March 2, 2006

John W. Somerhalder II
[via hand delivery]
 

Dear John:

It is our pleasure to provide the details of the offer extended to you by our
Board of Directors for the position of President and Chief Executive Officer of
AGL Resources Inc. This letter outlines your compensation and benefits package
and also explains the terms of this employment offer.

Your Compensation and Benefits
The compensation and benefits package you will receive in this position includes
the following, subject to your continued employment with the Company:

Base Salary
Your monthly base salary will be $58,333.33 ($700,000 annually). Your paycheck
will be directly deposited in the bank account of your choice.
 
Annual Incentives
Your annual incentive target will be 75% of your earned base salary and
administered under the terms of the Executive Performance Incentive Program
(EPIP), or successor plan, for the portion (75%) attributed to corporate
performance and the Annual Incentive Plan, or successor plan, for the portion
(25%) related to your individual performance. For 2006, your annual incentive
will be guaranteed at a total not less than a full year’s participation at
target level performance - $700,000 x 75% = $525,000 - provided that you remain
employed by the Company through December 31, 2006.
 
Long-Term Incentives
Effective with your start date, you will be granted (the “Start Date Equity
Grants”):
 
·  200,000 non-qualified stock options (the “Start Date Options”) having a term
of ten years and a cliff vesting requirement of five years. The exercise price
per share of the Start Date Options will be the closing price of the Company’s
stock on March 2, 2006.
·  40,000 shares of restricted stock (the “Start Date Restricted Stock”) also
having a cliff vesting requirement of five years and issued pursuant to the
LTIP.
 
All other terms and conditions of the Start Date Equity Grants will be
substantially similar to the terms and conditions of equity grants most recently
granted to the Company’s other senior executives pursuant to the terms of the
Company’s Long Term Incentive Plan (1999) (“LTIP”). Beginning in 2007, you will
be eligible to participate in the annual long term incentive program for
executives at the level and forms of incentive to be determined by the
Compensation and Management Development Committee of the Board of Directors when
it regularly considers such matters for other AGL Resources executives.
 
Your base salary, annual incentive target and long-term incentive target (and
forms of long-term incentives) will be subject to review from time to time by
the Compensation and Management Development Committee of the Company’s Board of
Directors.
 
Sign-on Bonus
As soon as practicable following your start date, you will receive a cash
payment of $150,000.
 

 

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Change in Control Agreement
You will be covered by AGL Resources’ current form of Change in Control
Agreement for Tier 1 Officers providing certain payments and benefits following
a change in your employment status resulting from a change in control of AGL
Resources Inc.
 
Company-Paid Benefits
You are eligible for coverage under the AGL Resources Benefits Program on your
31st day of employment. AGL Resources offers a number of Company-paid benefits
to its employees which include:
·  Retirement program which provides a lifetime annuity based on your career
average earnings and length of service
·  $60,000 basic life insurance
·  $60,000 basic AD&D coverage
·  Business Travel Insurance
·  Short Term Disability paid at 70% of base salary
·  Long Term Disability paid at 40% of base salary
·  40 hours of Wellness Leave for doctor and dentist appointments for you or if
you are the caregiver of an immediate family member
·  Educational Assistance / Tuition Reimbursement program
·  Employee Assistance Program
·  8 paid holidays (6 for the remainder of 2006), plus 3 floating holidays.
 
Your participation in these benefits will be in accordance with the terms of the
respective programs as in effect from time to time. Nothing herein will restrict
the Company’s right to amend or terminate such programs in accordance with their
terms.
Contributory Benefits
You will also be eligible to participate in these benefits which require
contributions from you for ongoing participation:
·  Company match of 65% on eligible income deferral contributions to the
Retirement Savings Plus (RSP) Plan (401(k)), subject to limits for highly
compensated employees
·  Company match of 65% on up to 8% of eligible income deferral contributions to
the Nonqualified Savings Plan (NSP) and RSP. The NSP generally permits deferrals
of up to 50% of compensation and 100% of annual bonus.
·  Coverage for medical, dental, and group insurance
·  Supplemental insurance programs for additional life insurance, spousal and
dependent life insurance
·  Additional AD&D for you and your family
·  A buy-up program for additional LTD
·  Flexible Spending Accounts for Health Care and Dependent Care Reimbursement
Accounts
·  15% discount for Company stock purchased through the Employee Stock Purchase
Program
·  Up to 5 additional vacation days
 
Your participation in these benefits will be in accordance with the terms of the
respective programs as in effect from time to time. Nothing herein will restrict
the Company’s right to amend or terminate such programs in accordance with their
terms.
Vacation:
You will be eligible for four (4) weeks of paid vacation in 2006.
Relocation: 
You will be eligible for AGL Resources’ Executive Relocation Program which will
provide for the purchase of your home and moving your family and household goods
to Atlanta. This program also provides for necessary visits for your spouse to
travel to Atlanta for purposes of house-hunting and selection and temporary
living arrangements should you need them.

 
 

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After you begin work at AGL Resources, you will receive an Employee Handbook
which contains further details about the benefits that are available to you as
well as our policies and procedures.
 
