<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
United Cities Gas Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Jonathan A. Koff (312) 845-2978
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
[UNITED CITIES GAS COMPANY LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of United Cities Gas Company
("Company") will be held in the fifth floor auditorium of the First American
Center, 326 Union Street, Nashville, Tennessee, on Friday, May 3, 1996, at
10:30 a.m. local time, for the following purposes:
1. To elect five directors of the Company;
2. To consider and act upon a proposed Amendment to the Articles
of Incorporation of the Company concerning Directors'
Liability;
3. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
THE CLOSE OF BUSINESS ON MARCH 25, 1996, HAS BEEN FIXED BY THE
BOARD OF DIRECTORS AS THE RECORD DATE FOR THE DETERMINATION OF SHAREHOLDERS
ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING OF SHAREHOLDERS OR
ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
By Order of the Board of Directors,
SHIRLEY M. HAWKINS
Senior Vice President and Secretary
Brentwood, Tennessee
April 1, 1996
IMPORTANT
- --------------------------------------------------------------------------------
EACH SHAREHOLDER IS URGED TO EXECUTE AND RETURN THE PROXY
PROMPTLY. A BUSINESS REPLY ENVELOPE, REQUIRING NO POSTAGE, IS PROVIDED FOR
YOUR USE.
- ----------------------------------------------------------------------------
5300 Maryland Way - Brentwood, Tennessee 37027 - Telephone: 615/373-5310
<PAGE> 3
[UNITED CITIES GAS COMPANY LOGO]
April 1, 1996
PROXY STATEMENT
- ----------------------------------------------------------------------------
Proxies in the form enclosed with this statement are solicited by
the Board of Directors of United Cities Gas Company to be voted at the
Annual Meeting of Shareholders to be held in the fifth floor auditorium of
the First American Center, 326 Union Street, Nashville, Tennessee, on
Friday, May 3, 1996, at 10:30 a.m. local time, for the purposes set forth in
the foregoing Notice of Annual Meeting. This proxy statement and proxy card
are being mailed on or about April 1, 1996.
REVOCABILITY OF PROXY
- ----------------------------------------------------------------------------
Each valid proxy which is returned will be voted at the meeting. A
proxy may be revoked in writing by the person or persons voting at any time
prior to the recording of the official vote. Shareholders attending the
meeting may, on request, vote their own shares even though they have
previously sent in a proxy. All proxies will be voted in accordance with the
directions marked on the proxies; if no directions are indicated on such
proxies, they will be voted for the election of all nominees for directors
and the amendment to the Articles of Incorporation.
VOTING SECURITIES
- ----------------------------------------------------------------------------
As of the close of business on March 25, 1996, the record date
fixed by the Board of Directors for determining shareholders of the Company
entitled to notice of and to vote at the Annual Meeting of Shareholders,
there were shares of Common Stock outstanding.
Shares of Common Stock held for the accounts of participants in
the Company's Dividend Reinvestment and Stock Purchase Plan will be voted by
the Plan Administrator in the same manner as the participants vote their
shares held of record.
For employees participating in the Company's 401(k) Plan, which
includes a portion of the Company's Common Stock, the proxy card will
include the number of shares registered in the participant's name and/or the
number of shares allocated to the participant's account under the plan. For
those shares held in the plan, the proxy card will serve as a direction to
the trustee under the plan as to how the shares are to be voted.
Shares represented by proxies which are marked "withhold authority" or
"abstain" as to any matter will be counted as shares that are present for
purposes of determining a quorum, but will have the same effect as a negative
vote on such matter. Proxies relating to "street name" shares which are not
voted by brokers on one or more, but less than all, matters will be treated as
shares present for purposes of determining the presence of a quorum but will not
be treated as votes cast as to such matter or matters not voted upon.
- --------------------------------------------------------------------------------
1
<PAGE> 4
Cumulative voting in the election of directors is permitted. Under
cumulative voting, each shareholder is entitled to as many votes as shall
equal the number of shares of stock held as of the record date multiplied by
the number of directors to be elected; a shareholder may cast all of such
votes for a single director or may cast them for any or all of the directors
in any manner desired. There are no conditions precedent to the exercise of
the right of cumulative voting.
PROPOSAL 1 -- ELECTION OF DIRECTORS
- ----------------------------------------------------------------------------
The Company's By-laws presently provide for a board of 10
directors serving staggered three-year terms. The board intends to amend the
By-laws to include 11 directors concurrent with the Annual Meeting of
Shareholders on May 3. It is proposed that the following five persons be
nominated for election as directors: Jerry H. Ballengee, Richard W. Cardin,
Dale A. Keasling, Vincent J. Lewis and Stirton Oman, Jr. Four of such
persons will serve for terms of three years to expire in 1999 or until their
successors are elected and qualified and one will serve a two-year term to
expire in 1998 or until his successor is elected and qualified.
