Form PRE 14A for ATMOS ENERGY CORP filed on 25 Nov 1998 December 23, 1998 Dear Atmos Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders to be held at The Westin Hermitage, 231 Sixth Avenue North, Nashville, Tennessee 37219, on Wednesday, February 10, 1999, at 11:00 a.m. Central Standard Time. The matters to be acted upon at the meeting are described in the attached Notice of Annual Meeting and Proxy Statement. In addition, we will review with you the affairs and progress of the Company during the past year and report the results of operations for the first quarter. Your participation at this meeting is very important, regardless of the number of shares you hold or whether you will be able to attend the meeting in person. Please date, sign, and return the proxy in the enclosed envelope to ensure that your shares are represented at the meeting. On behalf of your Board of Directors, thank you for your continued support and interest in Atmos Energy Corporation. Sincerely, /s/ ROBERT W. BEST ---------------------------------------- Robert W. Best Chairman of the Board, President and Chief Executive Officer ATMOS ENERGY CORPORATION P.O. BOX 650205 DALLAS, TEXAS 75265-0205 NOTICE OF ANNUAL MEETING To the Shareholders: The Annual Meeting of the Shareholders of Atmos Energy Corporation (the "Company") will be held at The Westin Hermitage, 231 Sixth Avenue North, Nashville, Tennessee, 37219 on Wednesday, February 10, 1999, at 11:00 a.m., Central Standard Time, for the following purposes: 1. To elect four Class I directors for three-year terms expiring in 2002. 2. To act upon a proposal to amend the Restated Articles of Incorporation of the Company as Amended to increase the number of authorized shares of Common Stock from 75,000,000 to 100,000,000. 3. To act upon a proposal to approve the Company's 1998 Long-Term Incentive Plan. 4. To act upon a proposal to approve the Company's Annual Incentive Plan for Management. 5. To act upon a proposal to approve the Company's Equity Incentive and Deferred Compensation Plan for Non-Employee Directors. 6. To transact such other business as may properly come before the meeting or any adjournment thereof. Shareholders of record of the Company's Common Stock at the close of business on December 14, 1998 will be entitled to notice of, and to vote at, such meeting. The stock transfer books will not be closed. By Order of the Board of Directors, GLEN A. BLANSCET Vice President, General Counsel and Corporate Secretary December 23, 1998 YOUR VOTE IS IMPORTANT TO VOTE YOUR SHARES, PLEASE INDICATE YOUR CHOICES, SIGN AND DATE THE PROXY CARD, AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY VOTE IN PERSON AT THE MEETING EVEN THOUGH YOU SEND IN YOUR PROXY. ATMOS ENERGY CORPORATION P.O. BOX 650205 DALLAS, TEXAS 75265-0205 PROXY STATEMENT SOLICITATION AND REVOCABILITY OF PROXIES The proxy enclosed with this statement is solicited by the management of Atmos Energy Corporation (the ''Company'') at the direction of the Company's Board of Directors. These materials were first mailed to the Company's shareholders on December 23, 1998. Any shareholder giving a proxy has the power to revoke the proxy at any time prior to its exercise. The Company expects to solicit proxies primarily by mail, but directors, officers, employees, and agents of the Company may also solicit proxies in person or by telephone or other electronic means. The cost of preparing, assembling, and mailing the proxies and accompanying materials for this Annual Meeting of Shareholders, including the cost of reimbursing brokers and nominees for forwarding proxies and proxy statements to their principals, will be paid by the Company. In addition, Morrow & Co., Inc. (''Morrow'') will assist the Company in the solicitation of proxies. The Company will pay $7,500 in fees, plus expenses and disbursements, to Morrow for its proxy solicitation services. COMMON STOCK INFORMATION; RECORD DATE As of December 14, 1998, there were [___________] shares of the Company's common stock, no par value (''Common Stock''), issued and outstanding, all of which are entitled to vote. These shares constitute the only class of stock of the Company issued and outstanding. As stated in the accompanying Notice of Annual Meeting, only shareholders of record at the close of business on December 14, 1998 will be entitled to vote at the meeting. Each share is entitled to one vote. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners. The following table lists the beneficial ownership, as of December 1, 1998, of the Company's Common Stock with respect to each person known by the Company to be the beneficial owner of more than five percent of such Common Stock. AMOUNT OF PERCENTAGE OF NAME AND ADDRESS COMMON STOCK OUTSTANDING OF BENEFICIAL OWNER BENEFICIALLY OWNED Common Stock ------------------- ------------------ ------------- Employee Stock Ownership Plan and [________________] [______]% Trust for Employees of Atmos Energy Corporation (the "ESOP") (a) (a) The ESOP permits Company employees who participate in the ESOP to exercise voting power with respect to shares of the Company's Common Stock held in their ESOP accounts. With respect to shares of Common Stock owned by the ESOP for which participating employees do not exercise such voting rights, the ESOP Trust Committee, which is a committee appointed by the Board of Directors currently consisting of certain officers of the Company, is entitled to vote such shares in its discretion. Security Ownership of Management. The following table lists the beneficial ownership, as of December 1, 1998, of the Company's Common Stock with respect to all directors and nominees for director of the Company, the executive officers of the Company named in the Summary Compensation Table on page 8 of this Proxy Statement, and all directors and executive officers of the Company as a group. AMOUNT OF PERCENTAGE OF COMMON STOCK OUTSTANDING NAME BENEFICIALLY OWNED COMMON STOCK ---- ------------------ ------------- Travis W. Bain II............................... ------ (a) Robert W. Best.................................. ------ (a) Glen A. Blanscet................................ ------ (a) Dan Busbee...................................... ------ (a) Richard W. Cardin............................... ------ (a) Larry J. Dagley................................. ------ (a) Thomas J. Garland............................... ------ (a) J. Charles Goodman.............................. ------ (a) Gene C. Koonce.................................. ------ (a) Vincent J. Lewis................................ ------ (a) Thomas C. Meredith.............................. ------ (a) Wynn D. McGregor................................ ------ (a) Phillip E. Nichol............................... ------ (a) Carl S. Quinn................................... ------ (a) Charles K. Vaughan.............................. ------ (a) Richard Ware II................................. All directors and executive officers as a group ------ (16 individuals)................................ (a) The percentage of shares beneficially owned by such individual does not exceed one percent of the class so owned. 1. ELECTION OF DIRECTORS Pursuant to the Company's Bylaws, the Board of Directors is divided into three classes, each of which class consists, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. Directors for Class I are to be elected at this Annual Meeting for three-year terms expiring in 2002. Travis Bain, II, Dan Busbee, Gene C. Koonce, and Vincent J. Lewis have been nominated to serve as Class I directors. Messrs. Bain and Busbee were last elected to three-year terms by the shareholders at the 1996 Annual Meeting and have been nominated to continue to serve as directors for three-year terms ending in 2002. Messrs. Koonce and Lewis, formerly directors of United Cities Gas Company ("United Cities") prior to its merger with the Company on 2 July 31, 1997 (the "Merger"), were elected by the shareholders at the Special Meeting of the Shareholders on November 12, 1996 to serve as additional Class I directors of the Company pursuant to the provisions of the Agreement and Plan of Reorganization, as amended, between the Company and United Cities. The Board is nominating Messrs. Bain, Busbee, Koonce and Lewis to continue serving as Class I directors. The terms of all nominated directors will expire in 2002. The other directors listed on the following pages will continue to serve in their positions for the remainder of their current terms. The names, ages, and biographical summaries of (i) the persons who have been nominated to serve as directors of the Company and (ii) the directors who are continuing in office until the expiration of their terms and the class in which such nominee or other director has been designated, are set forth in the following table. Each of the nominees has consented to be a nominee and to serve as a director if elected, and all votes authorized by the enclosed proxy will be cast FOR all of the nominees. In order to be elected as a director, the Company's Bylaws require a nominee to receive the vote of a majority of all outstanding shares of the Company's Common Stock entitled to vote and represented in person or by proxy at a meeting of shareholders at which a quorum is present. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE FOLLOWING NOMINEES: YEAR IN WHICH FIRST BECAME A CLASS DESIGNATION NAME; PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR AND YEAR OF DURING PAST FIVE YEARS; OTHER DIRECTORSHIPS AGE OF THE COMPANY EXPIRATION OF TERM ------------------------------------------- --- -------------- ------------------ Travis W. Bain II..................................... 64 1988 Class I President of Bain Enterprises, Inc. in Plano, 1999 Texas since November 1991. Also director of Delta Industries, Inc. in Jackson, Mississippi. Dan Busbee............................................ 65 1988 Class I Of Counsel with Gibson Dunn & Crutcher in 1999 Dallas, Texas since August 1998. Formerly Attorney and Shareholder with Locke Purnell Rain Harrell (A Professional Corporation) in Dallas, Texas from 1972 until August 1998. Gene C. Koonce........................................ 66 1997 Class I Formerly Chairman of the Board, President and 1999 Chief Executive Officer of United Cities from May 1996 until the Merger in July 1997; President and Chief Executive Officer of United Cities from October 1978 until May 1996. Also director of First American Corporation in Nashville, Tennessee. Vincent J. Lewis...................................... 54 1997 Class I Senior Vice President at Legg Mason Wood 1999 Walker, Inc. in Rutherford, New Jersey since 1987. 3 The following persons are directors of the Company who will be continuing in office until the expiration of their terms as set forth below. YEAR IN WHICH FIRST BECAME A CLASS DESIGNATION NAME; PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR AND YEAR OF DURING PAST FIVE YEARS; OTHER DIRECTORSHIPS AGE OF THE COMPANY EXPIRATION OF TERM ------------------------------------------- --- -------------- ------------------ Robert W. Best........................................ 52 1997 Class III Chairman of the Board, President and Chief 2001 Executive Officer of the Company since March 1997. Formerly Senior Vice President-Regulated Businesses of Consolidated Natural Gas Company from January 1996 to March 1997; President of Texas Gas Transmission Company from February 1985 to May 1995 and President of Transcontinental Gas Pipe Line Corporation from February 1992 to May 1995. Richard W. Cardin..................................... 63 1997 Class II Consultant and retired partner of Arthur Andersen LLP 2000 since 1995. Formerly office managing partner with Arthur Andersen LLP in Nashville, Tennessee from 1980 until 1994. Also member of Board of Trustees of CCA Prison Realty Trust and director of United States Lime & Minerals, Inc. Thomas J. Garland..................................... 64 1997 Class III Chairman of The Tusculum Institute for Public 2001 Leadership and Policy since 1998. Formerly Executive in Residence and Distinguished Service Professor of the Civic Arts at Tusculum College in Greeneville, Tennessee and a consultant from 1990 to 1998. Also director of Peoples Community Bank in Johnson City, Tennessee. Thomas C. Meredith.................................... 57 1995 Class II Chancellor of the University of Alabama System in 2000 Tuscaloosa, Alabama since June 1997. Formerly President of Western Kentucky University in Bowling Green, Kentucky from 1988 until June 1997. Director of Alabama Power Company. Phillip E. Nichol..................................... 63 1985 Class III Senior Vice President and Divisional Hiring Officer for 2001 Central Division of PaineWebber Incorporated since March 1998. Formerly Senior Vice President and Branch Manager of PaineWebber Incorporated in Fort Worth, Texas from May 1996 to February 1998. Formerly Senior Vice President and Branch Manager of PaineWebber Incorporated in Cleveland, Ohio from February 1995 to May 1996; Senior Vice President and Manager of Kidder Peabody & Co. in Cleveland, Ohio from September 1994 until February 1995 and Vice President and Manager of Kidder Peabody & Co. in Toledo, Ohio from May 1992 until February 1995. 4 Carl S. Quinn......................................... 67 1994 Class II General Partner of Quinn Oil Company, Ltd. in 2000 East Hampton, New York since May 1992. Formerly Chairman of the Board, President and Chief Executive Officer of Interstate Natural Gas Company in Houston, Texas from January 1992 until December 1994. Charles K. Vaughan.................................... 