Dear Atmos Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to be held at the RiverPark Center, 101 Daviess Street, Owensboro, Kentucky, 42303, on Wednesday, February 13, 2002, 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 |
To the Shareholders:
The Annual Meeting of the Shareholders of Atmos Energy Corporation (the "Company") will be held at the RiverPark Center, 101 Daviess Street, Owensboro, Kentucky, 42303, on Wednesday, February 13, 2002, 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 2005.
2. To act upon a proposal to approve an amendment to the Company's 1998 Long-Term Incentive Plan to provide for an increase of 2,500,000 shares in the number of shares of common stock reserved for issuance under such Plan.
3. To act upon a proposal to approve an amendment to the Company's Annual Incentive Plan for Management to provide for an extension of the term of the Plan for an additional three years.
4. 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 17, 2001 will be entitled to notice of, and to vote at, such meeting. The stock transfer books will not be closed.
Included with this Proxy Statement is a copy of the Company's Annual Report to all shareholders and Form 10-K for the 2001 fiscal year.
By Order of the Board of Directors,
December 21, 2001
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.
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 21, 2001.
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 approximately $7,500 in fees, plus expenses and disbursements, to Morrow for its proxy solicitation services.
Common Stock Information; Record Date
As of December 17, 2001, there were 41,018,637 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 17, 2001 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 November 30, 2001, 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
------------------- ------------------ -------------
Atmos Energy Corporation Employee Stock
Ownership Plan and Trust (the "ESOP")(a) 2,253,184 5.5%
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(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 November 30, 2001, 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 pages 8-9 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............................................... 7,175 (a)(b)
Robert W. Best ................................................. 166,947(c) (a)
Dan Busbee...................................................... 9,898 (a)(b)
Richard W. Cardin............................................... 5,850 (a)(b)
R. Earl Fischer................................................. 33,244(c) (a)
Thomas J. Garland............................................... 7,983 (a)(b)
Richard K. Gordon............................................... -0- (a)(b)
Louis P. Gregory................................................ 8,912(c) (a)
Gene C. Koonce.................................................. 25,609 (a)(b)
Thomas C. Meredith.............................................. 4,786 (a)(b)
Phillip E. Nichol............................................... 14,340 (a)(b)
Carl S. Quinn................................................... 43,252 (a)(b)
John P. Reddy................................................... 39,451(c) (a)
Charles K. Vaughan.............................................. 53,599 (a)(b)
Richard Ware II................................................. 19,536 (a)(b)
J.D. Woodward, III.............................................. 1,075,529(c) 2.6%
All directors and executive officers as a group (17 individuals) 1,537,108 3.8%
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(a) The percentage of shares beneficially owned by such individual does not exceed one percent of the class so owned.
(b) Includes share units credited to the following directors under the Company's Equity Incentive and Deferred Compensation Plan for Non-Employee Directors in the following respective amounts: Mr. Bain, 4,860 units, Mr. Busbee, 5,150 units, Mr. Cardin, 3,350 units, Mr. Garland, 4,470 units, Mr. Gordon, -0- units, Mr. Koonce, 5,460 units, Dr. Meredith, 2,410 units, Mr. Nichol, 4,340 units, Mr. Quinn, 4,070 units, Mr. Vaughan, 3,890 units, and Mr. Ware, 1,810 units.
(c) Includes shares issuable upon the exercise of options held by the following officers within 60 days of November 30, 2001 under the Company's 1998 Long-Term Incentive Plan in the following respective amounts: Mr. Best, 50,000 shares, Mr. Fischer, 18,666 shares, Mr. Reddy, 26,666 shares, Mr. Woodward, 0 shares and Mr. Gregory, 6,666 shares.
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 2005. Travis W. Bain II, Dan Busbee, Richard K. Gordon and Gene C. Koonce have been nominated to serve as Class I directors.
Messrs. Bain, Busbee and Koonce were last elected to three-year terms by the shareholders at the 1999 Annual Meeting, while Mr. Gordon was appointed to the Board effective September 1, 2001. The Board is nominating Messrs. Bain, Busbee, Gordon and Koonce to continue serving as Class I directors, whose three-year terms will expire in 2005.
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.
Class
Year in Which Designation
First Became a and Year
Director of
Name; Principal Occupation or Employment of the Expiration
During Past Five Years; Other Directorships Age Company of Term
------------------------------------------- --- -------------- -----------
Travis W. Bain II................................................................ 67 1988 Class I
Chairman of Texas Custom Pools, Inc. in Plano, Texas since March 1999. 2002
Formerly President of Bain Enterprises, Inc. in Plano, Texas from November
1991 until March 1999. Director of Delta Industries, Inc. in Jackson,
Mississippi.
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Dan Busbee....................................................................... 68 1988 Class I
Professional Fellow at the Southern Methodist University School of Law 2002
Institute of International Banking and Finance and Visiting Senior Fellow at
the Centre for Commercial Law Studies, Queen Mary, University of London.
Overseas Executive Director of the Centre for International Financial Studies
and the Rule of Law at the British Institute of International & Comparative
Law. Formerly of Counsel with Gibson Dunn & Crutcher in Dallas, Texas
from August 1998 through August 1999. Formerly Attorney and Senior
Shareholder with Locke Purnell Rain Harrell in Dallas, Texas from 1970
until August 1998.
