SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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:
Preliminary Proxy Statement
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TUCSON ELECTRIC POWER COMPANY
- - -------------------------------------------------------------------------------
(Name of the 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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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_ 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 idenfity 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:
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2) Form, Schedule or Registration Statement No.
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3) Filing party:
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4) Date filed:
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- - -
TUCSON ELECTRIC POWER COMPANY
220 West Sixth Street
P.O. Box 711
Tucson, Arizona 85702
Charles E. Bayless
Chairman of the Board (520) 571-4000
March 31, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting (the
"Meeting") of Shareholders of Tucson Electric Power Company (the
"Company") to be held on May 9, 1997. The Meeting will begin at
10:00 a.m., Tucson time, at Marriott University Park, 880 East
Second Street, Tucson, Arizona.
At the Meeting you will be asked to elect a Board of
Directors for the ensuing year. During the Meeting, a report
will be given on the operations of the Company. Directors and
officers of the Company will be present to respond to questions
that shareholders may have.
Please fill out, sign, date and return the enclosed Proxy
Card promptly. If you attend the Meeting and wish to vote your
shares personally, you may revoke your proxy at that time. Your
interest is very much appreciated.
Sincerely yours,
TUCSON ELECTRIC POWER COMPANY
Charles E. Bayless
Chairman of the Board, President and
Chief Executive Officer
TUCSON ELECTRIC POWER COMPANY
220 WEST SIXTH STREET
P.O. BOX 711
TUCSON, ARIZONA 85702 (520) 571-4000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MAY 9, 1997
To the Shareholders of
TUCSON ELECTRIC POWER COMPANY
Notice is hereby given that the Annual Meeting (the
"Meeting") of Shareholders of Tucson Electric Power Company (the
"Company") will be held on the 9th day of May, 1997, at Marriott
University Park, 880 East Second Street, Tucson, Arizona, at
10:00 a.m., Tucson time, for the purposes of:
(1) electing a Board of Directors for the ensuing
year; and
(2) transacting such other business as may properly
come before the Meeting or any adjournment or
adjournments thereof.
The holders of record of Common Stock at the close of
business on March 17, 1997, will be entitled to vote at the
Meeting and at any adjournments thereof. Proxy soliciting
material is first being sent or given to shareholders on March
31, 1997.
By order of the Board of Directors,
Dennis R. Nelson
Secretary
Dated: March 31, 1997
IMPORTANT: Your presence at the Meeting is desired, but if you
cannot be present, please fill out, sign, date and return the
enclosed form of proxy in the envelope provided. Due to the
number of shareholders, your cooperation in returning your proxy
promptly is essential and will be very much appreciated.
YOUR VOTE IS IMPORTANT, REGARDLESS OF HOW MANY SHARES YOU
OWN.
TO VOTE YOUR SHARES, PLEASE MARK, SIGN AND DATE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
PROXY STATEMENT
GENERAL
This Proxy Statement is being mailed to shareholders in
connection with the solicitation, by and on behalf of the Board of
Directors of Tucson Electric Power Company (the "Company"), of
proxies to be voted at the Annual Meeting of Shareholders of the
Company to be held on May 9, 1997, at the time and place and for
the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders and at any and all adjournments of the
Meeting.
An appropriate form of proxy for execution by shareholders is
enclosed. Any shareholder giving a proxy has the right to revoke
the same by giving notice to the Company in writing, directed to
the Secretary, or in person at the Meeting at any time before the
proxy is exercised.
The entire cost of the solicitation of proxies will be borne
by the Company. Solicitations will be made by the Company
primarily by use of the mails. Additional solicitation of
brokers, banks, nominees and institutional investors may be made
pursuant to a special engagement of Beacon Hill Partners, Inc. at
a cost to the Company of approximately $3,500 plus reasonable out-
of-pocket expenses. If necessary to obtain reasonable
representation of shareholders at the Meeting, solicitations may
also be made by telephone, facsimile or personal interview. The
Company will request brokers or other persons holding stock in
their names, or in the names of their nominees, to forward proxy
material to the beneficial owners of such stock or request
authority for the execution of the proxies, and will reimburse
such brokers or other persons for their expense in so doing.
In accordance with the Company's Bylaws, the Board of
Directors has fixed March 17, 1997 as the record date for the
determination of shareholders entitled to vote at the Meeting and
at any and all adjournments thereof. The stock transfer books
will not be closed.
Representatives of Deloitte & Touche LLP, the Company's
independent auditors, are expected to be present at the Meeting
with the opportunity to make a statement if they desire to do so,
and to be available to respond to appropriate questions.
VOTING OF SHARES
At March 17, 1997, the Company had outstanding 32,135,807
shares of Common Stock no par value ("Common Stock"). At March
17, 1997, there were 30,674 shareholders of record of the Common
Stock. Holders of Common Stock will be entitled to one vote per
share, subject to cumulative voting rights in the election of
Directors as described below.
Under Arizona General Corporation Law, a majority of the
shares entitled to vote on any single subject matter which may be
brought before the Meeting will constitute a quorum, and business
may be conducted once a quorum is represented at the Meeting.
