection 1) shall be equal to the arithmetic average of the "prices" stated in dollars per MMBtu in each publication for the delivery month as reported in (i) Natural Gas Week, published by Oil Daily Company in the table Gas Price Report", in the column labeled "Delivered to Pipeline", "This Week' for Texas West Spot, and (ii) Inside F.E.R.C.'s Gas Market Report, published by McGraw-Hill, Inc. for Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" (per MMBtu) under the category labeled "Index". B. 1. For the period August 1, 1996 through December 31, 2001, the price shall be calculated on a MMBtu basis and each MMBtu of gas purchased and sold shall be equal to the "Index Basket" plus: a) for 1996- $0.6742 per MMBtu plus the Westar transportation rate of S0.2858 per Mcf. b) for 1997- S0.6342 per MMBtu plus the Westar transportation rate of S0.2858 per Mcf. c) for 199S S0.6042 per MMBtu plus the Westar transportation rate of S0.2858 per Mcf. d) for 1999 through 2001- S0.3042 per MMBtu plus the Westar transportation rate of S0.2858 per Mcf. 2. In the event the approved rate for transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the S0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by The Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. 3. The "Index Basket" referred to above shall be equal to the sum of the "prices" stated in dollars per MMBtu of: (i) fifty percent (50%) of the arithmetic average of the index prices listed in each edition of Natural Gas Week, published during the applicable calendar month by Oil Daily Company in the table titled "Gas Price Report", under the column labeled "Delivered to Pipeline", "This Week" for Texas West Spot, and (ii) twenty five percent (25%) of the first publication in the applicable month of Inside F.E.R.C.'s Gas Market Report, published by McGraw-Hill, Inc. for 4 Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" under the category labeled "Index", and (iii) twenty five percent (25%) of the index price published in the first edition of the month in Natural Gas Intelligence Gas Price Index for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract lndex, the "Intrastate Avg." for the "West Texas/Permian" gas. Section 2. The price of gas sold hereunder as No-Notice Load Requirements delivered to Buyer at the Delivery Point(s), shall be equal to the Swing Load Requirements price, except on those days Critical Days) when the "Gas Daily Index Basket" as published on such days, plus $0.225 per MMBtu, plus the Westar transportation rate of $0.2858 per Mcf (or the transportation rate described in section B.2 above) exceeds the Swing Load Requirements price. On Critical Days, the price for No-Notice Load Requirements shall be the arithmetic average of the "Gas Daily Index Basket" as published on the Critical Day and as published on the subsequent business day (business day for purposes of this Section 2 is defined as any day on which there is a Gas Daily Publication), plus $0.225 per MMBtu, plus the Westar transportation rate of S0.2858 per Mcf (or the transportation rate described in section B.2) above). For any non-business days (days on which there is no Gas Daily Publication) in which No-Notice Load Requirements service is provided, the No-Notice Load Requirements price will be the Swing Load Requirements price, except when the "Gas Daily Index Basket" as published on the subsequent business day, plus S0.225 per MMBtu, plus the Westar transportation rate of S0.2858 per Mcf (or the transportation rate described in section B.2) above) exceeds the Swing Load Requirements price, in which case the No-Notice Load Requirements price will be the "Gas Daily Index Basket" as published on such subsequent business day, plus $0.225 per MMBtu, plus the Westar transportation rate of $0.2858 per Mcf (or the transportation rate described in section B.2) above). "The Gas Daily Index Basket" is equal to the arithmetic average of the mid point prices stated in dollars per MMBtu, as reported in Gas Daily, published by Pasha Publications Inc. the Houston edition, in the table titled "Daily Price Survey", in the category labeled "Permian Basin Area" in the column for the "Daily Midpoint" under the heading "Delivery In" for "Tex intras, Waha area" and the category labeled "North-Texas Panhandle" in the column for the "Daily Midpoint" under the heading "Delivery In" for "Northern (Mid 10)". The No-Notice Load Requirements pricing method shall remain in effect through December 31, 1998. After that date that price will be subject to renegotiation of both parties for the 1999 contract year and each contract year through the remainder of the term. In the event the parties cannot agree on a new 5 pricing method for the applicable contract year, each party shall submit to the other in writing the name of an individual to serve as an "arbitrator". Such persons shall have at least fifteen (15) years of experience in the natural gas business and shall not be employees or affiliates of the Buyer or Seller. With fifteen (15) days of the selection of the two arbitrators, the two arbitrators shall select a third arbitrator who shall have at least fifteen (15) years of experience in the natural gas business and shall not be employees or affiliates of the Buyer or Seller. If the two arbitrators are unable to agree on a third arbitrator, the selection of the remaining arbitrator shall be conducted pursuant to the rules of the American Arbitration Association governing the selection of arbitrators when the parties have failed to do so. Both parties may submit whatever information they wish to the three arbitrators who shall set a meeting for the parties to present their respective arguments to the arbitrators within thirty (30) days after the selection of the third arbitrator. On or before fifteen days after the meeting the arbitrators shall set the pricing method for the sale of gas as No-Notice Load Requirements for the applicable contract year, and notify the parties orally followed by written confirmation. The decision of the arbitrators shall be final and binding upon the parties. Section 3. Should any of the indices or publications above become unavailable, Buyer and Seller will use their best efforts to locate another source of this information, or in the event that the information cannot be obtained through another source. Buyer and Seller shall agree upon another index to replace the index which has become unavailable. Section 4. In addition to the price to be paid for gas delivered hereunder, 8uyer agrees to reimburse Seller for gross receipts taxes, sales taxes, and other similar taxes, which are lawfully imposed on Seller because of the sale or delivery of gas to Buyer hereunder or the gas itself. Statements for such tax reimbursement shall be rendered and paid as provided in accordance with the billing and payment provisions of this Agreement. All taxes levied on such gas after delivery and lawfully imposed on Buyer shall be paid by Buyer. If Buyer claims an exemption from state sales taxes or desires to pay any applicable sales taxes directly to the taxing authority, Buyer will execute the "Exemption Certificate attached hereto as Exhibit "A" or such other evidence of exemption as may be required by Seller. Applicable rulings or orders of governmental representatives in charge of the administration of any law or ordinance increasing, decreasing or creating any tax shall be binding and conclusive upon Buyer until such time as the invalidity thereof has been finally established by the decision of a court of competent jurisdiction. Buyer shall be entitled to reimbursement from Seller to the extent of any payments made by it to Seller for taxes pursuant to this Article which may subsequently be refunded to Seller by the taxing authority. Buyer shall not be obligated to reimburse Seller for any ad valorem taxes on properties or for taxes which are based upon or measured by the natural gasoline or other liquifiable 6 hydrocarbon content extracted from the gas before delivery to Buyer. ARTICLE V TERM Section 1. This Agreement, regardless of when executed, is effective as of the Effective Date, and shall continue thereafter, unless earlier terminated pursuant to the provisions in other Sections of this Agreement, for a term ending on December 31, 2001. ARTICLE VI NOTICES Section 1. Any notice or statement (other than notices to be given under the Price and Taxes Article of this Agreement which shall be by certified mail, return receipt requested) to be given hereunder, unless otherwise specified herein, shall be in writing and shall be deemed delivered as of the postmarked date when deposited in the United States mail, postage prepaid, and addressed to the respective Party at the following addresses or at such other addresses as a Party may designate to the other in writing: SELLER: Notices: K N Marketing. L.P. 333 Clay Street, Suite 2000 Houston, TX 77002 Attention: Gas Sales & T&E Administration Wire Transfer: K N Marketing, L P. Norwest Banks Colorado, N.A. Denver, CO ABA# 102 000 076 A/c# 101 -091 O554 BUYER: Notices: ENERGAS COMPANY P.O. Box 650205 Dallas, TX 75265-0205 Attn: Intrastate Gas Supply Statements: ENERGAS COMPANY P.O. Box 650205 Dallas, TX 75265-0205 Attn: Intrastate Gas Supply 7 ARTICLE VII MEASURING EQUIPMENT AND TESTING Section 1. Measuring equipment and testing shall be governed by the Operating Agreement. ARTICLE VIII MEASUREMENT SPECIFICATIONS Section 1. Measurement specifications shall be governed by the Operating Agreement. ARTICLE IX QUALITY Section 1. Quality shall be governed by the Operating Agreement. ARTICLE X DELIVERY PRESSURE Section 1. Delivery pressure shall be governed by the Operating Agreement. ARTICLE Xl B1LLING. PAYMENT AND AUDIT Section 1. On or before the fifteenth (15th) day of each Month, Seller shall render a statement to Buyer giving the total quantity of gas, expressed in MMBtu and Mcf, delivered and sold hereunder during the preceding Month and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the amount due Seller cannot be determined on or before the fifteenth (15th) day of the Month, Seller shall nevertheless invoice Buyer for the amounts that are known and/or are nominated by Buyer, and when the information is available Seller shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. Section 2. Ten (10) days after the statement is received by Buyer, Buyer shall make payment to Seller by wire transfer per the instruction set forth in the Article titled NOTICES. If Buyer disputes the amount of any statement for any reason, Buyer shall notify Seller of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Buyer shall pay the disputed portion of the statement which is determined to be owing to Seller within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Section 4. 8 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Seller shall refund such amount to Buyer, together with interest at the rate hereinafter set forth below over the period that Seller had possession of the money, within fifteen (15) days after resolution of the dispute. Section 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected Party. Section 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest, at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%), until paid. Section 5. Each Party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other Party which relate to the gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. ARTICLE Xll NOTIFICATION OF CURTAILMENT Section 1. Seller and Buyer agree to provide each other with as early a notice as is reasonably practical of any curtailment or cessation of deliveries or receipts due to force majeure or pursuant to this Article. Section 2. Gas delivered under this Agreement shall be subject to curtailment when necessary to protect public health and safety. Such curtailment shall be performed by Seller and/or Transporter in accordance with Seller's and/or Transporter(s)' applicable procedures from time to time in effect and/or on file with the appropriate regulatory agency, and shall not be the basis for any claim for damages sustained by any Party. Section 3. In the event a curtailment of deliveries shall become necessary or advisable, Seller, shall notify or cause Transporter(s) to notify, Buyer as soon as possible before actual curtailment, if possible, by telephone, or other means, of the nature, extent and probable duration of such curtailment. Buyer shall resume the taking of gas within a reasonable length of following notification that gas is again available. ARTICLE XlII POSSESSION AND RESPONSIBILITY FOR GAS Section 1. As between the Parties hereto, Seller shall be in exclusive control and possession of the gas delivered 9 hereunder and responsible for any damage or injuries caused thereby until the same shall have been delivered to Buyer at the Delivery Point(s) (except to the extent such damages or injuries shall have been caused by the act or omission of Buyer), after which Buyer shall be deemed to be in exclusive control and possession thereof and responsible for any such damages or injuries (except to the extent such damages or injuries shall have been caused by the act or omission of Seller). Each of the Parties hereto agrees to indemnify, defend, and hold the other Party harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses (including attorneys' fees) incurred by the indemnified Party arising from or relating to any damages, losses, or injuries for which indemnifying Party is responsible pursuant to the foregoing sentence. ARTICLE XIV TITLE Section 1. Seller hereby warrants that (i) it has good title to all gas delivered to Buyer hereunder, (ii) it has the fight to sell such gas, and (iii) all such gas is free from any and all liens, encumbrances, and adverse claims. Seller agrees to indemnify, defend, and hold Buyer harmless from and against any adverse claims asserted with respect to any gas delivered hereunder. Section 2. Title to the gas shall pass from Seller to Buyer, upon the delivery thereof, at the Delivery Point(s). ARTICLE XV FORCE MAJEURE Section 1. In the event that either Seller or Buyer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such Party has given notice and full particulars of such force majeure in writing to the other Party as soon as possible after the occurrence of the cause relied on, then the obligations of the Parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" as employed herein and for all purposes relating hereto shall mean acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, hurricane wamings, crevasses, floods, washouts, arrests and restraints of governments and people, civil disturbances, explosions, breakages or accident to machinery or lines of pipe, the necessity for making repairs or alterations to machinery or lines of pipe, freezing of wells or lines of pipe, partial or entire failure of wells, inability of 10 any Party hereto to obtain necessary materials, supplies, or permits due to existing or future rules, regulations, orders, laws or proclamations of governmental authorities (both federal and state' including both civil and military, any failure due to force majeure by any Transporter(s) deliver Seller's gas to Buyer's facilities or thereafter to transport gas for Buyer, partial or entire failure of Seller's source of supply, and any other causes whether of the kind herein enumerated or otherwise, not within the control of the Party claiming suspension and which by the exercise of due diligence such Party is unable to prevent or overcome; such term shall likewise include (a) the inability of such Party to acquire, or the delays on the part of such Party in acquiring, at reasonable cost and after the exercise of due diligence, any necessary servitudes, right-of-way grants, permits or licenses, and (b) the inability of each Party to acquire, or the delays on the part of such Party in acquiring at reasonable cost and after the exercise of due diligence, any necessary materials and supplies (excluding any inability due to the cost of gas or the cost of transportation of gas), permits and permissions. It is understood and agreed that the settlement of strikes, lockouts or other industrial disturbances shall be entirely within the discretion of the Party or Transporter having the difficulty and that the above requirement that any force majeure shall be remedied by the exercise of due diligence shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the Party having the difficulty. ARTICLE XVI FINANCIAL RESPONSIBILITY Section 1. If, during the term of this Agreement, Seller, in good faith, determines that the financial responsibility of Buyer has become impaired or unsatisfactory, advance cash payment or other satisfactory security will be given by Buyer upon demand by Seller, and delivery of gas may be withheld until such payment or assurance is received. If such payment or assurance is not received within fifteen (15) days of demand, Seller may terminate this Agreement at any time effective upon the dispatch of written notice. Additionally, if there are instituted by or against either Party hereunder proceedings in bankruptcy or under any insolvency law, the other Party may terminate this Agreement at any time. Section 2. If, during the term of this Agreement, Buyer, in good faith, determines that the financial responsibility of Seller has become impaired or unsatisfactory, a corporate warranty or other satisfactory security will be given by Seller upon demand by Buyer. If such assurance is not received within fifteen (15) days of demand, Buyer may terminate this Agreement at any time effective upon the dispatch of written notice. 