<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
United Cities Gas
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(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:
<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 2, 1997, at
10:30 a.m. local time, for the following purposes:
1. To elect three directors of the Company;
2. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
THE CLOSE OF BUSINESS ON MARCH 24, 1997, 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
March 31, 1997
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
March 31, 1997
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 2, 1997, 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 March 31, 1997.
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.
VOTING SECURITIES
- ----------------------------------------------------------------------------
As of the close of business on March 24, 1997, 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 13,277,585 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 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 11
directors serving staggered three-year terms. It is proposed that the
following three persons be nominated for election as directors to serve for
terms of three years to expire in 2000 or until their successors are elected
and qualified: Thomas J. Garland, Gene C. Koonce and George C. Woodruff, Jr.
It is intended that the proxies received in response to this
solicitation will be voted for the election of the three 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.
- --------------------------------------------------------------------------------
NOMINEES FOR DIRECTOR WHOSE TERMS WILL EXPIRE IN 2000
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, 62, 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.
- --------------------------------------------------------------------------------
2
<PAGE> 5
GENE C. KOONCE -----------------------------------------------------------------
Chairman, President and Chief Executive Officer, United Cities Gas Company
Director Since: 1978
Board Committee: N/A
Mr. Koonce, 65, joined the Company in 1978 as president and chief
executive officer and was named chairman in 1996. He is a professional
engineer. Mr. Koonce is a director of First American Corporation in
Nashville, Tennessee. He is also a former 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, 68, 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 Emeritus of the Board, United Cities Gas Company
Retired Senior Vice President, PaineWebber Incorporated
Director Since: 1964
Board Committee: Audit
Mr. Baum, 84, served as chairman of the board from 1979 to 1996.
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.
DENNIS L. NEWBERRY, II------------------------------------------------------
Consultant and Private Investor
Retired President and Chief Executive Officer, Texas Gas Transmission
Corporation
Director Since: 1986
Board Committees: Compensation and Strategic Planning (chairman)
Mr. Newberry, 69, 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 of the executive committee of
AAA Kentucky. Mr. Newberry also serves on the Company's retirement
committee.
- --------------------------------------------------------------------------------
3
<PAGE> 6
TIMOTHY W. TRIPLETT ------------------------------------------------------------
Partner, Blackwell Sanders Matheny Weary & Lombardi, Attorneys
Director Since: 1992
Board Committees: Audit and Strategic Planning
Mr. Triplett, 42, 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.
DALE A. KEASLING --------------------------------------------------------------
President, Home Federal Bank
Director Since: 1995
Board Committee: Audit
Mr. Keasling, 53, is president of Home Federal Bank in Knoxville,
Tennessee. He was president of Valley Fidelity Bank and Trust Company in
Knoxville from 1980-1992.
TERMS EXPIRING IN 1999
JERRY H. BALLENGEE -----------------------------------------------------------
President and Chief Operating Officer, Union Camp Corporation
Director Since: 1995
Board Committees: Compensation and Strategic Planning
Mr. Ballengee, 59, 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. He is also a member of the board of directors of
Goulds Pump, Inc.
RICHARD W. CARDIN---------------------------------------------------------------
Consultant and Private Investor
Director Since: 1996
Board Committee: Audit
Mr. Cardin, 61, 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.
- --------------------------------------------------------------------------------
4
<PAGE> 7
VINCENT J. LEWIS ---------------------------------------------------------------
Senior Vice President, Legg Mason Wood Walker, Inc.
Director Since: 1986
Board Committee: Audit (chairman)
Mr. Lewis, 52, 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 Committees: Audit and Strategic Planning
Mr. Oman, 64, is a consultant and private investor and previously
served as chairman of the board of directors of Oman Construction Company in
Nashville, Tennessee.
- --------------------------------------------
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.
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 $135,648 payable to Blackwell Sanders Matheny
Weary & Lombardi in 1996, 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
PENDING MERGER WITH ATMOS ENERGY CORPORATION
- --------------------------------------------------------------------------------
The Company and Atmos Energy Corporation ("Atmos") announced an
agreement in July 1996 to merge the two companies, with Atmos as the
surviving entity. Both the Company's and Atmos' shareholders voted to
approve the merger at separate meetings in November, 1996. Consummation of
the merger is subject to additional conditions and events, including the
receipt of certain regulatory approvals. Nine states have approved the
merger, but the Company awaits approval from the Illinois Commerce
Commission. While the Company expects that the merger will be consummated,
the Company cannot predict whether the merger will occur prior to the Annual
Meeting, if at all. Upon completion of the merger, each share of United
Cities' common stock will be exchanged for one share of Atmos stock.