Except as otherwise specified by law, if a quorum exists, action
on a matter other than the election of Directors will be deemed
approved if the votes cast "For" such matter exceed votes cast
"Against" it.
In the election of Directors, each holder of shares of Common
Stock has the right to cumulate his votes by casting as many votes
in the aggregate as shall equal the number of his shares of Common
Stock multiplied by the number of Directors to be elected, and he
may cast the whole number of such votes for one nominee or
distribute such votes among two or more nominees. If a quorum is
present, directors are elected by a plurality of the votes cast by
the shares entitled to vote. Withheld votes will be counted as
being represented at the Meeting for quorum purposes but will not
have an effect on the vote.
The shares represented by an executed proxy will be voted for
the election of Directors, or withheld in accordance with the
specifications made in said proxy. If no specification is made in
said proxy, the proxy will be voted "FOR" the nominees listed
herein.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 17, 1997, the following person was known by the
Company to be the beneficial owner of more than five percent of
the outstanding shares of Common Stock:
Name and address Amount and Nature of Percent
Title of Class of Beneficial Owner of Beneficial Ownership of Class
-------------- ------------------- ----------------------- --------
Common U.S. Bancorp 1,925,005 (1) 6.0%
111 S.W. Fifth Avenue
Portland, OR 97204
____________________
(1) In a statement dated February 14, 1997, filed with the
Securities and Exchange Commission pursuant to Section 13(d)
of the Securities Exchange Act of 1934, U.S. Bancorp
indicated that, as of December 1996, it is the beneficial
owner of 1,925,005 shares, or 6% of the outstanding Common
Stock of the Company.
Of the total 1,925,005 shares, 929,020 (2.9% of the
outstanding Common Stock), is beneficially owned by Qualivest
Capital Management, Inc., which is a wholly-owned subsidiary
of United States National Bank of Oregon, itself a wholly-
owned subsidiary of U.S. Bancorp. Qualivest Capital
Management, Inc. is an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, and acts
as investment advisor to The Qualivest Funds, an investment
company registered under Section 8 of the Investment Company
Act of 1940.
The remaining 995,985 shares (3.1% of the outstanding Common
Stock) are held by the Trust Group of U.S. Bancorp. U.S.
Bancorp is a national bank as defined in Section 3(a)(6) of
the Securities Exchange Act of 1934.
All but one of the owner participants in the Company's lease
of Unit 1 of the Springerville Generating Station submitted a "no-
action" request to the staff of the SEC regarding their status
under the Public Utility Holding Company Act of 1935, as amended
("Holding Company Act"). In connection with such "no-action"
request, each such owner participant entered into a separate
voting agreement with the Company (each, a "Voting Agreement")
with respect to the shares of Common Stock and warrants to
purchase Common Stock ("Warrants") which such owner participant
received as part of the 1992 comprehensive restructuring of the
Company's obligations to certain of its creditors, major suppliers
and lease participants, as well as the reclassification of all
shares of the Company's previously outstanding preferred stock
into Common Stock (the "Financial Restructuring"). Under the
Financial Restructuring, such owner participants received, in the
aggregate, approximately 8.9% of the total number of shares of
Common Stock outstanding at the date of the closing of the
Financial Restructuring on December 15, 1992 (the "Closing") (but
before giving effect to the exercise of the Warrants) and Warrants
in an aggregate amount of approximately 6.75% of the total number
of shares of Common Stock at the date of the Closing. Each Voting
Agreement constitutes an irrevocable proxy of the owner
participant directing the Company to vote those shares issued to
it under the Financial Restructuring (including shares issuable
upon the exercise of the Warrants) in the same proportion as the
votes cast for and against any particular matter by the other
holders of Common Stock voting on such matter. However, an owner
participant has the right to vote or direct the voting of the
shares of Common Stock held by it upon the occurrence of any of
the following events: (i) a default under the Springerville Unit
1 leases; (ii) a default by the Company in respect of obligations
with an aggregate amount in excess of $500,000; or (iii) the
institution of bankruptcy or similar proceedings by or against the
Company or any of its affiliates. In the event of any sale or
disposition of the shares that are subject to a Voting Agreement
to a person who is not an owner participant or an affiliate
thereof, the shares sold would no longer be subject to that Voting
Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 17, 1997, the
number and percentage of shares beneficially owned, along with the
nature of such beneficial ownership, by each of the Company's
Directors and nominees, the Company's Chief Executive Officer, the
four other most highly compensated executive officers of the
Company during 1996, and all directors and executive officers as a
group.
