<PAGE>
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 [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[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 Rule 14a-11(c) or Rule 14a-12
UNITED CITIES GAS COMPANY
- -----------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SOUTHERN UNION COMPANY
- -----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-
6(i)(2) or Item 22(a)(2) of Schedule 14A.
[X] $500 per each party to the controversy pursuant to Exchange
Act 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 (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 regis-
tration 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>
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT DATED OCTOBER 18, 1996
OPPOSITION PROXY STATEMENT
--------------------------
SOUTHERN UNION COMPANY
504 Lavaca Street, Eighth Floor
Austin, Texas 78701
PROXY STATEMENT OF SOUTHERN UNION COMPANY
IN OPPOSITION TO THE PROPOSED MERGER BETWEEN
UNITED CITIES GAS COMPANY AND ATMOS ENERGY CORPORATION
-------------------------------
TO ALL SHAREHOLDERS OF UNITED CITIES GAS COMPANY:
This Opposition Proxy Statement is being furnished to holders
(the "Shareholders") of the common stock, without par value (the
"Common Stock"), of United Cities Gas Company ("United Cities")
in connection with the solicitation of proxies by Southern Union
Company ("Southern Union") for use in connection with United
Cities' Special Meeting of Shareholders which is scheduled to be
held on November 12, 1996, at 10:30 a.m. at the Fifth Floor
Auditorium of the First American Center, 326 Union Street,
Nashville, Tennessee (the "Special Meeting"). According to the
Board's Proxy Statement (defined below), as of the close of busi-
ness on October 2, 1996 (the "Record Date"), there were
13,174,794 shares of Common Stock outstanding. Each share of
Common Stock is entitled to one vote. Only Shareholders of
record on the Record Date are entitled to vote at the Special
Meeting. This Opposition Proxy Statement and form of proxy are
first being sent to Shareholders on or about October , 1996.
---
Southern Union, which as of the Record Date was, and presently
is, the beneficial owner of 6.5% of United Cities' outstanding
Common Stock, opposes the proposed merger (the "Merger") between
United Cities and Atmos Energy Corporation ("Atmos") and is
seeking your support in opposing the Merger by urging you to (i)
VOTE AGAINST THE MERGER and (ii) ASSERT YOUR DISSENTERS' RIGHTS
under the Illinois Business Corporation Act of 1983. The Board
of Directors and executive officers of Southern Union, along with
other persons who may participate in this opposition solicita-
tion, are listed on Appendix A attached hereto. Southern Union
knows of no matter to come before the Special Meeting other than
those outlined herein.
Southern Union believes that the Board of United Cities: (i) did
not act in the best interests of Shareholders by entering into
the Agreement and Plan of Reorganization, dated July 19, 1996,
with Atmos, as amended by Amendment No. 1 to Agreement and Plan
of Reorganization, dated October 3, 1996, and the related Plan of
Merger (together, the "Merger Agreement") without seeking com-
peting proposals from third parties; (ii) has acted in a manner
designed to give you no viable alternative except to vote for the
proposed Merger by agreeing to a termination fee of $15,000,000
(the "Termination Fee") to be paid to Atmos in the event the
Merger is not consummated under certain circumstances; (iii)
improperly rewarded certain executive officers of United Cities
by giving them additional benefits, including a payment of up to
$8.9 million to its executive officers in the event of a change
of control of United Cities with any party other than Atmos,
which further inhibits the success of any competing offer for
United Cities; (iv) failed to obtain price protection despite the
volatile nature of the Atmos stock offered in the Merger; and (v)
deprived stockholders of as much as $2,000,000 to be paid to
PaineWebber Incorporated ("PaineWebber") if the Merger is com-
pleted for its fairness opinion, which is useless to Share-
holders, when PaineWebber could have been used to assist in
pursuing competing proposals to maximize Shareholder value.
As a Shareholder of United Cities, WHETHER TO PROCEED WITH THE
MERGER IS A DECISION OVER WHICH YOU HAVE AUTHORITY TO ACT.
Southern Union urges you to take the time to understand the Joint
Proxy Statement of United Cities and Atmos, which includes the
Prospectus of Atmos (the "Board's Proxy Statement"), which you
receive from United Cities, to be sure that you understand the
proposed Merger as it stands as of the time that you vote, and
that you take the time to understand why Southern Union objects
to the proposed Merger, as set forth in this Opposition Proxy
Statement.
October , 1996
---
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
THE GOLD OPPOSITION PROXY CARD
Southern Union urges you to vote AGAINST the proposed Merger
between United Cities and Atmos on the GOLD OPPOSITION PROXY CARD
(the "Opposition Proxy"), which will be provided to Shareholders
of record of the Common Stock as of the Record Date. Further,
Southern Union recommends that you assert your dissenters' rights
("Dissenters' Rights") with respect to your shares and the pro-
posed Merger, pursuant Sections 11.65 and 11.70 of the Illinois
Business Corporation Act of 1983 (the "Illinois Act"). See
"DISSENTERS' RIGHTS" below.
Southern Union presently intends to vote against the Merger and
to assert its Dissenters' Rights. The obligation of United
Cities and Atmos to effect the Merger is subject to certain con-
ditions including, among other things: that the holders of fewer
than 10% of the outstanding shares of United Cities Common Stock
have asserted their Dissenters' Rights; and that Atmos has
received the written opinion of its independent accountants that
the Merger can be accounted for as a pooling of interests. If
the holders of 10% or more of the outstanding shares of United
Cities Common Stock as of the Record Date assert their
Dissenters' Rights as to the Merger, it is unlikely that the
Merger could be accounted for as a pooling of interests.
IF THE MERGER AGREEMENT IS TERMINATED AS A RESULT OF EITHER THE
SHAREHOLDERS OF UNITED CITIES NOT APPROVING THE MERGER OR THE
HOLDERS OF 10% OR MORE OF THE OUTSTANDING SHARES OF UNITED CITIES
COMMON STOCK ASSERTING THEIR DISSENTERS' RIGHTS, THEN UNITED
CITIES WOULD NOT BE OBLIGATED TO PAY ATMOS THE $15,000,000 TER-
MINATION FEE.
You may use the Opposition Proxy to Vote For or Against the pro-
posed Merger. Because the Merger requires the approval of a
majority of the shares of Common Stock outstanding as of the
Record Date, failure to vote or to return either the Opposition
Proxy or the proxy accompanying the Board's Proxy Statement will
have the same effect as a vote against the Merger. Abstentions
and broker non-votes also will have the same effect as votes
against the Merger.
Southern Union urges you to complete, sign and date the enclosed
OPPOSITION PROXY and to return it in the enclosed prepaid
envelope as soon as possible. This will not prevent you from
attending the Special Meeting and voting your shares in person
even if you have previously returned a proxy card since a proxy
is revocable up to the time it is voted. IF YOU HAVE VOTED FOR
THE MERGER ON A UNITED CITIES PROXY, YOU MAY STILL VOTE AGAINST
THE PROPOSED MERGER ON THE OPPOSITION PROXY MERELY BY SIGNING,
DATING AND MAILING THE ENCLOSED GOLD PROXY CARD.
Southern Union also urges you to assert your Dissenters' Rights.
A vote against the Merger, a non-vote or an abstention from
voting is not enough, by itself, to assert your Dissenters'
Rights. See "DISSENTERS' RIGHTS" below.