It is intended that the proxies received in response to this
solicitation will be voted for the election of the five persons so
nominated, unless otherwise specified. If for any reason any nominee shall
become unavailable for election or shall decline to serve, persons named in
the proxy may exercise discretionary authority to vote for a substitute
proposed by the remaining directors of the Company. No circumstances are
presently known which would render any nominee herein unavailable.
The name of each director nominee is disclosed below followed by a
listing of directors whose terms expire at a later date. Included herein is
the principal occupation of each nominee and director and any other business
affiliations for the past five years.
- --------------------------------------------------------------------------------
MANAGEMENT AND THE BOARD OF DIRECTORS OF THE COMPANY
RECOMMEND UNANIMOUSLY A VOTE "FOR" THE NOMINEES SET FORTH BELOW.
- --------------------------------------------------------------------------------
NOMINEE FOR DIRECTOR WHOSE TERM WILL EXPIRE IN 1998
DALE A. KEASLING
------------------------------------------------------------------
President
Home Federal Bank
Director Since: 1995
Board Committee: Audit
Mr. Keasling, 52, is president of Home Federal Bank in Knoxville,
Tennessee. He was president of Valley Fidelity Bank and Trust Company in
Knoxville from 1980-1992.
- --------------------------------------------------------------------------------
2
<PAGE> 5
NOMINEES FOR DIRECTOR WHOSE TERMS WILL EXPIRE IN 1999
JERRY H. BALLENGEE ---------------------------------------------------------
President and Chief Operating Officer
Union Camp Corporation
Director Since: 1995
Board Committee: Compensation
Mr. Ballengee, 58, is president and chief operating officer and a
member of the Board of Directors of Union Camp Corporation in Wayne, New
Jersey. Mr. Ballengee serves as chairman of the advisory board to the
College of Engineering of Clemson University and is a member of the board of
directors and second vice president of the North Carolina State University
Pulp and Paper Foundation.
RICHARD W. CARDIN---------------------------------------------------------------
Consultant and Private Investor
Director Since: N/A
Board Committee: N/A
Mr. Cardin, 60, has been a consultant and private investor since
his retirement in 1995 as a partner of Arthur Andersen LLP, an international
firm of independent public accountants and consultants. During the years
from 1980-1994, he was office managing partner of the Nashville, Tennessee
Office of Arthur Andersen LLP.
VINCENT J. LEWIS
------------------------------------------------------------------
Senior Vice President
Legg Mason Wood Walker, Inc.
Director Since: 1986
Board Committee: Audit (chairman)
Mr. Lewis, 51, is a senior vice president at Legg Mason Wood
Walker, Inc. in Rutherford, New Jersey. He served as a director of
Tennessee-Virginia Energy Corporation until its acquisition by United Cities
Gas Company in 1986.
STIRTON OMAN, JR.
-----------------------------------------------------------------
Consultant and Private Investor
Director Since: 1976
Board Committee: Audit
Mr. Oman, 63, is a consultant and private investor and previously
served as chairman of the board of directors of Oman Construction Company in
Nashville, Tennessee.
- --------------------------------------------------------------------------------
3
<PAGE> 6
TERMS EXPIRING IN 1997
THOMAS J. GARLAND --------------------------------------------------------------
Executive in Residence and Distinguished Service Professor of the Civic Arts
Tusculum College
Director Since: 1990
Board Committee: Compensation (chairman)
Mr. Garland, 61, is an executive in residence and distinguished
service professor of the civic arts at Tusculum College in Greeneville,
Tennessee and also a consultant. He serves as a member of the board of
directors of Peoples Community Bank in Johnson City, Tennessee. He
previously served as chancellor of the Tennessee Board of Regents.
GENE C. KOONCE------------------------------------------------------------------
President and Chief Executive Officer
Director Since: 1978
Board Committee: N/A
Mr. Koonce, 64, joined the Company in 1978 as president and chief
executive officer. He is a professional engineer. Mr. Koonce is a director
of First American Corporation in Nashville, Tennessee. He is also a director
of the American Gas Association. He has served as chairman of the Southern
Gas Association and president of the Tennessee Gas Association.
GEORGE C. WOODRUFF, JR.
-----------------------------------------------------------
Chairman
George C. Woodruff Company
Director Since: 1988
Board Committee: Compensation
Mr. Woodruff, 67, is chairman of the George C. Woodruff Company, a
real estate development and management firm in Columbus, Georgia. Mr.
Woodruff is a director of Synovus Financial Corporation, Columbus Bank and
Trust Company, and Total System Services, Inc., all in Columbus, Georgia. He
is past director of the Georgia Department of Industry, Trade and Tourism in
Atlanta, Georgia.
TERMS EXPIRING IN 1998
DWIGHT C. BAUM------------------------------------------------------------------
Chairman of the Board
Retired Senior Vice President
PaineWebber Incorporated
Director Since: 1964
Board Committee: Audit (ex officio)
Mr. Baum, 83, was elected chairman of the board in October 1979.
