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                           United Cities Gas Company

                               IMPORTANT NOTICE!


October 25, 1996


Dear Shareholder,

     You may shortly be receiving  proxy  solicitation  materials  from Southern
Union Company. Southern Union has launched a self-serving campaign to derail the
proposed merger of United Cities Gas Company and Atmos Energy  Corporation which
will be voted on at the Special Meeting of Shareholders  scheduled to be held on
November 12, 1996. Your management  believes that Southern  Union's sole purpose
in  launching  its  campaign  is to break up or  weaken  a  transaction  that it
perceives as a threat to its own self-interest. Consider the following:

   o While Southern Union claims that it tried to discuss a possible transaction
     with  United  Cities -- a claim  denied by United  Cities in the context of
     ongoing  litigation  between the parties -- Southern Union has not proposed
     an  alternative  transaction  for United Cities'  shareholders.  It has, in
     fact, affirmed in writing that it has no intention of acquiring 15% or more
     of the stock of United Cities.

   o The merger  consideration  represented  a 52.2%  premium to United  Cities'
     shareholders at the time of announcement of the proposed Merger.

THE BOARD OF  DIRECTORS  OF  UNITED  CITIES  URGES YOU TO VOTE FOR THE  PROPOSED
MERGER  WITH  ATMOS.  YOUR VOTE IS  IMPORTANT.  PLEASE  SIGN,  DATE AND MAIL THE
ENCLOSED WHITE PROXY CARD TODAY.


                             YOU SHOULD SEE THROUGH
                 SOUTHERN UNION'S EFFORTS TO DERAIL THE MERGER

     It appears to your  management  that  Southern  Union cannot  realistically
expect to defeat the Merger at the ballot box. Instead,  Southern Union hopes to
derail  the Merger by causing a  condition  to the Merger not to occur,  thereby
depriving you of the  substantial  premium  proposed to be paid for your shares,
without offering you anything in return.





     It is a  condition  of Atmos's  obligation  to  consummate  the Merger that
dissenters'  rights  not be sought  with  respect  to 10% or more of the  United
Cities shares outstanding, and it is a condition to both parties' obligations to
consummate  the Merger that Atmos receive an opinion from its  accountants  that
the Merger will be accounted  for as a pooling of interests.  If Southern  Union
could  arrange  for a block of  slightly  more than 1.3  million  shares to seek
dissenters'  rights,  those  conditions to the Merger might not be satisfied and
the parties would have the right,  unless they agreed to waive those conditions,
not to consummate the Merger.

     From Southern Union's perspective this is a "no-risk" strategy. If Southern
Union were to succeed in inducing  10% of the stock to seek  dissenters'  rights
and the  parties  elect not to close  the  Merger,  Southern  Union  would  have
succeeded in preventing the formation of a formidable competitor and, not having
presented any  alternative,  would leave United Cities  shareholders to bear the
consequences. If the parties decided to proceed with the Merger, notwithstanding
the  inability  to  account  for  it  as a  pooling  of  interests,  the  United
Cities/Atmos  merged  entity  (the  "Merged  Company")  would  have to bear  the
amortization  of goodwill over a period of many years.  To the extent the Merged
Company finds itself competing with Southern Union in the future with respect to
acquisitions  in which the  Merged  Company  wants to use its own  shares as the
acquisition  currency,  the  value  of such  shares  could be  diminished,  thus
providing  other  bidders,  including  Southern  Union,  with an  advantage.  In
addition,  to the extent the Board of Directors of the Merged Company determines
to tie the dividend rate to reported earnings, the recognition of goodwill could
negatively impact the dividend payout.


              SOME THINGS YOU SHOULD KNOW ABOUT DISSENTERS' RIGHTS

     You should keep in mind that there are no  guarantees  with  respect to the
amount a United Cities shareholder would receive in an appraisal proceeding. The
appraisal  amount could be less,  more or the same as the value of the shares in
the Merged  Company.  The  Illinois  statute  specifically  contemplates  that a
shareholder  exercising  dissenters' rights will be entitled to fair value which
excludes any appreciation or depreciation in anticipation of the Merger,  unless
the exclusion would be inequitable.  In determining fair value, a court may take
into account such factors as it deems relevant,  including,  without limitation,
market value. No assurance can be given that dissenters would be entitled to the
increase  in  price   reflected  in  the  price  of  United  Cities  stock  upon
announcement of the transaction with Atmos.