11 ARTICLE XVII GOVERNMENTAL REGULATIONS Section 1. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, EXCEPT ANY RULE OR PRINCIPLE OF THE LAWS OF THE STATE OF TEXAS WHICH WOULD REFER THE CONSTRUCTION OF THIS AGREEMENT TO THE LAWS OF ANOTHER STATE. This Agreement shall be subject to all valid laws, regulations or orders of duly constituted governmental authorities having jurisdiction which are applicable to the subject matter hereof and effective from time to time. Seller and Buyer agree to obtain, if possible, whatever authority is necessary, if any, to effectuate the purchase, sale or transportation of gas hereunder in the event this Agreement and the purchase, sale or transportation of gas hereunder for any reason become subject to the jurisdiction of any governmental authority, which at the present time does not have such jurisdiction. Section 2. Notwithstanding any other provision of this Agreement, if at any time during the term of this Agreement, any federal or state law or any rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents Buyer from including in its cost of service for ratemaking purposes to its customers the full amount of any cost incurred under this Agreement which Buyer has agreed to pay Seller hereunder, Buyer shall immediately notify Seller in writing of the price that it is allowed to include in its cost of service for ratemaking purposes for gas purchased under this Agreement. Upon receiving such notification, Seller, at its sole discretion, may choose to either amend the Agreement so that the Buyer can include in its cost of service for ratemaking purposes the full price for gas sold under the Agreement or terminate the Agreement. Seller shall notify Buyer of its choice in writing within twenty-four (24) hours of receiving Buyer's notice. Section 3. Notwithstanding any other provision of this Agreement, if at any time during the term of this Agreement, any federal or state law or any rule, order, opinion, enactment or regulation of any governmental authority or of any court, prevents Seller from recovering from Buyer the full price for gas, which Buyer has agreed to pay Seller hereunder, inclusive of any charges assessed as a result of Buyer's failure to take gas, as set forth herein, then Seller shall be excused from delivering gas, effective prospectively from the date that Buyer receives written notice from Seller of the pertinent rule, order, opinion, enactment or regulation. Each time that Seller invokes this right to be excused from taking or delivering gas pursuant to this paragraph, the Parties may renegotiate an acceptable price, or, at any time during renegotiation or in lieu of renegotiation, terminate this Agreement immediately. Section 4. In addition, if any federal or state law, rule, order, opinion, enactment or regulation of any governmental authority or of any court prevents, either Party from receiving the full benefits as bargained for under this Agreement and in any way prevents either Party from exercising its right to terminate or cease deliveries under this Agreement, this Agreement shall be deemed to have terminated one (1) day prior 12 to the attempted implementation of such governmental action unless the Party whose benefit is diminished agrees to waive this clause in writing in which case the Agreement shall be deemed to be reinstated. ARTICLE XVIII ENTIRE AGREEMENT Section 1. This Agreement contains the entire agreement of the Parties with respect to the matters covered. No other agreement, Statement or promise not contained herein shall be binding or valid. ARTICLE XIX CONFIDENTIALITY Section 1. The terms of this Agreement, including but not limited to the price paid for gas, the identified transporting pipelines and cost of transportation, the quantities of gas purchased and sold and all other material terms shall be kept confidential by the Parties except to the extent that any information must be disclosed to a third party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either Party of its obligations herein, ceases to be confidential. ARTICLE XX SUCCESSORS AND ASSIGNS Section 1. This Agreement may not be assigned by either Party without the consent of the other Party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a Party. Such assignment shall not relieve the assigning Party of any of its obligations under this Agreement. Section 2. Either Party may assign its rights, We, and interest in, to, and under this Agreement to a trustee or trustees, individual or corporate, as security for bonds or other obligations or securities, without such trustee or trustees assuming or becoming in any respect obligated to perform the obligations of the assignor under this Agreement, and, if any such trustee be a corporation, without its being required to qualify to do business in any state in which any performance of this Agreement may occur. However, such assignment for security purposes shall not relieve the assigning 13 Party of any of its obligations under this Agreement. Section 3. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns, and is intended solely for the benefit of Seller and Buyer and their respective successors and assigns, and not for the benefit of any other person or entity not a Party hereto. ARTICLE XXI MAINTENANCE OF FACILITIES Section 1. Maintenance of facilities shall be governed by the Operating Agreement. ARTICLE XXII INDEMNIFICATION Section 1. Buyer and Seller shall each indemnify, defend, and save harmless the other including their employees and agents from and against any and all loss, damage, injury, liability, and claims for injury to or death of persons (including any employee of Buyer or Seller), or for loss or damage to property (including the property of Buyer or Seller), to the extent that such losses, damages, injuries, or claims result from the negligence of the indemnifying Party in its performance of its obligations arising pursuant to this Agreement (including the installation, maintenance, and operation of property, equipment, and facilities) or any other operations under this Agreement. ARTICLE XXIII THIRD-PARTY TRANSPORTATION Section 1. Buyer and Seller acknowledge that Seller will be obtaining transportation from third parties in order to have the gas covered hereby delivered to the Delivery Point(s). In the event such third party transportation is interrupted or terminated by an event of force majeure as defined in Article XV, Seller shall be fully excused for its failure to deliver gas hereunder. ARTICLE XXIV HEADINGS Section 1. The descriptive headings of the provisions of this Agreement are formulated and used for convenience only and shall not be deemed to affect the meaning or construction of any such provisions. 14 ARTICLE XXV WAIVER Section 1. No waiver by either Party of any one or more defaults by the other in the performance of the provisions of this Agreement shall operate or be construed as a waiver of any other default or defaults, whether of a like or a different character. ARTICLE XXVI AMENDMENTS Section 1. The terms and conditions of this Agreement may not be amended except by the written agreement of the Parties. ARTICLE XXVII REMEDIES UPON MATERIAL DEFAULT Section 1. If either Party hereto shall fail to perform any material covenant of obligation imposed upon it under this Agreement, then in such event the non-defaulting Party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non-defaulting Party shall cause a written notice to be served on the defaulting Party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting Party to terminate this Agreement if the default is not cured. The defaulting Party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes and fully indemnifies the non-defaulting Party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting Party fails to remedy or remove the cause or causes or indemnify the non-defaulting Party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no further force or effect from and after the expiration of such ten-day period. Section 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Seller to collect any amounts then due Seller for gas delivered prior to the time of termination, (ii) without prejudice to the rights of Buyer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting Party may be entitled. 15 ARTICLE XXVIII MISCELLANEOUS Section 1. This Agreement shall be deemed drafted and prepared equally jointly regardless of which Party prepared or submitted the Agreement to the other. Section 2. Except for the Parties hereto and their successors and assigns, no person, including without limitation any owner of a royalty or overriding royalty interest, shall have any rights as a third party beneficiary or otherwise under this Agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed. "BUYER" "SELLER" ENERGAS Company, KN MARKETING, L.P. a division of By its Managing Atmos Energy Corporation General Partner American Pipeline Company By: By: ------------------------------ ------------------- Name: Name: ------------------------------ ------------------- Title: Title: ------------------------------ ------------------- 16 EXHIBIT "A" to Gas Sales Agreement dated January 1,1996 between K N MARKETING, L.P. ("Seller') and ENERGAS COMPANY, a division of Atmos Energy Corporation ("Buyer") EXEMPTION CERTIFICATE For Natural Gas Delivered By K N MARKETING, L.P. ("Seller") To ENERGAS COMPANY ("Buyer") Buyer's Direct Payment Permit Number: ------------------------- Buyer's Address: P.O. Box 650205, Dallas, Texas 75265-0205 The undersigned hereby claims an exemption from payment of taxes under Tax Code, Vernon Texas Code Annotated, Chapter 151, for the purchase and delivery of natural gas from Seller. The reason that Buyer is claiming this exemption is: - ---------------------------------------------------------------- - ---------------------------------------------------------------- - ---------------------------------------------------------------- Buyer will be liable for payment of the Limited Sales and Use Tax if Buyer uses the natural gas in some manner other than the reason listed above, and shall pay the tax based on the price paid for the natural gas. This exemption is claimed for, and this exemption certificate shall apply to, all gas delivered to Buyer by Seller on and after the dab hereof, and shall be effective until revoked by written notice to Seller by Buyer. If this exemption is disallowed for any reason by the State for any part or all of the gas delivered, Buyer will accrue and pay direct to the State any tax and penalty due. Executed this the day of ,19 . ----- ----------------- ----- By: ------------------------- Signature Name: ------------------------- Type /Print Title: ------------------------- A-1 EX-10.14 15 GAS SERVICE AGR. B/T THE COMPANY AND KN WESTEX EXHIBIT 10.14 GAS SERVICE AGREEMENT (Service for Firm Transportation) between K N WESTEX GAS SERVICES COMPANY "COMPANY" and ENERGAS COMPANY, a division of Atmos Energy Corporation "CUSTOMER" Dated: January 1, 1996 INDEX SECTION TITLE PAGE I Definitions.......................................... 1 II Customer Order....................................... 4 III Representation, Warranties Title and Indemnities..... 5 IV Force Majeure........................................ 6 V Nominations and Scheduling........................... 7 VI Quality of Gas....................................... 11 VII Term................................................. 11 VIII Remedies Upon Material Default....................... 12 IX Measurement and Pressure............................. 12 X Billings, Payments and Audit......................... 13 XI Communications....................................... 14 XII Miscellaneous........................................ 16 Signatures........................................... 18 Customer Order GAS SERVICE AGREEMENT (ENERGAS) THIS AGREEMENT, effective on January 1, 1998, between K N WESTEX GAS SERVICES COMPANY, (Company), and ENERGAS COMPANY, a division of Atmos Energy Corporation (Customer), and for the consideration stated, the parties agree as follows: RECITALS 1. Customer and Company from time to time will enter into certain arrangements whereby Company will provide Customer firm transportation service as set forth in a "Customer Order". 2. Company has entered into contracts with various transporters, marketing companies, and other companies (Entity(ies)) in order to effectuate the services which will performed under any Customer Order. 3. Customer understands and agrees that any services provided under this Agreement are subject to the various governmental filings by each Entity, including, without limitation, compliance statements filed in accordance with Part 284 of the Federal Energy Regulatory Commission's (FERC) regulations under the Natural Gas Policy Act of 1978, as amended from time-to-time. SECTION I DEFINITIONS 1. "Firm Transportation" means, subject to force majeure, transportation service on a non-interruptible basis. 2. "Day" means the period of twenty-four (24) consecutive hours, commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the next day. The reference date for any day is the calendar date when the twenty-four (24) hour period began. "Business day" means a day consisting of Monday through Friday, excluding federal holidays. 3. "Delivery Point(s)" means the outlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee described in a Customer Order. 4. "Gas" means natural gas with or without the removal of any hydrocarbon or inert constituents after it is produced from a well, and includes gas produced from a well producing gas only, from a well producing gas with condensate, or from a well producing gas in association with oil. 5. "Customer Order" means a form described in general which is attached as Exhibit A, and which evidences the agreement as to the terms of a particular transaction for the service(s) provided under this Agreement. 6. "MCQ" or "Maximum Contract Quantity" means the maximum total contract quantity of gas that may be received and delivered by Company during the term in a Customer Order. 7. "HMDQ" or "Maximum Daily Quantity" means during the term of a Customer Order, the maximum daily quantity of gas that may be received and delivered by Company during any day. 8. "Measuring Party" means a mutually agreeable party who will measure the gas under an executed Customer Order. If no Measuring Party is designated, then the Transporter immediately downstream of the Receipt Point(s) or upstream of the Delivery Point(s) will be the Measuring Party. 9. "Month" means a period beginning at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the next month. 10. "Overrun" means any quantity of gas that exceeds the MDQ, and/or MCQ, as agreed to between Company and Customer, and described in a Customer Order. 11. "Underdelivered" means a quantity of gas delivered by the Company to the Delivery Point(s) for the Customer's account that is in excess of the amount of gas received by the Company from the Customer at the Receipt Point(s). 12. "Overdelivered" means a quantity of gas delivered by the Customer at the Receipt Point(s) for the Customer's account that is in excess of the amount of gas delivered by the Company for the Customer's account at the Delivery Point(s). 13. "Receipt Point(s)" means the inlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee, described in a Customer Order. 14. "Transporter(s)" means any pipeline on which any gas under this Agreement is transported. 