*******************************************************************************************
Richard K. Gordon................................................................ 52 2001 Class I
Vice Chairman, Investment Banking for Merrill Lynch & Co. since 1993. 2002
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Class
Year in Which Designation
First Became a and Year of
Name; Principal Occupation or Employment Director Expiration
During Past Five Years; Other Directorships Age of the Company of Term
------------------------------------------- --- -------------- -----------
Gene C. Koonce............................................................... 69 1997 Class I
Retired. Formerly Chairman of the Board, President and Chief Executive 2002
Officer of United Cities Gas Company from May 1996 until the merger of
United Cities with the Company in July 1997. Formerly President and Chief
Executive Officer of United Cities from October 1978 until May 1996.
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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 Class Designation
First Became a and Year of
Name; Principal Occupation or Employment Director Expiration of
During Past Five Years; Other Directorships Age of the Company Term
------------------------------------------- --- -------------- -----------------
Robert W. Best......................................................... 55 1997 Class III
Chairman of the Board, President and Chief Executive Officer of the 2004
Company since March 1997. Formerly Senior Vice President--
Regulated Businesses of Consolidated Natural Gas Company from
January 1996 to March 1997.
*******************************************************************************************
Richard W. Cardin...................................................... 66 1997 Class II
Consultant and retired partner of Arthur Andersen LLP since 1995. 2003
Director of United States Lime and Minerals, Inc.
*******************************************************************************************
Thomas J. Garland...................................................... 67 1997 Class III
Chairman of the Tusculum Institute for Public Leadership and Policy 2004
since 1998. Formerly Interim President of Tusculum College in
Greeneville, Tennessee from July 1999 through June 2000. Formerly
Executive-in-Residence at Tusculum College from 1990 to 1998.
Director of Peoples Community Bank in Johnson City, Tennessee.
**********************************************************************************************
Thomas C. Meredith..................................................... 60 1995 Class II
Chancellor of The University of Alabama System in Tuscaloosa, 2003
Alabama since June 1997. Formerly President of Western Kentucky
University in Bowling Green, Kentucky from September 1988 through
May 1997. Director of Alabama Power Company; Director of
Alabama Cast Iron and Pipe Company.
*******************************************************************************************
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Year in Which Class Designation
First Became a and Year of
Name; Principal Occupation or Employment During Past Five Years; Director Expiration of
Other Directorships Age of the Company Term
----------------------------------------------------------------------- --- -------------- -----------------
Phillip E. Nichol........................................................ 66 1985 Class III
Senior Vice President of Central Division Staff of Paine Webber 2004
Incorporated in Dallas, Texas since July 2001. Formerly Senior Vice
President and Branch Manager of PaineWebber Incorporated in Dallas,
Texas from March 1999 to June 2001. Formerly Senior Vice President
and Divisional Hiring Officer for the Central Division of PaineWebber
Incorporated in Dallas, Texas from March 1998 to February 1999.
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.
*******************************************************************************************
Carl S. Quinn............................................................ 70 1994 Class II
General Partner of Quinn Oil Company, Ltd. in East Hampton, New 2003
York since May 1992.
*******************************************************************************************
Charles K. Vaughan....................................................... 64 1983 Class III
Retired. Formerly Chairman of the Board of the Company from June 2004
1994 until March 1997.
*******************************************************************************************
Richard Ware II.......................................................... 55 1994 Class II
President of Amarillo National Bank in Amarillo, Texas since 1981. 2003
Member of the Board of Trustees of Southern Methodist University in
Dallas, Texas.
*******************************************************************************************
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Certain Business Relationships
Mr. Gordon is Vice Chairman of Investment Banking for Merrill Lynch & Co., which firm has provided various types of investment banking services to the Company, including serving as an underwriter on the Company's public debt and equity offerings and providing advice in connection with merger and acquisition transactions. Mr. Ware is the president and a shareholder of Amarillo National Bank, Amarillo, Texas, which bank provides an $18 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.
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 two meetings during the last fiscal year.
The Audit Committee consists of Messrs. Bain, Busbee, Cardin, and Meredith. 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 four meetings during the last fiscal year. The Company's securities are listed on the New York Stock Exchange and are governed by its listing standards. The Audit Committee has adopted a charter, which it follows in conducting its activities. All members of the Audit Committee meet the independence standards of Section 303.01(B)(2)(a) and (3) of the Rules of the New York Stock Exchange.
The Human Resources Committee consists of Messrs. Bain, Busbee, Garland, Gordon, Koonce and Nichol. Mr. Koonce 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. During the last fiscal year, the Human Resources Committee held three meetings.
The Nominating Committee consists of Messrs. Cardin, Meredith, Nichol, Quinn and Ware. 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 must be received no later than January 15, 2002. Such letters 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 selects the site and 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 eight meetings. During the 2001 fiscal year, 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. Beginning October 1, 2001, each of the non-employee directors will receive as compensation for serving as a director an annual retainer of $22,500 and a fee of $1,000 per day for attendance at each Board and committee meeting (excluding telephone conference meetings).
In August 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 in May 1990. This amended plan became effective when shareholders of the Company approved such amendment at their 1999 Annual Meeting in February 1999. Under the terms of the Company's Equity Incentive and Deferred Compensation Plan for Non-Employee Directors, each non-employee director is 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. In addition, each non-employee director receives an annual grant of share units for each year he serves as a director. The specific unit amounts credited to each director are shown in the Security Ownership Table on page 2 of this Proxy Statement.
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. All such shares issued to non-employee directors are reflected in the Security Ownership Table on page 2 of this Proxy Statement.
