Document:

Exhibit 10.2

    CONTINUITY
      AGREEMENT

     

    This
      Continuity Agreement ("Agreement") is entered into as of the 3rd day of March,
      2006, 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 John W. Somerhalder II (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 Consummation
      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 35% or more of the combined voting power
      of the Company's then outstanding securities (unless the event causing the
      35%
      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 corporation and the purchaser,
      as
      the case may be; or

     

    (c)  A
      majority of members of the Board is replaced during any 24-month period by
      directors whose appointment or election is not endorsed by a majority of members
      of the Board prior to the date of their appointment or election.

     

    
       

      
        
        

        
          

        

      

       

    

    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 as of which a majority of the Board has been replaced, 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 March 3, 2006.

     

    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 the
      Executive retains the same position with a non-public company;

     

    (b)  any
      adverse change in the Executive's rate of annual base salary or annual incentive
      compensation opportunity (i.e., annual cash bonus opportunity under the Annual
      Incentive Plan, Executive Performance Incentive Plan or any successor plans)
      from the rate of annual base salary and annual 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 through November 30, 2007. 

     

    
       

      
        
        

        
          

        

      

       

    

    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 be 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 outstanding 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
      continuation 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 any 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 individual, 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 contact 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 except 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 Executive. 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, 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 subsidiary 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. 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/
      D.
      Raymond Riddle

     

    
      	 	
              Title:

            	
              Chairman
                of the Board of Directors

            

    

     

     

    EXECUTIVE:

     

    /s/
      John W. Somerhalder II

     Signature

     

    

     

    [THIS
      DOCUMENT HAS BEEN EXECUTED IN DUPLICATE.]<PAGE>

                                                                     EXHIBIT 4.1

                 SUB SURFACE WASTE MANAGEMENT OF DELAWARE, INC.

                      2006-I EMPLOYEE STOCK INCENTIVE PLAN

                          AS ADOPTED FEBRUARY 24, 2006

1.       PURPOSE.

         The purpose of this Plan is to provide incentives to attract, retain
and motivate eligible persons whose present and potential contributions are
important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms
not defined in the text are defined in Section 2.

2.       DEFINITIONS.

         As used in this Plan, the following terms will have the following
meanings:

         "AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.

         "AWARD AGREEMENT" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.

         "BOARD" means the Board of Directors of the Company.

         "CAUSE" means any cause, as defined by applicable law, for the
termination of a Participant's employment with the Company or a Parent or
Subsidiary of the Company.

         "CODE" means the Internal Revenue Code of 1986, as amended.

         "COMPANY" means Sub Surface Waste Management of Delaware, Inc., a
Delaware corporation, or any successor corporation.

         "DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Board.

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.

         "FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:

<PAGE>

                  (a)      if such Common Stock is publicly traded and is then
                           listed on a national securities exchange, its closing
                           price on the date of determination on the principal
                           national securities exchange on which the Common
                           Stock is listed or admitted to trading as reported in
                           The Wall Street Journal;

                  (b)      if such Common Stock is quoted on the NASDAQ National
                           Market, its closing price on the NASDAQ National
                           Market on the date of determination as reported in
                           The Wall Street Journal;

                  (c)      if such Common Stock is publicly traded but is not
                           listed or admitted to trading on a national
                           securities exchange, the average of the closing bid
                           and asked prices on the date of determination as
                           reported by Bloomberg, L.P.;

                  (d)      in the case of an Award made on the Effective Date,
                           the price per share at which shares of the Company's
                           Common Stock are initially offered for sale to the
                           public by the Company's underwriters in the initial
                           public offering of the Company's Common Stock
                           pursuant to a registration statement filed with the
                           SEC under the Securities Act; or

                  (e)      if none of the foregoing is applicable, by the Board
                           in good faith.

         "INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.

         "OPTION" means an award of an option to purchase Shares pursuant to
Section 6.

         "PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.

         "PARTICIPANT" means a person who receives an Award under this Plan.