15. For payment purposes, the quantity and measurement of gas delivered and received hereunder, will be stated in Mcf. For balancing purposes the quantity for gas will be stated in MMBtu. For measurement purposes, the quantity of gas delivered and received hereunder, will be stated in Mcf and in MMBtu. The MMBtu quantity will be derived by taking the measured volumes of gas in cubic feet multiplied by their Gross Heating Value divided by one million (1,000,000). The pertinent terms are as follows: (a) "Cubic foot of gas" means the volume of gas which occupies one (1) cubic foot of space at a temperature of sixty degrees (60) Fahrenheit and the referenced pressure base as set forth by the Measuring Party. (b) "Mcf" means one thousand (1,000) cubic feet of gas and "Bcf" means one billion (1,000,000,000) cubic feet of gas. (c) "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5) Fahrenheit to fifty-nine and five tenths degrees (59.5) Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. (d) "MMBtu" means one million (1,000,000) Btu. (e) "Gross Heating Value" means the number of Btu liberated by the complete combustion, at constant pressure, of one (1) cubic foot of gas, at a base temperature of sixty degrees (60) Fahrenheit and a referenced pressure base as set fort by the Measuring Party, wit air of the same temperature and pressure of the gas, after the products of combustion are cooled to the initial temperature of the gas, and after the water resulting from combustion is condensed to the liquid state. The Gross Heating Value of the gas is to be corrected for the water vapor content of the gas being delivered; provided, that if the water vapor content of the gas is seven (7) pounds or less per one million (1,000,000) cubic feet, the gas will be assumed to be dry and no correction will be made. (f) "Referenced pressure base" for measurement and determination of gas volume and Gross Heating Value will be established by the Measurement Party; however, the referenced pressure base is always to be the same for gas volume and Gross Heating Value. 16. "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. 17. "Imbalance" means the difference between the confirmed gas volumes received at the Receipt Point(s) and the confirmed gas volumes delivered at the Delivery Point(s). SECTION II CUSTOMER ORDER 1. Customer Order. The parties may enter into one or more agreements for firm transportation service hereunder from time to time, and each such agreement will be reflected in a Customer Order executed by both parties which will constitute a supplement to and form a part of this Agreement, so that each transaction involving this Agreement and a Customer Order constitutes a single, entire agreement between Customer and Company. Each Customer Order will contain provisions regarding Term, Type of Service, Rate, Receipt Point(s), Delivery Point(s), Quantity and any other obligations of Customer and Company. 2. Customer. If a conflict exists between a Customer Order and this Agreement, the terms of the Customer Order will govern the applicable transaction. If a conflict exists between two or more Customer Orders under this Agreement, the Customer Order with the latest effective date will govern the applicable transaction period. SECTION III REPRESENTATIONS, WARRANTIES, TITLE AND INDEMNITIES 1. Company. Company represents that it has, or will have, all contracts in place necessary to provide the services described in each Customer Order, subject to Paragraph 3 of the RECITALS and Paragraph 10. Operating Conditions and Agreements of Section MISCELLANEOUS. 2. Customer. Customer warrants that it has good title to or good right to the gas delivered to Company under each applicable Customer Order, and that the gas is free and clear of all liens, encumbrances, or adverse claims of any kind. Customer indemnifies, saves and holds harmless, Company from all claims, losses, causes of action, damages and expenses (including, but not limited to attorney's fees and court costs) due to any adverse claims against the Company for the gas delivered to Company by Customer. Customer warrants that all gas delivered to Company for transportation hereunder is eligible for transportation under any governmental authority having jurisdiction. 3. Control and Possession. Customer is in control and possession of the gas and is responsible for and indemnifies Company against any injury or any damage caused thereby until the gas is delivered to Company or its designee at the Receipt Point(s), except for any injury or damage caused by Company. Responsibility for the gas passes to Company at the Receipt Point(s), and then Company is in control and possession of the gas and is responsible for, and indemnifies Customer against injury or damage caused thereby, except for injury or damage caused by Customer. Likewise, responsibility for the gas passes to Customer at the Delivery Point(s), and then Customer is in control and possession of the gas. 4. Damages. Notwithstanding anything in this Agreement to the contrary, neither party will be responsible to the other party for any incidental, consequential, lost profit, punitive or exemplary damages for a breach of this Agreement. SECTION IV FORCE MAJEURE 1. Force Majeure. In the event that either Company or Customer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such party has given notice and full particulars of such force majeure in writing to the other party as soon as possible after the occurrence of the cause relied on, then the obligations of the parties, insofar as they are affected by such force majeure, shall be suspended during the continuance such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" in this Agreement means, without limitation; acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of the government, either federal or state, civil or military, civil disturbances, explosions, breakage, breakdown or accident to machinery, equipment or lines of pipe, the necessity of repairing, altering, maintaining, inspecting, replacing, changing the size of, substituting or removing machinery, equipment, pipelines, storage or plant facilities, and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension. Such term likewise includes (i) in those instances where Customer or Transporter is required to obtain servitudes, right-of-way grants, permits, exceptions or licenses to enable such party to fulfill its obligations, the inability of such party to acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits, exceptions or licenses, and (ii) in those instances where Customer or Transporter is required to furnish materials and supplies for the purpose of constructing or maintaining facilities or is required to secure permits or permission from any governmental agency (federal, state or municipal, civil or military) to enable such party to fulfill its obligations hereunder, the inability of such party to acquire or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such material and supplies, permits and permissions. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party or a Transporter having the difficulty and that the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. SECTION V NOMINATIONS AND SCHEDULING 1. Nomination. For all quantities of gas that are to be scheduled beginning on the first day of any month, Customer will provide written notice, in a form to be provided by Company, either via the Company's electronic bulletin board or via facsimile, no later than eleven (11:00) am CT three (3) business days prior to the month of delivery. For all quantities that are to be scheduled or changed any day after the first day of any month, Customer will provide either via the Company's electronic bulletin board or via facsimile, notice by eleven (11:00) am CT on the day prior to the day of the proposed change. Company may waive any part of the notice requirement upon request if, in Company's sole judgment, operating conditions permit such waiver. In addition to the information required on the nomination form, Customer will specify whether the gas scheduled is current month deliveries or Imbalance Payback Quantities (defined below). The volumes will be allocated through the meters in the following order (i) Imbalance Payback Quantity, (ii) Base Load Requirements - - Energas transportation, (iii) Base Load Requirements- Energas/KN Marketing, L.P. sales, (iv) Swing Load Requirements- Energas/KN Marketing, LP. sales. 2. Confirmation Notice. Company shall provide Customer notice, by Company's electronic bulletin board or by telefacsimile, of all quantities of gas requested by Customer that Company has confirmed for flow. Such notice shall be provided not later than 4:00 p.m. CT on the day prior to the day of flow. Company shall also provide Customer notice by Company's electronic bulletin board or by telefacsimile, of all quantities of gas received by Company for Customer's account. Such notice shall be provided not later than 4:00 p.m. CT on the day after the day of flow for only gas received at those Receipt Points that are electronically monitored by Company. 3. Rate of Flow. The gas to be received by Company's Transporter hereunder shall be delivered by Customer at uniform hourly and daily rates of flow as nearly as practicable, but it is recognized that due to operating conditions the quantities of gas received and delivered may not be in balance on any one particular day. However, the Company reserves the right to reduce the confirmed nomination at the Delivery Point(s) in the event Customer's nominated gas at the Receipt Point(s) is not concurrently made available to Company or its Transporter. Furthermore, in addition to the notices required under Section V, paragraph 2 above, Company and Customer shall immediately inform each other of any changes to deliveries at the Delivery Point(s) and the Company reserves the right to reduce the confirmed nomination at the Receipt Point(s) to a quantity that is ratable to the then current volumes being delivered at the Delivery Point(s), provided that the Customer can nominate volumes at the Receipt Point(s) Imbalance Payback Quantity. 4. Imbalances. In any given month, any quantities of gas received by Company from Customer (or its designee) at the Receipt Point(s) or delivered to Customer by Company at the Delivery Point(s) that is less than or equal to a ten percent (10%) variance with the confirmed quantities at the Receipt Point(s) and/or Delivery Point(s) is an Imbalance Quantity". Company shall provide a monthly statement to Customer showing the previous month's volume activity confirmed at the Receipt Point(s) and the Delivery Point(s) and the resulting Imbalance Quantity. Customer will then have until forty-five (45) days following the receipt of such notification (Payback Period) to schedule with Company Fe volumes necessary to reduce the Imbalance Quantity to zero (Imbalance Payback Quantity). 5. Imbalance Exchanges. In the event Company establishes an imbalance exchange service program in conjunction with the transportation services provided under this Agreement, Customer will be eligible to participate in the program under the terms thereof. 6. Cash Out. In the event there remains an Imbalance Quantity after the Payback Period has expired, Company will cash out the remaining imbalance from that transaction month for Underdelivered imbalances as set forth in Section 6A), and for Overdelivered imbalances as set forth in Section 6B). If Customer's confirmed quantities of gas at the Delivery Point(s) are in excess of ten percent (10%) of the confirmed quantities of gas at the Receipt Point(s) (Underdelivery Quantities), or Customer's confirmed quantities of gas at the Delivery Point(s) are less than ninety percent (90%) of the confirmed quantities of gas at the Receipt Point(s) (Overdelivery Quantities), Company will invoice and Customer will pay a cash out invoice as follows: A) for Underdelivered imbalances or Underdelivery quantities the Cash Out invoice shall be equal to the Underdelivered quantity times the "Index Basket" plus: (a) for 1996-$0.6742 per MMBtu plus the Westar Transmission Company (Westar) transportation rate of $0.2858 per Mcf. (b) for 1997-$0.6342 per MMBtu plus the Westar transportation rate of $0.2858 per Mcf. (c) for 1998-$.6042 per MMBtu plus the Westar transportation rate of $0.2858 per Mcf. (d) for 1999 through 2001-$0.3042 per MMBtu plus the Westar transportation rate of $0.2858 per Mcf. (e) In the event the approved rate for transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by The Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. B) for Overdelivered imbalances or Overdelivery Quantities the cash out invoice shall be equal to the Overdelivered quantity times ninety percent (90%) of the "Index Basket". The "Index Basket" referred to above shall be equal to the sum of the "prices" stated in dollars per MMBtu of: (i) fifty percent (50%) of the arithmetic average of the index prices listed in each edition of Natural Gas Week, published during the applicable calendar month by Oil Daily Company in the table titled "Gas Price Report", under the column labeled "Delivered to Pipeline", "This Week" for Texas West Spot, and (ii) twenty five percent (25%) of the first publication in the applicable month of Inside F.E.R.C.'s Gas Market Report, published by McGraw-Hill, Inc. for Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" under the category labeled "Index", and (iii) twenty five percent (25%) of the index price published in the first edition of the month in Natural Gas Intelligence Gas Price Index for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract Index", the "Intrastate Avg." for the "West Texas/Permian" gas. C) Should any of the indices or publications above become unavailable, Customer and Company will use their best efforts to locate another source of this information, or in the event that the information cannot be obtained through another source, Customer and Company shall agree upon another index to replace the index which has become unavailable. 7. Upstream and Downstream Transporters. Customer shall make, or cause to be made, all necessary arrangements with other pipelines or parties upstream of the Receipt Point(s) or downstream of the Delivery Point(s) in order to effectuate Company's receipt or delivery of Customer's gas. Company's obligations are subject to Customer making such necessary arrangements set forth in the immediately preceding sentence, and such arrangements must be coordinated with Company. 8. Third Party Imbalance Penalties. If on any day Customer or Company's Transporter receives or delivers, or causes to be received or delivered, a quantity or Btu content of gas that is greater or less than that nominated and scheduled for receipt or delivery at the Receipt or Delivery Point(s), and such deliveries cause Customer or Company to incur a penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) as levied by any transporter or Transporter(s), upstream or downstream of the respective Receipt and Delivery Point(s), the responsible party agrees to bear and pay such penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s). Customer and Company agree to provide one another all information necessary to determine what event, or which party caused the imbalance resulting in the imposition of penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) by a transporter or Transporter(s) at the Receipt or Delivery Point(s). SECTION VI QUALITY OF GAS 1. Specification. All natural gas delivered by Customer to Company at the Receipt Point(s) shall conform to the quality specifications imposed from time to time by the most restrictive of the Transporter(s). All natural gas redelivered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 2. Failure to Conform. If the gas tendered for receipt by Company from Customer fails at any time to conform to the quality specifications set forth in the Section title Specification, then Company may refuse to accept the receipt of the gas and will notify Customer. Customer shall make a diligent effort to correct such failure within twenty-four (24) hours following any such notice, and if Customer is not successful then Company in its sole discretion may (i) request its Transporter to accept delivery of any non-conforming gas, or (ii) continue to refuse to accept the non-conforming gas and Company's obligations regarding such gas will be suspended. Non-conforming gas tendered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 3. Odorization. Odorization shall be governed by the Operating Agreement. SECTION VII TERM This Agreement is in effect on the Effective Date and will continue through December 31, 2001 and provided, that this Agreement and any Customer Order will continue in effect until the later of O the expiration of any outstanding Customer Order, or vi) for so long as it takes to change any nominations to any transporter or Transporter(s) reflecting the cessation of the receipt and delivery of gas under any Customer Order and iii) to resolve any outstanding Imbalance Quantities. SECTION VIII REMEDIES UPON MATERIAL DEFAULT 1. If either party hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, than in such event the non- defaulting party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non- defaulting party shall cause a written notice to be served on the defaulting party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting party to terminate this Agreement if the default is not cured. The defaulting party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and if within such ten-day period, the defaulting party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting party fails to remedy or remove the cause or causes or to indemnify the non-defaulting party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no further force or effect from and after the expiration of such ten-day period. 