Termination of Employment
Except in the case of a termination of employment pursuant to which you are
eligible for severance under the Change in Control Agreement for Tier I Officers
as described above, should your employment be terminated by the Company without
cause on or prior to December 31, 2007, you will be entitled, subject to your
execution and non-revocation of an agreement containing (a) a release in the
form generally used by the Company (which release will include a
non-disparagement and cooperation with litigation provision) and (b) covenants
not to compete and not to solicit employees of the Company for employment with
durations of eighteen months and in the form generally used by the Company:

(1)  
to a termination allowance equal to 18 months’ base salary and 1.5 times annual
bonus (the annual bonus amount for this purpose will be the higher of your 2006
target bonus amount or the amount of the actual bonus, if any, paid to you (or
payable to you but deferred) in 2007 and attributable to 2006 performance (the
“Annual Bonus Amount”)), calculated at the date of termination. The termination
allowance will be paid as salary continuance over the 18 month period commencing
as of your date of termination or, to the extent required in order to comply
with Section 409A of the Internal Revenue Code of 1986, as amended (“Section
409A”), on the first business day following the six month anniversary of your
“separation from service” within the meaning of Section 409A; and

(2)  
during the 18 months following your termination of employment, subject to the
terms of the applicable plan, continued participation in the Company’s health
plans at the rates you paid as an active employee of the Company or, if higher,
the rates imposed on similarly situated executives of the Company following your
date of termination. Such health coverage would be deemed COBRA coverage and
will be paid by the Company; and

(3)  
to vesting of (a) the Start Date Equity Grants as follows: (x) if termination
occurs during calendar year 2006, one-fifth of the Start Date Options and
one-fifth of the Start Date Restricted Stock will vest at the date of
termination and the remainder will be forfeited and (y) if termination occurs
during calendar year 2007, two-fifths of the Start Date Options and two-fifths
of the Start Date Restricted Stock will vest at the date of termination and the
remainder will be forfeited; and (b) all other long-term incentives to the
extent provided in the plans and agreements evidencing their grant in accordance
with their terms; and

(4)  
to a lump sum cash payment within ten days of the date of termination or, to the
extent required in order to comply with Section 409A, on the first business day
following the six month anniversary of your “separation from service” within the
meaning of Section 409A, equal to a pro rata (to the date of termination)
portion of the Annual Bonus Amount (the “Pro Rata Bonus”).

Except as described above, no long-term incentive awards or other compensation
and/or benefits will be paid during the salary continuation period. All payments
will be subject to applicable laws and regulations and applicable withholding
and, if you are eligible to receive the payments and benefits hereunder, you
will not be entitled or eligible to receive any other salary, bonus or
separation or termination pay from the Company or any of its affiliates.

In the event that your employment is terminated by the Company for cause, you
shall not be entitled to any severance or similar benefits (including any Pro
Rata Bonus for the year in which the termination occurs) under this Agreement or
otherwise and all unvested long-term incentive awards will be forfeited.

In the event that your employment terminates by reason of your death or
disability (within the meaning of the long-term disability plan applicable to
you), your rights and benefits under the Company’s various compensation and
benefit plans will be as set forth under such plans and the Company shall have
no further obligations under this Agreement.

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Additional Retirement Benefit
Subject to your having been employed by the Company through December 31, 2010,
you will be eligible to receive a lump sum payment at the earlier of the time of
your termination of employment or the time of your retirement in accordance with
the terms of the Company’s pension plan (or a successor plan).  The amount of
the payment will be equal to the “actuarial equivalent” of the additional
benefit you would have been entitled to receive under the Company’s pension plan
and excess benefit plan (or the successors to such plans) at normal retirement
age (as defined in the pension plan) and in the form of a single life annuity,
if for each year of your service with the Company (up to a maximum of five
years), you had earned one additional year of service under such plans or the
successors to such plans. For these purposes, actuarial equivalence will be
based on the assumptions used by the Company for disclosure purposes, for the
fiscal year immediately preceding the year in which the payment occurs.  The
timing of this payment will be subject to the regulations under Section 409A.
The foregoing benefit is in addition to any similar benefit to which you may be
entitled under the Change in Control Agreement for Tier I Officers described
above.

Code of Conduct
We are enclosing a copy of our Code of Conduct. Please take the time to read
this important document.

The Terms of This Employment Offer
This letter provides the details of the offer of employment. It does not
constitute an employment contract. It does not guarantee employment through any
specific date. By accepting this offer, your employment with AGLR will be “at
will” and may be terminated by either you or AGLR at any time without notice.

Acceptance of This Offer
If the terms of this employment offer are satisfactory to you, please sign the
acceptance below and return this original letter to me.

Note that by accepting this offer, you:

·  
Certify that you have received and will comply with all of the provisions of the
Commitment to Integrity and Ethics, our Code of Business Conduct.

 

·  
Represent and warrant to AGL Resources that you are not bound by any other
agreement—written or oral—that would keep you from entering into employment with
AGL Resources. If a breach of this provision by you results in costs or damage
to AGL Resources, you agree to indemnify and hold AGL Resources harmless with
respect to such costs or damage.

If you would like further details about any of the information that is outlined
above, please feel free to contact me.

We’re looking forward to you leading the AGL Resources team!

Very truly yours,

/s/ Arthur E. Johnson

Arthur E. Johnson
Chairman
Compensation & Management Development Committee
AGL Resources Inc. Board of Directors

The above offer is ACCEPTED on the 2nd day of March, 2006.

/s/ John W. Somerhalder II 
John W. Somerhalder II