Allocable Amount
of Shares
Amount and Nature under Deferred
Title Name of of Beneficial Percent Compensation
of Class Beneficial Owner Ownership (1) of Class Stock Plan (2)
- - -------- ---------------- ----------------- -------- ----------------
Common Elizabeth T. Alexander 1,000 (3) * 983
Director
Common Charles E. Bayless 17,267 (4) * 7,659
Chairman, President
and CEO
Common Jose L. Canchola 1,400 (5) * 404
Director
Common John L. Carter 7,000 * -
Director
Common John A. Jeter 2,200 (5) * 597
Director
Common R. B. O'Rielly 1,480 (5) * 1,630
Director
Common Martha R. Seger 1,240 (5) * 1,748
Director
Common Donald G. Shropshire 1,500 (5) * -
Director
Common H. Wilson Sundt 2,800 (5)(6) * -
Director
Common James S. Pignatelli 8,310 (7) * -
Senior Vice President and
Chief Operating Officer
Common Ira R. Adler 9,219 (8) * -
Senior Vice President
and Chief Financial
Officer
Common Romano Salvatori 1,887 (9) * 1,147
Vice President -
Independent Power
Common George W. Miraben 4,266 (10) * 562
Senior Vice President -
Policy and Human Resources
Common All directors and 93,711 (11) * 16,083
executive officers as
a group
___________________
* Represents less than l% of the outstanding Common Stock of
the Company.
(1) Based on information furnished by executive officers and
directors. Includes shares subject to options exercisable
within 60 days.
(2) Represents stock held in trust under the Deferred
Compensation Plan. With the cash compensation deferred, the
trust invests in Common Stock quarterly. Distributions under
the Deferred Compensation Plan are made in Common Stock.
Until the Common Stock is distributed, executive officers and
directors are not the beneficial owners of such shares. The
number of shares set forth includes shares purchased through
the last quarterly purchase on January 15, 1997.
(3) Includes 800 shares subject to options exercisable within 60
days.
(4) Includes 16,267 shares subject to options exercisable within
60 days.
(5) Includes 1,200 shares subject to options exercisable within
60 days.
(6) Includes 1,000 shares held by a corporation with which Mr.
Sundt is associated.
(7) Includes 7,910 shares subject to options exercisable within 60
days.
(8) Includes 8,320 shares subject to options exercisable within 60
days.
(9) Includes 1,887 shares subject to options exercisable within 60
days.
(10)Includes 4,206 shares subject to options exercisable
within 60 days.
(11)Includes 74,344 shares subject to options exercisable
within 60 days.
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
Nine Directors are to be elected at the Meeting, to serve for
the ensuing year and until their successors shall have been
elected and shall have qualified. The votes applicable to the
shares represented by executed proxies in the form enclosed,
unless withheld, will be cast for the nine nominees listed below,
or, in the discretion of the persons acting as proxies, will be
voted cumulatively for one or more of such nominees, all of whom
are present members of the Board of Directors. All of the
nominees have consented to serve if elected. If any nominee
becomes unavailable for any reason or a vacancy should occur
before the election (which events are not anticipated), it is the
intention of the persons designated as proxies to vote, in their
discretion, for other nominees.
DIRECTOR
NAME AND PRINCIPAL OCCUPATION AGE SINCE
----------------------------- --- ---------
(1)(2) ELIZABETH T. ALEXANDER, President and 57 1995
Treasurer of L & C Gourmet Products, Inc.,
an agricultural product marketing company,
and Director of International Marketing of
Santa Cruz Valley Pecan Co. since 1982.
CHARLES E. BAYLESS, Chairman of the Board 54 1990
of Directors since January 1992; President
and Chief Executive Officer of the Company
since July 1990; Senior Vice President and
Chief Financial Officer of the Company
from December 1989 until July 1990;
Director of Trigen Energy Corporation.
(1)(2) JOSE L. CANCHOLA, President and Chief 65 1992
(3) Executive Officer of Canchola Group, Inc.,
holder of several restaurant franchises in
Tucson and Nogales, Arizona, since 1972;
Member of McDonald's Corporation Operators
Advisory Board from 1981 to 1993;
National Franchise Director, U.S.
Department of Commerce, Office of Minority
Business Enterprise from 1974 to 1976.
(2) JOHN L. CARTER, Executive Vice President 62 1996
and Chief Financial Officer of Burr-Brown
Corporation from 1993 to 1996; President
and Chief Executive Officer of Qualtronics
Manufacturing, Inc. from 1987 to 1996.
(1)(2) JOHN A. JETER, independent business 66 1994
(3) consultant since 1991; partner in the
accounting firm of Arthur Andersen & Co.
from 1967 to 1991.
(1)(2) R. B. O'RIELLY, President of O'Rielly 67 1989
(3) Motor Company, an automobile dealership
management company, since 1955; Director
of Banc One Arizona Corporation and Bank
One Arizona, N.A.
(2) MARTHA R. SEGER, Distinguished Visiting 65 1992
Professor of Finance, American Graduate
School of International Management from
1993 to present; John M. Olin
Distinguished Fellow at the Karl Eller
Center for the Study of Private Market
Economy at the University of Arizona from
1991 to 1993; Financial Economist and
Governor of the Federal Reserve System
from 1984 until 1991; Director of Amoco
Corporation, Xerox Corporation, Kroger
Company, Fluor Corporation, Amerisure,
Johnson Controls Inc., and Providian
Corporation.
(2)(3) DONALD G. SHROPSHIRE, retired President 69 1992
and Chief Executive Officer of Tucson
Medical Center, TMC Health Enterprises
Inc. and TMC Foundation, from 1982 to
1992, having served as Administrator of
Tucson Medical Center from 1967 to 1982;
Chairman of the Board of Healthways, Inc.
and Partners in Health Maintenance, Inc.
from 1985 to September 1992.
