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 June 30, 2004
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 1-14174
AGL RESOURCES INC.
(Exact name of registrant as specified in its charter)
Georgia	58-2210952
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Ten Peachtree Place NE,  Atlanta, Georgia 30309
(Address and zip code of principal executive offices)
(Zip Code)
404-584-4000
(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
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  X  No __
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class		Outstanding as of July 23, 2004
Common Stock, $5.00 Par Value		64,946,102

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AGL RESOURCES INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2004

TABLE OF CONTENTS

Item Number		Page(s)
	Glossary of key terms and referenced accounting standards	3-4
	PART I - FINANCIAL INFORMATION
1	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	5-6
	Condensed Consolidated Statements of Income	7
	Condensed Consolidated Statements of Common Shareholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements
	Note 1 – Accounting Policies and Methods of Application	10-12
	Note 2 – Recent Accounting Pronouncements	13-14
	Note 3 – Risk Management	15-17
	Note 4 – Regulatory Assets and Liabilities	18-19
	Note 5 – Pension and Other Postretirement Benefits	20
	Note 6 – Financing	21
	Note 7 – Commitments and Contingencies	22
	Note 8 – Segment Information	23
	Note 9 – Subsequent Events	24
2	Management's Discussion and Analysis of Financial Condition and Results of Operations
	Cautionary Statement Regarding Forward-Looking Statements	26
	Summary	27-32
	Results of Operations
	Distribution Operations	33-36
	Wholesale Services	37-42
	Energy Investments	43-47
	Corporate	48
	Liquidity and Capital Resources	49-53
	Critical Accounting Policies	54-55
	Accounting Developments	56
3	Quantitative and Qualitative Disclosures About Market Risk	57-58
4	Controls and Procedures	60
	PART II - OTHER INFORMATION
1	Legal Proceedings	61
2	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	61
3	Defaults Upon Senior Securities	61
4	Submission of Matters to a Vote of Security Holders	61
5	Other Information	61
6	Exhibits and Reports on Form 8-K	62
	SIGNATURE	63

GLOSSARY OF KEY TERMS

AGLC	Atlanta Gas Light Company
AGL Capital	AGL Capital Corporation
AGL Networks	AGL Networks, LLC
AGSC	AGL Services Company
CGC	Chattanooga Gas Company
Corporate	Nonoperating segment, which includes AGSC, AGL Capital and Pivotal
Credit Facility	Credit agreement supporting our commercial paper program
Distribution operations	Segment that includes AGLC, VNG and CGC
EBIT	Earnings before interest and taxes, a non-GAAP measure that includes operating income, other income, equity in SouthStar’s income in 2003, donations, minority interest in 2004 and gain on sales of assets.  Excludes interest and tax expense; as an indicator of our operating performance, EBIT should not be considered an alternative to, or more meaningful than, operating income or net income as determined in accordance with GAAP
Energy investments	Segment that consists primarily of SouthStar, US Propane (and its investment in Heritage) and AGL Networks
ERC	Environmental response costs
FASB	Financial Accounting Standards Board
FIN	FASB Interpretation Number
GAAP	Accounting principles generally accepted in the United States of America
GPSC	Georgia Public Service Commission
LNG	Liquefied natural gas
Marketers	Georgia Public Service Commission-certificated marketers selling retail natural gas in Georgia
Medium-Term notes	Notes issued by AGLC scheduled to mature in 2004 through 2027 bearing interest rates ranging from 6.55% to 8.7%
MGP	Manufactured gas plant
NYMEX	New York Mercantile Exchange, Inc.
Operating margin	A non-GAAP measure of income, calculated as revenues minus cost of gas, that excludes operation and maintenance expense, depreciation and amortization, taxes other than income taxes, and the gain on the sale of our Caroline Street campus; these items are included in our calculation of operating income as reflected in our statements of consolidated income; operating margin should not be considered an alternative to, or more meaningful than, operating income or net income as determined in accordance with GAAP
PGA	Purchased gas adjustment
Pivotal	Pivotal Energy Development
PRP	Pipeline replacement program
PUHCA	Public Utility Holding Company Act of 1935, as amended
RMC	AGL Resources’ Risk Management Committee
SEC	Securities and Exchange Commission
Sequent	Sequent Energy Management, L.P.
Senior notes	Notes issued by AGL Capital scheduled to mature in 2011 through 2013 bearing interest rates ranging from 4.45% to 7.125%
SFAS	Statement of Financial Accounting Standards
SouthStar	SouthStar Energy Services LLC
Trust Preferred Securities	Trust preferred securities subject to mandatory redemption
Trusts	AGL Capital Trust I and AGL Capital Trust II
US Propane	US Propane LP
VNG	Virginia Natural Gas, Inc.
VSCC	Virginia State Corporation Commission
Wholesale services	Segment that consists primarily of Sequent
WNA	Weather normalization adjustment

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REFERENCED ACCOUNTING STANDARDS

APB 25	Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
ARB 51	Accounting Research Bulletin No. 51, “Consolidated Financial Statements”
EITF 99-02	Emerging Issues Task Force Issue No. 99-02, “Accounting for Weather Derivatives”
EITF 02-03	Emerging Issues Task Force Issue No. 02-03, “Issues Involved in Accounting for Contracts under EITF Issue No. 98-10, ‘Accounting for Contracts Involved in Energy Trading and Risk Management Activities’”
FIN 46 & FIN 46R	FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”
FSP 106-1	FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to  the Medicare Prescription Drug, Improvement and Modernization Act of 2003”
FSP 106-2	FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”
SFAS 66	SFAS No. 66, “Accounting for Sales of Real Estate”
SFAS 71	SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation”
SFAS 123	SFAS No. 123, “Accounting for Stock-Based Compensation”
SFAS 133	SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
SFAS 149	SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”

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Item 1. Financial Statements
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In millions	June 30, 2004	December 31, 2003	June 30, 2003
Current assets
Cash and cash equivalents	$54	$17	$3
Receivables (less allowance for uncollectible accounts of $17 million at June 30, 2004, $2 million at December 31, 2003 and $3 million at June 30, 2003)	414	394	276
Unbilled revenues	42	40	5
Inventories	259	210	168
Unrecovered environmental response costs – current	26	24	24
Unrecovered pipeline replacement program costs – current	24	22	18
Energy marketing and risk management assets	21	13	12
Other	10	22	6
Total current assets	850	742	512
Property, plant and equipment
Property, plant and equipment	3,476	3,402	3,390
Less accumulated depreciation	1,067	1,050	1,165
Property, plant and equipment-net	2,409	2,352	2,225
Deferred debits and other assets
Unrecovered pipeline replacement program costs	381	410	437
Goodwill	177	177	176
Unrecovered environmental response costs	141	155	155
Investments in Trusts	10	-	-
Unrecovered postretirement benefit costs	9	9	11
Investments in equity interests	-	101	112
Other	33	26	25
Total deferred debits and other assets	751	878	916
Total assets	$4,010	$3,972	$3,653

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In millions	June 30, 2004	December 31, 2003	June 30, 2003
Current liabilities
Payables	$535	$403	$387
Short-term debt	161	306	147
Accrued pipeline replacement program costs – current	90	82	67
Accrued expenses	53	54	60
Accrued environmental response costs – current	37	40	48
Current portion of long-term debt	34	77	95
Energy marketing and risk management liabilities	11	17	11
Other	95	69	71
Total current liabilities	1,016	1,048	886
Accumulated deferred income taxes	413	376	344
Long-term liabilities
Accrued pipeline replacement program costs	285	323	365
Accumulated removal costs	104	102	-
Accrued postretirement benefit costs	51	51	51
Accrued pension obligations	27	39	67
Accrued environmental response costs	25	43	38
Other	13	11	9
Total long-term liabilities	505	569	530
Deferred credits	74	77	71
Commitments and contingencies (Note 7)
Minority interest	29	-	-
Capitalization
Senior and Medium-Term notes	728	731	697
Notes payable to Trusts	234	-	-
Subsidiaries’ obligated mandatorily redeemable preferred securities	-	225	228
Total long-term debt	962	956	925
Common shareholders’ equity, $5 par value; 750,000,000 shares authorized	1,011	946	897
Total capitalization	1,973	1,902	1,822
Total liabilities and capitalization	$4,010	$3,972	$3,653

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
	Three months		Six Months
In millions, except per share amounts	2004	2003	2004	2003
Operating revenues	$294	$187	$945	$539
Operating expenses
Cost of gas	129	46	522	194
Operation and maintenance expenses	81	70	174	142
Depreciation and amortization	24	23	48	45
Taxes other than income	7	7	15	15
Total operating expenses	241	146	759	396
Operating income	53	41	186	143
Equity in earnings of SouthStar	-	10	-	24
Other income (loss)	1	(2)	2	-
Interest expense	(16)	(18)	(32)	(38)
Minority interest	(3)	-	(14)	-
Earnings before income taxes	35	31	142	129
Income taxes	14	12	55	50
Income before cumulative effect of change in accounting principle	21	19	87	79
Cumulative effect of change in accounting principle, net of taxes	-	-	-	(8)
Net income	$21	$19	$87	$71
Basic earnings per common share
Income before cumulative effect of change in accounting principle	$0.34	$0.30	$1.35	$1.27
Cumulative effect of change in accounting principle	-	-	-	(0.13)
Basic earnings per common share	$0.34	$0.30	$1.35	$1.14
Diluted earnings per common share
Income before cumulative effect of change in accounting principle	$0.33	$0.29	$1.33	$1.26
Cumulative effect of change in accounting principle	-	-	-	(0.13)
Diluted earnings per common share	$0.33	$0.29	$1.33	$1.13
Weighted-average number of common shares outstanding
Basic	64.8	63.5	64.7	61.9
Diluted	65.6	64.2	65.5	62.4

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
			Premium on		Other
	Common Stock		common	Earnings	Comprehensive	Treasury
In millions, except per share amounts	Shares	Amount	shares	reinvested	income	stock	Total
Balance as of Dec. 31, 2003	64.5	$322	$326	$338	($40)	-	$946
Comprehensive income:
Net income	-	-	-	87	-	-	87
Total comprehensive income							87
Dividends on common shares ($0.57 per share)	-	-	-	(37)	-	-	(37)
Benefit, stock compensation, dividend reinvestment and share purchase plans ($28.86 weighted average price per share)	0.4	3	12	-	-	-	15
Balance as of June 30, 2004	64.9	$325	$338	$388	($40)	$-	$1,011

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
In millions	2004	2003
Cash flows from operating activities
Net income	$87	$71
Adjustments to reconcile net income to net cash flow provided by operating activities
Depreciation and amortization	48	45
Cumulative effect of accounting change	-	13
Deferred income taxes	37	24
Equity in earnings of unconsolidated affiliates	(1)	(24)
Minority interest	14	-
Changes in certain assets and liabilities
Receivables	105	98
Payables	74	45
Inventories	(21)	(50)
Other	1	(17)
Net cash flow provided by operating activities	344	205
Cash flows from investing activities
Property, plant and equipment expenditures	(104)	(77)
Purchase of Dynegy Inc.’s 20% ownership interest in SouthStar	-	(20)
Sale of ownership interest in US Propane	31	-
Other	1	13
Net cash flow used in investing activities	(72)	(84)
Cash flows from financing activities
Payments and borrowings of short-term debt, net	(151)	(241)
Payments of Medium-Term notes	(49)	-
Dividends paid on common shares	(37)	(32)
Distribution to minority interest	(14)	-
Equity offering	-	137
Other	16	10
Net cash flow used in financing activities	(235)	(126)
Net increase (decrease) in cash and cash equivalents	37	(5)
Cash and cash equivalents at beginning of period	17	8
Cash and cash equivalents at end of period	$54	$3
Cash paid during the period for
Interest (net of allowance for funds used during construction)	$24	$30
Income taxes	$22	$1

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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AGL RESOURCES INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1

Accounting Policies and Methods of Application

General

AGL Resources Inc. is an energy services holding company that conducts substantially all of its operations through its subsidiaries. Unless the context requires otherwise, references to “we”, “us”, “our” or the “company” are intended to mean consolidated AGL Resources Inc. and its subsidiaries (AGL Resources). We have prepared the accompanying unaudited condensed consolidated financial statements under the rules of the Securities and Exchange Commission (SEC). Under such rules and regulations, we have condensed or omitted certain information and notes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). We believe, however, that our disclosures are adequate and the information presented is not misleading.

The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial results for the interim periods. You should read these condensed consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2003, filed with the SEC on February 6, 2004.

Due to the seasonal nature of our business, the results of operations for the three and six months ended June 30, 2004 and the June 30, 2004, December 31, 2003 and June 30, 2003 balance sheets are not necessarily indicative of the results of operations to be expected for any other interim period or for the year ending December 31, 2004. For a glossary of key terms and referenced accounting standards, see pages three and four of this filing.

Basis of Presentation

Our condensed consolidated financial statements as of and for the periods ended June 30, 2004 include our accounts, the accounts of our majority-owned and controlled subsidiaries and the accounts of variable interest entities for which we are the primary beneficiary. All significant intercompany items have been eliminated in consolidation. Certain amounts from prior periods have been reclassified to conform to the current period presentation. The December 31, 2003 balance sheet amounts are derived from our audited financial statements.

Our condensed consolidated financial statements include the accounts of SouthStar Energy Services LLC (SouthStar), a variable interest entity of which we are the primary beneficiary. Previously, we accounted for our 70% non-controlling financial ownership interest in SouthStar using the equity method of accounting. Under the equity method, our ownership interest in SouthStar was reported as an investment within our consolidated balance sheet, and our share of SouthStar’s earnings was reported in our condensed consolidated statement of income as a component of other income. We utilize the equity method to account for and report investments where we exercise significant influence but not control and where we are not the primary beneficiary as defined by FIN 46. Our equity method investments generally include entities where we have a 20% to 50% voting interest.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which was effective for our December 31, 2003 consolidated financial statements. FIN 46 was subsequently revised in December 2003 (FIN 46R). FIN 46R clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest. FIN 46R also defines a variable interest entity, and provides guidance for determining when a business enterprise should consolidate the results of a variable interest entity.

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During the first quarter effective January 1, 2004, we adopted FIN 46R resulting in the consolidation of SouthStar’s accounts in our condensed consolidated financial statements; and the deconsolidation of the accounts related to our Trust Preferred Securities. For more discussion on FIN 46R and the impact of its adoption on our condensed consolidated financial statements, see Note 2, Recent Accounting Pronouncements.

Stock-based Compensation

We have several stock-based employee compensation plans and we account for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). For our stock option plans, we generally do not reflect stock-based employee compensation cost in net income, as options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. For our stock appreciation rights, we reflect stock-based employee compensation cost based on the fair value of our common stock at the balance sheet date, since these awards constitute a variable plan under APB 25.

The following table illustrates the effect on our net income and earnings per share for the three and six months ended June 30, 2004 and 2003 as if we had applied the optional fair value recognition provisions of SFAS 123:

	Three months		Six months
In millions, except per share amounts	2004	2003	2004	2003
Net income, as reported	$21	$19	$87	$71
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect	-	-	1	-
Pro-forma net income	$21	$19	$86	$71
Earnings per share:
Basic-as reported	$0.34	$0.30	$1.35	$1.14
Basic-pro-forma	$0.34	$0.30	$1.33	$1.14
Diluted-as reported	$0.33	$0.29	$1.33	$1.13
Diluted-pro-forma	$0.33	$0.29	$1.31	$1.13

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Comprehensive Income

Our comprehensive income includes net income and other gains and losses affecting shareholders’ equity that GAAP excludes from net income. Such items consist primarily of unrealized gains and losses on certain derivatives and minimum pension liability adjustments. For the six months ended June 30, 2004 our comprehensive income increased as a result of the fair value of derivatives at SouthStar in the amount of $1 million and a similar offsetting decrease due to the sale of our remaining investment units related to US Propane LP. As a result, our comprehensive income for June 30, 2004 was equal to net income. For the six months ended June 30, 2003 our comprehensive income was equal to net income.

Earnings per Common Share

We compute basic earnings per common share by dividing our income available to common shareholders by the weighted-average number of common shares outstanding daily. Diluted earnings per common share reflect the potential reduction in earnings per common share that could occur when potential dilutive common shares are added to common shares outstanding.  

We derive our potential dilutive common shares by calculating the number of shares issuable under performance units and stock options. The future issuance of shares underlying the performance units depends on the satisfaction of certain performance criteria. The future issuance of shares underlying the outstanding stock options depends upon whether the exercise prices of the stock options are less than the average market price of the common shares for the respective periods. There were no anti-dilutive items. The following table shows the calculation of our diluted shares for the three and six months ended June 30, 2004 and 2003, assuming performance units currently earned under the plan ultimately vest, and stock options currently exercisable at prices below the average market prices are exercised:

	Three months		Six months
In millions	2004	2003	2004	2003
Denominator for basic earnings per share
(daily weighted-average shares outstanding)	64.8	63.5	64.7	61.9
Assumed exercise of performance units and stock options	0.8	0.7	0.8	0.5
Denominator for diluted earnings per share	65.6	64.2	65.5	62.4

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Note 2

Recent Accounting Pronouncements

FIN 46

FIN 46 requires the primary beneficiary of a variable interest entity’s activities to consolidate the variable interest entity. The primary beneficiary is the party that absorbs a majority of the expected losses and/or receives a majority of the expected residual returns of the variable interest entity’s activities.

In December 2003, the FASB revised FIN 46, delaying the effective dates for certain entities created before February 1, 2003, and making other amendments to clarify application of the guidance. For potential variable interest entities other than any special purpose entities, FIN 46R was required to be applied no later than the end of the first fiscal year or interim reporting period ending after March 15, 2004.   

FIN 46R may be applied prospectively with a cumulative-effect adjustment as of the date it is first applied, or by restating previously issued financial statements with a cumulative-effect adjustment as of the beginning of the first year restated. FIN 46R also requires certain disclosures of an entity’s relationship with variable interest entities. We adopted FIN 46R as of March 31, 2004.

Notes payable to Trusts and Trust Preferred Securities In June 1997 and March 2001, we established AGL Capital Trust I and AGL Capital Trust II (Trusts) to issue our Trust Preferred Securities. The Trusts are considered to be special purpose entities under FIN 46 and FIN 46R since our equity in the Trusts is not considered to be sufficient to allow the Trusts to finance their own activities and our equity investment is not considered to be at risk since the equity amounts were financed by the Trusts.

Under FIN 46 (prior to the revision in FIN 46R), we concluded that we were the primary beneficiary of the Trusts because the Trust Preferred Securities are publicly traded, widely held, and no one party would absorb a majority of any expected losses of the Trusts. In addition, our loan agreements with the Trusts include call options allowing us to capture the benefits of declining interest rates since the options enable us to call the preferred securities at par, giving us the ability to capture the majority of the residual returns in the Trusts. Accordingly, at December 31, 2003, the accounts of the Trusts were included in our consolidated financial statements.  

The revisions in FIN 46R included specific guidance that instruments such as the call options included in our loan agreements with the Trusts do not constitute variable interests, and should not be considered in the determination of the primary beneficiary. As a result, as of January 1, 2004 we were required to exclude the accounts of the Trusts from our consolidated financial statements upon our adoption of FIN 46R and to classify amounts payable to the Trusts as “Notes Payable to Trusts” within capitalization in our condensed consolidated balance sheets as of June 30, 2004.

The impact of deconsolidation of the Trusts is that we have included in our condensed consolidated balance sheets at June 30, 2004, an asset of approximately $10 million representing our investment in the Trusts, and a note payable to the Trusts totaling approximately $232 million, which is net of an interest rate swap of $2 million, and removed $222 million related to the Trust Preferred Securities issued by the Trusts. The notes payable represent the loan payable to fund our investments in the Trusts of $10 million and the amounts due to the Trusts from the proceeds received from their issuances of Trust Preferred Securities of $222 million.

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SouthStar SouthStar is a joint venture formed in 1998 by our subsidiary, Georgia Natural Gas Company, Piedmont Natural Gas Company, Inc. (Piedmont) and Dynegy Inc. (Dynegy) to market natural gas and related services to retail customers, principally in Georgia. On March 11, 2003, we purchased Dynegy’s 20% ownership interest in a transaction that for accounting purposes had an effective date of February 18, 2003. We currently own a non-controlling 70% financial interest in SouthStar and Piedmont owns the remaining 30%. Our 70% interest is non-controlling because all significant management decisions require approval by both owners.  

On March 29, 2004 we executed an amended and restated partnership agreement with Piedmont. This amended and restated partnership agreement calls for SouthStar’s future earnings starting in 2004 to be allocated 75% to our subsidiary and 25% to Piedmont. For all periods prior to February 18, 2003, SouthStar’s earnings have been allocated to us based upon our ownership interests in those periods of 50%. SouthStar, which operates under the trade name Georgia Natural Gas, competes with other energy marketers, including Marketers in Georgia, to provide natural gas and related services to customers in Georgia and the Southeast.

As of December 31, 2003, we did not consolidate SouthStar in our financial statements because it did not meet the definition of a variable interest entity under FIN 46. FIN 46R added the following conditions for determining whether an entity was a variable interest entity:

o

the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and

o

substantially all of the entity’s activities (for example purchasing products and additional capital) either involve or are conducted on behalf of an investor that has disproportionately fewer voting rights.

We determined that SouthStar is a variable interest entity as defined in FIN 46R because:

o

our equal voting rights with Piedmont are not proportional to our economic obligation to absorb 75% of any losses or residual returns from SouthStar, and

o

SouthStar obtains substantially all of its transportation capacity for delivery of natural gas through our wholly owned subsidiary, Atlanta Gas Light Company (AGLC).

Consequently, as of January 1, 2004, we consolidated all of SouthStar’s accounts with our subsidiaries’ accounts and eliminated any intercompany balances between segments. We recorded Piedmont’s portion of SouthStar’s earnings as a minority interest in our condensed consolidated statements of income, and we recorded Piedmont’s portion of SouthStar’s capital as a minority interest on our condensed consolidated balance sheet.

FASB Staff Position 106-2 On May 19, 2004, the FASB issued FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (FSP 106-2) which supersedes FSP 106-1 and is effective for the first interim or annual reporting period beginning after June 15, 2004, or July 1, 2004 for us.  The guidance in FSP 106-2 related to the accounting for the federal subsidy applies only to the sponsor of a single-employer defined benefit postretirement health care plan for which (a) the employer has concluded that prescription drug benefits available under the plan to some or all participants for some or all future years are "actuarially equivalent" to Medicare Part D and thus qualify for the subsidy under the Medicare Prescription Drug Act and (b) the expected federal subsidy will offset or reduce the employer’s share of the cost o f the underlying postretirement prescription drug coverage on which the federal subsidy is based.  FSP 106-2 also provides guidance for the disclosures about the effects of the subsidy for an employer that sponsors a postretirement health care benefit plan that provides prescription drug coverage but for which the employer has not yet been able to determine actuarial equivalency.

Effective July 2, 2004 we amended our Defined Benefit Health Care and Life Insurance Plan (Defined Plan) to no longer offer prescription drug benefits to retirees age 65 and older after January 1, 2006. As a result, FSP 106-2 will not have an impact on our accounting for our Defined Plan.

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Note 3

Risk Management

Our risk management activities are monitored by the Risk Management Committee (RMC). The RMC is comprised of senior officers charged with the review and enforcement of our risk management policies. Our risk management policies limit the use of derivative financial instruments and physical transactions within pre-defined risk tolerances associated with pre-existing or anticipated physical natural gas sales and purchases and system use and storage. We use the following derivative financial instruments and physical transactions to manage commodity price risks:

o

Forward contracts

o

Futures contracts

o

Options contracts

o

Financial swaps

o

Storage and transportation capacity transactions

Interest Rate Swaps

To maintain an effective capital structure, it is our policy to borrow funds using a mix of fixed-rate and variable-rate debt. We have entered into interest rate swap agreements through our wholly owned subsidiary, AGL Capital Corporation (AGL Capital), for the purpose of hedging the interest rate risk associated with our fixed-rate and variable-rate debt obligations. We designated these interest rate swaps as fair value hedges and accounted for them using the “shortcut’ method prescribed by Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), which allows us to designate derivatives that hedge exposure to changes in the fair value of a recognized asset or liability. We record the gain or loss on fair value hedges in earnings in the period of change, together with the offsetting loss or gain on the hedged item attributable t o the risk being hedged. The effect of this accounting is to reflect in earnings only that portion of the hedge that is ineffective in achieving offsetting changes in fair value.

Accordingly, we adjust the carrying value of each interest rate swap to its fair value at the end of each period, with an offsetting and equal adjustment to the carrying value of the debt securities whose fair value is being hedged. Consequently, our earnings are not affected negatively or positively with changes in fair value of the interest swaps each quarter.

In March 2004 we adjusted our fixed to variable-rate debt obligations and terminated an interest rate swap on $100 million of the principal amount of our 4.45% Senior Notes due 2013. Additionally, as of March 31, 2004 and in connection with the deconsolidation of the Trusts, we re-designated the interest rate swaps on the Trust Preferred Securities as a fair value hedge of our notes payable to the Trusts.

As of June 30, 2004, a notional principal amount of $175 million of these interest rate swap agreements effectively converted the interest expense associated with a portion of our Senior Notes and notes payable to the Trusts from fixed rates to variable rates based on an interest rate equal to the London Interbank Offered Rate (LIBOR), plus a spread determined at the swap date. Our interest rate swaps consist of the following:

o

$100 million principal amount of 7.125% Senior Notes due 2011. We pay floating interest each January 14 and July 14 at six-month LIBOR plus 3.4%. The effective variable interest rate at June 30, 2004 was 4.6%, an increase of 0.1% from December 31, 2003. These interest rate swaps expire January 14, 2011, unless terminated earlier.

o

$75 million principal amount of 8.0% notes payable to Trusts due 2041. We pay floating interest rates each February 15, May 15, August 15 and November 15 at three-month LIBOR plus 1.315%. The effective interest rate at June 30, 2004 was 2.6%, an increase of 0.1% from December 31, 2003. These interest rate swaps expire May 15, 2041, unless terminated earlier.

The aggregate fair value of these interest rate swaps was recorded as a liability of $3 million at June 30, 2004 and $4 million at December 31, 2003 and an asset of $9 million at June 30, 2003.

Commodity-related derivative instruments

Sequent We are exposed to risks associated with changes in the market price of natural gas. Sequent Energy Management, L.P. (Sequent) uses derivative financial instruments to reduce our exposure to the risk of changes in the prices of natural gas. The fair value of these derivative financial instruments reflects the estimated amounts that we would receive or pay to terminate or close the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts. We use external market quotes and indices to value substantially all the financial instruments we utilize.

We attempt to mitigate substantially all the commodity price risk associated with Sequent’s natural gas portfolio to lock in the economic margin at the time we enter into natural gas purchase transactions for our stored natural gas. We purchase natural gas for storage when the difference in the current market price we pay to buy natural gas plus the cost to store the natural gas is less than the market price we can receive in the future, resulting in a positive net profit margin. We use New York Mercantile Exchange (NYMEX) futures contracts to sell natural gas at that future price to substantially lock in the profit margin we will ultimately realize when the stored gas is actually sold. Those NYMEX futures contracts meet the definition of a derivative under SFAS 133 and are recorded at fair value in our condensed consolidated balance sheet, with changes in fair value recorded in earnings in the period of change. The pur chase, storage and sale of natural gas are accounted for on an accrual basis rather than on the mark-to-market basis we utilize for the derivatives used to mitigate the commodity price risk associated with our storage portfolio. This difference in accounting will result in volatility in our reported net income, even though the economic margin is essentially unchanged from the date the transactions were consummated. We do not currently use hedge accounting under SFAS 133 to account for this activity.

Our commodity-related derivative financial instruments, which exclude interest rate swaps, had a weighted average maturity of 8 months based on volumes.  At June 30, 2004, our commodity-related derivative financial instruments represented purchases (long) of 540 billion cubic feet (Bcf) with approximately 99% of these scheduled to mature in less than 2 years. In addition, our financial instruments included sales (short) of 555 Bcf with approximately 96% of these scheduled to mature in less than 2 years and the remaining 4% in 3-9 years. For the six months ended June 30, 2004 and 2003, excluding the cumulative effect of a change in an accounting principle in 2003 for the adoption of EITF 02-03, our unrealized gains were $15 million in 2004 and $6 million in 2003.

SouthStar The commodity-related derivative financial instruments (futures, options and swaps) used by SouthStar manage exposures arising from changing commodity prices. SouthStar’s objective for holding these derivatives is to minimize this risk using the most effective methods to reduce or eliminate the impacts of these exposures. A significant portion of SouthStar’s derivative transactions are designated as cash flow hedges under SFAS 133. Derivative gains or losses arising from cash flow hedges are recorded in other comprehensive income (OCI) and are reclassified into earnings in the same period as the settlement of the underlying hedged item. Any hedge ineffectiveness, defined as when the gains or losses on the hedging instrument do not perfectly offset the losses or gains on the hedged item, is recorded into earnings in the period in which it occurs. SouthStar currently has no hedge ineffectiveness. The remainder of SouthStar’s derivative instruments does not meet the hedge criteria under SFAS 133. Therefore, changes in their fair value are recorded in earnings in the period of change.

At June 30, 2004, the fair value of these derivatives was reflected in our condensed consolidated financial statements as an asset of $2 million with a corresponding increase to OCI of $1 million.  For the six months ended June 30, 2004, a loss of $1 million was reclassified to earnings from OCI related to instruments designated as hedges under SFAS 133 and a loss of $1 million was recognized on instruments not designated as hedges under SFAS 133 representing the change in fair value of those instruments during the period.  No amounts were recorded to earnings related to hedge ineffectiveness. The maximum maturity of open positions is less than 2 years and represent purchases of 2 Bcf and sales of 3 Bcf, with approximately 97% scheduled to mature in less than one year.

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Weather derivative contracts

SouthStar routinely enters into weather derivative contracts for hedging purposes in order to preserve margins in the event of warmer-than-normal weather in the winter months. SouthStar accounts for these contracts using the intrinsic value method under the guidelines of EITF 99-02, “Accounting for Weather Derivatives”.

Concentration of Credit Risk

Distribution Operations AGLC has a concentration of credit risk for amounts billed for services and other costs to its customers, ten Marketers and poolers in Georgia. The credit risk exposure to Marketers varies seasonally, with the lowest exposure in the non-peak summer months and highest exposure in the peak winter months. Marketers are responsible for the retail sale of natural gas to end-use customers in Georgia. These retail functions include customer service, billing, collections, and the purchase and sale of natural gas. The provisions of AGLC’s tariff allow AGLC to obtain security support in an amount equal to a minimum of two times a Marketer’s highest monthly bill.

Wholesale Services Sequent provides services to marketers, utility and industrial customers has a concentration of credit risk measured by 30-day receivable exposure plus forward exposure, which is highly concentrated in 20 of its counterparties. At June 30, 2004, Sequent’s top 20 counterparties represented approximately 55% of the total counterparty credit exposure of $238 million, derived by adding the top 20 counterparties’ exposures and dividing by the total of Sequent’s counterparties’ exposures.

Sequent has established credit policies to determine and monitor the creditworthiness of counterparties, as well as the quality of pledged collateral. When we are engaged in more than one outstanding derivative transaction with the same counterparty and we also have a legally enforceable netting agreement with that counterparty, the “net” mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty and a reasonable measure of our credit risk. Sequent also uses other netting agreements with certain counterparties with whom we conduct significant transactions.

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Note 4

Regulatory Assets and Liabilities

We have recorded regulatory assets and liabilities in our consolidated balance sheets in accordance with SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.” Our regulatory assets and liabilities, and associated liabilities for our unrecovered pipeline replacement program (PRP) costs and unrecovered environmental response costs (ERC), are summarized in the table below:

In millions	June 30, 2004	Dec. 31, 2003	June 30, 2003
Regulatory assets
Unrecovered PRP costs	$405	$432	$455
Unrecovered ERC	167	179	179
Unrecovered postretirement benefit costs	9	9	11
Unrecovered seasonal rates (1)	-	11	-
Unamortized call premium (2)	6	4	-
Regulatory tax asset (2)	3	3	3
Other (3)	1	1	1
Total regulatory assets	$591	$639	$649
Regulatory liabilities
Accumulated removal costs	$104	$102	$-
Deferred seasonal rates (4)	9	-	9
Unamortized investment tax credit (5)	18	19	20
Deferred PGA (4)	36	30	16
Regulatory tax liability (5)	14	15	15
Other (3)	2	3	2
Total regulatory liabilities	183	169	62
Associated liabilities
PRP costs	375	405	432
ERC	62	83	86
Total associated liabilities	437	488	518
Total regulatory and associated liabilities	$620	$657	$580

(1) Presented in other current assets in our condensed consolidated balance sheets.

(2) Presented in other deferred debits and other assets in our condensed consolidated balance sheets.

(3) Presented in other deferred debits and other assets, other current liabilities and accrued postretirement benefit costs in our condensed consolidated balance sheets.

(4) Presented in other current liabilities in our condensed consolidated balance sheets.

(5) Presented in deferred credits in our condensed consolidated balance sheets.

Our regulatory assets and liabilities are described in our Annual Report on Form 10-K for the year ended December 31, 2003. The following represent significant changes to our regulatory assets and liabilities during the six months ended June 30, 2004:

Environmental Response Costs

Our latest engineering estimate for the costs to remediate certain former manufactured gas plant (MGP) sites was $50 million, a reduction of $17 million from the estimate as of December 31, 2003.  The decrease was primarily a result of actual expenditures in 2004. For those remaining elements of the MGP program where AGLC is unable to perform engineering cost estimates at the current state of investigation, considerable variability remains in the estimates for future remediation costs. For these elements, the estimate for the remaining cost of future actions at MGP sites is $15 million.  AGLC estimates certain other costs related to administering the MGP program and remediation of sites currently in the investigation phase. Through January 2005, AGLC estimates the administrative costs to be $3 million. Beyond January 2005, these costs are not estimable. As of June 30, 2004, our MGP program was approximately 70% com plete.

For those sites currently in the investigation phase, our estimate is $9 million. This estimate is based upon preliminary data received during 2003 with respect to the existence of contamination at those sites. Our range of estimates for these sites is from $9 million to $15 million. We have accrued the low end of our range, or $9 million, as this is our best estimate at this phase of the remediation process. AGLC’s ERC liability is composed of the elements in the following table:

In millions	June 30, 2004	Dec. 31, 2003	June 30, 2003
Projected engineering estimates and in-place contracts (1)	$50	$67	$85
Estimated future remediation costs (1)	15	15	7
Administrative expenses	3	3	3
Other expenses	9	9	-
Cash payments for cleanup expenditures (2)	(15)	(11)	(9)
Accrued ERC	$62	$83	$86

(1) As of March 31, 2004, September 30, 2003 and March 31, 2003.