He is a retired senior vice president of PaineWebber Incorporated. Mr. Baum
is also a director of Dominguez Services Corporation, Measurex Corporation
and Westminster Capital Corporation.
- --------------------------------------------------------------------------------
4
<PAGE> 7
DENNIS L. NEWBERRY, II ---------------------------------------------------------
Consultant and Private Investor
Retired President and Chief Executive Officer
Texas Gas Transmission Corporation
Director Since: 1986
Board Committee: Compensation
Mr. Newberry, 68, has been a consultant and private investor since
his retirement as president and chief executive officer of Texas Gas
Transmission Corporation. He is past chairman and a present member of the
executive committee of AAA Kentucky. Mr. Newberry serves on the Company's
retirement committee.
TIMOTHY W. TRIPLETT
---------------------------------------------------------------
Partner
Blackwell Sanders Matheny Weary & Lombardi, Attorneys
Director Since: 1992
Board Committee: Audit
Mr. Triplett, 41, is a partner in the law firm of Blackwell
Sanders Matheny Weary & Lombardi in Overland Park, Kansas. He is a past
member of the board of trustees of Southwest Baptist University in Bolivar,
Missouri.
- ----------------------------------------
MR. BAUM, a director, is a retired senior vice president of
PaineWebber Incorporated which has performed various investment banking
services for the Company in the last fiscal year and is expected to perform
similar services in the current year.
MR. LEWIS, a director, is a senior vice president of Legg Mason
Wood Walker, Inc. which has performed investment banking services for the
Company in the last fiscal year and is expected to perform similar services
in the current year.
MR. TRIPLETT, a director, is a partner in the law firm of
Blackwell Sanders Matheny Weary & Lombardi which represents the Company and
its primary liability insurance carrier in general liability lawsuits. The
Company incurred expenses of $556,369 payable to Blackwell Sanders Matheny
Weary & Lombardi in 1995, a portion of which was reimbursed by insurance.
The fees paid to Blackwell Sanders Matheny Weary & Lombardi included amounts
paid to other attorneys and outside experts under the firm's management.
- --------------------------------------------------------------------------------
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- --------------------------------------------------------------------------------
On March 25, 1996, the Company did not have any beneficial owners
of 5% or more of the Company's Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth certain information concerning the
ownership of Common Stock as of March 25, 1996, (i) by each member of the
Board of Directors and each nominee for the Board of Directors, (ii) each
executive officer named in the Summary Compensation Table herein, and (iii)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER NUMBER
OF SHARES OF SHARES
BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF
OWNED(1) CLASS(2) OWNED(1) CLASS(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerry H. Ballengee % Dennis L. Newberry, II
Dwight C. Baum Stirton Oman, Jr.
Thomas R. Blose, Jr. (3) Glenn B. Rogers (3)
Richard W. Cardin Timothy W. Triplett
James B. Ford (3) George C. Woodruff, Jr.
Thomas J. Garland All directors and executive
Shirley M. Hawkins (3) officers as a group
Dale A. Keasling (15 persons) (3) %
Gene C. Koonce (3)
Vincent J. Lewis
</TABLE>
(1) Beneficial holdings shown herein include shares held by spouses and
minor children; the directors and officers neither affirm nor deny
that such shares are in fact beneficially owned by them.
(2) Unless otherwise noted, less than 1% per individual.
(3) Includes shares that may be acquired pursuant to the exercise of
stock options exercisable within 60 days of March 25, 1996, as
follows: 8,600 shares for Mr. Blose, 2,600 shares for Mr. Ford,
2,600 shares for Ms. Hawkins, 12,000 shares for Mr. Koonce and
14,600 shares for Mr. Rogers, and 40,400 shares for all directors
and executive officers as a group.
- --------------------------------------------------------------------------------
6
<PAGE> 9
MEETINGS AND FEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
During 1995 the Company's Board of Directors held four meetings
and each incumbent director attended more than 75% of the aggregate board
and committee meetings of the Committee on which he served.
Non-officer directors of the Company receive an annual retainer fee of
$18,000. In addition, these directors are paid $750 for each meeting of the
Board of Directors and $500 for each committee meeting attended. Mr. Baum, as
Chairman of the Board of Directors, receives an additional annual retainer fee
of $8,000. Mr. Garland and Mr. Lewis, as Chairman of the Compensation and Audit
Committees, respectively, receive an additional annual retainer fee of $3,000
each.
In February 1992, a deferred compensation plan for members of the
Company's Board of Directors was established. Under the plan, eligible
participants may defer, until after termination of services as a director, any
or all compensation for service on the Board. Interest will accrue on any
deferred compensation balance. As of December 31, 1995, there was one
participant in the plan deferring 65% of his total director compensation.