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Company to collect any amounts then due Company for gas delivered prior to the time of termination (ii) without prejudice to the rights of Customer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting party may be entitled. SECTION IX MEASUREMENT AND PRESSURE 1. Measurement. Unless specified in a Customer Order to the contrary, the measurement of gas and testing of measurement facilities will be governed by the applicable measurement and testing provisions and procedures of the Measuring Party. The parties agree to rely on correct information provided by the Measuring Party as to the quantity of gas measured at the Receipt and Delivery Point(s). 2. Pressure. The gas delivered by Customer at the Receipt Point(s) shall be delivered at a pressure sufficient to overcome the operating pressure existing in Company's or its Transporter's facility from time to time; however, in no event shall such delivery pressure exceed the maximum operating pressure of the system receiving the gas. The gas delivered at the Delivery Point(s) shall be delivered by Company's Transporter at the pressure existing from time- to-time in Company's or Transporter's pipeline. Company's Transporter shall not be obligated to install or operate compression facilities in order to effect receipt or delivery of gas. Customer (or Customer's designee), any transporter and Company's Transporter are completely and solely responsible for the installation and maintenance of overpressure protection equipment on their own pipeline(s), valve(s) and any other interconnection equipment. SECTION X BILLINGS, PAYMENTS AND AUDIT 1. On or before the fifteenth (15th) day of each Month, Company shall render a statement to Customer giving the total quantity of gas, expressed in Mcf and in MMBtu, received and delivered by Company's Transporter hereunder during the preceding Month, any imbalances, and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Company cannot be determined on or before the fifteenth (15th) day of the Month, Company shall nevertheless invoice Customer for the amounts that are known and/or nominated by Customer, and when the information is available Company shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. 2. Ten (10) days after the statement is received by Customer, Customer shall make payment to Company by wire transfer per the instructions set forth in the Article titled COMMUNICATIONS. If Customer disputes the amount of any statement for any reason, Customer shall notify Company of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due dab. Customer shall pay the disputed portion of the statement which is determined to be owing to Company within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Paragraph 4 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Company shall refund such amount to Customer, together with interest at the rate hereinafter set forth below over the period that Company had possession of the money, within fifteen (15) days after resolution of the dispute. 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected party. 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest at the lesser of the highest lawful interest rate or the prime rate charged by Norwest Bank of Denver plus two percent (2%) until paid. 5. Each party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, all measurement, billing, computation and payment records maintained by the other party which relate to gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. SECTION XI COMMUNICATIONS 1. Notices and Addresses. Unless otherwise provided in this Agreement, any notice (other than a Customer Order which may be sent by telefacsimile or other electronic means), statement, demand, or payment called for is to be in writing and shall be considered delivered when deposited in the U.S. Mail, postage prepaid, telecopied/telefacsimilied or hand delivered to either party at the address designated. Unless changed in writing, the addresses are: Company: Payments: Wire Transfer: K N WESTEX GAS SERVICES COMPANY Norwest Banks Colorado, N.A. Denver, CO ABA# 102 00 076 Acct: # 101-0918-554 Notices and Correspondence: K N WESTEX GAS SERVICES COMPANY 333 Clay Street, Suite 2000 Houston, TX 77002-9817 Attn: Transportation and Exchange Telecopier No. (713) 739 6695 Telephone No. (713) 739 2900 Customer: Notices and Correspondence: ENERGAS COMPANY, a division of Atmos Energy Corporation PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Statements: ENERGAS COMPANY, a division of Atmos Energy Corporation PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Telecopier No. (214)788 3773 Telephone No. (214) 788 3746 2. Operating Communications. Operating communications by telefacsimile will be considered as duly delivered the day after transmittal. 3. Telefacsimile/Telecopy Transmission. All communications, including Customer Orders, may be sent by telefacsimile/telecopy, and signatures appearing on the telefacsimile/telecopy are binding on the signatory party. SECTION XII MISCELLANEOUS 1. Waiver of Default. No waiver by Company or Customer of any default of the other under this Agreement or a Customer Order shall operate as a waiver of any future default, whether of a like or different character. 2. Assignment. This Agreement may not be assigned by either party without consent of the other party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a party. Such assignment shall not relieve the assigning party of any of its obligations under this Agreement 3. Joint Preparation. This Agreement is deemed to be drafted and prepared equally and jointly, regardless of which party prepared or submitted the document to the other and shall not be construed against one party or the other as a result of the preparation, submittal or execution. 4. No Third-Party Beneficiary. Except for the parties, their successors and assigns, no person, including without limitation, any joint operating agreement party, any owner of a royalty interest, overriding royalty interest or production right, any Transporter or Storer, shall have any rights as a third- party beneficiary or otherwise under this Agreement or any Customer Order. 5. Severability. If any part of this Agreement or a Customer Order is held to be void or unenforceable by any court or under any law, that part shall be deemed stricken and all remaining provisions shall continue to be valid and binding upon the parties. 6. Laws. Rules and Regulations. This Agreement and all Customer Orders are subject to all valid applicable federal, state and local laws, rules and regulations of any governmental body or official having jurisdiction. The parties are entitled to treat all laws, orders, rules and regulations issued by any federal or state regulatory body as valid and may act in accordance therewith until such time the same may be invalidated by final judgment in a court of competent jurisdiction. 7. Modification. Any modification of terms or amendment of provisions of this Agreement or a Customer Order will become effective only by written agreement between the parties. 8. Minimal Creditworthiness. Company or Customer shall not be required to perform, or continue to perform under this Agreement or a Customer Order in the event (i) either party applies or has applied for bankruptcy, or (ii) one party fails, in the good faith opinion of the other party, to demonstrate minimal creditworthiness. 9. Taxes and Fees. To the extent permitted by law, Customer shall reimburse Company for; (a) any natural gas gathering, occupation, production, inventory, severance or sales taxes, first use tax, gross receipt tax, or taxes similar in nature or equivalent ii effect which are now or hereafter imposed or assessed against Company or any transporting entities by any lawful authority as a result of the transportation of natural gas under this Agreement or the production or gathering of such natural gas. (b) any fees or charges by any Governmental agency which Company incurs that are related to any service rendered to Customer under this Agreement. 10. Operating Conditions and Agreements. The services provided by Company to Customer under this Agreement are subject to the various tariffs, statements of compliance., statements of operating conditions, general terms and conditions, transportation agreements, exchange agreements, and general operating conditions of the various Entities at and between the Receipt Point(s) and the Delivery Point(s). 11. Choice of Law and Venue. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. 12. Confidentiality. The terms of this Agreement, including but not limited to, price, rates or fees, the identified transporting pipelines, Transporter(s), and cost of transportation, the quantities of gas, and all other material terms shall be kept confidential by the parties, except to the extent that any information must be disclosed to a third party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either party of its obligations hereunder, ceases to be confidential. CUSTOMER ORDER COMPANY SHALL CAUSE THE FIRM TRANSPORTATION OF GAS AS FOLLOWS: (BASE LOAD) This Customer Order entered into on January 1 1996 between K N WESTEX SERVICES COMPANY (Company) and ENERGAS COMPANY a division of Atmos Energy Corporation (Customer) is subject to made a part of and is incorporated by reference into the Gas Service Agreement dated January 1 1996 between Company and Customer (Agreement). Term: January 1 1996 through December 31 2001 Type of Service: Company shall arrange for firm transportation service. Receipt Point(s): Interconnection facilities with K N Energy Inc.'s Buffalo Wallow facilities subject to the operating limitations of these receipt facilities. Delivery Point(s): All points of interconnection between Westar Transmission Company and Customer where Customer receives gas as of the date of the Agreement, for resale through certain of Customer's distribution facilities. Maximum Daily Quantity: A. For the period beginning January 1, 1996 through December 31, 1996 - 13 ,661 MMBtu per day. B. For the period beginning January 1, 1997 through December 31, 1997 - 25, 000 MMBtu per day. C. For the remainder of the Term under this Customer Order 30,000 MMBtu per day D. Such Maximum Daily Quantities will not apply to confirmed Imbalance Payback Quantities Maximum Contract Quantity: For the term of this Customer Order the Maximum Contract Quantity shall be limited by the Maximum Contract Quantity set forth in the Customer Order entered into between Energas Company (Energas) and Westar Transmission Company (Westar), and volumes transported hereunder shall be included in the determination of the Maximum Contract Quantity of the Energas and Westar Customer Order. Rate (as delivered): $0.2858 per Mcf Special Provisions: In the event the approved rate for transportation on the Westar system (as that system is described in the Operating Agreement) changes then the $0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by The Railroad Commission of Texas which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. COMPANY CUSTOMER KN WESTEX SERVICES ENERGAS COMPANY a division of Atmos Energy Corporation By: By: - ------------------------------ ---------------------------------------- Name: Name: - ------------------------------ ---------------------------------------- Title: Title: - ------------------------------ ---------------------------------------- Date: Date: - ------------------------------ ---------------------------------------- EX-10.15 16 GAS SERVICE AGR. B/T ENERMART TRUST AND WESTAR EXHIBIT 10.15 GAS SERVICE AGREEMENT (Service for Firm Transportation) between WESTAR TRANSMISSION COMPANY "COMPANY" and ENERMART TRUST (Large Volume Industrials) "CUSTOMER" Dated: January 1, 1996 INDEX SECTION TITLE PAGE I Definitions 1 II Customer Order 3 III Representation, Warranties, Title and Indemnities 3 IV Force Majeure 4 V Nominations and Scheduling 4 VI Quality of Gas 7 VII Term 7 VIII Remedies Upon Material Default 8 IX Measurement and Pressure 8 X Billings, Payments and Audit 9 XI Communications 9 XII Miscellaneous 11 GAS SERVICE AGREEMENT (ENERMART) THIS AGREEMENT, effective on January 1, 1996, between WESTAR TRANSMISSION COMPANY, (Company), and ENERMART TRUST, a Pennsylvania Business Trust, (Customer), and for the consideration stated, the parties agree as follows: RECITALS 1. Customer and Company from time to time will enter into certain arrangements whereby Company will provide Customer firm transportation service as set forth in a "Customer Order". 2. Company has entered into contracts with various transporters, marketing companies, storers, and other companies (Entity(ies)) in order to effectuate the services which will be performed under any Customer Order. 3. Customer understands and agrees that any services provided by Company are subject to the various governmental filings by each Entity, including, without limitation, compliance statements filed in accordance with Part 284 of the Federal Energy Regulatory Commission's (FERC) regulations under the Natural Gas Policy Act of 1978, as amended from time-to-time. SECTION I DEFINITIONS 1. "Firm Transportation" means, subject to force majeure, transportation service on a non-interruptible basis. 2. "Day" means the period of twenty-four (24) consecutive hours, commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. CT on the next day. The reference date for any day is the calendar date when the twenty-four (24) hour period began. "Business day" means a day consisting of Monday through Friday. 3. "Delivery Point(s)" means the outlet flange of Company's transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee described in a Customer Order. 4. "Gas" means natural gas with or without the removal of any hydrocarbon or inert constituents after it is produced from a well, and includes gas produced from a well producing gas only, from a well producing gas with condensate, or from a well producing gas in association with oil. 5. "Customer Order" means a form described in general which is attached as Exhibit A, and which evidences the agreement as to the terms of a particular transaction for the service(s) provided under this Agreement. 6. "MCQ" or "Maximum Contract Quantity" means the maximum total contract quantity of gas that may be received and delivered by Company during the term in a Customer Order. 7. "MDQ" or "Maximum Daily Quantity" means during the term of a Customer Order, the maximum daily quantity of gas that may be received and delivered by Company during any day. 8. "Measuring Party" means a mutually agreeable party who will measure the gas under an executed Customer Order. If no Measuring Party is designated, then the Transporter immediately downstream of the Receipt Point(s) or upstream of the Delivery Point(s) will be the Measuring Party. 9. "Month" means a period beginning at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the next month. 10. "Overrun" means any quantity of gas that exceeds the MDQ, MSQ and/or MCQ, as agreed to between Company and Customer, and described in a Customer Order. 11. "Receipt Point(s)" means the inlet flange of Company's or Transporter's facilities at the interconnection point with the facilities of Customer or Customer's designee, described in a Customer Order. 12. "Transporter(s)" means any pipeline on which any gas under this Agreement is transported. 13. For payment purposes, the quantity of gas delivered and received hereunder will be stated in Mcf. For balancing purposes the quantity of gas will be stated in MMBtu. For measurement purposes, the quantity of gas delivered and received hereunder stated in MMBtu and Mcf, is derived by taking the measured volumes of gas in cubic feet multiplied by their Gross Heating Value divided by one million (1,000,000). The pertinent terms are as follows: (a) "Cubic foot of gas" means the volume of gas which occupies one (1) cubic foot of space at a temperature of sixty degrees (60 degrees) Fahrenheit and the referenced pressure base as set forth by the Measuring Party. (b) "Mcf" means one thousand (1,000) cubic feet of gas and "Bcf means one billion (1,000,000,000) cubic feet of gas. (c) "Btu" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths degrees (58.5 degrees) Fahrenheit to fifty-nine and five tenths degrees (59.5 degrees) Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. (d) "MMBtu" means one million (1,000,000) Btu. (e) "Gross Heating Value" means the number of Btu liberated by the complete combustion, at constant pressure, of one (1) cubic foot of gas, at a base temperature of sixty degrees (60 degrees) Fahrenheit and a referenced pressure base as set forth by the Measuring Party, with air of the same temperature and pressure of the gas, after the products of combustion are cooled to the initial temperature of the gas, and after the water resulting from combustion is condensed to the liquid stab. The Gross Heating Value of the gas is to be corrected for the water vapor content of the gas being delivered; provided, that if the water vapor content of the gas is seven (7) pounds or less per one million (1,000,000) cubic feet, the gas will be assumed to be dry and no correction will be made. (f) "Referenced pressure base" for measurement and determination of gas volume and Gross Heating Value will be established by the Measuring Party; however, the referenced pressure base is always to be the same for gas volume and Gross Heating Value. 