(2) Expenditures during the three months ended June 30, 2004, December 31, 2003 and June 30, 2003.

The ERC liability is included in a corresponding regulatory asset. As of June 30, 2004, the regulatory asset was $167 million, which is a combination of accrued ERC and unrecovered cash expenditures. The liability does not include other potential expenses, such as unasserted property damage claims, personal injury or natural resource damage claims, unbudgeted legal expenses, or other costs for which AGLC may be held liable but with respect to which we cannot reasonably estimate an amount.

AGLC has three ways of recovering investigation and cleanup costs. The GPSC has approved an ERC recovery rider. It allows recovery of the costs of investigation, testing, cleanup and litigation. Because of this rider, these actual and projected future costs related to investigation and cleanup to be recovered from customers in future years are included in our regulatory assets. AGLC recovered $12 million during the six months ended June 30, 2004, through its ERC recovery rider.

The second way AGLC can recover costs is by exercising the legal rights AGLC believes it has to recover a share of its costs from other potentially responsible parties, typically former owners or operators of the MGP sites. There was no material recoveries from potentially responsible parties during the six months ended June 30, 2004. The remaining way AGLC can recover costs is from the receipt of net profits from the sale of remediated property.  On June 30, 2004, a residential and retail development located in Savannah, Georgia and adjacent to a former MGP site was sold resulting in a gross gain of $6 million.  All gains on sales of MGP property are required by the ERC recovery rider to be shared 70% with ratepayers. As a result, approximately $4 million was credited to the MGP program as a reduction to the regulatory asset.

2004 is expected to be the last significant year of spending for this program. The ERC recovery mechanism allows for recovery of expenditures over a five-year period subsequent to the period in which the expenditures are incurred. As of June 30, 2004, the MGP expenditures expected to be incurred over the next 12 months are reflected as a current liability of $37 million. In addition, AGLC expects to collect $26 million in revenues over the next 12 months under the ERC recovery rider, which is reflected as a current asset.

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Note 5

Pension and Other Postretirement Benefits

Accounting for Pension Benefits

The measurement date for our pension and other postretirement benefit plans is December 31. The following are the costs components of our pension and other postretirement benefit plans for the second quarter ended June 30, 2004 and 2003.

	Pension Benefits		Other Benefits
In millions	2004	2003	2004	2003
Service cost	$1	$1	$1	$1
Interest cost	5	5	2	2
Expected return on plan assets	(6)	(6)	(1)	(1)
Net amortization	-	-	-	-
Recognized actuarial loss	1	-	-	-
Net annual cost	$1	$-	$2	$2

The following are the cost components for the six months ended June 30, 2004 and 2003.

	Pension Benefits		Other Benefits
In millions	2004	2003	2004	2003
Service cost	$3	$2	$1	$1
Interest cost	10	10	4	4
Expected return on plan assets	(12)	(11)	(2)	(2)
Net amortization	(1)	(1)	-	1
Recognized actuarial loss	2	1	1	-
Net annual cost	$2	$1	$4	$4

Employer Contributions

In April of 2004, we made a $13 million contribution to our pension plan. We do not anticipate making any additional contributions in 2004.

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Note 6

Financing

			Outstanding as of:
Dollars in  millions	Year(s) Due	Int. rate (4)	June 30, 2004	Dec. 31, 2003	June 30, 2003
Short-term debt
Commercial paper (1)	2004	1.4%	$161	$303	$140
Current portion of long-term debt	2004	7.6 – 7.75	34	77	95
Sequent line of credit (2)	2004	-	-	3	7
Total short-term debt (3)		2.4%	$195	$383	$242
Long-term debt - net of current portion
Medium-Term notes
Series A	2021	9.10%	$30	$30	$30
Series B	2012-2022	8.3 – 8.7	61	61	95
Series C	2015-2027	6.55 – 7.3	117	122	270
Senior Notes	2011-2013	4.45 - 7.125	525	525	300
AGL Capital interest rate swaps	2011-2013	4.57	(5)	(7)	2
Total Medium-Term and Senior notes			$728	$731	$697
Notes payable to Trusts	2037-2041	8.0 – 8.17%	$232	-	-
Trust Preferred Securities
AGL Capital Trust I	2037	-		$74	$74
AGL Capital Trust II	2041	-		148	147
AGL Capital interest rate swaps	2041	2.58	2	3	7
Total Notes payable to Trusts			234	-	-
Total Trust Preferred Securities				225	228
Total long-term debt (3)		6.2%	$962	$956	$925
Total short-term and long-term debt (3)		5.6%	$1,157	$1,339	$1,167

(1)

The daily weighted average rate was 1.2% for the six months ended June 30, 2004.

(2)

The daily weighted average rate was 1.5% for the six months ended June 30, 2004.

(3)

Weighted average interest rate, including interest rate swaps if applicable.

(4)

Interest rates exclude debt issuance and other financing related costs.

Short-term Debt

Our short-term debt is composed of borrowings under our commercial paper program which consists of short-term unsecured promissory notes with maturities ranging from 14 to 57 days, maturities within one year of our Medium-Term notes, Sequent’s line of credit and SouthStar’s non-recourse debt. The commercial paper program is supported by our Credit Facility.

On May 26, 2004, we closed on a new $500 million three-year Credit Facility. This new Credit Facility replaces our previous $200 million 364-day Credit Facility that was scheduled to expire on June 16, 2004 and our previous $300 million three-year Credit Facility that was scheduled to terminate on August 7, 2005. Under our new Credit Facility, one time each calendar year we can request from lenders an increase in credit commitments up to an additional $200 million.

On April 19, 2004, SouthStar amended its $75 million revolving line of credit which provides working capital needs to meet seasonal demands. The line of credit is scheduled to expire on April 19, 2007 and is not guaranteed by us. SouthStar’s line of credit provides for its working capital needs and meets its seasonal demands. On June 14, 2004, Sequent extended its $25 million line of credit until July 1, 2005, which is used solely for the posting of exchange deposits and is unconditionally guaranteed by us.

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 Note 7

Commitments and Contingencies

Contractual Obligations and Commitments We have incurred various contractual obligations and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related revenue-producing activities. There have not been any significant changes to our contractual obligations which were described in our Annual Report on Form 10-K for the year ended December 31, 2003.

Contingent financial commitments represent obligations that become payable only if certain pre-defined events occur, such as financial guarantees, and include the nature of the guarantee and the maximum potential amount of future payments that could be required of us as the guarantor. The following tables illustrate our expected financial commitments as of June 30, 2004:

		Commitments Due before December 31,
			2005 &	2007 &	2009 &
In millions	Total	2004	2006	2008	Thereafter
Guarantees (1) (2)	$277	$277	$-	$-	$-
Standby letters of credit, performance/ surety bonds	11	9	2	-	-
Total other commercial commitments	$288	$286	$2	$-	$-
(1) $228 million of these guarantees support credit exposures in Sequent’s energy marketing and risk management business. In the event that Sequent defaults on any commitments under these guarantees, these amounts would become payable by us as guarantor. (2) We provide guarantees on behalf of our subsidiary, SouthStar. We guarantee 70% of SouthStar’s obligations to Southern Natural Gas Company (SNG) under certain agreements between the parties up to a maximum of $7 million if SouthStar fails to make payment to SNG. Under a second such guarantee, we guarantee 70% of SouthStar’s obligations to AGLC under certain agreements between the parties up to a maximum of $42 million, which represents our share of SouthStar’s maximum credit support obligation to AGLC under its tariff.

Litigation We are involved in litigation arising in the normal course of business. We believe the ultimate resolution of such litigation will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. Change to the status of previously disclosed litigation is as follows:

In the first quarter of 2004, we settled a lawsuit with the city of Augusta, Georgia who had served AGLC with a complaint that was filed in the Superior Court of Richmond County, Georgia on July 1, 2003. The City of Augusta’s allegations included fraud and deceit and damages to realty. The allegations arose from negotiations between the city and AGLC regarding the environmental cleanup obligations connected with AGLC’s former MGP operations in Augusta.

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Note 8

Segment Information

Our business is organized into three operating segments:

o

Distribution operations consists of AGLC, Virginia Natural Gas (VNG) and Chattanooga Gas Company (CGC).

o

Wholesale services consists primarily of Sequent.

o

Energy investments consists primarily of SouthStar, AGL Networks, LLC and US Propane LP through the date of its sale in January 2004.

We treat corporate, our fourth segment, as a non-operating business segment, and it includes AGL Resources Inc., AGL Services Company, Pivotal Energy Development, nonregulated financing and the effect of intercompany eliminations. We eliminated intersegment sales for the three and six months ended June 30, 2004 and 2003 from our statements of consolidated income.

We evaluate segment performance based on the non-GAAP measure of earnings before interest and taxes (EBIT), which includes the effects of corporate expense allocations. Items that we do not include in EBIT are financing costs, including interest and debt expense, income taxes, and the cumulative effect of a change in accounting principle, each of which we evaluate on a consolidated level. We believe EBIT is a useful measurement of our performance because it provides information that can be used to evaluate the effectiveness of our business from an operational perspective, exclusive of the costs to finance those activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations.

EBIT should not be considered an alternative to, or a more meaningful indicator of our operating performance than, operating income or net income as determined in accordance with GAAP. In addition, our EBIT may not be comparable to a similarly titled measure of another company. The reconciliations of EBIT to operating income, earnings before income taxes and net income for the three and six months ended June 30, 2004 and 2003 are presented below.

	Three months		Six months
In millions	2004	2003	2004	2003
Operating income	$53	$41	$186	$143
Other income	1	8	2	24
Minority interest	(3)	-	(14)	-
EBIT	51	49	174	167
Interest expense	(16)	(18)	(32)	(38)
Earnings before income taxes	35	31	142	129
Income taxes	14	12	55	50
Income before cumulative effect of change in accounting principle	21	19	87	79
Cumulative effect of change in accounting principle	-	-	-	(8)
Net income	$21	$19	$87	$71

	As of December 31, 2003
	Distribution Operations	Wholesale Services	Energy Investments	Corporate and Intersegment Eliminations (2)	Consolidated AGL Resources
Identifiable assets (1)	$3,325	$454	$90	$2	$3,871
Investment in joint ventures	-	-	101	-	101
Total assets	$3,325	$454	$191	$2	$3,972

(1)

Identifiable assets are those assets used in each segment’s operations.

(2)

Our corporate segment’s assets consist primarily of intercompany eliminations, cash and cash equivalents and property, plant and equipment.

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	Three months ended June 30,
	Distribution Operations		Wholesale Services		Energy Investments		Corporate and Intersegment Eliminations (2)		Consolidated AGL Resources
In millions	2004	2003	2004	2003	2004	2003	2004	2003	2004	2003
Operating revenues  (1)	$184	$181	$1	$5	$149	$1	($40)	$-	$294	$187
Depreciation and amortization	21	20	-	-	-	-	3	3	24	23
Operating income (loss)	48	44	(5)	-	11	(2)	(1)	(1)	53	41
Equity in earnings of SouthStar	-	-	-	-	-	10	-	-	-	10
Other income (loss)	1	-	-	-	1	(1)	(1)	(1)	1	(2)
Minority interest	-	-	-	-	(3)	-	-	-	(3)	-
EBIT	49	44	(5)	-	9	7	(2)	(2)	51	49
Capital expenditures	49	31	2	1	7	2	-	7	58	41

	As of or for the six months ended June 30,
	Distribution Operations		Wholesale Services		Energy Investments		Corporate and Intersegment Eliminations (2)		Consolidated AGL Resources
In millions	2004	2003	2004	2003	2004	2003	2004	2003	2004	2003
Operating revenues  (1)	$573	$502	$21	$33	$458	$4	($107)	$-	$945	$539
Depreciation and amortization	42	40	-	-	1	-	5	5	48	45
Operating income (loss)	130	125	7	21	53	(2)	(4)	(1)	186	143
Equity in earnings of SouthStar	-	-	-	-	-	24	-	-	-	24
Other income (loss)	1	-	-	-	2	1	(1)	(1)	2	-
Minority interest	-	-	-	-	(14)	-	-	-	(14)	-
EBIT	131	125	7	21	41	23	(5)	(2)	174	167
Capital expenditures	85	56	5	1	13	6	1	14	104	77
Identifiable assets (3)	$3,297	$3,125	$546	$438	$291	$88	($124)	($110)	$4,010	$3,541
Investment in joint ventures	-	-	-	-	-	112	-	-	-	112
Total assets	$3,297	$3,125	$546	$438	$291	$200	($124)	($110)	$4,010	$3,653

(1)

Intersegment revenues – Wholesale services records its energy marketing and risk management revenue on a net basis.  The following table provides detail of wholesale services’ total gross revenues and gross sales to distribution operations:

	Three months ended June 30,		Six months ended June 30,
In millions	2004	2003	2004	2003
Third-party gross revenues	$1,013	$808	$2,056	$1,875
Intersegment revenues	101	94	197	207
Total gross revenues	$1,114	$902	$2,253	$2,082

(2)

Includes intercompany eliminations; assets consist primarily of cash and cash equivalents and property, plant and equipment.

(3)

Identifiable assets are those assets used in each segment’s operations.

.

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Note 9

Subsequent Events

NUI Corporation Acquisition On July 15, 2004, we announced that our board of directors approved a definitive merger agreement under which we will acquire all of the outstanding shares of NUI Corporation (NUI) for $13.70 per share in cash, or $220 million in the aggregate based on approximately 16 million shares outstanding, and the assumption of NUI’s outstanding debt at closing. At March 31, 2004, NUI had approximately $607 million in debt and $136 million of cash on its balance sheet, bringing the estimated net value of the acquisition to $691 million.

At closing we expect to fund the purchase of NUI’s shares primarily through the issuance of equity or debt securities.   We expect to refinance a portion of NUI’s outstanding debt and expect to finance at least $220 million of the purchase through the issuance of equity securities. The transaction is subject to approval of NUI’s shareholders, the SEC, state regulatory agencies of New Jersey, Florida, Maryland and Virginia and various other closing conditions. We are seeking expedited treatment from the various state and federal regulatory agencies for approval of our proposed merger agreement with NUI. The merger agreement provides that the closing must occur on or prior to April 11, 2005, but the closing may be extended for an additional 90 days until July 11, 2005, in the event the parties have not obtained the required consents for the acquisition.

Postretirement Plan We amended the Defined Benefit Postretirement Health Care and Life Insurance Plan (Defined Plan) due to the Medicare Prescription Drug Improvement and Modernization Act of 2003, which was signed into law December 8, 2003, and which resulted in Medicare offering prescription drug coverage beginning January 1, 2006 to all Medicare-eligible retirees. As a result of this law, effective July 2, 2004 we amended our Defined Plan to discontinue prescription drug benefits to retirees age 65 and older after January 1, 2006.

Treasury Securities From time to time we enter into transactions designed as a hedge against market interest rate fluctuations. On July 2, 2004 we entered into a forward contract transaction involving $100 million of U.S. Treasury securities in order to minimize such fluctuations. The transaction partially hedges an anticipated debt offering in the third or fourth quarter of 2004, and the locked-in Treasury rate was 4.57% with an October 1, 2004 settlement date.

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ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Unless the context requires otherwise, references to “we,” “us,” “our” or the “company” are intended to mean consolidated AGL Resources Inc. and its subsidiaries (AGL Resources).  Our reports, filings and other public announcements often include statements reflecting assumptions, expectations, projections, intentions or beliefs about future events. These statements, which may relate to such matters as future earnings, growth, supply and demand, costs, subsidiary performance, new technologies and strategic initiatives, are “forward-looking statements” within the meaning of the federal securities laws. These statements do not relate strictly to historical or current facts, and you can identify certain of these statements, but not necessarily all, by the use of the words “anticipate,” “assume,” “indicate,” “estimate,” “believe,” “predict,” “fo recast,” “rely,” “expect,” “continue,” “grow” and other words of similar meaning.  Although we believe that the expectations and assumptions reflected in these statements are reasonable in view of the information currently available, we cannot assure you that these expectations will prove to be correct. These forward-looking statements involve a number of risks and uncertainties, including those set forth below and in our Form 10-K filed with the Securities and Exchange Commission on February 6, 2004 under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Risk Factors.” The following are among the important factors that could cause actual results to differ materially from the results discussed in the forward-looking statements:

o

changes in industrial, commercial and residential growth in our service territories

o

changes in price, supply and demand for natural gas and related products

o

impact of changes in state and federal legislation and regulation, including orders of various state public service commissions and of the Federal Energy Regulatory Commission (FERC) on the gas and electric industries and on us

o

actions taken by government agencies, including decisions on base rate increase requests by state regulators

o

the ultimate impact of the Sarbanes-Oxley Act of 2003 and any future changes in accounting regulations or practices in general with respect to public companies, the energy industry or our operations specifically

o

the enactment of new accounting standards by the Financial Accounting Standards Board (FASB) or the Securities and Exchange Commission (SEC) that could impact the way we record revenues, assets and liabilities, which could lead to impacts on reported earnings or increases in liabilities, which in turn could affect our reported results of operations

o

effects and uncertainties of deregulation and competition, particularly in markets where prices and providers historically have been regulated and unknown issues following deregulation such as the stability of the Georgia retail gas market, including risks related to energy marketing and risk management

o

concentration of credit risk in Marketers – that is, marketers who are certificated by the Georgia Public Service Commission (GPSC) to sell retail natural gas in Georgia – and customers of our wholesale services segment

o

excess high-speed network capacity and demand for dark fiber in metro network areas

o

market acceptance of new technologies and products, as well as the adoption of new networking standards

o

our ability to negotiate new fiber optic contracts with telecommunications providers for the provision of AGL Networks, LLC’s dark fiber services

o

utility and energy industry consolidation

o

performance of equity and bond markets and the impact on pension and post retirement funding costs

o

impact of acquisitions and divestitures, including:

o

the risk that our business and NUI Corporation (NUI) will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected

o

expected revenue synergies and cost savings from the merger may not be fully realized or realized within the expected time frame

o

revenues following the merger may be lower than expected

o

the ability to obtain governmental approvals of the merger on the proposed terms and schedule

o

the failure of NUI’s shareholders to approve the merger

o

the risk that we may be unable to obtain financing necessary to consummate the acquisition, or that the terms of such financing may be onerous

o

the risk that any financing plan may have the effect of diluting our shareholder value in the near term

o

direct or indirect effects on our business, financial condition or liquidity resulting from a change in our credit rating or the credit rating of our counterparties or competitors

o

interest rate fluctuations, financial market conditions and general economic conditions

o

uncertainties about environmental issues and the related impact of such issues

o

impact of changes in weather upon the temperature-sensitive portions of our business

o

impact of litigation

o

impact of changes in prices on the margins achievable in the unregulated retail gas marketing business

#

Summary

We are an energy services holding company, headquartered in Atlanta, Georgia, whose principal business is the distribution of natural gas in Georgia, Virginia and Tennessee.  Our executive offices are located at Ten Peachtree Place NE, Atlanta, Georgia 30309. The telephone number at that address is (404) 584-4000. As shown in the following chart, we conduct substantially all our operations through our significant subsidiaries, which we manage as three operating segments - distribution operations, wholesale services and energy investments - and one non-operating segment, corporate, which includes our intercompany eliminations.

Distribution operations includes our three regulated utilities that construct, manage and maintain gas pipeline in Georgia, Tennessee and Virginia and serve more than 1.8 million end-use customers. Approximately 83% of our customers are located in Georgia, 14% are located in Virginia and 3% are located in Tennessee.  Our wholesale services segment includes our nonutility business engaged in natural gas asset management and optimization, producer services and wholesale marketing, and risk management activities. Our energy investments segment includes our nonutility businesses engaged in retail natural gas marketing and operating telecommunications conduit and fiber infrastructure within select metropolitan areas.

Our overall business strategy is to operate and grow our gas distribution business efficiently and effectively, optimize returns on our assets, and selectively grow our portfolio of closely related businesses while remaining focused on risk management and earnings visibility.

NUI AcquisitionOn July 15, 2004, we announced that our board of directors approved a definitive merger agreement under which we will acquire all the outstanding shares of NUI for $13.70 per share in cash or approximately $220 million, based on approximately 16 million shares outstanding, and the assumption of NUI’s outstanding debt. NUI is a diversified energy company that operates natural gas utilities and natural gas storage and pipeline businesses. NUI provides natural gas to approximately 367,000 residential, commercial and industrial customers in New Jersey, Virginia, Florida and Maryland. This transaction will increase our customer base by 20 percent to approximately 2.2 million.

The total value of the acquisition is $691 million, which includes the assumption of approximately $607 million of NUI’s debt and $136 million of cash on its March 31, 2004 balance sheet. We expect to fund the purchase of NUI’s shares primarily through the issuance of equity or debt securities, and we also expect to refinance a portion of NUI’s outstanding debt upon closing. We ultimately expect to finance at least $220 million of the purchase through the issuance of equity securities. The transaction is subject to approval of NUI’s shareholders, the SEC, state regulatory agencies of New Jersey, Florida, Maryland and Virginia and other various closing conditions. We are seeking expedited treatment from the various state and federal regulatory agencies for approval of our proposed merger agreement with NUI. The merger agreement provides that the closing must occur on or prior to April 11, 2005, but the clo sing may be extended for an additional 90 days until July 11, 2005, in the event the parties have not obtained the required consents for the acquisition.

#

Natural gas demand, supply and pricing As a result of comparatively milder weather and other industry factors, natural gas prices have declined in the second quarter of 2004. As July and August typically contain the bulk of summer cooling-degree days, industry analysts expect that increased electricity demand will be met by natural gas-fired generation, as high crude oil prices and a tight coal market make those fuels less attractive generation sources. The increased demand will determine the levels of natural gas storage supplies going into the 2004 – 2005 heating season.

In recent weeks, the natural gas market has been driven by storage injections, as local distribution companies, electric utilities, and others who have a requirement to inject gas during the period of April through October have been doing so in substantial quantities. The declining natural gas prices in April, May and June have resulted in these companies injecting 100 percent of all available injection capacity.

Industry dynamics Although natural gas prices have declined in recent months, recent industry information illustrate that domestic production of natural gas has failed to keep pace with demand, creating substantial price volatility in the natural gas markets. The vast majority of North America’s gas supply comes from mature producing areas, such as western Canada and the Gulf of Mexico, which have experienced yearly declines in output since 1997. New and supplemental sources of supply will need to be identified in the future to meet the expected increased demand for natural gas and more particularly to dampen volatility and to maintain competitive pricing.  Imported liquefied natural gas (LNG) is the one incremental supply source to the United States, but currently comprises only about 2 percent of the total domestic natural gas supply and cannot grow appreciably without new terminals being sited, licensed a nd constructed.

We are undertaking a strategy to diversify our natural gas supply portfolio by exploring a variety of options related to LNG supplies and natural gas assets in the southeastern region. Our strategy includes, but is not limited to, taking advantage of existing LNG import terminals or proposed new terminals to route incremental supplies to our storage and distribution facilities. To do so will likely require expansion of some of our natural gas delivery infrastructure to improve both the capacity and reliability of our system. In addition, we are exploring enhanced access to underdeveloped Appalachian natural gas supplies, a strategy which we believe will be enhanced by our proposed acquisition of NUI. We believe that efforts to enhance access to new natural gas supplies will be beneficial in moderating the price of natural gas to our markets over time.  

The industry continues to be characterized by significant regional differentials in the delivered price of natural gas. As such, our subsidiary, Sequent Energy Management (Sequent), uses the assets of our utilities and others to take advantage of these differentials, which are highly seasonal and sporadic in nature. In addition, the value of natural gas continues to vary over time and hence our storage capacity can be deployed in part to take advantage of such differences. Through the second quarter of 2004, the curve of forward prices did not exhibit as much differentiation over time as it did last year. As such, the arbitrage value of our storage decreased.  As discussed above, the natural gas resource conditions in the market are likely to create price volatility, so we believe the current softness of arbitrage value is unlikely to be a prolonged event. Furthermore, there is a need for some storage for load balancing in the supply area, which is generally unaffected by the forward curve, and hence we expect rapid deliverability storage services, which we offer, to remain in demand.

Competition The principal competition for our distribution operations businesses and SouthStar Energy Services, LLC (SouthStar) are the electric utilities serving the residential and small commercial markets throughout our service areas and the potential displacement or replacement of natural gas appliances with electric appliances. The primary competitive factors are the price of energy and the comfort of natural gas heating compared to electric heating and other energy sources. The increase in wholesale natural gas prices has resulted in increases in the costs of natural gas billed to our customers, and has affected, to some extent, our ability to retain customers, which remains one of our larger challenges in 2004.

#

Our customers’ demand for natural gas and the level of business of our natural gas assets could be affected by numerous factors, including:

o

changes in the availability or price of natural gas and other forms of energy

o

general economic conditions

o

energy conservation

o

legislation and regulations

o

the capability to convert from natural gas to alternative fuels and

o

weather

Sequent competes for asset management business with other energy wholesalers, often through a competitive bidding process. Sequent has historically been successful in obtaining new asset management business by placing bids that were based primarily on the intrinsic value of the transaction, which is the difference in commodity prices between time periods or locations at the inception of the transaction. In recent months, energy wholesalers have become increasingly willing to place bids for asset management transactions that are priced to include extrinsic value which is the additional value for the margins the wholesaler may be able to capture over the term of the asset management deal. We expect this trend to continue in the near term, and the increasing competition for asset management deals could result in downward pressure on the volume of transactions, and the related margins available in this portion of Sequent’s business.

Sarbanes-Oxley Act Section 404 We are currently working on our compliance with the Sarbanes-Oxley Act Section 404. This project involves defining and documenting our internal controls processes, evaluating the effectiveness of these controls and establishing the appropriate monitoring and reporting systems. We have started testing our key controls and identifying any potential areas requiring improvement. Our external auditor has started their review of our documentation and controls and we believe that we are on track for certification of our 2004 controls by year-end.

Revenues and Cash flow We generate nearly all of our operating revenues and cash flow through the sale, distribution and storage of natural gas. Distribution operations and energy investments comprise a significant portion of our consolidated revenues for the six months ended June 30, 2004 and 2003.

An estimate of the amount of natural gas distributed, but not yet billed, to residential and commercial customers from the latest meter reading date to the end of the reporting period is also recognized in revenues and recorded as unbilled revenues on our condensed consolidated balance sheet.  A significant portion of our operations is subject to variability associated with changes in commodity prices and seasonal fluctuations. During the heating season, which is primarily from November through March, net revenues are higher since generally more customers will be connected in periods of colder weather than in periods of warmer weather.

Our non-utility businesses use physical and financial arrangements to hedge this price risk. Certain hedging and trading activities may require cash deposits to satisfy margin requirements. In addition, reported earnings for the wholesale services and energy investment segments reflect changes in the fair value of certain derivatives; these values may change significantly from period to period.

Operating margin and EBIT We evaluate the performance of our operating segments using the measures of earnings before interest and taxes (EBIT) and operating margin. Our EBIT and operating margin are not measures that are considered to be calculated in accordance with accounting principles generally accepted in the United States of America (GAAP). EBIT is a non-GAAP measure that includes operating income, other income, equity in SouthStar’s income in 2003, donations, minority interest in 2004 and gain on sales of assets.  Items that are not included in EBIT are financing costs, including interest and debt expense, income taxes and the cumulative effect of changes in accounting principles, each of which are evaluated on a consolidated level.

We believe EBIT is a useful measurement of our operating segments’ performance because it provides information that can be used to evaluate the effectiveness of our businesses from an operational perspective, exclusive of the costs to finance those activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations.

#

Our operating margin is a non-GAAP measure of income, calculated as revenues minus cost of gas and cost of sales, excluding operation and maintenance expense, depreciation and amortization and taxes other than income taxes. These items are included in our calculation of operating income. We believe operating margin is a better indicator than revenues of the top line contribution resulting from customer growth in our distribution operations segment since the cost of gas is generally passed directly to our customers. We also consider operating margin to be a better indicator in our wholesale services and energy investments segments since it is a direct measure of gross profit before overhead costs.

The following are reconciliations of our operating margin and EBIT to operating income and net income for the three and six months ended June 30, 2004 and 2003 and solely for purposes of comparison reconciliations on a pro-forma basis to adjust the three and six months ended June 30, 2003 as if we had consolidated SouthStar’s accounts. This pro-forma presentation is a non-GAAP presentation; however we believe this pro-forma presentation is useful to users of our financial statements since it presents prior year revenues and expenses on the same basis as 2004 following our consolidation of SouthStar pursuant to our adoption of FIN 46R.

You should not consider operating margin or EBIT an alternative to, or a more meaningful indicator of our operating performance than, operating income or net income as determined in accordance GAAP. In addition, our operating margin or EBIT may not be comparable to a similarly titled measure of another company.

	Three months ended June 30,
In millions	2004 (1)	2003	Pro-forma 2003 (1)	2004 vs. 2003	2004 vs. Pro- forma 2003
Operating revenues	$294	$187	$282	$107	$12
Cost of gas	129	46	113	83	16
Operating margin	165	141	169	24	(4)
Operating expenses
Operation and maintenance	81	70	84	11	(3)
Depreciation and amortization	24	23	23	1	1
Taxes other than income taxes	7	7	8	-	(1)
Total operating expenses	112	100	115	12	(3)
Operating income	53	41	54	12	(1)
Other income	1	8	(1)	(7)	2
Minority interest (2)	(3)	--	(4)	(3)	1
EBIT	$51	$49	$49	$2	$2
	Six months ended June 30,
In millions	2004 (1)	2003	Pro-forma 2003 (1)	2004 vs. 2003	2004 vs. Pro- forma 2003
Operating revenues	$945	$539	$877	$406	$68
Cost of gas	522	194	459	328	63
Operating margin	423	345	418	78	5
Operating expenses
Operation and maintenance	174	142	174	32	-
Depreciation and amortization	48	45	46	3	2
Taxes other than income taxes	15	15	15	-	-
Total operating expenses	237	202	235	35	2
Operating income	186	143	183	43	3
Other income	2	24	-	(22)	2
Minority interest (2)	(14)	--	(16)	(14)	2
EBIT	$174	$167	$167	$7	$7

(1)

Includes 100% of SouthStar’s revenues and expenses for comparisons among 2003 and 2004 quarters adjusted for SouthStar’s consolidation in 2004.

(2)

Minority interest adjusts our earnings to reflect our 75% share of SouthStar’s earnings in 2004 and our 70% share in 2003 (less Dynegy Inc.’s 20% share of SouthStar’s income prior to February 18, 2003).  

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Second quarter 2004 earnings Our second quarter results reflect an increase in distribution operation’s EBIT as compared to last year. This reflects higher pipeline replacement revenues, increased customer growth and higher carrying charges for Marketer’s stored gas. This was offset partially by Sequent’s decreased operating margin. The decrease in operating margin was due to lower volatility in the natural gas market primarily associated with narrowing storage spreads, resulting in fewer positive price differences in storage opportunities.

Six month 2004 earnings The increase in earnings for the six months ended June 30, 2004 was due in large part to SouthStar’s strong performance. Despite higher energy prices, lower volatility in the second quarter of 2004 affected Sequent’s performance. Compared to the prior year, Sequent’s operating margins were lower as we experienced reduced volatility and price movements across geography and spreads in the forward curve over time, despite 17 percent higher trading volumes.

	Three months ended June 30,			Six months ended June 30,
In millions, except per share amounts	2004	2003	2004 vs. 2003	2004	2003	2004 vs. 2003
EBIT by segment
Distribution operations	$49	$44	$5	$131	$125	$6
Wholesale services	(5)	-	(5)	7	21	(14)
Energy investments	9	7	2	41	23	18
Corporate	(2)	(2)	-	(5)	(2)	(3)
Consolidated EBIT	51	49	2	174	167	7
Interest expense	16	18	(2)	32	38	(6)
Earnings before income taxes	35	31	4	142	129	13
Income taxes	14	12	2	55	50	5
Income before cumulative effect of change in accounting principle	21	19	2	87	79	8
Cumulative effect of change in accounting principle	-	-	-	-	(8)	8
Net income	$21	$19	$2	$87	$71	$16
Basic earnings per common share
Income before cumulative effect of change in accounting principle	$0.34	$0.30	$0.04	$1.35	$1.27	$0.08
Cumulative effect of change in accounting principle	-	-	-	-	(0.13)	0.13
Basic earnings per common share	$0.34	$0.30	$0.04	$1.35	$1.14	$0.21
Diluted earnings per common share
Income before cumulative effect of change in accounting principle	$0.33	$0.29	$0.04	$1.33	$1.26	$0.07
Cumulative effect of change in accounting principle	-	-	-	-	(0.13)	0.13
Diluted earnings per common share	$0.33	$0.29	$0.04	$1.33	$1.13	$0.20
Weighted average number of common shares outstanding
Basic	64.8	63.5	1.3	64.7	61.9	2.8
Diluted	65.6	64.2	1.4	65.5	62.4	3.1

#

Interest expense The decrease in interest expense for the three and six months ended June 30, 2004 as compared to the same periods in 2003 was a result of lower interest rates on commercial paper borrowings, lower average debt balances, the repayment of Medium-Term notes in 2003 and interest rate swap transactions. As shown in the following table, our average debt balances were lower as compared to last year, due to the proceeds generated from the equity offering, which occurred on February 14, 2003, approximately $76 million of cash distributions from SouthStar from December 2003 through June 2004 and lower working capital needs.

	Three months ended June 30,			Six months ended June 30,
Dollars in millions	2004	2003	2004 vs. 2003	2004	2003	2004 vs. 2003
Total interest expense	$16	$18	($2)	$32	$38	($6)
Average debt outstanding (1)	1,078	1,114	(36)	1,146	1,205	(59)
Average rate	5.9%	6.5%	(0.6%)	5.6%	6.3%	(0.7%)

(1)

Daily average of all outstanding debt including our note payable to Trusts in 2004 and Trust Preferred Securities in 2003.

As of June 30, 2004, $34 million of long-term fixed-rate obligations are scheduled to mature within the next 12 months. Any new debt obtained to refinance this obligation will be exposed to changes in interest rates. For the six months ended June 30, 2004, had market interest rates been 100 basis points higher, representing a 3.6% interest rate on our variable rate debt versus our actual 2.6% interest rate we incurred, our year-to-date pretax interest expense would have increased by $3 million.