Other Compensation for Non-Employee Directors. 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 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 was extended by amendment approved by the Board in 2000 for a three-year period, ending September 30, 2004, at which time the agreement will terminate. The agreement provides for future payments to Mr. Vaughan, in consideration for his consulting services, of $130,000 during the 2002 fiscal year, $100,000 during the 2003 fiscal year and $75,000 during the 2004 fiscal year. During the 2001 fiscal year, Mr. Vaughan received $130,000 in payment for his services under the consulting agreement. The payments are made in semi-annual installments payable on October 1 and April 1 of each fiscal year. Mr. Vaughan also receives benefits equivalent to those provided under the Company's former Mini-Med executive medical reimbursement plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who beneficially own more than
ten percent of the Company's Common Stock to file with the Securities and Exchange
Commission and the New York Stock Exchange initial reports of ownership and
reports of changes in their ownership in the Company's Common Stock. Directors,
executive officers, and greater-than-ten-percent beneficial shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on a review of the copies of such reports
furnished to the Company, the Company believes that, during the last fiscal
year, all of the Company's directors, executive officers, and greater-than-ten-percent
beneficial owners were in compliance with the Section
16(a) filing requirements.
Executive Compensation
Summary Compensation Table. The following table sets forth the compensation paid by the Company for each of the Company's last three completed fiscal years to the Company's four most highly compensated executive officers other than Mr. Best. Compensation information is not presented below for an individual for any fiscal year in which such individual did not serve as an executive officer of the Company.
Annual Compensation Long Term Compensation
----------------------------- ----------------------
Restricted Securities
Other Annual Stock Underlying All Other
Salary Bonus(a) Compensation Awards(b) Options/ Compensation
Name and Principal Position Year ($) ($) ($) ($) SARs(#) ($)
--------------------------- ---- ------- -------- ------------ ---------- ---------- ------------
Robert W. Best................. 2001 572,788 399,600 (c) 0 75,000 21,480(d)
Chairman of the Board, 2000 555,000 0 (c) 0 50,000 8,585
President and Chief Executive 1999 540,192 0 (c) 1,525,000 50,000 8,585
Officer
R. Earl Fischer(e)............. 2001 209,102 111,100 (c) 0 30,000 10,946(d)
Senior Vice President, 2000 176,174 0 (c) 0 32,000 8,206
Utility Operations
John P. Reddy(f)............... 2001 249,513 131,800 (c) 0 30,000 13,030(d)
Senior Vice President and 2000 213,390 0 (c) 0 40,000 9,515
Chief Financial Officer
J.D. Woodward, III(g).......... 2001 115,385 129,200 (c) 0 0 6,500(d)
Senior Vice President,
Non-Utility Operations
Louis P. Gregory(h)............ 2001 183,842 100,590 (c) 0 20,000 4,820(d)
Senior Vice President and 2000 6,231 0 (c) 0 20,000 0
General Counsel
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(b) Dollar amounts shown equal the number of shares of restricted stock granted multiplied by stock price on grant date. This valuation does not take into account the diminution in value attributable to the restrictions applicable to the shares. The number and value of the aggregate restricted stock holdings at the end of the last fiscal year for each of the current executive officers listed above were as follows: Robert W. Best, 62,500 shares with a value of $1,350,000; R. Earl Fischer, 2,950 shares with a value of $63,720; John P. Reddy, 2,250 shares with a value of $48,600 (not including 9,282 shares that were converted from Mr. Reddy's bonus awarded November 6, 2001, as discussed in footnote (a) above); J.D. Woodward, III, -0- shares; and Louis P. Gregory, -0- shares. 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) 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.
(d) 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 2001 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 $15,080 in term life insurance premiums; R. Earl Fischer, $5,356 in Company matching contributions made pursuant to the ESOP and $5,590 in term life insurance premiums; John P. Reddy, $6,400 in Company matching contributions made pursuant to the ESOP and $6,630 in term life insurance premiums; J.D. Woodward, III, $0 in Company matching contributions made pursuant to the ESOP and $6,500 in term life insurance premiums; and Louis P. Gregory, $0 in Company matching contributions made pursuant to the ESOP and $4,820 in term life insurance premiums.
(e) Mr. Fischer became Senior Vice President, Utility Operations of the Company on May 1, 2000.
(f) After joining the Company on August 12, 1998, Mr. Reddy became Senior Vice President, Chief Financial Officer and Treasurer of the Company on April 26, 2000. Effective October 1, 2000, Mr. Reddy became Senior Vice President and Chief Financial Officer of the Company.
(g) Mr. Woodward became Senior Vice President, Non-Utility Operations of the Company on April 1, 2001. Mr. Woodward's compensation does not include a total of approximately $121,000 paid by a subsidiary of the Company, Woodward Marketing, L.L.C. to two corporations owned by Mr. Woodward during the period April 1, 2001 through September 30, 2001. Such amount represents lease payments paid to Mr. Woodward's wholly-owned corporations, Woodward Pipeline, Inc. and Woodward Development, Inc. for office space and furniture leased by Woodward Marketing, L.L.C. during the period indicated on a month-to-month basis.
(h) Mr. Gregory became Senior Vice President and General Counsel of the Company on September 5, 2000.
Stock Options. The following table provides information concerning options to purchase Common Stock of the Company under the Company's 1998 Long-Term Incentive Plan granted to the named current executive officers in the last fiscal year. The options have a term of ten years and may be exercised as follows: one-third after one year from the date of grant, another one-third after two years from the date of grant and the remaining one-third after three years from the date of grant.