61 1983 Class III Formerly Chairman of the Board of the Company from 2001 June 1994 until March 1997; Chairman of the Board and Chief Executive Officer of the Company from March 1993 until June 1994; Chairman of the Board, President and Chief Executive Officer of the Company from October 1983 until March 1993. Richard Ware II....................................... 52 1994 Class II President of Amarillo National Bank in 2000 Amarillo, Texas since 1981. Also director of The Coca-Cola Bottling Group (Southwest), Inc. and member of the Board of Trustees of Southern Methodist University in Dallas, Texas. CERTAIN BUSINESS RELATIONSHIPS Mr. Ware is the president and a shareholder of Amarillo National Bank, Amarillo, Texas, which bank provides a $12 million short-term line of credit to the Company, serves as a depository bank for the Company, and is trustee for the Company's Restricted Stock Grant Plan. For a discussion of other business relationships, see "Human Resources Committee Interlocks and Insider Participation" on page 11. THE BOARD OF DIRECTORS: COMMITTEES, MEETINGS, AND DIRECTORS' FEES Standing Committees. The Company has certain standing committees, each of which is described below. The Executive Committee consists of Messrs. Best, Koonce, Quinn and Vaughan. Mr. Vaughan serves as chairman of the committee. In accordance with the Bylaws of the Company, the Executive Committee has, and may exercise, all of the powers of the Board during the intervals between the Board's meetings, subject to certain limitations and restrictions as set forth in the Bylaws or as may be established by resolution of the Board of Directors from time to time. The Executive Committee held no meetings during the last fiscal year. The Audit Committee consists of Messrs. Bain, Busbee, Cardin, Lewis, Meredith and Ware. Mr. Busbee serves as chairman of the committee. The Audit Committee reviews the scope and procedures of internal auditing work, the results of independent audits, and the accounting policies of management, and it recommends to the Board the appointment of the Company's outside auditors. The Audit Committee held three meetings during the last fiscal year. The Human Resources Committee consists of Messrs. Bain, Busbee, Garland, Nichol and Quinn. Mr. Quinn serves as chairman of the committee. This committee reviews and makes recommendations to the Board of Directors regarding compensation for officers of the Company. In addition to compensation matters, the committee determines, develops, and makes recommendations to the Board regarding benefit packages, special bonus or stock plans, severance agreements, and succession planning with respect to the Company's officers. This committee also administers the Company's 1998 Long-Term Incentive Plan and Annual Incentive Plan for Management, both of which plans became effective October 1, 1998, subject to the approval of the Company's shareholders, as is more fully discussed below. During the last fiscal year, the Human Resources Committee held three meetings. 5 The Nominating Committee consists of Messrs. Cardin, Koonce, Lewis, Meredith and Nichol. Mr. Nichol serves as chairman of the committee. This committee selects candidates for consideration by the full Board to fill any vacancies on the Board, which may occur from time to time. The Nominating Committee held one meeting during the last fiscal year. The Nominating Committee also considers sound and meritorious nomination suggestions for directors from shareholders. All letters of recommendation for nomination should be sent to the Corporate Secretary of the Company at the Company's headquarters and should include, in addition to the nominee's name and address, a listing of the nominee's background and qualifications. A signed statement from the nominee should accompany the letter of recommendation indicating that he or she consents to being considered as a nominee and that, if nominated by the Board and elected by the shareholders, he or she will serve as a director. The Work Session/Annual Meeting Committee consists of Messrs. Bain, Garland, Koonce, Nichol and Ware. Mr. Bain serves as chairman of the committee. This committee plans the meeting and agenda for the special meeting of the Board held each year for the purpose of focusing on long-range planning and corporate strategy issues and selects the site for the Annual Shareholders Meeting. During the last fiscal year, the Work Session/Annual Meeting Committee held two meetings. Attendance at Board Meetings. During the last fiscal year, the Board of Directors of the Company held six meetings. During fiscal year 1998, each director attended at least seventy-five percent of the aggregate of (a) all meetings of the Board and (b) all meetings of the committees of the Board on which such director served. Directors' Fees. As compensation for serving as a director, each of the non- employee directors receives an annual retainer of $20,000 and a fee of $1,000 per day for attendance at each Board and committee meeting (excluding telephone conference meetings). The fee paid for participation in a telephonic conference meeting of the Board or a committee is one-half of the regular meeting fee. Committee chairmen are also paid a fee for extra work done in connection with their committee duties. On August 12, 1998, the Board adopted the Company's Equity Incentive and Deferred Compensation Plan for Non-Employee Directors, representing an amendment to the Company's Deferred Compensation Plan for Outside Directors that was originally adopted May 10, 1990. This amended plan is subject to the approval of the shareholders at the Annual Meeting, and will not take effect until that time. As is more fully discussed below, should the Company's shareholders approve this plan, each non-employee director will be allowed to defer receipt of his annual retainer and meeting fees and to invest his deferred compensation into either a cash account or a stock account. Under the current plan, non- employee directors may defer payment of all or a part of their compensation earned as a director until the earlier of a date specified by the director or the date he or she ceases to be a director. In addition, the Company will pay interest on amounts deferred at a rate equal to 100 basis points above the New York Federal Reserve Bank discount rate in effect as of each January 15. See Section 5, "Approval of Equity Incentive and Deferred Compensation Plan for Non- Employee Directors", on page 23, for more information on this plan. In November 1994, the Board adopted the Outside Directors Stock-for-Fee Plan, which plan was approved by the shareholders of the Company in February 1995. The plan permits non-employee directors to receive all or part of their annual retainer and meeting fees in Common Stock of the Company rather than in cash. An election by a director to receive his or her fees in stock does not alter the amount of fees payable but results in the deferral of payment of the stock portion of the fees until after the end of each quarter in which the fees were earned. The number of shares of Common Stock issued at such time will be equal to (a) the dollar amount of the fees to be paid in stock divided by (b) the fair market value of the Company's Common Stock on the last day of the applicable quarter. The fair market value is the closing price of a share of Common Stock of the Company as reported by the New York Stock Exchange. Only whole numbers of shares are issued; fractional shares are paid in cash. Other Compensation for Non-Employee Directors. The Retirement Plan for Non- Employee Directors (the "Directors Retirement Plan") covers non-employee directors who have served on the Board (including service prior to January 1, 1994 on the Board of Greeley Gas Company and prior to August 1, 1997 on the Board of United 6 Cities) for at least five years and who have attained age 65. Upon retirement, a participating non-employee director is entitled to an annual pension benefit equal to the sum of (a) 50% of the amount of the participant's final annual retainer plus (b) 10% of the amount of the participant's final annual retainer for each year of service on the Board in excess of five years. In no event may the annual pension benefit exceed 100% of a director's final annual retainer. The pension benefit is payable for the participant's life. The plan is unfunded. As discussed above, on August 12, 1998, the Board adopted the Company's Equity Incentive and Deferred Compensation Plan for Non-Employee Directors (the "Directors Compensation Plan"), which plan is subject to the approval of the shareholders at the Annual Meeting. Should such plan be approved by the shareholders, it will be effective at that time and the Directors Retirement Plan will terminate. However, current participants in the Directors Retirement Plan may elect to remain in such plan instead of participating in the new Directors Compensation Plan but no persons who become directors after February 10, 1999 shall be eligible to participate in the Directors Retirement Plan. See Section 5, "Approval of Equity Incentive and Deferred Compensation Plan for Non- Employee Directors", beginning on page 23, for more information on the Directors Compensation Plan. In addition, the Company provides business travel accident insurance for non- employee directors and their spouses. The policy provides $100,000 coverage to directors and $50,000 coverage to their spouses per accident while traveling on Company business. Other Arrangements with Mr. Vaughan. Effective October 1, 1994, Mr. Vaughan retired as an officer and employee of the Company and entered into a five-year Consulting Agreement with the Company. Under the agreement, Mr. Vaughan performs such consulting services as the Board may request from time to time. The term of the agreement may be extended for additional one-year periods upon the agreement of the Board and Mr. Vaughan. The term of the agreement was extended by amendment approved in 1998 for an additional one-year period, ending September 30, 2000. The agreement provides for future payments to Mr. Vaughan, in consideration for his consulting services, of $130,000 during fiscal year 1999 and $130,000 during fiscal year 2000. During the 1998 fiscal year, Mr. Vaughan received $300,000 in payment for his services under the Consulting Agreement. The payments are made in semi-annual installments payable on October 1 and April 1 of each fiscal year. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who beneficially own more than ten percent of the Company's Common Stock to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in their ownership in the Company's Common Stock. Directors, executive officers, and greater-than-ten-percent beneficial shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to the Company and written representations that no Forms 5 were required, the Company believes that, during the last fiscal year, all of the Company's directors, executive officers, and greater-than-ten-percent beneficial owners were in compliance with the Section 16(a) filing requirements. 7 EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth the compensation paid by the Company for each of the Company's last three completed fiscal years to Mr. Best and the Company's four most highly compensated executive officers other than Mr. Best. SUMMARY COMPENSATION TABLE LONG TERM ANNUAL COMPENSATION Compensation ---------------------------------- ------------ RESTRICTED OTHER ANNUAL STOCK ALL OTHER SALARY BONUS (a) COMPENSATION AWARDS (B) COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) --------------------------- ---- -------- --------- ------------- -------------- -------------- Robert W. Best (c)....................... 1998 480,786 450,000 (d) 1,262,500 8,584(e) Chairman of the Board, President 1997 266,426 487,200 (d) 1,225,000 2,184 and Chief Executive Officer Larry J. Dagley (f)...................... 1998 310,385 263,300 (d) 631,250 5,528(e) Executive Vice President and 1997 125,000 283,400 (d) 1,225,000 1,872 Chief Financial Officer J. Charles Goodman....................... 1998 184,537 108,800 (d) 126,250 8,028(e) Executive Vice President, 1997 177,530 121,400 (d) 0 11,132 Utility Operations 1996 171,127 45,400 (d) 91,425 7,895 Glen A. Blanscet......................... 1998 135,973 58,700 (d) 65,650 6,328(e) Vice President, General Counsel 1997 129,854 198,200 (d) 0 9,335 and Corporate Secretary 1996 122,924 32,600 (d) 29,813 5,690 Wynn D. McGregor......................... 1998 116,892 41,800 (d) 32,825 5,434(e) Vice President, Human Resources 1997 114,047 52,000 (d) 0 5,273 1996 109,263 22,300 (d) 19,875 5,062 (a) Some bonuses were actually paid after the end of the fiscal year in which they are reported. Because their payment relates to services rendered in the fiscal year prior to payment, the Company has consistently reported bonus payments in such prior fiscal year. (b) The number and value of the aggregate restricted stock holdings at the end of the last fiscal year for each of the executive officers listed above were as follows: Robert W. Best, 100,000 shares with a value of $2,856,250; Larry J. Dagley, 75,000 shares with a value of $2,142,188; J. Charles Goodman, 5,000 shares with a value of $142,813; Glen A. Blanscet, 2,600 shares with a value of $74,263; and Wynn D. McGregor, 1,300 shares with a value of $37,131. Dividends are paid on the restricted stock reported in the Table at the same rate they are paid on all of the Company's Common Stock. (c) Mr. Best became Chairman, President and Chief Executive Officer of the Company on March 8, 1997. (d) The total dollar value of perquisites and other personal benefits for the named executive officer was less than the reporting thresholds established by the Securities and Exchange Commission. (e) This amount reflects the amount of Company matching contributions made during the last fiscal year to the named executive officer's account pursuant to the Company's ESOP and the amount of insurance premiums paid by the Company during the last fiscal year with respect to term life insurance for the benefit of the named executive officer. The amounts paid during the 1998 fiscal year for each named executive officer were as follows: Robert W. Best, $6,400 in Company matching contributions made pursuant to the ESOP and $2,184 in term life insurance premiums; Larry J. Dagley, $3,500 in Company matching contributions made pursuant to the ESOP and $2,028 in term life insurance premiums; J. Charles Goodman, $6,824 in Company matching contributions made pursuant to the ESOP and $1,204 in term life insurance premiums; Glen A. Blanscet, $5,439 in Company matching contributions made pursuant to the ESOP and $889 in term life insurance premiums; and Wynn D. McGregor, $4,676 in Company matching contributions made pursuant to the ESOP and $758 in term life insurance premiums. (f) Mr. Dagley became Executive Vice President and Chief Financial Officer of the Company on May 1, 1997. 