If the merger is consummated, four members of the Company's Board
of Directors will become members of the Board of Directors of Atmos. These
members are Richard W. Cardin, Gene C. Koonce, Vincent J. Lewis, and Thomas
J. Garland. These members will serve terms expiring in 2000, 1999, 1999, and
1998, respectively.
Upon completion of the merger, Atmos will enter into employment
agreements with Gene C. Koonce, James B. Ford and Thomas R. Blose, Jr.
Pursuant to such agreements, Mr. Koonce will serve as an officer of Atmos
and Vice Chairman of the Board of Atmos for a period of six months following
the merger, Mr. Ford will be the Senior Vice President-Finance of Atmos and
Mr. Blose will be President of the United Cities operating division of Atmos
and Vice President of Atmos. The employment agreements for Messrs. Ford and
Blose are for a term ending three years after the merger.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- --------------------------------------------------------------------------------
To the Company's knowledge, on March 24, 1997, no person
beneficially owned 5% or more of the Company's Common Stock.
- --------------------------------------------------------------------------------
6
<PAGE> 9
SECURITY OWNERSHIP OF MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth certain information concerning the
ownership of Common Stock as of March 24, 1997, (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 500 Dennis L. Newberry, II 4,479
Dwight C. Baum 235,848 1.8% Stirton Oman, Jr. 1,780
Thomas R. Blose, Jr. 15,025(3) Glenn B. Rogers 30,663(3)
Richard W. Cardin 1,000 Timothy W. Triplett 3,638
James B. Ford 10,687(3) George C. Woodruff, Jr. 1,691
Thomas J. Garland 2,064 All directors and executive
Shirley M. Hawkins 10,926(3) officers as a group
Dale A. Keasling 548 (15 persons) 361,366(3) 2.7%
Gene C. Koonce 35,517(3)
Vincent J. Lewis 7,000
</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 24, 1997, as
follows: 10,800 shares for Mr. Blose, 4,800 shares for Mr. Ford,
4,800 shares for Ms. Hawkins, 16,200 shares for Mr. Koonce and
16,800 shares for Mr. Rogers, and 53,400 shares for all directors
and executive officers as a group.
- --------------------------------------------------------------------------------
7
<PAGE> 10
MEETINGS AND FEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
During 1996 the Company's Board of Directors held eleven meetings
and each incumbent director attended more than 75% of the aggregate board
and committee meetings of any committee on which he served.
Non-officer directors of the Company receive an annual retainer fee of
$20,000. In addition, these directors are paid $1,000 for each meeting of the
Board of Directors and $750 for each committee meeting attended. Mr. Garland,
Mr. Lewis and Mr. Newberry, as Chairman of the Compensation, Audit and Strategic
Planning 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, 1996, 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, 1996, 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. Cardin, 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. Two meetings were held during 1996.
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. Four meetings were held in
1996.
The Company has a Strategic Planning Committee comprised of the
following directors: Mr. Ballengee, Mr. Newberry (chairman), Mr. Oman, and Mr.
Triplett. The Strategic Planning Committee was formed to help evaluate strategic
planning issues. Two meetings were held in 1996.
- --------------------------------------------------------------------------------
8
<PAGE> 11
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The following table contains information with respect to compensation
awarded, earned or paid during the years 1994-1996 to (i) the chief
executive officer, and (ii) the other four most highly compensated officers
of the Company in 1996, whose total remuneration paid in 1996 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) (#)(2) ($)(3)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gene C. Koonce 1996 $339,209 $85,250 $1,060 6,000 $1,152
Chairman, President & Chief 1995 303,077 -- 125 6,000 1,152
Executive Officer 1994 281,000 43,560 -- 9,000 1,429
James B. Ford 1996 177,957 46,575 -- 3,000 933
Senior Vice President 1995 158,538 -- -- 3,000 876
& Treasurer 1994 148,192 25,028 -- 5,000 812
Thomas R. Blose, Jr. 1996 175,836 46,000 -- 3,000 922
Senior Vice President -- 1995 156,539 -- -- 3,000 864
Operations & Engineering 1994 145,846 24,495 -- 5,000 795
Glenn B. Rogers 1996 138,705 34,650 15 3,000 726
Senior Vice President -- 1995 123,923 -- 3 3,000 691
Gas Supply & Marketing 1994 117,836 18,769 -- 5,000 657
Shirley M. Hawkins 1996 110,415 27,500 -- 3,000 576
Senior Vice President 1995 98,338 -- -- 3,000 552
& Secretary 1994 91,669 14,025 -- 5,000 490
</TABLE>
(1) The Other Annual Compensation amounts for Mr. Koonce and Mr. Rogers for
fiscal 1996 and 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 1996 were nonqualified stock options.
(3) Dollar value of term life insurance premiums paid by the Company.