In April 1995, shareholders of the Company approved a Non-Employee
Director Stock Plan. Under the plan, eligible participants may elect to receive
shares of Company Common Stock in lieu of receiving some or all of their annual
cash retainer compensation. As of December 31, 1995, there were two participants
in the plan each contributing 25 percent of his annual cash retainer
compensation.
COMMITTEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
The Company has an Audit Committee comprised of the following
directors: Mr. Baum, Mr. Keasling, Mr. Lewis (chairman), Mr. Oman, and Mr.
Triplett. The Audit Committee has responsibility for recommending to the
Board of Directors the annual selection of independent public accountants,
reviewing the scope of their audits, taking action as required with respect
to audit reports submitted and reporting to the full Board of Directors.
Three meetings were held during 1995.
The Company has a Compensation Committee comprised of the following
directors: Mr. Ballengee, Mr. Garland (chairman), Mr. Newberry, and Mr.
Woodruff. The Compensation Committee has responsibility for recommending officer
pay levels to the Board of Directors for approval. Five meetings were held in
1995.
- --------------------------------------------------------------------------------
7
<PAGE> 10
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The following table contains information with respect to compensation
awarded, earned or paid during the years 1993-1995 to (i) the chief
executive officer, and (ii) the other four most highly compensated officers
of the Company in 1995, whose total remuneration paid in 1995 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) (#)(2) ($)(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gene C. Koonce 1995 $303,077 $ -- $125 6,000 $1,152
President & Chief 1994 281,000 43,560 -- 9,000 1,152
Executive Officer 1993 260,846 76,860 -- -- 1,152
James B. Ford 1995 158,538 -- -- 3,000 933
Senior Vice President 1994 148,192 25,028 -- 5,000 812
& Treasurer 1993 138,625 41,672 -- -- 760
Thomas R. Blose, Jr. 1995 156,539 -- -- 3,000 922
Senior Vice President -- 1994 145,846 24,495 -- 5,000 795
Operations & Engineering 1993 135,573 40,672 -- -- 742
Glenn B. Rogers 1995 123,923 -- 3 3,000 726
Senior Vice President -- 1994 117,836 18,769 -- 5,000 489
Gas Supply & Marketing 1993 111,721 32,025 -- -- 605
Shirley M. Hawkins 1995 98,338 -- -- 3,000 576
Senior Vice President 1994 91,669 14,025 -- 5,000 657
& Secretary 1993 82,042 21,485 -- -- 426
</TABLE>
(1) The Other Annual Compensation amounts for Mr. Koonce and Mr. Rogers for
fiscal 1995 represent the above-market interest rate on their respective
deferred compensation that exceeds 120% of the applicable federal long-term
rate. See "Deferred Compensation Plan" hereafter for a discussion of the
Deferred Compensation Plan.
(2) All of the options issued during 1995 were nonqualified stock options.
(3) Dollar value of term life insurance premiums paid by the Company.
- --------------------------------------------------------------------------------
8
<PAGE> 11
LONG-TERM STOCK PLAN
- --------------------------------------------------------------------------------
Under the Long-Term Stock Plan implemented in 1989, the
Compensation Committee may grant incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock or any combination
thereof to officers and key employees of the Company and its subsidiaries
selected by, and on the terms established by, the Compensation Committee at
the time of grant. The Long-Term Stock Plan, which was approved by the
shareholders of the Company, will be in effect for ten years.
The Long-Term Stock Plan has a Stock Appreciation Right ("SAR")
feature which provides optionees the right to receive appreciation in the
shares of Common Stock subject to such option in Common Stock or cash, or a
combination thereof, equal in value to the difference between the fair
market value of such shares on the date of exercise and the option exercise
price. In addition, the Long-Term Stock Plan provides for payment to the
Company of the exercise price of the options in either cash, Common Stock
held by an optionee at the time of exercise, or a combination thereof.
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
The table below provides information concerning stock option grants to
each executive officer named in the Summary Compensation Table herein who
were granted stock options during the 1995 Fiscal Year.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
- ----------------------------------------------------------------------------------------- STOCK PRICE
% OF TOTAL OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE(1) 5% 10%
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gene C. Koonce 6,000 15.38% $ 15.75 04/28/05 $59,431 $150,609
James B. Ford 3,000 7.69% $ 15.75 04/28/05 29,715 75,304
Thomas R. Blose, Jr. 3,000 7.69% $ 15.75 04/28/05 29,715 75,304
Glenn B. Rogers 3,000 7.69% $ 15.75 04/28/05 29,715 75,304
Shirley M. Hawkins 3,000 7.69% $ 15.75 04/28/05 29,715 75,304
</TABLE>
(1) These options vest at a rate of 20% per year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information as of December 31, 1995
with respect to the exercised and unexercised options to purchase the
Company's Common Stock granted under the Long-Term Stock Plan of 1989.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END (#)(2) FISCAL YEAR-END ($)(3)
ACQUIRED ON VALUE (1) --------------------------- -----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gene C. Koonce -- -- 7,800/2,100 14,400/420 $34,500/10,343 $45,300/2,625
James B. Ford 2,000 6,875 1,000/0 8,000/350 2,750/26,250 0/2,188
Thomas R. Blose, Jr. -- -- 6,000/1,750 8,000/350 27,375/8,619 26,250/2,188
Glenn B. Rogers -- -- 12,200/3,920 7,800/280 56,750/18,900 25,000/1,750
Shirley M. Hawkins -- -- 1,000/0 7,000/0 2,750/0 20,000/0
</TABLE>
(1) Market value of underlying shares at time of exercise minus the exercise
price.