(1)(3) H. WILSON SUNDT, Chairman of the Board and 64 1976
Chief Executive Officer of Sundt Corp, a
general construction contracting firm,
since 1979, having served as President
from 1979 until July 1983.
____________________
(1) Member of Nominating Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
As noted above, Dr. Seger is a member of the Board of
Directors of Providian Corporation. Providian is a debt
participant in the Company's leases of Springerville Unit 1 and
also holds certain of the Company's first mortgage bonds. Dr.
Seger has advised the Company that she does not intend to
participate in any deliberations or actions of either the Board of
Directors of the Company or of the Board of Directors of
Providian, with respect to any matter involving the other company.
COMMITTEE FUNCTIONS
The functions of the Audit Committee are to select and
recommend to the Board of Directors a firm of independent
certified public accountants to audit annually the financial
statements of the Company; to review and discuss the scope of such
audit; to receive and review the audit reports and
recommendations; to transmit recommendations, if any, of the Audit
Committee to the Board of Directors; to review with the internal
audit department of the Company, from time to time, the accounting
and internal control procedures of the Company and make
recommendations to the Board of Directors for any changes deemed
necessary in such procedures; and to perform such other functions
as the Board of Directors from time to time shall delegate to that
Committee. The Audit Committee held 4 meetings in 1996.
The functions of the Compensation Committee are to review the
performance of the Company's officers and directors and to make
recommendations to the Board of Directors with respect to
officers' and directors' compensation. The Compensation Committee
held 4 meetings in 1996.
The functions of the Nominating Committee are to interview
potential directors of the Company and to nominate and recommend
to the shareholders and directors, as the case may be, qualified
persons to serve as directors. The Nominating Committee held 1
meeting in 1996. At such times as director vacancies occur, the
Nominating Committee will consider written recommendations for the
Board of Directors which have been received from shareholders.
Recommendations must include detailed biographical material
indicating the candidate's qualifications and also a written
statement from the candidate of willingness and availability to
serve. Recommendations should be directed to the Corporate
Secretary, Tucson Electric Power Company, P.O. Box 711, Tucson,
Arizona 85702.
The Board of Directors held a total of 11 regular meetings in
1996.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following tables set forth certain information concerning
compensation of, stock option grants to, and stock options/SARs
held by the Company's Chief Executive Officer and the four most
highly compensated executive officers at December 31, 1996.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------
Securities
Annual Underlying All Other
Name and Compensation Options/SARs Compensation
Principal Position Year Salary ($) Bonus($) (#)(2) ($)(1)
- - ------------------ ---- ------------------ ------------ ------------
Charles E. Bayless 1996 423,881 242,250 36,196 47,863
President and 1995 394,905 157,964 17,430 6,750
Chief Executive 1994 364,152 186,170 15,687 6,750
Officer
James S. Pignatelli 1996 256,462 113,288 13,109 8,561
Senior Vice 1995 234,808 80,507 8,883 6,750
President and 1994 65,154 94,881 7,424 2,285
Chief Operating
Officer
Ira R. Adler 1996 235,400 100,633 9,652 61,073
Senior Vice 1995 234,808 80,507 8,883 6,750
President and 1994 212,572 94,881 7,632 6,750
Chief Financial
Officer
Romano Salvatori 1996 199,231 71,250 9,652 24,058
Vice President - 1995 180,001 51,300 5,661 6,750
Independent Power 1994 68,308 -- -- --
George W. Miraben 1996 174,376 76,950 9,652 19,096
Senior Vice 1995 160,097 45,743 5,047 6,750
President - Policy 1994 129,426 53,910 3,786 6,008
and Human
Resources
__________________
(1)All Other Compensation is comprised of the Company's
contributions to the Company's Triple Investment Plan for
Salaried Employees (401(k) Plan)($6,750 for each named
executive officer in 1996), with the balance in 1996
attributable to a one-time payment for vacation accrued and
unused for all years of service with the Company.