Income tax expense The increase in income tax expense of $2 million and $5 million for the three and six months ended June 30, 2004 was primarily due to the increase in earnings before income taxes, offset by a decrease in the effective tax rate. The decrease in the effective tax rate was primarily due to a decrease in state taxes, which was partially offset by additional tax expense due to recognition of a tax gain from our sale of our general and limited partnership interest in US Propane.

	Three months ended June 30,			Six months ended June 30,
Dollars in millions	2004	2003	2004 vs. 2003	2004	2003	2004 vs. 2003
Earnings before income taxes	$35	$31	$4	$142	$129	$13
Income tax expense	14	12	2	55	50	5
Effective tax rate	38.5%	39.0%	(0.5%)	38.5%	39.0%	(0.5%)

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Results of Operations

Distribution Operations

Distribution operations include the results of operations and financial condition of our three natural gas local distribution utility companies: Atlanta Gas Light Company (AGLC), Virginia Natural Gas (VNG) and Chattanooga Gas Company (CGC). Each utility operates subject to regulations provided by the state regulatory agencies in its service territories. The Georgia Public Service Commission (GPSC) regulates AGLC; the Virginia State Corporation Commission (VSCC) regulates VNG; and the Tennessee Regulatory Authority (TRA) regulates CGC with respect to rates charged to our customers, maintenance of accounting records and various other service and safety matters.

Rates charged to our customers vary according to customer class (residential, commercial or industrial) and rate jurisdiction. Rates are set at levels that allow for the recovery of all prudently incurred costs, including a return on rate base sufficient to pay interest on debt and provide a reasonable return on common equity.  Rate base consists generally of the original cost of utility plant in service, working capital, inventories and certain other assets; less accumulated depreciation on utility plant in service, net deferred income tax liabilities and certain other deductions.  We continuously monitor the performance of our utilities to determine whether rates need to be adjusted by making a rate case filing.

o

AGLC is a natural gas local distribution utility with distribution systems and related facilities throughout Georgia. AGLC has approximately six Bcf of LNG storage capacity in three LNG plants to supplement the supply of natural gas during peak usage periods.  Pursuant to the Georgia Natural Gas Competition and Deregulation Act, AGLC is designated as an “electing distribution company,” which means that AGLC is required to offer LNG peaking services to Marketers—that is, marketers who are certificated by the GPSC to sell retail natural gas in Georgia--at rates and on terms approved by the GPSC. On October 1, 2004 we will file with the GPSC the information necessary to determine if AGLC’s current performance based rates will be extended, modified, or terminated subsequent to April 30, 2005.

AGLC has executed an agreement with Southern Natural Gas (SNG), a subsidiary of El Paso Corporation, to acquire a portion of SNG’s interstate pipeline that runs from Macon, Georgia to Atlanta, Georgia.  The transaction is valued at approximately $32 million.  As part of the agreement, AGLC will extend the existing SNG transportation and storage contracts to ensure reliable delivery of natural gas into Georgia in return for the right to expand AGLC’s system off of the purchased facilities. We expect the SNG transaction to close by April 30, 2005, subject to securing regulatory approvals.

In May 2004, AGLC and 8 of the 10 Marketers entered into a settlement which resolved matters related to the capacity supply plan that was required to be filed by AGLC on July 1, 2004.  As a result of the settlement, the parties filed with the GPSC a three year capacity supply plan for the Georgia market. A hearing is scheduled in early September 2004, with the final GPSC decision and order expected on September 29, 2004.  The plan includes, among other things:

o

calculation of the design (peak) day requirements for the next three years;

o

purchase by AGLC of certain SNG facilities and the recovery of those costs through the Pipeline Replacement Program;

o

construction of a line from the Macon LNG facility to those SNG facilities;

o

extension of the Sequent peaking contract; and

o

other tariff provisions.  

#

o

VNG is a natural gas local distribution utility with distribution systems and related facilities serving southeastern Virginia. VNG owns and operates approximately 155 miles of a separate high-pressure pipeline that provides delivery of gas to customers under firm transportation agreements within the state of Virginia. VNG also has approximately five million gallons of propane storage capacity in its two propane facilities to supplement the supply of natural gas during peak usage periods.

In 2004, Pivotal Propane of Virginia, Inc., (Pivotal Propane) our wholly owned subsidiary intends to complete the construction of a propane air facility in the VNG service area to provide VNG with 28,800 dekatherms of propane air per day on a 10-day-per-year basis to serve its peaking needs.  VNG has received approval from the VSCC for the $27 million propane air plant to improve the reliability of its system in Virginia. The propane-air facility is currently under construction, and we expect to have the facility completed in time for the beginning of the winter heating season.

In June 2004, the VSCC issued its final order authorizing the recovery of all charges for this service through VNG’s gas cost recovery mechanism. The approval is for an initial 10-year term, with the possibility of renewal thereafter for terms of two years subject to VSCC approval. VNG has the right to purchase the facility at the end of the initial term or any renewal term. We expect the facility to become operational by the end of 2004.

In June 2004, VNG filed for a 3-year extension of its weather normalization adjustment program. This filing included a fully adjusted cost of service study along with the same schedules required for a general rate case.

o

CGC is a natural gas local distribution utility with distribution systems and related facilities serving the Chattanooga and Cleveland areas of Tennessee. CGC has approximately 1.2 Bcf of LNG storage capacity in its LNG plant. Included in the rates charged by CGC is a WNA factor, which offsets the impact of unusually cold or warm weather on operating margin.

In January 2004, CGC filed a rate plan request with the TRA for a total rate increase of $4.5 million annually. The rate plan was filed to cover CGC’s rising cost of providing natural gas to its customers. In May 2004 the TRA suspended the increase until July 28, 2004. Since its initial filing, CGC reduced its rate plan increase to $3.9 million, as a result of the February 2004 TRA ruling discussed below. On September 1, 2004, new rates will become effective, subject to a final authority by the TRA, which we expect by December 2004.

In March 2003, CGC filed a joint petition with other Tennessee distribution companies requesting the TRA issue a declaratory ruling that the portion of uncollectible accounts directly related to the cost of its natural gas is recoverable through a Purchased Gas Adjustment (PGA) mechanism. The PGA mechanism allows the local distribution companies to automatically adjust their rates to reflect changes in the wholesale cost of natural gas and to insure the utilities recover 100% of the cost incurred in purchasing gas for their customers. On February 9, 2004 the TRA ruled that the gas portion of accounts written-off as uncollectible after March 10, 2004 could be recovered through the PGA.

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Results of Operations for the three and six months ended June 30, 2004 and 2003 are as follows:

	Three months ended June 30,			Six months ended June 30,
In millions	2004	2003	2004 vs. 2003	2004	2003	2004 vs. 2003
Operating revenues	$184	$181	$3	$573	$502	$71
Cost of gas	44	45	(1)	253	193	60
Operating margin	140	136	4	320	309	11
Operating expenses
Operation and maintenance	66	66	-	136	131	5
Depreciation and amortization	21	20	1	42	40	2
Taxes other than income	5	6	(1)	12	13	(1)
Total operating expenses	92	92	-	190	184	6
Operating income	48	44	4	130	125	5
Other income	1	-	1	1	-	1
EBIT	$49	$44	$5	$131	$125	$6
Metrics
Average end-use customers (in thousands)	1,862	1,852	1%	1,868	1,857	1%
Operation and maintenance expenses per customer	$35	$36	(3%)	$73	$71	3%
EBIT per customer	$26	$24	8%	$70	$67	4%
Customers per employee	1,046	983	6%	1,039	981	6%
Throughput (in millions of dekatherms)
Firm	23	23	-%	113	113	-%
Interruptible	24	27	(11%)	52	54	(4%)
Total	47	50	(6%)	165	167	(1%)
Heating degree days (1):			% Colder /  (Warmer)			% Colder /  (Warmer)
Georgia	157	132	19%	1,660	1,685	(1%)
Virginia	223	307	(27%)	2,076	2,269	(9%)
Tennessee	214	117	83%	1,930	1,942	(1%)

(1)

We measure the effects of weather on our businesses using “degree days.” The measure of degree days for a given day is the difference between the average daily actual temperature and the baseline temperature of 65 degrees Fahrenheit. Heating degree days result when the average daily actual temperature is less than the 65-degree baseline. Generally, increased heating degree days result in greater demand for gas on our distribution systems.

2^nd Quarter 2004 compared to 2^nd Quarter 2003 The increase in EBIT of $5 million was primarily the result of increased operating margin at AGLC of $4 million, which was due mainly to the following:

o

$2 million increase due to customer growth

o

$1 million increase in pipeline replacement program (PRP) revenue due to continued PRP capital spending; and

o

$1 million in additional carrying charges for marketers’ gas storage due to higher storage volumes combined with higher weighted average cost of gas.

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6 months 2004 compared to 6 months 2003 The increase in EBIT of $6 million was primarily the result of increased operating margin of $11 million, partially offset by increased operating expenses.  The increase in operating margin was due primarily to the following:

o

AGLC’s operating margin increased $8 million resulting from an increase of $2 million in pipeline replacement program (PRP) revenue due to continued PRP capital spending; $2 million in additional carrying charges for gas stored for marketers due to higher storage volumes combined with higher weighted average cost of gas, $1 million in other revenue, primarily from contracts to provide maintenance services to non-traditional customers, and; $3 million increase due to increased customer growth.

o

VNG’s and CGC’s operating margin increased $3 million due primarily to increased customer growth.

Operating expenses for the six months was $190 million, up from $184 million in the same period last year.  The increase of $6 million was primarily a result of:

o

$5 million increase in operations and maintenance expense as a result of increases in information services and technology costs due to software maintenance; costs for locating gas infrastructure due to increased customer requests; and marketing expenses for a gas appliance program

o

$1 million additional pension expense

o

$2 million increase in depreciation expense primarily from new depreciation rates at VNG and increased assets at each utility

o

Partly offset by a $2 million reduction in expenses from reduced AGLC property taxes and reductions in bad debt primarily due to a TRA ruling that allows for recovery of the gas portion of accounts written off as uncollectible at CGC and increased collection efforts at VNG

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Wholesale Services

Wholesale services includes the results of operations and financial condition of Sequent, our subsidiary involved in asset optimization, producer services, wholesale marketing and risk management.  Our asset optimization business focuses on capturing value from idle or underutilized natural gas assets, which are typically amassed by companies via investments in or contractual rights to natural gas transportation and storage assets. Margin is typically created in this business by participating in transactions that balance the needs of varying markets and time horizons.

Sequent provides its customers with natural gas from the major producing regions and market hubs primarily in the Eastern and Mid-Continental United States. Sequent also purchases transportation and storage capacity to meet its delivery requirements and customer obligations in the marketplace. Sequent’s customers benefit from its logistics expertise and ability to deliver natural gas at prices that are advantageous relative to the other alternatives available to its end-use customers.

Regulatory Agreements We have reached the following agreements with state regulatory commissions related to Sequent’s role as asset manager for our regulated utilities. Failure to renew these agreements would have a significant impact on Sequent’s EBIT.  

o

Various Georgia statutes require Sequent, as asset manager for AGLC, to share 90% of its earnings from capacity release transactions with Georgia’s Universal Service Fund (USF).  A December 2002 GPSC order requires net margin earned by Sequent, for transactions involving AGLC assets other than capacity release, to be shared equally with the USF. For the six months ended June 30, 2004, we contributed $1.3 million to the USF based upon profits earned in 2003.

o

In November 2000, the VSCC approved an asset management agreement that provides for a sharing of profits between Sequent and VNG’s customers.  This agreement expires in October 2005, unless Sequent, VNG and the VSCC agree to extend the contract. In December 2003, we contributed $4.7 million to VNG’s customers for the contract year November 2002 through October 2003. This contribution will be reflected as a reduction to customer gas cost in 2004. We will contribute profits earned in the contract year November 2003 through October 2004 in December 2004.

o

In June 2003, CGC’s tariff was amended effective January 1, 2003 to require net margin earned by Sequent for transactions involving CGC assets to be shared equally with CGC ratepayers. This agreement expires in April 2006 and is subject to automatic extensions unless specifically terminated by either party. In 2004, Sequent contributed $1.3 million to CGC based upon profits earned during 2003. This contribution is being reflected as a reduction to customer gas cost in 2004.

Peaking Services Wholesale services generates operating margin through, among other things, the sale of peaking services, which includes receiving a fee from customers that guarantees that they will receive gas under peak conditions. Sequent recorded gross revenues of $7 million in the six months ended June 30, 2004 under these peaking services and $6 million during the same period in 2003. Wholesale services incurs costs to support its obligations under these agreements, which will be reduced in whole or in part as the matching obligations expire. Wholesale services’ affiliated peaking arrangement expired March 31, 2004. In July 2004, AGLC submitted a capacity supply plan to the GPSC that includes a request for the extension of the Sequent peaking services agreement.

In addition, we renewed and extended for 5 years a separate non-affiliated peaking service agreement that begins in November 2004 and ends in March 2009. If these arrangements, including those with AGLC, are renewed, it is likely that future fees may not be reset at current levels.  We will continue to seek new peaking transactions as well as work toward extending those that are set, or have expired.

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Energy Marketing and Risk Management Activities For the six months ended June 30 in each year, Sequent recorded unrealized gains of $15 million in 2004 and $6 million in 2003, excluding the cumulative effect of a change in accounting principle, related to changes in the fair value of derivative instruments utilized in our energy marketing and risk management activities. The tables below illustrate the change in the net fair value of the derivative instruments and energy-trading contracts during the three and six months ended June 30, 2004 and 2003 and provide details of the net fair value of contracts outstanding as of June 30, 2004. Sequent’s storage positions are affected by price sensitivity in the New York Mercantile Exchange, Inc. (NYMEX) average price.

	Three months ended June 30,		Six months ended June 30,
In millions	2004	2003	2004	2003
Net fair value of contracts outstanding at beginning of period	$10	$4	($5)	$7
Cumulative effect of change in accounting principle	-	-	-	(13)
Net fair value of contracts outstanding at beginning of period, as adjusted	10	4	(5)	(6)
Contracts realized or otherwise settled during period	3	(1)	7	(4)
Change in net fair value of contracts	(3)	(3)	8	10
Net fair value of contracts outstanding at end of period	$10	$-	$10	$-

The sources of our net fair value at June 30, 2004 are as follows:

In millions	Matures through June 2005	Matures through June 2008	Matures through June 2010	Matures after June 2010	Total Net Fair Value
Prices actively quoted (1)	$7	$2	$-	$-	$9
Prices provided by other external sources (1)	-	1	-	-	1

(1)

The “prices actively quoted” category represents Sequent’s positions in natural gas, which are valued exclusively using NYMEX futures prices. “Prices provided by other external sources” are basis transactions that represent the cost to transport the commodity from a NYMEX delivery point to the contract delivery point. Our basis spreads are primarily based on quotes obtained either directly from brokers or through electronic trading platforms.

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Storage Inventory Outlook The NYMEX forward curve graph set forth below reflects the NYMEX natural gas prices as of June 30, 2004 through June 2005, and reflects the prices we could buy natural gas at the Henry Hub for delivery in the same time period. July 2004 futures expired on June 28, 2004, however they are included as they coincide with the July storage withdrawals. The Henry Hub, located in Louisiana, is the largest centralized point for natural gas spot and futures trading in the United States. NYMEX uses the Henry Hub as the point of delivery for its natural gas futures contracts.Many natural gas marketers also use the Henry Hub as their physical contract delivery point or their price benchmark for spot trades of natural gas.

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As shown in the following table, “Open futures NYMEX contracts” represents the volume in contract equivalents of the transactions we executed to hedge our storage inventory. As of June 30, 2004, the expected withdrawal schedule of this inventory and its weighted average costs are reflected in the category “physical withdrawal schedule as of June 30, 2004 (NYMEX contract equivalents.)”  Our futures contracts qualify as derivatives under Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) and are accounted for at fair value (mark-to-market). However, the storage inventory is accounted for under the accrual method, at the lower of average cost or market, resulting in a timing mismatch in earnings recognition.

We recognize the gains or losses on the futures contracts in the period the price changes; we recognize the gains or losses on the storage inventory as the gas is withdrawn from storage. The schedule also reflects that our storage inventory is fully hedged with futures, which results in an overall locked-in margin, timing notwithstanding. “Expected gross margin after regulatory sharing” reflects the gross margin we would generate in future periods based on the forward curve and inventory withdrawal schedule at June 30, 2004. This gross margin could change in the future as we adjust our daily injection and withdrawal plans due to changes in market conditions.

	July 2004	Aug 2004	Sept. 2004	Oct. 2004	Nov. 2004	Dec. 2004	Jan. 2005	Feb. 2005	Mar. 2005
Open futures NYMEX contracts -  (short) long (1)	(197)	(583)	(56)	6	4	-	-	(60)	(25)
Physical withdrawal schedule as of June 30, 2004 (NYMEX contract equivalents)
Salt dome (WACOG (2) = $5.96)	78	11	-	-	-	-	-	-	-
Reservoir (WACOG (2) = $4.52)	119	572	56	(6)	(4)	-	-	60	25
Total	197	583	56	(6)	(4)	-	-	60	25
Expected gross margin, after regulatory sharing (3)  (In millions)
Reservoir	$0.2	$-	$-	$-	$-	$-	$-	$-	$-
Salt dome	0.2	0.4	0.2	-	-	-	-	0.4	$0.4

(1)

July futures expired on June 28, 2004; however, they are included herein as they coincide with the July storage withdrawals.

(2)

WACOG = Weighted average cost of gas

(3)

At June 30, 2004, as a result of our positions, a $0.10 parallel change in future NYMEX prices would impact our EBIT by $0.6 million. As shown, our net position is flat, and price movements should only affect timing of earnings between periods as futures contracts are marked to market but inventory is recorded at the lower of average cost or market.

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Park and Loan Outlook Additionally, we have entered into park and loan transactions with various pipelines. A park and loan transaction is a tariff transaction offered by pipelines, where the pipeline allows the customer to park natural gas on or borrow natural gas from the pipeline in one period and reclaim natural gas from or repay natural gas to the pipeline in a subsequent period. The economics of these transactions are evaluated and managed similar to the way traditional reservoir and salt dome storage transactions are evaluated. However, these transactions have elements that qualify as derivatives in accordance with SFAS 133.

Under SFAS 133, the transactions are considered financing arrangements when the contracts contain fixed volumes that are payable or repaid at determinable dates and at a specific point in time to third parties. Because these park and loan transactions have fixed volumes, they contain price risk for the change in market prices from the date the transaction is initiated to the time the natural gas is repaid. As a result, these transactions qualify as derivatives under SFAS 133 and must be recorded at their fair value. Certain park and loan transactions that we execute meet this definition.

As such, we account for these transactions at fair value once the transaction has started (either the natural gas is originally parked on or borrowed from the pipeline). “Park and (loan) volumes” represents the contract equivalent for the volumes of our park and loan transactions as of June 30, 2004 that is not already accounted for at fair value. “Expected gross margin from park and loans” represents the gross margin from those transactions expected to be recognized in future periods based on the NYMEX forward curves at June 30, 2004.   

	July 2004	Aug. 2004	Sept. 2004	Oct. 2004	Nov. 2004	May 2005	June 2005	July 2005	Total
Park and (loan) volumes	(100)	(62)	(31)	(41)	(80)	61	91	162	-
Expected gross margin from park and loans (in millions)	($0.3)	($0.4)	($0.2)	($0.2)	($0.1)	$-	$-	$-	($1.1)

#

Results of Operations for the three and six months ended June 30, 2004 and 2003 are as follows:

	Three months ended June 30,			Six months ended June 30,
In millions	2004	2003	2004 vs. 2003	2004	2003	2004 vs. 2003
Operating revenues	$1	$5	($4)	$21	$33	($12)
Cost of sales	1	-	1	1	-	1
Operating margin	-	5	(5)	20	33	(13)
Operating expenses
Operation and maintenance	5	5	-	13	12	1
Depreciation and amortization	-	-	-	-	-	-
Taxes other than income	-	-	-	-	-	-
Total operating expenses	5	5	-	13	12	1
Operating income	(5)	-	(5)	7	21	(14)
Other income	-	-	-	-	-	-
EBIT	($5)	$-	($5)	$7	$21	($14)
Metrics
Physical sales volumes (Bcf/day)	2.00	1.71	17%	2.05	1.83	12%

2^nd Quarter 2004 compared to 2^nd Quarter 2003 The $5 million decline in EBIT was the result of decreased operating margin. The decrease was due to lower volatility in the natural gas market primarily associated with narrowing storage spreads. The net result is that we had fewer storage arbitrage opportunities in 2004 compared to 2003. Despite reduced volatility during 2004, Sequent’s sales volumes increased 17% from 1.71 billion cubic feet (Bcf) per day in 2003 to 2.00 Bcf per day in 2004. We experienced increased volumes predominantly due to customer growth in the producer services and end-user areas of our business.

During the second quarter 2004, Sequent recognized an expense of $0.7 million associated with the reduction of a portion of our natural gas inventory to market prices that were below the average carrying cost of the inventory. Our adjusted weighted average cost of gas stored in inventory was $5.90 per millions of British thermal units (MMBtu) at the end of the second quarter of 2004, compared to $5.56 per MMBtu during the same period in 2003.

6 months 2004 compared to 6 months 2003 The decrease in EBIT of $14 million was the result of decreased operating margin and increased operating expenses. The decrease in operating margin was due primarily to lower volatility in natural gas in 2004. The dampening effect of region-to-region volatility compressed Sequent’s trading and marketing activities and the expected margins within its transportation portfolio.

During the first quarter of 2004, the weighted average cost of natural gas stored in inventory that was sold was $5.06 per MMBtu. This was substantially higher than the $2.20 per MMBtu during the same period last year, thus yielding reduced margins during early 2004 compared to 2003. Sequent’s operating expenses increased modestly compared to 2003 due to additional payroll expenses associated with an increase in the number of employees, and additional costs for outside services attributable to consultants and contractors due in part to our Sarbanes-Oxley Act compliance activities.  

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Energy Investments

Our energy investments segment includes the consolidated results of operations and financial condition of SouthStar in 2004, our equity investment in SouthStar in 2003, the results of operations and financial condition of AGL Networks, LLC (AGL Networks), and our equity investment in US Propane LP (US Propane), through the date of its sale in January 2004.

On January 20, 2004, we executed an agreement to sell our general and limited partnership interests in US Propane. The aggregate transaction was valued at $130 million. Upon closing, we received $29 million for the sale of our interests. We recognized a gain of $1.1 million on this transaction in 2004, which we recorded in other income.

o

SouthStar is a joint venture formed in 1998 by our subsidiary, Georgia Natural Gas Company, Piedmont and Dynegy Inc. (Dynegy) to market natural gas and related services to retail customers, principally in Georgia. On March 11, 2003, we purchased Dynegy’s 20% ownership interest in a transaction that for accounting purposes had an effective date of February 18, 2003.  

We currently own a non-controlling 70% financial interest in SouthStar and Piedmont owns the remaining 30%. Our 70% interest is non-controlling because all significant management decisions require approval by both owners. On March 29, 2004, we executed an amended and restated partnership agreement with Piedmont. This amended and restated partnership agreement calls for SouthStar’s future earnings starting in 2004 to be allocated 75% to our subsidiary and 25% to Piedmont. In addition, we executed a services agreement, which provided that AGL Services Company will provide and administer accounting, treasury, internal audit, human resources and information technology functions.

o

AGL Networks, our wholly owned subsidiary, is a provider of telecommunications conduit and un-used fiber optic cable or dark fiber. AGL Networks leases and sells its fiber to a variety of customers in the Atlanta, Georgia and Phoenix, Arizona metropolitan areas, with a small presence in other cities in the United States. Its customers include local, regional and national telecommunications companies, internet service providers, educational institutions and other commercial entities.  

AGL Networks typically provides underground conduit and dark fiber to its customers under leasing arrangements with terms that vary from 1 to 20 years. In addition, AGL Networks offers telecommunications construction services to companies. Our primary goals for this business in the next 12 to 15 months are to:

o

increase revenues through our sales efforts,

o

maintain control of capital costs for connecting customers to the network,

o

and maintain control of sales and operating expenses.

#

Results of operations for energy investments for the three and six months ended June 30, 2004 and 2003 are shown in the following tables. We have also included pro-forma results as if SouthStar’s accounts were consolidated with our subsidiaries’ accounts for the three and six months ended June 30, 2003. These unaudited pro-forma results are presented for comparative purposes only.

	Three months ended June 30,
In millions	2004 (1)	2003	Pro-forma 2003 (1)	2004 vs. 2003	2004 vs. Pro-forma 2003
Operating revenues	$149	$1	$137	$148	$12
Cost of sales	124	1	110	123	14
Operating margin	25	-	27	25	(2)
Operating expenses
Operation and maintenance	13	2	16	11	(3)
Depreciation and amortization	-	-	-	-	-
Taxes other than income	1	-	-	1	1
Total operating expenses	14	2	16	12	(2)
Operating income (loss)	11	(2)	11	13	-
Equity earnings from SouthStar	-	10	-	(10)	-
Other income	1	(1)	-	2	1
Total other income	1	9	-	(8)	1
Minority interest (2)	(3)	-	(4)	(3)	1
EBIT	$9	$7	$7	$2	$2

(1)

Includes 100% of SouthStar’s revenues and expenses for comparisons among 2003 and 2004 quarters adjusted for SouthStar’s consolidation in 2004.

(2)

Minority interest adjusts our earnings to reflect our 75% share of SouthStar’s earnings in 2004 and our 70% share in 2003 (less Dynegy Inc.’s 20% share of SouthStar’s income prior to February 18, 2003).  

2^nd Quarter 2004 compared to 2^nd Quarter 2003 The increase in EBIT of $2 million for the second quarter 2004 compared to the same period in 2003 is primarily due to the gain on the sale of a residential and retail development which is located in Savannah, Georgia, adjacent to a former manufactured gas plant site owned by AGLC, offset by lower results at SouthStar. On a pro-forma basis, operating margin decreased by $2 million as a result of unusually strong margins and higher usage due to colder weather during April 2003 that was not achieved at the same level in the second quarter 2004. In addition, in 2003 SouthStar recognized $1 million on the sale of gas inventory which was reassigned to AGLC.

Operating expenses decreased by $2 million as a result of the sale of the residential and retail development and lower bad debt expenses at SouthStar due to ongoing active customer collection process improvements and increased quality customer base. The increase in other income of $1 million is due to higher income from US Propane of $2 million, resulting from a $1 million gain on the sale of our remaining investment units in 2004 as compared to prior year operating losses at US Propane.

#

	Six months ended June 30,
In millions	2004 (1)	2003	Pro-forma 2003 (1)	2004 vs. 2003	2004 vs. Pro-forma 2003
Operating revenues	$458	$4	$432	$454	$26
Cost of sales	375	1	356	374	19
Operating margin	83	3	76	80	7
Operating expenses
Operation and maintenance	28	5	37	23	(9)
Depreciation and amortization	1	-	1	1	-
Taxes other than income	1	-	-	1	1
Total operating expenses	30	5	38	25	(8)
Operating income (loss)	53	(2)	38	55	15
Equity earnings from SouthStar	-	24	-	(24)	-
Other income	2	1	1	1	1
Total other income	2	25	1	(23)	1
Minority interest (2)	(14)	-	(16)	(14)	2
EBIT	$41	$23	$23	$18	$18
Metrics
SouthStar
Average customers (in thousands) (3)	542	562	-	(4%)	-
Market share in Georgia (3)	36%	38%	-	(5%)	-

(1)

Includes 100% of SouthStar’s revenues and expenses for comparisons among 2003 and 2004 quarters adjusted for SouthStar’s consolidation in 2004.

(2)

Minority interest adjusts our earnings to reflect our 75% share of SouthStar’s earnings in 2004 and our 70% share in 2003 (less Dynegy Inc.’s 20% share of SouthStar’s income prior to February 18, 2003).  

(3)

12 month average ending June 30.

6 months 2004 compared to 6 months 2003 The increase in EBIT for the six months ended 2004 as compared to the same period in 2003 is primarily due to strong results from SouthStar.  The improved results at SouthStar primarily reflect higher operating margins and substantially lower bad debt expense, as well as our expanded ownership in the joint venture. Our ownership percentage increased from 50% to 70% on February 18, 2003 and the amended operating agreement of SouthStar provides for us to receive 75% of its earnings beginning in 2004.The decrease in SouthStar’s market share of 4% is primarily as a result of the improved credit worthiness of its customer base.

On a pro-forma basis, the increase in EBIT was due primarily to increased operating margin of $7 million. This was due to:

o

higher margin per unit and lower hedging cost in 2004 as compared to 2003 which resulted in a increase in margin of $10 million, offset by

o

sale of gas inventory reassigned to AGLC of $1 million in 2003

o

one-time asset sale of $2 million by AGL Networks in 2003.

Operating expenses decreased by $8 million due to the following:

o

lower bad debt expense of $5 million as a result of ongoing active customer collection process improvements and increased quality customer base,

o

lower customer care expenses of $2 million due to receipt of vendor credits,

o

sale of a residential and retail development property located in Savannah, Georgia of $2 million,

The increase in other income of $1 million is due to additional contributions from US Propane of $2 million, resulting from a $1 million gain on the sale of our remaining investment units in 2004 compared to prior year operating losses at US Propane.

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Consolidation of SouthStar Pursuant to our adoption of FIN 46R, we consolidated all of SouthStar’s accounts with our subsidiaries’ accounts as of March 31, 2004. We recorded Piedmont’s portion of SouthStar’s earnings as a minority interest in our condensed consolidated statements of income and Piedmont’s portion of SouthStar’s contributed capital as a minority interest on our condensed consolidated balance sheet. We eliminated any intercompany profits between segments.  Below are our unaudited pro-forma condensed consolidated balance sheet and statement of income, presented as if SouthStar’s balances were consolidated with our subsidiaries’ accounts as of December 31, 2003. This pro-forma presentation is a non-GAAP presentation; however we believe this pro-forma presentation is useful to users of our financial statements since it presents prior year revenues and expenses on the same basis as 2004 following our consolidation of SouthStar pursuant to our adoption of FIN 46R.These unaudited pro-forma amounts are presented for comparative purposes only.

AGL RESOURCES INC. AND SUBSIDIARIES
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
(UNAUDITED)
In millions	As reported	SouthStar	Eliminations	Pro-forma
Current assets	$742	$174	($11)	$905
Property, plant and equipment	2,352	2	-	2,354
Deferred debits and other assets (1)	878	-	(71)	807
Total assets	$3,972	$176	($82)	$4,066

Current liabilities	$1,048	$75	($11)	$1,112
Accumulated deferred income taxes	376	-	-	376
Long-term liabilities	569	-	-	569
Deferred credits	77	-	-	77
Minority interest	-	-	30	30
Capitalization	1,902	101	(101)	1,902
Total liabilities and capitalization	$3,972	$176	($82)	$4,066

(1)

Our investment in SouthStar was $71 million.

AGL RESOURCES INC. AND SUBSIDIARIES
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
In millions	As reported	SouthStar (1)	Eliminations	Pro-forma
Operating revenues	$187	$136	($41)	$282
Operating expenses
Cost of gas	46	109	(41)	114
Operation and maintenance expenses	70	14	-	84
Depreciation and amortization	23	-	-	23
Taxes other than income	7	-	-	7
Total operating expenses	146	123	(41)	228
Operating income	41	13	-	54
Equity earnings from SouthStar	10	-	(10)	-
Other income	(2)	-	-	(2)
Interest expense	(18)	-	-	(18)
Minority interest in income of consolidated subsidiary (2)	-	-	(3)	(3)
Earnings before income taxes	31	13	(13)	31
Income taxes	12	-	-	12
Income before cumulative effect of change in accounting principle	19	13	(13)	19

(1)

Includes 100% of SouthStar’s revenues and expenses for comparisons among 2003 and 2004 quarters adjusted for SouthStar’s consolidation in 2004.

(2)

Minority interest adjusts our earnings to reflect our 70% share of SouthStar’s earnings (less Dynegy Inc.’s 20% share of SouthStar’s income prior to February 18, 2003).  

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AGL RESOURCES INC. AND SUBSIDIARIES
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
In millions	As reported	SouthStar (1)	Eliminations	Pro-forma
Operating revenues	$539	$428	($90)	$877
Operating expenses
Cost of gas	194	355	(90)	459
Operation and maintenance expenses	142	32	-	174
Depreciation and amortization	45	1	-	46
Taxes other than income	15	-	-	15
Total operating expenses	396	388	(90)	694
Operating income	143	40	-	183
Equity earnings from SouthStar	24	-	(24)	-
Other income	-	-	-	-
Interest expense	(38)	-	-	(38)
Minority interest in income of consolidated subsidiary (2)	-	-	(16)	(16)
Earnings before income taxes	129	40	(40)	129
Income taxes	50	-	-	50
Income before cumulative effect of change in accounting principle	79	40	(40)	79

(1)

Includes 100% of SouthStar’s revenues and expenses for comparisons among 2003 and 2004 quarters adjusted for SouthStar’s consolidation in 2004.

(2)

Minority interest adjusts our earnings to reflect our 70% share of SouthStar’s earnings (less Dynegy Inc.’s 20% share of SouthStar’s income prior to February 18, 2003).  

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Corporate

Our corporate segment includes the results of operations and financial condition of our nonoperating business units, including AGL Services Company (AGSC) and AGL Capital Corporation (AGL Capital). AGSC is a service company established in accordance with the Public Utility Holding Company Act of 1935, as amended (PUHCA). AGL Capital provides for our ongoing financing needs through a commercial paper program, the issuance of various debt and hybrid securities, and other financing arrangements.

We allocate substantially all of AGSC’s and AGL Capital’s operating expenses and interest costs to our operating segments in accordance with PUHCA and state regulations. Our corporate segment also includes intercompany eliminations for transactions between our operating business segments.

In August 2003, we formed Pivotal Energy Development (Pivotal) within AGSC. Pivotal coordinates, among our related operating segments, the development, construction or acquisition of assets in the Southeast and Mid-Atlantic regions in order to extend our natural gas capabilities and improve system reliability while enhancing service to our customers in those areas. The initial focus of Pivotal’s commercial activities will be to improve the economics of system reliability and natural gas deliverability in these targeted regions.