14. "Operating Agreement" means the agreement between Westar Transmission Company and Energas Company, dated December 1, 1996, covering measurement equipment and testing, measurement specifications, pressures, quality, maintenance of facilities, and other operational matters. SECTION II CUSTOMER ORDER 1. Customer Order. The parties may enter into one or more agreements for firm transportation service hereunder from time to time, and each such agreement will be reflected in a Customer Order executed by both parties which will constitute a supplement to and form a part of this Agreement, so that each transaction involving this Agreement and a Customer Order constitutes a single, entire agreement between Customer and Company. Each Customer Order will contain provisions regarding price, Receipt Point(s), Delivery Point(s), quantity, term and any other obligations of Customer and Company. 2. Conflict. If a conflict exists between a Customer Order and this Agreement, the terms of the Customer Order will govern the applicable transaction. If a conflict exists between two or more Customer Orders under this Agreement, the Customer Order with the latest effective date will govern the applicable transaction period. SECTION III REPRESENTATIONS. WARRANTIES. TITLE AND INDEMNITIES 1. Company. Company represents that it has, or will have, all contracts in place necessary to provide the services described in each Customer Order, subject to Paragraph 3 of the RECITALS and Paragraph 10. Operating Conditions and Agreements. of Section Xl MISCELLANEOUS . 2. Customer. Customer warrants that it has good title to or good right to the gas delivered to Company under each applicable Customer Order, and that the gas is free and clear of all liens, encumbrances, or adverse claims of any kind. Customer indemnifies, saves and holds harmless, Company from all claims, losses, causes of action, damages and expenses (including, but not limited to attomey's fees and court costs) due to any adverse claims against the Company for the gas delivered to Company by Customer. Customer warrants that all gas delivered to Company for transportation hereunder is eligible for transportation under any governmental authority having jurisdiction. 3. Control and Possession. Customer is in control and possession of the gas and is responsible for and indemnifies Company against any injury or any damage caused thereby until the gas is delivered to Company or its designee at the Receipt Point(s), except for any injury or damage caused by Company. Responsibility for the gas passes to Company at the Receipt Point(s), and then Company is in control and possession of the gas and is responsible for, and indemnifies Customer against injury or damage caused thereby, except for injury or damage caused by Customer. Likewise, responsibility for the gas passes to Customer at the Delivery Point(s), and then Customer is in control and possession of the gas. 4. Damages. Notwithstanding anything in this Agreement to the contrary, neither party will be responsible to the other party for any incidental, consequential, lost profit, punitive or exemplary damages for a breach of this Agreement. SECTION IV FORCE MAJEURE 1. Force Majeure. In the event that either Company or Customer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such party has given notice and full particulars of such force majeure in writing to the other party as soon as possible after the occurrence of the cause relied on, then the obligations of the parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall, insofar as possible, be remedied with all reasonable dispatch. The term "force majeure" in this Agreement means, without limitation, acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of the government, either federal or state, civil or military, civil disturbances, explosions, breakage, breakdown or accident to machinery, equipment or lines of pipe, the necessity of repairing, altering, maintaining, inspecting, replacing, changing the size of, substituting or removing machinery, equipment, pipelines, storage or plant facilities, and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension. Such term likewise includes (i) in those instances where Customer or Transporter is required to obtain servitudes, right- of-way grants, permits, exceptions or licenses to enable such party to fulfill its obligations, the inability of such party to acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits, exceptions or licenses, and (ii) in those instances where Customer or Transporter is required to furnish materials and supplies for the purpose of constructing or maintaining facilities or is required to secure permits or permission from any governmental agency (federal, state or municipal, civil or military) to enable such party to fulfill its obligations hereunder, the inability of such party to acquire or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such material and supplies, permits and permissions. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party or a Transporter having the difficulty and that the above requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. SECTION V NOMINATIONS AND SCHEDULING 1. Nomination. For all quantities of gas that are to be scheduled beginning on the first day of any month, Customer will provide written notice, in a form to be provided by Company, either via the Company's electronic bulletin board or via telefacsimile, no later than eleven (11:00) am CT three (3) business days prior to the month of delivery. For all quantities that are to be scheduled or changed any day after the first day of any month, Customer will provide either via the Company's electronic bulletin board or via telefacsimile, notice by eleven (11:00) am CT on the day prior to the day of the proposed change. Company may waive any part of the notice requirement upon request if, in Company's sole judgment, operating conditions permit such waiver. In addition to the information required on the nomination form, Customer will specify whether the gas scheduled is current month deliveries or imbalance payback quantities. 2. Confirmation Notice. Company shall provide Customer notice, by Company's electronic bulletin board or by telefacsimile, of all quantities of gas requested by Customer that Company has "confirmed" with Customer's suppliers, designees, and/or other transporters for flow. Such notice shall be provided not later than 4:00 p.m. CT on the day prior to the day of flow. Company shall also provide Customer notice, by Company's electronic bulletin board or by telefacsimile, of all quantities of gas received by Company for Customer's account. Such notice shall be provided not later than 4:00 p.m. CT on the day after the day of flow for only gas received at those Receipt Points that are electronically monitored by Company. 3. Monthly Balancing Requirements. The balancing provisions herein have been established and are provided to Customer by Company in recognition that the gas being transported by Customer will be delivered to markets that typically have a uniform consumption of gas. In any given month, any quantities of gas received by Company from Customer (or its designee) at the Receipt Point(s) or delivered to Customer by Company at the Delivery Point(s) that is not equal to the "confirmed" quantities at the respective Receipt Point(s) and Delivery Point(s) is an "Imbalance Quantity". Company shall provide a monthly statement to Custom showing the previous month's volume activity "confirmed" at both the Receipt Point(s) and the Delivery Point(s) and the resulting Imbalance Quantity. Customer will then have forty five (45) days following such statement (Payback Period) to schedule with Company the quantities of gas necessary to reduce the Imbalance Quantity to zero. Any imbalance remaining after the Payback Period, will be cashed out as follows: For such remaining monthly Imbalance Quantity where receipts of gas at the Receipt Point(s) are less than deliveries taken by Customer at the Delivery Point(s), Company will invoice Customer and Customer shall pay for the extra gas delivered to Customer one hundred and ten percent (110%) of the "Index Basket", for the respective month of delivery, on a per MMBtu basis. For such remaining monthly Imbalance Quantity where deliveries of gas at the Delivery Point(s) are less than receipts of gas at the Receipt Point(s), Company will pay Customer for the extra gas delivered by Customer to Company ninety percent (90%) of the "Index Basket" for the month of delivery, on a per MMBtu basis. The "Index Basket" referred to in above shall be equal to the sum of the "prices" stated in dollars per MMBtu of: (i) fifty percent (50%) of the arithmetic average of the index prices listed in each edition of Natural Gas Week published during the applicable calendar month by Oil Daily Company in the table titled "Gas Price Report", under the column labeled "Delivered to Pipeline", "This Week" for Texas West Spot, and (ii) twenty-five percent (25%) of the first publication in the applicable month of Inside F.E.R.C.'s Gas Market Report. published by McGraw-Hill, Inc. for Panhandle Eastern Pipeline Co., Texas, Oklahoma (Mainline) under the heading "Prices of Spot Gas Delivered to Pipeline" under the category labeled "Index", and (iii) twenty-five percent (25%) of the index price published in the first edition of the month in Natural Gas Intelligence Gas Price Index for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract Index", the "Intrastate Avg." for the "West Texas/Permian" gas. 4. Rate of Flow. The gas to be received by Company hereunder shall be delivered by Customer at uniform daily rates of flow as nearly as practicable, but it is recognized that due to operating conditions the quantities of gas received and delivered may not be in balance on any one particular day. On days when the quoted price from Enron Capital and Trade, Texas Intrastate desk, for gas delivered to Company's system the same day in the Waha supply area exceeds the price of the of the index price published in the first edition of the month in Natural Gas Intelligence Gas Price Index for the applicable calendar month, identified in the table entitled "SPOT GAS PRICES" under the column entitled "Contract Index", the "Intrastate Avg." for the "West Texas/Permian'" by more than $0.50 per MMBtu, and there is a difference in the quantity of MMBtu between the nominated and confirmed Receipt Point(s) daily quantities and the actual quantities being delivered by Customer or its designee at the Receipt Point(s), Company shall notify Customer by telephone and telefacsimile of such difference, and Company shall have the right to request Customer to correct the difference within twenty four (24) hours of notification. Customer may correct such situation by adjusting its nominations to match actual Receipt Point(s) daily quantities. If Customer fails to correct the situation within twenty four (24) hours of such notification, then Company shall have the right to charge Customer up to $0.50 per MMBtu on any remaining and continuing difference in the quantity of MMBtu between the nominated and confirmed Receipt Points) daily quantities and the actual quantities being delivered by Customer or its designee at the Receipt Point(s), until such time that the difference is corrected. 5. Imbalance Exchanges. In the event Company establishes an imbalance exchange service program in conjunction with the transportation services provided under this Agreement, Customer will be eligible to participate in the program under the terms thereof. 6. Upstream and Downstream Transporters. Customer shall make, or cause to be made, all necessary arrangements with other pipelines or parties upstream of the Receipt Point(s) or downstream of the Delivery Point(s) in order to effectuate Company's receipt or delivery of Customer's gas. Company's obligations are subject to Customer making such necessary arrangements set forth in the immediately preceding sentence, and such arrangements must be coordinated with Company. 7. Third Party lmbalance Penalties. If on any day Customer or Company's Transporter receives or delivers, or causes to be received or delivered, a quantity or Btu content of gas that is greater or less than that nominated and scheduled for receipt or delivery at the Receipt or Delivery Point(s), and such deliveries cause Customer or Company to incur a penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) as levied by any transporter or Transporter(s), upstream or downstream d the respective receipt and Delivery Point(s), the responsible party agrees to bear and pay such penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s). Customer and Company agree to provide one another all information necessary to determine what event, or which party caused the imbalances resulting in the imposition of penalty(ies), cashout cost(s), fee(s), forfeiture(s) or charge(s) by a transporter or Transporter(s) at the Receipt or Delivery Point(s). SECTION VI QUALITY OF GAS 1. Specification. All natural gas delivered by Customer to Company(s) Transporter at the Receipt Point(s) shall conform to the quality specifications imposed from time to time by the most restrictive of the Transporter(s). All natural gas redelivered by Company to Customer at the Delivery Point(s) shall be governed by the Operating Agreement. 2. Failure to Conform. If the gas tendered for receipt by Company from Customer fails at any time to conform to the quality specifications set forth in the Section titled Specifications, then Company may refuse to accept the receipt of the gas and will notify Customer. Customer shall make a diligent effort to correct such failure within twenty-four (24) hours following any such notice, and if Customer is not successful then Company in its sole discretion may (i) request its Transporter to accept delivery of any non-conforming gas, or (ii) continue to refuse to accept the non conforming gas and Company's obligations regarding such gas will be suspended. Non-conforming gas tendered by Company to Customer at the Delivery Point(s) shall governed by the Operating Agreement. 3. Odorization. Odorization shall be governed by the Operating Agreement. SECTION VII TERM This Agreement is in effect on the effective date and will continue through December 31, 2001; provided, that this Agreement and any Customer Order will continue in effect until the later of (i) the expiration of any outstanding Customer Order, or (ii) for so long as it takes to change any nominations to any transporter or Transporter(s) reflecting the cessation of the receipt and delivery of gas under any Customer Order. SECTION VIII REMEDIES UPON MATERIAL DEFAULT 1. If either patty hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, than in such event the non- defaulting party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non- defaulting party shall cause a written notice to be served on the defaulting party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting party to terminate this Agreement if the default is not cured. The defaulting party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and if within such ten-day period, the defaulting party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting party fails to remedy or remove the cause or causes or to indemnify the non-defaulting party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no further force or effect from and after the expiration of such ten-day period. 2. Any termination of this Agreement pursuant to the provisions of this Article shall be (i) without prejudice to the rights of Company to collect any amounts then due Company for gas delivered prior to the time of termination (ii) without prejudice to the rights of Customer to receive any gas for which it has paid but not received prior to the time of termination, and (iii) without waiver of any other remedy to which the non-defaulting party may be entitled. SECTION IX MEASUREMENT AND PRESSURE 1. Measurement. Unless specified in a Customer Order to the contrary, the measurement of gas and testing of measurement facilities will be governed by the applicable measurement and testing provisions and procedures of the Measuring Party. The parties agree to rely on correct information provided by the Measuring Party as to the quantity of gas measured at the Receipt and Delivery Point(s). 