Shares represented by a valid unrevoked Opposition Proxy will be
voted as specified. If no specification is made, shares repre-
sented by an Opposition Proxy will be voted AGAINST the Merger,
as described in the Board's Proxy Statement, and will be voted in
the discretion of the persons named therein on any other matters
that may properly come before the Special Meeting or any
adjournments or postponements thereof. Opposition Proxies may be
revoked at any time provided that a written revocation which
clearly identifies the proxy being revoked is executed and
delivered to Southern Union Company, c/o Georgeson & Company Inc.
at Wall Street Plaza, New York, New York 10005. A later dated
proxy automatically revokes an earlier dated one. You may also
revoke any proxy given by attending the Special Meeting and
voting your shares of Common Stock. Attendance at the Special
Meeting will not itself constitute the revocation of a proxy.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
If you own your shares in the name of a bank, brokerage house or
other custodian, nominee or other fiduciary, only such fiduciary
can vote your shares of Common Stock and assert your Dissenters'
Rights. Accordingly, you should contact such fiduciary and give
instructions with respect to the granting your proxy and
asserting your Dissenters' Rights. Such fiduciary cannot vote
your shares or assert your Dissenters' Rights unless he or she
receives your specific instructions.
IF YOU HAVE ANY QUESTIONS OR HAVE ANY DIFFICULTY GRANTING PROXIES
OR ASSERTING YOUR DISSENTERS' RIGHTS, YOU ARE INVITED TO CONTACT
GEORGESON & COMPANY INC. TOLL-FREE AT (800) _________. BANKS AND
BROKERS CALL (212) __________ (COLLECT).
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
BACKGROUND AND REASONS FOR THE OPPOSITION PROXY SOLICITATION
Southern Union, as of the Record Date and presently, is the bene-
ficial owner of 854,300 shares of Common Stock, or 6.5% of the
outstanding shares of Common Stock. In opposition to the Merger,
Southern Union is seeking to solicit the proxies of Shareholders
to be used: (i) to vote AGAINST the Merger; and (ii) to vote in
its discretion on such other matters that may properly come
before the Special Meeting or any adjournments or postponements
thereof.
Southern Union has been a Shareholder of United Cities since
December 1995 and has invested in excess of $16.0 million in its
shares of Common Stock. Like you, Southern Union wishes to
maximize the value of its investment in the Common Stock, a com-
mitment that Southern Union believes should have been foremost in
the minds of United Cities' Board of Directors and senior manage-
ment. Southern Union believes that the history of the Merger
negotiations between United Cities and Atmos, and therefore,
United Cities' Board of Directors' entering into the Merger
Agreement, demonstrates that the Board and management did not
attempt to maximize the value of United Cities or act in the best
interests of Shareholders. Rather, management sought to assure
themselves of jobs and perquisites at the expense of Share-
holders.
Southern Union's objections to the proposed Merger center around
the following key issues:
- - United Cities' Board of Directors negotiated and entered into
the Merger Agreement quickly (in less than three weeks) with-
out any consideration of the possibility of competing bids for
United Cities despite management's knowledge of other
interested parties including Southern Union.
- - The Termination Fee of $15,000,000 payable to Atmos in the
event the Merger is not consummated under certain circum-
stances unreasonably discourages any competing offer for
United Cities.
- - Management benefits, including Supplemental Executive Retire-
ment Plan ("SERP") benefits to certain executives (currently
estimated to total to at least $5.1 million), employment con-
tracts, and potential costs to United Cities of up to $8.9
million in "golden parachute" tax gross-up payments to certain
executives, have deprived Shareholders of the value of such
benefits and have the effect of further inhibiting any com-
peting offer for United Cities.
- - The United Cities Board failed to obtain any "collar" to
assure the value of the Merger consideration or obtain the
right to terminate the Merger Agreement if the Atmos stock
price drops below a certain level, despite the volatility of
Atmos' stock price.
- - The fairness opinion rendered by PaineWebber is useless to
Shareholders and the $2,000,000 in total payments to be made
to PaineWebber if the Merger is completed instead should have
been used to retain PaineWebber to assist in pursuing com-
peting proposals to maximize Shareholders' value.
United Cities' Board and Management Did Not Consider Alternatives
Despite Management's Knowledge of Other Interested Parties
Including Southern Union
- -----------------------------------------------------------------
United Cities entered into the Merger Agreement on July 19, 1996
despite the fact that management was aware of other interested
parties, including Southern Union. Immediately prior to United
Cities engaging in exclusive negotiations with Atmos, Southern
Union repeatedly expressed its interest in meeting with United
Cities officers in order to discuss a combination with United
Cities.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
The Board's Proxy Statement focuses exclusively on Atmos' his-
toric expressions of interest and the negotiation of the Merger
Agreement with Atmos, implying that there were no third parties
interested in pursuing a transaction with United Cities. This
simply was not the case. In fact, United Cities refused to
entertain any proposals from third parties such as Southern
Union.
On May 6, 1996, Peter H. Kelley, President and Chief Operating
Officer of Southern Union, and Ronald J. Endres, Executive Vice
President and Chief Financial Officer of Southern Union,
approached James B. Ford, Senior Vice President and Treasurer of
United Cities, regarding Southern Union's interest in meeting
about a possible combination transaction. This followed
Mr. Ford's comment earlier that day during his presentation at an
American Gas Association Financial Analysts Conference that, at
the right price, United Cities was a buyer or a seller. Mr. Ford
told Messrs. Kelley and Endres that such a meeting could be
arranged. Mr. Endres called Mr. Ford on several occasions in May
and June to schedule a meeting. Mr. Ford offered trips to Europe
and the Olympic Games as reasons for delaying a meeting. In
June, Mr. Ford eventually scheduled a meeting for August 7, 1996
at Southern Union's offices in Austin, Texas. That meeting never
took place. Before that date, United Cities instead negotiated
exclusively, and entered into the Merger Agreement, with Atmos.
The Board's Proxy Statement states that, in August 1995,
Charles K. Vaughan, Chairman of the Board of Atmos, first
approached Gene C. Koonce, Chairman of the Board, President and
Chief Executive Officer of United Cities, to inquire about the
possibility of a merger between Atmos and United Cities.
According to the Board's Proxy Statement, Mr. Koonce responded to
the initial inquiry and subsequent inquiries of Mr. Vaughan
regarding such a transaction by stating that "it was the policy
of United Cities to remain independent" or "the Company was not
interested" or "not for sale." It was not until a February 1996
planning session that Mr. Koonce advised the Board of his con-
tacts with Atmos. At that planning session the Board of Direc-
tors of United Cities heard presentations of outside consultants
and industry analysts regarding developments in the gas utilities
industry and a presentation of internal management regarding a
potential internal restructuring to simplify United Cities' man-
agement structure.
According to the Board's Proxy Statement, Mr. Koonce continued to
respond to subsequent inquiries of Atmos in a similar manner
until some time after May 3, 1996, APPROXIMATELY THE SAME TIME
Messrs. Kelley and Endres of Southern Union first approached
Mr. Ford regarding a possible combination of United Cities with
Southern Union. Later in May -- soon after Messrs. Kelley and
Endres expressed Southern Union's interest in United Cities to
Mr. Ford -- Mr. Koonce indicated to Mr. Vaughan that United
Cities "might be willing to discuss the possibility of [a] merger
[with Atmos]." See "Background of the Merger - History of the
Merger Negotiations" in the Board's Proxy Statement.