Individual Grants
--------------------------------------------- Potential Realizable Value
Number of Securities Percent of Total Options/ at Assumed Rates of Stock
Underlying Options/ SARs Granted to Exercise Price Appreciation for
SARs Employees or Base Option Term ($)(c)
Granted in Fiscal Price Expiration --------------------------
Name (#)(a) Year ($/Sh)(b) Date 5% 10%
---- -------------------- ------------------------- --------- ---------- --------- ---------
Robert W. Best...... 75,000 17.1% $23.56 03-06-11 1,113,000 2,809,500
R. Earl Fischer..... 30,000 6.8% $23.56 03-06-11 445,200 1,123,800
John P. Reddy....... 30,000 6.8% $23.56 03-06-11 445,200 1,123,800
J.D. Woodward, III.. -0- n/a n/a n/a -0- -0-
Louis P. Gregory.... 20,000 4.6% $23.56 03-06-11 296,800 749,200
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(a) The number of securities underlying options for Mr. Best does not reflect Mr. Best's election on November 6, 2001 to convert 25% of his bonus, or $99,900, to options to purchase a total of 62,282 shares, as discussed in footnote (a) to the Summary Compensation Table on page 8. No SARs were granted in the 2001 fiscal year to any of the named executive officers.
(b) Exercise price is the fair market value per share of the shares as of the date of grant, as determined in accordance with the Company's 1998 Long-Term Incentive Plan.
(c) Potential realizable value is the amount that would be realized upon exercise by the named executive officer of the options immediately prior to the expiration of their respective terms, assuming the specified compound annual rates of appreciation on Common Stock over the respective terms of the options. These amounts represent assumed rates of appreciation only. Actual gains, if any, on stock option exercises depend on the future performance of the Company's common stock and overall market conditions. There can be no assurances that the potential values reflected in this table will be achieved.
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-The-Money
On Value Options/SARs at Fiscal Options/SARs at Fiscal
Exercise Realized Year-End (#)(a) Year-End ($)(b)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
Robert W. Best.... -0- -0- 50,000/125,000 99,163/198,337
R. Earl Fischer(c) -0- -0- 18,666/55,334 59,063/118,137
John P. Reddy(c).. -0- -0- 26,666/63,334 85,792/171,608
J.D. Woodward, III -0- -0- -0-/-0- -0-/-0-
Louis P. Gregory.. -0- -0- 6,666/33,334 12,932/25,868
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(a) The number of securities underlying unexercised options for Mr. Best does
not reflect Mr. Best's election on November 6, 2001 to convert 25% of his bonus,
or $99,900, to options to purchase a total of 62,282 shares, as discussed in
footnote (a) to the Summary Compensation Table on page 8. No SARs were granted
in the 2001 fiscal year to any of the named executive officers.
(b) Based on per share price for Common Stock of $21.60 per share. The price reflects the closing trading price on the New York Stock Exchange on September 28, 2001.
(c) Messrs. Fischer and Reddy were granted options in the 1999 fiscal year prior to their respective appointments as executive officers in the 2000 fiscal year to purchase shares of Common Stock in the amount of 12,000 shares and 20,000 shares, respectively.
Retirement Plans. Until January 1, 1999, certain of the executive officers listed in the Summary Compensation Table were covered by the Employees' Retirement Plan of Atmos Energy Corporation (the "Retirement Plan"), a defined benefit pension plan pursuant to which all participants automatically accrued 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 or Performance-Based Supplemental Executive Benefits Plan (collectively, 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 50% to 100% of his compensation, subject to reductions for less than ten years of vesting service and for retirement prior to age 62.
Since January 1, 1999, commencing with their employment, the executive officers listed in the Summary Compensation Table have been covered by the Company's new Pension Account Plan, which covers all employees of the Company. Such executive officers who were employed by the Company on January 1, 1999 had an opening account balance established for them as of January 1, 1999 equal to the then 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 a 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 participant's prior year account balance. A special grandfather benefit also applies through December 31, 2008, for participants who were 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 Pension Account 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.
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
1,100,000. 825,000 825,000 825,000 825,000 825,000
1,200,000. 900,000 900,000 900,000 900,000 900,000
1,300,000. 975,000 975,000 975,000 975,000 975,000
1,400,000. 1,050,000 1,050,000 1,050,000 1,050,000 1,050,000
1,500,000. 1,125,000 1,125,000 1,125,000 1,125,000 1,125,000
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(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 Pension Account Plan covers only the regular salary of each of its participants, excluding bonuses (subject to the maximum covered compensation limit of $170,000 as of January 1, 2000 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; and (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). 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, $992,267; R. Earl Fischer, $326,100; John P. Reddy, $386,800; J.D. Woodward, III, $379,200; and Louis P. Gregory, $281,200. Each of such executive officers has the following approximate number of years of credited service under the retirement plans: Mr. Best, four years; Mr. Fischer, 39 years; Mr. Reddy, three years; Mr. Woodward, 0 years; and Mr. Gregory, one year.
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 involuntarily by the Company for any reason other than "cause" or "disability" (i) following a "change of control" of the Company (as such term is 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 for any reason other than "cause", or (e) 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 the United Cities merger by the shareholders on November 12, 1996 constituted a "change in control" as defined in the Supplemental Plan, and as a result, Mr. Fischer, who was a participant in the Supplemental Plan as of November 12, 1996, is 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 occurence 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 such executive officer 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 is 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 or any resulting income or other 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.
Each of the executive officers listed in the Summary Compensation Table, other than Messrs. Woodward and Gregory, has also participated 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. However, as discussed below, the Board of Directors has elected not to grant any more shares under this plan, should the Company's shareholders vote in favor of the proposal relating to the Company's 1998 Long-Term Incentive Plan.
Human Resources Committee Interlocks and Insider Participation. The members of the Human Resources Committee during the last fiscal year were Messrs. Bain, Busbee, Garland, Gordon, Koonce and Nichol. There are no interlocking relationships between any executive officer of the Company and any other company.