2. Pressure. The gas delivered by Customer at the Receipt Point(s) shall be delivered at a pressure sufficient to overcome the operating pressure existing in Company's or its Transporter's facility from time to time; however, in no event shall such delivery pressure exceed the maximum operating pressure of the system receiving the gas. The gas delivered at the Delivery Point(s) shall be delivered by Company's Transporter at the pressure existing from time- to-time in Company's or Transporter's pipeline. Company's Transporter shall not be obligated to install or operate compression facilities in order to effect receipt or delivery of gas. Customer (or Customer's designee), any transporter and Company's Transporter s completely and solely responsible for the installation and maintenance of overpressure protection equipment on their own pipeline(s), valve(s) and any other interconnection equipment. SECTION X BILLINGS, PAYMENTS AND AUDIT 1. On or before the fifteenth (15th) day of each Month, Company shall render a statement to Customer giving the total quantity of gas, expressed in Mcf and in MMBtu's, received and delivered by Company's Transporter hereunder during the preceding Month and the monies due therefor. Such statements are to be rendered in accordance with this Agreement, and shall include any amounts due for tax reimbursement under the provisions of this Agreement. In the event the total amount due Company cannot be determined on or before the fifteenth (15th) day of the Month, Company shall nevertheless invoice Customer for the amounts that are known and/or are nominated by Customer, and when the information is available Company shall invoice for actual amounts (or refund any payment as necessary) as soon as practicable after such amount is determined. 2. Ten (10) days after the statement is received by Customer, Customer shall make payment to Company by wire transfer per the instructions set forth in the Article titled COMMUNICATIONS. If Customer disputes the amount of any statement for any reason, Customer shall notify Company of such dispute and shall be obligated to pay only the undisputed portion of such statement on the due date. Customer shall pay the disputed portion of the statement which is determined to be owing to Company within fifteen (15) days after the date the dispute is resolved, together with interest on such amount at the rate set forth in Paragraph 4 below, commencing on the original due date of the statement and continuing until paid. If the statement shall have been paid in full and it shall be determined that such disputed portion of the statement was paid in error, Company shall refund such amount to Customer, together with interest at the rate hereinafter set forth below over the period that Company had possession of the money, within fifteen (15) days after resolution of the dispute. 3. All statements, bills, computations and payments shall be subject to correction of any errors contained therein until two (2) years after date of payment, and after such period any errors found will be deemed to be waived by the affected party. 4. Any amounts due for gas delivered hereunder remaining unpaid after the due date for such payment shall bear interest at the lesser of the highest lawful interest rate or 0 prime rate charged by Norwest Bank of Denver plus two percent (2%) until paid. 5. Each party shall have access to and the right to audit during regular business days and business hours, upon reasonable notice, ail measurement, billing, computation and payment records maintained by the other party which relate to gas received under this Agreement. All records will be maintained for two (2) years after payment has been made for the month to which the records pertain. SECTION XI COMMUNICATIONS 1. Notices and Addresses. Unless otherwise provided in this Agreement, any notice (other than a Customer Order which may be sent by telefacsimile or other electronic means), statement, demand, or payment called for is to be in writing and shall be considered delivered when deposited in the U.S. Mail, postage prepaid, telecopied/telefacsimilied or hand delivered to either party at the address designated. Unless changed in writing, the addresses are: Company: Payments: Wire Transfer WESTAR TRANSMISSION COMPANY Norwest Banks Colorado, N.A. Denver, CO ABA# 102 00 076 Acct: # 101 091S554 Notices and Correspondence: WESTAR TRANSMISSION COMPANY 333 Clay Street, Suite 2000 Houston, TX 77002-9817 Attn: Contract Administration Telecopier No. (713) 739 6695 Telephone No. (713) 739 2900 Customer: Notices and Correspondence: ENERMART TRUST PO Box 650205 Dallas, TX 75265-0205 ATTN: Intrastate Gas Supply Statements: ENERMART TRUST PO Box 650205 Dallas, TX 7528-0205 ATTN: Intrastate Gas Supply Telecopier No. (214)788 3773 Telephone No. (214)788 3746 2. Operating Communications. Operating communications by telefacsimile will be considered as duly delivered the day after transmittal. 3. Telefacsimile/Telecopy Transmission. All communications, including Customer Orders, may be sent by telefacsimile/telecopy, and signatures appearing on the telefacsimile/telecopy are binding on the signatory party. SECTION XII MISCELLANEOUS 1. Waiver of Default. No waiver by Company or Customer of any default of the other under this Agreement or a Customer Order shall operate as a waiver of any future default, whether of a like or different character. Company shall not be required to perform any service on behalf of Customer, if Customer fails to comply with all of the terms of this Agreement. 2. Assignment. This Agreement may not be assigned by either party without consent of the other party, which consent shall not be unreasonably withheld, unless assigned to an affiliate or subsidiary of a party. Such assignment shall not relieve the assigning party of any of its obligations under this Agreement. 3. Joint Preparation. This Agreement is deemed to be drafted and prepared equally and jointly, regardless of which party prepared or submitted the document to the other, and shall not be construed against one party or the other as a result of the preparation, submittal or execution. 4. No Third-Party Beneficiary. Except for the parties, their successors and assigns, no person, including without limitation, any joint operating agreement party, any owner of a royalty interest, overriding royalty interest or production right, any Transporter or Storer, shall have any rights as a third-party beneficiary or otherwise under this Agreement or any Customer Order. 5. Severability. If any part of this Agreement or a Customer Order is held to be void or unenforceable by any court or under any law, that part shall be deemed stricken and all remaining provisions shall continue to be valid and binding upon the parties. 6. Laws. Rules and Regulations. This Agreement and all Customer Orders are subject to all valid applicable federal, state and local laws, rules and regulations of any governmental body or official having jurisdiction. The parties are entitled to treat all laws, orders, rules and regulations issued by any federal or state regulatory body as valid and may act in accordance therewith until such time the same may be invalidated by final judgment in a court of competent jurisdiction. 7. Modification. Any modification of terms or amendment of provisions of this Agreement or a Customer Order will become effective only by written agreement between the parties. 8. Release of Dedication. Each of Customer's markets shall be released from any requirement or dedication to transport gas on Company's system as defined in the Amendment dated January 1, 1996 to the Gas Sales Agreement dated January 1, 1992 between K N Marketing L. P. and Enermart Trust ninety (90) days prior to the expiration date of that market's Gas Sales Order as defined in Exhibit A of the Amendment. Such release shall only apply to those expiration dates which occur after January 1,1997. 9. Minimal Creditworthiness. Company or Customer shall not be required to perform, or continue to perform, any service under this Agreement or a Customer Order in the event either party (i) applies or has applied for bankruptcy, or (ii) one party fails, in the good faith opinion of the other party, to demonstrate minimal creditworthiness. 10. Taxes and Fees. To the extent permitted by law, Customer shall reimburse Company for, (a) any natural gas gathering, occupation, production, inventory, severance or sales taxes, first use tax, gross receipt tax, or taxes similar in nature or equivalent in effect which are now or hereafter imposed or assessed against Company or any transporting entities by any lawful authority as a result of the transportation of natural gas under this Agreement or the production or gathering of such natural gas. (b) any fees or charges by any Governmental agency which Company incurs that are related to any service rendered to Customer under this Agreement. 11. Operating Conditions and Agreements. The services provided by Company to Customer under this Agreement are subject to the various tariffs, statements of compliance, statements of operating conditions, general terms and conditions, transportation agreements, exchange agreement and general operating conditions of the various Entities at and between the Receipt Point(s) and the Delivery Point(s). 12. Choice of Law and Venue. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT RECOURSE TO THE RULES OF CONFLICT OF LAWS. 13. Confidentiality. The terms of this Agreement, including but not limited to, price, rates or fees, the identified transporting pipelines, Transporter(s), and cost of transportation, the quantities of gas, and all other material terms shall be kept confidential by the parties, except to the extent that any information must be disclosed to a third party as required by federal, state or local law, regulation or governmental process, or for the purpose of effectuating transportation of the gas hereunder or for obtaining regulatory orders pertaining to the delivery or utilization of gas sold hereunder or for regulatory filings or reports, or except to the extent that any information is in the public domain, or which, through no breach by either party of its obligations hereunder, ceases to be confidential. COMPANY CUSTOMER WESTAR TRANSMISSION COMPANY ENERMART TRUST By: By: - ---------------------------------- ---------------------------------------- Name: Name: - ---------------------------------- ---------------------------------------- Title: Title: - ---------------------------------- ---------------------------------------- Date: Date: - ---------------------------------- ---------------------------------------- CUSTOMER ORDER COMPANY SHALL CAUSE THE TRANSPORTATION OF GAS AS FOLLOWS: (ENERMART-LARGE VOLUME INDUSTRIALS) This Customer Order entered into on January 1, 1996 between WESTAR TRANSMISSION COMPANY (Company), and ENERMART TRUST (Customer) is subject to, made a part of and is incorporated by reference into the Gas Service Agreement dated January 1, 1996, between Company and Customer. Term: January 1, 1999 through December 31, 2001 Type of Service: Firm transportation service as required under the Gas Sales Agreement dated January 1, 1992 but effective August 1, 1991 between K N Marketing, L.P.(formerly Anthem Energy Company L.P.) and ENERMART TRUST Receipt Point(s): Interconnection facilities with Westar Transmission Company, "Westar" and other mutually agreed to points on Red River Pipeline, L.P., and AOG Gas Transmission Company, L.P., subject to the operating limitations of these receipt facilities. Delivery Point(s): All Points of Interconnection between Westar Transmission Company and Customer where Customer receives gas for resale through certain of its facilities Maximum Daily Quantity: Requirements to supply Customer's industrial sales needs. Not to exceed 15,000 MMBtu per day Maximum Contract Quantity: Requirements to supply Customer's industrial sales needs as set forth in the Gas Sales Agreement dated January 1, 1942 but effective August 1, 1991 between K N Marketing, L.P. (formerly Anthem Energy Company L.P.) and ENERMART TRUST Rate (as delivered): $0.2858 per Mcf Special Provisions: In the event that the approved rate for firm transportation on the Westar system (as that system is described in the Operating Agreement) changes, then the S0.2858 per Mcf rate for transportation will be replaced with the new rate which has been approved by the Railroad Commission of Texas, which notwithstanding the structure of such approved rate shall be the cost of service rate expressed on a per unit of actual throughput basis for the capacity used to provide the firm transportation service. COMPANY CUSTOMER WESTAR TRANSMISSION COMPANY ENERMART TRUST By: By: - ----------------------------- ----------------------------------- Name: Name: - ----------------------------- ----------------------------------- Title: Title: - ----------------------------- ------------------------------------ Date: Date: - ----------------------------- ------------------------------------ EX-10.16 17 OPERATING AGR. B/T THE COMPANY AND WESTAR EXIBIT 10.16 OPERATING AGREEMENT This Agreement made and entered into the 13th day of November, 1996, to be effective the 1st day of December 1996 (the "Effective Date"), by and between Westar Transmission Company (hereinafter called "Operator"), and Energas Company, a division of Atmos Energy Corporation ("Customer"); WITNESSETH WHEREAS, Operator currently owns and operates approximately 500 Metering Facilities which will be subject to this Agreement; and WHEREAS, Customer will by way of a separate agreement convey approximately 1,735 Metering Facilities to Operator as set forth on Exhibit A, which will become subject to this Agreement; and WHEREAS, Operator and Customer mutually desire to enter into an Operating Agreement covering those certain metering and delivery facilities defined in Article I as "Metering Facility(ies)"; and NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1. "Party" or "Parties" means Customer and/or Operator hereunder, acting by and through duly authorized representatives. Section 2. "Metering Facility(ies)" means the equipment and facilities located in the West Texas area (including but not limited to all pipe, valves, fittings, meters and regulators) which are presently connected (or connected in the future under Article II) directly to Operator's pipeline system(s), and are described on Exhibit A as follows: a) Orifice Meters; b) Large Capacity Positive Displacement Meters ("Large Meters"), being Class IV or larger positive displacement, turbine, and rotary meters which includes those meters with a capacity equal to or greater than 1800 cubic feet per hour at 8 ounces of pressure; c) Other Positive Displacement Meters ("Other Meters"), being those Class I through III meters which includes those meters with a capacity less than 1800 cubic feet per hour at 8 ounces of pressure. Customer shall retain ownership of and continue maintaining and operating any and all metering facilities regardless of type and size which are currently connected to pipeline systems not owned by Operator. Additionally, all yard lines and service lines downstream of the Metering Facility(ies) shall remain the property of Customer, and Customer retains all liabilities and obligations associated with such yard and service lines. Operator shall own, operate and maintain all taps, valves and regulators upstream of the Metering Facilities. Section 3. "Day" means the period of twenty-four consecutive hours commencing at 7:00 a.m. Central Time (CT) on one calendar day and ending at 7:00 a.m. (CT) on the following calendar day. The reference date for any day should be the calendar date upon which such twenty-four (24) hour period began. Section 4. "Month" means the period commencing at 7:00 a.m. CT on the first day of a calendar month and ending at 7:00 a.m. CT on the first day of the following month. Section 5. "MCF" means the quantity of gas occupying a volume of one thousand (1000) cubic feet at a temperature of sixty (60) degrees Fahrenheit and an absolute pressure of fourteen and sixty-five hundredths pounds per square inch absolute (14.65 psia). Section 6. "BTU" means the amount of heat required to raise the temperature of one avoirdupois pound of pure water from fifty-eight and five tenths (58.5) degrees Fahrenheit to fifty-nine and five tenths (59.5) degrees Fahrenheit at a constant pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute. Section 7. "MMBTU" means one million (1,000,000) BTU. Section 8. "PSIG" means pounds per square inch gauge. Section 9. "PSIA" means pounds per square inch absolute. Section 10. "Gross Heating Value" means the number of Btu's liberated by the complete combustion at a constant pressure, of one (1) cubic foot of gas, at a base temperature of sixty (60) degrees Fahrenheit and a referenced pressure base of fourteen and sixty-five hundredths (14.65) psia, with air of the same temperature and pressure of the gas, after products of combustion are cooled to the initial temperature of the gas, and after the water of the combustion is condensed to the liquid state. The Gross Heating Value of the gas shall be corrected for the actual water vapor content of the gas being delivered, provided, if the actual water vapor content is seven (7) pounds or less per one million (1,000,000) cubic feet, the gas will be assumed to be dry and no correction will be made. ARTICLE II MEASUREMENT EQUIPMENT AND TESTING Section 1. Unless otherwise mutually agreed upon in writing, Operator will be the "Operating