- --------------------------------------------------------------------------------
9
<PAGE> 12
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, had an original term of 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 1996 Fiscal Year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ----------------------------------------------------------------------------------------- --------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
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% $15.50 05/03/06 $58,487 $148,218
James B. Ford 3,000 7.69% $15.50 05/03/06 29,244 74,109
Thomas R. Blose, Jr. 3,000 7.69% $15.50 05/03/06 29,244 74,109
Glenn B. Rogers 3,000 7.69% $15.50 05/03/06 29,244 74,109
Shirley M. Hawkins 3,000 7.69% $15.50 05/03/06 29,244 74,109
</TABLE>
(1) These options vest at a rate of 20% per year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information as of December 31, 1996
with respect to the exercised and unexercised options to purchase the
Company's Common Stock granted under the Long-Term Stock Plan of 1989.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END (#)(2) FISCAL YEAR-END ($)(3)
ACQUIRED ON VALUE (1) ---------------------------- ------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gene C. Koonce -- -- 12,000/2,520 16,200/0 95,550/22,418 $109,500/0
James B. Ford 1,000 6,000 2,600/0 8,400/0 17,050/0 56,700/0
Thomas R. Blose, Jr. -- -- 8,600/2,100 8,400/0 70,425/18,681 56,700/0
Glenn B. Rogers -- -- 14,600/4,200 8,400/0 121,050/36,400 56,700/0
Shirley M. Hawkins -- -- 2,600/0 8,400/0 17,050/0 56,700/0
</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,
1996) of $22.50 per share minus the exercise price.
- --------------------------------------------------------------------------------
10
<PAGE> 13
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,
$339,209, 18 years of service; Ford, $177,957, 30 years of service; Blose,
$175,836, 35 years of service; Rogers, $138,705, 33 years of service; and
Hawkins, $110,415, 33 years of service.
<TABLE>
<CAPTION>
BASED ON THE FOLLOWING YEARS OF SERVICE:
FINAL AVERAGE ---------------------------------------------------------
ANNUAL COMPENSATION 15 20 25 30 35 40
<C> <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 38,400* 51,200* 64,000* 73,200* 82,400* 91,600*
</TABLE>
* Compensation limited to $160,000 under Internal Revenue Code Section
401(a)(17).
- --------------------------------------------------------------------------------
11
<PAGE> 14
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 1932 and using
the law effective January 1, 1997. 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
<C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
$ 30,000 $ 558 $ 0* $ 0* $ 0* $ 0* $ 0*
40,000 3,148 0* 0* 0* 0* 0*
50,000 6,698 2,308 0* 0* 0* 0*
75,000 16,833 10,248 3,663 0* 0* 0*
100,000 27,748 18,968 10,188 3,877 0* 0*
125,000 38,663 27,688 16,713 8,825 936 0*
150,000 49,578 36,408 23,238 13,772 4,306 0*
175,000 64,444 50,396 36,348 26,251 16,154 6,057
200,000 81,944 67,896 53,848 43,751 33,654 23,557
225,000 99,444 85,396 71,348 61,251 51,154 41,057
250,000 116,944 102,896 88,848 78,751 68,654 58,557
275,000 134,444 120,396 106,348 96,251 86,154 76,057
300,000 151,944 137,896 123,848 113,751 103,654 93,557
325,000 169,444 155,396 141,348 131,251 121,154 111,057
350,000 186,944 172,896 158,848 148,751 138,654 128,557
375,000 204,444 190,396 176,348 166,251 156,154 146,057
400,000 221,944 207,896 193,848 183,751 173,654 163,557
425,000 239,444 225,396 211,348 201,251 191,154 181,057
450,000 256,944 242,896 228,848 218,751 208,654 198,557
</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.
- --------------------------------------------------------------------------------
12
<PAGE> 15
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 1996, 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 1996 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 1996.
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 1996 fiscal year,
its directors and officers complied with all applicable Section 16(a) filing
requirements.
- --------------------------------------------------------------------------------
13
<PAGE> 16
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
The Compensation Committee of the Company, made up of four
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
$371,000 at the July 1996 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 four meetings
during 1996, 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
- --------------------------------------------------------------------------------
14
<PAGE> 17
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 Edward
Jones Distribution Company Index for the five years ended December 31, 1996.
The graph also includes the American Gas Association's ("AGA") Distribution
Company Index for the four years ended December 31, 1995. In 1996, the AGA
discontinued the calculation of this index. As a result, the Edward Jones
Distribution Company Index has been added. Ninety percent of the companies
indexed by AGA are included in the Edward Jones Distribution Company Index.