         "PERFORMANCE FACTORS" means the factors selected by the Board, in its
sole and absolute discretion, from among the following measures to determine
whether the performance goals applicable to Awards have been satisfied:

                  (a)      Net revenue and/or net revenue growth;

                  (b)      Earnings before income taxes and amortization and/or
                           earnings before income taxes and amortization growth;

                  (c)      Operating income and/or operating income growth;

                  (d)      Net income and/or net income growth;

                  (e)      Earnings per share and/or earnings per share growth;

                  (f)      Total stockholder return and/or total stockholder
                           return growth;

<PAGE>

                  (g)      Return on equity;

                  (h)      Operating cash flow return on income;

                  (i)      Adjusted operating cash flow return on income;

                  (j)      Economic value added; and

                  (k)      Individual confidential business objectives.

         "PERFORMANCE PERIOD" means the period of service determined by the
Board, not to exceed five years, during which years of service or performance is
to be measured for Restricted Stock Awards or Stock Bonuses.

         "PLAN" means this Sub Surface Waste Management of Delaware, Inc. 2006-I
Employee Stock Incentive Plan, as amended from time to time.

         "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section
7.

         "SEC" means the Securities and Exchange Commission.

         "SECURITIES ACT" means the Securities Act of 1933, as amended.

         "SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 3 and 19, and any
successor security.

         "STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 8.

         "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

         "TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Company, provided that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to a
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Board may make such provisions respecting suspension of
vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Board will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").

<PAGE>

         "UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.

         "VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.

3.       SHARES SUBJECT TO THE PLAN.

         3.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 3.2 and 19, the
total aggregate number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 10,000,000 plus Shares that are subject to: (a)
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option; (b) an Award granted hereunder
but forfeited or repurchased by the Company at the original issue price; and (c)
an Award that otherwise terminates without Shares being issued. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.

         3.2 ADJUSTMENT OF SHARES. In the event that the number of outstanding
shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (a) the number of
Shares reserved for issuance under this Plan, (b) the Exercise Prices of and
number of Shares subject to outstanding Options, and (c) the number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the stockholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
a Share will not be issued but will either be replaced by a cash payment equal
to the Fair Market Value of such fraction of a Share or will be rounded up to
the nearest whole Share, as determined by the Board.

4.       ELIGIBILITY.

         ISOs (as defined in Section 6 below) may be granted only to employees
(including officers and directors who are also employees) of the Company or of a
Parent or Subsidiary of the Company. All other Awards may be granted to
employees, officers, directors, consultants, independent contractors and
advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction.

5.       ADMINISTRATION.

         5.1 BOARD AUTHORITY. This Plan will be administered by the Board.
Subject to the general purposes, terms and conditions of this Plan, the Board
will have full power to implement and carry out this Plan. Without limitation,
the Board will have the authority to:

                  (a)      construe and interpret this Plan, any Award Agreement
                           and any other agreement or document executed pursuant
                           to this Plan;

                  (b)      prescribe, amend and rescind rules and regulations
                           relating to this Plan or any Award;

                  (c)      select persons to receive Awards;

<PAGE>

                  (d)      determine the form and terms of Awards;

                  (e)      determine the number of Shares or other consideration
                           subject to Awards;

                  (f)      determine whether Awards will be granted singly, in
                           combination with, in tandem with, in replacement of,
                           or as alternatives to, other Awards under this Plan
                           or any other incentive or compensation plan of the
                           Company or any Parent or Subsidiary of the Company;

                  (g)      grant waivers of Plan or Award conditions;

                  (h)      determine the vesting, ability to exercise and
                           payment of Awards;

                  (i)      correct any defect, supply any omission or reconcile
                           any inconsistency in this Plan, any Award or any
                           Award Agreement;

                  (j)      determine whether an Award has been earned; and

                  (k)      make all other determinations necessary or advisable
                           for the administration of this Plan.

         5.2 BOARD DISCRETION. Any determination made by the Board with respect
to any Award will be made at the time of grant of the Award or, unless in
contravention of any express term of this Plan or Award, at any later time, and
such determination will be final and binding on the Company and on all persons
having an interest in any Award under this Plan. The Board may delegate to one
or more officers of the Company the authority to grant an Award under this Plan
to Participants who are not Insiders of the Company.