THE ROLE OF THE COMMITTEE. 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 23, 2001, at which time the Committee determined to whom to pay and the amount of respective bonus awards earned for the most recent performance year, established new incentive targets and performance measures for the 2002 performance year, reviewed salary recommendations for all officers and business unit presidents, and conducted other matters consistent with the Committee's charter.
COMPENSATION STRATEGY. The Company's approach to compensation for all employees is based upon the tenets of "total rewards." Total rewards is a comprehensive approach to compensation and benefits which emphasizes the importance of the entire rewards package of the Company: base salary, incentive compensation, employee benefits, training and development opportunities, and the corporate environment.
Consistent with the total rewards approach for all employees, the Company's compensation program for executives is founded upon the same underlying tenets of total reward opportunities. The Company's executive compensation strategy is founded upon the following guiding principles:
. The Company's executive compensation strategy should be aligned with the Company's overall business strategy of focusing upon growth opportunities in both regulated and nonregulated business sectors, seeking ongoing improvements in operating efficiencies and service levels, and preparing for a more competitive environment in a consolidating industry.
. Overall pay targets should reflect the Company's intent 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.
. 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.
. Stock ownership is an important component for ensuring that executives' interests are aligned with shareholders.
. To facilitate stock ownership for executives, the Company should 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 should place a greater emphasis upon stock options and related long-term incentive opportunities, with limited emphasis upon special benefits and perquisites.
. The incentive compensation plans of the Company, to the extent that it is practical and consistent with the overall corporate business strategy, should comply with Section 162(m) of the Internal Revenue Code so that the Company can take the full tax deduction for executive compensation.
STRATEGY FOR NON-EMPLOYEE DIRECTOR COMPENSATION. The Committee has worked closely with the management consulting firm of Towers Perrin to ensure that the compensation program for non-employee directors serving on the Board of Directors is competitive and reflective of current best practices in the marketplace. In 1999, the Company's shareholders approved the adoption of the Equity Incentive and Deferred Compensation Plan for Non-Employee Directors. As a result, all current non-employee directors have voluntarily elected to participate in this new plan and to cease their participation in the Company's Retirement Plan for Non-Employee Directors. At the June 12, 2001 meeting of the Committee, Towers Perrin reviewed the competitiveness of the compensation program for Atmos non-employee directors and recommended that the Company make certain changes to the non-employee director compensation program in order to bring the program in line with the 50th percentile of competitive practice. The Committee and the Board of Directors approved Towers Perrin's recommendations, and beginning in the 2002 fiscal year, the non-employee directors will be paid $22,500 in annual retainer and will receive a grant of 600 common share units as an annual award under the Equity Incentive and Deferred Compensation Plan for Non-Employee Directors (representing increases of $2,500 and 200 share units respectively).
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 three 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 13 gas utility companies which have annual revenues and market capitalizations comparable to the Company.
. 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 displayed below. 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 stock options. 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 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. The Company's corporate officers, business unit presidents, and direct reports to the officers and business unit presidents, participate in the Annual Incentive Plan for Management (the "Incentive Plan"). The Incentive Plan, which has been designed to comply with Section 162(m) of the Internal Revenue Code, considers the Company's ability to attain a return on equity financial goal which is expressed to participants as a target level of earnings per share (EPS). Each participant in the plan has a stated target annual incentive award opportunity stated as a percentage of base salary, with such target opportunities ranging from 10 percent to 60 percent of the participant's respective base salary. Awards pursuant to the Incentive Plan are typically paid in cash. However, subject to the terms of the Plan and the approval of the Committee, the participant may make a voluntary election to convert his award to Company bonus stock, restricted shares or stock options. Such voluntary elections must be made by a participant prior to the beginning of the Performance Period as defined in the Plan.
For the 2001 fiscal year, the Company exceeded the financial performance threshold for purposes of funding the Incentive Plan. As such, incentive awards were earned and paid to Company employees for 2001 performance, including the five proxy-named executives. In funding the Incentive Plan, the Company achieved a level of EPS which was between the target and maximum level of performance for purposes of the plan's measurement.
LONG-TERM INCENTIVE COMPENSATION. The Company currently grants long-term awards in the form of nonqualified stock options. All stock options are granted at fair market value on the date of grant and have a term of ten years. Executives will only realize value from their stock options should the share price appreciate above the grant price on the date such option shares were granted. The Committee believes that stock options align the interests of executives with the interests of other shareholders by focusing upon shareholder value.
During the 2001 fiscal year, the Company granted nonqualified stock options to a select number of key executives and officers. 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 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 five years. Other officer positions have share ownership guidelines ranging from 2.5 to 1.0 times the officer's base salary.