<TABLE>
<CAPTION>
Edward Amer. Gas
United Standard & Jones Di Assn's
Measurement Period Cities Gas Poor's 500 stribution Distribution
(Fiscal Year Covered) Company Stock Index Index Co. Index
<S> <C> <C> <C> <C>
1991 100 100 100 100
1992 108 108 109 119
1993 128 118 129 139
1994 116 120 115 135
1995 147 165 151 179
1996 186 203 171 N/A
</TABLE>
The companies in the Edward Jones Distribution Company Index noted
above are as follows: AGL Resources, Inc., Atmos Energy Corporation, Bay
State Gas Company, Berkshire Gas, Brooklyn Union Gas Company, Cascade
Natural Gas Company, Colonial Gas Company, Connecticut Energy Corporation,
Connecticut Natural Gas, Delta Natural Gas Company, Inc., EnergyNorth, Inc.,
EnergyWest, Essex County Gas Company, Indiana Energy, Inc., Laclede Gas
Company, Mobile Gas Service Corporation, New Jersey Resources Corporation,
NICOR, North Carolina Natural Gas, Northwest Natural Gas Company, NUI
Corporation, Pacific Enterprises, Pennsylvania Enterprises, Inc., Peoples
Energy Corporation, Piedmont Natural Gas Company, Providence Energy
Corporation, Public Service Company of North Carolina, Southern Union
Company, United Cities Gas Company, Washington Energy Company, Washington
Gas Light Company, and Yankee Energy System, Inc.
- --------------------------------------------------------------------------------
15
<PAGE> 18
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 1998
proxy materials for the 1998 Annual Meeting, all such proposals intended for
presentation at the 1998 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 5,
1997.
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 1996 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
March 31, 1997
- --------------------------------------------------------------------------------
16
<PAGE> 19
APPENDIX A
PROXY UNITED CITIES GAS COMPANY PROXY
ANNUAL MEETING OF SHAREHOLDERS, MAY 2, 1997
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 2,
1997, 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.
(Continued and to be signed on reverse side)
PLEASE MARK VOTE IN SQUARE USING DARK INK ONLY.
1. Election of Directors
Nominees: Thomas J. Garland, Gene C. Koonce, George C. Woodruff, Jr.
[ ] FOR [ ] WITHHOLD [ ] FOR ALL (Except Nominee(s)
written below)
- --------------------------------------------------------------------------------
2. 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:
1997
-------------------------,
Signature(s)
----------------------------------
----------------------------------
Please sign exactly as name
appears hereon. Joint owners
should each sign. Where
applicable, indicate official
position or representative
capacity.
<PAGE> 20
UNITED CITIES GAS COMPANY ANNUAL MEETING TO BE HELD ON 05/02/97 AT
10:30 A.M. CDT FOR HOLDERS AS OF 03/24/97
- ISSUER CONFIRMATION COPY - INFO ONLY -
1 1-8001 THIS FORM IS PROVIDED FOR INFORMATIONAL
PURPOSES ONLY. PLEASE DO NOT USE IT FOR
VOTING PURPOSES.
CUSIP: 909823106
CONTROL NO.
0010100
DIRECTORS
- ---------
DIRECTORS RECOMMEND: A VOTE FOR ELECTION OF THE FOLLOWING DIRECTORS
1 - 01-THOMAS J. GARLAND, 02-GENE C. KOONCE, 03-GEORGE C. WOODRUFF, JR.
DIRECTORS
PROPOSALS RECOMMEND
- --------- ---------
-NOTE- SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF
-NOTE- APPOINTEES: GENE C. KOONCE, JAMES B. FORD AND SHIRLEY M. HAWKINS.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
UNITED CITIES GAS COMPANY
05/02/97 AT 10:30 A.M. CDT 2 ITEM(S)
SHARE(S)
DIRECTORS
---------
(MARK [X] FOR ONLY ONE BOX)
1 [ ] FOR ALL NOMINEES
[ ] WITHHOLD ALL NOMINEES
[ ] WITHHOLD AUTHORITY TO VOTE FOR
ANY INDIVIDUAL NOMINEE. WRITE
NUMBER(S) OF NOMINEE(S) BELOW.
USE NUMBER ONLY ________________________________
PLEASE INDICATE YOUR PROPOSAL SELECTION BY
FIRMLY PLACING AN "X" IN THE APPROPRIATE
NUMBERED BOX WITH BLUE OR BLACK INK ONLY.
ACCOUNT NO:
CUSIP: 909823106
CONTROL NO:
CLIENT NO:
FIRST UNION
230 SOUTH TRYON
CHARLOTTE, NC 28288-1153
UNITED CITIES GAS COMPANY
ATTN: CAROL KNIES
5300 MARYLAND WAY
BRENTWOOD, TN 37027
______________________________ _____________________________ ___/___/___
SIGNATURE SIGNATURE DATE