Results of operations for the three and six months ended June 30, 2004 and 2003 are as follows:

	Three months ended June 30,			Six months ended June 30,
In millions	2004	2003	2004 vs. 2003	2004	2003	2004 vs. 2003
Total operating expenses	1	1	-	4	1	3
Operating (loss) income	(1)	(1)	-	(4)	(1)	(3)
Other loss	(1)	(1)	-	(1)	(1)	-
EBIT	($2)	($2)	$-	($5)	($2)	($3)

(1)

Reflects the elimination of intercompany profits between segments.

2^nd Quarter 2004 compared to 2^nd Quarter 2003 Our corporate segment’s EBIT year over year remain unchanged. Excluding allocations, operating expenses increased from $33 million in 2003 to $35 million in 2004, an increase of $8 million. This increase was offset by the allocation of expenses to the three operating segments. Operating expenses increased primarily as a result of higher long-term incentive compensation, an increase in costs associated with software maintenance, licensing and implementation projects, consulting and outside services costs related to our Sarbanes-Oxley Act compliance efforts, and expenses related to Pivotal’s activity which was established in the fourth quarter of 2003. These increases were partially offset by lower legal and facility costs.

6 months 2004 compared to 6 months 2003 The decrease in EBIT of $3 million was the result of increased operating expenses of $7 million offset partially by increases in allocations of $4 million. Excluding allocations, operating expenses for the six months were $77 million, as compared to $70 million in the same period last year. The increase of $7 million was due primarily to costs associated with software maintenance, licensing and implementation projects, a loss on the retirement of information services and facilities assets, and higher outside consulting costs due in part to our Sarbanes-Oxley Act compliance efforts. In addition, the increase was partially due to expenses related to Pivotal’s activities in 2004.

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Liquidity and Capital Resources

Known Trends and Uncertainties We rely on operating cash flow; short-term borrowings under our commercial paper program, which is backed by our supporting credit agreement (Credit Facility); and borrowings or stock issuances in the long-term capital markets to meet our capital and liquidity requirements. Our issuance of various securities, including long-term and short-term debt, is subject to customary approval or authorization by state and federal regulatory bodies including state public service commissions and the SEC. On April 1, 2004 we received approval from the SEC under the PUHCA for the renewal of our financing authority to issue securities through April 2007.

On May 26, 2004, we closed on a new $500 million three-year Credit Facility. This new Credit Facility replaces our previous $200 million 364-day Credit Facility which was scheduled to expire on June 16, 2004 and our previous $300 million three-year Credit Facility that was scheduled to terminate on August 7, 2005. Under our new Credit Facility, one time each calendar year we can request from lenders an increase in credit commitments up to an additional $200 million. The availability of borrowings and unused availability under our Credit Facility is limited and subject to conditions specified within the Credit Facility, which we currently meet. These conditions specified within the Credit Facility include:

o

compliance with certain financial covenants

o

the continued accuracy of representations and warranties contained in the agreements, and

o

our total debt-to-capital ratio

Our total cash and available liquidity under our Credit Facility at June 30, 2004, December 31, 2003 and June 30, 2003 is represented in the table below.

In millions	June 30, 2004	Dec. 31, 2003	June 30, 2003
Unused availability under the Credit Facility	$500	$500	$500
Cash and cash equivalents	54	17	3
Total cash and available liquidity under the Credit Facility	$554	$517	$503

For the future, we believe these sources will be sufficient for our working capital needs, debt service obligations and scheduled capital expenditures. The relatively stable operating cash flows of our distribution operations businesses currently contribute a substantial portion of our cash flow from operations and we anticipate this to continue in the future. However, our liquidity and capital resource requirements may change in the future due to a number of factors, some of which we cannot control. These factors include:

o

the seasonal nature of the natural gas business and our resulting short-term borrowing requirements, which typically peak during colder months

o

increased gas supplies required to meet our customers’ needs during cold weather

o

regulatory changes and changes in rate-making policies of regulatory commissions

o

contractual cash obligations and other commercial commitments

o

interest rate changes

o

pension and postretirement benefit costs

o

changes in income tax laws

o

changes in wholesale prices and customer demand for our products and services

o

margin requirements resulting from significant increases or decreases in our commodity prices

o

operational risks

o

the anticipated debt and equity financings associated with our acquisition of NUI

Seasonality The seasonal nature of our sales affects the comparison of certain balance sheet items at June 30, 2004 and at December 31, 2003, such as receivables, unbilled revenue, inventories, and short-term debt. We have presented the condensed consolidated balance sheet as of June 30, 2003 to provide comparisons of these items with the corresponding period of the preceding year.

Contractual Obligations and Commitments We have incurred various contractual obligations and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related revenue-producing activities.

Contingent financial commitments represent obligations that become payable only if certain pre-defined events occur, such as financial guarantees, and include the nature of the guarantee and the maximum potential amount of future payments that could be required of us as the guarantor. The following tables illustrate our expected future contractual cash obligations and commitments as of June 30, 2004:

		Payments Due before December 31,
			2005	2007	2009
			&	&	&
In millions	Total	2004	2006	2008	Thereafter
Long-term debt (1)	$962	-	-	-	$962
Pipeline charges, storage capacity and gas supply (2)	719	134	271	124	190
Pipeline replacement program costs (3)	375	48	166	161	-
Short-term debt	195	195	-	-	-
ERC (3)	62	15	31	6	10
Operating leases (4)	79	6	22	16	35
Communication/network service and maintenance	16	5	11	-	-
Total	$2,408	$403	$501	$307	$1,197
(1) Includes $234 million of Notes Payable to Trusts, callable in 2006 and 2007. (2) Charges recoverable through a PGA mechanism or alternatively billed to Marketers. (3) Charges recoverable through rate rider mechanisms. (4) We have certain operating leases with provisions for step rent or escalation payments, or certain lease concessions. We account for these leases by recognizing the future minimum lease payments on a straight-line basis over the respective minimum lease terms in accordance with SFAS No. 13, “Accounting for Leases.” However, this accounting treatment does not affect the future annual operating lease cash obligations as shown herein.

		Commitments Due before December 31,
			2005	2007	2009
			&	&	&
In millions	Total	2004	2006	2008	Thereafter
Guarantees (1) (2)	$277	$277	$-	$-	$-
Standby letters of credit, performance/ surety bonds	11	9	2	-	-
Total other commercial commitments	$288	$286	$2	$-	$-
(1) $228 million of these guarantees support credit exposures in Sequent’s energy marketing and risk management business. In the event that Sequent defaults on any commitments under these guarantees, these amounts would become payable by us as guarantor. (2) We provide guarantees on behalf of our subsidiary, SouthStar. We guarantee 70% of SouthStar’s obligations to SNG under certain agreements between the parties up to a maximum of $7 million if SouthStar fails to make payment to SNG. Under a second such guarantee, we guarantee 70% of SouthStar’s obligations to AGLC under certain agreements between the parties up to a maximum of $42 million, which represents our share of SouthStar’s maximum credit support obligation to AGLC under its tariff.

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Cash flow provided from operating activities Our statement of cash flows is prepared using the indirect method.  Under this method, net income is reconciled to cash flows from operating activities by adjusting net income for those items that impact net income but do not result in actual cash receipts or payments during the period. These reconciling items include depreciation, undistributed earnings from equity investments, changes in deferred income taxes, gains or losses on the sale of assets and changes in the balance sheet for working capital from the beginning to the end of the period.

Our operating cash flows for the six months ended June 30, 2004 include SouthStar’s operating cash flows of approximately $93 million as a result of our consolidation of SouthStar effective January 1, 2004; however in 2003, our operating cash flow did not include any amounts from SouthStar consistent with the equity method of accounting since no distributions were received from SouthStar. Year-to-year changes in our operating cash flows, excluding SouthStar, are primarily the result of the following:

o

changes in our operating results

o

the timing associated with working capital items such as cash collections from our customers and cash receipts or disbursements for our natural gas inventories

o

payments for operating expenses to our vendors and employees, income taxes and interest

We generate a large portion of our annual net income in the first and fourth quarters due to significant volumes of natural gas that are delivered by distribution operations and SouthStar to our customers during the November-to-March heating season which increases our accounts receivable. In addition, during this period our accounts payable increases to reflect payments due to providers of the natural gas commodity and pipeline capacity. The value of the natural gas commodity can vary significantly from one period to the next as a result of the volatility in the price of natural gas. Natural gas costs and deferred purchased natural gas costs due from or to our customers represent the difference between natural gas costs that have been paid to suppliers in the past and what has been collected from customers. These natural gas costs can cause significant variations in cash flows from period to period. Finally, our natural gas inventories, which usually peak on November 1, are largely drawn down in the heating season, and provide a source of cash as this asset is used to satisfy winter sales demand.

Our cash flow from operations for the six months ended June 30, 2004 was $344 million, an increase of $139 million from the same period in 2003. The increase is a result of the impact of consolidation of SouthStar of $93 million, higher net income and decreased working capital requirements. In addition, following the heating season, our cash flow from operations for both the six months ended June 30, 2004 and 2003 was positively impacted by cash received from the collection of our customer’s balances from the heating season. The increase was offset slightly by the cost associated with our net injections of natural gas inventories to replenish the heating season withdrawals.

Cash flow used in investing activities Our cash used in investing activities consists primarily of property, plant and equipment expenditures. As shown in the following table, we made investments of $104 million in the six months ended June 30, 2004 and $77 million in the same period in 2003.

In millions	2004	2003	2004 vs. 2003
Construction of distribution facilities	$28	$27	$1
Pipeline replacement program (1)	39	19	20
Pivotal propane plant	10	-	10
Telecommunications	-	6	(6)
Other	27	25	2
Total property, plant and equipment expenditures	104	77	27
Environmental response costs (2)	21	16	5
Total capital requirements	$125	$93	$32

(1)

These expenditures include removal costs. Capital expenditures under this program are expected to end June 30, 2008, unless the program is extended by the GPSC.

(2)

These costs are not included in our cash flows used in investing activities as they are not considered property, plant and equipment expenditures. They are considered a component of our capital requirements as we estimate our cash requirements for future years.

The increase of $32 million is primarily from higher expenditures at our distribution operations segment, including higher expenditures at AGLC and Pivotal Propane. The increase at AGLC includes a $20 million increase in the pipeline replacement program (PRP) as a result of larger diameter and more expensive pipe that has been replaced this year. In addition, the increase at Pivotal Propane of $10 million relates to expenditures for the construction of a propane plant in the VNG service area.

These increases were offset by decreased expenditures at AGL Networks of $6 million as a result of the completion of our initial Atlanta and Phoenix networks in 2003. In 2004, our investing activities also consisted of $31 million in cash receipts for the sale of our interests in US Propane. In 2003, we made a payment of $20 million for the purchase of Dynegy’s 20% interest in SouthStar.

Cash flow used in financing activities In the six months ended June 30, 2004 and 2003, our cash used in financing activities are primarily composed of borrowings and payments of short-term debt, payments of Medium-Term notes, cash dividends on our common stock and the issuance of common stock. Our Credit Facility financial covenants and the PUHCA’s order require us to maintain a ratio of total debt-to-total capitalization of no greater than 70.0%. As of June 30, 2004, we were in compliance with this leverage ratio requirement. We have a goal to maintain our common equity ratio in the 40 - 50 percent range of total capitalization.

Our payments for natural gas and pipeline capacity are generally made to suppliers prior to the collection of accounts receivable from our customers. This results in our short-term debt financing generally increasing between September 30 and March 31. In addition, we typically reduce short-term debt balances in the spring because a significant portion of our current assets are converted into cash at the end of the winter heating season.

We believe that accomplishing these capital structure objectives and maintaining sufficient cash flow are necessary to maintain our current credit ratings and to allow our access to capital at reasonable costs.The components of our capital structure, as of the dates indicated, are summarized in the following table:

Dollars in millions	June 30, 2004		December 31, 2003		June 30, 2003
Short-term debt	$161	7%	$306	13%	$147	7%
Current portion of long-term debt	34	2	77	3	95	5
Senior and Medium-Term notes (1)	728	33	731	32	697	34
Note payable to capital trust (1	234	11	-	-	-	-
Trust Preferred Securities (1)	-	-	225	10	228	11
Total debt	1,157	53	1,339	58	1,167	57
Minority interest	29	1	-	-	-	-
Common equity	1,011	46	946	42	897	43
Total capitalization	$2,197	100%	$2,285	100%	$2,064	100%

(1)

Net of interest rate swaps

Short-term debt Our short-term debt is composed of borrowings under our commercial paper program, Sequent’s line of credit and SouthStar’s line of credit. The decrease in our short-term debt of $145 million is primarily a result of payments on outstanding commercial paper from:

o

cash generated from strong operating results

o

positive working capital from lower receivable and inventory requirements

o

proceeds from the sale of our ownership interest in US Propane

o

receipt of cash from SouthStar in the time period of December 2003 through June 2004

Long-term DebtFor the six months ended June 30, 2004, we made $49 million in Medium-Term note payments, as follows:

o

In January, 2004, we exercised our option to redeem $44 million at a call premium. These notes were scheduled to mature in 2019 with interest rates ranging from 7.0% to 7.1%

o

In February 2004, we exercised our option to redeem $5 million at a call premium. This note was scheduled to mature in 2014 with a interest rate of 7.0%

Minority interest SouthStar’s accounts have been combined with our subsidiaries’ accounts as of or for the six months ended June 30, 2004.  As a result, we recorded Piedmont’s portion of SouthStar’s contributed capital as minority interest on our condensed consolidated balance sheet and is included as a component of our capitalization. In addition, we recorded a cash disbursement of $14 million in our cash flows from financing activities for SouthStar’s dividend distribution to Piedmont.

Interest Rate Swaps To maintain an effective capital structure, it is our policy to borrow funds using a mix of fixed-rate debt and variable-rate debt. We have entered into interest rate swap agreements, for the purpose of hedging the interest rate risk associated with our fixed-rate and variable-rate debt obligations. Including the effects of our interest rate swaps, 71% of our total short-term and long-term debt was fixed. For more discussion of our interest rate swaps, see Note 3, “Risk Management.”

Credit rating As a result of the announcement of our definitive agreement to acquire NUI, which includes the assumption of approximately $607 million of NUI’s debt, the outlooks on our credit ratings have changed. Moody’s Investor Service recently affirmed our ratings and changed its rating outlook to negative from stable. Both Standard & Poor’s Ratings Services and Fitch Ratings placed our credit ratings on watch status with negative outlooks.

These rating agencies have indicated their actions are the result of the execution risks in consummating, financing and integrating the NUI acquisition and certain closing conditions that must be met by NUI. The execution risks include obtaining regulatory approvals and the capital market risk related to the successful completion of equity and debt financing around the acquisition closing, mitigating our increased leverage. The closing conditions include NUI’s obtaining additional liquidity lines, obtaining a favorable rate order from the New Jersey Board of Public Utilities (NJBPU), and assurances that issues raised in an audit of NUI by the NJBPU and ongoing investigations are resolved.

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Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on an ongoing basis, and our actual results may differ from these estimates. Our critical accounting policies used in the preparation of our consolidated financial statements are described in our Annual Report on Form 10-K for the year ended December 31, 2003 and includes the following:

o

Regulatory Accounting

o

Pipeline Replacement Program

o

Environmental Response Costs

o

Revenue Recognition

o

Accounting for Contingencies

o

Accounting for Pension Benefits

Each of our critical accounting policies and estimates involves complex situations requiring a high degree of judgment either in the application and interpretation of existing literature or in the development of estimates that impact our financial statements. The following represent significant changes in our critical accounting policies during the six months ended June 30, 2004:

Derivatives and Hedging Activities

SFAS 133, as updated by SFAS 149, established accounting and reporting standards requiring that every derivative financial instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. However, if the derivative transaction qualifies for and is designated as a normal purchase and sale, it is exempted from the fair value accounting treatment of SFAS 133, as updated by SFAS 149, and is accounted for using traditional accrual accounting.

SFAS 133 requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. If the derivatives meet those criteria, SFAS 133 allows a derivative’s gains and losses to offset related results on the hedged item in the income statement in the case of a fair value hedge, or to record the gains and losses in other comprehensive income until maturity in the case of a cash flow hedge. Additionally, SFAS 133 requires that a company formally designate a derivative as a hedge as well as document and assess the effectiveness of derivatives associated with transactions that receive hedge accounting treatment. Two areas where SFAS 133 applies are interest rate swaps and gas commodity contracts at both Sequent and SouthStar. Our derivative and hedging activities are described in further detail in Note 3 to the condensed consolidated financial statements.

Interest rate swaps We designate our interest rate swaps as fair value hedges as defined by SFAS 133, which allows us to designate derivatives that hedge exposure to changes in the fair value of a recognized asset or liability. We record the gain or loss on fair value hedges in earnings in the period of change, together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of this accounting is to reflect in earnings only that portion of the hedge that is not effective in achieving offsetting changes in fair value.

Commodity-related derivative instruments We are exposed to risks associated with changes in the market of natural gas. Through Sequent and SouthStar, we use derivative instruments to reduce our exposure to the risk of changes in the prices of natural gas. When the portfolio market value changes, primarily due to newly originated transactions and the effect of price changes, Sequent recognizes the change in value of derivative instruments as an unrealized gain or loss in revenues in the period of change. Sequent recognizes cash inflows and outflows associated with the settlement of these risk management activities in operating cash flows, and Sequent reports these settlements as receivables and payables separately from risk management activities in the balance sheet as energy marketing receivables and trade payables.

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Under our risk management policy, we attempt to mitigate substantially all of our commodity price risk associated with Sequent’s storage gas portfolio and lock in the economic margin at the time we enter into gas purchase transactions for our stored gas. We purchase gas for storage when the current market price we pay for gas plus the cost to store the gas is less than the market price we could receive in the future by selling NYMEX futures contracts in the forward months, resulting in a positive net profit margin. We use contracts to sell gas at that future price to substantially lock in the profit margin we will ultimately realize when the stored gas is actually sold. These contracts meet the definition of a derivative under SFAS 133.

The purchase, storage and sale of natural gas is accounted for differently than the derivatives we use to mitigate the commodity price risk associated with our storage portfolio. The difference in accounting can result in volatility in our reported net income, even though the economic margin is essentially unchanged from the date the transactions were consummated. We do not currently use hedge accounting under SFAS 133 to account for this activity.   

Gas that we purchase and inject into storage is accounted for on an accrual basis, at the lower of average cost or market, as inventory in our consolidated balance sheets and is no longer marked to market following our implementation of the accounting guidance in EITF 02-03. Under current accounting guidance, we would recognize a loss in any period when the market price for gas is lower than the carrying amount for our purchased gas inventory. Costs to store the gas are recognized in the period the costs are incurred. We recognize revenues and cost of gas sold in our statement of consolidated income in the period we sell gas and it is delivered out of the storage facility.

The derivatives we use to mitigate commodity price risk and substantially lock in the margin upon the sale of stored gas are accounted for at fair value and marked to market each period, with changes in fair value recognized as unrealized gains or losses in the period of change. This difference in accounting, the accrual basis for our gas storage inventory versus mark-to-market accounting for the derivatives used to mitigate commodity price risk, can result in volatility in our reported net income. Based upon Sequent’s storage positions at June 30, 2004, a $0.10 forward NYMEX change would result in $0.6 million impact to Sequent’s EBIT.

Over time, gains or losses on the sale of gas storage inventory will be offset by losses or gains on the derivatives, resulting in realization of the economic profit margin we expected when we entered into the transactions. This accounting difference causes Sequent’s earnings on its storage gas positions to be affected by natural gas price changes, even though the economic profits remain essentially unchanged. Sequent manages underground storage for our utilities and holds certain capacity rights on its own behalf. The underground storage is of two types:

o

reservoir storage, where supplies are generally injected and withdrawn on a seasonal basis

o

salt dome high-deliverability storage, where supplies may be periodically injected and withdrawn on relatively short notice

SouthStar also uses derivative instruments to manage exposures arising from changing commodity prices. SouthStar’s objective for holding these derivatives is to minimize this risk using the most effective methods to reduce or eliminate the impacts of these exposures. A significant portion of SouthStar’s derivative transactions are designated as cash flow hedges under SFAS 133. Derivative gains or losses arising from cash flow hedges are recorded in other comprehensive income (OCI) and are reclassified into earnings in the same period as the settlement of the underlying hedged item. Any hedge ineffectiveness, defined as when the gains or losses on the hedging instrument do not perfectly offset the losses or gains on the hedged item, is recorded into earnings in the period in which it occurs. SouthStar currently has no hedge ineffectiveness. The remainder of SouthStar’s derivative instruments does not meet the h edge criteria under SFAS 133. Therefore, changes in their fair value are recorded in earnings in the period of change.

Weather derivative contracts SouthStar routinely enters into weather derivative contracts for hedging purposes in order to preserve margins in the event of warmer-than-normal weather in the winter months. SouthStar accounts for these contracts using the intrinsic value method under the guidelines of EITF 99-02, “Accounting for Weather Derivatives”.

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Accounting Developments

FASB Staff Position 106-1 Effective December 8, 2003, the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” (Medicare Prescription Drug Act) was signed into law, which provides for a prescription drug benefit under Medicare (Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Our defined benefit postretirement health care and life insurance plans do provide a prescription drug benefit.

On January 12, 2004, the FASB issued FASB Staff Position (FSP) 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-1), which allowed companies to elect a one-time deferral of the recognition of the effects of the Medicare Prescription Drug Act in accounting for their plans under SFAS 106 and in providing disclosures related to the plan required by SFAS 132 (revised 2003). The FASB allowed the one-time deferral due to the accounting issues raised by the Medicare Prescription Drug Act--in particular, the accounting for the federal subsidy that is not explicitly addressed in SFAS 106--and due to the fact that uncertainties exist as to the direct effects of the Medicare Prescription Drug Act and its ancillary effects on plan participants.

For companies electing the one-time deferral, such deferral remains in effect until authoritative guidance on the accounting for the federal subsidy is issued, or until certain other events, such as a plan amendment, settlement or curtailment, occur.  As of December 31, 2003, we elected the one-time deferral.  Our accumulated postretirement obligation or net periodic postretirement benefit cost for 2003 and 2004 does not reflect the effects of the Medicare Prescription Drug Act on our other postretirement plan since specific authoritative guidance on the accounting for the federal subsidy has not been issued and we have not made any amendments to our postretirement plan. Once specific authoritative guidance on the accounting for the federal subsidy is issued, it could result in a change to previously reported information.

FASB Staff Position 106-2 On May 19, 2004, the FASB issued FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (FSP 106-2) which supersedes FSP 106-1 and is effective for the first interim or annual reporting period beginning after June 15, 2004, or July 1, 2004 for us.  The guidance in FSP 106-2 related to the accounting for the federal subsidy applies only to the sponsor of a single-employer defined benefit postretirement health care plan for which (a) the employer has concluded that prescription drug benefits available under the plan to some or all participants for some or all future years are "actuarially equivalent" to Medicare Part D and thus qualify for the subsidy under the Medicare Prescription Drug Act and (b) the expected federal subsidy will offset or reduce the employer’s share of the cost o f the underlying postretirement prescription drug coverage on which the federal subsidy is based.  FSP 106-2 also provides guidance for the disclosures about the effects of the subsidy for an employer that sponsors a postretirement health care benefit plan that provides prescription drug coverage but for which the employer has not yet been able to determine actuarial equivalency.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with commodity prices, interest rates and credit. Commodity price risk is defined as the potential loss that we may incur as a result of changes in the fair value of a particular instrument or commodity. Interest rate risk results from our portfolio of debt and equity instruments that we issue to provide financing and liquidity for our business. Credit risk results from the extension of credit throughout all aspects of our business, but is particularly concentrated at AGLC in distribution operations and in wholesale services.

Our Risk Management Committee (RMC) is responsible for the overall establishment of risk management policies and the monitoring of compliance with and adherence to the terms within these policies, including approval and authorization levels and delegation of these levels. Our RMC consists of senior executives who monitor commodity price risk positions, corporate exposures, credit exposures and overall results of our risk management activities, and is chaired by our chief risk officer, who is responsible for ensuring that appropriate reporting mechanisms exist for the RMC to perform its monitoring functions. Our risk management activities and related accounting treatment are described in further detail in Note 3 to the condensed consolidated financial statements.

Commodity Price Risk

Wholesale Services This segment routinely utilizes various types of financial and other instruments to mitigate certain commodity price risks inherent in the natural gas industry. These instruments include a variety of exchange-traded and over-the-counter energy contracts, such as forward contracts, futures contracts, option contracts and financial swap agreements. The following table includes the fair values and average values of our energy marketing and risk management assets and liabilities as of June 30, 2004, December 31, 2003 and June 30, 2003. We base the average values on monthly averages for the six months ended June 30, 2004 and 12 months ended December 31, 2003.

	Asset
	Average Values		Value at:
In millions	6 months ended June 30, 2004	12 months ended Dec. 31, 2003	June 30, 2004	Dec. 31, 2003	June 30, 2003
Natural gas contracts	$23	$14	$23	$13	$12

	Liability
	Average Values		Value at:
In millions	6 months ended June 30, 2004	12 months ended Dec. 31, 2003	June 30, 2004	Dec. 31, 2003	June 30, 2003
Natural gas contracts	$15	$14	$13	$18	$11

We employ a systematic approach to the evaluation and management of the risks associated with our contracts related to wholesale marketing and risk management, including value-at-risk (VaR).  VaR is defined as the maximum potential loss in portfolio value over a specified time period that is not expected to be exceeded within a given degree of probability.

We use a 1-day and a 10-day holding period and a 95% confidence interval to evaluate our VaR exposure. A 95% confidence interval means there is a 5% probability that the actual change in portfolio value will be greater than the calculated VaR value over the holding period. We calculate VaR based on the variance-covariance technique. This technique requires several assumptions for the basis of the calculation, such as price volatility, confidence interval and holding period.  Our VaR may not be comparable to a similarly titled measure of another company because, although VaR is a common metric in the energy industry, there is no established industry standard for calculating VaR or for the assumptions underlying such calculations.

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Our open exposure is managed in accordance with established policies that limit market risk and require daily reporting of potential financial exposure to senior management, including the chief risk officer. Because we generally manage physical gas assets and economically protect our positions by hedging in the futures markets, our open exposure is generally minimal, permitting us to operate within relatively low VaR limits. We employ daily risk testing, using both VaR and stress testing, to evaluate the risks of our open positions.

Our management actively monitors open commodity positions and the resulting VaR. We continue to maintain a relatively matched book, where our total buy volume is close to sell volume, with minimal open commodity risk. Based on a 95% confidence interval and employing a 1-day and a 10-day holding period for all positions, our portfolio of positions for the 6 months ended June 30, 2004 and twelve months ended December 31, 2003 had the following 1-day and 10-day holding period VaRs:

	6 months ended June 30, 2004		12 months ended December 31, 2003
In millions	1-day	10-day	1-day	10-day
Period end (1)	$0.0	$0.0	$0.3	$1.0
Average	0.1	0.2	0.1	0.3
High	0.4	1.2	2.5	4.7
Low (1)	0.0	0.0	0.0	0.0

(1)

$0.0 values represent amounts less than $0.1 million.

Energy Investments SouthStar’s use of derivatives is governed by a risk management policy which prohibits the use of derivatives for speculative purposes. This policy also establishes VaR limits of $0.5 million on a 1-day holding period and $0.7 million on a 10-day holding period. In June 2004, the SouthStar risk management committee approved replacing the 20-day VaR limit with a 10-day VaR limit. The 10-day VaR limit was determined to be a more appropriate industry standard, and thus adopted by SouthStar. A 95% confidence interval is used to evaluate VaR exposure. The maximum VaR experienced during the six months ended June 30, 2004 was less than $0.1 million for the 1-day holding period and $0.1 million for the 10-day holding period.

Credit Risk

Sequent may require its counterparties to pledge additional collateral when deemed necessary. We conduct credit evaluations and obtain appropriate internal approvals for our counterparty’s line of credit before any transaction with the counterparty is executed. In most cases, the counterparty must have a minimum long-term debt rating of Baa3 from Moody’s and BBB- from S&P. Generally, we require credit enhancements by way of guaranty, cash deposit or letter of credit for transaction counterparties that do not meet the minimum ratings threshold.

Sequent evaluates its counterparties using the S&P equivalent credit rating which is determined by a process of converting the lower of the S&P or Moody’s Investors Service, Inc. (Moody’s) rating to an internal rating ranging from 9.00 to 1.00, with 9.00 being equivalent to AAA/Aaa by S&P and Moody’s and 1.00 being equivalent to D or Default by S&P and Moody’s. A counterparty that does not have an external rating is assigned an internal rating based on the strength of its financial ratios.

The weighted average credit rating is obtained by multiplying each counterparty’s assigned internal rating by the counterparty’s credit exposure and the individual results are then summed for all counterparties. That total is divided by the aggregate total counterparties’ exposure. This numeric value is converted to an S&P equivalent. Under the refined methodology, Sequent’s counterparties, or the counterparties’ guarantors, had a weighted average S&P equivalent credit rating of A- at June 30, 2004, compared with our previously reported rating of BBB at December 31, 2003.

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The following tables show Sequent’s commodity receivable and payable positions as of June 30, 2004, December 31, 2003 and June 30, 2003:

Gross receivables
In millions	June 30, 2004	Dec. 31, 2003	June 30, 2003
Receivables with netting agreements in place:
Counterparty is investment grade	$289	$282	$208
Counterparty is non-investment grade	20	13	24
Counterparty has no external rating	22	9	7
Receivables without netting agreements in place:
Counterparty is investment grade	19	15	3
Counterparty is non-investment grade	-	-	-
Counterparty has no external rating	-	-	-
Amount recorded on balance sheet	$350	$319	$242

Gross payables
In millions	June 30, 2004	Dec. 31, 2003	June 30, 2003
Payables with netting agreements in place:
Counterparty is investment grade	$215	$205	$181
Counterparty is non-investment grade	65	31	50
Counterparty has no external rating	91	45	27
Payables without netting agreements in place:
Counterparty is investment grade	50	29	24
Counterparty is non-investment grade	-	3	9
Counterparty has no external rating	-	16	2
Amount recorded on balance sheet	$421	$329	$293

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Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report have concluded that our disclosure controls and procedures were effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) which were required to be included in our periodic SEC filings.

(b)

Changes in internal controls over financial reporting. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The nature of our business ordinarily results in periodic regulatory proceedings before various state and federal authorities and/or litigation incidental to the business.  For information regarding pending federal and state regulatory matters, see "Results of Operation – Distribution Operations" contained in Item 2 of Part I under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

In the first quarter of 2004, we settled a lawsuit with the city of Augusta, Georgia who had served AGLC with a complaint that was filed in the Superior Court of Richmond County, Georgia on July 1, 2003. The City of Augusta’s allegations included fraud and deceit and damages to realty. The allegations arose from negotiations between the city and AGLC regarding the environmental cleanup obligations connected with AGLC’s former MGP operations in Augusta. For more information about our manufactured gas plants and our environmental cleanup obligations, please see Item 1, Financial Statements, Note 4 “Regulatory Assets and Liabilities – Environmental Response Costs.”

With regard to other legal proceedings, we are a party, as both plaintiff and defendant, to a number of other suits, claims and counterclaims on an ongoing basis. Management believes that the outcome of all such other litigation in which it is involved will not have a material adverse effect on our consolidated financial statements.

ITEM 2.  CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth our common stock repurchases for the periods indicated.  All shares were purchased in open market transactions in connection with awards dominated in common stock under the AGL Resources Inc. Officer Incentive Plan (OIP).

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Prior Years	62,740	$25.46	62,740	537,260
January 1, 2004 – January 31, 2004	-	-	-	537,260
February 1, 2004 – February 29, 2004	-	-	-	537,260
March 1, 2004 – March 31, 2004	20,000	$28.10	20,000	517,260
Total first quarter	20,000	$28.10	20,000	517,260
April 1, 2004 – April 30, 2004	-	-	-	517,260
May 1, 2004 – May 31, 2004	-	-	-	517,260
June 1, 2004 – June 30, 2004	-	-	-	517,260
Total second quarter	-	-	-	517,260
Total all periods	82,740	$25.99	82,740	517,260

(1)

On June 30, 2001, we disclosed that our board of directors approved the repurchase of up to 600,000 shares of our common stock to be used for the OIP.  In March 2004, 20,000 shares were repurchased under this plan.  As of June 30, 2004 a total of 82,740 shares have been repurchased leaving a maximum of 517,260 shares that can still be repurchase under the OIP.

PART II -- OTHER INFORMATION - Continued

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

We held our annual meeting of shareholders in Atlanta, Georgia on April 28, 2004. Holders of an aggregate of 64,640,492 shares of our common stock at the close of business on February 20, 2004 were entitled to vote at the meeting, of which 55,554,590 were represented in person or by proxy. At the annual meeting, our shareholders were presented with one proposal as set forth in our Proxy Statement.  Our shareholders voted as follows and elected the following five director nominees who will serve a three-year term until our Annual Meeting in 2007.

	For	Withheld
Thomas D. Bell, Jr. (1)	52,461,967	3,092,623
Michael J. Durham	53,695,992	1,858,598
D. Raymond Riddle	53,663,031	1,891,559
Felker W. Ward, Jr.	54,210,955	1,343,635
Henry C. Wolf	54,137,296	1,417,294

(1)

On April 28, 2004, we filed a Form 8-K disclosing that Mr. Bell had resigned from our Board of Directors, and if elected at our annual meeting would decline to serve as a director.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

10.1

Three year Credit Agreement dated May 26, 2004, by and between AGL Resources Inc., as Guarantor, AGL Capital Corporation, as Borrower, and the Lenders named therein.

10.2

Continuity Agreement, dated December 1, 2003, by and between AGL Resources Inc., on behalf of itself and AGL Services Company (its wholly owned subsidiary) and Melanie M. Platt.

10.3

Form of Director Indemnification Agreement, dated April 28, 2004, between AGL Resources Inc., on behalf of itself and the Indemnites named therein.

31      

Rule 13a-14(a) / 15d-14(a) Certifications

32

Section 1350 Certifications

(b)

Reports on Form 8-K.

Date	Event Reported
April 28, 2004	Filed under Item 5 “Other Events”
April 28, 2004	Furnished under Item 9 “Regulation FD Disclosure”
April 28, 2004	Furnished under Item 12 “Results of Operation and Financial Condition”

#

SIGNATURE

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.