(2) Stock options granted under the Long-Term Stock Plan vest at a rate of
20% per year.
(3) Market value of underlying securities at fiscal year-end (December 31,
1995) of $18.75 per share minus the exercise price.
- --------------------------------------------------------------------------------
9
<PAGE> 12
QUALIFIED RETIREMENT PLAN
- --------------------------------------------------------------------------------
The following table shows the estimated annual benefits (based on
a 10 Years Certain and Life Annuity payable at age 65) payable to employees
and officers upon retirement under the Company's Qualified Retirement Plan.
Considered compensation equals salary and bonus. The calculation of
retirement benefits under the plan is based upon average earnings for the
highest five consecutive years of the ten years preceding retirement. The
benefits shown are not subject to offset for Social Security or other benefits.
The current compensation and the years of credited service that would
be used in calculating benefits under the Qualified Retirement Plan for the
executives named in the Summary Compensation Table are as follows: Koonce,
$347,637, 18 years of service; Ford, $184,566, 30 years of service; Blose,
$182,034, 35 years of service; Rogers, $143,692, 33 years of service; and
Hawkins, $113,363, 33 years of service.
<TABLE>
<CAPTION>
BASED ON THE FOLLOWING YEARS OF SERVICE:
-------------------------------------------------------------------
FINAL AVERAGE 15 20 25 30 35 40
ANNUAL COMPENSATION
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 30,000 $ 7,200 $ 9,600 $12,000 $13,725 $15,450 $17,175
40,000 9,600 12,800 16,000 18,300 20,600 22,900
50,000 12,000 16,000 20,000 22,875 25,750 28,625
75,000 18,000 24,000 30,000 34,313 38,625 42,938
100,000 24,000 32,000 40,000 45,750 51,500 57,250
125,000 30,000 40,000 50,000 57,188 64,375 71,563
150,000 36,000 48,000 60,000 68,625 77,250 85,875
175,000 36,000* 48,000* 60,000* 68,625* 77,250* 85,875*
</TABLE>
* Compensation limited to $150,000 under Internal Revenue Code Section
401(a)(17).
- --------------------------------------------------------------------------------
10
<PAGE> 13
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
- --------------------------------------------------------------------------------
The following table shows the estimated total annual regular
benefit that a participant in the Company's non-qualified Supplemental
Executive Retirement Plan (SERP) would be entitled to receive at age 65 or
upon determination of total and permanent disability as defined in the Plan,
given the years of service and the compensation levels indicated. The plan
provides for payment of supplemental retirement benefits equal to 70% of the
officer's basic rate of annual compensation at the time he retires, reduced
by the sum of (i) benefits receivable under the Company's Qualified
Retirement Plan and (ii) the annual Primary Insurance Amount payable as the
result of participation in the Social Security Program. Estimated Social
Security benefits were determined for an individual born in 1931 and using
the law effective January 1, 1996. Actual benefits will vary depending on an
officer's year of birth and pay history.
All officers named in the Summary Compensation Table are eligible
to participate in the SERP. Estimated credited service at Normal Retirement
Date (age 65) for Koonce, Ford, Blose, Rogers, and Hawkins, is 18, 30, 35,
33 and 33 years, respectively.
<TABLE>
<CAPTION>
BASED ON THE FOLLOWING YEARS OF SERVICE:
BASIC RATE OF -------------------------------------------------------------------
ANNUAL COMPENSATION 15 20 25 30 35 40
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
$ 30,000 $ 1,512 $ 0* $ 0* $ 0* $ 0* $ 0*
40,000 4,696 1,496 0* 0* 0* 0*
50,000 8,576 4,576 576 0* 0* 0*
75,000 19,524 13,524 7,524 3,212 0* 0*
100,000 31,024 23,024 15,024 9,274 3,524 0*
125,000 42,524 32,524 22,524 15,337 8,149 962
150,000 54,024 42,024 30,024 21,399 12,774 4,149
175,000 71,524 59,524 47,524 38,899 30,274 21,649
200,000 89,024 77,024 65,024 56,399 47,774 39,149
225,000 106,524 94,524 82,524 73,899 65,274 56,649
250,000 124,024 112,024 100,024 91,399 82,774 74,149
275,000 141,524 129,524 117,524 108,899 100,274 91,649
300,000 159,024 147,024 135,024 126,399 117,774 109,149
</TABLE>
* The benefit determined under the Qualified Retirement Plan is in excess of
the benefit determined under the SERP. Therefore, no supplemental benefits
are payable.