(2)Restated 1995 and 1994 amounts to reflect the May 1996 one-for-
five reverse split of the Company's Common Stock.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of Percent Potential Realizable
Securities of Total Value at Assumed
Underlying Options/SARs Annual Rates of Stock
Options/SARs Granted to Exercise Price Appreciation
Granted Employees in Price Expiration for Option Term
Name (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ---------- ------------ -------- ---------- ----- -----
Charles E. 36,196 17.9% 13.00 7/12/06 295,925 749,932
Bayless
James S. 13,109 6.5% 13.00 7/12/06 107,174 271,601
Pignatelli
Ira R. 9,652 4.8% 13.00 7/12/06 78,911 199,976
Adler
Romano 9,652 4.8% 13.00 7/12/06 78,911 199,976
Salvatori
George W. 9,652 4.8% 13.00 7/12/06 78,911 199,976
Miraben
During 1996, the Compensation Committee granted stock options
intended to qualify as incentive stock options under the Internal
Revenue Code of 1986, as amended (the "Code"), to the executive
officers of the Company with exercise prices equal to the market
price of the Common Stock at the date of grant. The options vest
ratably over a three year period. The aggregate number of shares
attributable to the 1996 grants is 201,884.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Fiscal Year-End (#) Fiscal Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ----------- ----------- ------------------- --------------------
Charles E. -- -- 16,267/53,046 6,100/137,530
Bayless
James S. -- -- 7,910/21,506 1,110/49,741
Pignatelli
Ira R. -- -- 8,320/18,118 3,018/38,164
Adler
Romano -- -- 1,887/13,426 708/36,404
Salvatori
George W. -- -- 4,206/14,279 1,578/36,724
Miraben
________________
PENSION PLAN TABLE
Remuneration ($) Years of Service
- - --------------- ----------------------------------------------
15 20 25 30 35
125,000 32,910 43,880 54,850 54,850 54,850
150,000 39,492 52,656 65,820 65,820 65,820
175,000 46,074 61,432 76,790 76,790 76,790
200,000 52,656 70,208 87,760 87,760 87,760
225,000 59,238 78,984 98,730 98,730 98,730
250,000 65,820 87,760 109,700 109,700 109,700
300,000 78,984 105,312 131,640 131,640 131,640
400,000 105,312 140,416 175,520 175,520 175,520
450,000 118,476 157,968 197,460 197,460 197,460
500,000 131,640 175,520 219,400 219,400 219,400
550,000 144,804 193,072 241,340 241,340 241,340
Remuneration is comprised of the officers' average annual
compensation during the five consecutive years of employment with
the highest compensation within the last 15 years preceding
retirement. Compensation is comprised of salary only, shown on
the Summary Compensation Table.
The estimated credited years of service for the Company's most
highly compensated executive officers follows:
Credited
Years of
Name Service
Charles E. Bayless 7
James S. Pignatelli 2
Ira R. Adler 11
Romano Salvatori 2
George W. Miraben 7
The amount of the pension benefit is equal to a base of 40% of
the compensation for 25 years of service, plus 9.7% of such
calculated amount. The estimated benefits shown in the Pension
Plan Table are straight life annuities not subject to a reduction
for any Social Security benefits. The table also reflects amounts
payable under the Excess Benefits Plan which will pay from the
general funds of the Company the difference, if any, between the
benefits shown in the table above and any benefit payments which
may be limited by federal income tax regulations.
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
Cash Compensation Security Grants
------------------------------------------
Number of
Annual Securities
Retainer Meeting Number Underlying
Name and Principal Fee Fees of Options
Position (1) ($)(2) ($)(2) Shares(#) SARs (#)
- - ------------------ ------ ------ --------- --------
Elizabeth T. Alexander 15,000 16,000 --- 1,200
Jose L. Canchola 15,000 20,000 --- 1,200
John L. Carter 3,750 4,000 --- 1,200
John A. Jeter 15,000 20,000 --- 1,200
R.B. O'Rielly 15,000 20,000 --- 1,200
Martha R. Seger 15,000 15,000 --- 1,200
Donald G. Shropshire 15,000 16,000 --- 1,200
H. Wilson Sundt 15,000 16,000 --- 1,200
(1) Directors who are also executives of the Company are not
listed in the above table. They do not receive compensation
as directors. Refer to the Summary Compensation Table for
information concerning their compensation.
(2) Amounts shown include cash compensation earned and
received as well as amounts earned but deferred at the
election of directors.
Each Director who is not a full-time salaried employee of the
Company received an annual cash retainer of $15,000, $1,000 for
each Board meeting and $1,000 for each committee meeting attended
in 1996. Mr. J. Luther Davis, as Director Emeritus, received
monthly compensation in the amount of $2,000. Mr. Davis retired
as Director Emeritus on May 14, 1996. In addition, under the 1994
Outside Director Stock Option Plan (the "Plan"), each Director who
is not a full-time salaried employee of the Company received a
grant of 1,200 Common Stock Options on January 3, 1996 with an
exercise price of $15.9375/share, the fair market value of the
underlying stock on the date of grant. Such options vest in 1/3
increments on the 3rd day of January 1997, 1998 and 1999. Mr.
Carter joined the Board in October 1996, and, pursuant to the
Plan, received a grant of 1,200 Common Stock Options on October 4,
1996, at an exercise price of $17.00/share. Mr. Carter's options
vest in 1/3 increments on the 4th day of October 1997, 1998 and
1999. Directors who are salaried employees of the Company do not
receive compensation in their capacity as members of the Board of
Directors.
EXECUTIVE EMPLOYMENT CONTRACTS
The Company has employment agreements with 12 officers
(including the five most highly compensated officers) which become
effective in the event of a change in control of the Company
(which includes the acquisition of beneficial ownership of 30% of
the Common Stock, certain changes in the Board of Directors, or
approval by the shareholders of certain mergers or consolidations
or upon certain transfers of the Company's assets). The agreements
provide that each officer shall be employed by the Company or one
of its subsidiaries or affiliates in a position comparable to his
current position, with compensation and benefits which, as set
forth in each agreement, are at least equal to such officer's then
current compensation and benefits, for an employment period of
five years after a change in control occurs (subject to earlier
termination due to such officer's acceptance of a position with
another company, or termination by the Company for cause).