Southern Union considers it indefensible that United Cities would
enter into exclusive merger discussions with Atmos without, at
the very least, inviting a proposal from Southern Union.
Instead, in the face of Southern Union's continuing requests to
meet with United Cities' representatives, United Cities' manage-
ment and Board rushed -- over less than three weeks -- into an
agreement with Atmos with special terms benefitting the key
executives advancing the Atmos proposal.
Now the United Cities' Board hides behind their legal claim that
United Cities is not being acquired by or sold to Atmos, and that
they had no legal duty to invite or consider alternatives. This
claim is contradicted by the fact that in their joint press
release on July 22, 1966 announcing the Merger, Atmos and United
Cities described the Merger as "the acquisition by merger of
United Cities by Atmos."
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
That United Cities is being sold to Atmos is reinforced by the
fact that the Termination Fee is payable only by United Cities to
Atmos. Moreover, United Cities will have a smaller portion of
the post-Merger Atmos board and officers than the Shareholders'
portion of Atmos shares to be outstanding after the Merger.
Under the terms of the Merger Agreement, United Cities is
nominating only 4 (including Mr. Koonce who is expected to retire
six months after the Merger) out of a total of 15 directors to
serve on the board of directors of Atmos in the event the Merger
is consummated. Atmos will appoint the other 11 directors. In
addition, United Cities will have only 3 (including Mr. Koonce)
of Atmos' 20 post-Merger officers. United Cities' Shareholders
will have a 45% stake in the merged entity but its Board settled
for, at best, 27% of its board of directors and a mere 15% of its
officers. See "Management of Atmos Following the Merger -
Directors" and "- Officers" in the Board's Proxy Statement.
The United Cities' Board is continuing to inhibit Southern
Union's desire to propose an informed competitive offer without
the cost to Shareholders of the Termination Fee and management
perquisites under the Merger Agreement. The Board has refused to
provide Southern Union access to certain information that they
provided to Atmos, has refused Southern Union's request for a
shareholder list, and is attempting to preclude Southern Union
from having other benefits of its ownership of 6.5% of United
Cities' outstanding shares. See "- Litigation."
A VOTE AGAINST THE MERGER SENDS A STRONG MESSAGE TO THE UNITED
CITIES BOARD OF DIRECTORS THAT YOU WANT THE BOARD TO CONSIDER
ALTERNATIVES THAT MAY PROVE TO BE FINANCIALLY SUPERIOR TO THE
PROPOSED MERGER WITHOUT THE SHAREHOLDERS BEARING THE COST OF THE
TERMINATION FEE AND SPECIAL PERQUISITES FOR MANAGEMENT.
Prohibitive Effect of the Termination Fee
- -----------------------------------------
Southern Union believes that the Termination Fee unreasonably
impedes the ability of potential third-party strategic partners
or bidders from negotiating a merger or similar transaction with
United Cities. Even if a proposal were made and pursued, the
Termination Fee could deprive the Shareholders of $15,000,000.
In the event the Board of Directors determines that its fiduciary
duties require it to proceed with a "Competing Transaction" (as
defined in the Merger Agreement), the payment of the $15,000,000
Termination Fee in such event would effectively require the
offeror to pay the equivalent of as much as a 5.5% premium over
the aggregate value of the Merger consideration offered by Atmos
(with the aggregate value of the Merger consideration computed by
multiplying the 13,174,794 shares of United Cities Common Stock
outstanding on the Record Date by the $20.875 per share lowest
sale price of Atmos common stock on the New York Stock Exchange
since July 22, 1996, the day the proposed Merger was announced).
THE TERMINATION FEE, IN SUCH INSTANCE, WOULD COST THE SHARE-
HOLDERS ABOUT $1.14 PER SHARE.
Southern Union believes that the Board of Directors and senior
management of United Cities would have better served the
interests of the Shareholders by investigating other potential
strategic partners or bidders. That should have included
Southern Union. Instead, while avoiding meeting with Southern
Union, United Cities' management and Board negotiated with Atmos
exclusively. The Termination Fee, in the opinion of Southern
Union, should not have been agreed to until other potential
avenues were investigated. Instead, Southern Union was led to
believe that a meeting with United Cities to discuss a possible
business combination was imminent while United Cities' Board
pursued exclusive negotiations with Atmos.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
Further evidence of the effort of United Cities' management to
guarantee the acquisition of United Cities by Atmos is the fact
that the termination fee is payable only by United Cities in the
event United Cities is sold to a third party. No such fee is
payable by Atmos even though United Cities is responsible for 45%
of the total value of the Merger. In addition, Southern Union
believes that the $2,000,000 fee (including a $1,400,000 payment
due if the Merger closes) to PaineWebber would have been better
earned through the Board directing PaineWebber to assist in such
investigations. See "- No Price Protection Despite Speculative
Value of Atmos Stock" and "- Limitations on PaineWebber Engage-
ment and Uselessness of Fairness Opinion."
IT'S NOT TOO LATE. IF THE MERGER PROPOSAL IS DEFEATED BECAUSE
- ------------------------------------------------------
EITHER THE APPROVAL OF THE REQUIRED MAJORITY OF SHAREHOLDERS IS
NOT OBTAINED OR TEN PERCENT OR MORE OF THE SHAREHOLDERS ASSERT
THEIR DISSENTERS' RIGHTS, THE $15,000,000 TERMINATION FEE WILL
-------------------------------------
NOT BE PAID.
- -----------
Effect of Management Perquisites
- --------------------------------
All one has to do is examine the generous benefits that key
United Cities executives negotiated for themselves to understand
their incentive to rush into a transaction with Atmos. In the
joint news release that Atmos and United Cities issued on July 22,
1996, Mr. Vaughan said the two companies had "similar management
philosophies." The benefits of the Atmos proposal to United
Cities' management add additional costs that assure them of the
value they would obtain if the Merger is consummated but that
diminish the value the Shareholders would receive from Atmos.
Under the terms of the Merger Agreement, certain members of
United Cities' management and key employees who participate in
the SERP (other than Mr. Koonce) will receive cash payments, upon
termination of the SERP in connection with the consummation of
the Merger, in exchange for their waiver of certain rights and
benefits under the SERP. Such amounts are reported to be up to
$5,100,000 in the aggregate. Such officers will then become
eligible to participate in Atmos' Supplemental Executive Benefits
Plan (the "SEBP"). In addition to the payments made to other
officers, Mr. Koonce will be entitled to receive from the SERP a
benefit with a value that is currently undisclosed. In the
original Merger Agreement, the amount was stated to be
$2,247,434.
Pursuant to the Merger Agreement, Atmos has agreed to enter into
Employment Agreements with Messrs. Gene C. Koonce, James B. Ford
and Thomas R. Blose, Jr., in the event the Merger is consummated.
Mr. Koonce will become an officer of Atmos and serve as Vice
Chairman of the Atmos Board of Directors (provided he is elected
to the Board by Atmos shareholders by virtue of their approval of
the Merger) for a period of six months after the Merger.
Mr. Ford will be employed as Senior Vice President--Finance of
Atmos. Mr. Blose will be employed as the President of the United
Cities operating division of Atmos and Vice President of Atmos.
Both Mr. Ford and Mr. Blose will be guaranteed employment for a
period of three years after the Merger. Such Employment Agree-
ments provide that the employees will receive: an annual base
salary; coverage under Atmos' Mini-Med Plan; participation in
Atmos' Restricted Stock Grant Plan; participation in Atmos' SEBP;
and participation in Atmos' pension, employee stock ownership,
welfare benefit and other similar plans and benefits on the same
basis as other executives of Atmos, including a company car (or
car allowance) and country club membership.