Party" for all Orifice Meters and Large Capacity Positive Displacement Meters and Customer will be the "Operating Party" for Other Positive Displacement Meters; provided, that for any Orifice Meters and Large Meters which are downgraded to a classification as Other Meters after the Effective Date, Operator shall continue to be the Operating Party. Section 2. A. In the event Customer determines that a new Orifice Meter or Large Meter ("New Metering Facility") is required to provide service to Customer under this Agreement, or if Customer and Operator agree that a New Metering Facility is required, Operator shall install, own, and operate, or cause to be installed and operated such New Metering Facility. Customer shall pay to Operator or Operator's designee the actual cost of such installations (including taxes on income, if any, for aid in construction reimbursements) plus an overhead charge of fifteen percent of such actual cost (example provided on the attached Exhibit A). Customer shall pay such costs within thirty (30) days of receipt of invoice. Customer at its cost, shall provide location sites acceptable to Operator for all such New Metering Facilities. Operator shall designate the type of New Metering Facilities that shall be utilized; provided, if Operator, after the installation of New Metering Facilities pursuant to Operator's initial designation for any point hereunder, designates a different type of New Metering Facilities, the cost of such different New Metering Facilities shall be borne by Operator. Operator will install or cause to be installed a New Metering Facility only upon receipt of a completed "New Facilities Request" form from Customer (example provided in attached Exhibit B). B. Customer shall not be responsible for costs associated with the replacement, rebuilding or repair of any Metering Facilities owned by Operator already in place and being used to provide service under this Agreement. C. For all Other Positive Displacement Meters, unless otherwise agreed, Customer shall install, own and operate or cause to be installed and operated all equipment determined by Customer to be necessary for the measurement of gas to be delivered under this Agreement. D. All equipment installed by either Party will be based upon industry standard designs and operated in accordance with this Agreement. Either Party may install, maintain, and operate, at its sole cost and expense, check metering facilities or other related equipment including, but not limited to, separate Metering Facilities, and equipment which will give either party the right to share pressure/differential sensing lines and positive displacement meter pulse output; provided, however, that such equipment shall be installed in a manner that will not interfere with the operation of the other Party's Metering Facilities and/or telemetry equipment. Section 3. Orifice meters installed in such Metering Facilities shall be constructed and operated in accordance with ANSI/API 2530 (AGA Report No. 3), Orifice Metering of Natural Gas and Other Related Hydrocarbon Fluids, Second Edition, dated September 1985, and any subsequent modification and amendment thereof, as mutually agreed upon, and shall include the use of flange connections and, where necessary, straightening vanes and pulsation dampening equipment. Section 4. Positive displacement or turbine meters installed in such Metering Facilities shall be constructed and operated in accordance with the provisions of AGA Measurement Committee Report No. 6 (AGA Report No. 6) dated January 1971, when positive meters are employed, and AGA Measurement Committee Report No. 7 (AGA Report No. 7), First Revision, dated November 1984, when turbine meters are used, with any subsequent amendments or revisions of either report, as mutually agreed upon. Section 5. When electronic transducers and flow computers, solar and otherwise, are used, the gas shall have its volume, mass, and/or energy content computed in accordance with the applicable AGA standards including, but not limited to, AGA Report Nos. 3,5,6, and 7 and any subsequent modification and amendments thereof as mutually agreed upon. The Parties specifically agree to accept the use of these electronic devices in lieu of mechanical devices with charts. Section 6. The Operating Party shall give thirty (30) days minimum notice to the other Party in order that the other Party may have representatives present to observe any changing, inspecting, testing, calibrating, or adjusting of the Metering Facilities. The official charts, recordings, and readings from such Metering Facilities shall remain the property of the Operator or Customer, as appropriate, but upon request, the Operator or Customer will submit its records and charts, together with calculations therefrom, to the other Party for inspection and verification, subject to return within sixty (60) days after receipt thereof. Section 7. A. The Operator or Customer (as appropriate) shall, in the presence of the other Party's representative, if such other Party requested to be present, verify the accuracy and adjust or calibrate all transmitting or recording devices used in the Metering Facilities within the time frames specified below: a) Orifice Meters - monthly or quarterly, as determined by Operator, b) Large Capacity Positive Displacement Meter - one (1) to three (3) years, as determined by Operator, (Operator shall have three (3) years from date of conveyance described in the second Recital to test the meters which it receives in the conveyance and make any subsequent adjustments to bring them into compliance with the Agreement); c) Other Positive Displacement Meter - from the earlier of the last test date or the date of manufacture - up to twelve (12) years for Class II and Class III meters and up to twenty (20) years for Class I meters, as determined by Customer. B. If during any test of the Metering Facilities, an adjustment or calibration error is found which results in an incremental adjustment to the calculated hourly flow rate through each meter in excess of two percent (2%) of the correct flow rate (whether positive or negative and using the adjusted flow rate as the percent error equation denominator), then any previous recording of such equipment shall be corrected to zero (0) error (i) for any and all months in which the error existed (and which is either known definitely or agreed to by both Parties), and (ii) the total monthly adjustment per meter is greater than 50 MMBTUs. The total flow for the period will be redetermined in accordance with the provisions of Section 9. below. If the period of error condition cannot be determined or agreed upon between the Parties, such correction shall be made over a period extending over the last one-half (1/2) of the time elapsed since the date of the latest test, provided that such correction period will not exceed six (6) months. For a known calculation error for which the time period can be determined and agreed upon by both Parties, the correction period shall be the agreed upon time period with no limits on the correction period. C. If, during any test of the Metering Facilities, an adjustment or calibration error is found which results in an incremental adjustment to the calculated hourly flow rate which does not exceed two percent (2%) of the adjusted flow rate (as described in part B. of this Section), all prior recordings shall be considered to be accurate. D. During all tests, the Metering Facilities will be adjusted or calibrated to as near as zero (0) error as possible by the Operator or Customer as appropriate. Section 8. In the event a special test is requested by a Party of the other Party's Metering Facilities, (a test not scheduled under the provisions of Section 7. above),the requesting Party shall give seventy-two (72) hours advance notice and both Parties shall cooperate to secure a prompt test of the accuracy of such equipment. If the Metering Facility tested is found to be within two percent (2%) of the correct flow rate, or if an inspection of the Metering Facility indicates no problems, the Party performing the test shall have the right to bill the requesting Party for the cost of such special test, including any labor and transportation costs pertaining to such special test and the requesting Party shall pay such costs within thirty (30) days of its receipt of the invoice. Section 9. If, for any reason the Metering Facility is (i) out of adjustment, (ii) out of service, or (iii) in need of repair and the total calculated hourly flow rate through the Metering Facility is found to be in error by an amount of more than two percent (2%) of the correct flow rate, the total quantity of gas delivered shall be redetermined in accordance with the first of the following methods which both Parties mutually agree is feasible: (a) by correcting the error by re-reading the official charts, or by straightforward application of a correcting factor to the quantities recorded for the period (if the net percentage of error is ascertainable by calibration, tests or mathematical calculation); (b) by using the registration of any mutually agreeable check metering facility or telemetry equipment, if installed and accurately registering (subject to testing as described in Section 7 above); (c) by using upstream and downstream measurement; (d) by estimating the quantity, based upon deliveries made during periods of similar conditions when the meter was registering accurately; (e) where parallel multiple meter runs exist, by calculation using the registration of such parallel meter runs; provided that they are measuring gas from upstream and downstream headers in common with the faulty metering equipment, are not controlled by separate regulators, and are accurately registering, Section 10. Each Party shall retain and preserve for a period of at least two (2)years all test data, charts, and other similar records. Section 11. Each Party shall have the right to remove at its cost all Metering Facilities, excluding the tap, owned by it within a reasonable period of time following the expiration or termination of this Agreement. Section 12. Customer has current end users connected to Metering Facilities which are currently customers of Customer, and the intent of this Operating Agreement and any separate meter conveyance agreement is to convey Metering Facilities only. ARTICLE III MEASUREMENT SPECIFICATIONS The measurements of the quantity and quality of all gas delivered at the Metering Facilities shall be conducted in accordance with the following: Section 1. Unit of Volume: The unit of volume for measurement shall be one (1) cubic foot of gas at a temperature base of sixty (60) degrees Fahrenheit and at a pressure base of fourteen and sixty-five hundredths (14.65) psia. Such measured volumes, converted to MCF, shall be multiplied by their BTU per cubic foot and divided by 1,000 to determine MMBTUs received and delivered hereunder. Section 2. Volume Computations: Computations of gas volumes from measurement data shall be made in accordance with the following depending upon the type of measurement being utilized by Operating Party: (a) Orifice Meters - ANSI/API 2530 (AGA Report No. 3), Orifice Metering of Natural Gas and Other Related Hydrocarbon Fluids, Second Edition, dated September 1985, and any subsequent amendments or revisions as mutually agreed upon; (b) Positive and turbine meters - For positive meters AGA Measurement Committee Report No. 6 (AGA Report No. 6), dated January 1971, and any subsequent amendments or revisions. For turbine meters, AGA Measurement Committee Report No. 7 (AGA Report No. 7), First Revision, dated November, 1984, and any subsequent amendments or revisions as mutually agreed upon. (c) Electronic transducers and flow computers - AGA Report Nos. 3,5,6, & 7 and any subsequent amendments or revisions as mutually agreed upon. Section 3. Temperature Measurement: The temperature of the gas shall be determined by a recording thermometer so installed that it may record the temperature of the gas flowing through the meters. The average temperature to the nearest one (1) degree Fahrenheit, obtained while the gas is being delivered, shall be the applicable flowing gas temperature for the period under consideration for volume calculation. In lieu of recording thermometers either Party may elect to install temperature compensating devices on its positive displacement meters. For existing meters that currently do not have a recording thermometer or a temperature compensating device, then the temperature used for volume calculation shall be sixty (60) degrees Fahrenheit. All new Large Meter installations and all meter replacements shall have either a recording thermometer or a temperature compensating device. Section 4. Specific Gravity Measurement: The specific gravity of the gas shall be determined by calculating the specific gravity from an on-line chromatographic device installed and located at a suitable point to record representative average specific gravity of the gas being metered or by other mutually agreeable methods. The gravity, to the nearest one-thousandth (0.001), obtained while gas is being delivered shall be the specific gravity of the gas used for the recording period. If on-line chromatographic devices are not currently installed and available for use, the Party's are not obligated to install equipment and, spot sampling or continuous sampling using standard type specific gravity sampling methods may be used in lieu of an on-line chromatograph. If the spot sampling or continuous sampling method is used, the specific gravity of the gas delivered hereunder shall be determined on at least a quarterly basis from a gas analysis. The result shall be obtained to the nearest one-thousandth (0.001) and should be applied during the applicable quarter or time period for the determination of gas volumes delivered. Section 5. Adjustment for Supercompressibility: Adjustments to measured gas volumes for the effects of supercompressibility shall be made in accordance with accepted AGA standards. Operator shall obtain representative carbon dioxide and nitrogen mole fraction values for the gas delivered as may be required to compute such adjustments in accordance with standard testing procedures. At each Party's option (as applied to that Party's Metering Facilities only), equations for the calculation of supercompressibility may be taken from either (i) the AGA Manual for the Determination of Supercompressibility Factors for Natural Gas, dated December, 1962 (also known as the "NX-l9 Manual"), or (ii) the AGA Report No. 8, dated December, 1985, Compressibility and Supercompressibility for Natural Gas and Other Hydrocarbon Gases, or at operating Party's option, any subsequent revision to AGA Report No. 8. Section 6. Atmospheric Pressure: The Atmospheric Pressure shall be the actual atmospheric pressure at different elevations per the attached Exhibit A. Exhibit A shall be updated by the Operating Parties from time to time to reflect additions or deletions of Metering Facilities covered by this Agreement. Section 7. Determination of Gross Heating Value: The gross heating value of the gas delivered hereunder shall be determined by calculating the BTU from an on-line chromatograph or a gas analysis of a spot or continuous gas sample. Spot samples shall be taken at least quarterly, and a continuous sample shall be taken monthly. Such sample shall be taken at a suitable point on the facilities to be representative of the gas being metered. Section 8. Other Tests: Other tests to determine water content, hydrogen sulfide, sulfur and other impurities in the gas shall be conducted by Operator annually, at four mutually agreeable locations at Operator's expense and shall be conducted in accordance with standard industry testing procedures. If additional tests of the same type are requested by Customer, Customer shall bear the costs of such tests. For all other tests, each Party shall bear the cost of testing the Metering Facilities for which it is responsible only in the event the gas tested is determined not to be within the applicable specification(s), otherwise the requesting Party shall bear the cost of such test(s). Section 9. New Test Methods: If at any time during the term hereof a new method or technique is developed with respect to gas measurement, such new method or technique may be substituted for the method set forth in this Article when such methods or techniques are in accordance with the currently accepted standards of the American Gas Association, and if mutually agreed upon by the Parties. ARTICLE IV QUALITY Section 1. Gas delivered by Operator hereunder at the Metering Facilities shall conform to the following specifications: (a) Liquids - the gas shall be commercially free of water and hydrocarbons in liquid form. (b) Hydrogen Sulfide - the gas shall not contain more than one (1) grain of hydrogen sulfide per one hundred (100) cubic feet. (c) Organic Sulfur - the gas shall not contain more than ten (10) grains of organic sulfur per one hundred (100) cubic feet. (d) Carbon Dioxide - the gas shall not contain more than two percent (2%) carbon dioxide by volume. (e) Dust, Gums, etc. - the gas shall be commercially free of dust, gums and other solid matter. (f) Water Vapor - the gas shall not contain more than seven pounds (7 lbs.) of water in the vapor phase per million cubic feet. (g) BTU Content - the gas shall have a BTU of not less than nine hundred fifty (950) BTUs (dry) per cubic foot or more than eleven hundred (1100) BTUs (dry) per cubic foot at standard temperature and pressure. (h) Temperature - the temperature of the gas shall not be more than one hundred twenty (120) degrees Fahrenheit. (i) Oxygen - the gas shall not contain more than one percent (1%) oxygen by volume. ARTICLE V DELIVERY PRESSURE Section 1. Operator shall make all reasonable efforts to maintain one hundred fifty (150) psig at the inlet to all Town Border Stations (TBSs), all other deliveries shall be made at the pressure existing from time to time in Operator's facilities. Notwithstanding the one hundred fifty (150) psig requirement at the TBSs, neither Party shall be required to install compression facilities in order to effect deliveries hereunder at the Metering Facilities. ARTICLE VI OUTAGES Section 1. For all outages outside Force Majeure which (i) occur as a result of any negligent act or omission of Operator, or (ii) are caused by or involve third parties (Third Party Outage), Operator shall be obligated to reimburse Customer for all direct costs and expenses incurred, including but not limited to, reasonable direct costs of restoring service and relighting furnaces (Restoration Expenses); however, Operator shall not be responsible for any other charges or claims including, but not limited to, incidental, consequential, or punitive damages. Notwithstanding the immediately preceding sentence, Operator is only obligated to reimburse Customer for Restoration Expenses for a Third Party Outage when and only to the extent that Operator is successful in finally recovering damages (less Operator's attorneys' fees, court costs and collection expenses) from such third party. When there is joint or concurrent conduct as described in (i) and (ii) above leading to an outage, Operator shall only be responsible for paying to Customer Restoration Expenses to the degree that Operator is jointly or concurrently liable, and Operator shall subsequently reimburse Customer for the third party's share of Restoration Expenses after Operator's recovery, if any, of Restoration Expenses as set forth in the immediately preceding sentence. ARTICLE VII MAINTENANCE OF FACILITIES Section 1. Each Party shall maintain its Metering Facilities including chromatographs and odorizers owned by it and used in its performance hereof in good, safe, and efficient operating condition and repair. In addition each Party shall maintain and replace from time to time its Metering Facilities in a reasonable manner according to industry standards with the intent to obtain accurate measurement. Section 2. Each Party shall have the right at the time the other Party is testing a Metering Facility to inspect that Metering Facility which is the subject of the test. If the inspecting Party establishes that the Metering Facilities are not operating in accordance with the terms of this Agreement, then upon receipt of notice, the testing Party shall be obligated to correct such condition within seventy two (72) hours, or as soon thereafter as is reasonably practical with the exercise of due diligence. ARTICLE VIII ODORIZATION Section 1. Operator shall be responsible for odorization of the natural gas delivered to Customer only from Metering Facilities directly connected to pipeline systems which Operator owns as of the Effective Date in accordance with applicable laws or safety regulations and shall construct, maintain and operate any facilities required for the performance of this obligation. Customer shall be responsible for odorization of the natural gas received by Customer from pipelines that are not owned by Operator. Customer shall be responsible for monitoring and performing all odorant checks within its delivery systems and will notify Operator immediately of any low readings. Customer shall also be responsible for any regulatory requirements associated with monitoring and performing odorant checks on its delivery systems. The consideration for the costs of odorization service provided hereunder is included in the transportation service fee relating to any gas transported by Operator which is ultimately delivered to, or on behalf of Customer, or its affiliated entities. ARTICLE IX SHARING OF SCADA INFORMATION Section 1. Operator and Customer will make reasonable efforts, to share SCADA data. The Party requesting access to SCADA data which is in the possession of the other Party shall bear all costs associated with obtaining such data from the other Party. ARTICLE X ANNUAL OPERATING MEETING Section 1. Customer's and Operator's operating personnel agree to make reasonable efforts to meet on an annual basis to discuss the Operating Agreement in order to identify and resolve any outstanding operating issues. ARTICLE XI TERM Section 1. This Agreement, regardless of when executed, is effective as of the Effective Date, continuing through December 31, 2001 (Primary Term), and shall continue thereafter month-to-month unless terminated by either Party with at least thirty (30) days written notice prior to the end of the Primary Term, or any subsequent month thereafter. ARTICLE XII AUDIT Section 1. During the term hereof and for two (2) years thereafter, each Party and its duly authorized representative shall have access to and the right to inspect and audit during regular business hours all meters and measurement records maintained and operated by the other Party. Any matters not challenged within a period of two (2) years of their occurrence, are deemed waived by the Parties. ARTICLE XIII JOINT USE Section 1. Each Party grants to the other Party, without cost, ingress and egress to facilities and sites where the Parties will jointly use such sites to operate their respective facilities. ARTICLE XIV INDEMNIFICATION Section 1. Each Party assumes full responsibility for its own acts performed under this Agreement, and shall indemnify and save harmless the other Party from all liability, loss, claims, costs and damages (including but not limited to attorney's fees and court costs) on actions, including injury to or death of persons and environmental impacts, arising from any act or accident in connection with the acts or omissions hereunder or any breach hereunder of the indemnifying Party, except to the extent of any negligence or willful misconduct of the other Party. ARTICLE XV ASSIGNMENT Section 1. This Agreement may not be assigned by either Party (except to an affiliate of such Party) without the prior written consent of the other, such consent not to be unreasonably withheld. ARTICLE XVI NOTICES Section 1. Any notice required to be given under this Agreement or any notice which either Party hereto may desire to give the other Party shall be in writing and shall be considered duly delivered when hand-delivered or when deposited in the United States mail, postage prepaid, registered or certified, and addressed as follows: If to Customer: ENERGAS COMPANY 5430 LBJ Freeway, Suite 1800 Dallas, Texas 75240 P.O. Box 650205 Dallas, Texas 75265-0205 Attention: Intrastate Gas Supply Department Phone: (972) 788-3746 ENERGAS COMPANY 5110 80th Street Lubbock, Texas 79424 P.O. Box 1121 Lubbock, Texas 79408-1121 Attention: Technical Services Department 24 Hour Phone: (806) 744-1294 If to Operator: WESTAR TRANSMISSION COMPANY 333 Clay Street, Suite 2000 Houston, Texas 77002 Attention: Director of Pipeline Operations 24 Hour Phone: (713) 739-2900 (Houston, Texas) 24 Hour Phone: (800) 562-5879 (Amarillo, Texas) or such other address as Operator, Customer, or their respective successors or permitted assigns shall designate by written notice given in the manner described above. Routine communications may be mailed by ordinary mail and are deemed delivered when hand-delivered or when deposited in the United States mail, postage prepaid, and addressed to the above-designated name and address. ARTICLE XVII FORCE MAJEURE Section 1. In the event that either Operator or Customer is rendered unable, wholly or in part, by reason of an event of force majeure, to perform its obligations under this Agreement, other than to make payment due hereunder, and such Party has given notice and full particulars of such force majeure in writing to the other party as soon as possible after the occurrence of the cause relied on, then the obligations of the Parties, insofar as they are affected by such force majeure, shall be suspended during the continuance of such inability, but for no longer period, and such cause shall insofar as possible, be remedied with all reasonable dispatch; provided, however, that the settlement of strikes or lock-outs shall be entirely within the discretion of the Party having such difficulty, and the above requirement that any force majeure be remedied with all reasonable dispatch shall not require the settlement of strikes or lock-outs by acceding to the demands of the opposing Party when such course is inadvisable in the discretion of the Party having the difficulty. Section 2. The term "force majeure" as used in this Agreement shall mean any cause not reasonable within the control of the Party claiming suspension and includes, but is not limited to, acts of God; strikes; lock-outs; wars; riots; orders or decrees of any lawfully constituted federal, state, or local body; fires; storms; floods; wash-outs; explosions; breakage or accident to machinery or lines of pipe; inability to obtain or delay in obtaining rights- of-way, material, supplies, or labor permits; repair, maintenance, or replacement of facilities used in the performance of the obligations contained in this Agreement; or any other cause whether of the kind herein enumerated or otherwise. ARTICLE XVIII REMEDIES UPON MATERIAL DEFAULT Section 1. If either Party hereto shall fail to perform any material covenant or obligation imposed upon it under this Agreement, then in such event the non-defaulting Party may, at its option, terminate this Agreement upon acting in accordance with the procedures hereafter set forth in this Section. The non-defaulting Party shall cause a written notice to be served on the defaulting Party, which notice shall state specifically the cause of terminating this Agreement and shall declare it to be the intention of the non-defaulting Party to terminate this Agreement if the default is not cured. The defaulting Party shall have ten (10) days after receipt of the aforesaid notice in which to remedy or remove the cause or causes stated in the termination notice, and, if within such ten-day period, the defaulting Party does so remedy or remove said cause or causes and fully indemnifies the non-defaulting Party for any and all consequences of such breach, then such termination notice shall be withdrawn and this Agreement shall continue in full force and effect. In the event that the defaulting Party fails to remedy or remove the cause or causes or to indemnify the non-defaulting Party for any and all consequences of such breach within such ten-day period, this Agreement shall be terminated and of no further force or effect from and after the expiration of such ten-day period. ARTICLE XIX MISCELLANEOUS Section 1. Notwithstanding anything contained in this Agreement to the contrary, the Parties hereby specifically reserve any rights each Party may have under any other Agreements between the Parties to collect any refunds due a Party as a result of any measurement test, calibration or adjustment which reflects an error exceeding the parameters allowed in such other Agreements. Section 2. On or about the anniversary date of this Agreement, and each anniversary thereafter, the Parties will conference to discuss operating matters in general, and specifically to negotiate the addition or deletion of Metering Facilities by way of a mutually agreeable amendment to this Agreement; provided, neither Party is obligated to add or delete any such Metering Facilities to this Agreement. Section 3. It is the intent of the Parties under this Agreement to have Operator operate all Metering Facilities classified as Large Meters and Orifice Meters which are directly attached to Operator's pipeline system and which are in turn connected to Customer's systems or its customers (Additional Meters). If after the conveyance of the 1,735 meters as set forth in the second Recital in this Agreement, it is discovered that there are Additional Meters, then Customer will immediately convey such meters to Operator by way of a CONVEYANCE in the same form used to convey the aforementioned 1,735 Meters. Section 4. Operator will notify Customer in a reasonable time of any changes made to the 1,735 meters which would affect measurement readings, including but not limited to, changes of indexes, pressure changes, meter changes, or other type changes to the measurement facility affecting the Customer's ability to read and acquire accurate measurement readings from any of the 1,735 meters. Operator recognizes that the Customer needs to read and determine volumes on the 1,735 meters for its business and operational needs, and billing purposes to its customers. Section 5. The Parties understand and agree that Customer's 1,735 Metering Facilities that are being conveyed to Operator are subject to mutually agreeable adjustments to Exhibit "A" which may result from the completion of a current audit of such facilities, and the Parties agree to execute the appropriate documents reflecting such adjustments. Section 6. The intent of the Parties is to convey any real property rights related to the 1,735 Metering Facilities (as may be later adjusted as set forth above) from Customer to Operator; however, as of the Effective Date, some of those properties have not been specifically identified; therefore, the parties agree to identify those properties within three months of the Effective Date and, to the extent necessary, execute a conveyance of such properties to Operator. IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed. "CUSTOMER" "OPERATOR" ENERGAS COMPANY, a division WESTAR TRANSMISSION COMPANY of Atmos Energy Corporation By: By: ------------------------- -------------------------- Name: Name: ----------------------- ------------------------ Title: Title: ---------------------- ----------------------- EXHIBIT B
================================================================================ FACILITY DATA DATA DEFINITION REMARKS - -------------------------------------------------------------------------------- FACILITY NAME - -------------------------------------------------------------------------------- METER TYPE - -------------------------------------------------------------------------------- OPERATOR - -------------------------------------------------------------------------------- 3RD PARTY - -------------------------------------------------------------------------------- CAPACITY - -------------------------------------------------------------------------------- STATE - -------------------------------------------------------------------------------- COUNTY - -------------------------------------------------------------------------------- TOWNSHIP/BLOCK - -------------------------------------------------------------------------------- RANGE/SURVEY - -------------------------------------------------------------------------------- SYSTEM NUMBER - -------------------------------------------------------------------------------- I.D. DATE - -------------------------------------------------------------------------------- ASSOCIATED CONTRACT - -------------------------------------------------------------------------------- COMMENTS ================================================================================
EX-15 18 LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFO EXHIBIT 15 ---------- Board of Directors Atmos Energy Corporation We are aware of the incorporation by reference in the Registra tion Statements (Form S-3 No. 33-58220, Form S-3 No. 33-56915, Form S-3 No. 333-03339, Form S-4 No. 333-13429, Form S-8 No. 33-57687, Form S-8 No. 33-68852, and Form S-8 No. 33-57695) of Atmos Energy Corporation of our report dated February 5, 1997, 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 December 31, 1996. 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 February 12, 1997 Dallas, Texas EX-27 19 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ATMOS ENERGY CORPORATION FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-30-1997 DEC-31-1996 PER-BOOK 422,191 0 118,094 37,849 0 578,134 80 113,493 65,892 179,465 0 0 157,303 52,300 0 0 8,000 0 2,465 273 178,328 578,134 157,653 5,225 139,409 144,634 13,019 89 13,108 4,216 8,892 0 8,892 4,012 405 (3,992) 0.55 0.55
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