	AGL RESOURCES INC.
	(Registrant)
Date:  July 28, 2004	/s/ Richard T. O'Brien
	Executive Vice President and Chief Financial Officer

#

EX-10

Exhibit 10.1

EXECUTION COUNTERPART

CREDIT AGREEMENT

among

AGL RESOURCES INC.,

as Guarantor,

AGL CAPITAL CORPORATION,

as Borrower,

The Several Lenders

from Time to Time Parties Hereto,

SunTrust Bank,

as Administrative Agent,

Wachovia Bank, National Association,

as Syndication Agent

and

The Bank of Tokyo-Mitsubishi, Ltd.,

JPMorgan Chase Bank and

Calyon New York Branch,

as Co-Documentation Agents

Dated as of May 26, 2004

SunTrust Robinson Humphrey Capital Markets,

a Division of SunTrust Capital Markets, Inc.,
as Co-Lead Arranger and Co-Book Manager

and

Wachovia Capital Markets, LLC,

as Co-Lead Arranger and Co-Book Manager

#

Table of Contents

Section

    Page

SECTION 1.		DEFINITIONS	1
	1.1	Defined Terms	1
	1.2	Other Definitional Provisions	16
SECTION 2.		AMOUNT AND TERMS OF COMMITMENTS	16
	2.1	Revolving Commitments	16
	2.2	Procedure for Revolving Loan Borrowing	17
	2.5	Evidence of Debt	20
	2.6	Facility Fees, etc.	20
	2.7	Termination or Reduction of Revolving Commitments.	20
	2.8	Optional Prepayments.	21
	2.9	Prepayments on Revolving Commitment Reductions.	21
	2.10	Conversion and Continuation Options.	21
	2.11	Limitations on Eurodollar Tranches.	22
	2.12	Interest Rates and Payment Dates.	22
	2.13	Computation of Interest and Fees.	23
	2.14	Inability to Determine Interest Rate.	23
	2.15	Pro Rata Treatment and Payments.	24
	2.16	Requirements of Law.	25
	2.17	Taxes	26
	2.18	Indemnity	28
	2.19	Change of Lending Office	28
	2.20	Illegality	28
	2.21	Replacement of Lenders	29
SECTION 3.		LETTERS OF CREDIT	31
	3.1	L/C Commitment	31
	3.2	Procedure for Issuance of Letter of Credit.	31
	3.3	Fees and Other Charges.	32
	3.4	L/C Participations.	32
	3.5	Reimbursement Obligation of the Borrower.	33
	3.6	Obligations Absolute.	34
	3.7	Letter of Credit Payments.	34
	3.8	Applications.	34
SECTION 4.		REPRESENTATIONS AND WARRANTIES	34
	4.1	Financial Condition	34
	4.2	No Change.	35
	4.3	Existence; Compliance with Law.	35
	4.4	Power; Authorization; Enforceable Obligations.	35

	4.5	No Legal Bar.	35
	4.6	Litigation.	36
	4.7	No Default.	36
	4.8	Ownership of Property; Liens.	36
	4.9	Intellectual Property.	36
	4.10	Taxes.	36
	4.11	Federal Regulations.	36
	4.12	ERISA.	37
	4.13	Investment Company Act; Other Regulations.	37
	4.14	Subsidiaries.	37
	4.15	Use of Proceeds.	37
	4.16	Environmental Matters.	38
	4.17	Accuracy of Information, etc.	38
	4.18	Solvency.	39
	4.19	Status of Loans and Guarantee Agreement.	39
	4.20	OFAC	39
	4.21	Patriot Act	39
SECTION 5.		CONDITIONS PRECEDENT	39
	5.1	Conditions to Initial Extension of Credit.	39
	5.2	Conditions to Each Extension of Credit.	40
SECTION 6.		AFFIRMATIVE COVENANTS	41
	6.1	Financial Statements.	41
	6.2	Certificates; Other Information.	42
	6.3	Payment of Obligations.	42
	6.4	Maintenance of Existence; Compliance.	42
	6.5	Maintenance of Property; Insurance.	42
	6.6	Inspection of Property; Books and Records; Discussions.	43
	6.7	Notices.	43
	6.8	Environmental Laws.	43
	6.9	Maintenance of Ownership.	44
SECTION 7.		NEGATIVE COVENANTS	44
	7.1	Financial Condition Covenants	44
	7.2	Liens.	44
	7.3	Fundamental Changes	46
	7.4	Disposition of Property.	46
	7.5	Restricted Payments	46
	7.6	Intentionally Omitted	47
	7.7	Investments	47
	7.8	Negative Pledge Clauses	47
	7.9	Clauses Restricting Subsidiary Distributions	48

	7.10	Lines of Business and Hedge Activities	48
	7.11	Designation of Subsidiaries	48
SECTION 8.		EVENTS OF DEFAULT	48
SECTION 9.		THE AGENTS	51
	9.1	Appointment	51
	9.2	Delegation of Duties	52
	9.3	Exculpatory Provisions	52
	9.4	Reliance by Administrative Agent	52
	9.5	Notice of Default	53
	9.6	Non-Reliance on Agents and Other Lenders	53
	9.7	Indemnification	53
	9.8	Agent in Its Individual Capacity	54
	9.9	Successor Administrative Agent	54
	9.10	Co-Documentation Agents and Syndication Agent.	54
SECTION 10.		MISCELLANEOUS	54
	10.1	Amendments and Waivers.	55
	10.2	Notices	55
	10.3	No Waiver; Cumulative Remedies	56
	10.4	Survival of Representations and Warranties.	56
	10.5	Payment of Expenses and Taxes.	56
	10.6	Successors and Assigns; Participations and Assignments	57
	10.7	Adjustments; Set-off	60
	10.8	Counterparts.	61
	10.9	Severability.	61
	10.10	Integration.	61
	10.11	GOVERNING LAW.	61
	10.12	Submission To Jurisdiction; Waivers.	61
	10.13	Acknowledgements.	62
	10.14	Confidentiality.	62
	10.15	WAIVERS OF JURY TRIAL.	63

Schedules:
Schedule 1.1 -	Revolving Commitments
Schedule 4.6 -	Litigation
Schedule 4.9 -	Intellectual Property
Schedule 4.14 -	Subsidiaries
Schedule 4.16 -	Environmental Matters
Schedule 7.2(h) -	Existing Liens
Schedule 7.8 -	Agreements prohibiting or limiting liens
Exhibits:
Exhibit A -	Form of Guarantee Agreement
Exhibit B -	Form of Compliance Certificate
Exhibit C -	Form of Closing Certificate
Exhibit D -	Form of Assignment and Acceptance
Exhibit E -	Form of Legal Opinion
Exhibit F -	Form of Exemption Certificate

CREDIT AGREEMENT (this “Agreement”), dated as of May 26, 2004, among AGL RESOURCES INC., a Georgia corporation (“Holdings”), AGL CAPITAL CORPORATION, a Nevada corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (the “Lenders”), SUNTRUST BANK, as administrative agent (in such capacity, the “Administrative Agent”), Wachovia Bank, National Association, as syndication agent (in such capacity, the “Syndication Agent”) and JPMorgan Chase Bank, The Bank of Tokyo-Mitsubishi, Ltd. and Calyon New York Branch, as documentation agents (in such capacities, the “Co-Documentation Agents”).

The parties hereto hereby agree as follows:

SECTION 1.  DEFINITIONS

1.1

Defined Terms.  As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1.

“2003 364-Day Credit Agreement”:  the Credit Agreement among the Borrower, Holdings, the several lenders that are parties thereto, Wachovia Bank, National Association, and Bank One, NA, as Co-Documentation Agents, The Bank of Tokyo-Mitsubishi Ltd. and Credit Lyonnais, New York Branch, as Co-Syndication Agents, and SunTrust Bank, as Administrative Agent, dated as of June 16, 2003, as the same may have been amended and is in effect on the Closing Date.

“ABR”:  for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1%.  For purposes hereof, “Prime Rate” shall mean the rate of interest per annum publicly announced from time to time by SunTrust Bank as its prime rate in effect at its principal office in Atlanta (the Prime Rate not being intended to be the lowest rate of interest charged by SunTrust Bank in connection with extensions of credit to debtors).  Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“ABR Loans”:  Loans the rate of interest applicable to which is based upon the ABR.

“Administrative Agent”:  SunTrust Bank, as the administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors.

“Affiliate”:  as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by, or is under common Control with, such Person.  For purposes of this definition, “Control” means the power to direct or to cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agents”:  the collective reference to the Administrative Agent, the Co-Documentation Agents and the Syndication Agent.

“Aggregate Exposure”:  with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Revolving Commitment at such time and (b) thereafter, the amount of such Lender’s Revolving Commitment then in effect or, if the Revolving Commitments have expired or been terminated, the amount of such Lender’s Revolving Extensions of Credit then outstanding.

“Aggregate Exposure Percentage”:  with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.

“Agreement”:  as defined in the preamble hereto.

“Applicable Margin”:  for each Type of Loan, the rate per annum set forth below opposite the Level in effect on such day:

Level	ABR Loans	Eurodollar Loans
Level I	0.000%	0.450%
Level II	0.000%	0.575%
Level III	0.000%	0.700%
Level IV	0.000%	0.900%
Level V	0.000%	1.150%

“Application”:  an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to issue a Letter of Credit.

“Approved Fund” shall mean any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender.

“Assignee”:  as defined in Section 10.6(c).

“Assets”:  with respect to any Person, all or any part of its business, property and assets wherever situated.

“Assignment and Acceptance”:  an Assignment and Acceptance, substantially in the form of Exhibit D.

“Assignor”:  as defined in Section 10.6(c).

“Available Revolving Commitments”:  at any time, an amount equal to (a) the Total Revolving Commitments then in effect, minus (b) the Total Revolving Extensions of Credit then outstanding.

“Benefitted Lender”:  as defined in Section 10.7(a).

“Board”:  the Board of Governors of the Federal Reserve System of the United States (or any successor).

“Borrower”:  as defined in the preamble hereto.

“Borrowing Date”:  any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder.

“Business”:  as defined in Section 4.16(b).

“Business Day”:  a day other than a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia and New York, New York are authorized or required by law to close, provided, that with respect to notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market.

 “Capital Stock”:  any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

“Cash Equivalents”:  (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody’s, or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ra tings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A2 by Moody’s; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank s atisfying the requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

“Closing Date”:  the later of (i) the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied or waived, and (ii) May 26, 2004.

“Code”:  the Internal Revenue Code of 1986, as amended from time to time.

“Co-Documentation Agents”:  as defined in the preamble hereto.

“Commonly Controlled Entity”:  an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code.

“Compliance Certificate”:  a certificate duly executed by a Responsible Officer substantially in the form of Exhibit B.

“Conduit Lender”:  any special purpose corporation organized and administered by any Lender for the purpose of making Loans otherwise required to be made by such Lender and designated by such Lender in a written instrument, subject to the consent of the Administrative Agent and the Borrower (which consent shall not be unreasonably withheld or delayed); provided, that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan or purchase participations in Letters of Credit and Swingline Loans under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan or purchase such participations in Letters of Credit and Swingline Loans, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all conse nts, amendments and waivers required or requested under this Agreement with respect to its Conduit Lender, and provided, further, that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Section 2.16, 2.17, 2.18 or 10.5 than the designating Lender would have been entitled to receive in respect of the extensions of credit made by such Conduit Lender or (b) be deemed to have any Revolving Commitment.

“Confidential Executive Summary”:  the Confidential Information Memorandum dated April, 2004 and furnished to certain prospective Lenders.

“Consolidated Net Worth”:  at any date, the aggregate amount of Capital Stock, minority interests, and other equity accounts (including, without limitation, retained earnings and paid in capital) of Holdings and the other Group Members at such date determined on a consolidated basis in accordance with GAAP.

“Consolidated Total Debt”:  at any date, the aggregate principal amount of all Indebtedness of Holdings and the other Group Members at such date (excluding Indebtedness of the type described in clause (k) of the definition of the term Indebtedness), determined on a consolidated basis in accordance with GAAP.

“Continuing Directors”:  the directors of Holdings on the Closing Date and each other director, if, in each case, such other director’s nomination for election to the board of directors of Holdings is recommended by at least a majority of the then Continuing Directors.

“Contractual Obligation”:  as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Default”:  any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Disposition”:  with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof.  The terms “Dispose” and “Disposed of” shall have correlative meanings.

“Dollars” and “$”:  dollars in lawful currency of the United States.

“Eligible Assignee”: (i) a Lender; (ii) an Affiliate of a Lender; (iii) an Approved Fund; and (iv) any other Person (other than a natural Person) approved by the Administrative Agent, the Issuing Bank, and unless (x) such Person is taking delivery of an assignment in connection with physical settlement of a credit derivatives transaction or (y) an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed).  If the consent of the Borrower to an assignment or to an Eligible Assignee is required hereunder, the Borrower shall be deemed to have given its consent five Business Days after the date notice thereof has actually been delivered by the assigning Lender (through the Administrative Agent) to the Borrower, unless such consent is expressly refused by the Borrower prior to such fifth Business Day.

 “Environmental Laws”:  any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect.

“Equity Issuance”:  an issuance or sale by Holdings, the Borrower, or any of their Subsidiaries on or after March 31, 2004 of its Capital Stock, or any warrants, options or similar rights to acquire such Capital Stock, other than issuances and sales to employees, officers and directors in the ordinary course of business pursuant to compensation plans disclosed in public filings made by Holdings with the Securities and Exchange Commission.

“ERISA”:  the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Eurocurrency Reserve Requirements”:  for any day as applied to a Eurodollar Loan, the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.

“Eurodollar Base Rate”:  with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period.  In the event that such rate does not appear on Page 3750 of the Telerate screen (or otherwise on such screen), the “Eurodollar Base Rate” shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offe red Dollar deposits at or about 11:00 A.M., Atlanta time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein.

“Eurodollar Loans”:  Loans the rate of interest applicable to which is based upon the Eurodollar Rate.

“Eurodollar Rate”:  with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):

_______Eurodollar Base Rate_______
1.00 - Eurocurrency Reserve Requirements

“Eurodollar Tranche”:  the collective reference to Eurodollar Loans under the Facility, the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day).

“Event of Default”:  any of the events specified in Section 8, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Facility”:  the Revolving Commitments and the extensions of credit made thereunder.

“Facility Fee Rate”:  for each day during each quarterly calculation period, a rate per annum set forth below opposite the Level in effect on such day:

Level	Facility Fee Rate
Level I	0.100%
Level II	0.125%
Level III	0.150%
Level IV	0.175%
Level V	0.225%

“Federal Funds Effective Rate”:  for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by SunTrust Bank from three federal funds brokers of recognized standing selected by it.

“Funding Office”:  the office of the Administrative Agent specified in Section 10.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office by written notice to the Borrower and the Lenders.

“GAAP”:  generally accepted accounting principles in the United States as in effect from time to time.

“Governmental Authority”:  any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners).

“Group Members”:  the collective reference to Holdings, the Borrower and their respective Restricted Subsidiaries.  

“Guarantee Agreement”:  the Guarantee Agreement to be executed and delivered by Holdings, substantially in the form of Exhibit A.

“Guarantee Obligation”:  as to any Person (the “guaranteeing person”), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the “primary obligations”) of any other third Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business.  The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

“Guarantor”:  Holdings.

“Hedge Agreements”:  all interest rate swaps, caps or collar agreements or similar arrangements dealing with interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies, and all commodity price protection agreements, or any other hedging arrangements.

“Holdings”:  as defined in the preamble hereto.

“Indebtedness”:  of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables aged less than 90 days incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all capital lease (within the meaning of GAAP) obligations of such Person, (f) all Securitization Facility Attribu ted Debt, (g) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements, (h) the liquidation value of all mandatorily redeemable preferred Capital Stock of such Person, (i) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (h) above, (j) all obligations of the kind referred to in clauses (a) through (i) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, (k) all obligations of such Person in respect of Hedge Agreements and (l) all Off-Balance Sheet Liabilities.  The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor.  Notwithstanding the foregoing, obligations of any Person with respect to Park and Loan Transactions shall not be considered Indebtedness.

“Insolvency”:  with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.

“Intellectual Property”:  the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Interest Payment Date”:  (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan (other than any Revolving Loan that is an ABR Loan), the date of any repayment or prepayment made in respect thereof.

“Interest Period”:  as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter or such other period as the Borrower and the Lenders may agree, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relatin g to Interest Periods are subject to the following:

(i)

if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;

(ii)

the Borrower may not select an Interest Period under the Facility that would extend beyond the Revolving Termination Date; and

(iii)

any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month.

“Investments”:  as defined in Section 7.7.

“Issuing Lender”:  SunTrust Bank, in its capacity as issuer of any Letter of Credit.

“L/C Commitment”: at any time, an amount equal to $100,000,000.

“L/C Fee Payment Date”:  the last day of each March, June, September and December and the last day of the Revolving Commitment Period.

“L/C Obligations”:  at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 3.5.

“L/C Participants”:  the collective reference to all the Lenders other than the Issuing Lender.

“Lender Affiliate”:  (a) any Affiliate of any Lender, (b) any Person that is administered or managed by any Lender and that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and (c) with respect to any Lender which is a fund that invests in commercial loans and similar extensions of credit, any other fund that invests in commercial loans and similar extensions of credit and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such Lender or investment advisor.

“Lenders”:  as defined in the preamble hereto; provided, that unless the context otherwise requires, each reference herein to the Lenders shall be deemed to include the Swingline Lender and any Conduit Lender.

“Letters of Credit”:  as defined in Section 3.1(a).

“Level I”, “Level II”, “Level III”, “Level IV” and “Level V”:  the respective Level set forth below:

	S&P Rating	Moody’s Rating
Level I	A- or higher	A3 or higher
Level II	BBB+	Baa1
Level III	BBB	Baa2
Level IV	BBB-	Baa3
Level V	BB+ or below	Ba1 or below

provided that if on any day the Ratings of the Rating Agencies do not coincide for any rating category and the Level differential is (x) one level, then the higher Rating will be the applicable Level; (y) two levels, the Level at the midpoint will be the applicable Level; and (z) more than two levels, the higher of the intermediate Level will be the applicable Level.

“Lien”:  any mortgage, pledge, lien, hypothecation, security interest or other charge, encumbrance, or other arrangement in the nature of a security interest in property to secure the payment or performance of Indebtedness or other obligations of any Person; provided, however, the term “Lien” shall not mean any easements, rights-of-way, zoning restrictions, leases, sub-leases, licenses, sublicenses, other restrictions on the use of property, defects in title to property or other similar encumbrances.

 “Loan”:  any loan made by any Lender (including, without limitation, the Swingline Lender) pursuant to this Agreement.

“Loan Documents”:  this Agreement, the Guarantee Agreement, the Letters of Credit, the Applications, the Specified Hedge Agreements, if any, and the Notes.

“Loan Parties”:  the Borrower and the Guarantor.

“Material Adverse Effect”:  a material adverse effect on (a) the business, property, operations or condition (financial or otherwise) of Holdings and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder.

“Materials of Environmental Concern”:  any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.

“Moody’s”:  Moody’s Investor Service, Inc.

“Multiemployer Plan”:  a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Proceeds”:  with respect to any Equity Issuance, the proceeds received in consideration thereof, net of underwriting commissions, placement fees and other reasonable and customary costs and expenses directly incurred in connection therewith.  

“Non-Excluded Taxes”:  as defined in Section 2.17(a).

“Non-U.S. Lender”:  as defined in Section 2.17(d).

“Notes”:  the collective reference to any promissory note evidencing Loans.

“Obligations”:  the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender (or, in the case of Specified Hedge Agreements, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred pursuant to this Agreement, any other Loan Document, the Letters of Credit, any Specified Hedge Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise.

“Off-Balance Sheet Liabilities”:  as to any Person (i) any repurchase obligation or liability of such Person with respect to notes or accounts receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions that do not create a liability on the balance sheet of such Person, (iii) any liability of such Person under any so-called "synthetic" lease transaction and (iv) any obligation under any other transaction which is the functional equivalent of, or takes the place of, a borrowing but which does not constitute a liability on the balance sheet of such Person.

“Other Taxes”:  any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Park and Loan Transactions”:  any tariff transaction offered by pipelines, where the pipeline allows the customer to park gas on or borrow gas from the pipeline in one period and reclaim gas from or repay gas to the pipeline in a subsequent period.

 “Participant”:  as defined in Section 10.6(b).

“PBGC”:  the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).

“Person”:  an individual, company, corporation, firm, partnership, joint venture, undertaking, association, organization, trust, state or agency of a state (in each case whether or not having a separate legal personality).

“Plan”:  at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Properties”:  as defined in Section 4.16(a).

“Rating Agencies”: collectively, S&P and Moody’s.

“Ratings”:  the ratings of the Rating Agencies applicable to the long-term, non-credit enhanced senior unsecured debt of the Borrower or, if no such ratings then exist for such debt of the Borrower, the long-term non-credit enhanced senior unsecured debt of Holdings, in each case as announced by the Rating Agencies.

“Recovery Event”:  any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of any Group Member.

“Refunded Swingline Loans”:  as defined in Section 2.4(b).

“Refunding Date”:  as defined in Section 2.4(c).

“Register”:  as defined in Section 10.6(d).

“Regulation U”:  Regulation U of the Board as in effect from time to time.

“Reimbursement Obligation”:  the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit.

“Reorganization”:  with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.

“Reportable Event”:  any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under Sections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.

“Required Lenders”:  at any time, the holders of more than 50% of (a) until the Closing Date, the Revolving Commitments then in effect and (b) thereafter, the Total Revolving Commitments then in effect or, if the Revolving Commitments have expired or been terminated, the Total Revolving Extensions of Credit then outstanding.

“Requirement of Law”:  as to any Person, the articles or certificate of incorporation or organization, by-laws, partnership agreement, limited liability company agreement, operating agreement, management agreement, or other organizational or governing documents of such Person, and any constitution, decree, judgment, legislation, order, ordinance, regulation, rule, statute or treaty, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Responsible Officer”:  the chief executive officer, president, chief financial officer, treasurer or controller of Holdings or the Borrower, as the case may be, but in any event, with respect to financial matters, the chief financial officer of Holdings.

“Restricted Payments”:  as defined in Section 7.5.

“Restricted Subsidiary”:  any Subsidiary other than an Unrestricted Subsidiary.

“Revolving Commitment”:  as to any Lender, the obligation of such Lender, if any, to make Revolving Loans and to purchase participations in Swingline Loans and Letters of Credit in an aggregate principal and/or face amount not to exceed the amount set forth under the heading “Revolving Commitment” opposite such Lender’s name on Schedule 1.1 or in the Assignment and Acceptance pursuant to which such Lender became a party hereto, as the same may be increased pursuant to Section 2.22 or otherwise changed from time to time pursuant to the terms hereof.  The original aggregate principal amount of the Revolving Commitments is $500,000,000.

“Revolving Commitment Period”:  the period from and including the Closing Date to the Revolving Termination Date.

“Revolving Extensions of Credit”:  as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Loans held by such Lender then outstanding, (b) such Lender’s Revolving Percentage of the L/C Obligations then outstanding and (c) such Lender’s Revolving Percentage of the aggregate principal amount of Swingline Loans then outstanding.

“Revolving Loans”: as defined in Section 2.1(a).

 “Revolving Percentage”:  as to any Lender at any time, the percentage which such Lender’s Revolving Commitment then constitutes of the Total Revolving Commitments or, at any time after the Revolving Commitments shall have expired or been terminated, the percentage which the aggregate principal amount of such Lender’s Revolving Loans then outstanding constitutes of the aggregate principal amount of the Revolving Loans then outstanding, provided, that, in the event that the Revolving Loans are paid in full prior to the reduction to zero of the Total Revolving Extensions of Credit, the Revolving Percentages shall be determined in a manner designed to ensure that the other outstanding Revolving Extensions of Credit shall be held by the Lenders on a comparable basis.

 “Revolving Termination Date”:  May 26, 2007.

“SEC”:  the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority.

“Securitization Facility Attributed Debt”:  at any time, the aggregate net outstanding amount theretofore paid to any of the Group Members (without duplication) in respect of securitization assets (whether accounts receivable, general intangibles, instruments, documents, chattel paper or other similar assets) sold or transferred in connection with any securitization financing program established by any of the Group Members in respect of such securitization assets (it being the intent of the parties that such Securitization Facility Attributed Debt at any time outstanding approximate as closely as possible the principal amount of Indebtedness that would be outstanding at such time under such financing program if the same were structured as a secured lending arrangement rather than a sale or securitization arrangement).

“Single Employer Plan”:  any Plan that is covered by Title IV of ERISA, but that is not a Multiemployer Plan.

“S&P”:  Standard & Poor’s Rating Service, a division of the McGraw Hill Companies, Inc.

“Solvent”:  when used with respect to any Person, means that, as of any date of determination, (a) the sum of the assets of such Person will, as of such date, exceed the sum of the liabilities of such Person as of such date, (b) such Person will be able to pay its debts as they mature and (c) such Person has sufficient capital to conduct its business.  For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

“Specified Hedge Agreement”:  any Hedge Agreement (a) entered into by the Borrower and any Lender or Lender Affiliate and (b) that has been designated by the relevant Lender and the Borrower, by written notice to the Administrative Agent, as a Specified Hedge Agreement.  

“Subsidiary”:  as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of either or both of the Borrower and Holdings.

“Swingline Commitment”:  the obligation of the Swingline Lender to make Swingline Loans pursuant to Section 2.3 in an aggregate principal amount at any one time outstanding not to exceed $25,000,000.

“Swingline Lender”:  SunTrust Bank, in its capacity as the lender of Swingline Loans.

“Swingline Loans”:  as defined in Section 2.3.

“Swingline Participation Amount”:  as defined in Section 2.4(c).

“Syndication Agent”:  as defined in the preamble hereto.

“3-Year Credit Agreement”: shall mean that certain 3-Year Credit Agreement dated as of August 8, 2002, by and among Holdings, the Borrower, the lenders from time to time party thereto and SunTrust Bank, as administrative agent, as the same may have been amended and is in effect on the Closing Date.

 “Total Capitalization”:  at any date, the sum of Consolidated Net Worth and Consolidated Total Debt of the Group Members at such date, determined on a consolidated basis in accordance with GAAP.

“Total Revolving Commitments”:  at any time, the aggregate amount of the Revolving Commitments then in effect.  The original amount of the Total Revolving Commitments is $500,000,000.

“Total Revolving Extensions of Credit”:  at any time, the aggregate amount of the Revolving Extensions of Credit of the Lenders outstanding at such time.

“Transferee”:  any Assignee or Participant.

“Type”:  as to any Loan, its nature as an ABR Loan, a Eurodollar Loan or a Swingline Loan bearing interest at an agreed rate and interest period as provided in the last sentence of Section 2.3(a).  

 “United States”:  the United States of America.

“Unrestricted Subsidiary”: any Subsidiary which (i) is designated as an Unrestricted Subsidiary in accordance with Section 7.11, and (ii) has not incurred any Indebtedness that is guaranteed or otherwise supported by the credit of Holdings, the Borrower or any other of their respective Restricted Subsidiaries (but excluding any such guarantee or other credit support arrangement pursuant to which the liability of such guarantor or credit support provider is limited to loan amounts advanced by another Person against inventory claimed (by rights or claims of offset, ownership or similar claim) by such guarantor or credit support provider, and such guarantor or credit support provider is entitled to receive a pro rata interest in such inventory corresponding to the amounts paid in respect of such inventory).

“Wholly Owned Subsidiary”:  as to any Person, any other Person all of the Capital Stock of which (other than directors’ qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

1.2

Other Definitional Provisions.

(a)

Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto.

(b)

As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP; provided, however, that for purposes of determining compliance with the covenants contained in Section 7, all accounting terms herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP as in effect on the date of this Agreement and applied on a basis consistent with the application used in the financial statements referred to in Section 4.1, (ii) the words “include”, “includes” and “including” shall be deemed to be followed by the p hrase “without limitation”, (iii) the word “incur” shall be construed to mean incur, create, issue, assume, become liable in respect of or suffer to exist (and the words “incurred” and “incurrence” shall have correlative meanings), (iv) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights, and (v) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time.

(c)

The words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

(d)

The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

SECTION 2.  AMOUNT AND TERMS OF COMMITMENTS

2.1

Revolving Commitments.

(a)

Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (“Revolving Loans”) to the Borrower from time to time during the Revolving Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender’s Revolving Percentage of the sum of (i) the L/C Obligations then outstanding and (ii) the aggregate principal amount of the Swingline Loans then outstanding, does not exceed the amount of such Lender’s Revolving Commitment.  During the Revolving Commitment Period, the Borrower may use the Revolving Commitments by borrowing, prepaying the Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof.  The Revolving Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borr ower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.10.

(b)

Notwithstanding the foregoing, no Lender shall be obligated to make a Revolving Loan hereunder if the aggregate principal amount at any one time outstanding of such Lender’s Revolving Percentage of the Total Revolving Extensions of Credit exceeds such Lender’s Revolving Commitment.

(c)

The Borrower shall repay all outstanding Revolving Loans on the Revolving Termination Date.

2.2

Procedure for Revolving Loan Borrowing.  The Borrower may borrow under the Revolving Commitments during the Revolving Commitment Period on any Business Day, provided that the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 11:00 a.m., Atlanta time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of ABR Loans), specifying (i) the amount and Type of Revolving Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the respective lengths of the initial Interest Period therefor.  Each borrowing under the Revolving Commitments shall be in an amount equal to (x) in the case of ABR Loans, $1,000,000 or a whole mul tiple of $100,000 in excess thereof, and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided, however, that the Swingline Lender may request, on behalf of the Borrower, borrowings under the Revolving Commitments that are ABR Loans in other amounts pursuant to Section 2.4.  Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Lender thereof.  Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower (or, with respect to Section 3.5, the Issuing Lender) at the Funding Office prior to 12:00 Noon, Atlanta time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent.  Such borrowing will then be made available to the Borrower (or, with respect to Section 3.5, the Issuing Lender) by the Administrative Agent crediting the account of the Borrower (or, with respect to Section 3.5, the Issuing Lender) on the books of such Funding Office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent or, at the Borrower's (or, with respect to Section 3.5, the Issuing Lender’s) option, by effecting a wire transfer of such amounts to an account designated by the Borrower (or, with respect to Section 3.5, the Issuing Lender) to the Administrative Agent.

2.3

Swingline Commitment.

(a)

Subject to the terms and conditions hereof, the Swingline Lender agrees to make a portion of the credit otherwise available to the Borrower under the Revolving Commitments from time to time during the Revolving Commitment Period by making swing line loans (“Swingline Loans”) to the Borrower; provided that (i) the aggregate principal amount of Swingline Loans outstanding at any time shall not exceed the Swingline Commitment then in effect (notwithstanding that the Swingline Loans outstanding at any time, when aggregated with the Swingline Lender’s other outstanding Revolving Loans, may exceed the Swingline Commitment then in effect) and (ii) the Borrower shall not request, and the Swingline Lender shall not make, any Swingline Loan if, after giving effect to the making of such Swingline Loan, the aggregate amount of the Available Revolving Commitme nts would be less than zero.  During the Revolving Commitment Period, the Borrower may use the Swingline Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof.  Each Swingline Loan shall be an ABR Loan or shall accrue interest at any other interest rate as agreed between the Borrower and the Swingline Lender and shall have an interest period as agreed between the Borrower and the Swingline Lender.

(b)

The Borrower shall repay (i) each outstanding Swingline Loan bearing interest at an agreed rate and for an agreed interest period as provided in Section 2.3(a) at the end of such interest period, and (ii) all outstanding Swingline Loans on the Revolving Termination Date.

2.4

Procedure for Swingline Borrowing; Refunding of Swingline Loans.

(a)

Whenever the Borrower desires that the Swingline Lender make Swingline Loans, it shall give the Administrative Agent and the Swingline Lender irrevocable telephonic notice confirmed promptly in writing (which telephonic notice must be received by the Swingline Lender not later than 1:00 P.M., Atlanta time, on the proposed Borrowing Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date (which shall be a Business Day during the Revolving Commitment Period).  Each borrowing under the Swingline Commitment shall be in an amount equal to $1,000,000 or a whole multiple of $100,000 in excess thereof.  Not later than 3:00 P.M., Atlanta time, on the Borrowing Date specified in a notice in respect of Swingline Loans, the Swingline Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately availa ble funds equal to the amount of the Swingline Loan to be made by the Swingline Lender.  The Administrative Agent shall make the proceeds of such Swingline Loan available to the Borrower on such Borrowing Date by depositing such proceeds in the account of the Borrower with the Administrative Agent on such Borrowing Date in immediately available funds or, at the Borrower's option, by effecting a wire transfer of such amounts to an account designated by the Borrower to the Administrative Agent.

(b)

The Swingline Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrower (which hereby irrevocably directs the Swingline Lender to act on its behalf), on one Business Day’s notice given by the Swingline Lender to the Administrative Agent no later than 12:00 Noon, Atlanta time, request each Lender to make, and each Lender hereby agrees to make, a Revolving Loan, in an amount equal to such Lender’s Revolving Percentage of the aggregate amount of the Swingline Loans (the “Refunded Swingline Loans”) outstanding on the date of such notice, together with all interest accrued and unpaid thereon, to repay the Swingline Lender.  Revolving Loans made pursuant to this Section 2.4(b) initially shall bear interest at the ABR only.  Each Lender shall make the amount of such Revolving Loan availabl e to the Administrative Agent at the Funding Office in immediately available funds, not later than 10:00 A.M., Atlanta time, one Business Day after the date of such notice.  The proceeds of such Revolving Loans shall be immediately made available by the Administrative Agent to the Swingline Lender for application by the Swingline Lender to the repayment of the Refunded Swingline Loans and all interest accrued and unpaid thereon.  The Borrower irrevocably authorizes the Swingline Lender to charge the Borrower’s accounts with the Administrative Agent (up to the amount available in each such account) in order to immediately pay the amount of such Refunded Swingline Loans and all interest accrued and unpaid thereon to the extent amounts received from the Lenders are not sufficient to repay in full such Refunded Swingline Loans and all interest accrued and unpaid thereon.  The Administrative Agent shall give the Borrower prompt notice of any such charge against the Borrower’s account.

(c)

If prior to the time a Revolving Loan would have otherwise been made pursuant to Section 2.4(b), one of the events described in Section 8(f) shall have occurred and be continuing with respect to the Borrower or if for any other reason, as determined by the Swingline Lender in its sole discretion, Revolving Loans may not be made as contemplated by Section 2.4(b), each Lender shall, on the date such Revolving Loan was to have been made pursuant to the notice referred to in Section 2.4(b) (the “Refunding Date”), purchase for cash an undivided participating interest in the then outstanding Swingline Loans by paying to the Swingline Lender an amount (the “Swingline Participation Amount”) equal to (i) such Lender’s Revolving Percentage times (ii) the sum of the aggregate principal amount of Swingline Loans then outstanding, toget her with all interest accrued and unpaid thereon, that were to have been repaid with such Revolving Loans.