- --------------------------------------------------------------------------------
11
<PAGE> 14
DEFERRED COMPENSATION PLAN
- --------------------------------------------------------------------------------
The Company sponsors a Deferred Compensation Plan for certain
members of key management. Eligible participants are selected by the
President and Chief Executive Officer of the Company. The Deferred
Compensation Plan provides for the deferred payout of a portion of a
participant's salary and incentive compensation, as elected periodically by
the participant. The amounts deferred are credited to an account evidencing
the Company's obligation and credited with above-market interest rates.
During fiscal 1995, Messrs. Koonce and Rogers elected to defer a portion of
their compensation, as provided by the Deferred Compensation Plan. All
amounts deferred for Messrs. Koonce and Rogers for fiscal 1995 have been
reflected in the Summary Compensation Table.
COMPLIANCE WITH OWNERSHIP REPORTING REQUIREMENTS
- ----------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers to file reports of ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission. The Company is required to disclose in this proxy statement any
late filings of those reports made by its directors and officers in 1995.
Under the Section 16(a) rules, directors and officers are required to file a
Form 4 on or before the tenth day after the end of the month in which a
change in beneficial ownership has occurred. Based solely on a review of the
copies of such forms, the Company believes that during the 1995 fiscal year,
its directors and officers complied with all applicable Section 16(a) filing
requirements.
- --------------------------------------------------------------------------------
12
<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
The Compensation Committee of the Company, made up of five
independent members of the Board of Directors, determines the compensation
level of the chief executive and other officers of the Company. To assist
the Committee in its review and evaluations, independent compensation
consultants are retained periodically to confirm the competitiveness of the
Company's compensation policies and practices. The elements of compensation
and factors and subjective criteria used in the determination of the
compensation of executive officers include the following:
<TABLE>
<CAPTION>
ELEMENTS OF
COMPENSATION FACTORS AND CRITERIA
<C> <S> <C>
- -----------------------------------------------------------------------------------------
Base Salary - Level of responsibility and experience
- Market comparisons of the base salaries for
similar positions at other similar industry
companies
- Corporate performance as measured by shareholder
return on equity and earnings
- Individual performance, including quality and
implementation of the strategic plan,
organizational and management development,
industry and civic involvement
Annual Bonus - Goals (equal to 10% - 37.5% of base salary) are
established with respect to return on equity,
cost containment and customer growth
- No awards are payable unless the Company's return
on equity equals or exceeds the established
threshold for the year
- Percentage goals are based on market comparisons
of bonuses for similar positions at other
companies
- Corporate performance as measured by shareholder
return on equity and cost containment
- Individual performance, separate from overall
Company performance, can affect bonus target
amount either positively or negatively
Stock Options - Market comparisons of the stock options for
certain officers are based on goals attained and
similar positions in other companies
</TABLE>
CEO COMPENSATION
On recommendation of the Compensation Committee and approval of
the Board of Directors, Mr. Koonce's base salary was set at a level of
$310,000 at the April 1995 meeting of the Board of Directors in recognition
of his efforts in cost containment, increases in shareholder value,
continued acquisition program, improvement in the equity base of the Company
and other subjective factors. The Compensation Committee held five meetings
during 1995, and no recommendations of the Compensation Committee were
rejected by the Board of Directors.
Submitted by the Compensation Committee of the Board of Directors of
the Company.
Thomas J. Garland -- Chairman
Dennis L. Newberry, II George C. Woodruff, Jr. Jerry H. Ballengee
- --------------------------------------------------------------------------------
13
<PAGE> 16
COMPANY PERFORMANCE
- --------------------------------------------------------------------------------
The following graph compares the Company's performance, as
measured by the change in price of its Common Stock plus reinvested
dividends, with the Standard & Poor's ("S&P") 500 Stock Index and the
American Gas Association's Distribution Company Index for the five years
ended December 31, 1995.
<TABLE>
<CAPTION>
Amer. Gas
United Standard & Assn's
Measurement Period Cities Gas Poor's 500 Distribution
(Fiscal Year Covered) Company Stock Index Co. Index
<S> <C> <C> <C>
1990 100 100 100
1991 129 130 121
1992 139 140 145
1993 165 154 168
1994 149 156 164
1995 190 215 217
</TABLE>
The companies in the American Gas Association's Distribution Company
Index noted above are as follows: Atlanta Gas Light Company, Atmos Energy
Corporation, Bay State Gas Company, Berkshire Gas, Brooklyn Union Gas
Company, Colonial Gas Company, Connecticut Energy Corporation, Connecticut
Natural Gas, Delta Natural Gas Company, Inc., EnergyNorth, Inc., EnergyWest,
Essex County Gas Company, Fall River, Indiana Energy, Inc., Laclede Gas
Company, MCN Corporation, Mobile Gas Service Corporation, New Jersey
Resources Corporation, NICOR, North Carolina Natural Gas, Northwest Natural
Gas Company, NUI Corporation, Pacific Enterprises, Peoples Energy
Corporation, Piedmont Natural Gas Company, Providence Energy Corporation,
Public Service Company of North Carolina, Southern Union Company, United
Cities Gas Company, Washington Gas Light Company, and Yankee Energy System,
Inc.