6.       OPTIONS.

         The Board may grant Options to eligible persons and will determine
whether such Options will be Incentive Stock Options within the meaning of the
Code ("ISO") or Nonqualified Stock Options ("NQSO"), the number of Shares
subject to the Option, the Exercise Price of the Option, the period during which
the Option may be exercised, and all other terms and conditions of the Option,
subject to the following:

         6.1 FORM OF OPTION GRANT. Each Option granted under this Plan will be
evidenced by an Award Agreement that will expressly identify the Option as an
ISO or an NQSO (hereinafter referred to as the "STOCK OPTION AGREEMENT"), and
will be in such form and contain such provisions (which need not be the same for
each Participant) as the Board may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.

         6.2 DATE OF GRANT. The date of grant of an Option will be the date on
which the Board makes the determination to grant such Option, unless otherwise
specified by the Board. The Stock Option Agreement and a copy of this Plan will
be delivered to the Participant within a reasonable time after the granting of
the Option.

         6.3 EXERCISE PERIOD. Options may be exercisable within the times or
upon the events determined by the Board as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is

<PAGE>

granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Board also may provide for
Options to become exercisable at one time or from time to time, periodically or
otherwise, in such number of Shares or percentage of Shares as the Board
determines.

         6.4 EXERCISE PRICE. The Exercise Price of an Option will be determined
by the Board when the Option is granted and may be not less than 85% of the Fair
Market Value of the Shares on the date of grant; provided that: (a) the Exercise
Price of an ISO will be not less than 100% of the Fair Market Value of the
Shares on the date of grant; and (b) the Exercise Price of any ISO granted to a
Ten Percent Stockholder will not be less than 110% of the Fair Market Value of
the Shares on the date of grant. Payment for the Shares purchased may be made in
accordance with Section 9 of this Plan.

         6.5 METHOD OF EXERCISE. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Board, (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.

         6.6 TERMINATION. Notwithstanding the exercise periods set forth in the
Stock Option Agreement, exercise of an Option will always be subject to the
following:

                 (a) If the Participant's service is Terminated for any reason
except death or Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been exercisable upon
the Termination Date no later than three (3) months after the Termination Date
(or such shorter or longer time period not exceeding five (5) years as may be
determined by the Board, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.

                 (b) If the Participant's service is Terminated because of
Participant's death or Disability (or the Participant dies within three (3)
months after a Termination other than for Cause or because of Participant's
Disability), then Participant's Options may be exercised only to the extent that
such Options would have been exercisable by Participant on the Termination Date
and must be exercised by Participant (or Participant's legal representative or
authorized assignee) no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five (5) years as may be
determined by the Board, with any such exercise beyond (i) three (3) months
after the Termination Date when the Termination is for any reason other than the
Participant's death or Disability, or (ii) twelve (12) months after the
Termination Date when the Termination is for Participant's death or Disability,
deemed to be an NQSO), but in any event no later than the expiration date of the
Options.

                  (c) Notwithstanding the provisions in paragraph 6.6(a) above,
if a Participant's service is Terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the Option shall be
entitled to exercise any Option with respect to any Shares whatsoever, after

<PAGE>

Termination, whether or not after Termination the Participant may receive
payment from the Company or Subsidiary for vacation pay, for services rendered
prior to Termination, for services rendered for the day on which Termination
occurs, for salary in lieu of notice, or for any other benefits. For the purpose
of this paragraph, Termination shall be deemed to occur on the date when the
Company dispatches notice or advice to the Participant that his service is
Terminated.

         6.7 LIMITATIONS ON EXERCISE. The Board may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option, provided
that such minimum number will not prevent Participant from exercising the Option
for the full number of Shares for which it is then exercisable.

         6.8 LIMITATIONS ON ISO. The aggregate Fair Market Value (determined as
of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.

         6.9 MODIFICATION, EXTENSION OR RENEWAL. The Board may modify, extend or
renew outstanding Options and authorize the grant of new Options in substitution
therefor, provided that any such action may not, without the written consent of
a Participant, impair any of such Participant's rights under any Option
previously granted. Any outstanding ISO that is modified, extended, renewed or
otherwise altered will be treated in accordance with Section 424(h) of the Code.
The Board may reduce the Exercise Price of outstanding Options without the
consent of Participants affected by a written notice to them; provided, however,
that the Exercise Price may not be reduced below the minimum Exercise Price that
would be permitted under Section 6.4 of this Plan for Options granted on the
date the action is taken to reduce the Exercise Price.