(d)

Whenever, at any time after the Swingline Lender has received from any Lender such Lender’s Swingline Participation Amount, the Swingline Lender receives any payment on account of the Swingline Loans, the Swingline Lender will distribute to such Lender its Swingline Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender’s pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swingline Loans then due); provided, however, that in the event that such payment received by the Swingline Lender is required to be returned, such Lender will return to the Swingline Lender any portion thereof previously distributed to it by the Swingline Lender.

(e)

Each Lender’s obligation to make the Loans referred to in Section 2.4(b) and to purchase participating interests pursuant to Section 2.4(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that such Lender or the Borrower may have against the Swingline Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5; (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any other Loan Party; (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

2.5

Evidence of Debt.

(a)

Each Lender shall maintain in accordance with its usual practice appropriate records evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time in respect of such Loans.  The Administrative Agent shall maintain the Register pursuant to Section 10.6(d), and a record therein for each Lender, in which shall be recorded (i) the amount of each Loan made by such Lender, the interest rate applicable thereto and each Interest Payment Date applicable thereto, and (ii) the amount of any sum received by the Administrative Agent hereunder from the Borrower on account of such Loan.  The entries made in the Register and the records of each Lender maintained pursuant to this Section 2.5 shall, to the extent permitted by app licable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such record, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made by such Lender in accordance with the terms of this Agreement.

(b)

At the request of any Lender (including the Swingline Lender) at any time, the Borrower agrees that it will execute and deliver to such Lender a Note evidencing the Revolving Loans of such Lender and, in the case of the Swingline Lender only, a Note evidencing the Swingline Loans of the Swingline Lender, payable to the order of such Lender.

2.6

Facility Fees, etc.  

(a)

The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee for the period from and including the date hereof to the Revolving Termination Date, computed at the Facility Fee Rate on the average daily amount of the Revolving Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Termination Date, commencing on the first of such dates to occur after the date hereof.

(b)

The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates previously agreed to in writing by the Borrower and the Administrative Agent.

2.7

Termination or Reduction of Revolving Commitments.  The Borrower shall have the right, upon not less than three Business Days’ notice to the Administrative Agent, to terminate the Revolving Commitments or, from time to time, to reduce the amount of the Revolving Commitments; provided that no such termination or reduction of Revolving Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof pursuant to Section 2.9, the Total Revolving Extensions of Credit would exceed the Total Revolving Commitments.  Any such reduction shall be in an amount equal to $10,000,000, or an integral multiple of $1,000,000 in excess thereof, and shall reduce permanently the Revolving Commitments then in effect.

2.8

Optional Prepayments.  The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of ABR Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.18.  Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.  If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid.  Partial prepayments of the Loans shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof.  Partial prepayments of Swingline Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof.  

2.9

Prepayments on Revolving Commitment Reductions.  Any reduction of the Revolving Commitments shall be accompanied by prepayment of the Revolving Loans and/or Swingline Loans to the extent, if any, that the Total Revolving Extensions of Credit would exceed the amount of the Total Revolving Commitments as so reduced, provided that if the aggregate principal amount of Revolving Loans and Swingline Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Lenders on terms and conditions satisfactory to the Administrative Agent.  The application of any prepayment pursuant t o this Section 2.9 shall be made, first, to ABR Loans and, second, to Eurodollar Loans.  Each prepayment of the Loans under this Section 2.9 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid.

2.10

Conversion and Continuation Options.  

(a)

The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at least two Business Days’ prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto.  The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days’ prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no ABR Loan may be converted into a Eurodollar Loan when both (i) a Default or an Event of Default has occurred and is continuing, and (ii) the Administrative Agent or the Required Lenders have determined in its or their sole discretion not to perm it such conversions.  Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.

(b)

Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term “Interest Period” set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such when any Default or Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined in its or their sole discretion not to permit such continuations, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be au tomatically converted to ABR Loans on the last day of such then expiring Interest Period.  Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.

2.11

Limitations on Eurodollar Tranches.  Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (b) no more than six Eurodollar Tranches shall be outstanding at any one time.

2.12

Interest Rates and Payment Dates.

(a)

Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin.

(b)

Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin.

(c)

Each Swingline Loan (other than an ABR Loan) shall bear interest at the rate agreed between the Borrower and the Swingline Lender as provided in Section 2.3(a).

(d)

(i) If all or a portion of the principal amount of any Revolving Loan, Swingline Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to ABR Loans plus 2%, and (ii) if all or a portion of any interest payable on any Revolving Loan, Swingline Loan, or Reimbursement Obligation or any facility fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to ABR Loans plus 2%, in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment).

(e)

 Interest in respect of all Revolving Loans and all Swingline Loans outstanding as ABR Loans shall be payable in arrears on each Interest Payment Date.  Interest in respect of all Swingline Loans (other than ABR Loans) shall be payable in arrears on the last day of the respective interest period applicable to such Swingline Loan as agreed between the Borrower and the Swingline Lender pursuant to Section 2.3(a).  Notwithstanding the foregoing, interest accruing pursuant to paragraph (d) of this Section shall be payable from time to time on demand.

2.13

Computation of Interest and Fees.

(a)

Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed.  The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate.  Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective.  The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.

(b)

Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error.  The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.12(a).

2.14

Inability to Determine Interest Rate.  If prior to the first day of any Interest Period:

(a)

the Administrative Agent shall have determined in its good faith judgment (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or

(b)

the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not  reflect the actual cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter.  If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the then-current Interest Pe riod, to ABR Loans.  Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans.  The Administrative Agent shall promptly withdraw such notice when Eurodollar Loans are again available.

2.15

Pro Rata Treatment and Payments.  

(a)

Each borrowing by the Borrower from the Lenders hereunder (other than the borrowing of Swingline Loans), each payment by the Borrower on account of any facility fee and any reduction of the Revolving Commitments of the Lenders shall be made pro rata according to the respective Revolving Commitments of the relevant Lenders.

(b)

Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders.

(c)

All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, Atlanta time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Funding Office, in Dollars and in immediately available funds.  The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received.  If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day.  If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeed ing Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.  In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension.

(d)

Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount.  If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent.  A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error.  If such Lender’s share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days after such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans, on demand, from the Borrower.

(e)

Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount.  If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily aver age Federal Funds Effective Rate.  Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower.

2.16

Requirements of Law.  

(a)

If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

(i)

shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.17 and changes in the rate of tax on the overall net income of such Lender);

(ii)

shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate; or

(iii)

shall impose on such Lender any other condition;

and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable.  If any Lender becomes entitled to claim any amounts pursuant to this paragraph, it shall promptly notify the Borrower in writing (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled; provided that the Borrower shall not be required to compensate a Lender pursuant to this paragraph for any amounts incurred more than three m onths prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; and provided further that, if the circumstances giving rise to such claim have a retroactive effect, then such period for which the Borrower shall be required to compensate the Lenders shall be extended to include the period of such retroactive effect.

(b)

If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by such L ender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction; provided that the Borrower shall not be required to compensate a Lender pursuant to this paragraph for any amounts incurred more than three months prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; and provided further that, if the circumstances giving rise to such claim have a retroactive effect, then such period for which the Borrower shall be required to compensate the Lenders shall be extended to include the period of such retroactive effect

(c)

A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error.  The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

2.17

Taxes.

(a)

All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document).  If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings (“Non-Excluded Taxes”) or Other Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender’s failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes im posed on amounts payable to such Lender at the time such Lender becomes a party to this Agreement, except to the extent that such Lender’s assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph.

(b)

In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)

Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of the relevant Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof.  If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure.

(d)

Each Lender (or Transferee) that is not a “U.S. Person” as defined in Section 7701(a)(30) of the Code (a “Non-U.S. Lender”) shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a statement substantially in the form of Exhibit F and a Form W-8BEN, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payme nts by the Borrower under this Agreement and the other Loan Documents.  Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation).  In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender.  Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose).  Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver.

(e)

A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s judgment such completion, execution or submission would not materially prejudice the legal position of such Lender.

(f)

The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder and for a period of one year after the indefeasible payment in full of all Obligations and the termination of this Agreement and the other Loan Documents.

2.18

Indemnity.  The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto.  Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market.  A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error.  This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereun der.

2.19

Change of Lending Office.  Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.16, 2.17(a) or 2.20 with respect to such Lender, to the extent permitted by law, it will designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, are not disadvantageous to such Lender, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Section 2.16, 2.17(a), or 2.20.

2.20

Illegality.  If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof shall make it unlawful, impossible or impracticable for any Lender to make, maintain or fund any Eurodollar Loan and such Lender shall so notify the Administrative Agent and the Borrower thereof (with supporting documentation) of such event, then such Lender's Revolving Commitment shall be suspended and, 30 days following such notification, shall be canceled if such unlawfulness, impossibility or impracticability shall then be continuing.  The Borrower shall prepay such Lender's Loans or convert such Eurodollar Loans to ABR Loans at the time o r times and to the extent necessary to avoid such unlawfulness, together with unpaid accrued interest thereon, unpaid accrued fees and any other amounts due and payable to such Lender, unless, in either case, prior thereto, the Borrower shall have given notice to such Lender that the Borrower will require such Lender to assign and transfer all of its interests in this Agreement pursuant to Section 2.19 and shall have caused such Lender to have so assigned and transferred such interests.  

2.21

Replacement of Lenders.  The Borrower shall be permitted to replace any Lender that requests reimbursement for amounts owing pursuant to Section 2.16 or 2.17(a) or that requires relief pursuant to Section 2.20 with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 2.19 so as to eliminate the continued need for payment of amounts owing pursuant to Section 2.16 or 2.17(a), (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender under Section 2.18 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 10.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.16 or 2.17(a), as the case may be, and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender.  If any circumstances arise which result, or such Lender becomes aware of any circumstances which are expected to result, in the Borrower ha ving to make such compensation or indemnification or in it becoming illegal for such Lender to make, fund or maintain such Lender's Eurodollar Loans, such Lender shall use its commercially reasonable efforts to notify the Borrower thereof and, in consultation with the Borrower, such Lender shall take all steps, if any, it determines are reasonable and the Borrower determines are acceptable to mitigate the effect of those circumstances; provided that no delay or failure by any Lender to provide any such notice shall affect the obligations of the Borrower hereunder.

2.22

Increase in Revolving Commitments.

(a)

On not more than one occasion during any calendar year, the Borrower may submit to the Administrative Agent the Borrower’s written request that the Revolving Commitments be increased up to a total amount not to exceed $700,000,000 (such requested amount being the “Maximum Revolving Commitments”), and the Administrative Agent shall promptly give notice of such request to each Lender (the “Revolving Commitment Increase Notice”).  Within fifteen (15) Business Days after its receipt from the Administrative Agent of a Revolving Commitment Increase Notice, each Lender that desires to increase its Revolving Commitment in response to such request (each such Lender, a “Consenting Lender”) shall deliver written notice to the Administrative Agent of its election to increase its Revolving Commitment and the maximum amoun t of such increase (for each Consenting Lender, its “Additional Revolving Commitment”), which may not be larger than the excess of (a) the Maximum Revolving Commitments, over (b) the Revolving Commitments then in effect.  The failure of any Lender to so notify the Administrative Agent of its election and its Additional Revolving Commitment, if any, shall be deemed to be a refusal by such Lender to increase its Revolving Commitment.  If the sum of the Revolving Commitments then in effect plus the aggregate Additional Revolving Commitments does not exceed the Maximum Revolving Commitments, the Revolving Commitment of each Consenting Lender shall be increased by its Additional Revolving Commitment as hereinafter provided.  If the sum of the Revolving Commitments then in effect plus the aggregate Additional Revolving Commitments exceeds the Maximum Revolving Commitments, the Revolving Commitment of each Consenting Lender shall be increased by an amount equal t o the product of (i) such Consenting Lender’s Additional Revolving Commitment multiplied by (ii) the quotient of (a) the excess of (A) the Maximum Revolving Commitments, over (B) the Revolving Commitments then in effect, divided by (b) the aggregate Additional Revolving Commitments of all Consenting Lenders.  Any increase in the Revolving Commitments shall be effective as of the date specified pursuant to Section 2.22(c); provided, that the Revolving Commitments may not at any time exceed the Maximum Revolving Commitments.

(b)

If the sum of the Revolving Commitments then in effect plus the aggregate Additional Revolving Commitments pursuant to Section 2.22(a) is less than the Maximum Revolving Commitments, then the Borrower may obtain the remainder of the Maximum Revolving Commitment from one or more new banks or other financial institutions acceptable to the Borrower and the Administrative Agent (which acceptance shall not be unreasonably withheld) (each a “New Lender”).  Upon (i) the execution of a joinder agreement with respect to this Agreement by such New Lender and acceptance thereof by the Administrative Agent, (ii) the execution and delivery by the Borrower of any Notes requested by the New Lender evidencing its Loans, and (iii) delivery of notice to the Lenders by the Administrative Agent setting forth the effective date of the addition of the New Lender (s) hereunder and the amount of such New Lender(s)’ Revolving Commitment(s), such New Lender(s) shall be for all purposes Lender(s) party to this Agreement to the same extent as if original parties hereto with Revolving Commitment(s) as set forth on the joinder agreement executed by the New Lender(s); provided, however, (i) the total Revolving Commitments of all Lenders (including any New Lenders) shall not exceed in the aggregate the Maximum Revolving Commitments, and (ii) the Revolving Commitments of all Lenders that are parties hereto prior to the addition of any New Lender shall not be affected by the addition of such New Lender.

(c)

Prior to any increase in the Revolving Commitments becoming effective pursuant to this Section 2.22, Borrower and Guarantor shall deliver evidence of appropriate corporate authorization on the part of the Borrower and the Guarantor with respect to the increase in the Revolving Commitments and such opinions of counsel for the Borrower and the Guarantor with respect thereto as the Administrative Agent may reasonably request. Effective on the date on which the increase in Revolving Commitments pursuant to this Section 2.22 takes effect, which date shall be mutually agreed upon by the Borrower, the Administrative Agent, and each Lender or New Lender increasing or providing, as the case may be, its Revolving Commitments, (i) all Loans outstanding hereunder shall be converted into, and shall be advanced as, Eurodollar Loans or ABR Loans (or both) as selected by the Borrower by notice to the Administrative Agent in accordance with the provisions of Section 2.2, such that all such Loans are held by the Lenders (including any New Lenders) in the proportion of their Revolving Percentages, as determined taking into account the increase in the Revolving Commitments, and (ii) each New Lender and each other Lender increasing its Revolving Commitment shall advance any additional amounts to be advanced by it hereunder, by making funds available to the Administrative Agent, in immediately available funds, not later than 1:00 p.m. Atlanta, Georgia time on such date.  After the Administrative Agent’s receipt of such funds, the Administrative Agent shall disburse to the non-Consenting Lenders any resulting repayments of such outstanding Loans.  If any conversion or payment of a Eurodollar Loan pursuant to the foregoing provisions occurs on a day that is not the last day of the applicable Interest Period, the provisions of Section 2.16 shall apply thereto.

SECTION 3.  LETTERS OF CREDIT

3.1

L/C Commitment.

(a)

Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 3.4(a), agrees to issue letters of credit (“Letters of Credit”) for the account of the Borrower on any Business Day during the Revolving Commitment Period in such form as may be approved from time to time by the Issuing Lender; provided that the Borrower shall not request the Issuing Lender to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Commitments would be less than zero.  Each Letter of Credit shall (i) be denominated in Dollars, (ii) have a face amount of at least $2,500,000 (unless otherwise agreed by the Issuing Lender) and (iii) expire no later than the date that is five Business Days prior to the Revolving Termination Date.

(b)

The Issuing Lender shall not at any time be obligated to issue any Letter of Credit if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law.

3.2

Procedure for Issuance of Letter of Credit.  The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request.  Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than two Business Days after its receipt of the Applicat ion therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower.  The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof.  The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof).

3.3

Fees and Other Charges.

(a)

The Borrower will pay a fee on all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans, shared ratably among the Lenders according to their respective Revolving Commitments and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date.  In addition, the Borrower shall pay to the Issuing Lender for its own account a fronting fee of 0.125% per annum on the undrawn and unexpired amount of each Letter of Credit, payable quarterly in arrears on each L/C Fee Payment Date after the Issuance Date.

(b)

In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit.

3.4

L/C Participations.

(a)

The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions set forth below, for such L/C Participant’s own account and risk an undivided interest equal to such L/C Participant’s Revolving Percentage in the Issuing Lender’s obligations and rights under and in respect of each Letter of Credit and the amount of each draft paid by the Issuing Lender thereunder.  Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement or w hich is not converted to ABR Loans pursuant to Section 3.5 of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender’s address for notices specified herein an amount equal to such L/C Participant’s Revolving Percentage of the amount of such draft, or any part thereof, that is not so reimbursed.

(b)

If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is not paid to the Issuing Lender on the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360, provided that if any such amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans under the Revolving Facility.  A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error.

(c)

Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 3.4(a), the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it.

3.5

Reimbursement Obligation of the Borrower.

(a)

The Borrower agrees to reimburse the Issuing Lender on the Business Day next succeeding the Business Day on which the Issuing Lender notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment.  Each such payment shall be made to the Issuing Lender at its address for notices referred to herein in Dollars and in immediately available funds.  Interest shall be payable on any such amounts from the date on which the relevant draft is paid until payment in full at the rate set forth in (i) until the Business Day next succeeding the date of the relevant notice, Section 2.12(b) and (ii) thereafter, Section 2.12(c).

(b)

Unless the Borrower shall have notified the Issuing Bank and the Administrative Agent prior to 11:00 a.m., Atlanta time, on the Business Day immediately prior to the date on which such draft is honored that the Borrower intends to reimburse the Issuing Bank for the amount of such draft in funds other than from the proceeds of Loans, the Borrower shall be deemed to have timely given a notice of borrowing to the Administrative Agent requesting the Lenders to make an ABR Loan on the date on which such draft is honored in an exact amount due to the Issuing Bank.  The Administrative Agent shall notify the Lenders of such borrowing in accordance with Section 2.2, and each Lender shall make the proceeds of its ABR Loan included in such borrowing available to the Administrative Agent for the account of the Issuing Bank in accordance with Section 2.2.  The proceeds of such borrowing shall be applied directly by the Administrative Agent to reimburse the Issuing Bank for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment.

(c)

If for any reason an ABR Loan may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each L/C Participant (other than the Issuing Bank) shall be obligated to fund the participation that such L/C Participant purchased pursuant to Section 3.4(a) in an amount equal to such L/C Participant’s Revolving Percentage in the Issuing Lender’s obligations and rights under and in respect of each Letter of Credit and the amount of each draft paid by the Issuing Lender thereunder on and as of the date which such ABR Loan should have occurred pursuant to this Section 3.5.

3.6

Obligations Absolute.  The Borrower’s obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person.  The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower’s Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transf erred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee.  The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Issuing Lender.  The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the Borrower.

3.7

Letter of Credit Payments.  If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower of the date and amount thereof.  The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit.

3.8

Applications.  To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply.

SECTION 4.  REPRESENTATIONS AND WARRANTIES

To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, Holdings and the Borrower hereby jointly and severally represent and warrant to the Administrative Agent and each Lender that:

4.1

Financial Condition.  The audited consolidated balance sheets of Holdings as at December 31, 2003, and the related consolidated statements of income, retained earnings and cash flows for the fiscal year ended on such date, reported on by and accompanied by an unqualified report from PricewaterhouseCoopers LLP, fairly present in all material respects the consolidated financial condition of Holdings as at such date, and the consolidated results of its operations and its consolidated cash flows for the fiscal year then ended.  The unaudited consolidated balance sheet of Holdings as at March 31, 2004, and the related unaudited consolidated statements of income, retained earnings and cash flows for the three-month period ended on such date, fairly present in all material respects the consolidated financial condition of Holdings as at such date, and the cons olidated results of its operations and its consolidated cash flows for the three-month period then ended (subject to normal year-end audit adjustments).  All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein).  

4.2

No Change.  Since December 31, 2003, no event or condition has occurred or changed that has had or could reasonably be expected to have a Material Adverse Effect.

4.3

Existence; Compliance with Law.  Each Group Member (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that such non-compliance, singly or in the aggregate, could not reasonably be expected to result in liability or loss to the Group Members in an aggregate amount in excess of $50,000,000.

4.4

Power; Authorization; Enforceable Obligations.  Each Loan Party has the power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to obtain extensions of credit hereunder.  Each Loan Party has taken all necessary organizational action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of this Agreement.  No authorization or approval of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Docu ments, other than any such consents, authorizations, filings and notices which have been obtained or made and are in full force and effect.  Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto.  This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

4.5

No Legal Bar.  The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any material Requirement of Law or any material Contractual Obligation of any of Holdings, the Borrower or their respective Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation.  No Requirement of Law or Contractual Obligation applicable to Holdings, the Borrower or any of their respective Subsidiaries could reasonably be expected to have a Material Adverse Effect.

4.6

Litigation. Except as may be disclosed on Schedule 4.6, no litigation, arbitration or administrative proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of Holdings or the Borrower, threatened (i) against Holdings or the Borrower or any of their respective Subsidiaries to restrain the entry by Holdings or the Borrower into, the enforcement of or exercise of any rights by the Lenders or the Administrative Agent under, or the performance or compliance by the Borrower with any obligations under, this Agreement, the Notes, or the Guarantee Agreement, or (ii) against Holdings or the Borrower or any of their Subsidiaries which has had or would reasonably be expected to have a Material Adverse Effect.

4.7

No Default.  No Default or Event of Default has occurred and is continuing.

4.8

Ownership of Property; Liens.  Each Group Member has title in fee simple to, or a valid leasehold interest in, all its real property which is material to the operation of such Group Member’s business, and good title to, or a valid leasehold interest in, all its other property which is material to the operation of such Group Member’s business, and none of such property is subject to any Lien except as permitted by Section 7.2.

4.9

Intellectual Property.  Except as set forth on Schedule 4.9: (i) each Group Member owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted; (ii) no material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does Holdings or the Borrower know of any valid basis for any such claim and (iii) the use of Intellectual Property by each Group Member of Intellectual Property which is material to the operation of such Group Member’s business does not infringe on the rights of any Person in any material respect.

4.10

Taxes.  Each Group Member has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the relevant Group Member); no tax Lien has been filed, and, to the knowledge of Holdings and the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge.

4.11

Federal Regulations.  No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used in any manner which violates Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the Regulations of the Board.  If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U.

4.12

ERISA.  Neither a Reportable Event nor an “accumulated funding deficiency” (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and, to the knowledge and belief of Holdings and the Borrower, each Plan has complied in all material respects with the applicable provisions of ERISA and the Code except where non-compliance, either singly or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.  No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period.  The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Pl ans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount.  Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or could reasonably be expected to result in a liability or loss under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any liability or loss under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made, in any case where, either singly or in the aggregate, the aggregate amount of loss or liability could not reasonably be expected to have a Material Adverse Effect.

4.13

Investment Company Act; Other Regulations.  No Loan Party is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.  No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board and the Public Utility Holding Company Act) that limits its ability to borrow Loans or obtain other Revolving Extensions of Credit under this Agreement.

4.14

Subsidiaries.  Except as disclosed to the Administrative Agent by Holdings and the Borrower in writing from time to time after the Closing Date, (a) Schedule 4.14 sets forth the name and jurisdiction of incorporation of each Subsidiary of each of Holdings and the Borrower and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by any Loan Party and (b) except as set forth on Schedule 4.14, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock performance grants granted to employees or directors and directors’ qualifying shares) of any nature relating to any Capital Stock of Holdings, the Borrower or any of their respective Subsidiaries, except as created by the Loan Documents.

4.15

Use of Proceeds.  The proceeds of the Loans and the Letters of Credit, shall be used to repay existing Indebtedness, to support the issuance of commercial paper by the Borrower and to fund the ongoing working capital needs and general corporate purposes of Holdings, the Borrower and the other Group Members.

4.16

Environmental Matters.  Except (i) as may be disclosed on Schedule 4.16, or (ii) as, either singly or in the aggregate, could not reasonably be expected to have a Material Adverse Effect:

(a)

the facilities and properties owned, leased or operated by any of Holdings, the Borrower, or their respective Subsidiaries (the “Properties”) do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation of, or could give rise to liability under, any Environmental Law;

(b)

none of Holdings, the Borrower, or their respective Subsidiaries has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business operated by any of them (the “Business”), nor does Holdings or the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened;

(c)

Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location that could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law;

(d)

no judicial proceeding or governmental or administrative action is pending or, to the knowledge of Holdings and the Borrower, threatened, under any Environmental Law to which any of Holdings, the Borrower, or their respective Subsidiaries is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business;

(e)

there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws;

(f)

the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business; and

(g)

no Group Member has assumed any liability of any other Person under Environmental Laws.

4.17

Accuracy of Information, etc.  No statement or information contained in this Agreement, any other Loan Document, the Confidential Executive Summary or any other document, certificate or written statement furnished by any Loan Party or other statement made or furnished by a Responsible Officer of any Loan Party, in each case to the Administrative Agent or the Lenders, or any of them, for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Confidential Executive Summary, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained herein or therein not misleading.  There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Executive Summary or in any other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents.

4.18

Solvency.  Each Loan Party is, and after giving effect to the incurrence of all Obligations being incurred in connection herewith, will be and will continue to be, Solvent.

4.19

Status of Loans and Guarantee Agreement.  The obligations of Borrower and Holdings in respect of the Loans and Guarantee Agreement, respectively, constitute senior, unsubordinated, unsecured, direct obligations of such Loan Parties and rank pari passu with such Loan Parties’ other senior, unsubordinated, unsecured obligations.

4.20

OFAC.  No Loan Party (i) is a person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such person in any manner violative of Section 2, or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury’s Office of Foreign Assets Control regulation or executive order.

4.21

Patriot Act.  Each Loan Party is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) the Uniting And Strengthening America By Providing Appropriate Tools Required To Intercept And Obstruct Terrorism (USA Patriot Act of 2001).  No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United State s Foreign Corrupt Practices Act of 1977, as amended

SECTION 5.  CONDITIONS PRECEDENT

5.1

Conditions to Initial Extension of Credit.  The agreement of each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction on the Closing Date of the following conditions precedent:

(a)

Credit Agreement; Guarantee Agreement.  The Administrative Agent shall have received   this Agreement executed and delivered by the Agents, Holdings, the Borrower and each Lender,  the Notes requested by the Lenders as executed and delivered by the Borrower, and (iii) the Guarantee Agreement executed and delivered by Holdings.

(b)

Termination of Existing Credit Facilities.  The Administrative Agent shall have received satisfactory evidence that the 2003 364-Day Credit Agreement and the 3-Year Credit Agreement shall have been terminated and all amounts thereunder shall have been paid in full.

(c)

Fees.  The Lenders and the Administrative Agent shall have received all fees required to be paid (including, without limitation, the upfront fees), and all expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel to the Administrative Agent), on or before the Closing Date.

(d)

Closing Certificate.  The Administrative Agent shall have received a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments.

(e)

Legal Opinion.  The Administrative Agent shall have received the executed legal opinions of (1) McKenna Long & Aldridge LLP, counsel to Holdings and (2) Woodburn and Wedge, counsel to the Borrower, substantially in the forms of Exhibits E-1, and E-2.  Such legal opinions shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require.

(f)

Certificate of Officers.  The Administrative Agent shall have received certificates of the Secretary or an Assistant Secretary of the Borrower and Holdings containing specimen signatures of the persons authorized to execute the Loan Documents on behalf of the Borrower and Holdings, and any other documents provided for herein or therein, together with (x) copies of resolutions of the Boards of Directors of the Borrower and Holdings authorizing the execution and delivery of the Loan Documents, (y) copies of the Borrower’s and Holdings’ articles or certificate of incorporation, by-laws, and other governing or organizational documents, and (z) a certificate of good standing from the Office of the Secretary of State of the state of organization of each of the Borrower and Holdings.

(g)

Commercial Paper Rating.  The Borrower has delivered to the Lenders satisfactory evidence that the Borrower has a short-term commercial paper rating of at least A2 from S&P and at least P2 from Moody’s.

5.2

Conditions to Each Extension of Credit.  The agreement of each Lender to make any extension of credit requested to be made by it on any date (including its initial extension of credit) is subject to the satisfaction of the following conditions precedent:

(a)

Representations and Warranties.  Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date; except (i) to the extent any representation and warranty expressly relates to any earlier date, in which case such representation and warranty shall have been true and correct in all material respects on and as of such earlier date, and (ii) no representation or warranty shall be deemed made as of any date subsequent to the Closing Date as to the matters set forth in Section 4.2 and Section 4.6(ii).

(b)

No Default.  No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date.

(c)

Other Documents.  The Administrative Agent shall have received such other documents, certificates, information and legal opinions as it or the Required Lenders may have reasonably requested.

Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 5.2 have been satisfied.

SECTION 6.  AFFIRMATIVE COVENANTS

Holdings and the Borrower hereby jointly and severally agree that, so long as the Revolving Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, each of Holdings and the Borrower shall and shall cause each other Group Member to:

6.1

Financial Statements.  Furnish to the Administrative Agent  for delivery to the Lenders:

(a)

as soon as available, but in any event within 90 days after the end of each fiscal year of Holdings, a copy of the audited consolidated balance sheet of Holdings and its consolidated Subsidiaries and a copy of the separate unaudited balance sheet (or, if audited financial statements are otherwise prepared or required to be prepared for such Unrestricted Subsidiary, audited balance sheet) of each Unrestricted Subsidiary, in each case as at the end of such year and the related audited (or, in the case of any Unrestricted Subsidiary for which audited statements are not required by this Section 6.1(a), unaudited) consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on for such fiscal year without a “going concern” or like qualification or exception, or qu alification arising out of the scope of the audit, by Holdings’ independent certified public accountants of nationally recognized standing; and

(b)

as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of Holdings (other than the last fiscal quarter of each fiscal year), a copy of the unaudited consolidated balance sheet of Holdings and its consolidated Subsidiaries, and a copy of the separate unaudited consolidated balance sheet of each Unrestricted Subsidiary, in each case as at the end of such quarter and the related unaudited statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as having been prepared in accordance with GAAP (subject to normal year-end audit adjustments).

All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein and except for the omission of footnotes in the quarterly financial statements).

6.2

Certificates; Other Information.  Furnish to the Administrative Agent for delivery to the Lenders (or, in the case of clause (c), to the relevant Lender):

(a)

concurrently with the delivery of any financial statements pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer’s knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) a Compliance Certificate containing all information and calculations necessary for determining compliance by each Group Member with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of Holdings, as the case may be ;

(b)

within five days after the same are filed, copies of all annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, reports on Form 8-K, and reports on Form U5B (pursuant to the Public Utility Holding Company Act of 1935, as amended), in each case that Holdings or the Borrower file with the SEC; and

(c)

promptly, such additional financial and other information as any Lender may from time to time reasonably request.

6.3

Payment of Obligations.  Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its taxes and other material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the relevant Group Member.

6.4

Maintenance of Existence; Compliance.  (a) (i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.3 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

6.5

Maintenance of Property; Insurance.  (a)  Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain insurance (either with financially sound insurance companies or through self-insurance) on all its property in at least such amounts and against at least such risks (but including in any event public liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business.

6.6

Inspection of Property; Books and Records; Discussions.  (a)  Keep proper books of records and account in respect of Holdings, the Borrower, and their respective Subsidiaries in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to their business and activities and (b) permit representatives of the Administrative Agent or any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records during normal business hours and, if no Event of Default has occurred and is continuing, upon reasonable notice and as often as may reasonably be desired and to discuss their respective businesses, operations, properties and financial and other condition with their respective officers and employees and with their independe nt certified public accountants; provided, that unless an Event of Default has occurred and is continuing, the Administrative Agent and the Lenders shall use their reasonable efforts to coordinate any such visits or inspections so as to minimize disruption of the conduct of their respective businesses, as applicable.

6.7

Notices.  Promptly give notice to the Administrative Agent and each Lender of:

(a)

the occurrence of any Default or Event of Default;

(b)

the following events, at such time as a Responsible Officer has knowledge thereof, any (i) default or event of default under any material Contractual Obligation of any of Holdings, the Borrower, or their respective Subsidiaries or (ii) litigation or governmental proceeding that may exist at any time between any of Holdings, the Borrower, or their respective Subsidiaries and any Governmental Authority,  and (iii) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdraw al from, or the termination, Reorganization or Insolvency of, any Plan, that in any of the foregoing cases, singly or in the aggregate, could reasonably be expected to result in liabilities, losses or claims to the Group Members in an aggregate amount in excess of $50,000,000; and

(c)

any change in, or withdrawal or suspension of, the Ratings of which Holdings or the Borrower has received written notification or of which Holdings or the Borrower becomes aware of the public announcement thereof.

Each notice pursuant to this Section 6.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Group Member proposes to take with respect thereto.

6.8

Environmental Laws.

(a)

Comply in all material respects with, and contractually require compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and contractually require that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except where such non-compliance would not reasonably be expected to have a Material Adverse Effect.

(b)

Conduct and complete in all material respects all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and comply in a timely manner in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws.

6.9

Maintenance of Ownership.  In the case of Holdings, own 100% of the Capital Stock of the Borrower, Atlanta Gas Light Company, Chattanooga Gas Company, and Virginia Natural Gas, Inc.

SECTION 7.  NEGATIVE COVENANTS

Holdings and the Borrower hereby jointly and severally agree that, during the term of this Agreement, and so long as the Revolving Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, each of Holdings and the Borrower shall not, and shall not permit any of the other Group Members to, directly or indirectly:

7.1

Financial Condition Covenants.

(a)

Consolidated Total Debt to Total Capitalization.  Permit the ratio of Consolidated Total Debt to Total Capitalization to be greater than 0.70:1.00  as of the end of any fiscal month of Holdings (as determined by Holdings and the Borrower based on their internal fiscal month-end consolidated balance sheet prepared not later than ten (10) days following the end of such fiscal month) or at the end of any fiscal quarter of Holdings (as reflected on the consolidated financial statements delivered to the Lenders pursuant to Section 6.1).

(b)

Consolidated Net Worth.  Permit Consolidated Net Worth at any time to be less than the sum of (i) $823,000,000, (ii) 25% of the cumulative positive net income of Holdings for each fiscal quarter ending after March 31, 2004, and (iii) 80% of the Net Proceeds from any Equity Issuance of any Group Member occurring after March 31, 2004.