At its June 12, 2001 meeting the Committee took certain actions with respect to the Company's long-term incentive program. First, the Committee elected to conditionally grant no further shares under the Company's Restricted Stock Grant Plan, should the Company's shareholders approve the proposal relating to the Company's 1998 Long-Term Incentive Plan discussed below. This plan was adopted on October 1, 1987 and approved by the Company's shareholders. This action was subsequently approved by the members of the Board of Directors who qualify as disinterested non-employee directors on August 8, 2001. As of that date, a total of 77,700 shares were available to be granted under the Restricted Stock Grant Plan. Also, on June 12, 2001, the Committee recommended that 2,500,000 shares be added to the share reserve of the Company's 1998 Long-Term Incentive Plan. This action by the Committee was approved by the Board of Directors on August 8, 2001. This plan, which was approved by shareholders as well, allows the Company to grant long-term incentives in the form of stock options, restricted shares, restricted stock units, stock appreciation rights, and other forms of performance-based equity awards. Since the plan's adoption, the Company has only granted stock options pursuant to the plan, and it is the Company's intent to continue with this practice for the foreseeable future. In the text of this proxy statement, management has requested shareholder approval of the request for an additional 2,500,000 shares to be reserved under the 1998 Long-Term Incentive Plan. The Committee believes that this additional share allocation, coupled with the remaining 288,824 shares held in the 1998 plan reserve pool, should provide a sufficient share pool for the Company over the next four to five years.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Committee has awarded Mr. Robert W. Best, Chairman of the Board, President, and Chief Executive Officer of the Company, a base salary of $630,000 for 2002. Mr. Best's base salary was $580,000 in 2001. The increase in base salary awarded to Mr. Best by the Committee is in recognition of both the Company and individual performance achieved in 2001, especially his achievements in leading the Company in the acquisition of the Louisiana natural gas assets of Citizens Communications Company and LGS Natural Gas Company. In addition, Mr. Best's salary adjustment reflects his contribution to other merger and acquisition activities including the Company's definitive agreement to acquire Mississippi Valley Gas Company and the acquisition of certain Kentucky storage and pipeline assets for Woodward Marketing. Mr. Best earned an incentive award under the Incentive Plan for the 2001 fiscal year because of the Company's attainment of certain performance criteria as established for the Incentive Plan. Mr. Best's individual award was determined to be 68.9 percent of base salary which is between the target and maximum levels of performance. Mr. Best received a grant of 75,000 nonqualified stock options during the 2001 fiscal year. The nonqualified stock option grant awarded to Mr. Best in the 2001 fiscal year was in recognition of Mr. Best's contributions to the overall performance and success of the Company during the year.
COMPLIANCE WITH SECTION 162(m). The Board of Directors has elected to fully comply with Section 162(m) of the Internal Revenue Code. The Company's decision to comply means that the Company should maintain the tax deductibility for performance-based compensation paid to the proxy-named executives. In order to comply with Section 162(m), all actions taken by the Committee with respect to the compensation of the proxy-named executives will be taken by only each of those members who constitute a "non-employee director" as defined in Section 162(m). In this proxy statement, the Company has asked the Company's shareholders to approve the Incentive Plan and the 1998 Long-Term Incentive Plan as performance plans for purposes of a performance plan exemption pursuant to Section 162(m). An affirmative vote by shareholders will ensure that both plans will continue to provide compensation awards that are fully tax deductible to the Company.
Respectfully submitted by the Members of the Human Resources Committee of the Board of Directors:
Gene C. Koonce, Chairman Travis W. Bain II Dan Busbee Thomas J. Garland Richard K. Gordon Phillip E. Nichol
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 Merrill Lynch Index.
[CHART]
ATMOS ENERGY CORPORATION S&P 500 INDEX MERRILL LYNCH INDEX
1996 $100 $100 $100
1997 $111 $140 $116
1998 $132 $153 $126
1999 $116 $196 $131
2000 $106 $222 $139
2001 $116 $163 $152
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1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Atmos Energy Corporation $100 $111 $132 $116 $106 $116
S&P 500 Composite Index. $100 $140 $153 $196 $222 $163
Merrill Lynch Index..... $100 $116 $126 $131 $139 $152
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The Merrill Lynch Index used in the graph is the Merrill Lynch Group I and II Index (formerly known as 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 Merrill Lynch Index used in the graph: AGL Resources Inc., Atmos Energy Corporation, Cascade Natural Gas Corporation, The Laclede Group, Inc., New Jersey Resources Corporation, NICOR Inc., Northwest Natural Gas Company, NUI Corporation, Peoples Energy Corporation, Piedmont Natural Gas Company, Inc., SEMCO Energy, Inc., South Jersey Industries, Inc., Southern Union Company, Southwest Gas Corporation, UGI Corporation and WGL Holdings, Inc.
The Audit Committee (the Committee) is composed of four directors who are independent directors, as defined under the rules of the New York Stock Exchange. The Committee operates under a written charter adopted by the Board of Directors and oversees the Company's financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including systems of internal controls.
In fulfilling its oversight responsibilities, the Committee reviewed the audited financial statements in the Company's 2001 Annual Report with both management and the Company's independent auditors, Ernst & Young LLP, which included a discussion of the quality as well as the acceptability of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.
The Committee has discussed with Ernst & Young LLP the matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication with Audit Committees). In addition, the Committee has received and reviewed the written disclosures from Ernst & Young LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has also discussed with Ernst & Young LLP its independence from the Company.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board has approved) that the Company's audited financial statements be included in its Annual Report on Form 10-K for the year ended September 30, 2001 for filing with the Securities and Exchange Commission. The Committee and the Board have also recommended the selection of the Company's independent auditors.
Respectfully submitted by the Members of the Audit Committee of the Board of Directors:
Dan Busbee, Chairman Travis W. Bain II Richard M. Cardin Dr. Thomas C. Meredith
Audit and Related Fees
Audit Fees. The aggregate fees billed by Ernst & Young LLP for professional services for the audit of the Company's 2001 annual consolidated financial statements and the review of the consolidated financial statements included the Company's Forms 10-Q for the 2001 fiscal year were $673,000.
Financial Information Systems Design and Implementation Fees. There were no fees billed by Ernst & Young LLP to the Company for financial information systems design and implementation fees for the 2001 fiscal year.