- --------------------------------------------------------------------------------
14
<PAGE> 17
PROPOSAL 2 -- AMENDMENT TO THE ARTICLES OF INCORPORATION
CONCERNING DIRECTORS' LIABILITY
- ----------------------------------------------------------------------------
The Board of Directors has determined that there be submitted to the
shareholders a proposal to amend the Articles of Incorporation of the Company by
adding a new Article Ten. This Article would limit the personal liability of the
directors to the Company or its shareholders for monetary damages arising from a
breach of fiduciary duty as a director. The proposed Article Ten is authorized
by a change in the Illinois Business Corporation Act of 1983 that became
effective January 1, 1994 and a change in the Virginia Stock Corporation Act
that became effective July 1, 1987.
BACKGROUND
The Company is incorporated under the laws of both the State of
Illinois and the Commonwealth of Virginia. It is therefore subject to the
corporate laws of each jurisdiction.
Until recently, Illinois did not specifically permit Articles of
Incorporation to protect directors who acted in good faith, but who were
nevertheless threatened with substantial liability by virtue of negligence
claims. Effective January 1, 1994, an Illinois corporation may provide its
directors with liability protection similar to that which may be provided by
corporations incorporated in the majority of other states. Virginia had earlier
amended the Virginia Stock Corporation Act to provide a limit on the amount of
monetary damages which may be assessed against a director of a Virginia
corporation and permit such statutory limitation on liability to be reduced and
even eliminated by action of the corporation's shareholders.
TEXT OF PROPOSED AMENDMENT
The text of Article Ten proposed to be added to the Company's Articles
of Incorporation is as follows:
"The directors of the corporation shall not be liable to the
corporation or to the shareholders of the corporation for monetary
damages for breach of fiduciary duty as a director; provided, however,
that nothing in this Article Ten shall be construed to eliminate the
liability of a director to the extent that such elimination or
limitation of liability is prohibited under applicable corporate law."
REASONS FOR THE PROPOSED AMENDMENT
Directors of both Illinois and Virginia corporations are required,
under relevant state law, to perform their duties in good faith and with that
degree of care that an ordinarily prudent person in a like position would use
under similar circumstances. A director may rely upon information, opinions, and
reports prepared by certain officers and other employees, professional advisors,
or committees of the Board of Directors. Decisions made on the basis of this
information generally are protected by the "business judgment rule" and should
not be questioned by a court in the event of a lawsuit challenging the
decisions. However, the expense of defending such lawsuits and the uncertainties
of applying the business judgment rule to particular facts and circumstances
mean, as a practical matter, that directors are not relieved of the threat of
monetary damage awards.
Although no director of the Company has indicated an intent to resign
from the Board of Directors because of the threat of monetary damage awards, the
Board of Directors believes that adoption of the proposed amendment would
enhance the Company's ability to attract and retain
- --------------------------------------------------------------------------------
15
<PAGE> 18
competent, qualified, and talented persons to serve as directors. In this
connection, the Board of Directors believes that absence of the liability
protection could place the Company at a disadvantage in attracting such persons
to serve as directors, in that many other companies provide the liability
protection.
EFFECT OF THE PROPOSED AMENDMENT
The proposed amendment does not reduce the fiduciary duty of a
director; it eliminates monetary damage awards to the Company and its
shareholders arising from certain breaches of that duty. It does not affect the
availability of equitable remedies, such as the right to enjoin or rescind a
transaction based upon a director's breach of fiduciary duty. It also does not
affect a director's liability for acts taken or omitted prior to the amendment
becoming effective (after shareholder approval and upon filing with the Illinois
Secretary of State and the Virginia State Corporation Commission). The liability
protection afforded by the amendment would affect only actions brought by the
Company or its shareholders, and would not preclude or limit recovery of damages
by third parties.
The proposed amendment protects the Company's directors against
personal liability to the Company or its shareholders for any breach of
fiduciary duty as a director. The proposed amendment, however, does not
eliminate director liability based on (i) a breach of the duty of loyalty to the
Company, (ii) acts or omissions in bad faith or involving intentional misconduct
or a knowing violation of the law, (iii) acts violating the prohibitions
contained in Section 8.65 of the Illinois Business Corporation Act, which
Section generally pertains to certain improper distributions of assets, or (iv)
an improper personal benefit to a director to which he or she was not legally
entitled. No claim of the type that would be affected by the amendment is
presently pending or, to the knowledge of management of the Company, threatened.