7.2

Liens.  Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except:

(a)

Mechanics’, materialmen’s, carriers’, and other similar Liens arising in the ordinary course of business that are not overdue for a period longer than 30 days or that are being contested in good faith by appropriate proceedings;

(b)

Pledges or deposits in connection with workers’ compensation, unemployment insurance, and other social security legislation;

(c)

Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the consolidated books of Holdings in conformity with GAAP;

(d)

Liens in respect of judgments or awards pending appeal so long as execution is not levied there-under, and Liens in favor of plaintiff or defendant in any action before a court or a tribunal as security for cost or expenses where such action is being prosecuted or defended in the bona fide interest of Holdings or any other Group Member;

(e)

Liens on deposits to secure, or any Lien otherwise securing, the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety bonds, appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(f)

Liens upon or in any fixed or capital assets to secure the purchase of or the cost of construction or improvement of such fixed or capital assets or to secure Indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of such fixed or capital assets (including Liens securing capital lease obligations); provided, that (i) such Lien secures Indebtedness which on the date incurred and after giving pro forma effect thereto is permitted under Section 7.1(a), (ii) such Lien attaches to such asset concurrently or within 90 days after the acquisition, improvement or completion of the construction thereof; (iii) such Lien does not extend to any other asset of any Group Member; and (iv) the Indebtedness secured by such Lien does not exceed the cost of acquiring, constructing or improving such fixed or capit al assets;

(g)

Liens (x) outstanding on or over any Asset acquired after the Closing Date, (y) in existence at the date of such acquisition and not created in contemplation thereof, and (z) where the principal amount secured thereby is not increased over the amount so secured and outstanding at the time of such acquisition (other than in the case of Liens for a fluctuating balance facility, by way of utilization of that facility within the limits applicable thereto at the time of acquisition);

(h)

Liens constituted by a right of set off, or rights over a margin call account, or any form of cash collateral, or any similar arrangement, in any such case for obligations incurred in respect of any Hedge Agreements, as renewed or extended upon the renewal or extension or refinancing or replacement of the indebtedness secured thereby;

(i)

Liens existing on the Closing Date and set forth on Schedule 7.2(h) as renewed, extended, refinanced or replaced, provided that such renewal, extension, refinancing, or replacement does not cover any other Assets or increase the obligations secured thereby;

(j)

Liens on the property of a Person existing at the time such Person is merged into or consolidated with Holdings or any other Group Member and not incurred in contemplation with such merger or consolidation; and

(k)

Liens created or outstanding on or over Assets of Holdings or other Group Members, provided that the aggregate outstanding principal, capital and nominal amounts secured by all Liens created or outstanding as permitted under clauses (f) through (j) above and this clause (j) shall not at any time exceed 10% of Consolidated Net Worth;

7.3

Fundamental Changes.  Merge, consolidate or amalgamate, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its property or business, except that so long as no Default or Event of Default has occurred and is continuing or would result therefrom:

(a)

any entity may be merged or consolidated with or into Holdings (provided that Holdings shall be the continuing or surviving corporation)or any other Restricted Subsidiary of Holdings (provided that such Restricted Subsidiary shall be the continuing or surviving corporation); and

(b)

any Restricted Subsidiary of Holdings may Dispose of any or all of its Assets (i) to Holdings or any other Restricted Subsidiary of Holdings (upon voluntary liquidation or otherwise) or (ii) pursuant to a Disposition permitted by Section 7.4 and may thereafter liquidate, wind up or dissolve.

7.4

Disposition of Property.  Dispose of any of its Assets, whether now owned or hereafter acquired, or, in the case of Holdings or any of its Restricted Subsidiaries, issue or sell any shares of such Restricted Subsidiary’s Capital Stock to any Person, except:

(a)

Dispositions of obsolete or worn out property in the ordinary course of business;

(b)

sales of inventory in the ordinary course of business;

(c)

Dispositions permitted by Section 7.3(b)(i);

(d)

sales or issuances of any Restricted Subsidiary’s Capital Stock to Holdings or to any Restricted Subsidiary of Holdings; and

(e)

the Disposition of other Assets, the aggregate net book value of which, when combined with all such other Assets sold, leased, transferred or otherwise disposed of since March 31, 2004, would not exceed 10% of Holding’s consolidated Assets at the end of the preceding fiscal quarter (including the fourth fiscal quarter) of Holdings for which financial statements have most recently been delivered to the Administrative Agent pursuant to Section 6.1.

7.5

Restricted Payments.  Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Group Member, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Group Member (collectively, “Restricted Payments”), except that:

(a)

any Restricted Subsidiary may make Restricted Payments to Holdings or to any Restricted Subsidiary of Holdings or to any third-party investors in any Restricted Subsidiary of Holdings;

(b)

so long as no Event of Default shall have occurred and be continuing, Holdings may pay dividends on shares of its Capital Stock; and

(c)

so long as no Event of Default shall have occurred and be continuing, Holdings may buy back any outstanding shares of its Capital Stock.

7.6

Intentionally Omitted.

7.7

Investments.  Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any Person (all of the foregoing, “Investments”), except:

(a)

extensions of trade credit in the ordinary course of business;

(b)

investments in Cash Equivalents;

(c)

Guarantee Obligations otherwise permitted by this Agreement;

(d)

loans and advances to employees of any Group Member in the ordinary course of business (including for travel, entertainment and relocation expenses) in an aggregate amount for all Group Members not to exceed $2,000,000 at any one time outstanding;

(e)

other Investments made by Holdings or its Restricted Subsidiaries (excepting the Borrower) subsequent to March 31, 2004 in an aggregate amount (based on the book value thereof) where such Investments consist of purchases of, or other investments in, the Capital Stock or other equity or ownership interests, assets, obligations or other interests in, Subsidiaries, joint ventures, or other Persons, in each case that are engaged principally in the business of purchasing, gathering, compression, transportation, distribution, exploration, production, processing or storage of natural gas, or asset management with respect to the foregoing, provided that no such purchases or other investments of Capital Stock or other equity or ownership interests are opposed by the board of directors or other comparable governing body or management of the issuer of such Capital Stock or other equity or ownership interests; and

(f)

$100,000,000 in respect of Investments other than those described in the preceding clause (e).

7.8

Negative Pledge Clauses.  Except for the agreements listed on Schedule 7.8, enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Group Member to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, other than (a) this Agreement and the other Loan Documents and (b) any agreements governing any purchase money Liens or capital lease obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby).

7.9

Clauses Restricting Subsidiary Distributions.  Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of Holdings to (a) make Restricted Payments in respect of any Capital Stock of such Restricted Subsidiary held by, or pay any Indebtedness owed to, Holdings or any other Restricted Subsidiary of Holdings, (b) make loans or advances to, or other Investments in, the Borrower or any other Restricted Subsidiary of Holdings or (c) transfer any of its assets to Holdings or any other Restricted Subsidiary of Holdings, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions with respect to a Restricted Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capi tal Stock or assets of such Restricted Subsidiary, and (ii) any agreements with joint venture partners in connection with joint ventures permitted by this Agreement.

7.10

Lines of Business and Hedge Activities.  (a)  With respect to Holdings and each Subsidiary (excepting the Borrower), enter into any business, either directly or through any Subsidiary, except for (i) those businesses in which Holdings and its Subsidiaries (excepting the Borrower) and its existing joint ventures are engaged on the date of this Agreement, (ii) that are reasonably related to the businesses referred to in the preceding clause (i), or (iii) that are being undertaken by comparable companies in the natural gas industry, (b) with respect to the Borrower, enter into any business, except for that in which the Borrower is engaged on the date hereof, or (c) with respect to Holdings, the Borrower, and each other Group Member, enter into any Hedge Agreement except in the ordinary course of their business and consistent with industry practices.

7.11

Designation of Subsidiaries.  Holdings may not designate or redesignate any Unrestricted Subsidiary as a Restricted Subsidiary, or designate or redesignate any Restricted Subsidiary as an Unrestricted Subsidiary, unless (a) Holdings shall have given not less than ten (10) days’ prior written notice to the Lenders that the Board of Directors of Holdings has made such determination, (b) at the time of such designation or redesignation, and immediately after giving effect thereto, no Default or Event of Default would exist, (c) in the case of the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and after giving effect thereto, (i) such Unrestricted Subsidiary so designated shall not, directly, or indirectly, own any Indebtedness or Capital Stock of Holdings or any Restricted Subsidiary, and (ii) such designation shall be deemed a sale of assets and shall be permitted by the provisions of Section 7.4, (d) in the case of the designation of an Unrestricted Subsidiary as a Restricted Subsidiary and after giving effect thereto, (i) all outstanding Indebtedness of such Restricted Subsidiary so designated shall be permitted within the applicable limitations of Section 7.1, and (ii) all existing Liens of such Restricted Subsidiary so designated shall be permitted within the applicable limitations of Section 7.2, (e) in the case of the designation of a Restricted Subsidiary as an Unrestricted Subsidiary, such Restricted Subsidiary shall not at any time after the date of this Agreement have previously been designated as an Unrestricted Subsidiary more than once, and (f) in the case of the designation of an Unrestricted Subsidiary as a Restricted Subsidiary, such Unrestricted Subsidiary shall not at any time after the date of this Agreement have previously been designated as Restricted Subsidiary more than once.

SECTION 8.  EVENTS OF DEFAULT

If any of the following events shall occur and be continuing:

(a)

the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or

(b)

any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or

(c)

(i)  any Loan Party shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with respect to Holdings and the Borrower only), Section 6.7(a), Section 6.9 or Section 7 of this Agreement; or

(d)

any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after the earlier of (i) knowledge thereof by any Loan Party or (ii) notice to the Borrower from the Administrative Agent or the Required Lenders; or

(e)

any Group Member shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace or notice and cure, if any, provided in any instrument or agreement under which such Indebtedness was created; or (iii) or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate the maturity of such Indebtedness; or any such Indebtedness shall be declared due and payable, or be required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the scheduled maturity thereof by reason of such event or condition; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the total principal amount of which exceeds in the aggregate $50,000,000 (which, in the case of Indebtedness arising under any Hedge Agreement, shall be determined as the amount, if any, that would then be payable by the Group Member thereunder if such Hedge Agreement were to be terminated as a result of default by such Group Member); or

(f)

(i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature referred to in clause (i) above that ( A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 90 days; or (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 90 days from the entry thereof; or (iv) any Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or

(g)

(i) any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Pl an shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, results in liabilities of the Group Members in respect thereof in excess of $50,000,000; or

(h)

one or more judgments or decrees shall be entered against any Group Member involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $50,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or

(i)

the guarantee contained in Section 2 of the Guarantee Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or

(j)

(i)   any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) shall become the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 30% of the outstanding common stock of Holdings or (ii) the board of directors of Holdings shall cease to consist of a majority of Continuing Directors;

then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Revolving Commitments shall immediately terminate and the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken:  (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Commitments to be termi nated forthwith, whereupon the Revolving Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable.  With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit.  Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents.  After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto).  Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower.

SECTION 9.  THE AGENTS

9.1

Appointment.  Each Lender hereby irrevocably designates and appoints the Administrative Agent as the Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto.   Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covena nts, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent.

9.2

Delegation of Duties.  The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.  The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care.

9.3

Exculpatory Provisions.  Neither any Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person’s own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents und er or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder.  The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party.

9.4

Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to Holdings or the Borrower), independent accountants and other experts selected by the Administrative Agent.  The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent.  The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.  The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.

9.5

Notice of Default.  The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has received notice from a Lender, Holdings or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”.  In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders.  The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

9.6

Non-Reliance on Agents and Other Lenders.  Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any Lender.  Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own d ecision to make its Loans hereunder and enter into this Agreement.  Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates.  Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Par ty or any affiliate of a Loan Party that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.

9.7

Indemnification.  The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by Holdings or the Borrower and without limiting the obligation of Holdings or the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Revolving Commitments shall have terminated and the Loans and any Letters of Credit outstanding shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, claims, demands, causes of action or disbursements of any kind whatsoever (whether or not an I ndemnitee is a party to any such action, suit, demand, cause of action, etc.) that may at any time (whether before or after the payment of the Loans and any Letters of Credit) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of, the Revolving Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent’s gross negligence or willful misconduct.  The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

9.8

Agent in Its Individual Capacity.  Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though such Agent were not an Agent.  With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms “Lender” and “Lenders” shall include each Agent in its individual capacity.

9.9

Successor Administrative Agent.  The Administrative Agent may resign as Administrative Agent upon 10 days’ notice to the Lenders and the Borrower.  If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 8(a) or Section 8(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans.  If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above.  After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Docume nts.

9.10

Co-Documentation Agents and Syndication Agent.  None of the Co-Documentation Agents or the Syndication Agent shall have any duties or responsibilities hereunder in its capacity as such.  

SECTION 10.  MISCELLANEOUS

10.1

Amendments and Waivers.  Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1.  The Required Lenders and each Loan Party (any required response to the matters described in clauses (a) or (b) of this Section 10.1 not to be unreasonably delayed by any party) party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent and each Loan Party (any required response to the matters described in clauses (a) or (b) of this Section 10.1 not to be unreasonably delayed by any party) party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisi ons to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) forgive any principal amount or extend the final scheduled date of maturity of any Loan or extend the expiry date of any Letter of Credit beyond the Revolving Termination Date, reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender’s Revolving Commitment, in each case without the written consent of each Lender directly affected thereby;  (ii) eliminate or red uce the voting rights of any Lender under this Section 10.1 without the written consent of such Lender; (iii) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release the Guarantor from its obligations under the Guarantee Agreement without the written consent of all Lenders; (iv) amend, modify or waive any provision of Section 9 without the written consent of the Administrative Agent; (v) amend, modify or waive any provision of Section 2.3 or 2.4 without the written consent of the Swingline Lender, or (iv) amend, modify or waive any provision of Section 3 without the written consent of the Issuing Lender.  Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans.  In th e case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.

10.2

Notices.  All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of Holdings, the Borrower and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto:

Holdings:	AGL Resources Inc. Ten Peachtree Place NE, Suite 1000 Atlanta, Georgia 30309 Attention:  Treasurer Telecopy: (404) 584-3589 Telephone:  (404) 584-3580
The Borrower:	AGL Capital Corporation 2325-B Renaissance Drive Suite 10 Las Vegas, Nevada 89119 Attention:  President Telecopy:  702-966-4247 Telephone:  702-966-4246
The Administrative Agent:	SunTrust Bank SunTrust Plaza 303 Peachtree Street, 25th Floor Atlanta, Georgia 30308 Attention:  Dorris Folsum Telecopy:  (404) 658-4906 Telephone:  (404) 532-0432

provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received.

10.3

No Waiver; Cumulative Remedies.  No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

10.4

Survival of Representations and Warranties.  All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder and for a period of one year after the indefeasible payment in full of all Obligations and the termination of this Agreement and the other Loan Documents.

10.5

Payment of Expenses and Taxes.  The Borrower agrees (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable fees and disbursements of counsel to the Administrative Agent and filing and recording fees and expenses, with statements with respect to the foregoing to be submitted to the Borrower prior to the Closing Date (in the case of amounts to be paid on the Closing Date) and from time to time thereafter on a quarterly basis or such other periodic basis as the Administrative Agent shall deem appropriate, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Docum ents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their respective officers, directors, employees, affiliates, agents and controlling persons (each, an “Indemnitee”) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including any of the foregoing relating to the use of proceeds of the Loans or any Letters of Credit or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of any Group Member or any of the Properties and the reasonable fees and expenses of legal counsel in connection with claims, actions or proceedings by any Indemnitee against any Loan Party under any Loan Document (all the foregoing in this clause (d), collectively, the “Indemnified Liabilities”), provided, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee.  Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee.  All amounts due under this Section 10.5 shall be pa yable not later than 10 days after written demand therefor.  Statements payable by the Borrower pursuant to this Section 10.5 shall be submitted to the Treasurer, AGL Resources Inc. (Telephone No. 404/584-3580) (Telecopy No. 404/584-3589), at the address of the Borrower set forth in Section 10.2, or to such other Person or address as may be hereafter designated by the Borrower in a written notice to the Administrative Agent.  The agreements in this Section 10.5 shall survive repayment of the Loans and all other amounts payable hereunder.

10.6

Successors and Assigns; Participations and Assignments.

(a)

This Agreement shall be binding upon and inure to the benefit of Holdings, the Borrower, the Lenders, the Administrative Agent, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender.

(b)

Any Lender other than any Conduit Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a “Participant”) participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents.  In the event of any such sale by a Lender of a participating interest to a Participant, such Lender’s obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the other Loan Documents.  In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any fees payable hereunder, postpone the date of the final maturity of the Loans or release the Guarantor from its obligations under the Guarantee Agreement, in each case to the extent subject to such participation.  The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the righ t of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender hereunder.  The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.16, 2.17 and 2.18 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; provided that, in the case of Section 2.17, such Participant shall have complied with the requirements of said Section and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. Each Lender selling participations (other than the sale of participations to a Lender Affiliate) shall use its commercially reasonable efforts to provide prompt notice to the Borrower and the Administrative Agent of such participations and of the identity of the purchasers of such participations; provided that no delay or failure of such notice to be so given shall affect the validity of such sale.

(c)

Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000, in the case of any assignment of a Loan, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed), (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned and (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $1,000, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire.  Upon (i) the execution and delivery of the Assignment and Acceptance by the assigning Lender and assignee Lender, (ii) acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, (iii) consent thereof from the Borrower to the extent required pursuant to this clause (c) and (iv) if such assignee Lender is a Non-U.S. Lender, compliance by such Person with Section 2.15(d), from and after the effective date specified in each Assignment and Acceptance, the Eligible Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 10.5.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(d)

The Administrative Agent shall, on behalf of the Borrower, maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the Commitment of, and the principal amount of the Loans owing to, each Lender from time to time.  The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, each other Loan Party, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans and any Notes evidencing the Loans recorded therein for all purposes of this Agreement.  Any assignment of any Loan, whether or not evidenced by a Note, shall be effective only upon appropriate entries with respect thereto being made i n the Register (and each Note shall expressly so provide).  Any assignment or transfer of all or part of a Loan evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance, and thereupon one or more new Notes shall be issued to the designated Assignee.

(e)

Upon its receipt of an Assignment and Acceptance executed by an Assignor, an Assignee and any other Person whose consent is required by Section 10.6(c), together with payment to the Administrative Agent of a registration and processing fee of $1,000, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) record the information contained therein in the Register on the effective date determined pursuant thereto.

(f)

For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section 10.6 concerning assignments relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including any pledge or assignment by a Lender to any Federal Reserve Bank in accordance with applicable law.

(g)

The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (f) above.

(h)

Each of Holdings, the Borrower, each Lender and the Administrative Agent hereby confirms that it will not institute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided, however, that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance.

10.7

Adjustments; Set-off.

(a)

Except to the extent that this Agreement expressly provides for payments to be allocated to a particular Lender or to the Lenders under the Facility, if any Lender (a “Benefitted Lender”) shall, at any time after the Loans and other amounts payable hereunder shall immediately become due and payable pursuant to Section 8, receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 8(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of the Obligatio ns owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.

(b)

In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, unless they have agreed to the contrary, without prior notice to Holdings or the Borrower, any such notice being expressly waived by Holdings and the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by Holdings or the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of Holdings or t he Borrower, as the case may be.  Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application.

10.8

Counterparts.  This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.  A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent.

10.9

Severability.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10.10

Integration.  This Agreement and the other Loan Documents represent the entire agreement of Holdings, the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents.

10.11

GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

10.12

Submission To Jurisdiction; Waivers.  Each of Holdings and the Borrower hereby irrevocably and unconditionally:

(a)

submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof;

(b)

consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c)

agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to Holdings or the Borrower, as the case may be at its address set forth in Section 10.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto;

(d)

agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

(e)

waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

10.13

Acknowledgements.  Each of Holdings and the Borrower hereby acknowledges that:

(a)

it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents;

(b)

neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to Holdings or the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and Holdings and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c)

no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among Holdings, the Borrower and the Lenders.

10.14

Confidentiality.  Each of the Administrative Agent and each Lender agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein shall prevent the Administrative Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any Lender Affiliate, (b) subject to an agreement to comply with the provisions of this Section, to any actual or prospective Transferee or any direct or indirect counterparty to any Hedge Agreement (or any professional advisor to such counterparty), (c) subject to an agreement to comply with the provisions of this Section, to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its affiliates, (d) upo n the request or demand of any Governmental Authority, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. Notwithstanding the foregoing, the parties agree that this Agreement does not limit the ability of any party hereto (or any employee, representative, or other agent of such party) to disclose to any Person the tax treatment or tax structure of the financing transactions evidenced by this Agreement; provided, howe ver, the foregoing is not intended to waive the attorney-client privilege or any other privileges, including the tax advisor privilege under Section 7525 of the Code.

10.15

WAIVERS OF JURY TRIAL.  HOLDINGS, THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

AGL RESOURCES INC.

By: /s/ Andrew Evans

Andrew Evans  

Vice President and Treasurer

AGL CAPITAL CORPORATION

By: /s/ Paul R. Shlanta

Name:  Paul R. Shlanta

Title:  President and Corporate Secretary

[SIGNATURE PAGE TO CREDIT AGREEMENT]

MORGAN STANLEY BANK, as a Lender

By:  /s/ Daniel Twenge

Name:  Daniel Twenge

Title:  Vice President

Morgan Stanley Bank

[SIGNATURE PAGE TO CREDIT AGREEMENT]

SUNTRUST BANK, as Administrative
Agent and as a Lender

By:  /s/ Linda Lee Stanley

Linda Stanley

Director

[SIGNATURE PAGE TO CREDIT AGREEMENT]

WACHOVIA BANK, National Association, as Syndication Agent and as a Lender

By:  /s/ Mark D. Weir

Name:  Mark D. Weir

Title:  Director

[SIGNATURE PAGE TO CREDIT AGREEMENT]

THE BANK OF TOKYO-MITSUBISHI, LTD., New York Branch, as Co-Documentation Agent and as a Lender

By: /s/ Ro Toyoshima

Name:  Ro Toyoshima

Title:  Vice President

[SIGNATURE PAGE TO CREDIT AGREEMENT]

JPMORGAN CHASE BANK, as Co-Documentation Agent and as a Lender

By:  Thomas T. Hou

Name:  Thomas T. Hou

Title:  Vice President

[SIGNATURE PAGE TO CREDIT AGREEMENT]

THE ROYAL BANK OF SCOTLAND PLC, as a Lender

By:  /s/ Matthew J. Main

Name:  MATTHEW J. MAIN

Title:  SENIOR VICE PRESIDENT

[SIGNATURE PAGE TO CREDIT AGREEMENT]

BANK OF AMERICA, N.A., as a Lender

By:  /s/  Kevin Bertelsen

Name:  KEVIN BERTELSEN

Title:  VICE PRESIDENT

[SIGNATURE PAGE TO CREDIT AGREEMENT]

WELLS FARGO BANK, National Association, as a Lender

By:  /s/ Alex Idichandy

Name:  Alex Idichandy

Title:  Vice President

By:  Allison S. Gelfman

Name:  Allison S. Gelfman

Title:  Vice President

Wells Fargo Bank, National Association

[SIGNATURE PAGE TO CREDIT AGREEMENT]

BANK OF COMMUNICATIONS, New York Branch, as a Lender

By:  /s/  Hong Tu

Name:  Hong Tu

Title:  General Manager

[SIGNATURE PAGE TO CREDIT AGREEMENT]

BANK OF NEW YORK, as a Lender

By:  /s/  Charlotte Sohn Fuiks

Name:  Charlotte Sohn Fuiks

Title:  Vice President

[SIGNATURE PAGE TO CREDIT AGREEMENT]

KBC BANK N.V., as a Lender

By:  /s/  Jean-Pierre Diels

Name:  JEAN-PIERRE DIELS

Title:  First Vice President

By:  /s/  Eric Raskin

Name:  ERIC RASKIN

Title:  VICE PRESIDENT

[SIGNATURE PAGE TO CREDIT AGREEMENT]

CALYON NEW YORK BRANCH, as Co-Documentation Agent and as a Lender

By:  /s/  Olivier Audemard

Name:  Olivier Audemard

Title:  Managing Director

[SIGNATURE PAGE TO CREDIT AGREEMENT]

EX-10

Exhibit 10.2

CONTINUITY AGREEMENT

This Continuity Agreement ("Agreement") is entered into as of the 1st day of December, 2003, by and between AGL RESOURCES INC. (the "Company"), on behalf of itself and AGL Services Company (its wholly owned subsidiary and the Executive's employer), and Melanie M. Platt (the "Executive").

WHEREAS, Executive is presently employed by the Company or one of its subsidiaries in a key management capacity; and

WHEREAS, the Company's Board of Directors desires to assure, and has determined that it is appropriate and in the best interests of the Company and its shareholders to reinforce and assure, the continued attention and dedication of certain key executives of the Company and its subsidiaries to their duties of employment without personal distraction or conflict of interest as a result of the possibility or occurrence of a change in control of the Company; and

WHEREAS, the Company's Board of Directors has authorized the Company to enter into continuity agreements with those key executives of the Company and its subsidiaries designated by the Compensation Committee of the Company's Board of Directors (the "Committee"); and

WHEREAS, the Executive is a key executive of the Company or one of its subsidiaries and has been designated by the Committee as an executive to be offered such a continuity agreement with the Company.

NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration including, but not limited to, Executive's continuing employment with the Company or one of its subsidiaries, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

SECTION 1

Definitions

1.1.

"Accrued Benefits" shall mean the Executive's earned but unpaid base salary, Earned and Unused Vacation Pay, unreimbursed business expenses and all other amounts earned by (but not paid to) or owed to Executive through and including the date of the Qualifying Termination.

1.2.

"Announcement" shall mean a press release issued by the Company announcing the intention to engage in a transaction or event that is expected to result in a Change in Control of the Company as defined hereunder.

1.3.

"Annual Bonus Amount" shall mean the product of (a) times (b), where (a) is a percentage equal to the greatest percentage of the Executive's annual rate of base salary upon which an annual incentive payment was paid to the Executive under the Company's annual incentive program during the three calendar years prior to the calendar year of the Qualifying Termination (by way of example, if the highest annual incentive payment, expressed as a percentage of Executive's base salary, paid to Executive during said three year period was 100% of Executive's base salary, then (a) would equal 100%), and (b) is the greater of the Executive's annual rate of base salary in effect upon the date of the Qualifying Termination, or the Executive's annual rate of base salary in effect as of the earliest of the date of the Announcement, the date of a Change in Control or the date of the C onsummation of a Change in Control Transaction.

1.4.

"Board" shall mean the Board of Directors of the Company.

1.5.

"Cause" shall mean:

(a)

willful fraud, dishonesty or malfeasance by the Executive in connection with the Executive's employment with the Company or one of its subsidiaries which results in material harm to the Company or one of its subsidiaries;

(b)

the Executive's continued failure to substantially perform the duties and responsibilities of the Executive's position after written notice from the Company setting forth the particulars of such failure and a reasonable opportunity of not less than thirty (30) business days to cure such failure; or

(c)

the Executive's plea of guilty or nolo contendere to, or conviction of, a felony.

Cause shall be determined by two-thirds of the members of the Board (excluding for this purpose the Executive if a member of the Board) at a meeting at which the Executive may appear and present his or her position.  No act or failure to act on the part of the Executive shall be considered "willful" unless it is done by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company or one of its subsidiaries.  Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Company or one of its subsidiaries, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.

1.6.

"Change in Control" shall be deemed to have occurred when:

(a)

any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as used in Section 13(d) and 14(d) thereof, but excluding the Company and any subsidiary and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as determined pursuant to Rule 13d-3 under the Exchange Act), of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (unless the event causing the 20% threshold to be crossed is an acquisition of securities directly from the Company); or

(b)

the shareholders of the Company shall approve (i) any merger, share exchange, reorganization, or other business combination of the Company, (ii) any sale of 50% or more of the Company's assets, or (iii) any combination of the foregoing transactions (the "Transactions"), other than a Transaction immediately following which the shareholders of the Company and any trustee or fiduciary of any Company employee benefit plan immediately prior to the Transaction own at least 80% of the voting power, directly or indirectly, of (A) the surviving corporation to any such merger, share exchange, reorganization, or other business combination, (B) the purchaser of the Company's assets, (C) both the surviving corporation and the purchaser in the event of any combination of Transactions, or (D) the parent company owning 100% of such surviving corporation, purchaser or both the surviving co rporation and the purchaser, as the case may be; or

(c)

within any twenty-four month period, the persons who were directors of the Board immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board.  For this purpose, any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has entered into an agreement to effect a Change in Control or expressed an interest to cause such a Change in Control).

1.7.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

1.8.

"Company" shall mean AGL Resources Inc., or a successor.

1.9.

"Consummation of a Change in Control Transaction" shall mean the earlier of the date on which a person first becomes the beneficial owner of the requisite number of securities of the Company described in Section 1.6(a), the date on which a transaction described in Section 1.6(b) is actually closed (not the date on which the shareholders' approval is obtained), or the date on which the Incumbent Directors cease to constitute a majority of the Board as described in Section 1.6(c).

1.10.

"Coverage Period" shall mean the period beginning on the earlier of (a) the date of an Announcement, (b) the date of a Change in Control, or (c) the date of the Consummation of a Change in Control Transaction, and ending on the earlier of (i) the second anniversary of the date of the Consummation of a Change in Control Transaction, (ii) if applicable, the date the Company publicly announces it is abandoning the transaction or event that was the subject of an Announcement or (iii) if applicable, the date the Company publicly announces it is abandoning the transaction that constituted a Change in Control pursuant to Section 1.6(b).

1.11.

"Disability" shall mean, for purposes of this Agreement, the Executive's absence from the full-time performance of the Executive's duties pursuant to a determination made in accordance with the procedures established by the Company in connection with the Company's long-term disability benefits plan (as in effect as of the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction) that the Executive is disabled as a result of incapacity due to physical or mental illness.

1.12.

"Earned and Unused Vacation" shall mean the difference between (a) Earned Vacation (as hereinafter defined) and (b) the actual number of hours of vacation taken by the Executive from January 1 of the calendar year in which the Qualifying Termination occurs through and including the date of the Qualifying Termination; provided that if the difference between (a) and (b) is a negative number, then Executive's Earned and Unused Vacation shall be deemed to be zero.

1.13.

"Earned and Unused Vacation Pay" shall mean the product of (a) the Executive's annual rate of base salary in effect on the date of the Qualifying Termination divided by 2080, and (b) the hours of Executive's Earned and Unused Vacation.

1.14.

"Earned Vacation" shall mean the product of (a) the aggregate number of hours of vacation which Executive is entitled to take during the calendar year in which the Qualifying Termination occurs, and (b) the quotient obtained by dividing (i) the number of calendar days from January 1 of the year in which the Qualifying Termination occurs through and including the date of the Qualifying Termination, by (ii) 365.

1.15.

"Effective Date" shall mean December 1, 2003.

1.16.

"Good Reason" shall mean the occurrence of one or more of the following without the Executive's express written consent:

(a)

any material diminution in the Executive's position, duties or responsibilities with the Company or one of its subsidiaries or any change that would constitute a material adverse alteration in the Executive's duties, responsibilities or other conditions of employment, from those in effect as of the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction; provided, that, for this purpose, it shall be a material diminution of Executive's position if Executive is not the top functional executive in charge of human resources and other key corporate support functions;

(b)

any adverse change in the Executive's rate of annual base salary or incentive compensation opportunity from the rate of annual base salary and incentive compensation opportunity in effect as of the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction;

(c)

any failure by the Company either to continue in effect, or to provide in the aggregate, reasonably similar retirement and welfare benefit plans or coverages and any other similar benefits, policies or programs in which the Executive was a participant as of the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction (unless such failure or discontinuance of benefits is applicable to all senior executives of the Company and its subsidiaries); or

(d)

any failure of the Company to obtain from any successor to the Company an agreement reasonably satisfactory to the Executive to assume this Agreement and to agree to perform the Company's obligations hereunder.

1.17.

"Prorated Annual Bonus" shall mean a payment equal to the product of (a) times (b), where (a) is the Annual Bonus Amount and (b) is a fraction, the numerator of which is the number of days in the calendar year in which the Qualifying Termination occurs that the Executive was employed by the Company or one of its subsidiaries, and the denominator of which is 365.

1.18.

"Qualifying Termination" shall mean the occurrence of any one or more of the following events:

(a)

the termination of Executive's employment by the Company or its subsidiary, as applicable, without Cause; or

(b)

Executive's termination of his or her employment with the Company or its subsidiary, as applicable, for Good Reason.

A Qualifying Termination shall not include a termination of Executive's employment by reason of the Executive's death, the Executive's Disability, the Executive's termination of his or her employment without Good Reason, or the termination of the Executive's employment for Cause.

SECTION 2

Term of Agreement

2.1.

Term.  Subject to Section 2.2, this Agreement shall commence on the Effective Date and shall continue in effect for a period of two (2) years (the "Term").  The Term shall be extended one (1) year on the first anniversary of the Effective Date and on each anniversary thereafter unless either party gives notice of non-extension prior to any such anniversary.

2.2.

Modification of Term.  In the event that an Announcement or a Change in Control occurs during the Term, the term of this Agreement shall automatically and irrevocably become a term ending on the later of the last day of the Term or the second anniversary of the date of Consummation of a Change in Control Transaction.  This Agreement shall be assigned to, and shall be assumed by, any successor to the Company upon Consummation of a Change in Control Transaction.  During the modified term pursuant to this section, this Agreement shall not be terminated or amended, altered or nullified by the Company or its successor without the Executive's written consent.

2.3.

No Assurances.  Executive acknowledges and agrees that, except as is otherwise expressly provided in Section 2.2, (i) there is no assurance that, upon the expiration of the Term of this Agreement, this Agreement will be renewed or extended, (ii) the Company has no obligation to renew or extend this Agreement, and (iii) Executive has no right to any such renewal or extension.  Executive acknowledges and agrees further that in the event the Company, in its sole discretion, elects to offer Executive a renewal or extension of this Agreement or a new agreement following the expiration of the Term of this Agreement, except for an extension pursuant to Section 2.2, there can be no assurance as to the terms of any such renewal, extension or new agreement, the Company has made no representations to Executive with respect thereto and nothing contained in this Agreement shall b e relevant, or of any precedential value whatsoever, in determining the terms of any renewal, extension or new agreement.