Following a change in control of the Company, in the event
that the officer's employment is terminated by the Company (with
the exception of termination due to the officer's acceptance of
another position or for cause) or if the officer terminates his
employment because of a reduction in position, responsibility,
salary or for certain other stated reasons, the officer is
entitled to severance benefits in the form of (i) a lump sum
payment equal to the present value of his salary and short-term
incentive compensation for the next two years under the agreement,
(ii) the present value of the additional amount he would have
received under the Retirement Plan if he had continued to be
employed for the five-year period after a change in control
occurs, (iii) the present value of contributions that would have
been made by the Company under the 401(k) Plan if he had continued
to be employed for such five-year period, and (iv) the spread on
any Company stock options which would have been granted to the
officer if he had continued to be employed for two years following
such termination. Such officer is also entitled to continue to
participate for such five-year period in the Company's health
plans, death benefit plans and disability benefit plans.
Notwithstanding the above, any payment which is determined to be a
parachute payment under the Code shall be limited to the maximum
amount permitted to be paid without the imposition of an excess
parachute payment excise tax, minus one dollar (and if it shall be
determined that the Company has made a payment in excess of this
limitation, such excess would become a loan and the officer would
be required to repay such amount). Assuming a change in control
occurred on December 31, 1996 which resulted in the immediate
termination of all five of the Company's most highly compensated
officers, the total payments made by the Company pursuant to the
said contracts would not be expected to exceed $4,000,000.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the
"Compensation Committee") is responsible for developing and
administering the Company's executive compensation policies and
programs and making recommendations to the Board with respect
thereto. In 1996, the Compensation Committee was comprised of
five of the Company's independent outside Directors. The
Compensation Committee determines the compensation of the
Company's executive officers, including Mr. Bayless and the other
senior executives named in the Summary Compensation Table (the
"Named Executives"), and sets policies for and reviews the
compensation awarded to other key members of management. The
Company applies a consistent philosophy to compensation for all
executive employees, including the Named Executives.
COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS
The Company's executive compensation policies and programs
generally are intended to (i) relate the compensation of employees
to the success of the Company and the creation of shareholder
value; and (ii) attract, motivate and retain highly qualified
executives. In 1996, the Company continued its compensation
program developed in 1994 with the assistance of an external
consultant. The program is intended to provide competitive pay
levels which are linked to the achievement of the Company's
strategic objectives.
The Company's 1996 compensation program consisted of three
components: (i) base salary, (ii) short-term incentive
compensation and (iii) long-term incentive compensation.
BASE SALARIES
The base salary component of compensation is intended to be
competitive with that paid by comparable companies in the electric
industry. As noted previously, in developing the compensation
program, the Compensation Committee retained an external
consultant to conduct a competitive analysis of pay for the
Company's officer group. In conducting its analysis for 1996, the
consultant used a comparative survey of 15 electric utilities,
chosen based on their business and size, with revenues from $.5
billion to $2.4 billion. The Compensation Committee believes the
companies participating in the survey are a more appropriate
comparison for the Company than the Edison Electric 100 companies
used in the Performance Graph set forth following this Report,
because the type of business and annual revenues of the companies
included in the survey are more closely related to those of the
Company. The companies included in the survey were Arizona Public
Service Company; Boston Edison Company; CIPSCO Incorporated;
Destec Energy, Inc.; Iowa-Illinois Gas and Electric Company;
IPALCO Enterprises, Inc.; KU Energy Corporation; Louisville Gas
and Electric Company; Minnesota Power; NIPSCO Industries, Inc.;
Northern States Power Company; Puget Sound Power & Light Company;
SCANA Corporation; and Wisconsin Power and Light Company. The
external data from that survey was used to develop a market
compensation for each executive position. "Market compensation"
refers to the average total salary for utility executives as shown
in the survey. Base salaries for the Company's executive officers
(including Mr. Bayless and the other Named Executives) were set at
market compensation levels in January 1996, in recognition of the
increasingly competitive environment in the electric industry and
the need to continue to attract and retain highly qualified
executives, as well as the fact that a substantial portion of each
executive's total compensation package is "at-risk," based on the
achievement of certain corporate goals. See Short-Term Incentive
Compensation and Long-Term Incentive Compensation below. Mr.
Bayless received a 7.34% increase in base salary. The other Named
Executives received increases ranging from 0% to 11%.
SHORT-TERM INCENTIVE COMPENSATION
The Board adopted the Short-Term Incentive Plan to provide
compensation for meeting or exceeding specified corporate
objectives designed to contribute to the attainment of the
Company's long-term strategic plan. Under the Short-Term Incentive
Plan, target award levels are set as a percentage of each
participant's base salary. In 1996, the percentage for Mr. Bayless
was 40% and for the other executive officers ranged from 25-30%.
Actual awards can vary from 0 to 150% of the target award level,
depending upon the Company's performance in relation to pre-
established goals. For 1996, pre-established goals for officers
(including Mr. Bayless and the other Named Executives) consisted
of three corporate objectives and six operational objectives.