All Other Fees. The aggregate fees billed to the Company for all other services rendered by Ernst & Young LLP during the 2001 fiscal year were $1,721,500, including fees for audit related services of $564,000 and fees for other services of $1,157,500. Audit related services include services relating to registration statements, including comfort letters, benefit plan audits, and various consultations on accounting standards and transactions. Other services included internal audit services, tax outsourcing services and various other tax planning and compliance services.
The Audit Committee has determined that the provision of audit related and other services provided by Ernst & Young LLP to the Company is compatible with maintaining Ernst & Young LLP's independence from the Company.
2. APPROVAL OF AMENDMENT TO THE 1998 LONG-TERM INCENTIVE PLAN
The Company's shareholders are being asked to approve an amendment to the Company's 1998 Long-Term Incentive Plan (the "LTIP") to increase the number of shares reserved for issuance thereunder by 2,500,000, bringing the total number of shares of Common Stock reserved for issuance under the LTIP to 4,000,000. The LTIP is an integral part of the Company's overall compensation program. The proposed amendment would provide the additional shares necessary to attract, retain and reward the best available personnel for positions of substantial responsibility with the Company. Accordingly, the Board believes that approval of the amendment to increase the number of shares of Common Stock reserved for issuance under the LTIP by 2,500,000 shares is advisable and is in the best interests of the Company and its shareholders. Since the LTIP was approved by the shareholders in February 1999, a total of 1,308,877 stock options have been granted. As of November 30, 2001, there were 1,161,874 options to purchase shares outstanding; 17,840 shares of Common Stock had been issued upon the exercise of options; and 129,163 options to purchase shares had been forfeited.
Regulations promulgated under Section 162(m) of the Internal Revenue Code (the "Code") provide that in order for the Company to continue to fully deduct for federal income tax purposes compensation paid under the LTIP to its five most highly compensated officers, the Company must seek approval of the terms of the LTIP every five years. Approval of the amendment to the LTIP to increase the number of shares reserved for issuance under the LTIP by 2,500,000 will also constitute reapproval of the terms of the LTIP for purposes of Section 162(m) of the Code. The complete text of the LTIP, as amended, is set forth in Exhibit A to this Proxy Statement. A summary of the LTIP described below is qualified in its entirety by reference to Exhibit A.
Background and Purpose. 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 in August 1998, which was approved by the Company's shareholders in February 1999. 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 the last three fiscal years, only officers, business unit presidents and employees at the director level (or its equivalent) of the Company (approximately 80 employees each fiscal year) have participated in the LTIP. The LTIP is intended to motivate participants 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 have increased and should continue to 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.
Administration. The LTIP is administered and interpreted by the Human Resources Committee of the Board (the "Committee"). Actions taken by the Committee with respect to the LTIP have been and will continue to 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 Securities Exchange Act of 1934 (the "Exchange Act"), insofar as such actions are affected by Section 162(m) or Section 16. The Committee determines 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 (i) interprets the LTIP, (ii) prescribes, amends, and rescinds any rules and regulations necessary or appropriate for the administration of the LTIP, and (iii) makes such other determinations and takes 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 is binding, and conclusive on all interested parties.
General Description of Plan. The LTIP, which became effective as of October 1, 1998, has 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 text of the LTIP attached hereto as Exhibit A), all unmatured installments of any awards outstanding shall automatically be 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 only 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 4,000,000 shares of Common Stock, assuming the shareholders approve this proposal to amend the LTIP to increase the number of shares reserved for issuance under the LTIP by 2,500,000, 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 expire unexercised. Shares of Common Stock may be available from authorized but unissued shares of Common Stock, 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 total amount of incentive compensation that will be awarded during the 2002 fiscal year to each of the executive officers listed in the Summary Compensation Table, all current executive officers as a group, all current directors who are not executive officers as a group, each nominee for director, each associate of any such directors, executive officers or nominees, each other person who is to receive a total of five percent of any stock options or other compensation under the LTIP, and all employees including all current officers who are not executive officers, is not determinable.
The total amount of incentive compensation that was awarded during the 2001 fiscal year under the LTIP to each of the groups specified below is as follows:
(a) each of the executive officers listed in the Summary Compensation Table received stock options under the LTIP as reported in the Summary Compensation Table on pages 8-9; in addition, certain of the executive officers elected to convert a portion of the compensation they received under the Annual Incentive Plan for Management into awards under the LTIP, as reported in the Summary Compensation Table on pages 8-9; (b) all current executive officers as a group received stock options under the LTIP to purchase a total of 175,000 shares of Common Stock, not including any awards under the LTIP pursuant to the decision by certain executive officers to convert a portion of their compensation received under the Annual Incentive Plan for Management, as discussed above; (c) all current directors who are not executive officers as a group received no stock options or other compensation under the LTIP; (d) no nominee for director received any stock options or other compensation under the LTIP; (e) no associate of any such directors, executive officers or nominees received any stock options or other compensation under the LTIP; (f) no other person received a total of five percent of any stock options or other compensation under the LTIP, other than Messrs. Best, Fischer and Reddy, as noted above in the Option Grant table; and (g) all employees including all current officers who are not executive officers received only stock options under the LTIP to purchase a total of 264,500 shares of Common Stock. No other incentive compensation was awarded under the LTIP in the 2001 fiscal year. The total amount of incentive compensation that was awarded during the 2001 fiscal year to these groups of individuals under the LTIP would not have changed had the amendment increasing the number of shares reserved for issuance under the LTIP been already approved prior to the beginning of the 2001 fiscal year.