The initial base salaries for Messrs. Koonce, Ford and Blose
under the Employment Agreements are $370,875, $193,775 and
$191,475, respectively. The Employment Agreements also provide
for a retention payment of $60,000 to each of them if after 6
months following consummation of the Merger, the employee (i) is
an employee of Atmos, or (ii) is not an employee of Atmos due to
termination other than for "cause," his resignation for "good
reason" or his having taken normal retirement at age 65. The
Employment Agreements also include a severance payment provision
whereby, if the employee is terminated other than for "cause"
during the term of the agreement, the employee will be
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
entitled to receive all salary, benefits and contributions to
plans and programs through the remainder of the agreement's term.
As set forth in United Cities' proxy statement for the Annual
Meeting of Shareholders held on May 3, 1996, the base salary of
Messrs. Koonce, Ford and Blose during the year ended December 31,
1995 was $303,077, $158,538 and $156,539, respectively.
Mr. Koonce's base salary was increased to $310,000 in April 1996.
In the event the Merger is consummated and the Employment Agree-
ments with such officers are executed, Messrs. Koonce, Ford and
Blose will receive salaries that are 19.6%, 22.2% and 22.3%
higher, respectively, than they received in 1995. Although the
potential benefits to shareholders resulting from the Merger is
speculative, the personal benefits to these officers is assured.
In addition, Atmos has agreed to severance agreements for
Glenn B. Rogers, Senior Vice President--Gas Supply and Marketing
of United Cities, and Shirley M. Hawkins, Senior Vice President
and Secretary of United Cities. These agreements provide that in
the event of their termination of employment for any reason after
the one-year period following consummation of the Merger, Atmos
will provide them with a severance payment equal to 200% of their
then annual compensation.
Subsequent to the execution on July 19, 1996, of the Reorganiza-
tion Agreement, United Cities adopted amendments to the SERP
that, among other things, provide that if a participant becomes
subject to the federal excise tax on "excess parachute payments"
as a result of receiving any payments pursuant to the change of
control provisions of the SERP, United Cities is obligated to
make an additional cash payment to make him or her whole for such
excise tax, on an after-tax basis. The maximum potential cost to
United Cities of this change is approximately $8.9 million, or
nearly $0.68 per United Cities share.
Southern Union believes that such perquisites deprive Share-
holders of substantial value and further impede the ability of
potential third-party strategic partners from negotiating a
merger or similar transaction with United Cities.
For further information on management perquisites related to the
Merger, see "The Reorganization Agreement and the Merger -
Interest of Certain Person in the Merger -- United Cities Per-
sonnel" and "United Cities Stock Plan."
IT'S NOT TOO LATE. IF THE MERGER PROPOSAL IS DEFEATED BECAUSE
- ------------------------------------------------------
EITHER THE APPROVAL OF THE REQUIRED MAJORITY OF SHAREHOLDERS IS
NOT OBTAINED OR TEN PERCENT OR MORE OF THE SHAREHOLDERS ASSERT
THEIR DISSENTERS' RIGHTS, THE MANAGEMENT PERQUISITES MAY NOT BE
---------------------------------
PAID.
- ----
No Price Protection Despite Speculative Value of Atmos Stock
- ------------------------------------------------------------
The Merger Exchange Ratio has no "collar." Shareholders will
receive one share of Atmos stock for each share of United Cities
stock regardless of the market price of Atmos' common stock. The
market price for Atmos stock has been historically volatile.
During 1995, Atmos stock had high and low sales prices of $20.625
and $15.875, respectively, representing a 30% price swing during
that year. In 1996, prior to the announcement of executing the
Merger Agreement on July 22, Atmos stock traded between $21.00
and $31.00 per share, representing a 48% price swing during that
period. On July 22, 1996, the day the proposed Merger was
announced, Atmos stock closed at $22.625, down more than 12% from
its close of $25.875 on the previous trading day, July 19, 1996.
During the period from July 22 to July 31, 1996 (the day prior to
the filing by Southern Union of its Schedule 13D with the Securi-
ties and Exchange Commission reporting its ownership of 6.5% of
United Cities' Common Stock (the "Schedule 13D")), Atmos stock
traded between $20.875 and $25.875,
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
representing a 24% spread. From August 1 through October 16,
1996, Atmos stock traded between $21.25 and $24.125, representing
a 14% price range. The daily trading volume of Atmos stock
during 1996 has been as low as 1,200 shares and as high as
1,210,500 shares.
Southern Union believes that the volatile nature of Atmos' stock
price makes accurate valuation of the Merger consideration impos-
sible, as such market price may not be reflective of its actual
value. Southern Union also believes that the recent relative
stabilization of Atmos' stock may reflect the effect of Southern
Union's Schedule 13D, reporting its substantial equity stake in
United Cities. Southern Union's Schedule 13D and its ownership
of United Cities stock may be considered by certain persons to
indicate the prospect of competing offers for United Cities or
Atmos, which may be holding the prices of both Atmos' and United
Cities' stock above where they would otherwise trade.
As disclosed in a Form 4 Statement of Changes in Beneficial
Ownership of Securities filed with the Securities and Exchange
Commission, on June 24, 1996, Charles K. Vaughan, Chairman of the
Board of Atmos, sold 4,500 shares of Atmos common stock (repre-
senting approximately 5.8% of his saleable shares held at such
time) in an open market transaction at a per share price of
$26.00, or an aggregate price of $117,000. Shareholders should
note that this sale took place about two months after Mr. Koonce
advised Mr. Vaughan that United Cities would consider a merger
between the two companies, about one week after they discussed
conceptual terms for the Merger, AND THE DAY BEFORE Mr. Vaughan
allegedly first proposed the Merger Exchange Ratio to Mr. Koonce.
Southern Union believes that Mr. Vaughan's actions should create
concern about Atmos stock maintaining its high market price,
particularly in the face of the proposed Merger. See "Background
of the Merger - History of the Merger Negotiations" in the
Board's Proxy Statement.
Limitations on PaineWebber Engagement and Uselessness of Fairness
- -----------------------------------------------------------------
Opinion
- -------
PaineWebber was not requested or authorized to solicit, and did
not solicit, potential purchasers of United Cities. PaineWebber
was not asked and did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise)
of United Cities, nor was PaineWebber furnished with any such
evaluations or appraisals. Neither United Cities, nor
PaineWebber in its Fairness Opinion (attached as Exhibit C to the
Board's Proxy Statement), discuss the market value of United
Cities in terms of the physical assets of United Cities, and what
that may mean to the Shareholders. Furthermore, PaineWebber's
analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses may
actually be sold. Rather, PaineWebber's Fairness Opinion focused
on, among other things, the financial position, operating results
and market value of the stock of United Cities and Atmos, as well
as other publicly available information. This is despite United
Cities' selection of PaineWebber as financial advisor in connec-
tion with the Merger based upon, among other factors,
PaineWebber's "experience in the valuation of businesses." See
"Background of the Merger - Opinion of United Cities' Financial
Advisor" in the Board's Proxy Statement.