If the Illinois Business Corporation Act or the Virginia Stock
Corporation Act are hereafter amended to permit further elimination or
limitation of the personal liability of directors for any breach of duty as a
director, the amendment would eliminate or limit the personal liability of the
directors to the fullest extent permitted by both the Illinois Business
Corporation Act and the Virginia State Corporation Act as so amended. This would
be the case without any further amendment to the Articles of Incorporation or
any further action by the shareholders.
The Board of Directors recognizes that present and future directors
may benefit from the adoption of the proposed amendment. The Board of Directors
believes, however, that the high level of performance exercised by directors
stems from their desire to act in the best interests of the Company, and not
from a fear of litigants seeking monetary damages. In the Board of Directors'
view, therefore, the level of care exercised by directors would not be lessened.
Approval of the proposal requires the affirmative vote of a majority
of the outstanding shares of Company Common Stock.
- --------------------------------------------------------------------------------
MANAGEMENT AND THE BOARD OF DIRECTORS OF THE COMPANY
RECOMMEND UNANIMOUSLY A VOTE "FOR" THE AMENDMENT
TO THE ARTICLES OF INCORPORATION TO INCLUDE
ARTICLE TEN CONCERNING DIRECTORS' LIABILITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16
<PAGE> 19
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
The annual appointment of independent accountants is approved by
the Board of Directors, upon recommendation of the Audit Committee. Arthur
Andersen LLP, independent public accountants, have been auditors of the
accounts of the Company since January 1, 1965.
A representative of Arthur Andersen LLP will be present at the
Annual Meeting with the opportunity to make a statement and respond to
appropriate questions as needed.
SHAREHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In order for any proposals by shareholders to be included in the 1997
proxy materials for the 1997 Annual Meeting, all such proposals intended for
presentation at the 1997 Annual Meeting should be mailed to United Cities Gas
Company, Shirley M. Hawkins, Senior Vice President and Secretary, 5300 Maryland
Way, Brentwood, Tennessee 37027, and must be received no later than December 6,
1996.
GENERAL
- --------------------------------------------------------------------------------
Management knows of no other matters to be presented at the Annual
Meeting, but if other matters do properly come before the Annual Meeting it is
intended that the persons named in the proxy will vote thereon according to
their best judgment. No financial statements are included herein because they
are not deemed material to the exercise of prudent judgment with respect to any
matter being acted upon at the Annual Meeting.
The 1995 Annual Report to Shareholders of the Company, including
financial statements, is enclosed.
EXPENSES OF SOLICITATION
- --------------------------------------------------------------------------------
The cost of solicitation of proxies will be borne by the Company. In
an effort to have as large a representation at the meeting as possible, special
solicitation of proxies may, in certain instances and without additional
remuneration, be made personally, or by telephone, or mail by one or more
employees of the Company. The Company may also reimburse brokers, banks,
nominees, and other fiduciaries for postage and reasonable clerical expenses of
forwarding the proxy material to their principals who are beneficial owners of
the Company's stock.
By Order of the Board of Directors,
SHIRLEY M. HAWKINS
Senior Vice President and Secretary
Brentwood, Tennessee
April 1, 1996
- --------------------------------------------------------------------------------
17
<PAGE> 20
APPENDIX A
PROXY UNITED CITIES GAS COMPANY PROXY
ANNUAL MEETING OF SHAREHOLDERS, MAY 3, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of United Cities Gas Company hereby appoints Gene C.
Koonce, James B. Ford and Shirley M. Hawkins as proxies, each with the power to
appoint a substitute, and hereby authorizes them either individually or together
to vote all such shares of such Company as to which the undersigned is entitled
to vote at the Annual Meeting of Shareholders of United Cities Gas Company and
at all adjournments thereof, to be held in the fifth floor auditorium of the
First American Center, 326 Union Street, Nashville, Tennessee on Friday, May 3,
1996, at the hour of 10:30 a.m. (CDT), in accordance with the following
instructions.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THE SHARES WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTORS,
AND THE AMENDMENT TO THE ARTICLES OF INCORPORATION.
(Continued and to be signed on reverse side)
PLEASE MARK VOTE IN SQUARE USING DARK INK ONLY.
1. Election of Directors
Nominees: Jerry H. Ballengee, Richard W. Cardin, Dale A. Keasling, Vincent J.
Lewis, Stirton Oman, Jr.
/ / FOR / / WITHHOLD / / FOR ALL (Except Nominee(s)
written below)
- --------------------------------------------------------------------------------
2. Proposed Amendment to the Articles of Incorporation
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, on such other matters as may properly come before the
meeting.
PLEASE VOTE, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Dated: , 1996
--------------------------------
Signature(s)
-------------------------------
--------------------------------------------
Please sign exactly as name appears hereon.
Joint owners should each sign. Where
applicable, indicate official position or
representative capacity.