     In addition,  subject to certain  conditions,  the receipt of cash upon the
exercise of  dissenters'  rights could subject you to tax liability  measured by
the amount of cash received and your basis in the stock. This contrasts with the
receipt  of  Merged  Company  stock  on  which  it is  contemplated  that no tax
liability will result since no gain or loss will be recognized.

     Southern Union claims in its  preliminary  proxy  materials  filed with the
Securities  and Exchange  Commission (1) that  shareholders  may  abandon  their
dissenters' rights and receive the

- ----------
1 The  materials  ultimately  delivered  to United  Cities  shareholders  may be
significantly different from those filed with the SEC on a preliminary basis.


                                      -2-







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's  estimated fair value of the shares. In fact, the Illinois statute makes
no provision for the withdrawal of a demand for  dissenters'  rights,  and Atmos
has advised United Cities that it has not determined  what position it will take
if a shareholder who has exercised  dissenters' rights purports to withdraw such
demand.  No assurance can thus be given that such shareholder  would necessarily
have available to it the option of receiving the Merger consideration.

              SOUTHERN UNION'S "OWNERSHIP" OF UNITED CITIES SHARES

     Southern Union  purports to own 6.5% of the United Cities shares.  In fact,
United  Cities  contends  those  shares were  purchased  in clear  violation  of
Missouri law, which  prohibits a Missouri  utility from purchasing the shares of
another  Missouri  utility  without the prior  approval of the  Missouri  Public
Service Commission. Atmos and United Cities jointly filed a complaint (the "MPSC
Complaint")  on August  6, 1996 to force a  divestiture  of the  shares  held by
Southern Union. It is your management's position that Southern Union, because it
purchased  the shares  illegally,  cannot  vote such  shares or  validly  assert
dissenters' rights under Illinois law.


                  EXAMINE CAREFULLY SOUTHERN UNION'S ARGUMENTS

     Southern Union makes several  assertions in its preliminary proxy materials
filed with the SEC. It claims that the Board of Directors  of United  Cities did
not act in the  best  interests  of the  shareholders  because  it did not  seek
competing  proposals from third  parties.  While the United Cities Board did not
seek competing  proposals from Southern Union or any other party -- and does not
believe it had any  obligation  to do so -- more than three  months  have passed
since the announcement of the proposed Merger,  and no one,  including  Southern
Union, has come forward with any alternative proposal.

     In fact, there is nothing in the Reorganization  Agreement that prohibits a
competing bid from emerging.  Upon the payment of a $15 million termination fee,
insisted  upon by Atmos as a condition  of its  willingness  to proceed with the
Merger  because  of the large  premium  payable to United  Cities  shareholders,
United Cities is free to enter into an agreement for a competing transaction.


                YOUR MANAGEMENT RELINQUISHED RETIREMENT BENEFITS

     In its  preliminary  proxy  materials,  Southern Union also  criticizes the
employment  arrangements  entered into by members of United Cities management in
connection  with the Merger.  What Southern  Union fails to point out is that it
was a condition to the Merger that the United Cities executives waive rights and
benefits under the United Cities Supplemental  Executive  Retirement Plan with a
value several times in excess of the amounts they will receive


                                      -3-



in  consideration  for such waivers.  Those waivers have been obtained,  and the
willingness  of the  executives to give such waivers is a further  indication of
the belief that they have in the prospects of the combined entity.

     Southern  Union now tries to  second-guess  your Board of Directors  noting
that the Exchange Ratio has no "collar" and that  shareholders  of United Cities
will receive one share of Atmos stock  regardless of changes in the market price
of Atmos stock. Southern Union says United Cities should have negotiated for the
right to terminate the  Reorganization  Agreement if the Atmos stock drops below
certain  levels.  It was the  judgment of United  Cities that if it had insisted
upon  such a  right,  Atmos  would  have  insisted  upon a  reciprocal  right to
terminate the  Reorganization  Agreement if the Atmos stock traded above certain
levels. The cost of obtaining  so-called  "downside"  protection would have been
the surrender of potential  upside.  Shareholders  of United Cities  effectively
retain  price  protection  in any case by being  able to vote down the Merger if
they are unhappy with the  performance of Atmos stock or by selling their shares
of the United Cities.

     The United  Cities  Board firmly  believes  that the Merger is an excellent
strategic  transaction  for the  United  Cities  shareholders  affording  them a
handsome  premium and an  opportunity  to  participate  in a strong company with
excellent prospects.