Southern Union believes that the fair market value of United
Cities' assets is important to the Shareholders in making their
decision as to where they may realize the greatest value for
their shares. Southern Union does not believe that PaineWebber
has performed a beneficial analysis of the fairness of the Merger
consideration without having made geographical and demographical
determinations as to markets which would find portions of the
assets attractive, and without appraisals of the properties.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
PaineWebber's Fairness Opinion states:
"Our opinion is directed to the Board of Directors of
[United Cities] and does not constitute a recommenda-
tion to any shareholder of [United Cities] as to how
any such shareholder should vote on the Merger. This
opinion does not address the relative merits of the
Merger and other transactions or business strategies
discussed by the Board of Directors of [United Cities]
as alternatives to the Merger or the decision of the
Board of Directors of [United Cities] to proceed with
the Merger. PaineWebber Incorporated was not re-
quested or authorized to solicit, and did not solicit,
potential purchasers of [United Cities]."
When Shareholders review the Fairness Opinion, this cautionary
language should be kept in mind.
In determining whether to proceed with Merger negotiations with
Atmos or to consider alternative transactions with other third
parties, including any asset sale, Southern Union believes that
it was the Board's responsibility to conduct, or retain a third
party such as PaineWebber to conduct, such investigations and
appraisals. The $600,000 payments to date, plus an additional
$1,400,000 fee payable if the Merger is consummated, would bring
PaineWebber's total bill to $2,000,000 -- amounting to about $.15
per United Cities share. Southern Union believes this payment
should have been used to explore opportunities beneficial to the
Shareholders, not to handcuff them to an inadequate sale of their
company.
In Southern Union's view, the Fairness Opinion is merely a
"rubber stamp" approval of the desire of United Cities management
that the Board agree to the Merger with Atmos. These fees cannot
be justified based on the limited scope of PaineWebber's engage-
ment analyses and the resulting uselessness to Shareholders of
the Fairness Opinion.
The Possibility of Other Bidders
- --------------------------------
Southern Union's approach to United Cities regarding a possible
business combination (described above under "- United Cities'
Board and Management Did Not Consider Alternatives Despite Man-
agement's Knowledge of Other Interested Parties Including
Southern Union") demonstrates that there was, and United Cities
was aware of, at least one other interested party. United
Cities' failure to disclose Southern Union's inquiries--while
they painstakingly disclose Atmos' historic interest--could
suggest that there were other interested parties, too.
A VOTE AGAINST THE MERGER SENDS A STRONG MESSAGE TO THE UNITED
CITIES BOARD OF DIRECTORS THAT YOU WANT THE BOARD TO INVITE
ALTERNATIVES THAT MAY PROVE TO BE FINANCIALLY SUPERIOR TO THE
PROPOSED MERGER WITHOUT THE SHAREHOLDERS BEARING THE COST OF THE
TERMINATION FEE AND SPECIAL PERQUISITES FOR MANAGEMENT.
Shareholders should note that they are being asked to vote
AGAINST the Merger on the GOLD PROXY CARD -- THEY ARE NOT BEING
ASKED TO VOTE ON ANY ALTERNATIVE TO THE MERGER. The existence or
implementation of any such alternative plan is speculative.
However, United Cities' Board is entrusted with considering the
interests and expectations of Shareholders and, therefore, the
United Cities Board may consider alternatives to the Merger in
the event Shareholders reject the proposed Merger by voting
AGAINST the Merger on the GOLD PROXY CARD.
Although the proposed Merger consideration is in excess of both
the book value and market value of United Cities as of June 30,
1996, Southern Union believes that it is possible that the terms
a third-party acquiror or merger partner would agree to might be
more favorable to the Shareholders but for certain terms of the
Merger approved by the United Cities Board such as the Termina-
tion Fee and certain management perquisites. However, there can
be no assurance that an alternative transaction will occur if the
Merger is not consummated or that Shareholders will receive terms
more favorable than in the Merger if they vote against the Merger
and an alternative transaction is subsequently implemented; nor
can there be an accurate prediction with respect to the prices at
which United Cities Common Stock would trade under any such cir-
cumstances.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
Litigation
- ----------
Southern Union has initiated certain suits against United Cities
and its directors and certain executives, and is presently
defending against an administrative proceeding filed by United
Cities and Atmos, and a declaratory judgment action filed by
United Cities. Each of these actions is summarized below.
On August 20, 1996, Southern Union filed a complaint against
United Cities, its Board members and other executives in the
United States District Court for the Middle District of Tennessee
(Nashville Division) (the "Tennessee Complaint"), alleging that
United Cities' Board of Directors failed to exercise their
fiduciary duties properly in approving the proposed Merger into
Atmos. The Tennessee Complaint seeks preliminary and permanent
injunctive relief against United Cities (1) to prevent its taking
any further action to consummate the proposed Merger until such
time as United Cities' Board has properly exercised its fiduciary
duties and (2) directing United Cities to provide Southern Union
with confidential information in order to provide Southern Union
with the option of making an informed offer for United Cities, in
the event it determines to do so. Presently, the parties to this
action are engaged in discovery.
On October 18, 1996, Southern Union filed a complaint against
Atmos based on Texas law in the District Court of Dallas, Texas
(the "Texas Complaint"), alleging that Atmos knowingly partici-
pated in breaches of fiduciary duties by United Cities, similar
to those described above in the Tennessee Complaint, in connec-
tion with the proposed Merger. The Texas Complaint seeks pre-
liminary and permanent injunctive relief against Atmos to bar
its taking any further action to consummate the Merger and
otherwise enforcing its rights under the Merger Agreement,
including, but not limited to, those provisions (i) restricting
the conduct of United Cities' business pending the Merger, (ii)
limiting United Cities' ability to solicit or facilitate com-
peting transactions or proposals, (iii) providing for termina-
tion of the SERP and (iv) providing for payment of the
$15,000,000 Termination Fee. The Texas Complaint also seeks
actual and exemplary damages.
On August 6, 1996, United Cities and Atmos filed a joint com-
plaint (the "MPSC Complaint") against Southern Union with the
Public Service Commission of the State of Missouri (the "MPSC").
The MPSC Complaint alleges, among other things, that Southern
Union purchased Common Stock without the prior approval of the
MPSC in violation of Missouri law. The MPSC Complaint seeks,
among other things, (i) a declaration by the MPSC that the pur-
chases of Common Stock by Southern Union are in violation of
Missouri law and are void and of no effect, (ii) an order by the
MPSC requiring Southern Union to submit a plan of divestiture of
the Common Stock for approval of the MPSC, (iii) an order by the
MPSC requiring that Southern Union cease and desist any further
purchases of the Common Stock, (iv) an order by the MPSC
requiring Southern Union to refrain from exercising any incidents
of ownership in the Common Stock, and (v) maximum penalties in
the amount of two thousand dollars ($2,000) for each separate and
distinct offense of Missouri law by Southern Union. A hearing
before the MPSC has been scheduled for November 12, 1996 to argue
Southern Union's motion to dismiss or stay the MPSC Complaint.
To date, the MPSC has denied motions by United Cities and Atmos
to compel document production by Southern Union and to expedite
the proceeding. United Cities and Atmos subsequently filed a
motion for partial summary judgment (and request for a hearing on
such motion on November 12, 1996) on the issue of whether the
Missouri law cited by United Cities and Atmos is applicable to
Southern Union's purchases of Common Stock. Southern Union has
denied the applicability of the Missouri law and the availability
of the remedies that United Cities and Atmos seek, intends to
oppose the motion for partial summary judgment (and request for a
hearing on such motion), and has defended and intends to continue
to defend vigorously against the MPSC Complaint. It is not
possible to predict with any certainty what action may be taken
by the MPSC on the scheduled hearing date or thereafter.