8 Retirement Plans. The executive officers listed in the Summary Compensation Table have been covered by the Employees' Retirement Plan of Atmos Energy Corporation (the "Retirement Plan''), a defined benefit pension plan pursuant to which all participants automatically accrue pension credits after completing one year of service with the Company. Each of the executive officers listed in the Summary Compensation Table also participates in the Company's Supplemental Executive Benefits Plan (the ''Supplemental Plan''), which provides retirement benefits (as well as supplemental disability and death benefits) to all officers and business unit presidents of the Company. A participant who has been an officer or business unit president for at least two years, has five years of vesting service under the Retirement Plan or a similar plan, and attained age 55 is entitled to a supplemental pension in an amount that, when added to his or her pension payable under the Retirement Plan or a similar plan, equals 75% of his compensation, subject to reductions for less than ten years of vesting service and for retirement prior to age 62. Effective January 1, 1999, the executive officers listed in the Summary Compensation Table will be covered by the Company's new Pension Account Plan, which covers all employees of the Company. Such executive officers will have an opening account balance established for them as of January 1, 1999 equal to the present value of their respective accrued benefits under the Retirement Plan as of December 31, 1998. The present value factor is based on average life expectancy, normal retirement age and discount rate of seven percent. The Pension Account Plan will credit an allocation to each participant's account at the end of each year according to a formula based on his age, service and total pay (excluding incentive pay). The Pension Account Plan provides for an additional annual allocation based upon a participant's age as of January 1, 1999 for those participants who were participants in the Retirement Plan. The Pension Account Plan will credit this additional allocation each year through December 31, 2008. In addition, at the end of each year, a participant's account will be credited with interest on the employee's prior year account balance. A special grandfather benefit also applies through December 31, 2008, for participants who will be at least age 50 as of January 1, 1999, and who were participants in the Retirement Plan on December 31, 1998. Participants are fully vested in their account balances after five years of eligibility service and may choose to receive their account balances as a lump sum or an annuity. The following table illustrates the estimated combined annual benefits payable under the Retirement Plan and the Supplemental Plan upon retirement at age 62 or later to persons in specified compensation categories and years-of- service classifications as determined in such person's last year of employment. 9 PENSION PLAN TABLE (a) YEARS OF SERVICE REMUNERATION 15 20 25 30 35 $125,000............................... 93,750 93,750 93,750 93,750 93,750 150,000............................... 112,500 112,500 112,500 112,500 112,500 175,000............................... 131,250 131,250 131,250 131,250 131,250 200,000............................... 150,000 150,000 150,000 150,000 150,000 225,000............................... 168,750 168,750 168,750 168,750 168,750 250,000............................... 187,500 187,500 187,500 187,500 187,500 300,000............................... 225,000 225,000 225,000 225,000 225,000 350,000............................... 262,500 262,500 262,500 262,500 262,500 400,000............................... 300,000 300,000 300,000 300,000 300,000 450,000............................... 337,500 337,500 337,500 337,500 337,500 500,000............................... 375,000 375,000 375,000 375,000 375,000 600,000............................... 450,000 450,000 450,000 450,000 450,000 700,000............................... 525,000 525,000 525,000 525,000 525,000 800,000............................... 600,000 600,000 600,000 600,000 600,000 900,000............................... 675,000 675,000 675,000 675,000 675,000 1,000,000............................. 750,000 750,000 750,000 750,000 750,000 --------------------- (a) The benefit amounts listed in the Pension Plan Table are not subject to any deduction for Social Security or offset amounts and are computed based upon payment as a joint and 50% survivor annuity. The Retirement Plan covers only the regular salary of each of its participants, excluding bonuses (subject to the maximum covered compensation limit of $160,000 as of January 1, 1997 established by the Internal Revenue Code for qualified plans). The Supplemental Plan covers compensation in an amount equal to the sum of (a) the greater of the participant's annual base salary at the date of termination of employment or the average of the participant's annual base salary for the highest of three calendar years (whether or not consecutive) of employment with the Company; (b) the greater of the amount of the participant's last award under any of the Company's annual performance bonus or incentive plans or the average of the participant's highest three performance awards under such plan (whether or not consecutive); and (c) the participant's annual car allowance payable by the Company at the date of his termination of employment. The amount of current compensation covered by the Supplemental Plan as of the end of the last fiscal year for each of the executive officers listed in the Summary Compensation Table is as follows: Robert W. Best, $965,000; Larry J. Dagley, $600,900; J. Charles Goodman, $314,400; Glen A. Blanscet, $241,044; and Wynn D. McGregor, $173,029. Each of such executive officers has the following approximate number of years of credited service under the retirement plans: Robert W. Best, 1 year; Larry J. Dagley, 1 year; J. Charles Goodman, 17 years; Glen A. Blanscet, 13 years; and Wynn D. McGregor, 10 years. Each of the executive officers listed in the Summary Compensation Table has also entered into a Participation Agreement with the Company as required by the Supplemental Plan. The Supplemental Plan provides that the accrued benefits, as calculated pursuant to the plan, of each participant will vest in the event of (a) a termination of the participant's employment by the Company without "cause" (i) following a "change of control" of the Company (as both terms are defined in the plan), (ii) in anticipation of a "change in control" (whether or not a "change in control" ever occurs), or (iii) at the request of a party to a pending transaction that will constitute a "change in control", if and when the transaction is consummated, (b) a termination of the plan, (c) an amendment to the plan resulting in a decrease in the benefits otherwise payable to the participant, (d) a termination of the participant's employment voluntarily (with respect to Messrs. Blanscet, Goodman and McGregor only); (e) a termination of the participant's employment for any reason other than ''cause'', or (f) a termination of the participant's participation in the plan for any reason other than "cause" prior to the participant's termination of employment." The approval of 10 the Merger by the shareholders on November 12, 1996 constituted a "change in control" as defined in the Supplemental Plan, and as a result, Messrs. Goodman, Blanscet and McGregor, who were participants in the Supplemental Plan as of November 12, 1996, are each entitled to receive unreduced supplemental pension benefits commencing at age 55. The Participation Agreements set forth the specific rights of the participants to their accrued benefits upon the occurrence of the events described above and constitute enforceable contracts separate from the provisions of the Supplemental Plan. Employment Severance Compensation Agreements and Change-in-Control Arrangements. The Company has entered into severance agreements with each of the executive officers named in the Summary Compensation Table to provide certain severance benefits for them in the event of the termination of their employment within three years following a ''change in control'' (as defined in the agreements) of the Company. Under each of the severance agreements and plans described below, a "change in control" of the Company is deemed to occur if, among other things, the shareholders of the Company approve a merger or other similar transaction, whereby the shareholders prior to the transaction will not own at least 60% of the voting power of the Company after the transaction. The severance agreement for each executive officer other than Mr. Goodman provides that if employment is terminated by the Company other than for "cause" (as defined in the agreement), retirement, death, or disability, or by the employee for other than "constructive termination" (as defined in the agreement), the Company will pay such executive officer a lump sum severance payment equal to 2.5 times such executive officer's total compensation, comprised of the annual base salary and "Average Bonus", as such term in defined in the agreement. If the total of such lump sum severance payment plus all other payments, distributions or benefits of any type made to or on behalf of the executive officer results in the imposition of the excise tax imposed by Section 4999 of the Internal Revenue Code, the lump sum severance payment will be increased in an amount required for the executive officer to pay any such excise taxes due the Internal Revenue Service. In addition, such executive officer will be entitled to all rights and benefits, if any, provided under any other plan or agreement between him and the Company. Mr. Goodman's severance agreement provides that if employment is terminated by the Company other than for "cause" (as defined in the agreement), retirement, death, or disability, or by the employee for ''good reason'' (as defined in the agreement), the Company will pay him a lump sum severance payment equal to 2.99 times his ''base amount'' compensation, as defined in Section 280G of the Internal Revenue Code. If the total of such lump sum severance payment plus all other payments made in connection with a change in control pursuant to any other plan, arrangement, or agreement results in the imposition of the excise tax imposed by Section 4999 of the Internal Revenue Code, such lump sum severance payment will be reduced to the extent necessary to make the total of all such payments not be subject to such excise tax unless the total of all such payments as reduced by the amount of such excise tax is greater than the lump sum severance payment described above. In addition, Mr. Goodman will be entitled to all rights and benefits, if any, provided under any other plan or agreement between him and the Company. Each of the executive officers listed in the Summary Compensation Table also participates in the Company's Restricted Stock Grant Plan and has received, from time to time, awards of stock that are restricted with respect to their transferability. The restrictions lapse pursuant to a schedule established by the Board of Directors at the date of the grant. Notwithstanding any established schedule for the removal of restrictions, however, the restrictions are immediately removed in the event of the participant's death, disability, or retirement at normal retirement age (age 62) or in the event of a ''change of control'' (as defined in the plan) of the Company. Human Resources Committee Interlocks and Insider Participation. The members of the Human Resources Committee during the last fiscal year were Messrs. Bain, Busbee, Garland, Nichol and Quinn. Mr. Busbee is of counsel to the law firm of Gibson, Dunn & Crutcher in Dallas, Texas, which the Company retains from time to time to perform legal services. In addition, during the last fiscal year until August 1998, Mr. Busbee was an attorney and shareholder with the law firm of Locke Purnell Rain Harrell in Dallas, Texas, which the Company has also retained from time to time. There are no interlocking relationships between any executive officer of the Company and any other company. 