     Incredibly, Southern Union also criticizes United Cities Board of Directors
for having obtained a fairness opinion from an investment banker with respect to
the Merger,  notwithstanding  that the receipt of such an opinion is  absolutely
standard for a transaction of this magnitude,  as are the  limitations  thereon.
While  Southern  Union  questions  the  strategy  of the Board of  Directors  in
developing  the  alternative  embodied by the Merger,  it should be kept in mind
that Southern Union has its own agenda, consisting of a myriad of interests that
are directly contrary to those of the shareholders of United Cities.

     The Board of Directors  of United  Cities urge you to keep in mind that the
Merger affords  shareholders  the  opportunity to realize  significant  value on
their   investment  and  also  gives  them  the  option  of   participating   in
opportunities  for growth that United Cities  believes the Merger makes possible
and which are described in the Joint Proxy Statement/Prospectus.


                                      -4-


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                              ===================
                              EXTREMELY IMPORTANT
                              ===================

Please vote FOR the proposed  merger between United Cities Gas Company and Atmos
Energy Corporation by SIGNING,  DATING and MAILING the enclosed WHITE PROXY CARD
today in the postage paid envelope provided. Only the latest dated proxy counts.


We urge you not to return any Proxy Cards sent to you by Southern Union Company.
If you  accidentally  vote a later  dated  card sent to you by  Southern  Union,
please sign and date a new WHITE PROXY CARD or call us for  assistance.  If your
shares are held with a  brokerage  firm,  your  broker  cannot  vote your shares
unless he receives your specific instructions.


If you have any questions  about how to vote your shares,  please call our proxy
solicitor toll-free at:


                    Corporate Investor Communications, Inc.
                               111 Commerce Road
                              Carlstadt, NJ 07072
                                 (888) 868-3347

- --------------------------------------------------------------------------------


                                      -5-



     We would like to update you with respect to the  following  litigation  and
other developments.

     On September 10, 1996,  Southern Union moved to dismiss the MPSC Complaint,
contending that the Missouri  statute that is the basis of the MPSC Complaint is
not applicable to Southern Union's  purchases of the stock of United Cities (the
"United Cities  Stock").  In the  alternative,  Southern Union moved to stay the
MPSC  Complaint  pending  resolution of its complaint  filed on August 19 in the
United  States  District  Court for the Eastern  District of Missouri  (Southern
Division) (the "Missouri  Complaint")  seeking a determination that the Missouri
statue that is the basis of the MPSC  Complaint  is not  applicable  to Southern
Union's  purchases of stock of United  Cities or  otherwise is  unconstitutional
under the  federal  and  Missouri  constitutions.  United  Cities and Atmos have
jointly opposed these motions.

     On September 19, 1996,  United Cities moved to dismiss the action commenced
by the Missouri  Complaint (the  "Missouri  Action") on abstention  grounds.  On
September  20,  1996,  the MPSC,  which had moved to  intervene  in the Missouri
Action,  moved to dismiss or stay that  Complaint  on  abstention  grounds.  The
motions to dismiss will be fully  submitted to the Court as of October 25, 1996,
and a hearing has been scheduled on the motions for October 29, 1996.

     On October 8, 1996,  Southern Union made a written request of United Cities
pursuant to the Illinois  Business  Corporation Act to examine and make extracts
of, and obtain  other  materials  with  respect  to,  United  Cities'  record of
shareholders.  On October 11,  1996,  United  Cities  filed a  complaint  in the
Circuit Court of Cook County,  Illinois,  County  Department,  Chancery Division
(the "Illinois  Complaint").  The Illinois Complaint seeks declaratory judgments
that, in view of the  proceedings  instituted by the MPSC Complaint with respect
to whether  Southern Union is a legal  shareholder of United Cities,  (i) United
Cities is not obligated by the Illinois Business Corporation Act to disclose its
record of  shareholders  to  Southern  Union  unless  the MPSC were to rule that
Southern  Union was not  required  to obtain the MPSC's  prior  approval  of its
acquisition  of United  Cities Stock and thus is a legal  shareholder  of United
Cities;  and (ii) United  Cities is not subject to penalties  under the Illinois
Business  Corporation Act for any refusal to disclose its record of shareholders
to  Southern  Union  prior to such  time.  Southern  Union has filed a Notice of
Removal removing the Illinois  Complaint to the United States District Court for
the Northern District of Illinois.