On August 19, 1996, Southern Union filed a complaint in the
United States District Court for the Eastern District of Missouri
(Southern Division) (the "Missouri Complaint") seeking a
declaratory judgment that Southern Union is entitled to all the
usual and customary rights and privileges of ownership of its
shares of Common Stock because the Missouri statute that is the
basis of the MPSC Complaint is not applicable to Southern Union's
purchases of the Common Stock or otherwise is unconstitutional
under the federal and Missouri constitutions. The MPSC has
intervened in this action. United Cities and the MPSC have
separately filed motions to dismiss this compliant, which
Southern Union has opposed. Southern Union has and intends to
continue to defend vigorously its ownership of United Cities
shares and all rights to which it is entitled as a Shareholder.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
Pursuant to its rights as a Shareholder under Illinois law,
Southern Union issued a request to United Cities for a list of
Shareholders as of the Record Date so that Southern Union could
communicate with them about the proposed Merger with Atmos in
advance of the Special Meeting. United Cities originally
promised to advise Southern Union of its position with respect to
Southern Union's request by October 11, 1996. Contrary to this
representation, however, United Cities did not respond to
Southern Union's request by denying it until October 14, 1996,
when it informed Southern Union that, on October 11, 1996, it had
filed a lawsuit against Southern Union in Cook County, Illinois,
seeking a declaratory judgment that it is not obligated to dis-
close its Shareholder list to Southern Union until the MPSC
Complaint has been resolved and that it is not subject to
penalties for refusing Southern Union's request. The apparent
purpose of this diversionary tactic is to create multiple
litigation and prevent Southern Union from obtaining the Share-
holder list and communicating with the Shareholders before the
scheduled vote on the proposed Merger. Southern Union has filed
a Notice of Removal removing the case to the United States Dis-
trict Court for the Northern District of Illinois. Southern
Union intends to file appropriate motions to dismiss or transfer
the action to the United States District Court for the Eastern
District of Missouri.
After United Cities denied its request for the shareholder list,
Southern Union filed a First Amended Complaint in the Missouri
Complaint in which it seeks a preliminary and permanent injunc-
tion directing United Cities to deliver to Southern Union the
Shareholders list as of the Record Date and to recognize Southern
Union as entitled to vote the shares of United Cities bene-
ficially owned by Southern Union. That Amended Complaint also
seeks a declaration that Southern Union is a shareholder of
United Cities with all the rights of a shareholder.
DISSENTERS' RIGHTS
Any Shareholder of record as of the Record Date has the right to
dissent to the approval of the Merger Agreement and the proposed
Merger pursuant to Section 11.65 of the Illinois Act and the
right to receive the "fair value" of his or her shares of Common
Stock IN CASH after the closing of the Merger, if the Merger is
completed, by complying with the procedures set forth in Section
11.70 of the Illinois Act.
How to Assert Your Dissenters' Rights
- -------------------------------------
Shareholders of record of United Cities Common Stock who desire
to assert their Dissenters' Rights must satisfy all of the con-
ditions contained in Sections 11.65 and 11.70 of the Illinois
Act. A written demand for payment for shares of Common Stock
-------------------------------------------------------
must be delivered to United Cities by a Shareholder seeking pay-
- ---------------------------------------------------------------
ment before the taking of the vote on the Merger Agreement. This
- ----------------------------------------------------------
written demand must be separate from any proxy or vote abstaining
from voting or voting against approval of the Merger Agreement.
Voting against approval of the Merger Agreement, abstaining from
voting or failing to vote with respect to approval of the Merger
Agreement is required in order to perfect Dissenters' Rights.
Such actions, alone, will not constitute a demand for payment
- -------------------------------------------------------------
within the meaning of Sections 11.65 and 11.70 of the Illinois
- --------------------------------------------------------------
Act.
- ---
SHAREHOLDERS ELECTING TO EXERCISE THEIR DISSENTERS' RIGHTS UNDER
SECTIONS 11.65 AND 11.70 MUST NOT VOTE "FOR" APPROVAL OF THE
MERGER AGREEMENT. A VOTE BY A SHAREHOLDER AGAINST APPROVAL OF
THE MERGER AGREEMENT IS NOT REQUIRED IN ORDER FOR THAT SHARE-
HOLDER TO EXERCISE DISSENTERS' RIGHTS. HOWEVER, IF A SHAREHOLDER
RETURNS THE BOARD'S PROXY CARD BUT DOES NOT SPECIFY A VOTE
AGAINST APPROVAL OF THE MERGER AGREEMENT OR A DIRECTION TO
ABSTAIN, THE PROXY, IF NOT REVOKED, WILL BE VOTED FOR APPROVAL OF
THE MERGER AGREEMENT, WHICH WILL HAVE THE EFFECT OF WAIVING THAT
SHAREHOLDER'S DISSENTERS' RIGHTS.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
IF A SHAREHOLDER RETURNS A SIGNED GOLD OPPOSITION PROXY CARD BUT
DOES NOT SPECIFY A VOTE FOR APPROVAL OF THE MERGER AGREEMENT OR A
DIRECTION TO ABSTAIN, THE PROXY, IF NOT REVOKED, WILL BE VOTED
"AGAINST" APPROVAL OF THE MERGER AGREEMENT, WHICH WILL PRESERVE,
BUT NOT ITSELF CONSTITUTE ASSERTION OF, THAT SHAREHOLDER'S
DISSENTERS' RIGHTS.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE IN ASSERTING YOUR
DISSENTERS' RIGHTS, YOU ARE INVITED TO CALL GEORGESON & COMPANY
INC. TOLL-FREE AT (800) ________. BANKS AND BROKERS CALL (212)
________ (COLLECT).
A demand for appraisal should be sufficient if it reasonably
informs United Cities of the identity of the Shareholder
(including the name and address of the Shareholder and the
number of shares held of record as such information appears
on a proxy card for the Special Meeting) and that such
Shareholder intends thereby to demand payment in cash for
his or her shares. If the Common Stock is owned of record
in a fiduciary capacity, such as by a trustee, guardian or
custodian, such demand must be executed by the fiduciary.
If the Common Stock is owned of record by more than one per-
son, as in a joint tenancy or tenancy in common, such demand
must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may exercise
the demand for appraisal for a Shareholder of record; how-
ever, the agent must identify the record owner or owners and
expressly disclose the fact that, in exercising the demand,
he or she is acting as agent for the record owner or owners.
A record owner, such as a broker, who holds Common Stock as a
nominee for others, may exercise Dissenters' Rights with respect
to the shares held for all or less than all beneficial owners of
shares as to which he or she is the record owner. In such case,
the written demand must set forth the number of shares covered by
such demand and the name and address of each such beneficial
owner. Where the number of shares is not expressly stated, the
demand will be presumed to cover all shares of Common Stock out-
standing in the name of such record owner. A beneficial owner of
shares who is not the record owner may assert Dissenters' Rights
as to shares held on such person's behalf only if the beneficial
owner submits to United Cities the record owner's written consent
to the dissent before or at the time the beneficial owner asserts
Dissenters' Rights.