SECTION 3

Change in Control Benefits

3.1.

Qualifying Termination Payments and Benefits.  Subject to Section 4 hereof, the Company shall provide to the Executive the payments and benefits described below if the Executive has a Qualifying Termination during the Coverage Period.

(a)

Accrued Benefits and Prorated Annual Bonus.  As soon as practicable (but no later than fifteen (15) business days or, if applicable, the date specified in Section 4.1(b) hereof) following the Qualifying Termination, the Company shall pay to the Executive a lump sum cash payment equal to Executive's (i) Accrued Benefits, and (ii) Prorated Annual Bonus.  Payments made under this subparagraph (a) shall constitute full satisfaction to the Executive for the accrued pay and benefits described in this subparagraph.

(b)

Severance Benefit.  As soon as practicable (but no later than fifteen (15) business days or, if applicable, the date specified in Section 4.1(b) hereof) following the Qualifying Termination, the Company shall pay to the Executive a lump sum cash payment equal to three (3) multiplied by the sum of (i) and (ii), where (i) equals the greater of the Executive's annual rate of base salary in effect upon the date of the Qualifying Termination, or the Executive's annual rate of base salary in effect as of the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction, and (ii) equals the Annual Bonus Amount.

(c)

Supplemental Retirement Benefits.  As soon as practicable (but no later than fifteen (15) business days or, if applicable, the date specified in Section 4.1(b) hereof) following the Qualifying Termination, the Company shall pay to the Executive a lump sum cash payment equal to

(i)

the excess of (A) the present value (determined as of the date of the Qualifying Termination) of the lump-sum actuarial equivalent of the benefit the Executive would have received, giving the Executive credit for three (3) additional years of age and service (for all purposes, including, but not limited to, vesting and accrual of benefits) (such three (3) additional years, referred to hereinafter as the "Severance Period"), under (1) the AGL Resources Inc. Retirement Plan, as amended (the "Retirement Plan") and (2) the AGL Resources Inc. Excess Benefit Plan (the "Excess Plan"), in each case utilizing actuarial assumptions (including the discount rate used in the present value calculation) no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction, and assuming that, for purposes of determining benefits under the Retirement Plan and the Excess Plan, the benefits would have commenced at the end of the Severance Period (or, if later, the earliest date distribution of the Executive's benefits could commence under the plans) and the Executive's covered annual compensation ("Covered Compensation") during the Severance Period would have been equal to the Executive's annual rate of Covered Compensation at the time of the Qualifying Termination or, if greater, at the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction, over (B) the present value (determined as of the date of the Qualifying Termination) of the lump-sum actuarial equivalent of the Executive's actual benefits accrued as of the date of the Qualifying Termination, if any, under the Retirement Plan and the Excess Plan (assuming the benefits would have commenced at the end of the Severance Period (or, if later, the earliest date distribution of the Executive's benefits could commence under the plans), and utilizing the same actuarial assumptions as used above in subsection (A) of this Section 3.1(c)(i)); and

(ii)

an amount equal to the sum of the additional contributions (other than before tax and after tax contributions by the Executive) that would have been made or credited (but, due to the Qualifying Termination, will not otherwise be made or credited) during the Severance Period (as defined in Section 3.1(c)(i) above) by the Company or a subsidiary to the Executive's account(s) under the AGL Resources Inc. Retirement Savings Plus Plan, as amended (the "Savings Plan"), and/or the AGL Resources Inc. Nonqualified Savings Plan, as amended, determined by assuming that,

(A)

the Executive's employment had continued through the Severance Period;

(B)

the Executive's compensation recognized by each such plan (with respect to the Savings Plan, subject to any Code limitations on covered compensation under qualified plans) would, during the Severance Period, have been equal to (1) the Executive's annual rate of base salary at the time of the Qualifying Termination or, if greater, at the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction, and (2) the Annual Bonus Amount; and

(C)

with respect to matching and/or discretionary contributions, the Executive's amount of pre-tax deferral contributions and the Company's matching contribution, in each year during the Severance Period, would have been equal to the maximum amount allowed under the applicable plan at the time of the Qualifying Termination or, if greater, at the earliest of the date of the Announcement, the date of a Change in Control or the date of the Consummation of a Change in Control Transaction.

(d)

Stock Options, Restricted Stock and Performance-Based Stock Awards.  Subject to Section 4 hereof, in the event of a Qualifying Termination during the Coverage Period, any outstanding stock options, restricted stock, performance share, performance unit or other similar long-term incentive awards of the Executive shall become vested and/or exercisable in accordance with the terms of the plan and/or award agreements under which such grants and awards were made as if a change in control (as defined in each applicable plan or award agreement) had occurred immediately prior to, and on the same day as, the Qualifying Termination.  Upon the occurrence of a change in control (as defined in each applicable plan or award agreement), all grants and awards shall be subject to the provisions of the plan and award agreements under which they were made.  With regard to any out standing stock options, the Executive shall have a period of one (1) year (subject to the expiration of the original term of the option) following the date of the Qualifying Termination in which to exercise such options; provided, that if the plan or option agreement under which such options were granted provides a longer period of exercise for which the Executive would be eligible, then such longer period shall be available to the Executive.

(e)

Welfare Benefits.  The Company shall provide the Executive and, as applicable, the Executive's eligible dependents with continued welfare benefits coverage, including, but not limited to, medical, dental, life insurance, and disability insurance coverage (provided, however, that long-term disability insurance coverage shall not be provided if, following the Executive's termination of employment, the Executive is not eligible to receive coverage under the Company's group long-term disability insurance policy because the Executive is no longer an employee), on the same basis (including premium) as active employees until the earlier of (i) thirty-six (36) months after the Executive's Qualifying Termination, or (ii) the commencement of comparable coverage with a subsequent employer; provided, however, that such continued coverage shall not count against any COBRA continuatio n coverage required by law.

(f)

Outplacement Benefits.  If so requested by the Executive, outplacement services shall be provided for up to one (1) year following the Qualifying Termination by a professional outplacement provider; provided, that, such outplacement services shall be provided at a cost to the Company of not more than 25% of the Executive's base salary in effect as of the date of the Announcement.

SECTION 4

Limitations on Payments and Excise Tax

4.1.

Limitation on Payments and Benefits.  

(a)

If any of the payments and benefits provided under this Agreement and/or under any other agreement with, or plan of, the Company or one of its subsidiaries (the "Total Payment") (a) constitute a "parachute payment" as defined in Code Section 280G and exceed three (3) times the Executive's "base amount" as defined under Code Section 280G(b)(3) by less than ten percent (10%) of three (3) times the Executive's base amount, and (b) would, but for this Section 4.1, be subject to the excise tax imposed by Code Section 4999, then the Executive's payments and benefits under this Agreement shall be reduced and payable only as to the maximum amount which would result in no portion of such Total Payment being subject to excise tax under Code Section 4999.  

(b)

If a reduction of the Total Payment is necessary under this section, the Executive shall be entitled to select which payments and/or benefits will be reduced and the manner and method of any such reduction.  Within ten (10) days after the amount of any required reduction in payments and benefits is finally determined under Section 4.3, the Executive shall notify the Company in writing regarding which payments and benefits are to be reduced.  If no notification is given by the Executive, the Company will determine which payments and/or benefits to reduce.  If the Company is required to determine which payments and/or benefits to reduce, it shall make such determination as soon as practicable, but no later than the fifteenth (15th) day after the amount of any required reduction in payments and benefits is finally determined under Section 4.3.  If, as a result of an y reduction required by this section, amounts previously paid or benefits previously provided to the Executive exceed the amount to which the Executive is entitled, the Executive will promptly return the excess amount to the Company.

4.2.

Gross Up Payments for Excise Tax.  If the Total Payment constitutes a "parachute payment" as defined in Code Section 280G and exceeds three (3) times the Executive's "base amount" as defined under Code Section 280G(b)(3) by at least ten percent (10%) of three (3) times the Executive's base amount, the Company shall provide to Executive, in cash, an additional payment in an amount to cover the full excise tax due under Code Section 4999 (including any interest and/or penalties), plus the Executive's city, state and federal income and employment taxes on this additional payment (the "Gross-Up Payment").  Any amount payable under this Section 4.2 shall be paid as soon as possible following the date of the Executive's Qualifying Termination, but in no event later than thirty (30) calendar days after such date.

4.3.

Accounting Firm.  All determinations required to be made under this Section 4, including whether reductions are necessary or whether a Gross-Up Payment is required, the amount of any such reduction or Gross-Up Payment and the assumptions to be used in determining such reduction or payment, shall be made by the accounting firm selected by the Company (the "Accounting Firm").  The Accounting Firm shall provide detailed supporting calculations both to the Company and to Executive within fifteen (15) business days of the receipt of a notice from the Company or Executive that there has been a Qualifying Termination or another event that could result in parachute payments under Code Section 280G, or such earlier time as is requested by the Company.  The Company shall not select as the Accounting Firm for this purpose any accountant or auditor for the individ ual, entity, or group effecting the Change in Control transaction (other than the Company) or any accountant or auditor that is precluded from providing the services required by this Section 4.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.

4.4.

Subsequent Recalculation.  If Executive is entitled to a Gross-Up Payment under Section 4.2 and the Internal Revenue Service subsequently increases the excise tax owed by the Executive, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole on an after-tax basis (less any amounts received by the Executive that the Executive would not have received had the computations initially been computed as subsequently adjusted), taking into consideration the amount of any underpaid excise tax, and any related interest and/or penalties owed to the Internal Revenue Service.

SECTION 5

Successors and Assignment

5.1.

Successors.  The Company shall require any successor (whether pursuant to a Change in Control transaction, direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform the Company's obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place.  Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a material breach of the Agreement and shall entitle the Executive to terminate the Executive's employment with Good Reason immediately prior to or at any time after such succession.  Any successor to the Company shall be deemed to be the Company for all purposes of this Agreement.

5.2.

Assignment by Executive.  This Agreement shall inure to the benefit of and be enforceable by the Executive's executor and/or administrators, heirs, devisees, and legatees.  If the Executive should die while any amount would be payable to Executive hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's estate.  Executive's rights hereunder shall not otherwise be assignable.

SECTION 6

Confidentiality; Non-Disparagement; Non-Solicitation; Trade Secrets

Without the prior written consent of the Company, Executive agrees hereby not to disclose or use, directly or indirectly (except as may be required for the performance of duties assigned by the Company or one of its subsidiaries or as may be required by a court of competent jurisdiction), any trade secret or other confidential information pertaining to the conduct of the Company's business, unless and until such trade secret or confidential information is in the public domain.  The Company's business, as that term is used herein, includes, but is not limited to, the Company's and any of its subsidiaries' records, processes, methods, data, reports, information, documents, equipment, training manuals, customer lists and business secrets.  Executive further agrees that, during the twenty-four (24) month period following a Qualifying Termination, Executive shall not initiate co ntact with employees of the Company or any of its subsidiaries for employment outside the Company or one of its subsidiaries, including those employees who were employed by the Company or one of its subsidiaries up to and including the date of the Qualifying Termination; provided, however, that nothing contained herein shall prevent Executive from responding to contacts initiated by such employees.  Except as may be compelled by a court of competent jurisdiction or as may otherwise be required by law, Executive shall take no action (including without limitation the making of any oral or written statement) which damages the reputation of the Company or any of its subsidiaries.

SECTION 7

Miscellaneous

7.1.

Contractual Rights to Benefits.  Except as expressly stated herein, nothing herein contained shall require or be deemed to require the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder; provided, however, that the Company may segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise as it deems appropriate.

7.2.

Obligation Absolute; No Effect on Other Rights.  Except for amounts that may be owed to the Company pursuant to Section 7.3 hereof, the obligations of the Company to make the payments and provide the benefits to the Executive and the Executive's dependents, and to make the arrangements provided for herein shall be absolute and unconditional and shall not be reduced by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or a third party at any time, nor shall the amount of any payment or benefit hereunder (except as provided for in Section 3.1(e)(ii) hereof) be reduced by any compensation earned by Executive as a result of employment by another employer.  Except as provided in Section 3.1(a) with respect to Accrued Benefits and the Prorated Annual Bonus, and ex cept as otherwise provided in Section 7.8, the provisions of this Agreement, and any payment provided for herein, shall not supercede or in any way limit the rights, benefits, duties or obligations which the Executive may have now or in the future under any benefit, incentive or other plan or arrangement of the Company or a subsidiary or any other agreement with the Company or a subsidiary.

7.3.

Legal Fees and Expenses.  In addition to all other amounts payable to the Executive under this Agreement, the Company shall pay the Executive's legal fees and expenses (including, without limitation, any and all court costs and attorneys' fees and expenses), as incurred by the Executive in connection with or as a result of any claim, action or proceeding brought by the Company or the Executive with respect to or arising out of this Agreement or any provision hereof; provided, however, in the case of an action brought by the Executive, if it is determined by an arbitrator or by a court of competent jurisdiction that such action was frivolous or without merit, any remaining unpaid legal fees or expenses shall not be paid and the Executive shall repay to the Company all amounts previously paid by the Company under this Section 7.3.

7.4.

Dispute Resolution.  Notice of any dispute or controversy arising under this Agreement shall be provided in writing to the other party.  If such dispute is not resolved by mutual agreement of the parties within 60 calendar days of the provision of such notice, Executive shall have the right and option to elect (in lieu of litigation) to have any such dispute or controversy settled by binding arbitration.  Such arbitration shall be conducted before a panel of three (3) arbitrators sitting in a location selected by Executive in the metropolitan area nearest to, and in the same county as, the Executive's place of residence, in accordance with the rules of the American Arbitration Association then in effect.  Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and Executi ve.  The Company may elect to have a dispute or controversy settled by binding arbitration only if such dispute or controversy arises under Section 6 of this Agreement.

7.5.

Notices.  Any notice required to be delivered to the Company or the Committee by Executive hereunder shall be properly delivered to the Company when personally delivered to, or received through the U.S. mail, postage prepaid, by:

AGL Resources Inc.

Attn: General Counsel

10 Peachtree Place, 19th Floor

Atlanta, GA 30309

Any notice required to be delivered to Executive by the Company or the Committee hereunder shall be properly delivered to Executive when personally delivered to, or actually received through the U.S. mail, postage prepaid, by, Executive.

7.6.

Amendment.  Except as otherwise provided in Sections 2.2 and 2.3 hereof, no provision of this Agreement may be amended, altered, modified, waived or discharged unless such amendment, alteration, modification, waiver or discharge is agreed to in a writing signed by both the Executive and such officer of the Company as is specifically designated by the Committee or the Board.  No waiver by either party, at any time, of any breach by the other party of, or of compliance by the other party with, any condition or provision of this Agreement to be performed or complied with by such other party shall be deemed a waiver of any similar or dissimilar provision or condition of this Agreement or any other breach or failure to comply with the same condition or provision at any prior or subsequent time.

7.7.

Employment Status.  Nothing herein contained shall be deemed to create an employment agreement between the Company and Executive providing for the employment of Executive by the Company for any fixed period of time.  Subject to the terms of any other agreement between the Company or a subsidiary and the Executive, if any, Executive's employment with the Company or a subsidiary is terminable at will by the Company or a subsidiary or Executive and each shall have the right to terminate Executive's employment with the Company or a subsidiary at any time, with or without Cause and with or without Good Reason, subject to the Company's obligation to provide any payments or benefits required hereunder.

7.8.

Entire Agreement.  Except as expressly provided herein, no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party.  This Agreement represents the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior discussions, negotiations, and agreements concerning the subject matter hereof, including, but not limited to, the Continuity Agreement entered into by and between the Executive and the Company dated May 15, 2000, together with any amendments thereto, and any prior severance agreement made between Executive and the Company or any of its subsidiaries; provided, however, that nothing contained herein shall prevent the Executive from receiving any severance benefits to which he or she is entitled under the terms of a Company or subsidiar y provided severance plan if the Executive's termination of employment does not qualify as a Qualifying Termination within the Coverage Period; provided, further, that nothing contained herein shall prevent the Executive from receiving benefits to which he or she may be entitled under any employee or retiree benefit or incentive plan maintained or contributed to by the Company or one of its subsidiaries, including, without limitation, the AGL Resources Inc. Executive Post Employment Medical Benefit Plan or the AGL Resources Inc. retiree medical plan.

7.9.

Tax Withholding.  The Company shall withhold from any amounts payable under this Agreement all federal, state, city, payroll or other taxes legally required to be withheld.

7.10.

Severability.  In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.

7.11.

Applicable Law.  To the extent not preempted by the laws of the United States, the law of the State of Georgia shall be the controlling law in all matters relating to this Agreement.

7.12.

Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which shall be deemed to constitute one and the same instrument.

IN WITNESS WHEREOF, the Company and Executive have executed this Agreement, to be effective as of the day and year first written above.

COMPANY:

AGL RESOURCES INC.

By: /s/ Paula G. Rosput

Title:  Chairman, President and Chief

Executive Officer

EXECUTIVE:

/s/ Melanie M. Platt

Signature

[THIS DOCUMENT HAS BEEN EXECUTED IN DUPLICATE.]

EX-10

Exhibit 10.3

DIRECTOR INDEMNIFICATION AGREEMENT

This Director Indemnification Agreement, dated this 28^th day of April 2004 (this “Agreement”), is made by and between AGL Resources Inc., a Georgia corporation (the “Company”), and _________________ (“Indemnitee”).

RECITALS:

A.  Section 14-2-801 of the Georgia Business Corporation Code (“GBCC”) provides that the business and affairs of a corporation shall be managed by or under the direction of its board of directors.

B.  By virtue of the managerial prerogatives vested in the directors of a Georgia corporation, directors act as fiduciaries of the corporation and its shareholders.

C.  Thus, it is critically important to the Company and its shareholders that the Company be able to attract and retain the most capable persons reasonably available to serve as directors of the Company.

D.  In recognition of the need for corporations to be able to induce capable and responsible persons to accept positions in corporate management, Sections 14-2-850 through 14-2-859 of the GBCC provide for the indemnification of the directors and officers of a corporation and specifically contemplate that contracts may be entered into between a corporation and the members of the board of directors and officers of the corporation with respect to indemnification of such directors and officers, and further authorizes corporations to purchase and maintain insurance for the benefit of their directors and officers.  

E.  Section 14-2-851 of the GBCC authorizes a corporation to indemnify its directors who are determined to have met a particular standard of conduct set forth in that section.  However, Section 14-2-856(a) of the GBCC provides that, if authorized by its articles of incorporation, a corporation may indemnify its directors without regard to the limitations in other sections of the GBCC, including the limitation in Section 14-2-851 of the GBCC, which requires a determination that a director seeking indemnification must first be determined to have met the statutorily prescribed standard of conduct.  Section 14-2-856(b), however, prohibits a corporation from indemnifying a director for liability incurred in a proceeding in which the director is adjudged liable to the corporation, or is subjected to injunctive relief in favor of the corporation, (i) for a breach of duty invo lving appropriation of a business opportunity of the corporation, (ii) for an act or omission that involves intentional misconduct or a knowing violation of law, (iii) for any transaction from which the director received an improper personal benefit, or (iv) under Section 14-2-832 of the GBCC for approval of an unlawful distribution.

F.  Pursuant to Article IX of the Company’s articles of incorporation, directors of the Company are entitled to indemnification under Section 14-2-856 of the GBCC.

G.  The number of lawsuits challenging the judgment and actions of directors of Georgia corporations, the costs of defending those lawsuits, and the threat to directors’ personal assets have all materially increased over the past several years, chilling the willingness of capable individuals to undertake the responsibilities imposed on corporate directors.

H.  Indemnitee is a director of the Company and his/her willingness to serve in such capacity is predicated, in substantial part, upon the Company’s willingness to indemnify him/her in accordance with the principles reflected above, to the fullest extent permitted by the laws of the State of Georgia, and upon the other undertakings set forth in this Agreement.

I.  Therefore, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s continued service as a director of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Company’s articles of incorporation or bylaws (collectively, the “Constituent Documents”), any change in the composition of the Company’s Board of Directors (the “Board”) or any change-in-control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancement of Expenses (as defined in Section 1(c)) to Indemnitee as set forth in this Agreement and for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

J.  In light of the considerations referred to in the preceding recitals, it is the Company’s intention and desire that the provisions of this Agreement be construed liberally, subject to their express terms, to maximize the protections to be provided to Indemnitee hereunder.

AGREEMENT:

NOW, THEREFORE, the parties hereby agree as follows:

1.

Certain Definitions.  In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:

(a)

“Claim” means (i) any threatened, asserted, pending or completed claim, demand, action, suit or proceeding, whether civil, criminal, administrative, arbitrative, investigative or other, and whether made pursuant to federal, state or other law, and (ii) any inquiry or investigation, whether made, instituted or conducted by the Company or any other party, including without limitation any federal, state or other governmental entity, that Indemnitee determines might lead to the institution of any such claim, demand, action, suit or proceeding.

(b)

“Controlled Affiliate” means any corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, that is directly or indirectly controlled by the Company.  For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity or enterprise, whether through the ownership of voting securities, through other voting rights, by contract or otherwise; provided that direct or indirect beneficial ownership of capital stock or other interests in an entity or enterprise entitling the holder to cast 20% or more of the total number of votes generally entitled to be cast in the election of directors (or persons performing comparable functions) of such entity or enterprise shall be deemed to constitute control for purposes of this definition.

(c)

“Expenses” means attorneys’ and experts’ fees and expenses and all other costs and expenses paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in (including on appeal), any Claim.

(d)

“Indemnifiable Claim” means any Claim based upon, arising out of or resulting from (i) any actual, alleged or suspected act or failure to act by Indemnitee in his or her capacity as a director, officer, employee or agent of the Company (including his or her capacity as a member or chair of a committee of the Board), or as a director, officer, employee, member, manager, trustee or agent of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, as to which Indemnitee is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent, (ii) any actual, alleged or suspected act or failure to act by Indemnitee in respect of any business, transaction, communication, filing, disclosure or other activity of the Company or an y other entity or enterprise referred to in clause (i) of this sentence, or (iii) Indemnitee’s status as a current or former director, officer, employee or agent of the Company (including his or her status as a member or chair of a committee of the Board) or as a current or former director, officer, employee, member, manager, trustee or agent of the Company or any other entity or enterprise referred to in clause (i) of this sentence or any actual, alleged or suspected act or failure to act by Indemnitee in connection with any obligation or restriction imposed upon Indemnitee by reason of such status.  In addition to any service at the actual request of the Company, for purposes of this Agreement, Indemnitee shall be deemed to be serving or to have served at the request of the Company as a director, officer, employee, member, manager, trustee or agent of another entity or enterprise if Indemnitee is or was serving as a director, officer, employee, member, manager, agent, trustee or ot her fiduciary of such entity or enterprise and (i) such entity or enterprise is or at the time of such service was a Controlled Affiliate, (ii) such entity or enterprise is or at the time of such service was an employee benefit plan (or related trust) sponsored or maintained by the Company or a Controlled Affiliate, or (iii) the Company or a Controlled Affiliate directly or indirectly caused Indemnitee to be nominated, elected, appointed, designated, employed, engaged or selected to serve in such capacity.

(e)

“Indemnifiable Losses” means any and all Losses relating to, arising out of or resulting from any Indemnifiable Claim.

(f)

“Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other) and amounts paid in settlement, including without limitation all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing.

2.

Indemnification Obligation.  The Company shall indemnify, defend and hold harmless Indemnitee, to the fullest extent permitted by the laws of the State of Georgia in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against any and all Indemnifiable Losses resulting from or arising out of any Indemnifiable Claim that shall have been finally disposed of (whether by judgment, order, injunction, settlement with or without court approval, conviction, plea of nolo contendere or its equivalent, or any other means), to the extent that Indemnitee shall not have been adjudged liable to the Company, or subjected to injunctive relief in favor of the Company, (i) for a breach of duty involving appropriation of a business opportunity of the Compan y; (ii) for an act or omission that involves intentional misconduct or a knowing violation of law; (iii) for any transaction from which Indemnitee received an improper personal benefit; or (iv) under Section 14-2-832 of the GBCC for approval of an unlawful distribution; provided, however, that, except as provided in Sections 4 and 19, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Claim initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Claim.

3.

Advancement of Expenses.  Indemnitee shall have the right to advancement by the Company prior to the final disposition of any Indemnifiable Claim of any and all actual and reasonable Expenses relating to, arising out of or resulting from any Indemnifiable Claim paid or incurred by Indemnitee or which Indemnitee determines in good faith are reasonably likely to be paid or incurred by Indemnitee.  Without limiting the generality or effect of the foregoing, within 15 calendar days after any request by Indemnitee that is accompanied by supporting documentation for specific Expenses to be reimbursed or advanced (which, in the case of Expenses not yet incurred, shall consist of estimates from Indemnitee’s counsel), the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses; provided that Indemnitee shall repay, without interest any amounts actually advanced to Indemnitee that, at the final disposition of the Indemnifiable Claim to which the advance related, were in excess of amounts paid or payable by Indemnitee in respect of actual and reasonable Expenses relating to, arising out of or resulting from such Indemnifiable Claim.  In connection with any such payment, advancement or reimbursement, Indemnitee shall execute and deliver to the Company (a) a written affirmation of Indemnitee’s good faith belief that Indemnitee’s conduct does not constitute behavior of the kind described in Section 14-2-856(b) of the GBCC, and (b) an undertaking, which need not be secured and shall be accepted without reference to Indemnitee’s ability to repay the Expenses, by or on behalf of the Indemnitee, to repay a ny amounts paid, advanced or reimbursed by the Company in respect of Expenses relating to, arising out of or resulting from any Indemnifiable Claim in respect of which it shall have been determined, following the final disposition of such Indemnifiable Claim, that Indemnitee is not entitled to indemnification hereunder.  

4.

Indemnification for Additional Expenses.  Without limiting the generality or effect of the foregoing, but subject to the second and third sentences of this Section 4, the Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within 15 calendar days of such request accompanied by supporting documentation for specific Expenses to be reimbursed or advanced (which, in the case of Expenses not yet incurred, shall consist of estimates from Indemnitee’s counsel), any and all actual and reasonable Expenses paid or incurred by Indemnitee or which Indemnitee determines in good faith are reasonably likely to be paid or incurred by Indemnitee in connection with any Claim made, instituted or conducted by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company. In the case of Claims contemplated by clause (a) of the foregoing sentence, in the event it is ultimately determined that Indemnitee is not entitled to such indemnification, reimbursement or advance, as the case may be, then Indemnitee shall (i) repay, without interest, any amount paid by the Company pursuant to this Section 4 with respect to such Claims,  and (ii) return, without interest, any such advance of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to which the advance related.  In the case of Claims contemplated by clause (b) of the first sentence of this Section 4, Indemnitee shall be entitle d to such indemnification, reimbursement or advancement, as the case may be, regardless of whether Indemnitee ultimately is determined to be entitled to such insurance recovery; provided, however, that Indemnitee shall return, without interest, any such advance of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to which the advance related.

5.

Partial Indemnity.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss but not for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.  

6.

Procedure for Notification.  To obtain indemnification under this Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee shall submit to the Company a written request therefor, including a brief description (based upon information then available to Indemnitee) of such Indemnifiable Claim or Indemnifiable Loss.  If, at the time of the receipt of such request, the Company has directors’ and officers’ liability insurance in effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss is potentially available, the Company shall give prompt written notice of such Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in accordance with the procedures set forth in the applicable policies.  The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers and, upon Indemnitee's request, copies of all subsequent correspondence between the Company and such insurers regarding the Indemnifiable Claim or Indemnifiable Loss, in each case, substantially concurrently with the delivery thereof by the Company.  The failure by Indemnitee to timely notify the Company of any Indemnifiable Claim or Indemnifiable Loss shall not relieve the Company from any liability hereunder unless, and only to the extent that, the Company did not otherwise learn of such Indemnifiable Claim or Indemnifiable Loss and such failure results in forfeiture by the Company of substantial defenses, rights or insurance coverage.

7.

Payment.  If Indemnitee shall be entitled to indemnification hereunder against any Indemnifiable Losses pursuant to Section 2, the Company shall pay to Indemnitee, within 15 calendar days after written request therefor as provided in Section 6, an amount equal to the amount of such Indemnifiable Losses.

8.

Standard of Conduct Not Relevant.  No determination by the Company (including by its directors or any independent counsel) that Indemnitee has failed to satisfy any particular standard of conduct shall be a defense to any Claim by Indemnitee for indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee is not entitled to indemnification hereunder.

9.

Non-Exclusivity.  The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, or the substantive laws of the Company’s jurisdiction of incorporation, any other contract or otherwise (collectively, “Other Indemnity Provisions”); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder, and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder.  The Company wi ll not, without the consent of Indemnitee, adopt any amendment to any of the Constituent Documents the effect of which would be to deny, diminish or encumber Indemnitee’s right to indemnification under this Agreement or any Other Indemnity Provision.

10.

Liability Insurance and Funding.  For the duration of Indemnitee’s service as a director and/or officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending or possible Indemnifiable Claim, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to cause to be maintained in effect policies of directors’ and officers’ liability insurance providing coverage for directors and/or officers of the Company that is at least substantially comparable in scope and amount to that provided by policies maintained by companies that are comparable in size to the Company and that are in the same or similar businesses as the Company.  The Company shall provide Indemnitee, upon request, a copy of all dire ctors’ and officers’ liability insurance applications, binders, policies, declarations and endorsements.  In all policies of directors’ and officers’ liability insurance obtained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company’s directors and officers most favorably insured by such policy.  The Company may, but shall not be required to, create a trust fund, grant a security interest or use other means, including without limitation a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy its obligations to indemnify and advance expenses pursuant to this Agreement.

11.

Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other persons or entities (other than Indemnitee’s successors), including any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(d).  Indemnitee shall execute all papers reasonably required to evidence such rights (all of Indemnitee’s reasonable Expenses, including attorneys’ fees and charges, related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Company).

12.

No Duplication of Payments.  The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee has otherwise actually received payment (net of Expenses incurred in connection therewith) under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise (including from any entity or enterprise referred to in clause (i) of the definition of “Indemnifiable Claim” in Section 1(d)) in respect of such Indemnifiable Losses otherwise indemnifiable hereunder.

13.

Defense of Claims.  Subject to the provisions of applicable policies of directors’ and officers’ liability insurance, the Company shall be entitled to participate in the defense of any Indemnifiable Claim or to assume or lead the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (a) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict, (b) the named parties in any such Indemnifiable Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee shall conclude that there may be one or more legal defenses available to him or her that are different from or in addition to those avail able to the Company, or (c) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Indemnifiable Claim) at the Company’s expense.  The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Indemnifiable Claim effected without the Company’s prior written consent.  The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any threatened or pending Indemnifiable Claim to which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of the Indemnitee from all liability on any claims that are the subject matter of such Indemnifiable Claim.  Nei ther the Company nor Indemnitee shall unreasonably withhold its consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.

14.

Successors and Binding Agreement.

(a)

The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place.  This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the “Company” for purposes of this Agreement), but shall not otherwise be assignable or delegatable by the Company.< /P>

(b)

This Agreement shall inure to the benefit of and be enforceable by the Indemnitee’s personal or legal representatives, executors, administrators, heirs, distributees, legatees and other successors.

(c)

This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 14(a) and 15(b).  Without limiting the generality or effect of the foregoing, Indemnitee’s right to receive payments hereunder shall not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by the Indemnitee’s will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 14(c), the Company shall have no liability to pay any amount so attempted to be assigned or transferred.

15.

Notices.  For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid or one business day after having been sent for next-day delivery by a nationally recognized overnight courier service, addressed to the Company (to the attention of the Secretary of the Company) and to Indemnitee at the addresses shown on the signature page hereto, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.

16.

Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Georgia, without giving effect to the principles of conflict of laws of such State.  

17.

Validity.  If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstance shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent, and only to the extent, necessary to make it enforceable, valid or legal.  In the event that any court or other adjudicative body shall decline to reform any provision of this Agreement held to be invalid, unenforceable or otherwise illegal as contemplated by the immediately preceding sentence, the parties thereto shall take all such action as may be necessary or appropriate to replace the provision so held to be invalid, un enforceable or otherwise illegal with one or more alternative provisions that effectuate the purpose and intent of the original provisions of this Agreement as fully as possible without being invalid, unenforceable or otherwise illegal.

18.

Miscellaneous.  No provision of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company.  No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.  References to Sections are references to Sections of this Agreement.

19.

Legal Fees and Expenses.  It is the intent of the Company that Indemnitee not be required to incur legal fees and or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder.  Accordingly, without limiting the generality or effect of any other provision hereof, if it should reasonably appear to Indemnitee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to improperl y deny, or to improperly recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of Indemnitee’s choice, at the expense of the Company as hereafter provided, to advise and represent Indemnitee in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company, in any jurisdiction.  If Indemnitee prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys’ and related fees and expenses actually and reasonably incurred by Indemnitee in connection with any of the foregoing.  In the event the Indemnitee does not prevail, in any part, in connection with any of th e foregoing, Indemnitee shall repay, without interest, any amounts paid by the Company pursuant to this Section 19.

20.

Certain Interpretive Matters.  No provision of this Agreement shall be interpreted in favor of, or against, either of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof.

21.

Counterparts.  This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together shall constitute one and the same agreement.

[Signatures Appear On Following Page]

#

IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written.

AGL RESOURCES INC.

Ten Peachtree Place

Atlanta, Georgia 30309

By:

Name:

Title:

Signature

#

EX-31

Exhibit 31 – Rule 13a-14(a)/15d-14(a) Certifications

CERTIFICATIONS

I, Paula G. Rosput, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of AGL Resources Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 28, 2004	/s/ Paula G. Rosput
	Chairman, President and Chief Executive Officer

I, Richard T. O'Brien, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of AGL Resources Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,  as of the end of the period covered by this report based on such evaluation; and
	(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: July 28, 2004	/s/ Richard T. O'Brien
	Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

Section 1350 Certifications

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

The undersigned, as the chief executive officer of AGL Resources Inc., certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

the Form 10-Q for the quarterly period ended June 30, 2004 (the “Report”), which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of AGL Resources Inc.

Date: July 28, 2004	/s/ Paula G. Rosput
	Chairman, President and Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

The undersigned, as the chief financial officer of AGL Resources Inc., certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

the Form 10-Q for the quarterly period ended June 30, 2004 (the “Report”), which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of AGL Resources Inc.

Date: July 28, 2004	/s/ Richard T. O'Brien
	Executive Vice President and Chief Financial Officer