         6.10 NO DISQUALIFICATION. Notwithstanding any other provision in this
Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.

7.       STOCK AWARD.

                  A Stock Award is an offer by the Company to sell to an
eligible person Shares that may or may not be subject to restrictions. The Board
will determine to whom an offer will be made, the number of Shares the person
may purchase, the price to be paid (the "PURCHASE PRICE"), the restrictions to
which the Shares will be subject, and all other terms and conditions of the
Stock Award, subject to the following:

         7.1 FORM OF STOCK AWARD. All purchases under a Stock Award made
pursuant to this Plan will be evidenced by an Award Agreement (the "STOCK
PURCHASE AGREEMENT") that will be in such form (which need not be the same for

<PAGE>

each Participant) as the Board will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. The offer of Stock
will be accepted by the Participant's execution and delivery of the Stock
Purchase Agreement and full payment for the Shares to the Company within thirty
(30) days from the date the Stock Purchase Agreement is delivered to the person.
If such person does not execute and deliver the Stock Purchase Agreement along
with full payment for the Shares to the Company within thirty (30) days, then
the offer will terminate, unless otherwise extended by the Board.

         7.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant to a
Stock Award will be determined by the Board on the date the Stock Award is
granted, except in the case of a sale to a Ten Percent Stockholder, in which
case the Purchase Price will be 100% of the Fair Market Value. Payment of the
Purchase Price must be made in accordance with Section 9 of this Plan.

         7.3 TERMS OF STOCK AWARDS. Stock Awards shall be subject to such
restrictions as the Board may impose. These restrictions may be based upon
completion of a specified number of years of service with the Company or upon
completion of the performance goals as set out in advance in the Participant's
individual Stock Purchase Agreement. Stock Awards may vary from Participant to
Participant and between groups of Participants. Prior to the grant of a Stock
Award, the Board shall: (a) determine the nature, length and starting date of
any Performance Period for the Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Stock Award, the Board shall determine the extent to which
such Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Awards that
are subject to different Performance Periods and have different performance
goals and other criteria.

         7.4 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Award only to the extent earned as of the date of Termination in
accordance with the Stock Purchase Agreement, unless the Board determines
otherwise.

<PAGE>

8.       STOCK BONUSES.

         8.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of Shares (which
may consist of Restricted Stock) for extraordinary services rendered to the
Company or any Parent or Subsidiary of the Company. A Stock Bonus will be
awarded pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the Board
will from time to time approve, and will comply with and be subject to the terms
and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of
such performance goals as are set out in advance in the Participant's individual
Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Board will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. Stock Bonuses may vary from Participant to Participant
and between groups of Participants, and may be based upon the achievement of the
Company, Parent or Subsidiary and/or individual performance factors or upon such
other criteria as the Board may determine.

         8.2 TERMS OF STOCK BONUSES. The Board will determine the number of
Shares to be awarded to the Participant. If the Stock Bonus is being earned upon
the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Board will: (a) determine the nature, length and starting
date of any Performance Period for each Stock Bonus; (b) select from among the
Performance Factors to be used to measure the performance, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Stock Bonus, the Board shall determine the extent to which
such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals and
other criteria. The number of Shares may be fixed or may vary in accordance with
such performance goals and criteria as may be determined by the Board. The Board
may adjust the performance goals applicable to the Stock Bonuses to take into
account changes in law and accounting or tax rules and to make such adjustments
as the Board deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.

         8.3 FORM OF PAYMENT. The earned portion of a Stock Bonus may be paid to
the Participant by the Company either currently or on a deferred basis, with
such interest or dividend equivalent, if any, as the Board may determine.
Payment may be made in the form of cash or whole Shares or a combination
thereof, either in a lump sum payment or in installments, all as the Board will
determine.