If the Merger Agreement is approved and the Merger is consum-
mated, the surviving corporation, Atmos, must within 10 days of
such consummation or 30 days after the delivery of the Share-
holder's demand for payment in cash, whichever is later, send to
the dissenting Shareholder a written opinion as to its estimated
fair value of the shares and a commitment that it will pay the
estimated fair value of the shares in cash upon delivery of the
stock certificates by such Shareholder to Atmos. Atmos must also
include with the estimate and commitment, its consolidated
balance sheet as of the end of the most recent fiscal year, its
consolidated statement of income for such year and its latest
available unaudited condensed consolidated interim financial
statements.
If the dissenting Shareholder does not agree with the opinion of
Atmos as to Atmos' estimated fair value of his or her shares (or
the amount of interest due), such Shareholder, within 30 days
from the delivery of Atmos' statement of value, shall notify
Atmos of his or her estimated fair value of the shares and
shall demand payment for the difference between such estimated
fair value (and interest due) and the amount that Atmos has
agreed to pay to the Shareholder. If within 60 days of the
delivery of the Shareholder's estimate of fair value of the
shares (and interest due) to Atmos, Atmos and the dissenting
Shareholder have not agreed in writing upon the fair value of
the shares (and interest due), Atmos must either: (i) pay the
difference between the Shareholder's estimated fair value of
the shares (with interest) and any amount previously paid by
Atmos; or (ii) file a petition in the Circuit Court of the
appropriate county in Illinois requesting that the court
determine the fair value of the shares (and interest due).
All dissenting Shareholders whose claims remain unsettled at
the time of the filing of the action must be
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
joined as parties thereto and be bound by the judgment of the
Court. The Court may appoint one or more persons to serve as
appraisers to hear evidence and determine the fair value of the
shares.
Each dissenting Shareholder who is a party to the action will be
entitled to the payment of the fair value of the shares as deter-
mined by the Court, plus interest at a rate deemed fair and rea-
sonable by the Court, from the date of consummation of the Merger
until the date of payment, less any amount therefor previously
paid by Atmos. The Court may also assess court costs, other than
attorneys' and experts' fees of the parties, against Atmos if the
fair value, as determined by the Court, materially exceeds the
amount which Atmos initially agreed to pay for the shares. The
Court may assess such costs and fees against a dissenting Share-
holder if the fair value of the shares, as estimated by such
Shareholder, materially exceeds the fair value as determined by
the Court. The Court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the
Court finds equitable.
The provisions of Sections 11.65 and 11.70 are technical in
nature and complex. The preceding summary is qualified in its
entirety by reference to Sections 11.65 and 11.70, the complete
text of which is attached as Exhibit D to the Board's Proxy
Statement. Shareholders desiring to exercise Dissenters' Rights
and obtain payment of the fair value of their Common Stock should
consult counsel, as failure to comply strictly with the provi-
sions of Sections 11.65 and 11.70 may defeat their Dissenters'
Rights.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE IN ASSERTING YOUR
DISSENTERS' RIGHTS, YOU ARE INVITED TO CALL GEORGESON & COMPANY
INC. TOLL-FREE AT (800) ________. BANKS AND BROKERS CALL (212)
________ (COLLECT).
Withdrawal of Dissenters' Rights
- --------------------------------
Shareholders are advised that they retain the ability to abandon
their Dissenters' Rights and receive the Merger consideration
until the earlier of (i) the date immediately prior to the date
Atmos files its petition with the circuit court and (ii) the date
Atmos pays the dissenting Shareholder the difference between the
Shareholder's and Atmos' estimated fair value of the shares. As
neither of these dates can occur prior to the consummation of the
Merger, which is currently expected to occur no sooner than March
1997, SHAREHOLDERS MAY WITHDRAW THEIR DISSENTERS' RIGHTS REQUEST
FOR CASH PAYMENT AND BE ELIGIBLE TO RECEIVE THE MERGER CONSID-
ERATION FOR SEVERAL MONTHS AFTER THE SPECIAL MEETING SCHEDULED
FOR NOVEMBER 12, 1996.
ADDITIONAL INFORMATION
Reference is made to the Board's Proxy Statement for information
concerning, among other matters, the Merger, the Common Stock,
beneficial ownership of Common Stock by and other information
concerning United Cities's management, United Cities' independent
public accountants, the principal holders of Common Stock, the
vote required to approve the Merger and procedures for submitting
proposals for consideration at the next annual meeting of United
Cities.
EXPENSES OF SOLICITATION
The entire expense of preparing and mailing this Opposition Proxy
Statement and any other soliciting materials and the total
expenditures relating to the solicitation of Opposition Proxies
will be borne by Southern Union. In addition to the use of the
mails, Opposition Proxies may be solicited by Southern Union's
affiliates, directors, executive officers and other officers,
employees and agents by telephone, telegram and personal solici-
tation. No additional compensation will be paid to those persons
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
engaged in such solicitation. Southern Union's affiliates,
directors, executive officers and other officers, employees and
agents will be indemnified by Southern Union for losses, claims
and liabilities arising out of their activities relating to the
solicitation of Opposition Proxies.
Southern Union has entered into an agreement with Georgeson &
Company Inc. ("Georgeson") pursuant to which Georgeson has agreed
to assist Southern Union with its solicitation of Opposition
Proxies, strategy, press and investor relations in connection
with the Special Meeting. The agreement with Georgeson provides
for the payment of fees to Georgeson in the amount of
$__________. Georgeson will receive reimbursement from Southern
Union for its expenses incurred in its engagement and will be
indemnified by Southern Union against liabilities arising out of
such engagement.
Georgeson expects to engage approximately _____ persons in con-
nection with its efforts on behalf of Southern Union. Such per-
sons will, among other activities, solicit proxies from
Shareholders by telephone, telegram and personal solicitation.
In addition, banks, brokerage houses and other custodians,
nominees and fiduciaries will be requested to forward proxy
solicitation materials to the beneficial owners of the Common
Stock that such institutions hold of record, and Southern Union
will reimburse such institutions for their reasonable out-of-
pocket expenses.
Southern Union estimates that its total expenditures relating to
the solicitation of Opposition Proxies will be approximately
$_________, plus the fees payable to Georgeson and additional
expenditures if there is litigation. There have been $______ in
cash expenditures to date relating to the solicitation of
Opposition Proxies. Southern Union presently intends to seek
reimbursement from United Cities for reasonable expenses in
connection with the solicitation of Opposition Proxies.
CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS
To the knowledge of Southern Union, no director or executive
officer of Southern Union is, or was within the past year, a
party to any contract, arrangements or understandings with any
person with respect to any securities of United Cities. To the
knowledge of Southern Union, no such director or executive
officer or any associate of such persons has any arrangement or
understanding with respect to any future employment by United
Cities or its affiliates, and no such person has any arrangement
or understanding with respect to any future transactions to which
United Cities or any of its affiliates will or may be a party.
All transactions in securities of United Cities engaged in by
Southern Union during the past two years are listed in Appendix B
hereto.
Except as described herein or in Appendix B attached hereto,
neither Southern Union nor its directors or executive officers or
any associates of such persons (i) has engaged in or has a direct
or indirect interest in any transaction or series of transactions
since the beginning of United Cities' last fiscal year, or in any
current proposed transaction, to which United Cities or any of
its subsidiaries was a party, (ii) owns beneficially any
securities of United Cities, (iii) borrowed any funds for the
purpose of acquiring or holding any securities of United Cities
(except, as disclosed in the Schedule 13D, with respect to
Southern Union's revolving credit agreement, funds from which are
included in the working capital used to purchase Southern Union's
investment in the Common Stock), or is presently, or has been
within the past year, a party to any contract, arrangement or
understanding with any person with respect to any securities of
United Cities, (iv) is the beneficial or record owner of any
securities of United Cities or any parent or subsidiary thereof,
or (v) has, during the past ten years, been convicted in a crimi-
nal proceeding (excluding traffic violations or similar misde-
meanors).