Seventy percent of target award levels were based on performance
in relation to the corporate objectives and 30 percent of target
award levels were based on performance in relation to operational
objectives. The corporate objectives consisted of: 1) increasing
the Company's intrinsic value, measured by cash flow return on
investment; 2) improving profitability and cost management,
measured by Operations & Maintenance expenses per kilowatt hour
sold; and 3) improving customer and community satisfaction,
measured by a customer satisfaction survey. The operational
objectives consisted of: 1) utilizing human resources effectively,
measured by a formula based on average number of retail customers
and total full-time equivalent employees; 2) achieving employee
assimilation of corporate values and culture, measured by an
employee satisfaction survey; 3) maintaining a safe working
environment, measured by a formula based on number of OSHA
recordable injuries and illnesses; 4) improving the success of
affirmative action/EEO hiring opportunities, measured by a formula
based on number of successful candidates meeting affirmative
action qualifications; and enhancing service reliability to meet
customer needs and expectations, measured by: 5) a weighted
average forced outage rate; and 6) average outage duration in
minutes.
In calculating the percentage of target awards payable, the
Compensation Committee established target performance levels for
each of the corporate and operational objectives. Minimum
performance levels (50%) and exceptional performance levels (150%)
were established as well. No credit was given for performance
below minimum levels. In order for any incentive compensation to
be paid, the Company was required to meet at least the minimum
performance levels on each of the corporate objectives. The
Company exceeded the minimum performance levels for each of the
corporate objectives in 1996. In addition, the Company exceeded
the aggregate target levels for the corporate objectives and for
the operational objectives. Based upon such performance,
incentive compensation was awarded to each of the executive
officers (including Mr. Bayless) in the amount of 142.5% of his or
her target award level. Incentive compensation earned in 1996 by
Mr. Bayless and the other Named Executives is set forth in the
preceding Summary Compensation Table.
LONG-TERM INCENTIVE COMPENSATION
At the recommendation of the Compensation Committee, the Board
of Directors unanimously adopted, and, at the 1994 Annual Meeting
of Shareholders, the shareholders approved the Tucson Electric
Power Company 1994 Omnibus Stock and Incentive Plan (the "Omnibus
Plan"). The Omnibus Plan was designed to retain and attract
quality employees over the long term in a manner which directly
aligns their interests with shareholder interests. On July 12,
1996, the Compensation Committee issued Incentive Stock Options
("ISOs") to all executive officers of the Company including Mr.
Bayless and the other Named Executives. In calculating the level
of awards to Mr. Bayless and the other executive officers under
the Omnibus Plan, the Compensation Committee considered the
aforementioned competitive analyses of executive compensation for
comparable positions at other companies. Based on such analyses,
as well as Mr. Bayless' continuing contribution to the Company's
financial recovery and achievement of its long-term strategic
goals, the Compensation Committee awarded Mr. Bayless incentive
stock options with a total value equal to 53% of his base salary
(based on 5% projected appreciation over the term of the options).
The total value of stock options issued to other Named Executives
ranged from 30% to 33% of base salary. The number of shares
covered by the stock option grant to Mr. Bayless was 36,196. The
Compensation Committee did not consider the number of options
previously granted or outstanding.
The Compensation Committee does not presently have a policy
regarding qualifying compensation paid to executive officers for
deductibility under Section 162(m) of the Code.
Respectfully submitted,
THE COMPENSATION COMMITTEE
H. Wilson Sundt
Jose L. Canchola
John A. Jeter
R. B. O'Rielly
Donald G. Shropshire
TUCSON ELECTRIC POWER COMPANY
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
TUCSON ELECTRIC POWER COMPANY, S&P 500 INDEX, AND EEI INDEX
OF 100 INVESTOR-OWNED UTILITIES
The graph showing on the hard copy represents the comparison of five year
cumulative total return between Tucson Electric Power Company, the S&P
500 Index, and EEI index of 100 investor-owned utilities. The graph's
X-axis shows the years 1991 to 1996, and the Y-axis shows dollar values from
0 to 250. The data points are connected by lines with the following markers:
TEP - triangles; S&P 500 Index - diamonds; EEI index of 100 investor-
owned utilities - squares. The datapoints are as follows:
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Tucson Electric
Power Company $100 $ 56 $ 81 $ 67 $ 72 $ 73
S&P 500 Index $100 $108 $118 $120 $165 $203
EEI Index of 100
Investor-owned
Utilities $100 $108 $120 $106 $139 $140
Assumes $100 invested on December 31, 1990 in Tucson Electric
Power Company Common Stock, S&P Index and EEI Index. It is
assumed that all dividends are reinvested in stock at the
frequency paid and the returns of each component peer group
issuer are weighted according to the issuer's stock market
capitalization at the beginning of the period.
TRANSACTION OF OTHER BUSINESS
So far as the Company is aware, no matters other than those
described in this Proxy Statement will be acted upon at the
Meeting. If, however, any other matters shall properly come
before the Meeting, it is the intention of the persons named in
the enclosed proxy to vote the proxy in accordance with their
judgment on such matters.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1998
Annual Meeting of the Company must be received by the Company no
later than December 2, 1997 in order to be eligible for inclusion
in the Company's Proxy Statement and the form of proxy relating to
that meeting.