9.       PAYMENT FOR SHARE PURCHASES.

         9.1 PAYMENT. Payment for Shares purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the Participant by the
Board and where permitted by law:

                  (a)      by cancellation of indebtedness of the Company to the
                           Participant;

                  (b)      by surrender of shares that either: (1) have been
                           owned by Participant for more than one year and have
                           been paid for within the meaning of Rule 144 of the
                           Securities Act of 1933 (and, if such shares were
                           purchased from the Company by use of a promissory
                           note, such note has been fully paid with respect to
                           such shares); or (2) were obtained by Participant in
                           the public market;

<PAGE>

                  (c)      by waiver of compensation due or accrued to the
                           Participant for services rendered;

                  (d)      with respect only to purchases upon exercise of an
                           Option, and provided that a public market for the
                           Company's stock exists:

                           (1)      through a "same day sale" commitment from
                                    the Participant and a broker-dealer that is
                                    a member of the National Association of
                                    Securities Dealers (an "NASD DEALER")
                                    whereby the Participant irrevocably elects
                                    to exercise the Option and to sell a portion
                                    of the Shares so purchased to pay for the
                                    Exercise Price, and whereby the NASD Dealer
                                    irrevocably commits upon receipt of such
                                    Shares to forward the Exercise Price
                                    directly to the Company; or

                           (2)      through a "margin" commitment from the
                                    Participant and a NASD Dealer whereby the
                                    Participant irrevocably elects to exercise
                                    the Option and to pledge the Shares so
                                    purchased to the NASD Dealer in a margin
                                    account as security for a loan from the NASD
                                    Dealer in the amount of the Exercise Price,
                                    and whereby the NASD Dealer irrevocably
                                    commits upon receipt of such Shares to
                                    forward the Exercise Price directly to the
                                    Company; or

                  (e)      by any combination of the foregoing.

10.      WITHHOLDING TAXES.

         10.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.

         10.2 STOCK WITHHOLDING. When, under applicable tax laws, a participant
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Board may allow the Participant
to satisfy the minimum withholding tax obligation by electing to have the
Company withhold from the Shares to be issued that number of Shares having a
Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be
determined. All elections by a Participant to have Shares withheld for this
purpose will be made in accordance with the requirements established by the
Board and be in writing in a form acceptable to the Board.

<PAGE>

11.      PRIVILEGES OF STOCK OWNERSHIP.

         11.1 VOTING AND DIVIDENDS. No Participant will have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a stockholder and will have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.

         11.2 FINANCIAL STATEMENTS. Pursuant to regulation 260.140.46 of the
Rules of the California Corporations Commissioner, the Company will provide
financial statements to each Participant prior to such Participant's purchase of
Shares under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.

12.      TRANSFERABILITY.

         Awards granted under this Plan, and any interest therein, will not be
transferable or assignable by Participant, and may not be made subject to
execution, attachment or similar process, other than by will or by the laws of
descent and distribution. During the lifetime of the Participant an Award will
be exercisable only by the Participant. During the lifetime of the Participant,
any elections with respect to an Award may be made only by the Participant
unless otherwise determined by the Board and set forth in the Award Agreement
with respect to Awards that are not ISOs.

13.      RESTRICTIONS ON SHARES.

         At the discretion of the Board, the Company may reserve to itself
and/or its assignee(s) in the Award Agreement a right to repurchase a portion of
or all Unvested Shares held by a Participant following such Participant's
Termination at any time within ninety (90) days after the later of (a)
Participant's Termination Date, or (b) the date Participant purchases Shares
under this Plan. Such repurchase by the Company shall be for cash and/or
cancellation of purchase money indebtedness, and the price per share shall be
the Participant's Exercise Price or the Purchase Price, as applicable.

<PAGE>

14.      CERTIFICATES.

         All certificates for Shares or other securities delivered under this
Plan will be subject to such stock transfer orders, legends and other
restrictions as the Board may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.

15.      ESCROW; PLEDGE OF SHARES.

         To enforce any restrictions on a Participant's Shares, the Board may
require the Participant to deposit all certificates representing Shares,
together with stock powers or other instruments of transfer approved by the
Board appropriately endorsed in blank, with the Company or an agent designated
by the Company to hold in escrow until such restrictions have lapsed or
terminated, and the Board may cause a legend or legends referencing such
restrictions to be placed on the certificates. Any Participant who is permitted
to execute a promissory note as partial or full consideration for the purchase
of Shares under this Plan will be required to pledge and deposit with the
Company all or part of the Shares so purchased as collateral to secure the
payment of Participant's obligation to the Company under the promissory note;
provided, however, that the Board may require or accept other or additional
forms of collateral to secure the payment of such obligation and, in any event,
the Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Board will
from time to time approve. The Shares purchased with the promissory note may be
released from the pledge on a pro rata basis as the promissory note is paid.