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
SECURITY OWNERSHIP OF UNITED CITIES
To the knowledge of Southern Union, as of the Record Date,
Southern Union was the only Shareholder who beneficially owned
more than five percent of any class of voting securities of
United Cities. As of the Record Date, Southern Union bene-
ficially owned 854,300 shares of Common Stock, or 6.5% of the
Common Stock outstanding on the Record Date.
SHARES REPRESENTED BY THIS OPPOSITION PROXY STATEMENT
All of the 854,300 shares of the Common Stock beneficially owned
by Southern Union are represented in this Opposition Proxy
Statement.
PLEASE COMPLETE AND RETURN THE GOLD PROXY CARD
<PAGE>
APPENDIX A
----------
Each of the persons who may participate in soliciting Opposition
Proxies (other than employees of Georgeson) is identified below:
Name Position(s) Held with Southern Union
- -------------------- ------------------------------------
George L. Lindemann Chairman of the Board and Chief
Executive Officer
John E. Brennan Vice Chairman of the Board
Peter H. Kelley President and Chief Operating Officer
and Director
Frank W. Denius Director
Aaron I. Fleischman Director
Kurt A. Gitter, M.D. Director
Adam M. Lindemann Director
George Rountree, III Director
Roger J. Pearson Director
Dan K. Wassong Director
Ronald J. Endres Executive Vice President and Chief
Financial Officer
David J. Kvapil Vice President - Controller
Dennis K. Morgan Vice President - Legal and Secretary
George Yankowski Treasurer and Director of Investor
Relations
Nancy Capezzuti Senior Vice President - Human
Resources
Stephen A. Bouchard Partner, Fleischman and Walsh, L.L.P.,
Legal Counsel to Southern Union
<PAGE>
APPENDIX B
----------
Set forth below are descriptions of transactions in the Common
Stock by Southern Union effected during the past two years, all
of which represent open market purchases, net of brokerage com-
missions:
Number of Shares of
Date of Transaction Common Stock Price Per Share
- ------------------- ------------------- ---------------
December 6, 1995 5,000 $16.7500
December 6, 1995 1,500 16.6250
December 7, 1995 2,500 16.7500
December 7, 1995 2,500 16.7500
December 7, 1995 3,500 16.7500
December 8, 1995 1,500 16.7500
December 8, 1995 7,500 17.2500
December 11, 1995 30,000 17.2500
December 12, 1995 2,000 17.2500
December 12, 1995 5,000 17.5000
December 14, 1995 1,500 17.2500
December 20, 1995 2,500 16.7500
December 20, 1995 2,500 17.0000
December 21, 1995 7,500 17.0000
December 22, 1995 10,000 17.1250
January 2, 1996 500,000 18.5500
July 23, 1996 43,000 20.0000
July 23, 1996 19,000 19.8750
July 23, 1996 5,000 19.6250
July 23, 1996 20,000 19.7500
July 24, 1996 25,000 19.7500
July 24, 1996 10,000 19.6250
July 24, 1996 7,000 19.8750
July 24, 1996 21,000 20.0000
July 25, 1996 22,500 19.8750
July 25, 1996 3,000 19.7500
July 26, 1996 6,000 19.8750
July 26, 1996 1,000 19.6250
July 26, 1996 20,600 19.7500
July 29, 1996 18,400 19.7500
July 29, 1996 11,000 19.6250
July 30, 1996 21,400 19.7500
July 31, 1996 5,000 19.8125
July 31, 1996 10,400 19.7500
<PAGE>
[TO BE DELIVERED TO UNITED CITIES' SHAREHOLDERS
WITH DEFINITIVE PROXY STATEMENT ONLY]
OPPOSITION PROXY CARD
United Cities Gas Company
Special Meeting of Stockholders -- To Be Held November 12, 1996
THIS PROXY IS SOLICITED BY SOUTHERN UNION COMPANY
The undersigned shareholder of United Cities Gas Company, an
Illinois and Virginia corporation ("United Cities"), hereby
appoints Peter H. Kelley and Ronald J. Endres, and each of
them, proxies and attorneys-in-fact of the undersigned, each with
full power of substitution, to attend and act for the undersigned
at the Special Meeting of Shareholders to be held on November 12,
1996 at 10:30 a.m., Central Time at the Fifth Floor Auditorium of
the First American Center, 326 Union Street, Nashville, Tennessee
and at any adjournment or postponement thereof (the "Special
Meeting"), and in connection therewith to represent and vote all
the shares of Common Stock of United Cities which the undersigned
would be entitled to vote.
Said proxies and attorneys, and each of them, shall have all the
powers which the undersigned would have if acting in person. The
undersigned hereby revokes any other proxy to vote at such
Special Meeting and hereby ratifies and confirms all that said
proxies and attorneys, and each of them, may lawfully do by
virtue hereof. Said proxies, without hereby limiting their
general authority, are authorized to vote in accordance with
their best judgment with respect to all matters incident to the
conduct of the Special Meeting and all matters presented at the
Special Meeting but which are not known to Southern Union Company
at the time of the solicitation of this proxy.
Proposal to ratify and approve an Agreement and Plan of Reorgani-
zation dated July 19, 1996 as amended by Amendment No. 1 to
Agreement and Plan of Reorganization dated October 3, 1996, by
and between United Cities and Atmos Energy Corporation, a Texas
corporation ("Atmos"), and approve the Plan of Merger and the
Merger of United Cities with and into Atmos, with Atmos as the
surviving corporation (the "Merger").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
SOUTHERN UNION COMPANY RECOMMENDS A VOTE AGAINST RATIFICATION AND
-------
APPROVAL OF THE MERGER.
IMPORTANT: PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN
PROMPTLY IN THE POSTPAID ENVELOPE PROVIDED. NO
POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES.
<PAGE>
Each of the above-named proxies at said Special Meeting, either
in person or by substitute, shall have and exercise all the
powers of said proxies hereunder. This proxy will be voted in
accordance with the choices specified by the undersigned on this
proxy. In their discretion, each of the above-named proxies is
authorized to vote upon such other business incident to the
conduct of the Special Meeting as may properly come before the
Special Meeting or any postponements or adjournments thereof. If
no instructions are indicated herein, this Proxy will be treated
as a grant of authority to vote AGAINST the proposal and in the
discretion of the above-named proxies on any other matters to be
voted upon at the Special Meeting.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF
COPIES OF THE OPPOSITION PROXY STATE-
MENT AND THE BOARD'S PROXY STATEMENT
Date , 1996
-----------------------
-----------------------------------
(Signature of shareholder)
-----------------------------------
(Signature of shareholder)
Please sign your name exactly as it
appears hereon and return this proxy
promptly in the enclosed envelope.
Where there is more than one owner,
each should sign. When signing in a
fiduciary capacity, please add your
title as such. If executed by a
corporation, the proxy should be signed
by a duly authorized officer.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS CARD
SOUTHERN UNION COMPANY RECOMMENDS A VOTE AGAINST
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RATIFICATION AND APPROVAL OF THE MERGER