11 Human Resources Committee Report on Executive Compensation. The Human Resources Committee of the Board of Directors is charged with the responsibility of providing oversight and direction with respect to the compensation programs and employee benefit plans of the Company. All members of the Committee are non-employee directors who serve on the Board of Directors. Specific duties and responsibilities of the Committee include: . The establishment and oversight of the Company's executive compensation policy and strategy. . Development of recommendations to the Board of Directors regarding the pay of Company officers and of the CEO's compensation. . Development of recommendations to the Board of Directors regarding performance targets and criteria underlying the Company's various incentive compensation plans and approval of such targets and criteria with respect to the Company's incentive compensation plans subject to Section 162(m) of the Internal Revenue Code. . Interaction with outside advisors and consultants regarding the Company's current compensation and benefit plans as well as periodic assessments of the competitive marketplace, emerging trends and legislative developments, and best practices employed by other corporations. . Review and determination, for recommendation to the Board of Directors, of the Company's program for providing compensation to non-employee directors. . Assurance that the Company's compensation program for the CEO and other officers is aligned with the Company's overall business strategy and focuses upon the creation of value for the Company's shareholders. This report has been prepared by the Committee immediately following the meeting of the Committee on October 27, 1998, at which time the Committee determined bonus awards for the most recent performance year, established new incentive targets and performance measures for the 1999 performance year, reviewed salary recommendations for all officers and business unit presidents/general managers, and conducted other matters consistent with the Committee's charter. COMPENSATION STRATEGY. Over the course of the past 12 months, the Committee has been working with the consultants of Towers Perrin, an international management consulting firm, in rethinking its approach to the remuneration of all employees. The Committee recognized that the Company needed a compensation program that is better aligned with the Company's business plans and strategies going forward: more focus upon growth opportunities in both regulated and nonregulated business sectors, further emphasis upon operating efficiencies and service levels, and preparation for a more competitive environment in a rapidly consolidating industry. The compensation program for all employees has been shifted to a program which focuses upon "total rewards." Total rewards is an all-encompassing approach to compensation and benefits which emphasizes the importance of the total package including base salary, incentive opportunities, employee benefits, training and development opportunities, and the corporate environment. The Company is in the process of implementing the new total rewards program over the next several months. In concert with the total rewards program development for all employees, the Committee provided direction and guidance in formulating a new executive compensation strategy for the organization. Working with Towers Perrin, the Company has adopted an executive compensation strategy which focuses upon the following guiding principles: 12 . Key executives who are charged with the responsibility for establishing and executing the Company's business strategy should have incentive compensation opportunities that are aligned with the creation of shareholder value. . An executive compensation program should be built around an emphasis upon total rewards. . Stock ownership is an important component for ensuring that executives' interests are aligned with shareholders. . To facilitate stock ownership for executives, the Company will provide stock options and other stock-based incentive vehicles that focus on shareholder value creation. . Incentive compensation opportunities should have significant upside potential with commensurate downside risk. . The Company's compensation strategy will place a greater emphasis upon stock options and related long-term incentive opportunities, with limited emphasis upon special benefits and perquisites. In recognition of these guiding principles, the Committee worked closely with Towers Perrin throughout the year to reposition its executive compensation program. Key components of the new program include: . The introduction of a more objective and performance sensitive annual incentive plan for management that is designed to comply with Section 162(m) of the Internal Revenue Code. . The adoption of a multi-faceted long-term incentive plan which will allow for the granting of stock options and other forms of long-term incentives, with elements of the plan designed to comply with Section 162(m) of the Internal Revenue Code. . The adoption of voluntary share ownership guidelines for the Company's officers and business unit presidents/general managers, expressed as a multiple of the individual's base salary, and the requirement to achieve such ownership levels within five years. . Elimination of Company-provided automobile allowances for executives and supplemental medical plan coverage. . An overall compensation strategy to pay executive base salaries at the 50th percentile of the competitive market practice with targeted total cash and targeted total direct compensation to be paid at the 75th percentile of competitive market practice if performance targets are reached. In addition to its work on executive compensation, the Committee worked closely with Towers Perrin to change its approach to its compensation program for non-employee directors. As a result, the Board has adopted the Equity Incentive and Deferred Compensation Plan for Non-Employee Directors, subject to the approval of the Company's shareholders at their Annual Meeting. After the Annual Meeting, the non-employee directors who are currently participating in the Retirement Plan for Non-Employee Directors will be able to elect to participate in the new plan or remain in the current Retirement Plan for Non- Employee Directors. In addition, no persons who become directors after the Annual Meeting on February 10, 1999 shall be eligible to participate in the Retirement Plan for Non-Employee Directors. ASSESSMENT OF COMPETITIVE PRACTICES. The Committee regularly evaluates competitive compensation data provided by management consultants to ensure that the Company's pay policy and practices are aligned with the competitive marketplace. Over the course of the past 12 months, the Committee reviewed on two 13 occasions competitive compensation levels from numerous survey sources and analyses provided by Towers Perrin. These sources of competitive compensation data included: . A review of the total direct compensation of the five highest paid executives for a select peer group of 17 gas utility companies which have annual revenues and market capitalizations comparable to the Company. . Published survey data of the gas utility industry provided by the American Gas Association. . Published survey data of the utility industry provided by the Executive Compensation Service. . Published and private survey data of both the utility industry and general industry provided by Towers Perrin. These survey sources provide a comprehensive review of national compensation practices as well as selected companies that compete in specific geographic markets in which the Company participates. The organizations participating in these surveys are different than some of the companies that appear in the Performance Graph. Specific job comparisons and access to market data for companies included in the Performance Graph are not readily available to the Committee. For the most recently completed fiscal year, the Company's executive compensation program was comprised of base salary, annual incentive compensation, and long-term incentive compensation in the form of time-lapsed restricted stock. The following paragraphs discuss each of these program components. BASE SALARY. All positions in the Company, including executive positions, have been assigned to formal salary grades and ranges. Positions are compared on the basis of job content to similar positions in companies of comparable revenue size and market capitalization to the Company. Salary ranges for all positions are reviewed on an annual basis, and proposed salary ranges are presented to the Committee for its review and consideration each year in October. The midpoint of each salary range is designed to approximate the 50th percentile of base salaries of comparable companies in the marketplace, as defined above. The base salary for an individual executive may be more than or less than the salary range midpoint based upon the individual's performance and his or her level of experience in the position. In determining appropriate salary levels, the Committee also considers current economic conditions and national and industry trends in executive compensation. Each year, the Chief Executive Officer and senior officers of the Company provide the Committee with an oral presentation discussing the performance and contributions of each executive. The Company uses a performance evaluation process that has seven performance ratings and which considers individual goals and areas of accountability. The individual executive's salary increase is based upon his performance rating and the overall salary increase budget and guidelines established by the Company for the year. ANNUAL INCENTIVE COMPENSATION. All of the Company's officers and business unit presidents are eligible to participate in the Executive Annual Performance Bonus Plan (the "Bonus Plan"). The Bonus Plan is a cash-based annual bonus plan that provides executives with awards based upon two performance criteria: corporate-wide earnings per share and individual performance rating. The two performance criteria are each weighted 50 percent and are calibrated upon a performance matrix that expresses the payout opportunity for each executive based upon a stated percentage of his or her base salary. Annual incentive compensation targets for all participants range from 15 percent to 60 percent of base salary, depending upon the position's level and accountabilities within the organization. Actual awards, based upon performance, can range from 0 percent to 150 percent of the individual target award. The Bonus Plan has been totally redesigned for the 1999 fiscal year into the Annual Incentive Plan for Management (the "Incentive Plan"). The Incentive Plan will measure performance at both the corporate and business unit level. Additionally, the Incentive Plan will consider measurements of both financial and operational 14 performance. The Incentive Plan has been designed with the intent of full compliance with Section 162(m) of the Internal Revenue Code. The plan is further described, including the full text of the plan document, in a later section of this year's proxy statement. The Company is requesting approval of the plan by shareholders for exemption as a "performance plan" pursuant to Section 162(m). LONG-TERM INCENTIVE COMPENSATION. The Company currently grants long-term awards in the form of time-lapse restricted stock. The Committee believes that restricted shares allow key executives to share fully in the interests of all shareholders. During the restricted period, executives receive voting rights and dividends applicable to the restricted shares that they have been granted. Individual grants of restricted shares are made on a discretionary basis. The timing and amount of restricted stock granted to each executive will vary based upon the Company's performance as well as the performance of the individual. Recommendations for awards under the Restricted Stock Grant Plan are submitted by the Committee to the Board of Directors for approval. From time to time, the Committee, in its discretion, may recommend special awards under the Restricted Stock Grant Plan beyond the typical award level. Such recommendations may be forthcoming in instances where both Company performance and the performance of the executive are considered to be exceptional. The Board of Directors defines the restrictions applicable to any award under the Restricted Stock Grant Plan. Restricted share grants made during the 1998 fiscal year and recent past require the completion of four or six years of Company service before the award is fully vested and restrictions lapse. Stock certificates are held in the custody of the Company by means of a trust until restrictions are removed. Consistent with the Company's new executive compensation strategy, the Company has adopted an "omnibus" long-term incentive compensation plan. This plan is also described later in this year's proxy statement and includes a full copy of the plan text. Certain types of awards under the plan are designed to be performance-based pursuant to Section 162(m) and will receive such an exemption if the plan is approved by shareholders. The plan allows for the granting and/or award of qualified and nonqualified stock options, stock appreciation rights, restricted shares, performance-based restricted shares, performance awards (i.e., performance shares, performance units, and performance cash), special stock awards, and other long-term incentive vehicles. In the 1999 fiscal year, and predicated upon a favorable vote of shareholders approving the 1998 Long-Term Incentive Plan, the Company anticipates granting nonqualified stock options to key executives and officers. At this time, the Company foresees granting only stock options under the new long-term incentive plan. However, the omnibus plan has been designed to allow the Committee to be able to exercise considerable discretion and flexibility in awarding long-term incentive compensation, especially in light of changing tax, legislative, and regulatory considerations. Finally, the Company has adopted share ownership guidelines for key officers. The guidelines are voluntary and should be achieved by each officer over the course of the next five years. The Committee strongly advocates executive share ownership as a means by which to better align executive interests with those of all shareholders. The Chief Executive Officer has a guideline to reach a share ownership position of five times his base salary over the course of the next five years. Other officer positions have share ownership guidelines ranging from 2.5 to 1.0 times the officer's base salary. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Committee has awarded Mr. Robert W. Best, Chairman, President, and Chief Executive Officer of the Company, with a base salary of $540,000 for 1999. In 1998, Mr. Best's base salary was at the level of $500,000. The increase in base salary awarded to Mr. Best by the Committee is in recognition of both the Company and individual performance achieved in 1998. Specifically, the Company achieved record earnings in fiscal year 1998 (as reported by earnings per share), and Mr. Best was personally accountable for guiding the Company in achieving numerous strategic objectives including the integration of United Cities, development of a business strategy in the nonregulated sectors, and recruitment of key individuals to the top management team. 15 Mr. Best has earned an annual incentive award under the Bonus Plan of $450,000. This award is based upon actual results compared to the performance criteria of the Bonus Plan of earnings per share and individual performance, each weighted 50 percent. The Company achieved earnings per share for fiscal year 1998 of $1.84, which was above the designated maximum level of performance pursuant to the plan. Finally, Mr. Best received a grant of 50,000 restricted shares during fiscal year 1998 in connection with his employment with the Company in March 1997, which is consistent with the Company's past practices. COMPLIANCE WITH SECTION 162(m). During the past year, the Board of Directors has decided to seek full compliance with Section 162(m) of the Internal Revenue Code. The Company's decision to comply with the provisions of Section 162(m) will mean that the Company should maintain the tax deductibility for performance-based compensation paid to the five proxy-named executives. The Company seeks compliance with Section 162(m) for the 1999 fiscal year and fiscal years thereafter, provided that Section 162(m) remains in effect in its present form. In order to comply with Section 162(m), all actions taken by the Committee with respect to the compensation of the five proxy-named executives will be taken by those members who constitute a "non-employee director" as defined in Section 162(m). One member of the present Human Resources Committee, Dan Busbee, does not meet the Section 162(m) definition due to the professional services provided to the Company by the law firm with which Mr. Busbee is employed. Therefore, Mr. Busbee formally recuses himself from all executive compensation matters discussed by the Human Resources Committee affecting Section 162(m) compliance. Human Resources Committee Carl S. Quinn, Chairman Travis W. Bain II Dan Busbee Thomas J. Garland Phillip E. Nichol 16 Performance Graph. The following graph compares the yearly percentage change in the Company's total return to shareholders for the last five fiscal years with the total return of the Standard and Poor's 500 Stock Index and the cumulative total return of other natural gas distribution companies comprising the Comparison Company Index. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG ATMOS, S&P 500 INDEX AND COMPARISON COMPANY INDEX [PERFORMANCE GRAPH APPEARS HERE] 1993 1994 1995 1996 1997 1998 ATMOS ENERGY CORPORATION $100 $92 $105 $132 $146 $174 S&P 500 COMPOSITE INDEX $100 $104 $135 $162 $227 $248 COMPARISON COMPANY INDEX $100 $90 $101 $123 $145 $156 * Assumes a $100 investment on September 30, 1993, and reinvestment of dividends. The Comparison Company Index used in the graph is the Merrill Lynch Small, Mid and Large Cap Index for natural gas local distribution companies, which index Merrill Lynch utilizes to represent natural gas distribution companies in its weekly research reports. The following companies were included in the Comparison Company Index used in the graph: AGL Resources Inc., Cascade Natural Gas Corporation, CMS Energy Corporation, Colonial Gas Company, Connecticut Energy Corporation, Eastern Enterprises, Indiana Energy, Inc., Laclede Gas Company, MCN Energy Group Inc., New Jersey Resources Corporation, NICOR Inc., Northwest Natural Gas Company, NUI Corporation, ONEOK, Inc., Peoples Energy Corporation, Piedmont Natural Gas Company, Inc., Public Service Company of North Carolina, Inc., SEMCO Energy, Inc., Southern Union Company, Southwest Gas Corporation, UGI Corporation, Washington Gas Light Company, WICOR, Inc., and Yankee Energy System, Inc. 17 2. INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK General Description of Proposal The Board of Directors has approved a proposed amendment to Article VII of the Restated Articles of Incorporation of the Company as Amended (the "Articles") that increases the number of authorized shares of Common Stock from 75,000,000 shares to 100,000,000 shares. An increase in the number of authorized shares will not have a dilutive effect on the value of each shareholder's Common Stock; only the actual issuance of additional Common Stock would have such effect. The issuance of over 13,000,000 shares of Common Stock in the United Cities merger as well as the issuance of shares of Common Stock in other acquisitions, stock splits, stock dividends and issuances of shares to the Company's stock and employee benefit plans in the recent past has reduced the amount of shares available for use in the future. Accordingly, the Board of Directors believes that it is desirable to increase the number of authorized shares of Common Stock in order to ensure that the Company has a sufficient number of authorized but unissued shares of Common Stock available to provide the flexibility needed for future expansion of the Company's activities. The availability of the additional authorized shares of Common Stock will permit the Company to meet advantageous market conditions for the sale of additional Common Stock, future acquisitions of the properties or securities of other companies, issuances pursuant to employee benefit plans and the Company's Direct Stock Purchase Plan, as well as stock dividends, stock splits, and other general corporate purposes. The Board of Directors has sole discretion to issue the additional shares of Common Stock from time to time for any corporate purpose without further action by the Company's shareholders, except as may be required by law or the rules of any applicable exchange. The Common Stock is currently listed on the New York Stock Exchange. The Board, however, has no current plans, understandings, or arrangements for the issuance of any of the additional Common Stock that would be authorized by this proposed amendment to the Company's Articles (other than issuances to be made in the ordinary course through employee benefit plans or the Company's Direct Stock Purchase Plan). Holders of presently outstanding shares of Common Stock have no preemptive rights to purchase additional shares of Common Stock. ANTI-TAKEOVER ISSUES Although the Board of Directors does not view the proposed amendment to increase the number of authorized shares of Common Stock to be an anti-takeover proposal, it may be deemed to be one. The availability of additional shares of Common Stock may make it more difficult to effect, or may discourage an attempt, to gain control of the Company by means of a merger, tender offer, or proxy contest that is not approved by the Company's management. The proposal is not the result of any knowledge of the Company of any specific effort to accumulate the Company's securities or to obtain control of the Company. In addition to an increase in authorized shares of Common Stock, other provisions of the Company's Articles and Bylaws could be viewed as having an anti-takeover effect. These include: (i) provisions establishing a classified Board of Directors; (ii) provisions stating that a director may be removed only for cause and with a super-majority (75%) vote; (iii) provisions restricting the Company's ability to enter into a business combination with a substantial shareholder except under certain circumstances to ensure a fair price to shareholders; and (iv) provisions requiring a super-majority (75%) vote to amend the restrictions on business combinations with a substantial shareholder. The Company's Shareholders' Rights Agreement may also be deemed to have an anti- takeover effect. EFFECTIVE DATE AND BOARD RECOMMENDATION The proposed amendment to increase the number of authorized shares of Common Stock, if passed, would become effective upon the filing of Articles of Amendment with the Secretary of State of the State of Texas and the State Corporation Commission of the Commonwealth of Virginia, which filings are expected to be made shortly after the shareholders approve the amendment. The affirmative vote of the holders of at least two-thirds (2/3) of the 18 outstanding shares entitled to vote is required to adopt the amendment. Although an abstention will not be counted as a vote "For" or "Against" the amendment, it will in effect constitute a vote against the proposal because each abstention is treated as a share that is present and entitled to vote. Because the rules of the New York Stock Exchange allow brokers to exercise their discretionary authority in voting on this proposal, there will be no "broker non-votes" on this proposal. "Broker non-votes" are shares held by brokers as to which they have no discretionary power to vote on a particular matter and have received no instructions from the beneficial owners or persons entitled to vote thereon. The Board of Directors has approved the proposed amendment to the Company's Articles and submits the following resolution for adoption by the shareholders at the Annual Meeting: RESOLVED, that it is deemed by the Board of Directors to be in the best interests of the Company and its shareholders to amend the Restated Articles of Incorporation as Amended of the Company to increase the total authorized shares of Common Stock of the Company, including that which is outstanding, from 75,000,000 shares of Common Stock, without par value, to 100,000,000 shares of Common Stock, without par value, and that, to accomplish the foregoing, Section 1 of Article VII of the Restated Articles of Incorporation as Amended be amended to read as follows: "The aggregate number of shares which the Corporation shall have the authority to issue is One Hundred Million (100,000,000) shares of Common Stock having no par value." THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK. 3. APPROVAL OF 1998 LONG-TERM INCENTIVE PLAN Background and Purpose. The 1998 Long-Term Incentive Plan (the "LTIP") represents a part of the Company's Total Rewards strategy, which the Company developed as a result of a study it conducted of all employee, executive and non-employee director compensation and benefits. The Board of Directors adopted the LTIP, subject to approval by the Company's shareholders. The LTIP is a comprehensive, long-term incentive compensation plan, providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, restricted stock and performance-based stock to help attract, retain, and reward employees and non-employee directors of the Company and its subsidiaries. Any employee of the Company, including an employee who is also a director or officer, and any non-employee director is eligible to participate in the LTIP. However, for fiscal 1999, it is contemplated that only officers and business unit presidents of the Company (a total of 21 employees) will be participating in the LTIP. The LTIP is intended to motivate such persons using performance-related incentives linked to longer- range performance goals and the interests of the Company's shareholders. These incentives and long-range performance goals will increase the interest of employees or non-employee directors in the Company's overall performance and encourage such persons to continue their services for the Company. The complete text of the LTIP is set forth in Exhibit A to this Proxy Statement. The summary of the LTIP contained herein is qualified in its entirety by reference to Exhibit A. Administration. The LTIP shall be administered and interpreted by the Human Resources Committee of the Board (the "Committee"). Actions taken by the Committee with respect to the LTIP will be taken by those members who are non- employee directors and who qualify as "outside directors" under Section 162(m) of the Internal Revenue Code ("the "Code") and as "non-employee directors" under the rules promulgated under Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), insofar as such actions are affected by Section 162(m) or Section 16. The Committee shall determine eligible persons to whom awards will be granted, as well as all terms, conditions, performance criteria and restrictions applicable to each award. In addition to any other powers and, subject to the provisions of the LTIP, the Committee shall (i) interpret the LTIP, (ii) prescribe, amend, and 19 rescind any rules and regulations necessary or appropriate for the administration of the LTIP, and (iii) make such other determinations and take other action as it deems necessary or advisable in the administration of the LTIP. Any interpretation, determination, or action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. General Description of Plan. The LTIP became effective as of October 1, 1998, subject to the approval of the Company's shareholders at the Annual Meeting. The LTIP shall have a term of ten years from its effective date, subject to earlier termination pursuant to the provisions of the LTIP. In the event of a Change in Control (as defined in the LTIP document), all unmatured installments of any awards outstanding shall automatically be immediately accelerated and exercisable in full and all restrictions on any award shall be automatically terminated. The Board may amend, suspend or terminate the LTIP, in whole or in part, at any time; provided, however, that any amendment shall be made with shareholder approval when such approval is necessary to comply with Section 162(m) of the Code. Subject to adjustment as provided in the LTIP, the maximum aggregate number of shares that may by issued under the LTIP shall not exceed 1,500,000 shares of Common Stock plus shares of Common Stock previously subject to awards which are forfeited, terminated, cancelled or rescinded, settled in cash in lieu of Common Stock, or exchanged for awards that do not involve Common Stock, or expired unexercised. Shares of Common Stock may be available from authorized but unissued shares of Common Stock held by the Company in its treasury, or Common Stock purchased by the Company on the open market or otherwise. The LTIP allows the Company to enter into award agreements that will permit the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock/restricted stock units, tandem awards, performance units, performance shares, bonus stock, and other stock unit awards or stock-based forms of awards. The type and amount of incentive compensation to be awarded or that would have been awarded (including stock options, if any) to any eligible participant, including any executive officer, non-executive officer director or non-executive officer employee during the last fiscal year had the LTIP been in effect is not determinable. Stock Options. The Committee may grant stock options, including non- qualified stock options ("NQSOs") and incentive stock options ("ISOs") to employees and directors; provided, however, that non-employee directors may receive only NQSOs. The terms applicable to each option grant, including the exercise prices, expiration dates and other material conditions upon which the options may be exercised, shall be detailed in an award agreement. The Company will not require any consideration to be paid by a recipient to the Company in exchange for the granting or extension of stock options. The Company will require consideration to be paid by a recipient only at the time of the exercise of the option in the amount of the exercise price. Stock option grants will entitle the participant to purchase stock at prices not less than 100% of the fair market value on the date of grant. The Committee may not grant ISOs under the LTIP to any employee which would permit the aggregate fair market value of the Common Stock with respect to which ISOs are exercisable for the first time during any calendar year to exceed $100,000. Any stock option granted under the LTIP which is designated as an ISO that exceeds this limit or otherwise fails to qualify as an ISO shall be a NQSO. If an option qualifies as either an ISO or a NQSO, there will generally be no federal income tax consequences to either the recipient or the Company upon the issuance of such options. In the case of an ISO, there should also be no federal income tax consequences to either the recipient or the Company upon its exercise. However, if a stock option is qualified as a NQSO, the recipient must recognize compensation income in the year of exercise equal to the difference between the fair market value of the Common Stock on the date of exercise and the exercise price, while the Company will receive a corresponding deduction for compensation paid for the same amount. No participant may receive during any fiscal year of the Company awards of stock options and stock appreciation rights covering an aggregate of more than 500,000 shares of Common Stock. Restricted Stock/Restricted Stock Units. The Committee may grant shares of Restricted Stock or Restricted Units to participants in such amounts and for such duration as it shall determine. Each Restricted Stock/Restricted Unit grant shall be evidenced by an award agreement specifying the number of shares of Common Stock and/or the number of Restricted Units awarded, the period of restriction, the conditions and performance goals of the Company, or a subsidiary or any division thereof, which must be satisfied prior to removal of the restriction, and such other provisions as the Committee shall determine. The participants receiving Restricted Stock/Restricted Unit 20 awards generally are not required to pay for them (except applicable tax withholding) other than by rendering services to the Company. The restriction period of Restricted Stock and/or Restricted Units shall commence on the date of grant and shall expire upon satisfaction of the conditions set forth in the award agreement. Such conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in performance compared to specified indices, (iv) attainment of specified growth rates, or (v) other comparable performance measurements, as may be determined by the Committee in its sole discretion. During the restriction period, participants in whose name Restricted Stock/Restricted Units are granted under the Plan may exercise full voting rights with respect to those shares and shall be entitled to receive all dividends and other distributions paid with respect to those Shares/Units. Stock Appreciation Rights. A stock appreciation right ("SAR") entitles the participant at his election to surrender to the Company the SAR, or portion thereof, and to receive from the Company in exchange therefor cash or shares in an amount equal to the excess of the fair market value per share over the SAR price per share specified in such SAR, multiplied by the total number of shares of the SAR being surrendered. The Company may satisfy its obligation upon exercise of an SAR by the distribution of that number of shares of Common Stock having an aggregate fair market value equal to the amount of cash otherwise payable to the participant. A cash settlement would be made for any fractional share interests. In addition, the Committee may grant two or more incentives in one award in the form of a "tandem award," so that the right of the participant to exercise one incentive shall be cancelled if, and to the extent, the other incentive is exercised. Performance-Based Awards. The Committee may issue performance awards in the form of either Performance Units or Performance Shares, subject to the performance goals and performance period it determines. The extent to which performance measures are met will determine the value of each Performance Unit or the number of Performance Shares earned by the participant. The terms and conditions of each performance award will be set forth in an award agreement. Payment of the amount due upon settlement of a performance award shall be made in a lump sum or installments in cash, shares of Common Stock, or a combination thereof as determined by the Committee. Bonus Stock. The Committee may award shares of Bonus Stock to participants under the LTIP without cash consideration. In the event the Committee assigns restrictions on the shares of Bonus Stock awarded under the LTIP, then such shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated if the restrictions have not lapsed or vested. If any vesting condition is not met on the shares, then such shares must be returned to the Company, without any payment from the Company, within 60 days. Other Stock-Based Awards. The Committee may issue to participants, either alone or in addition to other awards made under the LTIP, Stock Unit Awards, which may be in the form of Common Stock or other securities. The value of such award shall be based, in whole or in part, on the value of the underlying Common Stock or other securities. The Committee, in its sole and complete discretion, may determine that an award may provide to the Participant (i) dividends or dividend equivalents (payable on a current or deferred basis) and (ii) cash payments in lieu of or in addition to an award. Subject to the provisions of the LTIP, the Committee shall determine the terms, restrictions, conditions, vesting requirements, and payment rules of the award that shall be specified in an award agreement. BOARD RECOMMENDATION TO APPROVE 1998 LONG-TERM INCENTIVE PLAN On August 12, 1998, the Board of Directors approved and adopted the LTIP, which became effective October 1, 1998, subject to the approval of the shareholders of the Company. The Board of Directors believes that the LTIP will accomplish its purpose of motivating employees and non-employee directors using performance-related incentives linked to longer-range performance goals and the interests of the Company's shareholders. The LTIP is being submitted to the shareholders of the Company for their approval pursuant to the provisions of the LTIP and to comply with Section 162(m) of the Code. According to the Company's Bylaws, this proposal to 21 adopt the LTIP requires the affirmative vote of the holders of a majority of the shares of Common Stock entitled to vote on the matter and present or represented by proxy at a meeting at which a quorum is present. Abstentions and broker non- votes will be included in the total shares present or represented by proxy for purposes of determining if a quorum exists, but neither abstentions nor broker non-votes will be counted as a vote "For" or "Against" the amendment. However, unlike an abstention that will in effect constitute a vote against the proposal, a broker non-vote will not have such effect because brokers or nominees do not have discretionary power to vote on this proposal under the rules of the New York Stock Exchange. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1998 LONG- TERM INCENTIVE PLAN. 4. APPROVAL OF ANNUAL INCENTIVE PLAN FOR MANAGEMENT General Description and Purpose. The Annual Incentive Plan for Management (the "Incentive Plan") represents another part of the Company's Total Rewards strategy, which the Company developed as a result of a study it has conducted of all employee, executive and non-employee director compensation and benefits. The Board of Directors adopted the Incentive Plan, effective October 1, 1998, subject to approval by the Company's shareholders. The purpose of the Incentive Plan is to promote the interests of the Company and its shareholders by attracting, motivating, and retaining executives and senior managers. The Incentive Plan is also intended to establish a sense of personal commitment on the part of its executives and senior managers in the growth, development, and financial success of the Company and reward these key employees accordingly. Any employee of the Company, including an employee who is also a director or an officer, is eligible to participate in the Incentive Plan. However, for fiscal 1999, it is contemplated that only officers, business unit presidents and other key employees of the Company (a total of approximately 83 employees) will be participating in the LTIP. An employee must be a participant in the Incentive Plan for a minimum of six months during the plan year to be eligible for an award for that plan year. The Committee, upon its own action, may make, but shall not be required to make, an award to any employee. The complete text of the Incentive Plan is set forth in Exhibit B to this Proxy Statement. The summary of the Incentive Plan contained herein is qualified in its entirety by reference to Exhibit B. Subject to the approval of the Company's shareholders, the Incentive Plan shall be effective as of October 1, 1998 and shall expire on October 1, 2003. All awards made prior to, and outstanding on that date, shall remain valid in accordance with their terms and conditions. In the event of a Change in Control (as defined in the Incentive Plan document), all awards for the performance period shall be deemed earned at the maximum performance goal level and payment of the maximum award shall be made within 10 days after the effective date of the Change in Control. The Company will require any successor to assume and agree to perform the Company's obligation under the Incentive Plan 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. The Board may at any time amend, suspend or terminate the Incentive Plan; provided, however, that any amendment shall be made with shareholder approval where such approval is necessary to comply with Section 162(m) of the Code. Administration. The Incentive Plan shall be administered and interpreted by the Human Resources Committee unless otherwise determined by the Board. Actions taken by the Committee with respect to the Incentive Plan will be taken by those members who are non-employee directors and who qualify as "outside directors" under Section 162(m) of the Code and as "non-employee directors" under the rules promulgated under Section 16 of the Exchange Act, insofar as such actions are affected by Section 162(m) or Section 16. The Committee shall determine and designate the eligible persons to whom awards will be made. The Committee shall also have the following specific powers: (i) interpret the Incentive Plan, (ii) prescribe, amend, and waive any rules and regulations necessary for the administration of the Incentive Plan, and (iii) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Incentive Plan. All interpretations, determinations or actions made or taken by the Committee shall be final, binding, and conclusive on all interested parties. 22 Performance Goals and Measurement. Performance goals shall be established by the Committee in writing not later than 90 days after the beginning of the applicable performance period. Performance goals may be the same for all participants or, at the discretion of the Committee, may differ to reflect more appropriate measures of individual performance. Performance goals may be based on one or more business and/or financial criteria. In establishing performance goals for the plan year, the Committee may include one or any combination of many criteria such as total shareholder return; return on assets, equity, capital, or investment, earnings per share; cash flow; levels of operating expense; and measures of customer satisfaction and service. The Committee also has the discretion to make adjustments in calculating the attainment of Performance Goals in recognition of extraordinary items or changes in the law or financial reporting. Awards. Awards are generally paid in cash. However, the Committee may choose to pay awards in the form of stock issued under the LTIP. In addition, if the Committee permits and if the participant makes an election in advance, the participant may elect to convert his or her award in 25 percent increments, in whole or part, into the following forms: (a) defer receipt of the award of all or a part of the deferred compensation under the Executive Nonqualified Deferred Compensation Plan; (b) convert the award to unrestricted stock in the form of Bonus Shares (value equal to 110% of amount of award) granted under the LTIP; (c) convert the award to restricted stock (value equal to 150% of amount of award) granted pursuant to the LTIP; or (d) convert the award to stock options (with value equal to 250% of amount of award) granted pursuant to the LTIP. The maximum cash award for any performance period is $1,000,000. The amount of incentive compensation to be awarded or that would have been awarded to any eligible participant, including any executive officer or non-executive officer employee, during the last fiscal year had the Incentive Plan been in effect is not determinable. BOARD RECOMMENDATION TO APPROVE ANNUAL INCENTIVE PLAN FOR MANAGEMENT On August 12, 1998, the Board of Directors approved and adopted the Incentive Plan, which will become effective only upon the approval of the shareholders of the Company. The Board of Directors believes that the Incentive Plan will accomplish its purpose of promoting the interests of the Company and its shareholders by attracting, motivating, and retaining executives and senior managers. The Incentive Plan is being submitted to the shareholders of the Company for their approval pursuant to the provisions of the plan and to comply with Section 162(m) of the Code. According to the Company's Bylaws, this proposal to adopt the Incentive Plan requires the affirmative vote of the holders of a majority of the shares of Common Stock entitled to vote on the matter and present or represented by proxy at a meeting at which a quorum is present. Abstentions and broker non-votes will be included in the total shares present or represented by proxy for purposes of determining if a quorum exists, but neither abstentions nor broker non-votes will be counted as a vote "For" or "Against" the amendment. However, unlike an abstention that will in effect constitute a vote against the proposal, a broker non-vote will not have such effect because brokers do not have discretionary power to vote on this proposal under the rules of the New York Stock Exchange. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ANNUAL INCENTIVE PLAN FOR MANAGEMENT. 5. APPROVAL OF EQUITY INCENTIVE AND DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS General Description and Purpose. The Equity Incentive and Deferred Compensation Plan for Non-Employee Directors (the "Directors Compensation Plan") represents another part of the Company's Total Rewards strategy, which includes compensation and benefits for non-employee directors. Only the non-employee directors of the Company are eligible to participate in the Directors Compensation Plan. There are currently eleven members of the Board who qualify as non-employee directors. The Directors Compensation Plan represents an amendment to the Atmos Energy Corporation Deferred Compensation Plan for Outside Directors adopted by the Company on May 10, 1990 and will replace the pension payable under the Company's Retirement Plan for Non-Employee Directors (the 23 "Directors Retirement Plan"). However, current participants in the Directors Retirement Plan may elect to remain in such plan instead of participating in the new Directors Compensation Plan. Currently, non-employee directors receive compensation in the form of an annual retainer and committee and meeting fees and also participate in the Directors Retirement Plan. However, the Company believes it is important to align the interests between the non-employee directors with the Company's other shareholders by compensating non-employee directors with shares of Common Stock or share unit equivalents. The purpose of the Directors Compensation Plan is to provide non-employee directors with the opportunity to defer receipt of compensation for services rendered to the Company, invest deferred compensation into either a cash account or a stock account, and to receive an annual grant of share units for each year of service on the Board. The Directors Compensation Plan should aid the Company in attracting and retaining non-employee directors, as well as align the interests of directors and other Company shareholders. The complete text of the Directors Compensation Plan is set forth in Exhibit C to this Proxy Statement. The summary of the Directors Compensation Plan contained herein is qualified in its entirety by reference to Exhibit C. The Directors Compensation Plan shall become effective upon approval of the shareholders of the Company. In the event of a Change in Control, as such term is defined in the plan document, the Company or its successor shall be required to fully pay plan benefits through a grantor trust arrangement. The Board may amend, alter, suspend, discontinue, or terminate the Directors Compensation Plan without the consent of shareholders of the Company or individual directors; provided, however, that, without the consent of an affected director, no amendment, alteration, suspension, discontinuation, or termination of the Directors Compensation Plan may materially impair the rights or, in any other manner, materially and adversely affect the rights of such director hereunder to the amounts or share units then credited to his sub-account. Administration. The Directors Compensation Plan shall be administered by the Board, which has full authority to interpret the plan. All directors of the Company, who are not also officers or employees of the Company or its subsidiaries, will be eligible to participate in the Directors Compensation Plan. Each plan year, the Board shall determine the number of share units to grant to each director, which will be credited to each director's account 30 days after the Annual Meeting of Shareholders each year. Any action taken by the Board with respect to the Directors Compensation Plan shall be final, conclusive, and binding on all persons. The total number of shares of Common Stock reserved for issuance under the Directors Compensation Plan shall be 150,000. Sub-Account Credits and Investments. Each director participating in the Directors Compensation Plan will have two deferred compensation sub-accounts: a cash account and a stock account. The director shall designate the sub-account to which any retainer, meeting fees, or other compensation for services as a director shall be credited by an advance election in increments of ten percent. The amount of retainer, meeting fees, and other compensation allocated to the cash account shall be converted to a cash balance to be credited with interest monthly. The annual interest rate, beginning on January 1 of the calendar year, will be equal to the sum of 2.0 percent plus the annual yield reported on a 30- year Treasury Bond for the first business day of January for each plan year. The amount of retainer, meeting fees, and other compensation allocated to the stock account shall be converted to a whole number of share units on the last trading day of that month or quarterly period. Share units shall be credited with dividend equivalents when dividends are declared on shares of Common Stock. Plan benefits paid from the cash account shall be paid in cash and plan benefits paid from the stock account shall be paid in the form of Common Shares equal to the number of share units in the stock account. The plan benefits of a director shall be distributed either (i) in a single lump sum at the time of termination of service on the Board, or (ii) in up to 15 equal annual installments beginning at the time of termination of service on the Board. As discussed above in "The Board of Directors: Committees, Meetings and Directors' Fees" on page 5, due to the Company's decision to establish the Directors Compensation Plan, participants in the Directors Retirement Plan as of February 10, 1999 may either elect to remain in the Directors Retirement Plan or participate in the Directors Compensation Plan. However, no persons who become directors after February 10, 1999 shall be eligible to participate in the Directors Retirement Plan. Any participants electing to participate in the Directors Compensation Plan will as of February 11, 1999 immediately cease their participation in the Directors Retirement Plan but any 24 credits they earned in the Directors Retirement Plan will be converted to a balance in their respective stock accounts based upon the average high and low share price of Common Stock over the twelve month period ended November 11, 1998. The cumulative balance of the present value of the respective stock accounts as January 1, 1999, assuming a discount rate of seven and one-half percent and assuming that all eligible non-employee directors elect to participate in the Directors Compensation Plan, is set forth below in the New Benefits Table. The Board has approved the allocation of 200 share units to each non-employee director for his service each calendar year or a total of 2,200 units to be allocated to the eleven non-employee directors each calendar year. Assuming that all eleven non-employee directors elect to participate in the Directors Compensation Plan, the amount of benefits to be allocated to all non-employee directors as a group during the next fiscal year is set forth below in the New Plan Benefits table. The value of such units, for purposes of the disclosure in the Table, is also based upon the average high and low share price of Common Stock over the twelve month period ended November 11, 1998 of $28.375 per share. NEW PLAN BENEFITS ATMOS ENERGY CORPORATION EQUITY INCENTIVE AND DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS ---------------------------------------------------------------------- Name and Position Dollar Value ($) Share Units ---------------------------------------------------------------------- Non-Executive * Director Group Accrued Balance at January 1, 1999 $886,435 31,240 (present value) ---------------------------------------------------------------------- Maximum Number of Units Anticipated to be Awarded in Fiscal 1999 $62,425 2,200 ---------------------------------------------------------------------- *This group also represents all current non-employee directors of the Company. BOARD RECOMMENDATION TO APPROVE EQUITY INCENTIVE AND DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS On August 12, 1998, the Board of Directors approved and adopted the Directors Compensation Plan, which will become effective only upon the approval of the shareholders of the Company at the Annual Meeting of Shareholders on February 10, 1999. No persons who become directors after February 10, 1999 shall be eligible to participate in the Directors Retirement Plan. The Board of Directors believes that the Directors Compensation Plan will accomplish its purpose of attracting and retaining non-employee directors, as well as aligning the interests of directors and other Company shareholders. The Directors Compensation Plan is being submitted to the shareholders of the Company for their approval pursuant to the provisions of the plan. According to the Company's Bylaws, this proposal to adopt the Directors Compensation Plan requires the affirmative vote of the holders of a majority of the shares of Common Stock entitled to vote on the matter and present or represented by proxy at a meeting at which a quorum is present. Abstentions and broker non-votes will be included in the total shares present or represented by proxy for purposes of determining if a quorum exists, but neither abstentions nor broker non-votes will be counted as a vote "For" or 25 "Against" the amendment. However, unlike an abstention that will in effect constitute a vote against the proposal, a broker non-vote will not have such effect because brokers do not have discretionary power to vote on this proposal under the rules of the New York Stock Exchange. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE EQUITY INCENTIVE AND DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS. AUDITORS Upon the recommendation of the Audit Committee, the Board of Directors selected Ernst & Young LLP to continue as the Company's auditors for the fiscal year ending September 30, 1999. The firm of Ernst & Young LLP and its predecessors have been the independent auditors of the Company since the Company's incorporation in 1983. It is expected that representatives of Ernst & Young LLP will be present at the Annual Meeting. The representatives will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. OTHER MATTERS OTHER BUSINESS The Company does not know of any other business that may come before the Annual Meeting. However, if any other matters are properly brought before the meeting by the management or any shareholder, it is the intention of each person named in the accompanying proxy to vote such proxy in accordance with his judgment on such matters. The enclosed proxy confers discretionary authority to take action with respect to any additional matters that may come before the meeting. SHAREHOLDER PROPOSALS In the event a shareholder intends to present a proposal at the 1999 Annual Meeting of Shareholders, he or she must be a shareholder of record on the Record Date, December 14, 1998, who shall continue to be entitled to vote at the Annual Meeting and who mails a notice of such proposal so that it is received at the principal executive offices of the Company by January 2, 1999. In the event a shareholder intends to present a proposal at the Year 2000 Annual Meeting of Shareholders, in order for such proposal to be included in the Company's Proxy Statement relating to such meeting, it must be received at the principal executive offices of the Company no later than August 25, 1999. By Order of the Board of Directors, GLEN A. BLANSCET Vice President, General Counsel and Corporate Secretary Dallas, Texas December 23, 1998 26 EXHIBIT A --------- ATMOS ENERGY CORPORATION ------------------------ 1998 LONG-TERM INCENTIVE PLAN ----------------------------- Effective: October 1, 1998 TABLE OF CONTENTS Page ---- ARTICLE 1 PURPOSE........................................................... 1 ARTICLE 2 DEFINITIONS....................................................... 1 ARTICLE 3 ADMINISTRATION.................................................... 6 ARTICLE 4 ELIGIBILITY....................................................... 7 ARTICLE 5 SHARES SUBJECT TO PLAN............................................ 7 ARTICLE 6 GRANT OF AWARDS................................................... 8 6.1 In General.......................................................... 8 6.2 Maximum ISO Grants.................................................. 8 6.3 Maximum Individual Grants........................................... 8 6.4 Restricted Stock/Restricted Stock Units............................. 