     On October 10, 1996,  United  Cities and Atmos  jointly  filed a motion for
partial summary judgment on the MPSC Complaint on the ground that Southern Union
purchased  United  Cities  Stock  without  the prior  approval  of the MPSC,  in
violation of applicable  Missouri  law. The MPSC has scheduled  argument on this
motion,  and on  Southern  Union's  motion to dismiss  the MPSC  Complaint,  for
November 12, 1996.

     On October 15, 1996,  Southern  Union amended the Missouri  Complaint  (the
"Amended Missouri Complaint").  In addition to the relief sought in the Missouri
Complaint,  the Amended  Missouri  Complaint  seeks a preliminary  and permanent
injunction  directing  United Cities to disclose its record of  shareholders  to
Southern Union and to recognize Southern Union as entitled to vote the shares of
United Cities Stock it  beneficially  owns.  Southern  Union also filed a motion
seeking  such a  preliminary  injunction.  A hearing has been  scheduled on that
motion for  October 29,  1996,  and United  Cities  intends to oppose the motion
insofar as it relates to  recognizing  Southern  Union as  entitled to vote such
shares.


                                      -6-



     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  participated  in breaches of fiduciary  duties by
United Cities  similar to those alleged in the  Tennessee  Complaint.  The Texas
Complaint seeks preliminary and permanent injunctive relief against Atmos to bar
its taking any further action to consummate the proposed Merger,  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 competing transactions or proposals,  (iii) providing for termination
of United Cities' Supplemental  Executive Retirement Plan, which would result in
the payment of certain benefits to certain executive  officers of United Cities,
and (iv) providing for payment of a $15,000,000 termination fee by United Cities
to Atmos under certain circumstances.  The Texas Complaint also seeks actual and
exemplary damages.

     By letter dated October 15, 1996, Southern Union advised United Cities that
it was filing notification under the  Hart-Scott-Rodino  Antitrust  Improvements
Act of 1976 (the "Act")  with the Federal  Trade  Commission  and the  Assistant
Attorney  General  in charge of the  Antitrust  Division  of the  United  States
Department  of Justice  with  respect to Southern  Union's  intent to acquire in
excess of $15  million  of voting  securities  of  United  Cities,  as valued in
accordance with the Act, but Southern Union stated that it had no intention,  at
that time, to acquire  voting  securities of United Cities in an amount equal to
or in excess of 15% of such voting securities.

     On October 18, 1996, Southern Union made a written request pursuant to Rule
14a-7  under the  Securities  Exchange  Act of 1934,  as  amended,  for  certain
shareholder  information,  including a  shareholder  list.  On October 25, 1996,
United Cities  advised  Southern Union in writing that it had determined to make
available  the  information  proscribed  by the Rule,  without  prejudice to its
position that  Southern  Union's  purchase and continued  ownership of shares of
United Cities Stock without the prior  approval of the Missouri  Public  Service
Commission  is illegal  and  Southern  Union is not  entitled to the rights of a
shareholder of United Cities.

     Pursuant to an engagement  letter dated August 23, 1996,  Goldman,  Sachs &
Co.  ("Goldman  Sachs") has been retained by United Cities to act as a financial
advisor in connection with (i) any competing  acquisition proposal that Southern
Union or any other party may make, (ii) any material  amendment or supplement to
the Reorganization  Agreement made in response to action taken by Southern Union
or any other competing proposal or in anticipation thereof,  (iii) any contested
solicitation of proxies by Southern Union or any other party with respect to the
transactions  described  in  the  Reorganization   Agreement,   any  alternative
transaction with Atmos or a competing proposal approved by or recommended to the
United Cities  shareholders  by the United  Cities Board of  Directors.  Goldman
Sachs became  entitled to a fee of $250,000  upon the signing of its  engagement
letter  and an  additional  one-time  fee of  $500,000  upon the  launch  of the
Southern  Union  proxy  solicitation.  In the event  United  Cities  receives  a
competing proposal requiring in the judgment of United Cities significant review
and analysis by a financial  advisor,  Goldman Sachs will be entitled to receive
an additional one-time fee of $250,000. If at least 50% of the outstanding stock
of United Cities is acquired by Atmos pursuant to an alternative  transaction to
that  contemplated  by  the  Reorganization  Agreement,  or by any  other  party
pursuant  to a  competing  proposal,  Goldman  Sachs  will  be  entitled  to  an
additional  fee  equal  to 5% of the  excess  of the  value  of the  alternative
transaction or competing  proposal over the value of the transactions  presently
provided for in the Reorganization Agreement.


                                      -7-