16.      EXCHANGE AND BUYOUT OF AWARDS.

         The Board may, at any time or from time to time, authorize the Company,
with the consent of the respective Participants, to issue new Awards in exchange
for the surrender and cancellation of any or all outstanding Awards. The Board
may at any time buy from a Participant an Award previously granted with payment
in cash, Shares (including Restricted Stock) or other consideration, based on
such terms and conditions as the Board and the Participant may agree.

17.      SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.

         An Award will not be effective unless such Award is in compliance with
all applicable federal and state securities laws, rules and regulations of any
governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they are
in effect on the date of grant of the Award and also on the date of exercise or
other issuance. Notwithstanding any other provision in this Plan, the Company
will have no obligation to issue or deliver certificates for Shares under this
Plan prior to: (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable; and/or (b) completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the registration, qualification
or listing requirements of any state securities laws, stock exchange or
automated quotation system, and the Company will have no liability for any
inability or failure to do so.

<PAGE>

18.      NO OBLIGATION TO EMPLOY.

         Nothing in this Plan or any Award granted under this Plan will confer
or be deemed to confer on any Participant any right to continue in the employ
of, or to continue any other relationship with, the Company or any Parent or
Subsidiary of the Company or limit in any way the right of the Company or any
Parent or Subsidiary of the Company to terminate Participant's employment or
other relationship at any time, with or without cause.

19.      CORPORATE TRANSACTIONS.

         19.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the event of
(a) a dissolution or liquidation of the Company, (b) a merger or consolidation
in which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 19.1,
such Awards will expire on such transaction at such time and on such conditions
as the Board will determine. Notwithstanding anything in this Plan to the
contrary, the Board may provide that the vesting of any or all Awards granted
pursuant to this Plan will accelerate upon a transaction described in this
Section 19. If the Board exercises such discretion with respect to Options, such
Options will become exercisable in full prior to the consummation of such event
at such time and on such conditions as the Board determines, and if such Options
are not exercised prior to the consummation of the corporate transaction, they
shall terminate at such time as determined by the Board.

         19.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 19, in the event
of the occurrence of any transaction described in Section 19.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.

         19.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either: (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be

<PAGE>

granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.

20.      ADOPTION AND STOCKHOLDER APPROVAL.

         This Plan will become effective on the date on which it is adopted by
the Board (the "EFFECTIVE DATE"). This Plan shall be approved by the
stockholders of the Company within twelve (12) months before or after the date
this Plan is adopted by the Board. Upon the Effective Date, the Board may grant
Awards pursuant to this Plan. In the event that stockholder approval of this
Plan is not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be
cancelled and any purchase of Shares issued hereunder shall be rescinded.

21.      TERM OF PLAN/GOVERNING LAW.

         Unless earlier terminated as provided herein, this Plan will terminate
ten (10) years from the date this Plan is adopted by the Board or, if earlier,
the date of stockholder approval. This Plan and all agreements thereunder shall
be governed by and construed in accordance with the laws of the State of
California.

22.      AMENDMENT OR TERMINATION OF PLAN.

         The Board may at any time terminate or amend this Plan in any respect,
including without limitation amendment of any form of Award Agreement or
instrument to be executed pursuant to this Plan; provided, however, that the
Board will not, without the approval of the stockholders of the Company, amend
this Plan in any manner that requires such stockholder approval.

23.      NONEXCLUSIVITY OF THE PLAN.

         Neither the adoption of this Plan by the Board, the submission of this
Plan to the stockholders of the Company for approval, nor any provision of this
Plan will be construed as creating any limitations on the power of the Board to
adopt such additional compensation arrangements as it may deem desirable,
including, without limitation, the granting of stock options and bonuses
otherwise than under this Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.

24.      ACTION BY BOARD.

         Any action permitted or required to be taken by the Board or any
decision or determination permitted or required to be made by the Board pursuant
to this Plan shall be taken or made in the Board's sole and absolute discretion.

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