By order of the Board of
Directors
DENNIS R. NELSON, Secretary
Dated: March 31, 1997
SHAREHOLDERS ARE REQUESTED TO FILL OUT, DATE, SIGN, AND PROMPTLY
RETURN THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ENVELOPE.
APPENDIX
(FORM OF PROXY CARD FOR REGISTERED SHAREHOLDERS)
Shareholder Name
Address
Address
You are cordially invited to join us at the Annual Meeting
of Shareholders of Tucson Electric Power Company. This
year's meeting will be held at the Marriott University Park,
880 E. Second Street, Tucson, Arizona on Friday, May 9,1997.
At the meeting you will be asked to elect a Board of
Directors. It is important that your shares be voted whether
or not you plan to be present at the meeting. You should specify
your choices by marking the appropriate boxes on the proxy
form below, and date, sign and return your proxy form in the
enclosed, postpaid return envelope as promptly as possible.
If you date, sign and return your proxy form without
specifying your choices, your shares will be voted in
accordance with the recommendations of your directors.
As in the past years, we will discuss the business of TEP
during the meeting. I welcome your comments and
suggestions, and we will provide time during the meeting for
questions from shareholders.
I am looking forward to having you with us on the 9th of
May. In the meantime, if you have questions regarding the
Meeting, please phone our Investor Services Department at
520-884-3661.
Sincerely,
(FORM OF PROXY CARD -- FRONT)
TEAR HERE
TUCSON ELECTRIC POWER COMPANY
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1.
PROXY
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE
VOTED "FOR" ITEM 1.
The Board of Directors Recommends a vote FOR the following
proposal:
Election of Directors: ELIZABETH T. ALEXANDER,
CHARLES E. BAYLESS, JOSE L. CANCHOLA, JOHN L. CARTER,
JOHN A. JETER, R. B. O'RIELLY, MARTHA R. SEGER, DONALD
G SHROPSHIRE, H.WILSON SUNDT
FOR WITHHOLD AUTHORITY
To withhold authority to all nominees listed [ ] to vote for all [ ]
vote for any individual above (except as marked nominees listed
nominee, write that to the contrary to the above
nominee's name in the left)
space provided below.
_____________________________
PLEASE MARK ALL
CHOICES LIKE THIS [x]
SIGNATURE______________________________________________DATE______
SIGNATURE______________________________________________DATE______
(FORM OF PROXY CARD -- BACK)
TUCSON ELECTRIC POWER COMPANY
This Proxy is Solicited on Behalf of the Board of Directors of
the Company for the Annual Meeting to be held
May 9, 1997.
PROXY
The shareholder hereby appoints Charles E. Bayless and Ira R.
Adler, and each of them, with the power of substitution,
to represent and to vote on behalf of the shareholder all shares
of Common Stock which the shareholder is entitled to
vote at the Annual Meeting of Shareholders scheduled to be held
at the Marriott University Park, 880 E. Second Street,
Tucson, Arizona, on May 9, 1997, and at any adjournments thereof,
with all powers the shareholder would possess if
personally present and particularly with respect to Item 1 and in
their discretion, upon such other business as may
properly come before the meeting. This proxy, when properly
executed, will be voted in the manner directed herein by the
shareholder. If no direction is made, this proxy will be voted
"FOR" Item 1.
continued, and to be voted on the other side
(FORM OF PROXY CARD FOR SHAREHOLDERS IN STREET NAME)
(FORM OF PROXY CARD -- FRONT)
TUCSON ELECTRIC POWER COMPANY
NOTE: THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1.
Participant Number:__________ 1. Election of the FOR WITHHOLD
Participant Name:____________ following nominees all nominees AUTHORITY
Depository:__________________ as Directors: (except as as to all
Shares:______________________ Alexander, Bayless, indicated nominees
Canchola, Carter, below)
Jeter, O'Reilly,
Seger, Shropshire, [ ] [ ]
Sundt, and Winter
Withhold Authority to vote for the following nominees (write
names):
____________________________________________________
(continued, and to be signed, on the other side)
(FORM OF PROXY CARD -- BACK)
TUCSON ELECTRIC POWER COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING TO BE HELD ON MAY 9, 1997
PROXY
The undersigned hereby appoints Charles E. Bayless and Ira R.
Adler, and each of them, with the power of substitution, to
represent and to vote on behalf of the undersigned all shares of
Common Stock which the shareholder is entitled to vote at the
Annual Meeting of Shareholders scheduled to be held at the
Marriott University Park, 880 E. Second Street, Tucson, Arizona,
on May 9, 1997, and at any and all adjournments thereof, with all
powers undersigned would possess if personally present and
particularly with respect to Item 1 and, in their discretion,
upon such other business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction
is made, this proxy will be voted "FOR" Item 1.
SHAREHOLDER
SIGN HERE X
------------------------- ---------
SIGNED (DATE)
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When shares are held
by joint tenants in common or as community property, both should
sign. When signing as attorney, executor, administrator,
trustee, guardian, or custodian, please give full title as such.
If a corporation, please sign corporate name by President or
other authorized office. If a partnership, please sign in
partnership name by authorized person. Receipt is hereby
acknowledged of Notice of Annual Meeting, Proxy Statement and the
1996 Annual Report.