8 6.5 SAR................................................................. 10 6.6 Tandem Awards....................................................... 10 6.7 Performance Based Awards............................................ 11 6.8 Bonus Stock......................................................... 11 6.9 Other Stock Based Awards............................................ 12 ARTICLE 7 OPTION PRICE; SAR PRICE........................................... 13 ARTICLE 8 AWARD PERIOD; VESTING............................................. 13 8.1 Award Period........................................................ 13 8.2 Vesting............................................................. 13 ARTICLE 9 TERMINATION OF SERVICE............................................ 13 ARTICLE 10 EXERCISE OF INCENTIVE............................................ 14 10.1 In General.......................................................... 14 10.2 Disqualifying Disposition of ISO.................................... 15 ARTICLE 11 SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS..................................................... 16 ARTICLE 12 AMENDMENT OR DISCONTINUANCE...................................... 18 ARTICLE 13 TERM............................................................. 18 ARTICLE 14 CAPITAL ADJUSTMENTS.............................................. 18 ARTICLE 15 RECAPITALIZATION, MERGER AND CONSOLIDATION; CHANGE IN CONTROL................................................ 20 ARTICLE 16 LIQUIDATION OR DISSOLUTION....................................... 21 ARTICLE 17 INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS.................................... 21 ARTICLE 18 MISCELLANEOUS PROVISIONS......................................... 21 18.1 Investment Intent................................................... 21 18.2 No Right to Continued Employment.................................... 21 18.3 Indemnification of Board and Committee.............................. 22 18.4 Effect of the Plan.................................................. 22 18.5 Compliance With Other Laws and Regulations.......................... 22 18.6 Tax Requirements.................................................... 22 18.7 Assignability....................................................... 22 18.8 Use of Proceeds..................................................... 23 18.9 Governing Law....................................................... 23 18.10 Successors and Assigns.............................................. 23 18.11 Effective Date...................................................... 23 18.12 Legend.............................................................. 24 i ATMOS ENERGY CORPORATION 1998 LONG-TERM INCENTIVE PLAN The Atmos Energy Corporation 1998 Long-Term Incentive Plan (hereinafter called the "Plan") was adopted by the Board of Directors of Atmos Energy Corporation, a Texas and Virginia corporation (hereinafter called the "Company") on August 12, 1998 to be effective October 1, 1998, and will be submitted to the Company's stockholders for approval on February 10, 1999. ARTICLE 1 PURPOSE The purpose of the Plan is to attract and retain the services of able persons as employees of the Company and its Subsidiaries and as Non-employee Directors (as herein defined), to provide such persons with a proprietary interest in the Company through the granting of incentive stock options, non- qualified stock options, stock appreciation rights, or restricted stock, and to motivate employees and Non-employee Directors using performance-related incentives linked to longer-range performance goals and the interests of the Company's shareholders, whether granted singly, or in combination, or in tandem, that will (a) increase the interest of such persons in the Company's welfare; (b) furnish an incentive to such persons to continue their services for the Company; and (c) provide a means through which the Company may attract able persons as employees and Non-employee Directors. With respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee. Further, any Awards granted under the Plan to a Non-employee Director shall be solely to compensate said Director for his services to the Company as a Non-employee Director. ARTICLE 2 DEFINITIONS For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: 2.1 "Award" means the grant of any Incentive Stock Option, Non-qualified Stock Option, SAR, Restricted Stock, Restricted Stock Unit, Performance Unit, Performance Share, Bonus Stock or other Stock Unit Award whether granted singly, in combination or in tandem A-1 (each individually referred to herein as an "Incentive"). "Award" also means any Incentive to which an award under the Management Incentive Plan is made or converted. 2.2 "Award Agreement" means a written agreement between a Participant and the Company which sets out the terms of the grant of an Award. 2.3 "Award Period" means the period during which one or more Incentives granted under an Award may be exercised or earned. 2.4 "Board" means the Board of Directors of the Company. 2.5 "Bonus Stock" means an Award granted pursuant to Section 6.8 of the Plan expressed as a share of Common Stock which may or may not be subject to restrictions. 2.6 (a) "Change in Control" of the Company shall be deemed to have occurred if: (i) Any "Person" (as defined in Section 2.6(b)(i) below), other than (1) the Company or any of its Subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Section 2.6(b)(ii) below), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 33-1/3% or more of the combined voting power of the Company's then outstanding securities, or 33-1/3% or more of the then outstanding common stock of the Company, excluding any Person who becomes such a beneficial owner in connection with a transaction described in subparagraph (iii)(A) below. (ii) During any period of two consecutive years (the "Period"), individuals who at the beginning of the Period constitute the Board of Directors of the Company and any "new director" (as defined in Section 2.6(b)(iii) below) cease for any reason to constitute a majority of the Board of Directors. (iii) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, except if: (A) the merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least sixty percent (60%) of the combined voting power of the voting securities of the Company A-2 or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) the merger or consolidation is effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 60% or more of the combined voting power of the Company's then outstanding securities; (iv) The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by the stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. (b) Definitions. For purposes of Section 2.6(a) above, (i) "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act as modified and used in Sections 13(d) and 14(d) of the 1934 Act. (ii) "Beneficial owner" shall have the meaning provided in Rule 13d-3 under the 1934 Act. (iii) "New director" shall mean an individual whose election by the Company's Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two- thirds (2/3) of the directors then still in office who either were directors at the beginning of the Period or whose election or nomination for election was previously so approved or recommended. However, "new director" shall not include a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation relating to the election of directors of the Company. (iv) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act. 2.7 "Code" means the Internal Revenue Code of 1986, as amended, together with the published rulings, regulations, and interpretations duly promulgated thereunder. A-3 2.8 "Committee" means the committee appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan. 2.9 "Common Stock" means the common stock, with no par value (stated value of $.005 per share), which the Company is currently authorized to issue or may in the future be authorized to issue. 2.10 "Company" means Atmos Energy Corporation, a Texas and Virginia corporation, and any successor entity. 2.11 "Covered Participant" means a Participant who is a "covered employee" as defined in Section 162(m)(3) of the Code, and the regulations promulgated thereunder, or who the Committee believes will be such a covered employee for a Performance Period, and who the Committee believes will have remuneration in excess of $1,000,000 for the Performance Period, as provided in Section 162(m) of the Code. 2.12 "Date of Grant" means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement; provided, however, that solely for purposes of Section 16 of the 1934 Act and the rules and regulations promulgated thereunder, the Date of Grant of an Award shall be the date of stockholder approval of the Plan if such date is later than the effective date of such Award as set forth in the Award Agreement. 2.13 "Employee" means common law employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary of the Company. 2.14 "Fair Market Value" of a share of Common Stock is the mean of the highest and lowest prices per share on the New York Stock Exchange Consolidated Tape, or such reporting service as the Board may select, on the appropriate date, or in the absence of reported sales on such day, the most recent previous day for which sales were reported. 2.15 "Incentive Stock Option" or "ISO" means an incentive stock option within the meaning of Section 422 of the Code, granted pursuant to this Plan. 2.16 "Management Incentive Plan" means the Atmos Energy Corporation Annual Incentive Plan For Management, as amended from time to time. 2.17 "Non-employee Director" means a member of the Board who is not an Employee and who satisfies the requirements of Rule 16b-3(b)(3) promulgated under the 1934 Act or any successor provision. 2.18 "Non-qualified Stock Option" or "NQSO" means a non-qualified stock option, granted pursuant to this Plan. 2.19 "Option Price" means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock. 2.20 "Participant" shall mean an Employee or Non-employee Director to whom an Award is granted under this Plan. A-4 2.21 "Performance Award" means a performance-based Award, which may be in the form of either Performance Shares or Performance Units. 2.22 "Performance Criteria" or "Performance Goals" or "Performance Measures" mean the objectives established by the Committee for a Performance Period, for the purpose of determining when an Award subject to such objectives is earned. 2.23 "Performance Period" means the time period designated by the Committee during which performance goals must be met. 2.24 "Performance Share" means an Award, designated as a Performance Share, granted to a Participant pursuant to Section 6.7 hereof, the value of which is determined, in whole or in part, by the value of Common Stock in a manner deemed appropriate by the Committee and described in the Agreement. 2.25 "Performance Unit" means an Award, designated as a Performance Unit, granted to a Participant pursuant to Section 6.7 hereof, the value of which is determined, in whole or in part, by the attainment of pre-established goals relating to Company financial or operating performance as deemed appropriate by the Committee and described in the Award Agreement. 2.26 "Plan" means The Atmos Energy Corporation 1998 Long-Term Incentive Plan, as amended from time to time. 2.27 "Reporting Participant" means a Participant who is subject to the reporting requirements of Section 16 of the 1934 Act. 2.28 "Restricted Stock" means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement. 2.29 "Restricted Stock Unit" means a fixed or variable dollar denominated right to acquire Common Stock, which may or may not be subject to restrictions, contingently awarded under Section 6.4 of the Plan. 2.30 "Retirement" means any Termination of Service solely due to retirement upon attainment of age 65, or permitted early retirement as determined by the Committee. 2.31 "SAR" means the right to receive a payment, in cash and/or Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares. 2.32 "SAR Price" means the Fair Market Value of each share of Common Stock covered by an SAR, determined on the Date of Grant of the SAR. 2.33 "Stock Option" means a Non-qualified Stock Option or an Incentive Stock Option. 2.34 "Stock Unit Award" means awards of Common Stock or other awards pursuant to Section 6.9 hereof that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other securities of the Company. A-5 2.35 "Subsidiary" means (i) any corporation 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 a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (iii) any partnership or limited liability company, if the partners or members thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. "Subsidiaries" means more than one of any such corporations, limited partnerships, partnerships or limited liability companies. 2.36 "Termination of Service" occurs when a Participant who is an Employee or Non-employee Director shall cease to serve as an Employee or Non- employee Director for any reason. 2.37 "Total and Permanent Disability" means a Participant is qualified for long-term disability benefits under The Atmos Energy Corporation Group Long- Term Disability Plan as in effect from time to time; or, if such Plan is not then in existence, that the Participant, because of ill health, physical or mental disability or any other reason beyond his or her control, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee; provided that, with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the Code. ARTICLE 3 ADMINISTRATION The Plan shall be administered by the Human Resources Committee of the Board (the "Committee") unless otherwise determined by the Board. If said Human Resources Committee does not so serve, the Committee shall consist of not fewer than two persons; any member of the Committee may be removed at any time, with or without cause, by resolution of the Board; and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. All actions to be taken by the Committee under this Plan, insofar as such actions affect compliance with Section 162(m) of the Code, shall be l