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 does 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 requires 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 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 a 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 that 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 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 Amendment to 1998 Long-Term Incentive Plan
On August 8, 2001, the Board of Directors approved and adopted the amendment to the LTIP, which is subject to the approval of the shareholders of the Company at the Annual Meeting of Shareholders on February 13, 2002. The Board of Directors believes that the LTIP will continue to 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 amendment to the LTIP is being submitted to the shareholders of the Company for their approval pursuant to the provisions of the LTIP, as well as to comply with the rules of the New York Stock Exchange and Section 162(m) of the Code. According to the Company's Bylaws, this proposal to adopt the amendment to 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 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 AMENDMENT TO THE 1998 LONG-TERM INCENTIVE PLAN.
3. APPROVAL OF AMENDMENT TO ANNUAL INCENTIVE PLAN FOR MANAGEMENT
The Company's shareholders are also being asked to approve an amendment to the Company's Annual Incentive Plan for Management (the "Incentive Plan") to extend the term for an additional three years, which if approved, will mean that the Incentive Plan will expire September 30, 2006. Along with the LTIP, the Incentive Plan represents an integral part of the Company's overall compensation program. The Board of Directors believes that the Incentive Plan has been and will continue to be effective in maintaining a balanced and competitive overall compensation program. Accordingly, the Board believes that approval of the amendment to extend the term of the Incentive Plan for an additional three year period is advisable and is in the best interests of the Company and its shareholders. Regulations promulgated under Section 162(m) of the Internal Revenue Code (the "Code") provide that in order for the Company to continue to fully deduct for federal income tax purposes compensation paid under the Incentive Plan to its five most highly compensated officers, the Company must seek approval of the terms of the Incentive Plan every five years. Approval of the amendment to the Incentive Plan to extend the term of the plan for an additional three year period will also constitute reapproval of the terms of the Incentive Plan for purposes of Section 162(m) of the Code. The complete text of the Incentive Plan is set forth in Exhibit B to this Proxy Statement. A summary of the Incentive Plan contained herein is qualified in its entirety by reference to Exhibit B.
General Description and Purpose. 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, which was approved by the Company's shareholders in February 1999. 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 only officers, business unit presidents and other key employees of the Company (a total of approximately 80 employees) have participated in the Incentive Plan since its inception. 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 Incentive Plan became effective as of October 1, 1998 and shall expire
on October 1, 2003. However, should the Company's shareholders approve the
extension of the Incentive Plan for an additional three year period, the
Incentive Plan shall expire September 30, 2006. 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 text of the
Incentive Plan), 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
obligations 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 is 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 have been and will continue to 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 also determines and designates the eligible persons to whom awards will be made. The Committee also has 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 are final, binding, and conclusive on all interested parties.
Performance Goals and Measurement. Performance goals are 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 total amount of incentive compensation that will be awarded during the 2002 fiscal year to each of the executive officers listed in the Summary Compensation Table, all current executive officers as a group, all current directors who are not executive officers as a group, and all employees including all current officers who are not executive officers, is not determinable. The total amount of incentive compensation that was awarded during the 2001 fiscal year under the Incentive Plan to each of the groups specified below is as follows: (a) each of the executive officers listed in the Summary Compensation Table received incentive compensation as reported in the Summary Compensation Table on pages 8-9; (b) all current executive officers as a group received $935,000; (c) all current directors who are not executive officers as a group received $0; and (d) all employees including all current officers who are not executive officers received $1,498,100. The total amount of incentive compensation that was awarded during the 2001 fiscal year to these groups of individuals under the Incentive Plan would not have changed had the amendment extending the term of the Incentive Plan been already approved prior to the beginning of the 2001 fiscal year.
Board Recommendation to Approve Amendment to Annual Incentive Plan for Management
On August 8, 2001, the Board of Directors approved and adopted the amendment to the Incentive Plan, which is subject to the approval of the shareholders of the Company at the Annual Meeting of Shareholders on February 13, 2002. The Board of Directors believes that the Incentive Plan will continue to accomplish its purpose of promoting the interests of the Company and its shareholders by attracting, motivating, and retaining executives and senior managers.
The amendment to the Incentive Plan is being submitted to the shareholders of the Company for their approval pursuant to the provisions of the Incentive Plan and to comply with Section 162(m) of the Code. According to the Company's Bylaws, this proposal to approve an amendment to 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 proposal. 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" THE AMENDMENT TO THE ANNUAL INCENTIVE PLAN FOR MANAGEMENT.
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, 2002. 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 of Ernst & Young LLP 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 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 Annual Meeting of Shareholders on February 13, 2002, he or she must be a shareholder of record on the Record Date, December 17, 2001, 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 15, 2002. In the event a shareholder intends to present a proposal at the Year 2003 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 24, 2002 and it must be prepared according to applicable law, as determined by the Company.
By Order of the Board of Directors,
Dallas, Texas
December 21, 2001
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 was approved by the Company's shareholders on February 10, 1999. An amendment to the Plan was approved by the Board of Directors on August 8, 2001 (which amendment is reflected below) and will be submitted to the Company's shareholders for approval on February 13, 2002.
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.
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 (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 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.
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.
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.
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.
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 limited to those members of the Board who are Non-employee Directors and who are "outside directors" under Section 162(m). The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee.
The Committee shall determine and designate from time to time the eligible persons to whom Awards will be granted and shall set forth in each related Award Agreement the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee, but not inconsistent with the Plan, including, but not limited to, any rights of the Committee to cancel or rescind any such Award. The Committee shall determine whether an Award shall include one type of Incentive, two or more Incentives granted in combination, or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive).
The Committee, in its discretion, shall (i) interpret the Plan, (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and (iii) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties.
With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer quotation system upon which the Company's securities are listed or quoted, or any other applicab