SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Section 240.14a-12
AGL RESOURCES, INC.
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(Name of Registrant as Specified in its Charter)
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Explanatory Note
The following materials were first released to the Registrant's
shareholders on January 14, 2002, by posting to the Registrant's website
(www.aglresources.com).
2002 Proxy Q & A
1. Why should shareholders vote in favor of the Executive Performance
Incentive Plan?
The Compensation Committee of the Board of Directors, which is responsible
for setting compensation philosophy and administering executive
compensation programs, has determined that the interests of shareholders
are best served when a significant percentage of executives' pay is at risk
each year. This means that executives' receipt of cash compensation depends
upon the Company's financial results.
When the Company's financial results meet or exceed certain goals
established by the Board, it is conceivable that together with salary, some
executives may, in any one year, earn compensation that exceeds $1 million.
If this occurs, compensation paid to an executive in excess of $1 million
is not deductible under the Internal Revenue Code (the "Code") unless it is
paid under a plan that has been approved by shareholders and meets certain
Code requirements. The Code requires that the plan list the specific
performance criteria that will determine the amount of bonus to be paid and
that the Compensation Committee of the Board may not increase an
executive's bonus for subjective reasons.
The Executive Performance Incentive Plan, as it appears in the proxy
statement, meets the requirements of Section 162(m) of the Code. If
shareholders vote in favor of this proxy proposal, the Company will be able
to preserve its deduction for annual performance compensation that may be
paid under the plan.
2. Why should shareholders vote in favor of the proposed amendments to the
Long-Term Incentive Plan (LTIP)?
It is the responsibility of the Compensation Committee to (1) attract and
retain a highly motivated executive team, and (2) structure compensation
opportunities that pay competitive compensation when material improvements
in shareholder returns (both near- and long-term) result from executives'
performance. The purpose of the LTIP is to focus on performance over a
longer term horizon, typically 3-10 years. In structuring long-term
incentive opportunities, the Committee believes that executives will be
better focused on critical strategic issues and more committed to the
long-term success of the Company if outstanding executive performance
results in an increased equity interest in the Company. Such equity
interests may take the form of stock options, performance units or
restricted stock.
Consistent with the Compensation Committee's philosophy of making
executives' pay contingent on outstanding performance, it is expected that
increasingly, more of executives' total compensation will be "at risk." To
put more long-term compensation into the "at risk" category, it is expected
that executives' long-term compensation opportunities will be contingent
upon delivery of consistently improving financial results over a multi-year
period.
At this point, there are insufficient shares in the LTIP to achieve the
Committee's objectives. One purpose of submitting the LTIP to shareholders
at this time is to receive approval to reserve additional shares for
purposes of making awards in the future. Initially, 2.7 million shares
would be added to the LTIP reserves. Each year thereafter, 2% of the
Company's outstanding shares would be added to the LTIP, thus allowing the
Company the flexibility it requires to attract, retain, and incent the
Company's executives while avoiding the expense of periodic requests to
shareholders for routine approval of additional shares.
3. Other than making additional shares available for award, is the LTIP being
amended in any other way?
There are several other very important changes in the proposed plan
amendments:
It is proposed to amend the LTIP to allow the Company to grant stock
options with an exercise price that is higher than the fair market value of
the Company's stock on the date of grant. These "premium priced" stock
options would have no value until the market price of the Company's stock
had surpassed the premium exercise price. Previously, the LTIP only allowed
awards of stock options with an exercise price equal to the fair market
value on the date of grant. Making this provision available to the
Committee provides another very powerful tool that makes compensation
contingent upon share price performance.
Next, as proposed, the number of stock options that may be granted to any
one person in any calendar year would be increased from 500,000 to 750,000.
The Committee has no immediate plans to make grants in excess of 500,000
shares, but the amendment would give the Committee more flexibility in the
future if it determines that a grant of such size would be appropriate.
Third, the number of shares of stock represented by performance units that
may be granted in any calendar year to any one person would be increased
from 50,000 to 400,000. Performance units represent an opportunity for an
executive to earn a certain number of shares if specific performance goals
are achieved. As with the increase in the number of stock options that may
be granted, raising the number of performance units that may be granted
gives the Committee the flexibility of making grants in the future that
place a great deal of emphasis on achieving sustained increases in the
Company's share price. Consistent with the expectation that more of
executives' long-term compensation opportunities will be put "at risk,"
such grants would be aggressively structured. It is anticipated that
executives would lose significant compensation opportunities if results
were not delivered. Conversely, executives would earn significant long-term
compensation opportunities if performance goals were met or exceeded.
Finally, it is proposed to amend the LTIP to give the Committee more
flexibility in defining what happens to grants in the event of a change of
control. Under the current provisions of the LTIP, performance units would
become vested and non-forfeitable in the event of a change of control and
would be paid out on a pro rata basis if performance objectives were
achieved. The Committee is asking shareholders to amend the LTIP so that a
change of control would not, in all cases, cause performance units to vest.
4. If the LTIP is approved by shareholders, how does the Committee contemplate
using the authorized shares in the Company's executive compensation
programs?
The Committee contemplates placing more emphasis on performance incentives
for senior officers and certain other key executives. Specifically, the
Committee is committed to a philosophy whereby executives can achieve
market or better levels of total compensation only when aggressive
performance targets are met. The Committee is particularly focused on
significant appreciation in share price over a three-year period for the
purpose of making certain performance-based awards.
The Committee intends to increase progressively the percentage of each
executive's compensation opportunity that is contingent upon the
achievement of performance goals critical to the Company's long term
success. By offering executives long-term, at-risk compensation, executives
will earn at or above market compensation only when shareholders see
increases in the price of their AGL Resources common stock or when other
fundamental operational or financial measures show material improvement in
the strength of the Company. The Committee believes that when such grants
comprise a significant percentage of executives' pay opportunity,
executives' interests become more aligned with those of shareholders.
5. Why is there a need to significantly increase the number of stock options
and performance units that may be awarded to any individual in a calendar
year?
Certainly, by requesting the increase, the Committee does not intend that
very large grants of stock options or performance units be routinely
made to individual executives. The Committee does believe, however, that
there are circumstances under which large grants to certain key executives
would advance the interests of the Company and the shareholders.
If the LTIP amendment is approved by shareholders, the Committee
anticipates that it may award certain key executives with performance units
such that the award would represent the long-term incentive component of
the executive's pay for a number of years. The Committee believes that this
type of award would provide a powerful incentive for the executive to
remain in the employ of the Company and a powerful incentive for the
executive to do everything possible to increase the Company's share price.
The units that the Committee currently anticipates awarding, if fully
vested, will provide greater total compensation to key executives than
would a traditional time-based (ten year) option program. However, if the
awards do not fully vest, due to insufficient appreciation in the Company's
share price, the amount of share ownership by those executives would be
significantly below that which would occur in a traditional time-based
program. The Committee believes that this additional share ownership
opportunity is justified because the shareholders of the Company also will
realize value improvement over a shorter time horizon than might otherwise
occur in the absence of the incentive.
The same result might be achieved through a series of smaller performance
unit awards or more traditional, annual stock option grants. The Committee
believes, however, that for
selected, senior executives, these larger award opportunities could be more
effective in motivating these senior executives to take the strategic and
operational actions required to deliver sustained improvement in the
Company's financial results and its share price.